UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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 0-17173
---------
McNEIL REAL ESTATE FUND XXVII, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0214387
- --------------------------------------------------------------------------------
(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
-----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
- ---------------------------------------------------------- -------------------
Securities registered pursuant to Section 12(g) of the Act: Limited partnership
units
- ---------------------------------------------------------- -------------------
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
4,529,267 of the registrant's 5,199,901 limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.
Documents Incorporated by Reference: See Item 14, Page 45
TOTAL OF 47 PAGES
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
ORGANIZATION
- ------------
McNeil Real Estate Fund XXVII, L.P. (the "Partnership"), formerly known as
Southmark Prime Plus, L.P., was organized by affiliates of Southmark Corporation
("Southmark") on January 16, 1987 as a limited partnership under the provisions
of the Delaware Revised Uniform Limited Partnership Act to make short-term loans
to affiliates of the general partner. 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 General Partner was elected at
a meeting of limited partners on March 30, 1992, at which time an amended and
restated partnership agreement (the "Amended Partnership Agreement") was
adopted. Prior to March 30, 1992, the general partner of the Partnership was
Prime Plus Corp. (the "Original General Partner"), a wholly-owned subsidiary of
McNeil. The Original General Partner was purchased from Southmark by McNeil on
March 13, 1991, as discussed further below. The principal place of business for
the Partnership and the General Partner is 13760 Noel Road, Suite 600, Dallas,
Texas 75240.
The sole limited partner of the Partnership was initially Southmark Depositary
Corp. (the "Depositary"), a wholly-owned subsidiary of Southmark. On August 14,
1987, the Partnership registered with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933 (File No. 33-11824) and commenced a
public offering for sale of $100,000,000 of Depositary units. The sale of
Depositary units closed on August 14, 1988, with 5,548,888 units sold at $10
each, or gross proceeds of $55,488,880 to the Partnership. The Partnership
subsequently filed a Form 8-A Registration Statement with the SEC and registered
its Depositary units under the Securities Exchange Act of 1934 (File No.
0-17173). The Depositary assigned the principal attributes of its aggregate
limited partner interest in the Partnership to the Depositary unit holders. As
further discussed, the Depositary units were subsequently converted to limited
partnership units ("Units"). The Units represent equity interests in the
Partnership and entitle the limited partners to participate in certain
allocations and distributions of the Partnership. As of December 31, 1997,
348,987 of the Units have been repurchased pursuant to the terms of the Amended
Partnership Agreement.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
- --------------------------------------------------
On July 14, 1989, Southmark filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, the General
Partner nor the Original General Partner were included in the filing.
Southmark's reorganization plan became effective August 10, 1990. Under the
plan, most of Southmark's assets, which included Southmark's interests in the
Original General Partner, were sold or liquidated for the benefit of creditors.
In accordance with Southmark's reorganization plan, Southmark, McNeil and
various of their affiliates entered into an asset purchase agreement on October
12, 1990, providing for, among other things, the transfer of control to McNeil
or his affiliates of 34 limited partnerships (including the Partnership) in the
Southmark portfolio.
<PAGE>
On February 14, 1991, pursuant to the asset purchase agreement as amended on
that date, McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of
McNeil, acquired the assets relating to the property management and partnership
administrative business of Southmark and its affiliates. On March 13, 1991,
McREMI commenced management of the Partnership's properties pursuant to an
assignment of the existing property management agreements from the Southmark
affiliates.
On March 30, 1992, the unitholders approved a restructuring proposal that
provided for (i) the replacement of the Original General Partner with the
General Partner; (ii) the adoption of the Amended Partnership Agreement which
(a) substantially alters the provisions of the original Partnership Agreement
relating to, among other things, compensation, reimbursements of expenses, and
voting rights and (b) makes Depositary unit holders direct limited partners of
the Partnership; (iii) the approval of an amended property management agreement
with McREMI, the Partnership's property manager; and (iv) the approval to change
the Partnership's name to McNeil Real Estate Fund XXVII, L.P. Under the Amended
Partnership Agreement, the Partnership began accruing an asset management fee,
retroactive to March 13, 1991, which is payable to the General Partner. For a
discussion of the methodology for calculating the asset management fee, see Item
13 - Certain Relationships and Related Transactions. The proposals approved at
the March 30, 1992 meeting were implemented as of that date.
Settlement of Claims:
The Partnership filed claims with the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division (the "Bankruptcy Court") against
Southmark for damages relating to improper overcharges, breach of contract and
breach of fiduciary duty. The Partnership settled these claims in 1991, which
totaled approximately $17,024,326, for the full amount claimed and such
settlement was approved by the Bankruptcy Court.
Pursuant to the settlement agreement, the Partnership released Southmark and its
affiliates and the Original General Partner from any further liability in
connection with the claims made with the Bankruptcy Court. In return, an
affiliate of McNeil agreed to waive payment on a dollar for dollar basis in an
amount equal to the settled claims against Partnership advances owed at that
time. In addition, the Partnership received Southmark bankruptcy plan assets in
respect to its claims which were not offset against the Partnership advances.
Because the Partnership's claims against Southmark were settled for $17,024,326,
the Partnership advances of $223,800 owed at that time were reduced in their
entirety and the claims had a remaining balance of $16,800,526. Although the
Partnership settled the claims against Southmark for the full amount claimed,
the settlement agreement provided that the Partnership receive a distribution of
Southmark bankruptcy plan assets based on a claim amount of approximately
$9,157,000.
An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April
14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in
May 1995, the Partnership received in full satisfaction of its claims, $984,649
in cash, and common and preferred stock in the reorganized Southmark which was
subsequently sold for $317,675. These amounts represent the Partnership's
pro-rata share of Southmark assets available for Class 8 Claimants.
<PAGE>
CURRENT OPERATIONS
- ------------------
General:
Under the original partnership agreement, the Partnership's primary business was
to make short-term nonrecourse mortgage or deed of trust loans to affiliates of
the Original General Partner and to partnerships or real estate investment
trusts sponsored by affiliates of the Original General Partner formed for the
purpose of acquiring revenue-producing real properties. Due to borrower defaults
and foreclosures on the properties securing all but one of these mortgages, the
Partnership's business also includes ownership and operation of real estate.
Since the beginning of operations and prior to the restructuring, the
Partnership funded twelve mortgage loans, seven in 1987 and five in 1988, which
completed the Partnership's investment of the proceeds from the sale of Units.
The borrowers on the mortgage loan investments held by the Partnership were all
affiliates of Southmark. During the early part of the terms of the loans, to the
extent that property operations were insufficient to pay required interest,
Southmark supported the borrowers with cash and the Partnership's loans were
kept current. On July 14, 1989, Southmark filed for bankruptcy protection, and
such support ceased and all loans went into default.
In 1994, the remaining mortgage loan investment, which was secured by a
mini-storage warehouse in Stone Mountain, Georgia that was sold to an
unaffiliated borrower, was modified. Principal and interest payments under the
modified terms were received by the Partnership. The loan was repaid in full in
1996. See Item 8 - Note 5 "Mortgage Loan Investment."
In 1992, the Partnership received the proceeds from a $7,000,000 mortgage note
payable secured by five of the Partnership's mini-storage warehouses located in
Florida. A portion of the proceeds from the loan was used to make nonrecourse
mortgage loans to affiliates of the General Partner in accordance with the
Amended Partnership Agreement. The loans were secured by revenue-producing real
estate and were either junior or senior to other indebtedness as more fully
described in Item 8 - Note 6 - "Mortgage Loan Investments - Affiliates." The
mortgage note payable was repaid by the Partnership in 1995. A $5 million line
of credit was obtained during 1995 for the purpose of funding additional loans
to affiliates of the General Partner. See Item 8 - Note 7 - "Revolving Credit
Agreement."
The Partnership is engaged in the ownership, operation and management of
commercial real estate and the servicing of mortgage loan investments secured by
real estate. At December 31, 1997, the Partnership had four mortgage loan
investments to affiliates of the General Partner as described in Item 8 - Note 6
- - "Mortgage Loan Investments - Affiliates" and owned ten revenue-producing
properties as described in Item 2 - Properties.
The Partnership does not directly employ any personnel. The General Partner
conducts the business of the Partnership directly and through its affiliates.
The Partnership reimburses affiliates of the General Partner for such services
rendered in accordance with the Amended Partnership Agreement. See Item 8 - Note
2 "Transactions With Affiliates."
The business of the Partnership to date has involved only one industry segment.
See Item 8 - Financial Statements and Supplementary Data. The Partnership has no
foreign operations. The Partnership's business is not seasonal.
<PAGE>
Business Plan:
Pursuant to the Partnership's previously announced liquidation plans, the
Partnership has recently retained PaineWebber, Incorporated as its exclusive
financial advisor to explore alternatives to maximize the value of the
Partnership. The alternatives being considered by the Partnership include,
without limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The General Partner of the Partnership or
entities or persons affiliated with the General Partner will not be involved as
a purchaser in any of the transactions contemplated above. Any transaction will
be subject to certain conditions including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory firm as to the fairness of the consideration received by the
Partnership pursuant to such transaction. Finally, there can be no assurance
that any transaction will be consummated, or as to the terms thereof.
The Partnership has placed AAA Century Airport Self-Storage and Burbank
Mini-Storage on the market for sale effective August 1, 1997.
Competitive Conditions:
Since the principal business of the Partnership is to own and operate real
estate and to service notes receivable secured by real estate, the Partnership
is subject to all of the risks incidental to ownership of real estate and
interests therein, many of which relate to the illiquidity of this type of
investment. These risks include changes in general or local economic conditions,
changes in supply or demand for competing properties in an area, changes in
interest rates and availability of permanent mortgage funds which may render the
sale or refinancing of a property difficult or unattractive, changes in real
estate and zoning laws, increases in real property tax rates and Federal or
local economic controls. The illiquidity of real estate investments generally
impairs the ability of the Partnership to respond promptly to changed
circumstances. The Partnership competes with numerous established companies,
private investors (including foreign investors), real estate investment trusts,
limited partnerships and other entities (many of which have greater resources
than the Partnership and the borrowers) in connection with the sale, financing
and leasing of properties. The impact of these risks on the Partnership,
including losses from operations and foreclosures of the Partnership's
properties, is described in Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations. See Item 2 - Properties for a
discussion of the competitive conditions at each of the Partnership's
properties.
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 December 31, 1997. 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, collect payments on mortgage loan investments and respond to
changing economic and competitive factors.
<PAGE>
Environmental Matters:
The environmental laws of the Federal government and of certain state and local
governments impose liability on current property owners for the clean-up of
hazardous and toxic substances discharged on the property. This liability may be
imposed without regard to the timing, cause or person responsible for the
release of such substances onto the property. The Partnership could be subject
to such liability in the event that it owns properties having such environmental
problems. The Partnership has no knowledge of any pending claims or proceedings
regarding such environmental problems.
Other Information:
In August 1995, High River Limited Partnership, a Delaware limited partnership
controlled by Carl C. Icahn ("High River") made unsolicited tender offers to
purchase from holders of limited partnership units up to approximately 45% of
the outstanding limited partnership units of certain other partnerships
controlled by the General Partner. High River did not offer to purchase Units of
the Partnership at that time. In September 1996, High River made an unsolicited
tender offer to purchase any and all of the outstanding Units of the Partnership
for a purchase price of $5.62 per unit. In addition High River made unsolicited
tender offers for certain other partnerships controlled by the General Partner.
The Partnership recommended that the limited partners reject the tender offers
made with respect to the Partnership and not tender their Units. The General
Partner believes that as of January 31, 1998, High River has purchased
approximately 1.8% of the outstanding Units pursuant to the tender offers. In
addition, all litigation filed by High River, Mr. Icahn and his affiliates in
connection with the tender offers has been dismissed without prejudice.
On October 17, 1996, the Partnership announced that it had received an
unsolicited offer from an unaffiliated third party to acquire all outstanding
Units of the Partnership at $6.50 per Unit. After meeting with the offeror in
Dallas and considering the $6.50 offer, the Partnership rejected it as being
inadequate.
Management has begun to review 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. The Partnership is in the process of
evaluating the computer systems at the various properties. The Partnership also
intends to communicate with suppliers, financial institutions and others to
coordinate year 2000 issues. 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.
<PAGE>
ITEM 2. PROPERTIES
- ------- ----------
The following table sets forth the real estate investment portfolio of the
Partnership at December 31, 1997. All of the buildings and the land on which
they are located are owned in fee. The two office buildings and Kendall Sunset
Mini-Storage secure a $5 million line of credit as described more fully in Item
8 - Note 7 - "Revolving Credit Agreement." The remaining properties are
unencumbered by mortgage indebtedness. See also Item 8 - Note 4 - "Real Estate
Investments" and Schedule III - Real Estate Investments and Accumulated
Depreciation and Amortization. In the opinion of management, the properties are
adequately covered by insurance.
<TABLE>
<CAPTION>
Net Basis 1997 Date
Property Description of Property Debt (a) Property Taxes Acquired
- -------- ----------- ----------- -------- -------------- ---------
Real Estate Investments:
<S> <C> <C> <C> <C> <C>
AAA Sentry Mini-Storage
N. Lauderdale, FL 798 units $ 471,764 $ - $ 54,741 10/90
Forest Hill Mini-Storage
W. Palm Beach, FL 682 units 1,908,111 - 40,584 8/90
Fountainbleau Mini-Storage
Miami, FL 771 units 1,173,349 - 62,857 11/90
Kendall Sunset Mini-Storage
Miami, FL 940 units 3,444,192 1,298,667 72,988 10/90
Margate Mini-Storage
Margate, FL 640 units 1,176,833 - 49,294 10/90
Military Trail Mini-Storage
W. Palm Beach, FL 685 units 1,881,506 - 42,045 8/90
One Corporate
Center I Office Building
Edina, MN 111,146 sq. ft. 4,337,900 1,025,838 287,740 12/89
One Corporate
Center III Office Building
Edina, MN 111,252 sq. ft. 4,236,921 1,113,143 292,080 12/89
-------------- ------------ -----------
$ 18,630,576 $ 3,437,648 $ 902,329
============== ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Basis 1997 Date
Property Description of Property Debt (a) Property Taxes Acquired
- -------- ----------- ----------- -------- -------------- ---------
Assets Held For Sale:
<S> <C> <C> <C> <C> <C>
AAA Century
Airport Mini-Storage
Inglewood, CA 567 units $ 1,908,947 $ - $ 33,860 9/90
Burbank Mini-Storage
Burbank, CA 982 units 2,640,934 - 41,894 9/90
-------------- ------------ -----------
$ 4,549,881 $ - $ 75,754
============== ============ ===========
</TABLE>
- -----------------------------------------
Total: Office Buildings - 222,398 sq. ft.
Mini-storage and self-storage warehouses - 6,065 units
(a) For purposes of this table, the revolving credit agreement has been
allocated among the properties securing the debt based on their
estimated relative market values.
The following table sets forth the properties' occupancy rate and rent per
square foot for the last five years:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- -------------- ------------- -----------
Real Estate Investments:
<S> <C> <C> <C> <C> <C>
AAA Sentry
Occupancy Rate............ 94% 96% 96% 95% 98%
Rent Per Square Foot...... $8.23 $8.01 $7.70 $7.00 $6.17
Forest Hill
Occupancy Rate............ 100% 98% 97% 99% 100%
Rent Per Square Foot...... $10.72 $10.41 $9.82 $9.22 $8.45
Fountainbleau
Occupancy Rate............ 93% 96% 97% 99% 100%
Rent Per Square Foot...... $9.27 $8.98 $8.38 $8.08 $7.66
Kendall Sunset
Occupancy Rate............ 94% 92% 95% 96% 99%
Rent Per Square Foot...... $12.06 $11.75 $11.72 $11.71 $11.23
Margate
Occupancy Rate............ 88% 94% 90% 100% 98%
Rent Per Square Foot...... $10.42 $9.95 $9.90 $10.06 $9.55
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- -------------- ------------- -----------
Military Trail
<S> <C> <C> <C> <C> <C>
Occupancy Rate............ 88% 88% 91% 90% 91%
Rent Per Square Foot...... $9.82 $10.11 $9.35 $8.46 $7.76
One Corporate Center I
Occupancy Rate............ 98% 100% 93% 95% 99%
Rent Per Square Foot...... $13.07 $11.88 $10.92 $10.34 $11.56
One Corporate Center III
Occupancy Rate............ 94% 95% 97% 96% 78%
Rent Per Square Foot...... $13.72 $12.31 $11.17 $11.03 $7.38
Assets Held For Sale:
AAA Century Airport
Occupancy Rate............ 95% 96% 94% 95% 82%
Rent Per Square Foot...... $10.31 $10.12 $10.19 $8.87 $7.90
Burbank
Occupancy Rate............ 92% 87% 81% 81% 84%
Rent Per Square Foot...... $11.25 $10.80 $10.29 $10.32 $8.74
</TABLE>
Occupancy rate represents all units leased divided by the total number of units
for mini-storage properties and square footage leased divided by total square
footage for other properties as of December 31 of the given year. Rent per
square foot represents all revenue, except interest, derived from the property's
operations divided by the leasable square footage of the property.
Competitive Conditions
Real Estate Investments:
AAA Sentry
- ----------
AAA Sentry Mini-Storage consists of five, two-story self-storage warehouse
buildings and one apartment/leasing office. The rentable space is divided into
798 units, with 85% of these units air conditioned.
The property is located in a predominately commercial area, with a mixture of
single and multi-family residential properties. New competition in the area has
created a surplus in storage units and limited demand. Specials are being
offered by competitors to attract new renters and many long-term customers of
AAA Sentry are now relocating to other new or renovated facilities. AAA Sentry's
occupancy and rental rates are competitive with properties of the same age in
the area. For 1998, management will continue to provide excellent customer
service. Rental rates will be closely monitored and adjusted according to market
conditions with minimal discounts and free rent. The Partnership expects to
maintain occupancy in the mid-90% range in 1998.
<PAGE>
Forest Hill
- -----------
Forest Hill Mini-Storage consists of nine, one-story self-storage warehouse
buildings and one apartment/leasing office. The rentable space is divided into
682 units, with 22 of these units being recreational vehicle parking spaces. 35%
of the units are air conditioned.
The property is located in a predominately residential neighborhood in West Palm
Beach, Florida, consisting of single family homes and small businesses to the
east and multi-family apartment communities to the south and west. A competing
facility opened in December 1996 that allows drive-in accessibility to the
units. Another new facility within one mile of Forest Hill opened in January
1998. Currently, Forest Hill's occupancy has remained strong with rental rates
slightly higher than the competition. However, these two facilities could have a
negative impact on the property. The Partnership expects to maintain occupancy
in the mid 90% range in 1998 by offering rental concessions to tenants and
continuing to emphasize customer service.
Fountainbleau
- -------------
Fountainbleau Mini-Storage consists of three, two-story self-storage warehouse
buildings and one apartment/leasing office. The rentable space is divided into
771 units. 56% of the units are air conditioned.
The property is located in the central western quadrant of the Miami metroplex
and is in close proximity to the Miami International Airport. The property has
poor drive-by exposure with a limited view from the Florida Turnpike. The street
located in front of the property is currently a dead end street but is scheduled
to be opened to traffic by the end of 1998. The immediate neighborhood is
predominately industrial with single family residential and multi-family
communities further to the south and north. The tenant profile currently
consists of local businesses.
The area is being saturated by new mini-storage construction along with
renovation of existing facilities. A competing facility located within three
miles of Fountainbleau is expected to open in March 1998. A major international
moving company that leased more than 90 of Fountainbleau's units in 1995
gradually began moving out during the last quarter of 1996 and vacated all of
their units in 1997. For 1998, Fountainbleau will offer discounts and
concessions to attract and retain tenants. The Partnership expects to maintain
occupancy in the low 90% range in 1998.
Kendall Sunset
- --------------
Kendall Sunset Mini-Storage consists of ten, one-story self-storage warehouse
buildings and one apartment/leasing office. The rentable space is divided into
940 units. 35% of the units are air conditioned.
<PAGE>
The property is located in a residential neighborhood at the southwestern edge
of the Miami metroplex. The area is tropical in nature and is in close proximity
to the Everglades and Key West. The property's rental rates and occupancy are
slightly higher than the competition in the immediate area. However, occupancy
declined in 1996 due to new competitors being added to the market. Rent
concessions and discounts were offered to maintain occupancy and compete within
the market. Occupancy increased slightly in 1997 as the new storage units were
absorbed. Currently, there is little available land in the immediate area on
which to build new storage facilities. The Partnership expects to offer fewer
discounts to tenants in 1998 and to maintain occupancy in the low to mid 90%
range.
Margate
- -------
Margate Mini-Storage consists of four, one-story and one, three-story
self-storage warehouse buildings and one apartment/leasing office. The rentable
space is divided into 640 units, with 11 of the units being recreational vehicle
parking spaces. 52% of the units are air conditioned.
The property is located in a predominately commercial/retail neighborhood with
single family homes and multi-family communities along the secondary streets.
Major repairs on the road fronting the property have resulted in heavy traffic
congestion. A competing facility was built last year adjacent to Margate that
offers truck rentals, boxes and packing supplies. Competition from new
self-storage facilities over the past several years has had an adverse effect on
the property's occupancy, and discounts and concessions have been given to
attract new renters. The property has an excellent reputation in the marketplace
and management expects to maintain occupancy in the low 90% range in 1998.
Military Trail
- --------------
Military Trail Mini-Storage consists of eight, one-story self-storage warehouse
buildings and one apartment/leasing office. The rentable space is divided into
685 units, with 23 of the units being recreational vehicle parking spaces. 35%
of the units are air conditioned.
The property is located in a predominately commercial/retail neighborhood. The
majority of the apartment complexes in the area are to the north with single
family residences to the west. The location is the most positive feature with
direct access to Military Trail, a major thoroughfare. During 1997 and 1996,
occupancy began to drop due to four new facilities being built in the area. An
increased amount of discounts and concessions were given to attract and retain
renters. Another older facility is currently being renovated. For 1998, the
Partnership will continue to offer discounts and concessions and expects to
maintain occupancy in the low 90% range throughout 1998.
One Corporate Center I and One Corporate Center III
- ---------------------------------------------------
One Corporate Center I and III are six-story class "B" office buildings located
in the southwest suburban Minneapolis/St. Paul metropolitan area. The buildings
are two of four identical buildings located in a commercial development
identified as One Corporate Center.
<PAGE>
Rental rates increased in 1996 and 1997 due to renewing leases at current market
rates. Average occupancy rates in the area decreased slightly due to several new
office buildings being built in 1997. Although there are substantial lease
expirations at both properties in 1998, management will attempt to renew the
leases at least six months prior to the expiration of the lease. This will allow
management to market the space to a new tenant if the existing tenant declines
to renew their lease. The properties will continue to perform capital
improvements in 1998 in order to replace aging building systems and to upgrade
common areas to remain competitive in the marketplace. The Partnership expects
to maintain occupancy in the mid 90% range.
Assets Held for Sale:
AAA Century Airport
- -------------------
AAA Century Airport Self-Storage consists of three, two-story self-storage
warehouse buildings and one apartment/leasing office. The rentable space is
divided into 567 units, including 10 recreational vehicle parking spaces. Each
unit is individually alarmed for additional security. The property does not
offer climate-controlled units.
The property is located approximately two miles from the Los Angeles
International Airport in Inglewood, California. Inglewood is a relatively mature
area with growth to the west generated by development around the airport. The
property is located in a low income area with a high unemployment and crime
rate. The competition is inferior in appearance and management. However, one
competitor offers a truck and driver and another competitor offers crates and
pick-up trucks for use by its renters. AAA Century has an advantage in that it
is able to offer individually alarmed units for additional security. AAA
Century's occupancy is currently above the average occupancy in the area of 90%,
and the Partnership expects to maintain occupancy in the mid 90% range in 1998.
Burbank
- -------
Burbank Mini-Storage consists of two, two-story and one, three-story
self-storage warehouse buildings and one apartment/leasing office. The rentable
space is divided into 982 units, with 10 of these units being recreational
vehicle parking spaces. All of the buildings have fire sprinklers, but do not
offer climate-controlled environments.
The property is located in the eastern quadrant of Burbank, California, just
west of Interstate 5 and approximately twenty miles north of downtown Los
Angeles and seven miles south of the Burbank Airport. There are two competing
self-storage properties with superior visibility and highway access. However,
one of these properties will be demolished in 1998 to make room for a new retail
center. Management increased occupancy in 1997 by aggressively marketing the
upstairs units that are seldom rented. Management will continue to offer
discounts for the upstairs units while rents will be increased on the lower
level units which are in high demand. The Partnership expects to maintain
occupancy in the low 90% range in 1998.
<PAGE>
The following schedule shows lease expirations for each of the Partnership's
commercial properties for 1998 through 2007:
<TABLE>
<CAPTION>
Number of Annual % of Gross
Expirations Square Feet Rent Annual Rent
----------- ----------- ------------ -----------
<C> <C> <C> <C> <C>
One Corporate Center I
1998 9 28,561 $ 390,588 27%
1999 6 17,705 220,550 15%
2000 3 5,705 85,680 6%
2001 7 19,849 313,693 22%
2002 7 36,879 421,662 30%
2003-2007 - - - -
One Corporate Center III
1998 11 41,718 $ 531,224 37%
1999 7 26,749 356,102 25%
2000 4 15,021 230,956 16%
2001 3 7,953 124,146 9%
2002 3 8,725 107,539 7%
2003 - - - -
2004 1 3,639 70,481 5%
2005 - - - -
2006 1 920 17,484 1%
2007 - - - -
</TABLE>
No mini-storage tenant leases 10% or more of the available rental space. The
following schedule reflects information on commercial tenants occupying 10% or
more of the leasable square feet for each property:
<TABLE>
<CAPTION>
Nature of
Business Square Footage Lease
Use Leased Annual Rent Expiration
- --------- -------------- ----------- ----------
<S> <C> <C> <C>
One Corporate Center I
General Office 10,761 $ 134,954 1998
Bank 13,666 160,576 1999
General Office 10,750 198,875 2002
General Office 19,626 106,721 2002
One Corporate Center III
General Office 12,988 $ 158,454 1998
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except for the following:
1) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners,
L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund
XXII, L.P., McNeil Real Estate Fund 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. Defendants must move, answer or otherwise respond to the
second consolidated and amended complaint by June 30, 1998.
<PAGE>
2) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et
al. (Case #92-06560-A). This suit was filed on behalf of the Partnership
and other affiliated partnerships (as defined in this Section 1, the
"Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District
Court of Dallas County. The petition sought recovery against the
Partnership's former auditors, Ernst & Young, for negligence and fraud in
failing to detect and/or report overcharges of fees/expenses by Southmark,
the former general partner. The former auditors initially asserted
counterclaims against the Affiliated Partnerships based on alleged
fraudulent misrepresentations made to the auditors by the former management
of the Affiliated Partnerships (Southmark) in the form of client
representation letters executed and delivered to the auditors by Southmark
management. The counterclaims sought recovery of attorneys' fees and costs
incurred in defending this action. The counterclaims were later dismissed
on appeal, as discussed below.
The trial court granted summary judgment against the Affiliated
Partnerships based on the statute of limitations; however, on appeal, the
Dallas Court of Appeals reversed the trial court and remanded for trial the
Affiliated Partnerships' fraud claims against Ernst & Young. The Texas
Supreme Court denied Ernst & Young's application for writ of error on
January 11, 1996. Shortly before trial, the district court judge once again
granted summary judgment against the Affiliated Partnerships on December 2,
1996. The Partnership is continuing to pursue vigorously its claims against
Ernst & Young; however, the final outcome of this litigation cannot be
determined at this time.
3) Helen Pasco v. McNeil Real Estate Fund XXVII, L.P., Southmark Prime Plus
Corp., et al. and Does 1-50 Inclusive. This complaint alleges that several
limited partnerships and funds, including the Partnership, along with
McMachen, Prudential Securities, Inc. and other unidentified defendants,
transmitted false and misleading information to the plaintiff which was
used to entice the plaintiff into investing her money with the defendants.
The complaint also alleges that the defendants misrepresented speculative,
illiquid limited partnerships as safe, revenue-producing investments
suitable for safety-conscious and conservative investors. Although the
Partnership is included as a defendant, the plaintiff's allegations do not
specify in what way the Partnership was involved in improper conduct. The
complaint does not state, other than by broad allegations, that the
Partnership acted in an improper manner with regard to the operation or
management of the limited partnership. An answer was filed on behalf of the
Partnership in February 1994. Although plaintiff's counsel stated plaintiff
was going to amend the complaint, no such amended complaint was ever served
on the Partnership and it presumes that plaintiff either deleted the
Partnership as a defendant or abandoned the action. Accordingly, the
Partnership has taken no further action on this claim and it appears to
have been abandoned.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP
- ------- --------------------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
(A) There is no established public trading market for limited partnership
units, nor is one expected to develop.
B) Title of Class Number of Record Unit Holders
Limited partnership units 2,339 as of January 31, 1998
(C) Distributions paid to the limited partners totaled $3,999,970 in 1997
and $5,999,994 in 1996 from cash from operations. No distributions were
paid to the General Partner in 1997 or 1996. During the last week of
March 1998, the Partnership distributed approximately $2,250,000 to the
limited partners of record as of March 1, 1998. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results
of Operations, and Item 8 - Note 1 - "Organization and Summary of
Significant Accounting Policies - Distributions."
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in Item 8 - Financial
Statements and Supplementary Data.
<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1997 1996 1995 1994 1993
- ------------------ ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental revenue............... $ 8,366,664 $ 7,943,383 $ 7,517,404 $ 7,234,070 $ 6,546,936
Interest income on mort-
gage loan investments..... 766,211 268,665 440,658 451,841 674,118
Income before extra-
ordinary item............. 2,788,653 2,245,414 3,268,110 1,355,563 1,306,745
Extraordinary item........... - - (252,402) - -
Net income................... 2,788,653 2,245,414 3,015,708 1,355,563 1,306,745
Net income per weighted
average hundred limited
partnership units:
Income before extra-
ordinary item........... $ 52.72 $ 42.15 $ 60.93 $ 25.09 $ 24.00
Extraordinary item........ - - (4.71) - -
------------ ------------ ------------ ------------ ------------
Net income................ $ 52.72 $ 42.15 $ 56.22 $ 25.09 $ 24.00
============ ============ ============ ============ ============
Distributions per weighted
average hundred limited
partnership units......... $ 76.38 $ 113.77 $ - $ - $ -
============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
Balance Sheets 1997 1996 1995 1994 1993
- -------------- ------------- ------------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Real estate investments, net... $ 18,630,576 $ 23,888,948 $ 24,977,575 $ 25,921,989 $ 26,674,164
Assets held for sale........... 4,549,881 - - - -
Mortgage loan investments,
net......................... 6,956,487 4,692,760 3,597,673 4,679,929 5,718,144
Total assets................... 33,681,114 32,641,270 35,489,741 39,501,853 38,779,870
Long-term debt................. 3,437,648 1,101,619 - 6,726,266 6,853,753
Partners' equity............... 28,999,177 30,543,422 34,630,930 31,948,150 30,925,518
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FINANCIAL CONDITION
- -------------------
Under the original partnership agreement, the Partnership was formed to engage
in the business of making short-term nonrecourse mortgage or deed of trust loans
to affiliates of the Original General Partner and to partnerships or real estate
investment trusts sponsored by affiliates of the Original General Partner formed
for the purpose of acquiring revenue-producing real properties and reinvesting
the proceeds from repayment of such loans in additional affiliate loans. In
1989, the Partnership initiated foreclosure proceedings on the collateral
securing each of its mortgage loan investments. The Partnership acquired two
office buildings in 1989 and eight mini-storage warehouses in 1990 as a result
of the foreclosures. Also in 1990, one loan was collected in full when the
borrower sold the mini-storage warehouse securing the loan. The remaining
mortgage loan investment, secured by a mini-storage warehouse owned by an
unaffiliated limited partnership, was collected in full in 1996.
In October 1992, the Partnership received approximately $6.5 million of net
proceeds from a $7 million loan secured by five of the Partnership's
mini-storage warehouses located in Florida. A portion of the proceeds were used
for working capital and for general partnership purposes. The loan proceeds were
also used to make such loans to affiliates in accordance with the Amended
Partnership Agreement as more fully described in Item 8 - Note 6 - "Mortgage
Loan Investments - Affiliates" and Item 13 - Certain Relationships and Related
Transactions. The mortgage note payable was paid in full in 1995. A $5 million
line of credit was obtained during 1995 for the purposing of funding additional
loans to affiliates of the General Partner. See Item 8 - Note 7 - "Revolving
Credit Agreement."
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
1997 compared to 1996
Revenue:
Total revenue increased by $718,361 in 1997 as compared to 1996. The increase
was mainly due to an increase in rental revenue and interest income on mortgage
loan investments - affiliates, partially offset by decreases in interest income
on the Partnership's mortgage loan investment to an unaffiliated borrower, other
interest income and a gain on extinguishment of mortgage loan investment, as
discussed below.
Rental revenue increased by $423,281 in 1997 as compared to 1996. The increase
was mainly due to increases of approximately $133,000 and $157,000 at One
Corporate Center I and III office buildings, respectively, as a result of
increases in rental rates in 1997 as well as decreased discounts and concessions
given to tenants. Also, there was an increase in expense reimbursements billed
to tenants as a result of an increase in property taxes incurred by the two
office buildings in 1997, as discussed below. In addition, rental revenue
increased at all of the mini-storage properties, except for Military Trail, as a
result of an increase in rental rates in 1997. Rental revenue at Military Trail
decreased slightly due to a small decline in average occupancy rates in 1997.
See Item 2 - Properties for a more detailed analysis of occupancy and rents per
square foot.
In 1996, the Partnership recorded $32,444 of interest income on the mortgage
loan investment related to the A-Quality Mini-Storage loan. Since this loan was
repaid by the borrower in the first quarter of 1996, no such income was recorded
in 1997.
Interest income on mortgage loan investments - affiliates increased by $529,990
in 1997 as compared to 1996. The increase was mainly due to a higher average
amount of loans outstanding during 1997. The Partnership had loaned
approximately $7 million to affiliates as of December 31, 1997 and approximately
$4.7 million as of December 31, 1996.
Other interest income in 1997 decreased by $149,625 in relation to 1996,
primarily due to a lower amount of cash available for short-term investment in
1997. The Partnership held approximately $5.7 million of cash and cash
equivalents at the beginning of 1996. Cash and cash equivalents decreased to
approximately $3 million at the end of 1996 and further decreased to
approximately $2.4 million at the end of 1997.
In 1996, the Partnership recognized a $52,841 gain on extinguishment of mortgage
loan investment due to the early payoff of the A-Quality note. No such gain was
recognized in 1997.
Expenses:
Total expenses increased by $175,122 in 1997 as compared to 1996. The increase
was mainly due to an increase in interest expense and property taxes, partially
offset by a decrease in depreciation and amortization and general and
administrative expenses, as discussed below.
<PAGE>
Interest expense in 1997 increased by $146,982 as compared to 1996, due to a
greater amount borrowed under the Partnership's line of credit agreement in
1997. The interest expense recorded in 1997 and 1996 represents interest costs
and amortization of deferred borrowing costs relating to the Partnership's $5
million line of credit. The Partnership did not borrow any funds under the line
of credit agreement until November 1996. The Partnership had borrowed
approximately $3.4 million under the agreement at December 31, 1997 as compared
to approximately $1.1 million at December 31, 1996.
Depreciation and amortization expense decreased by $195,828 in 1997 as compared
to 1996. The decrease was due to AAA Century Airport and Burbank mini-storages
being classified as assets held for sale by the Partnership effective August 1,
1997. In accordance with 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," the Partnership
ceased recording depreciation on the assets at the time they were placed on the
market for sale.
Property taxes in 1997 increased by $174,483 in relation to 1996, due to an
increase in the assessed taxable value of One Corporate Center I and III office
buildings by taxing authorities.
General and administrative expenses decreased by $33,750 in 1997 as compared to
1996, mainly due to a decrease in costs relating to evaluation and dissemination
of information regarding an unsolicited tender offer as discussed in Item 1 -
Business.
1996 compared to 1995
Revenue:
Total revenue decreased by $1,085,785 in 1996 as compared to 1995. The decrease
was due to a decrease in interest income, a non-recurring 1995 property tax
refund and gain on legal settlement, partially offset by an increase in rental
revenue and a non-recurring 1996 gain on extinguishment of mortgage loan
investment, as discussed below.
Rental revenue for 1996 increased by $425,979 in relation to 1995. The increase
was mainly due to increases of approximately $107,000 and $127,000 at One
Corporate Center I and III office buildings as a result of an increase in rental
rates in 1996. In addition, rental revenue increased by approximately $44,000,
$31,000 and $37,000 at Fountainbleau, Forest Hill and Military Trail
mini-storages as a result of an increase in rental rates in 1996. Rental revenue
at Burbank Mini-Storage increased by approximately $43,000 due to an increase in
occupancy in 1996. See Item 2 - Properties for a more detailed analysis of
occupancy and rents per square foot.
Interest income on mortgage loan investment decreased by $116,890 in 1996 as
compared to 1995. The decrease was due to the repayment of the A-Quality
Mini-Storage loan by the borrower in the first quarter of 1996.
Interest income on mortgage loan investments - affiliates decreased by $55,103
in 1996 as compared to 1995. The decrease was due to a lower average amount of
loans outstanding during 1996. Although there was a greater amount of loans
outstanding at the end of 1996, $3.4 million of those loans were made in late
November 1996.
<PAGE>
Other interest income in 1996 decreased by $59,773 in relation to 1995. The
decrease was primarily due to a lower amount of cash available for short-term
investment as a result of approximately $6 million of distributions being paid
to the limited partners in 1996.
In 1995, the Partnership received a $30,515 refund of prior years' property
taxes for AAA Century Airport Mini-Storage as a result of an appeal filed on
behalf of the property. No such property tax refunds were received in 1996.
As discussed in Item 1, in 1995 the Partnership received cash and common and
preferred stock in the reorganized Southmark in settlement of its bankruptcy
claims against Southmark. The Partnership recognized a $1,302,324 gain as a
result of this settlement. No such gain was recognized in 1996.
In 1996, the Partnership recognized a $52,841 gain on extinguishment of mortgage
loan investment due to the early payoff of the A-Quality note. No such gain was
recognized in 1995.
Expenses:
Total expenses decreased by $63,089 in 1996 as compared to 1995. The decrease
was mainly due to a decrease in interest expense and general and administrative
- - affiliates, partially offset by an increase in general and administrative
expenses, as discussed below.
Interest expense in 1996 decreased by $262,907 in relation to 1995. The
Partnership's mortgage note payable was repaid in the second half of 1995. The
Partnership borrowed additional funds under its line of credit agreement in
November 1996, as further discussed in Item 8 - Note 7 - "Revolving Credit
Agreement." Interest expense includes amortization of deferred borrowing costs.
General and administrative expenses increased by $84,894 in 1996 as compared to
1995. The increase was due to costs incurred in 1996 relating to evaluation and
dissemination of information regarding an unsolicited tender offer in 1996 as
discussed in Item 1 - Business.
General and administrative - affiliates decreased by $112,735 in 1996 as
compared to 1995. The decrease was mainly due to a decrease in overhead expenses
allocated to the Partnership by McREMI.
In 1995, the Partnership recognized a $252,402 extraordinary loss incurred in
connection with the repayment of its mortgage note payable as discussed in Item
8 - Note 7 - "Revolving Credit Agreement." The loss consisted of $66,949 in
prepayment penalties and a $185,453 write off of deferred borrowing costs. No
such loss was recorded in 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $4,409,938 of cash through operating activities in
1997, $4,134,772 in 1996 and $5,157,580 in 1995. The increase in 1997 as
compared to 1996 was mainly due to an increase in cash received from tenants and
interest received from affiliates. The increases were partially offset by a
decrease in interest received from non-affiliates, and an increase in interest
paid and property taxes paid (see discussion of changes in corresponding revenue
and expense accounts, above).
<PAGE>
The decrease in cash generated through operating activities in 1996 as compared
to 1995 was mainly due to cash received in 1995 from the settlement of
bankruptcy claims against Southmark, partially offset by a decrease in interest
paid in 1996. The Partnership's mortgage note payable was repaid in the second
half of 1995 and additional funds were not borrowed under the line of credit
until late November 1996; thus the related interest expense decreased.
The Partnership expended $724,380, $540,072 and $563,333 for additions to its
real estate investments and assets held for sale in 1997, 1996 and 1995,
respectively. The increase in 1997 as compared to 1996 and 1995 was mainly due
to a greater amount of tenant improvements being performed at One Corporate
Center I Office Building in 1997.
In 1996, the Partnership received cash of $1,404,026 as repayment in full of the
Partnership's mortgage loan investment to an unaffiliated borrower. The
Partnership received $282,420 of principal payments on the loan in 1995. No such
funds were received in 1997.
The Partnership made loans to affiliates (net of collections) of $2,263,727 in
1997 and $2,456,858 in 1996. The Partnership collected $972,000 from affiliates
in 1995.
In 1997 and 1996, the Partnership received $2,336,029 and $1,101,619,
respectively, in proceeds from its revolving credit agreement, which were used
to make loans to affiliates.
In 1995, the Partnership expended a total of $6,726,266 to repay in full its
mortgage note payable and paid $66,949 in prepayment penalties associated with
such repayment. The Partnership also paid $195,059 in deferred borrowing costs
to secure a $5 million line of credit.
The Partnership distributed $3,999,970 and $5,999,994 to the limited partners in
1997 and 1996, respectively, from cash from operations. No distributions were
paid to the partners in 1995.
Short-term liquidity:
At December 31, 1997, the Partnership held cash and cash equivalents of
$2,440,084. This balance provides a reasonable level of working capital for the
Partnership's immediate needs in operating its properties.
For the Partnership as a whole, management projects positive cash flow from
operations in 1998. The Partnership has budgeted approximately $1,255,000 for
necessary capital improvements for all properties in 1998, which are expected to
be funded from available cash reserves or from operations of the properties.
Additional efforts to maintain and improve Partnership liquidity have included
continued attention to property management activities. The objective has been to
obtain maximum occupancy rates while holding expenses to levels necessary to
maximize cash flows. The Partnership has made capital expenditures on its
properties where improvements were expected to increase the competitiveness and
marketability of the properties.
During the last week of March 1998, the Partnership distributed approximately
$2,250,000 to the limited partners of record as of March 1, 1998.
<PAGE>
Long-term liquidity:
While the outlook for maintenance of adequate levels of liquidity is favorable,
should operations deteriorate and present cash resources be insufficient for
current needs, the Partnership would require other sources of working capital.
The Partnership acquired a $5 million line of credit in 1995 that may be used
for property operations. 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, arranging financing from affiliates or the
ultimate sale of the properties.
Pursuant to the Partnership's previously announced liquidation plans, the
Partnership has recently retained PaineWebber, Incorporated as its exclusive
financial advisor to explore alternatives to maximize the value of the
Partnership. The alternatives being considered by the Partnership include,
without limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The General Partner of the Partnership or
entities or persons affiliated with the General Partner will not be involved as
a purchaser in any of the transactions contemplated above. Any transaction will
be subject to certain conditions including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory firm as to the fairness of the consideration received by the
Partnership pursuant to such transaction. Finally, there can be no assurance
that any transaction will be consummated, or as to the terms thereof.
The Partnership has placed AAA Century Airport Self-Storage and Burbank
Mini-Storage on the market for sale effective August 1, 1997.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
<TABLE>
<CAPTION>
Page
Number
------
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
Financial Statements:
<S> <C>
Report of Independent Public Accountants....................................... 20
Balance Sheets at December 31, 1997 and 1996................................... 21
Statements of Operations for each of the three years in the period
ended December 31, 1997..................................................... 22
Statements of Partners' Equity (Deficit) for each of the three years
in the period ended December 31, 1997....................................... 23
Statements of Cash Flows for each of the three years in the period
ended December 31, 1997..................................................... 24
Notes to Financial Statements.................................................. 26
Financial Statement Schedule -
Schedule III - Real Estate Investments and Accumulated
Depreciation and Amortization............................................ 39
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of McNeil Real Estate Fund XXVII, L.P.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund
XXVII, L.P. (a Delaware limited partnership) as of December 31, 1997 and 1996,
and the related statements of operations, partners' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements and the schedule referred to below are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McNeil Real Estate Fund XXVII,
L.P. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen, LLP
Dallas, Texas
March 20, 1998
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
--------------- ---------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 4,196,277 $ 5,387,855
Buildings and improvements............................... 23,241,031 27,175,885
-------------- -------------
27,437,308 32,563,740
Less: Accumulated depreciation and amortization......... (8,806,732) (8,674,792)
-------------- -------------
18,630,576 23,888,948
Assets held for sale........................................ 4,549,881 -
Mortgage loan investments - affiliates...................... 6,956,487 4,692,760
Cash and cash equivalents................................... 2,440,084 3,022,851
Cash segregated for security deposits and
repurchase of limited partnership units.................. 442,193 427,123
Accounts receivable......................................... 426,825 297,942
Accrued interest receivable................................. 64,991 43,200
Deferred borrowing costs, net of accumulated
amortization of $195,059 and $146,294 at
December 31, 1997 and 1996, respectively................. - 48,765
Prepaid expenses and other assets........................... 170,077 219,681
-------------- -------------
$ 33,681,114 $ 32,641,270
============== =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Revolving credit agreement.................................. $ 3,437,648 $ 1,101,619
Accounts payable and accrued expenses....................... 107,549 77,635
Payable to limited partners................................. 332,928 332,928
Payable to affiliates....................................... 542,045 370,837
Security deposits and deferred rental revenue............... 261,767 214,829
-------------- -------------
4,681,937 2,097,848
-------------- -------------
Partners' equity (deficit):
Limited partners - 10,000,000 limited partnership units
authorized; 5,199,901 and 5,236,893 limited partner-
ship units outstanding at December 31, 1997 and 1996,
respectively........................................... 29,076,126 30,648,258
General Partner.......................................... (76,949) (104,836)
-------------- -------------
28,999,177 30,543,422
-------------- -------------
$ 33,681,114 $ 32,641,270
============== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
Revenue:
<S> <C> <C> <C>
Rental revenue.......................... $ 8,366,664 $ 7,943,383 $ 7,517,404
Interest income on mortgage loan
investment............................ - 32,444 149,334
Interest income on mortgage loan
investments - affiliates.............. 766,211 236,221 291,324
Other interest income................... 150,357 299,982 359,755
Property tax refund..................... - - 30,515
Gain on legal settlement................ - - 1,302,324
Gain on extinguishment of mortgage
loan investment....................... - 52,841 -
------------- ------------- --------------
Total revenue......................... 9,283,232 8,564,871 9,650,656
------------- ------------- --------------
Expenses:
Interest................................ 269,289 122,307 385,214
Depreciation and amortization........... 1,432,871 1,628,699 1,507,747
Property taxes.......................... 978,083 803,600 751,848
Personnel costs......................... 719,441 667,758 627,809
Repairs and maintenance................. 594,984 590,986 579,543
Property management fees -
affiliates............................ 462,289 435,159 426,203
Utilities............................... 459,243 455,718 444,526
Other property operating expenses....... 590,887 581,026 597,611
General and administrative.............. 107,560 141,310 56,416
General and administrative -
affiliates............................ 879,932 892,894 1,005,629
------------- ------------- --------------
Total expenses........................ 6,494,579 6,319,457 6,382,546
------------- ------------- --------------
Net income before extraordinary item....... 2,788,653 2,245,414 3,268,110
Extraordinary item......................... - - (252,402)
-------------- ------------- --------------
Net income................................. $ 2,788,653 $ 2,245,414 $ 3,015,708
============== ============= ==============
Net income allocable to limited
partners................................ $ 2,760,766 $ 2,222,960 $ 2,985,551
Net income allocable to General
Partner................................. 27,887 22,454 30,157
-------------- ------------- --------------
Net income................................. $ 2,788,653 $ 2,245,414 $ 3,015,708
============== ============= ==============
Net income per weighted average hundred
limited partnership units:
Net income before extraordinary item.... $ 52.72 $ 42.15 $ 60.93
Extraordinary item...................... - - (4.71)
-------------- ------------- -------------
Net income................................. $ 52.72 $ 42.15 $ 56.22
============== ============= =============
Distributions per weighted average
hundred limited partnership units....... $ 76.38 $ 113.77 $ -
============== ============= =============
</TABLE>
See accompanying notes to financialstatements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
---------------- ----------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1994.............. $ (157,447) $ 32,105,597 $ 31,948,150
Repurchase of 36,992 limited
partnership units...................... - (332,928) (332,928)
Net income................................ 30,157 2,985,551 3,015,708
-------------- --------------- ---------------
Balance at December 31, 1995.............. (127,290) 34,758,220 34,630,930
Repurchase of 36,992 limited
partnership units...................... - (332,928) (332,928)
Net income................................ 22,454 2,222,960 2,245,414
Distributions to limited partners......... - (5,999,994) (5,999,994)
-------------- --------------- ---------------
Balance at December 31, 1996.............. (104,836) 30,648,258 30,543,422
Repurchase of 36,992 limited
partnership units...................... - (332,928) (332,928)
Net income................................ 27,887 2,760,766 2,788,653
Distributions to limited partners......... - (3,999,970) (3,999,970)
-------------- ----------------- ----------------
Balance at December 31, 1997.............. $ (76,949) $ 29,076,126 $ 28,999,177
============== ================= ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Cash received from tenants.............. $ 8,203,733 $ 7,881,796 $ 7,754,299
Cash paid to suppliers.................. (2,308,949) (2,278,401) (2,107,840)
Cash paid to affiliates................. (1,171,013) (1,210,260) (1,405,977)
Interest received....................... 150,357 344,947 336,925
Interest received from affiliates....... 744,420 215,064 316,719
Interest paid........................... (230,527) (14,774) (317,537)
Property taxes paid..................... (978,083) (803,600) (751,848)
Property tax refund..................... - - 30,515
Cash received from legal settlement..... - - 1,302,324
------------- ------------- --------------
Net cash provided by operating
activities.............................. 4,409,938 4,134,772 5,157,580
------------- ------------- --------------
Cash flows from investing activities:
Additions to real estate investments
and assets held for sale.............. (724,380) (540,072) (563,333)
Proceeds from collection of mortgage
loan investments...................... - 1,404,026 282,420
Mortgage loan investments -
affiliates............................ (2,336,029) (3,409,396) -
Proceeds from collection of mortgage
loan investments - affiliates......... 72,302 952,538 972,000
------------- ------------- --------------
Net cash provided by (used in)
investing activities.................... (2,988,107) (1,592,904) 691,087
------------- ------------- --------------
Cash flows from financing activities:
Net increase in cash segregated
for repurchase of limited
partnership units..................... (7,729) (6,371) (5,215)
Deferred borrowing costs paid........... - - (195,059)
Proceeds from revolving credit
agreement............................. 2,336,029 1,101,619 -
Principal payments on mortgage
note payable.......................... - - (6,726,266)
Mortgage prepayment penalty paid........ - - (66,949)
Repurchase of limited partnership
units................................. (332,928) (332,928) (332,931)
Distributions to limited partners....... (3,999,970) (5,999,994) -
------------- ------------- --------------
Net cash used in financing activities...... (2,004,598) (5,237,674) (7,326,420)
------------- ------------- --------------
Net decrease in cash and
cash equivalents........................ (582,767) (2,695,806) (1,477,753)
Cash and cash equivalents at
beginning of year....................... 3,022,851 5,718,657 7,196,410
------------- ------------- --------------
Cash and cash equivalents at end
of year................................. $ 2,440,084 $ 3,022,851 $ 5,718,657
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Net income................................. $ 2,788,653 $ 2,245,414 $ 3,015,708
------------- ------------- --------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........... 1,432,871 1,628,699 1,507,747
Amortization of deferred borrowing
costs................................. 48,765 97,530 67,677
Allowance for impairment of
mortgage loan investment.............. - - (172,164)
Gain on extinguishment of mortgage
loan investment....................... - (52,841) -
Extraordinary item...................... - 252,402
Changes in assets and liabilities:
Cash segregated for security
deposits............................ (7,341) (13,187) 1,962
Accounts receivable................... (128,883) 1,893 225,452
Accrued interest receivable........... (21,791) (8,636) 25,395
Prepaid expenses and other
assets.............................. 49,604 98,482 202,024
Accounts payable and accrued
expenses............................ 29,914 9,164 (3,960)
Payable to affiliates................. 171,208 117,793 25,855
Security deposits and deferred
rental revenue...................... 46,938 10,461 9,482
------------- ------------- --------------
Total adjustments................. 1,621,285 1,889,358 2,141,872
------------- ------------- --------------
Net cash provided by operating
activities.............................. $ 4,409,938 $ 4,134,772 $ 5,157,580
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
McNeil Real Estate Fund XXVII, L.P. (the "Partnership"), formerly known as
Southmark Prime Plus, L.P., was organized by affiliates of Southmark Corporation
("Southmark") on January 16, 1987, as a limited partnership under the provisions
of the Delaware Revised Uniform Limited Partnership Act to make short-term loans
to affiliates of the general partner. 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 General Partner was elected at
a meeting of limited partners on March 30, 1992, at which time an amended and
restated partnership agreement (the "Amended Partnership Agreement") was
adopted. Prior to March 30, 1992, the general partner of the Partnership was
Prime Plus Corp. (the "Original General Partner"), a wholly-owned subsidiary of
McNeil. The Original General Partner was purchased from Southmark by McNeil on
March 13, 1991. The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 600, Dallas, Texas 75240.
The sole limited partner of the Partnership was initially Southmark Depositary
Corp. (the "Depositary"), a wholly-owned subsidiary of Southmark. The Depositary
assigned the principal attributes of its aggregate limited partner interest in
the Partnership to the Depositary unit holders. The Depositary units were
subsequently converted to limited partnership units ("Units").
Under the original partnership agreement, the Partnership's primary business was
to make short-term nonrecourse mortgage or deed of trust loans to affiliates of
the Original General Partner and to partnerships or real estate investment
trusts sponsored by affiliates of the Original General Partner formed for the
purpose of acquiring revenue-producing real properties. Due to borrower defaults
and foreclosures on the properties securing all but one of these mortgages, the
Partnership's business also includes ownership and operation of real estate.
In 1992, the Partnership used a portion of proceeds from a mortgage note payable
to make nonrecourse mortgage loans to affiliates of the General Partner in
accordance with the Amended Partnership Agreement. The mortgage note payable was
repaid by the Partnership in 1995, and a $5 million revolving credit agreement
was obtained that is being used to fund additional loans made to affiliates of
the General Partner. See Note 7 - "Revolving Credit Agreement." The loans made
to affiliates are secured by revenue-producing real estate and are either junior
or senior to other indebtedness as more fully described in Note 6 - "Mortgage
Loan Investments - Affiliates."
The Partnership is engaged in the ownership, operation and management of
commercial real estate and the servicing of mortgage loan investments secured by
real estate. At December 31, 1997, the Partnership had four mortgage loan
investments to affiliates of the General Partner as described in Note 6 -
"Mortgage Loan Investments Affiliates" and owned ten revenue-producing
properties as described in Note 4 - "Real Estate Investments."
<PAGE>
Pursuant to the Partnership's previously announced liquidation plans, the
Partnership has recently retained PaineWebber, Incorporated as its exclusive
financial advisor to explore alternatives to maximize the value of the
Partnership. The alternatives being considered by the Partnership include,
without limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The General Partner of the Partnership or
entities or persons affiliated with the General Partner will not be involved as
a purchaser in any of the transactions contemplated above. Any transaction will
be subject to certain conditions including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory firm as to the fairness of the consideration received by the
Partnership pursuant to such transaction. Finally, there can be no assurance
that any transaction will be consummated, or as to the terms thereof.
The Partnership has placed AAA Century Airport Self-Storage and Burbank
Mini-Storage on the market for sale effective August 1, 1997.
Basis of Presentation
- ---------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Real Estate Investments
- -----------------------
Real estate investments are generally stated at the lower of depreciated cost or
fair value. Real estate investments are reviewed for impairment whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable. When the carrying value of a property exceeds the sum of all
estimated future cash flows, an impairment loss is recognized. At such time, a
write-down is recorded to reduce the basis of the property to its estimated fair
value.
The Partnership's method of accounting for real estate investments is in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The
adoption of SFAS 121 did not have a material impact on the accompanying
financial statements.
Improvements and betterments are capitalized and expensed through depreciation
charges. Repairs and maintenance are charged to operations as incurred.
Assets Held for Sale
- --------------------
Assets held for sale are stated at the lower of depreciated cost or fair value
less costs to sell. Depreciation on these assets ceases at the time they are
placed on the market for sale.
<PAGE>
Depreciation and Amortization
- -----------------------------
Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 5 to 25 years. Tenant
improvements are capitalized and are amortized over the terms of the related
tenant lease, using the straight-line method.
Mortgage Loan Investments
- -------------------------
Mortgage loan investments are recorded at their original basis, net of any
allowance for impairment. Interest income is recognized as it is earned.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash on deposit in financial
institutions with original maturities of three months or less. Carrying amounts
for cash and cash equivalents approximate fair value.
Deferred Borrowing Costs
- ------------------------
Loan fees and other related costs incurred to obtain long-term financing on real
property are capitalized and amortized using a method that approximates the
effective interest method over the term of the revolving credit agreement.
Amortization of deferred borrowing costs is included in interest expense on the
Statements of Operations.
Rental Revenue
- --------------
The Partnership leases its mini-storage warehouses under short-term operating
leases. Lease terms generally are less than one year in duration. Rental revenue
is recognized as earned.
The Partnership leases its commercial properties under non-cancelable operating
leases. Certain leases provide concessions and/or periods of escalating or free
rent. Rental revenue is recognized on a straight-line basis over the term of the
related leases. The excess of the rental revenue recognized over the contractual
rental payments is recorded as accrued rent receivable and is included in
accounts receivable on the Balance Sheets.
Income Taxes
- ------------
No provision for Federal income taxes is necessary in the financial statements
of the Partnership because, as a partnership, it is not subject to Federal
income tax and the tax effect of its activities accrues to the partners.
Allocation of Net Income and Net Loss
- -------------------------------------
The Amended Partnership Agreement provides for net income and net loss of the
Partnership to be allocated 99% to the limited partners and 1% to the General
Partner.
<PAGE>
Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and accompanying Treasury Regulations
establish criteria for allocation of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1997, 1996, and 1995 have been made
in accordance with these provisions.
Distributions
- -------------
At the discretion of the General Partner, distributions to the partners are paid
from cash from operations available after payment of affiliate compensation.
Under the terms of the Amended Partnership Agreement, the General Partner is not
entitled to distributions from operations.
Cash from operations available for distribution is determined by provisions of
the Amended Partnership Agreement, and differs from the amount reported as net
cash provided by operating activities in the accompanying Statements of Cash
Flows. Cash from operations available for distribution consists of cash received
from operations of the Partnership during a given period of time less (1)
operational cash disbursements during the same period of time including capital
improvements, unscheduled mortgage principal reductions and repayment of
Partnership advances from affiliates, (2) a reasonable allowance for reserves,
contingencies and anticipated obligations as determined at the discretion of the
General Partner, (3) proceeds held pending investment in affiliate loans, and
(4) any monies reserved for repurchase of Units.
Liquidation proceeds will be distributed when the Partnership is dissolved after
taking into account all items of income, gain, loss or deduction. Distribution
of liquidation proceeds will then be made to the partners with positive capital
account balances.
The Partnership distributed $3,999,970 and $5,999,994 of cash from operations in
1997 and 1996, respectively. No distributions were paid to the partners in 1995.
No distributions were paid to the General Partner in 1997, 1996 or 1995.
During the last week of March 1998, the Partnership plans to distribute
approximately $2,250,000 to the limited partners of record as of March 1, 1998.
Net Income Per Hundred Limited Partnership Units
- ------------------------------------------------
Net income per one hundred Units is computed by dividing net income allocated to
the limited partners by the weighted average number of Units outstanding
expressed in hundreds. Per unit information has been computed based on 52,369,
52,739 and 53,109 (in hundreds) Units outstanding in 1997, 1996 and 1995,
respectively.
<PAGE>
NOTE 2 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------
The Partnership pays property management fees equal to 5% of the gross rental
receipts for its mini-storage warehouses 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 mini-storage warehouses and commercial properties and leasing
services for its mini-storage warehouses. 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.
Under the terms of the Amended Partnership Agreement, the Partnership is paying
an asset management fee 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 percent to the annualized net
operating income of each property or (ii) a value of $30 per gross square foot
for mini-storage warehouses and $50 per gross square foot for commercial
properties 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.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
For the Years Ended December 31,
----------------------------------------
1997 1996 1995
----------- ----------- -----------
Property management fees........... $ 462,289 $ 435,159 $ 426,203
Charged to general and
administrative - affiliates:
Partnership administration...... 270,653 314,832 432,998
Asset management fee............ 609,279 578,062 572,631
---------- ---------- ----------
$ 1,342,221 $ 1,328,053 $ 1,431,832
========== ========== ==========
Until March 13, 1991, the Original General Partner was entitled to receive, out
of cash from operations, a performance incentive fee equal to 20% of all points
received by the Partnership on mortgage loans if the limited partners received
distributions of cash from operations equal to a 10% cumulative noncompounding
annual return on their original capital investment. Such fees were cumulative,
were accrued in the years earned and are to be paid when conditions were met.
Conditions for payment have not yet been met and, at December 31, 1997 and 1996,
$141,647 of amounts accrued in prior years are included in payable to affiliates
on the Balance Sheets.
<PAGE>
Under the terms of the Amended Partnership Agreement, the Partnership is
expressly permitted to make loans to affiliates of the General Partner, so long
as such loans meet certain conditions. See Note 6 - "Mortgage Loan Investments -
Affiliates" for a discussion of these transactions.
Payable to affiliates at December 31, 1997 and 1996 consisted primarily of the
performance incentive fee of $141,647 accrued in prior years, property
management fees, Partnership general and administrative expenses, asset
management fees and prepaid interest as further discussed in Note 6 - "Mortgage
Loan Investments - Affiliates." Except for the performance incentive fee and
prepaid interest, all accrued fees are due and payable from current operations.
NOTE 3 - TAXABLE INCOME
- -----------------------
McNeil Real Estate Fund XXVII, L.P. is a partnership and is not subject to
Federal and state income taxes. Accordingly, no recognition has been given to
income taxes in the accompanying financial statements of the Partnership since
the income or loss of the Partnership is to be included in the tax returns of
the individual partners. The tax returns of the Partnership are subject to
examination by Federal and state taxing authorities. If such examinations result
in adjustments to distributive shares of taxable income or loss, the tax
liability of the partners could be adjusted accordingly.
The Partnership's net assets and liabilities for tax purposes exceeded the net
assets and liabilities for financial reporting purposes by $12,759,576 in 1997,
$12,040,518 in 1996 and $11,258,459 in 1995.
NOTE 4 - REAL ESTATE INVESTMENTS
- --------------------------------
The basis and accumulated depreciation and amortization of the Partnership's
real estate investments at December 31, 1997 and 1996 are set forth in the
following tables:
<TABLE>
<CAPTION>
Accumulated
Buildings and Depreciation Net Book
1997 Land Improvements and Amortization Value
---- -------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
AAA Sentry
N. Lauderdale, FL $ 70,337 $ 612,992 $ (211,565) $ 471,764
Forest Hill
W. Palm Beach, FL 510,780 1,995,632 (598,301) 1,908,111
Fountainbleau
Miami, FL 287,114 1,237,674 (351,439) 1,173,349
Kendall Sunset
Miami, FL 672,756 3,915,577 (1,144,141) 3,444,192
Margate
Margate, FL 233,575 1,354,964 (411,706) 1,176,833
Military Trail
W. Palm Beach, FL 571,715 1,869,813 (560,022) 1,881,506
One Corporate Center I
Edina, MN 925,000 5,975,937 (2,563,037) 4,337,900
One Corporate Center III
Edina, MN 925,000 6,278,442 (2,966,521) 4,236,921
------------- ------------- -------------- -------------
$ 4,196,277 $ 23,241,031 $ (8,806,732) $ 18,630,576
============= ============= ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Buildings and Depreciation Net Book
1996 Land Improvements and Amortization Value
---- -------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
AAA Century Airport (a) $ 361,535 $ 2,145,958 $ (543,658) $ 1,963,835
AAA Sentry 70,337 558,674 (162,724) 466,287
Burbank (b) 830,043 2,505,647 (639,212) 2,696,478
Forest Hill 510,780 1,987,092 (509,267) 1,988,605
Fountainbleau 287,114 1,232,975 (288,860) 1,231,229
Kendall Sunset 672,756 3,905,730 (979,692) 3,598,794
Margate 233,575 1,340,085 (341,757) 1,231,903
Military Trail 571,715 1,833,280 (470,276) 1,934,719
One Corporate Center I 925,000 5,621,079 (2,199,151) 4,346,928
One Corporate Center III 925,000 6,045,365 (2,540,195) 4,430,170
------------- ------------- -------------- -------------
$ 5,387,855 $ 27,175,885 $ (8,674,792) $ 23,888,948
============= ============= ============= =============
</TABLE>
(a) On August 1, 1997, the General Partner placed AAA Century Airport
Self-Storage, located in Inglewood, California, on the market for sale.
Accordingly, the property was classified as such at December 31, 1997
with a net book value of $1,908,947.
(b) On August 1, 1997, the General Partner placed Burbank Mini-Storage,
located in Burbank, California, on the market for sale. Accordingly, the
property was classified as such at December 31, 1997 with a net book
value of $2,640,934.
The results of operations for the assets held for sale at December 31, 1997
were $836,166, $724,265 and $702,833 for the years ended December 31, 1997, 1996
and 1995, respectively. Results of operations are operating revenues less
operating expenses including depreciation and interest expense.
The Partnership leases its office buildings under non-cancelable operating
leases. Future minimum rents to be received as of December 31, 1997 are as
follows:
1998.................................... $ 2,620,623
1999.................................... 1,818,405
2000.................................... 1,540,167
2001.................................... 1,110,987
2002.................................... 754,779
Thereafter.............................. 120,710
----------
Total $ 7,965,671
==========
Future minimum rents do not include expense reimbursements for common area
maintenance, property taxes and other expenses. These expense reimbursements
amounted to $265,764, $132,563 and $130,560 for the years ended December 31,
1997, 1996 and 1995, respectively, and are included in rental revenue on the
Statements of Operations.
<PAGE>
NOTE 5 - MORTGAGE LOAN INVESTMENT
- ---------------------------------
In 1987, the Partnership made a nonrecourse mortgage loan to an affiliate of
Southmark secured by A-Quality Mini-Storage. The property was subsequently sold
to an unaffiliated borrower subject to the Partnership's first priority mortgage
loan.
In April 1994, the borrower, who had filed for bankruptcy in 1990, and the
Partnership reached a settlement concerning the loan. Under the settlement, the
borrower paid the Partnership $150,000 in cash and the loan was renewed for
$1,453,194 (representing the original $2,100,000 principal balance less all post
bankruptcy petition payments made by the borrower) effective January 1, 1994. An
additional second lien loan was executed in the amount of $134,397 at an
interest rate of 6%, which was paid in full in the third quarter of 1995.
Principal and interest at a rate of prime plus 2% were payable monthly on the
first lien loan. On March 21, 1996, the Partnership received $1,404,026 as full
settlement of the first lien loan. In connection with the settlement, the
Partnership recorded a $52,841 gain on extinguishment of mortgage loan
investment, which represents the excess of the settlement amount over the net
carrying amount of the mortgage loan investment and related accrued interest
accounts.
In accordance with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), the measure of
impairment for a loan restructured in a troubled debt restructuring is based on
the present value of expected future cash flows discounted at the original
contractual rate. Accordingly, upon the April 1994 modification, the Partnership
measured the impairment of the mortgage loan investment and determined that an
allowance for impairment was still required. The allowance for impairment was
written off in March 1996, when the first lien loan was paid in full. For the
year ended December 31, 1995, the allowance for impairment decreased by $172,164
due to the passage of time (the allowance was measured based on discounted cash
flows).
Subsequent to the April 1994 modification, interest income was recorded at an
interest rate that equated the expected future cash flows to the mortgage loan
investment balance. The expected cash flows changed slightly from year to year.
Additionally, any changes in the allowance for impairment that resulted from
changes in the discount rate or passage of time were also recorded as interest
income. This accounting treatment resulted in the recognition of $32,444 and
$149,334 of interest income for the years ended December 31, 1996 and 1995,
respectively. The effective interest rate of this interest income was 10.8% and
10.4% for 1996 and 1995, respectively. Interest income of $32,444 and $154,909
would have been recognized under the terms of the modification agreement for the
years ended December 31, 1996 and 1995, respectively, if the Partnership had not
adopted SFAS 114.
<PAGE>
NOTE 6 - MORTGAGE LOAN INVESTMENTS - AFFILIATES
- -----------------------------------------------
Under the terms of the Amended Partnership Agreement, the Partnership is
expressly permitted to make nonrecourse mortgage loans to affiliates of the
General Partner so long as such loans meet certain conditions, including that
such loans bear interest at a rate equal to the prime lending rate of Bank of
America plus 2.5%, or plus 3.5% if the loan is junior to other indebtedness.
These loans are secured by revenue-producing real estate and may be either
junior or senior to other indebtedness secured by such property. At December 31,
1997, the Partnership had outstanding mortgage loan investments to affiliates of
$6,956,487, all of which were first priority loans. For the year ended December
31, 1997, the Partnership recognized $766,211 of interest income related to
these loans. The following sets forth the Partnership's mortgage loan
investments to affiliates of the General Partner at December 31, 1997 and 1996.
Loans were funded by the proceeds from the mortgage note payable entered into in
October 1992, the line of credit obtained in June 1995 (see Note 7 - "Revolving
Credit Agreement") or other available funds. Interest only payments are due
monthly. The monthly payment varies according to the prime lending rate.
<TABLE>
<CAPTION>
Mortgage Annual
Lien Interest December 31,
Property Position Rate % (a) Maturity 1997 1996
- -------- --------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
McNeil Pension Investment
Fund, Ltd.:
Brice Road Office
Building First 11.00 05/98 $ 411,062 $ 483,364
Verre Center Office
Building First 11.00 11/99 820,426 820,426
McNeil Real Estate Fund X,
Ltd.:
La Plaza Business Center First 11.00 02/00 3,136,029 -
Lakeview Plaza Shopping
Center Second 12.00 08/97 - 800,000
McNeil Real Estate Fund
XI, Ltd.:
The Village Apartments First 11.00 11/99 2,588,970 2,588,970
------------- ----------
$ 6,956,487 $ 4,692,760
============= ==========
</TABLE>
(a) The loans bear interest at the prime lending rate of Bank of America plus
2.5% for senior priority loans and prime plus 3.5% for junior priority
loans. The prime lending rate was 8.5% at December 31, 1997 and 8.25% at
December 31, 1996.
<PAGE>
On May 1, 1992, the Partnership agreed to loan an aggregate of $1.115 million to
McNeil Pension Investment Fund, Ltd. ("McPIF"), an affiliate of the General
Partner, at an interest rate of prime plus 1% per annum (the maximum rate
allowed to be incurred by McPIF in connection with borrowings from affiliates
pursuant to McPIF's partnership agreement). A total of $483,364 was borrowed by
McPIF pursuant to this commitment, $72,302 of which was repaid in 1997. This
loan is secured by a first lien on Brice Road Office Building located in
Reynoldsburg, Ohio. The original loan matured in May 1995, at which time a new
loan under substantially the same terms was executed. Interest on the loan is
payable monthly. Principal is payable in May 1998. Management intends to
renegotiate the note if it is not repaid at maturity.
On October 25, 1996, the Partnership agreed to loan an aggregate of $1.68
million to McPIF at an interest rate of prime plus 1% per annum (the maximum
rate allowed to be incurred by McPIF in connection with borrowings from
affiliates pursuant to McPIF's partnership agreement). In 1996, $820,426 was
borrowed by McPIF pursuant to this commitment. This loan is secured by a first
lien on Verre Center Office Building located in Chamblee, Georgia.
Interest on the loan is payable monthly. Principal is payable in November 1999.
On February 28, 1997, the Partnership loaned $2,336,029 to McNeil Real Estate
Fund X, Ltd. ("Fund X"), at an interest rate of prime plus 1% per annum (the
maximum rate allowed to be incurred by Fund X in connection with borrowings from
affiliates pursuant to Fund X's partnership agreement). On August 1, 1997, the
mortgage note was amended and the principal balance was increased by $800,000,
for total borrowings from the Partnership of $3,136,029. Fund X used the
$800,000 additional proceeds to repay the $800,000 mortgage loan investment
secured by Lakeview Plaza Shopping Center, as discussed below. This loan is
secured by a first lien on La Plaza Business Center located in Las Vegas,
Nevada. Interest on the loan is payable monthly, with principal payable in
February 2000.
On August 15, 1994, the Partnership loaned $800,000 to Fund X at an interest
rate of prime plus 1% per annum (the maximum rate allowed to be incurred by Fund
X in connection with borrowings from affiliates pursuant to Fund X's partnership
agreement). This loan was secured by a second lien on Lakeview Plaza Shopping
Center located in Lexington, Kentucky. Interest on the loan was payable monthly,
with principal originally due and payable in August 1997. On August 1, 1997,
Fund X repaid the loan with proceeds received from a new loan from the
Partnership secured by La Plaza Business Center, as discussed above.
On October 25, 1996, the Partnership loaned $2,588,970 to McNeil Real Estate
Fund XI, L.P. ("Fund XI") at an interest rate of prime plus 1% per annum (the
maximum rate allowed to be incurred by Fund XI in connection with borrowings
from affiliates pursuant to Fund XI's partnership agreement). This loan is
secured by a first lien on The Village Apartments located in Gresham, Oregon.
Interest on the loan is payable monthly. Principal is payable in November 1999.
On March 1, 1993, the Partnership loaned $952,538 to McNeil Real Estate Fund
XXVI, L.P. ("Fund XXVI") at an interest rate of prime plus 2.5%. This loan was
secured by a first lien on Continental Plaza Office Building located in
Scottsdale, Arizona. Interest on the loan was payable monthly, with principal
payable on the third anniversary date of issuance. The loan was paid in full in
January 1996.
<PAGE>
In order to induce the Partnership to lend funds to the foregoing affiliates of
the General Partner, the General Partner entered into agreements with the
Partnership whereby the General Partner agreed to pay: (i) the difference
between the interest rate required by the Partnership's Amended Partnership
Agreement to be charged to affiliates (either prime plus 2.5% or prime plus
3.5%) and the interest rate actually paid by Fund X, Fund XI and McPIF to the
Partnership (prime plus 1%), and (ii) all points (1.5% of the principal amount
if a first priority security interest is obtained and 2% of the principal amount
if a junior priority security interest is obtained), closing costs and expenses
required to be received by the Partnership pursuant to the Partnership's Amended
Partnership Agreement in connection with such affiliated financing arrangements.
At December 31, 1997, 1996 and 1995, the General Partner had paid $113,432,
$78,391 and $27,250, respectively, representing the aggregate amount of interest
which would be owed for one year pursuant to this arrangement. In addition, the
General Partner paid $139,236, $83,510 and $27,193 of interest, points, closing
costs and expenses required to be received by the Partnership on all affiliate
loans during 1997, 1996 and 1995, respectively. All other requirements for
affiliated loans, as specified in the Partnership's Amended Partnership
Agreement, were met at December 31, 1997, 1996 and 1995, in connection with
these loans.
A summary of activity for the mortgage loan investments - affiliates is as
follows:
For the Years Ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
Balance at beginning of year......... $ 4,692,760 $ 2,235,902 $ 3,207,902
Mortgage loans funded................ 2,336,029 3,409,396 -
Mortgage loans repaid................ (72,302) (952,538) (972,000)
---------- ---------- ----------
Balance at end of year............... $ 6,956,487 $ 4,692,760 $ 2,235,902
========== ========== ==========
Based on the lending rates prescribed by the Amended Partnership Agreement for
each applicable affiliate, the fair value of mortgage loan
investments-affiliates approximated book value at December 31, 1997 and 1996.
The cost of the mortgage loan investments for Federal income tax purposes is the
same as the carrying amount for financial statement purposes.
<PAGE>
NOTE 7 - REVOLVING CREDIT AGREEMENT
- -----------------------------------
The following sets forth the revolving credit agreement of the Partnership at
December 31, 1997 and 1996. The revolving credit agreement is secured by the
related real estate investments.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position Rate % Maturity 1997 1996
- -------- ------------ ------ ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kendall Sunset,
One Corporate
Center I and
One Corporate
Center III First 7.9375 (a) (a) 7/99 $ 3,437,648 $ 1,101,619
========== ==========
</TABLE>
(a) The interest rate and monthly payment vary based on the London Interbank
Offered Rate plus 2%. The rate listed above represents the rate in effect
as of December 31, 1997.
A $5 million revolving credit agreement was secured by the Partnership in June
1995. The Partnership had borrowed $3,437,648 and $1,101,619 under the revolving
credit agreement at December 31, 1997 and 1996, respectively. Any borrowings
under the revolving credit agreement bear interest at prime plus one half of one
percent or a LIBOR-based rate, if so elected by the Partnership. The Partnership
is required to pay a commitment fee equal to one quarter of one percent per
annum on any unused portion of the line of credit. Total commitment fees paid
during 1997, 1996 and 1995 were $3,887, $12,708 and $3,542, respectively. In
1995, the Partnership incurred loan costs of $195,059 related to the line of
credit. The line of credit, which originally expired in July 1997, was extended
during 1997 to mature in July 1999 and is secured by One Corporate Center I and
III office buildings and Kendall Sunset Mini-Storage. The line of credit
contains financial covenants that require the Partnership to maintain an
Interest Expense Coverage Ratio of 3:1, as defined, among other restrictions.
The Partnership was in compliance with all financial covenants associated with
the revolving credit agreement as of December 31, 1997 and 1996.
In February 1997, $2,336,029 was borrowed by the Partnership under the revolving
credit agreement and loaned to an affiliate of the General Partner (see Note 6 -
"Mortgage Loan Investments - Affiliates").
Based on borrowing rates currently available to the Partnership for long-term
debt with similar terms and average maturities, the fair value of the revolving
credit agreement borrowings approximated book value at December 31, 1997 and
1996.
<PAGE>
In October 1992, the Partnership entered into a loan agreement to borrow an
aggregate of $7 million. Principal on this loan was due and payable seven years
following issuance, with interest payable annually at a rate of 10.5% per annum
for the first three years and prime plus 2% thereafter. The loan was secured by
certain mini-storage warehouses owned by the Partnership. McNeil personally
guaranteed up to $1.75 million of the aggregate loan amount. The Partnership
received net proceeds of approximately $6.5 million from the loan, the balance
of the loan amount being used to defray certain closing costs and to establish
an escrow account for real estate taxes. The net loan proceeds were used to make
loans to various affiliates of the General Partner and to fund working capital
needs. The balance of the proceeds was invested, in accordance with the terms of
the Amended Partnership Agreement, in short-term interest-bearing accounts.
In May 1995, the Partnership paid down its mortgage note payable by $4,628,250.
In connection with obtaining the revolving credit agreement discussed above, the
Partnership paid off the remaining $2,019,844 balance of its mortgage note
payable. In connection with the repayments, the Partnership paid prepayment
penalties of $66,949 and wrote off $185,453 of deferred borrowing costs,
resulting in an extraordinary loss of $252,402 in 1995.
NOTE 8 - REPURCHASE OF LIMITED PARTNERSHIP UNITS
- ------------------------------------------------
Under the provisions of both the original partnership agreement and the Amended
Partnership Agreement, the Partnership is required to repurchase Units in
amounts totaling up to 0.6% of gross proceeds per year. The repurchase amount is
equal to the lesser of 90% of adjusted invested capital, or $9 per Unit.
Repurchase is based on written requests from limited partners submitted between
October 1 and October 20 of each year. The requirement was first effective in
1989. In January 1998, 1997 and 1996, $332,928 was used to repurchase 36,992
Units for requests submitted in 1997, 1996 and 1995, respectively.
NOTE 9 - GAIN ON LEGAL SETTLEMENT
- ---------------------------------
The Partnership filed claims with the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division (the "Bankruptcy Court") against
Southmark for damages relating to improper overcharges, breach of contract and
breach of fiduciary duty. The Partnership settled these claims in 1991, which
totaled approximately $17,024,326, for the full amount claimed and such
settlement was approved by the Bankruptcy Court.
Pursuant to the settlement agreement, the Partnership released Southmark and its
affiliates and the Original General Partner from any further liability in
connection with the claims made with the Bankruptcy Court. In return, an
affiliate of McNeil agreed to waive payment on a dollar for dollar basis in an
amount equal to the settled claims against Partnership advances owed at that
time. In addition, the Partnership received Southmark bankruptcy plan assets in
respect to its claims which were not offset against the Partnership advances.
Because the Partnership's claims against Southmark were settled for $17,024,326,
the Partnership advances of $223,800 owed at that time were reduced in their
entirety and the claims had a remaining balance of $16,800,526. Although the
Partnership settled the claims against Southmark for the full amount claimed,
the settlement agreement provided that the Partnership receive a distribution of
Southmark bankruptcy plan assets based on a claim amount of approximately
$9,157,000.
<PAGE>
An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April
14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in
May 1995, the Partnership received in full satisfaction of its claims, $984,649
in cash, and common and preferred stock in the reorganized Southmark which was
subsequently sold for $317,675. These amounts represent the Partnership's
pro-rata share of Southmark assets available for Class 8 Claimants and were
recorded as a gain on legal settlement on the Statements of Operations.
NOTE 10 - LEGAL PROCEEDINGS
- ---------------------------
The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except for the following:
1) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners,
L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund
XXII, L.P., McNeil Real Estate Fund 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. Defendants must move, answer or otherwise respond to the
second consolidated and amended complaint by June 30, 1998.
2) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et
al. (Case #92-06560-A). This suit was filed on behalf of the Partnership
and other affiliated partnerships (as defined in this Section 1, the
"Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District
Court of Dallas County. The petition sought recovery against the
Partnership's former auditors, Ernst & Young, for negligence and fraud in
failing to detect and/or report overcharges of fees/expenses by Southmark,
the former general partner. The former auditors initially asserted
counterclaims against the Affiliated Partnerships based on alleged
fraudulent misrepresentations made to the auditors by the former management
of the Affiliated Partnerships (Southmark) in the form of client
representation letters executed and delivered to the auditors by Southmark
management. The counterclaims sought recovery of attorneys' fees and costs
incurred in defending this action. The counterclaims were later dismissed
on appeal, as discussed below.
The trial court granted summary judgment against the Affiliated
Partnerships based on the statute of limitations; however, on appeal, the
Dallas Court of Appeals reversed the trial court and remanded for trial the
Affiliated Partnerships' fraud claims against Ernst & Young. The Texas
Supreme Court denied Ernst & Young's application for writ of error on
January 11, 1996. Shortly before trial, the district court judge once again
granted summary judgment against the Affiliated Partnerships on December 2,
1996. The Partnership is continuing to pursue vigorously its claims against
Ernst & Young; however, the final outcome of this litigation cannot be
determined at this time.
3) Helen Pasco v. McNeil Real Estate Fund XXVII, L.P., Southmark Prime Plus
Corp., et al. and Does 1-50 Inclusive. This complaint alleges that several
limited partnerships and funds, including the Partnership, along with
McMachen, Prudential Securities, Inc. and other unidentified defendants,
transmitted false and misleading information to the plaintiff which was
used to entice the plaintiff into investing her money with the defendants.
The complaint also alleges that the defendants misrepresented speculative,
illiquid limited partnerships as safe, revenue-producing investments
suitable for safety-conscious and conservative investors. Although the
Partnership is included as a defendant, the plaintiff's allegations do not
specify in what way the Partnership was involved in improper conduct. The
complaint does not state, other than by broad allegations, that the
Partnership acted in an improper manner with regard to the operation or
management of the limited partnership. An answer was filed on behalf of the
Partnership in February 1994. Although plaintiff's counsel stated plaintiff
was going to amend the complaint, no such amended complaint was ever served
on the Partnership and it presumes that plaintiff either deleted the
Partnership as a defendant or abandoned the action. Accordingly, the
Partnership has taken no further action on this claim and it appears to
have been abandoned.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1997
<TABLE>
<CAPTION>
Costs
Initial Cost Cumulative Capitalized
Related Buildings and Write-down for Subsequent
Description Encumbrances (a) Land Improvements Impairment (b) To Acquisition
- ----------- ---------------- --------------- --------------- ---------------- --------------
MINI-STORAGE WAREHOUSES:
<S> <C> <C> <C> <C> <C>
AAA Sentry
N. Lauderdale, FL $ - $ 69,890 $ 380,110 $ - $ 233,329
Forest Hill
West Palm Beach, FL - 507,422 1,862,578 - 136,412
Fountainbleau
Miami, FL - 285,854 864,146 - 374,788
Kendall Sunset
Miami, FL 1,298,667 672,000 3,808,000 - 108,333
Margate
Margate, FL - 233,101 1,156,899 - 198,539
Military Trail
West Palm Beach, FL - 568,405 1,681,595 - 191,528
OFFICE BUILDINGS:
One Corporate Center I
Edina, MN 1,025,838 925,000 5,250,000 (1,300,000) 2,025,937
One Corporate Center III
Edina, MN 1,113,143 925,000 5,255,000 (1,300,000) 2,323,442
-------------- -------------- -------------- ---------- -------------
$ 3,437,648 $ 4,186,672 $ 20,258,328 $(2,600,000) $ 5,592,308
============== ============== ============== ========== =============
Assets Held For Sale (d):
AAA Century Airport
Inglewood, CA $ -
Burbank
Burbank, CA -
--------------
$ -
==============
</TABLE>
(a) The Partnership's $3,437,648 debt at December 31, 1997 is secured by three
separate properties. For purposes of Schedule III, the revolving credit
agreement has been allocated among the properties based on their estimated
relative market values.
(b) The carrying value of One Corporate Center I and III Office Buildings
were each reduced by $1,300,000 in 1991.
(d) Assets held for sale are stated at lower of depreciated cost or fair value
less costs to sell. Historical cost, net of accumulated depreciation and
write-downs, becomes the new cost basis when the asset is classified as
"Held for Sale." Depreciation ceases at the time the assets are placed on
the market for sale.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1997
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period Accumulated
Buildings and Depreciation
Description Land Improvements Total (c) and Amortization
- ----------- --------------- --------------- ----------------- -----------------
MINI-STORAGE WAREHOUSES:
<S> <C> <C> <C> <C>
AAA Sentry
N. Lauderdale, FL $ 70,337 $ 612,992 $ 683,329 $ (211,565)
Forest Hill
West Palm Beach, FL 510,780 1,995,632 2,506,412 (598,301)
Fountainbleau
Miami, FL 287,114 1,237,674 1,524,788 (351,439)
Kendall Sunset
Miami, FL 672,756 3,915,577 4,588,333 (1,144,141)
Margate
Margate, FL 233,575 1,354,964 1,588,539 (411,706)
Military Trial
West Palm Beach, FL 571,715 1,869,813 2,441,528 (560,022)
OFFICE BUILDINGS:
One Corporate Center I
Edina, MN 925,000 5,975,937 6,900,937 (2,563,037)
One Corporate Center III
Edina, MN 925,000 6,278,442 7,203,442 (2,966,521)
-------------- -------------- ---------------- -------------
$ 4,196,277 $ 23,241,031 $ 27,437,308 $ (8,806,732)
============== ============== ================ =============
Assets Held For Sale (d):
AAA Century Airport
Inglewood, CA $ 1,908,947
Burbank
Burbank, CA 2,640,934
----------------
$ 4,549,881
================
</TABLE>
(c) For Federal income tax purposes, the properties are depreciated over lives
ranging from 5-39 years using ACRS or MACRS methods. The aggregate cost of
real estate investments for Federal income tax purposes was $35,739,964 and
accumulated depreciation was $6,882,639 at December 31, 1997.
(d) Assets held for sale are stated at lower of depreciated cost or fair value
less costs to sell. Historical cost, net of accumulated depreciation and
write-downs, becomes the new cost basis when the asset is classified as
"Held for Sale." Depreciation ceases at the time the assets are placed on
the market for sale.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1997
<TABLE>
<CAPTION>
Date of Date Depreciable
Description Construction Acquired Lives (Years)
- ----------- ------------ -------- -------------
MINI-STORAGE WAREHOUSES:
<S> <C> <C> <C>
AAA Sentry
N. Lauderdale, FL 1987 10/90 5-25
Forest Hill
West Palm Beach, FL 1985 08/90 5-25
Fountainbleau
Miami, FL 1987 11/90 5-25
Kendall Sunset
Miami FL 1986 10/90 5-25
Margate
Margate, FL 1985 10/90 5-25
Military Trial
West Palm Beach, FL 1986 08/90 5-25
OFFICE BUILDINGS:
One Corporate Center I
Edina, MN 1979 12/89 5-25
One Corporate Center III
Edina, MN 1980 12/89 5-25
Assets Held For Sale (d):
AAA Century Airport
Inglewood, CA 1987 09/90
Burbank
Burbank, CA 1987 09/90
</TABLE>
(d) Assets held for sale are stated at lower of depreciated cost or fair value
less costs to sell. Historical cost, net of accumulated depreciation and
write-downs, becomes the new cost basis when the asset is classified as
"Held for Sale." Depreciation ceases at the time the assets are placed on
the market for sale.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
Notes to Schedule III
Real Estate Investments and Accumulated Depreciation and Amortization
A summary of activity for the Partnership's real estate investments and
accumulated depreciation and amortization is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
Real estate investments:
<S> <C> <C> <C>
Balance at beginning of year............... $ 32,563,740 $ 32,023,668 $ 31,460,335
Improvements............................... 720,137 540,072 563,333
Reclassification to assets held for sale... (5,846,569) - -
------------- ------------- --------------
Balance at end of year..................... $ 27,437,308 $ 32,563,740 $ 32,023,668
============= ============= ==============
Accumulated depreciation and amortization:
Balance at beginning of year............... $ 8,674,792 $ 7,046,093 $ 5,538,346
Depreciation and amortization.............. 1,432,871 1,628,699 1,507,747
Reclassification to assets held for sale... (1,300,931) - -
------------- ------------- --------------
Balance at end of year..................... $ 8,806,732 $ 8,674,792 $ 7,046,093
============= ============= ==============
Assets Held For Sale:
Balance at beginning of year............... $ - $ - $ -
Reclassification to assets held for sale... 4,545,638 - -
Improvements............................... 4,243 - -
------------- ------------- --------------
Balance at end of year..................... $ 4,549,881 $ - $ -
============= ============= ==============
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Neither the Partnership nor the General Partner has any directors or executive
officers. The names and ages of, as well as the positions held by, the officers
and directors of McNeil Investors, Inc., the general partner of the General
Partner, are as follows:
<TABLE>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Robert A. McNeil, 77 Mr. McNeil is also Chairman of the Board
Chairman of the and Director of McNeil Real Estate
Board and Director Management, Inc. ("McREMI") which is an
affiliate of the General Partner. He has
held the foregoing positions since the
formation of such entity in 1990. Mr.
McNeil received his B.A. degree from
Stanford University in 1942 and his
L.L.B. degree from Stanford Law School
in 1948. He is a member of the State Bar
of California and has been involved in
real estate financing since the late
1940's and in real estate acquisitions,
syndications and dispositions since
1960. From 1986 until active operations
of McREMI and McNeil Partners, L.P.
began in February 1991, Mr. McNeil was a
private investor. Mr. McNeil has been a
member of the international board of
directors of the Salk Institute, which
promotes research in improvements in
health care.
Carole J. McNeil 54 Mrs. McNeil is Co-Chairman, with
Co-Chairman of the husband Robert A. McNeil, of McNeil
Board Investors, Inc. Mrs. McNeil has twenty
years of real estate experience, most
recently as a private investor from 1986
to 1993. In 1982, she founded Ivory &
Associates, a commercial real estate
brokerage firm in San Francisco, CA.
Prior to that, she was a commercial real
estate agent and analyst with Marcus and
Millichap in San Francisco. In 1978,
Mrs. McNeil established the Escrow
Training Company, California's first
accredited commercial training program
for title company escrow officers and
real estate agents needing college
credits to qualify for brokerage
licenses. She began in real estate as
Manager and Marketing Director of Title
Insurance and Trust in Marin County, CA.
Mrs. McNeil serves on the international
board of directors of the Salk
Institute.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Ron K. Taylor 40 Mr. Taylor is the President and Chief
President and Chief Executive Officer of McNeil Real Estate
Executive Officer Management which is an affiliate of the
General Partner. Mr. Taylor has been in
this capacity since the resignation of
Donald K. Reed on March 4, 1997. Prior
to assuming his current
responsibilities, Mr. Taylor served as a
Senior Vice President of McREMI. Mr.
Taylor has been in this capacity since
McREMI commenced operations in 1991.
Prior to joining McREMI, Mr. Taylor
served as an Executive Vice President
for a national syndication/property
management firm. In this capacity, Mr.
Taylor had the responsibility for the
management and leasing of a 21,000,000
square foot portfolio of commercial
properties. Mr. Taylor has been actively
involved in the real estate industry
since 1983.
</TABLE>
Each director shall serve until his successor shall have been duly elected and
qualified.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1997, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1997. The Partnership has no plans to
pay any such remuneration to any directors or officers of the general partner of
the General Partner in the future.
See Item 13 - Certain Relationships and Related Transactions for amounts of
compensation and reimbursements paid by the Partnership to the General Partner
and its affiliates.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(A) Security ownership of certain beneficial owners.
No individual or group, as defined by Section 13(d)(3) of the
Securities Exchange Act of 1934, was known by the Partnership to own
more than 5% of the Units, other than the General Partner, as noted
in (B) below.
(B) Security ownership of management.
The General Partner and the officers and directors of its general
partner, collectively own 670,634 limited partnership units, which
represents approximately 12.9% of the outstanding limited partnership
units at January 31, 1998.
(C) Change in control.
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The amendments to the Partnership compensation structure included in the Amended
Partnership Agreement provide for an asset management fee to replace all other
forms of general partner compensation other than property management fees and
reimbursements of certain costs. 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 percent to the annualized net operating income of each
property or (ii) a value of $30 per gross square foot for mini-storage
warehouses and $50 per gross square foot for commercial properties 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. For the year ended December 31, 1997,
the Partnership paid or accrued $609,279 of such asset management fees.
Until March 13, 1991, the Original General Partner was entitled to receive, out
of cash from operations, a performance incentive fee equal to 20% of all points
received by the Partnership on mortgage loans if the Unit holders receive
distributions of cash from operations equal to a 10% cumulative noncompounding
annual return on their original capital investment. Such fees were cumulative
and were accrued in the years earned and are to be paid when conditions are met.
Conditions for payment have not yet been met and, at December 31, 1997, $141,647
of amounts accrued in prior years are included in payable to affiliates on the
Balance Sheets.
The Partnership pays property management fees equal to 5% of the gross rental
receipts of mini-storage properties (6% for commercial) to McREMI, an affiliate
of the General Partner, for providing property management services.
Additionally, the Partnership reimburses McREMI for its costs, including
overhead, of administering the Partnership's affairs. For the year ended
December 31, 1997, the Partnership paid or accrued $732,942 of such property
management fees and reimbursements. See Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 8 - Note 2 -
"Transactions With Affiliates."
<PAGE>
Under the terms of the Amended Partnership Agreement, the Partnership is
expressly permitted to make loans to affiliates of the General Partner, so long
as such loans meet certain conditions, including that such loans bear interest
at a rate of either prime of Bank of America plus 2.5% or prime plus 3.5%,
depending on whether the security for such loans is first priority or junior
priority.
On May 1, 1992, the Partnership agreed to loan an aggregate of $1.115 million to
McNeil Pension Investment Fund, Ltd. ("McPIF"), an affiliate of the General
Partner, at an interest rate of prime plus 1% per annum (the maximum rate
allowed to be incurred by McPIF in connection with borrowings from affiliates
pursuant to McPIF's partnership agreement). A total of $483,364 was borrowed by
McPIF pursuant to this commitment, $72,302 of which was repaid in 1997. This
loan is secured by a first lien on Brice Road Office Building located in
Reynoldsburg, Ohio. The original loan matured in May 1995, at which time a new
loan under substantially the same terms was executed. Interest on the loan is
payable monthly. Principal is payable in May 1998.
On February 28,1997, the Partnership loaned $2,336,029 to McNeil Real Estate
Fund X, Ltd. ("Fund X"), at an interest rate of prime plus 1% per annum (the
maximum rate allowed to be incurred by Fund X in connection with borrowings from
affiliates pursuant to Fund X's partnership agreement). On August 1, 1997, the
mortgage note was amended and the principal balance was increased by $800,000,
for total borrowings from the Partnership of $3,136,029. Fund X used the
$800,000 additional proceeds to repay an $800,000 mortgage loan investment
secured by Lakeview Plaza Shopping Center. This loan is secured by a first lien
on La Plaza Business Center located in Las Vegas, Nevada. Interest on the loan
is payable monthly, with principal payable in February 2000.
On October 25, 1996, the Partnership loaned $2,588,970 to McNeil Real Estate
Fund XI, L.P. ("Fund XI") at an interest rate of prime plus 1% per annum (the
maximum rate allowed to be incurred by Fund XI in connection with borrowings
from affiliates pursuant to Fund XI's partnership agreement). This loan is
secured by a first lien on The Village Apartments located in Gresham, Oregon.
Interest on the loan is payable monthly. Principal is payable in November 1999.
In order to induce the Partnership to lend funds to affiliates of the General
Partner, the General Partner entered into agreements with the Partnership
whereby the General Partner agreed to pay: (i) the difference between the
interest rate required by the Partnership's Amended Partnership Agreement to be
charged to affiliates (either prime of Bank of America plus 2.5% or 3.5%) and
the interest rate actually paid by Fund X, Fund XI and McPIF to the Partnership
(prime plus 1%), and (ii) all points (1.5% of the principal amount if a first
priority security interest is obtained and 2% of the principal amount if a
junior priority security interest is obtained), closing costs and expenses
required to be received by the Partnership pursuant to the Partnership's Amended
Partnership Agreement in connection with such affiliated financing arrangements.
In 1997, the General Partner paid $139,236 of interest, points, closing costs
and expenses required to be received by the Partnership on all affiliate loans
during 1997. In connection with these loans, all other requirements for
affiliated loans, as specified in the Partnership's Amended Partnership
Agreement, were met.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
- -------- ------------------------------------------------------------------
See accompanying Index to Financial Statements at Item 8 - Financial Statements
and Supplementary Data.
(A) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
4.2 Amended and Restated Limited Partnership
Agreement of McNeil Real Estate Fund XXVII,
L.P. (incorporated by reference to the Current
Report of the registrant on Form 8-K dated
March 30, 1992, as filed on April 10, 1992).
10.1 Assignment of Partnership Advances dated
March 13, 1991 between Prime Plus Corp. and
McNeil Partners, L.P. (incorporated by
reference to the Annual Report of the
registrant on Form 10-K for the period ended
December 31, 1990, as filed on March 29,
1991.)
10.3 Promissory Note dated November 25, 1996
between McNeil Real Estate Fund XXVII, L.P.
and Village Fund XI Associates Limited. (1)
10.4 Promissory Note dated November 25, 1996
between McNeil Real Estate Fund XXVII, L.P.
and McNeil Pension Investment Fund, Ltd. (1)
10.5 Property Management Agreement dated March
30, 1992, between McNeil Real Estate Fund
XXVII, L.P. and McNeil Real Estate Management,
Inc. (2)
10.6 Amendment of Property Management Agreement
dated March 5, 1993, by McNeil Real Estate
Fund XXVII, L.P. and McNeil Real Estate
Management, Inc. (2)
10.7 Promissory Note dated October 23, 1992,
between Community Bank, N.A. and McNeil Real
Estate Fund XXVII, L.P. (2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.8 Loan Agreement dated October 23, 1992,
between Community Bank, N.A. and McNeil Real
Estate Fund XXVII, L.P. (2)
10.10 Revolving Credit Loan Agreement dated June 21,
1995, between PNC Bank, National Association
and McNeil Real Estate Fund XXVII, L.P. (3)
10.11 Consolidated, Amended and Restated Revolving
Credit Note dated June 21, 1995, between PNC
Bank, National Association and McNeil Real
Estate Fund XXVII, L.P. (3)
10.12 First Amendment to Revolving Credit Loan
Agreement dated June 21, 1997, between PNC
Bank, National Association and McNeil Real
Estate Fund XXVII, L.P.
10.13 First Amendment to Consolidated, Amended and
Restated Revolving Credit Note dated June 21,
1997, between PNC Bank, National Association
and McNeil Real Estate Fund XXVII, L.P.
11. Statement regarding computation of net income
per hundred limited partnership units (see
Item 8 - Note 1 - "Organization and Summary
of Significant Accounting Policies").
(1) Incorporated by reference to the Annual
Report of the registrant on Form 10-K for the
period ended December 31, 1996, as filed on
March 28, 1997.
(2) Incorporated by reference to the Annual
Report of the registrant on Form 10-K for the
period ended December 31, 1992, as filed on
March 30, 1993.
(3) Incorporated by reference to the Annual
Report of the registrant on Form 10-K for the
period ended December 31, 1995, as filed on
March 29, 1996.
</TABLE>
(B) Reports on Form 8-K. There were no reports on Form 8-K filed by the
Partnership during the quarter ended December 31, 1997.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
A Limited Partnership
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) 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 XXVII, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
March 31, 1998 By: /s/ Robert A. McNeil
- -------------- ----------------------------------------
Date Robert A. McNeil
Chairman of the Board and Director
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 31, 1998 By: /s/ Ron K. Taylor
- -------------- ----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
March 31, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,440,084
<SECURITIES> 0
<RECEIVABLES> 426,825
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 27,437,308
<DEPRECIATION> (8,806,732)
<TOTAL-ASSETS> 33,681,114
<CURRENT-LIABILITIES> 0
<BONDS> 3,437,648
0
0
<COMMON> 0
<OTHER-SE> 28,999,177
<TOTAL-LIABILITY-AND-EQUITY> 33,681,114
<SALES> 8,366,664
<TOTAL-REVENUES> 9,283,232
<CGS> 3,804,927
<TOTAL-COSTS> 5,237,798
<OTHER-EXPENSES> 987,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 269,289
<INCOME-PRETAX> 2,788,653
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,788,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,788,653
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
FIRST AMENDMENT TO CONSOLIDATED, AMENDED
AND RESTATED REVOLVING CREDIT NOTE
THIS FIRST AMENDMENT TO CONSOLIDATED, AMENDED AND RESTATED REVOLVING
CREDIT NOTE (this "First Amendment") is made as of the 21st day of June, 1997,
by MCNEIL REAL ESTATE FUND XXVII, L.P., a Delaware limited partnership (the
"Borrower") and PNC BANK, NATIONAL ASSOCIATION, a national banking association
(the "Lender").
WITNESSETH:
WHEREAS, pursuant to the terms of a Revolving Credit Loan Agreement
dated as of June 21, 1995 between Borrower and Lender (the "Credit Agreement"),
Lender had agreed to provide a revolving credit facility to Borrower in a
principal amount not to exceed $5,000,000 (the "Loan") as evidenced by a certain
Consolidated, Amended and Restated Revolving Credit Note dated as of June 21,
1995, executed and delivered by Borrower to Lender in the original principal
amount of $5,000,000 (the "Note") (all capitalized terms used herein shall have
the meanings ascribed thereto in the Credit Agreement unless defined to the
contrary herein); and
WHEREAS, the Borrower has requested that the Lender agree to extend the
Maturity Date of the Note provided for in the Note and Credit Agreement until
June 21, 1999; and
WHEREAS, as a condition to the consent of Lender to the extension of
the Maturity Date, Lender and Borrower have agreed to make certain modifications
to the Note upon the terms and conditions hereinafter set forth; and
THIS FIRST AMENDMENT AMENDS THAT CERTAIN CONSOLIDATED, AMENDED AND
RESTATED REVOLVING CREDIT NOTE DATED JUNE 21, 1995 FROM BORROWER TO LENDER, IN
THE MAXIMUM PRINCIPAL AMOUNT OF $5,000,000 (THE "ORIGINAL NOTE"). THE ORIGINAL
NOTE IS ATTACHED HERETO. THE TERMS AND CONDITIONS SET FORTH IN THIS FIRST
AMENDMENT SHALL CONTROL THE OBLIGATIONS OR BORROWER WITH RESPECT TO THE
INDEBTEDNESS EVIDENCED BY THE ORIGINAL NOTE. THIS FIRST AMENDMENT DOES NOT
EVIDENCE ANY INDEBTEDNESS OF BORROWER IN EXCESS OF THE ORIGINAL NOTE AS AMENDED
HEREBY. ALL REQUIRED INTANGIBLE AND DOCUMENTARY STAMP TAXES HAVE BEEN PAID IN
CONNECTION WITH THE ORIGINAL NOTE.
<PAGE>
WHEREAS, to evidence the modifications to the Note, Borrower and Lender
have executed and entered into a certain First Amendment to Revolving Credit
Loan Agreement of even date herewith (the Credit Agreement as amended by the
First Amendment to Revolving Credit Loan Agreement is hereinafter collectively
referred to as the "Amended Credit Agreement").
NOW THEREFORE, the parties hereto, for good and valuable consideration,
the receipt and sufficiency thereof being hereby acknowledged and intending to
be legally bound hereby, covenant and agree as follows:
1. The Borrower and the Lender hereby agree that the Maturity Date
of the Note is hereby extended until June 21, 1999.
2. Borrower hereby acknowledges and agrees that it shall have no right
to extend the Maturity Date of the Note beyond June 21, 1999.
3. All references in the Note to the "Loan Agreement" shall be deemed
to refer to and include the Amended Credit Agreement.
4. Except as specifically modified herein, the Note is hereby ratified
and confirmed and shall remain in full force and effect. The Amended Credit
Agreement and the Note as amended by this First Amendment shall continue to be
secured by the other Loan Documents and nothing contained herein shall affect
the priority of any lien or security interest securing the Amended Credit
Agreement and the Note as amended by this First Amendment. All references to the
"Note" contained in the Loan Documents shall be deemed to refer to and include
the Note as amended by this First Amendment.
5. This First Amendment is to be construed and enforced in all respects
in accordance with the laws of the Commonwealth of Pennsylvania, without regard
to the principles of conflicts of laws.
6. This First Amendment is binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
7. The Borrower hereby represents and warrants to Lender that (a) no
Event of Default, and no event or condition which, with the passage of time or
the giving of notice or both, would constitute an Event of Default, has occurred
and is continuing on the date of execution hereof, and (b) the Borrower has no
set-off claim or other defense with respect to its obligations under the Note,
Amended Credit Agreement or any of the Loan Documents.
8. This First Amendment may be executed in any number of counterparts
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
[REMAINDER OF PAGE
LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the Lender and Borrower have duly executed this
First Amendment as of the day and year first above written.
WITNESS/ATTEST: McNEIL REAL ESTATE FUND XXVII, L. P.,
a Delaware limited partnership
By: McNeil Partners, L.P., a Delaware
limited partnership,
its general partner
By: McNeil Investors, Inc., a Delaware
corporation, its general partner
Illegible By: /s/ Ron Taylor
- -------------------------- --------------------------------
Title: President
----------------------------
PNC BANK, NATIONAL ASSOCIATION
left blank By: Illegible
- -------------------------- -------------------------------------
Title: Vice President
----------------------------------
<PAGE>
STATE OF Texas )
)
COUNTY OF Dallas )
On this 26th day of June, 1997, before me, a notary public, personally
appeared Ron K. Taylor who acknowledged himself before me to be the President of
McNeil Investors, Inc., a Delaware corporation, general partner of McNeil
Partners, L.P., a Delaware limited partnership, general partner of MCNEIL REAL
ESTATE FUND XXVII, L.P., a Delaware limited partnership, and that he, as such
officer, being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the limited partnership by
himself before me as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Mary Kay Schwartz
------------------------------------------
Notary Public
My Commission expires:
Notary Seal Here
FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT is made as of
the 21st day of June, 1997, by McNEIL REAL ESTATE FUND XXVII, L.P., a Delaware
limited partnership (the "Borrower") and PNC BANK, NATIONAL ASSOCIATION, a
national banking association (the "Lender").
WITNESSETH:
WHEREAS, pursuant to the terms of a Revolving Credit Loan Agreement
dated as of June 21, 1995 between Borrower and Bank (the "Credit Agreement"),
Bank had agreed to provide a revolving credit facility to Borrower in a
principal amount not to exceed $5,000,000 (the "Loan") as evidenced by a certain
Consolidated, Amended and Restated Revolving Credit Note dated as of June 21,
1995, executed and delivered by Borrower to Bank in the original principal
amount of $5,000,000 (the "Note") (all capitalized terms used herein shall have
the meanings ascribed thereto in the Credit Agreement unless defined to the
contrary herein); and
WHEREAS, the Borrower has requested that the Bank agree to extend the
Maturity Date of the Note provided for in the Note and Credit Agreement until
June 21, 1999; and
WHEREAS, as a condition to the consent of Bank to the extension of the
Maturity Date, Bank and Borrower have agreed to make certain modifications to
the Credit Agreement upon the terms and conditions hereinafter set forth; and
WHEREAS, to evidence the modifications to the Note, Borrower and Bank
have executed and entered into a certain First Amendment to Consolidated,
Amended and Restated Revolving Credit Note of even date herewith (the Note as
amended by the First Amendment to Consolidated, Amended and Restated Revolving
Credit Note is hereinafter collectively referred to as the "Amended Note").
NOW, THEREFORE, the parties hereto, for good and valuable
consideration, the receipt and sufficiency thereof being hereby acknowledged,
and intending to be legally bound hereby, covenant and agree as follows:
1. (a) The following definitions contained in Article 1, Paragraph 1.01
of the Credit Agreement are hereby deleted in their entirety:"Consolidated Net
Worth" and "Closing Fee".
(b) The following definition is hereby added to Article 1, Paragraph
1.01 of the Credit Agreement:
"Extension Fee" shall have the meaning assigned to that term
in Section 2.02(a) hereof.
<PAGE>
2. Paragraph 2.02(a) of the Note is hereby amended in its entirety to
provide in full as follows:
2.02(a) Extension Fee. Simultaneous with the execution and delivery
of this First Amendment to Credit Agreement, Borrower shall pay to Bank a
nonrefundable fee of $12,500 (the "Extension Fee").
(b) Paragraph 2.08 of the Credit Agreement is hereby deleted in its
entirety and Borrower hereby acknowledges and agrees that it shall have no right
to extend the Maturity Date beyond June 21, 1999.
3. Paragraph 3.03 of the Credit Agreement is hereby amended in its
entirety to provide in full as follow:
3.03 Maturity. The entire outstanding principal balance due under the
Revolving Credit Loan, together with all unpaid interest at the aforesaid rate
or rates shall be payable on June 21, 1999, unless accelerated upon an Event of
Default or sooner terminated under the terms hereof or terminated by Borrower
upon payment of the outstanding principal balance of the Revolving Credit Loan
and payment of Reimbursement Obligations and termination of all Letters of
Credit, together with all unpaid interest and fees which are due and payable as
the date of termination, including but not limited to the Commitment Fee
accruing to and including the termination date, (the date determined in
accordance herewith shall be called the "Maturity Date").
4. Paragraph 7.02 of the Credit Agreement is hereby amended by
deletion of subparagraph (a)(i) in its entirety.
5. All references in the Credit Agreement to the "Note" shall be deemed
to refer to and include the Amended Note.
6. Except as specifically modified herein, the Credit Agreement is
hereby ratified and confirmed and shall remain in full force and effect. The
Amended Note and Credit Agreement as amended by this First Amendment to Credit
Agreement shall continue to be secured by the Loan Documents and nothing
contained herein shall affect the priority of any lien or security interest
securing the Amended Note and Credit Agreement as amended by this First
Amendment to Credit Agreement. All references to the "Loan Agreement" or "Credit
Agreement" contained in the Loan Documents shall be deemed to refer to and
include the Credit Agreement as amended by this First Amendment to Credit
Agreement.
7. This First Amendment to Credit Agreement is to be construed and
enforced in all respects in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to the principles of conflicts of laws.
<PAGE>
8. This First Amendment to Credit Agreement is binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
9. The Borrower hereby represents and warrants to Bank that (a) no
Event of Default, and no event or condition which, with the passage of time or
the giving of notice or both, would constitute an Event of Default, has occurred
and is continuing on the date of execution hereof, and (b) the Borrower has no
set-off claim or other defense with respect to its obligations under the Credit
Agreement or any of the Loan Documents.
10. This First Amendment to Credit Agreement may be executed in any
number of counterparts each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument.
[REMAINDER OF PAGE
LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the Bank and Borrower have duly executed this First
Amendment to Credit Agreement as of the day and year first above written.
WITNESS/ATTEST: McNEIL REAL ESTATE FUND XXVII, L. P.,
a Delaware limited partnership
By: McNeil Partners, L.P., a Delaware
limited partnership, its general partner
Illegible By: /s/ Ron Taylor
- -------------------------- --------------------------------------
Title: President
----------------------------------
Illegible By: McNeil Investors, Inc., a
Delaware corporation its
general partner
WITNESS/ATTEST: By: /s/ Ron Taylor
--------------------------------------
Title: President
----------------------------------
PNC BANK, NATIONAL ASSOCIATION
Illegible By: Illegible
- -------------------------- --------------------------------------
Title: Vice President
-----------------------------------
<PAGE>
STATE OF Texas )
)
COUNTY OF Dallas )
On this 26th day of June, 1997, before me, a notary public, personally
appeared Ron K. Taylor who acknowledged himself before me to be the President of
McNeil Investors, Inc., a Delaware corporation, general partner of McNeil
Partners, L.P., a Delaware limited partnership, general partner of MCNEIL REAL
ESTATE FUND XXVII, L.P., a Delaware limited partnership, and that he, as such
officer, being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the limited partnership by
himself before me as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Mary Kay Schwartz
-----------------------------------------
Notary Public
My Commission expires:
Notary Seal Here
