UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-17173
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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
------------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
MCNEIL REAL ESTATE FUND XXVII, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ......................................................... $ 4,196,277 $ 4,196,277
Buildings and improvements ................................... 23,909,117 23,241,031
------------ ------------
28,105,394 27,437,308
Less: Accumulated depreciation and amortization ............. (9,809,025) (8,806,732)
------------ ------------
18,296,369 18,630,576
Assets held for sale ............................................ 4,552,257 4,549,881
Mortgage loan investments - affiliates .......................... 1,306,488 6,956,487
Cash and cash equivalents ....................................... 2,633,439 2,440,084
Cash segregated for security deposits and repurchase
of limited partnership units ................................. 297,222 442,193
Accounts receivable ............................................. 159,029 426,825
Accrued interest receivable ..................................... 12,148 64,991
Prepaid expenses and other assets ............................... 180,333 170,077
------------ ------------
$ 27,437,285 $ 33,681,114
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Revolving credit agreement ...................................... $ -- $ 3,437,648
Accounts payable and accrued expenses ........................... 54,437 107,549
Accrued property taxes .......................................... 458,800 --
Payable to limited partners ..................................... -- 332,928
Payable to affiliates ........................................... 1,008,063 542,045
Security deposits and deferred rental revenue ................... 256,808 261,767
------------ ------------
1,778,108 4,681,937
------------ ------------
Partners' equity (deficit):
Limited partners - 10,000,000 limited partnership units
authorized; 5,199,901 limited partnership units out-
standing at September 30, 1998 and
December 31, 1997 .......................................... 25,714,296 29,076,126
General Partner .............................................. (55,119) (76,949)
------------ ------------
25,659,177 28,999,177
------------ ------------
$ 27,437,285 $ 33,681,114
============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue ..................... $2,362,797 $2,124,972 $6,880,162 $6,325,314
Interest income on mortgage
loan investments - affiliates..... 39,927 195,255 377,846 573,335
Other interest income .............. 70,803 44,434 149,955 117,509
---------- ---------- ---------- ----------
Total revenue .................... 2,473,527 2,364,661 7,407,963 7,016,158
---------- ---------- ---------- ----------
Expenses:
Interest ........................... 1,345 107,801 163,672 222,419
Depreciation and
amortization ..................... 321,946 402,583 1,002,293 1,147,555
Property taxes ..................... 281,859 249,232 848,546 747,784
Personnel costs .................... 196,739 199,865 592,558 560,400
Utilities .......................... 124,444 129,521 322,395 350,400
Repairs and maintenance ............ 142,457 134,490 432,182 456,432
Property management
fees - affiliates ................ 129,917 114,067 383,238 342,665
Other property operating
expenses ......................... 138,532 166,607 415,653 486,508
General and administrative ......... 103,786 53,264 385,008 92,233
General and administrative -
affiliates ....................... 219,919 209,737 679,420 646,091
---------- ---------- ---------- ----------
Total expenses ................... 1,660,944 1,767,167 5,224,965 5,052,487
---------- ---------- ---------- ----------
Net income ............................ $ 812,583 $ 597,494 $2,182,998 $1,963,671
========== ========== ========== ==========
Net income allocable
to limited partners ................ $ 804,457 $ 591,519 $2,161,168 $1,944,034
Net income allocable
to General Partner ................. 8,126 5,975 21,830 19,637
---------- ---------- ---------- ----------
Net income ............................ $ 812,583 $ 597,494 $2,182,998 $1,963,671
========== ========== ========== ==========
Net income per weighted
average hundred limited
partnership units .................. $ 15.47 $ 11.29 $ 41.56 $ 37.12
========== ========== ========== ==========
Distributions per weighted
average hundred limited
partnership units .................. $ 63.00 $ 38.19 $ 106.21 $ 76.38
========== ========== ========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
------------ ------------ ----------------
<S> <C> <C> <C>
Balance at December 31, 1996 .......... $ (104,836) $ 30,648,258 $ 30,543,422
Net income ............................ 19,637 1,944,034 1,963,671
Distributions to limited partners...... -- (3,999,970) (3,999,970)
------------ ------------ ------------
Balance at September 30, 1997 ......... $ (85,199) $ 28,592,322 $ 28,507,123
============ ============ ============
Balance at December 31, 1997 .......... $ (76,949) $ 29,076,126 $ 28,999,177
Net income ............................ 21,830 2,161,168 2,182,998
Distributions to limited partners ..... -- (5,522,998) (5,522,998)
------------ ------------ ------------
Balance at September 30, 1998 ......... $ (55,119) $ 25,714,296 $ 25,659,177
============ ============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants .................... $ 7,091,726 $ 6,202,153
Cash paid to suppliers ........................ (2,177,976) (1,833,850)
Cash paid to affiliates ....................... (596,640) (1,053,408)
Interest received ............................. 149,955 117,509
Interest received from affiliates ............. 430,689 553,971
Interest paid ................................. (163,672) (183,658)
Property taxes paid ........................... (389,746) (327,984)
----------- -----------
Net cash provided by operating activities ........ 4,344,336 3,474,733
----------- -----------
Cash flows from investing activities:
Additions to real estate investments and
assets held for sale ........................ (670,462) (352,607)
Proceeds from collection of mortgage loan
investments - affiliates .................... 5,724,999 72,302
Mortgage loan investments - affiliates ........ (75,000) (2,336,029)
----------- -----------
Net cash provided by (used in) investing
activities .................................... 4,979,537 (2,616,334)
----------- -----------
Cash flows from financing activities:
Net decrease in cash segregated for
repurchase of limited partnership units ..... 163,056 161,961
Proceeds from revolving credit agreement ...... -- 2,336,029
Repayment of revolving credit agreement ....... (3,437,648) --
Repurchase of limited partnership units ....... (332,928) (332,928)
Distributions to limited partners ............. (5,522,998) (3,999,970)
----------- -----------
Net cash used in financing activities ............ (9,130,518) (1,834,908)
----------- -----------
Net increase (decrease) in cash and cash
equivalents ................................... 193,355 (976,509)
Cash and cash equivalents at beginning of
period ........................................ 2,440,084 3,022,851
----------- -----------
Cash and cash equivalents at end of period ....... $ 2,633,439 $ 2,046,342
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income .......................................... $ 2,182,998 $ 1,963,671
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 1,002,293 1,147,555
Amortization of deferred borrowing costs ......... -- 48,765
Changes in assets and liabilities:
Cash segregated for security deposits .......... (18,085) (13,819)
Accounts receivable ............................ 267,796 (57,650)
Accrued interest receivable .................... 52,843 (19,363)
Prepaid expenses and other assets .............. (10,256) 57,493
Accounts payable and accrued expenses .......... (53,112) (16,472)
Accrued property taxes ......................... 458,800 419,800
Payable to affiliates .......................... 466,018 (64,652)
Security deposits and deferred rental
revenue ...................................... (4,959) 9,405
----------- -----------
Total adjustments ............................ 2,161,338 1,511,062
----------- -----------
Net cash provided by operating activities ........... $ 4,344,336 $ 3,474,733
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
Notes to Financial Statements
September 30, 1998
(Unaudited)
NOTE 1.
- -------
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 principal place of business for
the Partnership and the General Partner is 13760 Noel Road, Suite 600, Dallas,
Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1997, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund XXVII, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
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.
<PAGE>
The Partnership is paying an asset management fee, which is payable to the
General Partner. Through 1999, the asset management fee is calculated as 1% of
the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9% to the annualized net operating income of each property or (ii) a value of
$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. Total accrued but unpaid asset management fees of $615,844 and $154,092
were outstanding at September 30, 1998 and December 31, 1997, respectively.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
Nine Months Ended
September 30,
---------------------------
1998 1997
---------- ----------
Property management fees ..................... $ 383,238 $ 342,665
Charged to general and administrative -
affiliates:
Partnership administration ................ 217,668 197,733
Asset management fee ...................... 461,752 448,358
---------- ----------
$1,062,658 $ 988,756
========== ==========
Under the terms of its 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 prime plus 2.5%, or prime plus 3.5% if the loan is junior to other
indebtedness. These loans are secured by income-producing real estate and may be
either junior or senior to other indebtedness secured by such property. The
Partnership made loans to affiliates of $75,000 during the first nine months of
1998 and $2,336,029 during the first nine months of 1997. The Partnership
received repayments from affiliates of $5,724,999 and $72,302 during the first
nine months of 1998 and 1997, respectively.
In order to induce the Partnership to lend funds to affiliates of the General
Partner, 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 and the interest rate actually paid by certain of those
affiliates, and (ii) all points (1.5% or 2% if the loan is junior to other
indebtedness), closing costs and expenses. The Partnership recorded interest
income on affiliate loans of $377,846 and $573,335 for the nine months ended
September 30, 1998 and 1997, respectively, of which $57,821 and $112,935,
respectively, was paid or payable by the General Partner.
Payable to affiliates at September 30, 1998 and December 31, 1997 consisted
primarily of a performance incentive fee of $141,647 accrued in prior years,
Partnership general and administrative expenses, asset management fees and
prepaid interest. Except for the performance incentive fee and prepaid interest,
all accrued fees are due and payable from current operations.
<PAGE>
NOTE 4.
- -------
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 September
1997. This loan was secured by a first lien on Brice Road Office Building
located in Reynoldsburg, Ohio. Interest on the loan was payable monthly, with
principal payable in May 1998. In May 1998, McPIF repaid the $411,062 balance of
the loan with proceeds received from a new loan from the Partnership secured by
Verre Center Office Building, as discussed below.
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 and an additional $75,000 was
borrowed in January 1998. In May 1998, the principal balance of the loan was
increased by $411,062, for total borrowings from the Partnership of $1,306,488.
McPIF used the $411,062 additional proceeds to repay the balance of the mortgage
loan investment secured by Brice Road Office Building, as discussed above. 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. This loan was secured by a first lien
on La Plaza Business Center located in Las Vegas, Nevada. Interest on the loan
was payable monthly, with principal payable in February 2000. The loan was
repaid in full in June 1998.
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 was
secured by a first lien on The Village Apartments located in Gresham, Oregon.
Interest on the loan was payable monthly, with principal payable in November
1999. The loan was repaid in full in May 1998.
NOTE 5.
- -------
In June 1998, the Partnership paid off the $3,437,648 balance of its revolving
credit agreement.
<PAGE>
NOTE 6.
- -------
In 1996, the Partnership adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires the cessation of depreciation on assets held for sale.
Since AAA Century Airport Self-Storage and Burbank Mini-Storage were placed on
the market for sale, no depreciation was taken effective August 1, 1997.
NOTE 7.
- -------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
<PAGE>
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
There has been no significant change in the operations of the Partnership's
properties since December 31, 1997. The Partnership reported net income for the
first nine months of 1998 of $2,182,998 as compared to $1,963,671 for the first
nine months of 1997. Revenues were $7,407,963 for the first nine months of 1998,
up from $7,016,158 for the same period in 1997. Expenses were $5,224,965 in 1998
as compared to $5,052,487 in 1997.
Net cash provided by operating activities was $4,344,336 for the nine months
ended September 30, 1998. The Partnership expended $670,462 for capital
improvements, paid $169,872 for the repurchase of limited partnership units (net
of a decrease in cash segregated for the repurchase of limited partnership
units) and distributed $5,522,998 to the limited partners. The Partnership
received $5,649,999 in proceeds from collection of mortgage loan investments -
affiliates, net of loans made, and used $3,437,648 to pay off the balance of its
revolving credit agreement. Cash and cash equivalents totaled $2,633,439 at
September 30, 1998, a net increase of $193,355 from the balance at December 31,
1997.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total revenue increased by $108,866 and $391,805 for the three and nine months
ended September 30, 1998, respectively, as compared to the same periods in the
prior year. The increase was due to an increase in rental revenue and other
interest income, partially offset by a decrease in interest income on mortgage
loan investments - affiliates, as discussed below.
Rental revenue for the three and nine months ended September 30, 1998 increased
by $237,825 and $554,848, respectively, in relation to the comparable periods in
1997. Rental revenue increased approximately $302,000 and $91,000 at One
Corporate Center I and III office buildings, respectively, mainly due to
increased rental rates.
Interest income on mortgage loan investments - affiliates decreased by $155,328
for the three months and by $195,489 for the nine months ended September 30,
1998 as compared to the same periods in 1997. The decrease was mainly due to the
collection of approximately $5.7 million of affiliate loans in the second
quarter of 1998.
<PAGE>
Other interest income increased by $26,369 and $32,446 for the three and nine
months ended September 30, 1998, respectively, as compared to the same periods
in 1997 as a result of an increase in cash available for short-term investment
in 1998. The Partnership held approximately $2.6 million of cash and cash
equivalents at September 30, 1998 as compared to approximately $2 million at
September 30, 1997. The majority of the increase occurred at the end of the
second quarter of 1998 when the Partnership collected approximately $5.7 million
of affiliate loans. Approximately $3.4 million of this amount was used to pay
off the revolving credit agreement in June 1998. The Partnership distributed
approximately $5.5 million to the limited partners in 1998, approximately $3.3
million of which was distributed at the end of September 1998.
Expenses:
Total expenses decreased by $106,223 and increased by $172,478 for the three and
nine months ended September 30, 1998, respectively, as compared to the same
periods in the prior year, as discussed below.
Interest expense for the three and nine months ended September 30, 1998
decreased by $106,456 and $58,747, respectively, in relation to the respective
periods in the prior year, due to the payoff of the Partnership's line of credit
in June 1998.
Depreciation and amortization expense decreased by $80,637 and $145,262 for the
three and nine months ended September 30, 1998, respectively, in relation to the
same periods in 1997. The decrease was mainly due to AAA Century Airport
Self-Storage and Burbank Mini-Storage 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
these assets at the time they were placed on the market for sale.
Property taxes for the three and nine month periods ended September 30, 1998
increased by $32,627 and $100,762, respectively, as compared to the same periods
in 1997. The increase was mainly due to an increase in the assessed taxable
value of One Corporate Center I and III office buildings by taxing authorities.
In the three and nine months ended September 30, 1998, property management fees
- - affiliates increased by $15,850 and $40,573, respectively, in relation to the
same periods in the prior year. The increase was mainly due to an increase in
gross rental receipts at One Corporate Center I and III office buildings, on
which the fees are based.
Other property operating expenses decreased by $28,075 and $70,855 for the three
and nine months ending September 30, 1998, respectively, as compared to the
periods in the prior year. The decrease was primarily due to a decline in bad
debts at all of the properties in 1998. In addition, there was a decrease in
earthquake insurance costs at Burbank and AAA Century Airport mini-storages in
1998. Amortization of prepaid leasing commissions declined at the two office
buildings due to the expiration of several leases in 1998.
General and administrative expenses increased by $50,522 and $292,775 for the
three and nine months ended September 30, 1998, respectively, as compared to the
same periods in 1997. The increase was mainly due to costs incurred to explore
alternatives to maximize the value of the Partnership (see Liquidity and Capital
Resources).
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $4,344,336 of cash through operating activities in the
first nine months of 1998 as compared to $3,474,733 for the same period in 1997.
Cash received from tenants increased in 1998 partially due to an increase in
rental revenue, as discussed above. In addition, a tenant reimbursed One
Corporate Center I approximately $183,000 in 1998 for tenant improvements
completed on its behalf. There was also a decrease in cash paid to affiliates in
1998. These increases in cash provided by operating activities were partially
offset by an increase in cash paid to suppliers, mainly due to an increase in
general and administrative costs, as discussed above.
The Partnership expended $670,462 and $352,607 for capital improvements to its
properties in the first nine months of 1998 and 1997, respectively. The increase
in 1998 was mainly the result of the replacement of the roofs at AAA Sentry and
Fountainbleau mini-storages.
In the first nine months of 1997, the Partnership received $2,336,029 from its
revolving credit agreement, which it loaned to an affiliate of the General
Partner. The Partnership also received $72,302 in repayments on loans to
affiliates in the first nine months of 1997.
In June 1998, the Partnership repaid the $3,437,648 balance of its revolving
credit agreement. The Partnership loaned $75,000 to an affiliate of the General
Partner and received $5,724,999 in repayments on loans to affiliates in the
first nine months of 1998.
The Partnership distributed $5,522,998 and $3,999,970 to the limited partners in
the first nine months of 1998 and 1997, respectively.
Short-term liquidity:
At September 30, 1998, the Partnership held cash and cash equivalents of
$2,633,439. 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 $1.2 million for
necessary capital improvements for all properties in 1998 which is 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.
<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. The revolving credit agreement expires in July 1999.
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.
As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, has provided
financial and other information to interested parties and is currently
conducting discussions with one such party in an attempt to reach a definitive
agreement with respect to a sale transaction. It is possible that the General
Partner and its affiliates will receive non-cash consideration for their
ownership interests in connection with any such transaction. There can be no
assurance that any such agreement will be reached nor the terms thereof.
The Partnership has placed AAA Century Airport Self-Storage and Burbank
Mini-Storage on the market for sale effective August 1, 1997.
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after September 30, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties, and respond to changing economic and competitive factors.
Other Information:
Management has reviewed its information technology infrastructure to identify
any systems that could be affected by the year 2000 problem. The year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in major systems failure or miscalculations. The
information systems used by the Partnership for financial reporting and
significant accounting functions were made year 2000 compliant during recent
systems conversions.
<PAGE>
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management intends to inventory
all such systems and query suppliers, vendors and manufacturers to determine
year 2000 compliance. In circumstances of non-compliance management will work
with the vendor to remedy the problem or seek alternative suppliers who will be
in compliance. Management believes that the remediation of any outstanding year
2000 conversion issues will not have a material or adverse effect on the
Partnership's operations. However, no estimates can be made as to the potential
adverse impact resulting from the failure of third party service providers and
vendors to be year 2000 compliant. Management is in the process of identifying
those risks as well as developing a contingency plan to mitigate potential
adverse effects from non-compliance.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
<PAGE>
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- ---------------------------------
(a) Exhibits.
Exhibit
Number Document Description
------- --------------------
4.2 Amended and Restated Partnership Agreement
of McNeil XXVII, L.P. dated March 30, 1992.
(Incorporated by reference to the Current
Report of the registrant on Form 8-K dated
March 30, 1992, as filed on April 10, 1992).
11. Statement regarding computation of Net
Income (Loss) per Hundred Limited
Partnership Units. Net income (loss) per one
hundred limited partnership units is
computed by dividing net income (loss)
allocated to the limited partners by the
weighted average number of limited
partnership units outstanding (expressed in
hundreds). Per unit information has been
computed based on 51,999 and 52,369 weighted
average limited partnership units (in
hundreds) outstanding in 1998 and 1997.
27. Financial Data Schedule for the quarter
ended September 30, 1998.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended September 30, 1998.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
McNEIL REAL ESTATE FUND XXVII, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 16, 1998 By: /s/ Ron K. Taylor
- ----------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 16, 1998 By: /s/ Carol A. Fahs
- ----------------- -------------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,633,439
<SECURITIES> 0
<RECEIVABLES> 159,029
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,105,394
<DEPRECIATION> (9,809,025)
<TOTAL-ASSETS> 27,437,285
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,659,177
<TOTAL-LIABILITY-AND-EQUITY> 27,437,285
<SALES> 6,880,162
<TOTAL-REVENUES> 7,407,963
<CGS> 2,994,572
<TOTAL-COSTS> 3,996,865
<OTHER-EXPENSES> 1,064,428
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163,672
<INCOME-PRETAX> 2,182,998
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,182,998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,182,998
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
