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, 1998
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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.
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(Exact name of registrant as specified in its charter)
Delaware 33-0214387
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Limited partnership
units
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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 ]
4,492,275 of the registrant's 5,162,909 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 43
TOTAL OF 45 PAGES
<PAGE>
PART I
ITEM 1. BUSINESS
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ORGANIZATION
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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, 1998,
385,979 of the Units have been repurchased pursuant to the terms of the Amended
Partnership Agreement.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
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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
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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. The balance of the revolving credit
agreement was repaid by the Partnership in 1998 and the agreement was cancelled
by the Partnership in March 1999 as further discussed in 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, 1998, the Partnership had one mortgage loan
investment to an affiliate 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:
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, provided financial
and other information to interested parties as part of an auction process and
until early March 1999 was conducting discussions with one bidder in an attempt
to reach a definitive agreement with respect to a sale transaction. In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership terminated such discussions and
commenced discussions with respect to a sale transaction with another
well-financed bidder who had been involved in the original auction process.
During the last full week of March, the Partnership entered into a 45 day
exclusivity agreement with such party. 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
regarding whether any such agreement will be reached nor the terms thereof.
The Partnership 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, 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, collect payments on mortgage loan investments and respond to
changing economic and competitive factors.
<PAGE>
Environmental Matters:
Environmental laws create potential liabilities that may affect property owners.
The environmental laws of Federal and certain state governments, for example,
impose liability on current and certain past owners of property from which there
is a release or threat of release of hazardous substances. This liability
includes costs of investigation and remediation of the hazardous substances and
natural resource damages. Liability for costs of investigation and remediation
is strict and may be imposed irrespective of whether the property owner was at
fault, although there are a number of defenses. Both governments and third
parties may seek recoveries under these laws.
Third parties also may seek recovery under the common law for damages to their
property or person, against owners of property from which there has been a
release of hazardous and other substances.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral.
Various buildings at properties do or may contain building materials that are
the subject of various regulatory programs intended to protect human health.
Such building materials include, for example, asbestos, lead-based paint, and
lead plumbing components. The Company has implemented programs to deal with the
presence of those materials, which include, as appropriate, reduction of
potential exposure situations. The Company does not believe that the costs of
such programs are likely to have a material adverse effect. Failure to implement
such programs can result in regulatory violations or liability claims resulting
from alleged exposure to such materials.
In connection with the proposed sale transaction as more fully described above,
Phase I environmental site assessments have been completed for each property
owned by the Partnership. Such environmental assessments performed on the
properties have not revealed any environmental liability that the Partnership
believes would have a material adverse effect on the Partnership's business,
assets, or results of operations. The Partnership has not been notified by any
governmental authority of any non-compliance, liability or other claim in
connection with any of its properties. There can be no assurances, however, that
environmental liabilities have not developed since such environmental
assessments were prepared, or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability.
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 February 1, 1999, High River has purchased 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.
<PAGE>
ITEM 2. PROPERTIES
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The following table sets forth the real estate investment portfolio of the
Partnership at December 31, 1998. 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 secured a $5 million line of credit. The balance of the line of
credit was repaid during 1998 and the line of credit agreement was cancelled in
March 1999 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 1998 Date
Property Description of Property Debt Property Taxes Acquired
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Real Estate Investments:
AAA Sentry Mini-Storage
<S> <C> <C> <C> <C> <C>
N. Lauderdale, FL 795 units $ 590,309 $ - $ 60,069 10/90
Forest Hill Mini-Storage
W. Palm Beach, FL 683 units 1,847,895 - 41,559 8/90
Fountainbleau Mini-Storage
Miami, FL 771 units 1,296,523 - 64,709 11/90
Kendall Sunset Mini-Storage
Miami, FL 945 units 3,317,124 - 74,435 10/90
Margate Mini-Storage
Margate, FL 640 units 1,135,156 - 52,533 10/90
Military Trail Mini-Storage
W. Palm Beach, FL 685 units 1,796,286 - 42,767 8/90
One Corporate
Center I Office Building
Edina, MN 111,146 sq. ft. 4,179,729 - 358,309 12/89
One Corporate
Center III Office Building
Edina, MN 111,252 sq. ft. 4,079,032 - 346,832 12/89
-------------- ------------ -----------
$ 18,242,054 $ - $ 1,041,213
============== ============ ===========
Assets Held for Sale:
AAA Century
Airport Mini-Storage
Inglewood, CA 567 units $ 1,913,276 $ - $ 33,776 9/90
Burbank Mini-Storage
Burbank, CA 983 units 2,700,110 - 42,338 9/90
-------------- ------------ -----------
$ 4,613,386 $ - $ 76,114
============== ============ ===========
</TABLE>
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Total: Office Buildings - 222,398 sq. ft.
Mini-storage and self-storage warehouses - 6,069 units
<PAGE>
The following table sets forth the properties' occupancy rate and rent per
square foot for the last five years:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- -------------- ------------- -------
Real Estate Investments:
AAA Sentry
<S> <C> <C> <C> <C> <C>
Occupancy Rate............ 91% 94% 96% 96% 95%
Rent Per Square Foot...... $ 8.60 $ 8.23 $ 8.01 $ 7.70 $ 7.00
Forest Hill
Occupancy Rate............ 94% 100% 98% 97% 99%
Rent Per Square Foot...... $10.70 $10.72 $10.41 $ 9.82 $ 9.22
Fountainbleau
Occupancy Rate............ 93% 93% 96% 97% 99%
Rent Per Square Foot...... $10.00 $ 9.27 $ 8.98 $ 8.38 $ 8.08
Kendall Sunset
Occupancy Rate............ 92% 94% 92% 95% 96%
Rent Per Square Foot...... $12.43 $12.06 $11.75 $11.72 $11.71
Margate
Occupancy Rate............ 94% 88% 94% 90% 100%
Rent Per Square Foot...... $10.51 $10.42 $ 9.95 $ 9.90 $10.06
Military Trail
Occupancy Rate............ 85% 88% 88% 91% 90%
Rent Per Square Foot...... $ 9.73 $ 9.82 $10.11 $ 9.35 $ 8.46
One Corporate Center I
Occupancy Rate............ 99% 98% 100% 93% 95%
Rent Per Square Foot...... $16.99 $13.07 $11.88 $10.92 $10.34
One Corporate Center III
Occupancy Rate............ 88% 94% 95% 97% 96%
Rent Per Square Foot...... $14.65 $13.72 $12.31 $11.17 $11.03
Assets Held for Sale:
AAA Century Airport
Occupancy Rate............ 98% 95% 96% 94% 95%
Rent Per Square Foot...... $10.95 $10.31 $10.12 $10.19 $ 8.87
Burbank
Occupancy Rate............ 99% 92% 87% 81% 81%
Rent Per Square Foot...... $12.07 $11.25 $10.80 $10.29 $10.32
</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, net of bad debt expense,
derived from the property's operations divided by the leasable square footage of
the property.
<PAGE>
Competitive Conditions
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Real Estate Investments:
AAA Sentry
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AAA Sentry Mini-Storage consists of five, two-story self-storage warehouse
buildings and one apartment/leasing office. The rentable space is divided into
795 units, with 85% of these units air conditioned.
The property is located in North Lauderdale, Florida, in a predominately
commercial area, with a mixture of single and multi-family residential
properties. Occupancy decreased in 1998 as a result of new competition in the
area that 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.
Two new competing facilities are scheduled to open in 1999. AAA Sentry's
occupancy and rental rates are competitive with properties of the same age in
the area. For 1999, management will continue to provide excellent customer
service. Rental rates will be closely monitored and adjusted according to market
conditions with concessions and discounts offered to attract new renters. The
Partnership expects to maintain occupancy in the low 90% range in 1999.
Forest Hill
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Forest Hill Mini-Storage consists of nine, one-story self-storage warehouse
buildings and one apartment/leasing office. The rentable space is divided into
683 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. Occupancy
decreased in 1998 as a result of new competition in the area that has created a
surplus in storage units. Two new competing facilities were built in 1998 and
another new facility is scheduled to open in 1999. Currently, Forest Hill's
rental rates are slightly higher than the competition. The Partnership expects
to maintain occupancy in the mid 90% range in 1999 by offering rental
concessions to tenants and continuing to emphasize customer service.
Fountainbleau
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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 middle of 1999. The immediate neighborhood is
predominately industrial with single family residential and multi-family
communities further to the south and north. The customer profile currently
consists of local businesses.
<PAGE>
The area has been saturated by new mini-storage construction along with
renovation of existing facilities. A competing facility located within three
miles of Fountainbleau opened in 1998 and is still in the lease-up stage.
Another competitor was recently sold and is offering discounts to new renters.
In 1998, the street in front of the property was under construction and
Fountainbleau maintained occupancy in the low 90% range by offering discounts
and concessions to renters. The property is expected to benefit from direct
drive-by exposure when the road construction is completed in 1999. The
Partnership expects to maintain occupancy in the low 90% range in 1999 while
offering minimal discounts and free rent.
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
945 units. 35% of the units are air conditioned.
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, the
property has been faced with new competitors added to the market in 1996. Rent
concessions and discounts have been offered to maintain occupancy and compete
within the market. 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 1999 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 Margate, Florida in a predominately commercial/retail
neighborhood with single family homes and multi-family communities along the
secondary streets. The property's rental rates are slightly higher than the
competition, however, discounts and concessions have been given to attract new
renters as a result of competition from new self-storage facilities over the
past several years. The property has an excellent reputation in the marketplace
and management expects to maintain occupancy in the mid 90% range in 1999.
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 of
West Palm Beach, Florida. 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. Beginning in 1996, occupancy began to drop due to four new
facilities being built in the area, and another older facility being renovated.
An increased amount of discounts and concessions have been given to attract and
retain renters. For 1999, the Partnership will continue to offer discounts and
concessions and expects to increase occupancy to the high 80% range in 1999.
<PAGE>
One Corporate Center I and One Corporate Center III
- ---------------------------------------------------
One Corporate Center I and III are six-story 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.
Rental rates increased over the past three years 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 and tenants moving to
single-story or owner-occupied buildings. A generous parking ratio has helped
the buildings compete with properties that have covered parking but lower
parking ratios. A tenant that occupied approximately 12% of the available rental
space of One Corporate Center I vacated upon the expiration of their lease in
January 1999. The vacated space is expected to be released in 1999. Management
will attempt to renew any other expiring 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 1999 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 91%,
and the Partnership expects to maintain occupancy in the high 90% range in 1999.
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 983 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. The property suffers from
lack of exposure and ease of access because it is located in an area that is not
visible from the freeway or any major cross streets. Management increased
occupancy in 1998 by discounting the upstairs units with poor accessibility that
are seldom rented. One of the four competing self-storage properties in the area
has superior visibility and highway access. Another competitor, recently opened
for business, is currently installing security alarms on each unit. 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. In 1999, management
will install new signs to improve visibility to drive-by traffic. Burbank's
occupancy is currently above the average occupancy in the area of 86%, and the
Partnership expects to maintain occupancy in the high 90% range in 1999.
<PAGE>
The following schedule shows lease expirations for each of the Partnership's
commercial properties for 1999 through 2008:
<TABLE>
<CAPTION>
Number of Annual % of Gross
Expirations Square Feet Rent Annual Rent
----------- ----------- ------- -----------
One Corporate Center I
<C> <C> <C> <C> <C>
1999 4 17,672 $ 221,836 13%
2000 3 5,705 88,380 5%
2001 10 31,764 528,506 30%
2002 6 36,879 635,126 37%
2003 1 12,624 253,470 15%
2004-2008 - - - -
One Corporate Center III
1999 5 18,365 $ 236,668 15%
2000 3 12,301 188,981 12%
2001 8 21,728 420,364 27%
2002 4 19,769 287,748 19%
2003 3 16,203 298,763 19%
2004 2 6,577 122,129 8%
2005-2008 - - - -
</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
- ---------- -------------- ------------- ----------
One Corporate Center I
<S> <C> <C> <C>
Bank 13,666 $ 160,576 1999
General Office 10,750 202,805 2002
General Office 19,626 314,016 2002
General Office 12,624 253,470 2003
</TABLE>
One Corporate Center III
None
<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:
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 XXIII, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and
Regency North Associates, L.P., - 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 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 for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.
<PAGE>
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil
Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of
the transaction contemplated in the settlement and Plaintiffs claim that an
effort should be made to sell the McNeil Partnerships, Plaintiffs have included
allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P.
in the third consolidated and amended complaint.
Plaintiff's counsel intends 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
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 2,079 as of February 1, 1999
(C) Distributions paid to the limited partners totaled $5,522,998 in 1998
and $3,999,970 in 1997 from cash from operations. No distributions were
paid to the General Partner in 1998 or 1997. During the last week of
March 1999, the Partnership distributed approximately $1,508,000 to the
limited partners of record as of March 1, 1999. 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."
<PAGE>
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 1998 1997 1996 1995 1994
- ------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue .................. $ 9,135,799 $ 8,366,664 $ 7,943,383 $ 7,517,404 $ 7,234,070
Interest income on mort-
gage loan investments ........ 414,070 766,211 268,665 440,658 451,841
Income before extra-
ordinary item ................ 2,815,090 2,788,653 2,245,414 3,268,110 1,355,563
Extraordinary item .............. -- -- -- (252,402) --
Net income ...................... 2,815,090 2,788,653 2,245,414 3,015,708 1,355,563
Net income per weighted
average hundred limited
partnership units:
Income before extra-
ordinary item .............. $ 53.60 $ 52.72 $ 42.15 $ 60.93 $ 25.09
Extraordinary item ........... -- -- -- (4.71) --
----------- ----------- ----------- ----------- -----------
Net income ................... $ 53.60 $ 52.72 $ 42.15 $ 56.22 $ 25.09
=========== =========== =========== =========== ===========
Distributions per weighted
average hundred limited
partnership units ............ $ 106.21 $ 76.38 $ 113.77 $ -$ -
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ------------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Real estate investments, net... $ 18,242,054 $18,630,576 $ 23,888,948 $ 24,977,575 $ 25,921,989
Assets held for sale........... 4,613,386 4,549,881 - - -
Mortgage loan investments,
net......................... 1,306,488 6,956,487 4,692,760 3,597,673 4,679,929
Total assets................... 27,841,371 33,681,114 32,641,270 35,489,741 39,501,853
Long-term debt................. - 3,437,648 1,101,619 - 6,726,266
Partners' equity............... 25,958,341 28,999,177 30,543,422 34,630,930 31,948,150
</TABLE>
<PAGE>
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. The balance of the revolving credit
agreement was repaid by the Partnership in 1998 and the agreement was cancelled
by the Partnership in 1999 as more fully discussed in Item 8 - Note 7 -
"Revolving Credit Agreement."
RESULTS OF OPERATIONS
- ---------------------
1998 compared to 1997
Revenue:
Total revenue increased by $453,965 in 1998 as compared to 1997. The increase
was mainly 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 increased by $769,135 in 1998 as compared to 1997, mainly due to
increases of approximately $436,000 and $103,000 at One Corporate Center I and
III office buildings, respectively, as a result of increases in rental rates.
Rental rate increases also resulted in increased rental revenue at all of the
mini-storage properties in 1998 except for Forest Hill and Military Trail.
Rental revenue at these two properties decreased slightly due to an increase in
discounts and concessions given to tenants at Forest Hill and a decrease in
occupancy at Military Trail. See Item 2 - Properties for a more detailed
analysis of occupancy and rents per square foot.
Interest income on mortgage loan investments - affiliates in 1998 decreased by
$352,141 in relation to 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 $36,971 in 1998 as compared to 1997. The
increase is mainly due to an increase in cash available for short-term
investment in 1998. The Partnership held approximately $2.8 million of cash and
cash equivalents at December 31, 1998 as compared to approximately $2.4 million
at December 31, 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 increased by $427,528 in 1998 as compared to 1997. The increase
was mainly due to increased property taxes, personnel costs, property management
fees - affiliates and general and administrative expenses, partially offset by a
decrease in interest and other property operating expenses, as discussed below.
Interest expense decreased in 1998 by $102,423 in relation to 1997, due to the
payoff of the Partnership's line of credit in June 1998.
In 1998, property taxes increased by $139,244 in relation to the prior year. 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.
Personnel costs increased by $97,768 in 1998 as compared to 1997. The increase
was mainly due to the hiring of maintenance personal at AAA Century Airport and
Margate mini-storages.
Property management fees - affiliates increased by $46,437 in 1998 as compared
to 1997. 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 $59,907 in 1998 in relation to
1997. The decrease was primarily due to a decline in amortization of prepaid
leasing commissions at the two office buildings due to the expiration of several
leases in 1998. In addition, there was a decrease in earthquake insurance costs
at AAA Century Airport and Burbank mini-storages in 1998.
General and administrative expenses increased by $404,840 in 1998 as compared to
1997. The increase was mainly due to costs incurred to explore alternatives to
maximize the value of the Partnership (see Liquidity and Capital Resources).
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.
<PAGE>
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.
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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $5,078,996 of cash through operating activities in
1998, $4,409,938 in 1997 and $4,134,772 in 1996. The increase in 1998 as
compared to 1997 was mainly due to an increase in cash received from tenants and
a decrease in cash paid to affiliates. The increases were partially offset by a
decrease in interest received from affiliates and an increase in cash paid to
suppliers and property taxes paid. The increase in 1997 as compared to 1996 was
mainly due to an increase in cash received from tenants and interest received
from affiliates. These 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).
The Partnership expended $1,025,133, $724,380 and $540,072 for additions to its
real estate investments and assets held for sale in 1998, 1997 and 1996,
respectively. The increase in 1998 as compared to 1997 and 1996 was mainly due
to roofs being replaced at AAA Sentry and Fountainbleau mini storages. A greater
amount of tenant improvements were completed at the two office buildings in 1998
and 1997 as compared to 1996. In addition, a lighting upgrade was completed at
One Corporate Center I 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 collected (net of new loans made) $5,649,999 from affiliates in
1998 for repayments of mortgage loan investments - affiliates. The Partnership
made loans to affiliates (net of collections) of $2,263,727 and $2,456,858 in
1997 and 1996, respectively.
In 1997 and 1996, the Partnership received $2,336,029 and $1,101,619,
respectively, from its revolving credit agreement. In 1998, the Partnership
repaid the $3,437,648 balance of this revolving credit agreement.
The Partnership distributed $5,522,998, $3,999,970, and $5,999,994 to the
limited partners in 1998, 1997, and 1996, respectively, from cash from
operations.
Short-term liquidity:
At December 31, 1998, the Partnership held cash and cash equivalents of
$2,844,032. 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 1999. The Partnership has budgeted approximately $1,047,000 for
necessary capital improvements for all properties in 1999, 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 1999, the Partnership distributed approximately
$1,508,000 to the limited partners of record as of March 1, 1999.
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.
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.
<PAGE>
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, provided financial
and other information to interested parties as part of an auction process and
until early March 1999 was conducting discussions with one bidder in an attempt
to reach a definitive agreement with respect to a sale transaction. In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership terminated such discussions and
commenced discussions with respect to a sale transaction with another
well-financed bidder who had been involved in the original auction process.
During the last full week of March, the Partnership entered into a 45 day
exclusivity agreement with such party. 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
regarding whether any such agreement will be reached nor the terms thereof.
The Partnership placed AAA Century Airport Self-Storage and Burbank Mini-Storage
on the market for sale effective August 1, 1997.
YEAR 2000 DISCLOSURE
- --------------------
State of readiness
- ------------------
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.
Management has assessed its information technology ("IT") infrastructure to
identify any systems that could be affected by the year 2000 problem. The IT
used by the Partnership for financial reporting and significant accounting
functions was made year 2000 compliant during recent systems conversions. The
software utilized for these functions are licensed by third party vendors who
have warranted that their systems are year 2000 compliant.
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management has inventoried all
such systems and queried suppliers, vendors and manufacturers to determine year
2000 compliance. Management will complete assessment of findings by May 1, 1999.
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.
Cost
- ----
The cost of IT and embedded technology systems testing and upgrades is not
expected to be material to the Partnership. Because all the IT systems have been
upgraded over the last three years, all such systems were compliant, or made
compliant at no additional cost by third party vendors. Management anticipates
the costs of assessing, testing, and if necessary replacing embedded technology
components will be less than $50,000. Such costs will be funded from operations
of the Partnership.
<PAGE>
Risks
- -----
Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is addressed by government agencies and entities that
provide services or supplies to the Partnership. Management has not determined
the most likely worst case scenario to the Partnership. As management studies
the findings of its property systems assessment and testing, management will
develop a better understanding of what would be the worst case scenario.
Management believes that progress on all areas is proceeding and that the
Partnership will experience no adverse effect as a result of the year 2000
issue. However, there is no assurance that this will be the case.
Contingency plans
- -----------------
Management is developing contingency plans to address potential year 2000
non-compliance of IT and embedded technology systems. Management believes that
failure of any IT system could have an adverse impact on operations. However,
management believes that alternative systems are available that could be
utilized to minimize such impact. Management believes that any failure in the
embedded technology systems could have an adverse impact on that property's
performance. Management will assess these risks and develop plans to mitigate
possible failures by June, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- -----------------------------------------------------------
Not Applicable.
<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....................................... 21
Balance Sheets at December 31, 1998 and 1997................................... 22
Statements of Operations for each of the three years in the period
ended December 31, 1998..................................................... 23
Statements of Partners' Equity (Deficit) for each of the three years
in the period ended December 31, 1998....................................... 24
Statements of Cash Flows for each of the three years in the period
ended December 31, 1998..................................................... 25
Notes to Financial Statements.................................................. 27
Financial Statement Schedule -
Schedule III - Real Estate Investments and Accumulated
Depreciation and Amortization............................................ 37
</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, 1998 and 1997,
and the related statements of operations, partners' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, 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 19, 1999
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
------------ ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ....................................................... $ 4,196,277 $ 4,196,277
Buildings and improvements ................................. 24,202,659 23,241,031
------------ ------------
28,398,936 27,437,308
Less: Accumulated depreciation and amortization ........... (10,156,882) (8,806,732)
------------ ------------
18,242,054 18,630,576
Assets held for sale .......................................... 4,613,386 4,549,881
Mortgage loan investments - affiliates ........................ 1,306,488 6,956,487
Cash and cash equivalents ..................................... 2,844,032 2,440,084
Cash segregated for security deposits and
repurchase of limited partnership units .................... 467,207 442,193
Accounts receivable ........................................... 178,537 426,825
Accrued interest receivable ................................... 12,206 64,991
Prepaid expenses and other assets ............................. 177,461 170,077
------------ ------------
$ 27,841,371 $ 33,681,114
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Revolving credit agreement .................................... $ -- $ 3,437,648
Accounts payable and accrued expenses ......................... 70,657 107,549
Payable to limited partners ................................... 332,928 332,928
Payable to affiliates ......................................... 1,230,795 542,045
Security deposits and deferred rental revenue ................. 248,650 261,767
------------ ------------
1,883,030 4,681,937
------------ ------------
Partners' equity (deficit):
Limited partners - 10,000,000 limited partnership
units authorized; 5,162,909 and 5,199,901 limited
partnership units outstanding at December 31, 1998
and 1997, respectively ................................... 26,007,139 29,076,126
General Partner ............................................ (48,798) (76,949)
------------ ------------
25,958,341 28,999,177
------------ ------------
$ 27,841,371 $ 33,681,114
============ ============
</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,
----------------------------------------------
1998 1997 1996
---------- ---------- ----------
Revenue:
<S> <C> <C> <C>
Rental revenue ......................... $9,135,799 $8,366,664 $7,943,383
Interest income on mortgage loan
investment ........................... -- -- 32,444
Interest income on mortgage loan
investments - affiliates ............. 414,070 766,211 236,221
Other interest income .................. 187,328 150,357 299,982
Gain on extinguishment of mortgage
loan investment ...................... -- -- 52,841
---------- ---------- ----------
Total revenue ........................ 9,737,197 9,283,232 8,564,871
---------- ---------- ----------
Expenses:
Interest ............................... 166,866 269,289 122,307
Depreciation and amortization .......... 1,350,150 1,432,871 1,628,699
Property taxes ......................... 1,117,327 978,083 803,600
Personnel costs ........................ 817,209 719,441 667,758
Repairs and maintenance ................ 584,959 594,984 590,986
Property management fees -
affiliates ........................... 508,726 462,289 435,159
Utilities .............................. 430,832 459,243 455,718
Other property operating expenses ...... 530,980 590,887 581,026
General and administrative ............. 512,400 107,560 141,310
General and administrative -
affiliates ........................... 902,658 879,932 892,894
---------- ---------- ----------
Total expenses ....................... 6,922,107 6,494,579 6,319,457
---------- ---------- ----------
Net income ................................ $2,815,090 $2,788,653 $2,245,414
========== ========== ==========
Net income allocable to limited
partners ............................... $2,786,939 $2,760,766 $2,222,960
Net income allocable to General
Partner ................................ 28,151 27,887 22,454
---------- ---------- ----------
Net income ................................ $2,815,090 $2,788,653 $2,245,414
========== ========== ==========
Net income per weighted average
hundred limited partnership units ...... $ 53.60 $ 52.72 $ 42.15
========== ========== ==========
Distributions per weighted average
hundred limited partnership units ...... $ 106.21 $ 76.38 $ 113.77
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
------------- ------------- -------------
<S> <C> <C> <C>
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
Repurchase of 36,992 limited
partnership units .................. -- (332,928) (332,928)
Net income ............................ 28,151 2,786,939 2,815,090
Distributions to limited partners ..... -- (5,522,998) (5,522,998)
------------ ------------ ------------
Balance at December 31, 1998 .......... $ (48,798) $ 26,007,139 $ 25,958,341
============ ============ ============
</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,
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Cash received from tenants ............... $ 9,304,733 $ 8,203,733 $ 7,881,796
Cash paid to suppliers ................... (2,873,093) (2,308,949) (2,278,401)
Cash paid to affiliates .................. (722,634) (1,171,013) (1,210,260)
Interest received ........................ 187,328 150,357 344,947
Interest received from affiliates ........ 466,855 744,420 215,064
Interest paid ............................ (166,866) (230,527) (14,774)
Property taxes paid ...................... (1,117,327) (978,083) (803,600)
----------- ----------- -----------
Net cash provided by operating
activities ............................... 5,078,996 4,409,938 4,134,772
----------- ----------- -----------
Cash flows from investing activities:
Additions to real estate investments
and assets held for sale ............... (1,025,133) (724,380) (540,072)
Proceeds from collection of mortgage
loan investments ....................... -- -- 1,404,026
Mortgage loan investments -
affiliates ............................. (75,000) (2,336,029) (3,409,396)
Proceeds from collection of mortgage
loan investments - affiliates .......... 5,724,999 72,302 952,538
----------- ----------- -----------
Net cash provided by (used in)
investing activities ..................... 4,624,866 (2,988,107) (1,592,904)
----------- ----------- -----------
Cash flows from financing activities:
Net increase in cash segregated
for repurchase of limited
partnership units ...................... (6,340) (7,729) (6,371)
Proceeds from revolving credit
agreement .............................. -- 2,336,029 1,101,619
Repayment of revolving credit
Agreement .............................. (3,437,648) -- --
Repurchase of limited partnership
units .................................. (332,928) (332,928) (332,928)
Distributions to limited partners ........ (5,522,998) (3,999,970) (5,999,994)
----------- ----------- -----------
Net cash used in financing activities ....... (9,299,914) (2,004,598) (5,237,674)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents ......................... 403,948 (582,767) (2,695,806)
Cash and cash equivalents at
beginning of year ........................ 2,440,084 3,022,851 5,718,657
----------- ----------- -----------
Cash and cash equivalents at end
of year .................................. $ 2,844,032 $ 2,440,084 $ 3,022,851
=========== =========== ===========
</TABLE>
See discussion of non-cash investing activities in Note 6 - "Mortgage Loan
Investments - Affiliates."
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,
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income .................................. $ 2,815,090 $ 2,788,653 $ 2,245,414
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization ............ 1,350,150 1,432,871 1,628,699
Amortization of deferred borrowing
costs .................................. -- 48,765 97,530
Gain on extinguishment of mortgage
loan investment ........................ -- -- (52,841)
Changes in assets and liabilities:
Cash segregated for security
deposits ............................. (18,674) (7,341) (13,187)
Accounts receivable .................... 248,288 (128,883) 1,893
Accrued interest receivable ............ 52,785 (21,791) (8,636)
Prepaid expenses and other
assets ............................... (7,384) 49,604 98,482
Accounts payable and accrued
expenses ............................. (36,892) 29,914 9,164
Payable to affiliates .................. 688,750 171,208 117,793
Security deposits and deferred
rental revenue ....................... (13,117) 46,938 10,461
----------- ----------- -----------
Total adjustments .................. 2,263,906 1,621,285 1,889,358
----------- ----------- -----------
Net cash provided by operating
activities ............................... $ 5,078,996 $ 4,409,938 $ 4,134,772
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 was used to fund additional loans made to affiliates of the
General Partner. The balance of the revolving credit agreement was repaid by the
Partnership in 1998 as further discussed in 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, 1998, the Partnership had one mortgage loan
investment to an affiliate 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>
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, provided financial
and other information to interested parties as part of an auction process and
until early March 1999 was conducting discussions with one bidder in an attempt
to reach a definitive agreement with respect to a sale transaction. In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership terminated such discussions and
commenced discussions with respect to a sale transaction with another
well-financed bidder who had been involved in the original auction process.
During the last full week of March, the Partnership entered into a 45 day
exclusivity agreement with such party. 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
regarding whether any such agreement will be reached nor the terms thereof.
The Partnership 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.
Adoption of Recent Accounting Pronouncements
- --------------------------------------------
The Partnership has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 requires an enterprise to report financial information about its
reportable operating segments, which are defined as components of a business for
which separate financial information is evaluated regularly by the chief
decision maker in allocating resources and assessing performance. The
Partnership does not prepare such information for internal use, since it
analyzes the performance of and allocates resources for each property
individually. The Partnership's management has determined that it operates one
line of business and it would be impracticable to report segment information.
Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial
statements.
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 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". 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.
Improvements and betterments are capitalized and expensed through depreciation
charges. Repairs and maintenance are charged to operations as incurred.
<PAGE>
Assets Held for Sale
- --------------------
Assets held for sale are stated at the lower of depreciated cost or fair value
less costs to sell. Depreciation and amortization on these assets cease at the
time they are placed on the market for sale.
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.
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.
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 1998, 1997, and 1996 have been made
in accordance with these provisions.
<PAGE>
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 $5,522,998, $3,999,970, and $5,999,994 of cash from
operations in 1998, 1997, and 1996, respectively. No distributions were paid to
the General Partner in 1998, 1997 or 1996. During the last week of March 1999,
the Partnership distributed approximately $1,508,000 to the limited partners of
record as of March 1, 1999.
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 51,999,
52,369 and 52,739 (in hundreds) Units outstanding in 1998, 1997 and 1996,
respectively.
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.
<PAGE>
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 to .75% in 2000, .50% in 2001 and
.25% thereafter.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Property management fees ............. $ 508,726 $ 462,289 $ 435,159
Charged to general and
administrative - affiliates:
Partnership administration ........ 287,865 270,653 314,832
Asset management fee .............. 614,793 609,279 578,062
---------- ---------- ----------
$1,411,384 $1,342,221 $1,328,053
========== ========== ==========
</TABLE>
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 are met.
Conditions for payment have not yet been met and, at December 31, 1998 and 1997,
$141,647 of amounts accrued in prior years are included in payable to affiliates
on the Balance Sheets.
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, 1998 and 1997 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.
<PAGE>
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 $13,867,070 in 1998,
$12,759,576 in 1997 and $12,040,518 in 1996.
NOTE 4 - REAL ESTATE INVESTMENTS
- --------------------------------
The basis and accumulated depreciation and amortization of the Partnership's
real estate investments at December 31, 1998 and 1997 are set forth in the
following tables:
<TABLE>
<CAPTION>
Accumulated
Buildings and Depreciation Net Book
1998 Land Improvements and Amortization Value
---- -------------- -------------- --------------- --------------
AAA Sentry
<S> <C> <C> <C> <C>
N. Lauderdale, FL $ 70,337 $ 799,102 $ (279,130) $ 590,309
Forest Hill
W. Palm Beach, FL 510,780 2,028,226 (691,111) 1,847,895
Fountainbleau
Miami, FL 287,114 1,437,444 (428,035) 1,296,523
Kendall Sunset
Miami, FL 672,756 3,957,464 (1,313,096) 3,317,124
Margate
Margate, FL 233,575 1,387,811 (486,230) 1,135,156
Military Trail
W. Palm Beach, FL 571,715 1,874,290 (649,719) 1,796,286
One Corporate Center I
Edina, MN 925,000 6,175,817 (2,921,088) 4,179,729
One Corporate Center III
Edina, MN 925,000 6,542,505 (3,388,473) 4,079,032
------------- ------------- ------------- -------------
$ 4,196,277 $ 24,202,659 $ (10,156,882) $ 18,242,054
============= ============= ============= ==============
Accumulated
Buildings and Depreciation Net Book
1997 Land Improvements and Amortization Value
---- -------------- -------------- ---------------- --------------
AAA Sentry $ 70,337 $ 612,992 $ (211,565) $ 471,764
Forest Hill 510,780 1,995,632 (598,301) 1,908,111
Fountainbleau 287,114 1,237,674 (351,439) 1,173,349
Kendall Sunset 672,756 3,915,577 (1,144,141) 3,444,192
Margate 233,575 1,354,964 (411,706) 1,176,833
Military Trail 571,715 1,869,813 (560,022) 1,881,506
One Corporate Center I 925,000 5,975,937 (2,563,037) 4,337,900
One Corporate Center III 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>
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, 1998 and 1997 with a net book
value of $1,913,276 and $1,908,947, respectively.
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, 1998 and 1997 with a net book value of
$2,700,110 and $2,640,934, respectively.
The results of operations for the assets held for sale were $1,050,539,
$836,166 and $724,265 for the years ended December 31, 1998, 1997 and 1996,
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, 1998 are as
follows:
1999.................................... $ 3,055,918
2000.................................... 2,896,147
2001.................................... 2,262,079
2002.................................... 1,483,799
2003.................................... 490,709
Thereafter.............................. 73,549
----------
Total $10,262,201
==========
Future minimum rents do not include expense reimbursements for common area
maintenance, property taxes and other expenses. These expense reimbursements
amounted to $267,686, $265,764 and $132,563 for the years ended December 31,
1998, 1997 and 1996, respectively, and are included in rental revenue on the
Statements of Operations.
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.
<PAGE>
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 of
interest income for the year ended December 31, 1996. The effective interest
rate of this interest income was 10.8%. Interest income of $32,444 would have
been recognized under the terms of the modification agreement for the year ended
December 31, 1996, if the Partnership had not adopted SFAS 114.
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,
1998, the Partnership had one outstanding first priority mortgage loan
investment to an affiliate of $1,306,488. For the year ended December 31, 1998,
the Partnership recognized $414,070 of interest income related to affiliate
loans. The following sets forth the Partnership's mortgage loan investments to
affiliates of the General Partner at December 31, 1998 and 1997. 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 1998 1997
- -------- --------- ---------- ----------- ------------- --------------
McNeil Pension Investment
Fund, Ltd.:
Brice Road Office
<S> <C> <C> <C> <C> <C>
Building First 11.00 05/98 $ - $ 411,062
Verre Center Office
Building First 11.00 11/99 1,306,488 820,426
McNeil Real Estate Fund X,
Ltd.:
La Plaza Business Center First 11.00 02/00 - 3,136,029
McNeil Real Estate Fund
XI, Ltd.:
The Village Apartments First 11.00 11/99 - 2,588,970
------------- -------------
$ 1,306,488 $ 6,956,487
============= =============
</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 7.75% at December 31, 1998 and 8.5% at
December 31, 1997.
<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 was 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. On May 1, 1998, McPIF
repaid 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. An additional $75,000 was
borrowed in January 1998. McPIF borrowed an additional $411,062 in May 1998 and
repaid the $411,062 mortgage loan investment secured by Brice Road Office
Building located in Reynoldsburg, Ohio. 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 was
secured by a first lien on La Plaza Business Center located in Las Vegas, Nevada
and was paid in full in June 1998.
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 was
secured by a first lien on The Village Apartments located in Gresham, Oregon.
This loan was paid in full in May 1998.
<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, 1998, 1997 and 1996, the General Partner had paid $19,557,
$113,432 and $78,391, respectively, representing the aggregate amount of
interest which would be owed for one year pursuant to this arrangement. In
addition, the General Partner paid $62,761, $139,236 and $83,510 of interest,
points, closing costs and expenses required to be received by the Partnership on
all affiliate loans during 1998, 1997 and 1996, respectively. All other
requirements for affiliated loans, as specified in the Partnership's Amended
Partnership Agreement, were met at December 31, 1998, 1997 and 1996, in
connection with these loans.
A summary of activity for the mortgage loan investments - affiliates is as
follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year....... $ 6,956,487 $ 4,692,760 $ 2,235,902
Mortgage loans funded ............. 75,000 2,336,029 3,409,396
Mortgage loans repaid ............. (5,724,999) (72,302) (952,538)
----------- ----------- -----------
Balance at end of year ............ $ 1,306,488 $ 6,956,487 $ 4,692,760
=========== =========== ===========
</TABLE>
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, 1998 and 1997.
The cost of the mortgage loan investments for Federal income tax purposes is the
same as the carrying amount for financial statement purposes.
NOTE 7 - REVOLVING CREDIT AGREEMENT
- -----------------------------------
The following sets forth the revolving credit agreement of the Partnership at
December 31, 1998 and 1997. The revolving credit agreement was secured by the
related real estate investments.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position Rate % Maturity 1998 1997
- -------- ------------ ------ ---------------- -------------- ------------
Kendall Sunset,
One Corporate
Center I and
One Corporate
<S> <C> <C> <C> <C>
Center III First 9% (a) (a) 7/99 $ - $ 3,437,648
=========== ===========
</TABLE>
(a) The interest rate and monthly payment varied based on the PNC Bank prime
lending rate plus 1/2%. The rate listed above represents the rate in effect
as of June 1998, when the loan was repaid.
<PAGE>
A $5 million revolving credit agreement was secured by the Partnership in June
1995. The Partnership had borrowed $3,437,648 under the revolving credit
agreement at December 31, 1997. Any borrowings under the revolving credit
agreement bore interest at prime plus one-half of one percent or a LIBOR-based
rate, if so elected by the Partnership. The Partnership was 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 1998, 1997 and
1996 were $5,538, $3,887 and $12,708, 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 was secured by One Corporate Center I and III office
buildings and Kendall Sunset Mini-Storage. The line of credit contained
financial covenants that required 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, 1998 and 1997. The balance of the
loan was paid in full in June 1998 and the revolving credit agreement was
cancelled by the Partnership in March 1999.
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.
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 1999, 1998 and 1997, $332,928 was used each period to
repurchase 36,992 Units each period for requests submitted in 1998, 1997 and
1996, respectively.
NOTE 9 - 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:
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 XXIII, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and
Regency North Associates, L.P., - Superior Court of the State of California for
the County of Los Angeles, Case No. BC133799 (Class and Derivative Action
Complaint).
<PAGE>
The action involves purported class and derivative actions brought by limited
partners of each of the 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 for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil
Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of
the transaction contemplated in the settlement and Plaintiffs claim that an
effort should be made to sell the McNeil Partnerships, Plaintiffs have included
allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P.
in the third consolidated and amended complaint.
Plaintiff's counsel intends to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Environmental laws create potential liabilities that may affect property owners.
The environmental laws of Federal and certain state governments, for example,
impose liability on current and certain past owners of property from which there
is a release or threat of release of hazardous substances. This liability
includes costs of investigation and remediation of the hazardous substances and
natural resource damages. Liability for costs of investigation and remediation
is strict and may be imposed irrespective of whether the property owner was at
fault, although there are a number of defenses. Both governments and third
parties may seek recoveries under these laws.
Third parties also may seek recovery under the common law for damages to their
property or person, against owners of property from which there has been a
release of hazardous and other substances.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral.
Various buildings at properties do or may contain building materials that are
the subject of various regulatory programs intended to protect human health.
Such building materials include, for example, asbestos, lead-based paint, and
lead plumbing components. The Company has implemented programs to deal with the
presence of those materials, which include, as appropriate, reduction of
potential exposure situations. The Company does not believe that the costs of
such programs are likely to have a material adverse effect. Failure to implement
such programs can result in regulatory violations or liability claims resulting
from alleged exposure to such materials.
In connection with the proposed sale transaction as more fully described in Note
1 - "Organization and Summary of Significant Accounting Policies", Phase I
environmental site assessments have been completed for each property owned by
the Partnership. Such environmental assessments performed on the properties have
not revealed any environmental liability that the Partnership believes would
have a material adverse effect on the Partnership's business, assets, or results
of operations. The Partnership has not been notified by any governmental
authority of any non-compliance, liability or other claim in connection with any
of its properties. There can be no assurances, however, that environmental
liabilities have not developed since such environmental assessments were
prepared, or that future uses or conditions (including, without limitation,
changes in applicable environmental laws and regulations) will not result in
imposition of environmental liability.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1998
<TABLE>
<CAPTION>
Costs
Initial Cost Cumulative Capitalized
Related Buildings and Write-down for Subsequent
Description Encumbrances Land Improvements Impairment (a) To Acquisition
- ----------- ------------ ---- ------------- --------------- --------------
MINI-STORAGE WAREHOUSES:
AAA Sentry
<S> <C> <C> <C> <C> <C>
N. Lauderdale, FL $ - $ 69,890 $ 380,110 $ - $ 419,439
Forest Hill
West Palm Beach, FL - 507,422 1,862,578 - 169,006
Fountainbleau
Miami, FL - 285,854 864,146 - 574,558
Kendall Sunset
Miami, FL - 672,000 3,808,000 - 150,220
Margate
Margate, FL - 233,101 1,156,899 - 231,386
Military Trail
West Palm Beach, FL - 568,405 1,681,595 - 196,005
OFFICE BUILDINGS:
One Corporate Center I
Edina, MN - 925,000 5,250,000 (1,300,000) 2,225,817
One Corporate Center III
Edina, MN - 925,000 5,255,000 (1,300,000) 2,587,505
-------------- -------------- -------------- ------------ -------------
$ - $ 4,186,672 $ 20,258,328 $ (2,600,000) $ 6,553,936
============== ============== ============== ============ =============
Assets Held for Sale (c):
AAA Century Airport
Inglewood, CA $ -
Burbank
Burbank, CA -
--------------
$ -
==============
</TABLE>
(a) The carrying values of One Corporate Center I and III Office Buildings
were each reduced by $1,300,000 in 1991.
(c) 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 and amortization cease 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, 1998
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period Accumulated
Buildings and Depreciation
Description Land Improvements Total (b) and Amortization
- ----------- ---- ------------- --------- ----------------
MINI-STORAGE WAREHOUSES:
AAA Sentry
<S> <C> <C> <C> <C>
N. Lauderdale, FL $ 70,337 $ 799,102 $ 869,439 $ (279,130)
Forest Hill
West Palm Beach, FL 510,780 2,028,226 2,539,006 (691,111)
Fountainbleau
Miami, FL 287,114 1,437,444 1,724,558 (428,035)
Kendall Sunset
Miami, FL 672,756 3,957,464 4,630,220 (1,313,096)
Margate
Margate, FL 233,575 1,387,811 1,621,386 (486,230)
Military Trial
West Palm Beach, FL 571,715 1,874,290 2,446,005 (649,719)
OFFICE BUILDINGS:
One Corporate Center I
Edina, MN 925,000 6,175,817 7,100,817 (2,921,088)
One Corporate Center III
Edina, MN 925,000 6,542,505 7,467,505 (3,388,473)
-------------- -------------- --------------- -------------
$ 4,196,277 $ 24,202,659 $ 28,398,936 $ (10,156,882)
============== ============== =============== =============
Assets Held for Sale (c):
AAA Century Airport
Inglewood, CA $ 1,913,276
Burbank
Burbank, CA 2,700,110
----------------
$ 4,613,386
================
</TABLE>
(b) 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 $36,691,467 and
accumulated depreciation was $7,919,529 at December 31, 1998.
(c) 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 and amortization cease 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, 1998
<TABLE>
<CAPTION>
Date of Date Depreciable
Description Construction Acquired Lives (Years)
- ----------- ------------ -------- -------------
MINI-STORAGE WAREHOUSES:
AAA Sentry
<S> <C> <C> <C>
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 (c):
AAA Century Airport
Inglewood, CA 1987 09/90
Burbank
Burbank, CA 1987 09/90
</TABLE>
(c) 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 and amortization cease 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,
-----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Real estate investments:
<S> <C> <C> <C>
Balance at beginning of year ................... $ 27,437,308 $ 32,563,740 $ 32,023,668
Improvements ................................... 961,628 720,137 540,072
Reclassification to assets held for sale ....... -- (5,846,569) --
------------ ------------ ------------
Balance at end of year ......................... $ 28,398,936 $ 27,437,308 $ 32,563,740
============ ============ ============
Accumulated depreciation and amortization:
Balance at beginning of year ................... $ 8,806,732 $ 8,674,792 $ 7,046,093
Depreciation and amortization .................. 1,350,150 1,432,871 1,628,699
Reclassification to assets held for sale ....... -- (1,300,931) --
------------ ------------ ------------
Balance at end of year ......................... $ 10,156,882 $ 8,806,732 $ 8,674,792
============ ============ ============
Assets Held for Sale:
Balance at beginning of year ................... $ 4,549,881 $ -- $ --
Reclassification to assets held for sale ....... -- 4,545,638 --
Improvements ................................... 63,505 4,243 --
------------ ------------ ------------
Balance at end of year ......................... $ 4,613,386 $ 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:
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
Robert A. McNeil, 78 Mr. McNeil is also Chairman of the
Chairman of the Board 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 an 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 is a member
of the International Board of Directors
of the Salk Institute, which promotes
research in improvements in health care.
<PAGE>
Carole J. McNeil 55 Mrs. McNeil is Co-Chairman, with husband
Co-Chairman of the Robert A. McNeil, of McNeil Investors,
Board 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 associate
with the Madison Company and, earlier, a
commercial sales associate and analyst
with Marcus and Millichap in San
Francisco. In 1978, Mrs. McNeil
established Escrow Training Centers,
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.
Ron K. Taylor 41 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.
Each director shall serve until his successor shall have been duly elected and
qualified.
<PAGE>
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, 1998, 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, 1998. 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.
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 13% of the outstanding limited partnership units at
February 1, 1999.
(C) Change in control.
None
<PAGE>
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 to .75% in 2000, .50% in 2001 and .25% thereafter. For the
year ended December 31, 1998, the Partnership paid or accrued $614,793 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, 1998, $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, 1998, the Partnership paid or accrued $796,591 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."
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 was 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. On May 1, 1998, McPIF
repaid 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. An additional $75,000 was
borrowed in January 1998. McPIF borrowed an additional $411,062 in May 1998 and
repaid the $411,062 mortgage loan investment secured by Brice Road Office
Building located in Reynoldsburg, Ohio. 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.
<PAGE>
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 was secured by a first lien
on La Plaza Business Center located in Las Vegas, Nevada. The loan was paid 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.
The loan was paid in full in May 1998.
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.
At December 31, 1998, the General Partner had paid $19,557, representing the
aggregate amount of interest which would be owed for one year pursuant to this
arrangement. In addition, the General Partner paid $62,761 of interest, points,
closing costs and expenses required to be received by the Partnership on all
affiliate loans during 1998. 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
Exhibit
Number Description
-------- -----------
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)
10.10 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.
(B) Reports on Form 8-K. There were no reports on Form 8-K filed by the
Partnership during the quarter ended December 31, 1998.
<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, 1999 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, 1999 By: /s/ Ron K. Taylor
- -------------- ----------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
March 31, 1999 By: /s/ Carol A. Fahs
- -------------- ----------------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,844,032
<SECURITIES> 0
<RECEIVABLES> 178,537
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,398,936
<DEPRECIATION> (10,156,882)
<TOTAL-ASSETS> 27,841,371
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,958,341
<TOTAL-LIABILITY-AND-EQUITY> 27,841,371
<SALES> 9,135,799
<TOTAL-REVENUES> 9,737,197
<CGS> 3,990,033
<TOTAL-COSTS> 5,340,183
<OTHER-EXPENSES> 1,415,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,866
<INCOME-PRETAX> 2,815,090
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,815,090
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<EXTRAORDINARY> 0
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