UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-17173
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MCNEIL REAL ESTATE FUND XXVII, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0214387
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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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
------------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
MCNEIL REAL ESTATE FUND XXVII, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS
- -------
Real estate investments:
<S> <C> <C>
Land ................................................... $ 4,196,277 $ 4,196,277
Buildings and improvements ............................. 24,533,171 24,202,659
------------ ------------
28,729,448 28,398,936
Less: Accumulated depreciation and amortization ....... (11,110,780) (10,156,882)
------------ ------------
17,618,668 18,242,054
Assets held for sale ...................................... 4,657,903 4,613,386
Mortgage loan investment - affiliate ...................... 1,306,488 1,306,488
Cash and cash equivalents ................................. 4,834,279 2,844,032
Cash segregated for security deposits and repurchase
of limited partnership units ........................... 300,630 467,207
Accounts receivable ....................................... 244,784 178,537
Accrued interest receivable ............................... 11,544 12,206
Prepaid expenses and other assets ......................... 213,519 177,461
------------ ------------
$ 29,187,815 $ 27,841,371
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Accounts payable and accrued expenses ..................... $ 106,377 $ 70,657
Accrued property taxes .................................... 506,886 --
Payable to limited partners ............................... -- 332,928
Payable to affiliates ..................................... 1,819,730 1,230,795
Security deposits and deferred rental revenue ............. 278,564 248,650
------------ ------------
2,711,557 1,883,030
------------ ------------
Partners' equity (deficit):
Limited partners - 10,000,000 limited partnership
units authorized; 5,162,909 limited partnership
units outstanding at September 30, 1999 and
December 31, 1998 .................................... 26,504,888 26,007,139
General Partner ........................................ (28,630) (48,798)
------------ ------------
26,476,258 25,958,341
------------ ------------
$ 29,187,815 $ 27,841,371
============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue .................... $2,344,021 $2,362,797 $6,976,692 $6,880,162
Interest income on mortgage
loan investments - affiliates ... 34,846 39,927 100,421 377,846
Other interest income ............. 49,014 70,803 127,618 149,955
---------- ---------- ---------- ----------
Total revenue ................... 2,427,881 2,473,527 7,204,731 7,407,963
---------- ---------- ---------- ----------
Expenses:
Interest .......................... -- 1,345 5,139 163,672
Depreciation and
amortization .................... 317,973 321,946 953,898 1,002,293
Property taxes .................... 326,347 281,859 933,890 848,546
Personnel costs ................... 173,535 196,739 574,632 592,558
Utilities ......................... 116,921 124,444 324,412 322,395
Repairs and maintenance ........... 153,303 142,457 451,900 432,182
Property management
fees - affiliates ............... 124,232 129,917 379,229 383,238
Other property operating
expenses ........................ 130,583 138,532 391,890 415,653
General and administrative ........ 171,709 103,786 455,409 385,008
General and administrative -
affiliates ...................... 243,904 219,919 717,517 679,420
---------- ---------- ---------- ----------
Total expenses .................. 1,758,507 1,660,944 5,187,916 5,224,965
---------- ---------- ---------- ----------
Net income ........................... $ 669,374 $ 812,583 $2,016,815 $2,182,998
========== ========== ========== ==========
Net income allocable
to limited partners ............... $ 662,680 $ 804,457 $1,996,647 $2,161,168
Net income allocable
to General Partner ................ 6,694 8,126 20,168 21,830
---------- ---------- ---------- ----------
Net income ........................... $ 669,374 $ 812,583 $2,016,815 $2,182,998
========== ========== ========== ==========
Net income per weighted
average hundred limited
partnership units ................. $ 12.83 $ 15.47 $ 38.67 $ 41.56
========== ========== ========== ==========
Distributions per weighted
average hundred limited
partnership units ................. $ -- $ 63.00 $ 29.03 $ 106.21
========== ========== ========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
------------ ------------ ----------------
<S> <C> <C> <C>
Balance at December 31, 1997 ............. $ (76,949) $ 29,076,126 $ 28,999,177
Net income ............................... 21,830 2,161,168 2,182,998
Distributions to limited partners ........ -- (5,522,998) (5,522,998)
------------ ------------ ------------
Balance at September 30, 1998 ............ $ (55,119) $ 25,714,296 $ 25,659,177
============ ============ ============
Balance at December 31, 1998 ............. $ (48,798) $ 26,007,139 $ 25,958,341
Net income ............................... 20,168 1,996,647 2,016,815
Distributions to limited partners ........ -- (1,498,898) (1,498,898)
------------ ------------ ------------
Balance at September 30, 1999 ............ $ (28,630) $ 26,504,888 $ 26,476,258
============ ============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1999 1998
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ....................... $ 6,910,627 $ 7,091,726
Cash paid to suppliers ........................... (2,166,332) (2,177,976)
Cash paid to affiliates .......................... (507,811) (596,640)
Interest received ................................ 127,618 149,955
Interest received from affiliates ................ 101,083 430,689
Interest paid .................................... (5,139) (163,672)
Property taxes paid .............................. (427,004) (389,746)
----------- -----------
Net cash provided by operating activities ........... 4,033,042 4,344,336
----------- -----------
Cash flows from investing activities:
Additions to real estate investments and
assets held for sale ........................... (375,029) (670,462)
Proceeds from collection of mortgage loan
investments - affiliates ....................... -- 5,724,999
Mortgage loan investments - affiliates ........... -- (75,000)
----------- -----------
Net cash provided by (used in) investing
activities ....................................... (375,029) 4,979,537
----------- -----------
Cash flows from financing activities:
Net decrease in cash segregated for
repurchase of limited partnership units ........ 164,060 163,056
Repayment of revolving credit agreement .......... -- (3,437,648)
Repurchase of limited partnership units .......... (332,928) (332,928)
Distributions to limited partners ................ (1,498,898) (5,522,998)
----------- -----------
Net cash used in financing activities ............... (1,667,766) (9,130,518)
----------- -----------
Net increase in cash and cash equivalents ........... 1,990,247 193,355
Cash and cash equivalents at beginning of
period ........................................... 2,844,032 2,440,084
----------- -----------
Cash and cash equivalents at end of period .......... $ 4,834,279 $ 2,633,439
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income .......................................... $ 2,016,815 $ 2,182,998
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 953,898 1,002,293
Changes in assets and liabilities:
Cash segregated for security deposits .......... 2,517 (18,085)
Accounts receivable ............................ (66,247) 267,796
Accrued interest receivable .................... 662 52,843
Prepaid expenses and other assets .............. (36,058) (10,256)
Accounts payable and accrued expenses .......... 35,720 (53,112)
Accrued property taxes ......................... 506,886 458,800
Payable to affiliates .......................... 588,935 466,018
Security deposits and deferred rental
revenue ...................................... 29,914 (4,959)
----------- -----------
Total adjustments ............................ 2,016,227 2,161,338
----------- -----------
Net cash provided by operating activities ........... $ 4,033,042 $ 4,344,336
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
Notes to Financial Statements
(Unaudited)
September 30, 1999
NOTE 1.
- -------
McNeil Real Estate Fund XXVII, L.P. (the "Partnership"), formerly known as
Southmark Prime Plus, L.P., was organized by affiliates of Southmark Corporation
("Southmark") on January 16, 1987, as a limited partnership under the provisions
of the Delaware Revised Uniform Limited Partnership Act to make short-term loans
to affiliates of the general partner. The general partner of the Partnership is
McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership,
an affiliate of Robert A. McNeil ("McNeil"). The principal place of business for
the Partnership and the General Partner is 13760 Noel Road, Suite 600, Dallas,
Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1999
are not necessarily indicative of the results to be expected for the year ending
December 31, 1999.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1998, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund XXVII, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
The Partnership pays property management fees equal to 5% of the gross rental
receipts for its mini-storage warehouses and 6% of gross rental receipts for its
commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management services for
the Partnership's mini-storage warehouses and commercial properties and leasing
services for its mini-storage warehouses. McREMI may also choose to provide
leasing services for the Partnership's commercial properties, in which case
McREMI will receive property management fees from such commercial properties
equal to 3% of the property's gross rental receipts plus leasing commissions
based on the prevailing market rate for such services where the property is
located.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
<PAGE>
The Partnership is paying an asset management fee, which is payable to the
General Partner. Through 1999, the asset management fee is calculated as 1% of
the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9% to the annualized net operating income of each property or (ii) a value of
$30 per gross square foot for mini-storage warehouses and $50 per gross square
foot for commercial properties to arrive at the property tangible asset value.
The property tangible asset value is then added to the book value of all other
assets excluding intangible items. The fee percentage decreases to .75% in 2000,
.50% in 2001 and .25% thereafter. Total accrued but unpaid asset management fees
of $1,196,187 and $768,885 were outstanding at September 30, 1999 and December
31, 1998, respectively.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
Nine Months Ended
September 30,
----------------------------
1999 1998
----------- -----------
Property management fees..................... $ 379,229 $ 383,238
Charged to general and administrative -
affiliates:
Partnership administration................ 233,392 217,668
Asset management fee...................... 484,125 461,752
---------- -----------
$1,096,746 $ 1,062,658
========== ===========
Under the terms of its amended partnership agreement, the Partnership is
expressly permitted to make loans to affiliates of the General Partner, so long
as such loans meet certain conditions, including that such loans bear interest
at a rate of prime plus 2.5%, or prime plus 3.5% if the loan is junior to other
indebtedness. These loans are secured by income-producing real estate and may be
either junior or senior to other indebtedness secured by such property. The
Partnership made loans to affiliates of $75,000 during the first nine months of
1998 and received $5,724,999 in proceeds from collections of loans to affiliates
during the same period. No loans were made or repaid during the first nine
months of 1999.
In order to induce the Partnership to lend funds to affiliates of the General
Partner, the General Partner agreed to pay (i) the difference between the
interest rate required by the Partnership's amended partnership agreement to be
charged to affiliates and the interest rate actually paid by certain of those
affiliates, and (ii) all points (1.5%, or 2% if the loan is junior to other
indebtedness), closing costs and expenses. The Partnership recorded interest
income on affiliate loans of $100,421 and $377,846 for the nine months ended
September 30, 1999 and 1998, respectively, of which $14,658 and $57,821,
respectively, was paid or payable by the General Partner.
Payable to affiliates at September 30, 1999 and December 31, 1998 consisted
primarily of a performance incentive fee of $141,647 accrued in prior years,
Partnership general and administrative expenses, asset management fees and
prepaid interest. Except for the performance incentive fee and prepaid interest,
all accrued fees are due and payable from current operations.
<PAGE>
NOTE 4.
- -------
On October 25, 1996, the Partnership agreed to loan an aggregate of $1.68
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). The prime lending rate
was 8.25% and 7.75% at September 30, 1999 and December 31, 1998, respectively,
and was 8.5% at September 30, 1998. 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 a $411,062 mortgage
loan investment secured by Brice Road Office Building. This loan is secured by a
first lien on Verre Center Office Building located in Chamblee, Georgia.
Interest on the loan is payable monthly. Principal is payable in November 1999.
On February 28, 1997, the Partnership loaned $2,336,029 to McNeil Real Estate
Fund X, Ltd. ("Fund X"), at an interest rate of prime plus 1% per annum (the
maximum rate allowed to be incurred by Fund X in connection with borrowings from
affiliates pursuant to Fund X's partnership agreement). On August 1, 1997, the
mortgage note was amended and the principal balance was increased by $800,000,
for total borrowings from the Partnership of $3,136,029. Fund X used the
$800,000 additional proceeds to repay the $800,000 mortgage loan investment
secured by Lakeview Plaza Shopping Center. This loan was secured by a first lien
on La Plaza Business Center located in Las Vegas, Nevada and 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.
This loan was paid in full in May 1998.
NOTE 5.
- -------
In June 1998, the Partnership paid off the $3,437,648 balance of its revolving
credit agreement. 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. The revolving credit agreement was cancelled by the Partnership in
March 1999.
NOTE 6.
- -------
On June 24, 1999, the Partnership and 18 affiliated partnerships, collectively
(the "Partnerships"), the General Partner, McNeil Investors, Inc., McNeil Real
Estate Management, Inc. ("McREMI"), McNeil Summerhill, Inc. and Robert A. McNeil
entered into a definitive acquisition agreement (the "Master Agreement") with
WXI/McN Realty L.L.C. ("Newco"), an affiliate of Whitehall Street Real Estate
Limited Partnership XI, a real estate investment fund managed by Goldman, Sachs
& Co., whereby Newco and its subsidiaries will acquire the Partnerships. The
Master Agreement provides that the Partnerships will be merged with subsidiaries
of Newco. The Master Agreement also provides for the acquisition by Newco and
its subsidiaries of the assets of McREMI. The aggregate consideration in the
transaction, including the assumption or prepayment of all outstanding mortgage
debt of the Partnerships, is approximately $644,440,000.
<PAGE>
Pursuant to the terms of the Master Agreement, the limited partners in the
Partnership will receive cash on the closing date of the transaction (the
"Closing Date") in exchange for their limited partnership interests. In
addition, the Partnership will declare a special distribution to its limited
partners on the Closing Date equal to its then positive net working capital
balance, if any. The estimated aggregate consideration and net working capital
distribution to be received per unit of limited partnership interest in the
Partnership were estimated as $10.54.
The above estimates of the Partnership per unit estimated merger consideration
and working capital distribution and the interest of McNeil Partners, L.P. are
based upon, among other things, the balance sheet of the Partnership as of March
31, 1999, adjusted for intangible assets, non-cash liabilities, transaction
expenses and the McNeil Partners, L.P. interest in the Partnership. Actual
amounts, including the estimate allocable to McNeil Partners, L.P., will vary
with the performance of the Partnership and McNeil Partners, L.P. through the
closing date. The above estimated merger consideration and special working
capital distribution will be adjusted at closing to reflect the then working
capital position of the Partnership.
On the Closing Date, the General Partner of the Partnership, will receive an
equity interest in Newco in exchange for its contribution to Newco of the
general partnership interests in the Partnerships, the limited partnership
interests in Fairfax Associates II L.P. and McNeil Summerhill Associates and the
assets of McREMI.
The Partnership's participation in the transaction is subject to, among other
conditions, the approval by a majority of the limited partners of the
Partnership.
In some circumstances, as defined in the Master Agreement, the Partnerships may
be subject to a break-up fee, up to an aggregate maximum of $18,000,000, if the
Master Agreement is terminated with respect to one or more of the Partnerships.
In the case of termination of the Master Agreement in these circumstances, each
of the Partnerships with respect to which the Master Agreement has been
terminated will be severally, but not jointly, liable for payment to Newco of
its respective break-up fee. The break-up fee ratably calculated for the
Partnership is $1,566,648.
All previous costs associated with this transaction had been allocated among the
Partnerships and McREMI based on the relative number of properties contained
therein. On June 24, 1999, a fairness opinion (the "Fairness Opinion") was
rendered by Robert A. Stanger & Co., Inc., an independent financial advisor, to
the effect that the aggregate consideration to be paid for the general
partnership interests and limited partnership interests in all of the
Partnerships and the assets of McREMI is fair from a financial point of view to
the holders of each class of limited partnership interests. Based on the
relative values as set forth in the Fairness Opinion, the Partnership recorded
an adjustment to general and administrative expenses and prepaid expenses and
other assets during the second quarter of 1999 in the amount of $(193,842) to
reflect the reallocation of previously paid transaction costs among the
Partnerships and McREMI.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
There has been no significant change in the operations of the Partnership's
properties since December 31, 1998. The Partnership reported net income for the
first nine months of 1999 of $2,016,815 as compared to $2,182,998 for the first
nine months of 1998. Revenues were $7,204,731 for the first nine months of 1999
and $7,407,963 for the same period in 1998. Expenses were $5,187,916 for the
nine months ended September 30, 1999 as compared to $5,224,965 for the
comparable period in 1998.
Net cash provided by operating activities was $4,033,042 for the nine months
ended September 30, 1999. The Partnership expended $375,029 for capital
improvements, paid $332,928 for the repurchase of limited partnership units
(excluding a decrease in cash segregated for the repurchase of limited
partnership units of $164,060) and distributed $1,498,898 to the limited
partners. Cash and cash equivalents totaled $4,834,279 at September 30, 1999, a
net increase of $1,990,247 from the balance at December 31, 1998.
RECENT DEVELOPMENTS
- -------------------
On June 24, 1999, McNeil Partners, L.P. (the General Partner of the Partnership)
and WXI/McN Realty L.L.C., an affiliate of Whitehall Street Real Estate Limited
Partnership XI ("Whitehall"), a real estate investment fund managed by Goldman,
Sachs & Co., announced that they have entered into a definitive acquisition
agreement whereby the Whitehall affiliate will acquire by merger nineteen real
estate limited partnerships operated by McNeil Partners, L.P. and Robert A.
McNeil. The limited partnerships involved are the Partnership and McNeil Real
Estate Funds IX, X, XI, XII, XIV, XV, XX, XXI, XXII, XXIII, XXIV, XXV and XXVI,
Hearth Hollow Associates, McNeil Midwest Properties I, L.P., Regency North
Associates, Fairfax Associates and McNeil Summerhill (collectively, the
"Partnerships"). The Partnerships (other than Fairfax Associates and McNeil
Summerhill which are wholly-owned by Robert A. McNeil and related parties) will
be merged with subsidiaries of WXI/McN Realty L.L.C. The acquisition agreement
also provides for the acquisition by WXI/McN Realty L.L.C. of the assets of
McNeil Real Estate Management, Inc. ("McREMI"). The aggregate consideration in
the transaction, including all outstanding mortgage debt of the Partnerships, is
approximately $644,440,000.
Pursuant to the terms of the acquisition agreement, the limited partners in each
of the Partnerships (other than those wholly-owned by Robert A. McNeil) will
receive cash on the closing date of the transaction in exchange for their
limited partnership interests. In addition, each Partnership will make a special
distribution to its limited partners on the closing date of the transaction
equal to its then net positive working capital balance. McNeil Partners, L.P.
will receive an equity interest in WXI/McN Realty L.L.C. in exchange for its
contribution of its general partnership interests in the Partnerships, the
limited partnership interests in its wholly-owned Partnerships and the assets of
McREMI.
<PAGE>
The proposed transaction follows an extensive marketing effort by PaineWebber
Incorporated, exclusive financial advisor to the Partnerships.
The transaction has been unanimously approved by the Board of Directors of
McNeil Investors, Inc., the general partner of McNeil Partners, L.P., the
general partner of each of the Partnerships other than Regency North Associates,
Fairfax Associates and McNeil Summerhill. The respective general partners of
Regency North Associates, Fairfax Associates and McNeil Summerhill also have
approved the transaction. The Board of Directors of McNeil Investors, Inc. based
its approval upon, among other things, the recommendation of a Special Committee
of the Board, appointed at the beginning of the discussions with Whitehall to
represent the interests of holders of limited partnership interests in each of
the Partnerships. In addition, the Special Committee and the Board relied upon
fairness opinions given by Robert A. Stanger & Co., Inc. ("Stanger & Co."), an
independent financial advisor to the Partnerships, to the effect that the
aggregate consideration is fair to the holders of each class of limited
partnership interests in each of the Partnerships. The Special Committee's
recommendation was also based upon the separate opinions of Eastdil Realty
Company ("Eastdil"), the independent financial advisor to the Special Committee.
Stanger & Co. and Eastdil have each also rendered an opinion that the aggregate
consideration to be paid for the general partnership interests and limited
partnership interests in all of the Partnerships and the assets of McREMI is
fair from a financial point of view to the holders of each class of limited
partnership interests in each of the Partnerships.
Each of the Partnerships' participation in the transaction is subject to, among
other conditions, the approval by a majority of the limited partners of the
respective Partnerships. The approval of the limited partners of the
Partnerships will be sought at meetings to be held in the coming months after
the filing of proxy statements with the Securities and Exchange Commission with
respect to the publicly traded Partnerships, and the subsequent mailing of proxy
statements to the limited partners. Preliminary proxy statements were filed with
the SEC on August 3, 1999 and amended proxy statements were filed September 30,
1999, October 21, 1999 and November 10, 1999.
The aggregate consideration in the transaction has been allocated preliminarily
among the general partnership interests and the limited partnership interests in
each of the Partnerships and McREMI, based upon an allocation analysis prepared
by Stanger & Co. and confirmed by Eastdil. Based upon this allocation analysis
and the fairness opinions rendered by Stanger & Co. and Eastdil, the Special
Committee, the Board of Directors of McNeil Investors, Inc., the respective
general partners of Regency North Associates, Fairfax Associates and McNeil
Summerhill have each unanimously approved the allocation of the aggregate
consideration. The estimated aggregate consideration and working capital
distribution to be received per unit of limited partnership interest of the
Partnership were estimated as $10.54.
McNeil Partners, L.P. will contribute its real estate investment and management
company business to a subsidiary of WXI/McN Realty, L.L.C., along with its
general partnership interests in the Partnerships and its limited partnership
interests in the wholly-owned Partnerships, having an aggregate allocated value,
as determined by Stanger & Co., of approximately $58,640,000, of which
approximately $29,400,000 reflects balances due to McNeil Partners, L.P. and
McREMI as reflected on the Partnerships' financial statements as of March 31,
1999.
<PAGE>
The above estimates of the Partnership per unit estimated merger consideration
and working capital distribution and the interest of McNeil Partners, L.P. are
based upon, among other things, the balance sheet of the Partnership as of March
31, 1999, adjusted for intangible assets, non-cash liabilities, transaction
expenses and the McNeil Partners, L.P. interest in the Partnership. Actual
amounts, including the estimate allocable to McNeil Partners, L.P., will vary
with the performance of the Partnership and McNeil Partners, L.P. through the
closing date. The above estimated merger consideration and special working
capital distribution will be adjusted at closing to reflect the then working
capital position of the Partnership.
Whitehall is a $2.26 billion equity fund and is the seventh in a series of funds
sponsored and capitalized by Goldman, Sachs & Co. and its affiliates, along with
public and private investors, to acquire real estate worldwide.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total revenue decreased by $45,646 and $203,232 for the three and nine months
ended September 30, 1999, respectively, as compared to the same periods in the
prior year. The decrease was mainly due to a decrease in interest income on
mortgage loan investments - affiliates, as discussed below.
Interest income on mortgage loan investments - affiliates decreased by $5,081
for the three months and $277,425 for the nine months ended September 30, 1999
as compared to the same periods in 1998. The decrease was mainly due to the
collection of approximately $5.7 million of affiliate loans in the second
quarter of 1998.
Other interest income for the three and nine months ended September 30, 1999
decreased by $21,789 and $22,337, respectively, as compared to the same periods
in the prior year. The decrease was due to a greater average amount of cash
available for short-term investment in 1998. Although the Partnership held a
greater amount of cash and cash equivalents at September 30, 1999 as compared to
September 30, 1998, the Partnership distributed approximately $5.5 million to
the limited partners in the first nine months of 1998, approximately $3.3
million of which was distributed at the end of September 1998.
Expenses:
Total expenses increased by $97,563 and decreased by $37,049 for the three and
nine months ended September 30, 1999, respectively, as compared to the same
periods in the prior year. The overall decrease was mainly due to a decrease in
interest expense, partially offset by an increase in property taxes, general
administrative and general administrative - affiliates, as discussed below.
Interest expense for the three and nine months ended September 30, 1999
decreased by $1,345 and $158,533, respectively, in relation to the comparable
periods in the prior year, due to the payoff of the Partnership's line of credit
in June 1998 and cancellation of the line of credit agreement in March 1999.
Property taxes for the three and nine month periods ended September 30, 1999
increased by $44,488 and $85,344, respectively, as compared to the same periods
in 1998. 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.
<PAGE>
General and administrative expenses for the three and nine months ended
September 30, 1999 increased by $67,923 and $70,401, respectively, in relation
to the same periods in 1998. The increase was mainly due to an increase in costs
related to the transaction discussed in Item 1, Note 6, partially offset by a
$(193,842) reallocation of previously paid transaction costs among the
Partnerships and McREMI in the second quarter of 1999.
General and administrative expenses - affiliates increased by $23,985 and
$38,097 for the three and nine month periods ended September 30, 1999,
respectively, in relation to the same periods in 1998. The increase was mainly
due to an increase in asset management fees, due to an increase in the tangible
asset value of the Partnership, on which the fees are based.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $4,033,042 of cash through operating activities in the
first nine months of 1999 as compared to $4,344,336 for the same period in 1998.
Interest received from affiliates decreased in 1999 due to the repayment of
affiliate advances in June 1998, as previously discussed. This decrease was
partially offset by a decrease in interest paid due to the repayment of the
Partnership's line of credit in June 1998.
The Partnership expended $375,029 and $670,462 for capital improvements to its
properties in the first nine months of 1999 and 1998, respectively. In the first
nine months of 1998, the roofs at AAA Sentry and Fountainbleau mini-storages
were replaced and the exterior of Fountainbleau, Forest Hill, Margate and
Kendall Sunset mini-storages were repainted.
The Partnership loaned $75,000 to an affiliate of the General Partner and
received $5,724,999 in repayments of loans to affiliates in the first nine
months of 1998. No affiliate loans were made or repaid in the first nine months
of 1999. In June 1998, the Partnership repaid the $3,437,648 balance of its
revolving credit agreement.
The Partnership distributed $1,498,898 and $5,522,998 to the limited partners in
the first nine months of 1999 and 1998, respectively.
Short-term liquidity:
At September 30, 1999, the Partnership held cash and cash equivalents of
$4,834,279. This balance provides a reasonable level of working capital for the
Partnership's immediate needs in operating its properties.
The Partnership expects to receive repayment of its remaining mortgage loan
investment - affiliate in November 1999.
For the Partnership as a whole, management projects positive cash flow from
operations in 1999. The Partnership has budgeted approximately $1.05 million for
necessary capital improvements for all properties in 1999 which is expected to
be funded from available cash reserves or from operations of the properties.
Additional efforts to maintain and improve Partnership liquidity have included
continued attention to property management activities. The objective has been to
obtain maximum occupancy rates while holding expenses to levels necessary to
maximize cash flows. The Partnership has made capital expenditures on its
properties where improvements were expected to increase the competitiveness and
marketability of the properties.
<PAGE>
Long-term liquidity:
While the outlook for maintenance of adequate levels of liquidity is favorable,
should operations deteriorate and present cash resources be insufficient for
current needs, the Partnership would require other sources of working capital.
Other possible actions to resolve cash deficiencies include refinancings,
deferral of capital expenditures on Partnership properties except where
improvements are expected to increase the competitiveness and marketability of
the properties, arranging financing from affiliates or the ultimate sale of the
properties. See "Recent Developments" above.
The Partnership placed AAA Century Airport Self-Storage and Burbank Mini-Storage
on the market for sale effective August 1, 1997.
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after September 30, 1999. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties, and respond to changing economic and competitive factors.
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 is 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. Based on this review, management believes these systems are
substantially compliant. 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.
<PAGE>
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.
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 has assessed these risks and expects to have contingency
plans in place by December 31, 1999 for any material potential failures.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
1) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey
Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil
Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc.,
Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972,
Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd.,
McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil
Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real
Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate
Fund XXII, L.P., McNeil Real Estate Fund 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. ("McREMI") 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. 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.
Because the settlement contemplated a transaction which included all of the
Partnerships and plaintiffs claimed that an effort should be made to sell
all of the Partnerships, in or around September 1998, plaintiffs filed a
third consolidated and amended complaint which included allegations with
respect to the Partnerships which had not been named in previously filed
complaints.
On September 15, 1998, the parties signed a Stipulation of Settlement. For
purposes of settlement, the parties stipulated to a class comprised of all
owners of limited partner units in the Partnerships during the period
beginning June 21, 1991, the earliest date that proxy materials began to be
issued in connection with the restructuring of the Partnerships, through
September 15, 1998. As structured, the Stipulation of Settlement provided
for the payment of over $35 million in distributions and the commitment to
market the Partnerships for sale, together with McREMI, through a fair and
impartial bidding process overseen by a national investment banking firm.
To ensure the integrity of that process, defendants agreed, among other
things, to involve plaintiffs' counsel in oversight of that process, and
plaintiffs' counsel retained an independent advisor to represent the
interests of limited partners of the Partnerships in the event of a
transaction. The transaction described in Item 2 - Recent Developments is a
result of that process. The settlement was not conditioned on the
consummation of this transaction.
<PAGE>
On October 6, 1998, the court gave preliminary approval to the settlement.
It granted final approval to the settlement on July 8, 1999 and entered a
Final Order and Judgment dismissing the consolidated action with prejudice.
As a condition of final approval, the court requested, and the parties
agreed to, a slight modification of the release in the Stipulation of
Settlement with respect to future claims. Plaintiffs' counsel intends to
seek an order awarding attorneys' fees and reimbursing their out-of-pocket
expenses in an amount which is as yet undetermined. 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. A Notice of Appeal was filed September 3, 1999
by High River Limited Partnership, Unicorn Associates Corporation and
Longacre Corporation.
2) High River Limited Partnership, Unicorn Associates Corporation and
Longacre Corporation, et al. v. McNeil Partners, L.P. ("MPLP"), McNeil
Investors, Inc., McNeil Real Estate Management, Inc. (McREMI"), Robert A.
McNeil and Carole J. McNeil, - Supreme Court of the State of New York,
County of New York, - Index No. 99 603526.
On July 23, 1999, High River and two other affiliates of Carl C. Icahn
(Unicorn Associates Corporation and Longacre Corporation), filed a
complaint for damages in the Supreme Court of the State of New York, County
of New York. Plaintiffs allege that the defendants improperly interfered
with tender offers made by High River for limited partner units in the
Partnership and other affiliated partnerships in which MPLP serves as
General Partner (the "McNeil Partnerships"), by, among other things, filing
purportedly frivolous litigation to delay High River's offers, issuing
purportedly false and misleading statements opposing the offers and
purportedly forcing High River itself to file litigation to enforce its
rights. High River also alleges that as a result the defendants caused High
River to incur undue expense and that the defendants ultimately prevented
High River from acquiring a greater number of limited partner units.
Plaintiffs also allege that the defendants improperly excluded High River
from participating in the auction process for the sale of the McNeil
Partnerships, and otherwise took steps to prevent its participation in the
auction. In addition, plaintiffs, who are limited partners in, among
others, McNeil Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and
XXVII, have also sued the defendants based on their status as opt-outs from
the Schofield settlement. Plaintiffs seek undisclosed damages and an
accounting.
On July 30, 1999, defendants filed an answer to the High River Complaint,
denying each and every material allegation contained in the High River
Complaint and asserting several affirmative defenses. Settlement
negotiations are underway.
3) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et
al. (Case #92-06560-A). This suit was filed on behalf of the Partnership
and other affiliated partnerships (as defined in this Section 3, the
"Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District
Court of Dallas County. The petition sought recovery against the
Partnership's former auditors, Ernst & Young, for negligence and fraud in
failing to detect and/or report overcharges of fees/expenses by Southmark,
the former general partner. The former auditors initially asserted
<PAGE>
counterclaims against the Affiliated Partnerships based on alleged
fraudulent misrepresentations made to the auditors by the former management
of the Affiliated Partnerships (Southmark) in the form of client
representation letters executed and delivered to the auditors by Southmark
management. The counterclaims sought recovery of attorneys' fees and costs
incurred in defending this action. The counterclaims were later dismissed
on appeal, as discussed below.
The trial court granted summary judgment against the Affiliated
Partnerships based on the statute of limitations; however, on appeal, the
Dallas Court of Appeals reversed the trial court and remanded for trial the
Affiliated Partnerships' fraud claims against Ernst & Young. The Texas
Supreme Court denied Ernst & Young's application for writ of error on
January 11, 1996. Shortly before trial, the district court judge once again
granted summary judgment against the Affiliated Partnerships on December 2,
1996. Hearing and oral argument before the Court of Appeals was heard on
January 26, 1999. Judgment was entered in favor of the partnerships on June
25, 1999 and the case was once again remanded to the Trial Court. The
General Partner is investigating whether it is in the limited partners'
best interest to continue to pursue this case.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit
Number Document Description
4.2 Amended and Restated Partnership Agreement
of McNeil XXVII, L.P. dated March 30, 1992.
(Incorporated by reference to the Current
Report of the registrant on Form 8-K dated
March 30, 1992, as filed on April 10, 1992).
11. Statement regarding computation of Net
Income per Hundred Limited Partnership
Units. Net income per one hundred limited
partnership units is computed by dividing
net income allocated to the limited partners
by the weighted average number of limited
partnership units outstanding (expressed in
hundreds). Per unit information has been
computed based on 51,629 and 51,999 weighted
average limited partnership units (in
hundreds) outstanding in 1999 and 1998,
respectively.
27. Financial Data Schedule for the quarter
ended September 30, 1999.
(b) Reports on Form 8-K. A Report on Form 8-K dated July 8, 1999 was
filed on July 9, 1999 regarding the letter received from High River
Limited Partnership.
<PAGE>
MCNEIL REAL ESTATE FUND XXVII, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
McNEIL REAL ESTATE FUND XXVII, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 15, 1999 By: /s/ Ron K. Taylor
- ----------------- ------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 15, 1999 By: /s/ Carol A. Fahs
- ----------------- ------------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,834,279
<SECURITIES> 0
<RECEIVABLES> 244,784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,729,448
<DEPRECIATION> (11,110,780)
<TOTAL-ASSETS> 29,187,815
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0
0
<COMMON> 0
<OTHER-SE> 26,476,258
<TOTAL-LIABILITY-AND-EQUITY> 29,187,815
<SALES> 6,976,692
<TOTAL-REVENUES> 7,204,731
<CGS> 3,055,953
<TOTAL-COSTS> 4,009,851
<OTHER-EXPENSES> 1,172,926
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<INTEREST-EXPENSE> 5,139
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