ITEM 1. BUSINESS - ------- --------
ORGANIZATION - ------------
McNeil Real Estate Fund XXI, L.P., (the "Partnership"), formerly known as Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited partnership under the provisions of the California Revised Limited Partnership Act to acquire and operate commercial and residential properties. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner") a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a meeting of limited partners on March 26, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 26, 1992, the general partner of the Partnership was Southmark Partners, Ltd. (the "Original General Partner"), a Texas limited partnership of which the general partner is Southmark Investment Group, Inc., a wholly-owned subsidiary of Southmark Corporation ("Southmark"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
On February 3, 1984, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 2-88171) and commenced a public offering for sale of $50,000,000 of limited partnership units. There were two classes of limited partnership units offered, designated as Current Income Units and Growth/Shelter Units, (referred to collectively as "Units"). The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units closed on February 2, 1985 with 47,382 Units (24,982 Current Income Units and 22,400 Growth/Shelter Units) sold at $1,000 each, or gross proceeds of $47,382,000 to the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered its Units under the Securities Exchange Act of 1934 (File No. 0-13356). In 1994, 1995 and 1996, a total of 33 Current Income Units and 61 Growth/Shelter Units were relinquished. During 1997, 43 Current Income Units and 159 Growth/Shelter Units were relinquished leaving 47,086 Units (24,906 Current Income Units and 22,180 Growth/Shelter Units) outstanding at December 31, 1997.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - --------------------------------------------------
On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, the General Partner nor the Original General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interests in the Original General Partner, were sold or liquidated for the benefit of creditors.
In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990, providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio (the "Selected Partnerships").
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 and commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates.
On March 26, 1992, the limited partners approved a restructuring proposal that provided for (i) the replacement of the Original General Partner with a new general partner, the General Partner; (ii) the adoption of the Amended Partnership Agreement which substantially alters the provisions of the original partnership agreement relating to, among other things, compensation, reimbursement of expenses and voting rights; (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 XXI, L.P. Under the Amended Partnership Agreement, the Partnership began accruing an asset management fee, retroactive to February 14, 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 26, 1992 meeting were implemented as of that date.
Concurrent with the approval of the restructuring, the General Partner acquired from Southmark and its affiliates, for aggregate consideration of $389,023 (i) the right to receive payment on the advances owing from the Partnership to Southmark and its affiliates in the amount of $1,131,143, and (ii) the general partner interest of the Original General Partner. None of the Units are owned by the General Partner or its affiliates.
CURRENT OPERATIONS - ------------------
General:
The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential, commercial office, and retail real estate. As described in Item 2
Item 2 - Properties.
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after December 31, 1997. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties and respond to changing economic and competitive factors.
Environmental Matters:
The environmental laws of the Federal government and of certain state and local governments impose liability on current property owners for the clean-up of hazardous and toxic substances discharged on the property. This liability may be imposed without regard to the timing, cause or person responsible for the release of such substances onto the property. The Partnership could be subject to such liability in the event that it owns properties having such environmental problems. The Partnership has no knowledge of any pending claims or proceedings regarding such environmental problems.
Other Information:
Management has begun to review its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. The Partnership is in the process of evaluating the computer systems at the various properties. The Partnership also intends to communicate with suppliers, financial institutions and others to coordinate year 2000 issues. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations.
ITEM 2. PROPERTIES - ------- ----------
The following table sets forth the investment portfolio of the Partnership at December 31, 1997. All of the buildings and the land on which they are located are owned by the Partnership in fee and are subject to a first lien deed of trust. Certain of the properties are also subject to one or more junior mortgages as described more fully in Item 8 - Note 5 - "Mortgage Notes Payable" and Note 6 - "Mortgage Notes Payable - Affiliate." 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.
- ---------------------------------------------- Total: Apartments - 956 Units Retail Centers - 252,838 sq. ft.
(1) Bedford Green Apartments is owned by Bedford Green Fund XXI Limited Partnership, which is wholly-owned by the Partnership.
(2) Breckenridge Apartments is owned by Breckenridge Fund XXI Limited Partnership, which is wholly-owned by the Partnership.
(3) Evergreen Apartments is owned by Evergreen Fund XXI Limited Partnership, which is wholly-owned by the Partnership.
(4) Governour's Square Apartments is owned by Governour's Square Fund XXI Limited Partnership, which is wholly-owned by the Partnership.
(5) Woodcreek Apartments is owned by Woodcreek Fund XXI Limited Partnership, which is wholly-owned by the Partnership.
The following table sets forth the properties' occupancy rate and rent per square foot for the last five years:
Occupancy rate represents all units leased divided by the total number of units for residential properties and square footage leased divided by total square footage for commercial properties as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property.
Competitive Conditions - ----------------------
Real Estate Investments:
Bedford Green - -------------
Bedford Green Apartments is located in Bedford, Ohio, southeast of Cleveland, Ohio. Bedford Green continues to be one of the nicest apartment communities in the market and charges slightly higher rents than its competitors. The property ended the year at a 97% occupancy rate, giving the property a 98% average occupancy rate for 1997. Management expects to maintain occupancy in the mid to high 90% range in 1998 by improving the appearance of the property through capital expenditures.
Breckenridge - ------------
Breckenridge Apartments is located in a northwest residential area of Davenport, Iowa. The property currently has no deferred maintenance and its curb appeal is equal to that of its competition. The property floor plans are very small, resulting in square foot rental rates which are significantly higher than market rates. New apartment construction is now occurring in the area, which could have an effect on the property's performance. Due to the availability of affordable housing and discounts offered by competitors, rental rates will remain relatively stable in 1998. Management expects to maintain occupancy in the mid 90% range in 1998.
Evergreen Square - ----------------
Evergreen Square Apartments, built in 1970 in Tupelo, Mississippi, offers attractive floor plans, a renovated exterior and various amenities which position it as a strong competitor in its market area. Exterior improvements have helped Evergreen Square maintain a stabilized occupancy in spite of being located in a declining neighborhood. An increase in crime in the area has resulted in a decrease in occupancy over the past two years. Although there has been no recent multifamily development in the immediate area, the area offers a very reasonably priced home-buying market and an abundance of rental homes and duplexes. Based upon a continued capital improvement program and focused management, Evergreen Square should be able to maintain current occupancy rates. However, its location in a declining neighborhood will limit long-range growth.
Governour's Square - ------------------
Governour's Square Apartments, located in Wilmington, North Carolina was built in 1974. Exterior improvements as well as interior upgrades have enabled the property to achieve an occupancy rate slightly above the market, even with some new construction and renovations by competitors in the immediate area. The apartments are marketed primarily to middle income residents. Many of the families who select the property do so for its favorable school location, however, this may change in 1998 due to redistricting plans for the city. The Partnership anticipates a slight decrease in occupancy in 1998 due to increased competition from new multi-family developments and leasing incentives being offered to tenants by competitors. With continued interior and exterior upgrades, the Partnership expects to maintain occupancy in the mid 90% range in 1998.
Wise County - -----------
Wise County Plaza, located in Wise, Virginia, was built in 1971 and its colonial design is unique to the area. Although the shopping center is located in an area besieged by high unemployment rates and a lackluster economy due to the declining coal industry, it has remained a consistent competitor in the local retail market. Management plans to maintain occupancy while holding down costs in 1998.
The mortgage notes payable secured by Wise County Plaza matured in August 1997. The partnership is currently attempting to negotiate a modification and extension of the loans with the lender. If an agreement cannot be reached, the lender may foreclose on the property. The Partnership has received an offer from a non-affiliate to purchase the center for $4.9 million, which is more than $1 million less than the principal balance owed on the loans secured by the property. Based on this offer and the reduced anticipated holding period of the property, the Partnership recorded a $330,000 write-down for impairment of value during the fourth quarter of 1997 to record the shopping center at its fair value less costs to sell.
Woodcreek - ---------
Woodcreek Apartments, located in Fort Wayne, Indiana, was built in 1978 and offers attractive floor plans. The immediate area consists of older, established apartment communities that are not aggressive in raising rental rates. A strong single-family housing market has negatively impacted the rental market. Woodcreek's occupancy rate is slightly lower than the average for the area. Management added a weight room in 1996 which appealed to the large number of young professionals in the complex. The stable economy in the area should allow the property to maintain occupancy in the low 90% range during 1998.
Asset Held for Sale:
Fort Meigs Plaza - ----------------
Fort Meigs Plaza is a strip shopping center located in Perrysburg, Ohio, a city lying just outside of Toledo, Ohio. The center is surrounded by upper-middle income residential neighborhoods which are very well established. With the exception of one property, all of the competitors are newer, yet Fort Meigs has earned a reputation in the marketplace as a well maintained center. The property is expected to operate at current occupancy levels in 1998.
The following schedule shows lease expirations for each of the Partnership's commercial properties for 1998 through 2007:
No residential 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.
ITEM 3.
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 XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- ---------------------------------------------------
None.
PART II
ITEM 5.
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 3,932 as of January 31, 1998
(C) No distributions were paid to the partners in 1997 or 1996 and none are anticipated in 1998. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support distributions to the Unit holders. See Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies - Distributions."
ITEM 6.
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.
See Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------
LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
The Partnership generated $1,168,737 of cash through operating activities in 1997 as compared to $699,883 in 1996 and $410,990 in 1995. The increase in 1997 as compared to 1996 was mainly due to a decrease in cash paid to affiliates, partially offset by an increase in cash paid to suppliers. In 1996, the Partnership paid $700,000 of previously accrued overhead reimbursements to McREMI. No overhead reimbursements were paid to McREMI in 1997. The increase in cash paid to suppliers was due to the timing of the payment of invoices at the end of the year.
The increase in 1996 as compared to 1995 was primarily due to the sales of Suburban Plaza and Wyoming Mall in 1995. With the proceeds from the sales, the Partnership was able to repay $973,000 of advances and $1,331,000 of mortgage notes payable from affiliates in the first half of 1995, thereby reducing the interest paid to affiliates in 1996. In addition, cash paid to suppliers, interest paid and property taxes paid were lower in 1996 due to the sales of the two properties. These decreases in cash paid were partially offset by a decrease in cash received from tenants as a result of the property sales in 1995. In addition, no interest was received from affiliates in 1996 as compared to $71,614 in 1995 since the previous advances of $300,000 to McNeil Real Estate Fund XXII, L.P. ("Fund XXII") for Wyoming Mall were paid off in 1995. Cash paid to affiliates increased in 1996 due to the payment of previously accrued overhead reimbursements to McREMI.
In 1997 and 1996, the Partnership received $100,241 and $40,937, respectively, of proceeds from the insurance carrier for damages suffered at Governour's Square Apartments. No such proceeds were received in 1995.
During 1995, the Partnership received $300,000 for repayment of the advance to Fund XXII, the joint owner of Wyoming Mall.
In 1995, the sale of Suburban Plaza and Wyoming Mall shopping centers provided cash proceeds of $10,946,743. The Partnership used the proceeds to retire the related mortgage notes on the properties sold totaling $7,415,826, to repay a mortgage note from an affiliate in the amount of $1,331,000 and to repay affiliate advances of $973,000.
In 1995, the Partnership paid $194,952 for deferred borrowing costs relating to the refinancing of Bedford Green and Woodcreek Apartments.
In 1995, the Partnership received $60,103 of proceeds from refinancing two mortgage notes payable. See Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of McNeil Real Estate Fund XXI, L.P.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund XXI, L.P. (a California limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of McNeil Real Estate Fund XXI, L.P. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 8 to the financial statements, the Partnership has previously relied on advances from affiliates to meet its debt obligations and to fund capital improvements. Additionally, the Partnership has had to defer payment of payables to affiliates in order to meet its working capital needs. Additionally, the Partnership is in default on approximately $9.7 million in mortgage note debt for which no extensions, modifications or refinancings have yet been negotiated. There is no guarantee that such negotiations can be completed. Management's plans in regard to these matters are also described in Note 8. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas March 20, 1998
McNEIL REAL ESTATE FUND XXI, L.P.
BALANCE SHEETS
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXI, L.P.
STATEMENTS OF OPERATIONS
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXI, L.P.
STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1997, 1996 and 1995
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXI, L.P.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
See discussion of noncash investing and financing activities in Note 4 - "Real Estate Investments," Note 6 - "Mortgage Notes Payable - Affiliate," Note 7 - "Property Dispositions" and Note 11 - "Gain on Involuntary Conversion."
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXI, L.P.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Loss to Net Cash Provided by Operating Activities
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------------------------------------
Organization - ------------
McNeil Real Estate Fund XXI, L.P., (the "Partnership"), formerly known as Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited partnership under the provisions of the California Revised Limited Partnership Act to acquire and operate commercial and residential properties. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The General Partner was elected at a meeting of limited partners on March 26, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 26, 1992, the general partner of the Partnership was Southmark Partners, Ltd. (the "Original General Partner"), a Texas limited partnership of which the general partner is Southmark Investment Group, Inc., a wholly-owned subsidiary of Southmark Corporation. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential, commercial office, and retail real estate. As described in Note 4 - "Real Estate Investments," at December 31, 1997, the Partnership owned seven revenue-producing properties.
Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof.
The Partnership placed Fort Meigs Plaza on the market for sale effective October 1, 1996. The Partnership has received an offer from a non-affiliate to purchase the center for $3.8 million.
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.
The Partnership's financial statements include the accounts of the following listed tier partnerships. These single asset tier partnerships were formed to accommodate the refinancing of the respective property. The Partnership has a 100% ownership interest in each of the following tier partnerships:
Tier Partnership ----------------
Bedford Green Fund XXI Limited Partnership Breckenridge Fund XXI Limited Partnership Evergreen Fund XXI Limited Partnership Governour's Square Fund XXI Limited Partnership Woodcreek Fund XXI Limited Partnership
The financial statements also include the accounts (through March 31, 1995) of the Partnership and its 50% undivided interest in the assets, liabilities and operations of Wyoming Mall owned jointly with McNeil Real Estate Fund XXII, L.P.
Real Estate Investments - -----------------------
Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated fair value.
The Partnership's method of accounting for real estate investments is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The adoption of SFAS 121 did not have a material impact on the accompanying financial statements.
Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred.
Asset Held for Sale - -------------------
The asset held for sale is stated at the lower of depreciated cost or fair value less costs to sell. Depreciation on this asset ceased at the time it was 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 amortized over the terms of the related tenant lease using the straight-line method.
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.
Escrow Deposits - ---------------
The Partnership is required to maintain escrow accounts in accordance with the terms of various mortgage indebtedness agreements. These escrow accounts are controlled by the mortgagee and are used for payment of property taxes, hazard insurance, capital improvements and/or property replacements. Carrying amounts for escrow deposits approximate fair value.
Prepaid Commissions - -------------------
Leasing commissions incurred to obtain leases on commercial properties are capitalized and amortized using the straight-line method over the term of the related lease and are included in prepaid expenses and other assets on the Balance Sheets.
Deferred Borrowing Costs - ------------------------
Loan fees and other related costs incurred to obtain long-term financing on real property are capitalized and amortized using a method that approximates the effective interest method over the terms of the related mortgage notes payable. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations.
Discounts on Mortgage Notes Payable - -----------------------------------
Discounts on mortgage notes payable are being amortized over the remaining terms of the related mortgage notes using the effective interest method. Amortization of discounts on mortgage notes payable is included in interest expense on the Statements of Operations.
Rental Revenue - --------------
The Partnership leases its residential properties 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 lease. 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 generally provides that net income (other than net income arising from sales or refinancing) shall be allocated one percent (1%) to the General Partner and ninety-nine percent (99%) to the limited partners equally as a group, and net loss shall be allocated one percent (1%) to the General Partner, nine percent (9%) to the limited partners owning Current Income Units and ninety percent (90%) to the limited partners owning Growth/Shelter Units.
For financial statement purposes, net income arising from sales or refinancing shall be allocated one percent (1%) to the General Partner and ninety-nine percent (99%) to the limited partners equally as a group, and net loss shall be allocated one percent (1%) to the General Partner, nine percent (9%) to the limited partners owning Current Income Units and ninety percent (90%) to the limited partners owning Growth/Shelter Units.
For tax reporting purposes, net income arising from sales or refinancing shall be allocated as follows: (a) first, amounts of such net income shall be allocated among the General Partner and limited partners in proportion to, and to the extent of, the portion of such partner's share of the net decrease in Partnership Minimum Gain determined under Treasury Regulations, (b) second, to the General Partner and limited partners in proportion to, and to the extent of, the amount by which their respective capital account balances are negative by more than their respective remaining shares of the Partnership's Minimum Gain attributable to properties still owned by the Partnership and (c) third, 1% of such net income shall be allocated to the General Partner and 99% of such net income shall be allocated to the limited partners.
Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocation of Partnership deductions attributable to debt. The Partnership's tax allocations for 1997, 1996 and 1995 have been made in accordance with these provisions.
Distributions - -------------
At the discretion of the General Partner, distributable cash (other than cash from sales or refinancing) shall be distributed 100% to the limited partners, with such distributions first paying the Current Income Priority Return and then the Growth/Shelter Priority Return. Also at the discretion of the General Partner, the limited partners will receive 100% of distributable cash from sales or refinancing with such distributions first paying the Current Income Priority Return, then the Growth/Shelter Priority Return, then repayment of Original Invested Capital, and of the remainder, 16.66% to limited partners owning Current Income Units and 83.34% to limited partners owning Growth/Shelter Units. The limited partners' Current Income and Growth/Shelter Priority Returns represent a 10% and 8%, respectively, cumulative return on their Adjusted Invested Capital balance, as defined. No distributions of Current Income Priority Return have been made since 1988, and no distributions of Growth/Shelter Priority Return have been made since the Partnership began.
In connection with a Terminating Disposition, as defined, cash from sales or refinancing and any remaining reserves shall be allocated among, and distributed to, the General Partner and limited partners in proportion to, and to the extent of, their positive capital account balances after the net income has been allocated pursuant to the above.
Net Income (Loss) Per Limited Partnership Units - -----------------------------------------------
Net income (loss) per limited partnership unit ("Unit") is computed by dividing net income (loss) allocated to the limited partners by the weighted average number of Units outstanding. Per Unit information has been computed based on 24,906, 24,949 and 24,949 Current Income Units outstanding in 1997, 1996 and 1995, respectively and 22,180, 22,339 and 22,359 Growth/Shelter Units outstanding in 1997, 1996 and 1995, respectively.
Reclassifications - -----------------
Certain reclassifications have been made to prior year amounts to conform with the current year presentation.
NOTE 2 - TRANSACTIONS WITH AFFILIATES - -------------------------------------
The Partnership pays property management fees equal to 5% of gross rental receipts for its residential properties and 6% of gross rental receipts for commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's residential and commercial properties and leasing services for its residential properties. McREMI may also choose to provide leasing services for the Partnership's commercial properties, in which case McREMI will receive property management fees from such commercial properties equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located.
The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs.
Under the terms of the Amended Partnership Agreement, the Partnership pays a disposition fee to an affiliate of the General Partner equal to 3% of the gross sales price for brokerage services performed in connection with the sale of the Partnership's properties. The fee is due and payable at the time the sale closes. The Partnership incurred $346,050 of such fees during 1995 in connection with the sales of Suburban Plaza and Wyoming Mall. These fees have not yet been paid by the Partnership and are included in payable to affiliates on the Balance Sheets at December 31, 1997 and 1996.
Under the terms of the Amended Partnership Agreement, the Partnership is paying an asset management fee, retroactive to February 14, 1991, 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 percent to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999.
Compensation and reimbursements paid or accrued for the benefit of the General Partner or its affiliates are as follows:
During 1992, the Partnership made advances of $320,874 to McNeil Real Estate Fund XXII, L.P., the joint owner of Wyoming Mall, for tenant improvements and operations at Wyoming Mall. During 1994, $20,874 of these advances was repaid and during 1995 the balance of the advances and the related interest were repaid. The advances, which were unsecured and due on demand, accrued interest at prime plus 3.5%.
The General Partner has, at its discretion, advanced funds to the Partnership. The Partnership received $472,431 in advances that were used to fund working capital requirements. These advances and the related accrued interest were repaid in 1995 from the proceeds from the sales of Wyoming Mall and Suburban Plaza. The General Partner is not obligated to advance funds to the Partnership, and there is no assurance that the Partnership will receive additional funds.
Prior to the restructuring of the Partnership, affiliates of the Original General Partner advanced funds to enable the Partnership to meet its working capital requirements. These advances were purchased by, and are now payable to, the General Partner. During 1995, $500,569 of these advances and the related accrued interest were repaid.
The total advances from affiliates at December 31, 1997 and 1996 consisted of the following:
1997 1996 ----------- ------------
Advances purchased by General Partner $ 630,574 $ 630,574 Accrued interest payable 164,407 104,679 ---------- ----------- $ 794,981 $ 735,253 ========== ===========
The advances are unsecured, due on demand and accrue interest at the prime lending rate of Bank of America plus 1%. The prime lending rate was 8.50% and 8.25% at December 31, 1997 and 1996, respectively.
In May 1992, the Partnership obtained a loan from McNeil Real Estate Fund XXVII, L.P., an affiliate of the General Partner, totaling $972,000. The loan was secured by a third lien on Suburban Plaza which was sold in March 1995. The Partnership utilized a portion of the proceeds from 1995 property sales to repay the affiliate mortgage in April 1995.
Payable to affiliates at December 31, 1997 and 1996 consisted primarily of unpaid property management fees, Partnership general and administrative expenses, disposition fees and asset management fees and is due and payable from current operations.
See Note 6 - "Mortgage Notes Payable - Affiliate" for a discussion of the mortgage notes payable to an affiliated entity.
NOTE 3 - TAXABLE LOSS - ---------------------
McNeil Real Estate Fund XXI, 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 reporting purposes exceeded the net assets and liabilities for financial reporting purposes by $3,352,795, $3,103,486 and $3,563,407 in 1997, 1996 and 1995, respectively.
NOTE 4 - REAL ESTATE INVESTMENTS - --------------------------------
The basis and accumulated depreciation of the Partnership's real estate investments at December 31, 1997 and 1996 are set forth in the following tables:
On October 1, 1996, the General Partner placed Fort Meigs Plaza, located in Perrysburg, Ohio, on the market for sale. Fort Meigs Plaza was classified as such at December 31, 1997 and 1996 with a net book value of $2,795,988 and $2,731,674, respectively.
The results of operations for the asset held for sale at December 31, 1997 were $12,683, $(115,695) and $(184,183) for the years ended December 31, 1997, 1996 and 1995, respectively. Results of operations are operating revenues less operating expenses including depreciation and amortization and interest expense.
Wise County Plaza is a shopping center located in an area besieged by high unemployment rates and a lackluster economy due to the declining coal industry. The mortgage notes payable secured by Wise County Plaza matured in August 1997. The partnership has attempted to negotiate a modification and extension of the loans with the lender. An agreement has not been reached and the lender intends to foreclose on the property. The Partnership has received an offer from a non-affiliate to purchase the center for $4.9 million, which is more than $1 million less than the principal balance owed on the loans secured by the property. Based on this offer and the reduced anticipated holding period of the property, the Partnership recorded a $330,000 write-down for impairment of value during the fourth quarter of 1997 to record the property at its fair value less costs to sell.
The Partnership leases its commercial properties under non-cancelable operating leases. Future minimum rents to be received as of December 31, 1997 are as follows:
Real Estate Asset Held Investments For Sale ------------ -------------
1998.............................. $ 798,661 $ 573,846 1999.............................. 709,659 498,124 2000.............................. 650,595 375,223 2001.............................. 435,931 337,222 2002.............................. 346,256 60,201 Thereafter........................ 1,188,600 362,875 ---------- ----------- Total........................... $ 4,129,702 $ 2,207,491 ========== ===========
Future minimum rents do not include contingent rentals based on sales volume of tenants. Contingent rents amounted to $71,229, $54,912 and $63,777 for the years ended December 31, 1997, 1996, and 1995, respectively. Future minimum rents also do not include expense reimbursements for common area maintenance, property taxes, and other expenses. These expense reimbursements amounted to $153,655, $174,370 and $233,290 for the years ended December 31, 1997, 1996 and 1995, respectively. These contingent rents and expense reimbursements, which include amounts related to the asset held for sale, are included in rental revenue on the Statements of Operations.
NOTE 5 - MORTGAGE NOTES PAYABLE - -------------------------------
The following sets forth mortgage notes payable, net of discounts, of the Partnership at December 31, 1997 and 1996. All mortgage notes payable are secured by the related real estate investment or asset held for sale.
(a) The debt is non-recourse to the Partnership.
(b) On July 14, 1995, the Partnership refinanced Bedford Green Apartments and Woodcreek Apartments (see Note 10 - "Mortgage Refinancings").
(c) Financing was obtained under the terms of a Real Estate Mortgage Investment Conduit financing. The mortgage notes payable are cross-collateralized and may not be prepaid in whole or part before July 1998. Any prepayments made during the sixth or seventh loan years are subject to a Yield Maintenance premium, as defined. Additionally, the Partnership must pay a release payment equal to 25% of the prepaid balance which will be applied to the remaining mortgage notes in the collateral pool.
(d) On December 19, 1997, an affiliated partnership purchased the first lien mortgage note secured by Fort Meigs Plaza. See Note 6 - "Mortgage Notes Payable - Affiliate."
(e) The mortgage notes payable secured by Wise County Plaza matured in August 1997. The Partnership has continued to make regularly scheduled debt service payments and has attempted to negotiate a modification and extension of the loans with the lender. An agreement has not been reached and the lender intends to foreclose on the property. All excess cash flow of the property is payable to the lender as additional interest on the loans.
(f) Balloon payments on the mortgage notes are due as follows:
Property Balloon Payment Date -------- --------------- ----
Wise County Plaza $ 5,973,735 08/97 Bedford Green 3,074,442 07/02 Woodcreek 2,620,263 07/02 Breckenridge 1,436,695 07/03 Evergreen Square 1,650,679 07/03 Governour's Square 2,588,992 07/03
Scheduled principal maturities of the mortgage notes payable under existing agreements, excluding discounts of $128,822, are as follows:
1998.................................... $ 6,182,793 1999.................................... 226,949 2000.................................... 246,371 2001.................................... 267,457 2002.................................... 5,951,223 Thereafter.............................. 5,788,532 ----------- $ 18,663,325
Based on borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities, the fair value of mortgage notes payable was approximately $18,527,000 at December 31, 1997 and $21,458,000 at December 31, 1996.
NOTE 6 - MORTGAGE NOTES PAYABLE - AFFILIATE - -------------------------------------------
The following sets forth mortgage notes payable - affiliate of the Partnership at December 31, 1997 and 1996. The mortgage notes are secured by the related asset held for sale.
(a) The debt is non-recourse to the Partnership.
(b) Payments are interest-only equal to an effective interest rate of 6.66%. All accrued interest is due at maturity.
In December 1997, McNeil Real Estate Fund XX, L.P., the affiliated partnership that holds the second lien mortgage secured by Fort Meigs Plaza, purchased the first lien mortgage note from the unaffiliated lender. The Partnership is in default on payment of both the first and second liens on Fort Meigs Plaza as the notes matured on March 1, 1998 and September 1, 1997, respectively. Fort Meigs Plaza is currently on the market for sale and the Partnership has received an offer from a non-affiliate to purchase the property for $3.8 million. The Partnership will continue to make regularly scheduled debt service payments on the first and second lien mortgage notes until the property can be sold.
If the pending sales transaction is not completed, the Partnership will attempt to renegotiate the terms of the affiliate debt. However, such refinancing may be at an interest rate which is higher, or otherwise on terms which are less favorable than those provided by the current mortgage. Furthermore, if alternative financing cannot be obtained, the affiliate lender could foreclose on the property securing the mortgage. Management believes the possibility of this outcome is unlikely.
Based on borrowing rates currently available to the Partnership for a mortgage loan with similar terms and average maturities, the fair value of the mortgage notes payable was approximately $3,627,000 at December 31, 1997 and $690,000 at December 31, 1996.
NOTE 7 - PROPERTY DISPOSITIONS - ------------------------------
On March 31, 1995, Suburban Plaza Shopping Center was sold to an unrelated third party for a cash price of $6,910,000. Cash proceeds and the gain on the disposition is detailed below:
On March 31, 1995, Wyoming Mall Shopping Center was sold to an unrelated third party for a cash price of $9,250,000. The Partnership had a 50% undivided interest in the assets, liabilities and operations of Wyoming Mall, owned jointly with McNeil Real Estate Fund XXII, L.P. Cash proceeds and the gain on the disposition is detailed below:
The Partnership pays a disposition fee to an affiliate of the General Partner equal to 3% of the gross sales price for brokerage services performed in connection with the sale of the Partnership's properties. The fee is due and payable at the time the sale closes. The Partnership incurred $346,050 of such fees for the year ended December 31, 1995 in connection with the sale of properties. These fees have not yet been paid by the Partnership and are included in payable to affiliates on the Balance Sheets at December 31, 1997 and 1996.
NOTE 8 - FINANCIAL CONDITION AND GOING CONCERN CONSIDERATIONS - -------------------------------------------------------------
The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern. The Partnership incurred losses of $1,148,604, $1,127,080 and $170,804 in 1997, 1996 and 1995, respectively.
The Partnership generated $1,168,737 of cash through operating activities in 1997 and received $100,241 in proceeds from an insurance carrier. Cash used for additions to real estate investments totaled $852,810 and mortgage principal payments totaled $269,426. Cash generated through operating activities exceeded cash expenditures by $146,742.
In 1998, present cash balances and operations of the properties are expected to provide sufficient cash for normal operating expenses, debt service payments and budgeted capital improvements. However, any unanticipated capital improvements will require other sources of cash. The mortgage notes payable secured by Wise County Plaza and the second lien mortgage note payable - affiliate secured by Fort Meigs Plaza matured in 1997. The first lien mortgage note payable - affiliate secured by Fort Meigs Plaza matures in March 1998. The Partnership is currently in default on all four mortgage notes. The Partnership has continued to make regularly scheduled debt service payments on the Wise County Plaza mortgages and has attempted to negotiate a modification and extension of the loan with the lender. An agreement has not been reached and the lender intends to foreclose on the property. Foreclosure by the lender is not anticipated to have a significant effect of the Partnership since all excess cash flow of the property is payable to the lender as additional interest on the loans. The Partnership has placed Fort Meigs Plaza on the market for sale and the Partnership has received an offer from a non-affiliate to purchase the property for $3.8 million. The Partnership will continue to make regularly scheduled debt service payments on the mortgage notes until the property can be sold. The Partnership has no established lines of credit from outside sources. Other possible actions to resolve cash deficiencies include refinancings, deferral of capital expenditures on Partnership properties except where improvements are expected to increase the competitiveness and marketability of the properties, deferral of payables to or arranging financing from affiliates, or the ultimate sale of Partnership properties.
These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
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 XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998.
NOTE 10 - MORTGAGE REFINANCINGS - -------------------------------
The mortgage notes payable on Bedford Green and Woodcreek Apartments that matured in June 1995 were refinanced in July 1995 for $3,300,000 and $2,812,500, respectively. The new mortgage loans bear an interest rate of 8.48%, require monthly principal and interest payments of $25,327 and $21,586, respectively, and mature in July 2002. The following is a summary of the cash proceeds relating to the refinancings:
The Partnership incurred loan costs of $194,952 related to the refinancing. An additional $404,074 of tax, insurance and property replacement escrows were established at the closing of the refinancing.
NOTE 11 - GAIN ON INVOLUNTARY CONVERSION - ----------------------------------------
On July 12 and September 5, 1996, Governour's Square Apartments suffered damage from two separate hurricanes. Repairs of damages totaling $191,178 were completed. Reimbursements for the repairs totaling $40,937 were received from the insurance carrier in 1996. The remaining costs of $150,241, less a $50,000 deductible, were included in accounts receivable on the December 31, 1996 Balance Sheet and were received in 1997. The Partnership recognized a gain on involuntary conversion of $27,252 and recorded a deferred gain of $66,879 in 1996. A gain on involuntary conversion of $66,655 was recognized in 1997 when the remaining insurance claims were received. The total gain on involuntary conversion of $93,907 represents the insurance claims in excess of the basis of the property damaged by the hurricanes.
NOTE 12 - PRO FORMA INFORMATION (UNAUDITED) - ------------------------------------------- The following unaudited pro forma information for the year ended December 31, 1995 reflects the results of operations of the Partnership as if the sales of Wyoming Mall and Suburban Plaza shopping centers had occurred as of January 1, 1995. The unaudited pro forma information is not necessarily indicative of the results of operations which actually would have occurred or those which might be expected to occur in the future.
------------- Total revenue $ 6,182,132 Loss before extraordinary items (1,756,693) Net loss (1,756,693)
Net loss per thousand limited partnership units: Current Income Units (6.34) Growth/Shelter Units (70.71)
McNEIL REAL ESTATE FUND XXI, L.P. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
(b) The initial cost and encumbrances reflect the present value of future loan payments discounted, if appropriate, at a rate estimated to be the prevailing interest rate at the date of acquisition or refinancing.
(c) The carrying values of Evergreen Square Apartments and Wise County Plaza Shopping Center were reduced by $176,568 and $500,000, respectively, in 1989. The carrying value of Evergreen Square Apartments was further reduced by $314,432 in 1991 and the carrying value of Wise County Plaza Shopping Center was further reduced by $330,000 in 1997.
(d) The asset held for sale is stated at lower of depreciated cost or fair value less cost to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "Held for Sale." Depreciation ceases at the time the asset is placed on the market for sale.
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND XXI, L.P. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
(a) 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 $44,610,083 and accumulated depreciation was $32,683,983 at December 31, 1997.
(d) The asset held for sale is stated at lower of depreciated cost or fair value less cost to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "Held for Sale." Depreciation ceases at the time the asset is placed on the market for sale.
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND XXI, L.P. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1997
(d) The asset held for sale is stated at lower of depreciated cost or fair value less cost to sell. Historical cost, net of accumulated depreciation and amortization and write-downs, becomes the new cost basis when the asset is classified as "Held for Sale."
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND XXI, 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:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- ---------------------------------------------------------------- FINANCIAL DISCLOSURES ---------------------
None.
PART III
ITEM 10.
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:
Each director shall serve until his successor shall have been duly elected and qualified.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - -------- ----------------------
No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1997, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1997. The Partnership has no plans to pay any such remuneration to any directors or officers of the general partner of the General Partner in the future.
See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates.
ITEM 12.
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, known to the Partnership is the beneficial owner of more than 5 percent of the Partnership's securities.
(B) Security ownership of management.
Neither the General Partner nor any of its officers or directors of its general partner own any limited partnership units.
(C) Change in control.
None.
ITEM 13.
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 $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. For the year ended December 31, 1997, the Partnership accrued $390,476 of such asset management fees. Total accrued but unpaid asset management fees of $3,318,406 were outstanding at December 31, 1997.
The Partnership pays property management fees equal to 5% of the gross rental receipts for its residential properties and 6% of gross rental receipts for commercial properties to McREMI, an affiliate of the General Partner, for providing property management services. Additionally, the Partnership reimburses McREMI for its costs, including overhead of administering the Partnership's affairs. For the year ended December 31, 1997, the Partnership paid or accrued $596,788 of such property management fees and reimbursements. See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Note 2 - "Transactions With Affiliates."
Prior to the restructuring of the Partnership, affiliates of the Original General Partner advanced funds to enable the Partnership to meet its working capital requirements. These advances were purchased by, and are now payable to, the General Partner. Accrued interest totaling $59,728 was added to advances from affiliates for the year ended December 31, 1997.
A first and second lien on Fort Meigs Plaza is secured by mortgage notes totaling $3,730,076 payable to an affiliate of the General Partner. For the year ended December 31, 1997, interest expense relating to these loans totaled $93,540.
PART IV
ITEM 14.
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.
Exhibit Number Description ------- -----------
The Partnership has omitted instruments with respect to long-term debt where the total amount of the securities authorized thereunder does not exceed 10% of the total assets of the Partnership. The Partnership agrees to furnish a copy of each such instrument to the Commission upon request.
(1) 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.
(2) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1993, as filed on March 30, 1994.
(3) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the period ended September 30, 1995, as filed on November 13, 1995.
(B) There were no reports on Form 8-K filed by the Partnership during the quarter ended December 31, 1997.
McNEIL REAL ESTATE FUND XXI, 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 XXI, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
March 31, 1998 By: /s/ Robert McNeil - -------------- ----------------------------------------- Date Robert A. McNeil Chairman of the Board and Director Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
March 31, 1998 By: /s/ Ron K. Taylor - -------------- ----------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer)
March 31, 1998 By: /s/ Carol A. Fahs - -------------- ----------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer)