Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS ------- --------
ORGANIZATION ------------
McNeil Real Estate Fund XII, Ltd. (the "Partnership") was organized February 2, 1981, as a limited partnership under the provisions of the California Uniform Limited Partnership Act. 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 Partnership is governed by an amended and restated partnership agreement of limited partnership dated September 6, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240.
On June 8, 1981, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission whereby the Partnership offered for sale $120,000,000 of limited partnership units ("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 September 30, 1982, with 230,728 Units sold at $500 each, or gross proceeds of $115,364,000 to the Partnership. In addition, the original general partners purchased a total of 200 Units for $100,000. In 1993, 111 Units were relinquished. An additional 223 Units were relinquished in 1994 leaving 230,594 Units outstanding at December 31, 1994.
CURRENT OPERATIONS ------------------
General:
The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At December 31, 1994, the Partnership owned nine properties, of which six are real estate investments and three are currently assets held for sale, as described in Item 2



ITEM 2. PROPERTIES ------- ----------
The following table sets forth the properties of the Partnership at December 31, 1994. The buildings and the land on which they are located are owned by the Partnership in fee, subject in each case to a first lien deed of trust and, in some cases, one or more junior mortgages as set forth more fully in Item 8 - Note 5 - "Mortgage Notes Payable". 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 - 3,232 units Retail Centers - 273,223 sq. ft.
(1) Brendon Way Apartments is owned by Brendon Way Fund XII Associates which is wholly-owned by the Partnership and the General Partner.
(2) Castle Bluff Apartments is owned by Castle Bluff Fund XII Associates which is wholly-owned by the Partnership and the General Partner.
(3) Palisades at the Galleria Apartments is owned by Palisades Fund XII Associates, L.P. which is wholly-owned by the Partnership and the General Partner.
The following table sets forth the properties' occupancy rate and rent per square foot for each of 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 other properties as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property.
Competitive Conditions at Properties ------------------------------------
Brendon Way -----------
Brendon Way is competing against newer properties as well as some that have recently been renovated. The property is currently below the average market rate of 93%. Rental rates at Brendon Way are averaging $.57 to $.68 per square foot, while many competitors are averaging $.43 to $.70 per square foot. Minor renovations have improved the curb appeal of the property. To continue to stay competitive, the property has initiated a capital improvements program in 1995.
Buccaneer Village -----------------
Over the last four years the rental rates at Buccaneer Village have increased by 27% due to improved market conditions. The market maintains a strong occupancy level at 97% and anticipates 3,200 additional units to be built in 1995. In addition to the new units, a major rehabilitation project is occurring across the street from the property. Although Buccaneer Village will not compete directly with the new construction, the new construction will tend to slow the increase in rental rates that older property may expect in the coming years. Buccaneer Village will continue with ongoing capital improvements to allow the property to compete effectively in the market place.
Castle Bluff ------------
Castle Bluff is in a highly competitive market with the occupancy rates running between 97% and 98%. Castle Bluff is currently competing with new apartment properties in a soft economy. The property has done some renovations to remain aggressive in the market and anticipates raising the rental rates to $.63 per square foot.
Channingway -----------
Channingway is located in an area east of Columbus, Ohio with a market of 27,648 apartment units. The property is currently below the market average occupancy rate of 94%, however, monthly rental rates have stayed higher than market. The property is located in a desirable area with new shopping and entertainment facilities. This will increase competition from new development. The property's exteriors are dated and lack curb appeal. In 1995, the property will begin a capital improvement program to remain competitive in the market.
Millwood Park -------------
Through an aggressive marketing campaign, Millwood Park has maintained occupancy rates and rental rates higher than the local submarket. There has been no new construction within a three mile radius of the property over the last two years. However, occupancy trends are anticipated to decline 2% during 1995 from the market average of 92%, but rental rates should remain stable. Millwood is currently on the market for sale.
Palisades ---------
Occupancy rates at Palisades at the Galleria have increased by 16% since the 1991 renovation program began. The $3 million renovation program included new interiors, signage, exterior painting, asphalt and upgrading the clubhouse. The market continues to maintain an occupancy level at 95%. Palisades at the Galleria is located in Atlanta and with the 1996 Olympics, the market should remain strong throughout 1996. The market, however, may remain flat in 1997 due to the over supply of new construction.
Plaza Westlake --------------
Plaza Westlake enters 1995 with an occupancy rate of 99%, higher than the market average of 93%. Plaza Westlake is located in a high traffic area with a proven anchor. The property anticipates to be fully leased by mid-1995. The rental rates per square foot approximates the average rates charged by the seven centers competing directly with Plaza Westlake.
Lamar Plaza -----------
Lamar Plaza finished the year below the market average occupancy rate of 86% Built in 1974, Lamar Plaza is competing against newer properties. The most recent being the 1994 development of a K-Mart Super Store and the opening of a major grocery store just down the street. The property is current on the market for sale.
Sundance --------
Sundance is located in a depressed rental market as a result of a record level of home sales over the last four years. The property, however, has been able to remain above the 87% average occupancy rate for the market. Sundance needs capital improvements to continue to remain competitive in the market. The property is currently on the market for sale.
The following schedule shows lease expirations for each of the Partnership's commercial properties for 1995 through 2004:
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:
HCW Pension Real Estate Fund, Ltd. et al. v. Gene E. Phillips, William S. Friedman, Thomas C. Walker, James H. Flinchum, Ernst & Young and BDO Seidman (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition seeks recovery against the Partnership's former auditors for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark, the former general partner. The Partnership is seeking to recover $1,886,545 in actual damages plus exemplary damages, interest and costs. The former auditors have asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims seek recovery of attorneys' fees and costs incurred in defending this action. The original petition also alleged causes of action against certain former officers and directors of the Partnership's original general partner for breach of fiduciary duty, fraud and conspiracy relating to the improper assessment and payment of certain administrative fees/expenses. On January 11, 1994 the allegations against the former officers and directors were dismissed.
The trial court granted summary judgement in favor of Ernst & Young and BDO Seidman on the fraud and negligence claims based on the statute of limitations. The Affiliated Partnerships have appealed the summary judgement to the Dallas Court of Appeals. Briefs have been filed and the parties are awaiting oral arguments. A ruling is expected by July 1995. The Affiliated Partnerships are pursuing these claims vigorously on appeal. The ultimate outcome of this litigation cannot be determined at this time.
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 13,947 as of February 28, 1995
(C) No cash distributions were made to the limited partners in 1994 or 1993, and none are anticipated in 1995. The Partnership accrued distributions of $1,164,549 and $1,191,834 for the benefit of the General Partner for the years ended December 31, 1994 and 1993, respectively of which $3,753,981 remains unpaid as of December 31, 1994. These distributions are the contingent portion of the Management Incentive Distribution ("MID") pursuant to the Amended Partnership Agreement. The Partnership anticipates making additional distributions to the General Partner for the Contingent MID in 1995. See Item 8 - Note 2 - "Transactions with Affiliates." See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of distributions and the likelihood they will be resumed to the limited partners.
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.
See Item 7

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ------- ------------------------------------------------------------ AND RESULTS OF OPERATIONS -------------------------
LIQUIDITY AND CAPITAL RESOURCES -------------------------------
The accompanying financial statements have been prepared assuming that the partnership will continue as a going concern.
At December 31, 1994, the Partnership held cash and cash equivalents of $3,313,765, down $1,624,264 as compared to 1993. In January 1994, with the cash proceeds from the sale of Cedar Mill Crossing, the Partnership paid $2,400,000 to the General Partner for repayment of advances, accrued interest and Fixed MID. The Partnership also repaid all mortgage loans to McNeil Real Estate Fund XXVII, L.P. ("Fund XXVII") totaling $1,603,135 and paid $300,000 in Contingent MID in 1994.
The Partnership has experienced positive cash flow from operations of $5,437,381 for the three years ended December 31, 1994. The Partnership generated $2,058,565 through operating activities in 1994 as compared to $2,509,962 in 1993. This decrease can be attributed to the increase in the amount paid to affiliates during 1994.
In 1993, the Partnership generated $2,059,962 through operating activities as compared to $868,854 in 1992. This increase is primarily due to an increase in the cash received from tenants due to an increase in the rental rates and the reduction in the amount of interest paid during 1993. The reduction interest paid is due to the refinancing of the mortgage note on Palisades at the Galleria and the pay off of the second and third mortgages notes on Plaza Westlake.
The Partnership expended $1,968,318, $2,512,727 and $2,308,624 for capital improvements to the properties in 1994, 1993 and 1992, respectively. The Partnership has received net cash proceeds from the disposition of real estate of $9,005,627 over the last three years and insurance proceeds of $40,441 as a result of the fire at Brendon Way in 1994.
In 1993, the Partnership received net cash proceeds of $1,283,267 for refinancing the mortgage note on Palisades at the Galleria. The Partnership has received advances and mortgage notes from affiliates of $4,158,819 during the three years ended December 31, 1994. However, due to the cash proceeds of $10,288,894 from the disposition of real estate investments and the refinancing, the Partnership has been able to repay $4,519,334 in advances and mortgage notes from affiliates. The Partnership also began paying the General Partner the Contingent MID in 1994.
Short Term Liquidity:
At December 31, 1994, the Partnership held cash and cash equivalents of $3,313,765 as compared to $4,938,029 in 1993. The General Partner considers the Partnership's cash reserves adequate for anticipated operations for 1995.
In 1995, the Partnership's properties are expected to provide positive cash flow from operations. Management will continue to address ongoing capital improvement needs in light of the aging condition of the Partnership's properties. The Partnership has budgeted approximately $1,948,000 for capital improvements for 1995 in addition to the $6.8 million of capital improvements made during the past three years. The General Partner believes these capital improvements are necessary to allow the Partnership to increase its rental revenues in the competitive markets in which the Partnership's properties operate. These expenditures also allow the Partnership to reduce certain repairs and maintenance expenses from amounts that would otherwise be incurred. During 1994, the Partnership began paying the Contingent MID and anticipates to continue to make payments to the General Partner in 1995.
During 1995, the Partnership is faced with mortgage principal payments and mortgage maturities on Buccaneer Village, Lamar Plaza, Millwood Park, Palisades at the Galleria, Plaza Westlake and Sundance, totaling approximately $28,144,000. It is management's policy to negotiate extensions or arrange refinancings for the mortgage notes that are due. Subsequent to year end, the Partnership paid off the interest in net profits on Buccaneer Village at a discounted payoff of $1,750,000 for retirement of $3,571,229 of debt. Additionally, management successfully refinanced Plaza Westlake on March 24, 1995. The new 5 year mortgage note in the amount of $4,000,000 retired the maturing mortgage of $3,366,000 and yielded approximately $248,000 in proceeds to the Partnership. Manage- ment is currently negotiating the refinancing of Buccaneer Village's first mortgage and Palisades at the Galleria. Management anticipates closing on the refinancings by mid-year with expected proceeds to the Partnership of approximately $3,500,000.
The remaining three properties with 1995 maturities, Lamar Plaza, Millwood Park and Sundance, have maturing debt of $12,692,000 and are currently on the market for sale. The General Partner believes that Lamar Plaza and Sundance cannot be refinanced given their current level of debt. The General Partner does not believe it would be in the Partnership's best interest to invest additional money into these properties. Therefore in the event the Partnership is unable to arrange a sale or extension of these loans, the Partnership may allow foreclosure of these properties for full settlement of the debt. The foreclosure of these properties would not have an adverse effect on the Partnership. The mortgage note payable balance and net book value of Lamar Plaza are $3,895,333 and $3,150,925, respectively. The mortgage note payable balance and net book value of Sundance are $7,938,263 and $6,203,985, respectively. The General Partner believes it is in the best interest of the Partnership to market Millwood Park for sale instead of refinancing the maturing mortgage. The property would yield lesser proceeds through a refinancing and require additional capital which would be a burden to cash reserves. The mortgage note payable balance and the net book value of Millwood Park are $2,940,990 and $3,369,783, respectively. The carrying value of all of these properties is below what the General Partner estimates the net realizable value to be. There can be no assurance that these sales/refinancings will occur to coincide with the Partnership's cash needs.
Long Term Liquidity:
The Partnership's working capital needs have been supported by advances from affiliates during the past several years. Some of that support was provided on a short-term basis to meet monthly operating requirements, with repayment occurring as funds became available; other advances were longer term in nature due to lack of funds for repayment. Additionally, the General Partner has allowed the Partnership to defer payment of MID and reimbursements until such time as the Partnership's cash reserves allow payments. During 1994, the Partnership has begun to make repayments to the General Partner for advances and has paid some of the accrued MID. The Partnership will continue to make such payments as is allowed by cash reserves and cash flows of the Partnership. However, the Partnership will not be able to repay the General Partner all payables outstanding in the foreseeable future. The General Partner will continue to defer the unpaid sums until the Partnership's cash reserves allow such payments.
The General Partner has established a revolving credit facility not to exceed $5,000,000 in the aggregate which is available on a "first-come, first-served" basis to the Partnership and other affiliated partnerships if certain conditions are met. Borrowings under the facility may be used to fund deferred maintenance, refinancing obligations and working capital needs. The Partnership borrowed $6,000 from this facility during 1994. There is no assurance that the Partnership will receive additional funds under the facility because no amounts will be reserved for any particular partnership. At December 31, 1994, $1,743,530 remained available for borrowing under the facility; however, additional funds could become available as other partnerships repay borrowings.
Should market conditions change and operations deteriorate, present cash resources may be insufficient to meet current needs. Other than available portions of the $5,000,000 revolving credit facility, discussed above, which may not be available when required by the Partnership, the Partnership has no existing lines of credit from outside sources. Other sources of working capital may be required and no such other sources have been identified.
Possible actions to resolve operating deficiencies include sales of properties, refinancing or renegotiating terms of existing loans, deferring major capital expenditures, except where improvements are expected to enhance the competitiveness or marketability of the properties, or arranging additional support from affiliates. Additional affiliate support is not assured, since neither the General Partner nor any affiliates have obligations to make advances in excess of any unused portion of the revolving credit facility discussed above. Sales of properties are possibilities, however there is no assurance that a sale can be completed, nor that a closing could be timed to coincide with the Partnership's cash needs.
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.
Distributions
With the exception of the Contingent MID, distributions to partners have been suspended since 1986 as part of the General Partner's policy of maintaining adequate cash reserves. Distributions to the limited partners will remain suspended for the foreseeable future. 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 limited partners. A distribution of $1,164,549 for the Contingent MID has been accrued by the Partnership for the year ended December 31, 1994 for the General Partner.
FINANCIAL CONDITION -------------------
The Partnership was formed to acquire, operate and ultimately dispose of a portfolio of income-producing real properties. As of December 31, 1994, the Partnership owned nine properties. All of the Partnership properties are subject to mortgage notes.
On December 19, 1994, the Partnership sold its investment in Fox Run to an unrelated third party for a cash sales price of $54,947 and assumption of the first and second liens by the purchaser. On November 18, 1994, the Partnership sold its investment in Village East to an unaffiliated buyer for a sales price of $8,625,000. The sale of these two properties resulted in net cash proceeds to the Partnership of $2,791,434 and a gain on disposition of real estate of $6,307,885.
RESULTS OF OPERATIONS ---------------------
1994 compared to 1993
Revenue:
Total Partnership revenues in 1994 decreased by $4,780,199 or 14.7% as compared to 1993. This decrease is due to the sale of Cedar Mill Crossing in 1993. Revenues also declined as a result of a reduction in the gain on disposition of real estate from $8,193,880 in 1993 to $6,307,885 in 1994. Rental revenue decreased by $2,932,423 while interest income increased by $17,342.
Rental revenue for 1994 was $21,295,656 as compared to $24,228,119 in 1993. The decrease is due to the sale of Cedar Mill Crossing, which reduced rental revenue by $3,471,915. This decline was partially offset by a $539,492 increase in rental revenue at the remaining properties due to increases in rental rates at six of the Partnership's properties.
Interest income increased due to higher interest rates earned in 1994 as compared to 1993.
Expenses:
Partnership expenses decreased by $3,822,377 or 14% for the year ended December 31, 1994 as compared to 1993.
During 1993, Cedar Mill Crossing was sold and the effects from the sale were declines of $1,298,509 in interest, $435,502 in depreciation and amortization, $308,509 in property taxes, $353,596 in personnel expenses, $174,804 in property management fees, $335,001 in utilities, $371,953 in repairs and maintenance and $175,041 in other property operating expenses.
In addition to the sale of Cedar Mill Crossing, other factors affected the level of expenses reported by the remaining properties. Interest expense - affiliates decreased by $269,889 or 66% in 1994 as compared to the same period last year. This decrease is due to paying off the affiliate loans and paying down on the advances outstanding in January 1994.
Depreciation and amortization on the properties increased by $239,164 or 5% due to the substantial capital improvements made at the properties over the last few years.
Property taxes decreased by $228,459 or 13% due to a decrease in the estimated tax liability at Castle Bluff, a reduction in the appraised value at Lamar Plaza, and a refund of taxes resulting from the sale of Fox Run.
Expenses for personnel, repairs and maintenance, utilities, and other property operating increased $583,153 for 1994 as compared to 1993. Personnel expenses increased by $148,797 or 6% due to increases in maintenance employee hours and incentive bonus paid. Repairs and maintenance increased by $307,857 or 12% due to increases in roof repair, electrical, and HVAC supplies. This increase is also due to repairs and expenses associated with preparing vacated units for occupancy. Other property operating increased by $99,616 or 7% primarily due to an increase in other professional expenses associated with a real estate tax appeal on Plaza Westlake and an increase in resident pre-qualification at all the properties.
General and administrative decreased by $223,502 or 58% primarily due to a reduction in tax preparation, legal costs and professional fees.
General and administrative - affiliates decreased by $234,714 or 31% as compared to the same period last year due to an amendment to the Amended Partnership Agreement which eliminates the Fixed MID effective July 1993. This decrease was partially offset by an increase in reimbursements to affiliates because of fewer partnerships over which overhead costs are allocated.
1993 compared to 1992
Revenue:
Total Partnership revenues in 1993 increased by $7,644,128 or 31% as compared to 1992. This increase is due to a gain on disposition of real estate of $8,193,880 recognized in 1993. Rental revenue increased by $624,257 while interest income decreased by $19,580. In 1992 the Partnership recognized a $440,381 gain on settlement of legal expenses. 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 XII, Ltd.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund XII, Ltd. (a California limited partnership) as of December 31, 1994 and 1993, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1994. 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 XII, Ltd. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, 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 10 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 previously had to defer payment of payables to affiliates in order to meet its working capital needs. Although management does not anticipate the need for additional advances, payments of such advances and payables can only be made if certain pending sales are closed or mortgage balances refinanced. Additionally, the Partnership is faced with mortgage principal payments and mortgage note maturities of approximately $22.8 million in 1995 for which no extensions, modifications, or refinancings have yet been negotiated. There is no guarantee that such negotiations can be completed or that the sale of any properties can be closed to coincide with the Partnership's cash needs. Management's plans in regard to these matters are also described in Note 10. 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 24, 1995
McNEIL REAL ESTATE FUND XII, LTD.
BALANCE SHEETS
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XII, LTD.
STATEMENTS OF OPERATIONS
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XII, LTD.
STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1994, 1993 and 1992
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XII, LTD.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XII, LTD.
NOTES TO FINANCIAL STATEMENTS December 31, 1994
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --------------------------------------------------------------------
Organization ------------
McNeil Real Estate Fund XII, Ltd. (the "Partnership") was organized February 2, 1981, as a limited partnership under the provisions of the California Uniform Limited Partnership Act. 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 Partnership is governed by an amended and restated partnership agreement of limited partnership dated September 6, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240.
Basis of Presentation ---------------------
The Partnership's financial statements include the accounts of Brendon Way Fund XII Associates, Castlebluff Fund XII Associates, and Palisades Fund XII Associates, L.P. as of December 31, 1994 and 1993. These single asset Partnerships are wholly-owned by the Partnership and the General Partner. The General Partner's minority interest is not reflected in the accompanying financial statements due to immateriality. All intercompany transactions have been eliminated.
Real Estate Investments -----------------------
Real estate investments are generally stated at the lower of cost or net realizable value. Real estate investments are monitored on an ongoing basis to determine if the property has sustained a permanent impairment in value. At such time, a write-down is recorded to reduce the basis of the property to its net realizable value. A permanent impairment is determined to have occurred when a decline in property value is considered to be other than temporary based upon management's expectations with respect to projected cash flows and prevailing economic conditions.
Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred.
Assets Held for Sale --------------------
Assets held for sale are stated at the lower of cost or estimated realizable value.
Depreciation and Amortization -----------------------------
Buildings and improvements are depreciated using the straight- line method over the estimated useful lives of the assets, ranging from 3 to 25 years. Tenant improvements are 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 with financial institutions with original maturities of three months or less.
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.
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 leases. The excess of the rental revenue recognized over the contractual rental payments is recorded as accrued rent receivable and included in accounts receivable on the Balance Sheets.
Income Taxes ------------
No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax, and the tax effect of its activities accrues to the partners.
Allocation of Net Income and Net Loss -------------------------------------
The Amended Partnership Agreement provides for net income of the Partnership for both financial statement and income tax purposes to be allocated as indicated below. For allocation purposes, net income and net loss of the Partnership are determined prior to deductions for depreciation.
a) first, 5% of all deductions for depreciation shall be allocated to the General Partner and 95% to the limited partners;
b) then, net income in an amount equal to the cumulative amount paid to the General Partner for the contingent portion of the Management Incentive Distribution ("MID") for which no previous income allocations have been made, shall be allocated to the General Partner; provided, however, that if all or a portion of such payment consists of limited partnership units ("Units"), the amount of net income allocated shall be equal to the amount of cash the General Partner would have otherwise received; and
c) then, any remaining net income shall be allocated to achieve the ratio of 5% to the General Partner and 95% to the limited partners.
The Amended Partnership Agreement also provides that net losses, other than those arising from a sale or refinancing, shall be allocated 5% to the General Partner and 95% to the limited partners. Net losses arising from a sale or refinancing shall be allocated 1% to the General Partner and 99% 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 allocations of Partnership deductions attributable to debt. The Partnership's tax allocations for 1994, 1993 and 1992 have been made in accordance with these provisions.
Distributions -------------
Pursuant to the Amended Partnership Agreement and at the discretion of the General Partner, distributions during each taxable year shall be made as follows:
(a) first, to the General Partner, an amount equal to the contingent portion of the MID; and
(b) any remaining distributable cash, as defined, shall be distributed 100% to the limited partners.
No cash distributions were made to the limited partners in 1994, 1993 or 1992. The Partnership accrued distributions of $1,164,549, $1,191,834 and $959,027 for the benefit of the General Partner for the years ended December 31, 1994, 1993 and 1992, respectively. These distributions are the contingent portion of the MID pursuant to the Amended Partnership Agreement.
Net Income (Loss) Per Limited Partnership Unit ----------------------------------------------
Net income (loss) per 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 230,594, 230,817 and 230,928 Units outstanding in 1994, 1993 and 1992.
Reclassifications -----------------
Certain reclassifications have been made to prior period amounts to conform with the current year presentation.
NOTE 2 - TRANSACTIONS WITH AFFILIATES -------------------------------------
The Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's 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.
The Partnership reimbursed an affiliate of the General Partner for costs incurred in connection with refinancing and modification of mortgage notes payable. These costs are capitalized as deferred borrowing costs and amortized over the remaining term of the related mortgage note payable.
Under terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. 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 $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. Prior to July 1, 1993, the MID consisted of two components: (i) the fixed portion which was payable without respect to the net income of the Partnership and was equal to 25% of the maximum MID (the "Fixed MID") and (ii) a contingent portion which was payable only to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount") and is equal to up to 75% of the maximum MID (the "Contingent MID").
Effective July 1, 1993, the General Partner amended the Amended Partnership Agreement as a settlement to a class action complaint. This amendment eliminates the Fixed MID portion and makes the entire MID payable to the extent of the Entitlement Amount. In all other respects, the calculation and payment of the MID remain the same.
Fixed MID was payable in Units unless the Entitlement Amount exceeded the amount necessary to pay the Contingent MID in which case, at the General Partner's option, the Fixed MID was paid in cash to the extent of such excess.
Contingent MID will be paid to the extent of the Entitlement Amount, and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per unit or the net tangible asset value, as defined, per Unit. No Units were issued in payment of the MID in 1994, 1993 or 1992.
During 1991, the Partnership amended its capitalization policy and began capitalizing certain costs of improvements and betterments which under policies of prior management had been expensed when incurred. The purpose of the amendment was to more properly recognize items which were capital in nature. The effect of the amendment standing alone was evaluated at the time the change was made and determined not to be material to the financial statements of the Partnership in 1991, nor was it expected to be material in any future year. However, the amendment does have a material effect on the calculation of the Entitlement Amount which determines the amount of Contingent MID earned and the amount of Fixed MID payable in cash. Capital improvements are excluded from cash flow, as defined. The majority of base period cash flow was measured under the previous capitalization policy, while incentive period cash flow is determined using the amended policy. Under the amended policy, more items are capitalized, and cash flow increases. Had base period cash flow been measured on a basis comparable with incentive period cash flow, Contingent MID for the year ended December 31, 1992 would not have been affected. The amendment of the capitalization policy did not materially affect the MID for 1993 or 1994 as the Entitlement Amount was sufficient to pay Contingent MID notwithstanding the amendment of the capitalization policy.
Any amount of the MID that is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The Fixed MID was treated as a fee payable to the General Partner by the Partnership for services rendered. The Contingent MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution.
Compensation and reimbursements paid or accrued for the benefit of the General Partner or its affiliates are as follows:
Payable to affiliates - General Partner at December 31, 1994 and 1993 consisted primarily of accrued property management fees, MID and cost reimbursements and are due and payable from operations. The General Partner has waived the collection terms of the MID and reimbursements until the Partnership has an adequate level of cash reserves.
On February 25, 1992, the Partnership acquired certain payables owed by the Partnership to an affiliate of Southmark Corporation, the parent company of the former corporate general partner, in the amount of $113,798 for a cash payment of $34,159. This transaction resulted in a $79,639 extraordinary gain on extinguishment of debt.
The General Partner has established a revolving credit facility not to exceed $5,000,000 in the aggregate which is available on a "first-come, first-served" basis to the Partnership and other affiliated partnerships if certain conditions are met. Borrowings under the facility may be used to fund deferred maintenance, refinancing obligations and working capital needs. As discussed below, the Partnership received advances under the revolving credit facility to fund additions to the Partnership's real estate investment and costs incurred in connection with the refinancing of the Partnership's mortgage note payable. There is no assurance that the Partnership will receive any additional funds under the facility because no amounts will be reserved for any particular partnership. As of December 31, 1994, $1,743,530 remained available for borrowing under the facility; however, additional funds could become available as other partnerships repay existing borrowings.
Additionally, the General Partner has, at its discretion, advanced funds to the Partnership in addition to the revolving credit facility. The Partnership received such other advances to fund working capital requirements. The General Partner is not obligated to advance funds to the Partnership, and there is no assurance that the Partnership will receive additional funds.
The total advances from affiliates at December 31, 1994 and 1993 consist of the following:
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 8.5% and 6% at December 31, 1994 and 1993, respectively.
NOTE 3 - TAXABLE LOSS ---------------------
McNeil Real Estate Fund XII, Ltd. 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 financial reporting purposes exceeded the net assets and liabilities for tax purposes by $8,345,846 in 1994, $12,981,815 in 1993 and $16,366,010 in 1992.
NOTE 4 - REAL ESTATE INVESTMENTS -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments held at December 31, 1994 and 1993 are set forth in the following tables:
(a) Lamar Plaza and Millwood Park remained on the market for sale during 1994. However, management took Plaza Westlake off the market and placed Sundance on the market for sale. Therefore, at December 31, 1994, these properties are recorded as assets held for sale.
(b) During 1993, management placed Lamar Plaza, Millwood Park and Plaza Westlake on the market for sale. Therefore, at December 31, 1993, these properties are recorded as assets held for sale.
(c) During 1994, management sold Fox Run and Village East. See Note 7.
The Partnership leases its commercial properties under various non-cancelable operating lease agreements. Future minimum rents to be received as of December 31, 1994, are as follows:
Future minimum rents do not include contingent rents or operating expense reimbursements. Contingent rents and operating expense reimbursements amounted to $251,475 in 1994, $340,026 in 1993 and $419,799 in 1992, and are included in rental income on the Statements of Operations.
The Partnership's properties are encumbered by mortgage indebtedness as discussed in Notes 5 and 6.
NOTE 5 - MORTGAGE NOTES PAYABLE -------------------------------
The following table sets forth mortgage notes payable of the Partnership at December 31, 1994 and 1993. All mortgage notes are secured by real estate investments or the assets held for sale.
(a) The debt is non-recourse to the Partnership.
(b) On June 30, 1993, the Partnership modified the terms of the mortgage note payable on Brendon Way by increasing the principal balance of the note by $258,568 to $18,368,000. The modification also reduced the interest rate from 10.50% to 8.00% and the monthly payments from $164,969 to $133,911.
(c) Discounts are based on effective interest rates of 11% to 14%.
(d) The payment terms of the second mortgage note required interest only payments in the amount of $8,958 from September 1990 to August 1992. Starting September 1992 and continuing until maturity, the note requires monthly principal and interest payments of $9,335. The modified balance of the note included $1,025,427 of accrued and unpaid interest at the date of modification.
(e) The interest in net profits balance accrues interest at a rate of 7.43%, with payments due, if any, on a quarterly basis. The interest in net profits continues until paid through cash flow from operations or from available cash proceeds from sale of the property to a third party. Modification terms also included net cash flow payments payable, on a quarterly basis, if certain conditions were met. Subsequent to December 31, 1994, the Partnership paid off the interest in net profits for Buccaneer Village for $1,750,000. See Note 13.
(f) Interest on the Channingway mortgage note payable was initially a rate of 9.25%, adjusted annually to 2.75% over the one year Treasury bill weekly average rate with a ceiling of 15% and a floor of 7.25%. The interest rate at December 31, 1994 and 1993 was 7.875% and 7.25%, respectively.
(g) The payment terms of the equity note required interest only payments of $16,457 from September 1990 to August 1992. Starting September 1992 and continuing until maturity, the note required monthly principal and interest payments of $17,148. Payments on the junior note were required only when the amount of net cash flow was in excess of payments made on the wrap and equity notes as calculated on a quarterly basis. The modified balance of the notes included $154,364 of accrued and unpaid interest at the date of modification. The Partnership sold Fox Run on December 19, 1994 and the related mortgages were assumed by the purchaser. See Note 7.
(h) The wrap mortgage note on Lamar Plaza consists of two separate principal portions which are as follows:
Starting September 1990 and continuing through August 1992, the mortgage note required interest only payments of $31,354 on the equity portion. Starting September 1992 and continuing until maturity, principal and interest payments are $32,672 on the equity portion. Payments on the junior portion shall be made only when the amount of net cash flow is in excess of payments made on the equity portion as calculated on a quarterly basis.
(i) In July 1994, the Partnership and the second lien holder on Millwood Park entered into an agreement to extend the debt. The agreement extended the maturity date to July 1995 and a principal payment of $75,000 was made changing the monthly payments from $8,089 to $6,115.
(j) On November 5, 1992, the Partnership refinanced the mortgage note payable on Palisades at the Galleria. The note bears interest at the prime lending rate plus 2% which equated to an interest rate of 10.5% and 8% at December 31, 1994 and 1993, respectively. Debt service payments adjust annually and are based on interest rates of 10.50% and 10.25% at December 31, 1994 and 1993, respectively. In February 1993, the Partnership paid off the $300,000 second lien mortgage note on Palisades at the Galleria (See Note 8).
(k) The Plaza Westlake mortgage note was refinanced in March 1995. See Note 13 - Subsequent Events.
(l) The wrap mortgage note on Sundance consists of three separate principal portions, which are as follows:
Starting September 1990 and continuing through August 1992, the mortgage note required principal and interest payments of $63,408 on the wrap portion and interest only payments of $11,360 on the equity portion. Starting September 1992 and continuing until maturity, principal and interest payments are $63,408 on the wrap portion and $11,837 on the equity portion. Payments on the junior portion shall be made only when the amount of net cash flow is in excess of payments made on the wrap and equity portion as calculated on a quarterly basis. The modified balance of the note included $172,430 of accrued and unpaid interest at the date of modification.
(m) Interest on the Village East second mortgage note payable was initially a rate of 11.375%, adjusted annually, beginning March 31, 1990, to 325 basis points over one year Treasury bills with a ceiling of 17% and a floor of 10%. The interest rate at December 31, 1993 was 10%. The Partnership sold Village East on November 18, 1994 and the related mortgages were paid off. See Note 7.
(n) The mortgage encumbering one of the Partnership's properties, Channingway, contains provisions which may give the lenders the right to accelerate the mortgage debt as a result of the September 1991 restructuring of the Partnership. The General Partner has requested that the lenders waive their right to accelerate the mortgage debt. The lenders may require the payment of fees or additional interest as a condition to granting such waiver. In the event the waiver is not obtained as to any mortgage, and the mortgage debt is accelerated, the Partnership will be required to satisfy the outstanding mortgage debt which approximated $13.2 million at December 31, 1994. In such event, the Partnership will arrange alternative sources of mortgage financing. However, such refinancing may be at an interest rate which is higher or is otherwise on terms which are less favorable than those provided for by the current mortgage. Furthermore, if alternative financing cannot be obtained, each lender could foreclose on the property securing its mortgage amount. Management believes the likelihood of this outcome is remote and accordingly has not reflected this balance as currently due.
(o) Balloon payments on the mortgage notes are due as follows:
* The balloon payment amounts include the balances of underlying first lien mortgage debt at the date the balloon payments on the wrap-around mortgages are due. If underlying debt is assumed by the Partnership, the balloon payments will be less.
Principal maturities of the mortgage notes payable, before consideration of discounts of $911,798, are as follows:
NOTE 6 - MORTGAGE NOTES PAYABLE - AFFILIATE -------------------------------------------
The following sets forth mortgage notes payable - affiliate of the Partnership at December 31, 1994 and 1993. All mortgage notes are secured by real estate investments or assets held for sale.
(a) The debt was non-recourse to the Partnership.
(b) In December 1992, the Partnership obtained a mortgage note commitment from an affiliate of the General Partner for an amount up to $870,000. An initial amount of $56,000 was funded in December 1992. During 1993, an additional $814,000 was funded on the mortgage loan secured by Plaza Westlake. On January 20, 1994, the Partnership repaid the mortgage loan.
(c) In June 1993, the Partnership obtained a mortgage note commitment from an affiliate of the General Partner for an amount up to $800,000. During 1993, $733,135 was funded on the mortgage loan secured by Millwood Park. On January 20, 1994, the Partnership repaid the mortgage loan.
(d) The notes required monthly payments of interest only equal to the prime lending rate plus 1%. At December 31, 1993, the prime rate was 6%.
NOTE 7 - SALES AND DISPOSITIONS OF PROPERTIES ---------------------------------------------
On December 19, 1994, the Partnership sold its investment in Fox Run to an unrelated third party for a cash sales price of $54,947 and assumption of the first and second liens by the purchaser. Cash proceeds and the gain on disposition are detailed below.
Also related to the sale of Fox Run Apartments, the Partnership recognized a $246,149 gain on early extinguishment of debt as a result of a discounted buyout of the interest in net profits.
On November 18, 1994, the Partnership sold its investment in Village East to an unaffiliated buyer for a sales price of $8,625,000. Cash proceeds from this transaction and the gain on sale of Village East are detailed below.
On December 29, 1993, the Partnership sold its investment in Cedar Mill Crossing to an unaffiliated buyer for a cash sales price of $15,700,000. Cash proceeds from this transaction and the gain on sale of Cedar Mill Crossing are detailed below.
In January 1994, cash proceeds were used to repay advances from affiliates.
In August 1993, the Partnership sold its investment in a parcel of land at Plaza Westlake to an unaffiliated buyer for a cash sales price of $310,000. Cash proceeds from this transaction and the gain on sale of the land parcel are detailed below.
In May 1992, the Partnership sold Valley Fair Shopping Center in Phoenix, Arizona for a sales price of $2,400,000. The carrying value of the property was $1,726,102 and the closing costs equaled $108,906, resulting in a gain on the sale of $564,992. Following is a summary of the cash proceeds relating to the sale:
In April 1992, the Partnership sold a parcel of land at Plaza Westlake Shopping Center in Glendale Heights, Illinois for a sales price of $260,000. The carrying value of the land was $89,952 and the closing costs equaled $20,992, resulting in a gain on the sale of $149,056. Following is a summary of the cash proceeds relating to the sale:
Proceeds were then used to reduce the principal by $225,000 on the first mortgage note, to pay interest of $7,955 on the second and third lien notes, and to pay the 1991-1992 taxes of $6,053.
NOTE 8 - REFINANCING OF MORTGAGE NOTES PAYABLE ----------------------------------------------
On November 5, 1992, the Partnership refinanced the mortgage note payable on Palisades at the Galleria. Following is a summary of the transaction:
In order to completely pay off the previous debt, an additional promissory note in the amount of $300,000 was executed with the previous lien holder. The note was paid in full in February 1993.
During 1993, the Partnership received additional proceeds of $1,283,267 that were withheld at the time of the refinancing of the mortgage note on Palisades at the Galleria. These additional proceeds are reflected above as the net operating income earnout and construction holdback, and $442,665 of these additional proceeds has been spent on the capital improvement project at the property.
NOTE 9 - GAIN ON INVOLUNTARY CONVERSION ---------------------------------------
On May 25, 1994, one unit at Brendon Way Apartments was destroyed by fire causing $49,621 in damages. The Partnership has received $40,441 in insurance reimbursements as of December 31, 1994, to cover the cost to repair this unit. Insurance reimbursements received in excess of the basis of the property damaged were recorded as a $20,877 gain on involuntary conversion.
NOTE 10 - FINANCIAL CONDITION AND GOING CONCERN CONSIDERATIONS --------------------------------------------------------------
The accompanying financial statements have been prepared assuming that the partnership will continue as a going concern.
During the past several years, a portion of the Partnership's working capital needs, debt obligations and capital improvements have been supported by advances from affiliates. Some of that support was provided on a short-term basis to meet monthly operating requirements, with repayment occuring as funds became available; other advances were longer term in nature due to lack of funds for repayment. Additionally, the General Partner has allowed the Partnership to defer payment of MID and reimbursements until such time as the Partnership's cash reserves allow payments.
During 1994, the Partnership has begun to make repayments to the Partner for advances and has paid some of the accrued MID. The Partnership will continue to make such payments as is allowed by cash reserves and cash flows of the Partnership, and management anticipates the properties will provide positive cash flow from operations in 1995. However, the Partnership will not be able to repay the General Partner all payables outstanding in the foreseeable future. The General Partner will continue to defer the unpaid sums until the Partnership's cash reserves allow such payments.
Additionally, during 1995, the Partnership is faced with mortgage principal payments and mortgage maturities on Buccaneer Village, Lamar Plaza, Millwood Park, Palisades at the Galleria, Plaza Westlake and Sundance, totaling approximately $28,144,000. It is management's policy to negotiate extensions or arrange refinancings for the mortgage notes that are due. Subsequent to year end, the Partnership paid off the interest in net profits on Buccaneer Village at a discounted payoff of $1,750,000 for retirement of $3,571,229 of debt. Additionally, management successfully refinanced Plaza Westlake on March 24, 1995. The new 5 year mortgage note in the amount of $4,000,000 retired the maturing mortgage of $3,366,000 and yielded approximately $248,000 in proceeds to the Partnership. Management is currently negotiating the refinancing of Buccaneer Village's first mortgage and Palisades at the Galleria. Management anticipates closing on the refinancings by mid-year with expected proceeds to the Partnership of approximately $3,500,000.
The remaining three properties with 1995 maturities, Lamar Plaza, Millwood Park and Sundance, have maturing debt of $12,692,000 and are currently on the market for sale. The General Partner believes that Lamar Plaza and Sundance could not be refinanced given their current level of debt. The General Partner does not believe it would be in the Partnership's best interest to invest additional money into these properties. Therefore in the event the Partnership is unable to arrange a sale or extension of these loans, the Partnership may allow foreclosure of these properties for full settlement of the debt. The foreclosure of these properties would not have an adverse effect on the Partnership. The mortgage note payable balance and net book value of Lamar Plaza are $3,895,333 and $3,150,925, respectively. The mortgage note payable balance and net book value of Sundance are $7,938,263 and $6,203,985, respectively. The General Partner believes it is in the best interest of the Partnership to market Millwood Park for sale instead of refinancing the maturing mortgage. The property would yield lesser proceeds through a refinancing and require additional capital which would be a burden to cash reserves. The mortgage note payable balance and the net book value of Millwood Park are $2,940,990 and $3,369,783, respectively. The carrying value of all of these properties is below what the General Partner estimates the net realizable value to be. There can be no assurance that these sales/refinancings will occur to coincide with the Partnership's cash needs.
The General Partner has established a revolving credit facility not to exceed $5,000,000 in the aggregate which is available on a "first-come, first-served" basis to the Partnership and other affiliated partnerships if certain conditions are met. Borrowings under the facility may be used to fund deferred maintenance, refinancing obligations and working capital needs. The Partnership borrowed $6,000 from this facility during 1994. There is no assurance that the Partnership will receive additional funds under the facility because no amounts will be reserved for any particular partnership. At December 31, 1994, $1,743,530 remained available for borrowing under the facility; however, additional funds could become available as other partnerships repay borrowings.
Should sales or refinancings not occur, market conditions change, any unanticipated capital improvements arise, or operations deteriorate, present cash resources may be insufficient to meet current needs. Other than available portions of the $5,000,000 revolving credit facility, discussed above, which may not be available when required by the Partnership, the Partnership has no existing lines of credit from outside sources. Other sources of working capital may be required and no such other sources have been identified.
Possible actions to resolve operating deficiencies and mortgage maturities include sales of properties, refinancing or renegotiating terms of existing loans, deferring major capital expenditures, except where improvements are expected to enhance the competitiveness or marketability of the properties, or arranging additional support from affiliates. Additional affiliate support is not assured, since neither the General Partner nor any affiliates have obligations to make advances in excess of any unused portion of the revolving credit facility discussed above. Sales of properties are possibilities, however there is no assurance that a sale can be completed, nor that a closing could be timed to coincide with the Partnership's cash needs.
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 11 - LEGAL PROCEEDINGS ---------------------------
The Partnership is not party to, nor is 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:
HCW Pension Real Estate Fund, Ltd. et al. v. Gene E. Phillips, William S. Friedman, Thomas C. Walker, James H. Flinchum, Ernst & Young and BDO Seidman (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition seeks recovery against the Partnership's former auditors for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark, the former general partner. The Partnership is seeking to recover $1,886,545 in actual damages plus exemplary damages, interest and costs. The former auditors have asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims seek recovery of attorneys' fees and costs incurred in defending this action. The original petition also alleged causes of action against certain former officers and directors of the Partnership's original general partner for breach of fiduciary duty, fraud and conspiracy relating to the improper assessment and payment of certain administrative fees/expenses. On January 11, 1994 the allegations against the former officers and directors were dismissed.
The trial court granted summary judgement in favor of Ernst & Young and BDO Seidman on the fraud and negligence claims based on the statute of limitations. The Affiliated Partnerships have appealed the summary judgement to the Dallas Court of Appeals. Briefs have been filed and the parties are awaiting oral arguments. A ruling is expected by July 1995. The Affiliated Partnerships are pursuing these claims vigorously on appeal. The ultimate outcome of this litigation cannot be determined at this time.
NOTE 12 - GAIN ON SETTLEMENT OF LEGAL EXPENSES ----------------------------------------------
In January 1993, certain selected partnerships, including the Partnership, settled a dispute regarding certain legal expenses incurred during 1992 and 1991. Generally, the benefits of such settlement were allocated to the selected partnerships based on invoices outstanding at the time of the settlement. The Partnership realized a gain during 1992 in the amount of $440,381 as a result of the Partnership being released from paying previously accrued legal expenses.
NOTE 13 - SUBSEQUENT EVENTS ---------------------------
On February 6, 1995, the Partnership paid off the interest in net profits on Buccaneer Village for a discounted amount of $1,750,000. The Partnership will recognize a gain on early extinguishment of debt of approximately $1.8 million in 1995.
On March 24, 1995, management successfully refinanced Plaza Westlake. The new 5 year mortgage note in the amount of $4,000,000 retired the maturing mortgage of $3,366,000 and yielded approximately $248,000 in proceeds to the Partnership.
McNEIL REAL ESTATE FUND XII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1994
(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.
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND XII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1994
(a) For Federal income tax purposes, the properties are depreciated over lives ranging from 15-25 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was approximately $115,804,420 and accumulated depreciation was $88,526,145 December 31, 1994.
(c) Assets hel d for sale are stated at the lower of cost or net realizable value. Historical cost net of accumulated depreciation and cumulative write-downs become the new cost basis when the asset is classified as "Held for Sale."
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND XII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1994
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND XII, LTD.
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 DISCLOSURE ------------------------
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, 1994, 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, 1994. 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.
The General Partner and the officers and directors of its general partner, collectively, own 1,522 Units, which is less than 1% of the outstanding Units.
(C) Change in control.
None.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------- ----------------------------------------------
Under the terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. The 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 $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. Prior to July 1, 1993, the MID consisted of two components: (i) the fixed portion which was payable without respect to net income of the Partnership and was equal to 25% of the maximum MID (the "Fixed MID") and (ii) a contingent portion which was payable only to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount") and is equal to up to 75% of the maximum MID (the "Contingent MID").
Effective July 1, 1993, the General Partner amended the Amended Partnership Agreement as a settlement to a class action complaint. This amendment eliminates the Fixed MID portion and makes the entire MID payable to the extent of the Entitlement Amount. In all other respects, the calculation and payment of the MID remain the same.
Contingent MID will be paid to the extent of the Entitlement Amount, and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per unit or the net tangible asset value, as defined, per Unit. For the year ended December 31, 1994, the Partnership paid on accrued for the General Partner Contingent MID in the amount of $1,164,549.
Any amount of the MID which is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The Fixed MID was treated as a fee payable to the General Partner by the Partnership for the services rendered. The Contingent MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution.
The Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's properties to McREMI, an affiliate of the General Partner, for providing property management services for residential and commercial properties and leasing services for the Partnership's residential properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1994, the Partnership paid or accrued $1,578,753 in property management fees and reimbursements.
A revolving credit facility has been established by the General Partner for the benefit of the Partnership. The credit facility may not exceed $5,000,000 in the aggregate and is available on a "first-come, first-served" basis to the Partnership and other affiliated partnerships if certain conditions are met. Borrowings under the facility may be used to fund deferred maintenance, refinancing obligations and working capital needs. For the fiscal year ended December 31, 1994, the Partnership borrowed $6,000 under this revolving credit facility.
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."
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K -------- -----------------------------------------------------------------
See accompanying index to financial statements at Item 8.
(A) Exhibits --------
The Partnership has omitted instruments with respect to long-term debt where the amount of securities authorized thereunder does not exceed 10% of the total assets of the Partnership and its subsidiaries on a consolidated basis. The Partnership agrees to furnish a copy of each such instrument to the Commission upon request.
(B) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 1994.
McNEIL REAL ESTATE FUND XII, LTD. 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.