UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1995
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-9026
McNEIL REAL ESTATE FUND IX, LTD.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2491437
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 448-5800
---------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
ASSETS
- ------
<S> <C> <C>
Real estate investments:
Land..................................................... $ 6,716,099 $ 6,716,099
Buildings and improvements............................... 82,898,912 80,388,616
----------- -----------
89,615,011 87,104,715
Less: Accumulated depreciation.......................... (47,129,093) (44,274,163)
----------- -----------
42,485,918 42,830,552
Cash and cash equivalents................................... 3,357,841 4,199,844
Cash segregated for security deposits....................... 515,400 494,801
Accounts receivable......................................... 57,249 64,464
Prepaid expenses and other assets........................... 165,925 211,266
Escrow deposits............................................. 1,626,988 1,561,384
Deferred borrowing costs, net of accumulated amorti-
zation of $638,307 and $487,931 at September 30,
1995 and December 31, 1994, respectively................. 2,237,204 2,387,580
---------- ----------
$ 50,446,525 $ 51,749,891
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net................................. $ 51,576,488 $ 52,098,952
Accounts payable............................................ 344,644 413,894
Accrued property taxes...................................... 1,043,519 934,733
Accrued interest............................................ 375,288 303,521
Other accrued expenses...................................... 226,104 192,952
Payable to affiliates - General Partner..................... 429,579 308,131
Security deposits and deferred rental revenue............... 571,607 498,709
----------- -----------
54,567,229 54,750,892
----------- -----------
Partners' deficit:
Limited partners - 110,200 limited partnership units
authorized; 110,170 limited partnership units
outstanding............................................ (1,413,569) (561,005)
General Partner.......................................... (2,707,135) (2,439,996)
----------- ----------
(4,120,704) (3,001,001)
----------- ----------
$ 50,446,525 $ 51,749,891
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
1995 1994 1995 1994
---------- ---------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue................ $4,822,479 $4,637,320 $14,243,494 $13,511,051
Interest...................... 53,630 41,579 175,865 164,176
Gain on legal settlement...... - - 70,817 -
Gain on involuntary
conversion.................. 108,653 - 108,653 -
--------- --------- ---------- ----------
Total revenue............... 4,984,762 4,678,899 14,598,829 13,675,227
--------- --------- ---------- ----------
Expenses:
Interest...................... 1,212,292 1,211,673 3,633,285 3,688,414
Depreciation.................. 1,005,555 760,922 2,892,412 2,327,572
Property taxes................ 350,190 351,762 1,061,004 1,041,093
Personnel expense............. 671,144 684,056 1,968,316 1,886,290
Repair and maintenance........ 572,991 600,557 1,731,049 1,791,034
Property management
fees - affiliates........... 240,965 236,023 709,053 676,819
Utilities..................... 388,028 361,494 1,192,983 1,202,073
Other property operating
expenses.................... 317,992 282,759 937,207 820,860
General and administrative.... 169,560 76,067 244,637 104,927
General and administrative -
affiliates.................. 118,668 179,627 546,073 536,267
--------- --------- ---------- ----------
Total expenses.............. 5,047,385 4,744,940 14,916,019 14,075,349
--------- --------- ---------- ----------
Net loss......................... $ (62,623) $ (66,041) $ (317,190) $ (400,122)
======== ========= ========== ==========
Net loss allocated to limited
partners...................... $(240,346) $ (123,995) $ (852,564) $ (571,743)
Net income allocated to
General Partner............... 177,723 57,954 535,374 171,621
--------- --------- ---------- ----------
Net loss......................... $ (62,623) $ (66,041) $ (317,190) $ (400,122)
========= ========= ========== ==========
Net loss per limited
partnership unit.............. $ (2.18) $ (1.13) $ (7.74) $ (5.19)
========= ========= ========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
Total
Partners'
General Limited Equity
Partner Partners (Deficit)
------------ ----------- ------------
<S> <C> <C> <C>
Balance at December 31, 1993.............. $(2,094,331) $ 454,140 $(1,640,191)
Net income (loss)......................... 171,621 (571,743) (400,122)
Contingent Management Incentive
Distribution........................... (737,889) - (737,889)
---------- ---------- ----------
Balance at September 30, 1994............. $(2,660,599) $ (117,603) $(2,778,202)
========== ========== ==========
Balance at December 31, 1994.............. $(2,439,996) $ (561,005) $(3,001,001)
Net income (loss)......................... 535,374 (852,564) (317,190)
Contingent Management Incentive
Distribution........................... (802,513) - (802,513)
---------- ---------- ----------
Balance at September 30, 1995............. $(2,707,135) $(1,413,569) $(4,120,704)
========== ========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Decrease in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1995 1994
----------- ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants........................ $14,266,728 $13,434,815
Cash received from legal settlement............... 70,817 -
Cash paid to suppliers............................ (6,008,580) (5,222,193)
Cash paid to affiliates........................... (1,256,197) (1,203,052)
Interest received................................. 175,865 164,176
Interest paid..................................... (3,381,014) (3,601,115)
Property taxes paid and escrowed.................. (1,037,911) (1,095,026)
---------- ----------
Net cash provided by operating activities............ 2,829,708 2,477,605
---------- ----------
Cash flows from investing activities:
Additions to real estate investments.............. (2,583,791) (2,218,118)
Insurance proceeds from storm damage.............. 144,666 -
---------- ----------
Net cash used in investing activities................ (2,439,125) (2,218,118)
---------- ----------
Cash flows from financing activities:
Additions to deferred borrowing costs............. - (115,426)
Principal payments on mortgage notes
payable......................................... (552,592) (516,060)
Proceeds from refinancing of mortgage
notes payable................................... - 161,809
Contingent Management Incentive
Distribution.................................... (679,994) (288,000)
---------- ----------
Net cash used in financing activities................ (1,232,586) (757,677)
---------- ----------
Decrease in cash and cash equivalents................ (842,003) (498,190)
Cash and cash equivalents at beginning of
period............................................ 4,199,844 5,754,907
---------- ----------
Cash and cash equivalents at end of period........... $ 3,357,841 $ 5,256,717
========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net loss............................................. $ (317,190) $ (400,122)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation...................................... 2,892,412 2,327,572
Amortization of deferred borrowing costs.......... 150,376 151,539
Amortization of mortgage discounts................ 30,128 27,807
Gain on involuntary conversion.................... (108,653) -
Changes in assets and liabilities:
Cash segregated for security deposits........... (20,599) (12,930)
Accounts receivable............................. 7,215 (54,368)
Prepaid expenses and other assets............... 45,341 (14,959)
Escrow deposits................................. (65,604) 298,316
Accounts payable................................ (69,250) 24,248
Accrued property taxes.......................... 108,786 206,994
Accrued interest................................ 71,767 (92,049)
Other accrued expenses.......................... 33,152 (23,307)
Payable to affiliates - General Partner......... (1,071) 10,034
Security deposits and deferred rental
revenue....................................... 72,898 28,830
--------- ---------
Total adjustments............................. 3,146,898 2,877,727
--------- ---------
Net cash provided by operating activities............ $2,829,708 $2,477,605
========= =========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.
Notes to Financial Statements
(Unaudited)
September 30, 1995
NOTE 1.
- -------
McNeil Real Estate Fund IX, Ltd. (the "Partnership") is a limited partnership
organized under the laws of the State of California to invest in real property.
The general partner of the Partnership is McNeil Partners, L.P. (the "General
Partner"), a Delaware limited partnership affiliated with Robert A. McNeil
("McNeil"). The Partnership is governed by an amended and restated limited
partnership agreement ("Amended Partnership Agreement") that was adopted
September 20, 1991. The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1995
are not necessarily indicative of the results to be expected for the year ending
December 31, 1995.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1994, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund IX, Ltd., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
Certain prior period amounts within the accompanying financial statements have
been reclassified to conform with current year presentation.
NOTE 4.
- -------
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 and leasing services for the Partnership's properties.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
Under terms of the Amended Partnership Agreement, the Partnership is paying a
Management Incentive Distribution ("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 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").
<PAGE>
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 and makes the entire MID payable to the extent of the Entitlement
Amount. In all other respects, the calculation and payment of the MID will
remain the same.
Fixed MID was payable in limited partnership units ("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.
Any amount of the MID that is paid to the General Partner in Units will be
treated as if cash was distributed to the General Partner and 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, reimbursements and distributions paid to or accrued for the
benefit of the General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Property management fees - affiliates................ $ 709,053 $ 676,819
Charged to general and administrative -
affiliates:
Partnership administration........................ 546,073 536,267
--------- ---------
$1,255,126 $1,213,086
========= =========
Charged to General Partner's deficit:
Contingent Management Incentive
Distribution.................................... $ 802,513 $ 737,889
========= =========
</TABLE>
NOTE 5.
- -------
The Partnership filed claims with the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division (the "Bankruptcy Court") against
Southmark for damages relating to improper overcharges, breach of contract and
breach of fiduciary duty. The Partnership settled these claims in 1991, and such
settlement was approved by the Bankruptcy Court.
An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April
14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in
May 1995, the Partnership received in full satisfaction of its claims, $53,574
in cash, and common and preferred stock in the reorganized Southmark. The cash
and stock represent the Partnership's pro-rata share of Southmark assets
available for Class 8 claimants. The Partnership sold the Southmark common and
preferred stock in May, 1995 for $17,243 which, when combined with the cash
proceeds from Southmark, resulted in a gain on settlement of litigation of
$70,817.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. At September 30, 1995, the
Partnership owned fourteen apartment properties. All but one of the
Partnership's properties are subject to mortgage notes.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Rental revenue for the nine months ended September 30, 1995 increased $732,443
or 5.4% compared to the same period of 1994. For the third quarter of 1995,
rental revenues increased 4.0% compared to the third quarter of 1994. Rental
revenues increased at all of the Partnership's properties, except for a 2.2%
decrease at Cherry Hills. The Partnership raised base rental rates an average of
4.0% at all of its properties. Increases in base rental rates were partially
offset by lower average occupancy rates at Berkley Hills, Rolling Hills,
Westgate, Westridge, and Williamsburg. Of the five properties that experienced
decreases, Westgate showed the largest decrease of 6% from 97% at September 30,
1994 to 91% at September 30, 1995. At the remainder of the Partnership's
properties, occupancy rate increased at all of the properties. Of the nine
properties that experienced increases in their occupancy, Forest Park showed the
largest increase of 5% from 88% at September 30, 1994 to 93% at September 30,
1995.
As discussed in Item 1 - Note 5, in 1995 the Partnership received cash and
common and preferred stock in the reorganized Southmark in settlement of its
bankruptcy claims against Southmark. The Partnership recognized a one-time gain
of $70,817 gain as a result of this settlement.
The Partnership also recorded a gain on involuntary conversion. The gain relates
to hail damage incurred at Westridge Apartments on May 5, 1995. Damages amounted
to $154,666. The Partnership received a total of $144,666 from its insurance
carrier to repair the damage at the property. The excess of insurance proceeds
received over the adjusted basis of the property destroyed resulted in a gain of
$108,653.
Expenses:
Partnership expenses increased $840,670 or 6.0% for the first nine months of
1995 compared to the first nine months of 1994. For the third quarter of 1995,
partnership expenses increased 6.4% compared to the third quarter of 1994.
Expenses increased at ten of the Partnership's fourteen properties. Expenses
were unchanged at Lantern Tree, Westgate and Westridge, and decreased 2.3% at
Cherry Hills. The increased expenses were concentrated in depreciation, general
and administrative, and other property operating expenses.
Depreciation expense increased $564,480 or 24% for the first nine months of 1995
compared to first nine months of 1994. For the third quarter of 1995,
depreciation increased 32% compared to the third quarter of 1994. The
Partnership added $4,627,122 of capital improvements to its properties in the
year since September 30, 1994. Depreciation on the capital improvements led to
the increase in depreciation expense. The improvements generally are being
depreciated over lives ranging from five to ten years.
General and administrative increased $139,710 or 133% and $93,493 or 123%,
respectively, for the nine month and the three month periods ended September 30,
1995 compared to the same periods of 1994. The Partnership incurred
approximately $141,000 of costs relating to evaluation and dissemination of
information with regards to an unsolicited tender offer. See Item 5 - Other
Information.
Other property operating expenses increased $116,347 or 14.2% for the first nine
months of 1995 compared to the first nine months of 1994. For the third quarter
of 1995, other property operating expenses, increased 12.5% compared to the
third quarter of 1995. Part of the increase arises from increased insurance
coverage required on the five Partnership properties included in the Real Estate
Mortgage Investment Conduit. Additionally, insurance rates on all properties
have increased, as have expenditures for advertising and marketing.
<PAGE>
Terms of the Amended Partnership Agreement specify that income before
depreciation is allocated to the General Partner to the extent of Contingent MID
paid in cash. Depreciation is allocated in the ratio of 95:5 to the limited
partners and the General Partner, respectively. Therefore, for the three month
and nine month periods ended September 30, 1995, $177,723 and $535,374,
respectively, were allocated to the General Partner. The limited partners
received allocations of net loss of ($240,346) and ($852,564) for the three
month and nine month period ended September 30, 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership reported a loss of $317,190 for the first nine months of 1995,
an improvement from the $400,122 loss recorded for the first nine months of
1994. Cash provided by operations increased $352,103 or 14.2%. As usual, large
non-cash expenses, principally depreciation, explains the difference between net
loss and cash provided by operations. Improvements in cash flow provided by
operations were generated principally by a 6.2% increase in cash received from
tenants and a 6.1% decrease in interest paid to mortgage note holders. The
improvements were offset by a 15.0% increase in cash paid to affiliates.
The Partnership continues to invest significant resources into capital
improvements at its properties. During the first nine months, capital
improvement expenditures, net of insurance reimbursements, increased $221,007 or
10% compared to the first nine months of 1994. The Partnership has budgeted an
additional $700,000 of capital improvement expenditures for the balance of 1995.
The Partnership also increased its expenditures in the financing area.
Management Incentive Distributions ("MID") incurred by the Partnership increased
as improved operating results raised the entitlement amount, the trigger for
payment of MID. Scheduled principal payments on the Partnership's mortgage notes
also increased 7.1% to $552,592.
Short Term Liquidity:
Due to the refinancing transactions of 1994 and 1993, the Partnership began 1995
with adequate cash reserves. These reserves will be needed to address continuing
capital improvement needs in light of aging condition of the Partnership's
properties. The Partnership has budgeted $2.1 million for capital improvements
for 1995 in addition to the $9.9 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 repair and maintenance
expenses from amounts that would otherwise be incurred.
At September 30, 1995, the Partnership held $3,357,841 of cash and cash
equivalents, down $842,003 from the balance at the beginning of 1995. The
General Partner anticipates that cash generated from operations for the
remainder of 1995 will be sufficient to fund the Partnership's budgeted capital
improvements and to repay the current portion of the Partnership's mortgage
notes. However, 1995 cash flow from operations likely will not be adequate to
pay the MID due to the General Partner. The Partnership will use its cash
reserves to pay the MID. The General Partner considers the Partnership's cash
reserves adequate for anticipated operations for the remainder of 1995.
Long Term Liquidity:
For the long term, property operations will remain the primary source of funds.
In this regard, the General Partner expects that the $9.9 million of capital
improvements made by the Partnership during the past three years will yield
improved cash flow from operations in 1995. Furthermore, the General Partner has
budgeted an additional $700,000 of capital improvements for 1995. If the
Partnership's cash position deteriorates, the General Partner may elect to defer
certain of the capital.
<PAGE>
The General Partner has established a revolving credit facility, not to exceed
$5,000,000 in the aggregate, which will be 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. There
is no assurance that the Partnership will receive additional funds from the
facility because no amount will be reserved for any particular partnership. As
of September 30, 1995, $2,362,004 remained available from the facility; however,
additional funds could become available as other partnerships repay borrowings.
As an additional source of liquidity, the General Partner may, from time to
time, attempt to sell Partnership properties judged to be mature considering the
circumstances of the market in which the properties are located, as well as the
Partnership's need for liquidity. However, there can be no guarantee that the
Partnership will be able to sell any of its properties for an amount sufficient
to retire the related mortgage note and still provide cash proceeds to the
Partnership, or that such proceeds could be timed to coincide with the liquidity
needs of the Partnership. Currently, no Partnership properties are being
marketed for sale.
Distributions:
With the exception of the MID, distributions to partners have been suspended
since 1986 as part of the General Partner's policy of maintaining adequate cash
reserves. Distributions to Unit holders 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 Unit holders. MID for the first nine
months of 1995 amounted to $802,513.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
1) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young , BDO Seidman et
al (Case #92-06560-A). This suit was filed on behalf of the Partnership and
other affiliated partnerships (the "Affiliated Partnerships") on May 26,
1992, in the 14th Judicial District Court of Dallas County. The petition
sought recovery against the Partnership's former auditors, BDO Seidman, for
negligence and fraud in failing to detect and/or report overcharges of
fees/expenses by Southmark, the former general partner. The former auditors
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 sought 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 judgment in favor of Ernst & Young and BDO
Seidman on the fraud and negligence claims based on the statute of
limitations. The Affiliated Partnerships appealed the summary judgment to
the Dallas Court of Appeals. In August 1995, the Appeals Court upheld all
of the summary judgments in favor of BDO Seidman. In exchange for the
plaintiff's agreement not to file any motions for rehearing or further
appeals, BDO Seidman agreed that it will not pursue the counterclaims
against the Partnership.
2) High River Limited Partnership vs. McNeil Partners, L.P., McNeil Investors,
Inc., McNeil Pacific Investors 1972, Ltd., McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real
Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., Robert A. McNeil and
Carole J. McNeil (L95012) - High River ("HR") filed this action in the
United States District Court for the Southern District of New York against
McNeil Partners, McNeil Investors and Mr. and Mrs. McNeil requesting, among
other things, names and addresses of the Partnership's limited partners.
The District Court issued a preliminary injunction against the Partnerships
requiring them to commence mailing materials relating to High River tender
offer materials on August 14, 1995.
On August 18, 1995, McNeil Partners, McNeil Investors, the Partnerships,
and Mr. and Mrs. McNeil filed an Answer and Counterclaim. The Counterclaim
principally asserts (1) the HR tender offers have been undertaken in
violation of the federal securities laws, on the basis of material,
non-public, and confidential information, and (2) that the HR offer
documents omit and/or misrepresent certain material information about the
HR tender offers. The counterclaim seeks a preliminary and permanent
injunction against the continuation of the HR tender offers and,
alternatively, ordering corrective disclosure with respect to allegedly
false and misleading statements contained in the tender offer documents.
The High River tender offer expired on October 6, 1995. The Defendants
believe that the action is moot and expect the matter to be dismissed
shortly.
3) Robert Lewis vs. McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil et al - In the District Court of Dallas County, Texas, A-14th
Judicial District, Cause No. 95-08535 (Class Action) Plaintiff, Robert
Lewis, is a limited partner with McNeil Pacific Investors Fund 1972,
McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd.
Plaintiff brings this action on his own behalf and as a class action on
behalf of the class of all limited partners of McNeil Pacific Investors
Fund 1972, McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX,
Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd.,
McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil
Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil
Real Estate Fund XXV, Ltd. (the "Partnerships") as of August 4, 1995.
Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc.,
Robert A. McNeil and other senior officers (collectively, the "Defendants")
breached their fiduciary duties by, among other things, (1) failing to
attempt to sell the properties owned by the Partnerships ("Properties") and
extending the lives of the Partnerships indefinitely, contrary to the
Partnerships' business plans, (2) paying distributions to themselves and
generating fees for their affiliates, (3) refusing to make significant
distributions to the class members, despite the fact that the Partnerships
have positive cash flows and substantial cash balances, and (4) failing to
take steps to create an auction market for Partnership equity interests,
despite the fact that a third party bidder filed tender offers for
approximately forty-five percent (45%) of the outstanding units of each of
the Partnerships. Plaintiff also claims that Defendants have breached the
Partnership Agreements by failing to take steps to liquidate the Properties
and by their alteration of the Partnerships' primary purposes, their acts
in contravention of these agreements, and their use of the Partnership
assets for their own benefit instead of for the benefit of the
Partnerships.
The Defendants deny that there is any merit to Plaintiff's allegations and
intend to vigorously defend this action.
4) James F. Schofield, Gerald C. Gillett and Donna S. Gillett vs. McNeil
Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management,
Inc., Robert A. McNeil, Carole J. McNeil, McNeil Real Estate Fund V,Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real
Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, 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) and United States District Court,
Southern District of New York, Case No. 95CIV.6711 (Class and Derivative
Action Complaint)
These are corporate/securities class and derivative actions brought in
state and federal court by limited partners of each of the nine (9) limited
partnerships that are named as Nominal Defendants as listed above
("Partnerships"). Plaintiffs allege that Defendants McNeil Investors, Inc.,
its affiliate McNeil Real Estate Management, Inc. and four (4) of their
senior officers and/or directors have breached their fiduciary duties.
Specifically, Plaintiffs allege that Defendants have caused the
Partnerships to enter into several wasteful transactions that have no
business purpose or benefit to the Partnerships and which have rendered
such units highly illiquid and artificially depressed the prices that are
available for units on the limited resale market. Plaintiffs also allege
that Defendants have engaged in a course of conduct to prevent the
acquisition of units by Carl Icahn by disseminating false, misleading and
inadequate information. Plaintiffs further allege that Defendants have
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 and, thereby, have
breached the Partnership Agreements.
The Defendants deny that there is any merit to Plaintiff's allegations and
intend to vigorously defend these actions.
5) Alfred Napoletano vs. McNeil Partners, L.P., McNeil Investors, Inc.,
Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972,
Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd.,
McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil
Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real
Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real
Estate Fund XXV, L.P. - Superior Court of the State of California, County
of Los Angeles, Case No. BC133849 (class action complaint)
Plaintiff brings this class action on behalf of a class of all persons and
entities who are current owners of units and/or are limited partners in one
or more of the partnerships referenced above ("Partnerships"). Plaintiff
alleges that Defendants have breached their fiduciary duties to the class
members by, among other things, (1) taking steps to prevent the
consummation of the High River tender offers, (2) failing to take steps to
maximize unitholders' or limited partners' values, including failure to
liquidate the properties owned by the Partnerships, (3) managing the
Partnerships so as to extend indefinitely the present fee arrangements, and
(4) paying itself and entities owned and controlled by the general partner
excessive fees and reimbursements of general and administrative expenses.
The Defendants deny that there is any merit to Plaintiff's allegations and
intend to vigorously defend this action.
6) Warren Heller vs. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil
Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real
Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate
Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate
Fund XXV, L.P. - Superior Court of the State of California, County of Los
Angeles, Case No. BC133957(class action complaint)
Plaintiff brings this class action on behalf of a class of all persons and
entities who are current owners of units and/or are limited partners in one
or more of the partnerships referenced above ("Partnerships"). Plaintiff
alleges that Defendants have breached their fiduciary duties to the class
members by, among other things, (1) taking steps to prevent the
consummation of the High River tender offers, (2) failing to take steps to
maximize unitholders' or limited partners' values, including failure to
liquidate the properties owned by the Partnerships, (3) managing the
Partnerships so as to extend indefinitely the present fee arrangements, and
(4) paying itself and entities owned and controlled by the general partner
excessive fees and reimbursements of general and administrative expenses.
The Defendants deny that there is any merit to Plaintiff's allegations and
intend to vigorously defend this action.
7) High River Limited Partnership v. McNeil Partners L.P., McNeil Investors,
Inc., McNeil Pacific Investors 1972, Ltd., McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real
Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., Robert A. McNeil and
Carole J. McNeil - United States District Court for the Southern District
of New York, (Case No. 95 Civ. 9488) (Second Action).
On November 7, 1995, High River commenced a second complaint which alleges,
inter alia, that McNeil's Schedule 14D-9 filed in connection with the High
River tender offers was materially false and misleading, in violation of
Sections 14(d) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C.
Section 78n(d) and (e), and the SEC Regulations promulgated thereunder; and
that High River further alleges that McNeil has wrongfully refused to admit
High River as a limited partner to the Funds. Additionally, High River
purports to assert claims derivatively on behalf of Funds IX, XI, XV, XXIV
and XXV, for breach of contract and breach of fiduciary duty, asserting
that McNeil has charged these Partnerships excessive fees. High River's
complaint seeks, inter alia, preliminary injunctive relief requiring McNeil
to admit High River as a limited partner in each of the ten Partnerships
and to transfer the tendered units of interest in the Partnerships to High
River; an unspecified award of damages payable to High River and an
additional unspecified award of damages payable to certain of the
Partnerships; an order that defendants must discharge their fiduciary
duties and must account for all fees they have received from certain of the
Partnerships; and attorneys' fees.
The Defendants deny that there is any merit to Plaintiff's allegations and
intend to vigorously defend this action.
<PAGE>
ITEM 5. OTHER INFORMATION
- ------- -----------------
As previously disclosed, on an unsolicited basis, High River Limited Partnership
("High River"), a partnership controlled by Carl Icahn, announced that it had
commenced an offer to purchase 49,577 units of limited partnership interest in
the Partnership (approximately 45% of the Partnership's units) at $143 per unit.
The tender offer was originally due to expire on August 31, 1995. In connection
therewith, the parties entered into certain negotiations and discussions
regarding, among other things, possible transactions between the parties and
their affiliates, McNeil Partners, McNeil Investors, and McREMI. On September
19, 1995, the parties having not reached any resolution on the terms of the
proposed transactions, McNeil Partners terminated the parties' discussion. High
River had extended its offer several times until the final expiration date of
October 6, 1995. On October 11, 1995 High River announced that based on
preliminary information furnished by the depositary for the tender offer,
approximately 7,524 Units of the Partnership were tendered and not withdrawn
prior to the expiration of the tender offer. On October 12, 1995, McNeil
Partners announced that it would continue to explore potential avenues to
enhance the value of the Partnership units, which may include, among other
things, asset sales, refinancings of Partnership properties followed by
distributions or tender offers for units of limited partnership. There can be no
assurance that any such plans will develop or that any such transactions will be
consummated.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
4. Amended and Restated Partnership Agreement, dated
November 12, 1991. (Incorporated by reference to
the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1991).
11. Statement regarding computation of net loss per
limited partnership unit: Net loss per limited
partnership unit is computed by dividing net loss
allocated to the limited partners by the number of
limited partnership units outstanding. Per unit
information has been computed based on 110,170
limited partnership units outstanding in 1995 and
1994.
27. Financial Data Schedule for the quarter ended
September 30, 1995.
</TABLE>
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended September 30, 1995.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
<TABLE>
<CAPTION>
McNEIL REAL ESTATE FUND IX, Ltd.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
<S> <C>
November 14, 1995 By: /s/ Donald K. Reed
- -------------------- -------------------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
November 14, 1995 By: /s/ Robert C. Irvine
- -------------------- -------------------------------------------------
Date Robert C. Irvine
Chief Financial Officer of McNeil Investors, Inc.
Principal Financial Officer
November 14, 1995 By: /s/ Brandon K. Flaming
- --------------------- --------------------------------------------------
Date Brandon K. Flaming
Chief Accounting Officer of McNeil Real Estate
Management, Inc.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,357,841
<SECURITIES> 0
<RECEIVABLES> 57,249
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 89,615,011
<DEPRECIATION> (47,129,093)
<TOTAL-ASSETS> 50,446,525
<CURRENT-LIABILITIES> 0
<BONDS> 51,576,488
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50,446,525
<SALES> 14,243,494
<TOTAL-REVENUES> 14,598,829
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,282,734
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,633,285
<INCOME-PRETAX> (317,190)
<INCOME-TAX> 0
<INCOME-CONTINUING> (317,190)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (317,190)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
