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 March 31, 1996
------------------------------------------------------
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>
March 31, December 31,
1996 1995
---------------- ---------------
ASSETS
- -------
<S> <C> <C>
Real estate investments:
Land..................................................... $ 6,716,099 $ 6,716,099
Buildings and improvements............................... 84,140,248 83,847,294
-------------- --------------
90,856,347 90,563,393
Less: Accumulated depreciation.......................... (49,177,539) (48,129,231)
-------------- --------------
41,678,808 42,434,162
Cash and cash equivalents................................... 3,095,386 3,059,582
Cash segregated for security deposits....................... 534,624 534,609
Accounts receivable......................................... 114,298 114,367
Prepaid expenses and other assets........................... 219,609 223,959
Escrow deposits............................................. 1,775,450 1,418,389
Deferred borrowing costs, net of accumulated amorti-
zation of $743,267 and $689,693 at March 31,
1996 and December 31, 1995, respectively................. 2,132,244 2,185,818
-------------- --------------
$ 49,550,419 $ 49,970,886
============== ==============
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable, net................................. $ 51,201,391 $ 51,390,822
Accounts payable............................................ 121,840 266,777
Accrued property taxes...................................... 1,146,058 962,251
Accrued interest............................................ 373,282 374,740
Other accrued expenses...................................... 206,212 306,022
Payable to affiliates - General Partner..................... 753,747 508,369
Security deposits and deferred rental revenue............... 581,743 562,665
-------------- --------------
54,384,273 54,371,646
-------------- --------------
Partners' deficit:
Limited partners - 110,200 limited partnership units
authorized; 110,170 limited partnership units
outstanding............................................ (1,734,238) (1,574,003)
General Partner.......................................... (3,099,616) (2,826,757)
-------------- --------------
(4,833,854) (4,400,760)
$ 49,550,419 $ 49,970,886
============== ==============
</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
March 31,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Revenue:
Rental revenue........................................... $ 4,873,033 $ 4,678,641
Interest................................................. 35,374 66,454
-------------- --------------
Total revenue.......................................... 4,908,407 4,745,095
-------------- --------------
Expenses:
Interest................................................. 1,210,799 1,209,446
Depreciation............................................. 1,048,308 934,155
Property taxes........................................... 390,994 355,635
Personnel expenses....................................... 666,807 710,447
Repair and maintenance................................... 548,397 501,311
Property management
fees - affiliates...................................... 242,455 233,284
Utilities................................................ 476,655 440,898
Other property operating
expenses............................................... 297,032 312,697
General and administrative............................... 44,768 38,924
General and administrative - affiliates.................. 150,861 183,169
-------------- --------------
Total expenses......................................... 5,077,076 4,919,966
-------------- --------------
Net loss.................................................... $ (168,669) $ (174,871)
============== ==============
Net loss allocated to limited partners...................... $ (160,235) $ (466,157)
Net income allocated to General Partner..................... (8,434) 291,286
-------------- --------------
Net loss.................................................... $ (168,669) $ (174,871)
============== ==============
Net loss per limited partnership unit....................... $ (1.45) $ (4.23)
============== ==============
</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' DEFICIT
(Unaudited)
For the Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1994.............. $ (2,439,996) $ (561,005) $ (3,001,001)
Net income (loss)......................... 291,286 (466,157) (174,871)
Management Incentive Distribution......... (252,244) - (252,244)
------------- ------------- -------------
Balance at March 31, 1995................. $ (2,400,954) $ (1,027,162) $ (3,428,116)
============= ============= =============
Balance at December 31, 1995.............. $ (2,826,757) $ (1,574,003) $ (4,400,760)
Net loss.................................. (8,434) (160,235) (168,669)
Management Incentive Distribution......... (264,425) - (264,425)
------------- ------------- -------------
Balance at March 31, 1996................. $ (3,099,616) $ (1,734,238) $ (4,833,854)
============= ============= =============
</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)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from tenants............................... $ 4,878,186 $ 4,697,131
Cash paid to suppliers................................... (2,319,541) (2,193,723)
Cash paid to affiliates.................................. (412,363) (419,490)
Interest received........................................ 35,374 66,454
Interest paid............................................ (1,148,080) (1,076,784)
Property taxes paid and escrowed......................... (504,784) (409,878)
-------------- --------------
Net cash provided by operating activities................... 528,792 663,710
-------------- --------------
Cash flows from investing activities:
Additions to real estate investments..................... (292,954) (426,042)
-------------- --------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable................................................ (200,034) (172,050)
Management Incentive Distribution........................ - (337,994)
-------------- --------------
Net cash used in financing activities....................... (200,034) (510,044)
-------------- --------------
Increase (decrease) in cash and cash
equivalents.............................................. 35,804 (272,376)
Cash and cash equivalents at beginning of
period................................................... 3,059,582 4,199,844
-------------- --------------
Cash and cash equivalents at end of period.................. $ 3,095,386 $ 3,927,468
============== ==============
</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>
Three Months Ended
March 31,
------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Net loss.................................................... $ (168,669) $ (174,871)
-------------- --------------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation............................................. 1,048,308 934,155
Amortization of deferred borrowing costs................. 53,574 50,479
Amortization of mortgage discounts....................... 10,603 10,043
Changes in assets and liabilities:
Cash segregated for security deposits.................. (15) 14,400
Accounts receivable.................................... 69 7,442
Prepaid expenses and other assets...................... 4,350 42,324
Escrow deposits........................................ (357,061) (213,760)
Accounts payable....................................... (144,937) (280,859)
Accrued property taxes................................. 183,807 213,000
Accrued interest....................................... (1,458) 72,141
Other accrued expenses................................. (99,810) (16,829)
Payable to affiliates - General Partner................ (19,047) (3,037)
Security deposits and deferred rental
revenue.............................................. 19,078 9,082
-------------- --------------
Total adjustments.................................... 697,461 838,581
-------------- --------------
Net cash provided by operating activities................... $ 528,792 $ 663,710
============== ==============
</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)
March 31, 1996
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, an affiliate of 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 three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1996.
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, 1995, 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.
- -------
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 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.
<PAGE>
MID will be paid to the extent of the lesser of the Partnership's excess cash
flow, as defined, or net operating income, as defined ("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 is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. 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>
Three Months Ended
March 31,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Property management fees - affiliates....................... $ 242,455 $ 233,284
Charged to general and administrative -
affiliates:
Partnership administration............................... 150,861 183,169
-------------- --------------
$ 393,316 $ 416,453
============== ==============
Charged to General Partner's deficit:
Management Incentive Distribution........................ $ 264,425 $ 252,244
============== ==============
</TABLE>
NOTE 4.
- -------
On April 24, 1996, a fire damaged 12 of the 272 units at Sheraton Hills
Apartments. The Partnership is unable to estimate the cost of the damage at this
time. Costs to repair or replace the damaged units are expected to be covered by
insurance.
<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 March 31, 1996, 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 three months ended March 31, 1996 increased $194,392 or
4.2% compared to the same period of 1995. Rental revenues increased at eleven of
the Partnership's fourteen properties. The Partnership raised base rental rates
an average of 11.8% at all of its properties except for Cherry Hills Apartments
which remained unchanged. Increases in base rental rates were partially offset
by lower average occupancy rates at nine of the Partnership's properties. Of the
nine properties that experienced decreases, Westgate Apartments reported the
largest decrease of 13% from 96% at March 31, 1995 to 83% at March 31, 1996. At
the five remaining Partnership's properties, occupancy rates increased or
remained the same. Of the properties that experienced increases in occupancy,
Cherry Hills Apartments showed the largest increase of 5% from 86% at March 31,
1995 to 91% at March 31, 1996.
Interest revenue decreased by $31,080 or 47% for the first quarter of 1996
compared to the same period of 1995. The decrease is due to a decrease in
interest earned on short-term investments of cash and cash equivalents, the
result of a decline in the average cash balances invested in these accounts in
the first quarter of 1996. In addition, interest revenue received on capital
escrow accounts decreased in the first quarter of 1996 due to the capital escrow
accounts on Cherry Hills, Lantern Tree, Meridian West, Rockborough, and
Williamsburg having been fully reimbursed prior to January 1996. Interest income
on these capital escrow accounts was recorded in the first quarter of 1995. No
such income was recorded in 1996.
Expenses:
Partnership expenses increased $157,110 or 3.2% for the first three months of
1996 compared to the first three months of 1995. Expenses increased at twelve of
the Partnership's fourteen properties. Expenses were unchanged at Pennbrook
Apartments and decreased 1.2% at Rockborough Apartments. The increased expenses
were concentrated in depreciation and general and administrative.
Depreciation expense increased $114,153 or 12% for the first three months of
1996 compared to first three months of 1995. The Partnership added $3.45 million
of capital improvements to its properties in the 12 months ended March 31, 1996.
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 $5,844 or 15% for the three month period
ended March 31, 1996 compared to the same period of 1995 due to the Partnership
incurring costs to defend class action litigation.
<PAGE>
General and administrative - affiliate decreased $32,308 or 17.6% for the first
three months of 1996 compared to the first three months of 1995. The decrease
was due to a decrease in overhead expenses allocated to the Partnership in 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership reported a loss of $168,669 for the first three months of 1996,
a slight improvement from the $174,871 loss recorded for the first three months
of 1995. Cash provided by operations decreased $134,918 or 20%. The decrease in
cash flow provided by operations was principally the result of a 23% increase in
property taxes paid and escrowed and a 5.7% increase in cash paid to suppliers.
These increases in cash paid were offset by a 4% increase in cash received from
tenants.
The Partnership continues to invest significant resources into capital
improvements at its properties. During the first three months, capital
improvement expenditures decreased $133,088 or 45% compared to the first three
months of 1995. The Partnership has budgeted $1,563,128 of capital improvement
expenditures for 1996.
The Partnership also decreased its expenditures in the financing area.
Management Incentive Distributions ("MID") incurred by the Partnership have not
been paid in 1996. Scheduled principal payments on the Partnership's mortgage
notes increased 16% to $200,034.
Short-term liquidity:
The Partnership began 1996 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 $1.6
million for capital improvements for 1996 in addition to the $10.5 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 March 31, 1996, the Partnership held $3,095,386 of cash and cash equivalents,
up $35,804 from the balance at the beginning of 1996. The General Partner
anticipates that cash generated from operations for the remainder of 1996 will
be sufficient to fund the Partnership's budgeted capital improvements and to
repay the current portion of the Partnership's mortgage notes. However, 1996
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 1996.
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 March 31, 1996, $2,662,819 remained available from the facility; however,
additional funds could become available as other partnerships repay borrowings.
This commitment will terminate on November 12, 1996.
<PAGE>
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 $10.5 million of capital
improvements made by the Partnership during the past three years will yield
improved cash flow from operations in 1996. Furthermore, the General Partner has
budgeted an additional $1.6 of capital improvements for 1996. If the
Partnership's cash position deteriorates, the General Partner may elect to defer
certain of the capital.
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.
Income Allocations and Distributions:
Terms of the Amended Partnership Agreement specify that income before
depreciation is allocated to the General Partner to the extent of 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 period ended
March 31, 1996, a net loss ($8,434) was allocated to the General Partner. The
limited partners received allocations of net loss of ($160,235) for the three
month period ended March 31, 1996.
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 three
months of 1996 amounted to $264,425.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit
Number Description
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 1996 and
1995.
27. Financial Data Schedule for the quarter ended
March 31, 1996.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended March 31, 1996.
<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:
McNEIL REAL ESTATE FUND IX, Ltd.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
May 14, 1996 By: /s/ Donald K. Reed
- ------------------- ---------------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
May 14, 1996 By: /s/ Ron K. Taylor
- ------------------- ---------------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer of
McNeil Investors, Inc.
May 14, 1996 By: /s/ Brandon K. Flaming
- ------------------- ---------------------------------------------
Date Brandon K. Flaming
Chief Accounting Officer of McNeil
Real Estate Management, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,095,386
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 90,856,347
<DEPRECIATION> (49,177,539)
<TOTAL-ASSETS> 49,550,419
<CURRENT-LIABILITIES> 0
<BONDS> 51,201,391
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,550,419
<SALES> 4,873,033
<TOTAL-REVENUES> 4,908,407
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,866,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,210,799
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (168,669)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168,669)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
