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, 1997
------------------------------------------------------
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
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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 600, LB70, Dallas, Texas 75240
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
-----------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- ----------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 6,074,303 $ 6,370,834
Buildings and improvements............................... 76,088,948 81,666,317
-------------- --------------
82,163,251 88,037,151
Less: Accumulated depreciation.......................... (48,673,308) (49,728,546)
-------------- --------------
33,489,943 38,308,605
Asset held for sale 2,936,204 -
Cash and cash equivalents................................... 2,593,684 3,001,521
Cash segregated for security deposits....................... 603,747 571,749
Accounts receivable......................................... 51,291 59,871
Insurance proceeds receivable............................... 70,211 562,560
Prepaid expenses and other assets........................... 133,760 214,497
Escrow deposits............................................. 1,650,767 1,401,648
Mortgage note receivable.................................... - 1,550,000
Deferred borrowing costs, net of accumulated
amortization of $1,067,926 and $895,853 at
September 30, 1997 and December 31, 1996,
respectively............................................. 1,807,585 1,979,658
-------------- --------------
$ 43,337,192 $ 47,650,109
============== ==============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net................................. $ 49,963,591 $ 50,600,006
Accrued interest............................................ 363,140 368,556
Accrued property taxes...................................... 1,114,032 928,103
Other accrued expenses...................................... 218,311 271,227
Payable to affiliates - General Partner..................... 147,003 279,716
Deferred gain on involuntary conversion..................... 57,352 474,376
Security deposits and deferred rental revenue............... 606,275 556,428
-------------- --------------
52,469,704 53,478,412
-------------- --------------
Partners' deficit:
Limited partners - 110,200 limited partnership units
authorized; 110,170 limited partnership units
outstanding............................................ (6,266,192) (3,029,682)
General Partner.......................................... (2,866,320) (2,798,621)
-------------- --------------
(9,132,512) (5,828,303)
-------------- --------------
$ 43,337,192 $ 47,650,109
============== ==============
</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,
--------------------------------- ---------------------------------
1997 1996 1997 1996
-------------- --------------- -------------- --------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue................ $ 5,036,799 $ 4,954,103 $ 14,871,476 $ 14,780,033
Interest on mortgage
note receivable............. - 26,264 15,500 26,264
Other interest................ 44,424 55,068 120,143 123,978
Gain on involuntary
conversion.................. - - 417,024 -
------------- ------------- ------------- -------------
Total revenue............... 5,081,223 5,035,435 15,424,143 14,930,275
------------- ------------- ------------- -------------
Expenses:
Interest...................... 1,184,804 1,198,085 3,573,365 3,612,711
Depreciation.................. 1,075,547 1,036,344 3,205,677 3,147,117
Property taxes................ 362,454 373,574 1,078,211 1,139,074
Personnel expense............. 677,780 652,542 1,901,753 1,902,232
Repair and maintenance........ 782,963 639,013 2,147,511 1,877,673
Property management
fees - affiliates........... 249,934 246,027 740,691 733,862
Utilities..................... 385,963 377,055 1,244,277 1,266,188
Other property operating
expenses.................... 306,895 280,150 806,324 882,770
General and administrative.... 42,451 75,952 134,084 156,131
General and administrative -
affiliates.................. 108,609 120,293 335,237 421,426
Loss on sale of real estate... - - - 220,157
------------- ------------- ------------- -------------
Total expenses.............. 5,177,400 4,999,035 15,167,130 15,359,341
------------- ------------- ------------- -------------
Net income (loss)................ $ (96,177) $ 36,400 $ 257,013 $ (429,066)
============= ============= ============= =============
Net loss allocated to
limited partners.............. $ (315,553) $ (183,014) $ (486,518) $ (1,429,554)
Net income allocated to
General Partner............... 219,376 219,414 743,531 1,000,488
------------- ------------- ------------- -------------
Net income (loss)................ $ (96,177) $ 36,400 $ 257,013 $ (429,066)
============= ============= ============= =============
Net loss per limited
partnership unit.............. $ (2.87) $ (1.67) $ (4.42) $ (12.98)
============= ============= ============= =============
Distributions per limited
partnership unit.............. $ 4.54 $ - $ 24.96 $ -
============= ============= ============= =============
</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 Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
-------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1995.............. $ (2,826,757) $ (1,574,003) $ (4,400,760)
Net income (loss)......................... 1,000,488 (1,429,554) (429,066)
Management Incentive Distribution......... (828,489) - (828,489)
------------- ------------- -------------
Balance at September 30, 1996............. $ (2,654,758) $ (3,003,557) $ (5,658,315)
============= ============= =============
Balance at December 31, 1996.............. $ (2,798,621) $ (3,029,682) $ (5,828,303)
Net income (loss)......................... 743,531 (486,518) 257,013
Management Incentive Distribution......... (811,230) - (811,230)
Distributions to limited partners......... - (2,749,992) (2,749,992)
------------- ------------- -------------
Balance at September 30, 1997............. $ (2,866,320) $ (6,266,192) $ (9,132,512)
============= ============= =============
</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 in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1997 1996
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants............................... $ 14,898,716 $ 14,807,554
Cash paid to suppliers................................... (6,250,288) (6,427,926)
Cash paid to affiliates.................................. (1,116,056) (1,173,619)
Interest received........................................ 135,643 150,242
Interest paid............................................ (3,372,995) (3,424,660)
Property taxes paid and escrowed......................... (1,100,250) (1,153,450)
-------------- --------------
Net cash provided by operating activities................... 3,194,770 2,778,141
-------------- --------------
Cash flows from investing activities:
Additions to real estate investments..................... (1,323,219) (1,761,948)
Proceeds from sale of real estate........................ - 2,042,384
Proceeds from sale of real estate invested
in mortgage note receivable............................ - (1,550,000)
Proceeds from mortgage note receivable................... 1,550,000 -
Insurance proceeds for fire damage....................... 494,547 -
-------------- --------------
Net cash provided by (used in) investing
activities............................................... 721,328 (1,269,564)
-------------- --------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable................................................ (670,128) (615,734)
Management Incentive Distribution........................ (903,815) (1,157,844)
Distributions to limited partners........................ (2,749,992) -
-------------- --------------
Net cash used in financing activities....................... (4,323,935) (1,773,578)
-------------- --------------
Decrease in cash and cash equivalents....................... (407,837) (265,001)
Cash and cash equivalents at beginning of
period................................................... 3,001,521 3,059,582
-------------- --------------
Cash and cash equivalents at end of period.................. $ 2,593,684 $ 2,794,581
============== ==============
</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 Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1997 1996
--------------- ----------------
<S> <C> <C>
Net income (loss)........................................... $ 257,013 $ (429,066)
-------------- --------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation............................................. 3,205,677 3,147,117
Amortization of deferred borrowing costs................. 172,073 160,722
Amortization of mortgage discounts....................... 33,713 31,806
Gain on involuntary conversion........................... (417,024) -
Loss on sale of real estate.............................. - 220,157
Changes in assets and liabilities:
Cash segregated for security deposits.................. (31,998) (30,088)
Accounts receivable.................................... 8,580 50,995
Insurance proceeds receivable.......................... (2,198) -
Prepaid expenses and other assets...................... 80,737 1,240
Escrow deposits........................................ (249,119) (96,204)
Accounts payable....................................... - (251,744)
Accrued interest....................................... (5,416) (4,477)
Accrued property taxes................................. 185,929 57,474
Other accrued expenses................................. (52,916) (98,086)
Payable to affiliates - General Partner................ (40,128) (18,331)
Security deposits and deferred rental
revenue.............................................. 49,847 36,626
-------------- --------------
Total adjustments.................................... 2,937,757 3,207,207
-------------- --------------
Net cash provided by operating activities................... $ 3,194,770 $ 2,778,141
============== ==============
</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, 1997
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 600, 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, 1997
are not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
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, 1996, 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 The Herman Group, 2121 San Jacinto St.,
26th Floor, Dallas, Texas 75201.
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 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:
Nine Months Ended
September 30,
-------------------------
1997 1996
----------- -----------
Property management fees - affiliates........... $ 740,691 $ 733,862
Charged to general and administrative -
affiliates:
Partnership administration................... 335,237 421,426
---------- ---------
$ 1,075,928 $ 1,155,288
========== ==========
Charged to General Partner's deficit:
Management Incentive Distribution............ $ 811,230 $ 828,489
========== ==========
NOTE 4.
- -------
On April 24, 1996, a fire destroyed or damaged 12 units at Sheraton Hills
Apartments. The cost to repair the fire damage was $562,560. Insurance proceeds
will reimburse the Partnership for all costs incurred as a result of the fire.
As a result of the fire damage and the expected insurance reimbursements, the
Partnership recorded a $474,376 deferred gain on involuntary conversion on the
Partnership's December 31, 1996 balance sheet. The deferred gain on involuntary
conversion equals the insurance proceeds receivable less the adjusted basis of
the property destroyed or damaged by the fire. The gain on involuntary
conversion is deferred pending receipt of the insurance proceeds. As insurance
proceeds are received, the Partnership will recognize the deferred gain. In July
1997, the Partnership received $494,547 of insurance reimbursements.
Consequently, $417,024 of the deferred gain was recognized for the quarter
ending September 30, 1997 in the accompanying financial statements. The
remaining $57,352 of deferred gain will be recognized when the remainder of the
insurance proceeds are received.
Reconstruction of the destroyed or damaged units was completed during the third
quarter of 1996.
<PAGE>
NOTE 5.
- -------
On August 1, 1997, the Partnership placed Sheraton Hills Apartments on the
market for sale. In accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
the Partnership will cease recording depreciation charges on Sheraton Hills
Apartments effective August 1, 1997.
NOTE 6.
- -------
On July 30, 1996, the Partnership sold Westridge Apartments to an unaffiliated
purchaser for a cash sales price of $2,110,500. The Partnership agreed to
finance a portion of the sales price by accepting from the purchaser a
short-term, $1,550,000 mortgage note. The mortgage note accrued interest at
10.0% per annum and required monthly interest-only payments. On February 5,
1997, the purchaser repaid the $1,550,000 mortgage note to the Partnership
together with all accrued interest thereon.
Cash proceeds from the sale, as well as the loss on sale of Westridge Apartments
are detailed below.
Loss on Sale Cash Proceeds
------------ -------------
Cash sales price...................... $ 2,110,500 $ 2,110,500
Selling costs......................... (68,116) (68,116)
Basis of real estate sold............. (2,262,541)
----------
Loss on sale of real estate........... $ (220,157)
==========
Net cash proceeds received in 1996.... (492,384)
----------
Net cash proceeds received in 1997.... $ 1,550,000
==========
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, 1997, the
Partnership owned 13 apartment properties. All of the Partnership's properties
are subject to mortgage notes. On July 30, 1996, the Partnership sold Westridge
Apartments.
<PAGE>
In February 1997, the Partnership paid a $2,250,000 distribution ($20.42 per
limited partnership unit) to the limited partners. The distribution was funded
by cash proceeds from the sale of Westridge Apartments, collection of the
$1,550,000 mortgage note obtained by the Partnership in connection with the sale
of Westridge Apartments, and from cash reserves of the Partnership. The
Partnership paid an additional distribution ($4.54 per limited partnership unit)
to the limited partners in September 1997. The September distribution was funded
with cash reserves of the Partnership.
RESULTS OF OPERATIONS
- ---------------------
The Partnership's net income for the first nine months of 1997 was $257,013, an
increase of $686,079 over the $429,066 loss recorded by the Partnership for the
first nine months of 1996. For the third quarter, the partnership recorded a
loss of $96,177, down $132,577 from the third quarter of 1996. Two non-recurring
items affect the comparison between 1997 and 1996. The Partnership recorded a
$417,024 gain on involuntary conversion in 1997, and recorded a $220,157 loss on
sale of real estate in 1996. Excluding these two items, the Partnership's loss
for 1997 was cut from $208,909 in 1996 to $160,011 in 1997.
Revenue:
Rental revenue increased $82,696 or 1.7% and $91,443 or .6% for the quarter and
nine months ended September 30, 1997 as compared to the same periods of 1996.
However, 1996 rental revenue includes rental revenue from Westridge Apartments.
The Partnership sold Westridge Apartments on July 30, 1996. After excluding the
rental revenues from Westridge Apartments from the 1996 figures, rental revenue
at the remainder of the Partnership's properties increased $489,989 or 3.4% for
the first nine months of 1997 as compared to the same period of 1996.
Rental revenues increased at eleven of the Partnership's thirteen properties.
The properties reporting the largest increases in rental revenue, on a
percentage basis, were Cherry Hills Apartments, Meridian West Apartments,
Sheraton Hills Apartments and Westgate Apartments. These properties achieved
increased rental revenue ranging from 5% to 9% primarily by improving their
occupancy rates. Two of the Partnership's properties, Forest Park Village
Apartments and Williamsburg Apartments, reported unchanged rental revenue. The
remainder of the Partnership's properties reported small increases in rental
revenue due to increased rental rates that were partially offset by decreased
occupancy rates. None of the partnership's properties reported decreases in
rental revenue.
Interest income decreased $14,599 or 9.7% for the first nine months of 1997 as
compared to the same period of 1996. Interest income includes $15,500 and
$26,264, for the first nine months of 1997 and 1996 respectively, of interest
income on the $1,550,000 Westridge mortgage note obtained in connection with the
sale of Westridge Apartments. The Westridge mortgage note was collected in full
on February 5, 1997.
<PAGE>
Expenses:
Partnership expenses decreased $192,211 or 1.3% for the first nine months of
1997 as compared to the same period of 1996. However, the 1996 figures include
expenses related to Westridge Apartments as well as a $220,157 loss on sale of
real estate related to Westridge Apartments. Excluding the expenses related to
Westridge Apartments, expenses increased $205,022 or 1.4% for the first nine
months of 1997 as compared to the same period of 1996. The Partnership incurred
increased repair and maintenance expenses and decreases in general and
administrative expenses and general and administrative expenses paid to
affiliates.
Excluding the effects of the sale of Westridge, repair and maintenance expense
increased $348,370 or 19.4% for the nine months ended September 30, 1997 as
compared to the same period of 1996. The increase is attributable to the
replacement of carpeting and appliances, which met the Partnership's criteria
for capitalization based on the magnitude of replacements in 1996, but were
expensed in 1997.
General and administrative expenses decreased 14.1% for the nine months ended
September 30, 1997 as compared to the same period of 1996. Expenses incurred to
evaluate and disseminate information regarding an unsolicited tender offer
decreased $40,929 in 1997. The decrease was offset by charges for investor
services which, beginning in 1997, are provided by a third party vendor instead
of by affiliates of the General Partner.
General and administrative expenses paid to affiliates decreased 20.45% for the
nine months ended September 30, 1997 as compared to the same period of 1996. The
decrease is due to the change in investor relation charges discussed in the
previous paragraph, as well as reduced charges from affiliates of the General
Partner due to the sale of Westridge Apartments.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities increased $416,629 or 15% for the first
nine months of 1997 as compared to the same period of 1996. Increased cash
received from tenants and decreases in cash paid to suppliers accounted for most
of the increase in cash provided by operating activities.
Although the Partnership continues to invest significant resources into capital
improvements at its properties, the scope of such investments decreased
beginning in 1996. The Partnership had, on average, expended approximately $3
million annually for capital improvements prior to 1996. The Partnership has
expended $1,323,219 for capital improvements so far in 1997, a 25% decrease from
amounts invested in 1996. The budgeted capital improvements for 1997 total $1.7
million. 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 future repair and maintenance expenses from
amounts that would otherwise be incurred.
Cash flow from operations, as well as proceeds from the sale of Westridge
Apartments in 1996, were used to pay approximately $2.75 million of
distributions to the limited partners during the first nine months of 1997. The
Partnership also paid $903,815 of Management Incentive Distributions to the
General Partner.
<PAGE>
Short-term liquidity:
At September 30, 1997, the Partnership held $2,593,684 of cash and cash
equivalents, down $407,837 from the balance at the beginning of 1997. The
General Partner anticipates that cash generated from operations for the
remainder of 1997 will be sufficient to fund the Partnership's budgeted capital
improvements and to repay the current portion of the Partnership's mortgage
notes. The General Partner considers the Partnership's cash reserves adequate
for anticipated operations for the remainder of 1997.
The Forest Park Village mortgage note matures in January 1998. The General
Partner intends to refinance the Forest Park Village mortgage note. Although the
General Partner does not anticipate unusual difficulties in refinancing the
Forest Park Village mortgage note, such refinancing is not assured, and the
Partnership's investment in Forest Park Village Apartments could be at risk if
suitable financing is not obtained before the maturity date.
The Sheraton Hills mortgage note matures in October 1998. The General Partner
intends to resolve the Sheraton Hills mortgage maturity by selling Sheraton
Hills Apartments. The General Partner placed Sheraton Hills Apartments on the
market for sale on August 1, 1997. Initial responses to the Partnership's
marketing efforts would seem to indicate that the Partnership will be able to
sell Sheraton Hills Apartments for an amount sufficient to retire the Sheraton
Hills mortgage note and to provide additional cash reserves for the Partnership.
However, the sale of Sheraton Hills Apartments is not assured, and if the
Partnership is unable to sell or otherwise refinance the Sheraton Hills mortgage
note, the Partnership's investment in Sheraton Hills Apartments could be at
risk.
Long-term liquidity:
While the present outlook for the Partnership's liquidity is favorable, market
conditions may change and property operations can deteriorate. In that event,
the Partnership would require other sources of working capital. No such other
sources have been identified, and the Partnership has no established lines of
credit. Other possible actions to resolve working capital deficiencies include
refinancing or renegotiating terms of existing loans, deferring major capital
expenditures on Partnership properties except where improvements are expected to
enhance the competitiveness or marketability of the properties, or arranging
working capital support from affiliates. No affiliate support has been required
in the past, and there is no assurance that support from affiliates would be
provided in the future, since neither the General Partner nor any affiliates
have any obligation in this regard.
The Partnership has determined to begin an orderly liquidation of all the
Partnership's assets. Although there can be no assurance as to the timing of any
liquidation, it is anticipated that such liquidation would result in
distributions to the limited partners of the cash proceeds from the sale of the
Partnership's properties, subject to cash reserve requirements, as they are sold
with the last property disposition before December 2001, followed by a
dissolution of the Partnership. On August 1, 1997, the Partnership placed
Sheraton Hills Apartments on the market for sale.
<PAGE>
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 nine month periods ended
September 30, 1997 and 1996, the General Partner received allocations of net
income of $743,531, and $1,000,488 respectively. The limited partners received
allocations of net loss of $486,518 and $1,429,554 for the nine month periods
ended September 30, 1997 and 1996, respectively.
On February 28, 1997, the Partnership paid its first distribution to the limited
partners since 1986. The $2,250,000 distribution was in large measure funded by
proceeds from the 1996 sale of Westridge Apartments. On September 16, 1997, the
Partnership distributed an additional $500,000. For the foreseeable future,
distributions to limited partners will likely be limited to proceeds from the
sale of Partnership properties and cash reserves. The General Partner will
continue to monitor the cash reserves and working capital needs of the
Partnership to determine when cash flows will support additional distributions
to the limited partners. Currently, one Partnership property, Sheraton Hills
Apartments, is being marketed for sale. However, there can be no assurance
regarding either the timing of any sale of Sheraton Hills Apartments or whether
such a sale would generate funds in excess of the balance of the Sheraton Hills
mortgage note that would be available for distribution to the limited partners.
During the third quarter, the Partnership recorded MID of $811,230. MID payments
totaling $903,815 were paid to the General Partner during the third quarter. MID
payments to the General Partner are expected to continue in 1997. To the extent
that cash flow from operations is not sufficient to fund payments of MID along
with other Partnership obligations, the Partnership will use its cash reserves
to make such payments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
<PAGE>
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. Defendants intend to file a demurrer to the second consolidated and
amended complaint on or before December 1, 1997.
<PAGE>
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 1997 and
1996.
27. Financial Data Schedule for the quarter ended
September 30, 1997.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended September 30, 1997.
<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
November 13, 1997 By: /s/ Ron K. Taylor
- ----------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 13, 1997 By: /s/ Brandon K. Flaming
- ----------------- -------------------------------------------
Date Brandon K. Flaming
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,593,684
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 82,163,251
<DEPRECIATION> (48,673,308)
<TOTAL-ASSETS> 43,337,192
<CURRENT-LIABILITIES> 0
<BONDS> 49,963,591
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 43,337,192
<SALES> 14,871,476
<TOTAL-REVENUES> 15,424,143
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,593,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,573,365
<INCOME-PRETAX> 257,013
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257,013
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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