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 0-9325
MCNEIL REAL ESTATE FUND X, LTD.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2577781
- -------------------------------------------------------------------------------
(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 X, LTD.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 10,464,914 $ 10,449,117
Buildings and improvements............................... 77,648,452 76,026,423
----------- -----------
88,113,366 86,475,540
Less: Accumulated depreciation.......................... (51,912,372) (49,450,647)
----------- -----------
36,200,994 37,024,893
Assets held for sale, net................................... 2,270,965 7,215,032
Cash and cash equivalents................................... 2,420,627 574,589
Cash segregated for security deposits....................... 414,056 411,045
Accounts receivable, net of allowance for doubtful
accounts of $7,428....................................... 522,023 490,391
Prepaid expenses and other assets........................... 346,569 365,292
Escrow deposits............................................. 954,653 990,453
Deferred borrowing costs, net of accumulated amorti-
zation of $267,578 and $319,020 at September 30,
1995 and December 31, 1994, respectively................. 1,177,260 1,308,238
---------- ----------
$44,307,147 $48,379,933
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable, net................................. $44,675,325 $52,078,850
Mortgage note payable - affiliates.......................... 800,000 800,000
Accounts payable............................................ 156,816 130,856
Accrued property taxes...................................... 1,025,446 573,451
Accrued interest............................................ 342,849 304,600
Accrued interest - affiliates............................... 6,411 5,206
Other accrued expenses...................................... 459,199 307,295
Payable to affiliates - General Partner..................... 2,487,234 1,172,267
Security deposits and deferred rental revenue............... 412,246 449,682
---------- ----------
50,365,526 55,822,207
---------- ----------
Partners' deficit:
Limited partners - 135,200 limited partnership units
authorized; 135,030 and 135,090 limited partnership
units outstanding at September 30, 1995 and December
31, 1994, respectively................................. (1,788,083) (3,872,434)
General Partner.......................................... (4,270,296) (3,569,840)
---------- ----------
(6,058,379) (7,442,274)
---------- ----------
$44,307,147 $48,379,933
========== ==========
</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 X, 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................ $4,295,445 $4,424,256 $12,994,603 $12,945,807
Interest...................... 22,668 11,486 87,793 41,961
Gain on legal settlement...... - - 91,517 -
Gain on disposition of real
estate...................... 3,183,698 - 3,183,698 -
--------- --------- ---------- ----------
Total revenue............... 7,501,811 4,435,742 16,357,611 12,987,768
--------- --------- ---------- ----------
Expenses:
Interest...................... 1,269,547 1,335,543 3,881,412 4,035,894
Interest - affiliates......... 21,201 - 59,162 -
Depreciation and
amortization................ 934,260 898,059 2,791,758 2,705,692
Property taxes................ 287,406 298,974 878,453 896,922
Personnel expenses............ 539,390 518,826 1,572,907 1,473,721
Utilities..................... 357,228 360,596 1,043,367 1,110,151
Repair and maintenance........ 624,105 484,073 1,637,040 1,730,199
Property management
fees - affiliates........... 214,259 224,621 650,583 647,398
Other property operating
expenses.................... 289,319 282,886 842,299 795,498
General and administrative.... 229,726 36,016 309,738 118,674
General and administrative -
affiliates.................. 162,549 184,918 496,838 483,057
--------- --------- ---------- ----------
Total expenses.............. 4,928,990 4,624,512 14,163,557 13,997,206
--------- --------- ---------- ----------
Net income (loss) before
extraordinary item............ 2,572,821 (188,770) 2,194,054 (1,009,438)
Extraordinary gain on
extinguishment of debt........ - - - 292,539
--------- --------- ---------- ----------
Net income (loss)................ $2,572,821 $ (188,770) $ 2,194,054 $ (716,899)
========= ========= ========== ==========
Net income (loss) allocated to
limited partners.............. $2,444,180 $ (179,332) $ 2,084,351 $ (681,054)
Net income (loss) allocated to
General Partner............... 128,641 (9,438) 109,703 (35,845)
--------- --------- ---------- ----------
Net income (loss)................ $2,572,821 $ (188,770) $ 2,194,054 $ (716,899)
========= ========= ========= ==========
Net income (loss) per limited
partnership unit:
Net income (loss) before
extraordinary item.......... $ 18.10 $ (1.33) $ 15.44 $ (7.21)
Extraordinary gain on
extinguishment of debt...... - - - 2.17
--------- --------- ---------- ---------
Net income (loss)................ $ 18.10 $ (1.33) $ 15.44 $ (5.04)
========= ========= ========== =========
</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 X, LTD.
STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------------- ----------- ------------
<S> <C> <C> <C>
Balance at December 31, 1993.............. $(3,134,201) $(2,765,906) $(5,900,107)
Net loss.................................. (35,845) (681,054) (716,899)
Contingent Management Incentive
Distribution........................... (201,099) - (201,099)
---------- ---------- ----------
Balance at September 30, 1994............. $(3,371,145) $(3,446,960) $(6,818,105)
========== ========== ==========
Balance at December 31, 1994.............. $(3,569,840) $(3,872,434) $(7,442,274)
Net income................................ 109,703 2,084,351 2,194,054
Contingent Management Incentive
Distribution........................... (810,159) - (810,159)
---------- ---------- ---------
Balance at September 30, 1995............. $(4,270,296) $(1,788,083) $(6,058,379)
========== ========== ==========
</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 X, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (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........................ $12,904,628 $12,912,017
Cash paid to suppliers............................ (4,989,477) (5,247,252)
Cash paid to affiliates........................... (642,613) (794,251)
Interest received................................. 87,793 41,961
Cash received from legal settlement............... 91,517 -
Interest paid..................................... (3,595,770) (3,796,081)
Interest paid to affiliates....................... (57,957) -
Deferred borrowing costs paid..................... (24,613) (40,722)
Property taxes paid and escrowed.................. (592,049) (842,778)
---------- ----------
Net cash provided by operating activities............ 3,181,459 2,232,894
---------- ----------
Cash flows from investing activities:
Additions to real estate investments.............. (1,697,590) (1,340,084)
Proceeds from sale of real estate investment...... 7,905,804 -
---------- ----------
Net cash provided by (used in) investing
activities........................................ 6,208,214 (1,340,084)
---------- ----------
Cash flows from financing activities:
Principal payments on mortgage notes
payable......................................... (927,403) (1,138,379)
Retirement of mortgage notes payable.............. (6,616,232) (101,105)
---------- ----------
Net cash used in financing activities................ (7,543,635) (1,239,484)
---------- ----------
Net increase (decrease) in cash and
cash equivalents.................................. 1,846,038 (346,674)
Cash and cash equivalents at beginning of
period............................................ 574,589 1,477,278
---------- ----------
Cash and cash equivalents at end of period........... $ 2,420,627 $ 1,130,604
========== ==========
</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 X, 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,
------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net income (loss).................................... $ 2,194,054 $ (716,899)
---------- ---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 2,791,758 2,705,692
Amortization of discounts on mortgage
notes payable................................... 140,110 137,724
Amortization of deferred borrowing costs.......... 107,283 109,973
Gain on disposition of real estate................ (3,183,698) -
Extraordinary gain on extinguishment
of debt......................................... - (292,539)
Changes in assets and liabilities:
Cash segregated for security deposits........... (3,011) (90,577)
Accounts receivable............................. (31,632) (57,766)
Prepaid expenses and other assets............... 18,723 (14,519)
Escrow deposits................................. 35,800 (154,717)
Deferred borrowing costs........................ (24,613) (40,722)
Accounts payable................................ 25,960 (136,376)
Accrued property taxes.......................... 451,995 360,768
Accrued interest................................ 38,249 (7,884)
Accrued interest - affiliates................... 1,205 -
Other accrued expenses.......................... 151,904 92,204
Payable to affiliates - General Partner......... 504,808 336,203
Security deposits and deferred rental
revenue....................................... (37,436) 2,329
--------- ---------
Total adjustments............................. 987,405 2,949,793
--------- ---------
Net cash provided by operating activities............ $3,181,459 $2,232,894
========= =========
</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 X, LTD.
Notes to Financial Statements
(Unaudited)
September 30, 1995
NOTE 1.
- -------
McNeil Real Estate Fund X, Ltd. ("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. ("General
Partner"), a Delaware limited partnership affiliated with Robert A. McNeil. The
Partnership is governed by an agreement of limited partnership ("Amended
Partnership Agreement") that was adopted October 9, 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 X, 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 services for the Partnership's residential and commercial properties
and leasing services for its residential properties. McREMI may also choose to
provide leasing services for the Partnership's commercial properties, in which
case McREMI will receive property management fees from such commercial
properties equal to 3% of the property's gross rental receipts plus leasing
commissions based on the prevailing market rate for such services where the
property is located.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
Under the terms of the Amended Partnership Agreement, the Partnership 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. 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 assets. Prior to July
1, 1993, the MID consisted of two components: (i) a fixed portion which was
payable without
<PAGE>
respect to the net income of the Partnership and is equal to 25% of the maximum
MID (the "Fixed MID") and (ii) a contingent portion which is 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 was equal to up to 75% of the
maximum MID (the "Contingent MID"). The maximum MID percentage decreases
subsequent to 1999.
The General Partner amended the Amended Partnership Agreement as a settlement to
a class action complaint. This amendment eliminated 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. This
modified MID became effective July 1, 1993.
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 could have been 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. 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 to the General Partner.
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................ $ 650,583 $ 647,398
Charged to general and administrative -
affiliates:
Partnership administration........................ 496,838 483,057
--------- ---------
$1,147,421 $1,130,455
========= =========
Charged to General Partner's deficit:
Contingent Management Incentive
Distribution.................................... $ 810,159 $ 201,099
========= =========
</TABLE>
NOTE 5.
- -------
On May 18, 1994, the Partnership paid off the second mortgage note encumbering
Iberia Plaza Shopping Center. The mortgage note, in the amount of $477,016, was
paid off at a discount that resulted in a $292,539 extraordinary gain on
extinguishment of debt as shown below.
<TABLE>
<CAPTION>
<S> <C>
Principal amount of mortgage
note retired...................................... $477,016
Discount on mortgage note retired.................... (83,372)
Costs incurred to retire mortgage note............... (1,105)
Discounted cash payment required to
retire mortgage note.............................. (100,000)
--------
Extraordinary gain on
extinguishment of debt............................ $292,539
=======
</TABLE>
<PAGE>
NOTE 6.
- -------
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, $69,234
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 $22,283 which, when combined with the cash
proceeds from Southmark, resulted in a gain on settlement of litigation of
$91,517.
NOTE 7.
- -------
On September 14, 1995, the Partnership sold its investment in The Courts
Apartments to an unaffiliated buyer for a cash sales price of $8,050,000. Cash
proceeds from this transaction, as well as the gain on sale of The Courts
Apartments are detailed below.
<TABLE>
<CAPTION>
Gain on Sale Cash Proceeds
------------ -------------
<S> <C> <C>
Cash sales price........................................... $ 8,050,000 $ 8,050,000
Improvement district liens assumed by buyer................ 140,358 140,358
---------- ----------
Total sales price.......................................... 8,190,358 8,190,358
Selling costs.............................................. (284,554) (284,554)
Basis of deferred borrowing costs written off.............. (48,308)
Basis of real estate sold.................................. (4,673,798)
----------
Gain on sale............................................... $ 3,183,698
========= ---------
Proceeds from sale of real estate investment............... 7,905,804
Retirement of mortgage note and improvement
district liens.......................................... (6,616,232)
----------
Net cash proceeds.......................................... $ 1,289,572
==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership was formed to acquire, operate and ultimately dispose a
portfolio of income-producing real properties. At September 30, 1995, the
Partnership owned seven apartment properties, one office building and four
shopping centers. All of the Partnership's properties are subject to mortgage
notes. On September 14, 1995, the Partnership sold The Courts Apartments to an
unaffiliated purchaser. The Partnership recognized a $3,183,698 gain on the
disposition. Cash proceeds to the Partnership amounted to $1,289,572.
The Partnership is marketing one of its properties, Parkway Plaza, for sale. The
Partnership and a potential buyer have negotiated the terms of a potential sale
of the property. Terms of the potential sale would yield cash proceeds of
approximately $500,000 above the mortgage debt encumbering the property. There
can be no assurance, however, that the sale of Parkway Plaza will be
consummated.
<PAGE>
The General Partner has elected to postpone certain payments to affiliates of
the General Partner in an attempt to increase the Partnership's level of cash
reserves. The postponed payments include the Management Incentive Distribution
("MID") and reimbursable administrative costs. These payments have been
postponed since the beginning of 1994, and are expected to continue to be
postponed through 1995.
RESULTS OF OPERATIONS
- ---------------------
Due to the sale of The Courts Apartments on September 14, 1995, the Partnership
reported net income for the nine months ended September 30, 1995 of $2,194,054.
Reported net income includes a $3,183,698 gain on disposition of property and a
$91,517 gain on legal settlement. For the nine months ended September 30, 1994,
the Partnership reported a net loss of $716,899. Last year's net loss included a
$292,539 extraordinary gain on extinguishment of debt.
Revenues:
Rental revenue increased $48,796 for the first nine months of 1995 compared to
the first nine months of 1994. The small increase in rental revenue consists of
small to moderate increases (all between 2% and 4%, except for a 9% increase at
Regency Park) in rental revenues at ten of the Partnership's properties,
unchanged rental revenue at Parkway Plaza, and a 26% and 9% decrease in rental
revenue at La Plaza and Lakeview Plaza, respectively. Decreased expense
reimbursements caused the 9% decrease in rental revenue at Lakeview Plaza. The
decrease at La Plaza was caused by decreased occupancy. A major tenant vacated
its space at La Plaza Office Building in March of 1995, leading to a 26%
decrease in rental revenue at the Las Vegas property. On a quarter by quarter
comparison, Partnership rental revenue decreased $128,811 or 2.9% in the third
quarter of 1995 compared to 1994. Rental revenue was unchanged in the quarter at
Briarwood, Iberia Plaza, Parkway Plaza and Quail Meadows. Lakeview Plaza and La
Plaza showed decreases mirroring those reported for the year-to-date periods.
The Courts Apartments also showed a 12.1% decrease in rental revenue for the
quarter because of the sale of the property on September 14.
Interest revenue doubled in the first nine months of 1995 compared to the first
nine months of 1994. An increased level of cash reserves invested in
interest-bearing accounts was the principal factor behind the increase.
Besides the $3,183,698 gain on sale The Courts Apartments discussed above, the
Partnership also reported a $91,517 gain on legal settlement relating the
Partnership's claims in the Southmark bankruptcy case. In 1994, the Partnership
recorded an extraordinary gain of $292,539 relating to the discounted payoff of
the Iberia Plaza second mortgage note.
Expenses:
Partnership expenses increased $166,351 or 1.2% for the first nine months of
1995 compared to the first nine months of 1994. Increased expenses were
concentrated in the general and administrative, personnel, and depreciation
categories. The increases were offset by a 5.4% decrease in repair and
maintenance expense.
General and administrative increased $191,064 and $193,710, respectively, for
the nine and the three months ended September 30, 1995 as compared to the same
period in 1994. The increase was due to $197,349 of costs relating to evaluation
and dissemination of information with regards to an unsolicited tender offer.
See Item 5 - Other Information.
Personnel expenses increased $99,186 or 6.7% for the nine months ended September
30, 1995 compared to the same period for 1994. The percentage increase was 4.0%
for the third quarter. The Partnership continues its efforts to increase
occupancy rates by continuing the renovation of apartment units and upgrades in
services offered to tenants. Such improvements are partially achieved through
higher maintenance standards that require additional personnel.
<PAGE>
Depreciation and amortization increased $86,066 and $36,201 for the nine month
and three month periods ended September 30, 1995 compared to the same periods of
1994. Depreciation and amortization continues to increase because of the capital
improvements put in place at the Partnership's properties over the past year.
The $2.5 million of capital improvements put in place by the Partnership over
the past year will generally be depreciated over lives ranging from 5 to 10
years.
Repair and maintenance expenses decreased $93,159 or 5.4% for the nine
months ended September 30, 1995, compared to the same period for 1994.
Expenditures for floor, window, and appliance replacement decreased
substantially at the Partnership's residential properties. Also, Briarwood
Apartments incurred a large expense during 1994 to remove an underground storage
tank. Several properties incurred severe-weather related expenses during the
first half of 1994 that were not incurred during the first half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow generated by operating activities improved to $3,181,459 from
$2,232,894 for the first nine months of 1995 compared to 1994. Operating cash
flow continues to benefit from the General Partner's decision to postpone
payment of MID and reimbursable administrative expenses. The General Partner
anticipates the cash generated from operations will be sufficient to pay the
Partnership's operating expenses, debt service requirements and a portion of
capital improvements scheduled for the remainder of 1995.
Short Term Liquidity:
Despite the large amounts of funds invested in capital improvements over the
past three years, the Partnership's properties still face challenges funding the
improvements still needed. The Partnership has budgeted $2.7 million of capital
improvements for the Partnership's properties during 1995, of which
approximately $1.7 million was expended during the first three quarters of the
year. In particular, the Partnership has identified two properties, Iberia Plaza
Shopping Center and La Plaza Office Building that will require approximately
$1.5 million of capital or tenant improvements during 1995.
The Partnership recently signed a long-term lease with a grocery store company
to lease the anchor tenant space at Iberia Plaza. The lease obligates the
Partnership to invest approximately $500,000 of capital and tenant improvements
in the property. As of September 30, 1995, the Partnership has paid
approximately $338,000 toward the capital improvement commitment. The two
largest tenants at La Plaza Office Building are vacating their space during
1995. To make the building attractive to other tenants and to update the
facility, the Partnership will need to invest approximately $1 million into La
Plaza. In both cases, the General Partner believes that the increased value of
the properties after the improvements are made will provide a strong return on
the Partnership's investment.
At September 30, 1995, the Partnership held cash reserves of $2,420,627, an
increase of $1,846,038 from the balance at the end of 1994. Although the cash
reserves of the Partnership have increased significantly from depressed levels
at the end of 1994, additional steps need to be taken to improve the
Partnership's liquidity in light of the need for additional capital improvements
discussed in the preceding paragraph. These steps are discussed in the following
paragraphs.
In late 1994, the General Partner placed The Courts Apartments and Parkway Plaza
on the market for sale. As discussed above, The Courts Apartments was sold
September 14, 1995. Negotiations concerning the sale of Parkway Plaza are
continuing, and the Partnership and a prospective buyer have tentatively agreed
to sales terms. The just completed sale of The Courts Apartments and the
anticipated sale of Parkway Plaza should together provide approximately
$1.7 million of additional funds for the Partnership, after retiring the
related mortgage obligations. The General Partner believes that the
appreciation potential of both properties is limited, while extensive capital
improvement funds will be required to maintain cash from operations at current
levels.
Two of the Partnership's mortgage notes mature in 1995, Spanish Oaks Apartments
and Parkway Plaza. The refinance the Spanish Oaks mortgage note, that matured in
August, has been delayed, but is expected to close before the end of 1995. Cash
proceeds from the refinancing are expected to be limited. The Parkway Plaza
mortgage note may be called, upon nine months notice by the lender, beginning in
December 1995. However, the General Partner intends to resolve this contingent
maturity by selling Parkway Plaza.
As a further source of funds, the Partnership may obtain secondary mortgage
financing from an affiliated partnership secured by La Plaza Office Building.
Placing a second lien on La Plaza would require the approval of the current
first lien holder, and must also comply with loan criteria of the affiliated
partnership. Proceeds from such a mortgage loan could range from $1 million to
$1.5 million, if approvals are obtained from the first lien holder and the
affiliated partnership.
For the balance of 1995, as in 1994, the General Partner intends to defer
collection of Contingent MID and reimbursements of administrative costs incurred
by affiliates of the General Partner. For the first nine months of 1995, these
deferrals postponed payments totaling $1,306,997 to the General Partner and its
affiliates.
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 $8.8 million of capital
improvements made by the Partnership during the past three years will yield
improved cash flow from property operations in the future. Furthermore, the
General Partner has budgeted $2.7 million of capital improvements for 1995. If
the Partnership's cash position deteriorates due to reverses in property
operations, failure to sell properties currently held for sale, or failure to
obtain refinancing or secondary financing as discussed above, the General
Partner may elect to defer certain of the capital improvements, except where
such improvements are expected to increase the competitiveness or marketability
of the Partnership's properties.
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 any funds from the facility
because no amount will be reserved for any particular partnership. As of
September 30, 1995, $2,362,004 remained available for borrowing under the
facility; however, additional funds could become available as other partnerships
repay existing borrowings.
As a further 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 where 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 cash proceeds could be timed to coincide with the
liquidity needs of the Partnership. Currently, Parkway Plaza is the only
Partnership properties 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. Payments of MID to the
General Partner were suspended at the beginning of 1994; it is not presently
anticipated that such payments will be resumed during 1995.
<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 60,791 units of limited partnership interest in
the Partnership (approximately 45% of the Partnership's units) at $72 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 5,010 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.
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 October 9, 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 135,090 limited
partnership units outstanding in 1995 and
1994.
27. Financial Data Schedule for the quarter ended
September 30, 1995.
</TABLE>
Registrant has omitted instruments with respect to long-term debt where
the total amount of securities authorized thereunder does not exceed
10% of the total assets of the Registrant. Registrant agrees to furnish
a copy of each such instruments to the Commission upon request.
(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 X, 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 X, 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> 2,420,965
<SECURITIES> 0
<RECEIVABLES> 522,023
<ALLOWANCES> (7,428)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 88,113,366
<DEPRECIATION> (51,912,372)
<TOTAL-ASSETS> 44,307,147
<CURRENT-LIABILITIES> 0
<BONDS> 44,675,325
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 44,307,147
<SALES> 12,994,603
<TOTAL-REVENUES> 16,357,611
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,282,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,881,412
<INCOME-PRETAX> 2,194,054
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,194,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,194,054
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
