UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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
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McNEIL REAL ESTATE FUND X, LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2577781
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(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
------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
- ----------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: Limited partnership
units
- ----------------------------------------------------------
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
133,298 of the registrant's 135,030 limited partnership units are held by
non-affiliates of this registrant. The aggregate market value of units held by
non-affiliates is not determinable since there is no public trading market for
limited partnership units and transfers of units are subject to certain
restrictions.
Documents Incorporated by Reference: See Item 14, Page 54
TOTAL OF 58 PAGES
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
ORGANIZATION
- ------------
McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized June 1, 1979
as a limited partnership under provisions of the California Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil ("McNeil"). The Partnership is governed by an amended and restated
partnership agreement of limited partnership dated October 9, 1991, as amended
(the "Amended Partnership Agreement"). Prior to October 9, 1991, Pacific
Investors Corporation (the prior "Corporate General Partner"), a wholly-owned
subsidiary of Southmark Corporation ("Southmark"), and McNeil were the general
partners of the Partnership, which was governed by an agreement of limited
partnership (the "Original Partnership Agreement") dated June 1, 1979. The
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 700, LB70, Dallas, Texas, 75240.
On December 14, 1979, a Registration Statement on Form S-11 was declared
effective by the Securities and Exchange Commission whereby the Partnership
offered for sale $67,500,000 of limited partnership units ("Units"). The Units
represent equity interests in the Partnership and entitle the holders thereof to
participate in certain allocations and distributions of the Partnership. The
sale of Units closed on July 17, 1980, with 135,000 Units sold at $500 each, or
gross proceeds of $67,500,000 to the Partnership. The original general partners
purchased an additional 200 Units for $100,000. Limited partners relinquished
80, 30 and 60 Units in 1993, 1994 and 1995, respectively, leaving 135,030 Units
outstanding at December 31, 1995.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
- --------------------------------------------------
On July 14, 1989, Southmark filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil nor the
Corporate General Partner were included in the filing. Southmark's
reorganization plan became effective August 10, 1990. Under the plan, most of
Southmark's assets, which included Southmark's interest in the Corporate General
Partner, are being sold or liquidated for the benefit of creditors.
In accordance with Southmark's reorganization plan, Southmark, McNeil and
various of their affiliates entered into an asset purchase agreement on October
12, 1990, providing for, among other things, the transfer of control to McNeil
or his affiliates of 34 limited partnerships (including the Partnership) in the
Southmark portfolio.
On February 14, 1991, pursuant to the asset purchase agreement as amended on
that date: (a) an affiliate of McNeil purchased the Corporate General Partner's
economic interest in the Partnership; (b) McNeil became the managing general
partner of the Partnership pursuant to an agreement with the Corporate General
Partner that delegated management authority to McNeil; and (c) McNeil Real
Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets
relating to the property management and partnership administrative business of
Southmark and its affiliates and commenced management of the Partnership's
properties pursuant to an assignment of the existing property management
agreements from the Southmark affiliates.
<PAGE>
On October 11, 1991, the limited partners approved a restructuring proposal
providing for (i) the replacement of the Corporate General Partner and McNeil
with the General Partner; (ii) the adoption of the Amended Partnership
Agreement, which substantially alters provisions of the Original Partnership
Agreement relating to, among other things, compensation, reimbursement of
expenses, and voting rights; and (iii) the approval of a new property management
agreement with McREMI, the Partnership's property manager.
The Amended Partnership Agreement provides for a Management Incentive
Distribution ("MID") to replace all other forms of general partner compensation
other than property management fees and reimbursement of certain costs.
Additional Units may be issued in connection with the payment of the MID
pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 -
"Transactions with Affiliates." For a discussion of the methodology for
calculating and distributing the MID see Item 13 - Certain Relationships and
Related Transactions.
Settlement of Claims:
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.
CURRENT OPERATIONS
- ------------------
General:
The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential and commercial real estate
and other real estate related assets. At December 31, 1995, the Partnership
owned twelve income-producing properties as described in Item 2 - Properties.
The Partnership does not directly employ any personnel. The General Partner
conducts the business of the Partnership directly and through its affiliates.
The Partnership is managed by the General Partner, and, in accordance with the
Amended Partnership Agreement, the Partnership reimburses affiliates of the
General Partner for certain expenses incurred by the affiliates in connection
with the management of the Partnership's business. See Item 8 - Note 2 -
"Transactions With Affiliates."
The business of the Partnership to date has involved only one industry segment.
See Item 8 - Financial Statements and Supplementary Data. The Partnership has no
foreign operations. The business of the Partnership is not seasonal.
<PAGE>
Business Plan:
The Partnership's anticipated plan of operations for 1996 is to preserve or
increase the net operating income of its properties whenever possible, while at
the same time making whatever capital expenditures are reasonable under the
circumstances in order to preserve and enhance the value of the Partnership's
properties. The General Partner is evaluating market and other economic
conditions to determine the optimum time to commence an orderly liquidation of
the Partnership's properties in accordance with the terms of the Amended
Partnership Agreement. The Partnership is currently marketing one of its
properties for sale. The General Partner will continue to explore potential
avenues to enhance the value of the limited partners' Units, which may include,
among other things, asset sales or refinancings of the Partnership's properties
which may result in distributions to the limited partners. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Competitive Conditions:
Since the principal business of the Partnership is to own and operate real
estate, the Partnership is subject to all of the risks incident to ownership of
real estate and interests therein, many of which relate to the illiquidity of
this type of investment. These risks include changes in general or local
economic conditions, changes in supply or demand for competing properties in an
area, changes in interest rates and availability of permanent mortgage funds
which may render the sale or refinancing of a property difficult or
unattractive, changes in real estate and zoning laws, increases in real property
tax rates and Federal or local economic or rent controls. The illiquidity of
real estate investments generally impairs the ability of the Partnership to
respond promptly to changed circumstances. The Partnership competes with
numerous established companies, private investors (including foreign investors),
real estate investment trusts, limited partnerships and other entities (many of
which have greater resources than the Partnership) in connection with the sale,
financing and leasing of properties. The impact of these risks on the
Partnership, including losses from operations and foreclosures of the
Partnership's properties, is described in Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. See Item 2 -
Properties for discussion of competitive conditions at the Partnership's
properties.
Other Information:
The environmental laws of the Federal government and of certain state and local
governments impose liability on current property owners for the clean-up of
hazardous and toxic substances discharged on the property. This liability may be
imposed without regard to the timing, cause or person responsible for the
release of such substances onto the property. The Partnership could be subject
to such liability in the event that it owns properties having such environmental
problems. The Partnership has no knowledge of any pending claims or proceedings
regarding such environmental problems.
In August 1995, High River Limited Partnership, a Delaware limited partnership
controlled by Carl C. Icahn ("High River") made an unsolicited tender offer (the
"HR Offer") to purchase from holders of Units up to approximately 45% of the
outstanding Units of the Partnership for a purchase price of $72 per Unit. In
addition, High River made unsolicited tender offers for certain other
partnerships controlled by the General Partner. The Partnership recommended that
the limited partners reject the HR Offer made with respect to the Partnership
and not tender their Units pursuant to the HR Offer. The HR Offer terminated,
after numerous extensions, on October 6, 1995. The General Partner believes that
as of February 29, 1996, High River has purchased approximately 5.52% of the
outstanding Units pursuant to the HR Offer. In addition, all litigation filed by
High River, Mr. Icahn and his affiliates in connection with the HR Offer has
been dismissed without prejudice.
<PAGE>
ITEM 2. PROPERTIES
- ------- ----------
The following table sets forth the real estate investment portfolio of the
Partnership at December 31, 1995. The buildings and the land on which they are
located are owned by the Partnership in fee, subject in each case to a first
lien deed of trust as set forth more fully in Item 8 - Note 5 - "Mortgage Notes
Payable" and Note 6 - "Mortgage Note Payable - Affiliate." See also Item 8 -
Note 4 - "Real Estate Investments" and Schedule III - "Real Estate Investments
and Accumulated Depreciation and Amortization." In the opinion of management,
the properties are adequately covered by insurance.
<TABLE>
<CAPTION>
Net Basis 1995 Date
Property Description of Property Debt Property Tax Acquired
- -------- ----------- ---------------- ------------- ----------- --------
Real Estate Investments:
<S> <C> <C> <C> <C> <C>
Briarwood (1) Apartments
Tucson, AZ 196 units $ 2,047,492 $ 2,159,913 $ 57,732 07/80
Cave Spring
Corners Retail Center
Roanoke, VA 165,547 sq. ft. 2,280,551 3,118,079 50,605 10/80
Coppermill (2) Apartments
Tulsa, OK 544 units 4,338,594 5,022,484 83,188 10/80
Iberia Plaza Retail Center
New Iberia, LA 136,766 sq. ft. 3,082,100 2,076,505 38,009 06/80
La Plaza Office Building
Las Vegas, NV 104,230 sq. ft. 5,004,246 2,523,308 61,030 09/80
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Basis 1995 Date
Property Description of Property Debt Property Tax Acquired
- -------- ----------- ----------------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Lakeview Plaza Retail Center
Lexington, KY 172,252 sq. ft. $ 3,759,754 $ 4,249,492 $ 9,522 07/80
Orchard (3) Apartments
Lawrence, IN 378 units 3,392,218 6,288,171 215,846 12/80
Quail Meadows (4) Apartments
Wichita, KS 440 units 4,491,104 5,967,225 84,482 06/80
Regency Park (5) Apartments
Ft. Wayne, IN 226 units 1,793,099 2,421,645 91,254 06/80
Sandpiper (6) Apartments
Westminster, CO 360 units 3,839,859 5,540,519 58,562 04/80
Spanish Oaks (7) Apartments
San Antonio, TX 239 units 2,670,513 3,524,225 116,593 08/80
--------------- ------------- ---------
$ 36,699,530 $ 42,891,566 $ 866,823
=============== ============= =========
Asset Held for Sale:
Parkway Plaza Retail Center
Lafayette, LA 135,682 sq. ft. $ 2,237,733 $ 2,362,750 $ 30,108 06/80
--------------- ------------- ---------
$ 2,237,733 $ 2,362,750 $ 30,108
=============== ============= =========
</TABLE>
- -----------------------------------------
Total: Apartments - 2,383 units
Retail Centers - 610,247 sq. ft.
Office Building - 104,230 sq. ft.
(1) Briarwood Apartments is owned by Briarwood Fund X Limited Partnership,
which is wholly-owned by the Partnership.
(2) Coppermill Apartments is owned by Coppermill Fund X Limited Partnership,
which is wholly-owned by the Partnership.
(3) Orchard Apartments is owned by Orchard Fund X Limited Partnership, which is
wholly-owned by the Partnership.
(4) Quail Meadows Apartments is owned by Quail Meadows Fund X Limited
Partnership, which is wholly-owned by the Partnership.
(5) Regency Park Apartments is owned by Regency Park Fund X Associates, L.P.
which is wholly-owned by the Partnership and the General Partner.
<PAGE>
(6) Sandpiper Apartments is owned by Sandpiper Fund X Limited Partnership,
which is wholly-owned by the Partnership.
(7) Subsequent to year end, the Partnership transferred Spanish Oaks Apartments
to Spanish Fund X, Ltd. See Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations and Item 8 - Note 13 -
"Subsequent Event." Spanish Fund X, Ltd. is wholly-owned by the
Partnership.
The following table sets forth the occupancy rate and rent per square foot of
the Partnership's properties for each of the last five years:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------- ------------- -------------- ------------- -----------
Real Estate Investments:
<S> <C> <C> <C> <C> <C>
Briarwood
Occupancy Rate............ 92% 99% 99% 96% 95%
Rent Per Square Foot...... $9.91 $9.62 $8.58 $8.07 $7.53
Cave Spring Corners
Occupancy Rate............ 98% 100% 99% 95% 95%
Rent Per Square Foot...... $4.75 $4.53 $3.92 $3.93 $3.94
Coppermill
Occupancy Rate............ 94% 92% 92% 89% 86%
Rent Per Square Foot...... $5.46 $5.28 $4.99 $4.73 $4.37
Iberia Plaza
Occupancy Rate............ 98% 94% 90% 88% 89%
Rent Per Square Foot...... $3.71 $3.90 $3.59 $3.41 $4.21
La Plaza
Occupancy Rate............ 77% 97% 99% 95% 96%
Rent Per Square Foot...... $10.10 $13.97 $12.56 $12.58 $12.63
Lakeview Plaza
Occupancy Rate............ 98% 100% 100% 95% 96%
Rent Per Square Foot...... $4.71 $5.69 $5.35 $4.97 $5.47
Orchard
Occupancy Rate............ 98% 94% 93% 89% 91%
Rent Per Square Foot...... $7.25 $6.95 $6.24 $6.20 $6.13
Quail Meadows
Occupancy Rate............ 94% 89% 77% 92% 89%
Rent Per Square Foot...... $5.80 $5.62 $5.53 $5.99 $5.79
Regency Park
Occupancy Rate............ 92% 94% 89% 86% 86%
Rent Per Square Foot...... $5.45 $5.09 $4.46 $4.64 $4.48
Sandpiper
Occupancy Rate............ 94% 95% 94% 98% 97%
Rent Per Square Foot...... $9.29 $8.93 $8.33 $7.46 $6.59
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------- ------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Spanish Oaks
Occupancy Rate............ 90% 91% 96% 95% 89%
Rent Per Square Foot...... $6.18 $5.97 $5.64 $5.23 $4.77
Asset Held for Sale:
Parkway Plaza
Occupancy Rate............ 100% 97% 95% 95% 95%
Rent Per Square Foot...... $5.25 $5.19 $4.89 $5.76 $5.72
</TABLE>
Occupancy rate represents all units or square footage leased divided by the
total number of units or square footage of the property as of December 31 of the
given year. Rent per square foot represents all revenue, except interest,
derived from the properties' operations divided by the leasable square footage
of the property.
Competitive Conditions at Properties
- ------------------------------------
Students at nearby University of Arizona make up 91% of the tenants at Briarwood
Apartments. The property commands rents $100 to $150 higher per month than its
competition due to its excellent location near the university and a bike route
to the university. Due to the heavy student-tenant profile, occupancy at the
property typically drops during the summer months, giving Briarwood an average
occupancy rate four to five percentage points below market averages. Planned
developments in the area may have a short-term impact on the property, but
long-term impact is expected to be negligible due to Briarwood's excellent
location.
The major exterior renovation currently underway at Cave Spring Corners Shopping
Center has allowed the Partnership to increase market rental rates up to area
averages. Occupancy remains high due to a good location. Competing properties
have also been renovated during the past five to six years. The economic outlook
for the Roanoke area is expected to be positive, and should allow Cave Spring
Corners to maintain its high occupancy through 1997.
The average occupancy rate at Coppermill Apartments mirrors the local area
average of 92%. Area occupancy rates are expected to be stable in the 92% to 93%
range. Most properties in the immediate area, including Coppermill, were built
by the same developer using identical floor plans. Thus, the local market is
very price-sensitive. The average monthly rent per square foot city-wide is $.54
per square foot. Because Coppermill's monthly rental rates average $.48 per
square foot, there is some room for rental rate increases, but usually only with
units that have upgraded amenities that differentiate the units from the
competition's.
Iberia Plaza gained a new anchor tenant during 1995. The property remained 97%
leased, but the proportion of the space that was "dark" or vacant decreased from
84% to 19% during 1995. The new tenant, a grocery store, has greatly increased
the amount of traffic into the property. In connection with the new anchor
tenant lease, the Partnership invested over $700,000 in capital improvements to
replace the asphalt, roof, exterior lighting and HVAC equipment. The primary
competition for the property is a retail center constructed in 1991 across the
street from Iberia Plaza. The new retail center charges an average rental rate
of $8 to $10 per square foot as opposed to $6 at Iberia Plaza.
<PAGE>
La Plaza Business Center had two major tenants vacate or down-size their space
requirements during 1995. Occupancy fell from 97% at the beginning of 1995 to
77% at the end of 1995. The decrease in occupancy has prompted the Partnership
to update the appearance of the property. Additional substantial tenant
improvement costs are expected to be incurred to convert the property to a more
leasable configuration and to bring the property into compliance with local
building codes. The Partnership intends to fund the tenant improvements as lease
negotiations proceed with new tenants. Demand for office space in Las Vegas is
expected to be strong in 1996. New construction is aimed at the high-end of the
market, and is not expected to compete with La Plaza.
Lakeview Plaza is 98% leased. However, one of the property's anchor tenants
vacated its space in mid-1995. The tenant anticipates sub-leasing its space by
mid-1996. The local market area appears to be strong, with several national
retailers looking for sites for additional stores in the area. There are also
several, newer competing properties in very close proximity to Lakeview Plaza
that have adversely affected sales of Lakeview Plaza's tenants.
In 1993, the Partnership invested $660,000 of capital improvements at Orchard
Apartments. The property, as a result, has benefited from improved curb appeal
and improved financial performance. Orchard's occupancy rate is usually two
percentage points above the 93% average occupancy rate of competitors in the
Indianapolis submarket where Orchard is located. Rental rates at Orchard are
comparable to its competitors. Recent and impending layoffs by major area
employers are a concern.
Parkway Plaza has a good location on the north side of Lafayette, Louisiana.
There is no room for additional development in the immediate area; consequently,
new developments are located across town from Parkway Plaza. The property is
100% leased, but the property's main anchor tenant has vacated its space.
Although lease payments continue to be made, the vacant space generates no
percentage rents and does not pull in shoppers to the property. The Partnership
placed Parkway Plaza on the market for sale in December 1994.
Quail Meadows Apartments is one of the nicer properties in the Wichita area.
Both interiors and exteriors of the property are above average relative to the
competition. However, the market in the Wichita area is soft. Area occupancy
rates have decreased for the past three years and rental rates have been flat.
Quail Meadows has maintained occupancy rates higher than market averages, but
has not been able to increase rental rates despite significant capital
improvements. The property relies on tenants from nearby McConnell Air Force
Base, which has recently constructed new housing facilities and faces the
possibility of congressional military cutbacks.
Occupancy rates in the Regency Park Apartments market area average 94%, slightly
better than Regency Park's occupancy rate. Rental rates realized at Regency Park
are also lower than its competitors. The property competes with numerous
properties, some of which are newer or have more appeal to prospective tenants.
Capital improvements made by the Partnership during 1993, 1994 and 1995 have
allowed the property to close some of the gap between Regency Park and its
competitors. The rental market in the area, however, remains price sensitive.
Improvements in operating results generally are coming through improved
occupancy rather than rate increases.
<PAGE>
Capital improvements placed in service since 1992 have allowed Sandpiper
Apartments to increase its rent per square foot by 41% in the past four years.
Occupancy and rental rates are above market averages. Since 1992, the income
level of Sandpiper's tenants has increased substantially. There is significant
new construction under development in the market area. It is expected that the
new construction will put downward pressure on market rent levels, but
management expects that well-maintained Sandpiper will continue to compete
effectively.
Average occupancy rates at Spanish Oaks Apartments have decreased two percentage
points during the past two years due to competition with new construction, older
properties that have been renovated, and rate hikes at Spanish Oaks. Net income
from the property has continued to rise due to increased rental rates, but
rental rates at Spanish Oaks remain below market averages. The interiors at
Spanish Oaks will need to be updated to allow the property to raise its rents to
current market levels. Also of concern is the reliance upon personnel employed
or stationed at Fort Sam Houston Army Base for many of the property's tenants.
The following schedule shows lease expirations for each of the Partnership's
commercial properties for 1996 through 2005:
<TABLE>
<CAPTION>
Number of Annual % of Gross
Expirations Square Feet Rent Annual Rent
----------- ----------- ------ -----------
Real Estate Investments:
<S> <C> <C> <C> <C>
Cave Spring Corners
1996 4 98,707 $ 272,493 42%
1997 1 1,920 25,530 4%
1998 2 6,255 42,154 7%
1999 2 7,568 70,250 11%
2000 2 3,298 36,869 6%
2001 0 - - -
2002 0 - - -
2003 1 46,432 143,561 22%
2004 0 - - -
2005 0 - - -
Iberia Plaza
1996 3 4,843 29,294 5%
1997 3 4,008 23,112 4%
1998 5 33,285 137,662 26%
1999 2 2,400 18,290 3%
2000 0 - - -
2001 1 3,240 25,920 5%
2002 0 - - -
2003 1 79,902 271,667 51%
2004 0 - - -
2005 0 - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Annual % of Gross
Expirations Square Feet Rent Annual Rent
----------- ----------- ------ -----------
Real Estate Investments:
<S> <C> <C> <C> <C>
La Plaza
1996 18 28,815 $392,914 26%
1997 4 3,819 55,967 4%
1998 4 10,380 146,612 10%
1999 1 189 1,928 0.2%
2000 5 27,230 406,762 27%
Thereafter 0 - - -
Lakeview Plaza
1996 4 11,869 133,507 17%
1997 3 10,568 50,194 6%
1998 1 33 4,800 1%
1999 0 - - -
2000 1 913 9,431 1%
2001 0 - - -
2002 0 - - -
2003 2 16,721 111,184 14%
2004 2 121,942 455,705 58%
2005 0 - - -
</TABLE>
<TABLE>
<CAPTION>
Asset Held for Sale:
<S> <C> <C> <C> <C>
Parkway Plaza
1996 5 7,714 $ 71,713 12%
1997 4 5,840 36,097 6%
1998 3 11,507 78,147 13%
1999 0 - - -
2000 2 29,625 131,404 22%
2001 0 - - -
2002 0 - - -
2003 1 79,902 279,657 47%
2004 0 - - -
2005 0 - - -
</TABLE>
No residential tenant leases 10% or more of the available rental space. The
following schedule reflects information on commercial tenants occupying 10% or
more of the leasable square feet for each property:
<PAGE>
<TABLE>
<CAPTION>
Nature of
Business Square Footage Lease
Use Leased Annual Rent Expiration
- --------- -------------- ----------- ----------
Real Estate Investments:
<S> <C> <C> <C>
Cave Spring Corners
Department store 84,217 $192,000 1996
Grocery store 46,432 143,561 2003
Iberia Plaza
Grocery store 26,445 89,913 1998
Discount department store 79,902 271,667 2003
La Plaza
Governmental agency 12,097 157,370 1996
Lakeview Plaza
Discount department store 78,337 253,000 2004
Grocery store 43,605 202,705 2004
Asset Held for Sale:
Parkway Plaza
Department store 26,422 105,780 2000
Discount department store 79,902 279,657 2003
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except as noted below.
1) 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 (L95012) - High River ("HR") filed this action in the
United States District Court for the Southern District of New York against
McNeil Partners, L.P., McNeil Investors, Inc. and Mr. and Mrs. McNeil (as
defined in this Section 1, collectively, the "Defendants") requesting,
among other things, names and addresses of the limited partners in the
partnerships referenced above (as defined in this Section 1, the
"Partnerships"). The District Court issued a preliminary injunction against
the Partnerships requiring them to commence mailing materials relating to
the HR tender offer on August 14, 1995.
<PAGE>
On August 18, 1995, the Defendants 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.
This action was dismissed without prejudice in November 1995.
2) 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 filed a second complaint with the District
Court which alleges, inter alia, that McNeil Partners, L.P.'s (the "General
Partner") 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 the General Partner has wrongfully refused to
admit High River as a limited partner to the ten partnerships referenced
above. Additionally, High River purports to assert claims derivatively on
behalf of McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XXIV, L.P.
and McNeil Real Estate Fund XXV, L.P., for breach of contract and breach of
fiduciary duty, asserting that the General Partner has charged these
partnerships excessive fees. High River's complaint seeks, inter alia,
preliminary injunctive relief requiring the General Partner to admit High
River as a limited partner in each of the ten partnerships referenced above
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.
On January 31, 1996, this action was dismissed without prejudice.
3) Robert Lewis v. 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, Ltd.,
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, 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. and
McNeil Real Estate Fund XXV, Ltd. (as defined in this Section 3, the
"Partnerships") as of August 4, 1995.
<PAGE>
Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc.,
Robert A. McNeil and other senior officers (as defined in this Section 3,
collectively, the "Defendants") breached their fiduciary duties by, among
other things, (1) failing to attempt to sell the properties owned by the
Partnerships (as defined in this Section 3, the "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 equity interests of the Partnerships, 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 of the Partnerships 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 assets of the Partnerships 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 v. 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 (as
defined in this Section 4, the "Partnerships"). Plaintiffs allege that
McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc.
and four (4) of their senior officers and/or directors (as defined in this
Section 4, collectively, the "Defendants") 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.
<PAGE>
The Defendants deny that there is any merit to Plaintiff's allegations and
intend to vigorously defend these actions.
5) Alfred Napoletano v. 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 (as defined in this Section 5,
the "Partnerships"). Plaintiff alleges that McNeil Partners, L.P., McNeil
Investors, Inc., Robert A. McNeil and other senior officers (as defined in
this Section 5, collectively, the "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 v. 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 (as defined in this Section 6,
the "Partnerships"). Plaintiff alleges that McNeil Partners, L.P., McNeil
Investors, Inc., Robert A. McNeil and other senior officers (as defined in
this Section 6, collectively, the "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.
For discussion of the Southmark bankruptcy, see Item 1 - Business and Item 8 -
Note 12 - "Gain on Legal Settlement."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND
- ------- ------------------------------------------------------------
RELATED SECURITY HOLDER MATTERS
-------------------------------
(A) There is no established public trading market for limited partnership
units, nor is one expected to develop.
(B) Title of Class Number of Record Unit Holders
Limited partnership units 6,971 as of February 16, 1996
(C) No distributions were paid to the limited partners in 1995 or 1994 and none
are anticipated in 1996. The Partnership accrued distributions of
$1,064,257 and $634,802 for the benefit of the General Partner for the
years ended December 31, 1995 and 1994, respectively. These distributions
are the contingent portion of the MID pursuant to the Amended Partnership
Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." See Item 7
- Management's Discussion and Analysis of Financial Condition and Results
of Operations for a discussion of the likelihood that the Partnership will
resume distributions to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in Item 8.
<TABLE>
<CAPTION>
Statements of Years Ended December 31,
---------------------------------------------------------------------------
Operations 1995 1994 1993 1992 1991
- ------------------ -------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental revenue............... $ 16,878,076 $ 17,375,904 $ 16,217,889 $ 16,023,798 $ 15,745,075
Gain on involuntary
conversion................... - - 268,434 192,168 -
Gain on disposition
of real estate.............. 3,183,698 - - - 251,314
Total revenue................ 20,258,594 17,428,487 16,542,802 16,283,680 16,097,573
Loss on replacement
of assets................... - - - (675,420) -
Income (loss) before
extraordinary items 2,193,164 (1,199,904) (1,693,057) (2,101,133) (2,208,424)
Extraordinary items.......... - 292,539 (1,078,519) - 900,508
Net income (loss)............ 2,193,164 (907,365) (2,771,576) (2,101,133) (1,307,916)
Net income (loss) per
limited partnership unit:
Income (loss) before
extraordinary items $ 15.43 $ (10.25) $ (15.62) $ (24.66) $ (15.52)
Extraordinary items.......... - 2.06 (7.58) - 6.33
------------ ------------ ------------ ------------- ------------
Net income (loss)............ $ 15.43 $ (8.19) $ (23.20) $ (24.66) $ (9.19)
============ ============ ============ ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
Balance Sheets 1995 1994 1993 1992 1991
- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Real estate investments, net... $ 36,699,530 $ 37,024,893 $ 45,705,474 $ 44,968,959 $ 46,339,058
Assets held for sale........... 2,237,733 7,215,032 - - -
Total assets................... 43,638,649 48,379,933 50,632,244 48,958,917 49,620,579
Mortgage notes payable, net.... 44,454,316 52,078,850 54,484,455 49,141,717 45,966,025
Partners' equity (deficit)..... (6,313,367) (7,442,274) (5,900,107) (2,304,044) 547,965
</TABLE>
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations. The following properties were sold or foreclosed on by
the lender:
<TABLE>
<CAPTION>
Property Date Sold or Foreclosed
-------- -----------------------
<S> <C>
The Courts Apartments September 14, 1995 - Sold
Bayou Plaza May 8, 1991 - Foreclosed
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FINANCIAL CONDITION
- -------------------
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. At the end of 1995, the
Partnership owned seven apartment buildings, four retail centers and one office
building. All of the Partnership's properties are subject to mortgage
indebtedness.
On September 14, 1995, the Partnership sold The Courts Apartments, a 382-unit
apartment complex located in Kent, Washington. The unaffiliated buyer purchased
the property for a cash purchase price of $8,050,000 and assumed the $140,358
improvement district liens encumbering the property. The Partnership recorded a
gain of $3,183,698 on the sale. After retiring the mortgage note on the property
and paying for closing costs, the sale provided $1,289,573 of cash proceeds that
the Partnership added to its cash reserves.
Subsequent to year end, on January 26, 1996, the Partnership refinanced the
Spanish Oaks mortgage note. The interest rate on the new $4,000,000 mortgage
note is 7.71%; monthly payments of principal and interest are $28,546. Proceeds
from the new mortgage note, after retiring the previous mortgage note, totaled
$475,775. The Partnership used $129,273 of the net loan proceeds to pay for
deferred borrowing costs associated with the new mortgage note, and $165,291 to
fund various escrow accounts held by the mortgagee for the payment of property
taxes, hazard insurance and deferred maintenance.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
1995 compared to 1994
Revenue:
The Partnership reported two non-recurring items of revenue in 1995. First was
the $3,183,698 gain on the sale of The Courts Apartments. Second was a $91,517
gain on a legal settlement pertaining to cash proceeds received from Southmark,
the parent of the Partnership's former general partner, in settlement of the
Partnership's claims in the Southmark bankruptcy filing.
The Partnership's rental revenue decreased $497,828 or 2.9% in 1995 compared to
1994. Most of the decrease is attributable to the sale of The Courts Apartments
in September 1995. However, rental revenue, excluding rental revenue from The
Courts Apartments for 1995 and 1994, also decreased by $79,997 or 0.5%. Eight of
the Partnership's properties reported steady increases in rental revenue ranging
from 3 to 4.5 percent. One property, Regency Park Apartments, reported a 7.0%
increase in rental revenue, the result of a 5% increase in base rental rates
combined with a decrease in vacancy losses.
Decreases in rental revenue were reported at Iberia Plaza, La Plaza Office
Building and Lakeview Plaza. Behind the 3.8% decrease in rental revenue at
Iberia Plaza was a decrease in percentage rents from the property's tenants. 78%
of the property's leasable space was "dark" (space that is under lease, but
vacant) for some period of time during 1995. Tenants who have vacated their
space, but are still paying base rent do not provide the Partnership with any
percentage rents. Expense recoveries also decreased at Iberia Plaza. A new
anchor tenant (a grocery store) is now in place at Iberia Plaza. The General
Partner anticipates that expense recoveries will improve in 1996 due to the new
anchor tenant. Rental revenue at La Plaza Office Building decreased 28% as two
of the property's major tenants either moved to a competing property, or reduced
their space requirements by half. The Partnership is reconfiguring space
arrangements at La Plaza Office Building to take advantage of the shortage of
smaller office suites in the Las Vegas market. Rental revenue will likely remain
depressed at La Plaza for 1996, before improving in 1997. Lakeview Plaza also
had difficulty with dark space in 1995. Rental revenue at the Lexington,
Kentucky property decreased 17.3% principally due to decreases in expense
recoveries from tenants no longer operating businesses at the property.
Expenses:
Total Partnership expenses decreased $562,961 or 3.0% in 1995 compared to 1994.
Excluding the effect of expenses incurred at The Courts Apartments reveals an
$8,949 decrease in expenses.
Property tax expense decreased at six of the Partnership's properties. The most
significant decrease was reported at Lakeview Plaza. A preliminary reduction in
the assessed value of Lakeview Plaza resulted in a $78,000 reduction in property
tax expense for 1995. Property taxes were also reduced by lesser amounts at Cave
Spring Corners Shopping Center, Orchard Apartments, Regency Park Apartments,
Sandpiper Apartments and Spanish Oaks Apartments.
Other property operating expenses, excluding other property operating expenses
incurred at The Courts Apartments, increased $86,128 or 9.3% in 1995 compared to
1994. The increase is principally attributable to increased insurance expense
for the Partnership's properties. Also included in this category are advertising
and marketing expenses, bad debt expense, and office and administrative
expenses.
<PAGE>
Partnership general and administrative expenses increased $167,761 or 83% in
1995 compared to 1994. The Partnership incurred $242,486 of expenses related to
the evaluation and dissemination of information with regards to an unsolicited
tender offer. No such expenses were incurred in 1994.
Interest incurred on loans from affiliates increased to $78,822 in 1995 from
$5,206 in 1994. This expense represents interest on the $800,000 loan from an
affiliate of the General Partner secured by Lakeview Plaza. Only one month of
affiliate interest expense was incurred in 1994 as opposed to twelve months of
such expense during 1995.
General and administrative expenses incurred for the benefit of affiliates
increased $61,400 or 10.1% in 1995 compared to 1994. These expenses are the
reimbursable expenses incurred by affiliates of the General Partner. These costs
increased due to a reduction in the number of properties managed by McREMI over
which such costs are allocated.
1994 compared to 1993
Revenue:
Rental revenues for 1994 increased $1,158,015 or 7.1% compared to 1993. Rental
revenue increased at all of the partnership's properties except The Courts
Apartments. Rental revenues increased greater than 10% at Briarwood Apartments,
Cave Spring Corners Shopping Center, La Plaza Office Building and Orchard
Apartments. Average occupancy rates increased at nine of the Partnership's
properties. Layoffs in the military and aerospace industry and a generally flat
local economy contributed to a decrease in rental and average occupancy rates at
The Courts Apartments.
The Partnership benefited from a $292,539 extraordinary gain during 1994. The
gain relates to the discounted payoff of the Iberia Plaza second mortgage note.
The General Partner was able to negotiate a release of the $477,016 mortgage
note for a $100,000 payment. See Item 8 - Note 9 - "Gain on Extinguishment of
Debt."
Expenses:
Partnership expenses increased $392,532 or 2.2% in 1994 compared to 1993. The
increased expenses were concentrated, on a percentage basis, in depreciation,
and to a lesser extent in property management fees and property taxes.
Depreciation and amortization expense increased $309,173 or 9.4% in 1994
compared to 1993. The increase is due to capital improvements placed in service
during the past three years. These improvements generally are being depreciated
over lives ranging from five to ten years.
Property management fees - affiliates increased $59,521 or 7.4% in 1994 compared
to 1993, in line with the increase in rental revenue upon which the property
management fees are computed.
Property taxes continue to increase due to higher tax levies from local taxing
jurisdictions. The General Partner monitors property tax payments and, when
appropriate, appeals the values assigned to its properties upon which the ad
valorem taxes are based. For 1994, property tax expense increased 6.3% compared
to 1993.
<PAGE>
The net increase in all other operating expenses was a modest 2.6% in 1994.
General and administrative expenses decreased $26,918 or 11.7% for the year
ended December 31, 1994. This decrease was due to savings the Partnership
achieved through a new tax processing and reporting system and reduction in
legal and professional fees. General and administrative expenses paid to
affiliates decreased $69,170 or 10.2% during 1994 compared to 1993. These
expenses include the fixed portion of the MID (the "Fixed MID") and
reimbursement of costs incurred by McREMI in managing the Partnership. Fixed MID
decreased $124,756 due to its elimination effective July 1, 1993. Cost
reimbursements increased $55,586 or 10.0% due to a reduction in the number of
properties managed by McREMI over which such costs are allocated.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the three year period ended December 31, 1995, the Partnership
experienced losses totaling $1,485,777. However, during the same three-year
period, the Partnership generated $8,392,635 of cash flow from operating
activities. Cash flow from operations increased $1,229,641 to $4,138,369 in 1995
compared to 1994. The sale of The Courts Apartments led to decreases in cash
paid to suppliers, property taxes paid and escrowed, and interest paid. The
decreases in cash paid were partially offset by decreased cash received from
tenants also due, principally, to the sale of The Courts Apartments.
Investing activities in 1995 consisted of the sale of The Courts Apartments and
the addition of $2,939,050 of improvements to the Partnership's remaining
properties. Proceeds from the sale of The Courts Apartments totaled $1,289,573
after retirement of the related mortgage note. Net proceeds from the sale were
added to the Partnership's cash reserves. The Partnership continues to invest
substantial sums into improvements at its properties. A total of $9,119,647 of
improvements have been added to the Partnership's properties over the past three
years. An additional $2.0 million of improvements have been budgeted for 1996.
During the past three years, the Partnership has refinanced five mortgage notes
that encumber its properties. These transactions have added approximately $3.3
million to the Partnership's cash reserves, after payment of related deferred
borrowing costs, and have reduced the weighted average interest rate of the
Partnership's mortgage indebtedness to 8.96% from 9.55%. Scheduled principal
repayments in 1995, via monthly debt service payments, were comparable to
repayments made in 1994 and 1993. A total of $3,684,251 has been repaid over the
past three years.
Payments of the contingent portion of the MID (the "Contingent MID") to the
General Partner have been suspended since the beginning of 1994. Contingent MID
of $908,286 was paid in 1993. Contingent MID payments have been suspended to
improve the cash position of the Partnership. See short-term liquidity below.
<PAGE>
Short-term liquidity:
At December 31, 1995, the Partnership held cash reserves of $1,813,594, up
$1,239,005 from the balance at the end of 1994.
In addition to the sale of The Courts Apartments in September 1995, the General
Partner placed Parkway Plaza Shopping Center on the market for sale on December
1, 1994. The General Partner expects to be able to sell the property for an
amount sufficient to retire the related mortgage note and still provide some
residual cash proceeds for the Partnership's cash reserves. The General Partner
anticipates that the appreciation potential of Parkway Plaza is limited, while
extensive capital improvement funds would be required to maintain cash from
operations at current levels. The Parkway Plaza mortgage note matures on August
1, 1996. If a sale cannot be consummated before the maturity date, and if the
Partnership cannot obtain suitable replacement financing for the property, the
property could be lost to foreclosure.
The Spanish Oaks mortgage note matured on August 25, 1995. Subsequent to August
1995, the Partnership continued to make monthly mortgage payments, which were
accepted by the holder of the Spanish Oaks mortgage note, while the Partnership
negotiated a refinancing of the Spanish Oaks mortgage note. On January 26, 1996,
the General Partner successfully refinanced the Spanish Oaks mortgage note.
Proceeds from the new mortgage note, after retiring the previous mortgage note
and after deductions for deferred borrowing costs totaled $346,502. The
Partnership was required to deposit $165,291 of the proceeds into various escrow
accounts held by the lender for payment of property taxes, hazard insurance and
deferred maintenance. The balance of the refinancing proceeds have been added to
the Partnership's cash reserves.
During 1995 and 1994, the General Partner deferred collection of Contingent MID
and reimbursements of administrative costs incurred by affiliates of the General
Partner. For 1995, these deferrals postponed payment of $1,734,854 to the
General Partner and its affiliates. The General Partner anticipates resuming
payment of Contingent MID and reimbursable administrative costs if the
Partnership's properties continue to perform as anticipated.
Despite the large amounts of funds invested in capital improvements over the
past three years, the Partnership's properties face challenges keeping up with
the improvements still needed. The Partnership has budgeted $2.0 million of
capital improvements for the Partnership's properties during 1996. In
particular, La Plaza Office Building will require substantial capital
improvement funds in 1996. The two largest tenants at La Plaza Office Building
vacated or downsized their space during 1995. To make the building attractive to
other tenants and to update the facility, the Partnership will need to invest
approximately $892,000 into La Plaza. The General Partner believes that the
increased value of the property after the improvements are made will provide a
strong return on the Partnership's investment.
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
December 31, 1995, $2,662,819 remained available for borrowing under the
facility; however, additional funds could become available as other partnerships
repay existing borrowings. This commitment expires on October 9, 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 $9.1 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 an additional $2 million of capital improvements
for 1996. If the Partnership's cash position deteriorates, 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.
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 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 Contingent MID
paid in cash. Depreciation is allocated in the ratio of 95:5 to the limited
partners and the General Partner, respectively. Therefore, for the three year
period ended December 31, 1995, $109,658, $199,163 and $363,642, respectively,
were allocated to the General Partner. The limited partners received allocations
of net income (loss) of $2,083,506, $(1,106,528) and $(3,135,218) for the three
years ended December 31, 1995, respectively.
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. Payments of MID have been suspended since the beginning of
1994. The General Partner will continue to monitor the cash reserves and working
capital needs of the Partnership to determine when cash flows will support
payments of MID and distributions to the Unit holders.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
<TABLE>
<CAPTION>
Page
Number
------
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
Financial Statements:
<S> <C>
Report of Independent Public Accountants........... 23
Balance Sheets at December 31, 1995 and 1994....... 24
Statements of Operations for each of the three
years in the period ended December 31, 1995..... 25
Statements of Partners' Equity (Deficit) for
each of the three years in the period ended
December 31, 1995............................... 26
Statements of Cash Flows for each of the three
years in the period ended December 31, 1995..... 27
Notes to Financial Statements...................... 29
Financial Statement Schedule:
Schedule III - Real Estate Investments and
Accumulated Depreciation and Amortization.... 42
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
McNeil Real Estate Fund X, Ltd.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund X,
Ltd. (a California limited partnership) as of December 31, 1995 and 1994, and
the related statements of operations, partners' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements and the schedule referred to below are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McNeil Real Estate Fund X, Ltd.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas
March 13, 1996
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994
--------------- --------------
ASSETS
- ------
<S> <C> <C>
Real estate investments:
Land..................................................... $ 10,464,914 $ 10,449,117
Buildings and improvements............................... 78,886,121 76,026,423
-------------- -------------
89,351,035 86,475,540
Less: Accumulated depreciation and amortization......... (52,651,505) (49,450,647)
-------------- -------------
36,699,530 37,024,893
Assets held for sale, net 2,237,733 7,215,032
Cash and cash equivalents................................... 1,813,594 574,589
Cash segregated for security deposits....................... 317,834 411,045
Accounts receivable......................................... 432,618 490,391
Prepaid expenses and other assets........................... 332,665 365,292
Escrow deposits............................................. 625,344 990,453
Deferred borrowing costs, net of accumulated
amortization of $306,342 and $319,020 at
December 31, 1995 and 1994, respectively................. 1,179,331 1,308,238
-------------- -------------
$ 43,638,649 $ 48,379,933
============== =============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net................................. $ 44,454,316 $ 52,078,850
Mortgage note payable - affiliates.......................... 800,000 800,000
Accounts payable............................................ 186,785 130,856
Accrued property taxes...................................... 522,951 573,451
Accrued interest............................................ 370,294 304,600
Accrued interest - affiliates............................... 6,625 5,206
Other accrued expenses...................................... 318,324 307,295
Payable to affiliates - General Partner..................... 2,907,490 1,172,267
Security deposits and deferred rental revenue............... 385,231 449,682
-------------- -------------
49,952,016 55,822,207
-------------- -------------
Partners' deficit
Limited partners - 135,200 limited partnership units
authorized; 135,030 and 135,090 limited partnership
units issued and outstanding at December 31, 1995
and 1994, respectively................................. (1,788,928) (3,872,434)
General Partner.......................................... (4,524,439) (3,569,840)
-------------- -------------
(6,313,367) (7,442,274)
$ 43,638,649 $ 48,379,933
============== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1995 1994 1993
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenue:
Rental revenue.......................... $ 16,878,076 $ 17,375,904 $ 16,217,889
Interest................................ 105,303 52,583 56,479
Gain on disposition of real estate...... 3,183,698 - -
Gain on legal settlement................ 91,517 - -
Gain on involuntary conversion.......... - - 268,434
------------- ------------- --------------
Total revenue......................... 20,258,594 17,428,487 16,542,802
------------- ------------- --------------
Expenses:
Interest................................ 4,980,917 5,354,150 5,482,833
Interest - affiliates................... 78,822 5,206 -
Depreciation and amortization........... 3,567,913 3,609,402 3,300,229
Property taxes.......................... 1,010,754 1,194,939 1,124,565
Personnel expenses...................... 1,950,309 1,950,481 1,878,349
Utilities............................... 1,368,713 1,442,254 1,421,217
Repairs and maintenance................. 2,100,763 2,313,443 2,226,531
Property management fees -
affiliates............................ 846,482 868,408 808,887
Other property operating expenses....... 1,119,336 1,077,848 1,084,900
General and administrative ............. 370,824 203,063 229,981
General and administrative -
affiliates............................ 670,597 609,197 678,367
------------- ------------- --------------
Total expenses........................ 18,065,430 18,628,391 18,235,859
------------- ------------- --------------
Income (loss) before extraordinary
items................................... 2,193,164 (1,199,904) (1,693,057)
Extraordinary items........................ - 292,539 (1,078,519)
------------- ------------- --------------
Net income (loss).......................... $ 2,193,164 $ (907,365) $ (2,771,576)
============= ============= ==============
Net income (loss) allocated to
limited partners........................ $ 2,083,506 $ (1,106,528) $ (3,135,218)
Net income allocated to
General Partner......................... 109,658 199,163 363,642
------------- ------------- --------------
Net income (loss).......................... $ 2,193,164 $ (907,365) $ (2,771,576)
============= ============= ==============
Net income (loss) per limited
partnership unit:
Income (loss) before extraordinary
items................................. $ 15.43 $ (10.25) $ (15.62)
Extraordinary items..................... - 2.06 (7.58)
------------- ------------- -------------
Net income (loss) per limited
partnership unit...................... $ 15.43 $ (8.19) $ (23.20)
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Total
Partners'
General Limited Equity
Partner Partners (Deficit)
---------------- ----------------- ------------------
<S> <C> <C> <C>
Balance at December 31, 1992.............. $ (2,673,356) $ 369,312 $ (2,304,044)
Net income (loss)......................... 363,642 (3,135,218) (2,771,576)
Contingent Management Incentive
Distribution........................... (824,487) - (824,487)
-------------- --------------- ----------------
Balance at December 31, 1993.............. (3,134,201) (2,765,906) (5,900,107)
Net income (loss)......................... 199,163 (1,106,528) (907,365)
Contingent Management Incentive
Distribution........................... (634,802) - (634,802)
-------------- --------------- ----------------
Balance at December 31, 1994.............. (3,569,840) (3,872,434) (7,442,274)
Net income................................ 109,658 2,083,506 2,193,164
Contingent Management Incentive
Distribution........................... (1,064,257) - (1,064,257)
-------------- --------------- ----------------
Balance at December 31, 1995.............. $ (4,524,439) $ (1,788,928) $ (6,313,367)
============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from tenants.............. $ 16,953,669 $ 17,305,399 $ 16,230,865
Cash paid to suppliers.................. (6,541,879) (7,157,611) (6,879,499)
Cash paid to affiliates................. (846,113) (1,020,972) (1,480,744)
Interest received....................... 105,303 52,583 56,479
Interest paid........................... (4,593,039) (5,142,089) (5,192,876)
Interest paid to affiliates............. (77,403) - -
Gain on legal settlement................ 91,517 - -
Property taxes paid and escrowed........ (953,686) (1,128,582) (1,388,687)
------------- ------------- --------------
Net cash provided by operating
activities.............................. 4,138,369 2,908,728 1,345,538
------------- ------------- --------------
Cash flows from investing activities:
Additions to real estate investments.... (2,939,050) (2,143,853) (4,036,744)
Proceeds from disposition of
real estate investment................ 7,905,804 - -
Insurance proceeds...................... - - 268,434
------------- ------------- ---------------
Net cash provided by (used in)
investing activities.................... 4,966,754 (2,143,853) (3,768,310)
------------- ------------- ---------------
Cash flows from financing activities:
Net proceeds from (cash used in)
refinancing mortgage notes
payable............................... - (1,123,933) 5,603,875
Net proceeds from mortgage
note payable - affiliates............. - 800,000 -
Retirement of mortgage notes due
to disposition of real estate......... (6,616,231) - -
Principal payments on mortgage
notes payable......................... (1,184,440) (1,177,719) (1,322,092)
Deferred borrowing costs paid........... (65,447) (165,912) (1,037,066)
Contingent Management Incentive
Distribution.......................... - - (908,286)
------------- ------------- --------------
Net cash provided by (used in)
financing activities.................... (7,866,118) (1,667,564) 2,336,431
------------- ------------- --------------
Net increase (decrease) in cash and
cash equivalents...................... 1,239,005 (902,689) (86,341)
Cash and cash equivalents at
beginning of year..................... 574,589 1,477,278 1,563,619
------------- ------------- --------------
Cash and cash equivalents at
end of year........................... $ 1,813,594 $ 574,589 $ 1,477,278
============= ============= ==============
</TABLE>
See discussion of noncash investing activity in Note 10 - "Gain on Involuntary
Conversion."
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1995 1994 1993
-------------- --------------- ----------------
<S> <C> <C> <C>
Net income (loss).......................... $ 2,193,164 $ (907,365) $ (2,771,576)
------------- ------------- --------------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........... 3,567,913 3,609,402 3,300,229
Amortization of deferred borrowing
costs................................. 146,047 142,512 124,239
Amortization of discounts on
mortgage notes payable................ 176,137 188,586 178,770
Gain on disposition of real estate...... (3,183,698) - -
Gain on involuntary conversion.......... - - (268,434)
Extraordinary items..................... - (292,539) 1,078,519
Changes in assets and liabilities:
Cash segregated for security
deposits............................ 93,211 (26,923) (45,913)
Accounts receivable................... 57,773 (16,358) 68,856
Prepaid expenses and other
assets.............................. 32,627 (31,540) (23,388)
Escrow deposits....................... 365,109 (17,706) (306,215)
Accounts payable...................... 55,929 (163,512) (81,486)
Accrued property taxes................ (50,500) (25,133) (25,119)
Accrued interest...................... 65,694 (119,037) (13,052)
Accrued interest - affiliates......... 1,419 5,206 -
Other accrued expenses................ 11,029 103,180 76,331
Payable to affiliates - General
Partner............................. 670,966 456,633 6,510
Security deposits and deferred
rental revenue...................... (64,451) 3,322 47,267
------------- ------------- --------------
Total adjustments................... 1,945,205 3,816,093 4,117,114
------------- ------------- --------------
Net cash provided by operating
activities.............................. $ 4,138,369 $ 2,908,728 $ 1,345,538
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized June 1, 1979,
as a limited partnership under the provisions of the California Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil. The Partnership is governed by an amended and restated partnership
agreement of limited partnership dated October 9, 1991, as amended (the "Amended
Partnership Agreement"). The principal place of business for the Partnership and
the General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240.
The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential and commercial real estate
and other real estate related assets. At December 31, 1995, the Partnership
owned twelve income-producing properties as described in Note 4 - Real Estate
Investments.
Basis of Presentation
- ---------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Partnership's financial statements include the accounts of the following
listed tier limited partnerships. These single asset tier limited partnerships
were formed to accommodate the refinancing of the respective properties. The
Partnership's and the General Partner's ownership interest in each tier limited
partnership are detailed below. The Partnership retains effective control of
each tier limited partnership. The General Partner's minority interest is not
presented as it is immaterial.
<TABLE>
<CAPTION>
% of Ownership Interest
Tier Partnership Partnership General Partner
---------------- ----------- ---------------
<S> <C>
Briarwood Fund X Limited Partnership (a) (b)................. 100 -
Coppermill Fund X Limited Partnership (a) (c)................ 100 -
Courts Fund X Associates, L.P. (b)........................... 99 1
Orchard Fund X Limited Partnership (a) (b)................... 100 -
Quail Meadows Fund X Limited Partnership (a) (b)............. 100 -
Regency Park Fund X Associates, L.P. (b)..................... 99 1
Sandpiper Fund X Limited Partnership (a) (b)................. 100 -
Spanish Fund X, Ltd. (d)..................................... 100 -
</TABLE>
<PAGE>
(a) The general partner of these limited partnerships is a corporation whose
stock is 100% owned by the Partnership.
(b) Included in financial statements for years ended December 31, 1995, 1994
and 1993.
(c) Included in financial statements for years ended December 31, 1995 and
1994.
(d) Spanish Fund X, Ltd. commenced business activity on January 26, 1996.
Real Estate Investments
- -----------------------
Real estate investments are generally stated at the lower of cost or net
realizable value. Real estate investments are monitored on an ongoing basis to
determine if the property has sustained a permanent impairment in value. At such
time, a write-down is recorded to reduce the basis of the property to its net
realizable value. A permanent impairment is determined to have occurred when a
decline in property value is considered to be other than temporary based upon
management's expectations with respect to projected cash flows and prevailing
economic conditions.
Improvements and betterments are capitalized and expensed through depreciation
charges. Repairs and maintenance are charged to operations as incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. The Partnership has not adopted the
principles of this statement within the accompanying financial statements;
however, it is not anticipated that adoption will have a material effect on the
carrying value of the Partnership's long-lived assets.
Assets Held for Sale
- --------------------
Assets held for sale are stated at the lower of cost or net realizable value.
Depreciation
- ------------
Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 3 to 38 years. Tenant
improvements are amortized over the terms of the related tenant leases using the
straight-line method.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and cash on deposit with
financial institutions with original maturities of three months or less.
Carrying amounts for cash and cash equivalents approximate fair value.
<PAGE>
Escrow Deposits
- ---------------
The Partnership is required to maintain escrow accounts in accordance with the
terms of various mortgage indebtedness agreements. These escrow accounts are
controlled by the mortgagee and are used for payment of property taxes, hazard
insurance, capital improvements and/or property replacements. Carrying amounts
for escrow deposits approximate fair value.
Deferred Borrowing Costs
- ------------------------
Loan fees and other related costs incurred to obtain long-term financing on real
property are capitalized and amortized using a method that approximates the
effective interest method over the terms of the related mortgage notes payable.
Amortization of deferred borrowing costs is included in interest expense on the
Statements of Operations.
Discounts on Mortgage Notes Payable
- -----------------------------------
Discounts on mortgage notes payable are amortized over the remaining terms of
the related mortgage notes using the effective interest method. Amortization of
discounts on mortgage notes payable is included in interest expense on the
Statements of Operations.
Rental Revenue
- --------------
The Partnership leases its residential properties under short-term operating
leases. Lease terms generally are less than one year in duration. Rental revenue
is recognized as earned.
The Partnership leases its commercial properties under non-cancelable operating
leases. Certain leases provide concessions and/or periods of escalating or free
rent. Rental revenue is recognized on a straight-line basis over the term of the
related leases. The excess of the rental revenue recognized over the contractual
rental payments is recorded as accrued rent receivable and included in accounts
receivable on the Balance Sheets.
Income Taxes
- ------------
No provision for Federal income taxes is necessary in the financial statements
of the Partnership because, as a partnership, it is not subject to Federal
income tax and the tax effect of its activities accrues to the partners.
Allocation of Net Income and Net Loss
- -------------------------------------
The Amended Partnership Agreement provides for net income or net loss of the
Partnership for both financial statement and income tax reporting purposes to be
allocated as indicated below. For allocation purposes, net income and net loss
of the Partnership is determined prior to deductions for depreciation.
(a) First, 5% of all deductions for depreciation shall be allocated to the
General Partner, and 95% of all deductions for depreciation shall be
allocated to the limited partners;
<PAGE>
(b) then, an amount of net income equal to the cumulative amount of the
contingent portion of the Management Incentive Distribution ("MID") paid to
the General Partner for which no income has previously been allocated (see
Note 2 - "Transactions with Affiliates") shall be allocated to the General
Partner; provided, however, that if all or a portion of such payment
consists of limited partnership units ("Units"), the amount of net income
allocated to the General Partner shall be equal to the amount of cash the
General Partner would have otherwise received;
(c) then, any remaining net income shall be allocated to the General Partner
and to the limited partners so that the total amount of net income
allocated to the General Partner pursuant to (b) above and this paragraph
(c) and to the limited partners pursuant to this paragraph (c) shall be in
the ratio of 5% to the General Partner and 95% to the limited partners.
(d) Net loss shall be allocated 5% to the General Partner and 95% to the
limited partners.
Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and accompanying Treasury Regulations
establish criteria for allocations of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1995, 1994 and 1993 have been made
in accordance with these provisions.
Distributions
- -------------
Pursuant to the Amended Partnership Agreement and at the discretion of the
General Partner, distributions during each taxable year shall be made as
follows:
(a) first, to the General Partner, an amount equal to the contingent portion of
the MID, and
(b) any remaining distributable cash, as defined, shall be distributed 100% to
the limited partners.
No distributions were made to the limited partners in 1995, 1994 or 1993. The
Partnership accrued distributions of $1,064,257, $634,802 and $824,487 for the
benefit of the General Partner for the years ended December 31, 1995, 1994 and
1993, respectively. These distributions are the contingent portion of the MID
pursuant to the Amended Partnership Agreement.
Net Income (Loss) Per Limited Partnership Unit
- ----------------------------------------------
Net income (loss) per Unit is computed by dividing net income (loss) allocated
to the limited partners by the weighted average number of Units outstanding. Per
Unit information has been computed based on 135,030, 135,090 and 135,120 Units
outstanding in 1995, 1994 and 1993, respectively.
Reclassifications
- -----------------
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
<PAGE>
NOTE 2 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------
The Partnership pays property management fees equal to 5% of the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management services for the Partnership's residential and commercial properties
and leasing services for its residential properties. McREMI may choose to
perform leasing services for the Partnership's commercial properties, in which
case McREMI will receive a property management fee equal to 3% of the gross
rental receipts of the Partnership's commercial properties plus a commission for
performing leasing services equal to the prevailing market rate for such
services in the area where the property is located.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
The Partnership reimbursed an affiliate of the General Partner for costs
incurred in connection with the 1993 refinancing and modification of mortgage
notes. These costs are capitalized as deferred borrowing costs and amortized
over the remaining term of the related mortgage notes.
Under terms of the Amended Partnership Agreement, the Partnership is paying the
MID to the General Partner. The maximum MID is calculated as 1% of the tangible
asset value of the Partnership. The maximum MID percentage decreases subsequent
to 1999. Tangible asset value is determined by using the greater of (i) an
amount calculated by applying a capitalization rate of 9% of 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) the
fixed portion which was payable without respect to the net income of the
Partnership and was equal to 25% of the maximum MID (the "Fixed MID") and (ii) a
contingent portion which was payable only to the extent of the lesser of the
Partnership's excess cash flow, as defined, or net operating income (the
"Entitlement Amount") and was equal to up to 75% of the maximum MID (the
"Contingent MID").
Effective July 1, 1993, the General Partner amended the Amended Partnership
Agreement as a settlement to a class action complaint. This amendment eliminates
the Fixed MID and makes the entire MID payable to the extent of the Entitlement
Amount. In all other respects, the calculation and payment of the MID remain the
same.
Fixed MID was payable in Units unless the Entitlement Amount exceeded the amount
necessary to pay Contingent MID, in which case, at the General Partner's option,
the Fixed MID was paid in cash to the extent of such excess.
Contingent MID will be paid to the extent of the Entitlement Amount, and may be
paid (i) in cash, unless there is insufficient cash to pay the distribution in
which event any unpaid portion not taken in Units will be deferred and is
payable, without interest, from the first available cash and/or (ii) in Units.
The General Partner has deferred collection of the MID since January 1, 1994. 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. During 1995, 1994 and 1993, no Units were
issued as payment for the MID.
<PAGE>
During 1991, the Partnership amended its capitalization policy and began
capitalizing certain costs of improvements and betterments which under policies
of prior management had been expensed when incurred. The purpose of the
amendment was to more properly recognize items which were capital in nature. The
effect of the amendment standing alone was evaluated at the time the change was
made and determined not to be material to the financial statements of the
Partnership in 1991, nor was it expected to be material in any future year.
However, the amendment does have a material effect on the calculation of the
Entitlement Amount which determines the amount of Contingent MID earned and the
amount of Fixed MID payable in cash. Capital improvements are excluded from cash
flow, as defined. The majority of the base period cash flow was measured under
the previous capitalization policy, while incentive period cash flow is
determined using the amended policy. Under the amended policy, more items are
capitalized, and cash flow increases. If base period cash flow had been measured
on a basis comparable with incentive period cash flow, Contingent MID would have
been reduced by $256,656 for the year ended December 31, 1994. The amendment of
the capitalization policy did not materially affect MID for 1995 or 1993 as the
Entitlement Amount was sufficient to pay Contingent MID notwithstanding the
amendment to the capitalization policy.
Any amount of the MID which is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The Fixed MID was treated as a fee
payable to the General Partner by the Partnership for services rendered. The
Contingent MID represents a return of equity to the General Partner for
increasing cash flow, as defined, and accordingly is treated as a distribution.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1995 1994 1993
-------------- -------------- ---------------
<S> <C> <C> <C>
Deferred borrowing costs................... $ - $ - $ 51,020
Property management fees -
affiliates.............................. 846,482 868,408 808,887
Interest - affiliates...................... 78,822 5,206 -
Charged to general and
administrative - affiliates:
Partnership administration.............. 670,597 609,197 553,611
Fixed MID............................... - - 124,756
------------- ------------- --------------
$ 1,595,901 $ 1,482,811 $ 1,538,274
============= ============= ==============
Charged to General Partner's deficit:
Contingent MID.......................... $ 1,064,257 $ 634,802 $ 824,487
============= ============= ==============
</TABLE>
Payable to affiliates - General Partner at December 31, 1995 and 1994 consists
of Contingent MID, reimbursable costs and property management fees which are due
and payable from current operations.
<PAGE>
NOTE 3 - TAXABLE LOSS
- ---------------------
McNeil Real Estate Fund X, Ltd. is a partnership and is not subject to Federal
and state income taxes. Accordingly, no recognition has been given to income
taxes in the accompanying financial statements of the Partnership since the
income or loss of the Partnership is to be included in the tax returns of the
individual partners. The tax returns of the Partnership are subject to
examination by Federal and state taxing authorities. If such examinations result
in adjustments to distributive shares of taxable income or loss, the tax
liability of the partners could be adjusted accordingly.
The Partnership's net assets and liabilities for tax purposes exceeded the net
assets and liabilities for financial reporting purposes by $13,571,531,
$11,156,745 and $9,454,176 at December 31, 1995, 1994 and 1993, respectively.
NOTE 4 - REAL ESTATE INVESTMENTS
- --------------------------------
The basis and accumulated depreciation of the Partnership's real estate
investments held at December 31, 1995 and 1994 are set forth in the following
tables:
<TABLE>
<CAPTION>
Buildings and Accumulated Net Book
1995 Land Improvements Depreciation Value
---- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Briarwood
Tucson, AZ $ 489,437 $ 5,044,948 $ (3,486,893) $ 2,047,492
Cave Spring Corners
Roanoke, VA 792,077 4,487,055 (2,998,581) 2,280,551
Coppermill
Tulsa, OK 1,176,980 12,061,904 (8,900,290) 4,338,594
Iberia Plaza
New Iberia, LA 836,792 4,965,167 (2,719,859) 3,082,100
La Plaza
Las Vegas, NV 2,761,441 6,361,255 (4,118,450) 5,004,246
Lakeview Plaza
Lexington, KY 1,554,404 7,262,788 (5,057,438) 3,759,754
Orchard
Lawrence, IN 366,938 9,169,739 (6,144,459) 3,392,218
Quail Meadows
Wichita, KS 754,551 10,794,946 (7,058,393) 4,491,104
Regency Park
Ft. Wayne, IN 280,131 5,070,196 (3,557,228) 1,793,099
Sandpiper
Westminster, CO 866,107 7,665,705 (4,691,953) 3,839,859
Spanish Oaks
San Antonio, TX 586,056 6,002,418 (3,917,961) 2,670,513
------------- ------------- ------------- -------------
$ 10,464,914 $ 78,886,121 $ (52,651,505) $ 36,699,530
============= ============= ================= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Buildings and Accumulated Net Book
1994 Land Improvements Depreciation Value
---- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Briarwood $ 489,437 $ 4,940,758 $ (3,282,004) $ 2,148,191
Cave Spring Corners 776,280 4,324,604 (2,840,426) 2,260,458
Coppermill 1,176,980 11,938,789 (8,331,543) 4,784,226
Iberia Plaza 836,792 4,260,110 (2,576,670) 2,520,232
La Plaza 2,761,441 5,586,215 (3,904,450) 4,443,206
Lakeview Plaza 1,554,404 7,248,152 (4,772,904) 4,029,652
Orchard 366,938 8,989,936 (5,760,219) 3,596,655
Quail Meadows 754,551 10,608,253 (6,635,031) 4,727,773
Regency Park 280,131 4,842,550 (3,345,852) 1,776,829
Sandpiper 866,107 7,501,138 (4,367,651) 3,999,594
Spanish Oaks 586,056 5,785,918 (3,633,897) 2,738,077
------------- ------------- ------------- -------------
$ 10,449,117 $ 76,026,423 $ (49,450,647) $ 37,024,893
============= ============== ============= =============
</TABLE>
During 1994, the General Partner placed The Courts Apartments and Parkway Plaza
on the market for sale. The Courts Apartments was sold September 14, 1995. See
Note 7 - "Disposition of Real Estate." The Courts Apartments is classified as an
asset held for sale at December 31, 1994. Parkway Plaza is classified as an
asset held for sale at December 31, 1995 and 1994.
The Partnership leases its commercial properties under various non-cancelable
operating leases. In most cases, the Partnership expects that in the normal
course of business these leases will be renewed or replaced by other leases.
Future minimum rents to be received from commercial properties as of December
31, 1995, are as follows:
<TABLE>
<CAPTION>
Real Estate Asset Held
Investments For Sale
--------------- ---------------
<S> <C> <C>
1996...................................... $ 2,312,000 $ 558,000
1997...................................... 2,059,000 509,000
1998...................................... 1,768,000 481,000
1999...................................... 1,577,000 412,000
2000...................................... 1,291,000 330,000
Thereafter................................ 3,654,000 606,000
-------------- --------------
$ 12,661,000 $ 2,896,000
============== ==============
</TABLE>
Future minimum rents do not include contingent rents based on sales volume of
tenants. Contingent rents amounted to $86,571, $99,514 and $77,899 for the years
ended December 31, 1995, 1994 and 1993, respectively. Future minimum rents also
do not include expense reimbursements for common area maintenance, property
taxes, and other expenses. The expense reimbursements amounted to $177,095,
$399,360 and $318,444 for the years ended December 31, 1995, 1994 and 1993,
respectively.
<PAGE>
The Partnership's real estate investments are encumbered by mortgage
indebtedness as discussed in Note 5 - "Mortgage Notes Payable" and Note 6 -
"Mortgage Note Payable - Affiliates."
NOTE 5 - MORTGAGE NOTES PAYABLE
- -------------------------------
The following table sets forth the mortgage notes payable of the Partnership at
December 31, 1995 and 1994. All mortgage notes payable are secured by real
estate investments.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date 1995 1994
- -------- ---------------- ------- --------------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Briarwood First 8.150 $18,340 07/03 (h) $ 2,213,347 $ 2,251,332
Discount (g) (53,434) (58,904)
------------- -------------
2,159,913 2,192,428
------------- -------------
Cave Spring
Corners First 9.500 27,958 06/98 (h) 3,118,079 3,155,412
------------- --------------
Coppermill First (b) 10.405 45,800 01/02 (h) 5,022,484 5,046,000
------------- --------------
The Courts First 10.875 (c) - 6,655,775
Improvement 7.500-
district liens 7.850 (d) - 149,992
------------- --------------
- 6,805,767
------------- --------------
Iberia Plaza First 9.250 27,137 11/98 (h) 2,204,675 2,320,507
Discount (g) (128,170) (172,031)
------------- --------------
2,076,505 2,148,476
------------- --------------
La Plaza First 10.125 31,386 03/97 (h) 2,523,308 2,638,061
------------- --------------
Lakeview Plaza First 9.125 38,815 06/08 3,449,492 3,593,299
------------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date 1995 1994
- -------- ---------------- ------- --------------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Orchard First 8.150 $53,393 07/03 (h) $ 6,443,726 $ 6,554,315
Discount (g) (155,555) (171,494)
------------- --------------
6,288,171 6,382,821
------------- --------------
Parkway Plaza Wrap (e) 9.250 34,054 08/96 (h) 2,642,502 2,798,778
Discount (g) (279,752) (318,756)
------------- --------------
2,362,750 2,480,022
------------- --------------
Quail Meadows First 8.150 50,634 07/03 (h) 6,110,762 6,215,636
Discount (g) (143,537) (160,657)
------------- --------------
5,967,225 6,054,979
------------- --------------
Regency Park First 8.375 23,382 10/17 2,808,581 2,851,951
Discount (g) (386,936) (402,017)
------------- --------------
2,421,645 2,449,934
------------- --------------
Sandpiper First 8.150 47,046 07/03 (h) 5,677,715 5,775,158
Discount (g) (137,196) (151,166)
------------- --------------
5,540,519 5,623,992
------------- --------------
Spanish Oaks First (f) 10.000 31,392 08/95 (h) 3,524,225 3,533,351
Discount (g) - (25,692)
------------- --------------
3,524,225 3,507,659
------------- --------------
$ 44,454,316 $ 52,078,850
============= ==============
</TABLE>
(a) The debt is non-recourse to the Partnership.
(b) The Partnership refinanced the Coppermill mortgage note on December 8,
1994. See Note 8 - "Refinancing of Mortgage Notes."
(c) The Partnership sold The Courts Apartments on September 14, 1995, and the
related first lien was retired using proceeds from the sale. See Note 7 -
"Disposition of Real Estate."
(d) The Courts Apartments were subject to several improvement district liens.
The Partnership sold The Courts Apartments on September 14, 1995, and the
improvement district liens were assumed by the purchaser. See Note 7 -
"Disposition of Real Estate."
<PAGE>
(e) The holder of the Parkway Plaza mortgage note had an option to call the
Parkway Plaza mortgage note, upon giving 180 days notice to the
Partnership, for a period of one year beginning November 1995. On December
1, 1995, the holder exercised the option and set the maturity date of the
Parkway Plaza mortgage note at August 1, 1996.
(f) The Spanish Oaks mortgage note matured in August 1995. Subsequent to August
1995, the Partnership continued to make monthly debt service payments,
which were accepted by the holder of the Spanish Oaks mortgage note, while
the Partnership negotiated a refinancing of the Spanish Oaks mortgage note.
The Partnership succeeded in refinancing the Spanish Oaks mortgage note on
January 26, 1996. See Note 13 - "Subsequent Event."
(g) Discounts for the Iberia Plaza, Parkway Plaza and Spanish Oaks mortgage
notes are based on effective interest rates of 10% to 13%. The discount for
the Regency Park mortgage note is based on an effective interest rate of
10.375%. Discounts for the Briarwood, Orchard, Quail Meadows and Sandpiper
mortgage notes are based on an effective interest rate of 8.622%.
(h) Balloon payments on the Partnership's mortgage notes, including the new
Spanish Oaks mortgage note (see Note 13 - "Subsequent Event"), are due as
follows:
<TABLE>
<CAPTION>
Property Balloon Payment Date
-------- --------------- -----
<S> <C> <C>
Parkway Plaza...................................... $ 2,544,466 08/96
La Plaza........................................... 2,362,599 03/97
Cave Spring Corners................................ 3,007,722 06/98
Iberia Plaza....................................... 1,812,114 11/98
Coppermill......................................... 4,798,763 01/02
Spanish Oaks....................................... 3,689,221 01/03
Briarwood.......................................... 1,804,449 07/03
Orchard............................................ 5,253,301 07/03
Quail Meadows...................................... 4,981,860 07/03
Sandpiper.......................................... 4,628,805 07/03
</TABLE>
Scheduled principal maturities of the Partnership's mortgage notes, including
the new Spanish Oaks mortgage note (see Note 13 - "Subsequent Event"), but
before consideration of discounts of $1,284,580, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996............................................... $ 3,580,546
1997............................................... 3,286,768
1998............................................... 5,738,374
1999............................................... 835,951
2000............................................... 909,755
Thereafter......................................... 31,863,277
--------------
$ 46,214,671
==============
</TABLE>
<PAGE>
Based on borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities, the fair value of the
Partnership's mortgage notes payable was approximately $45,756,000 at December
31, 1995.
NOTE 6 - MORTGAGE NOTE PAYABLE - AFFILIATE
- ------------------------------------------
The following table sets forth the mortgage note payable - affiliate of the
Partnership at December 31, 1995 and 1994. The affiliate mortgage note is
secured by real estate investments of the Partnership.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date 1995 1994
- -------- ------------ ---------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lakeview Plaza (b) Second (c) (c) 8/97 $ 800,000 $ 800,000
======== ========
</TABLE>
(a) The debt is non-recourse to the Partnership.
(b) On August 1, 1994, the Partnership obtained a mortgage loan commitment from
an affiliate of the General Partner for an amount up to $1,000,000. An
initial amount of $800,000 was funded on December 6, 1994.
(c) The note requires monthly payments of interest only equal to the prime
lending rate plus 1%. At December 31, 1995, the prime rate equaled 8.5%.
Under terms of the Amended Partnership Agreement, borrowings from affiliates
approximate fair market value.
NOTE 7 - DISPOSITION OF REAL ESTATE
- -----------------------------------
On September 14, 1995, the Partnership sold The Courts Apartments to an
unaffiliated buyer for a cash sales price of $8,050,000. The buyer also assumed
the improvement district liens that encumbered the property. 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...... (48,307)
Basis of real estate sold.......................... (4,673,799)
-------------
Gain on sale....................................... $ 3,183,698
============== -------------
Proceeds from disposition of real estate
investment....................................... 7,905,804
Retirement of mortgage note........................ (6,475,873)
Assumption of improvement district liens........... (140,358)
-------------
Net cash proceeds.................................. $ 1,289,573
=============
</TABLE>
<PAGE>
NOTE 8 - REFINANCING OF MORTGAGE NOTES
- --------------------------------------
During 1994, the Partnership and the holder of the former Coppermill mortgage
note agreed to extend the maturity date of the former Coppermill mortgage note
from May 1, 1994, to August 1, 1994, and again to December 31, 1994. In
consideration for the maturity date extensions, the Partnership paid four
balloon payments totaling $400,000. In addition to the balloon payments, the
interest rate on the former Coppermill mortgage note increased to 10.0% from
9.25% effective August 22, 1994.
On December 8, 1994, the Partnership refinanced the Coppermill mortgage note.
See Note 5 - "Mortgage Notes Payable." The new mortgage note, in the amount of
$5,046,000, bears interest at 10.405%, requires monthly principal and interest
payments of $45,800, and matures on January 1, 2002. Cash used to close the
refinancing transaction is as follows:
<TABLE>
<CAPTION>
<S> <C>
New loan proceeds.................................. $ 5,046,000
Existing debt retired.............................. (5,769,933)
1994 balloon payments.............................. (400,000)
---------------
Cash used in refinancing........................... $ (1,123,933)
===============
</TABLE>
The Partnership incurred $165,912 of deferred borrowing costs related to the
refinancing of the Coppermill mortgage note. The Partnership was also required
to fund $146,573 into various escrows for capital improvements, property taxes
and insurance.
On June 24, 1993, the General Partner refinanced a portfolio of properties via a
Real Estate Mortgage Investment Conduit ("REMIC"). See Note 5 - "Mortgage Notes
Payable." This REMIC consists of a pool of properties from various partnerships
affiliated with the General Partner. Four of the Partnership's properties,
Briarwood Apartments, Orchard Apartments, Quail Meadows Apartments and Sandpiper
Apartments, were included in the REMIC. The properties in the REMIC are not
cross-collateralized between the various partnerships, but are
cross-collateralized within the same partnership. The new mortgage loans bear an
interest rate of 8.15%, discounted to yield an effective interest rate of
8.622%, and mature in July 2003. A summary of the cash proceeds from the
refinancings follows on the next page.
<PAGE>
<TABLE>
<CAPTION>
Briarwood Orchard Quail Meadows
------------------ ------------------ ------------------
<S> <C> <C> <C>
New loan proceeds.............. $ 2,300,000 $ 6,696,000 $ 6,350,000
Existing debt retired.......... (1,490,568) (5,444,317) (3,791,919)
Mortgage discount.............. (66,834) (194,576) (184,522)
Prepayment penalties........... - (110,000) -
---------------- --------------- ----------------
Proceeds from refinancing...... $ 742,598 $ 947,107 $ 2,373,559
================ ================ ================
Sandpiper Total
------------------ ------------------
New loan proceeds.............. $ 5,900,000 $ 21,246,000
Existing debt retired.......... (3,998,878) (14,725,682)
Mortgage discount.............. (171,446) (617,378)
Prepayment penalties........... (189,065) (299,065)
---------------- ---------------
Proceeds from refinancing...... $ 1,540,611 $ 5,603,875
================ ================
</TABLE>
The Partnership incurred $1,017,123 of deferred borrowing costs related to the
REMIC refinancings. The Partnership was also required to use $934,739 of the
loan proceeds to fund various escrows for capital improvements, property taxes
and insurance. The Partnership recognized an extraordinary loss on
extinguishment of debt in the amount of $1,078,519 that is attributable to
prepayment penalties and the write-off of unamortized mortgage discounts and
unamortized deferred borrowing costs related to the retired mortgage notes.
NOTE 9 - GAIN ON EXTINGUISHMENT OF DEBT
- ---------------------------------------
On May 18, 1994, the Partnership paid off the Iberia Plaza second mortgage note
for a cash payment of $100,000. This transaction resulted in an extraordinary
gain on extinguishment of debt as set forth in the following schedule.
<TABLE>
<CAPTION>
<S> <C>
Principal balance of mortgage note................. $ 477,016
Unamortized discount on mortgage note.............. (83,372)
Cash payment....................................... (100,000)
Transaction costs.................................. (1,105)
---------------
Gain on extinguishment of debt..................... $ 292,539
===============
</TABLE>
<PAGE>
NOTE 10 - GAIN ON INVOLUNTARY CONVERSION
- ----------------------------------------
On August 26, 1992, Hurricane Andrew caused approximately $475,200 of damage to
Iberia Plaza. The Partnership received $468,434 from its insurance carrier to
repair property damages at Iberia Plaza, and an additional $54,000 to reimburse
the Partnership for lost rents while repairs were under way. Insurance
reimbursements received in excess of the basis of the property damaged were
recorded as gain on involuntary conversion on the Statements of Operations. The
gain on involuntary conversion equaled $268,434 and $192,168 for the years ended
December 31, 1993 and 1992, respectively.
NOTE 11 - LEGAL PROCEEDINGS
- ---------------------------
The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except for the following:
1) 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 (L95012) - High River ("HR") filed this action in the
United States District Court for the Southern District of New York against
McNeil Partners, L.P., McNeil Investors, Inc. and Mr. and Mrs. McNeil (as
defined in this Section 1, collectively, the "Defendants") requesting,
among other things, names and addresses of the limited partners in the
partnerships referenced above (as defined in this Section 1, the
"Partnerships"). The District Court issued a preliminary injunction against
the Partnerships requiring them to commence mailing materials relating to
the HR tender offer on August 14, 1995.
On August 18, 1995, the Defendants 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.
This action was dismissed without prejudice in November 1995.
2) 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).
<PAGE>
On November 7, 1995, High River filed a second complaint with the District
Court which alleges, inter alia, that McNeil Partners, L.P.'s (the "General
Partner") 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 the General Partner has wrongfully refused to
admit High River as a limited partner to the ten partnerships referenced
above. Additionally, High River purports to assert claims derivatively on
behalf of McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XXIV, L.P.
and McNeil Real Estate Fund XXV, L.P., for breach of contract and breach of
fiduciary duty, asserting that the General Partner has charged these
partnerships excessive fees. High River's complaint seeks, inter alia,
preliminary injunctive relief requiring the General Partner to admit High
River as a limited partner in each of the ten partnerships referenced above
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.
On January 31, 1996, this action was dismissed without prejudice.
3) Robert Lewis v. 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, Ltd.,
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, 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. and
McNeil Real Estate Fund XXV, Ltd. (as defined in this Section 3, the
"Partnerships") as of August 4, 1995.
Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc.,
Robert A. McNeil and other senior officers (as defined in this Section 3,
collectively, the "Defendants") breached their fiduciary duties by, among
other things, (1) failing to attempt to sell the properties owned by the
Partnerships (as defined in this Section 3, the "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 equity interests of the Partnerships, 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 of the Partnerships 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 assets of the Partnerships for their own benefit instead
of for the benefit of the Partnerships.
<PAGE>
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 v. 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 (as
defined in this Section 4, the "Partnerships"). Plaintiffs allege that
McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc.
and four (4) of their senior officers and/or directors (as defined in this
Section 4, collectively, the "Defendants") 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 v. 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 (as defined in this Section 5,
the "Partnerships"). Plaintiff alleges that McNeil Partners, L.P., McNeil
Investors, Inc., Robert A. McNeil and other senior officers (as defined in
this Section 5, collectively, the "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.
<PAGE>
The Defendants deny that there is any merit to Plaintiff's allegations and
intend to vigorously defend this action.
6) Warren Heller v. 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 (as defined in this Section 6,
the "Partnerships"). Plaintiff alleges that McNeil Partners, L.P., McNeil
Investors, Inc., Robert A. McNeil and other senior officers (as defined in
this Section 6, collectively, the "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) 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.
<PAGE>
NOTE 12 - GAIN ON LEGAL SETTLEMENT
- ----------------------------------
The Partnership filed claims with the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division (the "Bankruptcy Court") against
Southmark Corporation ("Southmark"), an affiliate of a previous general partner,
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 legal settlement of $91,517.
NOTE 13 - SUBSEQUENT EVENT (UNAUDITED)
- --------------------------------------
On January 26, 1996, the Partnership refinanced the Spanish Oaks mortgage note.
The new mortgage note, in the amount of $4,000,000, bears interest at 7.71%,
requires monthly principal and interest payments of $28,546, and matures on
January 26, 2003. Cash proceeds from the refinancing transaction are as follows:
<TABLE>
<CAPTION>
<S> <C>
New loan proceeds.................................. $ 4,000,000
Existing debt retired.............................. (3,524,225)
---------------
Proceeds from refinancing.......................... $ 475,775
===============
</TABLE>
The Partnership incurred $129,273 of deferred borrowing costs related to the
refinancing of the Spanish Oaks mortgage note. The Partnership was also required
to fund $165,291 into various escrows for property taxes, hazard insurance and
deferred maintenance.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1995
<TABLE>
<CAPTION>
Cumulative Costs
Initial Cost (b) Write-down Capitalized
Related (b) Buildings and and Permanent Subsequent
Description Encumbrances Land Improvements Impairment To Acquisition
- ----------- ------------ ---- ------------- ------------- --------------
Apartments:
<S> <C> <C> <C> <C> <C>
Briarwood
Tucson, AZ $ 2,159,913 $ 489,437 $ 4,356,477 $ - $ 688,471
Coppermill
Tulsa, OK 5,022,484 1,176,980 13,146,794 (2,600,000) 1,515,110
Orchard
Lawrence, IN 6,288,171 366,938 7,611,708 - 1,558,031
Quail Meadows
Wichita, KS 5,967,225 754,551 9,387,261 - 1,407,685
Regency Park
Fort Wayne, IN 2,421,645 280,131 4,060,970 - 1,009,226
Sandpiper
Westminster, CO 5,540,519 866,107 5,991,007 - 1,674,698
Spanish Oaks
San Antonio, TX 3,524,225 586,056 4,618,711 - 1,383,707
Office Building:
La Plaza
Las Vegas, NV 2,523,308 2,761,441 4,388,847 - 1,972,408
Shopping Centers:
Cave Springs Corners
Roanoke, VA 3,118,079 776,280 3,685,098 - 817,754
Iberia Plaza
New Iberia, LA 2,076,505 836,792 3,851,121 - 1,114,046
Lakeview Plaza
Lexington, KY 4,249,492 1,554,404 6,986,277 (129,914) 406,425
-------------- -------------- -------------- ------------ -------------
$ 42,891,566 $ 10,449,117 $ 68,084,271 $ (2,729,914) $ 13,547,561
============== ============== ============== ============ =============
</TABLE>
Asset Held for Sale:
Parkway Plaza
Lafayette, LA $ 2,362,750
--------------
$ 2,362,750
==============
(b) The encumbrances reflect the present value of future loan payments
discounted, if appropriate, at a rate estimated to be the prevailing
interest rate at the date of acquisition or refinancing.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1995
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period Accumulated
Buildings and Depreciation
Description Land Improvements Total (a) and Amortization
- ----------- ---- ------------ --------- ----------------
Apartments:
<S> <C> <C> <C> <C>
Briarwood
Tucson, AZ $ 489,437 $ 5,044,948 $ 5,534,385 $ (3,486,893)
Coppermill
Tulsa, OK 1,176,980 12,061,904 13,238,884 (8,900,290)
Orchard
Lawrence, IN 366,938 9,169,739 9,536,677 (6,144,459)
Quail Meadows
Wichita, KS 754,551 10,794,946 11,549,497 (7,058,393)
Regency Park
Fort Wayne, IN 280,131 5,070,196 5,350,327 (3,557,228)
Sandpiper
Westminster, CO 866,107 7,665,705 8,531,812 (4,691,953)
Spanish Oaks
San Antonio, TX 586,056 6,002,418 6,588,474 (3,917,961)
Office Building:
La Plaza
Las Vegas, NV 2,761,441 6,361,255 9,122,696 (4,118,450)
Shopping Centers:
Cave Spring Corners
Roanoke, VA 792,077 4,487,055 5,279,132 (2,998,581)
Iberia Plaza
New Iberia, LA 836,792 4,965,167 5,801,959 (2,719,859)
Lakeview Plaza
Lexington, KY 1,554,404 7,262,788 8,817,192 (5,057,438)
-------------- -------------- ---------------- -------------
$ 10,464,914 $ 78,886,121 $ 89,351,035 $ (52,651,505)
============== ============== ================ =============
Asset Held for Sale:
Parkway Plaza
Lafayette, La 2,237,733
---------------
$ (c) $ (c) $ 2,237,733 $ (c)
============== ============== =============== =============
</TABLE>
(a) For Federal income tax purposes, the properties are depreciated over lives
ranging from 15-25 years using ACRS or MACRS methods. The aggregate cost of
real estate investments for Federal income tax purposes was approximately
$100,274,995 and accumulated depreciation was $57,593,126 December 31,
1995.
(c) Assets held for sale are carried at the lower of cost or net realizable
value. Historical cost, net of accumulative depreciation and cumulative
write-downs, becomes the new cost basis when the asset is classified as
"Asset Held for Sale".
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1995
<TABLE>
<CAPTION>
Date of Date Depreciable
Description Construction Acquired lives (years)
- ----------- ------------ -------- -------------
Apartments:
<S> <C> <C> <C>
Briarwood
Tucson, AZ 1978 07/80 4-33
Coppermill
Tulsa, OK 1978 10/80 6-38
Orchard
Lawrence, In 1973 12/80 3-33
Quail Meadows
Wichita, KS 1978 06/80 6-35
Regency Park
Fort Wayne, IN 1970 06/80 3-30
Sandpiper
Westminster, CO 1974 04/80 3-34
Spanish Oaks
San Antonio, TX 1968 08/80 3-30
Office Building:
La Plaza
Las Vegas, NV 1977 09/80 4-34
Shopping Centers:
Cave Spring Corners
Roanoke VA 1973 10/80 5-25
Iberia Plaza
New Iberia LA 1978 06/80 8-38
Lakeview Plaza
Lexington, KY 1979 07/80 15-35
Asset Held for Sale:
Parkway Plaza
Lafayette, LA
</TABLE>
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
Notes to Schedule III
Real Estate Investments and Accumulated Depreciation and Amortization
A summary of activity for the Partnership's real estate investments, accumulated
depreciation and amortization, and assets held for sale is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1995 1994 1993
-------------- -------------- ---------------
Real estate investments:
- ------------------------
<S> <C> <C> <C>
Balance at beginning of year............... $ 86,475,540 $ 101,188,388 $ 97,151,644
Improvements............................... 2,875,495 2,143,853 4,036,744
Reclassification of assets held
for sale................................ - (16,856,701) -
------------- ------------- --------------
Balance at end of year..................... $ 89,351,035 $ 86,475,540 $ 101,188,388
============= ============= ==============
Accumulated depreciation and amortization:
- ------------------------------------------
Balance at beginning of year............... $ 49,450,647 $ 55,482,914 $ 52,182,685
Depreciation and amortization.............. 3,200,858 3,609,402 3,300,229
Reclassification of assets held
for sale................................ - (9,641,669) -
------------- ------------- --------------
Balance at end of year..................... $ 52,651,505 $ 49,450,647 $ 55,482,914
============= ============= ==============
Assets Held for Sale:
- ---------------------
Balance at beginning of year............... $ 7,215,032 $ -
Reclassification of assets held
for sale................................ - 7,215,032
Improvements............................... 63,555 -
Depreciation and amortization.............. (367,055) -
Disposition of asset held for sale......... (4,673,799) -
------------- -------------
Balance at end of year..................... $ 2,237,733 $ 7,215,032
============= =============
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Neither the Partnership nor the General Partner has any directors or executive
officers. The names and ages of, as well as the positions held by, the officers
and directors of McNeil Investors, Inc., the general partner of the General
Partner, are as follows:
<TABLE>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Robert A. McNeil, 75 Mr. McNeil is also Chairman of the Board and Director of McNeil Real
Chairman of the Estate Management, Inc. ("McREMI") which is an affiliate of the General
Board and Director Partner. He has held the foregoing positions since the formation of such
entity in 1990. Mr. McNeil received his B.A. degree from Stanford
University in 1942 and his L.L.B. degree from Stanford Law School in
1948. He is a member of the State Bar of California and has been involved
in real estate financing since the late 1940's and in real estate
acquisitions, syndications and dispositions since 1960. From 1986 until
active operations of McREMI and McNeil Partners, L.P. began in February
1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the
International Board of Directors of the Salk Institute, which promotes
research in improvements in health care.
Carole J. McNeil 52 Mrs. McNeil is Co-Chairman, with husband Robert A. McNeil, of McNeil
Co-Chairman of the Investors, Inc. Mrs. McNeil has twenty years of real estate experience,
Board most recently as a private investor from 1986 to 1993. In 1982, she
founded Ivory & Associates, a commercial real estate brokerage firm in San
Francisco, CA. Prior to that, she was a commercial real estate associate
with the Madison Company and, earlier, a commercial sales associate and
analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil
established Escrow Training Centers, California's first accredited
commercial training program for title company escrow officers and real
estate agents needing college credits to qualify for brokerage licenses.
She began in real estate as Manager and Marketing Director of Title
Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the
International Board of Directors of the Salk Institute.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Donald K. Reed, 50 Mr. Reed is President, Chief Executive Officer and Director of McREMI
Director, President, which is an affiliate of the General Partner. Prior to joining McREMI in
and Chief Executive March 1993, Mr. Reed was President, Chief Operating Officer and Director
Officer of Duddlesten Management Corporation and Duddlesten Realty Advisors, Inc.,
with responsibility for a management portfolio of office, retail,
multi-family and mixed-use land projects representing $2 billion in asset
value. He was also Chief Operating Officer, Director and member of the
Executive Committee of all Duddlesten affiliates. Mr. Reed started with the
Duddlesten companies in 1976 and served as Senior Vice President and Chief
Financial Officer and as Executive Vice President and Chief Operating
Officer of Duddlesten Management Corporation before his promotion to
President in 1982. He was President and Chief Operating Officer of
Duddlesten Realty Advisors, Inc., which has been engaged in real estate
acquisitions, marketing and dispositions, since its formation in 1989.
Ron K. Taylor 38 Mr. Taylor is a Senior Vice President of McREMI and has been in this
Vice President capacity since McREMI commenced active operations in 1991. He also serves
as Acting Chief Financial Officer of McREMI since the resignation of
Robert C. Irvine on January 31, 1996. Mr. Taylor is primarily responsible
for Asset Management functions at McREMI, including property dispositions,
commercial leasing, real estate finance and portfolio management. Prior
to joining McREMI, Mr. Taylor served as an Executive Vice President for a
national syndication/property management company. Mr. Taylor has been
involved in the real estate industry since 1983.
</TABLE>
Each director shall serve until his successor shall have been duly elected and
qualified.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1995, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1995. The Partnership has no plans to
pay any such remuneration to any directors or officers of the general partner of
the General Partner in the future.
See Item 13 - Certain Relationships and Related Transactions for amounts of
compensation and reimbursements paid by the Partnership to the General Partner
and its affiliates.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(A) Security ownership of certain beneficial owners.
No individual or group, as defined by Section 13(d)(3) of the
Securities Exchange Act of 1934, known to the Partnership is the
beneficial owner of more than 5 percent of the Partnership's securities
except as noted below:
1. High River Limited Partnership, 100 S. Bedford Road, Mount Kisco,
New York, 10549, owns 7,452 Units (5.52%) as of February 29, 1996.
(B) Security ownership of management.
The General Partner and the officers and directors of its general
partner, collectively, own 1,732 Units (1.28%).
(C) Change in control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Under terms of the Amended Partnership Agreement, the Partnership is paying the
MID to the General Partner. The maximum MID is calculated as 1% of the
Partnership's tangible asset value. The maximum MID percentage decreases
subsequent to 1999. Tangible asset value is determined by using the greater of
(i) an amount calculated by applying a capitalization rate of 9% to the
annualized net operating income of each property or (ii) a value of $10,000 per
apartment unit for residential property and $50 per gross square foot for
commercial property to arrive at the property tangible asset value. The property
tangible asset value is then added to the book value of all other assets
excluding intangible items. Prior to July 1, 1993, the MID consisted of two
components: (i) the fixed portion which was payable without respect to the net
income of the Partnership and was equal to 25% of the maximum MID (the "Fixed
MID") and (ii) a contingent portion which was payable only to the extent of the
lesser of the Partnership's excess cash flow, as defined, or net operating
income (the "Entitlement Amount") and was equal to up to 75% of the maximum MID
(the "Contingent MID").
Effective July 1, 1993, the General Partner amended the Amended Partnership
Agreement as a settlement to a class action complaint. This amendment eliminates
the Fixed MID 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.
Contingent MID will be paid to the extent of the Entitlement Amount, and may be
paid (i) in cash, unless there is insufficient cash to pay the distribution in
which event any unpaid portion not taken in Units will be deferred and is
payable, without interest, from the first available cash and/or (ii) in Units. A
maximum of 50% of the MID may be paid in Units. The number of Units issued in
payment of the MID is based on the greater of $50 per Unit or the net tangible
asset value, as defined, per Unit. For the year ended December 31, 1995, the
Partnership accrued Contingent MID in the amount of $1,064,257.
<PAGE>
During 1991, the Partnership amended its capitalization policy and began
capitalizing certain costs of improvements and betterments which under policies
of prior management had been expensed when incurred. The purpose of the
amendment was to more properly recognize items which were capital in nature. The
effect of the amendment standing alone was evaluated at the time the change was
made and determined not to be material to the financial statements of the
Partnership in 1991, nor was it expected to be material in any future year.
However, the amendment does have a material effect on the calculation of the
Entitlement Amount which determines the amount of Contingent MID earned and the
amount of Fixed MID payable in cash. Capital improvements are excluded from cash
flow, as defined. The majority of the base period cash flow was measured under
the previous capitalization policy, while incentive period cash flow is
determined using the amended policy. Under the amended policy, more items are
capitalized, and cash flow increases. If base period cash flow had been measured
on a basis comparable with incentive period cash flow, Contingent MID would have
been reduced by $256,656 for the year ended December 31, 1994. The amendment of
the capitalization policy did not materially affect the MID for 1995 or 1993 as
the Entitlement Amount was sufficient to pay Contingent MID notwithstanding the
amendment to the capitalization policy.
Any amount of the MID which is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The Fixed MID was treated as a fee
payable to the General Partner by the Partnership for services rendered. The
Contingent MID represents a return of equity to the General Partner for
increasing cash flow, as defined, and accordingly is treated as a distribution.
The Partnership pays property management fees equal to 5% of gross rental
receipts of the Partnership's properties to McREMI for providing property
management and leasing services for the Partnership's residential properties and
property management services for the Partnership's commercial properties. The
Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs. For the year ended December 31, 1995,
the Partnership paid or accrued $1,517,079 in property management fees and
reimbursements.
See Item 1 - Business, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 8 - Note 2 -
"Transactions with Affiliates."
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
- -------- -----------------------------------------------------------------
See accompanying index to Financial Statements at Item 8.
(A) The following documents are incorporated by reference and are an integral
part of this report:
Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3. Limited Partnership Agreement
(Incorporated by reference to the
Annual Report on Form 10-K for the
fiscal year ended September 30,
1987).
3.1 The Amended and Restated
Limited Partnership Agreement
(incorporated by reference to the
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1991).
3.2 Amendment No. 1 to the Amended
and Restated Partnership Agreement
of McNeil Real Estate Fund X, Ltd.
dated to be effective July 31,
1993. (4)
3.3 Amendment No. 2 to the Amended
and Restated Partnership Agreement
of McNeil Real Estate Fund X, Ltd.
dated March 28, 1994. (4)
10.1 Assignment and Assumption
Agreement, dated as of October 9,
1991, between Pacific Investors
Corporation, Robert A. McNeil and
McNeil Partners, L.P. regarding
McNeil Real Estate Fund X, Ltd. (1)
10.2 Property Management Agreement,
dated as of October 9, 1991,
between McNeil Real Estate Fund X,
Ltd. and McNeil Real Estate
Management, Inc. (1)
10.3 Asset Management Agreement,
dated as of October 9, 1991,
between McNeil Real Estate Fund X,
Ltd. and McNeil Partners, L.P. (1)
10.4 Revolving Credit Agreement,
dated August 6, 1991, between
McNeil Partners, L.P. and certain
partnerships, including the
Partnership. (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.5 Amendment of Property Management
Agreement dated March 5, 1993,
between the Partnership and McNeil
Real Estate Management, Inc. (2)
10.6 Loan Agreement dated June 24,
1993, between Lexington Mortgage
Company and McNeil Real Estate Fund
X, Ltd., et. al. (3)
10.7 Master Property Management
Agreement, dated as of June 24,
1993, between McNeil Real Estate
Management, Inc. and McNeil Real
Estate Fund X, Ltd. (4)
10.8 Multifamily Note, dated as of
December 8, 1994, between
Coppermill Fund X Limited
Partnership and Arbor National
Commercial Mortgage Corporation.
(5)
10.9 Promissory Note, dated August
15, 1994, between McNeil Real
Estate Fund X, Ltd. and McNeil Real
Estate Fund XXVII, L.P. (5)
10.10 Promissory Note and Note
Consolidation, dated January
15, 1988, between McNeil Real
Estate Fund X, Ltd. and Goldome
Realty Credit Corp. (5)
10.11 Loan Modification and Extension
Agreement, dated August 1, 1993,
between McNeil Real Estate Fund X,
Ltd. and the Federal Deposit
Insurance Corporation. (5)
10.12 Promissory Note, dated February 25,
1992, between McNeil Real Estate
Fund X, Ltd. and Life Insurance
Company of the Southwest. (5)
10.13 Multifamily Note, dated September
4, 1992, between Regency Park
Fund X Associates, L.P. and
Metmor Financial, Inc. (5)
10.14 Modification of Promissory Note
and Deed of Trust, dated
January 23, 1989, between First
American Savings Bank, FSB and
McNeil Real Estate Fund X, Ltd. (5)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.15 Note, dated July 1, 1978,
between M H Kentucky Ventures and
First of Boston Mortgage
Corporation. (5)
10.16 Wrap-Around Promissory Note, dated
June 18, 1980, between McNeil
Real Estate Fund X, Ltd. and James
M. Folmar and Emory M. Folmar. (5)
10.17 Act of Amendment to Wrap-Around
Promissory Note and Mortgage,
dated April 20, 1994, between
McNeil Real Estate Fund X, Ltd.
and James M. Folmar and Emory
M. Folmar. (5)
10.18 Property Management Agreement,
dated November 30, 1994, between
Coppermill Fund X Limited
Partnership and McNeil Real Estate
Management, Inc. (5)
10.19 Mortgage Note, dated January 17,
1996, between Spanish Fund X,
Ltd. and Fleet Real Estate Capital,
Inc.
11. Statement regarding computation
of Net Income (Loss) per Limited
Partnership Unit (see Note 1 to
Financial Statements).
22. List of subsidiaries of the
Partnership.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Names Under
Jurisdiction of Which It Is
Name of Subsidiary Incorporation Doing Business
------------------ --------------- --------------
<S> <C> <C>
Briarwood Fund X
Limited Partnership Delaware None
Coppermill Fund X
Limited Partnership Texas None
Courts Fund X
Associates, L.P. Washington None
Orchard Fund X
Limited Partnership Delaware None
Quail Meadows Fund X
Limited Partnership Delaware None
Regency Park Fund X
Associates, L.P. Indiana None
Sandpiper Fund X
Limited Partnership Delaware None
Spanish Fund X, Ltd. Texas None
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
27. Financial Data Schedule for the
year ended December 31, 1995.
(1) Incorporated by reference to
the Annual Report of McNeil Real
Estate Fund X, Ltd., (File No.
0-9325), on Form 10-K for the
period ended December 31, 1991, as
filed with the Securities and
Exchange Commission on March 30,
1992.
(2) Incorporated by reference to
the Annual Report of McNeil Real
Estate Fund X, Ltd. (File No.
0-9325), on Form 10-K for the
period ended December 31, 1992, as
filed with the Securities and
Exchange Commission on March 30,
1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(3) Incorporated by reference to
the Annual Report of McNeil Real
Estate Fund XI, Ltd. (File No.
0-9783), on Form 10-K for the
period ended December 31, 1993, as
filed with the Securities and
Exchange Commission on March 30,
1994.
(4) Incorporated by reference to
the Annual Report of McNeil Real
Estate Fund X, Ltd. (File No.
0-9325), on Form 10-K for the
period ended December 31, 1993, as
filed with the Securities and
Exchange Commission on March 30,
1994.
(5) Incorporated by reference to
the Annual Report of McNeil Real
Estate Fund X, Ltd. (File No.
0-9325), on Form 10-K for the
period ended December 31, 1994, as
filed with the Securities and
Exchange Commission on March 30,
1995.
</TABLE>
The Partnership has omitted instruments with respect to long-term debt where the
total amount of the securities authorized thereunder does not exceed 10% of the
total assets of the Partnership. The Partnership agrees to furnish a copy of
each such instrument to the Commission upon request.
(B) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended December 31, 1995.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
A Limited Partnership
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
McNEIL REAL ESTATE FUND X, LTD.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
<S> <C>
March 29, 1996 By: /s/ Robert A. McNeil
- -------------- -------------------------------------------------
Date Robert A. McNeil
Chairman of the Board and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 29, 1996 By: /s/ Donald K. Reed
- -------------- ------------------------------------------------
Date Donald K. Reed
President and Director of McNeil Investors, Inc.
March 29, 1996 By: /s/ Ron K. Taylor
- -------------- ------------------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer
of McNeil Investors, Inc.
March 29, 1996 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,813,594
<SECURITIES> 0
<RECEIVABLES> 432,618
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 89,351,035
<DEPRECIATION> (52,651,505)
<TOTAL-ASSETS> 43,638,649
<CURRENT-LIABILITIES> 0
<BONDS> 44,454,316
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 43,638,649
<SALES> 16,878,076
<TOTAL-REVENUES> 20,258,594
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,005,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,059,739
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,193,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,193,164
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
MORTGAGE NOTE
$4,000,000.00 January 17, 1996
FOR VALUE RECEIVED, SPANISH FUND X, LTD., a Texas
limited partnership having its principal office at 13760 Noel
Road, Suite 700, Dallas, Texas 75240 ("Maker") promises to pay
to the order of FLEET REAL ESTATE CAPITAL, INC., a Rhode Island
corporation, or its assigns ("Payee") having its principal office
at 4275 Executive Square, Suite 200, La Jolla, California 92037,
the Principal Amount (as defined below), together with interest
from the date hereof at the Interest Rate (as defined below).
Interest accruing hereunder shall be calculated on the basis of a
360-day year of twelve 30-day months.
WHEN USED HEREIN, the following capitalized terms shall
have the following meanings:
"Commencement Date" shall be March 1, 1996.
"Closing Date" shall be January 26, 1996.
"Default Rate" shall be the Interest Rate plus five
percent (5%) per annum.
"Interest Rate" shall be Seven and Seventy-one One
Hundredths percent (7.71%) per annum.
"Lockout Period" shall be the period from January 26,
1996 through February 1, 2000.
"Maturity Date" shall be January 26, 2003.
"Monthly Amount" shall be the sum of Twenty-eight
Thousand Five Hundred Forty-six and no/100 Dollars ($28,546.00).
"Payment Date" shall be the first business day of each
month commencing on the first business day of the second full
month after the Closing Date and continuing to and including the
Maturity Date.
"Principal Amount" shall be Four Million and No/100
United States Dollars.
<PAGE>
The Principal Amount and interest thereon shall be due
and payable in lawful money of the United States as follows:
(a) On the date hereof, all accrued and unpaid
interest on the unpaid balance through the end of the
month in which the Closing Date occurs shall be due and
payable. Thereafter, commencing on the Commencement
Date, eighty-three (83) equal monthly installments of
principal and interest at the Monthly Amount each shall
be due and payable. Each installment of principal and
interest shall be applied first to interest and the
remainder thereof to reduction of principal. Each
monthly installment shall be due on each Payment Date.
In addition, all amounts advanced by Payee pursuant to
applicable provisions of the Security Documents (as
hereinafter defined), together with any interest at the
Default Rate or other charges as therein provided,
shall be immediately due and payable hereunder. In the
event any such advance is not so repaid by Maker, Payee
may, at its option, first apply any payments received
hereunder to repay said advances together with any
interest thereon or other charges as provided in the
Security Documents, and the balance, if any, shall be
applied in payment of any installment then due. The
entire remaining unpaid balance of principal of this
Note, all interest accrued thereon and all other sums
payable hereunder or under the Security Documents shall
be due and payable in full on the Maturity Date.
(b) Amounts due on this Note shall be payable,
without any counterclaim, setoff or deduction
whatsoever, at the office of Payee or its agent or
designee at the address set forth in Exhibit 1 or at
such other place as Payee or its agent or designee may
from time to time designate in writing.
(c) This Note is secured by a Deed of Trust,
Mortgage, Security Agreement and Assignment of Rents
and Leases of even date herewith (the "Mortgage") from
Maker to Payee and by an Assignment of Rents and Leases
of even date herewith (the "Assignment") from Maker to
Payee. The Mortgage, the Assignment and any other
instrument given at any time to secure this Note are
hereinafter collectively called the "Security
Documents."
(d) This Note may not be prepaid prior to the end
of the Lockout Period, except as set forth herein. Any
prepayment of this Note, in whole or in part, prior to
the end of the Lockout Period, except as permitted
herein, shall constitute an "Event of Default" under
the Mortgage. Maker has the right to prepay the
principal of this Note in full or in part on any
Payment Date after the end of the Lockout Period, upon
sixty days' prior written notice and payment, together
with the portion of the principal to be prepaid, of a
prepayment premium in an amount calculated as specified
in
<PAGE>
Appendix 1. The calculation of the prepayment premium
shall be made by Payee and shall, absent manifest
error, be conclusive. In the event this Note is
prepaid from the proceeds of insurance or condemnation
awards in accordance with Sections 10, 11 and 12 of the
Mortgage either prior to or after the end of the
Lockout Period, a prepayment premium shall be payable
calculated as specified in Appendix 1. Notwithstanding
the foregoing, this Note may be prepaid without a
prepayment premium during the one hundred eighty (180)
day period prior to the Maturity Date. Upon
acceleration of this Note in accordance with its terms
and the terms of the Security Documents, Maker agrees
to pay the prepayment premium described above in the
amount that would be due if a voluntary payment were
made on the date of such acceleration. A tender of
payment of the amount necessary to pay and satisfy the
entire unpaid principal balance of this Note or any
portion thereof at any time after an Event of Default
under the Mortgage or an acceleration by Payee of the
indebtedness evidenced hereby, whether such payment is
tendered voluntarily, during or after foreclosure of
the Mortgage, or pursuant to realization upon other
security, shall constitute a purposeful evasion of the
prepayment terms of this Note, shall be deemed to be a
voluntary prepayment hereof, and Maker shall be
required to pay the prepayment premium as described
above. Partial prepayments of principal shall not
change the Payment Dates or amounts of subsequent
monthly installments, unless Payee shall otherwise
agree in writing. Notwithstanding the foregoing,
nothing in this paragraph (d) shall vary or negate the
provisions of Section 18(c) of the Mortgage.
(e) If Maker defaults in the payment of any
installment of principal and interest on the date on
which it shall fall due or in the performance of any of
the agreements, conditions, covenants, provisions or
stipulations contained in this Note or in the Security
Documents, and if such default shall continue beyond
any grace period provided for in the Mortgage so as to
constitute an Event of Default thereunder, then Payee,
at its option and without further notice to Maker, may
declare immediately due and payable the entire unpaid
principal balance of this Note, together with interest
thereon at an annual rate after the date of such
default equal to the Default Rate, together with all
sums due by Maker under the Security Documents,
anything herein or in the Security Documents to the
contrary notwithstanding. The foregoing provision
shall not be construed as a waiver by Payee of its
right to pursue any other remedies available to it
under the Mortgage, this Note or any other Security
Document, nor shall it be construed to limit in any way
the application of the Default Rate. Any payment
hereunder may be enforced and recovered in whole or in
part at such time by one or more of the remedies
provided to Payee in this Note or in the Security
Documents. In the event that: (i) this Note or any
<PAGE>
Security Document is placed in the hands of an attorney
for collection or enforcement or is collected or
enforced through any legal proceeding; (ii) an attorney
is retained to represent Payee in any bankruptcy,
reorganization, receivership, or other proceedings
affecting creditors' rights and involving a claim under
this Note or any Security Document; (iii) an attorney
is retained to protect or enforce the lien of the
Mortgage or any Security Document; or (iv) an attorney
is retained to represent Payee in any other proceedings
whatsoever in connection with this Note, the Mortgage,
any of the Security Documents or any portion of the
Mortgaged Property (as defined in the Mortgage), then
Maker shall pay to Payee all reasonable attorney's
fees, costs and expenses incurred in connection
therewith, including costs of appeal, together with
interest on any judgment obtained by Payee at the
Default Rate.
(f) If Maker defaults in the payment of any
monthly installment on the Payment Date, and such
default is not cured within five days thereafter, then
Maker shall pay to Payee a late payment charge in an
amount equal to five percent (5%) of the amount of the
installment not paid as aforesaid. Said late charge
payments, if payable, shall be secured by the Mortgage
and the other Security Documents, shall be payable
without notice or demand by Payee, and are independent
of and have no effect upon the rights of Payee under
paragraph (e) above.
(g) Maker and all endorsers, sureties and
guarantors hereby jointly and severally waive all
applicable exemption rights, valuation and
appraisement, presentment for payment, demand, notice
of demand, notice of nonpayment or dishonor, protest
and notice of protest of this Note, notice of intention
to accelerate the indebtedness evidenced hereby, notice
of acceleration of the maturity hereof, diligence in
the collection hereof, and all other notices in
connection with the delivery, acceptance, performance,
default or enforcement of the payment of this Note.
Maker and all endorsers, sureties and guarantors
consent to any and all extensions of time, renewals,
waivers or modifications that may be granted by Payee
with respect to the payment or other provisions of this
Note and to the release of the collateral or any part
thereof, with or without substitution, and agree that
additional makers, endorsers, guarantors or sureties
may become parties hereto without notice to them or
affecting their liability hereunder.
<PAGE>
(h) Payee shall not be deemed, by any act of
omission or commission, to have waived any of its
rights or remedies hereunder unless such waiver is in
writing and signed by Payee, and then only to the
extent specifically set forth in writing. A waiver of
one event shall not be construed as continuing or as a
bar to or waiver of any right or remedy to a subsequent
event.
(i) This Note shall be governed by and construed
in accordance with the laws of the State in which the
Mortgaged Property is located (the "State").
(j) The parties hereto intend and believe that
each provision in this Note comports with all
applicable law. However, if any provision in this Note
is found by a court of law to be in violation of any
applicable law, and if such court should declare such
provision of this Note to be unlawful, void or
unenforceable as written, then it is the intent of all
parties hereto that such provision shall be given full
force and effect to the fullest possible extent that is
legal, valid and enforceable, that the remainder of
this Note shall be construed as if such unlawful, void
or unenforceable provision were not contained therein,
and that the rights, obligations and interest of Maker
and the holder hereof under the remainder of this Note
shall continue in full force and effect; provided,
however, that if any provision of this Note which is
found to be in violation of any applicable law concerns
the imposition of interest hereunder, the rights,
obligations and interests of Maker and Payee with
respect to the imposition of interest hereunder shall
be governed and controlled by the provisions of the
following paragraph.
(k) It being the intention of Payee and Maker to
comply with the laws of the State with regard to the
rate of interest charged hereunder, it is agreed that,
notwithstanding any provision to the contrary in this
Note, the Mortgage, or any of the other Security
Documents, no such provision, including without
limitation any provision of this Note providing for the
payment of interest or other charges, shall require the
payment or permit the collection of any amount ("Excess
Interest") in excess of the maximum amount of interest
permitted by law to be charged for the use or
detention, or the forbearance in the collection, of all
or any portion of the indebtedness evidenced by this
Note. If any Excess Interest is provided for, or is
adjudicated to be provided for, in this Note, the
Mortgage, or any of the other Security Documents, then
in such event:
(i) the provisions of this paragraph shall
govern;
(ii) Maker shall not be obligated to pay any
Excess Interest;
<PAGE>
(iii) any Excess Interest that Payee may
have received hereunder shall, at the option of
Payee, be (x) applied as a credit against the
unpaid principal balance then due under this Note,
accrued and unpaid interest thereon not to exceed
the maximum amount permitted by law, or both, (y)
refunded to the payor thereof or (z) any
combination of the foregoing;
(iv) the applicable interest rate or rates
provided for herein shall be automatically subject
to reduction to the maximum lawful rate allowed to
be contracted for in writing under the applicable
usury laws of the aforesaid State, and this Note,
the Mortgage and the other Security Documents
shall be deemed to have been, and shall be,
reformed and modified to reflect such reduction in
such interest rate or rates;
(v) in determining whether or not the rate
of interest hereunder exceeds the maximum rate
permitted by the laws of the State, Maker and
Payee agree and intend that all sums paid
hereunder which are deemed interest for the
purpose of determining usury shall be prorated,
allocated or spread in equal parts over the
longest period of time permitted under the
applicable laws of the State; and
(vi) Maker shall not have any action or
remedy against Payee for any damages whatsoever or
any defense to enforcement of this Note, Mortgage
or any other Security Document arising out of the
payment or collection of any Excess Interest.
(l) Upon any endorsement, assignment, or other
transfer of this Note by Payee or by operation of law,
the term "Payee," as used herein, shall mean such
endorsee, assignee, or other transferee or successor to
Payee then becoming the holder of this Note. This Note
shall inure to the benefit of Payee and its successors
and assigns and shall be binding upon the undersigned
and its successors and assigns. The term "Maker" as
used herein shall include the respective successors and
assigns, legal and personal representatives, executors,
administrators, devisees, legatees and heirs of Maker.
(m) Any notice, demand or other communication
which any party may desire or may be required to give
to any other party shall be in writing and shall be
given as provided in the Mortgage.
<PAGE>
(n) To the extent that Maker makes a payment or
Payee receives any payment or proceeds for Maker's
benefit, which are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required
to be repaid to a trustee, debtor in possession,
receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then, to
such extent, the obligations of Maker hereunder
intended to be satisfied shall be revived and continue
as if such payment or proceeds had not been received by
Payee.
(o) Maker shall execute and acknowledge (or cause
to be executed and acknowledged) and deliver to Payee
all documents, and take all actions, reasonably
required by Payee from time to time to confirm the
rights created or now or hereafter intended to be
created under this Note and the Security Documents, to
protect and further the validity, priority and
enforceability of this Note and the Security Documents,
to subject to the Security Documents any property of
Maker intended by the terms of any one or more of the
Security Documents to be encumbered by the Security
Documents, or otherwise carry out the purposes of the
Security Documents and the transactions contemplated
thereunder; provided, however, that no such further
actions, assurances and confirmations shall increase
Maker's obligations under this Note.
(p) No modification, amendment, extension,
discharge, termination or waiver (a "Modification") of
any provision of this Note, or any one or more of the
other Security Documents, nor consent to any departure
by Maker therefrom, shall in any event be effective
unless the same shall be in a writing signed by the
party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the
specific instance, and for the purpose, for which
given. Except as otherwise expressly provided herein,
no notice to, or demand on, Maker shall entitle Maker
to any other or future notice or demand in the same,
similar or other circumstances. Payee does not hereby
agree to, nor does Payee hereby commit itself to, enter
into any Modification.
(q) Maker hereby expressly and unconditionally
waives, in connection with any suit, action or
proceeding brought by Payee on this Note, any and every
right it may have to (a) a trial by jury, (b) interpose
any counterclaim therein (other than a counterclaim
which can only be asserted in the suit, action or
proceeding brought by Payee on this Note and cannot be
maintained in a separate action) and (c) have the same
consolidated with any other or separate suit, action or
proceeding.
<PAGE>
(r) Except as hereinafter provided,
notwithstanding any provision to the contrary in the
Mortgage or this Note, Payee shall not have any
recourse to any asset of Maker or its partners other
than the Mortgaged Property in order to satisfy the
indebtedness for payment of the principal and interest
evidenced by this Note, and Payee's sole recourse for
satisfaction of the payment of principal and interest
evidenced by this Note shall be to exercise its rights
against the Mortgaged Property encumbered by the
Mortgage and the other collateral securing this Note.
The foregoing sentence shall not be deemed or construed
to be a release of the indebtedness evidenced by this
Note or in any way impair, limit or otherwise affect
the lien of the Mortgage or any such other instrument
securing repayment of this Note or prevent Payee from
naming Maker, its partners, or their successors or
assigns as a defendant to any action to enforce any
remedy for default so long as there is no personal or
deficiency money judgment sought or entered against
Maker, its partners, or their successors or assigns for
payment of principal and interest evidenced by this
Note. Notwithstanding the foregoing provisions of this
paragraph, it is expressly understood and agreed that
the aforesaid limitation of liability shall in no way
affect or apply to Maker's or its partners' continued
personal liability for the payment to Payee of:
(i) any loss or damage occurring by reason of all
or any part of the Mortgaged Property being
encumbered by a voluntary lien (other than the
Mortgage) granted by Maker;
(ii) any Rents (as defined in the Mortgage),
issues, profits and/or income collected by Maker
in excess of normal and verifiable operating
expenses from the Mortgaged Property after default
by Maker hereunder, under the Mortgage or under
any other instrument securing or referring to this
Note;
(iii) unrefunded security deposits made by
tenants of the Mortgaged Property;
(iv) payment of Taxes, as defined in Section 5 of
the Mortgage, and insurance premiums, payment of
which is required to be made by Maker under the
Mortgage;
(v) Rents, security deposits with respect to
leases of the Mortgaged Property, insurance
proceeds, condemnation awards, and any other
payments or consideration which Maker receives and
to which Payee is entitled pursuant to the terms
of the Mortgage or of any other Security Document;
<PAGE>
(vi) damage to the Mortgaged Property from waste
committed or permitted by Maker;
(vii) loss or damage occurring by reason of the
failure of Maker to comply with any of the
provisions of Section 35 of the Mortgage;
(viii) any loss or claim incurred by or asserted
against Payee as a result of fraud or
misrepresentation by Maker or any of the partners
thereof with respect to any certification,
representation or warranty made by Maker or such
other persons to Payee herein or in any of the
Security Documents;
(ix) all indebtedness and obligations arising
under or pursuant to that certain Environmental
Indemnity dated of even date herewith executed by
Maker, the general partner of Maker and McNeil
Real Estate Fund X, Ltd. for the benefit of Payee;
and
(x) reasonable attorney's fees incurred by Payee
in connection with suit filed on account of any of
the foregoing clauses (i) through (ix).
(s) The proceeds of this Note are to be used for business,
commercial, investment, or other similar purposes and no portion
thereof will be used for personal, family or household use.
(t) To the extent that TEX. REV. CIV. STAT. ANN. Art. 5069-
1.04, as amended, is applicable to this Note, the ceiling
specified in such article is the applicable quarterly ceiling;
provided that if any applicable law permits greater interest, the
law permitting the greatest interest shall apply.
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be
executed and delivered as of the day and year first above
written.
SPANISH FUND X, LTD., a Texas
limited partnership
By: Spanish Apartments Fund X
Corp., a Delaware corporation,
General Partner
By: /s/ Ron K. Taylor
__________________________
Name: Ron K. Taylor
Title: Vice President
<PAGE>
APPENDIX 1
Calculation of Prepayment Premium
The prepayment premium shall be equal to the greater
of (A) one percent (1%) of the portion of the principal amount
of this Note being repaid or (B) the product of (i) a fraction
whose numerator is an amount equal to the portion of the
principal balance of this Note being prepaid and whose
denominator is the entire outstanding principal balance of
this Note on the date of such prepayment (after subtracting
the amount of any scheduled principal payment due on such
Payment Date), multiplied by (ii) an amount equal to the
remainder obtained by subtracting (x) an amount equal to the
entire outstanding principal balance of this Note as of the
date of such prepayment (after subtracting the amount of any
scheduled principal payment due on such Payment Date) from (y)
the present value as of the date of such prepayment of the
remaining scheduled payments of principal and interest on this
Note (including any final installment of principal payable on
the Maturity Date) determined by discounting such payments at
the Discount Rate (as hereinafter defined).
For purposes of this Note:
(x) "Discount Rate" shall mean the rate which, when
compounded monthly, is equivalent to the Treasury
Rate (defined below); and
(y) "Treasury Rate" shall mean the yield calculated by
the linear interpolation of the yield, as reported
in Federal Reserve Statistical Release H.15-Selected
Interest Rates under the heading "U.S. government
securities/Treasury constant maturities" for the
week ending prior to the date of the relevant
prepayment of this Note, of U.S. Treasury constant
maturities with a maturity date (one longer and one
shorter) most nearly approximating the Maturity Date
of this Note. In the event Release H.15 is no
longer published, the Payee shall select a
comparable publication to determine the Treasury
Rate.
<PAGE>
EXHIBIT 1
Amounts due on this note shall be payable to Fleet
Real Estate Capital, Inc. at the following address:
Fleet Real Estate Capital, Inc.
4275 Executive Square
Suite 200
La Jolla, CA 92037
Loan No.: 55-9509027
