UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1997
-----------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-9325
---------
McNEIL REAL ESTATE FUND X, LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2577781
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
----------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------- --------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 8,836,046 $ 8,836,046
Buildings and improvements............................... 71,615,509 71,110,263
-------------- -------------
80,451,555 79,946,309
Less: Accumulated depreciation.......................... (51,230,343) (49,689,189)
-------------- -------------
29,221,212 30,257,120
Assets held for sale, net................................... 3,052,771 5,308,731
Cash and cash equivalents................................... 5,503,492 2,660,679
Cash segregated for security deposits....................... 339,758 301,259
Accounts receivable......................................... 524,889 575,995
Prepaid expenses and other assets........................... 291,151 329,136
Escrow deposits............................................. 814,590 802,841
Deferred borrowing costs, net of accumulated
amortization of $428,846 and $438,719 at
June 30, 1997 and December 31, 1996,
respectively............................................. 1,102,325 1,171,591
-------------- -------------
$ 40,850,188 $ 41,407,352
============== =============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net................................. $ 35,757,419 $ 41,612,292
Mortgage notes payable - affiliates......................... 3,136,029 800,000
Accounts payable............................................ 16,153 61,356
Accrued interest............................................ 261,255 309,977
Accrued interest - affiliates............................... 24,977 6,625
Accrued property taxes...................................... 657,177 530,973
Other accrued expenses...................................... 289,045 309,981
Deferred gain on involuntary conversion..................... - 65,800
Payable to affiliates - General Partner..................... 3,282,394 3,555,343
Security deposits and deferred rental revenue............... 396,201 375,061
-------------- -------------
43,820,650 47,627,408
-------------- -------------
Partners' equity (deficit):
Limited partners - 135,200 limited partnership units
authorized; 134,980 limited partnership units
outstanding at June 30, 1997 and December 31, 1996..... 2,835,644 (704,049)
General Partner.......................................... (5,806,106) (5,516,007)
-------------- -------------
(2,970,462) (6,220,056)
-------------- -------------
$ 40,850,188 $ 41,407,352
============== =============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
-------------- --------------- -------------- --------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue................ $ 3,934,244 $ 4,039,535 $ 7,861,065 $ 8,017,638
Interest...................... 57,385 28,158 105,040 77,515
Gain on involuntary
conversion.................. 65,800 - 65,800 -
Gain on sale of real estate... 2,912,440 - 2,912,440 -
------------- ------------- ------------- -------------
Total revenue............... 6,969,869 4,067,693 10,944,345 8,095,153
------------- ------------- ------------- -------------
Expenses:
Interest...................... 895,534 1,072,539 1,842,299 2,152,935
Interest - affiliates......... 74,577 18,652 111,565 37,611
Depreciation and
amortization................ 776,877 826,996 1,541,154 1,639,182
Property taxes................ 263,423 264,323 539,165 542,704
Personnel expenses............ 401,503 403,219 885,363 877,844
Utilities..................... 285,125 301,000 652,821 609,002
Repair and maintenance........ 521,401 500,085 962,719 919,646
Property management
fees - affiliates........... 191,450 204,913 384,516 404,498
Other property operating
expenses.................... 240,823 254,064 491,153 504,420
General and administrative.... 63,373 57,632 148,670 106,302
General and administrative -
affiliates.................. 98,342 119,455 192,691 240,456
------------- ------------- ------------- -------------
Total expenses.............. 3,812,428 4,022,878 7,752,116 8,034,600
------------- ------------- ------------- -------------
Income before extraordinary
item.......................... $ 3,157,441 $ 44,815 $ 3,192,229 $ 60,553
Extraordinary gain on
extinguishment of debt........ 533,764 - 533,764 269,596
------------- ------------- ------------- -------------
Net income....................... $ 3,691,205 $ 44,815 $ 3,725,993 $ 330,149
============= ============= ============= =============
Net income allocated
to limited partners........... $ 3,506,644 $ 42,575 $ 3,539,693 $ 313,642
Net income allocated
to General Partner............ 184,561 2,240 186,300 16,507
------------- ------------- ------------- -------------
Net income....................... $ 3,691,205 $ 44,815 $ 3,725,993 $ 330,149
============= ============= ============= =============
Net income per limited
partnership unit:
Income before
extraordinary item.......... $ 22.22 $ .31 $ 22.46 $ .42
Extraordinary gain on
extinguishment of debt...... 3.76 - 3.76 1.90
------------- ------------- ------------- -------------
Net income....................... $ 25.98 $ .31 $ 26.22 $ 2.32
============= ============= ============= =============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1995.............. $ (4,524,439) $ (1,788,928) $ (6,313,367)
Net income................................ 16,507 313,642 330,149
Management Incentive Distribution......... (522,159) - (522,159)
------------- ------------- -------------
Balance at June 30, 1996.................. $ (5,030,091) $ (1,475,286) $ (6,505,377)
============= ============= =============
Balance at December 31, 1996.............. $ (5,516,007) $ (704,049) $ (6,220,056)
Net income................................ 186,300 3,539,693 3,725,993
Management Incentive Distribution......... (476,399) - (476,399)
------------- ------------- -------------
Balance at June 30, 1997.................. $ (5,806,106) $ 2,835,644 $ (2,970,462)
============= ============= =============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1997 1996
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants............................... $ 7,878,777 $ 8,059,340
Cash paid to suppliers................................... (3,201,765) (3,227,362)
Cash paid to affiliates.................................. (1,326,555) (561,680)
Interest received........................................ 105,040 77,515
Interest paid............................................ (1,773,870) (1,966,625)
Interest paid to affiliates.............................. (93,213) (37,611)
Property taxes paid and escrowed......................... (434,999) (624,546)
-------------- --------------
Net cash provided by operating activities................... 1,153,415 1,719,031
-------------- --------------
Cash flows from investing activities:
Additions to real estate investments..................... (505,246) (844,397)
Additions to assets held for sale........................ (3,144) -
Proceeds from sale of real estate........................ 5,234,654 -
-------------- --------------
Net cash provided by (used in) investing activities......... 4,726,264 (844,397)
-------------- --------------
Cash flows from financing activities:
Net proceeds from refinancing mortgage
notes payable.......................................... 495,838 475,775
Principal payments on mortgage notes
payable................................................ (473,942) (414,880)
Deferred borrowing costs paid............................ - (112,241)
Retirement of mortgage note payable...................... (3,058,762) -
-------------- --------------
Net cash used in financing activities....................... (3,036,866) (51,346)
-------------- --------------
Net increase in cash and cash equivalents................... 2,842,813 823,288
Cash and cash equivalents at beginning of
period................................................... 2,660,679 1,813,594
-------------- --------------
Cash and cash equivalents at end of period.................. $ 5,503,492 $ 2,636,882
============== ==============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income to Net Cash Provided By
Operating Activities
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Net income ................................................. $ 3,725,993 $ 330,149
-------------- --------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 1,541,154 1,639,182
Amortization of discounts on mortgage
notes payable.......................................... 51,786 77,266
Amortization of deferred borrowing costs................. 65,365 62,250
Gain on sale of real estate.............................. (2,912,440) -
Extraordinary gain on extinguishment of debt............. (533,764) (269,596)
Changes in assets and liabilities:
Cash segregated for security deposits.................. (38,499) (27,797)
Accounts receivable.................................... 17,129 58,884
Prepaid expenses and other assets...................... 12,753 14,273
Escrow deposits........................................ (11,749) (437,681)
Accounts payable....................................... (45,203) (88,262)
Accrued interest....................................... (48,722) 46,794
Accrued interest - affiliates.......................... 18,352 -
Accrued property taxes................................. 126,204 250,565
Other accrued expenses................................. (20,936) (34,192)
Deferred gain on involuntary conversion................ (65,800) -
Payable to affiliates - General Partner................ (749,348) 83,274
Security deposits and deferred rental
revenue.............................................. 21,140 13,922
-------------- --------------
Total adjustments.................................... (2,572,578) 1,388,882
-------------- --------------
Net cash provided by operating activities................... $ 1,153,415 $ 1,719,031
============== ==============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
Notes to Financial Statements
(Unaudited)
June 30, 1997
NOTE 1.
- -------
McNeil Real Estate Fund X, Ltd. (the "Partnership") is a limited partnership
organized under the laws of the State of California to invest in real property.
The general partner of the Partnership is McNeil Partners, L.P. (the "General
Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The
Partnership is governed by an agreement of limited partnership (the "Amended
Partnership Agreement") that was adopted October 9, 1991. The principal place of
business for the Partnership and the General Partner is 13760 Noel Road, Suite
600, LB70, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the six months ended June 30, 1997, are
not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1996, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund X, Ltd., c/o The Herman Group, 2121 San Jacinto St.,
26th Floor, Dallas, Texas 75201.
NOTE 3.
- -------
The Partnership pays property management fees equal to 5% of the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management services for the Partnership's residential and commercial properties
and leasing services for its residential properties. McREMI may also choose to
provide leasing services for the Partnership's commercial properties, in which
case McREMI will receive property management fees from such commercial
properties equal to 3% of the property's gross rental receipts plus leasing
commissions based on the prevailing market rate for such services where the
property is located.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
<PAGE>
Under terms of the Amended Partnership Agreement, the Partnership is paying a
Management Incentive Distribution ("MID") to the General Partner. The maximum
MID is calculated as 1% of the tangible asset value of the Partnership. The
maximum MID percentage decreases subsequent to 1999. Tangible asset value is
determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9% to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit for residential property
and $50 per gross square foot for commercial property to arrive at the property
tangible asset value. The property tangible asset value is then added to the
book value of all other assets excluding intangible items.
MID will be paid to the extent of the lesser of the Partnership's excess cash
flow, as defined, or net operating income, as defined (the "Entitlement
Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay
the distribution in which event any unpaid portion not taken in Units will be
deferred and is payable, without interest, from the first available cash and/or
(ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of
Units issued in payment of the MID is based on the greater of $50 per Unit or
the net tangible asset value, as defined, per Unit.
Any amount of the MID that is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The MID represents a return of equity
to the General Partner for increasing cash flow, as defined, and accordingly is
treated as a distribution.
On August 1, 1994, the Partnership obtained a mortgage loan from McNeil Real
Estate Fund XXVII, L.P. ("Fund XXVII"), an affiliate of the General Partner, for
$800,000. The mortgage loan is secured by a second lien on Lakeview Plaza. Terms
of the mortgage loan require monthly interest-only payments equal to the prime
lending rate of Bank of America plus 1% with the principal balance due August 1,
1997. Effective August 1, 1997, Fund XXVII reconveyed the lien back to the
Partnership in consideration of the additional borrowing discussed in the
following paragraph.
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with
a $2,336,029 mortgage loan from Fund XXVII. See Note 5. Effective August 1,
1997, the Partnership borrowed an additional $800,000 from Fund XXVII. The
refinancing and the additional borrowing are jointly secured by a single lien on
La Plaza Office Building. Payment terms for the mortgage note and the additional
borrowing require monthly interest-only payments equal to 1% plus the prime
lending rate of Bank of America. The new mortgage note, together with the
additional borrowing, is due February 28, 2000.
<PAGE>
Compensation, reimbursements and distributions paid to or accrued for the
benefit of the General Partner and its affiliates are as follows:
Six Months Ended
June 30,
------------------------
1997 1996
---------- ----------
Property management fees - affiliates......... $ 384,516 $ 404,498
Interest - affiliates......................... 111,565 37,611
Charged to general and administrative
affiliates:
Partnership administration.................. 192,691 240,456
--------- ---------
$ 688,772 $ 682,565
========= =========
Charged to General Partner's deficit:
Management Incentive Distribution......... $ 476,399 $ 522,159
========= =========
NOTE 4.
- -------
On June 5, 1997, the Partnership sold Cave Spring Corners Shopping Center to an
unaffiliated purchaser for a cash sales price of $5,250,000. Cash proceeds from
the sale, as well as the gain on sale are detailed on the following page.
<PAGE>
Gain on Sale Cash Proceeds
------------ -------------
Cash sales price............................... $ 5,250,000 $ 5,250,000
Selling costs.................................. (15,346) (15,346)
Borrowing costs written off.................... (3,901)
Prepaid leasing commissions written off........ (25,232)
Straight-line rent receivables written off..... (33,977)
Basis of real estate sold...................... (2,259,104)
----------
Gain on sale of real estate.................... $ 2,912,440
==========
Proceeds from sale of real estate............. 5,234,654
Retirement of mortgage note payable........... (3,058,762)
----------
Net cash proceeds............................. $ 2,175,892
==========
NOTE 5.
- -------
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with
a $2,336,029 mortgage note from Fund XXVII, an affiliate of the General Partner.
The new mortgage note bears interest at a variable rate equal to 1% plus the
prime lending rate of Bank of America and requires monthly interest-only debt
service payments until the February 28, 2000 maturity date. Cash used to close
the refinancing transaction is as follows:
New loan proceeds............................. $ 2,336,029
Existing debt retired......................... (2,373,955)
------------
Net cash used to refinance
mortgage note payable....................... $ (37,926)
============
NOTE 6.
- -------
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. In connection with the refinancing, the Partnership and the
prior lienholder agreed to a discounted payoff of the prior mortgage note that
resulted in a $803,360 extraordinary gain on extinguishment of debt. $269,596 of
the extraordinary gain was recognized during the first quarter of 1996. The
remaining $533,764 of the extraordinary gain was recognized during the second
quarter of 1997 after negotiations concerning the amount of the payoff were
completed. Cash proceeds from the refinancing transaction are as follows:
New loan proceeds............................ $ 4,000,000
Cash paid to retire existing debt............ (2,990,461)
Proceeds from refinancing received in 1996... (475,775)
------------
Proceeds from refinancing received in 1997... $ 533,764
============
<PAGE>
The Partnership incurred $166,403 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.
NOTE 7.
- -------
On October 1, 1996, the Partnership placed Cave Spring Corners and Iberia Plaza
on the market for sale. Consequently, these properties are shown as assets held
for sale on the accompanying financial statements. In accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," the Partnership ceased recording
depreciation charges on these properties effective October 1, 1996. Cave Spring
Corners was sold June 5, 1997 (see Note 4).
NOTE 8.
- -------
On March 31, 1996, a fire destroyed or damaged 16 units and 2 laundry rooms at
Regency Park Apartments. The total cost to repair the fire damage was $530,148.
The Partnership's insurance carrier will reimburse the Partnership for all costs
incurred as a result of the fire less a standard deductible. The excess of cash
to be received over the basis of the property destroyed in the fire resulted in
a $350,927 gain on involuntary conversion.
Because only a part of the insurance proceeds were received by December 31,
1996, only $285,127 of the gain on involuntary conversion was recognized on the
Partnership's Statement of Operations for the year ended December 31, 1996. The
remainder of the insurance proceeds were received during the second quarter of
1997, at which time the remaining gain of $65,800 was recognized.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. At June 30, 1997, the Partnership
owned seven apartment properties, one office building and two strip shopping
centers. All of the Partnership's properties are subject to mortgage notes. On
September 18, 1996, the Partnership sold Parkway Plaza Shopping Center to an
unaffiliated purchaser. The Partnership recognized a $275,424 gain on the
disposition. Cash proceeds to the Partnership amounted to $283,585. On June 5,
1997, the Partnership sold Cave Springs Plaza to an unaffiliated purchaser. The
Partnership recognized a $2,912,440 gain on the disposition. Cash proceeds from
the sale amounted to $2,175,892 from the sale. Currently, the Partnership is
marketing Iberia Plaza for sale.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The Partnership reported net income of $3,725,993 for the first six months of
1997, an increase of $3,395,844 from the net income of $330,149 reported for the
first six months of 1996. Net income for the second quarter increased $3,646,390
to $3,691,205. Included in net income for the quarter and six months ended June
30, 1997 is a $2,912,440 gain from the sale of Cave Spring Corners. Also
included in net income for both 1997 and 1996 are extraordinary gains on the
extinguishment of debt relating to the refinancing of the Spanish Oaks mortgage
debt. These gains amounted to $533,764 and $269,596 for the six months ended
June 30, 1997 and 1996, respectively. Excluding the gain on sale and the
extraordinary gains, Partnership income increased $219,236 to $279,789 for the
first six months of 1997 as compared to the same period of 1996.
Revenues:
Rental revenue decreased $156,573 or 2.0% for the first six months of 1997 as
compared to the same period of 1996. The decrease is attributable to the
September 18, 1996 sale of Parkway Plaza. Excluding the effects of the sale of
Parkway Plaza, rental revenues increased $209,790 or 2.7% for the first six
months of 1997 as compared to the same period of 1996.
Considered as a group, the Partnership's residential properties reported no
significant increase in rental revenue for the first six months of 1997. For the
most part, increases in base rental rates were offset by increased vacancy
losses. Vacancy losses increased at all of the Partnership's residential
properties except for Sandpiper Apartments. Soft markets contributed to
decreased rental revenue at Briarwood Apartments, Orchard Apartments and Spanish
Oaks Apartments, while rental revenue was unchanged at Regency Park Apartments.
Rental revenue increased modestly at Coppermill Apartments and Quail Meadows
Apartments and Spanish Oaks Apartments. Sandpiper Apartments continued a pattern
of strong performance with a 4.9% increase in rental revenue.
The Partnership's commercial properties reported the most improvement in rental
revenue. Rental rates improved modestly at Iberia Plaza and Lakeview Plaza,
while occupancy rates improved to near 100% levels. The largest increase in
rental revenue, however, occurred at La Plaza Office Building. Rental revenue at
the Las Vegas property increased 14.5% for the first six months of 1997 as
compared to the same period of 1996. Rental rates increased at La Plaza, but
most of the increase came from improving occupancy. The average occupancy rate
at La Plaza improved to 85% at June 30, 1997, up from 77% at the beginning of
1996.
Expenses:
Partnership expenses decreased $282,484 or 3.5% for the first six months of 1997
as compared to the same period of 1996. As with rental revenues, most of the
decrease is attributable to the sale of Parkway Plaza during the third quarter
of 1996. However, the Partnership's expenses decreased $56,420 even after
excluding expenses attributable to Parkway Plaza. Decreased expenses for
depreciation and general and administrative expenses paid to affiliates were
mostly offset by increased utilities, interest paid to affiliates and general
and administrative expenses.
<PAGE>
Interest paid to affiliates increased $73,954 to $111,575 for the first six
months of 1997 as compared to the same period of 1996. The increase reflects the
refinancing of the La Plaza mortgage note with a $2,336,029 mortgage due to an
affiliate of the General Partner. The refinancing occurred on February 28, 1997.
Because the refinancing paid-off the La Plaza mortgage note, due to a
non-affiliated entity, the refinancing had the dual effect of increasing
mortgage interest due to affiliates and decreasing the interest expense on
non-affiliated mortgage indebtedness by a total of $132,039.
Excluding the effects of Parkway Plaza, utility expenses increased $49,791 or
8.3% to $367,696 for the first six months of 1997 as compared to the same period
of 1996. The increases were concentrated in gas and oil expenses, especially for
Sandpiper Apartments and Spanish Oaks Apartments, and an increase in water and
sewer expenses, particularly at Coppermill Apartments.
General and administrative expenses increased $42,368 to $148,670 for the first
six months of 1997. The Partnership incurred approximately $30,000 of fees and
costs to settle a legal dispute (see Item 1 - Legal Proceedings). In addition,
beginning in 1997, the Partnership incurred $15,599 of charges for investor
services provided by a third party vendor which, prior to 1997, were provided by
affiliates of the General Partner. The change from affiliate to third party
vendor for investor relation services also accounts for part of the 19.9%
decrease in general and administrative expenses paid by affiliates. Payments to
affiliates for general and administrative expenses also decreased due to the
sale of Parkway Plaza during 1996 and due to decreased charges from affiliates
generally.
Depreciation expense decreased $98,028 or 6.0% for the first six months of 1997
as compared to the same period of 1996. In accordance with accounting
principles, the Partnership ceased depreciating its investment in Cave Spring
Corners and Iberia Plaza after the October 1, 1996 decision to market those
properties for sale.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow provided by operating activities decreased to $1,153,415 for the first
six months of 1997 from $1,719,031 for the same period of 1996. For the current
year, payments to affiliates have increased to $1,326,555 from $561,680 in 1996.
During the first quarter of 1997, the Partnership repaid all of the $779,993
balance of partnership administrative reimbursements outstanding at December 31,
1996. Such expenses were deferred beginning in 1995 to enable the Partnership to
restore its balance of cash reserves. Decreased cash flow from operating
activities is also attributable to the sale of Parkway Plaza during the third
quarter of 1996.
The Partnership expended $505,246 for capital improvements during the first six
months of 1997, down significantly from the $844,397 expended during the same
period of 1996. The Partnership has budgeted a total of $1.6 million of capital
improvements for 1997. These additions are needed to maintain the
competitiveness of the Partnership's properties in their respective markets and
allow the Partnership to reduce the amount of repair and maintenance
expenditures that would otherwise be incurred.
<PAGE>
On February 28, 1997, the Partnership resolved the maturity of the La Plaza
mortgage note by refinancing the La Plaza note with a $2,336,029 mortgage note
obtained from an affiliate of the General Partner. The new mortgage note bears
interest at a variable rate equal to 1% plus the prime lending rate of Bank of
America. Monthly interest-only debt service payments are required until the
maturity of the new mortgage note on February 28, 2000. Effective August 1,
1997, the Partnership modified the mortgage note to include an additional
$800,000 of borrowings. The $800,000 additional borrowing was used to repay the
$800,000 second mortgage note on Lakeview Plaza which matured on August 1, 1997.
All other terms of the La Plaza mortgage note remain the same.
The Partnership's next maturing mortgage note is the Iberia Plaza mortgage note
which matures in 1998. The Partnership has placed Iberia Plaza on the market for
sale, and intends to use proceeds from the sale of the property to retire the
mortgage note.
Short-term liquidity:
At June 30, 1997, the Partnership held cash reserves of $5,503,492 an increase
of $2,842,813 from the balance at the end of 1996. Cash reserves of the
Partnership have increased significantly from depressed levels at the end of
1994. The increased cash reserves of the Partnership have allowed the
Partnership to resume payment of Partnership administrative reimbursements due
to affiliates of the General Partner.
Over the past three years, the Partnership has invested large amounts of funds
in capital improvements at the Partnership's properties. Although significant
challenges remain, total capital expenditures for 1997 are expected to decrease
from the average amount expended in each of the past three fiscal years. For the
balance of 1997, the largest capital projects of the Partnership will be
concentrated at La Plaza Office Building as the property undergoes refurbishment
to allow it to take advantage of a strong Las Vegas market.
During 1996, 1995 and 1994, the General Partner deferred collection of the MID.
As of June 30, 1997, approximately $3.18 million of deferred MID payments were
due to the General Partner. The General Partner anticipates resuming payment of
MID if the Partnership's properties continue to perform as anticipated.
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 $7 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 $1.6 million of capital improvements
for 1997. 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.
The Partnership has determined to begin an orderly liquidation of all the
Partnership's assets. Although there can be no assurance as to the timing of any
liquidation, it is anticipated that such liquidation would result in
distributions to the limited partners of the cash proceeds from the sale of the
Partnership's properties, subject to cash reserve requirements, as they are sold
with the last property disposition before December 2001, followed by a
dissolution of the Partnership. In this regard, the Partnership sold Parkway
Plaza on September 18, 1996, sold Cave Spring Corners on June 5, 1997, and has
placed Iberia Plaza on the market for sale.
<PAGE>
Income Allocations and Distributions:
Terms of the Amended Partnership Agreement specify that income before
depreciation is allocated to the General Partner to the extent of MID paid in
cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and
the General Partner, respectively. Therefore, for the six month period ended
June 30, 1997 and 1996, $186,300 and $16,507, respectively, were allocated to
the General Partner. The limited partners received allocations of net income of
$3,539,693 and $313,642 for the six months ended June 30, 1997 and 1996,
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
1. James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey
Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v.
McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate
Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific
Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real
Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate
Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate
Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund
XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund
XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior
Court of the State of California for the County of Los Angeles, Case No.
BC133799 (Class and Derivative Action Complaint).
The action involves purported class and derivative actions brought by
limited partners of each of the fourteen limited partnerships that were
named as nominal defendants as listed above (the "Partnerships").
Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real
Estate Management, Inc. and three of their senior officers and/or
directors (collectively, the "Defendants") breached their fiduciary
duties and certain obligations under the respective Amended Partnership
Agreement. Plaintiffs allege that Defendants have rendered such Units
highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants
engaged in a course of conduct to prevent the acquisition of Units by an
affiliate of Carl Icahn by disseminating purportedly false, misleading
and inadequate information. Plaintiffs further allege that Defendants
acted to advance their own personal interests at the expense of the
Partnerships' public unit holders by failing to sell Partnership
properties and failing to make distributions to unitholders.
<PAGE>
On December 16, 1996, the Plaintiffs filed a consolidated and amended
complaint. Plaintiffs are suing for breach of fiduciary duty, breach of
contract and an accounting, alleging, among other things, that the
management fees paid to the McNeil affiliates over the last six years are
excessive, that these fees should be reduced retroactively and that the
respective Amended Partnership Agreements governing the Partnerships are
invalid.
Defendants filed a demurrer to the consolidated and amended complaint and
a motion to strike on February 14, 1997, seeking to dismiss the
consolidated and amended complaint in all respects. A hearing on
Defendant's demurrer and motion to strike was held on May 5, 1997. The
Court granted Defendants' demurrer, dismissing the consolidated and
amended complaint with leave to amend.
2. The First National Bank of Chicago, as Trustee Under That Certain
Pooling and Servicing Agreement Dated as of December 1, 1995, for
Resolution Trust Corporation Commercial Mortgage Pass-Through
Certificates, Series 1995-C2 v. McNeil Real Estate Fund X, Ltd., McNeil
Partners, L.P. and McNeil Investors, Inc. - U.S. District Court, Northern
District of Dallas, Dallas Division; Civil Action No. 33-96CV3198-D; and
District Court, Dallas County, Texas, F-116 th Judicial District; Case
No.: 96-13066(P96014).
The Plaintiffs are the holder of a certain Second Lien Wraparound
Promissory Note ("Wraparound Note") secured by the Spanish Oaks
Apartments. This action involves a dispute of the principal payoff amount
on the Wraparound Note. The Plaintiffs contend that the payoff balance is
$3,399,592; however, the Partnership has calculated the payoff balance to
be significantly less. On January 26, 1996, the Partnership refinanced
the Spanish Oaks Apartments. At that time, the $3,399,592 was escrowed
with the American Title Company. The Plaintiffs claim that pursuant to
the terms of the Wraparound Note, the Partnership owes the entire
escrowed balance. The parties have been ordered to mediation before July
28, 1997. However, settlement was reached in this matter with $3,046,000
being paid to the Plaintiffs. A Compromise and Settlement Agreement and
Release dated June 26, 1997 has been signed by all parties. An Order of
Dismissal with prejudice is to be entered by the Judge.
3. Alenda and Joseph Gruenwald vs. McNeil Real Estate Management, Inc.
d/b/a Briarwood Apartments; ABC Corporations, XYZ Partnerships (Employee
Discrimination-EEOC (Sex) - Superior Court of the State of Arizona in and
for the County of Pima; Case No. C 314017 (L96009).
The Plaintiff, a former property manager for the Partnership, filed a
complaint alleging that she was wrongfully terminated from her position
in violation of the Arizona Civil Rights Act. The Partnership claims that
Plaintiff's termination was a proper business decision resulting from
serious concerns about the property's management. After numerous
discussions, the parties agreed to a monetary settlement. A Settlement
Agreement and Release of All Claims was signed on May 22, 1997. The Judge
entered an Order on May 22, 1997, dismissing the case with prejudice.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
4. Amended and Restated Partnership Agreement,
dated October 9, 1991 (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended March 31, 1991).
11. Statement regarding computation of net loss
per limited partnership unit: Net loss per
limited partnership unit is computed by
dividing net loss allocated to the limited
partners by the number of limited partnership
units outstanding. Per unit information has
been computed based on 134,980 limited
partnership units outstanding in 1997 and
1996.
27. Financial Data Schedule for the quarter ended
June 30, 1997.
Registrant has omitted instruments with respect to long-term debt where
the total amount of securities authorized thereunder does not exceed
10% of the total assets of the Registrant. Registrant agrees to furnish
a copy of each such instruments to the Commission upon request.
(b) Reports on Form 8-K. A Form 8-K was filed on June 20, 1997 to report
the June 5, 1997 sale of Cave Spring Corners Shopping Center to an
unaffiliated purchaser.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
McNEIL REAL ESTATE FUND X, LTD.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
August 13, 1997 By: /s/ Ron K. Taylor
- --------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
August 13, 1997 By: /s/ Brandon K. Flaming
- --------------- -------------------------------------------
Date Brandon K. Flaming
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,503,492
<SECURITIES> 0
<RECEIVABLES> 524,889
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 80,451,555
<DEPRECIATION> (51,230,343)
<TOTAL-ASSETS> 40,850,188
<CURRENT-LIABILITIES> 0
<BONDS> 38,893,448
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,850,188
<SALES> 0
<TOTAL-REVENUES> 7,861,065
<CGS> 10,944,345
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,909,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,842,299
<INCOME-PRETAX> 0
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<INCOME-CONTINUING> 3,192,229
<DISCONTINUED> 0
<EXTRAORDINARY> 533,764
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<NET-INCOME> 3,725,993
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