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 quarterly period ended June 30, 1998
-------------------------------------------
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
- --------------------------------------------------------------------------------
(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>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
McNEIL REAL ESTATE FUND X, LTD.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land .................................................. $ 8,836,046 $ 8,836,046
Buildings and improvements ............................ 72,817,331 72,544,744
------------ ------------
81,653,377 81,380,790
Less: Accumulated depreciation ....................... (54,385,924) (52,814,364)
------------ ------------
27,267,453 28,566,426
Cash and cash equivalents ................................ 1,949,283 5,755,976
Cash segregated for security deposits .................... 383,620 358,396
Accounts receivable ...................................... 458,414 356,496
Prepaid expenses and other assets ........................ 205,957 212,031
Escrow deposits .......................................... 1,038,178 816,017
Deferred borrowing costs, net of accumulated
amortization of $507,696 and $452,021 at
June 30, 1998 and December 31, 1997,
respectively .......................................... 1,053,026 1,047,074
------------ ------------
$ 32,355,931 $ 37,112,416
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- -------------------------------------------
Mortgage notes payable, net .............................. $ 36,473,177 $ 33,633,574
Mortgage notes payable - affiliates ...................... - 3,136,029
Accounts payable ......................................... 609 76,689
Accrued interest ......................................... 241,736 244,393
Accrued interest - affiliates ............................ - 24,977
Accrued property taxes ................................... 588,412 470,105
Other accrued expenses ................................... 271,171 296,729
Payable to affiliates - General Partner .................. 2,355,886 1,858,835
Security deposits and deferred rental revenue ............ 399,345 417,110
------------ ------------
40,330,336 40,158,441
------------ ------------
Partners' equity (deficit):
Limited partners - 135,200 limited partnership units
authorized; 134,980 limited partnership units
outstanding at June 30, 1998 and December 31, 1997 .. (2,875,033) 1,607,681
General Partner ....................................... (5,099,372) (4,653,706)
------------ ------------
(7,974,405) (3,046,025)
------------ ------------
$ 32,355,931 $ 37,112,416
============ ============
</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,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue ................. $ 3,682,914 $ 3,934,244 $ 7,358,692 $ 7,861,065
Interest ....................... 28,049 57,385 87,273 105,040
Gain on involuntary
conversion ................... - 65,800 - 65,800
Gain on sale of real estate .... - 2,912,440 - 2,912,440
----------- ----------- ----------- -----------
Total revenue ................ 3,710,963 6,969,869 7,445,965 10,944,345
----------- ----------- ----------- -----------
Expenses:
Interest ....................... 769,667 895,534 1,543,355 1,842,299
Interest - affiliates .......... 64,809 74,577 138,269 111,565
Depreciation and
amortization ................. 786,932 776,877 1,571,560 1,541,154
Property taxes ................. 241,662 263,423 483,324 539,165
Personnel expenses ............. 428,801 401,503 908,248 885,363
Utilities ...................... 278,440 285,125 605,895 652,821
Repair and maintenance ......... 478,995 521,401 867,096 962,719
Property management
fees - affiliates ............ 184,603 191,450 364,114 384,516
Other property operating
expenses ..................... 172,137 240,823 387,302 491,153
General and administrative ..... 187,215 63,373 379,074 148,670
General and administrative -
affiliates ................... 96,756 98,342 179,534 192,691
----------- ----------- ----------- -----------
Total expenses ............... 3,690,017 3,812,428 7,427,771 7,752,116
----------- ----------- ----------- -----------
Income before extraordinary item... 20,946 3,157,441 18,194 3,192,229
Extraordinary gain on
extinguishment of debt ......... - 533,764 - 533,764
----------- ----------- ----------- -----------
Net income ........................ $ 20,946 $ 3,961,205 $ 18,194 $ 3,725,993
=========== =========== =========== ===========
Net income allocated
to limited partners ............ $ 19,898 $ 3,506,644 $ 17,284 $ 3,539,693
Net income allocated
to General Partner ............. 1,048 184,561 910 186,300
----------- ----------- ----------- -----------
Net income ........................ $ 20,946 $ 3,691,205 $ 18,194 $ 3,725,993
=========== =========== =========== ===========
Net income per limited
partnership unit:
Income before
extraordinary item ........... $ .15 $ 22.22 $ .13 $ 22.46
Extraordinary gain on
extinguishment of debt ....... - 3.76 - 3.76
----------- ----------- ----------- -----------
Net income ........................ $ .15 $ 25.98 $ .13 $ 26.22
=========== =========== =========== ===========
Distributions per limited
partnership unit ............... $ - $ - $ 33.34 $ -
=========== =========== =========== ===========
</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, 1998 and 1997
<TABLE>
<CAPTION>
Total
Partners'
General Limited Equity
Partner Partners (Deficit)
-------------- -------------- --------------
<S> <C> <C> <C>
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)
============= ============= =============
Balance at December 31, 1997.............. $ (4,653,706) $ 1,607,681 $ (3,046,025)
Net income................................ 910 17,284 18,194
Distribution to limited partners.......... - (4,499,998) (4,499,998)
Management Incentive Distribution......... (446,576) - (446,576)
------------- ------------- -------------
Balance at June 30, 1998.................. $ (5,099,372) $ (2,875,033) $ (7,974,405)
============= ============= =============
</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,
--------------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ........................ $ 7,225,957 $ 7,878,777
Cash paid to suppliers ............................ (3,350,776) (3,201,765)
Cash paid to affiliates ........................... (493,173) (1,326,555)
Interest received ................................. 87,273 105,040
Interest paid ..................................... (1,459,749) (1,773,870)
Interest paid to affiliates ....................... (163,246) (93,213)
Property taxes paid and escrowed .................. (491,753) (434,999)
----------- -----------
Net cash provided by operating activities ............ 1,354,533 1,153,415
----------- -----------
Cash flows from investing activities:
Additions to real estate investments .............. (272,587) (505,246)
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... (272,587) 4,726,264
----------- -----------
Cash flows from financing activities:
Proceeds from mortgage note payable - affiliate.... - 495,838
Retirement of mortgage note payable - affiliate.... (3,136,029) -
Principal payments on mortgage notes payable....... (375,985) (473,942)
Net proceeds from mortgage note payable ........... 3,185,000 -
Retirement of mortgage note payable ............... - (3,058,762)
Additions to deferred borrowing costs ............. (61,627) -
Distributions to limited partners ................. (4,499,998) -
----------- -----------
Net cash used in financing activities ................ (4,888,639) (3,036,866)
----------- -----------
Net increase (decrease) in cash and
cash equivalents .................................. (3,806,693) 2,842,813
Cash and cash equivalents at beginning of
period ............................................ 5,755,976 2,660,679
----------- -----------
Cash and cash equivalents at end of period ........... $ 1,949,283 $ 5,503,492
=========== ===========
</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,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income ............................................. $ 18,194 $ 3,725,993
----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 1,571,560 1,541,154
Amortization of discounts on mortgage
notes payable ..................................... 30,588 51,786
Amortization of deferred borrowing costs ............ 55,675 65,365
Gain on sale of real estate ......................... - (2,912,440)
Extraordinary gain on extinguishment of debt ........ - (533,764)
Changes in assets and liabilities:
Cash segregated for security deposits ............. (25,224) (38,499)
Accounts receivable ............................... (101,918) 17,129
Prepaid expenses and other assets ................. 6,074 12,753
Escrow deposits ................................... (222,161) (11,749)
Accounts payable .................................. (76,080) (45,203)
Accrued interest .................................. (2,657) (48,722)
Accrued interest - affiliates ..................... (24,977) 18,352
Accrued property taxes ............................ 118,307 126,204
Other accrued expenses ............................ (25,558) (20,936)
Deferred gain on involuntary conversion ........... - (65,800)
Payable to affiliates - General Partner ........... 50,475 (749,348)
Security deposits and deferred rental
revenue ......................................... (17,765) 21,140
----------- -----------
Total adjustments ............................... 1,336,339 (2,572,578)
----------- -----------
Net cash provided by operating activities .............. $ 1,354,533 $ 1,153,415
=========== ===========
</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, 1998
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 quarter ended June 30, 1998, are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998.
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, 1997, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund X, Ltd., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
The Partnership pays property management fees equal to 5% of the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management 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 an $800,000 mortgage loan from
McNeil Real Estate Fund XXVII, L.P. ("Fund XXVII"), an affiliate of the General
Partner. The mortgage loan was secured by a second lien on Lakeview Plaza. Terms
of the mortgage loan required 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 4. Effective August 1,
1997, the Partnership borrowed an additional $800,000 from Fund XXVII. The
refinancing and the additional borrowing were both secured by a lien on La Plaza
Office Building. Payment terms for the mortgage note and the additional
borrowing required 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, was to mature on February 28, 2000.
On June 18, 1998, the Partnership refinanced the La Plaza mortgage note due to
Fund XXVII with a $3,785,000 mortgage loan from an unaffiliated lender. See Note
5.
<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,
-----------------------
1998 1997
-------- --------
Property management fees - affiliates ........... $364,114 $384,516
Interest - affiliates ........................... 138,269 111,565
Charged to general and administrative affiliates:
Partnership administration .................... 179,534 192,691
-------- --------
$681,917 $688,772
======== ========
Charged to General Partner's deficit:
Management Incentive Distribution ............. $446,576 $476,399
======== ========
NOTE 4.
- -------
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with
a $2,336,029 mortgage note from Fund XXVII. 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 shown
below.
New loan proceeds...................................... $ 2,336,029
Amount required to payoff existing debt................ (2,373,955)
-----------
Cash used to refinance mortgage note................... $ (37,926)
===========
On August 1, 1997, the new La Plaza mortgage note was amended to increase the
principal amount by $800,000. The Partnership used the $800,000 additional
borrowing to repay the Lakeview Plaza second mortgage note which was also due to
Fund XXVII. See also Note 5.
NOTE 5.
- -------
On June 18, 1998, the Partnership refinanced the La Plaza mortgage note with a
$3,785,000 mortgage note from an unaffiliated lender. However, only $3,185,000
of the mortgage note has been funded by the lender. The remaining $600,000 of
loan proceeds will be funded to the Partnership as required for the completion
of tenant improvements at La Plaza Office Building, if such tenant improvements
are needed to induce prospective or current tenants to lease or release space at
<PAGE>
the property. Proceeds from the new mortgage note were used to retire the
mortgage note and additional borrowing due to Fund XXVII discussed in Note 4
above. The new mortgage note bears interest at a variable rate equal to 1.75%
plus the London Interbank Offered Rate per annum. The new mortgage note requires
monthly interest-only payments and quarterly principal payments in an amount
necessary to reduce the principal balance of the note by 5% annually. The
maturity of the new mortgage note is June 18, 2001. Cash proceeds from the
refinancing transaction are as follows:
New loan proceeds...................................... $ 3,785,000
Capital improvement escrow............................. (600,000)
Amount required to payoff existing debt................ (3,136,029)
-----------
Cash proceeds from refinancing......................... $ 48,971
===========
The Partnership incurred $61,627 of deferred borrowing costs related to the
refinancing of the La Plaza mortgage note.
NOTE 6.
- -------
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. Cave Spring Corners
Shopping Center is located in Roanoke, Virginia. Cash proceeds from this
transaction, as well as the gain on sale are detailed below.
<TABLE>
<CAPTION>
Gain on Sale Cash Proceeds
-------------- -------------
<S> <C> <C>
Cash sales price....................................... $ 5,250,000 $ 5,250,000
Selling costs.......................................... (15,346) (15,346)
Deferred borrowing costs written off................... (3,901)
Straight-line rent receivables written off............. (33,977)
Prepaid leasing commissions written off................ (25,232)
Basis of real estate sold.............................. (2,259,104)
-------------
Gain on sale........................................... $ 2,912,440
============= ------------
Proceeds from sale of real estate...................... 5,234,654
Retirement of mortgage note............................ (3,058,762)
-----------
Net cash proceeds...................................... $ 2,175,892
===========
</TABLE>
<PAGE>
NOTE 7.
- -------
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 reimbursed the Partnership for all costs
incurred as a result of the fire less a standard deductible. The excess of cash
received over the basis of the property destroyed in the fire resulted in a
$350,927 gain on involuntary conversion.
Because only 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 gain was shown as a $65,800 deferred gain on involuntary
conversion on the Partnership's December 31, 1996 Balance Sheet. The $65,800
deferred gain was recognized in 1997 as a gain on involuntary conversion when
the Partnership received the remaining proceeds of $96,303 from its insurance
carrier.
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. As of June 30, 1998, the
Partnership owned seven apartment buildings, one retail shopping center and one
office building. All of the Partnership's properties are subject to mortgage
indebtedness.
The Partnership sold two retail shopping centers during 1997. Cave Spring
Corners, located in Roanoke, Virginia, was sold on June 5, 1997, and Iberia
Plaza, located in New Iberia, Louisiana, was sold on December 12, 1997. The
decision to sell the properties was influenced by the General Partner's belief
that the appreciation potential of the two properties was limited, the impending
maturities of the mortgage notes secured by the two properties, and by the
Partnership's announced plan to liquidate its real estate by December 2001. The
net proceeds from the sales, in the amount of $3,679,598, were added to the
Partnership's balance of cash reserves.
On June 18, 1998, the Partnership refinanced the La Plaza mortgage note. The
Partnership obtained a 3-year, $3,785,000 mortgage note from an unaffiliated
lender, of which $3,185,000 has been funded by the lender. The outstanding
balance of the new mortgage note bears interest at a variable rate equal to
1.75% plus the London Interbank Offered Rate per annum. The new note requires
monthly interest-only payments and quarterly principal payments in an amount
necessary to reduce the principal balance of the note by 5% annually. The
maturity of the new mortgage note is June 18, 2001.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The Partnership reported a net income of $20,946 and $18,194 for the three month
and six month periods ended June 30, 1998, as compared to net income of
$3,961,205 and $3,725,993 for the same periods of 1997. However, net income for
the 1997 periods includes the $2,912,440 gain on the sale of Cave Spring
Corners, a $533,746 extraordinary gain on extinguishment of debt, a $65,800 gain
on involuntary conversion, as well as results of operations from Cave Spring
Corners and Iberia Plaza, properties that the Partnership sold during 1997.
After adjusting results of operations for these items, and removing certain
residual expenses pertaining to Cave Spring Corners and Iberia Plaza from
results of operations for 1998, the Partnership recorded net income of $22,864
for the first six months of 1998 as compared to a loss of $50,863 for the first
six months of 1997.
Revenues:
Rental revenue decreased 6.4% for both the three month and six month periods
ended June 30, 1998 as compared to the same periods of 1997. The decrease is
primarily attributable to the loss of revenues from Cave Spring Corners and
Iberia Plaza. The Partnership's remaining properties increased their rental
revenues $166,194 or 2.3% for the six month period ended June 30, 1998 as
compared to the same period of 1997. Rental revenues increased at five of the
Partnership's nine properties. Briarwood Apartments, Coppermill Apartments,
Quail Meadows Apartments, Sandpiper Apartments and Spanish Oaks Apartments all
reported increases in both rental and occupancy rates. On a percentage basis,
the increases amounted to 10.6%, 7.6%, 11.9%, 4.1% and 5.9%, respectively.
Orchard Apartments and Regency Park Apartments also increased their rental
rates, but increased vacancy losses more than offset the increased rental rates
leading to a 5.4% and 1.5% decrease in rental revenue at the two properties.
The Partnership's two remaining commercial properties, La Plaza Office Building
and Lakeview Plaza, both recorded decreased rental revenue. Decreased occupancy
at La Plaza Office Building resulted in a 6.3% decrease in rental revenue at the
Las Vegas property. Lakeview Plaza encountered both decreased rental rates and
occupancy rates as the Lexington property reported a 14.3% decrease in rental
revenue.
Interest revenue of the Partnership decreased 51% and 17% for the three month
and six month periods ended June 30, 1998 as compared to the same periods of
1997. Interest revenue decreased because the Partnership had decreased amounts
of cash invested in interest-bearing accounts.
Revenues for the second quarter of 1997 also included a $2,912,440 gain on the
June 5, 1997 sale of Cave Spring Corners and a $65,800 gain on involuntary
conversion related to a 1996 fire at Regency Park Apartments. No such events
occurred during the first six months of 1998.
<PAGE>
Expenses:
Partnership expenses decreased 3.2% and 4.2% for the three month and six month
periods ended June 30, 1998 as compared to the same periods of 1997. As with
rental revenues, the decrease was primarily due to the 1997 sale of Cave Spring
Corners and Iberia Plaza. Expenses at the remainder of the Partnership's
properties increased $74,800 or 1.0% for the six month period. The discussion of
expenses in the following paragraphs excludes expenses related to Cave Spring
Corners and Iberia Plaza. Significant changes in expense items include an
increase in interest paid to affiliates, other operating expenses, and general
and administrative expenses.
Although total interest expense at the Partnership's remaining properties
decreased $50,091 or 2.9% for the first six months of 1998, the allocation of
interest expense between non-affiliates and affiliates changed such that
interest paid to affiliates increased $26,704 or 24% for the six months ended
June 30, 1998, but decreased $9,678 or 13.1% for the three months ended June 30,
1998. The La Plaza mortgage note was refinanced on February 28, 1997 from a
non-affiliate lender to an affiliated lender. The affiliate mortgage remained in
place until the note was again refinanced with a non-affiliate on June 18, 1998.
Other operating expenses at the Partnership's remaining properties decreased
$75,894 or 16.6% for the first six months of 1998 as compared to the same period
of 1997. Included in other operating expenses for the second quarter of 1997
were certain legal fees and other costs incurred at Briarwood Apartments. These
fees and costs were incurred to settle litigation involving a former employee of
the property.
General and administrative expenses increased $123,842 to $187,215 and $230,404
to $379,074 for the three month and six month periods ended June 30, 1998 as
compared to the same periods of 1997. The increase was due to costs incurred to
explore alternatives to maximize the value of the Partnership (see Liquidity and
Capital Resources.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the second quarter of 1998, cash flow provided by operating activities
increased 17.4% to $1,354,533. The increased cash flow is principally due to an
$833,382 decrease in cash paid to affiliates and a $314,121 decrease in interest
paid to non-affiliates. The Partnership paid $944,226 of reimbursable costs to
affiliates of the General Partner during the first six months of 1997, but paid
only $148,732 of such reimbursements for the same period of 1998.
Short-term liquidity:
At June 30, 1998, the Partnership held cash reserves of $1,949,283, a decrease
of $3,806,693 from the balance at the end of 1997. On March 30, 1998, the
Partnership distributed $4,499,998 to the limited partners. No payments of MID
have yet been made to the General Partner in 1998. Considering the current
performance of the Partnership's properties and budgeted capital improvements
for 1998, the General Partner considers the current balance of cash and cash
reserves adequate to meet the Partnership's cash needs for the rest of 1998. The
next balloon payment on the Partnership's mortgage notes is not scheduled to
occur until June 2001.
<PAGE>
The Partnership continues to invest in capital improvements for its properties.
For the first six months of 1998, the Partnership invested $272,587 in capital
improvements. A total of $1.6 million of capital improvements are budgeted for
1998. The largest capital improvement project will be tenant improvements at the
La Plaza Office Building, if the Partnership executes a new lease with a major
tenant that requires substantial tenant improvements. The new La Plaza mortgage
note contains a commitment by the lender to lend up to $3,785,000. The amount of
the loan funded to date is only $3,185,000. The lender will fund the remaining
$600,000 to provide for tenant improvements necessary at La Plaza, if the
Partnership signs a lease with a major tenant that requires the Partnership to
make such tenant improvements.
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 capital improvements made
by the Partnership during the past several 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 1998. 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 previously announced, the Partnership has retained PaineWebber
("PaineWebber"), Incorporated as its exclusive financial advisor to explore
alternatives to maximize the value of the Partnership including, without
limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The Partnership, through PaineWebber, has
provided financial and other information to interested parties and is currently
conducting discussions with one such party in an attempt to reach a definitive
agreement with respect to a sale transaction. It is possible that the General
Partner and its affiliates will receive non-cash consideration for their
ownership interests in connection with any such transaction. There can be no
assurance that any such agreement will be reached nor the terms thereof.
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 periods ended
June 30, 1998 and 1997, the General Partner received allocations of net income
of $910 and $186,300, respectively. The limited partners received allocations of
net income of $17,284 and $3,539,693, respectively.
No payments of MID to the General Partner have yet been paid during 1998. On
March 30, 1998, the Partnership distributed $4,499,998 ($33.34 per limited
partnership unit) to the limited partners. The General Partner will continue to
monitor the cash reserves and working capital needs of the Partnership to
determine when cash flows will support distributions to the limited partners and
payments of MID to the General Partner.
<PAGE>
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after June 30, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties, and respond to changing economic and competitive factors.
Other Information:
Management has begun to review its information technology infrastructure to
identify any systems that could be affected by the year 2000 problem. The year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in major systems failure or
miscalculations. The information systems used by the Partnership for financial
reporting and significant accounting functions were made year 2000 compliant
during recent systems conversions. The Partnership is in the process of
evaluating the computer systems at the various properties. The Partnership also
intends to communicate with suppliers, financial institutions and others to
coordinate year 2000 issues. Management believes that the remediation of any
outstanding year 2000 conversion issues will not have a material or adverse
effect on the Partnership's operations.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case has been stayed pending settlement discussions. While
actively working toward a final resolution, there can be no assurances regarding
settlement.
<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 1998 and
1997.
27. Financial Data Schedule for the quarter ended
June 30, 1998.
Registrant has omitted instruments with respect to long-term debt where
the total amount of securities authorized thereunder does not exceed
10% of the total assets of the Registrant. Registrant agrees to furnish
a copy of each such instruments to the Commission upon request.
(b) Reports on Form 8-K. There were no Form 8-K's file during the quarter
ended June 30, 1998.
<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 14, 1998 By: /s/ Ron K. Taylor
- --------------- -----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
August 14, 1998 By: /s/ Brandon K. Flaming
- --------------- -----------------------------------------
Date Brandon K. Flaming
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,949,283
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 81,653,377
<DEPRECIATION> (54,385,924)
<TOTAL-ASSETS> 32,355,931
<CURRENT-LIABILITIES> 0
<BONDS> 36,473,177
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,355,931
<SALES> 7,358,692
<TOTAL-REVENUES> 7,445,965
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,746,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,681,624
<INCOME-PRETAX> 18,194
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,194
<EPS-PRIMARY> 0
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