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 September 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
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>
September 30, December 31,
1998 1997
------------- ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ......................................................... $ 8,836,046 $ 8,836,046
Buildings and improvements ................................... 73,136,380 72,544,744
------------ ------------
81,972,426 81,380,790
Less: Accumulated depreciation .............................. (55,163,939) (52,814,364)
------------ ------------
26,808,487 28,566,426
Cash and cash equivalents ....................................... 2,455,467 5,755,976
Cash segregated for security deposits ........................... 423,002 358,396
Accounts receivable ............................................. 509,236 356,496
Prepaid expenses and other assets ............................... 206,092 212,031
Escrow deposits ................................................. 1,053,988 816,017
Deferred borrowing costs, net of accumulated
amortization of $539,436 and $452,021 at
September 30, 1998 and December 31, 1997,
respectively ................................................. 1,029,902 1,047,074
------------ ------------
$ 32,486,174 $ 37,112,416
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage notes payable, net ..................................... $ 36,294,443 $ 33,633,574
Mortgage notes payable - affiliates ............................. -- 3,136,029
Accounts payable ................................................ 554 76,689
Accrued interest ................................................ 269,317 244,393
Accrued interest - affiliates ................................... -- 24,977
Accrued property taxes .......................................... 797,793 470,105
Other accrued expenses .......................................... 287,377 296,729
Payable to affiliates - General Partner ......................... 2,663,433 1,858,835
Security deposits and deferred rental revenue ................... 390,363 417,110
------------ ------------
40,703,280 40,158,441
------------ ------------
Partners' equity (deficit):
Limited partners - 135,200 limited partnership units
authorized; 134,980 limited partnership units out-
standing at September 30, 1998 and December 31, 1997 (2,896,873) 1,607,681
General Partner .............................................. (5,320,233) (4,653,706)
------------ ------------
(8,217,106) (3,046,025)
------------ ------------
$ 32,486,174 $ 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 Nine Months Ended
September 30, September 30,
---------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue ..................... $ 3,753,391 $ 3,876,031 $ 11,112,083 $ 11,737,096
Interest ........................... 21,214 52,185 108,487 157,225
Gain on involuntary
conversion ....................... -- -- -- 65,800
Gain on sale of real estate ........ -- -- -- 2,912,440
------------ ------------ ------------ ------------
Total revenue .................... 3,774,605 3,928,216 11,220,570 14,872,561
------------ ------------ ------------ ------------
Expenses:
Interest ........................... 847,804 837,874 2,391,159 2,680,173
Interest - affiliates .............. -- 74,943 138,269 186,508
Depreciation and
amortization ..................... 778,015 783,849 2,349,575 2,325,003
Property taxes ..................... 241,662 252,066 724,986 791,231
Personnel expenses ................. 498,729 473,914 1,406,977 1,359,277
Utilities .......................... 299,865 324,981 905,760 977,802
Repair and maintenance ............. 520,866 499,007 1,387,962 1,461,726
Property management
fees - affiliates ................ 184,070 192,119 548,184 576,635
Other property operating
expenses ......................... 217,312 268,173 604,614 759,326
General and administrative ......... 122,130 84,147 501,204 232,817
General and administrative -
affiliates ....................... 87,142 86,513 266,676 279,204
------------ ------------ ------------ ------------
Total expenses ................... 3,797,595 3,877,586 11,225,366 11,629,702
------------ ------------ ------------ ------------
Income (loss) before
extraordinary item ................. (22,990) 50,630 (4,796) 3,242,859
Extraordinary gain on
extinguishment of debt ............. -- -- -- 533,764
------------ ------------ ------------ ------------
Net income (loss) ..................... $ (22,990) $ 50,630 $ (4,796) $ 3,776,623
============ ============ ============ ============
Net income (loss) allocated
to limited partners ................ $ (21,840) $ (1,646,820) $ (4,556) $ 1,892,873
Net income (loss) allocated
to General Partner ................. (1,150) 1,697,450 (240) 1,883,750
------------ ------------ ------------ ------------
Net income (loss) ..................... $ (22,990) $ 50,630 $ (4,796) $ 3,776,623
============ ============ ============ ============
Net income (loss) per limited
partnership unit:
Income (loss) before
extraordinary item ............... $ (.16) $ (10.42) $ (.03) $ 12.04
Extraordinary gain (loss) on
extinguishment of debt ........... -- (1.78) -- 1.98
------------ ------------ ------------ ------------
Net income (loss) ..................... $ (.16) $ (12.20) $ (.03) $ 14.02
============ ============ ============ ============
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 Nine Months Ended September 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 .............................. 1,883,750 1,892,873 3,776,623
Management Incentive Distribution........ (712,457) -- (712,457)
-------------- ----------- -----------
Balance at September 30, 1997 ........... $ (4,344,714) $ 1,188,824 $(3,155,890)
============== =========== ===========
Balance at December 31, 1997 ............ $ (4,653,706) $ 1,607,681 $(3,046,025)
Net loss ................................ (240) (4,556) (4,796)
Distribution to limited partners ........ -- (4,499,998) (4,499,998)
Management Incentive Distribution ....... (666,287) -- (666,287)
-------------- ----------- -----------
Balance at September 30, 1998 ........... $ (5,320,233) $(2,896,873) $(8,217,106)
============== =========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1998 1997
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ............................. $ 10,886,830 $ 11,745,590
Cash paid to suppliers ................................. (4,866,162) (4,803,730)
Cash paid to affiliates ................................ (676,549) (1,604,805)
Interest received ...................................... 108,487 157,225
Interest paid .......................................... (2,232,939) (2,556,083)
Interest paid to affiliates ............................ (163,246) (168,156)
Property taxes paid and escrowed ....................... (674,012) (627,633)
------------ ------------
Net cash provided by operating activities ................. 2,382,409 2,142,408
------------ ------------
Cash flows from investing activities:
Additions to real estate investments ................... (591,636) (854,102)
Proceeds from sale of real estate ...................... -- 5,234,654
------------ ------------
Net cash provided by (used in) investing activities........ (591,636) 4,380,552
------------ ------------
Cash flows from financing activities:
Proceeds from mortgage note payable - affiliate ........ -- 2,336,029
Retirement of mortgage note payable - affiliate ........ (3,136,029) --
Principal payments on mortgage notes payable ........... (570,012) (691,008)
Net proceeds from mortgage note payable ................ 3,185,000 533,764
Retirement of mortgage notes payable ................... -- (5,432,717)
Additions to deferred borrowing costs .................. (70,243) --
Distributions to limited partners ...................... (4,499,998) --
Management Incentive Distribution paid ................. -- (2,000,000)
------------ ------------
Net cash used in financing activities ..................... (5,091,282) (5,253,932)
------------ ------------
Net increase (decrease) in cash and
cash equivalents ....................................... (3,300,509) 1,269,028
Cash and cash equivalents at beginning of
period ................................................. 5,755,976 2,660,679
------------ ------------
Cash and cash equivalents at end of period ................ $ 2,455,467 $ 3,929,707
============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income (Loss) to Net Cash Provided By
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Net income (loss) ............................................ $ (4,796) $ 3,776,623
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ............................. 2,349,575 2,325,003
Amortization of discounts on mortgage
notes payable ........................................... 45,881 77,679
Amortization of deferred borrowing costs .................. 87,415 96,692
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 ................... (64,606) (27,269)
Accounts receivable ..................................... (152,740) (4,391)
Prepaid expenses and other assets ....................... 5,939 62,397
Escrow deposits ......................................... (237,971) (235,794)
Accounts payable ........................................ (76,135) (45,448)
Accrued interest ........................................ 24,924 (50,281)
Accrued interest - affiliates ........................... (24,977) 18,352
Accrued property taxes .................................. 327,688 362,052
Other accrued expenses .................................. (9,352) 12,761
Deferred gain on involuntary conversion ................. -- (65,800)
Payable to affiliates - General Partner ................. 138,311 (748,966)
Security deposits and deferred rental
revenue ............................................... (26,747) 35,002
----------- -----------
Total adjustments ..................................... 2,387,205 (1,634,215)
----------- -----------
Net cash provided by operating activities .................... $ 2,382,409 $ 2,142,408
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
Notes to Financial Statements
(Unaudited)
September 30, 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 nine months ended September 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, 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 note was secured by a second lien on Lakeview Plaza. Terms
of the mortgage note required monthly interest-only payments equal to 1% plus
the prime lending rate of Bank of America 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 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 second mortgage note that was also due to 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 note 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:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Property management fees - affiliates .................. $ 548,184 $ 576,635
Interest - affiliates .................................. 138,269 186,508
Charged to general and administrative affiliates:
Partnership administration ........................... 266,676 279,204
---------- ----------
$ 953,129 $1,042,347
========== ==========
Charged to General Partner's deficit:
Management Incentive Distribution .................... $ 666,287 $ 712,457
========== ==========
</TABLE>
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 mortgage note carried a variable
interest rate equal to 1% plus the prime lending rate of Bank of America and
required 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 Note 5.
<PAGE>
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
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 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 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 $70,243 of deferred borrowing costs related to the
refinancing of the La Plaza mortgage note.
NOTE 6.
- -------
On January 26, 1996, the Partnership refinanced the Spanish Oaks mortgage note.
In connection with the refinancing, the Partnership and the prior lienholder
agreed to a discounted payoff of the prior mortgage note that resulted in an
$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.
<PAGE>
NOTE 7.
- -------
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>
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 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 during the second quarter of 1997 as a gain on
involuntary conversion when the Partnership received the remaining proceeds of
$96,303 from its insurance carrier.
<PAGE>
NOTE 9.
- -------
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 was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
<PAGE>
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 September 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.
RESULTS OF OPERATIONS
- ---------------------
The Partnership reported net losses of $22,990 and $4,796, respectively, for the
three month and nine month periods ended September 30, 1998, as compared to net
income of $50,630 and $3,776,623 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 $533,764 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 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 $8,244 for the first
nine months of 1998 as compared to a net loss of $30,225 for the first nine
months of 1997.
<PAGE>
Revenues:
Rental revenue decreased 3.2% and 5.3% for the three month and nine month
periods ended September 30, 1998 as compared to the same periods of 1997. The
decrease is attributable to the loss of revenues from Cave Spring Corners and
Iberia Plaza. The Partnership's remaining properties increased their rental
revenues $207,018 or 1.9% for the nine month period ended September 30, 1998 as
compared to the same period of 1997. Rental revenues increased at six of the
Partnership's seven residential properties. Briarwood Apartments, Coppermill
Apartments, Quail Meadows Apartments, Sandpiper Apartments and Spanish Oaks
Apartments reported increases in net rental revenue ranging from 3.5% to 8.9%.
These five properties reported both increased rental rates and improving
occupancy rates. Regency Park Apartments increased rental revenue 2.3%. An
increase in base rental rates at Regency Park Apartments was partially offset by
increased vacancy loss. Rental revenue at Orchard Apartments decreased 4.4% as a
small increase in rental rates was more than offset by increased vacancy,
discounts and other rental losses.
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 7.7% decrease in total revenue at the
Las Vegas property. Lakeview Plaza encountered both decreased rental rates and
occupancy rates as the Lexington property reported a 13.9% decrease in rental
revenue.
Interest revenue of the Partnership decreased 59% and 31% for the three month
and nine month periods ended September 30, 1998 as compared to the same periods
of 1997. Interest revenue decreased as the Partnership had decreased amounts of
cash invested in interest-bearing accounts.
Revenues for 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
nine months of 1998.
Expenses:
Partnership expenses decreased 2.1% and 3.5% for the three month and nine month
periods ended September 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 $119,946 or 1.1% for the nine 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 a
decrease in interest paid to affiliates, decreased other operating expenses, and
increased general and administrative expenses.
Although total interest expense at the Partnership's remaining properties
decreased 7.1% and 2.4% for the three month and nine month periods ended
September 30, 1998, the allocation of interest expense between non-affiliates
and affiliates changed due to the June 18, 1998 refinancing of the La Plaza
mortgage note. With the La Plaza refinancing, the Partnership paid off all
affiliate mortgage notes. Interest paid to affiliates therefore decreased 26%
for the nine month period ended September 30, 1998, and was completely
eliminated for the three month period ended September 30, 1998.
<PAGE>
Other operating expenses at the Partnership's remaining properties decreased
$103,058 or 14.7% for the first nine months of 1998 as compared to the same
period of 1997. Included in other operating expenses for the third 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 $37,983 to $122,130 and $268,387
to $501,204 for the three month and nine month periods ended September 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 first nine months of 1998, cash flow provided by operating activities
increased 11.2% to $2,382,409. The increased cash flow is principally due to an
$928,256 decrease in cash paid to affiliates and a $323,143 decrease in interest
paid to non-affiliates. The Partnership paid $1,031,472 of reimbursable costs to
affiliates of the General Partner during the first nine months of 1997, but paid
only $148,732 of such reimbursements for the same period of 1998.
Short-term liquidity:
At September 30, 1998, the Partnership held cash reserves of $2,455,467, a
decrease of $3,300,509 from the balance at the end of 1997. On March 30, 1998,
the Partnership distributed $4,499,998 to the limited partners ($33.34 per
limited partnership unit). 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.
The Partnership continues to invest in capital improvements for its properties.
For the first nine months of 1998, the Partnership invested $591,636 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. 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.
<PAGE>
As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") 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 nine month periods ended
September 30, 1998 and 1997, the General Partner was allocated net loss of $240
and net income of $1,883,750, respectively. The limited partners were allocated
net loss of $4,556 and net income of $1,892,873 for the nine month periods ended
September 30, 1998 and 1997, 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.
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 September 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 reviewed 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.
<PAGE>
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management intends to inventory
all such systems and query suppliers, vendors and manufacturers to determine
year 2000 compliance. In circumstances of non-compliance management will work
with the vendor to remedy the problem or seek alternative suppliers who will be
in compliance. 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. However, no estimates can be made as to the potential
adverse impact resulting from the failure of third party service providers and
vendors to be year 2000 compliant. Management is in the process of identifying
those risks as well as developing a contingency plan to mitigate potential
adverse effects from non-compliance.
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.
<PAGE>
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 was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
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
September 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 September 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
November 16, 1998 By: /s/ Ron K. Taylor
- ----------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 16, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,455,467
<SECURITIES> 0
<RECEIVABLES> 509,239
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 81,972,426
<DEPRECIATION> (55,163,939)
<TOTAL-ASSETS> 32,486,174
<CURRENT-LIABILITIES> 0
<BONDS> 36,294,443
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,486,174
<SALES> 11,112,083
<TOTAL-REVENUES> 11,220,570
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,695,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,529,428
<INCOME-PRETAX> (4,796)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,796)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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