UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
------------------------------------------
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>
March 31, December 31,
1999 1998
------------ -------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ........................................................ $ 8,836,046 $ 8,836,046
Buildings and improvements ................................. 74,020,511 73,756,560
------------ ------------
82,856,557 82,592,606
Less: Accumulated depreciation ............................. (56,678,393) (55,930,192)
------------ ------------
26,178,164 26,662,414
Cash and cash equivalents ...................................... 2,697,036 2,680,102
Cash segregated for security deposits .......................... 353,720 426,327
Cash restricted for mortgage payments .......................... 159,250 79,800
Accounts receivable ............................................ 348,192 309,043
Prepaid expenses and other assets .............................. 253,096 233,432
Escrow deposits ................................................ 1,013,433 759,317
Deferred borrowing costs, net of accumulated
amortization of $712,452 and $668,233 at
March 31, 1999 and December 31, 1998,
respectively ................................................ 856,886 901,105
------------ ------------
$ 31,859,777 $ 32,051,540
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net .................................... $ 35,958,586 $ 36,140,300
Accrued interest ............................................... 256,318 258,427
Accrued property taxes ......................................... 691,084 473,177
Other accrued expenses ......................................... 421,195 400,581
Payable to affiliates - General Partner ........................ 3,193,709 2,965,226
Security deposits and deferred rental revenue .................. 406,060 400,987
------------ ------------
40,926,952 40,638,698
------------ ------------
Partners' deficit:
Limited partners - 135,200 limited partnership units
authorized; 134,980 limited partnership units
outstanding at March 31, 1999 and December 31, 1998........ (3,314,644) (3,041,534)
General Partner ............................................. (5,752,531) (5,545,624)
------------ ------------
(9,067,175) (8,587,158)
------------ ------------
$ 31,859,777 $ 32,051,540
============ ============
</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
March 31,
------------------------------
1999 1998
----------- -----------
Revenue:
<S> <C> <C>
Rental revenue ..................................... $ 3,850,229 $ 3,675,778
Interest ........................................... 28,888 59,224
----------- -----------
Total revenue .................................... 3,879,117 3,735,002
----------- -----------
Expenses:
Interest ........................................... 834,112 773,688
Interest - affiliates .............................. -- 73,460
Depreciation and amortization ...................... 748,201 784,628
Property taxes ..................................... 235,080 241,662
Personnel expenses ................................. 452,897 479,447
Utilities .......................................... 313,750 327,455
Repair and maintenance ............................. 438,102 388,101
Property management fees - affiliates .............. 187,695 179,511
Other property operating expenses .................. 198,287 215,165
General and administrative ......................... 117,301 191,859
General and administrative - affiliates ............ 89,924 82,778
----------- -----------
Total expenses ................................... 3,615,349 3,737,754
----------- -----------
Net income (loss) ..................................... $ 263,768 $ (2,752)
=========== ===========
Net income (loss) allocated to limited partners........ $ 226,316 $ (2,614)
Net income (loss) allocated to General Partner ........ 37,452 (138)
----------- -----------
Net income (loss) ..................................... $ 263,768 $ (2,752)
=========== ===========
Net income (loss) per limited partnership unit ........ $ 1.68 $ (.02)
=========== ===========
Distributions per limited partnership unit ............ $ 3.70 $ 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 Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Total
Partners'
General Limited Equity
Partner Partners (Deficit)
--------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1997 ............ $ (4,653,706) $ 1,607,681 $ (3,046,025)
Net loss ................................ (138) (2,614) (2,752)
Distributions to limited partners ....... -- (4,499,998) (4,499,998)
Management Incentive Distribution ....... (219,626) -- (219,626)
-------------- ------------ ------------
Balance at March 31, 1998 ............... $ (4,873,470) $ (2,894,931) $ (7,768,401)
============== ============ ============
Balance at December 31, 1998 ............ $ (5,545,624) $ (3,041,534) $ (8,587,158)
Net income .............................. 37,452 226,316 263,768
Distribution to limited partners ........ -- (499,426) (499,426)
Management Incentive Distribution........ (244,359) -- (244,359)
-------------- ------------ ------------
Balance at March 31, 1999 ............... $ (5,752,531) $ (3,314,644) $ (9,067,175)
============== ============ ============
</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>
Three Months Ended
March 31,
--------------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants .......................... $ 3,878,959 $ 3,592,488
Cash paid to suppliers .............................. (1,555,275) (1,785,308)
Cash paid to affiliates ............................. (218,633) (161,549)
Interest received ................................... 28,888 59,224
Interest paid ....................................... (771,311) (731,850)
Interest paid to affiliates ......................... -- (73,460)
Property taxes paid and escrowed .................... (225,599) (266,000)
----------- -----------
Net cash provided by operating activities .............. 1,137,029 633,545
----------- -----------
Cash flows from investing activities:
Additions to real estate investments ................ (263,951) (81,163)
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes payable......... (202,406) (186,016)
Cash restricted for mortgage payments ............... (79,450) --
Distributions to limited partners ................... (499,426) (4,499,998)
Management Incentive Distribution paid .............. (74,862) --
----------- -----------
Net cash used in financing activities .................. (856,144) (4,686,014)
----------- -----------
Net increase (decrease) in cash and
cash equivalents .................................... 16,934 (4,133,632)
Cash and cash equivalents at beginning of
period .............................................. 2,680,102 5,755,976
----------- -----------
Cash and cash equivalents at end of period ............. $ 2,697,036 $ 1,622,344
=========== ===========
</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>
Three Months Ended
March 31,
--------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Net income (loss) ............................................ $ 263,768 $ (2,752)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ............................. 748,201 784,628
Amortization of discounts on mortgage
notes payable ........................................... 20,692 15,294
Amortization of deferred borrowing costs .................. 44,219 27,837
Changes in assets and liabilities:
Cash segregated for security deposits ................... 72,607 (49,437)
Accounts receivable ..................................... (39,149) (21,350)
Prepaid expenses and other assets ....................... (19,664) 7,251
Escrow deposits ......................................... (254,116) (296,576)
Accounts payable ........................................ -- (59,628)
Accrued interest ........................................ (2,109) (1,293)
Accrued property taxes .................................. 217,907 197,551
Other accrued expenses .................................. 20,614 (48,691)
Payable to affiliates - General Partner ................. 58,986 100,740
Security deposits and deferred rental
revenue ............................................... 5,073 (20,029)
----------- -----------
Total adjustments ..................................... 873,261 636,297
----------- -----------
Net cash provided by operating activities .................... $ 1,137,029 $ 633,545
=========== ===========
</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)
March 31, 1999
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 three months ended March 31, 1999,
are not necessarily indicative of the results to be expected for the year ending
December 31, 1999.
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, 1998, 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. 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. The maximum
MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter.
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.
Prior to June 18, 1998, the La Plaza mortgage note, due to an affiliate of the
General Partner, incurred interest at a rate equal to 1% plus the prime lending
rate of Bank of America per annum. Terms of the affiliated mortgage note
required monthly interest-only debt service payments. On June 5, 1998, the
Partnership refinanced the La Plaza mortgage note with a $3,785,000 mortgage
note from an unaffiliated lender (see Note 4).
Compensation, reimbursements and distributions paid to or accrued for the
benefit of the General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Property management fees - affiliates ................... $187,695 $179,511
Interest - affiliates ................................... -- 73,460
Charged to general and administrative affiliates:
Partnership administration ............................ 89,924 82,778
-------- --------
$277,619 $335,749
======== ========
Charged to General Partner's deficit:
Management Incentive Distribution ..................... $244,359 $219,626
======== ========
</TABLE>
<PAGE>
NOTE 4.
- -------
On June 5, 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. 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 debt service payments and
annual principal payments equal to 5% of the outstanding principal balance of
the mortgage note. Terms of the new La Plaza mortgage note require the
Partnership to deposit funds into a restricted cash account on a quarterly
basis. The restricted funds will be used to pay the annual principal payment and
are included in "cash restricted for mortgage payments" on the Balance Sheets.
The new La Plaza mortgage note matures on June 5, 2001. Cash proceeds from the
refinancing transaction are as follows:
New loan proceeds...................................... $ 3,785,000
Holdback for capital improvements...................... (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.
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 March 31, 1999, 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.
On June 5, 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 annual 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 5, 2001.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The Partnership's net income for the first quarter of 1999 amounted to $263,768,
an increase of $266,520 over the $2,752 net loss reported by the Partnership for
the first quarter of 1998.
Revenues:
The Partnership's rental revenue increased $174,451 or 4.7% for the first
quarter of 1999 as compared to the first quarter of 1998.
Rental revenues increased at six of the Partnership's seven residential
properties. Rental revenues at Coppermill Apartments, Orchard Apartments,
Regency Park Apartments and Sandpiper Apartments increased 13.9%, 13.3%, 12.0%
and 5.1%, respectively. These four properties reported increased base rental
rates and decreased vacancy losses. Rental revenue at Briarwood Apartments and
Spanish Oaks increased 1.0% and 1.2%, respectively. These two properties
increased base rental rates, but most of the increase was offset by increased
vacancy, concessions, and other rental losses. Rental revenue decreased 7.0% at
Quail Meadows as layoffs in the aerospace industry caused vacancy losses at the
Wichita property to increase $70,273 to $84,225.
Rental revenues at the Partnership's two remaining commercial properties also
increased. Lakeview Plaza's rental revenue increased 16.6% primarily due to an
improved occupancy rate. La Plaza Office Building's rental revenue increased
6.5% due to implementation of several new leases with increased base rental
rates as compared to the previous leases.
Interest revenue of the Partnership decreased $30,336 to $28,888 for the first
quarter of 1999 as compared to the first quarter of 1998. The Partnership had
decreased amounts of cash and cash equivalents invested in interest-bearing
accounts.
Expenses:
Partnership expenses decreased $122,405 or 3.3% for the first quarter of 1999 as
compared to the first quarter of 1998. Decreases in general and administrative
expenses and in interest paid to affiliates were the expense categories showing
the largest decreases in both absolute terms and on a percentage basis. These
categories were partially offset by an increase in repair and maintenance
expenses.
General and administrative expenses decreased $74,558 or 39% for the first
quarter of 1999 as compared to the first quarter of 1998. Costs associated with
efforts to explore alternatives to maximize the value of the Partnership
decreased 30% during the first quarter of 1999 (see Liquidity and Capital
Resources). Also, costs to provide investor relation services was provided by an
affiliate of the General Partner during the first quarter of 1999. Such costs
were provided by a non-affiliate during the first quarter of 1998, and were
included in general and administrative expenses.
Interest expense paid to affiliates was eliminated with the June 18, 1998
refinancing of the La Plaza mortgage note from an affiliated lender to a
non-affiliated lender. The Partnership incurred no interest expense due to
affiliates for the first quarter of 1999 as compared $73,460 of interest expense
due to affiliates for the first quarter of 1998. When combined with interest
expense paid to unaffiliated lenders, the Partnership's total interest expense
decreased $13,036 or 1.5% for the first quarter of 1999.
<PAGE>
Repair and maintenance expenses increased $50,001 or 12.9% for the first quarter
of 1999 as compared to the first quarter of 1998. The Partnership incurred
increased costs for snow removal, floor covering replacement, and storm damages.
Three of the Partnership's properties, Orchard Apartments, Regency Park
Apartments, and Lakeview Plaza incurred increased snow removal expenses for the
first quarter of 1999 as compared to the first quarter of 1998. The increase in
snow removal expenses amounted to approximately $21,900. Expenses for floor
covering replacements increased approximately $16,200. Most of the increased
expense for floor covering was incurred at Briarwood Apartments, Orchard
Apartments, and Spanish Oaks Apartments. Additionally, Spanish Oaks Apartments
incurred approximately $11,000 of minor repairs and clean-up expenses related to
inclement weather at the San Antonio property.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities increased $503,484 to $1,137,029 for the
first quarter of 1999. Increased cash received from tenants and decreased cash
paid to suppliers accounted for most of the increased operating cash flow.
Short-term liquidity:
At March 31, 1999, the Partnership held cash and cash equivalents of $2,697,036,
an increase of $16,934 from the balance at the end of 1998. The General Partner
believes this level of cash reserves, combined with anticipated cash flow from
operating activities, is adequate to meet the Partnership's operating expenses,
debt service requirements, and budgeted capital improvements for 1999.
The Partnership continues to invest in capital improvements for its properties.
For the first three months of 1999, the Partnership invested $263,951 in capital
improvements. The Partnership has budgeted approximately $1,792,000 for capital
improvements in 1999. The General Partner believes these capital improvements
are necessary to allow the Partnership to increase its rental revenues in the
competitive markets in which the Partnership's properties operate. These
expenditures also allow the Partnership to reduce future repair and maintenance
expenses from amounts that would otherwise be incurred. Significant resources
may be needed at La Plaza Office Building to renovate and refurbish vacated
space for new tenants, and to bring the property into compliance with local
building codes. The new La Plaza mortgage note contains a provision whereby the
Partnership may borrow an additional $600,000 to meet these capital needs, if
necessary.
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
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. During
the last full week of March, the Partnership entered into a 45 day exclusivity
agreement with a well-financed bidder with whom it had commenced discussions
with respect to a sale transaction. The Partnership and such party have made
significant progress in negotiating the terms of a proposed transaction and are
continuing to have intensive discussions with respect to a transaction. In light
on these continuing negotiations, the exclusivity agreement has been extended
for an additional 21 days until June 4, 1999. 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 regarding whether 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 three month periods ended
March 31, 1999 and 1998, the General Partner was allocated net income of $37,452
and net loss of $138, respectively. The limited partners were allocated net
income of $226,316 and net loss of $2,614 for the three month periods ended
March 31, 1999 and 1998, respectively.
MID in the amount of $74,862 was paid to the General Partner during the first
quarter of 1999. No MID payments were paid to the General Partner during 1998.
On March 26, 1999, the Partnership distributed $499,426 ($3.70 per limited
partnership unit) to the limited partners. During the first quarter of 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 additional 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 March 31, 1999. 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.
<PAGE>
YEAR 2000 DISCLOSURE
- --------------------
State of readiness
- ------------------
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.
Management has assessed its information technology ("IT") infrastructure to
identify any systems that could be affected by the year 2000 problem. The IT
used by the Partnership for financial reporting and significant accounting
functions was made year 2000 compliant during recent systems conversions. The
software utilized for these functions is licensed by third party vendors who
have warranted that their systems are year 2000 compliant.
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management has inventoried all
such systems and queried suppliers, vendors and manufacturers to determine year
2000 compliance. Based on this review, management believes these systems are
substantially compliant. 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.
Cost
- ----
The cost of IT and embedded technology systems testing and upgrades is not
expected to be material to the Partnership. Because all the IT systems have been
upgraded over the last three years, all such systems were compliant, or made
compliant at no additional cost by third party vendors. Management anticipates
the costs of assessing, testing, and if necessary replacing embedded technology
components will be less than $50,000. Such costs will be funded from operations
of the Partnership.
Risks
- -----
Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is addressed by government agencies and entities that
provide services or supplies to the Partnership. Management has not determined
the most likely worst case scenario to the Partnership. As management studies
the findings of its property systems assessment and testing, management will
develop a better understanding of what would be the worst case scenario.
Management believes that progress on all areas is proceeding and that the
Partnership will experience no adverse effect as a result of the year 2000
issue. However, there is no assurance that this will be the case.
<PAGE>
Contingency plans
- -----------------
Management is developing contingency plans to address potential year 2000
non-compliance of IT and embedded technology systems. Management believes that
failure of any IT system could have an adverse impact on operations. However,
management believes that alternative systems are available that could be
utilized to minimize such impact. Management believes that any failure in the
embedded technology systems could have an adverse impact on that property's
performance. Management will assess these risks and develop plans to mitigate
possible failures by July 1999.
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 XXIII, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and
Regency North Associates, L.P., - 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 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 for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to
July 2, 1999.
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil
Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of
the transaction contemplated in the settlement and Plaintiffs claim that an
effort should be made to sell the McNeil Partnerships, Plaintiffs have included
allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P.
in the third consolidated and amended complaint.
Plaintiff's counsel intends 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 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 income
(loss) per limited partnership unit: Net
income (loss) per limited partnership unit is
computed by dividing net income (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 1999 and 1998.
27. Financial Data Schedule for the quarter ended
March 31, 1999.
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 March 31, 1999.
<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
May 18, 1999 By: /s/ Ron K. Taylor
- -------------- ---------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
May 18, 1999 By: /s/ Brandon K. Flaming
- -------------- ---------------------------------------------
Date Brandon K. Flaming
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,697,036
<SECURITIES> 0
<RECEIVABLES> 0
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 31,859,777
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<CGS> 0
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<OTHER-EXPENSES> 2,781,237
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