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, 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
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(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,
1999 1998
------------ ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ....................................................... $ 8,836,046 $ 8,836,046
Buildings and improvements ................................. 74,311,409 73,756,560
------------ ------------
83,147,455 82,592,606
Less: Accumulated depreciation ............................ (57,337,141) (55,930,192)
------------ ------------
25,810,314 26,662,414
Cash and cash equivalents ..................................... 3,126,714 2,680,102
Cash segregated for security deposits ......................... 312,241 426,327
Cash restricted for mortgage payments ......................... 39,361 79,800
Accounts receivable ........................................... 770,382 309,043
Prepaid expenses and other assets ............................. 289,600 233,432
Escrow deposits ............................................... 1,019,692 759,317
Deferred borrowing costs, net of accumulated
amortization of $756,672 and $668,233 at
June 30, 1999 and December 31, 1998,
respectively ............................................... 812,666 901,105
------------ ------------
$ 32,180,970 $ 32,051,540
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net ................................... $ 35,613,296 $ 36,140,300
Accrued interest .............................................. 253,693 258,427
Accrued property taxes ........................................ 667,679 473,177
Other accrued expenses ........................................ 578,314 400,581
Deferred gain on involuntary conversion ....................... 428,388 --
Payable to affiliates - General Partner ....................... 3,531,256 2,965,226
Security deposits and deferred rental revenue ................. 418,077 400,987
------------ ------------
41,490,703 40,638,698
------------ ------------
Partners' deficit:
Limited partners - 135,200 limited partnership units
authorized; 134,980 limited partnership units
outstanding at June 30, 1999 and December 31, 1998 ....... (3,288,669) (3,041,534)
General Partner ............................................ (6,021,064) (5,545,624)
------------ ------------
(9,309,733) (8,587,158)
------------ ------------
$ 32,180,970 $ 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 Six Months Ended
June 30, June 30,
------------------------------- ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue ..................... $ 3,913,304 $ 3,682,914 $ 7,763,533 $ 7,358,692
Interest ........................... 29,461 28,049 58,349 87,273
----------- ----------- ----------- -----------
Total revenue .................... 3,942,765 3,710,963 7,821,882 7,445,965
----------- ----------- ----------- -----------
Expenses:
Interest ........................... 828,637 769,667 1,662,749 1,543,355
Interest - affiliates .............. -- 64,809 -- 138,269
Depreciation and amortization ...... 748,203 786,932 1,496,404 1,571,560
Property taxes ..................... 235,080 241,662 470,160 483,324
Personnel expenses ................. 501,352 428,801 954,249 908,248
Utilities .......................... 267,044 278,440 580,794 605,895
Repair and maintenance ............. 449,304 478,995 887,406 867,096
Property management fees -
affiliates ....................... 198,192 184,603 385,887 364,114
Other property operating
expenses ......................... 190,039 172,137 388,326 387,302
General and administrative ......... 433,595 187,215 550,896 379,074
General and administrative -
affiliates ....................... 89,518 96,756 179,442 179,534
----------- ----------- ----------- -----------
Total expenses ................... 3,940,964 3,690,017 7,556,313 7,427,771
----------- ----------- ----------- -----------
Net income ............................ $ 1,801 $ 20,946 $ 265,569 $ 18,194
=========== =========== =========== ===========
Net income allocated to
limited partners ................... $ 25,974 $ 19,898 $ 252,291 $ 17,284
Net income (loss) allocated to
General Partner .................... (24,173) 1,048 13,278 910
----------- ----------- ----------- -----------
Net income ............................ $ 1,801 $ 20,946 $ 265,569 $ 18,194
=========== =========== =========== ===========
Net income per limited
partnership unit ................... $ .19 $ .15 $ 1.87 $ .13
=========== =========== =========== ===========
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 Six Months Ended June 30, 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 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)
============== =========== ===========
Balance at December 31, 1998 ............. $ (5,545,624) $(3,041,534) $(8,587,158)
Net income ............................... 13,278 252,291 265,569
Distribution to limited partners ......... -- (499,426) (499,426)
Management Incentive Distribution ........ (488,718) -- (488,718)
-------------- ----------- -----------
Balance at June 30, 1999 ................. $ (6,021,064) $(3,288,669) $(9,309,733)
============== =========== ===========
</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,
--------------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ............................. $ 7,877,511 $ 7,225,957
Cash paid to suppliers ................................. (3,309,834) (3,350,776)
Cash paid to affiliates ................................ (413,155) (493,173)
Interest received ...................................... 58,349 87,273
Interest paid .......................................... (1,537,660) (1,459,749)
Interest paid to affiliates ............................ -- (163,246)
Property taxes paid and escrowed ....................... (459,834) (491,753)
----------- -----------
Net cash provided by operating activities ................. 2,215,377 1,354,533
----------- -----------
Cash flows from investing activities:
Additions to real estate investments ................... (666,528) (272,587)
----------- -----------
Cash flows from financing activities:
Retirement of mortgage note payable - affiliate ........ -- (3,136,029)
Principal payments on mortgage notes payable ........... (568,388) (375,985)
Net proceeds from mortgage note payable ................ -- 3,185,000
Cash restricted for mortgage payments .................. 40,439 --
Additions to deferred borrowing costs .................. -- (61,627)
Distributions to limited partners ...................... (499,426) (4,499,998)
Management Incentive Distribution paid ................. (74,862) --
----------- -----------
Net cash used in financing activities ..................... (1,102,237) (4,888,639)
----------- -----------
Net increase (decrease) in cash and
cash equivalents ....................................... 446,612 (3,806,693)
Cash and cash equivalents at beginning of
period ................................................. 2,680,102 5,755,976
----------- -----------
Cash and cash equivalents at end of period ................ $ 3,126,714 $ 1,949,283
=========== ===========
</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,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income .................................................... $ 265,569 $ 18,194
----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .............................. 1,496,404 1,571,560
Amortization of discounts on mortgage
notes payable ............................................ 41,384 30,588
Amortization of deferred borrowing costs ................... 88,439 55,675
Changes in assets and liabilities:
Cash segregated for security deposits .................... 114,086 (25,224)
Accounts receivable ...................................... (10,727) (101,918)
Prepaid expenses and other assets ........................ (56,168) 6,074
Escrow deposits .......................................... (260,375) (222,161)
Accounts payable ......................................... -- (76,080)
Accrued interest ......................................... (4,734) (2,657)
Accred interest - affiliates ............................. -- (24,977)
Accrued property taxes ................................... 194,502 118,307
Other accrued expenses ................................... 177,733 (25,558)
Payable to affiliates - General Partner .................. 152,174 50,475
Security deposits and deferred rental
revenue ................................................ 17,090 (17,765)
----------- -----------
Total adjustments ...................................... 1,949,808 1,336,339
----------- -----------
Net cash provided by operating activities ..................... $ 2,215,377 $ 1,354,533
=========== ===========
</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, 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 and six months ended
June 30, 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 5, 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:
Six Months Ended
June 30,
---------------------
1999 1998
--------- ---------
Property management fees - affiliates................. $ 385,887 $ 364,114
Interest - affiliates.................................. -- 138,269
Charged to general and administrative affiliates:
Partnership administration........................... 179,442 179,534
--------- ---------
$ 565,329 $ 681,917
========= =========
Charged to General Partner's deficit:
Management Incentive Distribution.................... $ 488,718 $ 446,576
========= =========
<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.
NOTE 5.
- -------
On May 21, 1999, a fire caused approximately $461,000 of damage to the clubhouse
and office of Orchard Apartments. The Partnership expects to receive
approximately $451,000 of insurance reimbursements to cover the repair and
restoration costs to Orchard Apartments. The excess of the expected insurance
proceeds over the basis of the property damaged was recorded as a $428,388
deferred gain on involuntary conversion on the Partnership's June 30, 1999
Balance Sheet. The deferred gain will be recognized as the Partnership receives
the insurance proceeds.
NOTE 6.
- -------
On June 24, 1999, the Partnership and 18 affiliated partnerships, collectively,
(the "Partnerships"),the General Partner, McNeil Investors, Inc., McNeil Real
Estate Management, Inc. ("McREMI"), McNeil Summerhill, Inc. and Robert A. McNeil
entered into a definitive acquisition agreement (the "Master Agreement") with
WXI/McN Realty L.L.C. ("Newco"), an affiliate of Whitehall Street Real Estate
Limited Partnership XI, a real estate investment fund managed by Goldman, Sachs
& Co., whereby Newco and its subsidiaries will acquire the Partnerships. The
Master Agreement provides that the Partnerships will be merged with subsidiaries
of Newco. The Master Agreement also provides for the acquisition by Newco and
its subsidiaries of the assets of McREMI. The aggregate consideration in the
transaction, including the assumption or prepayment of all outstanding mortgage
debt of the Partnerships, is approximately $644,440,000.
<PAGE>
Pursuant to the terms of the Master Agreement, the limited partners in the
Partnership will receive cash on the closing date of the transaction (the
"Closing Date") in exchange for their limited partnership interests. In
addition, the Partnership will declare a special distribution to its limited
partners on the Closing Date equal to its then positive net working capital
balance, if any. The estimated aggregate consideration and net working capital
distribution to be received per unit of limited partnership interest in the
Partnership is currently estimated as $234.
On the Closing Date, the General Partner of the Partnership, will receive an
equity interest in Newco in exchange for its contribution to Newco of the
general partnership interests in the Partnerships, the limited partnership
interests in Fairfax Associates II L.P. and McNeil Summerhill Associates and the
assets of McREMI.
The Partnership's participation in the transaction is subject to, among other
conditions, the approval by a majority of the limited partners of the
Partnership.
In some circumstances, as defined in the Master Agreement, the Partnerships may
be subject to a break-up fee, up to an aggregate maximum of $18,000,000, if the
Master Agreement is terminated with respect to one or more of the Partnerships.
In the case of termination of the Master Agreement in these circumstances, each
of the Partnerships with respect to which the Master Agreement has been
terminated will be severally, but not jointly, liable for payment to Newco of
its respective break-up fee. The break-up fee ratably calculated for the
Partnership is $2,054,034.
All previous costs associated with this transaction had been allocated among the
Partnerships and McREMI based on the relative number of properties contained
therein. On June 24, 1999, a fairness opinion (the "Fairness Opinion") was
rendered by Robert A. Stanger & Co., Inc., an independent financial advisor, to
the effect that the aggregate consideration to be paid for the general
partnership interests and limited partnership interests in all of the
Partnerships and the assets of McREMI is fair from a financial point of view to
the holders of each class of limited partnership. Based on the relative values
as set forth in the Fairness Opinion, the Partnership recorded an adjustment to
general and administrative expenses and other accrued expenses during the second
quarter of 1999 in the amount of $38,106 to reflect the reallocation of
previously paid transaction costs among the Partnerships and McREMI.
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, 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.
<PAGE>
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.
RECENT DEVELOPMENTS
- -------------------
On June 24, 1999, McNeil Partners, L.P. (the General Partner of the Partnership)
and WXI/McN Realty L.L.C., an affiliate of Whitehall Street Real Estate Limited
Partnership XI ("Whitehall"), a real estate investment fund managed by Goldman,
Sachs & Co., announced that they have entered into a definitive acquisition
agreement whereby the Whitehall affiliate will acquire by merger nineteen real
estate limited partnerships operated by McNeil Partners, L.P. and Robert A.
McNeil. The limited partnerships involved are the Partnership and McNeil Real
Estate Funds IX, XI, XII, XIV, XV, XX, XXI, XXII, XXIII, XXIV, XXV, XXVI and
XXVII, Hearth Hollow Associates, McNeil Midwest Properties I, L.P., Regency
North Associates, Fairfax Associates and McNeil Summerhill (collectively, the
"Partnerships"). The Partnerships (other than Fairfax Associates and McNeil
Summerhill which are wholly-owned by Robert A. McNeil and related parties) will
be merged with subsidiaries of WXI/McN Realty L.L.C. The acquisition agreement
also provides for the acquisition by WXI/McN Realty L.L.C. of the assets of
McNeil Real Estate Management, Inc. ("McREMI"). The aggregate consideration in
the transaction, including all outstanding mortgage debt of the Partnerships, is
approximately $644,440,000.
Pursuant to the terms of the acquisition agreement, the limited partners in each
of the Partnerships (other than those wholly-owned by Robert A. McNeil) will
receive cash on the closing date of the transaction in exchange for their
limited partnership interests. In addition, each Partnership will make a special
distribution to its limited partners on the closing date of the transaction
equal to its then net positive working capital balance. McNeil Partners, L.P.
will receive an equity interest in WXI/McN Realty L.L.C. in exchange for its
contribution of its general partnership interests in the Partnerships, the
limited partnership interests in its wholly-owned Partnerships and the assets of
McREMI.
The proposed transaction follows an extensive marketing effort by PaineWebber
Incorporated, exclusive financial advisor to the Partnerships.
The transaction has been unanimously approved by the Board of Directors of
McNeil Investors, Inc., the general partner of McNeil Partners, L.P., the
general partner of each of the Partnerships other than Regency North Associates,
Fairfax Associates and McNeil Summerhill. The respective general partners of
Regency North Associates, Fairfax Associates and McNeil Summerhill also have
approved the transaction. The Board of Directors of McNeil Investors based its
approval upon, among other things, the recommendation of a Special Committee of
the Board, appointed at the beginning of the discussions with Whitehall to
represent the interests of holders of limited partnership interests in each of
the Partnerships. In addition, the Special Committee and the Board relied upon
<PAGE>
fairness opinions given by Robert A. Stanger & Co., Inc. ("Stanger & Co."), an
independent financial advisor to the Partnerships, to the effect that the
aggregate consideration is fair to the holders of each class of limited
partnership interests in each of the Partnerships. The Special Committee's
recommendation was also based upon the separate opinions of Eastdil Realty
Company ("Eastdil"), the independent financial advisor to the Special Committee.
Stanger & Co. and Eastdil have each also rendered an opinion that the aggregate
consideration to be paid for the general partnership interests and limited
partnership interests in all of the Partnerships and the assets of McREMI is
fair from a financial point of view to the holders of each class of limited
partnership interests in each of the Partnerships.
Each of the Partnerships' participation in the transaction is subject to, among
other conditions, the approval by a majority of the limited partners of the
respective Partnerships. The approval of the limited partners of the
Partnerships will be sought at meetings to be held in the coming months after
the filing of proxy statements with the Securities and Exchange Commission with
respect to the publicly traded Partnerships, and the subsequent mailing of proxy
statements to the limited partners. Preliminary proxy statements were filed with
the SEC on August 3, 1999.
The aggregate consideration in the transaction has been allocated preliminarily
among the general partnership interests and the limited partnership interests in
each of the Partnerships and McREMI, based upon an allocation analysis prepared
by Stanger & Co. and confirmed by Eastdil. Based upon this allocation analysis
and the fairness opinions rendered by Stanger & Co. and Eastdil, the Special
Committee, the Board of Directors of McNeil Investors, Inc., the respective
general partners of Regency North Associates, Fairfax Associates and McNeil
Summerhill have each unanimously approved the allocation of the aggregate
consideration. The estimated aggregate consideration and working capital
distribution to be received per unit of limited partnership interest of the
Partnership is currently estimated as $234.
McNeil Partners, L.P. will contribute its real estate investment and management
company business to a subsidiary of WXI/McN Realty, L.L.C., along with its
general partnership interests in the Partnerships and its limited partnership
interests in the wholly-owned Partnerships, having an aggregate allocated value,
as determined by Stanger & Co., of approximately $58,640,000, of which
approximately $29,400,000 reflects balances due to McNeil Partners, L.P. and
McREMI as reflected on the Partnerships' financial statements as of March 31,
1999.
The above estimates of the Partnership per unit estimated merger consideration
and working capital distribution and the interest of McNeil Partners, L.P. are
based upon, among other things, the balance sheet of the Partnership as of March
31, 1999, adjusted for intangible assets, non-cash liabilities, transaction
expenses and the McNeil Partners, L.P. interest in the Partnership. Actual
amounts, including the estimate allocable to McNeil Partners, L.P., will vary
with the performance of the Partnership and McNeil Partners, L.P. through the
closing date. The above estimated merger consideration and special working
capital distribution will be adjusted at closing to reflect the then working
capital position of the Partnership.
Whitehall is a $2.26 billion equity fund and is the seventh in a series of funds
sponsored and capitalized by Goldman, Sachs & Co. and its affiliates, along with
public and private investors, to acquire real estate worldwide.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The Partnership's net income decreased $19,145 to $1,801 and increased $247,375
to $265,569 for the three month and six month periods ended June 30, 1999 as
compared to the same periods of 1998.
Revenues:
The Partnership's rental revenue increased $230,390 or 6.3% and $404,841 or 5.5%
for the three and six month periods ending June 30, 1999 as compared to the same
periods of 1998.
Three of the Partnership's seven residential properties reported rental revenue
increases in excess of 10%. Rental revenue increased 11.3%, 12.4% and 10.2% at
Coppermill Apartments, Orchard Apartments and Regency Park Apartments,
respectively. These three properties recorded strong increases in both base
rental rates and in their occupancy rates. Briarwood Apartments and Sandpiper
Apartments also reported increased base rental rates and improved occupancy
rates, although on a lesser scale. Rental revenue at Briarwood Apartments
increased 2.8%, while Sandpiper Apartments reported an increase of 4.4%. Spanish
Oaks Apartments reported increased base rental rates, but some of the increase
was offset by increased vacancy losses resulting in a 1.4% net increase in
rental revenue. Quail Meadows Apartments was the Partnership's only property
reporting a decrease in rental revenue. Base rental rates increased at Quail
Meadows, but vacancy and other rental losses increased substantially resulting
in a 6.8% decrease in rental revenue at the Wichita, Kansas property. The
Wichita rental market has been affected by layoffs at two major local employers
in the aerospace industry.
Rental revenues at the Partnership's two commercial properties also increased.
Lakeview Plaza's rental revenue increased 18.2% primarily due to an improved
occupancy rate. La Plaza Office Building's rental revenue increased 10.8% due to
the implementation of several new leases with increased base rental rates as
compared to the previous leases.
Expenses:
Partnership expenses increased $250,947 or 6.8% and $128,542 or 1.7% for the
three month and six month periods ending June 30, 1999 as compared to the same
periods of 1998. On a percentage basis, general and administrative expenses
increased the most in the three month and six months periods ended June 30, 1999
as compared to the same periods of 1998.
General and administrative expenses increased $246,380 or 132% and $171,822 or
45% for the three month and six month periods ending June 30, 1999,
respectively, as compared to the same periods of 1998. The Partnership recorded
increased costs, mainly in the second quarter of 1999, to explore alternatives
to maximize the value of the Partnership (see Recent Developments) and also
recorded a $38,106 adjustment to reallocate previously paid transaction costs
among the Partnerships and McREMI (See Note 6).
Interest expense paid to affiliates was eliminated with the June 5, 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 six months of 1999 as compared to $138,269 of interest
expense due to affiliates for the first six months of 1998. When combined with
interest expense paid to unaffiliated lenders, the Partnership's total interest
expense decreased $18,875 or 1.1% for the first six months of 1999 as compared
to the same period of 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities increased $860,844 to $2,215,377 for the
first six months of 1999. Increased cash received from tenants accounted for
most of the increased operating cash flow.
Short-term liquidity:
At June 30, 1999, the Partnership held cash and cash equivalents of $3,126,714,
an increase of $446,612 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 six months of 1999, the Partnership invested $666,528 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. See "Recent
Development" above.
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, 1999 and 1998, the General Partner was allocated net income of $13,278
and $910, respectively. The limited partners were allocated net income of
$252,291 and $17,284 for the six month periods ended June 30, 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 the
first six months of 1998. On March 26, 1999, the Partnership distributed
$499,426 ($3.70 per limited partnership unit) to the limited partners. During
the second 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.
<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, 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.
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.
<PAGE>
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.
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 has assessed these risks and expects to have contingency
plans in place by December 31, 1999 for any material potential failures.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
1) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners
L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund
XXII, L.P., McNeil Real Estate Fund 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. ("McREMI") 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
<PAGE>
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. 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.
Because the settlement contemplated a transaction which included all of the
Partnerships and plaintiffs claimed that an effort should be made to sell
all of the Partnerships, in or around September 1998, plaintiffs filed a
third consolidated and amended complaint which included allegations with
respect to the Partnerships which had not been named in previously filed
complaints.
On September 15, 1998, the parties signed a Stipulation of Settlement. For
purposes of settlement, the parties stipulated to a class comprised of all
owners of limited partner units in the Partnerships during the period
beginning June 21, 1991, the earliest date that proxy materials began to be
issued in connection with the restructuring of the Partnerships, through
September 15, 1998. As structured, the Stipulation of Settlement provided
for the payment of over $35 million in distributions and the commitment to
market the Partnerships for sale, together with McREMI, through a fair and
impartial bidding process overseen by a national investment banking firm.
To ensure the integrity of that process, defendants agreed, among other
things, to involve plaintiffs' counsel in oversight of that process, and
plaintiffs' counsel retained an independent advisor to represent the
interests of limited partners of the Partnerships in the event of a
transaction. The transaction described in Item 2 - Recent Developments is a
result of that process. The settlement was not conditioned on the
consummation of this transaction.
On October 6, 1998, the court gave preliminary approval to the settlement.
It granted final approval to the settlement on July 8, 1999 and entered a
Final Order and Judgment dismissing the consolidated action with prejudice.
As a condition of final approval, the court requested, and the parties
agreed to, a slight modification of the release in the Stipulation of
Settlement with respect to future claims. Plaintiffs' counsel intends to
seek an order awarding attorneys' fees and reimbursing their out-of-pocket
expenses in an amount which is as yet undetermined. 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>
2) High River Limited Partnership, Unicorn Associates Corporation and Longacre
Corporation, et al. v. McNeil Partners, L.P. ("MPLP"), McNeil Investors,
Inc., McNeil Real Estate Management, Inc. (McREMI"), Robert A. McNeil and
Carole J. McNeil, - Supreme Court of the State of New York, County of New
York, - Index No. 99 603526.
On July 23, 1999, High River and two other affiliates of Carl C. Icahn
(Unicorn Associates Corporation and Longacre Corporation), filed a
complaint for damages in the Supreme Court of the State of New York, County
of New York. Plaintiffs allege that the defendants improperly interfered
with tender offers made by High River for limited partner units in the
Partnership and other affiliated partnerships in which MPLP serves as
General Partner (the "McNeil Partnerships"), by, among other things, filing
purportedly frivolous litigation to delay High River's offers, issuing
purportedly false and misleading statements opposing the offers and
purportedly forcing High River itself to file litigation to enforce its
rights. High River also alleges that as a result the defendants caused High
River to incur undue expense and that the defendants ultimately prevented
High River from acquiring a greater number of limited partner units.
Plaintiffs also allege that the defendants improperly excluded High River
from participating in the auction process for the sale of the McNeil
Partnerships, and otherwise took steps to prevent its participation in the
auction. In addition, plaintiffs, who are limited partners in, among
others, McNeil Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and
XXVII, have also sued the defendants based on their status as opt-outs from
the Schofield settlement. Plaintiffs seek undisclosed damages and an
accounting.
On July 30, 1999, defendants filed an answer to the High River Complaint,
denying each and every material allegation contained in the High River
Complaint and asserting several affirmative defenses.
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
per limited partnership unit: Net income per
limited partnership unit is computed by
dividing net income 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
June 30, 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. A Report on Form 8-K dated June 24, 1999 was
filed on June 29, 1999 regarding the transaction detailed in Note 6.
<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 16, 1999 By: /s/ Ron K. Taylor
- --------------- -----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
August 16, 1999 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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,126,714
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 83,147,455
<DEPRECIATION> (57,337,141)
<TOTAL-ASSETS> 32,180,970
<CURRENT-LIABILITIES> 0
<BONDS> 35,613,296
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,180,970
<SALES> 7,763,533
<TOTAL-REVENUES> 7,821,882
<CGS> 0
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<OTHER-EXPENSES> 5,893,564
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