UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 0-14007
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MCNEIL REAL ESTATE FUND XX, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0050225
- --------------------------------------------------------------------------------
(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 XX, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ......................................................... $ 392,000 $ 392,000
Buildings and improvements ................................... 3,930,435 3,882,558
------------ ------------
4,322,435 4,274,558
Less: Accumulated depreciation .............................. (1,467,812) (1,290,949)
------------ ------------
2,854,623 2,983,609
Mortgage loan investments, net of allowance of
$792,013 at December 31, 1997 ................................ -- 3,268,712
Mortgage loan investments - affiliate, net of allowance
of $130,000 at December 31, 1997 ............................. -- 3,600,076
Cash and cash equivalents ....................................... 3,026,759 1,824,293
Cash segregated for security deposits ........................... 25,491 27,405
Interest and other accounts receivable .......................... 5,963 140,025
Escrow deposits ................................................. 138,445 162,652
Deferred borrowing costs, net of accumulated
amortization of $72,171 and $60,222 at September 30,
1998 and December 31, 1997, respectively ..................... 89,323 101,272
Prepaid expenses and other assets ............................... 4,200 4,200
------------ ------------
$ 6,144,804 $ 12,112,244
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net ...................................... $ 2,627,163 $ 2,666,814
Accounts payable and other accrued expenses ..................... 43,300 61,994
Accrued property taxes .......................................... 118,985 137,050
Payable to affiliates ........................................... 319,178 203,444
Deferred revenue ................................................ -- 27,229
Security deposits and deferred rental revenue ................... 29,061 29,494
------------ ------------
3,137,687 3,126,025
------------ ------------
Partners' equity (deficit):
Limited partners - 60,000 limited partnership units
authorized; 49,512 limited partnership units issued
and outstanding at September 30, 1998 and
December 31, 1997 .......................................... 3,291,047 9,282,684
General Partner .............................................. (283,930) (296,465)
------------ ------------
3,007,117 8,986,219
------------ ------------
$ 6,144,804 $ 12,112,244
============ ============
</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 XX, L.P.
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 ....................... $ 320,966 $ 308,473 $ 967,846 $ 966,384
Interest income on mortgage
loan investments ................... 42,092 80,065 180,872 210,317
Interest income on mortgage
loan investments - affiliate........ -- 15,473 108,214 45,915
Other interest income ................ 93,607 50,624 178,719 120,424
Gain on extinguishment of
mortgage loan investment ........... -- -- 1,025,833 --
Gain on disposition of real
estate ............................. -- 1,962,280 -- 1,962,280
---------- ---------- ---------- ----------
Total revenue ...................... 456,665 2,416,915 2,461,484 3,305,320
---------- ---------- ---------- ----------
Expenses:
Interest ............................. 60,677 61,553 182,975 185,528
Depreciation ......................... 57,626 33,287 176,863 178,311
Property taxes ....................... 41,046 39,406 118,984 128,645
Personnel costs ...................... 37,242 38,539 111,316 116,001
Utilities ............................ 23,175 22,647 63,350 62,286
Repairs and maintenance .............. 30,005 33,783 87,283 103,091
Property management
fees - affiliates .................. 15,944 14,944 45,976 47,767
Other property operating
expenses ........................... 20,835 26,610 57,127 72,884
General and administrative ........... 39,384 25,749 202,584 82,213
General and administrative -
affiliates ......................... 30,412 73,197 161,538 205,132
---------- ---------- ---------- ----------
Total expenses ..................... 356,346 369,715 1,207,996 1,181,858
---------- ---------- ---------- ----------
Net income .............................. $ 100,319 $2,047,200 $1,253,488 $2,123,462
========== ========== ========== ==========
Net income allocable
to limited partners .................. $ 99,316 $2,026,728 $1,240,953 $2,102,227
Net income allocable
to General Partner ................... 1,003 20,472 12,535 21,235
---------- ---------- ---------- ----------
Net income .............................. $ 100,319 $2,047,200 $1,253,488 $2,123,462
========== ========== ========== ==========
Net income per limited
partnership unit ..................... $ 2.00 $ 40.94 $ 25.06 $ 42.46
========== ========== ========== ==========
Distributions per limited
partnership unit ..................... $ 116.14 $ 50.49 $ 146.08 $ 65.64
========== ========== ========== ==========
</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 XX, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
------------- ------------ ----------------
<S> <C> <C> <C>
Balance at December 31, 1996 ............ $ (318,863) $ 10,315,277 $ 9,996,414
Net income .............................. 21,235 2,102,227 2,123,462
Distributions to limited partners........ -- (3,249,987) (3,249,987)
------------ ------------ ------------
Balance at September 30, 1997 ........... $ (297,628) $ 9,167,517 $ 8,869,889
============ ============ ============
Balance at December 31, 1997 ............ $ (296,465) $ 9,282,684 $ 8,986,219
Net income .............................. 12,535 1,240,953 1,253,488
Distributions to limited partners ....... -- (7,232,590) (7,232,590)
------------ ------------ ------------
Balance at September 30, 1998 ........... $ (283,930) $ 3,291,047 $ 3,007,117
============ ============ ============
</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 XX, L.P.
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 ........................ $ 1,006,444 $ 973,198
Cash paid to suppliers ............................ (539,235) (485,988)
Cash paid to affiliates ........................... (91,780) (272,644)
Interest received ................................. 375,076 325,966
Interest received from affiliate .................. 184,958 36,665
Interest paid ..................................... (165,000) (168,562)
Property taxes paid ............................... (280) (24,100)
Property taxes escrowed ........................... (115,800) (97,044)
----------- -----------
Net cash provided by operating activities ............ 654,383 287,491
----------- -----------
Cash flows from investing activities:
Additions to real estate investments .............. (47,877) (157,761)
Collection of principal on mortgage loan
investments ..................................... 53,364 101,584
Proceeds from payoff of mortgage loan
investments ..................................... 4,241,181 --
Collection of principal on mortgage loan
investments - affiliate ......................... 9,126 --
Proceeds from payoff of mortgage loan
investments - affiliate ......................... 3,570,896 --
Proceeds from disposition of real estate .......... -- 4,493,834
----------- -----------
Net cash provided by investing activities ............ 7,826,690 4,437,657
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage note payable........ (46,017) (42,427)
Distributions to limited partners ................. (7,232,590) (3,249,987)
----------- -----------
Net cash used in financing activities ................ (7,278,607) (3,292,414)
----------- -----------
Net increase in cash and cash equivalents ........... 1,202,466 1,432,734
Cash and cash equivalents at beginning of
period ............................................ 1,824,293 3,188,257
----------- -----------
Cash and cash equivalents at end of period ........... $ 3,026,759 $ 4,620,991
=========== ===========
</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 XX, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income ............................................ $ 1,253,488 $ 2,123,462
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 176,863 178,311
Amortization of deferred borrowing costs ........... 11,949 11,210
Amortization of discount on mortgage note
payable .......................................... 6,366 6,044
Gain on extinguishment of mortgage
loan investment .................................. (1,025,833) --
Gain on disposition of real estate ................. -- (1,962,280)
Disposition fee payable to affiliate ............... -- (124,500)
Changes in assets and liabilities:
Cash segregated for security deposits ............ 1,914 24,729
Interest and other accounts receivable ........... 134,062 (14,365)
Escrow deposits .................................. 24,207 33,261
Prepaid expenses and other assets ................ -- 834
Accounts payable and other accrued
expenses ....................................... (18,694) (46,616)
Accrued property taxes ........................... (18,065) (26,412)
Payable to affiliates ............................ 115,734 104,755
Deferred revenue ................................. (7,175) (4,968)
Security deposits and deferred rental
revenue ........................................ (433) (15,974)
----------- -----------
Total adjustments .............................. (599,105) (1,835,971)
----------- -----------
Net cash provided by operating activities ............. $ 654,383 $ 287,491
=========== ===========
</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 XX, L.P.
Notes to Financial Statements
September 30, 1998
(Unaudited)
NOTE 1.
- -------
McNeil Real Estate Fund XX, L.P. (the "Partnership"), formerly known as
Southmark Income Investors, Ltd., was organized on July 19, 1984 as a limited
partnership under the provisions of the California Revised Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil ("McNeil"). The principal place of business for the Partnership and
the General Partner is 13760 Noel Road, Suite 600, 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 XX, L.P., 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 for its properties to McNeil Real Estate Management, Inc. ("McREMI"),
an affiliate of the General Partner, for providing property management services.
Under the terms of its partnership agreement, the Partnership pays a disposition
fee to an affiliate of the General Partner equal up to 3% of the gross sales
price for brokerage services performed in connection with the sale of the
Partnership's properties, provided, however, that in no event shall all real
estate commissions (including the disposition fee) paid to all persons exceed
the amount customarily charged in similar arms-length transactions. The fee is
due and payable at the time the sale closes. The Partnership incurred $124,500
of such fees during 1997 in connection with the sale of 1130 Sacramento
Condominiums. This amount represents 2.65% of the gross sales price. These fees
have not yet been paid by the Partnership and are included in payable to
affiliates on the Balance Sheets at September 30, 1998 and December 31, 1997.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
<PAGE>
The Partnership is paying an asset management fee which is payable to the
General Partner. Through 1999, the asset management fee is calculated as 1% of
the Partnership's tangible asset value. 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, (ii) a value of
$10,000 per apartment unit or (iii) on 1130 Sacramento, the net book value of
the property is used 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 fee percentage decreases subsequent to
1999. Total accrued but unpaid asset management fees of $116,983 and $36,633
were outstanding at September 30, 1998 and December 31, 1997, respectively.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Nine Months Ended
September 30,
---------------------
1998 1997
-------- --------
Property management fees .......................... $ 45,976 $ 47,767
Charged to gain on disposition of real estate:
Disposition fees ............................... -- 124,500
Charged to general and administrative -
affiliates:
Partnership administration ..................... 81,188 83,087
Asset management fee ........................... 80,350 122,045
-------- --------
$207,514 $377,399
======== ========
Payable to affiliates at September 30, 1998 and December 31, 1997 consisted
primarily of unpaid property management fees, disposition fees, Partnership
general and administrative expenses and asset management fees and are due and
payable from current operations.
NOTE 4.
- -------
The Partnership's mortgage loan investments - affiliate were secured by first
and second liens on Fort Meigs Plaza Shopping Center, which was owned by an
affiliate of the General Partner. On April 20, 1998, Fort Meigs Plaza was sold
to a non-affiliate for a gross sales price of $3.8 million. The Partnership
received $3,615,353 as payment in full for both principal and interest
receivable on the loans, which represents the available cash proceeds from the
sale of the property.
<PAGE>
NOTE 5.
- -------
The mortgage loan investment secured by Idlewood Nursing Home matured in
February 1998. On May 1, 1998, the Partnership received $2.4 million from the
borrower as payment in full for both principal and interest receivable on the
loan (the actual balance of the loan was greater than the book value). Since the
Partnership owned an 83% participation interest in the note, $408,000 of the
$2.4 million settlement was paid to the owner of the remaining 17% of the note.
As a result of this transaction, the Partnership recognized a $1,025,833 gain on
extinguishment of mortgage loan investment, which represents the net cash
received in excess of the book value of the loan.
NOTE 6.
- -------
On August 20, 1998, the Partnership received $2,541,572 as payment in full for
both principal and interest receivable on the mortgage loan investment secured
by Lakeland Nursing Home. Since the Partnership owned a 90% participation
interest in the note, $254,157 of the payoff was paid to the owner of the
remaining 10% of the note.
NOTE 7.
- -------
On August 1, 1997, the Partnership sold one of four units of 1130 Sacramento
Condominiums, located in San Francisco, California, to an unaffiliated
purchaser. The remaining three units were sold to the same purchaser on August
28, 1997. The cash purchase price for all four units was $4,700,000. Cash
proceeds and the gain on disposition of real estate are detailed below:
Gain on Sale Cash Proceeds
------------ -------------
Cash sales price......................... $ 4,700,000 $ 4,700,000
Selling costs............................ (330,666) (206,166)
-----------
Net cash proceeds........................ $ 4,493,834
===========
Carrying value........................... (2,407,054)
-----------
Gain on disposition of real estate....... $ 1,962,280
===========
As discussed in Note 3, the Partnership incurred a $124,500 disposition fee
payable to an affiliate of the General Partner in connection with the sale of
1130 Sacramento. This fee reduced the amount of the gain on disposition of real
estate and is included in selling costs above. However, as the fee has not yet
been paid, it did not reduce the amount of net cash proceeds from the sale. The
net cash proceeds from the sale of 1130 Sacramento will be $4,369,334 after
payment of the disposition fee.
<PAGE>
NOTE 8.
- -------
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
- -------------------
There has been no significant change in the operations of Sterling Springs
Apartments. 1130 Sacramento Condominiums was sold in August 1997. The
Partnership's mortgage loan investments - affiliate secured by Fort Meigs Plaza
were repaid in April 1998. The Partnerships two mortgage loan investments
secured by Idlewood Nursing Home and Lakeland Nursing Home were repaid in May
1998 and August 1998, respectively.
The Partnership reported net income of $1,253,488 for the first nine months of
1998 as compared to $2,123,462 for the same period in 1997. Revenues in 1998
decreased to $2,461,484 from $3,305,320 in 1997, while expenses were $1,207,996
in 1998 as compared to $1,181,858 in 1997.
Net cash provided by operating activities was $654,383 for the nine months ended
September 30, 1998. The Partnership expended $47,877 for capital improvements,
made $46,017 in principal payments on its mortgage note payable and distributed
$7,232,590 to the limited partners. After receiving a total of $7,874,567 in
principal on mortgage loan investments and mortgage loan investments -
affiliate, cash and cash equivalents totaled $3,026,759 at September 30, 1998, a
net increase of $1,202,466 from the balance at December 31, 1997.
RESULTS OF OPERATIONS
Revenue:
Total revenue decreased by $1,960,250 and $843,836 for the three and nine months
ended September 30, 1998, respectively, as compared to the same periods in 1997.
The decrease was mainly due to a gain on disposition of real estate recognized
in 1997, partially offset by a gain on extinguishment of mortgage loan
investment in 1998, as discussed below.
Interest income on mortgage loan investments for the three and nine months ended
September 30, 1998 decreased by $37,973 and $29,445, respectively, in relation
to the comparable periods in 1997. The decrease was due to the Lakeland Nursing
Home mortgage loan investment being paid off by the borrower in August 1998.
Although the Idlewood Nursing Home mortgage loan investment was also paid off in
1998, no interest was accrued on this loan in 1998 or 1997.
In 1993, the Partnership acquired a second lien loan on a property owned by an
affiliate. The Partnership purchased the first lien loan on this property in
December 1997. Both loans were repaid by the affiliate borrower in April 1998.
Interest income on mortgage loan investments - affiliate decreased by $15,473
and increased by $62,299 for the three and nine months ended September 30, 1998,
respectively, as compared to the same periods in 1997. The overall increase was
due to the first nine months of 1997 including interest on the second lien loan
only. 1998 includes interest on both the first and second lien loans. The
decrease for the quarter was due to both of the loans being repaid in April
1998.
<PAGE>
Other interest income increased by $42,983 and $58,295 for the three and nine
months ended September 30, 1998, respectively, as compared to the same periods
in 1997. The increase was the result of an increase in cash available for
short-term investment due to payoff of the Partnership's mortgage loan
investments and mortgage loan investments - affiliate during the second and
third quarters of 1998.
In the second quarter of 1998, the Partnership recognized a $1,025,833 gain on
extinguishment of mortgage loan investment related to the payoff of the Idlewood
Nursing Home loan. The gain represents the cash payoff received in excess of the
book value of the mortgage loan investment.
On August 1, 1997, the Partnership sold one of four units of 1130 Sacramento
Condominiums to an unaffiliated purchaser. The remaining three units were sold
to the same purchaser on August 28, 1997. The cash purchase price for all four
units was $4,700,000. The Partnership recognized a gain on disposition of real
estate of $1,962,280 as more fully discussed in Item 1, Note 7.
Expenses:
Total expenses for the three months decreased by $13,369 and increased by
$26,138 for the nine months ended September 30, 1998 as compared to the same
periods in 1997. The increase was mainly due to an increase in general and
administrative expenses, partially offset by decreases in repairs and
maintenance, other property operating expenses and general and administrative -
affiliates, as discussed below.
Repairs and maintenance expense decreased by $3,778 and $15,808 for the three
and nine months ended September 30, 1998, respectively, as compared to the same
periods in 1997. The overall decrease was mainly attributable to 1130
Sacramento, which was sold in August 1997.
In the three and nine months ended September 30, 1998, other property operating
expenses decreased by $5,775 and $15,757, respectively, as compared to the same
periods in 1997. The decrease was mainly due to a $10,000 deductible paid by the
Partnership in 1997 for two minor tenant claims settled by the Partnership's
insurance carrier. The remaining decrease was attributable to 1130 Sacramento,
which was sold in August 1997.
General and administrative expenses increased by $13,635 and $120,371 for the
three and nine months ended September 30, 1998, respectively, in relation to the
same periods in 1997. The increase was mainly due to costs incurred to explore
alternatives to maximize the value of the Partnership (see Liquidity and Capital
Resources).
General and administrative expenses - affiliates decreased by $42,785 and
$43,594 for the three and nine months ended September 30, 1998, respectively, in
relation to the same periods in 1997. The decrease was due to a decline in the
tangible asset value of the Partnership, on which the fees are based, due to the
payoff of the Partnership's mortgage loan investments and mortgage loan
investments - affiliate in 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $654,383 of cash through operating activities for the
first nine months of 1998 as compared to $287,491 generated during the first
nine months of 1997. The increase in 1998 was partially due to an increase in
interest received from an affiliate relating to the Fort Meigs Plaza loan (see
discussion of increase in interest income on mortgage loan investments -
affiliate, above). In addition, there was a decrease in cash paid to affiliates
in 1998.
The Partnership expended $47,877 and $157,761 for additions to its real estate
investments in the nine months ended September 30, 1998 and 1997, respectively.
Approximately $30,000 of the decrease in 1998 was attributable to 1130
Sacramento, which was sold in August 1997. In addition, there was a greater
amount spent in 1997 for exterior carpentry and painting at Sterling Springs
Apartments.
In the first nine months of 1998 and 1997, the Partnership collected $53,364 and
$101,584, respectively, of principal in mortgage loan investments. The decrease
in 1998 was due to the payoff of the Idlewood Nursing Home loan in May 1998 and
the Lakeland Nursing Home loan in August 1998.
In May 1998, the Partnership received a net total of $4,241,181 as repayment in
full of the Partnership's mortgage loan investments. $1,992,000 was received in
May 1998 to payoff the Idlewood Nursing Home loan and $2,249,181 was received in
August 1998 to payoff the Lakeland Nursing Home loan.
In April 1998, the Partnership received $3,570,896 to payoff the principal
balance of the Fort Meigs Plaza mortgage loan investments - affiliate.
The Partnership received net proceeds from the sale of 1130 Sacramento of
$4,493,834 in August 1997.
The Partnership distributed $7,232,590 and $3,249,987 to the limited partners
during the nine months ended September 30, 1998 and 1997, respectively.
Short-term liquidity:
At September 30, 1998, the Partnership held cash and cash equivalents of
$3,026,759. This balance provides a reasonable level of working capital for the
Partnership's immediate needs in operating its remaining property.
In 1998, the operation of Sterling Springs Apartments, the Partnership's only
remaining property, is expected to provide sufficient positive cash flow for
normal operations. Management will perform routine repairs and maintenance on
the property to preserve and enhance its value and competitiveness in the
market. Capital improvements to the Partnership's property in 1998 are expected
to be funded from operations of the property.
The mortgage loan investment secured by Idlewood Nursing Home matured in
February 1998. On May 1, 1998, the Partnership received $2.4 million from the
borrower as payment in full for both principal and interest receivable on the
loan (the actual balance of the loan was greater than the book value). Since the
Partnership owned an 83% participation interest in the note, $408,000 of the
$2.4 million settlement was paid to the owner of the remaining 17% of the note.
<PAGE>
On August 20, 1998, the Partnership received $2,541,572 as payment in full for
both principal and interest receivable on the mortgage loan investment secured
by Lakeland Nursing Home. Since the Partnership owned a 90% participation
interest in the note, $254,157 of the payoff was paid to the owner of the
remaining 10% of the note.
The first and second lien mortgage loan investments - affiliate secured by Fort
Meigs Plaza matured in March 1998 and September 1997, respectively. The
borrowing partnership sold the property to a non-affiliate in April 1998 for
$3.8 million. The Partnership received $3,615,353 as payment in full for both
principal and interest receivable on the loans.
For 1998, management expects that cash from operations of its property, along
with the present balance of cash and cash equivalents held, will allow the
Partnership to meet its obligations as they come due.
Long-term liquidity:
The Partnership's property, Sterling Springs Apartments, is encumbered with
mortgage debt. The mortgage is not due until 2003.
While the outlook for maintenance of adequate levels of liquidity is favorable,
should operations deteriorate and present cash resources be insufficient for
current needs, the Partnership would require other sources of working capital.
No such sources have been identified. The Partnership has no established lines
of credit from outside sources. Other possible actions to resolve cash
deficiencies include refinancings, deferral of capital expenditures on the
Partnership's property except where improvements are expected to increase the
competitiveness and marketability of the property, arranging financing from
affiliates or the ultimate sale of the property.
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.
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 the sale or refinancing of its
property, collect payments on its mortgage loan investment and respond to
changing economic and competitive factors.
<PAGE>
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.
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.
<PAGE>
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. 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 Document Description
------- --------------------
4. Amended and Restated Limited Partnership
Agreement dated March 30, 1992.
(Incorporated by reference to the Current
Report of the registrant on Form 8-K
dated March 30, 1992, as filed on April 10,
1992).
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 weighted average
number of limited partnership units
outstanding. Per unit information has been
computed based on 49,512 limited partnership
units outstanding in 1998 and 1997.
27. Financial Data Schedule for the quarter
ended September 30, 1998.
(b) Reports on Form 8-K. A Form 8-K with respect to Item 2 dated August 20,
1998 was filed on August 25, 1998 regarding the payoff of the Lakeland
Nursing Home mortgage loan investment.
<PAGE>
MCNEIL REAL ESTATE FUND XX, L.P.
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 XX, L.P.
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/ Carol A. Fahs
- ----------------- -------------------------------------------
Date Carol A. Fahs
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> 3,026,759
<SECURITIES> 0
<RECEIVABLES> 5,963
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,322,435
<DEPRECIATION> (1,467,812)
<TOTAL-ASSETS> 6,144,804
<CURRENT-LIABILITIES> 0
<BONDS> 2,627,163
0
0
<COMMON> 0
<OTHER-SE> 3,007,117
<TOTAL-LIABILITY-AND-EQUITY> 6,114,804
<SALES> 967,846
<TOTAL-REVENUES> 2,461,484
<CGS> 484,036
<TOTAL-COSTS> 660,899
<OTHER-EXPENSES> 364,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182,975
<INCOME-PRETAX> 1,253,488
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,253,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,253,488
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
