-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vp1rhrD1MPVSUqec50n0wdwwEBEz1Cbl12Wvr3ypgsbhSLvzxnuiiecuv9Izlkhx EVqlUqdsTKzn3utl1OI7YQ== 0000276326-97-000003.txt : 19970329 0000276326-97-000003.hdr.sgml : 19970329 ACCESSION NUMBER: 0000276326-97-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND IX LTD CENTRAL INDEX KEY: 0000276326 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 942491437 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-09026 FILM NUMBER: 97567128 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 700 STREET 2: LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD SUITE 700 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K405 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 ----------------------------------------------- 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 0-9026 ------- McNEIL REAL ESTATE FUND IX, LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2491437 - -------------------------------------------------------------------------------- (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 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: None - ---------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Limited partnership units - ---------------------------------------------------------- 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 104,455 of the registrant's 110,170 limited partnership units are held by non-affiliates of this registrant. The aggregate market value of units held by non-affiliates is not determinable since there is no public trading market for limited partnership units and transfers of units are subject to certain restrictions. Documents Incorporated by Reference: See Item 14, Page 40 TOTAL OF 44 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund IX, Ltd. (the "Partnership") was organized May 1, 1978, as a limited partnership under provisions of the California 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 Partnership is governed by an amended and restated partnership agreement dated November 12, 1991, as amended (the "Amended Partnership Agreement"). Prior to November 12, 1991, Pacific Investors Corporation (the prior "Corporate General Partner"), a wholly-owned subsidiary of Southmark Corporation ("Southmark"), and McNeil were the general partners of the Partnership, which was governed by an agreement of limited partnership dated May 1, 1978 (the "Original Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. On January 10, 1979, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission whereby the Partnership offered for sale $55,000,000 of limited partnership units ("Units"). The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units closed on September 7, 1979, with 110,000 Units sold at $500 each, or gross proceeds of $55,000,000 to the Partnership. In addition, the original general partners purchased an additional 200 Units for $100,000. In 1993, 30 Units were relinquished leaving 110,170 Units outstanding at December 31, 1996. SOUTHMARK BANKRUPTCY AND ASSET PURCHASE AGREEMENT - ------------------------------------------------- On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil nor the Corporate General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interests in the Corporate General Partner, were sold or liquidated for the benefit of creditors. In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990, providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio. On February 14, 1991, pursuant to the asset purchase agreement as amended on that date: (a) an affiliate of McNeil purchased the Corporate General Partner's economic interest in the Partnership; (b) McNeil became the managing general partner of the Partnership pursuant to an agreement with the Corporate General Partner that delegated management authority to McNeil; and (c) McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates and commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates. On November 12, 1991, the limited partners approved a restructuring proposal that provided for (i) the replacement of the Corporate General Partner and McNeil with the General Partner; (ii) the adoption of the Amended Partnership Agreement, which substantially altered the provisions of the Original Partnership Agreement relating to, among other things, compensation, reimbursement of expenses, and voting rights; and (iii) the approval of a new property management agreement with McREMI, the Partnership's property manager. The Amended Partnership Agreement provides for a Management Incentive Distribution ("MID") to replace all other forms of general partner compensation other than property management fees and reimbursements of certain costs. Additional Units may be issued in connection with the payment of the MID pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." For a discussion of the methodology for calculating and distributing MID, see Item 13 - Certain Relationships and Related Transactions. Settlement of Claims: The Partnership filed claims with the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") against Southmark for damages relating to improper overcharges, breach of contract and breach of fiduciary duty. The Partnership settled these claims in 1991, and such settlement was approved by the Bankruptcy Court. An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April 14, 1995, was issued by the Bankruptcy Court. In accordance with the Order, in May 1995, the Partnership received in full satisfaction of its claims, $53,573 in cash, and common and preferred stock in the reorganized Southmark. The cash and stock represent the Partnership's pro-rata share of Southmark assets available for Class 8 claimants. The Partnership sold the Southmark common and preferred stock in May 1995 for $17,244 which, when combined with the cash proceeds from Southmark, resulted in a gain on settlement of litigation of $70,817. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in real estate activities, including the ownership, operation and management of residential real estate and other real estate related assets. At December 31, 1996, the Partnership owned thirteen income-producing properties as described in Item 2 - Properties. The Partnership does not directly employ any personnel. The General Partner conducts the business of the Partnership directly and through its affiliates. The Partnership is managed by the General Partner. The Partnership has reimbursed affiliates of the General Partner for certain expenses incurred by the affiliates in connection with the management of the Partnership. See Item 8 - - Note 2 - "Transactions With Affiliates." The business of the Partnership to date has involved only one industry segment. See Item 8 - Financial Statements and Supplementary Data. The Partnership has no foreign operations. The business of the Partnership is not seasonal. Business Plan: The Partnership determined to evaluate market and other economic conditions to establish the optimum time to commence an orderly liquidation of the Partnership's assets in accordance with the terms of the Amended Partnership Agreement. Taking such conditions as well as other pertinent information into account, the Partnership has determined to begin orderly liquidation of all its assets. Although there can be no assurance as to the timing of the liquidation due to real estate market conditions, the general difficulty of disposing of real estate, and other general economic factors, it is anticipated that such liquidation would result in the dissolution of the Partnership followed by a liquidating distribution to Unitholders by December 2001. Until such time as the Partnership's assets are liquidated, the Partnership's plan of operations is to preserve or increase the net operating income of its assets whenever possible, while at the same time making whatever capital expenditures are reasonable under the circumstances in order to preserve and enhance the value of the Partnership's assets. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Competitive Conditions: Since the principal business of the Partnership is to own and operate real estate, the Partnership is subject to all of the risks incident to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and Federal or local economic or rent controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changed circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership) in connection with the sale, financing and leasing of properties. The impact of these risks on the Partnership, including losses from operations and foreclosures of the Partnership's properties, is described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. See Item 2 - Properties for a discussion of competitive conditions at the Partnership's properties. 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 December 31, 1996. 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, collect payments on the mortgage note receivable, respond to changing economic and competitive factors. Other Information: The environmental laws of the Federal government and of certain state and local governments impose liability on current property owners for the clean-up of hazardous and toxic substances discharged on the property. This liability may be imposed without regard to the timing, cause or person responsible for the release of such substances onto the property. The Partnership could be subject to such liability in the event that it owns properties having such environmental problems. The Partnership has no knowledge of any pending claims or proceedings regarding such environmental problems. In August 1995, High River Limited Partnership, a Delaware limited partnership controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $143 per Unit. In September 1996, High River made another unsolicited tender offer to purchase any and all of the outstanding Units of the Partnership for a purchase price of $180 per Unit. In addition, High River made unsolicited tender offers for certain other partnerships controlled by the General Partner. The Partnership recommended that the limited partners reject the tender offers made with respect to the Partnership and not tender their Units. The General Partner believes that as of January 31, 1997, High River has purchased approximately 11.93% of the outstanding Units pursuant to the tender offers. In addition, all litigation filed by High River, Mr. Icahn and his affiliates in connection with the tender offers have been dismissed without prejudice. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1996. The buildings and the land on which they are located are owned by the Partnership in fee, subject in each case to a first lien deed of trust as set forth more fully in Item 8 - Note 5 - "Mortgage Notes Payable." See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - - "Real Estate Investments and Accumulated Depreciation." In the opinion of management, the properties are adequately covered by insurance.
Net Basis 1996 Date Property Description of Property Debt Property Tax Acquired - --------- ----------- -------------- -------------- ---------------- --------- Berkley Hills (1) Apartments Madison, TN 251 units $ 2,349,186 $ 3,227,638 $ 65,927 6/79 Cherry Hills (2) Apartments Wichita, KS 348 units 4,331,856 4,557,325 73,207 6/80 Forest Park Village (3) Apartments Columbus, OH 376 units 3,882,180 6,034,650 189,852 12/79 Heather Square Apartments Dallas, TX 288 units 4,042,866 3,294,874 145,925 10/79 Lantern Tree (4) Apartments Omaha, NE 110 units 1,471,292 2,364,323 66,527 7/79 Meridian West (5) Apartments Puyallup, WA 181 units 2,344,497 3,297,123 83,482 1/80 Pennbrook (6) Apartments Dallas, TX 216 units 3,259,320 3,160,860 145,158 1/80 Rockborough (7) Apartments Addison, TX 136 units 2,103,379 2,175,916 66,856 1/80 Rolling Hills (8) Apartments Louisville, KY 400 units 3,788,273 6,637,002 79,045 9/79 Ruskin Place (9) Apartments Lincoln, NE 270 units 2,743,258 4,544,544 168,007 12/79 Sheraton Hills Apartments Nashville, TN 272 units 2,786,069 2,794,397 97,212 6/79 Westgate (10) Apartments Lansing, MI 264 units 2,861,080 5,833,019 148,024 12/79 Williamsburg (11) Apartments Shreveport, LA 194 units 2,345,349 2,678,335 64,688 12/79 -------------- ------------- ------------ $ 38,308,605 $ 50,600,006 $ 1,393,910 ============== ============= ============
- ---------------------------- Total: Apartments - 3,306 units (1) Berkley Hills Apartments is owned by Berkley Hills Associates which is wholly-owned by the Partnership and the General Partner. (2) Cherry Hills Apartments is owned by Cherry Hills Fund IX Limited Partnership which is wholly-owned by the Partnership. (3) Forest Park Village Apartments is owned by Forest Park Fund IX Associates Limited Partnership which is wholly-owned by the Partnership and the General Partner. (4) Lantern Tree Apartments is owned by Lantern Tree Fund IX Limited Partnership which is wholly-owned by the Partnership. (5) Meridian West Apartments is owned by Meridian West Fund IX Limited Partnership which is wholly-owned by the Partnership. (6) Pennbrook Apartments is owned by Pennbrook Fund IX Associates, L.P. which is wholly-owned by the Partnership and the General Partner. (7) Rockborough Apartments is owned by Rockborough Fund IX Limited Partnership which is wholly-owned by the Partnership. (8) Rolling Hills Apartments is owned by Rolling Hills Fund IX Associates L.P. which is wholly-owned by the Partnership and the General Partner. (9) Ruskin Place Apartments is owned by Ruskin Place Fund IX Associates which is wholly-owned by the Partnership and the General Partner. (10) Westgate Apartments (formerly known as Sherwood Forest Apartments) is owned by Sherwood Forest Fund IX Associates which is wholly-owned by the Partnership and the General Partner. (11) Williamsburg Apartments is owned by Williamsburg Fund IX Limited Partnership which is wholly-owned by the Partnership. The following table sets forth the properties' occupancy rate and rent per square foot for each of the last five years:
1996 1995 1994 1993 1992 ------------- ------------- -------------- ------------- -------- Berkley Hills Occupancy Rate............ 93% 98% 98% 98% 94% Rent Per Square Foot...... $ 5.94 $ 5.69 $ 5.35 $ 4.87 $ 4.48 Cherry Hills Occupancy Rate............ 95% 89% 89% 81% 85% Rent Per Square Foot...... $ 6.21 $ 5.75 $ 5.80 $ 5.05 $ 5.15 Forest Park Village Occupancy Rate............ 90% 85% 92% 91% 91% Rent Per Square Foot...... $ 6.24 $ 5.80 $ 5.57 $ 5.51 $ 5.38 Heather Square Occupancy Rate............ 97% 99% 99% 97% 93% Rent Per Square Foot...... $ 7.60 $ 7.00 $ 6.61 $ 6.20 $ 5.75 Lantern Tree Occupancy Rate............ 89% 99% 99% 96% 97% Rent Per Square Foot...... $ 7.61 $ 7.58 $ 7.07 $ 6.83 $ 6.41 Meridian West Occupancy Rate............ 95% 93% 90% 92% 95% Rent Per Square Foot...... $ 7.39 $ 7.18 $ 6.99 $ 7.35 $ 7.11 Pennbrook Occupancy Rate............ 97% 98% 94% 97% 95% Rent Per Square Foot...... $ 8.12 $ 7.62 $ 7.23 $ 7.03 $ 6.62 Rockborough Occupancy Rate............ 99% 97% 99% 96% 93% Rent Per Square Foot...... $ 8.25 $ 7.80 $ 7.40 $ 7.00 $ 6.67 Rolling Hills Occupancy Rate............ 95% 94% 97% 90% 91% Rent Per Square Foot...... $ 4.81 $ 4.66 $ 4.33 $ 3.95 $ 3.79 Ruskin Place Occupancy Rate............ 94% 97% 96% 97% 96% Rent Per Square Foot...... $ 7.08 $ 6.78 $ 6.47 $ 6.26 $ 6.10 Sheraton Hills Occupancy Rate............ 90% 98% 97% 98% 94% Rent Per Square Foot...... $ 5.72 $ 5.53 $ 5.14 $ 4.85 $ 4.37 Westgate Occupancy Rate............ 87% 86% 92% 94% 94% Rent Per Square Foot...... $ 6.52 $ 6.66 $ 6.51 $ 6.15 $ 6.11 Williamsburg Occupancy Rate............ 92% 95% 99% 97% 95% Rent Per Square Foot...... $ 6.39 $ 6.22 $ 5.86 $ 5.41 $ 4.98
Occupancy rate represents all units leased divided by the total number of units of the property as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property divided by the leasable square footage of the property. Competitive Conditions at Properties - ------------------------------------ A strong local economy has benefited Berkley Hills Apartments. The property increased rental revenue 7% over 1995 levels. Occupancy rates are comparable with the property's competitors. Capital improvements at Berkley Hills have allowed the property to remain competitive with nearby apartment communities. The strong local economy, and the high occupancy rates are prompting new construction in the area; but to date, the new construction has not been located near Berkley Hills, and has been targeted to upscale single residents while Berkley Hills targets middle class families and singles. Cherry Hills Apartments is one of Wichita's finer apartment communities in terms of interior and exterior appearance. The well-maintained property's occupancy rate is several points above the average occupancy rate of its competitors. Rental rates, also, have typically been higher than the rates charged by the property's competitors. Although nearby McConnell Air Force Base has constructed new housing facilities for military personnel, upon which Cherry Hills relies for many of its tenants, other major employers in Wichita are flourishing, providing a good economic setting for the property. Forest Park Village Apartments is currently in the midst of a four-year capital improvement program. Exterior renovations are largely complete, and interior upgrades are in process. The capital program is needed to allow the property to compete with numerous other apartment communities in the Northeast Columbus submarket. Forest Park Village represents a common property in the submarket, with no distinguishing characteristics other than basements in all its units. The submarket is very competitive, and many of the competing properties have been renovated in the past few years. The capital program will allow Forest Park Village to maintain its competitiveness. Occupancy rates at Heather Square Apartments typically run 2 or 3 percentage points above the market due to the excellent curb appeal of the property. The property also is able to command rental rates slightly higher than most of its competition. Competition is mixed in the Dallas submarket where Heather Square is located. As long as the local economy remains strong, it is anticipated that the property will do well in competition with both older properties and new construction under development. Annual absorption of apartment units in the property's submarket has roughly equaled newly constructed units in the past two years. Occupancy rates decreased at Lantern Tree Apartments for the first time in four years. The closing of the AKSARBEN Race Track was the principal cause behind the decreased occupancy of most of Omaha's apartment communities. However, a business campus development is planned for the closed facility that promises renewed growth in apartment community revenues in the area. The new development is only blocks from Lantern Tree Apartments. Lantern Tree compares well with its competition due to spacious and attractive floor plans. Lantern Tree's occupancy rate usually exceeds its competition's occupancy rate. The property appeals to single, upper-middle class residents. The principal competitive disadvantage of the property is its location which is set back from the main thoroughfare reducing its drive-by visibility. The economy in Meridian West Apartments' submarket has improved during the past year. As a result, rental and occupancy rates in the Puyallup area are on the upswing. Meridian West's occupancy rate improved in 1996 over 1995. Meridian West competes primarily with better quality apartment communities, and thus the Partnership generally expects rental and occupancy rates lower than local market rates. Capital improvements placed in service during 1995 and 1994 were critical to allow the property to compete effectively with its better-quality competition. The 97% occupancy rate at Pennbrook Apartments exceeds the 94% average of the Dallas submarket where the property is located. Extensive capital improvements during 1991-1993 have positioned the property to compete effectively for the middle-class, single residents that dominate its resident profile. The Dallas market is expected to remain strong. For the past two years, new apartment construction has roughly equaled the number of apartment units absorbed by the market. Absorption is expected to exceed construction in 1997, but most of the increased demand will be for newer, high-quality apartment communities, and should have little effect on Pennbrook. Rockborough Apartments boasts excellent curb appeal, which has enabled the property to maintain occupancy levels a few percentage points above the 94% market average. Rockborough compares well to the established apartment communities in the area. There is new construction in the area, but rental rates are substantially higher than the rates charged at Rockborough. The Dallas area economy is expected to remain strong. New apartment construction is expected to lag absorption in 1997, but most of the increased demand will be for newer, high-quality apartment communities, and should have little effect on Rockborough. The area surrounding Rolling Hills Apartments is experiencing strong growth. Capital improvements at Rolling Hills the past three years have upgraded the property to compete more effectively with the high-quality apartment communities in the immediate area. Rolling Hills offers the largest floor plans in the area. The unit interiors are being updated to better compete with the newer properties that Rolling Hills competes against. The property's 95% occupancy rate exceeds the Louisville market's 90% average, but average rental rates are lower than market rates. Rolling Hills is a good quality property competing against even-better quality properties. Ruskin Place Apartments has steadily improved its performance over the past several years despite competitive pressures from newer apartment properties in the Lincoln market. The newer properties and new construction in progress have put upward pressure on local rental rates. Ruskin Place Apartments has been able to offer its units at lower, but still rising rental rates. This trend is expected to continue given the population increases and stable economic conditions in the local area. The Nashville economy is expected to remain strong through 1997, and developers are planning new apartment projects in the area of Sheraton Hills Apartments. Older properties, such as Sheraton Hills, have been able to increase rental rates an average of 6% to 7% since 1993. Although Sheraton Hills will not compete directly with the new construction, the new construction will tend to slow the increases in rental rates that older properties may expect in coming years. The property's year-end occupancy rate of 90% includes 12 unoccupied units currently undergoing reconstruction following a fire at the property. Westgate Apartments is in need of extensive capital improvements to compete effectively with other Lansing apartment properties. The exterior and interiors of the units are dated and unattractive. Occupancy rates are averaging eight percentage points below competing properties, and rental rates are averaging approximately 85% of the average rental rates charged by competing properties. Nine percent of Westgate's units are three and four bedroom floor plans, which are the only three and four bedroom units in the area. The local economy is doing very well, with unemployment at 3.3%. The property also has a good location in a desirable school district. Competition from new and refurbished apartment communities combined to lower the occupancy rate at Williamsburg Apartments to 92% in 1996 compared to 95% in 1995. The property is in good condition, with only minor capital improvements needed. The property offers attractive floor plans with interiors that are being upgraded with new fixtures. The Shreveport market has experienced modest improvement over the past three years. Nearby Barksdale Air Force Base and a growing gambling industry provide the employment base for many of the property's tenants. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: 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 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 (as defined in this Section 1, the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (as defined in this Section 1, 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. On January 7, 1997, the Court ordered consolidation with three other similar actions listed below. The Partnerships filed a demurrer to the complaint and a motion to strike on February 14, 1997, seeking to dismiss the complaint in all respects. The demurrer is pending. The Partnerships deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 2) Alfred Napoletano v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California, County of Los Angeles, Case No. BC133849 (Class Action Complaint). On January 7, 1997, this action was consolidated by court order with Scholfield, et al., referenced above. 3) Warren Heller v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California, County of Los Angeles, Case No. BC133957 (Class Action Complaint). On January 7, 1997, this action was consolidated by court order with Scholfield, et al., referenced above. 4) Robert Lewis v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil et al. - In the District Court of Dallas County, Texas, A-14th Judicial District, Cause No. 95-08535 (Class Action) - Plaintiff, Robert Lewis, is a limited partner with McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd. On April 11, 1996, the action was dismissed without prejudice in anticipation of consolidation with other class action complaints. On January 7, 1997, this action was consolidated by court order with Schofield, et al., referenced above. For a discussion of the Southmark bankruptcy, see Item 1 - Business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND - ------- ------------------------------------------------------------ RELATED SECURITY HOLDER MATTERS ------------------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders -------------- ----------------------------- Limited partnership units 4,555 as of January 31, 1997 (C) No distributions were made to the limited partners during 1996 or 1995. On February 28, 1997, the Partnership paid a distribution of $2,250,000 ($20.42 per limited partnership unit) to the limited partners. The Partnership accrued distributions of $1,133,561 and $1,070,763 for the benefit of the General Partner for the years ended December 31, 1996 and 1995, respectively, of which $120,964 remains unpaid at December 31, 1996. These distributions relate to the MID pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." Distributions of MID are expected to be paid to the General Partner in 1997. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the likelihood that the Partnership will resume distributions to the limited partners. ITEM 6. SELECTED FINANCIAL DATA - ------ ----------------------- The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in Item 8.
Statements of Years Ended December 31, -------------------------------------------------------------------------- Operations 1996 1995 1994 1993 1992 - ------------------ ------------- ------------- -------------- ------------- ------------- Rental revenue............... $ 19,732,110 $ 19,123,434 $ 18,202,306 $ 17,215,644 $ 16,487,239 Total revenue................ 19,964,950 19,567,182 18,642,220 17,367,511 16,636,929 Loss before extraordinary items....................... (293,982) (328,996) (387,787) (1,320,829) (1,613,265) Extraordinary items.......... - - - (31,055) 104,096 Net loss..................... (293,982) (328,996) (387,787) (1,351,884) (1,509,169) Net loss per limited partnership unit: Loss before extraordinary items.......... $ (13.21) $ (9.19) $ (9.21) $ (19.30) $ (22.05) Extraordinary items.......... - - - (.28) .94 ------------- ----------- ------------ ------------ ------------ Net loss..................... $ (13.21) $ (9.19) $ (9.21) $ (19.58) $ (21.11) ============= =========== ============ ============ ============
December 31, Balance Sheets 1996 1995 1994 1993 1992 - -------------- ------------- ------------ ------------- ------------- ------------ Real estate investments, net... $ 38,308,605 $ 42,434,162 $ 42,830,552 $ 42,133,962 $ 42,478,066 Total assets................... 47,650,109 49,970,886 51,749,891 53,376,263 49,696,209 Mortgage notes payable, net.... 50,600,006 51,390,822 52,098,952 52,610,769 46,917,274 Partners' equity (deficit)..... (5,828,303) (4,400,760) (3,001,001) (1,640,191) 519,560
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. The Partnership sold Westridge Apartments on July 30, 1996. ITEM 7. 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. At the end of 1996, the Partnership owned thirteen apartment properties. All of the Partnership's properties are subject to mortgage notes. RESULTS OF OPERATIONS - --------------------- 1996 compared to 1995 Revenues: Rental revenue increased $608,676 or 3.2% in 1996 compared to rental revenue achieved in 1995. Excluding rental revenue from Westridge Apartments, sold by the Partnership on July 30, 1996, rental revenue increased $881,595 or 4.8% in 1996 compared to 1995. Rental revenues increased at 11 of the Partnership's 13 remaining properties. Rental revenue was unchanged at Lantern Tree Apartments as a 4% increase in base rental rates was matched by a comparable increase in vacancy losses. Rental revenue decreased 2.1% at Westgate Apartments due to increased vacancy losses at the Michigan property. Of the Partnership's 11 other properties, 10 increased base rental rates an average of 4.7%. Cherry Hills Apartments did not increase base rental rates, but rental revenue improved as vacancy losses decreased by nearly half. Improving occupancy rates also boosted rental revenue at Forest Park Village Apartments, Heather Square Apartments, Meridian West Apartments, Pennbrook Apartments, and Rockborough Apartments. Expenses: Partnership expenses increased $362,754 or 1.8% in 1996 compared to 1995. However, after excluding both the loss on sale of Westridge Apartments, and the expenses associated with operations at Westridge Apartments before its sale, expenses increased $381,881 or 2.0% in 1996 compared to 1995. The increased expenses were concentrated in depreciation, repair and maintenance, and general and administrative expenses. These increases were partially offset by a decrease in general and administrative expenses paid to affiliates. Depreciation expense increased $253,415 or 6.5% in 1996 compared to 1995. Excluding the effects of the sale of Westridge Apartments reveals an even larger increase of $346,749 or 9.3%. Increased depreciation expense is the result of depreciation on the $2.4 million of new capital improvements placed in service during 1996. The capital improvements are generally depreciated over lives ranging from five to ten years. Repair and maintenance expenses increased $244,052 or 10.3% in 1996 compared to 1995. The increase is attributable to a $284,000 increase in floor covering replacements during 1996. Expenditures for floor covering replacements during 1995 were large enough to qualify for capitalization under the Partnership's capitalization policy. Though still substantial, such expenditures in 1996 did not qualify for capitalization and were, accordingly, expensed. General and administrative expenses increased $42,123 or 14.2% in 1996 compared to 1995. The Partnership incurred a $17,630 increase in costs relating to the evaluation and dissemination of information with regards to an unsolicited tender offer. An additional $20,000 was expended for appraisal fees. Due to the sale of Westridge Apartments on July 30, 1996, the Partnership recognized a $220,157 loss on sale of real estate. No properties were disposed of during 1995. General and administrative expenses paid to affiliates decreased $196,189 or 27% in 1996 compared to 1995. Part of the decrease is due to the sale of Westridge Apartments during the year, but a greater part of the decrease is due to a reduced level of overhead expenses charged to the Partnership by affiliates. 1995 compared to 1994 Revenue: Rental revenue for 1995 increased $921,128 or 5.1% over 1994 rental revenues. Rental revenues increased at all of the Partnership's properties, except for a 0.7% decrease at Cherry Hills Apartments. The Partnership raised base rental rates an average of 4.0% at all of its properties. Increases in base rental rates were partially offset by lower average occupancy rates at Berkley Hills Apartments, Westgate Apartments, Westridge Apartments and Williamsburg Apartments. Occupancy rates at the remainder of the Partnership's properties increased or remained steady. In 1995 the Partnership received cash and common and preferred stock in the reorganized Southmark in settlement of its bankruptcy claims against Southmark. The Partnership recognized a one-time gain of $70,817 as a result of this settlement. The Partnership also recorded a $125,967 gain on involuntary conversion in 1995. The gain relates to hail damage incurred at Westridge Apartments on May 5, 1995, and to a fire that destroyed two units at Cherry Hill Apartments on November 3, 1995. The Partnership incurred damages of $150,938 and $55,495 at Westridge Apartments and Cherry Hill Apartments, respectively. The Partnership received a total of $185,094 from its insurance carrier to repair the damage at both properties. The excess of insurance proceeds over the adjusted basis of the property destroyed resulted in a $125,167 gain on involuntary conversion. The gain on involuntary conversions of $187,854 in 1994 related to Rockborough Apartments and Rolling Hills Apartments. Expenses: Partnership expenses increased $866,171 or 4.6% in 1995 compared to 1994. The increased expenses were concentrated in depreciation and general and administrative expenses. Depreciation expense increased $527,010 or 15.5% in 1995 compared to 1994. Increased depreciation expense is the result of depreciation on the $3.6 million of new capital improvements placed in service during 1995. The capital improvements are generally depreciated over lives ranging from five to ten years. General and administrative expenses increased $120,290 or 68% in 1995 compared to 1994. The Partnership incurred $173,497 of costs relating to the evaluation and dissemination of information with regards to an unsolicited tender offer. No such expenses were incurred in 1994. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the three year period ended December 31, 1996, the Partnership experienced losses totaling $1,010,765. However, during the same three year period, the Partnership generated $11,747,512 of cash flow from operating activities. Cash provided by operating activities increased $162,225 or 4.2% in 1996 compared to 1995. A 7.1% increase in cash paid to suppliers was more than offset by an increase in cash received from tenants and a decrease in cash paid to affiliates. The Partnership continued to invest in capital improvements at its properties during 1996. The Partnership invested $2.4 million for capital improvements during 1996, a decrease from the $3.6 million invested by the Partnership during 1995. These expenditures are necessary to allow the Partnership's aging properties to maintain their appeal to current and prospective tenants. The Partnership has budgeted an additional $1.7 million for capital improvements in 1997. The Partnership realized $492,384 of proceeds from the sale of Westridge Apartments in 1996. The purchaser financed $1,550,000 of the purchase price through a short-term mortgage note payable to the Partnership. The Partnership's mortgage note receivable was paid-off in full on February 5, 1997. Short-term liquidity: Due to operating cash flow and the sale of Westridge Apartments, the Partnership enters 1997 with substantial cash reserves. These reserves will be needed to address continuing capital improvement needs in light of the aging condition of the Partnership's properties. The Partnership has budgeted $1.7 million for capital improvements for 1997 in addition to the $10.2 million of capital improvements made during the past three years. 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. At December 31, 1996, the Partnership held $3,001,521 of cash and cash equivalents, down $58,061 from the balance at the end of 1995. The General Partner anticipates that the Partnership will provide positive cash flow for 1997. The Partnership's next maturing mortgage note does not come due until January 1998. The General Partner considers the Partnership's cash reserves adequate for anticipated operations for 1997. On February 5, 1997, the Partnership collected in full the $1,550,000 short-term mortgage note from the purchaser of Westridge Apartments. On February 28, 1997, the Partnership used proceeds from the sale of Westridge Apartments, the pay-off of the mortgage note receivable, and cash from the Partnership's cash reserves to pay a $2,250,000 distribution to the limited partners. 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 $10.2 million of capital improvements made by the Partnership during the past three years will yield improved cash flow from property operations in 1997. Furthermore, the General Partner has budgeted an additional $1.7 million of capital improvements for 1997. 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. The Partnership determined to evaluate market and other economic conditions to establish the optimum time to commence an orderly liquidation of the Partnership's assets in accordance with the terms of the Amended Partnership Agreement. Taking such conditions as well as other pertinent information into account, the Partnership has determined to begin orderly liquidation of all its assets. Although there can be no assurance as to the timing of the liquidation due to real estate market conditions, the general difficulty of disposing of real estate, and other general economic factors, it is anticipated that such liquidation would result in the dissolution of the Partnership followed by a liquidating distribution to Unitholders by December 2001. 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 years ended December 31, 1996, 1995 and 1994, net income of $1,161,697, $684,002 and $627,358, respectively, was allocated to the General Partner. The limited partners received allocations of net loss of $1,455,679, $1,012,998 and $1,015,145 for the years ended December 31, 1996, 1995 and 1994, respectively. With the exception of the MID, distributions to partners have been suspended since 1986 as part of the General Partner's policy of maintaining adequate cash reserves. However, on February 28, 1997, the General Partner determined to distribute $2,250,000 to the limited partners. Approximately $2,042,000 of the distribution represents proceeds from the sale of Westridge Apartments. For the foreseeable future, distributions to limited partners will likely be limited to proceeds from the sale of Partnership properties. Currently, no Partnership properties are being marketed for sale. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support distributions to the limited partners. During 1996, the Partnership recorded MID of $1,133,561. MID payments to the General Partner are expected to continue in 1997. To the extent that cash flow from operations is not sufficient to fund payments of MID along with other Partnership obligations, the Partnership will use its cash reserves to make such payments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number ------ INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements: Report of Independent Public Accountants....................................... 17 Balance Sheets at December 31, 1996 and 1995................................... 18 Statements of Operations for each of the three years in the period ended December 31, 1996..................................................... 19 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1996....................................... 20 Statements of Cash Flows for each of the three years in the period ended December 31, 1996.............................................. 21 Notes to Financial Statements.................................................. 23 Financial Statement Schedule: Schedule III - Real Estate Investments and Accumulated Depreciation............................................................. 35
All other schedules are omitted because they are not applicable or the financial information required is included in the financial statements or the notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of McNeil Real Estate Fund IX, Ltd.: We have audited the accompanying balance sheets of McNeil Real Estate Fund IX, Ltd. (a California limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of McNeil Real Estate Fund IX, Ltd. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Dallas, Texas March 10, 1997 McNEIL REAL ESTATE FUND IX, LTD. BALANCE SHEETS
December 31, ----------------------------------- 1996 1995 --------------- -------------- ASSETS - ------ Real estate investments: Land..................................................... $ 6,370,834 $ 6,716,099 Buildings and improvements............................... 81,666,317 83,847,294 -------------- ------------- 88,037,151 90,563,393 Less: Accumulated depreciation.......................... (49,728,546) (48,129,231) -------------- ------------- 38,308,605 42,434,162 Cash and cash equivalents................................... 3,001,521 3,059,582 Cash segregated for security deposits....................... 571,749 534,609 Accounts receivable......................................... 59,871 114,367 Insurance proceeds receivable............................... 562,560 - Mortgage note receivable.................................... 1,550,000 - Prepaid expenses and other assets........................... 214,497 223,959 Escrow deposits............................................. 1,401,648 1,418,389 Deferred borrowing costs, net of accumulated amortization of $895,853 and $689,693 at December 31, 1996 and 1995, respectively................. 1,979,658 2,185,818 -------------- ------------- $ 47,650,109 $ 49,970,886 ============== ============== LIABILITIES AND PARTNERS' DEFICIT - --------------------------------- Mortgage notes payable, net................................. $ 50,600,006 $ 51,390,822 Accounts payable............................................ - 266,777 Accrued property taxes...................................... 928,103 962,251 Accrued interest............................................ 368,556 374,740 Other accrued expenses...................................... 271,227 306,022 Deferred gain on involuntary conversion..................... 474,376 - Payable to affiliates - General Partner..................... 279,716 508,369 Security deposits and deferred rental revenue............... 556,428 562,665 -------------- ------------- 53,478,412 54,371,646 -------------- ------------- Partners' deficit: Limited partners - 110,200 limited partnership units authorized, 110,170 limited partnership units issued and outstanding........................... (3,029,682) (1,574,003) General Partner.......................................... (2,798,621) (2,826,757) -------------- ------------- (5,828,303) (4,400,760) $ 47,650,109 $ 49,970,886 ============== =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND IX, LTD. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1996 1995 1994 -------------- -------------- --------------- Revenue: Rental revenue.......................... $ 19,732,110 $ 19,123,434 $ 18,202,306 Interest................................ 232,840 246,964 252,060 Gain on legal settlement................ - 70,817 - Gain on involuntary conversions......... - 125,967 187,854 ------------- ------------- -------------- Total revenue......................... 19,964,950 19,567,182 18,642,220 ------------- ------------- -------------- Expenses: Interest................................ 4,796,060 4,856,024 4,884,548 Depreciation............................ 4,173,260 3,919,845 3,392,835 Property taxes.......................... 1,392,027 1,436,453 1,341,960 Personnel expenses...................... 2,437,597 2,511,799 2,472,613 Repairs and maintenance................. 2,621,322 2,377,270 2,423,640 Property management fees - affiliates............................ 978,168 946,627 915,989 Utilities............................... 1,634,169 1,556,159 1,527,997 Other property operating expenses....... 1,130,177 1,261,940 1,174,837 General and administrative.............. 338,298 296,175 175,885 General and administrative - affiliates............................ 537,697 733,886 719,703 Loss on sale of real estate............. 220,157 - - ------------- ------------- -------------- Total expenses........................ 20,258,932 19,896,178 19,030,007 ------------- ------------- -------------- Net loss................................... $ (293,982) $ (328,996) $ (387,787) ============= ============= ============== Net loss allocated to limited partners................................ $ (1,455,679) $ (1,012,998) $ (1,015,145) Net income allocated to the General Partner......................... 1,161,697 684,002 627,358 ------------- ------------- -------------- Net loss................................... $ (293,982) $ (328,996) $ (387,787) ============= ============= ============== Net loss per limited partnership unit...... $ (13.21) $ (9.19) $ (9.21) ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND IX, LTD. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1996, 1995 and 1994
Total Partners' General Limited Equity Partner Partners (Deficit) ---------------- ---------------- ---------------- Balance at December 31, 1993.............. $ (2,094,331) $ 454,140 $ (1,640,191) Net income (loss)......................... 627,358 (1,015,145) (387,787) Management Incentive Distribution......... (973,023) - (973,023) -------------- -------------- -------------- Balance at December 31, 1994.............. (2,439,996) (561,005) (3,001,001) Net income (loss)......................... 684,002 (1,012,998) (328,996) Management Incentive Distribution......... (1,070,763) - (1,070,763) -------------- -------------- -------------- Balance at December 31, 1995.............. (2,826,757) (1,574,003) (4,400,760) Net income (loss)......................... 1,161,697 (1,455,679) (293,982) Management Incentive Distribution......... (1,133,561) - (1,133,561) -------------- -------------- -------------- Balance at December 31, 1996.............. $ (2,798,621) $ (3,029,682) $ (5,828,303) ============== ============== ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND IX, LTD. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended December 31, ---------------------------------------------------- 1996 1995 1994 -------------- -------------- --------------- Cash flows from operating activities: Cash received from tenants.............. $ 19,717,808 $ 19,040,536 $ 18,213,413 Cash received from legal settlement..... - 70,817 - Cash paid to suppliers.................. (8,488,048) (7,922,261) (6,737,217) Cash paid to affiliates................. (1,507,719) (1,671,044) (1,623,756) Interest received....................... 232,840 246,964 252,060 Interest paid........................... (4,557,296) (4,542,671) (4,851,901) Property taxes paid and escrowed........ (1,349,638) (1,336,619) (1,438,756) ------------- ------------- -------------- Net cash provided by operating activities.............................. 4,047,947 3,885,722 3,813,843 ------------- ------------- -------------- Cash flows from investing activities: Additions to real estate investments........................... (2,398,428) (3,582,582) (4,261,449) Insurance proceeds from fire/freeze damage................................ - 185,094 359,878 Proceeds from sale of real estate.......... 2,042,384 - - Mortgage note receivable................... (1,550,000) - - ------------- ------------- -------------- Net cash used in investing activities.............................. (1,906,044) (3,397,488) (3,901,571) ------------- ------------- -------------- Cash flows from financing activities: Principal payments on mortgage notes payable......................... (829,604) (748,502) (711,658) Deferred borrowing costs paid........... - - (120,486) Management Incentive Distribution....... (1,370,360) (879,994) (797,000) Net cash proceeds from refinancing/modification of mortgage notes payable................ - - 161,809 ------------- ------------- -------------- Net cash used in financing activities.............................. (2,199,964) (1,628,496) (1,467,335) ------------- ------------- -------------- Net decrease in cash and cash equivalents............................. (58,061) (1,140,262) (1,555,063) Cash and cash equivalents at beginning of year....................... 3,059,582 4,199,844 5,754,907 ------------- ------------- -------------- Cash and cash equivalents at end of year................................. $ 3,001,521 $ 3,059,582 $ 4,199,844 ============= ============= =============
See discussion of noncash investing activity in Note 6 - "Sale of Real Estate." See accompanying notes to financial statements. McNEIL REAL ESTATE FUND IX, LTD. STATEMENTS OF CASH FLOWS Reconciliation of Net Loss to Net Cash Provided by Operating Activities
For the Years Ended December 31, ----------------------------------------------------- 1996 1995 1994 --------------- --------------- ---------------- Net loss................................... $ (293,982) $ (328,996) $ (387,787) ------------- ------------- -------------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation............................ 4,173,260 3,919,845 3,392,835 Amortization of discounts on mortgage notes payable................ 38,788 40,372 38,032 Amortization of deferred borrowing costs................................. 206,160 201,762 159,019 Gain on involuntary conversions......... - (125,967) (187,854) Loss on sale of real estate............. 220,157 - - Changes in assets and liabilities: Cash segregated for security deposits............................ (37,140) (39,808) (11,032) Accounts receivable................... 54,496 (49,903) 40,537 Prepaid expenses and other assets.............................. 9,462 (12,693) 19,334 Escrow deposits....................... 16,741 142,995 680,527 Accounts payable...................... (266,777) (147,117) 158,350 Accrued property taxes................ (34,148) 27,518 6,890 Accrued interest...................... (6,184) 71,219 (164,404) Other accrued expenses................ (34,795) 113,070 32,114 Payable to affiliates - General Partner............................. 8,146 9,469 11,936 Security deposits and deferred rental revenue...................... (6,237) 63,956 25,346 ------------- ------------- -------------- Total adjustments................. 4,341,929 4,214,718 4,201,630 ------------- ------------- -------------- Net cash provided by operating activities............................ $ 4,047,947 $ 3,885,722 $ 3,813,843 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND IX, LTD. NOTES TO FINANCIAL STATEMENTS December 31, 1996 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund IX, Ltd. (the "Partnership") was organized on May 1, 1978 as a limited partnership under the provisions of the California 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. The Partnership is governed by an amended and restated partnership agreement dated November 12, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. The Partnership is engaged in real estate activities, including the ownership, operation and management of residential real estate and other real estate related assets. The Partnership has determined to evaluate market and other economic conditions to establish the optimum time to commence an orderly liquidation of the Partnership's assets in accordance with the terms of the Amended Partnership Agreement. At December 31, 1996, the Partnership owned 13 income-producing properties as described in Note 4 - Real Estate Investments. Basis of Presentation - --------------------- The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Partnership's financial statements include the accounts of the following listed tier partnerships for the years ended December 31, 1996, 1995 and 1994. These single asset tier partnerships were formed to accommodate the refinancings of the related properties. The ownership interest of the Partnership and the General Partner in each tier partnership is detailed below. The Partnership retains effective control of each tier partnership. The General Partner's minority interest is not presented because it is either negative or immaterial.
% of Ownership Interest Tier Partnership Partnership General Partner ---------------- ----------- --------------- Limited partnerships: Cherry Hills Fund IX Limited Partnership (a) ................ 100% - Forest Park Fund IX Associates Limited Partnership (b)....... 99 1% Lantern Tree Fund IX Limited Partnership (a) ................ 100 - Meridian West Fund IX Limited Partnership (a)................ 100 - Pennbrook Fund IX Associates, L.P............................ 99 1 Rockborough Fund IX Limited Partnership (a).................. 100 - Rolling Hills Fund IX Associates, L.P........................ 99 1 Williamsburg Fund IX Limited Partnership (a)................. 100 - General partnerships: Berkley Hills Associates..................................... 99 1 Ruskin Place Fund IX Associates.............................. 99 1 Sherwood Forest Fund IX Associates........................... 99 1
(a) The general partner of these partnerships is a corporation whose stock is 100% owned by the Partnership. (b) Forest Park Fund IX Associates Limited Partnership has assigned all of its interest and rights to the Partnership. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated recoverable amount. The Partnership's method of accounting for real estate investments is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The adoption of SFAS 121 did not have a material impact on the accompanying financial statements. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. Depreciation - ------------ Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 32 years. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand and cash on deposit with financial institutions with original maturities of three months or less. Carrying amounts for cash and cash equivalents approximate fair value. Escrow Deposits - --------------- The Partnership is required to maintain escrow accounts in accordance with the terms of various mortgage agreements. These escrow accounts are controlled by the mortgagee and are used for payment of property taxes, hazard insurance, capital improvements and/or property replacements. Carrying amounts for escrow deposits approximate fair value. Deferred Borrowing Costs - ------------------------ Loan fees and other related costs incurred to obtain long-term financing on real property are capitalized and amortized using a method that approximates the effective interest method over the terms of the related mortgage notes payable. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations. Discounts on Mortgage Notes Payable - ----------------------------------- Discounts on mortgage notes payable are amortized over the remaining terms of the related mortgage notes using the effective interest method. Amortization of discounts on mortgage notes payable is included in interest expense on the Statements of Operations. Rental Revenue - -------------- The Partnership leases its properties under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. Income Taxes - ------------ No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners. See Note 3 - "Taxable Loss." Allocation of Net Income and Net Loss - ------------------------------------- The Amended Partnership Agreement provides for net income or net loss of the Partnership for both financial statement and income tax reporting purposes to be allocated as indicated below. For allocation purposes, net income and net loss of the Partnership are determined prior to deductions for depreciation. (a) First, 5% of all deductions for depreciation shall be allocated to the General Partner, and 95% of all deductions for depreciation shall be allocated to the limited partners; (b) then, an amount of net income equal to the cumulative amount of Management Incentive Distribution ("MID") paid to the General Partner for which no income has previously been allocated (see Note 2 - "Transactions with Affiliates") shall be allocated to the General Partner; however, if all or a portion of the MID consists of limited partnership units ("Units"), the amount of net income so allocated to the General Partner shall be equal to the amount of cash the General Partner would have otherwise received; (c) then, any remaining net income shall be allocated to the General Partner and to the limited partners so that the total amount of net income allocated to the General Partner pursuant to paragraph (b) above and this paragraph (c), and to the limited partners pursuant to this paragraph (c), shall be in the ratio of 5% to the General Partner and 95% to the limited partners. (d) Net loss shall be allocated 95% percent to the limited partners and 5% to the General Partner. Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocations of Partnership deductions attributable to debt. The Partnership's tax allocations for 1996, 1995 and 1994 have been made in accordance with these provisions. Distributions - ------------- Pursuant to the Amended Partnership Agreement and at the sole discretion of the General Partner, distributions during each taxable year shall be made as follows: (a) first, to the General Partner, an amount equal to the MID; and (b) any remaining distributable cash, as defined, shall be distributed 100% to the limited partners. No distributions were made to the limited partners in 1996, 1995 or 1994. The Partnership paid or accrued distributions of $1,133,561, $1,070,763 and $973,023 for the benefit of the General Partner for the years ended December 31, 1996, 1995 and 1994, respectively. These distributions are the MID pursuant to the Amended Partnership Agreement. On February 28, 1997, the Partnership paid a distribution of $2,250,000 to the limited partners. Net Loss Per Limited Partnership Unit - ------------------------------------- Net loss per limited partnership unit is computed by dividing net loss allocated to the limited partners by the weighted average number of Units outstanding. Per Unit information has been computed based on 110,170 Units outstanding in 1996, 1995, and 1994. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- 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 and leasing services for the Partnership's properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under terms of the Amended Partnership Agreement, the Partnership is paying a MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit 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 MID will be paid to the extent of the lesser of the Partnership's excess cash flow as defined, or net operating income, as defined (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. During 1996, 1995 and 1994, no Units were issued as payment for the MID. During 1991, the Partnership amended its capitalization policy and began capitalizing certain costs of improvements and betterments that under policies of prior management had been expensed when incurred. The purpose of the amendment was to more properly recognize items which were capital in nature. The effect of the amendment standing alone was evaluated at the time the change was made and determined not to be material to the financial statements of the Partnership in 1991, nor was it expected to be material in any future year. However, the amendment can have a material effect on the calculation of the Entitlement Amount which determines the amount of MID earned. Capital improvements are excluded from cash flow, as defined. The majority of base period cash flow was measured under the previous capitalization policy, while incentive period cash flow is determined using the amended policy. Under the amended policy, more items are capitalized, and cash flow increases. Had base period cash flow been measured on a basis comparable with incentive period cash flow, MID for the years ended December 31, 1995 and 1994 would have been reduced by $111,248 and $169,741, respectively. The amendment of the capitalization policy did not materially affect the MID for 1996 because the Entitlement Amount was sufficient to pay the MID notwithstanding the amendment to the capitalization policy. Any amount of the MID which 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. Compensation and reimbursements paid or accrued for the benefit of the General Partner or its affiliates are as follows:
For the Years Ended December 31, 1996 1995 1994 -------------- -------------- --------------- Property management fees - affiliates....... $ 978,168 $ 946,627 $ 915,989 Charged to general and administrative - affiliates: Partnership administration............... 537,697 733,886 719,703 ------------- ------------- -------------- $ 1,515,865 $ 1,680,513 $ 1,635,692 ============= ============= ============== Charged to General Partner's deficit: Management Incentive Distribution........ $ 1,133,561 $ 1,070,763 $ 973,023 ============= ============= ==============
Payable to affiliates - General Partner at December 31, 1996, 1995 and 1994 consists of MID, reimbursable costs and property management fees which are due and payable from current operations. NOTE 3 - TAXABLE LOSS - --------------------- McNeil Real Estate Fund IX, Ltd. is a partnership and is not subject to Federal and state income taxes. Accordingly, no recognition has been given to income taxes in the accompanying financial statements of the Partnership since the income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly. The Partnership's net assets and liabilities for tax purposes exceeded the net assets and liabilities for financial reporting purposes by $9,965,434 in 1996, $9,613,062 in 1995 and $8,983,358 in 1994. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments at December 31, 1996 and 1995 are set forth in the following tables:
Buildings and Accumulated Net Book 1996 Land Improvements Depreciation Value ---- -------------- -------------- --------------- -------------- Berkley Hills Madison, TN $ 246,988 $ 6,067,612 $ (3,965,414) $ 2,349,186 Cherry Hills Wichita, KS 514,205 8,867,317 (5,049,666) 4,331,856 Forest Park Village Columbus, OH 716,395 9,211,812 (6,046,027) 3,882,180 Heather Square Dallas, TX 853,746 7,432,783 (4,243,663) 4,042,866 Lantern Tree Omaha, NE 217,809 3,356,298 (2,102,815) 1,471,292 Meridian West Puyallup, WA 253,167 4,880,604 (2,789,274) 2,344,497 Pennbrook Dallas, TX 692,515 6,188,400 (3,621,595) 3,259,320 Rockborough Addison, TX 427,932 3,737,808 (2,062,361) 2,103,379 Rolling Hills Louisville, KY 557,249 8,777,777 (5,546,753) 3,788,273 Ruskin Place Lincoln, NE 920,061 5,066,855 (3,243,658) 2,743,258 Sheraton Hills Nashville, TN 296,531 6,547,390 (4,057,852) 2,786,069 Westgate Lansing, MI 390,482 6,304,118 (3,833,520) 2,861,080 Williamsburg Shreveport, LA 283,754 5,227,543 (3,165,948) 2,345,349 ------------- ------------- ------------- ------------- $ 6,370,834 $ 81,666,317 $ (49,728,546) $ 38,308,605 ============= ============= ============= =============
Buildings and Accumulated Net Book 1995 Land Improvements Depreciation Value ---- -------------- -------------- --------------- -------------- Berkley Hills $ 246,988 $ 5,914,125 $ (3,643,359) $ 2,517,754 Cherry Hills 514,205 8,771,156 (4,660,956) 4,624,405 Forest Park Village 716,395 8,891,627 (5,551,503) 4,056,519 Heather Square 853,746 7,294,403 (3,912,468) 4,235,681 Lantern Tree 217,809 3,245,613 (1,939,545) 1,523,877 Meridian West 253,167 4,838,970 (2,538,764) 2,553,373 Pennbrook 692,515 6,068,091 (3,312,652) 3,447,954 Rockborough 427,932 3,595,458 (1,866,840) 2,156,550 Rolling Hills 557,249 8,594,002 (5,050,846) 4,100,405 Ruskin Place 920,061 4,975,901 (2,984,860) 2,911,102 Sheraton Hills 296,531 6,211,692 (3,910,764) 2,597,459 Westgate 390,482 6,093,518 (3,527,200) 2,956,800 Westridge Ft. Worth, TX 345,265 4,269,089 (2,302,482) 2,311,872 Williamsburg 283,754 5,083,649 (2,926,992) 2,440,411 ------------- ------------- ------------- ------------- $ 6,716,099 $ 83,847,294 $ (48,129,231) $ 42,434,162 ============= ============= ============= =============
NOTE 5 - MORTGAGE NOTES PAYABLE - ------------------------------- The table below sets forth the mortgage notes payable of the Partnership at December 31, 1996 and 1995. All mortgage notes are secured by real estate investments.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date (f) 1996 1995 - -------- ------------- -------- ----------------- --------------- -------------- Berkley Hills First 8.750 $26,005 12/23 $ 3,227,638 $ 3,255,924 ------------- ------------- Cherry Hills (e) First 8.150 39,353 07/03 4,659,767 4,748,209 Discount (b) (102,442) (114,168) ------------- ------------- 4,557,325 4,634,041 ------------- ------------- Forest Park Village First 9.125 59,732 01/98 6,034,650 6,192,845 ------------- ------------- Heather Square First 9.625 38,250 03/09 3,294,874 3,429,615 ------------- -------------
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date (f) 1996 1995 - -------- ------------- -------- ----------------- --------------- -------------- Lantern Tree (e) First 8.150 $20,416 07/03 $ 2,417,470 $ 2,463,353 Discount (b) (53,147) (59,231) ------------- ------------- 2,364,323 2,404,122 ------------- ------------- Meridian West (e) First 8.150 28,471 07/03 3,371,237 3,435,223 Discount (b) (74,114) (82,599) ------------- ------------- 3,297,123 3,352,624 ------------- ------------- Pennbrook First 9.450 27,209 02/00 3,160,860 3,187,297 ------------- ------------- Rockborough (e) First 8.150 18,789 07/03 2,224,827 2,267,055 Discount (b) (48,911) (54,511) ------------- ------------- 2,175,916 2,212,544 ------------- ------------- Rolling Hills First 9.250 55,389 11/24 6,637,002 6,685,297 ------------- ------------- Ruskin Place First 8.750 36,348 10/24 4,544,544 4,581,309 ------------- ------------- Sheraton Hills (c) First (d) (d) 10/98 2,794,397 2,838,674 ------------- ------------- Westgate First 8.000 44,114 09/23 5,833,019 5,893,110 ------------- ------------- Williamsburg (e) First 8.150 23,128 07/03 2,738,540 2,790,518 Discount (b) (60,205) (67,098) ------------- ------------- 2,678,335 2,723,420 ------------- ------------- Total $ 50,600,006 $ 51,390,822 ============= =============
(a) The debt is non-recourse to the Partnership. (b) Mortgage discounts are based on an effective interest rate of 8.62%. (c) The mortgage encumbering Sheraton Hills Apartments contains provisions which may give the lender the right to accelerate the mortgage debt as a result of the November 12, 1991, restructuring of the Partnership. The General Partner has requested that the lender waive its right to accelerate the mortgage debt. The lender may require the payment of fees or additional interest as a condition to granting such a waiver. In the event the waiver is not obtained and the mortgage debt is accelerated, the Partnership would be required to satisfy the outstanding mortgage debt, which totaled $2,794,397 at December 31, 1996. In such event, the Partnership will attempt to arrange alternative sources of mortgage financing. However, such refinancing may be at an interest rate which is higher or is otherwise on terms which are less favorable than those provided for by the current mortgage. Furthermore, if alternative financing cannot be obtained, the lender could foreclose on Sheraton Hills Apartments. The General Partner believes the likelihood of this outcome is remote and accordingly has not reflected this balance as currently due. (d) The Sheraton Hills mortgage note bears interest at a variable rate, adjusted at six-month intervals equal to the six-month treasury bill weekly average rate plus 3.0% per annum, not to exceed 12.75% per annum. The monthly payment is also adjusted each six months so that the mortgage note will fully amortize over a period of 30 years. At December 31, 1996, the interest rate was 8.57%, and the monthly payment of principal and interest was $23,617. (e) Financing was obtained under the terms of a Real Estate Mortgage Investment Conduit financing. The mortgage notes payable are cross-collateralized and may not be prepaid in whole or in part before July 1998. Any prepayments made during the sixth or seventh loan years are subject to a Yield Maintenance premium, as defined. Additionally, the Partnership must pay a release payment equal to 25% of the prepaid balance which will be applied to the remaining mortgage notes in the collateral pool. (f) Balloon payments on the Partnership's mortgage notes are due as follows: Property Balloon Payment Date -------- --------------- ---- Forest Park Village ............. $ 5,831,000 01/98 Sheraton Hills................... 2,661,000 10/98 Pennbrook........................ 3,059,000 02/00 Cherry Hills..................... 3,875,000 07/03 Lantern Tree..................... 2,010,000 07/03 Meridian West.................... 2,804,000 07/03 Rockborough...................... 1,850,000 07/03 Williamsburg..................... 2,278,000 07/03 Scheduled principal maturities of the mortgage notes payable under existing agreements, before consideration of discounts of $338,819, are shown below. 1997............................. $ 902,562 1998............................. 9,355,346 1999............................. 812,434 2000............................. 3,912,038 2001............................. 923,348 Thereafter....................... 35,033,097 ----------- $ 50,938,825 =========== Based on borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities, the fair value of the mortgage notes payable was approximately $50,250,000 and $52,256,000 at December 31, 1996 and 1995, respectively. NOTE 6 - SALE OF REAL ESTATE - ---------------------------- The Partnership classified Westridge Apartments as an asset held for sale on June 1, 1996. On July 30, 1996, the Partnership sold Westridge Apartments to an unaffiliated purchaser for a purchase price of $2,110,500. The purchaser paid $560,500 in cash to the Partnership. The purchaser financed the remaining $1,550,000 of the purchase price by entering into a short-term, $1,550,000 mortgage note payable to the Partnership. See Note 7 "Mortgage Note Receivable." Cash proceeds from the sale, as well as the loss on sale of Westridge Apartments, are detailed below. Loss on Sale Cash Proceeds ------------- ------------- Cash sales price.................. $ 2,110,500 $ 2,110,500 Selling costs..................... (68,116) (68,116) Basis of real estate sold......... (2,262,541) ----------- Loss on sale of real estate....... $ (220,157) =========== Mortgage note receivable from the purchaser................... (1,550,000) ----------- Net cash proceeds................. $ 492,384 =========== NOTE 7 - MORTGAGE NOTE RECEIVABLE - --------------------------------- In connection with the sale of Westridge Apartments, the purchaser financed a portion of the sales price by entering into a $1,550,000 mortgage note payable to the Partnership on a short-term basis until the purchaser could arrange permanent financing. The Partnership's mortgage note receivable is secured by a non-recourse lien against Westridge Apartments. The table below sets forth the terms of the mortgage note receivable at December 31, 1996. Mortgage Annual Monthly Lien Interest Payment/ December 31, Property Position Rate % Maturity Date 1996 - -------- ----------- -------- ----------------- ------------ Westridge First 10.0% $12,917 05/97 $ 1,550,000 ========== On February 5, 1997, the purchaser paid off the $1,550,000 mortgage note receivable together with all accrued and unpaid interest thereon. NOTE 8 - MODIFICATION OF MORTGAGE NOTES PAYABLE - ----------------------------------------------- On July 28, 1994, the Partnership and the holder of the Berkley Hills mortgage note agreed to modify the terms of the Berkley Hills mortgage note. The interest rate was reduced to 8.75% from 10%, and the monthly debt service payment was reduced to $26,005 from $28,283. In addition, the Partnership agreed to increase the principal balance of the mortgage note $74,108 to $3,290,000, the mortgage note's original balance. The Partnership incurred $46,254 of deferred borrowing costs in connection with the modification, and the default that existed on the mortgage note was removed. On July 28, 1994, the Partnership and the holder of the Ruskin Place mortgage note agreed to modify the terms of the Ruskin Place mortgage note. The interest rate was reduced to 8.75% from 9.75%, and the monthly debt service payment was reduced to $36,348 from $38,882. In addition, the Partnership agreed to increase the principal balance of the mortgage note $87,701 to $4,625,600, the mortgage note's original balance. The Partnership incurred $66,734 of deferred borrowing costs in connection with the modification, and the default that existed on the mortgage note was removed. NOTE 9 - GAIN ON INVOLUNTARY CONVERSIONS - ---------------------------------------- On April 24, 1996, a roofing contractor caused a fire that did $562,560 of damage to 12 units at Sheraton Hills Apartments. The roofing contractor's insurance carrier will reimburse the Partnership for all costs incurred as a result of the fire. The excess of expected insurance proceeds over the basis of the real estate destroyed resulted in a $474,376 gain on involuntary conversion. As of December 31, 1996, however, the Partnership had not yet received the insurance reimbursement. Therefore, the recognition of the gain on involuntary conversion was deferred and is shown on the Partnership's Balance Sheet as a deferred gain on involuntary conversion. When the insurance reimbursement is received, the deferred gain on involuntary conversion will be recognized. Reconstruction of the destroyed or damaged units was completed during the third quarter of 1996. On November 3, 1995, two units at Cherry Hills Apartments were damaged by a fire that caused $55,495 in damages. The Partnership received a $40,428 insurance reimbursement to cover the cost to repair Cherry Hills Apartments. The insurance reimbursement received in excess of the basis of the property damaged was recorded as a $16,961 gain on involuntary conversion. On May 5, 1995, Westridge Apartments incurred hail damage of $150,938. The Partnership received $144,666 in insurance reimbursements to cover the cost to repair Westridge Apartments. Insurance reimbursements received in excess of the basis of the property damaged were recorded as a $109,006 gain on involuntary conversion. On April 25, 1994, eleven units at Rockborough Apartments were damaged by a fire that caused $225,123 in damages. The Partnership received $219,382 in insurance reimbursements to cover the cost to repair Rockborough Apartments. Insurance reimbursements received in excess of the basis of the property damage were recorded as a $79,332 gain on involuntary conversion. On January 19, 1994, freezing weather caused $157,680 of damage to Rolling Hills Apartments. The Partnership received $140,496 in insurance reimbursements to cover the cost to repair Rolling Hills Apartments. Insurance reimbursements received in excess of the basis of the property damaged were recorded as a $108,522 gain on involuntary conversion. NOTE 10 - LEGAL PROCEEDINGS - --------------------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: 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 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 (as defined in this Section 1, the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (as defined in this Section 1, 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. On January 7, 1997, the Court ordered consolidation with three other similar actions listed below. The Partnerships filed a demurrer to the complaint and a motion to strike on February 14, 1997, seeking to dismiss the complaint in all respects. The demurrer is pending. The Partnerships deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 2) Alfred Napoletano v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California, County of Los Angeles, Case No. BC133849 (Class Action Complaint). On January 7, 1997, this action was consolidated by court order with Scholfield, et al., referenced above. 3) Warren Heller v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California, County of Los Angeles, Case No. BC133957 (Class Action Complaint). On January 7, 1997, this action was consolidated by court order with Scholfield, et al., referenced above. 4) Robert Lewis v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil et al. - In the District Court of Dallas County, Texas, A-14th Judicial District, Cause No. 95-08535 (Class Action) - Plaintiff, Robert Lewis, is a limited partner with McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd. On April 11, 1996, the action was dismissed without prejudice in anticipation of consolidation with other class action complaints. On January 7, 1997, this action was consolidated by court order with Schofield, et al., referenced above. 5) McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., and McNeil Real Estate Fund XXV, L.P. v. High River Limited Partnership, Riverdale Investors Corp., Carl C. Icahn, and Unicorn Associates Corporation - United States District Court for the Central District of California, Case No. 96-5680SVW. On August 12, 1996, High River Limited Partnership (as defined in this Section 5, "High River"), a partnership controlled by Carl C. Icahn, sent a letter to the partnerships referenced above demanding lists of the names, current residences or business addresses and certain other information concerning the unitholders of such partnerships. On August 19, 1996, these partnerships commenced the above action seeking, among other things, to declare that such partnerships are not required to provide High River with a current list of unitholders on the grounds that the defendants commenced a tender offer in violation of the federal securities laws by filing certain Schedule 13D Amendments on August 5, 1996. On October 16, 1996, the presiding judge denied the partnerships' requests for a permanent and preliminary injunction to enjoin High River's tender offers and granted the defendants request for an order directing the partnerships to turn over current lists of unitholders to High River forthwith. On October 24, 1996, the partnerships delivered the unitholder lists to High River. The judge's decision resolved all the issues in the action. McNEIL REAL ESTATE FUND IX, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1996
Cumulative Costs Initial Cost (b) Write-down Capitalized Related (b) Buildings and and Permanent Subsequent Description Encumbrances Land Improvements Impairment To Acquisition - ----------- ------------ ------------ -------------- ------------- -------------- APARTMENTS: Berkley Hills Madison, TN $ 3,227,638 $ 246,988 $ 4,779,121 $ - $ 1,288,491 Cherry Hills Wichita, KS 4,557,325 514,205 7,373,589 - 1,493,728 Forest Park Village Columbus, OH 6,034,650 716,395 7,095,131 - 2,116,681 Heather Square Dallas, TX 3,294,874 853,746 6,087,281 - 1,345,502 Lantern Tree Omaha, NE 2,364,323 217,809 2,467,872 - 888,426 Meridian West Puyallup, WA 3,297,123 253,167 3,787,807 - 1,092,797 Pennbrook Dallas, TX 3,160,860 692,515 4,708,479 - 1,479,921 Rockborough Addison, TX 2,175,916 427,932 2,924,451 - 813,357 Rolling Hills Louisville, KY 6,637,002 557,249 6,156,595 - 2,621,182 Ruskin Place Lincoln, NE 4,544,544 899,372 3,792,676 - 1,294,868 Sheraton Hills Nashville, TX 2,794,397 296,531 4,819,251 - 1,728,139 Westgate Lansing, MI 5,833,019 390,482 4,963,710 - 1,340,408 Williamsburg Shreveport, LA 2,678,335 283,754 4,203,172 - 1,024,371 -------------- -------------- -------------- ------------ ------------- $ 50,600,006 $ 6,350,145 $ 63,159,135 $ - $ 18,527,871 ============== ============== ============== ============ =============
(b) The initial cost and encumbrances reflect the present value of future loan payments discounted, if appropriate, at a rate estimated to be the prevailing interest rate at the date of acquisition or refinancing. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND IX, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1996
Gross Amount at Which Carried at Close of Period Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization - ----------- -------------- -------------- ---------------- ---------------- APARTMENTS: Berkley Hills Madison, TX $ 246,988 $ 6,067,612 $ 6,314,600 $ (3,965,414) Cherry Hills Wichita, KS 514,205 8,867,317 9,381,522 (5,049,666) Forest Park Village Columbus, OH 716,395 9,211,812 9,928,207 (6,046,027) Heather Square Dallas, TX 853,746 7,432,783 8,286,529 (4,243,663) Lantern Tree Omaha, NE 217,809 3,356,298 3,574,107 (2,102,815) Meridian West Puyallup, WA 253,167 4,880,604 5,133,771 (2,789,274) Pennbrook Dallas, TX 692,515 6,188,400 6,880,915 (3,621,595) Rockborough Addison, TX 427,932 3,737,808 4,165,740 (2,062,361) Rolling Hills Louisville, KY 557,249 8,777,777 9,335,026 (5,546,753) Ruskin Place Lincoln, NE 920,061 5,066,855 5,986,916 (3,243,658) Sheraton Hills Nashville, TN 296,531 6,547,390 6,843,921 (4,057,852) Westgate Lansing, MI 390,482 6,304,118 6,694,600 (3,833,520) Williamsburg Shreveport, LA 283,754 5,227,543 5,511,297 (3,165,948) -------------- -------------- ---------------- ------------- $ 6,370,834 $ 81,666,317 $ 88,037,151 $ (49,728,546) ============== ============== ================ =============
(a) For Federal income tax purposes, the properties are depreciated over lives ranging from 5-27.5 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was approximately $90,625,965 and accumulated depreciation was $50,663,001 at December 31, 1996. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND IX, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1996
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------- Apartments: Berkley Hills Madison, TN 1970 06/79 3-25 Cherry Hills Wichita, KS 1974 06/80 3-32 Forest Park Village Columbus, OH 1970 12/79 3-25 Heather Square Dallas, TX 1978 10/79 3-32 Lantern Tree Omaha, NE 1974 07/79 3-28 Meridian West Puyallup, WA 1977 01/80 3-31 Pennbrook Dallas, TX 1978 01/80 3-31 Rockborough Addison, TX 1978 01/80 3-31 Rolling Hills Louisville, KY 1974 09/79 3-27 Ruskin Place Lincoln, NE 1973 12/79 3-27 Sheraton Hills Nashville, TN 1971 06/79 3-27 Westgate Lansing, MI 1974 12/79 3-28 Williamsburg Shreveport, LA 1975 12/79 3-28
See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND IX, LTD. Notes to Schedule III Real Estate Investments and Accumulated Depreciation A summary of activity for the Partnership's real estate investments and accumulated depreciation is as follows:
For the Years Ended December 31, ----------------------------------------------------- 1996 1995 1994 --------------- --------------- ---------------- Real estate investments: Balance at beginning of year............... $ 90,563,393 $ 87,104,715 $ 83,199,845 Improvements............................... 2,398,428 3,582,582 4,261,449 Assets replaced............................ (277,307) (123,904) (356,579) Sale of real estate........................ (4,647,363) - - ------------- ------------- -------------- Balance at end of year..................... $ 88,037,151 $ 90,563,393 $ 87,104,715 ============= ============= ============== Accumulated depreciation: Balance at beginning of year............... $ 48,129,231 $ 44,274,163 $ 41,065,883 Depreciation............................... 4,173,260 3,919,845 3,392,835 Assets replaced............................ (189,123) (64,777) (184,555) Sale of real estate........................ (2,384,822) - - ------------- ------------- -------------- Balance at end of year..................... $ 49,728,546 $ 48,129,231 $ 44,274,163 ============= ============= ==============
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- Neither the Partnership nor the General Partner has any directors or executive officers. The names and ages of, as well as the positions held by, the officers and directors of McNeil Investors, Inc., the general partner of the General Partner, are as follows: Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Robert A. McNeil, 76 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate financing since the late 1940's and in real estate acquisitions, syndications and dispositions since 1960. From 1986 until active operations of McREMI and McNeil Partners, L.P. began in February 1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the International Board of Directors of the Salk Institute, which promotes research in improvements in health care. Carole J. McNeil 53 Mrs. McNeil is Co-Chairman, with Co-Chairman of the husband Robert A. McNeil, of McNeil Board Investors, Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate associate with the Madison Company and, earlier, a commercial sales associate and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established Escrow Training Centers, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute. Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Ron K. Taylor 39 Mr. Taylor is the President and Chief President and Chief Executive Officer of McNeil Real Estate Executive Officer Management which is an affiliate of the General Partner. Mr. Taylor has been in this capacity since the resignation of Donald K. Reed on March 4, 1997. Prior to assuming his current responsibilities, Mr. Taylor served as a Senior Vice President of McREMI. Mr. Taylor has been in this capacity since McREMI commenced operations in 1991. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management firm. In this capacity, Mr. Taylor had the responsibility for the management and leasing of a 21,000,000 square foot portfolio of commercial properties. Mr. Taylor has been actively involved in the real estate industry since 1983. Each director shall serve until his successor shall have been duly elected and qualified. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1996, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1996. The Partnership has no plans to pay any such remuneration to any directors or officers of the general partner of the General Partner in the future. See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- (A) Security ownership of certain beneficial owners. No individual or group, as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, known to the Partnership is the beneficial owner of more than 5% of the Partnership's securities, except as noted in below: 1. A group of limited partnerships affiliated with Liquidity Financial Corporation, all of whose outstanding stock is owned by Richard G. Wollack and Brent R. Donaldson, 2200 Powell Street, Suite 700, Emeryville, California, 94608, collectively own 6,389 Units (5.80%) as of January 31, 1997. 2. High River Limited Partnership, 100 S. Bedford Road, Mount Kisco, New York, 10549, owns 13,147 Units (11.93%) as of January 31, 1997. (B) Security ownership of management. The General Partner and the officers and directors of its general partner, collectively, own 5,715 Units (5.19%) as of January 31, 1997. (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- Under the terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit 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 MID will be paid to the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount"), and may be paid in (i) 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. For the year ended December 31, 1996, the Partnership paid or accrued MID for the General Partner in the amount of $1,133,561. During 1991, the Partnership amended its capitalization policy and began capitalizing certain costs of improvements and betterments which under policies of prior management had been expensed when incurred. The purpose of the amendment was to more properly recognize items which were capital in nature. The effect of the amendment standing alone was evaluated at the time the change was made and determined not to be material to the financial statements of the Partnership in 1991, nor was it expected to be material in any future year. However, the amendment can have a material effect on the calculation of the Entitlement Amount which determines the amount of MID earned. Capital improvements are excluded from cash flow, as defined. The majority of base period cash flow was measured under the previous capitalization policy, while incentive period cash flow is determined using the amended policy. Under the amended policy, more items are capitalized, and cash flow increases. Had base period cash flow been measured on a basis comparable with incentive period cash flow, MID for the years ended December 31, 1995 and 1994 would have been reduced by $111,248 and $169,741, respectively. The amendment of the capitalization policy did not materially affect the MID for 1996 because the Entitlement Amount was sufficient to pay the MID notwithstanding the amendment to the capitalization policy. The Partnership pays property management fees equal to 5% of gross rental receipts of the Partnership's properties to McREMI for providing property management and leasing services for the Partnership's properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1996, the Partnership incurred $1,515,865 of property management fees and reimbursements. See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 - Note 2 - "Transactions with Affiliates." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------- ---------------------------------------------------------------- See accompanying Index to Financial Statements at Item 8. (A) The following exhibits are incorporated by reference and are an integral part of this Form 10-K. Exhibits Exhibit Number Description ------- ----------- 3. Limited Partnership Agreement (Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1987). 3.1 Amended and Restated Limited Partnership Agreement dated November 12, 1991 (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter year ended September 30, 1991). 3.2 Amendment No. 1 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund IX, Ltd., dated to be effective as of July 31, 1993. (5) 3.3 Amendment No. 2 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund IX, Ltd., dated March 28, 1994. (5) 10.1 Mortgage Note, dated September 26, 1989, between Rolling Hills Fund IX Associates L.P. and Newport Mortgage Corporation. (1) 10.2 Mortgage Note, dated August 11, 1988, between Sherwood Forest Fund IX Associates and American Mortgages, Inc. (1) 10.3 Assignment and Assumption Agreement, dated as of November 12, 1991, between Pacific Investors Corporation and McNeil Partners, L.P. regarding Sherwood Forest Fund IX Associates. (2) 10.4 Assignment and Assumption Agreement, dated as of November 12, 1991, between Pacific Investors Corporation and McNeil Partners, L.P. regarding Berkley Hills Associates. (2) 10.5 Assignment and Assumption Agreement, dated as of November 12, 1991, between Pacific Investors Corporation and McNeil Partners, L.P. regarding Ruskin Place Fund IX Associates. (2) Exhibit Number Description ------- ----------- 10.6 Assignment and Assumption Agreement, dated as of November 12, 1991, between Rolling Hills Apartment Corp. and McNeil Partners, L.P. regarding Rolling Hills Fund IX Associates, L.P. (2) 10.7 Assignment and Assumption Agreement, dated as of November 12, 1991, between Pacific Investors Corporation, Robert A. McNeil and McNeil Partners, L.P. regarding McNeil Real Estate Fund IX, Ltd. (2) 10.8 Termination Agreement, dated as of November 12, 1991, between Ruskin Place Fund IX Associates and McNeil Real Estate Management, Inc. (2) 10.9 Termination Agreement, dated as of November 12, 1991. (2) between Rolling Hills Fund IX Associates, L.P. and McNeil Real Estate Management, Inc. 10.10 Termination Agreement, dated as of November 12, 1991, between Sherwood Forest Fund IX Associates and McNeil Real Estate Management, Inc. (2) 10.11 Termination Agreement, dated as of November 12, 1991, between Berkley Hills Associates and McNeil Real Estate Management, Inc. (2) 10.12 Property Management Agreement, dated as of November 12, 1991, between McNeil Real Estate Fund IX, Ltd. and McNeil Real Estate Management, Inc. (2) 10.13 Property Management Agreement, dated as of November 12, 1991, between Ruskin Place Fund IX Associates and McNeil Real Estate Management, Inc. (2) 10.14 Property Management Agreement, dated as of November 12, 1991, between Rolling Hills Fund IX Associates, L.P. and McNeil Real Estate Management, Inc. (2) 10.15 Property Management Agreement, dated as of November 12, 1991, between Sherwood Forest Fund IX Associates, L.P. and McNeil Real Estate Management, Inc. (2) Exhibit Number Description ------- ----------- 10.16 Property Management Agreement, dated as of November 12, 1991, between Berkley Hills Associates and McNeil Real Estate Management, Inc. (2) 10.17 Asset Management Agreement, dated as of November 12, 1991, between McNeil Real Estate Fund IX, Ltd. and McNeil Partners, L.P. (2) 10.18 Revolving Credit Agreement, dated August 6, 1991, between McNeil Real Estate Fund IX, Ltd. and McNeil Partners, L.P. (2) 10.19 Amendment of Property Management Agreement dated March 5, 1993 between the Partnership and McNeil Real Estate Management, Inc. (3) 10.20 Property management agreement, dated as of January 28, 1993, between Pennbrook Fund IX, L.P. and McNeil Real Estate Management, Inc. (3) 10.21 Amendment of Property Management Agreement dated March 5, 1993 between Pennbrook Fund IX Associates, L.P. and McNeil Real Estate Management, Inc. (3) 10.22 Loan Agreement dated June 24, 1993 between Lexington Mortgage Company and McNeil Real Estate Fund IX, Ltd., et. al. (4) 10.23 Master Property Management Agreement, dated as of June 24, 1993, between McNeil Real Estate Management, Inc. and McNeil Real Estate Fund IX, Ltd. (5) 10.24 Mortgage Note, dated September 28, 1989, between Ruskin Place Fund IX Associates and American Mortgages, Inc. (6) 10.25 Modification of Mortgage Note, dated July 28, 1994, between Ruskin Place Fund IX Associates and American Mortgages, Inc. (6) 10.26 Deed of Trust Note, dated November 3, 1988, between Berkley Hills Associates and American Mortgages, Inc. (6) 10.27 Modification of Deed of Trust Note, dated July 28, 1994, between Berkley Hills Associates and American Mortgages, Inc. (6) Exhibit Number Description ------- ----------- 10.28 Loan Agreement, dated December 30, 1992, between Forest Park Fund IX Associates Limited Partnership, McNeil Partners, L.P., McNeil Real Estate Fund IX, Ltd. and Collateral Mortgage, Ltd. (6) 10.29 Promissory Note, dated February 5, 1979, between Summers-The Heather Apartments Company and The Mutual Benefit Life Insurance Company. (6) 10.30 Promissory Note, dated September 2, 1988, between McNeil Real Estate Fund IX, Ltd. and FNB Mortgage Corp. (6) 10.31 Multifamily Note, dated January 29, 1993, between Pennbrook Fund IX Associates, L.P. and Washington Mortgage Financial Group, Ltd. (6) 10.32 Modification of Mortgage Note, dated June 30, 1993, between Sherwood Forest Fund IX Associates and American Mortgages, Inc. (6) 11. Statement regarding computation of Net Income (Loss) per Limited Partnership Unit (see Note 1 to Financial Statements). 22. Following is a list of subsidiaries of the Partnership:
Names Under Jurisdiction Which It Is Name of Subsidiary of Incorporation Doing Business ------------------ ---------------- -------------- Berkley Hills Associates Tennessee None Cherry Hills Fund IX Limited Partnership Delaware None Forest Park Fund IX Associates Limited Partnership Ohio None Lantern Tree Fund IX Limited Partnership Delaware None Meridian West Fund IX Limited Partnership Delaware None
Jurisdiction Which It Is Name of Subsidiary of Incorporation Doing Business ------------------ ---------------- -------------- Pennbrook Fund IX Associates, L.P. Texas None Rockborough Fund IX Limited Partnership Delaware None Rolling Hills Fund IX Associates, L.P. Kentucky None Ruskin Place Fund IX Associates Nebraska None Sherwood Forest Fund IX Associates Michigan None Williamsburg Fund IX Limited Partnership Delaware None
The Partnership has omitted instruments with respect to long-term debt where the total amount of the securities authorized thereunder does not exceed 10% of the total assets of the Partnership. The Partnership agrees to furnish a copy of each such instrument to the Commission upon request. (1) Incorporated by reference to the Annual Report of McNeil Real Estate Fund IX, Ltd. (File No. 0-9026) on Form 10-K for the period ended December 31, 1990, as filed with the Securities and Exchange Commission on March 29, 1991. (2) Incorporated by reference to the Annual Report of McNeil Real Estate Fund IX, Ltd. (File No. 0-9026), on Form 10-K for the period ended December 31, 1991, as filed with the Securities and Exchange Commission on March 30, 1992. (3) Incorporated by reference to the Annual Report of McNeil Real Estate Fund IX, Ltd. (File No. 0-9026), on Form 10-K for the period ended December 31, 1992, as filed with the Securities and Exchange Commission on March 30, 1993. (4) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XI, Ltd. (File No. 0-9783), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994. (5) Incorporated by reference to the Annual Report of McNeil Real Estate Fund IX, Ltd. (File No. 0-9026), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994. (6) Incorporated by reference to the Annual Report of McNeil Real Estate Fund IX, Ltd. (File No. 0-9026), on Form 10-K for the period ended December 31, 1996, as filed with the Securities and Exchange Commission on March 30, 1995. 27. Financial Data Schedule for the year ended December 31, 1996. (B) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 1996. McNEIL REAL ESTATE FUND IX, LTD. A Limited Partnership SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) 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 IX, LTD. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner March 28, 1997 By: /s/ Robert A. McNeil - -------------- ----------------------------------------- Date Robert A. McNeil Chairman of the Board and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 28, 1997 By: /s/ Ron K. Taylor - -------------- ---------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 28, 1997 By: /s/ Brandon K. Flaming - -------------- ---------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 12-MOS DEC-31-1996 DEC-31-1996 3,001,521 0 59,871 0 0 0 88,037,151 (49,728,546) 47,650,109 0 50,600,006 0 0 0 0 47,650,109 19,732,110 19,964,950 0 0 15,462,872 0 4,796,060 (293,982) 0 0 0 0 0 (293,982) 0 0
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