-----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, DrYJpX6PTAWH8nyFy04Eyg5T5jXVQWRyR0L3Z8OPcCCbnCLkFJduNiO5vdX35qTm hvqphlFwW9gfTtSSf5uWkw== 0000312812-96-000002.txt : 19960401 0000312812-96-000002.hdr.sgml : 19960401 ACCESSION NUMBER: 0000312812-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND X LTD CENTRAL INDEX KEY: 0000312812 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 942577781 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-09325 FILM NUMBER: 96541349 BUSINESS ADDRESS: STREET 1: 13760 NOEL ROAD 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, 1995 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-9325 -------- McNEIL REAL ESTATE FUND X, LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2577781 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (214) 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 ] 133,298 of the registrant's 135,030 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 54 TOTAL OF 58 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized June 1, 1979 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 of limited partnership dated October 9, 1991, as amended (the "Amended Partnership Agreement"). Prior to October 9, 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 (the "Original Partnership Agreement") dated June 1, 1979. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240. On December 14, 1979, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission whereby the Partnership offered for sale $67,500,000 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 July 17, 1980, with 135,000 Units sold at $500 each, or gross proceeds of $67,500,000 to the Partnership. The original general partners purchased an additional 200 Units for $100,000. Limited partners relinquished 80, 30 and 60 Units in 1993, 1994 and 1995, respectively, leaving 135,030 Units outstanding at December 31, 1995. SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - -------------------------------------------------- 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 interest in the Corporate General Partner, are being 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 October 11, 1991, the limited partners approved a restructuring proposal providing 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 alters 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 reimbursement 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 the 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, $69,234 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 $22,283 which, when combined with the cash proceeds from Southmark, resulted in a gain on settlement of litigation of $91,517. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At December 31, 1995, the Partnership owned twelve 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, and, in accordance with the Amended Partnership Agreement, the Partnership reimburses affiliates of the General Partner for certain expenses incurred by the affiliates in connection with the management of the Partnership's business. 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's anticipated plan of operations for 1996 is to preserve or increase the net operating income of its properties 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 properties. The General Partner is evaluating market and other economic conditions to determine the optimum time to commence an orderly liquidation of the Partnership's properties in accordance with the terms of the Amended Partnership Agreement. The Partnership is currently marketing one of its properties for sale. The General Partner will continue to explore potential avenues to enhance the value of the limited partners' Units, which may include, among other things, asset sales or refinancings of the Partnership's properties which may result in distributions to the limited partners. 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 discussion of competitive conditions at the Partnership's properties. 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 (the "HR Offer") to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $72 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 HR Offer made with respect to the Partnership and not tender their Units pursuant to the HR Offer. The HR Offer terminated, after numerous extensions, on October 6, 1995. The General Partner believes that as of February 29, 1996, High River has purchased approximately 5.52% of the outstanding Units pursuant to the HR Offer. In addition, all litigation filed by High River, Mr. Icahn and his affiliates in connection with the HR Offer has been dismissed without prejudice. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1995. 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" and Note 6 - "Mortgage Note Payable - Affiliate." See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - "Real Estate Investments and Accumulated Depreciation and Amortization." In the opinion of management, the properties are adequately covered by insurance.
Net Basis 1995 Date Property Description of Property Debt Property Tax Acquired - -------- ----------- ---------------- ------------- ----------- -------- Real Estate Investments: Briarwood (1) Apartments Tucson, AZ 196 units $ 2,047,492 $ 2,159,913 $ 57,732 07/80 Cave Spring Corners Retail Center Roanoke, VA 165,547 sq. ft. 2,280,551 3,118,079 50,605 10/80 Coppermill (2) Apartments Tulsa, OK 544 units 4,338,594 5,022,484 83,188 10/80 Iberia Plaza Retail Center New Iberia, LA 136,766 sq. ft. 3,082,100 2,076,505 38,009 06/80 La Plaza Office Building Las Vegas, NV 104,230 sq. ft. 5,004,246 2,523,308 61,030 09/80
Net Basis 1995 Date Property Description of Property Debt Property Tax Acquired - -------- ----------- ----------------- ------------- ------------ -------- Lakeview Plaza Retail Center Lexington, KY 172,252 sq. ft. $ 3,759,754 $ 4,249,492 $ 9,522 07/80 Orchard (3) Apartments Lawrence, IN 378 units 3,392,218 6,288,171 215,846 12/80 Quail Meadows (4) Apartments Wichita, KS 440 units 4,491,104 5,967,225 84,482 06/80 Regency Park (5) Apartments Ft. Wayne, IN 226 units 1,793,099 2,421,645 91,254 06/80 Sandpiper (6) Apartments Westminster, CO 360 units 3,839,859 5,540,519 58,562 04/80 Spanish Oaks (7) Apartments San Antonio, TX 239 units 2,670,513 3,524,225 116,593 08/80 --------------- ------------- --------- $ 36,699,530 $ 42,891,566 $ 866,823 =============== ============= ========= Asset Held for Sale: Parkway Plaza Retail Center Lafayette, LA 135,682 sq. ft. $ 2,237,733 $ 2,362,750 $ 30,108 06/80 --------------- ------------- --------- $ 2,237,733 $ 2,362,750 $ 30,108 =============== ============= =========
- ----------------------------------------- Total: Apartments - 2,383 units Retail Centers - 610,247 sq. ft. Office Building - 104,230 sq. ft. (1) Briarwood Apartments is owned by Briarwood Fund X Limited Partnership, which is wholly-owned by the Partnership. (2) Coppermill Apartments is owned by Coppermill Fund X Limited Partnership, which is wholly-owned by the Partnership. (3) Orchard Apartments is owned by Orchard Fund X Limited Partnership, which is wholly-owned by the Partnership. (4) Quail Meadows Apartments is owned by Quail Meadows Fund X Limited Partnership, which is wholly-owned by the Partnership. (5) Regency Park Apartments is owned by Regency Park Fund X Associates, L.P. which is wholly-owned by the Partnership and the General Partner. (6) Sandpiper Apartments is owned by Sandpiper Fund X Limited Partnership, which is wholly-owned by the Partnership. (7) Subsequent to year end, the Partnership transferred Spanish Oaks Apartments to Spanish Fund X, Ltd. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Note 13 - "Subsequent Event." Spanish Fund X, Ltd. is wholly-owned by the Partnership. The following table sets forth the occupancy rate and rent per square foot of the Partnership's properties for each of the last five years:
1995 1994 1993 1992 1991 ------------- ------------- -------------- ------------- ----------- Real Estate Investments: Briarwood Occupancy Rate............ 92% 99% 99% 96% 95% Rent Per Square Foot...... $9.91 $9.62 $8.58 $8.07 $7.53 Cave Spring Corners Occupancy Rate............ 98% 100% 99% 95% 95% Rent Per Square Foot...... $4.75 $4.53 $3.92 $3.93 $3.94 Coppermill Occupancy Rate............ 94% 92% 92% 89% 86% Rent Per Square Foot...... $5.46 $5.28 $4.99 $4.73 $4.37 Iberia Plaza Occupancy Rate............ 98% 94% 90% 88% 89% Rent Per Square Foot...... $3.71 $3.90 $3.59 $3.41 $4.21 La Plaza Occupancy Rate............ 77% 97% 99% 95% 96% Rent Per Square Foot...... $10.10 $13.97 $12.56 $12.58 $12.63 Lakeview Plaza Occupancy Rate............ 98% 100% 100% 95% 96% Rent Per Square Foot...... $4.71 $5.69 $5.35 $4.97 $5.47 Orchard Occupancy Rate............ 98% 94% 93% 89% 91% Rent Per Square Foot...... $7.25 $6.95 $6.24 $6.20 $6.13 Quail Meadows Occupancy Rate............ 94% 89% 77% 92% 89% Rent Per Square Foot...... $5.80 $5.62 $5.53 $5.99 $5.79 Regency Park Occupancy Rate............ 92% 94% 89% 86% 86% Rent Per Square Foot...... $5.45 $5.09 $4.46 $4.64 $4.48 Sandpiper Occupancy Rate............ 94% 95% 94% 98% 97% Rent Per Square Foot...... $9.29 $8.93 $8.33 $7.46 $6.59
1995 1994 1993 1992 1991 ------------- ------------- -------------- ------------- ----------- Spanish Oaks Occupancy Rate............ 90% 91% 96% 95% 89% Rent Per Square Foot...... $6.18 $5.97 $5.64 $5.23 $4.77 Asset Held for Sale: Parkway Plaza Occupancy Rate............ 100% 97% 95% 95% 95% Rent Per Square Foot...... $5.25 $5.19 $4.89 $5.76 $5.72
Occupancy rate represents all units or square footage leased divided by the total number of units or square footage of the property as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the properties' operations divided by the leasable square footage of the property. Competitive Conditions at Properties - ------------------------------------ Students at nearby University of Arizona make up 91% of the tenants at Briarwood Apartments. The property commands rents $100 to $150 higher per month than its competition due to its excellent location near the university and a bike route to the university. Due to the heavy student-tenant profile, occupancy at the property typically drops during the summer months, giving Briarwood an average occupancy rate four to five percentage points below market averages. Planned developments in the area may have a short-term impact on the property, but long-term impact is expected to be negligible due to Briarwood's excellent location. The major exterior renovation currently underway at Cave Spring Corners Shopping Center has allowed the Partnership to increase market rental rates up to area averages. Occupancy remains high due to a good location. Competing properties have also been renovated during the past five to six years. The economic outlook for the Roanoke area is expected to be positive, and should allow Cave Spring Corners to maintain its high occupancy through 1997. The average occupancy rate at Coppermill Apartments mirrors the local area average of 92%. Area occupancy rates are expected to be stable in the 92% to 93% range. Most properties in the immediate area, including Coppermill, were built by the same developer using identical floor plans. Thus, the local market is very price-sensitive. The average monthly rent per square foot city-wide is $.54 per square foot. Because Coppermill's monthly rental rates average $.48 per square foot, there is some room for rental rate increases, but usually only with units that have upgraded amenities that differentiate the units from the competition's. Iberia Plaza gained a new anchor tenant during 1995. The property remained 97% leased, but the proportion of the space that was "dark" or vacant decreased from 84% to 19% during 1995. The new tenant, a grocery store, has greatly increased the amount of traffic into the property. In connection with the new anchor tenant lease, the Partnership invested over $700,000 in capital improvements to replace the asphalt, roof, exterior lighting and HVAC equipment. The primary competition for the property is a retail center constructed in 1991 across the street from Iberia Plaza. The new retail center charges an average rental rate of $8 to $10 per square foot as opposed to $6 at Iberia Plaza. La Plaza Business Center had two major tenants vacate or down-size their space requirements during 1995. Occupancy fell from 97% at the beginning of 1995 to 77% at the end of 1995. The decrease in occupancy has prompted the Partnership to update the appearance of the property. Additional substantial tenant improvement costs are expected to be incurred to convert the property to a more leasable configuration and to bring the property into compliance with local building codes. The Partnership intends to fund the tenant improvements as lease negotiations proceed with new tenants. Demand for office space in Las Vegas is expected to be strong in 1996. New construction is aimed at the high-end of the market, and is not expected to compete with La Plaza. Lakeview Plaza is 98% leased. However, one of the property's anchor tenants vacated its space in mid-1995. The tenant anticipates sub-leasing its space by mid-1996. The local market area appears to be strong, with several national retailers looking for sites for additional stores in the area. There are also several, newer competing properties in very close proximity to Lakeview Plaza that have adversely affected sales of Lakeview Plaza's tenants. In 1993, the Partnership invested $660,000 of capital improvements at Orchard Apartments. The property, as a result, has benefited from improved curb appeal and improved financial performance. Orchard's occupancy rate is usually two percentage points above the 93% average occupancy rate of competitors in the Indianapolis submarket where Orchard is located. Rental rates at Orchard are comparable to its competitors. Recent and impending layoffs by major area employers are a concern. Parkway Plaza has a good location on the north side of Lafayette, Louisiana. There is no room for additional development in the immediate area; consequently, new developments are located across town from Parkway Plaza. The property is 100% leased, but the property's main anchor tenant has vacated its space. Although lease payments continue to be made, the vacant space generates no percentage rents and does not pull in shoppers to the property. The Partnership placed Parkway Plaza on the market for sale in December 1994. Quail Meadows Apartments is one of the nicer properties in the Wichita area. Both interiors and exteriors of the property are above average relative to the competition. However, the market in the Wichita area is soft. Area occupancy rates have decreased for the past three years and rental rates have been flat. Quail Meadows has maintained occupancy rates higher than market averages, but has not been able to increase rental rates despite significant capital improvements. The property relies on tenants from nearby McConnell Air Force Base, which has recently constructed new housing facilities and faces the possibility of congressional military cutbacks. Occupancy rates in the Regency Park Apartments market area average 94%, slightly better than Regency Park's occupancy rate. Rental rates realized at Regency Park are also lower than its competitors. The property competes with numerous properties, some of which are newer or have more appeal to prospective tenants. Capital improvements made by the Partnership during 1993, 1994 and 1995 have allowed the property to close some of the gap between Regency Park and its competitors. The rental market in the area, however, remains price sensitive. Improvements in operating results generally are coming through improved occupancy rather than rate increases. Capital improvements placed in service since 1992 have allowed Sandpiper Apartments to increase its rent per square foot by 41% in the past four years. Occupancy and rental rates are above market averages. Since 1992, the income level of Sandpiper's tenants has increased substantially. There is significant new construction under development in the market area. It is expected that the new construction will put downward pressure on market rent levels, but management expects that well-maintained Sandpiper will continue to compete effectively. Average occupancy rates at Spanish Oaks Apartments have decreased two percentage points during the past two years due to competition with new construction, older properties that have been renovated, and rate hikes at Spanish Oaks. Net income from the property has continued to rise due to increased rental rates, but rental rates at Spanish Oaks remain below market averages. The interiors at Spanish Oaks will need to be updated to allow the property to raise its rents to current market levels. Also of concern is the reliance upon personnel employed or stationed at Fort Sam Houston Army Base for many of the property's tenants. The following schedule shows lease expirations for each of the Partnership's commercial properties for 1996 through 2005:
Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- ------ ----------- Real Estate Investments: Cave Spring Corners 1996 4 98,707 $ 272,493 42% 1997 1 1,920 25,530 4% 1998 2 6,255 42,154 7% 1999 2 7,568 70,250 11% 2000 2 3,298 36,869 6% 2001 0 - - - 2002 0 - - - 2003 1 46,432 143,561 22% 2004 0 - - - 2005 0 - - - Iberia Plaza 1996 3 4,843 29,294 5% 1997 3 4,008 23,112 4% 1998 5 33,285 137,662 26% 1999 2 2,400 18,290 3% 2000 0 - - - 2001 1 3,240 25,920 5% 2002 0 - - - 2003 1 79,902 271,667 51% 2004 0 - - - 2005 0 - - -
Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- ------ ----------- Real Estate Investments: La Plaza 1996 18 28,815 $392,914 26% 1997 4 3,819 55,967 4% 1998 4 10,380 146,612 10% 1999 1 189 1,928 0.2% 2000 5 27,230 406,762 27% Thereafter 0 - - - Lakeview Plaza 1996 4 11,869 133,507 17% 1997 3 10,568 50,194 6% 1998 1 33 4,800 1% 1999 0 - - - 2000 1 913 9,431 1% 2001 0 - - - 2002 0 - - - 2003 2 16,721 111,184 14% 2004 2 121,942 455,705 58% 2005 0 - - -
Asset Held for Sale: Parkway Plaza 1996 5 7,714 $ 71,713 12% 1997 4 5,840 36,097 6% 1998 3 11,507 78,147 13% 1999 0 - - - 2000 2 29,625 131,404 22% 2001 0 - - - 2002 0 - - - 2003 1 79,902 279,657 47% 2004 0 - - - 2005 0 - - -
No residential tenant leases 10% or more of the available rental space. The following schedule reflects information on commercial tenants occupying 10% or more of the leasable square feet for each property:
Nature of Business Square Footage Lease Use Leased Annual Rent Expiration - --------- -------------- ----------- ---------- Real Estate Investments: Cave Spring Corners Department store 84,217 $192,000 1996 Grocery store 46,432 143,561 2003 Iberia Plaza Grocery store 26,445 89,913 1998 Discount department store 79,902 271,667 2003 La Plaza Governmental agency 12,097 157,370 1996 Lakeview Plaza Discount department store 78,337 253,000 2004 Grocery store 43,605 202,705 2004 Asset Held for Sale: Parkway Plaza Department store 26,422 105,780 2000 Discount department store 79,902 279,657 2003
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 as noted below. 1) High River Limited Partnership v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Pacific Investors 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., Robert A. McNeil and Carole J. McNeil (L95012) - High River ("HR") filed this action in the United States District Court for the Southern District of New York against McNeil Partners, L.P., McNeil Investors, Inc. and Mr. and Mrs. McNeil (as defined in this Section 1, collectively, the "Defendants") requesting, among other things, names and addresses of the limited partners in the partnerships referenced above (as defined in this Section 1, the "Partnerships"). The District Court issued a preliminary injunction against the Partnerships requiring them to commence mailing materials relating to the HR tender offer on August 14, 1995. On August 18, 1995, the Defendants filed an Answer and Counterclaim. The Counterclaim principally asserts (1) the HR tender offers have been undertaken in violation of the federal securities laws, on the basis of material, non-public, and confidential information, and (2) that the HR offer documents omit and/or misrepresent certain material information about the HR tender offers. The Counterclaim seeks a preliminary and permanent injunction against the continuation of the HR tender offers and, alternatively, ordering corrective disclosure with respect to allegedly false and misleading statements contained in the tender offer documents. This action was dismissed without prejudice in November 1995. 2) High River Limited Partnership v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Pacific Investors 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., Robert A. McNeil and Carole J. McNeil - United States District Court for the Southern District of New York, (Case No. 95 Civ. 9488) (Second Action). On November 7, 1995, High River filed a second complaint with the District Court which alleges, inter alia, that McNeil Partners, L.P.'s (the "General Partner") Schedule 14D-9 filed in connection with the High River tender offers was materially false and misleading, in violation of Sections 14(d) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78n(d) and (e), and the SEC Regulations promulgated thereunder; and that High River further alleges that the General Partner has wrongfully refused to admit High River as a limited partner to the ten partnerships referenced above. Additionally, High River purports to assert claims derivatively on behalf of McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., for breach of contract and breach of fiduciary duty, asserting that the General Partner has charged these partnerships excessive fees. High River's complaint seeks, inter alia, preliminary injunctive relief requiring the General Partner to admit High River as a limited partner in each of the ten partnerships referenced above and to transfer the tendered units of interest in the partnerships to High River; an unspecified award of damages payable to High River and an additional unspecified award of damages payable to certain of the partnerships; an order that defendants must discharge their fiduciary duties and must account for all fees they have received from certain of the partnerships; and attorneys' fees. On January 31, 1996, this action was dismissed without prejudice. 3) 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. Plaintiff brings this action on his own behalf and as a class action on behalf of the class of all limited partners of 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, Ltd. (as defined in this Section 3, the "Partnerships") as of August 4, 1995. Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil and other senior officers (as defined in this Section 3, collectively, the "Defendants") breached their fiduciary duties by, among other things, (1) failing to attempt to sell the properties owned by the Partnerships (as defined in this Section 3, the "Properties") and extending the lives of the Partnerships indefinitely, contrary to the Partnerships' business plans, (2) paying distributions to themselves and generating fees for their affiliates, (3) refusing to make significant distributions to the class members, despite the fact that the Partnerships have positive cash flows and substantial cash balances, and (4) failing to take steps to create an auction market for equity interests of the Partnerships, despite the fact that a third party bidder filed tender offers for approximately forty-five percent (45%) of the outstanding units of each of the Partnerships. Plaintiff also claims that Defendants have breached the partnership agreements of the Partnerships by failing to take steps to liquidate the Properties and by their alteration of the Partnerships' primary purposes, their acts in contravention of these agreements, and their use of the assets of the Partnerships for their own benefit instead of for the benefit of the Partnerships. The Defendants deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 4) James F. Schofield, Gerald C. Gillett and Donna S. Gillett v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, 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. et al - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint) and United States District Court, Southern District of New York, Case No. 95CIV.6711 (Class and Derivative Action Complaint) These are corporate/securities class and derivative actions brought in state and federal court by limited partners of each of the nine (9) limited partnerships that are named as nominal defendants as listed above (as defined in this Section 4, the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and four (4) of their senior officers and/or directors (as defined in this Section 4, collectively, the "Defendants") have breached their fiduciary duties. Specifically, Plaintiffs allege that Defendants have caused the Partnerships to enter into several wasteful transactions that have no business purpose or benefit to the Partnerships and which have rendered such units highly illiquid and artificially depressed the prices that are available for units on the limited resale market. Plaintiffs also allege that Defendants have engaged in a course of conduct to prevent the acquisition of units by Carl Icahn by disseminating false, misleading and inadequate information. Plaintiffs further allege that Defendants have 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 and, thereby, have breached the partnership agreements. The Defendants deny that there is any merit to Plaintiff's allegations and intend to vigorously defend these actions. 5) 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) Plaintiff brings this class action on behalf of a class of all persons and entities who are current owners of units and/or are limited partners in one or more of the partnerships referenced above (as defined in this Section 5, the "Partnerships"). Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil and other senior officers (as defined in this Section 5, collectively, the "Defendants") have breached their fiduciary duties to the class members by, among other things, (1) taking steps to prevent the consummation of the High River tender offers, (2) failing to take steps to maximize unitholders' or limited partners' values, including failure to liquidate the properties owned by the Partnerships, (3) managing the Partnerships so as to extend indefinitely the present fee arrangements, and (4) paying itself and entities owned and controlled by the general partner excessive fees and reimbursements of general and administrative expenses. The Defendants deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 6) 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) Plaintiff brings this class action on behalf of a class of all persons and entities who are current owners of units and/or are limited partners in one or more of the partnerships referenced above (as defined in this Section 6, the "Partnerships"). Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil and other senior officers (as defined in this Section 6, collectively, the "Defendants") have breached their fiduciary duties to the class members by, among other things, (1) taking steps to prevent the consummation of the High River tender offers, (2) failing to take steps to maximize unitholders' or limited partners' values, including failure to liquidate the properties owned by the Partnerships, (3) managing the Partnerships so as to extend indefinitely the present fee arrangements, and (4) paying itself and entities owned and controlled by the general partner excessive fees and reimbursements of general and administrative expenses. The Defendants deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. For discussion of the Southmark bankruptcy, see Item 1 - Business and Item 8 - Note 12 - "Gain on Legal Settlement." 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 6,971 as of February 16, 1996 (C) No distributions were paid to the limited partners in 1995 or 1994 and none are anticipated in 1996. The Partnership accrued distributions of $1,064,257 and $634,802 for the benefit of the General Partner for the years ended December 31, 1995 and 1994, respectively. These distributions are the contingent portion of the MID pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." 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 1995 1994 1993 1992 1991 - ------------------ -------------- ------------- -------------- ------------- ------------- Rental revenue............... $ 16,878,076 $ 17,375,904 $ 16,217,889 $ 16,023,798 $ 15,745,075 Gain on involuntary conversion................... - - 268,434 192,168 - Gain on disposition of real estate.............. 3,183,698 - - - 251,314 Total revenue................ 20,258,594 17,428,487 16,542,802 16,283,680 16,097,573 Loss on replacement of assets................... - - - (675,420) - Income (loss) before extraordinary items 2,193,164 (1,199,904) (1,693,057) (2,101,133) (2,208,424) Extraordinary items.......... - 292,539 (1,078,519) - 900,508 Net income (loss)............ 2,193,164 (907,365) (2,771,576) (2,101,133) (1,307,916) Net income (loss) per limited partnership unit: Income (loss) before extraordinary items $ 15.43 $ (10.25) $ (15.62) $ (24.66) $ (15.52) Extraordinary items.......... - 2.06 (7.58) - 6.33 ------------ ------------ ------------ ------------- ------------ Net income (loss)............ $ 15.43 $ (8.19) $ (23.20) $ (24.66) $ (9.19) ============ ============ ============ ============ ===========
As of December 31, Balance Sheets 1995 1994 1993 1992 1991 - -------------- ------------- ------------- -------------- ------------- ------------- Real estate investments, net... $ 36,699,530 $ 37,024,893 $ 45,705,474 $ 44,968,959 $ 46,339,058 Assets held for sale........... 2,237,733 7,215,032 - - - Total assets................... 43,638,649 48,379,933 50,632,244 48,958,917 49,620,579 Mortgage notes payable, net.... 44,454,316 52,078,850 54,484,455 49,141,717 45,966,025 Partners' equity (deficit)..... (6,313,367) (7,442,274) (5,900,107) (2,304,044) 547,965
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. The following properties were sold or foreclosed on by the lender:
Property Date Sold or Foreclosed -------- ----------------------- The Courts Apartments September 14, 1995 - Sold Bayou Plaza May 8, 1991 - Foreclosed
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 1995, the Partnership owned seven apartment buildings, four retail centers and one office building. All of the Partnership's properties are subject to mortgage indebtedness. On September 14, 1995, the Partnership sold The Courts Apartments, a 382-unit apartment complex located in Kent, Washington. The unaffiliated buyer purchased the property for a cash purchase price of $8,050,000 and assumed the $140,358 improvement district liens encumbering the property. The Partnership recorded a gain of $3,183,698 on the sale. After retiring the mortgage note on the property and paying for closing costs, the sale provided $1,289,573 of cash proceeds that the Partnership added to its cash reserves. Subsequent to year end, on January 26, 1996, the Partnership refinanced the Spanish Oaks mortgage note. The interest rate on the new $4,000,000 mortgage note is 7.71%; monthly payments of principal and interest are $28,546. Proceeds from the new mortgage note, after retiring the previous mortgage note, totaled $475,775. The Partnership used $129,273 of the net loan proceeds to pay for deferred borrowing costs associated with the new mortgage note, and $165,291 to fund various escrow accounts held by the mortgagee for the payment of property taxes, hazard insurance and deferred maintenance. RESULTS OF OPERATIONS - --------------------- 1995 compared to 1994 Revenue: The Partnership reported two non-recurring items of revenue in 1995. First was the $3,183,698 gain on the sale of The Courts Apartments. Second was a $91,517 gain on a legal settlement pertaining to cash proceeds received from Southmark, the parent of the Partnership's former general partner, in settlement of the Partnership's claims in the Southmark bankruptcy filing. The Partnership's rental revenue decreased $497,828 or 2.9% in 1995 compared to 1994. Most of the decrease is attributable to the sale of The Courts Apartments in September 1995. However, rental revenue, excluding rental revenue from The Courts Apartments for 1995 and 1994, also decreased by $79,997 or 0.5%. Eight of the Partnership's properties reported steady increases in rental revenue ranging from 3 to 4.5 percent. One property, Regency Park Apartments, reported a 7.0% increase in rental revenue, the result of a 5% increase in base rental rates combined with a decrease in vacancy losses. Decreases in rental revenue were reported at Iberia Plaza, La Plaza Office Building and Lakeview Plaza. Behind the 3.8% decrease in rental revenue at Iberia Plaza was a decrease in percentage rents from the property's tenants. 78% of the property's leasable space was "dark" (space that is under lease, but vacant) for some period of time during 1995. Tenants who have vacated their space, but are still paying base rent do not provide the Partnership with any percentage rents. Expense recoveries also decreased at Iberia Plaza. A new anchor tenant (a grocery store) is now in place at Iberia Plaza. The General Partner anticipates that expense recoveries will improve in 1996 due to the new anchor tenant. Rental revenue at La Plaza Office Building decreased 28% as two of the property's major tenants either moved to a competing property, or reduced their space requirements by half. The Partnership is reconfiguring space arrangements at La Plaza Office Building to take advantage of the shortage of smaller office suites in the Las Vegas market. Rental revenue will likely remain depressed at La Plaza for 1996, before improving in 1997. Lakeview Plaza also had difficulty with dark space in 1995. Rental revenue at the Lexington, Kentucky property decreased 17.3% principally due to decreases in expense recoveries from tenants no longer operating businesses at the property. Expenses: Total Partnership expenses decreased $562,961 or 3.0% in 1995 compared to 1994. Excluding the effect of expenses incurred at The Courts Apartments reveals an $8,949 decrease in expenses. Property tax expense decreased at six of the Partnership's properties. The most significant decrease was reported at Lakeview Plaza. A preliminary reduction in the assessed value of Lakeview Plaza resulted in a $78,000 reduction in property tax expense for 1995. Property taxes were also reduced by lesser amounts at Cave Spring Corners Shopping Center, Orchard Apartments, Regency Park Apartments, Sandpiper Apartments and Spanish Oaks Apartments. Other property operating expenses, excluding other property operating expenses incurred at The Courts Apartments, increased $86,128 or 9.3% in 1995 compared to 1994. The increase is principally attributable to increased insurance expense for the Partnership's properties. Also included in this category are advertising and marketing expenses, bad debt expense, and office and administrative expenses. Partnership general and administrative expenses increased $167,761 or 83% in 1995 compared to 1994. The Partnership incurred $242,486 of expenses related to the evaluation and dissemination of information with regards to an unsolicited tender offer. No such expenses were incurred in 1994. Interest incurred on loans from affiliates increased to $78,822 in 1995 from $5,206 in 1994. This expense represents interest on the $800,000 loan from an affiliate of the General Partner secured by Lakeview Plaza. Only one month of affiliate interest expense was incurred in 1994 as opposed to twelve months of such expense during 1995. General and administrative expenses incurred for the benefit of affiliates increased $61,400 or 10.1% in 1995 compared to 1994. These expenses are the reimbursable expenses incurred by affiliates of the General Partner. These costs increased due to a reduction in the number of properties managed by McREMI over which such costs are allocated. 1994 compared to 1993 Revenue: Rental revenues for 1994 increased $1,158,015 or 7.1% compared to 1993. Rental revenue increased at all of the partnership's properties except The Courts Apartments. Rental revenues increased greater than 10% at Briarwood Apartments, Cave Spring Corners Shopping Center, La Plaza Office Building and Orchard Apartments. Average occupancy rates increased at nine of the Partnership's properties. Layoffs in the military and aerospace industry and a generally flat local economy contributed to a decrease in rental and average occupancy rates at The Courts Apartments. The Partnership benefited from a $292,539 extraordinary gain during 1994. The gain relates to the discounted payoff of the Iberia Plaza second mortgage note. The General Partner was able to negotiate a release of the $477,016 mortgage note for a $100,000 payment. See Item 8 - Note 9 - "Gain on Extinguishment of Debt." Expenses: Partnership expenses increased $392,532 or 2.2% in 1994 compared to 1993. The increased expenses were concentrated, on a percentage basis, in depreciation, and to a lesser extent in property management fees and property taxes. Depreciation and amortization expense increased $309,173 or 9.4% in 1994 compared to 1993. The increase is due to capital improvements placed in service during the past three years. These improvements generally are being depreciated over lives ranging from five to ten years. Property management fees - affiliates increased $59,521 or 7.4% in 1994 compared to 1993, in line with the increase in rental revenue upon which the property management fees are computed. Property taxes continue to increase due to higher tax levies from local taxing jurisdictions. The General Partner monitors property tax payments and, when appropriate, appeals the values assigned to its properties upon which the ad valorem taxes are based. For 1994, property tax expense increased 6.3% compared to 1993. The net increase in all other operating expenses was a modest 2.6% in 1994. General and administrative expenses decreased $26,918 or 11.7% for the year ended December 31, 1994. This decrease was due to savings the Partnership achieved through a new tax processing and reporting system and reduction in legal and professional fees. General and administrative expenses paid to affiliates decreased $69,170 or 10.2% during 1994 compared to 1993. These expenses include the fixed portion of the MID (the "Fixed MID") and reimbursement of costs incurred by McREMI in managing the Partnership. Fixed MID decreased $124,756 due to its elimination effective July 1, 1993. Cost reimbursements increased $55,586 or 10.0% due to a reduction in the number of properties managed by McREMI over which such costs are allocated. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the three year period ended December 31, 1995, the Partnership experienced losses totaling $1,485,777. However, during the same three-year period, the Partnership generated $8,392,635 of cash flow from operating activities. Cash flow from operations increased $1,229,641 to $4,138,369 in 1995 compared to 1994. The sale of The Courts Apartments led to decreases in cash paid to suppliers, property taxes paid and escrowed, and interest paid. The decreases in cash paid were partially offset by decreased cash received from tenants also due, principally, to the sale of The Courts Apartments. Investing activities in 1995 consisted of the sale of The Courts Apartments and the addition of $2,939,050 of improvements to the Partnership's remaining properties. Proceeds from the sale of The Courts Apartments totaled $1,289,573 after retirement of the related mortgage note. Net proceeds from the sale were added to the Partnership's cash reserves. The Partnership continues to invest substantial sums into improvements at its properties. A total of $9,119,647 of improvements have been added to the Partnership's properties over the past three years. An additional $2.0 million of improvements have been budgeted for 1996. During the past three years, the Partnership has refinanced five mortgage notes that encumber its properties. These transactions have added approximately $3.3 million to the Partnership's cash reserves, after payment of related deferred borrowing costs, and have reduced the weighted average interest rate of the Partnership's mortgage indebtedness to 8.96% from 9.55%. Scheduled principal repayments in 1995, via monthly debt service payments, were comparable to repayments made in 1994 and 1993. A total of $3,684,251 has been repaid over the past three years. Payments of the contingent portion of the MID (the "Contingent MID") to the General Partner have been suspended since the beginning of 1994. Contingent MID of $908,286 was paid in 1993. Contingent MID payments have been suspended to improve the cash position of the Partnership. See short-term liquidity below. Short-term liquidity: At December 31, 1995, the Partnership held cash reserves of $1,813,594, up $1,239,005 from the balance at the end of 1994. In addition to the sale of The Courts Apartments in September 1995, the General Partner placed Parkway Plaza Shopping Center on the market for sale on December 1, 1994. The General Partner expects to be able to sell the property for an amount sufficient to retire the related mortgage note and still provide some residual cash proceeds for the Partnership's cash reserves. The General Partner anticipates that the appreciation potential of Parkway Plaza is limited, while extensive capital improvement funds would be required to maintain cash from operations at current levels. The Parkway Plaza mortgage note matures on August 1, 1996. If a sale cannot be consummated before the maturity date, and if the Partnership cannot obtain suitable replacement financing for the property, the property could be lost to foreclosure. The Spanish Oaks mortgage note matured on August 25, 1995. Subsequent to August 1995, the Partnership continued to make monthly mortgage payments, which were accepted by the holder of the Spanish Oaks mortgage note, while the Partnership negotiated a refinancing of the Spanish Oaks mortgage note. On January 26, 1996, the General Partner successfully refinanced the Spanish Oaks mortgage note. Proceeds from the new mortgage note, after retiring the previous mortgage note and after deductions for deferred borrowing costs totaled $346,502. The Partnership was required to deposit $165,291 of the proceeds into various escrow accounts held by the lender for payment of property taxes, hazard insurance and deferred maintenance. The balance of the refinancing proceeds have been added to the Partnership's cash reserves. During 1995 and 1994, the General Partner deferred collection of Contingent MID and reimbursements of administrative costs incurred by affiliates of the General Partner. For 1995, these deferrals postponed payment of $1,734,854 to the General Partner and its affiliates. The General Partner anticipates resuming payment of Contingent MID and reimbursable administrative costs if the Partnership's properties continue to perform as anticipated. Despite the large amounts of funds invested in capital improvements over the past three years, the Partnership's properties face challenges keeping up with the improvements still needed. The Partnership has budgeted $2.0 million of capital improvements for the Partnership's properties during 1996. In particular, La Plaza Office Building will require substantial capital improvement funds in 1996. The two largest tenants at La Plaza Office Building vacated or downsized their space during 1995. To make the building attractive to other tenants and to update the facility, the Partnership will need to invest approximately $892,000 into La Plaza. The General Partner believes that the increased value of the property after the improvements are made will provide a strong return on the Partnership's investment. The General Partner has established a revolving credit facility, not to exceed $5,000,000 in the aggregate, which will be available on a "first-come, first-served" basis to the Partnership and other affiliated partnerships if certain conditions are met. Borrowings under the facility may be used to fund deferred maintenance, refinancing obligations and working capital needs. There is no assurance that the Partnership will receive any funds from the facility because no amount will be reserved for any particular partnership. As of December 31, 1995, $2,662,819 remained available for borrowing under the facility; however, additional funds could become available as other partnerships repay existing borrowings. This commitment expires on October 9, 1996. 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 $9.1 million of capital improvements made by the Partnership during the past three years will yield improved cash flow from property operations in the future. Furthermore, the General Partner has budgeted an additional $2 million of capital improvements for 1996. 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. As a further source of liquidity, the General Partner may, from time to time, attempt to sell Partnership properties judged to be mature considering the circumstances of the market where the properties are located, as well as the Partnership's need for liquidity. However, there can be no guarantee that the Partnership will be able to sell any of its properties for an amount sufficient to retire the related mortgage note and still provide cash proceeds to the Partnership, or that such cash proceeds could be timed to coincide with the liquidity needs of the Partnership. Currently, Parkway Plaza is being marketed for sale. 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 Contingent MID paid in cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and the General Partner, respectively. Therefore, for the three year period ended December 31, 1995, $109,658, $199,163 and $363,642, respectively, were allocated to the General Partner. The limited partners received allocations of net income (loss) of $2,083,506, $(1,106,528) and $(3,135,218) for the three years ended December 31, 1995, 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. Distributions to Unit holders will remain suspended for the foreseeable future. Payments of MID have been suspended since the beginning of 1994. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support payments of MID and distributions to the Unit holders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Page Number ------ INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements: Report of Independent Public Accountants........... 23 Balance Sheets at December 31, 1995 and 1994....... 24 Statements of Operations for each of the three years in the period ended December 31, 1995..... 25 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1995............................... 26 Statements of Cash Flows for each of the three years in the period ended December 31, 1995..... 27 Notes to Financial Statements...................... 29 Financial Statement Schedule: Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization.... 42
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of McNeil Real Estate Fund X, Ltd.: We have audited the accompanying balance sheets of McNeil Real Estate Fund X, Ltd. (a California limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1995. 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 X, Ltd. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, 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 13, 1996 McNEIL REAL ESTATE FUND X, LTD. BALANCE SHEETS
December 31, ----------------------------------- 1995 1994 --------------- -------------- ASSETS - ------ Real estate investments: Land..................................................... $ 10,464,914 $ 10,449,117 Buildings and improvements............................... 78,886,121 76,026,423 -------------- ------------- 89,351,035 86,475,540 Less: Accumulated depreciation and amortization......... (52,651,505) (49,450,647) -------------- ------------- 36,699,530 37,024,893 Assets held for sale, net 2,237,733 7,215,032 Cash and cash equivalents................................... 1,813,594 574,589 Cash segregated for security deposits....................... 317,834 411,045 Accounts receivable......................................... 432,618 490,391 Prepaid expenses and other assets........................... 332,665 365,292 Escrow deposits............................................. 625,344 990,453 Deferred borrowing costs, net of accumulated amortization of $306,342 and $319,020 at December 31, 1995 and 1994, respectively................. 1,179,331 1,308,238 -------------- ------------- $ 43,638,649 $ 48,379,933 ============== ============= LIABILITIES AND PARTNERS' DEFICIT - --------------------------------- Mortgage notes payable, net................................. $ 44,454,316 $ 52,078,850 Mortgage note payable - affiliates.......................... 800,000 800,000 Accounts payable............................................ 186,785 130,856 Accrued property taxes...................................... 522,951 573,451 Accrued interest............................................ 370,294 304,600 Accrued interest - affiliates............................... 6,625 5,206 Other accrued expenses...................................... 318,324 307,295 Payable to affiliates - General Partner..................... 2,907,490 1,172,267 Security deposits and deferred rental revenue............... 385,231 449,682 -------------- ------------- 49,952,016 55,822,207 -------------- ------------- Partners' deficit Limited partners - 135,200 limited partnership units authorized; 135,030 and 135,090 limited partnership units issued and outstanding at December 31, 1995 and 1994, respectively................................. (1,788,928) (3,872,434) General Partner.......................................... (4,524,439) (3,569,840) -------------- ------------- (6,313,367) (7,442,274) $ 43,638,649 $ 48,379,933 ============== =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1995 1994 1993 -------------- -------------- --------------- Revenue: Rental revenue.......................... $ 16,878,076 $ 17,375,904 $ 16,217,889 Interest................................ 105,303 52,583 56,479 Gain on disposition of real estate...... 3,183,698 - - Gain on legal settlement................ 91,517 - - Gain on involuntary conversion.......... - - 268,434 ------------- ------------- -------------- Total revenue......................... 20,258,594 17,428,487 16,542,802 ------------- ------------- -------------- Expenses: Interest................................ 4,980,917 5,354,150 5,482,833 Interest - affiliates................... 78,822 5,206 - Depreciation and amortization........... 3,567,913 3,609,402 3,300,229 Property taxes.......................... 1,010,754 1,194,939 1,124,565 Personnel expenses...................... 1,950,309 1,950,481 1,878,349 Utilities............................... 1,368,713 1,442,254 1,421,217 Repairs and maintenance................. 2,100,763 2,313,443 2,226,531 Property management fees - affiliates............................ 846,482 868,408 808,887 Other property operating expenses....... 1,119,336 1,077,848 1,084,900 General and administrative ............. 370,824 203,063 229,981 General and administrative - affiliates............................ 670,597 609,197 678,367 ------------- ------------- -------------- Total expenses........................ 18,065,430 18,628,391 18,235,859 ------------- ------------- -------------- Income (loss) before extraordinary items................................... 2,193,164 (1,199,904) (1,693,057) Extraordinary items........................ - 292,539 (1,078,519) ------------- ------------- -------------- Net income (loss).......................... $ 2,193,164 $ (907,365) $ (2,771,576) ============= ============= ============== Net income (loss) allocated to limited partners........................ $ 2,083,506 $ (1,106,528) $ (3,135,218) Net income allocated to General Partner......................... 109,658 199,163 363,642 ------------- ------------- -------------- Net income (loss).......................... $ 2,193,164 $ (907,365) $ (2,771,576) ============= ============= ============== Net income (loss) per limited partnership unit: Income (loss) before extraordinary items................................. $ 15.43 $ (10.25) $ (15.62) Extraordinary items..................... - 2.06 (7.58) ------------- ------------- ------------- Net income (loss) per limited partnership unit...................... $ 15.43 $ (8.19) $ (23.20) ============= ============= =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1995, 1994 and 1993
Total Partners' General Limited Equity Partner Partners (Deficit) ---------------- ----------------- ------------------ Balance at December 31, 1992.............. $ (2,673,356) $ 369,312 $ (2,304,044) Net income (loss)......................... 363,642 (3,135,218) (2,771,576) Contingent Management Incentive Distribution........................... (824,487) - (824,487) -------------- --------------- ---------------- Balance at December 31, 1993.............. (3,134,201) (2,765,906) (5,900,107) Net income (loss)......................... 199,163 (1,106,528) (907,365) Contingent Management Incentive Distribution........................... (634,802) - (634,802) -------------- --------------- ---------------- Balance at December 31, 1994.............. (3,569,840) (3,872,434) (7,442,274) Net income................................ 109,658 2,083,506 2,193,164 Contingent Management Incentive Distribution........................... (1,064,257) - (1,064,257) -------------- --------------- ---------------- Balance at December 31, 1995.............. $ (4,524,439) $ (1,788,928) $ (6,313,367) ============== =============== ================
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended December 31, ----------------------------------------------------- 1995 1994 1993 --------------- --------------- ---------------- Cash flows from operating activities: Cash received from tenants.............. $ 16,953,669 $ 17,305,399 $ 16,230,865 Cash paid to suppliers.................. (6,541,879) (7,157,611) (6,879,499) Cash paid to affiliates................. (846,113) (1,020,972) (1,480,744) Interest received....................... 105,303 52,583 56,479 Interest paid........................... (4,593,039) (5,142,089) (5,192,876) Interest paid to affiliates............. (77,403) - - Gain on legal settlement................ 91,517 - - Property taxes paid and escrowed........ (953,686) (1,128,582) (1,388,687) ------------- ------------- -------------- Net cash provided by operating activities.............................. 4,138,369 2,908,728 1,345,538 ------------- ------------- -------------- Cash flows from investing activities: Additions to real estate investments.... (2,939,050) (2,143,853) (4,036,744) Proceeds from disposition of real estate investment................ 7,905,804 - - Insurance proceeds...................... - - 268,434 ------------- ------------- --------------- Net cash provided by (used in) investing activities.................... 4,966,754 (2,143,853) (3,768,310) ------------- ------------- --------------- Cash flows from financing activities: Net proceeds from (cash used in) refinancing mortgage notes payable............................... - (1,123,933) 5,603,875 Net proceeds from mortgage note payable - affiliates............. - 800,000 - Retirement of mortgage notes due to disposition of real estate......... (6,616,231) - - Principal payments on mortgage notes payable......................... (1,184,440) (1,177,719) (1,322,092) Deferred borrowing costs paid........... (65,447) (165,912) (1,037,066) Contingent Management Incentive Distribution.......................... - - (908,286) ------------- ------------- -------------- Net cash provided by (used in) financing activities.................... (7,866,118) (1,667,564) 2,336,431 ------------- ------------- -------------- Net increase (decrease) in cash and cash equivalents...................... 1,239,005 (902,689) (86,341) Cash and cash equivalents at beginning of year..................... 574,589 1,477,278 1,563,619 ------------- ------------- -------------- Cash and cash equivalents at end of year........................... $ 1,813,594 $ 574,589 $ 1,477,278 ============= ============= ==============
See discussion of noncash investing activity in Note 10 - "Gain on Involuntary Conversion." See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF CASH FLOWS Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
For the Years Ended December 31, ----------------------------------------------------- 1995 1994 1993 -------------- --------------- ---------------- Net income (loss).......................... $ 2,193,164 $ (907,365) $ (2,771,576) ------------- ------------- -------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........... 3,567,913 3,609,402 3,300,229 Amortization of deferred borrowing costs................................. 146,047 142,512 124,239 Amortization of discounts on mortgage notes payable................ 176,137 188,586 178,770 Gain on disposition of real estate...... (3,183,698) - - Gain on involuntary conversion.......... - - (268,434) Extraordinary items..................... - (292,539) 1,078,519 Changes in assets and liabilities: Cash segregated for security deposits............................ 93,211 (26,923) (45,913) Accounts receivable................... 57,773 (16,358) 68,856 Prepaid expenses and other assets.............................. 32,627 (31,540) (23,388) Escrow deposits....................... 365,109 (17,706) (306,215) Accounts payable...................... 55,929 (163,512) (81,486) Accrued property taxes................ (50,500) (25,133) (25,119) Accrued interest...................... 65,694 (119,037) (13,052) Accrued interest - affiliates......... 1,419 5,206 - Other accrued expenses................ 11,029 103,180 76,331 Payable to affiliates - General Partner............................. 670,966 456,633 6,510 Security deposits and deferred rental revenue...................... (64,451) 3,322 47,267 ------------- ------------- -------------- Total adjustments................... 1,945,205 3,816,093 4,117,114 ------------- ------------- -------------- Net cash provided by operating activities.............................. $ 4,138,369 $ 2,908,728 $ 1,345,538 ============= ============= =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized June 1, 1979, 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 of limited partnership dated October 9, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240. The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At December 31, 1995, the Partnership owned twelve 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 limited partnerships. These single asset tier limited partnerships were formed to accommodate the refinancing of the respective properties. The Partnership's and the General Partner's ownership interest in each tier limited partnership are detailed below. The Partnership retains effective control of each tier limited partnership. The General Partner's minority interest is not presented as it is immaterial.
% of Ownership Interest Tier Partnership Partnership General Partner ---------------- ----------- --------------- Briarwood Fund X Limited Partnership (a) (b)................. 100 - Coppermill Fund X Limited Partnership (a) (c)................ 100 - Courts Fund X Associates, L.P. (b)........................... 99 1 Orchard Fund X Limited Partnership (a) (b)................... 100 - Quail Meadows Fund X Limited Partnership (a) (b)............. 100 - Regency Park Fund X Associates, L.P. (b)..................... 99 1 Sandpiper Fund X Limited Partnership (a) (b)................. 100 - Spanish Fund X, Ltd. (d)..................................... 100 -
(a) The general partner of these limited partnerships is a corporation whose stock is 100% owned by the Partnership. (b) Included in financial statements for years ended December 31, 1995, 1994 and 1993. (c) Included in financial statements for years ended December 31, 1995 and 1994. (d) Spanish Fund X, Ltd. commenced business activity on January 26, 1996. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of cost or net realizable value. Real estate investments are monitored on an ongoing basis to determine if the property has sustained a permanent impairment in value. At such time, a write-down is recorded to reduce the basis of the property to its net realizable value. A permanent impairment is determined to have occurred when a decline in property value is considered to be other than temporary based upon management's expectations with respect to projected cash flows and prevailing economic conditions. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Partnership has not adopted the principles of this statement within the accompanying financial statements; however, it is not anticipated that adoption will have a material effect on the carrying value of the Partnership's long-lived assets. Assets Held for Sale - -------------------- Assets held for sale are stated at the lower of cost or net realizable value. Depreciation - ------------ Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 38 years. Tenant improvements are amortized over the terms of the related tenant leases using the straight-line method. 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 indebtedness 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 residential properties under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. The Partnership leases its commercial properties under non-cancelable operating leases. Certain leases provide concessions and/or periods of escalating or free rent. Rental revenue is recognized on a straight-line basis over the term of the related leases. The excess of the rental revenue recognized over the contractual rental payments is recorded as accrued rent receivable and included in accounts receivable on the Balance Sheets. 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. 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 is 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 the contingent portion of the 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; provided, however, that if all or a portion of such payment consists of limited partnership units ("Units"), the amount of net income 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 (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 5% to the General Partner and 95% to the limited partners. 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 1995, 1994 and 1993 have been made in accordance with these provisions. Distributions - ------------- Pursuant to the Amended Partnership Agreement and at the 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 contingent portion of 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 1995, 1994 or 1993. The Partnership accrued distributions of $1,064,257, $634,802 and $824,487 for the benefit of the General Partner for the years ended December 31, 1995, 1994 and 1993, respectively. These distributions are the contingent portion of the MID pursuant to the Amended Partnership Agreement. Net Income (Loss) Per Limited Partnership Unit - ---------------------------------------------- Net income (loss) per Unit is computed by dividing net income (loss) allocated to the limited partners by the weighted average number of Units outstanding. Per Unit information has been computed based on 135,030, 135,090 and 135,120 Units outstanding in 1995, 1994 and 1993, respectively. Reclassifications - ----------------- Certain reclassifications have been made to prior year amounts to conform with the current year presentation. 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 services for the Partnership's residential and commercial properties and leasing services for its residential properties. McREMI may choose to perform leasing services for the Partnership's commercial properties, in which case McREMI will receive a property management fee equal to 3% of the gross rental receipts of the Partnership's commercial properties plus a commission for performing leasing services equal to the prevailing market rate for such services in the area where the property is located. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. The Partnership reimbursed an affiliate of the General Partner for costs incurred in connection with the 1993 refinancing and modification of mortgage notes. These costs are capitalized as deferred borrowing costs and amortized over the remaining term of the related mortgage notes. Under 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% of the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible assets. Prior to July 1, 1993, the MID consisted of two components: (i) the fixed portion which was payable without respect to the net income of the Partnership and was equal to 25% of the maximum MID (the "Fixed MID") and (ii) a contingent portion which was payable only to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount") and was equal to up to 75% of the maximum MID (the "Contingent MID"). Effective July 1, 1993, the General Partner amended the Amended Partnership Agreement as a settlement to a class action complaint. This amendment eliminates the Fixed MID and makes the entire MID payable to the extent of the Entitlement Amount. In all other respects, the calculation and payment of the MID remain the same. Fixed MID was payable in Units unless the Entitlement Amount exceeded the amount necessary to pay Contingent MID, in which case, at the General Partner's option, the Fixed MID was paid in cash to the extent of such excess. Contingent MID will be paid to the extent of 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. The General Partner has deferred collection of the MID since January 1, 1994. 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 1995, 1994 and 1993, 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 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 does have a material effect on the calculation of the Entitlement Amount which determines the amount of Contingent MID earned and the amount of Fixed MID payable in cash. Capital improvements are excluded from cash flow, as defined. The majority of the 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. If base period cash flow had been measured on a basis comparable with incentive period cash flow, Contingent MID would have been reduced by $256,656 for the year ended December 31, 1994. The amendment of the capitalization policy did not materially affect MID for 1995 or 1993 as the Entitlement Amount was sufficient to pay Contingent 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 Fixed MID was treated as a fee payable to the General Partner by the Partnership for services rendered. The Contingent 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 to or accrued for the benefit of the General Partner or its affiliates are as follows:
For the Years Ended December 31, ---------------------------------------------------- 1995 1994 1993 -------------- -------------- --------------- Deferred borrowing costs................... $ - $ - $ 51,020 Property management fees - affiliates.............................. 846,482 868,408 808,887 Interest - affiliates...................... 78,822 5,206 - Charged to general and administrative - affiliates: Partnership administration.............. 670,597 609,197 553,611 Fixed MID............................... - - 124,756 ------------- ------------- -------------- $ 1,595,901 $ 1,482,811 $ 1,538,274 ============= ============= ============== Charged to General Partner's deficit: Contingent MID.......................... $ 1,064,257 $ 634,802 $ 824,487 ============= ============= ==============
Payable to affiliates - General Partner at December 31, 1995 and 1994 consists of Contingent MID, reimbursable costs and property management fees which are due and payable from current operations. NOTE 3 - TAXABLE LOSS - --------------------- McNeil Real Estate Fund X, 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 $13,571,531, $11,156,745 and $9,454,176 at December 31, 1995, 1994 and 1993, respectively. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments held at December 31, 1995 and 1994 are set forth in the following tables:
Buildings and Accumulated Net Book 1995 Land Improvements Depreciation Value ---- --------------- -------------- --------------- -------------- Briarwood Tucson, AZ $ 489,437 $ 5,044,948 $ (3,486,893) $ 2,047,492 Cave Spring Corners Roanoke, VA 792,077 4,487,055 (2,998,581) 2,280,551 Coppermill Tulsa, OK 1,176,980 12,061,904 (8,900,290) 4,338,594 Iberia Plaza New Iberia, LA 836,792 4,965,167 (2,719,859) 3,082,100 La Plaza Las Vegas, NV 2,761,441 6,361,255 (4,118,450) 5,004,246 Lakeview Plaza Lexington, KY 1,554,404 7,262,788 (5,057,438) 3,759,754 Orchard Lawrence, IN 366,938 9,169,739 (6,144,459) 3,392,218 Quail Meadows Wichita, KS 754,551 10,794,946 (7,058,393) 4,491,104 Regency Park Ft. Wayne, IN 280,131 5,070,196 (3,557,228) 1,793,099 Sandpiper Westminster, CO 866,107 7,665,705 (4,691,953) 3,839,859 Spanish Oaks San Antonio, TX 586,056 6,002,418 (3,917,961) 2,670,513 ------------- ------------- ------------- ------------- $ 10,464,914 $ 78,886,121 $ (52,651,505) $ 36,699,530 ============= ============= ================= =============
Buildings and Accumulated Net Book 1994 Land Improvements Depreciation Value ---- -------------- -------------- --------------- -------------- Briarwood $ 489,437 $ 4,940,758 $ (3,282,004) $ 2,148,191 Cave Spring Corners 776,280 4,324,604 (2,840,426) 2,260,458 Coppermill 1,176,980 11,938,789 (8,331,543) 4,784,226 Iberia Plaza 836,792 4,260,110 (2,576,670) 2,520,232 La Plaza 2,761,441 5,586,215 (3,904,450) 4,443,206 Lakeview Plaza 1,554,404 7,248,152 (4,772,904) 4,029,652 Orchard 366,938 8,989,936 (5,760,219) 3,596,655 Quail Meadows 754,551 10,608,253 (6,635,031) 4,727,773 Regency Park 280,131 4,842,550 (3,345,852) 1,776,829 Sandpiper 866,107 7,501,138 (4,367,651) 3,999,594 Spanish Oaks 586,056 5,785,918 (3,633,897) 2,738,077 ------------- ------------- ------------- ------------- $ 10,449,117 $ 76,026,423 $ (49,450,647) $ 37,024,893 ============= ============== ============= =============
During 1994, the General Partner placed The Courts Apartments and Parkway Plaza on the market for sale. The Courts Apartments was sold September 14, 1995. See Note 7 - "Disposition of Real Estate." The Courts Apartments is classified as an asset held for sale at December 31, 1994. Parkway Plaza is classified as an asset held for sale at December 31, 1995 and 1994. The Partnership leases its commercial properties under various non-cancelable operating leases. In most cases, the Partnership expects that in the normal course of business these leases will be renewed or replaced by other leases. Future minimum rents to be received from commercial properties as of December 31, 1995, are as follows:
Real Estate Asset Held Investments For Sale --------------- --------------- 1996...................................... $ 2,312,000 $ 558,000 1997...................................... 2,059,000 509,000 1998...................................... 1,768,000 481,000 1999...................................... 1,577,000 412,000 2000...................................... 1,291,000 330,000 Thereafter................................ 3,654,000 606,000 -------------- -------------- $ 12,661,000 $ 2,896,000 ============== ==============
Future minimum rents do not include contingent rents based on sales volume of tenants. Contingent rents amounted to $86,571, $99,514 and $77,899 for the years ended December 31, 1995, 1994 and 1993, respectively. Future minimum rents also do not include expense reimbursements for common area maintenance, property taxes, and other expenses. The expense reimbursements amounted to $177,095, $399,360 and $318,444 for the years ended December 31, 1995, 1994 and 1993, respectively. The Partnership's real estate investments are encumbered by mortgage indebtedness as discussed in Note 5 - "Mortgage Notes Payable" and Note 6 - "Mortgage Note Payable - Affiliates." NOTE 5 - MORTGAGE NOTES PAYABLE - ------------------------------- The following table sets forth the mortgage notes payable of the Partnership at December 31, 1995 and 1994. All mortgage notes payable are secured by real estate investments.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date 1995 1994 - -------- ---------------- ------- --------------------- -------------- --------------- Briarwood First 8.150 $18,340 07/03 (h) $ 2,213,347 $ 2,251,332 Discount (g) (53,434) (58,904) ------------- ------------- 2,159,913 2,192,428 ------------- ------------- Cave Spring Corners First 9.500 27,958 06/98 (h) 3,118,079 3,155,412 ------------- -------------- Coppermill First (b) 10.405 45,800 01/02 (h) 5,022,484 5,046,000 ------------- -------------- The Courts First 10.875 (c) - 6,655,775 Improvement 7.500- district liens 7.850 (d) - 149,992 ------------- -------------- - 6,805,767 ------------- -------------- Iberia Plaza First 9.250 27,137 11/98 (h) 2,204,675 2,320,507 Discount (g) (128,170) (172,031) ------------- -------------- 2,076,505 2,148,476 ------------- -------------- La Plaza First 10.125 31,386 03/97 (h) 2,523,308 2,638,061 ------------- -------------- Lakeview Plaza First 9.125 38,815 06/08 3,449,492 3,593,299 ------------- --------------
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date 1995 1994 - -------- ---------------- ------- --------------------- -------------- ---------------- Orchard First 8.150 $53,393 07/03 (h) $ 6,443,726 $ 6,554,315 Discount (g) (155,555) (171,494) ------------- -------------- 6,288,171 6,382,821 ------------- -------------- Parkway Plaza Wrap (e) 9.250 34,054 08/96 (h) 2,642,502 2,798,778 Discount (g) (279,752) (318,756) ------------- -------------- 2,362,750 2,480,022 ------------- -------------- Quail Meadows First 8.150 50,634 07/03 (h) 6,110,762 6,215,636 Discount (g) (143,537) (160,657) ------------- -------------- 5,967,225 6,054,979 ------------- -------------- Regency Park First 8.375 23,382 10/17 2,808,581 2,851,951 Discount (g) (386,936) (402,017) ------------- -------------- 2,421,645 2,449,934 ------------- -------------- Sandpiper First 8.150 47,046 07/03 (h) 5,677,715 5,775,158 Discount (g) (137,196) (151,166) ------------- -------------- 5,540,519 5,623,992 ------------- -------------- Spanish Oaks First (f) 10.000 31,392 08/95 (h) 3,524,225 3,533,351 Discount (g) - (25,692) ------------- -------------- 3,524,225 3,507,659 ------------- -------------- $ 44,454,316 $ 52,078,850 ============= ==============
(a) The debt is non-recourse to the Partnership. (b) The Partnership refinanced the Coppermill mortgage note on December 8, 1994. See Note 8 - "Refinancing of Mortgage Notes." (c) The Partnership sold The Courts Apartments on September 14, 1995, and the related first lien was retired using proceeds from the sale. See Note 7 - "Disposition of Real Estate." (d) The Courts Apartments were subject to several improvement district liens. The Partnership sold The Courts Apartments on September 14, 1995, and the improvement district liens were assumed by the purchaser. See Note 7 - "Disposition of Real Estate." (e) The holder of the Parkway Plaza mortgage note had an option to call the Parkway Plaza mortgage note, upon giving 180 days notice to the Partnership, for a period of one year beginning November 1995. On December 1, 1995, the holder exercised the option and set the maturity date of the Parkway Plaza mortgage note at August 1, 1996. (f) The Spanish Oaks mortgage note matured in August 1995. Subsequent to August 1995, the Partnership continued to make monthly debt service payments, which were accepted by the holder of the Spanish Oaks mortgage note, while the Partnership negotiated a refinancing of the Spanish Oaks mortgage note. The Partnership succeeded in refinancing the Spanish Oaks mortgage note on January 26, 1996. See Note 13 - "Subsequent Event." (g) Discounts for the Iberia Plaza, Parkway Plaza and Spanish Oaks mortgage notes are based on effective interest rates of 10% to 13%. The discount for the Regency Park mortgage note is based on an effective interest rate of 10.375%. Discounts for the Briarwood, Orchard, Quail Meadows and Sandpiper mortgage notes are based on an effective interest rate of 8.622%. (h) Balloon payments on the Partnership's mortgage notes, including the new Spanish Oaks mortgage note (see Note 13 - "Subsequent Event"), are due as follows:
Property Balloon Payment Date -------- --------------- ----- Parkway Plaza...................................... $ 2,544,466 08/96 La Plaza........................................... 2,362,599 03/97 Cave Spring Corners................................ 3,007,722 06/98 Iberia Plaza....................................... 1,812,114 11/98 Coppermill......................................... 4,798,763 01/02 Spanish Oaks....................................... 3,689,221 01/03 Briarwood.......................................... 1,804,449 07/03 Orchard............................................ 5,253,301 07/03 Quail Meadows...................................... 4,981,860 07/03 Sandpiper.......................................... 4,628,805 07/03
Scheduled principal maturities of the Partnership's mortgage notes, including the new Spanish Oaks mortgage note (see Note 13 - "Subsequent Event"), but before consideration of discounts of $1,284,580, are as follows:
1996............................................... $ 3,580,546 1997............................................... 3,286,768 1998............................................... 5,738,374 1999............................................... 835,951 2000............................................... 909,755 Thereafter......................................... 31,863,277 -------------- $ 46,214,671 ==============
Based on borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities, the fair value of the Partnership's mortgage notes payable was approximately $45,756,000 at December 31, 1995. NOTE 6 - MORTGAGE NOTE PAYABLE - AFFILIATE - ------------------------------------------ The following table sets forth the mortgage note payable - affiliate of the Partnership at December 31, 1995 and 1994. The affiliate mortgage note is secured by real estate investments of the Partnership.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date 1995 1994 - -------- ------------ ---------- -------------- --------- --------- Lakeview Plaza (b) Second (c) (c) 8/97 $ 800,000 $ 800,000 ======== ========
(a) The debt is non-recourse to the Partnership. (b) On August 1, 1994, the Partnership obtained a mortgage loan commitment from an affiliate of the General Partner for an amount up to $1,000,000. An initial amount of $800,000 was funded on December 6, 1994. (c) The note requires monthly payments of interest only equal to the prime lending rate plus 1%. At December 31, 1995, the prime rate equaled 8.5%. Under terms of the Amended Partnership Agreement, borrowings from affiliates approximate fair market value. NOTE 7 - DISPOSITION OF REAL ESTATE - ----------------------------------- On September 14, 1995, the Partnership sold The Courts Apartments to an unaffiliated buyer for a cash sales price of $8,050,000. The buyer also assumed the improvement district liens that encumbered the property. Cash proceeds from this transaction, as well as the gain on sale of The Courts Apartments are detailed below.
Gain on Sale Cash Proceeds -------------- --------------- Cash sales price.................................... $ 8,050,000 $ 8,050,000 Improvement district liens assumed by buyer......................................... 140,358 140,358 ------------- ------------- Total sales price.................................. 8,190,358 8,190,358 Selling costs...................................... (284,554) (284,554) Basis of deferred borrowing costs written off...... (48,307) Basis of real estate sold.......................... (4,673,799) ------------- Gain on sale....................................... $ 3,183,698 ============== ------------- Proceeds from disposition of real estate investment....................................... 7,905,804 Retirement of mortgage note........................ (6,475,873) Assumption of improvement district liens........... (140,358) ------------- Net cash proceeds.................................. $ 1,289,573 =============
NOTE 8 - REFINANCING OF MORTGAGE NOTES - -------------------------------------- During 1994, the Partnership and the holder of the former Coppermill mortgage note agreed to extend the maturity date of the former Coppermill mortgage note from May 1, 1994, to August 1, 1994, and again to December 31, 1994. In consideration for the maturity date extensions, the Partnership paid four balloon payments totaling $400,000. In addition to the balloon payments, the interest rate on the former Coppermill mortgage note increased to 10.0% from 9.25% effective August 22, 1994. On December 8, 1994, the Partnership refinanced the Coppermill mortgage note. See Note 5 - "Mortgage Notes Payable." The new mortgage note, in the amount of $5,046,000, bears interest at 10.405%, requires monthly principal and interest payments of $45,800, and matures on January 1, 2002. Cash used to close the refinancing transaction is as follows:
New loan proceeds.................................. $ 5,046,000 Existing debt retired.............................. (5,769,933) 1994 balloon payments.............................. (400,000) --------------- Cash used in refinancing........................... $ (1,123,933) ===============
The Partnership incurred $165,912 of deferred borrowing costs related to the refinancing of the Coppermill mortgage note. The Partnership was also required to fund $146,573 into various escrows for capital improvements, property taxes and insurance. On June 24, 1993, the General Partner refinanced a portfolio of properties via a Real Estate Mortgage Investment Conduit ("REMIC"). See Note 5 - "Mortgage Notes Payable." This REMIC consists of a pool of properties from various partnerships affiliated with the General Partner. Four of the Partnership's properties, Briarwood Apartments, Orchard Apartments, Quail Meadows Apartments and Sandpiper Apartments, were included in the REMIC. The properties in the REMIC are not cross-collateralized between the various partnerships, but are cross-collateralized within the same partnership. The new mortgage loans bear an interest rate of 8.15%, discounted to yield an effective interest rate of 8.622%, and mature in July 2003. A summary of the cash proceeds from the refinancings follows on the next page.
Briarwood Orchard Quail Meadows ------------------ ------------------ ------------------ New loan proceeds.............. $ 2,300,000 $ 6,696,000 $ 6,350,000 Existing debt retired.......... (1,490,568) (5,444,317) (3,791,919) Mortgage discount.............. (66,834) (194,576) (184,522) Prepayment penalties........... - (110,000) - ---------------- --------------- ---------------- Proceeds from refinancing...... $ 742,598 $ 947,107 $ 2,373,559 ================ ================ ================ Sandpiper Total ------------------ ------------------ New loan proceeds.............. $ 5,900,000 $ 21,246,000 Existing debt retired.......... (3,998,878) (14,725,682) Mortgage discount.............. (171,446) (617,378) Prepayment penalties........... (189,065) (299,065) ---------------- --------------- Proceeds from refinancing...... $ 1,540,611 $ 5,603,875 ================ ================
The Partnership incurred $1,017,123 of deferred borrowing costs related to the REMIC refinancings. The Partnership was also required to use $934,739 of the loan proceeds to fund various escrows for capital improvements, property taxes and insurance. The Partnership recognized an extraordinary loss on extinguishment of debt in the amount of $1,078,519 that is attributable to prepayment penalties and the write-off of unamortized mortgage discounts and unamortized deferred borrowing costs related to the retired mortgage notes. NOTE 9 - GAIN ON EXTINGUISHMENT OF DEBT - --------------------------------------- On May 18, 1994, the Partnership paid off the Iberia Plaza second mortgage note for a cash payment of $100,000. This transaction resulted in an extraordinary gain on extinguishment of debt as set forth in the following schedule.
Principal balance of mortgage note................. $ 477,016 Unamortized discount on mortgage note.............. (83,372) Cash payment....................................... (100,000) Transaction costs.................................. (1,105) --------------- Gain on extinguishment of debt..................... $ 292,539 ===============
NOTE 10 - GAIN ON INVOLUNTARY CONVERSION - ---------------------------------------- On August 26, 1992, Hurricane Andrew caused approximately $475,200 of damage to Iberia Plaza. The Partnership received $468,434 from its insurance carrier to repair property damages at Iberia Plaza, and an additional $54,000 to reimburse the Partnership for lost rents while repairs were under way. Insurance reimbursements received in excess of the basis of the property damaged were recorded as gain on involuntary conversion on the Statements of Operations. The gain on involuntary conversion equaled $268,434 and $192,168 for the years ended December 31, 1993 and 1992, respectively. NOTE 11 - 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) High River Limited Partnership v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Pacific Investors 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., Robert A. McNeil and Carole J. McNeil (L95012) - High River ("HR") filed this action in the United States District Court for the Southern District of New York against McNeil Partners, L.P., McNeil Investors, Inc. and Mr. and Mrs. McNeil (as defined in this Section 1, collectively, the "Defendants") requesting, among other things, names and addresses of the limited partners in the partnerships referenced above (as defined in this Section 1, the "Partnerships"). The District Court issued a preliminary injunction against the Partnerships requiring them to commence mailing materials relating to the HR tender offer on August 14, 1995. On August 18, 1995, the Defendants filed an Answer and Counterclaim. The Counterclaim principally asserts (1) the HR tender offers have been undertaken in violation of the federal securities laws, on the basis of material, non-public, and confidential information, and (2) that the HR offer documents omit and/or misrepresent certain material information about the HR tender offers. The Counterclaim seeks a preliminary and permanent injunction against the continuation of the HR tender offers and, alternatively, ordering corrective disclosure with respect to allegedly false and misleading statements contained in the tender offer documents. This action was dismissed without prejudice in November 1995. 2) High River Limited Partnership v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Pacific Investors 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., Robert A. McNeil and Carole J. McNeil - United States District Court for the Southern District of New York, (Case No. 95 Civ. 9488) (Second Action). On November 7, 1995, High River filed a second complaint with the District Court which alleges, inter alia, that McNeil Partners, L.P.'s (the "General Partner") Schedule 14D-9 filed in connection with the High River tender offers was materially false and misleading, in violation of Sections 14(d) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78n(d) and (e), and the SEC Regulations promulgated thereunder; and that High River further alleges that the General Partner has wrongfully refused to admit High River as a limited partner to the ten partnerships referenced above. Additionally, High River purports to assert claims derivatively on behalf of McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., for breach of contract and breach of fiduciary duty, asserting that the General Partner has charged these partnerships excessive fees. High River's complaint seeks, inter alia, preliminary injunctive relief requiring the General Partner to admit High River as a limited partner in each of the ten partnerships referenced above and to transfer the tendered units of interest in the partnerships to High River; an unspecified award of damages payable to High River and an additional unspecified award of damages payable to certain of the partnerships; an order that defendants must discharge their fiduciary duties and must account for all fees they have received from certain of the partnerships; and attorneys' fees. On January 31, 1996, this action was dismissed without prejudice. 3) 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. Plaintiff brings this action on his own behalf and as a class action on behalf of the class of all limited partners of 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, Ltd. (as defined in this Section 3, the "Partnerships") as of August 4, 1995. Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil and other senior officers (as defined in this Section 3, collectively, the "Defendants") breached their fiduciary duties by, among other things, (1) failing to attempt to sell the properties owned by the Partnerships (as defined in this Section 3, the "Properties") and extending the lives of the Partnerships indefinitely, contrary to the Partnerships' business plans, (2) paying distributions to themselves and generating fees for their affiliates, (3) refusing to make significant distributions to the class members, despite the fact that the Partnerships have positive cash flows and substantial cash balances, and (4) failing to take steps to create an auction market for equity interests of the Partnerships, despite the fact that a third party bidder filed tender offers for approximately forty-five percent (45%) of the outstanding units of each of the Partnerships. Plaintiff also claims that Defendants have breached the partnership agreements of the Partnerships by failing to take steps to liquidate the Properties and by their alteration of the Partnerships' primary purposes, their acts in contravention of these agreements, and their use of the assets of the Partnerships for their own benefit instead of for the benefit of the Partnerships. The Defendants deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 4) James F. Schofield, Gerald C. Gillett and Donna S. Gillett v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, 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. et al - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint) and United States District Court, Southern District of New York, Case No. 95CIV.6711 (Class and Derivative Action Complaint) These are corporate/securities class and derivative actions brought in state and federal court by limited partners of each of the nine (9) limited partnerships that are named as nominal defendants as listed above (as defined in this Section 4, the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and four (4) of their senior officers and/or directors (as defined in this Section 4, collectively, the "Defendants") have breached their fiduciary duties. Specifically, Plaintiffs allege that Defendants have caused the Partnerships to enter into several wasteful transactions that have no business purpose or benefit to the Partnerships and which have rendered such units highly illiquid and artificially depressed the prices that are available for units on the limited resale market. Plaintiffs also allege that Defendants have engaged in a course of conduct to prevent the acquisition of units by Carl Icahn by disseminating false, misleading and inadequate information. Plaintiffs further allege that Defendants have 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 and, thereby, have breached the partnership agreements. The Defendants deny that there is any merit to Plaintiff's allegations and intend to vigorously defend these actions. 5) 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) Plaintiff brings this class action on behalf of a class of all persons and entities who are current owners of units and/or are limited partners in one or more of the partnerships referenced above (as defined in this Section 5, the "Partnerships"). Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil and other senior officers (as defined in this Section 5, collectively, the "Defendants") have breached their fiduciary duties to the class members by, among other things, (1) taking steps to prevent the consummation of the High River tender offers, (2) failing to take steps to maximize unitholders' or limited partners' values, including failure to liquidate the properties owned by the Partnerships, (3) managing the Partnerships so as to extend indefinitely the present fee arrangements, and (4) paying itself and entities owned and controlled by the general partner excessive fees and reimbursements of general and administrative expenses. The Defendants deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 6) 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) Plaintiff brings this class action on behalf of a class of all persons and entities who are current owners of units and/or are limited partners in one or more of the partnerships referenced above (as defined in this Section 6, the "Partnerships"). Plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc., Robert A. McNeil and other senior officers (as defined in this Section 6, collectively, the "Defendants") have breached their fiduciary duties to the class members by, among other things, (1) taking steps to prevent the consummation of the High River tender offers, (2) failing to take steps to maximize unitholders' or limited partners' values, including failure to liquidate the properties owned by the Partnerships, (3) managing the Partnerships so as to extend indefinitely the present fee arrangements, and (4) paying itself and entities owned and controlled by the general partner excessive fees and reimbursements of general and administrative expenses. The Defendants deny that there is any merit to Plaintiff's allegations and intend to vigorously defend this action. 7) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young BDO Seidman et al (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought recovery against the Partnership's former auditors, BDO Seidman, for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark, the former general partner. The former auditors asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims sought recovery of attorneys' fees and costs incurred in defending this action. The original petition also alleged causes of action against certain former officers and directors of the Partnership's original general partner for breach of fiduciary duty, fraud and conspiracy relating to the improper assessment and payment of certain administrative fees/expenses. On January 11, 1994 the allegations against the former officers and directors were dismissed. The trial court granted summary judgment in favor of Ernst & Young and BDO Seidman on the fraud and negligence claims based on the statute of limitations. The Affiliated Partnerships appealed the summary judgment to the Dallas Court of Appeals. In August 1995, the Appeals Court upheld all of the summary judgments in favor of BDO Seidman. In exchange for the plaintiff's agreement not to file any motions for rehearing or further appeals, BDO Seidman agreed that it will not pursue the counterclaims against the Partnership. NOTE 12 - GAIN ON LEGAL SETTLEMENT - ---------------------------------- The Partnership filed claims with the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") against Southmark Corporation ("Southmark"), an affiliate of a previous general partner, 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, $69,234 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 $22,283 which, when combined with the cash proceeds from Southmark, resulted in a gain on legal settlement of $91,517. NOTE 13 - SUBSEQUENT EVENT (UNAUDITED) - -------------------------------------- On January 26, 1996, the Partnership refinanced the Spanish Oaks mortgage note. The new mortgage note, in the amount of $4,000,000, bears interest at 7.71%, requires monthly principal and interest payments of $28,546, and matures on January 26, 2003. Cash proceeds from the refinancing transaction are as follows:
New loan proceeds.................................. $ 4,000,000 Existing debt retired.............................. (3,524,225) --------------- Proceeds from refinancing.......................... $ 475,775 ===============
The Partnership incurred $129,273 of deferred borrowing costs related to the refinancing of the Spanish Oaks mortgage note. The Partnership was also required to fund $165,291 into various escrows for property taxes, hazard insurance and deferred maintenance. McNEIL REAL ESTATE FUND X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1995
Cumulative Costs Initial Cost (b) Write-down Capitalized Related (b) Buildings and and Permanent Subsequent Description Encumbrances Land Improvements Impairment To Acquisition - ----------- ------------ ---- ------------- ------------- -------------- Apartments: Briarwood Tucson, AZ $ 2,159,913 $ 489,437 $ 4,356,477 $ - $ 688,471 Coppermill Tulsa, OK 5,022,484 1,176,980 13,146,794 (2,600,000) 1,515,110 Orchard Lawrence, IN 6,288,171 366,938 7,611,708 - 1,558,031 Quail Meadows Wichita, KS 5,967,225 754,551 9,387,261 - 1,407,685 Regency Park Fort Wayne, IN 2,421,645 280,131 4,060,970 - 1,009,226 Sandpiper Westminster, CO 5,540,519 866,107 5,991,007 - 1,674,698 Spanish Oaks San Antonio, TX 3,524,225 586,056 4,618,711 - 1,383,707 Office Building: La Plaza Las Vegas, NV 2,523,308 2,761,441 4,388,847 - 1,972,408 Shopping Centers: Cave Springs Corners Roanoke, VA 3,118,079 776,280 3,685,098 - 817,754 Iberia Plaza New Iberia, LA 2,076,505 836,792 3,851,121 - 1,114,046 Lakeview Plaza Lexington, KY 4,249,492 1,554,404 6,986,277 (129,914) 406,425 -------------- -------------- -------------- ------------ ------------- $ 42,891,566 $ 10,449,117 $ 68,084,271 $ (2,729,914) $ 13,547,561 ============== ============== ============== ============ =============
Asset Held for Sale: Parkway Plaza Lafayette, LA $ 2,362,750 -------------- $ 2,362,750 ============== (b) The 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 X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1995
Gross Amount at Which Carried at Close of Period Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization - ----------- ---- ------------ --------- ---------------- Apartments: Briarwood Tucson, AZ $ 489,437 $ 5,044,948 $ 5,534,385 $ (3,486,893) Coppermill Tulsa, OK 1,176,980 12,061,904 13,238,884 (8,900,290) Orchard Lawrence, IN 366,938 9,169,739 9,536,677 (6,144,459) Quail Meadows Wichita, KS 754,551 10,794,946 11,549,497 (7,058,393) Regency Park Fort Wayne, IN 280,131 5,070,196 5,350,327 (3,557,228) Sandpiper Westminster, CO 866,107 7,665,705 8,531,812 (4,691,953) Spanish Oaks San Antonio, TX 586,056 6,002,418 6,588,474 (3,917,961) Office Building: La Plaza Las Vegas, NV 2,761,441 6,361,255 9,122,696 (4,118,450) Shopping Centers: Cave Spring Corners Roanoke, VA 792,077 4,487,055 5,279,132 (2,998,581) Iberia Plaza New Iberia, LA 836,792 4,965,167 5,801,959 (2,719,859) Lakeview Plaza Lexington, KY 1,554,404 7,262,788 8,817,192 (5,057,438) -------------- -------------- ---------------- ------------- $ 10,464,914 $ 78,886,121 $ 89,351,035 $ (52,651,505) ============== ============== ================ ============= Asset Held for Sale: Parkway Plaza Lafayette, La 2,237,733 --------------- $ (c) $ (c) $ 2,237,733 $ (c) ============== ============== =============== =============
(a) For Federal income tax purposes, the properties are depreciated over lives ranging from 15-25 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was approximately $100,274,995 and accumulated depreciation was $57,593,126 December 31, 1995. (c) Assets held for sale are carried at the lower of cost or net realizable value. Historical cost, net of accumulative depreciation and cumulative write-downs, becomes the new cost basis when the asset is classified as "Asset Held for Sale". See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1995
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------- Apartments: Briarwood Tucson, AZ 1978 07/80 4-33 Coppermill Tulsa, OK 1978 10/80 6-38 Orchard Lawrence, In 1973 12/80 3-33 Quail Meadows Wichita, KS 1978 06/80 6-35 Regency Park Fort Wayne, IN 1970 06/80 3-30 Sandpiper Westminster, CO 1974 04/80 3-34 Spanish Oaks San Antonio, TX 1968 08/80 3-30 Office Building: La Plaza Las Vegas, NV 1977 09/80 4-34 Shopping Centers: Cave Spring Corners Roanoke VA 1973 10/80 5-25 Iberia Plaza New Iberia LA 1978 06/80 8-38 Lakeview Plaza Lexington, KY 1979 07/80 15-35 Asset Held for Sale: Parkway Plaza Lafayette, LA
See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND X, LTD. Notes to Schedule III Real Estate Investments and Accumulated Depreciation and Amortization A summary of activity for the Partnership's real estate investments, accumulated depreciation and amortization, and assets held for sale is as follows:
For the Years Ended December 31, ---------------------------------------------------- 1995 1994 1993 -------------- -------------- --------------- Real estate investments: - ------------------------ Balance at beginning of year............... $ 86,475,540 $ 101,188,388 $ 97,151,644 Improvements............................... 2,875,495 2,143,853 4,036,744 Reclassification of assets held for sale................................ - (16,856,701) - ------------- ------------- -------------- Balance at end of year..................... $ 89,351,035 $ 86,475,540 $ 101,188,388 ============= ============= ============== Accumulated depreciation and amortization: - ------------------------------------------ Balance at beginning of year............... $ 49,450,647 $ 55,482,914 $ 52,182,685 Depreciation and amortization.............. 3,200,858 3,609,402 3,300,229 Reclassification of assets held for sale................................ - (9,641,669) - ------------- ------------- -------------- Balance at end of year..................... $ 52,651,505 $ 49,450,647 $ 55,482,914 ============= ============= ============== Assets Held for Sale: - --------------------- Balance at beginning of year............... $ 7,215,032 $ - Reclassification of assets held for sale................................ - 7,215,032 Improvements............................... 63,555 - Depreciation and amortization.............. (367,055) - Disposition of asset held for sale......... (4,673,799) - ------------- ------------- Balance at end of year..................... $ 2,237,733 $ 7,215,032 ============= =============
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, 75 Mr. McNeil is also Chairman of the Board and Director of McNeil Real Chairman of the Estate Management, Inc. ("McREMI") which is an affiliate of the General Board and Director 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 52 Mrs. McNeil is Co-Chairman, with husband Robert A. McNeil, of McNeil Co-Chairman of the Investors, Inc. Mrs. McNeil has twenty years of real estate experience, Board 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 - ----------------- --- ------------------------------------- Donald K. Reed, 50 Mr. Reed is President, Chief Executive Officer and Director of McREMI Director, President, which is an affiliate of the General Partner. Prior to joining McREMI in and Chief Executive March 1993, Mr. Reed was President, Chief Operating Officer and Director Officer of Duddlesten Management Corporation and Duddlesten Realty Advisors, Inc., with responsibility for a management portfolio of office, retail, multi-family and mixed-use land projects representing $2 billion in asset value. He was also Chief Operating Officer, Director and member of the Executive Committee of all Duddlesten affiliates. Mr. Reed started with the Duddlesten companies in 1976 and served as Senior Vice President and Chief Financial Officer and as Executive Vice President and Chief Operating Officer of Duddlesten Management Corporation before his promotion to President in 1982. He was President and Chief Operating Officer of Duddlesten Realty Advisors, Inc., which has been engaged in real estate acquisitions, marketing and dispositions, since its formation in 1989. Ron K. Taylor 38 Mr. Taylor is a Senior Vice President of McREMI and has been in this Vice President capacity since McREMI commenced active operations in 1991. He also serves as Acting Chief Financial Officer of McREMI since the resignation of Robert C. Irvine on January 31, 1996. Mr. Taylor is primarily responsible for Asset Management functions at McREMI, including property dispositions, commercial leasing, real estate finance and portfolio management. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management company. Mr. Taylor has been 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, 1995, 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, 1995. 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 percent of the Partnership's securities except as noted below: 1. High River Limited Partnership, 100 S. Bedford Road, Mount Kisco, New York, 10549, owns 7,452 Units (5.52%) as of February 29, 1996. (B) Security ownership of management. The General Partner and the officers and directors of its general partner, collectively, own 1,732 Units (1.28%). (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- Under 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 Partnership's tangible asset value. The maximum MID percentage decreases subsequent to 1999. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. Prior to July 1, 1993, the MID consisted of two components: (i) the fixed portion which was payable without respect to the net income of the Partnership and was equal to 25% of the maximum MID (the "Fixed MID") and (ii) a contingent portion which was payable only to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount") and was equal to up to 75% of the maximum MID (the "Contingent MID"). Effective July 1, 1993, the General Partner amended the Amended Partnership Agreement as a settlement to a class action complaint. This amendment eliminates the Fixed MID and makes the entire MID payable to the extent of the Entitlement Amount. In all other respects, the calculation and payment of the MID will remain the same. Contingent MID will be paid to the extent of 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. For the year ended December 31, 1995, the Partnership accrued Contingent MID in the amount of $1,064,257. 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 does have a material effect on the calculation of the Entitlement Amount which determines the amount of Contingent MID earned and the amount of Fixed MID payable in cash. Capital improvements are excluded from cash flow, as defined. The majority of the 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. If base period cash flow had been measured on a basis comparable with incentive period cash flow, Contingent MID would have been reduced by $256,656 for the year ended December 31, 1994. The amendment of the capitalization policy did not materially affect the MID for 1995 or 1993 as the Entitlement Amount was sufficient to pay Contingent 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 Fixed MID was treated as a fee payable to the General Partner by the Partnership for services rendered. The Contingent MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. 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 residential properties and property management services for the Partnership's commercial properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1995, the Partnership paid or accrued $1,517,079 in 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 STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------- ----------------------------------------------------------------- See accompanying index to Financial Statements at Item 8. (A) The following documents are incorporated by reference and are an integral part of this report: 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 The Amended and Restated Limited Partnership Agreement (incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1991). 3.2 Amendment No. 1 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund X, Ltd. dated to be effective July 31, 1993. (4) 3.3 Amendment No. 2 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund X, Ltd. dated March 28, 1994. (4) 10.1 Assignment and Assumption Agreement, dated as of October 9, 1991, between Pacific Investors Corporation, Robert A. McNeil and McNeil Partners, L.P. regarding McNeil Real Estate Fund X, Ltd. (1) 10.2 Property Management Agreement, dated as of October 9, 1991, between McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Management, Inc. (1) 10.3 Asset Management Agreement, dated as of October 9, 1991, between McNeil Real Estate Fund X, Ltd. and McNeil Partners, L.P. (1) 10.4 Revolving Credit Agreement, dated August 6, 1991, between McNeil Partners, L.P. and certain partnerships, including the Partnership. (1)
Exhibit Number Description ------- ----------- 10.5 Amendment of Property Management Agreement dated March 5, 1993, between the Partnership and McNeil Real Estate Management, Inc. (2) 10.6 Loan Agreement dated June 24, 1993, between Lexington Mortgage Company and McNeil Real Estate Fund X, Ltd., et. al. (3) 10.7 Master Property Management Agreement, dated as of June 24, 1993, between McNeil Real Estate Management, Inc. and McNeil Real Estate Fund X, Ltd. (4) 10.8 Multifamily Note, dated as of December 8, 1994, between Coppermill Fund X Limited Partnership and Arbor National Commercial Mortgage Corporation. (5) 10.9 Promissory Note, dated August 15, 1994, between McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XXVII, L.P. (5) 10.10 Promissory Note and Note Consolidation, dated January 15, 1988, between McNeil Real Estate Fund X, Ltd. and Goldome Realty Credit Corp. (5) 10.11 Loan Modification and Extension Agreement, dated August 1, 1993, between McNeil Real Estate Fund X, Ltd. and the Federal Deposit Insurance Corporation. (5) 10.12 Promissory Note, dated February 25, 1992, between McNeil Real Estate Fund X, Ltd. and Life Insurance Company of the Southwest. (5) 10.13 Multifamily Note, dated September 4, 1992, between Regency Park Fund X Associates, L.P. and Metmor Financial, Inc. (5) 10.14 Modification of Promissory Note and Deed of Trust, dated January 23, 1989, between First American Savings Bank, FSB and McNeil Real Estate Fund X, Ltd. (5)
Exhibit Number Description ------- ----------- 10.15 Note, dated July 1, 1978, between M H Kentucky Ventures and First of Boston Mortgage Corporation. (5) 10.16 Wrap-Around Promissory Note, dated June 18, 1980, between McNeil Real Estate Fund X, Ltd. and James M. Folmar and Emory M. Folmar. (5) 10.17 Act of Amendment to Wrap-Around Promissory Note and Mortgage, dated April 20, 1994, between McNeil Real Estate Fund X, Ltd. and James M. Folmar and Emory M. Folmar. (5) 10.18 Property Management Agreement, dated November 30, 1994, between Coppermill Fund X Limited Partnership and McNeil Real Estate Management, Inc. (5) 10.19 Mortgage Note, dated January 17, 1996, between Spanish Fund X, Ltd. and Fleet Real Estate Capital, Inc. 11. Statement regarding computation of Net Income (Loss) per Limited Partnership Unit (see Note 1 to Financial Statements). 22. List of subsidiaries of the Partnership.
Names Under Jurisdiction of Which It Is Name of Subsidiary Incorporation Doing Business ------------------ --------------- -------------- Briarwood Fund X Limited Partnership Delaware None Coppermill Fund X Limited Partnership Texas None Courts Fund X Associates, L.P. Washington None Orchard Fund X Limited Partnership Delaware None Quail Meadows Fund X Limited Partnership Delaware None Regency Park Fund X Associates, L.P. Indiana None Sandpiper Fund X Limited Partnership Delaware None Spanish Fund X, Ltd. Texas None
27. Financial Data Schedule for the year ended December 31, 1995. (1) Incorporated by reference to the Annual Report of McNeil Real Estate Fund X, Ltd., (File No. 0-9325), on Form 10-K for the period ended December 31, 1991, as filed with the Securities and Exchange Commission on March 30, 1992. (2) Incorporated by reference to the Annual Report of McNeil Real Estate Fund X, Ltd. (File No. 0-9325), on Form 10-K for the period ended December 31, 1992, as filed with the Securities and Exchange Commission on March 30, 1993.
(3) 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. (4) Incorporated by reference to the Annual Report of McNeil Real Estate Fund X, Ltd. (File No. 0-9325), 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 X, Ltd. (File No. 0-9325), on Form 10-K for the period ended December 31, 1994, as filed with the Securities and Exchange Commission on March 30, 1995.
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. (B) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 1995. McNEIL REAL ESTATE FUND X, 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 X, LTD. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner March 29, 1996 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 29, 1996 By: /s/ Donald K. Reed - -------------- ------------------------------------------------ Date Donald K. Reed President and Director of McNeil Investors, Inc. March 29, 1996 By: /s/ Ron K. Taylor - -------------- ------------------------------------------------ Date Ron K. Taylor Acting Chief Financial Officer of McNeil Investors, Inc. March 29, 1996 By: /s/ Brandon K. Flaming - -------------- ------------------------------------------------ Date Brandon K. Flaming Chief Accounting Officer of McNeil Real Estate Management, Inc.
EX-27 2
5 12-MOS DEC-31-1995 DEC-31-1995 1,813,594 0 432,618 0 0 0 89,351,035 (52,651,505) 43,638,649 0 44,454,316 0 0 0 0 43,638,649 16,878,076 20,258,594 0 0 13,005,691 0 5,059,739 0 0 2,193,164 0 0 0 2,193,164 0 0
EX-10.19 3 MORTGAGE NOTE $4,000,000.00 January 17, 1996 FOR VALUE RECEIVED, SPANISH FUND X, LTD., a Texas limited partnership having its principal office at 13760 Noel Road, Suite 700, Dallas, Texas 75240 ("Maker") promises to pay to the order of FLEET REAL ESTATE CAPITAL, INC., a Rhode Island corporation, or its assigns ("Payee") having its principal office at 4275 Executive Square, Suite 200, La Jolla, California 92037, the Principal Amount (as defined below), together with interest from the date hereof at the Interest Rate (as defined below). Interest accruing hereunder shall be calculated on the basis of a 360-day year of twelve 30-day months. WHEN USED HEREIN, the following capitalized terms shall have the following meanings: "Commencement Date" shall be March 1, 1996. "Closing Date" shall be January 26, 1996. "Default Rate" shall be the Interest Rate plus five percent (5%) per annum. "Interest Rate" shall be Seven and Seventy-one One Hundredths percent (7.71%) per annum. "Lockout Period" shall be the period from January 26, 1996 through February 1, 2000. "Maturity Date" shall be January 26, 2003. "Monthly Amount" shall be the sum of Twenty-eight Thousand Five Hundred Forty-six and no/100 Dollars ($28,546.00). "Payment Date" shall be the first business day of each month commencing on the first business day of the second full month after the Closing Date and continuing to and including the Maturity Date. "Principal Amount" shall be Four Million and No/100 United States Dollars. The Principal Amount and interest thereon shall be due and payable in lawful money of the United States as follows: (a) On the date hereof, all accrued and unpaid interest on the unpaid balance through the end of the month in which the Closing Date occurs shall be due and payable. Thereafter, commencing on the Commencement Date, eighty-three (83) equal monthly installments of principal and interest at the Monthly Amount each shall be due and payable. Each installment of principal and interest shall be applied first to interest and the remainder thereof to reduction of principal. Each monthly installment shall be due on each Payment Date. In addition, all amounts advanced by Payee pursuant to applicable provisions of the Security Documents (as hereinafter defined), together with any interest at the Default Rate or other charges as therein provided, shall be immediately due and payable hereunder. In the event any such advance is not so repaid by Maker, Payee may, at its option, first apply any payments received hereunder to repay said advances together with any interest thereon or other charges as provided in the Security Documents, and the balance, if any, shall be applied in payment of any installment then due. The entire remaining unpaid balance of principal of this Note, all interest accrued thereon and all other sums payable hereunder or under the Security Documents shall be due and payable in full on the Maturity Date. (b) Amounts due on this Note shall be payable, without any counterclaim, setoff or deduction whatsoever, at the office of Payee or its agent or designee at the address set forth in Exhibit 1 or at such other place as Payee or its agent or designee may from time to time designate in writing. (c) This Note is secured by a Deed of Trust, Mortgage, Security Agreement and Assignment of Rents and Leases of even date herewith (the "Mortgage") from Maker to Payee and by an Assignment of Rents and Leases of even date herewith (the "Assignment") from Maker to Payee. The Mortgage, the Assignment and any other instrument given at any time to secure this Note are hereinafter collectively called the "Security Documents." (d) This Note may not be prepaid prior to the end of the Lockout Period, except as set forth herein. Any prepayment of this Note, in whole or in part, prior to the end of the Lockout Period, except as permitted herein, shall constitute an "Event of Default" under the Mortgage. Maker has the right to prepay the principal of this Note in full or in part on any Payment Date after the end of the Lockout Period, upon sixty days' prior written notice and payment, together with the portion of the principal to be prepaid, of a prepayment premium in an amount calculated as specified in Appendix 1. The calculation of the prepayment premium shall be made by Payee and shall, absent manifest error, be conclusive. In the event this Note is prepaid from the proceeds of insurance or condemnation awards in accordance with Sections 10, 11 and 12 of the Mortgage either prior to or after the end of the Lockout Period, a prepayment premium shall be payable calculated as specified in Appendix 1. Notwithstanding the foregoing, this Note may be prepaid without a prepayment premium during the one hundred eighty (180) day period prior to the Maturity Date. Upon acceleration of this Note in accordance with its terms and the terms of the Security Documents, Maker agrees to pay the prepayment premium described above in the amount that would be due if a voluntary payment were made on the date of such acceleration. A tender of payment of the amount necessary to pay and satisfy the entire unpaid principal balance of this Note or any portion thereof at any time after an Event of Default under the Mortgage or an acceleration by Payee of the indebtedness evidenced hereby, whether such payment is tendered voluntarily, during or after foreclosure of the Mortgage, or pursuant to realization upon other security, shall constitute a purposeful evasion of the prepayment terms of this Note, shall be deemed to be a voluntary prepayment hereof, and Maker shall be required to pay the prepayment premium as described above. Partial prepayments of principal shall not change the Payment Dates or amounts of subsequent monthly installments, unless Payee shall otherwise agree in writing. Notwithstanding the foregoing, nothing in this paragraph (d) shall vary or negate the provisions of Section 18(c) of the Mortgage. (e) If Maker defaults in the payment of any installment of principal and interest on the date on which it shall fall due or in the performance of any of the agreements, conditions, covenants, provisions or stipulations contained in this Note or in the Security Documents, and if such default shall continue beyond any grace period provided for in the Mortgage so as to constitute an Event of Default thereunder, then Payee, at its option and without further notice to Maker, may declare immediately due and payable the entire unpaid principal balance of this Note, together with interest thereon at an annual rate after the date of such default equal to the Default Rate, together with all sums due by Maker under the Security Documents, anything herein or in the Security Documents to the contrary notwithstanding. The foregoing provision shall not be construed as a waiver by Payee of its right to pursue any other remedies available to it under the Mortgage, this Note or any other Security Document, nor shall it be construed to limit in any way the application of the Default Rate. Any payment hereunder may be enforced and recovered in whole or in part at such time by one or more of the remedies provided to Payee in this Note or in the Security Documents. In the event that: (i) this Note or any Security Document is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; (ii) an attorney is retained to represent Payee in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors' rights and involving a claim under this Note or any Security Document; (iii) an attorney is retained to protect or enforce the lien of the Mortgage or any Security Document; or (iv) an attorney is retained to represent Payee in any other proceedings whatsoever in connection with this Note, the Mortgage, any of the Security Documents or any portion of the Mortgaged Property (as defined in the Mortgage), then Maker shall pay to Payee all reasonable attorney's fees, costs and expenses incurred in connection therewith, including costs of appeal, together with interest on any judgment obtained by Payee at the Default Rate. (f) If Maker defaults in the payment of any monthly installment on the Payment Date, and such default is not cured within five days thereafter, then Maker shall pay to Payee a late payment charge in an amount equal to five percent (5%) of the amount of the installment not paid as aforesaid. Said late charge payments, if payable, shall be secured by the Mortgage and the other Security Documents, shall be payable without notice or demand by Payee, and are independent of and have no effect upon the rights of Payee under paragraph (e) above. (g) Maker and all endorsers, sureties and guarantors hereby jointly and severally waive all applicable exemption rights, valuation and appraisement, presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this Note, notice of intention to accelerate the indebtedness evidenced hereby, notice of acceleration of the maturity hereof, diligence in the collection hereof, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note. Maker and all endorsers, sureties and guarantors consent to any and all extensions of time, renewals, waivers or modifications that may be granted by Payee with respect to the payment or other provisions of this Note and to the release of the collateral or any part thereof, with or without substitution, and agree that additional makers, endorsers, guarantors or sureties may become parties hereto without notice to them or affecting their liability hereunder. (h) Payee shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Payee, and then only to the extent specifically set forth in writing. A waiver of one event shall not be construed as continuing or as a bar to or waiver of any right or remedy to a subsequent event. (i) This Note shall be governed by and construed in accordance with the laws of the State in which the Mortgaged Property is located (the "State"). (j) The parties hereto intend and believe that each provision in this Note comports with all applicable law. However, if any provision in this Note is found by a court of law to be in violation of any applicable law, and if such court should declare such provision of this Note to be unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such provision shall be given full force and effect to the fullest possible extent that is legal, valid and enforceable, that the remainder of this Note shall be construed as if such unlawful, void or unenforceable provision were not contained therein, and that the rights, obligations and interest of Maker and the holder hereof under the remainder of this Note shall continue in full force and effect; provided, however, that if any provision of this Note which is found to be in violation of any applicable law concerns the imposition of interest hereunder, the rights, obligations and interests of Maker and Payee with respect to the imposition of interest hereunder shall be governed and controlled by the provisions of the following paragraph. (k) It being the intention of Payee and Maker to comply with the laws of the State with regard to the rate of interest charged hereunder, it is agreed that, notwithstanding any provision to the contrary in this Note, the Mortgage, or any of the other Security Documents, no such provision, including without limitation any provision of this Note providing for the payment of interest or other charges, shall require the payment or permit the collection of any amount ("Excess Interest") in excess of the maximum amount of interest permitted by law to be charged for the use or detention, or the forbearance in the collection, of all or any portion of the indebtedness evidenced by this Note. If any Excess Interest is provided for, or is adjudicated to be provided for, in this Note, the Mortgage, or any of the other Security Documents, then in such event: (i) the provisions of this paragraph shall govern; (ii) Maker shall not be obligated to pay any Excess Interest; (iii) any Excess Interest that Payee may have received hereunder shall, at the option of Payee, be (x) applied as a credit against the unpaid principal balance then due under this Note, accrued and unpaid interest thereon not to exceed the maximum amount permitted by law, or both, (y) refunded to the payor thereof or (z) any combination of the foregoing; (iv) the applicable interest rate or rates provided for herein shall be automatically subject to reduction to the maximum lawful rate allowed to be contracted for in writing under the applicable usury laws of the aforesaid State, and this Note, the Mortgage and the other Security Documents shall be deemed to have been, and shall be, reformed and modified to reflect such reduction in such interest rate or rates; (v) in determining whether or not the rate of interest hereunder exceeds the maximum rate permitted by the laws of the State, Maker and Payee agree and intend that all sums paid hereunder which are deemed interest for the purpose of determining usury shall be prorated, allocated or spread in equal parts over the longest period of time permitted under the applicable laws of the State; and (vi) Maker shall not have any action or remedy against Payee for any damages whatsoever or any defense to enforcement of this Note, Mortgage or any other Security Document arising out of the payment or collection of any Excess Interest. (l) Upon any endorsement, assignment, or other transfer of this Note by Payee or by operation of law, the term "Payee," as used herein, shall mean such endorsee, assignee, or other transferee or successor to Payee then becoming the holder of this Note. This Note shall inure to the benefit of Payee and its successors and assigns and shall be binding upon the undersigned and its successors and assigns. The term "Maker" as used herein shall include the respective successors and assigns, legal and personal representatives, executors, administrators, devisees, legatees and heirs of Maker. (m) Any notice, demand or other communication which any party may desire or may be required to give to any other party shall be in writing and shall be given as provided in the Mortgage. (n) To the extent that Maker makes a payment or Payee receives any payment or proceeds for Maker's benefit, which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other party under any bankruptcy law, common law or equitable cause, then, to such extent, the obligations of Maker hereunder intended to be satisfied shall be revived and continue as if such payment or proceeds had not been received by Payee. (o) Maker shall execute and acknowledge (or cause to be executed and acknowledged) and deliver to Payee all documents, and take all actions, reasonably required by Payee from time to time to confirm the rights created or now or hereafter intended to be created under this Note and the Security Documents, to protect and further the validity, priority and enforceability of this Note and the Security Documents, to subject to the Security Documents any property of Maker intended by the terms of any one or more of the Security Documents to be encumbered by the Security Documents, or otherwise carry out the purposes of the Security Documents and the transactions contemplated thereunder; provided, however, that no such further actions, assurances and confirmations shall increase Maker's obligations under this Note. (p) No modification, amendment, extension, discharge, termination or waiver (a "Modification") of any provision of this Note, or any one or more of the other Security Documents, nor consent to any departure by Maker therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on, Maker shall entitle Maker to any other or future notice or demand in the same, similar or other circumstances. Payee does not hereby agree to, nor does Payee hereby commit itself to, enter into any Modification. (q) Maker hereby expressly and unconditionally waives, in connection with any suit, action or proceeding brought by Payee on this Note, any and every right it may have to (a) a trial by jury, (b) interpose any counterclaim therein (other than a counterclaim which can only be asserted in the suit, action or proceeding brought by Payee on this Note and cannot be maintained in a separate action) and (c) have the same consolidated with any other or separate suit, action or proceeding. (r) Except as hereinafter provided, notwithstanding any provision to the contrary in the Mortgage or this Note, Payee shall not have any recourse to any asset of Maker or its partners other than the Mortgaged Property in order to satisfy the indebtedness for payment of the principal and interest evidenced by this Note, and Payee's sole recourse for satisfaction of the payment of principal and interest evidenced by this Note shall be to exercise its rights against the Mortgaged Property encumbered by the Mortgage and the other collateral securing this Note. The foregoing sentence shall not be deemed or construed to be a release of the indebtedness evidenced by this Note or in any way impair, limit or otherwise affect the lien of the Mortgage or any such other instrument securing repayment of this Note or prevent Payee from naming Maker, its partners, or their successors or assigns as a defendant to any action to enforce any remedy for default so long as there is no personal or deficiency money judgment sought or entered against Maker, its partners, or their successors or assigns for payment of principal and interest evidenced by this Note. Notwithstanding the foregoing provisions of this paragraph, it is expressly understood and agreed that the aforesaid limitation of liability shall in no way affect or apply to Maker's or its partners' continued personal liability for the payment to Payee of: (i) any loss or damage occurring by reason of all or any part of the Mortgaged Property being encumbered by a voluntary lien (other than the Mortgage) granted by Maker; (ii) any Rents (as defined in the Mortgage), issues, profits and/or income collected by Maker in excess of normal and verifiable operating expenses from the Mortgaged Property after default by Maker hereunder, under the Mortgage or under any other instrument securing or referring to this Note; (iii) unrefunded security deposits made by tenants of the Mortgaged Property; (iv) payment of Taxes, as defined in Section 5 of the Mortgage, and insurance premiums, payment of which is required to be made by Maker under the Mortgage; (v) Rents, security deposits with respect to leases of the Mortgaged Property, insurance proceeds, condemnation awards, and any other payments or consideration which Maker receives and to which Payee is entitled pursuant to the terms of the Mortgage or of any other Security Document; (vi) damage to the Mortgaged Property from waste committed or permitted by Maker; (vii) loss or damage occurring by reason of the failure of Maker to comply with any of the provisions of Section 35 of the Mortgage; (viii) any loss or claim incurred by or asserted against Payee as a result of fraud or misrepresentation by Maker or any of the partners thereof with respect to any certification, representation or warranty made by Maker or such other persons to Payee herein or in any of the Security Documents; (ix) all indebtedness and obligations arising under or pursuant to that certain Environmental Indemnity dated of even date herewith executed by Maker, the general partner of Maker and McNeil Real Estate Fund X, Ltd. for the benefit of Payee; and (x) reasonable attorney's fees incurred by Payee in connection with suit filed on account of any of the foregoing clauses (i) through (ix). (s) The proceeds of this Note are to be used for business, commercial, investment, or other similar purposes and no portion thereof will be used for personal, family or household use. (t) To the extent that TEX. REV. CIV. STAT. ANN. Art. 5069- 1.04, as amended, is applicable to this Note, the ceiling specified in such article is the applicable quarterly ceiling; provided that if any applicable law permits greater interest, the law permitting the greatest interest shall apply. IN WITNESS WHEREOF, Maker has caused this Note to be executed and delivered as of the day and year first above written. SPANISH FUND X, LTD., a Texas limited partnership By: Spanish Apartments Fund X Corp., a Delaware corporation, General Partner By: /s/ Ron K. Taylor __________________________ Name: Ron K. Taylor Title: Vice President APPENDIX 1 Calculation of Prepayment Premium The prepayment premium shall be equal to the greater of (A) one percent (1%) of the portion of the principal amount of this Note being repaid or (B) the product of (i) a fraction whose numerator is an amount equal to the portion of the principal balance of this Note being prepaid and whose denominator is the entire outstanding principal balance of this Note on the date of such prepayment (after subtracting the amount of any scheduled principal payment due on such Payment Date), multiplied by (ii) an amount equal to the remainder obtained by subtracting (x) an amount equal to the entire outstanding principal balance of this Note as of the date of such prepayment (after subtracting the amount of any scheduled principal payment due on such Payment Date) from (y) the present value as of the date of such prepayment of the remaining scheduled payments of principal and interest on this Note (including any final installment of principal payable on the Maturity Date) determined by discounting such payments at the Discount Rate (as hereinafter defined). For purposes of this Note: (x) "Discount Rate" shall mean the rate which, when compounded monthly, is equivalent to the Treasury Rate (defined below); and (y) "Treasury Rate" shall mean the yield calculated by the linear interpolation of the yield, as reported in Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading "U.S. government securities/Treasury constant maturities" for the week ending prior to the date of the relevant prepayment of this Note, of U.S. Treasury constant maturities with a maturity date (one longer and one shorter) most nearly approximating the Maturity Date of this Note. In the event Release H.15 is no longer published, the Payee shall select a comparable publication to determine the Treasury Rate. EXHIBIT 1 Amounts due on this note shall be payable to Fleet Real Estate Capital, Inc. at the following address: Fleet Real Estate Capital, Inc. 4275 Executive Square Suite 200 La Jolla, CA 92037 Loan No.: 55-9509027 -----END PRIVACY-ENHANCED MESSAGE-----