-----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, VlR1k8ccofdnU+QONxTL6H2fNoGqeIqsCoqgxkZhXSG8bZZHxRgR3BXLRz3bhz2t oX5Z6ypuAYiuB0FIHVGScQ== 0000312812-98-000006.txt : 19980817 0000312812-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000312812-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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-Q SEC ACT: SEC FILE NUMBER: 000-09325 FILM NUMBER: 98688224 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 600 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 ------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-9325 ------- 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 600, LB70, Dallas, Texas 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (972) 448-5800 ---------------------------- Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- McNEIL REAL ESTATE FUND X, LTD. BALANCE SHEETS (Unaudited)
June 30, December 31, 1998 1997 ------------ ------------ ASSETS - ------ Real estate investments: Land .................................................. $ 8,836,046 $ 8,836,046 Buildings and improvements ............................ 72,817,331 72,544,744 ------------ ------------ 81,653,377 81,380,790 Less: Accumulated depreciation ....................... (54,385,924) (52,814,364) ------------ ------------ 27,267,453 28,566,426 Cash and cash equivalents ................................ 1,949,283 5,755,976 Cash segregated for security deposits .................... 383,620 358,396 Accounts receivable ...................................... 458,414 356,496 Prepaid expenses and other assets ........................ 205,957 212,031 Escrow deposits .......................................... 1,038,178 816,017 Deferred borrowing costs, net of accumulated amortization of $507,696 and $452,021 at June 30, 1998 and December 31, 1997, respectively .......................................... 1,053,026 1,047,074 ------------ ------------ $ 32,355,931 $ 37,112,416 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------- Mortgage notes payable, net .............................. $ 36,473,177 $ 33,633,574 Mortgage notes payable - affiliates ...................... - 3,136,029 Accounts payable ......................................... 609 76,689 Accrued interest ......................................... 241,736 244,393 Accrued interest - affiliates ............................ - 24,977 Accrued property taxes ................................... 588,412 470,105 Other accrued expenses ................................... 271,171 296,729 Payable to affiliates - General Partner .................. 2,355,886 1,858,835 Security deposits and deferred rental revenue ............ 399,345 417,110 ------------ ------------ 40,330,336 40,158,441 ------------ ------------ Partners' equity (deficit): Limited partners - 135,200 limited partnership units authorized; 134,980 limited partnership units outstanding at June 30, 1998 and December 31, 1997 .. (2,875,033) 1,607,681 General Partner ....................................... (5,099,372) (4,653,706) ------------ ------------ (7,974,405) (3,046,025) ------------ ------------ $ 32,355,931 $ 37,112,416 ============ ============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenue: Rental revenue ................. $ 3,682,914 $ 3,934,244 $ 7,358,692 $ 7,861,065 Interest ....................... 28,049 57,385 87,273 105,040 Gain on involuntary conversion ................... - 65,800 - 65,800 Gain on sale of real estate .... - 2,912,440 - 2,912,440 ----------- ----------- ----------- ----------- Total revenue ................ 3,710,963 6,969,869 7,445,965 10,944,345 ----------- ----------- ----------- ----------- Expenses: Interest ....................... 769,667 895,534 1,543,355 1,842,299 Interest - affiliates .......... 64,809 74,577 138,269 111,565 Depreciation and amortization ................. 786,932 776,877 1,571,560 1,541,154 Property taxes ................. 241,662 263,423 483,324 539,165 Personnel expenses ............. 428,801 401,503 908,248 885,363 Utilities ...................... 278,440 285,125 605,895 652,821 Repair and maintenance ......... 478,995 521,401 867,096 962,719 Property management fees - affiliates ............ 184,603 191,450 364,114 384,516 Other property operating expenses ..................... 172,137 240,823 387,302 491,153 General and administrative ..... 187,215 63,373 379,074 148,670 General and administrative - affiliates ................... 96,756 98,342 179,534 192,691 ----------- ----------- ----------- ----------- Total expenses ............... 3,690,017 3,812,428 7,427,771 7,752,116 ----------- ----------- ----------- ----------- Income before extraordinary item... 20,946 3,157,441 18,194 3,192,229 Extraordinary gain on extinguishment of debt ......... - 533,764 - 533,764 ----------- ----------- ----------- ----------- Net income ........................ $ 20,946 $ 3,961,205 $ 18,194 $ 3,725,993 =========== =========== =========== =========== Net income allocated to limited partners ............ $ 19,898 $ 3,506,644 $ 17,284 $ 3,539,693 Net income allocated to General Partner ............. 1,048 184,561 910 186,300 ----------- ----------- ----------- ----------- Net income ........................ $ 20,946 $ 3,691,205 $ 18,194 $ 3,725,993 =========== =========== =========== =========== Net income per limited partnership unit: Income before extraordinary item ........... $ .15 $ 22.22 $ .13 $ 22.46 Extraordinary gain on extinguishment of debt ....... - 3.76 - 3.76 ----------- ----------- ----------- ----------- Net income ........................ $ .15 $ 25.98 $ .13 $ 26.22 =========== =========== =========== =========== Distributions per limited partnership unit ............... $ - $ - $ 33.34 $ - =========== =========== =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) (Unaudited) For the Six Months Ended June 30, 1998 and 1997
Total Partners' General Limited Equity Partner Partners (Deficit) -------------- -------------- -------------- Balance at December 31, 1996.............. $ (5,516,007) $ (704,049) $ (6,220,056) Net income................................ 186,300 3,539,693 3,725,993 Management Incentive Distribution......... (476,399) - (476,399) ------------- ------------- ------------- Balance at June 30, 1997.................. $ (5,806,106) $ (2,835,644) $ (2,970,462) ============= ============= ============= Balance at December 31, 1997.............. $ (4,653,706) $ 1,607,681 $ (3,046,025) Net income................................ 910 17,284 18,194 Distribution to limited partners.......... - (4,499,998) (4,499,998) Management Incentive Distribution......... (446,576) - (446,576) ------------- ------------- ------------- Balance at June 30, 1998.................. $ (5,099,372) $ (2,875,033) $ (7,974,405) ============= ============= =============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Six Months Ended June 30, -------------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Cash received from tenants ........................ $ 7,225,957 $ 7,878,777 Cash paid to suppliers ............................ (3,350,776) (3,201,765) Cash paid to affiliates ........................... (493,173) (1,326,555) Interest received ................................. 87,273 105,040 Interest paid ..................................... (1,459,749) (1,773,870) Interest paid to affiliates ....................... (163,246) (93,213) Property taxes paid and escrowed .................. (491,753) (434,999) ----------- ----------- Net cash provided by operating activities ............ 1,354,533 1,153,415 ----------- ----------- Cash flows from investing activities: Additions to real estate investments .............. (272,587) (505,246) Additions to assets held for sale ................. - (3,144) Proceeds from sale of real estate ................. - 5,234,654 ----------- ----------- Net cash provided by (used in) investing activities... (272,587) 4,726,264 ----------- ----------- Cash flows from financing activities: Proceeds from mortgage note payable - affiliate.... - 495,838 Retirement of mortgage note payable - affiliate.... (3,136,029) - Principal payments on mortgage notes payable....... (375,985) (473,942) Net proceeds from mortgage note payable ........... 3,185,000 - Retirement of mortgage note payable ............... - (3,058,762) Additions to deferred borrowing costs ............. (61,627) - Distributions to limited partners ................. (4,499,998) - ----------- ----------- Net cash used in financing activities ................ (4,888,639) (3,036,866) ----------- ----------- Net increase (decrease) in cash and cash equivalents .................................. (3,806,693) 2,842,813 Cash and cash equivalents at beginning of period ............................................ 5,755,976 2,660,679 ----------- ----------- Cash and cash equivalents at end of period ........... $ 1,949,283 $ 5,503,492 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Income to Net Cash Provided By Operating Activities
Six Months Ended June 30, ------------------------------- 1998 1997 ----------- ----------- Net income ............................................. $ 18,194 $ 3,725,993 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ....................... 1,571,560 1,541,154 Amortization of discounts on mortgage notes payable ..................................... 30,588 51,786 Amortization of deferred borrowing costs ............ 55,675 65,365 Gain on sale of real estate ......................... - (2,912,440) Extraordinary gain on extinguishment of debt ........ - (533,764) Changes in assets and liabilities: Cash segregated for security deposits ............. (25,224) (38,499) Accounts receivable ............................... (101,918) 17,129 Prepaid expenses and other assets ................. 6,074 12,753 Escrow deposits ................................... (222,161) (11,749) Accounts payable .................................. (76,080) (45,203) Accrued interest .................................. (2,657) (48,722) Accrued interest - affiliates ..................... (24,977) 18,352 Accrued property taxes ............................ 118,307 126,204 Other accrued expenses ............................ (25,558) (20,936) Deferred gain on involuntary conversion ........... - (65,800) Payable to affiliates - General Partner ........... 50,475 (749,348) Security deposits and deferred rental revenue ......................................... (17,765) 21,140 ----------- ----------- Total adjustments ............................... 1,336,339 (2,572,578) ----------- ----------- Net cash provided by operating activities .............. $ 1,354,533 $ 1,153,415 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. Notes to Financial Statements (Unaudited) June 30, 1998 NOTE 1. - ------- McNeil Real Estate Fund X, Ltd. (the "Partnership") is a limited partnership organized under the laws of the State of California to invest in real property. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The Partnership is governed by an agreement of limited partnership (the "Amended Partnership Agreement") that was adopted October 9, 1991. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the quarter ended June 30, 1998, are not necessarily indicative of the results to be expected for the year ending December 31, 1998. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund X, Ltd., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. NOTE 3. - ------- The Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's residential and commercial properties and leasing services for its residential properties. McREMI may also choose to provide leasing services for the Partnership's commercial properties, in which case McREMI will receive property management fees from such commercial properties equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under terms of the Amended Partnership Agreement, the Partnership is paying a Management Incentive Distribution ("MID") to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. 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. MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income, as defined (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. Any amount of the MID that is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. On August 1, 1994, the Partnership obtained an $800,000 mortgage loan from McNeil Real Estate Fund XXVII, L.P. ("Fund XXVII"), an affiliate of the General Partner. The mortgage loan was secured by a second lien on Lakeview Plaza. Terms of the mortgage loan required monthly interest-only payments equal to the prime lending rate of Bank of America plus 1% with the principal balance due August 1, 1997. Effective August 1, 1997, Fund XXVII reconveyed the lien back to the Partnership in consideration of the additional borrowing discussed in the following paragraph. On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 mortgage loan from Fund XXVII. See Note 4. Effective August 1, 1997, the Partnership borrowed an additional $800,000 from Fund XXVII. The refinancing and the additional borrowing were both secured by a lien on La Plaza Office Building. Payment terms for the mortgage note and the additional borrowing required monthly interest-only payments equal to 1% plus the prime lending rate of Bank of America. The new mortgage note, together with the additional borrowing, was to mature on February 28, 2000. On June 18, 1998, the Partnership refinanced the La Plaza mortgage note due to Fund XXVII with a $3,785,000 mortgage loan from an unaffiliated lender. See Note 5. Compensation, reimbursements and distributions paid to or accrued for the benefit of the General Partner and its affiliates are as follows: Six Months Ended June 30, ----------------------- 1998 1997 -------- -------- Property management fees - affiliates ........... $364,114 $384,516 Interest - affiliates ........................... 138,269 111,565 Charged to general and administrative affiliates: Partnership administration .................... 179,534 192,691 -------- -------- $681,917 $688,772 ======== ======== Charged to General Partner's deficit: Management Incentive Distribution ............. $446,576 $476,399 ======== ======== NOTE 4. - ------- On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 mortgage note from Fund XXVII. The new mortgage note bears interest at a variable rate equal to 1% plus the prime lending rate of Bank of America and requires monthly interest-only debt service payments until the February 28, 2000 maturity date. Cash used to close the refinancing transaction is shown below. New loan proceeds...................................... $ 2,336,029 Amount required to payoff existing debt................ (2,373,955) ----------- Cash used to refinance mortgage note................... $ (37,926) =========== On August 1, 1997, the new La Plaza mortgage note was amended to increase the principal amount by $800,000. The Partnership used the $800,000 additional borrowing to repay the Lakeview Plaza second mortgage note which was also due to Fund XXVII. See also Note 5. NOTE 5. - ------- On June 18, 1998, the Partnership refinanced the La Plaza mortgage note with a $3,785,000 mortgage note from an unaffiliated lender. However, only $3,185,000 of the mortgage note has been funded by the lender. The remaining $600,000 of loan proceeds will be funded to the Partnership as required for the completion of tenant improvements at La Plaza Office Building, if such tenant improvements are needed to induce prospective or current tenants to lease or release space at the property. Proceeds from the new mortgage note were used to retire the mortgage note and additional borrowing due to Fund XXVII discussed in Note 4 above. The new mortgage note bears interest at a variable rate equal to 1.75% plus the London Interbank Offered Rate per annum. The new mortgage note requires monthly interest-only payments and quarterly principal payments in an amount necessary to reduce the principal balance of the note by 5% annually. The maturity of the new mortgage note is June 18, 2001. Cash proceeds from the refinancing transaction are as follows: New loan proceeds...................................... $ 3,785,000 Capital improvement escrow............................. (600,000) Amount required to payoff existing debt................ (3,136,029) ----------- Cash proceeds from refinancing......................... $ 48,971 =========== The Partnership incurred $61,627 of deferred borrowing costs related to the refinancing of the La Plaza mortgage note. NOTE 6. - ------- On June 5, 1997, the Partnership sold Cave Spring Corners Shopping Center to an unaffiliated purchaser for a cash sales price of $5,250,000. Cave Spring Corners Shopping Center is located in Roanoke, Virginia. Cash proceeds from this transaction, as well as the gain on sale are detailed below.
Gain on Sale Cash Proceeds -------------- ------------- Cash sales price....................................... $ 5,250,000 $ 5,250,000 Selling costs.......................................... (15,346) (15,346) Deferred borrowing costs written off................... (3,901) Straight-line rent receivables written off............. (33,977) Prepaid leasing commissions written off................ (25,232) Basis of real estate sold.............................. (2,259,104) ------------- Gain on sale........................................... $ 2,912,440 ============= ------------ Proceeds from sale of real estate...................... 5,234,654 Retirement of mortgage note............................ (3,058,762) ----------- Net cash proceeds...................................... $ 2,175,892 ===========
NOTE 7. - ------- On March 31, 1996, a fire destroyed or damaged 16 units and 2 laundry rooms at Regency Park Apartments. The total cost to repair the fire damage was $530,148. The Partnership's insurance carrier reimbursed the Partnership for all costs incurred as a result of the fire less a standard deductible. The excess of cash received over the basis of the property destroyed in the fire resulted in a $350,927 gain on involuntary conversion. Because only part of the insurance proceeds were received by December 31, 1996, only $285,127 of the gain on involuntary conversion was recognized on the Partnership's Statement of Operations for the year ended December 31, 1996. The remainder of the gain was shown as a $65,800 deferred gain on involuntary conversion on the Partnership's December 31, 1996 Balance Sheet. The $65,800 deferred gain was recognized in 1997 as a gain on involuntary conversion when the Partnership received the remaining proceeds of $96,303 from its insurance carrier. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- The Partnership was formed to acquire, operate and ultimately dispose of a portfolio of income-producing real properties. As of June 30, 1998, the Partnership owned seven apartment buildings, one retail shopping center and one office building. All of the Partnership's properties are subject to mortgage indebtedness. The Partnership sold two retail shopping centers during 1997. Cave Spring Corners, located in Roanoke, Virginia, was sold on June 5, 1997, and Iberia Plaza, located in New Iberia, Louisiana, was sold on December 12, 1997. The decision to sell the properties was influenced by the General Partner's belief that the appreciation potential of the two properties was limited, the impending maturities of the mortgage notes secured by the two properties, and by the Partnership's announced plan to liquidate its real estate by December 2001. The net proceeds from the sales, in the amount of $3,679,598, were added to the Partnership's balance of cash reserves. On June 18, 1998, the Partnership refinanced the La Plaza mortgage note. The Partnership obtained a 3-year, $3,785,000 mortgage note from an unaffiliated lender, of which $3,185,000 has been funded by the lender. The outstanding balance of the new mortgage note bears interest at a variable rate equal to 1.75% plus the London Interbank Offered Rate per annum. The new note requires monthly interest-only payments and quarterly principal payments in an amount necessary to reduce the principal balance of the note by 5% annually. The maturity of the new mortgage note is June 18, 2001. RESULTS OF OPERATIONS - --------------------- The Partnership reported a net income of $20,946 and $18,194 for the three month and six month periods ended June 30, 1998, as compared to net income of $3,961,205 and $3,725,993 for the same periods of 1997. However, net income for the 1997 periods includes the $2,912,440 gain on the sale of Cave Spring Corners, a $533,746 extraordinary gain on extinguishment of debt, a $65,800 gain on involuntary conversion, as well as results of operations from Cave Spring Corners and Iberia Plaza, properties that the Partnership sold during 1997. After adjusting results of operations for these items, and removing certain residual expenses pertaining to Cave Spring Corners and Iberia Plaza from results of operations for 1998, the Partnership recorded net income of $22,864 for the first six months of 1998 as compared to a loss of $50,863 for the first six months of 1997. Revenues: Rental revenue decreased 6.4% for both the three month and six month periods ended June 30, 1998 as compared to the same periods of 1997. The decrease is primarily attributable to the loss of revenues from Cave Spring Corners and Iberia Plaza. The Partnership's remaining properties increased their rental revenues $166,194 or 2.3% for the six month period ended June 30, 1998 as compared to the same period of 1997. Rental revenues increased at five of the Partnership's nine properties. Briarwood Apartments, Coppermill Apartments, Quail Meadows Apartments, Sandpiper Apartments and Spanish Oaks Apartments all reported increases in both rental and occupancy rates. On a percentage basis, the increases amounted to 10.6%, 7.6%, 11.9%, 4.1% and 5.9%, respectively. Orchard Apartments and Regency Park Apartments also increased their rental rates, but increased vacancy losses more than offset the increased rental rates leading to a 5.4% and 1.5% decrease in rental revenue at the two properties. The Partnership's two remaining commercial properties, La Plaza Office Building and Lakeview Plaza, both recorded decreased rental revenue. Decreased occupancy at La Plaza Office Building resulted in a 6.3% decrease in rental revenue at the Las Vegas property. Lakeview Plaza encountered both decreased rental rates and occupancy rates as the Lexington property reported a 14.3% decrease in rental revenue. Interest revenue of the Partnership decreased 51% and 17% for the three month and six month periods ended June 30, 1998 as compared to the same periods of 1997. Interest revenue decreased because the Partnership had decreased amounts of cash invested in interest-bearing accounts. Revenues for the second quarter of 1997 also included a $2,912,440 gain on the June 5, 1997 sale of Cave Spring Corners and a $65,800 gain on involuntary conversion related to a 1996 fire at Regency Park Apartments. No such events occurred during the first six months of 1998. Expenses: Partnership expenses decreased 3.2% and 4.2% for the three month and six month periods ended June 30, 1998 as compared to the same periods of 1997. As with rental revenues, the decrease was primarily due to the 1997 sale of Cave Spring Corners and Iberia Plaza. Expenses at the remainder of the Partnership's properties increased $74,800 or 1.0% for the six month period. The discussion of expenses in the following paragraphs excludes expenses related to Cave Spring Corners and Iberia Plaza. Significant changes in expense items include an increase in interest paid to affiliates, other operating expenses, and general and administrative expenses. Although total interest expense at the Partnership's remaining properties decreased $50,091 or 2.9% for the first six months of 1998, the allocation of interest expense between non-affiliates and affiliates changed such that interest paid to affiliates increased $26,704 or 24% for the six months ended June 30, 1998, but decreased $9,678 or 13.1% for the three months ended June 30, 1998. The La Plaza mortgage note was refinanced on February 28, 1997 from a non-affiliate lender to an affiliated lender. The affiliate mortgage remained in place until the note was again refinanced with a non-affiliate on June 18, 1998. Other operating expenses at the Partnership's remaining properties decreased $75,894 or 16.6% for the first six months of 1998 as compared to the same period of 1997. Included in other operating expenses for the second quarter of 1997 were certain legal fees and other costs incurred at Briarwood Apartments. These fees and costs were incurred to settle litigation involving a former employee of the property. General and administrative expenses increased $123,842 to $187,215 and $230,404 to $379,074 for the three month and six month periods ended June 30, 1998 as compared to the same periods of 1997. The increase was due to costs incurred to explore alternatives to maximize the value of the Partnership (see Liquidity and Capital Resources. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- For the second quarter of 1998, cash flow provided by operating activities increased 17.4% to $1,354,533. The increased cash flow is principally due to an $833,382 decrease in cash paid to affiliates and a $314,121 decrease in interest paid to non-affiliates. The Partnership paid $944,226 of reimbursable costs to affiliates of the General Partner during the first six months of 1997, but paid only $148,732 of such reimbursements for the same period of 1998. Short-term liquidity: At June 30, 1998, the Partnership held cash reserves of $1,949,283, a decrease of $3,806,693 from the balance at the end of 1997. On March 30, 1998, the Partnership distributed $4,499,998 to the limited partners. No payments of MID have yet been made to the General Partner in 1998. Considering the current performance of the Partnership's properties and budgeted capital improvements for 1998, the General Partner considers the current balance of cash and cash reserves adequate to meet the Partnership's cash needs for the rest of 1998. The next balloon payment on the Partnership's mortgage notes is not scheduled to occur until June 2001. The Partnership continues to invest in capital improvements for its properties. For the first six months of 1998, the Partnership invested $272,587 in capital improvements. A total of $1.6 million of capital improvements are budgeted for 1998. The largest capital improvement project will be tenant improvements at the La Plaza Office Building, if the Partnership executes a new lease with a major tenant that requires substantial tenant improvements. The new La Plaza mortgage note contains a commitment by the lender to lend up to $3,785,000. The amount of the loan funded to date is only $3,185,000. The lender will fund the remaining $600,000 to provide for tenant improvements necessary at La Plaza, if the Partnership signs a lease with a major tenant that requires the Partnership to make such tenant improvements. Long-term liquidity: For the long-term, property operations will remain the primary source of funds. In this regard, the General Partner expects that the capital improvements made by the Partnership during the past several years will yield improved cash flow from property operations in the future. Furthermore, the General Partner has budgeted an additional $1.6 million of capital improvements for 1998. 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 previously announced, the Partnership has retained PaineWebber ("PaineWebber"), Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, has provided financial and other information to interested parties and is currently conducting discussions with one such party in an attempt to reach a definitive agreement with respect to a sale transaction. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance that any such agreement will be reached nor the terms thereof. Income Allocations and Distributions: Terms of the Amended Partnership Agreement specify that income before depreciation is allocated to the General Partner to the extent of MID paid in cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and the General Partner, respectively. Therefore, for the six month periods ended June 30, 1998 and 1997, the General Partner received allocations of net income of $910 and $186,300, respectively. The limited partners received allocations of net income of $17,284 and $3,539,693, respectively. No payments of MID to the General Partner have yet been paid during 1998. On March 30, 1998, the Partnership distributed $4,499,998 ($33.34 per limited partnership unit) to the limited partners. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support distributions to the limited partners and payments of MID to the General Partner. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after June 30, 1998. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties, and respond to changing economic and competitive factors. Other Information: Management has begun to review its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. The Partnership is in the process of evaluating the computer systems at the various properties. The Partnership also intends to communicate with suppliers, financial institutions and others to coordinate year 2000 issues. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case has been stayed pending settlement discussions. While actively working toward a final resolution, there can be no assurances regarding settlement. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- --------------------------------' (a) Exhibits. Exhibit Number Description ------- ----------- 4. Amended and Restated Partnership Agreement, dated October 9, 1991 (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1991). 11. Statement regarding computation of net loss per limited partnership unit: Net loss per limited partnership unit is computed by dividing net loss allocated to the limited partners by the number of limited partnership units outstanding. Per unit information has been computed based on 134,980 limited partnership units outstanding in 1998 and 1997. 27. Financial Data Schedule for the quarter ended June 30, 1998. Registrant has omitted instruments with respect to long-term debt where the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Registrant. Registrant agrees to furnish a copy of each such instruments to the Commission upon request. (b) Reports on Form 8-K. There were no Form 8-K's file during the quarter ended June 30, 1998. McNEIL REAL ESTATE FUND X, LTD. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: McNEIL REAL ESTATE FUND X, LTD. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner August 14, 1998 By: /s/ Ron K. Taylor - --------------- ----------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) August 14, 1998 By: /s/ Brandon K. Flaming - --------------- ----------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 6-MOS DEC-31-1998 JUN-30-1998 1,949,283 0 0 0 0 0 81,653,377 (54,385,924) 32,355,931 0 36,473,177 0 0 0 0 32,355,931 7,358,692 7,445,965 0 0 5,746,147 0 1,681,624 18,194 0 0 0 0 0 18,194 0 0
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