-----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, P798tApbkZ9u1MmA1WaP2GZFUmny78CBnzachDI0Ns7IIhe81UgahThxqZBsAYux XM9OMSNA0GqhXLpgu5cvVQ== 0000312812-98-000002.txt : 19980331 0000312812-98-000002.hdr.sgml : 19980331 ACCESSION NUMBER: 0000312812-98-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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: SEC FILE NUMBER: 000-09325 FILM NUMBER: 98579174 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-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, 1997 ------------------------------------------------ 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 ----------------------------- 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 ] 133,248 of the registrant's 134,980 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 44 TOTAL OF 48 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized on 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 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 600, 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 220 Units between 1993 and 1996, leaving 134,980 Units outstanding at December 31, 1997. 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, were sold or liquidated for the benefit of creditors. In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990 providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio. On February 14, 1991, pursuant to the asset purchase agreement as amended on that date: (a) an affiliate of McNeil purchased the Corporate General Partner's economic interest in the Partnership; (b) McNeil became the managing general partner of the Partnership pursuant to an agreement with the Corporate General Partner that delegated management authority to McNeil; and (c) McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates and commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates. On 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, 1997, the Partnership owned nine 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: Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof. Competitive Conditions: Since the principal business of the Partnership is to own and operate real estate, the Partnership is subject to all of the risks incident to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and Federal or local economic or rent controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changed circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership) in connection with the sale, financing and leasing of properties. The impact of these risks on the Partnership, including losses from operations and foreclosures of the Partnership's properties, is described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. See Item 2 - Properties for a discussion of competitive conditions at the Partnership's properties. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after December 31, 1997. 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. Environmental Matters: 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. Other Information: In August 1995, High River Limited Partnership, a Delaware limited partnership controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $72 per Unit. In September 1996, High River made another unsolicited tender offer to purchase any and all of the outstanding Units of the Partnership for a purchase price of $85.50 per Unit. In addition, High River made unsolicited tender offers for certain other partnerships controlled by the General Partner. The Partnership recommended that the limited partners reject the tender offers made with respect to the Partnership and not tender their Units. The General Partner believes that as of January 31, 1998, High River has purchased 8.8% of the outstanding Units pursuant to the tender offers. In addition, all litigation filed by High River, Mr. Icahn and his affiliates in connection with the tender offers has been dismissed without prejudice. 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. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1997. 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 Notes 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 1997 Date Property Description of Property Debt Property Tax Acquired - -------- ----------- ----------- ---- ------------ -------- Real Estate Investments: Briarwood (1) Apartments Tucson, AZ 196 units $ 1,796,412 $ 2,085,745 $ 55,440 07/80 Coppermill (2) Apartments Tulsa, OK 544 units 3,496,112 4,962,725 91,866 10/80 La Plaza Office Building Las Vegas, NV 105,500 sq. ft. 4,740,655 3,136,029 63,301 09/80 Lakeview Plaza Retail Center Lexington, KY 172,252 sq. ft. 3,488,111 3,119,519 74,252 07/80 Orchard (3) Apartments Lawrence, IN 378 units 3,194,711 6,072,238 231,467 12/80 Quail Meadows (4) Apartments Wichita, KS 440 units 4,036,535 5,754,137 69,133 06/80 Regency Park (5) Apartments Ft. Wayne, IN 226 units 1,970,586 2,355,844 134,145 06/80 Sandpiper (6) Apartments Westminster, CO 360 units 3,526,993 5,350,389 60,008 04/80 Spanish Oaks (7) Apartments San Antonio, TX 239 units 2,316,311 3,932,977 124,223 08/80 --------------- ------------- --------- $ 28,566,426 $ 36,769,603 $ 903,835 =============== ============= =========
- ---------------------------------------- Total: Apartments - 2,383 units Retail Center - 172,252 sq. ft. Office Building - 105,500 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) Spanish Oaks Apartments is owned by Spanish Fund X, Ltd., which is wholly-owned by the Partnership. The following table sets forth the occupancy rates and rent per square foot of the Partnership's properties for each of the last five years:
1997 1996 1995 1994 1993 ------------- ------------- -------------- ------------- ------- Briarwood Occupancy Rate............ 95% 84% 92% 99% 99% Rent Per Square Foot...... $9.57 $9.34 $9.91 $9.62 $8.58 Coppermill Occupancy Rate............ 92% 89% 94% 92% 92% Rent Per Square Foot...... $6.01 $5.74 $5.46 $5.28 $4.99 La Plaza Occupancy Rate............ 78% 88% 77% 97% 99% Rent Per Square Foot...... $13.06 $12.41 $10.10 $13.97 $12.56 Lakeview Plaza Occupancy Rate............ 92% 99% 98% 100% 100% Rent Per Square Foot...... $5.26 $5.55 $4.71 $5.69 $5.35 Orchard Occupancy Rate............ 86% 93% 98% 94% 93% Rent Per Square Foot...... $7.26 $7.40 $7.25 $6.95 $6.24 Quail Meadows Occupancy Rate............ 97% 91% 94% 89% 77% Rent Per Square Foot...... $6.65 $6.21 $5.80 $5.62 $5.53 Regency Park Occupancy Rate............ 87% 89% 92% 94% 89% Rent Per Square Foot...... $5.49 $5.19 $5.45 $5.09 $4.46
1997 1996 1995 1994 1993 ------------- ------------- -------------- ------------- ------- Sandpiper Occupancy Rate............ 94% 96% 94% 95% 94% Rent Per Square Foot...... $9.83 $9.48 $9.29 $8.93 $8.33 Spanish Oaks Occupancy Rate............ 94% 87% 90% 91% 96% Rent Per Square Foot...... $6.13 $6.17 $6.18 $5.97 $5.64
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 - ------------------------------------ Briarwood Apartments - -------------------- Most of the tenants at Briarwood Apartments are students at nearby University of Arizona. Briarwood has an 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. After a two-year decline, the Tucson market began a recovery in the second half of 1997. Briarwood's year end occupancy rate improved to 95% at December 31, 1997, up from 84% a year earlier. New construction in the submarket has ceased, except for dormitory rooms being added by the University of Arizona. Briarwood's excellent location helps the property absorb market fluctuations better than most of its competitors. Coppermill Apartments - --------------------- The average occupancy rate at Coppermill Apartments is 92%, slightly less than the local area average of 93 to 94%. 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. Management is working to differentiate Coppermill's units by upgrading interior fixtures and appliances. Major road work is expected to commence this summer in front of Coppermill. The road work is expected to completely block the two main entrances to the property. As a result, occupancy rates are expected to decrease as prospective and current tenants will find it difficult to get to the property. The road work is expected to last until the summer of 1999. La Plaza Business Center - ------------------------ The average occupancy rate for La Plaza Business Center was 85% for 1997. Year end occupancy fell to 78% after one tenant vacated its space in December. The Partnership plans an aggressive leasing program for 1998 aimed at increasing occupancy to 96% by year end. The Partnership continues to invest significant sums into capital improvements at La Plaza for tenant improvements, building code compliance, updating building interiors, and reconfiguring interior space. The investments will continue through 1998. 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 1998. New construction is aimed at the high-end of the market, and is not expected to compete with La Plaza. Lakeview Plaza - -------------- Lakeview Plaza's ideal location and good curb appeal have served the property well. Over the past two years, there has been significant turnover amongst the property's tenants. One of the two anchor tenant spaces was sublet to two tenants in 1996. Several other tenants have vacated their space or have indicated that they will when their respective leases expire. The local market area appears to be strong, with several national retailers opening new stores or announcing plans for new stores in the Lexington area. There are several, newer competing properties in close proximity to Lakeview Plaza. Orchard Apartments - ------------------ Reflecting a soft Indianapolis-area market, occupancy at Orchard Apartments decreased during 1997. Continued first-time home buying in 1998 as well as continued new apartment construction is expected to keep occupancy rates depressed during the coming year. Rental revenue, as a result, will likely not increase significantly in 1998. Due to good curb appeal and a favorable local reputation, Orchard Apartments is able to command rental rates slightly in excess of its competitors. Quail Meadows Apartments - ------------------------ 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. Quail Meadows has maintained occupancy rates higher than market averages. The Wichita economy is thriving with record employment levels. Quail Meadows is expected to maintain strong occupancy rates, and to increase rental rates during 1998. Some new apartment construction is under way in the Wichita area, but no new construction is planned for Quail Meadows' submarket. Regency Park Apartments - ----------------------- Occupancy rates at Regency Park Apartments have been negatively impacted by low interest rates and a strong single-family housing market. However, the capital improvements placed in service over the past several years have enabled Regency Park to be a solid performer in its market. The property competes with numerous properties, some of which are newer or have more appeal to prospective tenants. The rental market in the Ft. Wayne area, however, remains price sensitive. Improvements in operating results generally are coming through improved occupancy rather than rate increases. Sandpiper Apartments - -------------------- Capital improvements placed in service since 1992 have allowed Sandpiper Apartments to repeatedly increase its base rental rates. Occupancy and rental rates are above market averages. There is significant new construction under development in the metropolitan area, but only minimal construction is expected in Sandpiper's submarket. A well-maintained Sandpiper should be able to maintain high occupancy rates as well as periodically increase rental rates. Spanish Oaks Apartments - ----------------------- The average occupancy rate at Spanish Oaks Apartments has decreased to 90.5% during the past three years due to competition with new construction, older properties that have been renovated, and rate hikes at Spanish Oaks. Rental rates at Spanish Oaks remain below San Antonio 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 1998 through 2007:
Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- ------ ----------- Real Estate Investments: La Plaza 1998 18 17,494 $ 269,244 21% 1999 4 13,826 252,306 20% 2000 5 27,452 422,928 33% 2001 10 20,728 326,356 26% 2002-2007 0 - - - Lakeview Plaza 1998 4 10,677 97,171 13% 1999 2 6,071 59,196 8% 2000 3 3,479 36,923 5% 2001 1 6,165 72,500 10% 2002 0 - - - 2003 1 3,150 26,772 3% 2004 2 121,942 455,705 61% 2005-2007 0 - - -
No residential tenant leases 10% or more of the available rental space of any residential property. 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 - --------- -------------- ----------- ---------- La Plaza: Governmental agency 12,097 $226,053 1999 Lakeview Plaza: Discount department store 78,337 253,000 2004 Grocery store 43,605 202,705 2004
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) 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. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998. 2) The First National Bank of Chicago, as Trustee Under That Certain Pooling and Servicing Agreement Dated as of December 1, 1995, for Resolution Trust Corporation Commercial Mortgage Pass-Through Certificates, Series 1995-C2 v. McNeil Real Estate Fund X, Ltd., McNeil Partners, L.P. and McNeil Investors, Inc. - U.S. District Court, Northern District of Dallas, Dallas Division; Civil Action No. 33-96CV3198-D; and District Court, Dallas County, Texas, F-116th Judicial District; Case No.: 96-13066(P96014). The Plaintiffs are the holder of a certain Second Lien Wraparound Promissory Note ("Wraparound Note") secured by the Spanish Oaks Apartments. This action involves a dispute of the principal payoff amount on the Wraparound Note. The Plaintiffs contend that the payoff balance is $3,399,592; however, the Partnership has calculated the payoff balance to be significantly less. On January 26, 1996, the Partnership refinanced the Spanish Oaks Apartments. At that time, the $3,399,592 was escrowed with the American Title Company. The Plaintiffs claim that pursuant to the terms of the Wraparound Note, the Partnership owes the entire escrowed balance. The parties have been ordered to mediation before July 28, 1997. However, settlement was reached in this matter with $3,046,000 being paid to the Plaintiffs. A Compromise and Settlement Agreement and Release dated June 26, 1997 has been signed by all parties. An Order of Dismissal with prejudice was entered by the Judge. For discussion of the Southmark bankruptcy, see Item 1 - Business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND - ------- ------------------------------------------------------------ RELATED SECURITY HOLDER MATTERS ------------------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders Limited partnership units 6,323 as of January 31, 1998 (C) No distributions were paid to the limited partners in 1997 or 1996. During the last week of March 1998, the Partnership distributed $4,500,000 to limited partners of record as of March 1, 1998. The Partnership accrued distributions of $981,440 and $1,048,667 for the benefit of the General Partner for the years ended December 31, 1997 and 1996, respectively. These distributions are the Management Incentive Distribution ("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 continue 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 - Financial Statements and Supplementary Data.
Statements of Years Ended December 31, Operations 1997 1996 1995 1994 1993 - ------------------ -------------- ------------- -------------- ------------- ------------- Rental revenue............... $ 15,471,277 $ 16,089,109 $ 16,878,076 $ 17,375,904 $ 16,217,889 Gain on involuntary conversion.................. 65,800 285,127 - - 268,434 Gain on sales of real estate. 3,063,438 353,389 3,183,698 - - Total revenue................ 18,829,962 16,853,542 20,258,594 17,428,487 16,542,802 Income (loss) before extraordinary items......... 3,636,976 872,382 2,193,164 (1,199,904) (1,693,057) Extraordinary items.......... 518,495 269,596 - 292,539 (1,078,519) Net income (loss)............ 4,155,471 1,141,978 2,193,164 (907,365) (2,771,576) Net income (loss) per limited partnership unit: Income (loss) before extraordinary items........ $ 14.99 $ 6.14 $ 15.43 $ (10.25) $ (15.62) Extraordinary items......... 2.14 1.90 - 2.06 (7.58) -------------- ------------ ------------ ----------- ----------- Net income (loss)........... $ 17.13 $ 8.04 $ 15.43 $ (8.19) $ (23.20) ============== ============ ============ =========== ===========
As of December 31, Balance Sheets 1997 1996 1995 1994 1993 - -------------- ------------- ------------- -------------- ------------- ------------- Real estate investments, net... $ 28,566,426 $ 30,257,120 $ 36,699,530 $ 37,024,893 $ 45,705,474 Assets held for sale........... - 5,308,731 2,237,733 7,215,032 - Total assets................... 37,112,416 41,407,352 43,638,649 48,379,933 50,632,244 Mortgage notes payable, net.... 36,769,603 42,412,292 44,454,316 52,078,850 54,484,455 Partners' deficit.............. (3,046,025) (6,220,056) (6,313,367) (7,442,274) (5,900,107)
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. The Partnership sold the following properties during the five year period ended December 31, 1997. Property Date Sold -------- --------- Iberia Plaza December 12, 1997 Cave Springs Corners June 5, 1997 Parkway Plaza September 18, 1996 The Courts Apartments September 14, 1995 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. As of December 31, 1997, 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, and Iberia Plaza, located in New Iberia, Louisiana. 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 Partnership recorded a $3,063,438 gain on the sale of the two properties. Net proceeds from the sales, after repayment of the related mortgage notes, amounted to $3,679,598. The net proceeds from the sale were added to the Partnership's balance of cash reserves. On February 28, 1997, the Partnership refinanced the La Plaza mortgage note. The Partnership obtained a 3-year, $2,336,029 mortgage note from McNeil Real Estate Fund XXVII, L.P. ("Fund XXVII"). Fund XXVII is an affiliate of the General Partner. The new mortgage note bears interest at a variable rate equal to 1% plus the prime lending rate (9.5% at December 31, 1997). No net proceeds were realized from the refinancing. On August 1, 1997, the Partnership and Fund XXVII agreed to amend the new mortgage note by increasing the principal amount by $800,000. The additional $800,000 was used to repay the Lakeview Plaza second mortgage note, which was also due to Fund XXVII. On June 26, 1997, the Partnership resolved litigation regarding the disputed pay-off amount on the former Spanish Oaks mortgage note. The mortgage note had been refinanced in 1996, but the proceeds from the refinancing were placed in escrow until a dispute regarding the exact repayment amount could be resolved. In 1997, the Partnership and the holder of the former mortgage note agreed to settle the dispute for a cash payment of $3,046,000. All remaining escrowed funds and interest thereon, in the amount of $602,961, were released to the Partnership. In connection with this refinancing, the Partnership recognized an extraordinary gain on the extinguishment of debt of $518,495 and $269,596 in 1997 and 1996, respectively. RESULTS OF OPERATIONS - --------------------- 1997 compared to 1996 Revenue: Rental revenue decreased $617,832 or 3.8% for 1997 as compared to 1996. However, after excluding the effects of Cave Spring Corners, sold June 5, 1997, and Parkway Plaza, sold September 18, 1996, rental revenue at the remainder of the Partnership's properties increased $371,359 or 2.5% in 1997 as compared to 1996. Of the Partnership's nine remaining properties, rental revenue increased at six properties, was unchanged at one property, and decreased at two properties. Due to strong local markets, four of the Partnership's properties, Quail Meadows Apartments, Regency Park Apartments, Sandpiper Apartments and La Plaza Office Building, were able to increase both rental rates and decrease vacancy losses. Increased rental revenue at these four properties ranged from 3.7% to 6.6%. Coppermill Apartments was also able to increase its rental rates, but the increased rental rates were partially offset by an increase in vacancy losses. The Tulsa property recorded a net increase in rental revenue of 4.6%. Briarwood Apartments also increased its rental revenue, but the 2.5% increase in rental revenue at the Tucson property was the result of decreased vacancy losses partially offset by decreased rental rates. Increased rental rates at Spanish Oaks Apartments were offset by increases in discounts and concessions and by increased vacancy losses, resulting in an $8,773 decrease in rental revenue in 1997 as compared to 1996. Increased vacancy losses at Orchard Apartments, reflecting strong competitive pressures in the Indianapolis market, resulted in a 1.9% decrease in rental revenue. Decreased reimbursements for common area maintenance and property taxes, as well as decreased contingent rents resulted in a 5.3% decrease in rental revenue at Lakeview Plaza. Interest revenue increased 82% to $229,447 in 1997 as the Partnership had increased amounts of cash reserves invested in interest-bearing accounts as compared to 1996. The Partnership also reported $3,063,438 in gains on the sale of Cave Spring Corners and Iberia Plaza. In 1996, the Partnership reported a $353,389 gain on the sale of Parkway Plaza. Another non-recurring revenue item was the gain on involuntary conversion related to a fire at Regency Park Apartments. The gain amounted to $350,927, of which $65,800 was recognized in 1997, and $285,127 was recognized in 1996. Expenses: Total Partnership expenses decreased $788,174 or 4.9% in 1997 as compared to 1996. However, after excluding expenses related to Cave Spring Corners and Parkway Plaza, which were sold during the course of 1997 and 1996, Partnership expenses decreased $94,415 or 0.6%, in 1997 as compared to 1996. Iberia Plaza expenses are not excluded because Iberia Plaza was sold on December 12, 1997; essentially, a full year of Iberia Plaza expenses is included in 1997's figures. Interest paid to affiliates increased, while interest, general and administrative and general and administrative expenses paid to affiliates decreased. On February 28, 1997, the Partnership refinanced the La Plaza mortgage note due to an unaffiliated party with a $2,336,029 mortgage note due to an affiliate of the General Partner. The transfer of the La Plaza mortgage note from non-affiliate to affiliate status accounts for the $185,870 increase in interest expense due to affiliates as well as a $195,892 decrease in interest due to non-affiliates. The 1997 sales of Cave Spring Corners and Iberia Plaza, and the 1996 sale of Parkway Plaza resulted in a $419,723 decrease in interest expense. The remainder of the $716,788 decrease in interest expense results from regular monthly amortization of the Partnership's mortgage notes which gradually reduces the interest expense of the Partnership over time. General and administrative expenses decreased $124,699 or 29% in 1997 as compared to 1996. Expenses relating to unsolicited tender offers cost the Partnership $263,124 in 1996. Such expenses for 1997 decreased to only $20,849. Legal expenses increased $106,250 in 1997 as compared to 1996. $67,795 of the increase was attributable to costs incurred to litigate and settle a lawsuit regarding management of Briarwood Apartments. Also, investor relation services that had previously been provided by an affiliate of the General Partner were provided by an independent vendor in 1997. Such costs increased general and administrative expenses by $30,148 in 1997, and correspondingly, accounted for much of the $58,021 or 13.5% decrease in general and administrative expenses paid to affiliates. On June 26, 1997, the Partnership and the former Spanish Oaks mortgage note holder agreed to settle their dispute regarding the correct payoff amount of the former Spanish Oaks mortgage note that was refinanced during 1996. As a result of the settlement, the Partnership received $602,961, which after appropriate deductions for costs and related interest revenue, was recorded as a $518,495 extraordinary gain on extinguishment of debt. 1996 compared to 1995 Partnership net income decreased in 1996 to $1,141,978 from $2,193,164 in 1995. Included in net income for both years are gains on sale of real estate. Gains on sale of real estate amounted to $353,389 and $3,183,698 for the years 1996 and 1995, respectively. Partnership income from continuing property operations, excluding gains on sale of real estate and all other one-time transaction gains, increased to $233,866 in 1996 from a loss of $1,082,051 in 1995. The improved performance of the Partnership is attributable to the improving performance of the Partnership's properties generally, and to the elimination of rental operations at The Courts Apartments which was sold on September 14, 1995. Revenue: Rental revenue decreased $788,967 to $16,089,109 in 1996 compared to 1995. However, after excluding rental revenue attributable to Parkway Plaza and The Courts Apartments, the two Partnership properties sold during 1996 and 1995, the Partnership reported a $747,824 or 5.0% increase in rental revenue in 1996 compared to 1995. Rental revenue increased at four of the Partnership's seven residential properties. All of the residential properties increased base rental rates by small amounts except for Quail Meadows Apartments. The increases in base rental rates averaged 2.6%. Although Quail Meadows Apartments did not increase its base rental rates, an increase in average occupancy rates resulted in the Wichita property reporting the largest net increase in rental revenue of the Partnership's seven residential properties. Coppermill also reported an increase in average occupancy rates. Rate hikes at Orchard Apartments and Sandpiper Apartments were partially offset by decreased average occupancy rates. The decrease in occupancy at Briarwood Apartments more than offset a small rental rate increase. The Tucson property was competing in a soft market where new construction was not being fully absorbed. Rental revenue at Regency Park Apartments was adversely affected by a fire that destroyed 16 units, and the following reconstruction. Rental revenue was essentially unchanged at Spanish Oaks Apartments in 1996 compared to 1995. The Partnership's four commercial properties reported much larger increases in rental revenue than did the Partnership's residential properties. The increases were led by La Plaza Office Building. Rental revenue at La Plaza increased 23% in 1996. The increase was achieved through an increase in the occupancy rate from 77% at the end of 1995 to 88% at the end of 1996. The Partnership is in the process of reconfiguring the Las Vegas property, after the property's two largest tenants vacated their space in 1995, to take advantage of a strong market for office space in the Las Vegas market. The Partnership's three retail centers also posted increased rental revenue, largely through increased recoveries of operating expenses and property taxes from their respective tenants. Expenses: Partnership expenses decreased $2,084,270 or 11.5% in 1996 compared to 1995. Expenses decreased in all categories except for property taxes and general and administrative expenses. However, most of the decrease in expenses is due to the sale of The Courts Apartments and Parkway Plaza. Expenses incurred by the Partnership's remaining properties decreased $148,950 or 0.9% in 1996 compared to 1995. Every expense category changed by less than 5% at the remaining properties except for property taxes, general and administrative, and general and administrative expenses paid to affiliates. Property tax expense increased $147,776 or 17.1% at the eleven properties remaining in the Partnership's portfolio at the end of 1996. Property tax expense increased by more than 10% at five properties: Cave Spring Corners, Iberia Plaza, Lakeview Plaza, Regency Park Apartments and Spanish Oaks Apartments. Generally, the increases result from increased valuations placed on properties by local tax jurisdictions. Some of the change, particularly at Lakeview Plaza, results from adjustments to prior year taxes as a result of appeal proceedings. The Partnership was able to reduce Lakeview Plaza's 1994 property taxes as the result of a 1995 administrative hearing that reduced the property's assessed value. However, in 1996 the tax jurisdictions appealed and won a reversal of the decreased assessed value. General and administrative expenses increased $54,481 or 14.7% in 1996 compared to 1995. Expenses related to the evaluation and dissemination of information regarding an unsolicited tender offer increased $20,638 in 1996 compared to 1995. Also, the Partnership incurred a $23,139 increase in sales and use taxes paid to various states and a $13,000 increase in fees paid to appraisers. General and administrative expenses paid to affiliates decreased $239,503 or 36% in 1996 compared to 1995. Reimbursements charged to the Partnership decreased because of reduced expenses incurred by affiliates in managing the Partnership and other affiliated partnerships. Expenses also decreased because of the sale of Parkway Plaza and The Courts Apartments in 1996 and 1995, respectively. Expenses charged by affiliates have and will continue to decrease as the Partnership liquidates its portfolio of properties. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the three year period ended December 31, 1997, cash provided by the Partnership's operating activities totaled $10,350,875. Despite the sale of Cave Spring Corners and Iberia Plaza in 1997, and Parkway Plaza in 1996, cash flow from operating activities increased 4.9% in 1997 as compared to 1996. The sale of Cave Spring Corners and Iberia Plaza in 1997 provided cash proceeds of $8,530,207; however, $4,850,609 of that amount was used to retire the Cave Spring Corners and Iberia Plaza mortgage notes. The net sales proceeds were added to the Partnership's cash reserves. See Income Allocations and Distributions below. The Partnership continues to invest substantial resources into capital improvements at its properties. A total of $6,707,804 of improvements have been added to the Partnership's properties over the past three years. $518,922 of the improvements were reimbursed to the Partnership by its insurance carrier as a result of a fire that destroyed 16 units at Regency Park Apartments. An additional $1.6 million of capital improvements are budgeted for 1998. On February 28, 1997, the Partnership resolved the impending maturity of the La Plaza mortgage note by obtaining a $2,336,029 mortgage note from an affiliate of the General Partner. The new mortgage note bears interest at a variable rate currently equal to 9.5%, a decrease from the 10.125% interest rate of the former mortgage note. Payments on the new mortgage note are interest-only. On August 1, 1997, the Partnership amended the La Plaza mortgage note by increasing the principal balance by $800,000. The $800,000 proceeds were used to retire the $800,000 second mortgage note secured by Lakeview Plaza which matured on August 1, 1997. The Partnership did not realize any net cash proceeds from these financing transactions. The Partnership's next maturing mortgage note, the Coppermill mortgage note, does not mature until January 2002. MID payments to the General Partner, which had been suspended since the beginning of 1994, were resumed during 1997. The Partnership paid $2,000,000 of MID to the General Partner in 1997. See short-term liquidity below. Short-term liquidity: At December 31, 1997, the Partnership held cash and cash equivalents of $5,755,976, up $3,095,297 from the balance at the end of 1996. Cash reserves of the Partnership have increased significantly from the depressed levels at the end of 1994. The General Partner is continuing to take steps to increase the Partnership's liquidity. Some of these steps are discussed in the following paragraphs. Over the past three years, the Partnership has invested large amounts of funds in capital improvements at the Partnership's properties. Although significant challenges remain, total capital expenditures for 1998 are expected to decrease from the average amount expended in each of the past three years. The Partnership's capital improvement budget for 1998 amounts to $1.6 million. The largest capital projects of the Partnership will be concentrated at La Plaza Office Building as the property undergoes refurbishment to allow it to take advantage of a strong Las Vegas market. Beginning in 1994, the General Partner deferred collection of the MID. Because of the Partnership's improving cash position, MID payments were resumed in 1997. A MID payment of $2,000,000 was paid to the General Partner during 1997. As of December 31, 1997, $1,696,360 of MID remains accrued but unpaid. The General Partner anticipates additional MID payments during 1998 if the Partnership's properties continue to perform as anticipated. 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 $6.7 million of capital improvements made by the Partnership during the past three years will yield improved cash flow from property operations in the future. 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. Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to 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 the cumulative amount of MID paid for which no income allocation has previously been made. Depreciation is allocated in the ratio of 95:5 to the limited partners and the General Partner, respectively. Therefore, for each of the three years in the period ended December 31, 1997, net income of $1,843,741, $57,099 and $109,658, respectively, was allocated to the General Partner. The limited partners were allocated net income of $2,311,730, $1,084,879 and $2,083,506 for each of the three years in the period ended December 31, 1997, 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. In the last week of March 1998, the General Partner distributed $4,500,000 to limited partners of record as of March 1, 1998. Payments of MID were resumed in 1997. Such payments had been suspended since the beginning of 1994. The Partnership paid $2,000,000 of MID in 1997 to the General Partner. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support additional distributions to the limited partners and MID payments to the General Partner. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Page Number ------ INDEX TO FINANCIAL STATEMENTS Financial Statements: Report of Independent Public Accountants....................................... 19 Balance Sheets at December 31, 1997 and 1996................................... 20 Statements of Operations for each of the three years in the period ended December 31, 1997.............................................. 21 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1997................................. 22 Statements of Cash Flows for each of the three years in the period ended December 31, 1997.............................................. 23 Notes to Financial Statements.................................................. 25 Financial Statement Schedule: Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization............................................ 39
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, 1997 and 1996, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, 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 20, 1998 McNEIL REAL ESTATE FUND X, LTD. BALANCE SHEETS
December 31, ------------------------------------- 1997 1996 ---------------- ---------------- ASSETS - ------ Real estate investments: Land..................................................... $ 8,836,046 $ 8,836,046 Buildings and improvements............................... 72,544,744 71,110,263 -------------- ------------- 81,380,790 79,946,309 Less: Accumulated depreciation and amortization......... (52,814,364) (49,689,189) -------------- ------------- 28,566,426 30,257,120 Assets held for sale........................................ - 5,308,731 Cash and cash equivalents................................... 5,755,976 2,660,679 Cash segregated for security deposits....................... 358,396 301,259 Accounts receivable......................................... 356,496 575,995 Prepaid expenses and other assets........................... 212,031 329,136 Escrow deposits............................................. 816,017 802,841 Deferred borrowing costs, net of accumulated amortization of $452,021 and $438,719 at December 31, 1997 and 1996, respectively................. 1,047,074 1,171,591 -------------- ------------- $ 37,112,416 $ 41,407,352 ============== ============= LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage notes payable, net................................. $ 33,633,574 $ 41,612,292 Mortgage notes payable - affiliate.......................... 3,136,029 800,000 Accounts payable............................................ 76,689 61,356 Accrued property taxes...................................... 470,105 530,973 Accrued interest............................................ 244,393 309,977 Accrued interest - affiliate................................ 24,977 6,625 Other accrued expenses...................................... 296,729 309,981 Payable to affiliates - General Partner..................... 1,858,835 3,555,343 Deferred gain on involuntary conversion..................... - 65,800 Security deposits and deferred rental revenue............... 417,110 375,061 -------------- ------------- 40,158,441 47,627,408 -------------- ------------- Partners' equity (deficit) Limited partners - 135,200 limited partnership units authorized; 134,980 limited partnership units outstanding at December 31, 1997 and 1996, respectively........................................... 1,607,681 (704,049) General Partner.......................................... (4,653,706) (5,516,007) -------------- ------------- (3,046,025) (6,220,056) $ 37,112,416 $ 41,407,352 ============== =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ----------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Revenue: Rental revenue........................... $ 15,471,277 $ 16,089,109 $ 16,878,076 Interest................................. 229,447 125,917 105,303 Gain on sales of real estate............. 3,063,438 353,389 3,183,698 Gain on involuntary conversion........... 65,800 285,127 - Gain on legal settlement................. - - 91,517 ------------- ------------- -------------- Total revenue.......................... 18,829,962 16,853,542 20,258,594 ------------- ------------- -------------- Expenses: Interest................................. 3,488,193 4,204,981 4,980,917 Interest - affiliate..................... 260,785 74,915 78,822 Depreciation and amortization............ 3,125,175 3,232,454 3,567,913 Property taxes........................... 978,796 1,035,988 1,010,754 Personnel expenses....................... 1,740,917 1,694,914 1,950,309 Utilities................................ 1,267,432 1,231,498 1,368,713 Repairs and maintenance.................. 1,869,523 1,879,831 2,100,763 Property management fees - affiliates............................. 765,290 791,081 846,482 Other property operating expenses........ 1,023,196 979,099 1,119,336 General and administrative .............. 300,606 425,305 370,824 General and administrative - affiliates............................. 373,073 431,094 670,597 ------------- ------------- -------------- Total expenses......................... 15,192,986 15,981,160 18,065,430 ------------- ------------- -------------- Income before extraordinary items........... 3,636,976 872,382 2,193,164 Extraordinary items......................... 518,495 269,596 - ------------- ------------- -------------- Net income.................................. $ 4,155,471 $ 1,141,978 $ 2,193,164 ============= ============= ============== Net income allocated to limited partners................................. $ 2,311,730 $ 1,084,879 $ 2,083,506 Net income allocated to General Partner.................................. 1,843,741 57,099 109,658 ------------- ------------- -------------- Net income.................................. $ 4,155,471 $ 1,141,978 $ 2,193,164 ============= ============= ============== Net income per limited partnership unit: Income before extraordinary items........ $ 14.99 $ 6.14 $ 15.43 Extraordinary items...................... 2.14 1.90 - ------------- ------------- -------------- Net income per limited partnership unit................................... $ 17.13 $ 8.04 $ 15.43 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1997, 1996 and 1995
Total Partners' General Limited Equity Partner Partners (Deficit) ---------------- --------------- ----------------- Balance at December 31, 1994................ $ (3,569,840) $ (3,872,434) $ (7,442,274) Net income.................................. 109,658 2,083,506 2,193,164 Management Incentive Distribution........... (1,064,257) - (1,064,257) -------------- ------------- -------------- Balance at December 31, 1995................ (4,524,439) (1,788,928) (6,313,367) Net income.................................. 57,099 1,084,879 1,141,978 Management Incentive Distribution........... (1,048,667) - (1,048,667) -------------- ------------- -------------- Balance at December 31, 1996................ (5,516,007) (704,049) (6,220,056) Net income.................................. 1,843,741 2,311,730 4,155,471 Management Incentive Distribution........... (981,440) - (981,440) -------------- ------------- -------------- Balance at December 31, 1997................ $ (4,653,706) $ 1,607,681 $ (3,046,025) ============== ============= ==============
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, ---------------------------------------------------- 1997 1996 1995 --------------- --------------- --------------- Cash flows from operating activities: Cash received from tenants.................. $ 15,431,085 $ 16,001,867 $ 16,953,669 Cash paid to suppliers...................... (6,146,043) (6,361,556) (6,541,879) Cash paid to affiliates..................... (1,816,311) (1,622,989) (846,113) Interest received........................... 229,447 125,917 105,303 Interest paid............................... (3,331,353) (3,904,205) (4,593,039) Interest paid to affiliate.................. (242,433) (74,915) (77,403) Gain on legal settlement.................... - - 91,517 Property taxes paid and escrowed............ (943,837) (1,132,168) (953,686) ------------- ------------- -------------- Net cash provided by operating activities.................................. 3,180,555 3,031,951 4,138,369 ------------- ------------- -------------- Cash flows from investing activities: Additions to real estate investments and assets held for sale ................. (1,440,625) (2,328,129) (2,939,050) Proceeds from sale of real estate........... 8,530,207 2,958,375 7,905,804 Insurance proceeds for fire damage.......... 96,303 422,619 - ------------- ------------- --------------- Net cash provided by investing activities.................................. 7,185,885 1,052,865 4,966,754 ------------- ------------- -------------- Cash flows from financing activities: Net proceeds from refinancing mortgage note payable..................... 518,495 600,408 - Repayment of mortgage note payable.......... (2,373,955) - - Repayment of mortgage note payable - affiliate................................. (800,000) - - Proceeds from mortgage note payable - affiliate....................... 3,136,029 - - Retirement of mortgage notes due to sales of real estate...................... (4,850,609) (2,544,466) (6,616,231) Principal payments on mortgage notes payable................................... (901,103) (1,036,077) (1,184,440) Reduction of mortgage note payable.......... - (132,959) - Management Incentive Distribution paid...................................... (2,000,000) - - Deferred borrowing costs paid............... - (124,637) (65,447) ------------- ------------- -------------- Net cash used in financing activities.......... (7,271,143) (3,237,731) (7,866,118) ------------- ------------- -------------- Net increase in cash and cash equivalents.............................. 3,095,297 847,085 1,239,005 Cash and cash equivalents at beginning of year........................ 2,660,679 1,813,594 574,589 ------------- ------------- -------------- Cash and cash equivalents at end of year.............................. $ 5,755,976 $ 2,660,679 $ 1,813,594 ============= ============= ==============
See discussion of noncash investing and financing activity in Note 7 - "Sales of Real Estate," Note 8 "Refinancing of Mortgage Notes," Note 9 - "Gain on Extinguishment of Debt" and 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 to Net Cash Provided by Operating Activities
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- --------------- --------------- Net income................................. $ 4,155,471 $ 1,141,978 $ 2,193,164 ------------- -------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........... 3,125,175 3,232,454 3,567,913 Amortization of deferred borrowing costs................................. 118,853 132,377 146,047 Amortization of discounts on mortgage notes payable................ 103,571 144,886 176,137 Gain on sales of real estate............ (3,063,438) (353,389) (3,183,698) Gain on involuntary conversion.......... (65,800) (285,127) - Extraordinary items..................... (518,495) (269,596) - Changes in assets and liabilities: Cash segregated for security deposits............................ (57,137) 16,575 93,211 Accounts receivable................... 73,428 (102,151) 57,773 Prepaid expenses and other assets.............................. 64,021 3,529 32,627 Escrow deposits....................... (13,176) (182,808) 365,109 Accounts payable...................... 15,333 (125,429) 55,929 Accrued property taxes................ (60,868) 8,022 (50,500) Accrued interest...................... (65,584) 23,513 65,694 Accrued interest - affiliate.......... 18,352 - 1,419 Other accrued expenses................ (13,252) 58,101 11,029 Payable to affiliates - General Partner............................. (677,948) (400,814) 670,966 Security deposits and deferred rental revenue...................... 42,049 (10,170) (64,451) ------------- ------------- -------------- Total adjustments................... (974,916) 1,889,973 1,945,205 ------------- ------------- -------------- Net cash provided by operating activities.............................. $ 3,180,555 $ 3,031,951 $ 4,138,369 ============= ============= =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND X, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized on 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 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 600, 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, 1997, the Partnership owned nine income-producing properties as described in Note 4 - "Real Estate Investments." Pursuant to the Partnership's previously announced liquidation plans, the Partnership has recently retained PaineWebber, Incorporated as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership. The alternatives being considered by the Partnership include, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The General Partner of the Partnership or entities or persons affiliated with the General Partner will not be involved as a purchaser in any of the transactions contemplated above. Any transaction will be subject to certain conditions including (i) approval by the limited partners of the Partnership, and (ii) receipt of an opinion from an independent financial advisory firm as to the fairness of the consideration received by the Partnership pursuant to such transaction. Finally, there can be no assurance that any transaction will be consummated, or as to the terms thereof. 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 tier limited partnerships listed on the following page. 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 interests 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 both negative and immaterial.
% of Ownership Interest Tier Partnership Partnership General Partner ----------- --------------- Briarwood Fund X Limited Partnership (a)..................... 100 - Coppermill Fund X Limited Partnership (a).................... 100 - Orchard Fund X Limited Partnership (a)....................... 100 - Quail Meadows Fund X Limited Partnership (a)................. 100 - Regency Park Fund X Associates, L.P. ........................ 99 1 Sandpiper Fund X Limited Partnership (a)..................... 100 - Spanish Fund X, Ltd. (a) (b)................................. 100 -
(a) The general partner of these limited partnerships is a corporation whose stock is 100% owned by the Partnership. (b) Spanish Fund X, Ltd. commenced business activity on January 26, 1996. The financial statements also include the accounts of the Partnership and its 99% interest in the assets, liabilities and operations (through September 14, 1995) of Courts Fund X Associates, L.P., the tier limited partnership that owned The Courts Apartments. The General Partner owned the remaining 1% of Courts Fund X Associates, L.P. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated fair value. The Partnership's method of accounting for real estate investments is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The adoption of SFAS 121 did not have a material impact on the accompanying financial statements. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. Assets Held for Sale - -------------------- Assets held for sale are stated at the lower of depreciated cost or fair value less costs to sell. Depreciation on these assets ceases at the time they are placed on the market for sale. 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 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 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 1997, 1996 and 1995 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 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 1997, 1996 or 1995. The Partnership paid or accrued distributions of $981,440, $1,048,667 and $1,064,257 for the benefit of the General Partner for the years ended December 31, 1997, 1996 and 1995, respectively. These distributions are the MID pursuant to the Amended Partnership Agreement. The General Partner has waived the collection terms of reimbursable expenses and MID, and has elected for the Partnership to pay limited partner distributions before the payment of such amounts. The Partnership plans to distribute approximately $4,500,000 to the limited partners in March 1998. Net Income Per Limited Partnership Unit - --------------------------------------- Net income per Unit is computed by dividing net income allocated to the limited partners by the weighted average number of Units outstanding. Per Unit information has been computed based on 134,980 Units outstanding in 1997 and 1996, and 135,030 Units outstanding in 1995. 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. 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 or $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. The MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. During 1997, 1996 and 1995, 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 MID earned. 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. The amendment of the capitalization policy did not materially affect MID for 1997, 1996 or 1995 as the Entitlement Amount was sufficient to pay the MID notwithstanding the amendment to the capitalization policy. Any amount of MID which is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows:
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Property management fees - affiliates............................... $ 765,290 $ 791,081 $ 846,482 Interest - affiliates....................... 260,785 74,915 78,822 Charged to general and administrative - affiliates: Partnership administration............... 373,073 431,094 670,597 ------------- ------------- -------------- $ 1,399,148 $ 1,297,090 $ 1,595,901 ============= ============= ============== Charged to General Partner's equity (deficit): Management Incentive Distribution........ $ 981,440 $ 1,048,667 $ 1,064,257 ============= ============= ==============
Payable to affiliates - General Partner at December 31, 1997 and 1996 consists of MID, reimbursable costs and property management fees which are due and payable from current operations. The General Partner has waived the collection terms of reimbursable expenses and MID, and has elected for the Partnership to pay limited partner distributions before the payment of such amounts. 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 $14,157,196, $14,833,249 and $13,571,531 at December 31, 1997, 1996 and 1995, respectively. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments held at December 31, 1997 and 1996 are set forth in the following tables:
Buildings and Accumulated Net Book 1997 Land Improvements Depreciation Value ---- -------------- ------------ ------------ --------------- Briarwood Tucson, AZ $ 489,437 $ 5,260,242 $ (3,953,267) $ 1,796,412 Coppermill Tulsa, OK 1,176,980 12,388,116 (10,068,984) 3,496,112 La Plaza Las Vegas, NV 2,761,442 6,808,333 (4,829,120) 4,740,655 Lakeview Plaza Lexington, KY 1,554,404 7,413,258 (5,479,551) 3,488,111 Orchard Lawrence, IN 366,938 9,648,427 (6,820,654) 3,194,711 Quail Meadows Wichita, KS 754,551 11,190,367 (7,908,383) 4,036,535 Regency Park Ft. Wayne, IN 280,131 5,521,015 (3,830,560) 1,970,586 Sandpiper Westminster, CO 866,107 8,045,866 (5,384,980) 3,526,993 Spanish Oaks San Antonio, TX 586,056 6,269,120 (4,538,865) 2,316,311 ------------- ------------- ------------- ------------- $ 8,836,046 $ 72,544,744 $ (52,814,364) $ 28,566,426 ============= ============= ============= =============
Buildings and Accumulated Net Book 1996 Land Improvements Depreciation Value ---- -------------- ------------ ------------ --------------- Briarwood $ 489,437 $ 5,200,658 $ (3,713,986) $ 1,976,109 Coppermill 1,176,980 12,154,046 (9,474,539) 3,856,487 La Plaza 2,761,442 6,639,931 (4,463,195) 4,938,178 Lakeview Plaza 1,554,404 7,281,188 (5,263,530) 3,572,062 Orchard 366,938 9,383,201 (6,471,474) 3,278,665 Quail Meadows 754,551 10,985,448 (7,469,583) 4,270,416 Regency Park 280,131 5,411,821 (3,575,795) 2,116,157 Sandpiper 866,107 7,868,920 (5,029,650) 3,705,377 Spanish Oaks 586,056 6,185,050 (4,227,437) 2,543,669 ------------- ------------- ------------- ------------- $ 8,836,046 $ 71,110,263 $ (49,689,189) $ 30,257,120 ============= ============= ============= =============
During 1994, the General Partner placed The Courts Apartments and Parkway Plaza on the market for sale. The Courts Apartments was sold on September 14, 1995. Parkway Plaza was sold on September 18, 1996. On October 1, 1996, the General Partner placed Cave Spring Corners and Iberia Plaza on the market for sale. Cave Spring Corners and Iberia Plaza were classified as assets held for sale at December 31, 1996, with net book values of $2,257,480 and $3,051,251, respectively. The Partnership sold Cave Spring Corners on June 5, 1997. The Partnership sold Iberia Plaza on December 12, 1997. See Note 7 - "Sales of Real Estate." The results of operations for the assets held for sale at December 31, 1996 were $339,909, $210,456 and $57,425 for the years ended December 31, 1997, 1996 and 1995, respectively. Results of operations are operating revenues less operating expenses including depreciation and interest expense. 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, 1997, are as follows: 1998...................................... $ 1,722,801 1999...................................... 1,651,406 2000...................................... 1,202,487 2001...................................... 679,291 2002...................................... 482,477 Thereafter................................ 893,514 ------------ $ 6,631,976 ============ Future minimum rents do not include contingent rents based on sales volume of tenants. Contingent rents amounted to $41,589, $199,927 and $86,571 for the years ended December 31, 1997, 1996 and 1995, respectively. Future minimum rents also do not include expense reimbursements for common area maintenance, property taxes, and other expenses. The expense reimbursements amounted to $192,430, $307,372 and $177,095 for the years ended December 31, 1997, 1996 and 1995, respectively. These contingent rents and expense reimbursements, including amounts for assets held for sale, are included in rental revenue on the Statements of Operations. The Partnership's real estate investments are encumbered by mortgage indebtedness as discussed in Note 5 - "Mortgage Notes Payable" and Note 6 - "Mortgage Notes Payable - Affiliate." NOTE 5 - MORTGAGE NOTES PAYABLE - ------------------------------- The following table sets forth the mortgage notes payable of the Partnership at December 31, 1997 and 1996. All mortgage notes payable are secured by the Partnership's real estate assets.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date 1997 1996 - -------- -------------- ------- -------------------- --------------- -------------- Briarwood (b) First 8.150 $18,340 07/03 (f) $ 2,127,234 $ 2,172,124 Discount (e) (41,489) (47,482) ------------- ------------- 2,085,745 2,124,642 ------------- ------------- Cave Spring Corners First 9.500 27,958 06/98 - 3,077,041 ------------- -------------- Coppermill First 10.405 45,800 01/02 (f) 4,962,725 4,994,151 ------------- -------------- Iberia Plaza First 9.250 $27,137 11/98 $ - $ 1,944,704 Discount (e) - (85,774) ------------- -------------- - 1,858,930 ------------- -------------- La Plaza (c) First 10.125 31,386 03/97 - 2,396,381 ------------- -------------- Lakeview Plaza First 9.125 38,815 06/08 3,119,519 3,291,999 ------------- -------------- Orchard (b) First 8.150 53,393 07/03 (f) 6,193,025 6,323,712 Discount (e) (120,787) (138,227) ------------- -------------- 6,072,238 6,185,485 ------------- --------------
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date 1997 1996 - -------- -------------- ------- -------------------- --------------- -------------- Quail Meadows (b) First 8.150 $50,634 07/03 (f) $ 5,873,015 $ 5,996,949 Discount (e) (118,878) (124,824) ------------- ------------- 5,754,137 5,872,125 ------------- ------------- Regency Park First 8.375 23,382 10/17 2,710,189 2,761,437 Discount (e) (354,345) (370,643) ------------- -------------- 2,355,844 2,390,794 ------------- -------------- Sandpiper (b) First 8.150 47,046 07/03 (f) 5,456,817 5,571,968 Discount (e) (106,428) (121,927) ------------- -------------- 5,350,389 5,450,041 ------------- -------------- Spanish Oaks (d) First 7.710 28,546 01/03 (f) 3,932,977 3,970,703 ------------- -------------- $ 33,633,574 $ 41,612,292 ============= ==============
(a) The debt is non-recourse to the Partnership. (b) Financing was obtained under the terms of a Real Estate Mortgage Investment Conduit financing. The mortgage notes payable are cross-collateralized and may not be prepaid in whole or part before July 1998. Any prepayments made during the sixth or seventh loan years are subject to a Yield Maintenance premium, as defined. Additionally, the Partnership must pay a release payment equal to 25% of the prepaid balance which will be applied to the remaining mortgage notes in the collateral pool. (c) On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 mortgage note from an affiliate of the General Partner. See Note 6 - "Mortgage Note Payable - Affiliate." (d) The Partnership refinanced the Spanish Oaks mortgage note on January 26, 1996. See Note 8 - "Refinancing of Mortgage Notes." (e) The discount for the Iberia Plaza mortgage note was based on an effective interest rate of 12%. 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%. (f) Balloon payments on the Partnership's mortgage notes are due as follows: Property Balloon Payment Date -------- --------------- ---- 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, but before consideration of discounts of $741,927, are shown below. 1998............................. $ 768,163 1999............................. 835,952 2000............................. 909,755 2001............................. 990,111 2002............................. 5,823,614 Thereafter....................... 25,047,906 ----------- $ 34,375,501 =========== 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 $35,310,000 and $41,672,000 at December 31, 1997 and 1996, respectively. NOTE 6 - MORTGAGE NOTES PAYABLE - AFFILIATE - ------------------------------------------- The following table sets forth the Partnership's mortgage notes payable - affiliate at December 31, 1997 and 1996. The affiliate mortgage notes are secured by real estate investments of the Partnership.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity Date 1997 1996 - -------- ------------ ------- ------------------ ----------- ---------- La Plaza (c) First (d) (d) 02/00 $ 3,136,029 $ - ---------- --------- Lakeview Plaza (b) Second (d) (d) 08/97 - 800,000 ---------- --------- $ 3,136,029 $ 800,000 ========== =========
(a) The debt is non-recourse to the Partnership. (b) On August 1, 1994, the Partnership obtained an $800,000 second mortgage note for Lakeview Plaza from McNeil Real Estate Fund XXVII, L.P., an affiliate of the General Partner ("Fund XXVII"). The Lakeview mortgage note was repaid on August 1, 1997. See (c) below. (c) On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 mortgage note from Fund XXVII. See Note 8 - "Refinancing of Mortgage Notes." 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. (d) The mortgage notes due to Fund XXVII require monthly payments of interest only equal to 1% plus the prime lending rate of Bank of America. The prime lending rate of Bank of America was 8.5% and 8.25% at December 31, 1997 and 1996, respectively. Under terms of the Amended Partnership Agreement, borrowings from affiliates approximate fair market value. NOTE 7 - SALES OF REAL ESTATE - ----------------------------- 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 =============
On December 12, 1997, the Partnership sold Iberia Plaza to an unaffiliated purchaser for a cash sales price of $3,384,000. Iberia Plaza is located in New Iberia, Louisiana. Cash proceeds from this transaction, as well as the gain on sale are detailed below.
Gain on Sale Cash Proceeds ---------------- --------------- Cash sales price..................................... $ 3,384,000 $ 3,384,000 Selling costs........................................ (88,447) (88,447) Mortgage discount written off........................ (43,378) Deferred borrowing costs written off................. (1,763) Straight-line rent receivables written off........... (15,791) Prepaid leasing commissions written off.............. (27,852) Basis of real estate sold............................ (3,055,771) ------------- Gain on sale......................................... $ 150,998 ============== ------------- Proceeds from sale of real estate.................... 3,295,553 Retirement of mortgage note.......................... (1,791,847) ------------- Net cash proceeds.................................... $ 1,503,706 =============
On September 18, 1996, the Partnership sold Parkway Plaza to an unaffiliated purchaser for a cash sales price of $2,900,000. Parkway Plaza is located in Lafayette, Louisiana. Cash proceeds from this transaction, as well as the gain on sale are detailed below.
Gain on Sale Cash Proceeds ------------ ------------- Cash sales price..................................... $ 2,900,000 $ 2,900,000 Selling costs........................................ (71,949) (71,949) Mortgage discount written off........................ (250,817) Straight-line rent receivables written off........... (56,303) Basis of real estate sold............................ (2,245,507) ------------- Gain on sale......................................... $ 275,424 ============== ------------- Proceeds from sale of real estate.................... 2,828,051 Retirement of mortgage note.......................... (2,544,466) ------------- Net cash proceeds.................................... $ 283,585 =============
On January 9, 1996, the Partnership sold an outparcel of land, amounting to 0.675 acres, connected with Iberia Plaza for a purchase price of $142,985. The Partnership recorded a $77,965 gain on the sale. Proceeds from the sale of the outparcel were used to paydown the Iberia Plaza mortgage note. 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. The Courts Apartments is located in Kent, Washington. 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 sale of real estate.................... 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 - -------------------------------------- On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 mortgage note from Fund XXVII, an affiliate of the General Partner. The new mortgage note bears interest at a variable interest 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 as follows: 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. 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 received in 1996 are as follows: New loan proceeds.................................... $ 4,000,000 New loan proceeds placed in escrow................... (3,399,592) ----------- Proceeds received in 1996............................ $ 600,408 =========== See Note 9 - "Gain on Extinguishment of Debt" for a discussion of proceeds from the refinancing transaction received in 1997. The Partnership incurred $166,403 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. NOTE 9 - GAIN ON EXTINGUISHMENT OF DEBT - --------------------------------------- In connection with the refinancing of the Spanish Oaks mortgage note (see Note 8 - - "Refinancing of Mortgage Notes"), the Partnership and the former mortgage note holder did not agree on the amount of funds necessary to retire the former mortgage note. At the time the mortgage note was refinanced, the Partnership and the former mortgage note holder agreed to place $3,399,592 of the proceeds from the new mortgage note in escrow pending negotiations regarding the amount of funds necessary to retire the former mortgage note. The excess of the carrying amount of the former mortgage note over the funds placed in escrow was recorded in 1996 as a $269,596 extraordinary gain on extinguishment of debt. Neither the former mortgage note nor the related funds placed in escrow were included on the Partnership's December 31, 1996 Balance Sheet. On June 26, 1997, the Partnership and the former mortgage note holder reached an agreement to retire the former mortgage note for $3,046,000. The funds in the escrow account in excess of $3,046,000, plus accrued interest thereon, were released to the Partnership. The funds so released amounted to $602,961. The payment to the Partnership resulted in a $518,495 extraordinary gain on extinguishment of debt, computed as follows: New loan proceeds placed in escrow................... $ 3,399,592 Interest earned on funds placed in escrow............ 249,369 Amount required to payoff former mortgage note payable....................................... (3,046,000) ----------- Escrowed funds released to Partnership............... 602,961 Interest recorded on funds placed in escrow.......... (41,206) Litigation and other costs........................... (43,260) ----------- Cash proceeds received in 1997 and extraordinary gain on extinguishment of debt............................................ $ 518,495 =========== NOTE 10 - GAIN ON INVOLUNTARY CONVERSION - ---------------------------------------- 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 will reimburse the Partnership for all costs incurred as a result of the fire less a standard deductible. The excess of cash to be 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. 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) 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. Defendants must move, answer or otherwise respond to the second consolidated and amended complaint by June 30, 1998. 2) The First National Bank of Chicago, as Trustee Under That Certain Pooling and Servicing Agreement Dated as of December 1, 1995, for Resolution Trust Corporation Commercial Mortgage Pass-Through Certificates, Series 1995-C2 v. McNeil Real Estate Fund X, Ltd., McNeil Partners, L.P. and McNeil Investors, Inc. - U.S. District Court, Northern District of Dallas, Dallas Division; Civil Action No. 33-96CV3198-D; and District Court, Dallas County, Texas, F-116th Judicial District; Case No.: 96-13066(P96014). The Plaintiffs are the holder of a certain Second Lien Wraparound Promissory Note ("Wraparound Note") secured by the Spanish Oaks Apartments. This action involves a dispute of the principal payoff amount on the Wraparound Note. The Plaintiffs contend that the payoff balance is $3,399,592; however, the Partnership has calculated the payoff balance to be significantly less. On January 26, 1996, the Partnership refinanced the Spanish Oaks Apartments. At that time, the $3,399,592 was escrowed with the American Title Company. The Plaintiffs claim that pursuant to the terms of the Wraparound Note, the Partnership owes the entire escrowed balance. The parties have been ordered to mediation before July 28, 1997. However, settlement was reached in this matter with $3,046,000 being paid to the Plaintiffs. A Compromise and Settlement Agreement and Release dated June 26, 1997 has been signed by all parties. An Order of Dismissal with prejudice was entered by the Judge. 3) Alenda and Joseph Gruenwald vs. McNeil Real Estate Management, Inc. d/b/a Briarwood Apartments; ABC Corporations, XYZ Partnerships (Employee Discrimination-EEOC (Sex)) - Superior Court of the State of Arizona in and for the County of Pima; Case No. C 314017 (L96009). The Plaintiff, a former property manager for the Partnership, filed a complaint alleging that she was wrongfully terminated from her position in violation of the Arizona Civil Rights Act. The Partnership claims that Plaintiff's termination was a proper business decision resulting from serious concerns about the property's management. After numerous discussions, the parties agreed to a monetary settlement. A Settlement Agreement and Release of All Claims was signed on May 22, 1997. The Judge entered an Order on May 22, 1997, dismissing the case with prejudice. McNEIL REAL ESTATE FUND X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1997
Costs Initial Cost (b) Cumulative Capitalized Related (b) Buildings and Write-down for Subsequent Description Encumbrances Land Improvements Impairment (c) To Acquisition - ----------- ------------ ---- ------------- -------------- -------------- Apartments: Briarwood Tucson, AZ $ 2,085,745 $ 489,437 $ 4,356,477 $ - $ 903,765 Coppermill Tulsa, OK 4,962,725 1,176,980 13,146,794 (2,600,000) 1,841,322 Orchard Lawrence, IN 6,072,238 366,938 7,611,708 - 2,036,719 Quail Meadows Wichita, KS 5,754,137 754,551 9,387,261 - 1,803,106 Regency Park Fort Wayne, IN 2,355,844 280,131 4,060,970 - 1,460,045 Sandpiper Westminster, CO 5,350,389 866,107 5,991,007 - 2,054,859 Spanish Oaks San Antonio, TX 3,932,977 586,056 4,618,711 - 1,650,409 Office Building: La Plaza Las Vegas, NV 3,136,029 2,761,442 4,388,847 - 2,419,486 Retail Center: Lakeview Plaza Lexington, KY 3,119,519 1,554,404 6,986,277 (129,914) 556,895 -------------- -------------- -------------- ------------ ------------- $ 36,769,603 $ 8,836,046 $ 60,548,052 $ (2,729,914) $ 14,726,606 ============== ============== ============== ============ =============
(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. (c) The carrying value of Coppermill Apartments was reduced by $1,228,000 and $1,372,000 in 1986 and 1989, respectively. The carrying value of Lakeview Plaza was reduced by $129,914 in 1991. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1997
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 $ 5,260,242 $ 5,749,679 $ (3,953,267) Coppermill Tulsa, OK 1,176,980 12,388,116 13,565,096 (10,068,984) Orchard Lawrence, IN 366,938 9,648,427 10,015,365 (6,820,654) Quail Meadows Wichita, KS 754,551 11,190,367 11,944,918 (7,908,383) Regency Park Fort Wayne, IN 280,131 5,521,015 5,801,146 (3,830,560) Sandpiper Westminster, CO 866,107 8,045,866 8,911,973 (5,384,980) Spanish Oaks San Antonio, TX 586,056 6,269,120 6,855,176 (4,538,865) Office Building: La Plaza Las Vegas, NV 2,761,442 6,808,333 9,569,775 (4,829,120) Retail Center: Lakeview Plaza Lexington, KY 1,554,404 7,413,258 8,967,662 (5,479,551) -------------- -------------- --------------- -------------- $ 8,836,046 $ 72,544,744 $ 81,380,790 $ (52,814,364) ============== ============== =============== ==============
(a) For Federal income tax purposes, the properties are depreciated over lives ranging from 5-27.5 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was $84,617,090 and accumulated depreciation was $52,153,047 at December 31, 1997. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 1997
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 Retail Center: Lakeview Plaza Lexington, KY 1979 07/80 15-35
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, ---------------------------------------------------- 1997 1996 1995 -------------- ------------- ---------------- Real estate investments: Balance at beginning of year............... $ 79,946,309 $ 89,351,035 $ 86,475,540 Improvements............................... 1,434,481 2,233,614 2,875,495 Sale of real estate........................ - (52,359) - Assets replaced............................ - (370,287) - Reclassification of assets held for sale................................ - (11,215,694) - ------------- ------------- --------------- Balance at end of year..................... $ 81,380,790 $ 79,946,309 $ 89,351,035 ============= ============= =============== Accumulated depreciation and amortization: Balance at beginning of year............... $ 49,689,189 $ 52,651,505 $ 49,450,647 Depreciation and amortization.............. 3,125,175 3,232,454 3,200,858 Assets replaced............................ - (201,066) - Reclassification of assets held for sale................................ - (5,993,704) - ------------- ------------- -------------- Balance at end of year..................... $ 52,814,364 $ 49,689,189 $ 52,651,505 ============= ============= ============== Assets Held for Sale: Balance at beginning of year............... $ 5,308,731 $ 2,237,733 $ 7,215,032 Reclassification of assets held for sale................................ - 5,221,990 - Improvements............................... 6,144 94,515 63,555 Depreciation and amortization.............. - - (367,055) Sale of assets held for sale............... (5,314,875) (2,245,507) (4,673,799) ------------- ------------- -------------- Balance at end of year..................... $ - $ 5,308,731 $ 2,237,733 ============= ============= ==============
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, 77 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate financing since the late 1940's and in real estate acquisitions, syndications and dispositions since 1960. From 1986 until active operations of McREMI and McNeil Partners, L.P. began in February 1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the International Board of Directors of the Salk Institute, which promotes research in improvements in health care. Carole J. McNeil 54 Mrs. McNeil is Co-Chairman, with Co-Chairman of the husband Robert A. McNeil, of McNeil Board Investors, Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate associate with the Madison Company and, earlier, a commercial sales associate and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established Escrow Training Centers, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute.
Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Ron K. Taylor 40 Mr. Taylor is the President and Chief President and Chief Executive Officer of McNeil Real Estate Executive Officer Management which is an affiliate of the General Partner. Mr. Taylor has been in this capacity since the resignation of Donald K. Reed on March 4, 1997. Prior to assuming his current responsibilities, Mr. Taylor served as a Senior Vice President of McREMI. Mr. Taylor has been in this capacity since McREMI commenced operations in 1991. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management firm. In this capacity, Mr. Taylor had the responsibility for the management and leasing of a 21,000,000 square foot portfolio of commercial properties. Mr. Taylor has been actively involved in the real estate industry since 1983.
Each director shall serve until his successor shall have been duly elected and qualified. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1997, 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, 1997. 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 11,836 Units (8.8%) as of January 31, 1998. (B) Security ownership of management. The General Partner and the officers and directors of its general partner collectively own 1,732 Units (1.3%) as of January 31, 1998. (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. MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (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, 1997, the Partnership accrued MID in the amount of $981,440. 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 MID earned. 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. The amendment of the capitalization policy did not materially affect the MID for 1997, 1996 or 1995 as the Entitlement Amount was sufficient to pay MID notwithstanding the amendment to the capitalization policy. Any amount of the MID which is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. 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, 1997, the Partnership paid or accrued $1,138,363 in property management fees and reimbursements. On August 1, 1994, the Partnership obtained a $1,000,000 mortgage loan commitment from McNeil Real Estate Fund XXVII, L.P. ("Fund XXVII"), an affiliate of the General Partner. An initial amount of $800,000 was borrowed pursuant to the commitment on December 6, 1994. The mortgage note was secured by a second lien on Lakeview Plaza and required monthly interest-only payments of 1% plus the prime lending rate of Bank of America. The mortgage note matured on August 1, 1997 and was retired on that date. The funds used to retire the note were obtained from additional borrowings collateralized by La Plaza Office Building (see below). Total interest expense for this mortgage note was $50,324 for the year ended December 31, 1997. On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 mortgage note obtained from Fund XXVII. The new mortgage note is secured by a first lien on La Plaza Office Building. On August 1, 1997, the La Plaza mortgage note was amended to increase the amount outstanding by $800,000 to $3,136,029. The mortgage note bears a variable interest rate of 1% plus the prime lending rate of Bank of America. The mortgage note matures on February 28, 2000. Total interest expense for this mortgage note was $210,461 for the year ended December 31, 1997. See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 8 - Note 2 - "Transactions with Affiliates" and Note 6 - "Mortgage Notes Payable - Affiliate." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------- ----------------------------------------------------------------- See accompanying index to Financial Statements at Item 8 - Financial Statements and Supplementary Date. (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 Agree- ment, 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)
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) 10.12 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) 10.15 Note, dated July 1, 1978, between M H Kentucky Ventures and First of Boston Mortgage Corporation. (5) 10.18 Property Management Agreement, dated November 30, 1994, between Coppermill Fund X Limited Partnership and McNeil Real Estate Management, Inc. (5) 11. Statement regarding computation of Net Income per Limited Partnership Unit (see Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies").
Exhibit Number Description 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 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, 1997. (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. On December 18, 1997, the Partnership filed a Current Report on Form 8-K reporting the sale of Iberia Plaza to CenterAmerican Property Trust, L.P., for $3,450,000. 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 30, 1998 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 30, 1998 By: /s/ Ron K. Taylor - -------------- -------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 30, 1998 By: /s/ Brandon K. Flaming - -------------- -------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 12-MOS DEC-31-1997 DEC-31-1997 5,755,976 0 0 0 0 0 81,380,790 (52,814,364) 37,112,416 0 36,769,603 0 0 0 0 37,112,416 15,471,277 18,829,962 0 0 11,444,008 0 3,748,978 3,636,976 0 0 0 518,495 0 4,155,471 0 0
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