-----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, HV6kYsjJoMRLH7bv/tbHaWfF3TofNX2Sr6yLFOY4+g5wMcAW3WRsqGt0o6W3dHwJ ZXTJsgoytRz1OzM2RtX1IQ== 0000750334-98-000002.txt : 19980401 0000750334-98-000002.hdr.sgml : 19980401 ACCESSION NUMBER: 0000750334-98-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XX L P CENTRAL INDEX KEY: 0000750334 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330050225 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14007 FILM NUMBER: 98581586 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD SUITE 700 LB 70 STREET 2: 13760 NOEL ROAD SUITE 700 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK INCOME INVESTORS LTD DATE OF NAME CHANGE: 19920413 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 0-14007 ---------- McNEIL REAL ESTATE FUND XX, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 33-0050225 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (972) 448-5800 --------------------------- 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] 49,507 of the registrant's 49,512 outstanding limited partnership units are held by non-affiliates. 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 34 TOTAL OF 36 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ McNeil Real Estate Fund XX, L.P. (the "Partnership"), formerly known as Southmark Income Investors, Ltd., was organized on July 19, 1984 as a limited partnership under the provisions of the California Revised Limited Partnership Act to invest in, hold, manage and dispose of mortgage loans, real estate and real estate-related investments. 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 General Partner was elected at a meeting of limited partners on March 30, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 30, 1992, the general partner of the Partnership was Southmark Investment Group, Inc. (the "Original General Partner"), a Nevada corporation and a wholly-owned subsidiary of Southmark Corporation ("Southmark"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240. On September 28, 1984, the Partnership registered with the Securities and Exchange Commission under the Securities Act of 1933 (File No. 2-92376) and commenced a public offering for the sale of $30,000,000 of limited partnership units ("Units"). The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units closed on September 27, 1985, with 49,528 Units sold at $500 each, or gross proceeds (net of discounts of $57,546) of $24,706,454 to the Partnership. In 1994 and 1993, 12 and 4 Units were relinquished, respectively, leaving 49,512 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, the General Partner nor the Original General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interests in the Original 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, 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 March 30, 1992, the limited partners approved a restructuring proposal that provided for (i) the replacement of the Original General Partner with a new general partner, McNeil Partners, L.P.; (ii) the adoption of the Amended Partnership Agreement which substantially alters the provisions of the original partnership agreement relating to, among other things, compensation, reimbursement of expenses and voting rights; (iii) the approval of an amended property management agreement with McREMI, the Partnership's property manager; and (iv) the approval to change the Partnership's name to McNeil Real Estate Fund XX, L.P. Under the Amended Partnership Agreement, the Partnership began accruing an asset management fee, retroactive to February 14, 1991, which is payable to the General Partner. For a discussion of the methodology for calculating the asset management fee, see Item 13 Certain Relationships and Related Transactions. The proposals approved at the March 30, 1992 meeting were implemented as of that date. Concurrent with the approval of the restructuring, the General Partner acquired from Southmark and its affiliates, for aggregate consideration of $5,441, the general partner interest of the Original General Partner. The General Partner and its affiliates own in the aggregate less than 1% of the Units. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in the servicing of mortgage loans, including equity and revenue participation loans, and the ownership, operation and management of revenue-producing properties acquired through foreclosure. In July 1990, the Partnership foreclosed on Park Spring Apartments (renamed Sterling Springs Apartments) in settlement of the related mortgage loan. In September 1991, the Partnership foreclosed on Holiday Inn -Jacksonville (renamed Cherokee Inn) in partial settlement of the related mortgage loan and later sold the property in January 1993. In May 1993, the Partnership foreclosed on 1130 Sacramento Condominiums in settlement of the related mortgage loan and later sold the property in August 1997. At December 31, 1997, the Partnership operated one revenue-producing property as described in Item 2 - Properties, and serviced four mortgage loan investments. The Partnership does not directly employ any personnel. The General Partner conducts the business of the Partnership directly and through its affiliates. The Partnership reimburses affiliates of the General Partner for such services rendered in accordance with the Amended Partnership Agreement. 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 acquired through foreclosure and to service mortgage loans secured by real estate investments, the Partnership is subject to certain of the risks incidental 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 and its borrowers to respond promptly to changed circumstances. The Partnership and its borrowers compete 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 and its borrowers) 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 the competitive conditions at the Partnership's property. 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 the sale or refinancing of its property, collect payments on mortgage loan investments 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 ("High River"), a Delaware limited partnership controlled by Carl C. Icahn, announced that it had commenced an unsolicited tender to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $100 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 $170.38 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 approximately 13% 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. All of the buildings and the land on which they are located are owned by the Partnership in fee, subject to a first lien deed of trust as set forth more fully in Item 8 - Note 7 - "Mortgage Note Payable." See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - - Real Estate Investment and Accumulated Depreciation. In the opinion of management, the property is adequately covered by insurance.
Net Basis 1997 Date Property Description of Property Debt Property Taxes Acquired - -------- ----------- ----------- ---- -------------- -------- Sterling Springs Apartments Austin, TX (1) 172 units $ 2,983,609 $ 2,666,814 $ 137,356 7/90 ========== ========== ========
- ------------------------------ Total: Apartments - 172 units (1) Sterling Springs Apartments is owned by Sterling Springs Fund XX Limited Partnership, which is wholly-owned by the Partnership. The following table sets forth the property's occupancy rate and rent per square foot for the last five years:
1997 1996 1995 1994 1993 ------------- ------------- -------------- ------------- ---------- Sterling Springs Occupancy Rate............ 97% 91% 99% 95% 98% Rent Per Square Foot...... $9.50 $9.28 $9.10 $8.37 $7.62
Occupancy rate represents all units leased divided by the total number of units of the property as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property. Competitive Conditions - ---------------------- Sterling Springs - ---------------- Sterling Springs is a garden-style apartment community located in the southwest area of Austin, Texas. A large number of competing apartment units were built in the past four years, with additional construction projected for 1998. Sterling Springs' occupancy rate and rental rates are competitive with apartment communities in the area, however occupancy rates are expected to decline in 1998 as more apartment communities are built. The Partnership anticipates maintaining occupancy in the low to mid 90% range in 1998 by upgrading vacant units and offering discounts and concessions to attract and maintain tenants. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: 1) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (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) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (as defined in this Section 1, the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought recovery against the Partnership's former auditors, Ernst & Young, for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark, the former general partner. The former auditors initially asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims sought recovery of attorneys' fees and costs incurred in defending this action. The counterclaims were later dismissed on appeal, as discussed below. The trial court granted summary judgment against the Affiliated Partnerships based on the statute of limitations; however, on appeal, the Dallas Court of Appeals reversed the trial court and remanded for trial the Affiliated Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court denied Ernst & Young's application for writ of error on January 11, 1996. Shortly before trial, the district court judge once again granted summary judgment against the Affiliated Partnerships on December 2, 1996. The Partnership is continuing to pursue vigorously its claims against Ernst & Young; however, the final outcome of this litigation cannot be determined at this time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND - ------- ------------------------------------------------------------ RELATED SECURITY HOLDER MATTERS ------------------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders Limited partnership units 4,837 as of January 31, 1998 (C) The Partnership distributed $3,249,987 to the limited partners in 1997, of which $1,750,000 was cash proceeds from the sale of 1130 Sacramento Condominiums and the remaining $1,499,987 was cash from operations. The Partnership distributed $1,199,950 to the limited partners in 1996 from cash from operations. No distributions were paid to the General Partner in 1997 or 1996. During the last week of March 1998, the Partnership distributed approximately $1,500,000 to the limited partners of record as of March 1, 1998. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies - Distributions." 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............... $ 1,279,458 $ 1,413,050 $ 1,405,346 $ 1,172,233 $ 962,172 Interest income.............. 539,573 524,791 568,970 591,791 817,243 Gain on disposition of real estate ................... 1,962,280 - - - 458,221 Income before extraordinary item 2,239,792 116,736 64,116 88,909 954,172 Extraordinary item, net...... - - - - 251,203 Net income................... 2,239,792 116,736 64,116 88,909 1,205,375 Net income per limited partnership unit: Income before extraordinary item $ 44.78 $ 2.33 $ 1.28 $ 1.78 $ 19.07 Extraordinary item, net... - - - - 5.02 ------------ ------------ ------------- ------------ ------------ Net income................ $ 44.78 $ 2.33 $ 1.28 $ 1.78 $ 24.09 ============ ============ ============= ============ ============ Distributions per limited partnership unit.......... $ 65.64 $ 24.24 $ 5.05 $ 5.05 $ 57.01 ============ ============ ============= ============ ============ As of December 31, Balance Sheets 1997 1996 1995 1994 1993 - ------------------ ------------- ------------- -------------- ------------- ------------- Real estate investments, net... $ 2,983,609 $ 5,457,587 $ 5,726,377 $ 5,938,194 $ 5,979,165 Mortgage loan investments, net......................... 6,868,788 4,138,453 4,271,336 4,418,306 4,371,457 Total assets................... 12,112,244 13,189,106 14,345,949 14,484,111 14,665,413 Mortgage note payable, net..... 2,666,814 2,715,909 2,760,961 2,802,303 2,840,237 Partners' equity............... 8,986,219 9,996,414 11,079,628 11,265,513 11,426,537
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. In September 1991, the Partnership foreclosed on Holiday Inn - Jacksonville (renamed Cherokee Inn) in Jacksonville, Texas, in partial settlement of the mortgage loan secured by the property and later sold the property in January 1993. In May 1993, the Partnership foreclosed on 1130 Sacramento Condominiums in settlement of the mortgage loan secured by the property and later sold the property in August 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- FINANCIAL CONDITION - ------------------- The Partnership was formed to engage in the business of making and servicing mortgage loans and acquiring, operating and ultimately disposing of revenue-producing real properties. In July 1990, the Partnership foreclosed on Park Springs Apartments (renamed Sterling Springs Apartments) in Austin, Texas, in settlement of the mortgage loan secured by the property. In September 1991, the Partnership foreclosed on Holiday Inn -Jacksonville (renamed Cherokee Inn) in Jacksonville, Texas, in partial settlement of the mortgage loan secured by the property and later sold the property in January 1993. In May 1993, the Partnership foreclosed on 1130 Sacramento Condominiums in settlement of the mortgage loan secured by the property and later sold the property in August 1997. In August 1992, pursuant to a lawsuit settlement, a mortgage loan investment, which was secured by a property owned by an affiliate of the General Partner, was transferred to the Partnership. In June 1993, a new loan agreement was executed; and the affiliate substituted a second lien on another of its properties, Fort Meigs Plaza Shopping Center, as the collateral on the loan. The first lien mortgage note secured by Fort Meigs Plaza, which was owned by an unaffiliated lender, matured in December 1997. In order to prevent foreclosure of the property by the first lienholder and to protect its second lien interest in the property, the Partnership purchased the first lien in December 1997. The first and second lien mortgage loan investments - affiliate secured by Fort Meigs Plaza matured in March 1998 and September 1997, respectively. The borrowing partnership has received an offer from a non-affiliate to purchase the property securing the loan for $3.8 million. The borrowing partnership will continue to make regularly scheduled debt service payments on the notes until the property can be sold. At December 31, 1997, the Partnership serviced four mortgage loan investments totaling $6,868,788 and operated one revenue-producing property. The property was acquired through foreclosure. RESULTS OF OPERATIONS - --------------------- 1997 compared to 1996 Revenue: Total revenue increased by $1,826,407 in 1997 as compared to 1996. The increase was mainly due to a gain on the sale of 1130 Sacramento, partially offset by a decrease in rental revenue as discussed below. Rental revenue decreased by $133,592 in 1997 in relation to 1996, mainly due to the decrease in rental revenue at 1130 Sacramento Condominiums. One of the four condominium units was vacated in April 1997 and was sold at the beginning of August 1997. The remaining three units were sold at the end of August 1997. As further discussed in Item 8 - Note 6 - "Mortgage Loan Investments - Affiliate," in 1993, the Partnership acquired a second lien loan on a property owned by an affiliate. The Partnership purchased the first lien loan on this property in December 1997. The purchase of the first lien at the end of 1997 resulted in a $15,824 increase in interest income on mortgage loan investments - affiliate in 1997 as compared to 1996. On August 1, 1997, the Partnership sold one of four units of 1130 Sacramento Condominiums to an unaffiliated purchaser. The remaining three units were sold to the same purchaser on August 28, 1997. The cash purchase price for all four units was $4,700,000. The Partnership recognized a gain on disposition of real estate of $1,962,280 as more fully discussed in Item 8 - Note 4 - "Real Estate Investments." In 1996, the Partnership received $17,063 in refunds of prior years' property taxes for 1130 Sacramento Condominiums. The assessed taxable value of the property was reduced by taxing authorities as a result of an appeal filed on behalf of the property. No such refund was received in 1997. Expenses: Total expenses decreased by $296,649 in 1997 as compared to 1996. The decrease was mainly due to a decrease in depreciation expense, general and administrative expenses and general and administrative - affiliates, as discussed below. Depreciation expense in 1997 decreased by $96,814 in relation to 1996. The decrease was due to 1130 Sacramento Condominiums being classified as an asset held for sale by the Partnership effective April 15, 1997. In accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Partnership ceased recording depreciation on the asset at the time it was placed on the market for sale. General and administrative expenses decreased by $135,923 in 1997 as compared to 1996. The decrease was mainly due to a decrease in costs incurred relating to evaluation and dissemination of information regarding an unsolicited tender offer. This decrease was partially offset by approximately $26,000 of costs incurred for investor services, which were paid to an unrelated third party in 1997. In 1996, such costs were paid to an affiliate of the General Partner and were included in general and administrative - affiliates on the Statements of Operations. In 1997, general and administrative - affiliates decreased by $46,690 as compared to 1996. The decrease was mainly due to a decrease in overhead expenses allocated to the Partnership by McREMI due to investor services being performed by an unrelated third party in 1997, as discussed above. In addition, there was a decrease in asset management fees due to a decline in the tangible asset value of the Partnership, on which the fees are based. 1996 compared to 1995 Revenue: Total revenue decreased by $19,412 in 1996 as compared to 1995. The decrease was mainly due to a decrease in other interest income, partially offset by property tax refunds received in 1996, as discussed below. Other interest income decreased by $41,030 in 1996 in relation to 1995. The decrease was primarily the result of a lower average amount of cash available for short-term investment due to an increase in the amount of cash distributions paid to limited partners in the first and third quarters of 1996. In 1996, the Partnership received $17,063 in refunds of prior years' property taxes for 1130 Sacramento. The assessed taxable value of the property was reduced by taxing authorities as a result of an appeal filed on behalf of the property. Expenses: Total expenses decreased by $72,032 in 1996 as compared to 1995. The decrease was mainly due to a decrease in property taxes, utilities and general and administrative - affiliates, partially offset by an increase in repairs and maintenance, as discussed below. Property taxes decreased by $9,464 in 1996 as compared to 1995 due to a reduction in the assessed taxable value of 1130 Sacramento Condominiums, as previously discussed. Repairs and maintenance expense increased by $18,895 in 1996 in relation to 1995. The increase was mainly due to increased cleaning and decorating costs incurred at Sterling Springs Apartments due to a higher rate of turnover of units in 1996. In addition, the Partnership expended approximately $4,000 to repair a water main break at the property in 1996. 1996 utilities expense decreased by $9,739 as compared to 1995. Water usage was higher at Sterling Springs Apartments in 1995 as a result of several minor water leaks at the property. General and administrative - affiliates decreased by $76,003 in 1996 as compared to 1995. The decrease was mainly due to a decrease in overhead expenses allocated to the Partnership by McREMI. LIQUIDITY AND CAPITAL RESOURCES The Partnership generated $487,912 through operating activities in 1997 as compared to $453,978 in 1996 and $437,492 in 1995. The Partnership expended $178,235, $73,183 and $118,615 for capital improvements to its properties in 1997, 1996 and 1995, respectively. 1997 includes costs incurred for exterior carpentry and painting at Sterling Springs Apartments. 1995 includes costs incurred for a retaining wall and a fence at Sterling Springs Apartments. In 1997, the Partnership received $4,493,834 of proceeds from the sale of 1130 Sacramento Condominiums. $2,996,176 of the proceeds was used to purchase a first lien mortgage loan investment secured by a property owned by an affiliate. The Partnership made this investment to protect its second lien interest in this property. The Partnership distributed $3,249,987 to the limited partners in 1997, of which $1,750,000 was cash proceeds from the sale of 1130 Sacramento Condominiums and the remaining $1,499,987 was cash from operations. The Partnership distributed $1,199,950 and $250,001 to the limited partners in 1996 and 1995, respectively, from cash from operations. Short-term liquidity: At December 31, 1997, the Partnership held cash and cash equivalents of $1,824,293. This balance provides a reasonable level of working capital for the Partnership's immediate needs in operating its property. In 1998, operation of Sterling Springs Apartments is expected to provide sufficient positive cash flow for normal operations. Management will perform routine repairs and maintenance on the property to preserve and enhance its value and competitiveness in the market. The Partnership has budgeted approximately $59,000 for capital improvements to Sterling Springs in 1998, which is expected to be funded from operations of the property. The mortgage loan investment secured by Idlewood Nursing Home matured in February 1998. On January 30, 1998, the Partnership and the borrower entered into an agreement whereby the borrower will pay the Partnership $2.4 million by May 1998 (the actual balance of the loan is greater than the book value, as further discussed in Item 8 - Note 5 - "Mortgage Loan Investments"). Since the Partnership owns an 83% participation interest in the note, $408,000 of the $2.4 million settlement will be payable to the owner of the remaining 17% of the note. The borrower has placed a $25,000 nonrefundable deposit into an escrow account as evidence of their commitment to repay the loan. The first and second lien mortgage loan investments - affiliate secured by Fort Meigs Plaza matured in March 1998 and September 1997, respectively. The borrowing partnership has received an offer from a non-affiliate to purchase the property securing the loan for $3.8 million. The borrowing partnership will continue to make regularly scheduled debt service payments on the notes until the property can be sold. If the property is not sold, the Partnership will consider restructuring the debt, extending the maturity or foreclosing on the property. For 1998, management expects that cash from operations of its property and principal and interest collections on the mortgage loan investments, along with the present balance of cash and cash equivalents held, will allow the Partnership to meet its obligations as they come due. During the last week of March 1998, the Partnership distributed approximately $1,500,000 to the limited partners of record as of March 1, 1998. Long-term liquidity: The Partnership's property, Sterling Springs Apartments, is encumbered with mortgage debt. The mortgage is not due until 2003. In the event that the Partnership acquires ownership of other properties through foreclosure, the cash and cash equivalent balances presently held will provide a source for the maintenance and improvement of the properties. Because the timing and number of properties which may be foreclosed is uncertain, there is no assurance that the balances presently held will be sufficient for needed capital improvements. At present, there are no commitments nor any known needs for improvements to the properties securing the Partnership's loans except for Idlewood Nursing Home which is in need of approximately $300,000 in capital improvements. The Partnership has no existing lines of credit from outside sources. Another possible source of funds is the sale of the Partnership's mortgage loan investments or of the properties securing the Partnership's mortgage loans. Such sales are possibilities only, and since the Partnership does not control the properties securing its loans, sales of those properties may occur only if initiated by the borrower or in the event of foreclosure by the Partnership. There is no assurance that any sales can be contracted or closed to coincide with the Partnership's future cash needs. For the long term, the Partnership will remain dependent on operations of the property it owns or of the properties securing its loans as the primary source of debt repayment, until the properties can be sold. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Page Number ------ INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements: Report of Independent Public Accountants....................................... 14 Balance Sheets at December 31, 1997 and 1996................................... 15 Statements of Operations for each of the three years in the period ended December 31, 1997..................................................... 16 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1997.............................................. 17 Statements of Cash Flows for each of the three years in the period ended December 31, 1997..................................................... 18 Notes to Financial Statements.................................................. 20 Financial Statement Schedule - Schedule III - Real Estate Investment and Accumulated Depreciation............................................................. 29
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 XX, L.P.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XX, L.P. (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 XX, L.P. 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 XX, L.P. BALANCE SHEETS
December 31, ------------------------------------ 1997 1996 ---------------- --------------- ASSETS - ------ Real estate investments: Land........................................................ $ 392,000 $ 699,697 Buildings and improvements.................................. 3,882,558 6,192,970 -------------- ------------- 4,274,558 6,892,667 Less: Accumulated depreciation............................. (1,290,949) (1,435,080) --------------- ------------- 2,983,609 5,457,587 Mortgage loan investments, net of allowance of $792,013 at December 31, 1997 and 1996...................... 3,268,712 3,404,553 Mortgage loan investments - affiliate, net of allowance of $130,000 and $0 at December 31, 1997 and 1996, respectively ............................................... 3,600,076 733,900 Cash and cash equivalents...................................... 1,824,293 3,188,257 Cash segregated for security deposits.......................... 27,405 54,950 Interest and other accounts receivable......................... 140,025 74,629 Escrow deposits................................................ 162,652 153,977 Deferred borrowing costs, net of accumulated amortization of $60,222 and $45,275 at December 31, 1997 and 1996, respectively.................... 101,272 116,219 Prepaid expenses and other assets.............................. 4,200 5,034 -------------- ------------- $ 12,112,244 $ 13,189,106 ============== ============= LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage note payable, net..................................... $ 2,666,814 $ 2,715,909 Accounts payable and other accrued expenses.................... 61,994 97,230 Accrued property taxes......................................... 137,050 130,957 Payable to affiliates.......................................... 203,444 40,962 Deferred revenue............................................... 27,229 163,852 Security deposits and deferred rental revenue.................. 29,494 43,782 -------------- ------------- 3,126,025 3,192,692 -------------- ------------- Partners' equity (deficit): Limited partners - 60,000 limited partnership units authorized; 49,512 limited partnership units issued and outstanding at December 31, 1997 and 1996............. 9,282,684 10,315,277 General Partner............................................. (296,465) (318,863) -------------- ------------- 8,986,219 9,996,414 -------------- ------------- $ 12,112,244 $ 13,189,106 ============== =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XX, L.P. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Revenue: Rental revenue.......................... $ 1,279,458 $ 1,413,050 $ 1,405,346 Interest income on mortgage loan investments........................... 280,023 283,010 286,327 Interest income on mortgage loan investments - affiliate............... 77,380 61,556 61,388 Other interest income................... 182,170 180,225 221,255 Gain on disposition of real estate...... 1,962,280 - - Property tax refund..................... - 17,063 - ------------- ------------- -------------- Total revenue......................... 3,781,311 1,954,904 1,974,316 ------------- ------------- -------------- Expenses: Interest................................ 246,782 249,920 252,774 Depreciation............................ 245,159 341,973 330,432 Property taxes.......................... 161,151 170,597 180,061 Personnel costs......................... 144,376 142,069 150,765 Repairs and maintenance................. 130,474 134,645 115,750 Property management fees - affiliates............................ 63,072 67,381 66,477 Utilities............................... 81,418 83,481 93,220 Other property operating expenses....... 92,354 88,756 87,896 General and administrative.............. 113,975 249,898 247,374 General and administrative - affiliates............................ 262,758 309,448 385,451 ------------- ------------- -------------- Total expenses........................ 1,541,519 1,838,168 1,910,200 ------------- ------------- -------------- Net income................................. $ 2,239,792 $ 116,736 $ 64,116 ============= ============= ============== Net income allocable to limited partners................................ $ 2,217,394 $ 115,569 $ 63,475 Net income allocable to General Partner................................. 22,398 1,167 641 ------------- ------------- -------------- Net income................................. $ 2,239,792 $ 116,736 $ 64,116 ============= ============= ============== Net income per limited partnership unit.................................... $ 44.78 $ 2.33 $ 1.28 ============= ============= ============== Distributions per limited partnership unit........................ $ 65.64 $ 24.24 $ 5.05 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XX, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1997, 1996 and 1995
Total General Limited Partners' Partner Partners Equity ---------------- --------------- ---------------- Balance at December 31, 1994.............. $ (320,671) $ 11,586,184 $ 11,265,513 Net income................................ 641 63,475 64,116 Distributions to limited partners......... - (250,001) (250,001) -------------- -------------- -------------- Balance at December 31, 1995.............. (320,030) 11,399,658 11,079,628 Net income................................ 1,167 115,569 116,736 Distributions to limited partners......... - (1,199,950) (1,199,950) -------------- -------------- -------------- Balance at December 31, 1996.............. (318,863) 10,315,277 9,996,414 Net income................................ 22,398 2,217,394 2,239,792 Distributions to limited partners......... - (3,249,987) (3,249,987) -------------- -------------- -------------- Balance at December 31, 1997.............. $ (296,465) $ 9,282,684 $ 8,986,219 =============== ============== ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XX, L.P. 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.............. $ 1,259,654 $ 1,422,803 $ 1,391,600 Cash paid to suppliers.................. (607,269) (723,975) (648,603) Cash paid to affiliates................. (287,848) (368,716) (438,528) Interest received....................... 455,833 456,845 502,270 Interest received from affiliate........ 48,886 48,886 48,886 Interest paid........................... (224,165) (228,625) (232,736) Property taxes paid..................... (24,101) (50,954) (56,530) Property taxes escrowed................. (133,078) (119,349) (128,867) Property tax refund received............ - 17,063 - ------------- ------------- -------------- Net cash provided by operating activities.............................. 487,912 453,978 437,492 ------------- ------------- -------------- Cash flows from investing activities: Additions to real estate investments........................... (178,235) (73,183) (118,615) Collection of principal on mortgage loan investments............. 135,841 132,883 146,970 Proceeds from disposition of real estate................................ 4,493,834 - - Purchase of mortgage loan investment - affiliate................ (2,996,176) - - Loan extension fee received............. - - 25,941 ------------- ------------- -------------- Net cash provided by investing activities................................. 1,455,264 59,700 54,296 ------------- ------------- -------------- Cash flows from financing activities: Principal payments on mortgage note payable.......................... (57,153) (52,694) (48,584) Distributions to limited partners....... (3,249,987) (1,199,950) (250,001) -------------- ------------- --------------- Net cash used in financing activities...... (3,307,140) (1,252,644) (298,585) -------------- ------------- --------------- Net increase (decrease) in cash and cash equivalents........................ (1,363,964) (738,966) 193,203 Cash and cash equivalents at beginning of year....................... 3,188,257 3,927,223 3,734,020 ------------- ------------- -------------- Cash and cash equivalents at end of year................................. $ 1,824,293 $ 3,188,257 $ 3,927,223 ============= ============= ==============
See discussion of non-cash investing activities in Note 6 - "Mortgage Loan Investments - Affiliate." See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XX, L.P. 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................................. $ 2,239,792 $ 116,736 $ 64,116 ------------- ------------ -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................ 245,159 341,973 330,432 Amortization of deferred borrowing costs................................. 14,947 14,011 13,127 Amortization of discount on mortgage note payable.......................... 8,058 7,642 7,242 Amortization of deferred revenue........ (6,623) (6,623) (5,519) Gain on disposition of real estate...... (1,962,280) - - Changes in assets and liabilities: Cash segregated for security deposits........................... 27,545 4,919 (3,389) Interest and other accounts receivable.......................... (65,396) 2,851 (27,236) Escrow deposits....................... (8,675) (9,133) (16,202) Prepaid expenses and other assets.............................. 834 3,556 6,278 Accounts payable and other accrued expenses.................... (35,236) (23,063) 40,567 Accrued property taxes................ 6,093 7,427 11,314 Payable to affiliates................. 37,982 8,113 13,400 Security deposits and deferred rental revenue...................... (14,288) (14,431) 3,362 ------------- ------------- -------------- Total adjustments..................... (1,751,880) 337,242 373,376 ------------- ------------- -------------- Net cash provided by operating activities.............................. $ 487,912 $ 453,978 $ 437,492 ============= ============= ==============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XX, L.P. NOTES TO FINANCIAL STATEMENTS December 31, 1997 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund XX, L.P. (the "Partnership"), formerly known as Southmark Income Investors, Ltd., was organized on July 19, 1984 as a limited partnership under the provisions of the California Revised Limited Partnership Act to invest in, hold, manage and dispose of mortgage loans, real estate and real estate-related investments. 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 General Partner was elected at a meeting of limited partners on March 30, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. 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 the servicing of mortgage loans, including equity and revenue participation loans, and the ownership, operation and management of revenue-producing properties acquired through foreclosure. In July 1990, the Partnership foreclosed on Park Spring Apartments (renamed Sterling Springs Apartments) in settlement of the related mortgage loan. In May 1993, the Partnership foreclosed on 1130 Sacramento Condominiums in settlement of the related mortgage loan. At December 31, 1997, the Partnership operated one revenue-producing property as described in Note 4 - "Real Estate Investments," and serviced four mortgage loan investments as described in Note 5 - "Mortgage Loan Investments" and Note 6 - "Mortgage Loan Investments - Affiliate." 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 consolidate the accounts of Sterling Springs Fund XX Limited Partnership. This single asset tier partnership was formed to accommodate the refinancing of Sterling Springs Apartments. The Partnership is the limited partner and wholly-owns the corporation that is the general partner of the tier partnership. The Partnership retains effective control of the tier partnership. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated 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. Depreciation - ------------ Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Mortgage Loan Investments - ------------------------- Mortgage loan investments are recorded at their original basis, net of any allowance for impairment. Interest income is recognized as it is earned. Interest accrual is ceased at such time as management determines collection is doubtful. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand and cash on deposit in 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 its mortgage indebtedness agreement. These escrow accounts are controlled by the mortgagee and are used for payment of property taxes, hazard insurance, capital improvements and/or property replacements. Carrying amounts for escrow deposits approximate fair value. Deferred Borrowing Costs - ------------------------ Loan fees and other related costs incurred to obtain long-term financing on real property are capitalized and amortized using the effective interest method over the term of the related mortgage note payable. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations. Discount on Mortgage Note Payable - --------------------------------- The discount on the mortgage note payable is being amortized over the remaining term of the related mortgage note using the effective interest method. Amortization of the discount on the mortgage note payable is included in interest expense on the Statements of Operations. Rental Revenues - --------------- The Partnership leases its properties under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. Income Taxes - ------------ No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners. Allocation of Net Income and Net Loss - ------------------------------------- Under the terms of the Amended Partnership Agreement, net income and net losses (except from a terminating disposition) are allocated 99% to the limited partners and 1% to the General Partner. Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocation 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 - ------------- Under the terms of the Amended Partnership Agreement, operating cash flow and cash from sales or refinancings are distributed 100% to the limited partners as further defined in the Amended Partnership Agreement. Terminating dispositions are to be made in accordance with the partners' positive capital account balances. Distributions may be restricted or suspended in circumstances where the General Partner determines that such action is in the best interest of the Partnership. The Partnership distributed $3,249,987, $1,199,950 and $250,001 of cash from operations in 1997, 1996 and 1995, respectively. No distributions were paid to the General Partner in 1997, 1996 or 1995. During the last week of March 1998, the Partnership plans to distribute approximately $1,500,000 to the limited partners of record as of March 1, 1998. Net Income Per Limited Partnership Unit - --------------------------------------- Net income per limited partnership unit ("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 49,512 average Units outstanding during 1997, 1996 and 1995. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services and leasing services. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under the terms of its Amended Partnership Agreement, the Partnership pays a disposition fee to an affiliate of the General Partner equaling up to 3% of the gross sales price for brokerage services performed in connection with the sale of the Partnership's properties, provided, however, that in no event shall all real estate commissions (including the disposition fee) paid to all persons exceed the amount customarily charged in similar arms-length transactions. The fee is due and payable at the time the sale closes. The Partnership incurred $124,500 of such fees during 1997 in connection with the sale of 1130 Sacramento Condominiums. This amount represents 2.65% of the gross sales price. These fees have not yet been paid by the Partnership and are included in payable to affiliates on the Balance Sheet at December 31, 1997. Under the terms of the Amended Partnership Agreement, the Partnership is paying an asset management fee to the General Partner. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property, (ii) a value of $10,000 per apartment unit or (iii) on 1130 Sacramento, the prorated net book value of the property was used to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. 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................... $ 63,072 $ 67,381 $ 66,477 Charged to gain on disposition of real estate: Disposition fee......................... 124,500 - - Charged to general and administrative - affiliates: Partnership administration.............. 111,839 145,203 211,700 Asset management fee.................... 150,919 164,245 173,751 ------------- ------------- -------------- $ 450,330 $ 376,829 $ 451,928 ============= ============= ==============
Payable to affiliates at December 31, 1997 and 1996 consisted primarily of unpaid property management fees, a disposition fee (1997 only), Partnership general and administrative expenses and asset management fees and is due and payable from current operations. NOTE 3 - TAXABLE INCOME - ----------------------- McNeil Real Estate Fund XX, L.P. 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 $7,573,698 in 1997, $7,486,117 in 1996 and $6,954,599 in 1995. NOTE 4 - REAL ESTATE INVESTMENTS - -------------------------------- The basis and accumulated depreciation of the Partnership's real estate investments at December 31, 1997 and 1996 are set forth in the following tables:
Buildings and Accumulated Net Book 1997 Land Improvements Depreciation Value ---- -------------- ------------ ------------ --------------- Sterling Springs Austin, TX $ 392,000 $ 3,882,558 $ (1,290,949) $ 2,983,609 ============= ============== ============== ============= Buildings and Accumulated Net Book 1996 Land Improvements Depreciation Value ---- -------------- ------------ ------------ -------------- 1130 Sacramento $ 307,697 $ 2,468,101 $ (373,600) $ 2,402,198 Sterling Springs 392,000 3,724,869 (1,061,480) 3,055,389 ------------- ------------- ------------- ------------- $ 699,697 $ 6,192,970 $ (1,435,080) $ 5,457,587 ============= ============== ============== =============
On August 1, 1997, the Partnership sold one of four units of 1130 Sacramento Condominiums, located in San Francisco, California, to an unaffiliated purchaser. The remaining three units were sold to the same purchaser on August 28, 1997. The cash purchase price for all four units was $4,700,000. Cash proceeds and the gain on disposition of real estate are detailed below:
Gain on Sale Cash Proceeds ---------------- ---------------- Cash sales price....................................... $ 4,700,000 $ 4,700,000 Selling costs.......................................... (330,666) (206,166) --------------- Net cash proceeds...................................... $ 4,493,834 ============== Carrying value......................................... (2,407,054) --------------- Gain on disposition of real estate..................... $ 1,962,280 ==============
As discussed in Note 2 - "Transactions With Affiliates," the Partnership incurred a $124,500 disposition fee payable to an affiliate of the General Partner in connection with the sale of 1130 Sacramento. This fee reduced the amount of the gain on disposition of real estate and is included in selling costs above. However, as the fee has not yet been paid, it did not reduce the amount of net cash proceeds from the sale. The net cash proceeds from the sale of 1130 Sacramento will be $4,369,334 after payment of the disposition fee. NOTE 5 - MORTGAGE LOAN INVESTMENTS - ---------------------------------- The following sets forth the Partnership's mortgage loan investments to unaffiliated borrowers at December 31, 1997 and 1996. The mortgage loan investments are secured by the related real estate.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position Rates % Maturity 1997 1996 - -------- -------- ------- -------------- -------------- --------------- Idlewood Nursing Home (a) First 8.50 (a) 2/98 $ 1,794,700 $ 1,904,260 Allowance for impairment (792,013) (792,013) ------------- ------------- 1,002,687 1,112,247 ------------- ------------- Lakeland Nursing Home (b) First 12.00 $24,9952/99 2,266,025 2,292,306 ------------- ------------- Total $ 3,268,712 $ 3,404,553 ============= =============
(a) The Partnership owns an 83% participation interest in the Idlewood Nursing Home mortgage loan investment. In January 1991, the borrowing partnership became unable to make all payments required under the original mortgage loan agreement. Since that time, the mortgage loan agreement has been modified four times such that the maturity date was extended and the interest rate was decreased. The loan modification in effect during 1997 and 1996 requires that payments be made on the loan equal to the net cash flow from operations of the property, with a minimum amount due of $9,130 per month. As a result of the borrowing partnership's inability to make the required payments, the Partnership recorded a $792,013 provision for loss in 1992 to reduce the carrying value of the mortgage loan investment to the estimated recoverable amount of the collateral. The Partnership ceased accruing interest on the loan in 1994. The general partner of the borrowing partnership has personally guaranteed 10% of the total loan amount. The loan is not recorded as an in-substance foreclosure at December 31, 1997 and 1996. A measure of the impairment of the Idlewood loan has been made based on the present value of expected future cash flows required under a February 1995 modification. This measure indicates an impairment less than the total allowance previously recorded. Due to the uncertainties surrounding this mortgage loan investment and its ultimate realizability given its history of numerous modifications, none of the previously recorded allowance will be reversed until the underlying property has demonstrated its ability to meet the required principal and interest payments. All payments received on the loan in 1997 and 1996 were recorded as a reduction of principal. The mortgage loan investment matured in February 1998. The Partnership and the borrower have entered into an agreement whereby the borrower will pay the Partnership $2.4 million in settlement of both principal and interest due on the mortgage note by May 1998. Since the Partnership owns an 83% participation interest in the note, $408,000 of the $2.4 million settlement will be payable to the owner of the remaining 17% of the note. The borrower has placed a $25,000 nonrefundable deposit into an escrow account as evidence of their commitment to repay the loan. (b) The Partnership owns a 90% participation interest in the Lakeland Nursing Home mortgage loan. Monthly payments include principal and interest. The general partner of the borrowing partnership personally guaranteed 25% of the total loan amount. Based on market lending rates for mortgage loan investments with similar terms, risks and average maturities, the fair value of mortgage loan investments was approximately $4,630,000 at December 31, 1997 and $4,514,000 at December 31, 1996. A summary of activity for mortgage loan investments for each of the three years in the period ended December 31, 1997 is as follows:
For the Years Ended December 31, ----------------------------------------------------- 1997 1996 1995 --------------- --------------- ---------------- Balance at beginning of year............... $ 3,404,553 $ 3,537,436 $ 3,684,406 Collection of principal.................... (135,841) (132,883) (146,970) ------------- ------------- -------------- Balance at end of year..................... $ 3,268,712 $ 3,404,553 $ 3,537,436 ============= ============= ==============
NOTE 6 - MORTGAGE LOAN INVESTMENTS - AFFILIATE - ---------------------------------------------- The following sets forth the Partnership's mortgage loan investments to an affiliated borrower at December 31, 1997 and 1996:
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rates % Maturity 1997 1996 - -------- ------------ -------- ---------------- -------------- -------------- Fort Meigs Plaza Shopping Center First 12.81 $ 33,333 3/98 $ 2,996,176 $ - ------------- ------------- Second 8.25 (b) $4,074 (b) 9/97 733,900 733,900 ------------- ------------- Allowance (130,000) - -------------- ------------- 603,900 733,900 ------------- ------------- Total $ 3,600,076 $ 733,900 ============= =============
(a) The mortgage loans are non-recourse to the borrower. (b) Although interest on the loan accrues at 8.25%, interest only payments equal to an effective interest rate of 6.66% are payable monthly. All accrued interest is due at maturity. On August 24, 1992, pursuant to a lawsuit settlement, a mortgage loan investment, which was secured by a property owned by an affiliate of the General Partner, McNeil Real Estate Fund XXI, L.P. ("Fund XXI"), was transferred to the Partnership. In June 1993, a new loan agreement was executed; and Fund XXI substituted a second lien on another of its properties, Fort Meigs Plaza Shopping Center, as the collateral on the loan. The first lien mortgage note secured by Fort Meigs Plaza, which was owned by an unaffiliated lender, matured in December 1997. In order to prevent foreclosure of the property by the first lienholder and to protect its second lien interest in the property, the Partnership purchased the first lien in December 1997 for $2,996,176 and extended the maturity of the loan to March 1998. Related to the initial transfer, the Partnership recorded a deferred gain for the portion of the non-cash assets received as compared to total assets received pursuant to the lawsuit settlement. This deferred gain is being amortized as principal payments are received on the mortgage loan investment. The Partnership reduced the deferred gain by $130,000 in 1997, representing the estimated uncollectible amount of the mortgage loan investment, as discussed below. The deferred gain totaled $20,054 at December 31, 1997 and $150,054 at December 31, 1996. Fund XXI is in default on payment of both the first and second liens on Fort Meigs Plaza as the notes matured on March 1, 1998 and September 1, 1997, respectively. Fort Meigs Plaza is currently on the market for sale and Fund XXI has received an offer from a non-affiliate to purchase the property for $3.8 million. Fund XXI will continue to make regularly scheduled debt service payments on the first and second lien mortgage notes until the property can be sold. If Fund XXI's management accepts the current sales offer, the Partnership will not collect the entire balance of the mortgage loan investments after closing costs are paid, nor will the entire balance of deferred revenue be recognizable. Therefore, a $130,000 allowance has been recorded to the note balance, representing the estimated uncollectible amount, by reducing the deferred revenue previously recorded related to Fort Meigs Plaza. If the property is not sold, the Partnership will consider restructuring the debt, extending the maturity or foreclosing on the property. Based on market lending rates for mortgage loan investments with similar terms, risks and average maturities, the fair value of the mortgage loan investments - affiliate was approximately $3,627,000 at December 31, 1997 and $690,000 at December 31, 1996. NOTE 7 - MORTGAGE NOTE PAYABLE - ------------------------------ The following sets forth the mortgage note payable of the Partnership at December 31, 1997 and 1996. The mortgage note payable is secured by the related real estate investment.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position (a) Rate % Maturity 1997 1996 - -------- ------------ -------- -------------- -------------- ------------- Sterling Springs Apartments (c) First 8.15 $23,443 7/03 $ 2,719,160 $ 2,776,313 Discount (b) (52,346) (60,404) ------------- ------------ $ 2,666,814 $ 2,715,909 ============= ============
(a) The debt is non-recourse to the Partnership. (b) The mortgage loan was discounted to an effective rate of 8.62%. (c) Financing was obtained in June 1993 under the terms of a Real Estate Mortgage Investment Conduit financing. The note 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. Scheduled principal maturities of the mortgage note payable under existing terms, excluding a discount of $52,346, are as follows: 1998 $ 61,989 1999 67,234 2000 72,923 2001 79,093 2002 85,786 Thereafter 2,352,135 ------------ Total $ 2,719,160 ============ Based on borrowing rates currently available to the Partnership for a mortgage loan with similar terms and average maturities, the fair value of the mortgage note payable was approximately $2,768,000 at December 31, 1997 and $2,674,000 at December 31, 1996. NOTE 8 - 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) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (as defined in this Section 1, the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought recovery against the Partnership's former auditors, Ernst & Young, for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark Corporation ("Southmark"), the former general partner. The former auditors initially asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims sought recovery of attorneys' fees and costs incurred in defending this action. The counterclaims were later dismissed on appeal, as discussed below. The trial court granted summary judgment against the Affiliated Partnerships based on the statute of limitations; however, on appeal, the Dallas Court of Appeals reversed the trial court and remanded for trial the Affiliated Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court denied Ernst & Young's application for writ of error on January 11, 1996. Shortly before trial, the district court judge once again granted summary judgment against the Affiliated Partnerships on December 2, 1996. The Partnership is continuing to pursue vigorously its claims against Ernst & Young; however, the final outcome of this litigation cannot be determined at this time. McNEIL REAL ESTATE FUND XX, L.P. SCHEDULE III REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION December 31, 1997
Costs Initial Cost Cumulative Capitalized Related Buildings and Write-down for Subsequent Description Encumbrances Land Improvements Impairment To Acquisition - ----------- ------------ ---- -------------- ------------- -------------- Sterling Springs Apartments Austin, TX $2,666,814 $ 392,000 $ 2,908,000 $ - $ 974,558 ========= ========== ============= ============ =========
See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XX, L.P. SCHEDULE III REAL ESTATE INVESTMENT 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 - ------------ ---- ------------- -------- ---------------- Sterling Springs Apartments Austin, TX $ 392,000 $3,882,558 $ 4,274,558 $ (1,290,949) ============== ========= ============ ==============
(a) For Federal income tax purposes, the property is depreciated over lives ranging from 7 to 27.5 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was $4,621,134 and accumulated depreciation was 754,231 at December 31, 1997. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XX, L.P. SCHEDULE III REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION December 31, 1997
Date of Date Depreciable Description Construction Acquired Lives (Years) - ----------- ------------ -------- ------------- Sterling Springs Apartments Austin, TX 1985 7/90 5-25
See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XX, L.P. Notes to Schedule III Real Estate Investment and Accumulated Depreciation A summary of activity for the Partnership's real estate investments and accumulated depreciation is as follows:
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 -------------- -------------- ---------------- Real estate investments: Balance at beginning of year............... $ 6,892,667 $ 6,819,484 $ 6,700,869 Disposition of real estate................. (2,796,344) - - Improvements............................... 178,235 73,183 118,615 ------------- ------------- -------------- Balance at end of year..................... $ 4,274,558 $ 6,892,667 $ 6,819,484 ============= ============= ============== Accumulated depreciation: Balance at beginning of year............... $ 1,435,080 $ 1,093,107 $ 762,675 Disposition of real estate................. (389,290) - - Depreciation............................... 245,159 341,973 330,432 -------------- ------------- -------------- Balance at end of year..................... $ 1,290,949 $ 1,435,080 $ 1,093,107 ============= ============= ==============
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURES. ---------------------- 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 the 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, was known by the Partnership to own more than 5% of the Units, other than High River Limited Partnership which owns 6,490 Units at January 31, 1998 (approximately 13% of the outstanding Units). The business address for High River Limited Partnership is 100 South Bedford Road, Mount Kisco, New York 10549. (B) Security ownership of management. The General Partner and the officers and directors of its general partner collectively own 4.5 Units, which is less than 1% of Units outstanding at January 31, 1998. (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- The amendments to the Partnership compensation structure included in the Amended Partnership Agreement provide for an asset management fee to replace all other forms of general partner compensation other than property management fees and reimbursements of certain costs. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property, (ii) a value of $10,000 per apartment unit or (iii) on 1130 Sacramento, the prorated net book value of the property was used to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. For the year ended December 31, 1997, the Partnership paid or accrued $150,919 of such asset management fees. The Partnership pays property management fees equal to 5% of the gross rental receipts of its properties to McREMI, an affiliate of the General Partner, for providing property management services. Additionally, 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 $174,911 of such property management fees and reimbursements. See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Note 2 - "Transactions With Affiliates." Under the terms of its Amended Partnership Agreement, the Partnership pays a disposition fee to an affiliate of the General Partner equaling up to 3% of the gross sales price for brokerage services performed in connection with the sale of the Partnership's properties, provided, however, that in no event shall all real estate commissions (including the disposition fee) paid to all persons exceed the amount customarily charged in similar arms-length transactions. The fee is due and payable at the time the sale closes. The Partnership incurred a $124,500 disposition fee during 1997 in connection with the sale of 1130 Sacramento Condominiums. This amount represents 2.65% of the gross sales price. This fee has not yet been paid by the Partnership and is included in payable to affiliates on the Balance Sheet at December 31, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------- ---------------------------------------------------------------- See accompanying Index to Financial Statements at Item 8 - Financial Statements and Supplementary Data. (A) Exhibits
Exhibit Number Description ------- ----------- 4. Amended and Restated Limited Partnership Agreement dated March 30, 1992 (incorporated by reference to the Current Report of the registrant on Form 8-K dated March 30, 1992, as filed on April 10, 1992). 10.5 Promissory Note dated October 30, 1985, between Lakeland Associates, Ltd. and Paris Savings and Loan Association relating to Lakeland Nursing Home. (1) 10.6 Loan Participation Agreement dated September 4, 1986, between Southmark Income Investors, Ltd. and Paris Savings and Loan Association relating to Lakeland Nursing Home. (1) 10.7 Promissory Note dated February 28, 1986, between Idlewood Associates, Ltd. and Southern Heritage Life Insurance Company relating to Idlewood Nursing Home. (1) 10.8 Loan Participation Agreement dated September 4, 1986, between Southmark Income Investors, Ltd. and Paris Savings and Loan Association relating to Idlewood Nursing Home. (1) 10.9 Note and Mortgage Modification and Extension Agreement dated December 16, 1997, between McNeil Real Estate Fund XXI, L.P. and McNeil Real Estate Fund XX, L.P. relating to Fort Meigs Plaza.
Exhibit Number Description ------- ----------- 10.10 Loan Agreement dated June 23, 1993, between Lexington Mortgage Company and McNeil Real Estate Fund XX, L.P., et al. (3) 10.11 Property Management Agreement dated June 24, 1993, between McNeil Real Estate Management, Inc. and Sterling Springs Fund XX Limited Partnership (filed without schedules). (4) 10.14 Property Management Agreement dated March 30, 1992, between McNeil Real Estate Fund XX, L.P. and McNeil Real Estate Management, Inc. (2) 10.15 Amendment of Property Management Agreement dated March 5, 1993, by McNeil Real Estate Fund XX, L.P. and McNeil Real Estate Management, Inc. (2) 11. Statement regarding computation of net income per limited partnership unit (see Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies").
22. Following is a list of subsidiaries of the Partnership:
Names Under Jurisdiction Which It Is Name of Subsidiary Of Incorporation Doing Business ------------------ ---------------- -------------- Sterling Springs Fund XX Limited Partnership Delaware None
28. Balance sheet of Fort Meigs Plaza as of December 31, 1997, and the related statements of operations, owner's deficit and cash flows for the years then ended (together with report of independent public accountants). Balance sheet of Fort Meigs Plaza as of December 31, 1996, and the related statements of operations, owner's deficit and cash flows for each of the two years in the period ended December 31, 1996 (unaudited). (1) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the period ended March 31, 1991, as filed on May 14, 1991. (2) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1992, as filed 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 on March 30, 1994. (4) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1993, as filed on March 30, 1994. (B) A Form 8-K with respect to Item 2 dated August 28, 1997, was filed on October 22, 1997 regarding the sale of 1130 Sacramento Condominiums. McNEIL REAL ESTATE FUND XX, L.P. 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 XX, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner March 31, 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 31, 1998 By: /s/ Ron K. Taylor - -------------- ----------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 31, 1998 By: /s/ Carol A. Fahs - -------------- ----------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 12-MOS DEC-31-1997 DEC-31-1997 1,824,293 0 140,025 0 0 0 4,274,558 (1,290,949) 12,112,244 0 2,666,814 0 0 0 8,986,219 12,112,244 1,279,458 3,781,311 672,845 918,004 376,733 0 246,782 2,239,792 0 2,239,792 0 0 0 2,239,792 0 0
EX-28 3 FORT MEIGS PLAZA BALANCE SHEET AS OF DECEMBER 31, 1997 AND STATEMENTS OF OPERATIONS, OWNER'S DEFICIT AND CASH FLOWS FOR THE YEAR THEN ENDED TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS BALANCE SHEET AS OF DECEMBER 31, 1996 AND STATEMENTS OF OPERATIONS, OWNER'S DEFICIT AND CASH FLOWS FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 UNAUDITED REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Owner of Fort Meigs Plaza: We have audited the accompanying balance sheet of Fort Meigs Plaza (a property wholly-owned by McNeil Real Estate Fund XXI, L.P., the "Owner") as of December 31, 1997, and the related statements of operations, changes in owner's deficit and cash flows for the year then ended. These financial statements are the responsibility of the Property's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 Fort Meigs Plaza as of December 31, 1997, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Property will continue as a going concern. As discussed in Note 2 to the financial statements, the Property's Owner is in default on approximately $3.7 million in mortgage note debt that is secured by the Property, and for which no extensions, modifications, or refinancings have yet been negotiated. There is no guarantee that such negotiations can be completed. The Owner's plans in regard to these matters are also described in Note 2. This condition raises substantial doubt about the Property's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Arthur Andersen LLP Dallas, Texas March 20, 1998 FORT MEIGS PLAZA BALANCE SHEETS
December 31, ----------------------------------------- 1997 1996 ----------------- ---------------- (Unaudited) ASSETS ------ Asset held for sale: Land $ 367,193 $ 367,193 Buildings and tenant improvements 4,594,690 4,530,376 ---------------- --------------- 4,961,883 4,897,569 Less: Accumulated depreciation and amortization (2,165,895) (2,165,895) ----------------- ---------------- 2,795,988 2,731,674 Cash 18,953 10,291 Cash segregated for tenant security deposits 10,358 8,383 Accounts receivable 100,314 104,137 Prepaid expenses and other assets 11,654 6,478 ---------------- --------------- $ 2,937,267 $ 2,860,963 ================ =============== LIABILITIES AND OWNER'S DEFICIT ------------------------------- Mortgage note payable $ - $ 3,011,293 Mortgage notes payable - affiliate 3,730,076 733,900 Accrued interest payable 105,655 93,146 Accrued property taxes 75,992 74,880 Accounts payable and other accrued expenses 536 - Accounts payable - affiliate 3,200 3,004 Tenant security deposits and deferred rental revenue 8,850 7,980 --------------- --------------- 3,924,309 3,924,203 Commitments and contingencies Owner's deficit (987,042) (1,063,240) --------------- --------------- $ 2,937,267 $ 2,860,963 ================ ===============
See accompanying notes to financial statements. FORT MEIGS PLAZA STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 (Unaudited) (Unaudited) -------------- --------------- ---------------- REVENUE: Rental revenue $ 682,906 $ 684,195 $ 669,565 ------------- -------------- --------------- EXPENSES: Interest 368,996 386,939 388,851 Interest - affiliates 77,380 61,556 61,388 Depreciation and amortization - 149,474 193,711 Property taxes 74,894 72,539 69,682 Personnel expenses 11,848 8,580 9,855 Repairs and maintenance 41,473 38,454 45,329 Property management fees 41,403 39,308 40,575 Utilities 20,159 20,639 20,717 Other property operating expenses 54,004 22,401 23,640 ------------- ------------- -------------- Total expenses 690,157 799,890 853,748 ------------- ------------- -------------- Net loss $ (7,251) $ (115,695) $ (184,183) ============= ============= ==============
See accompanying notes to financial statements. FORT MEIGS PLAZA STATEMENTS OF CHANGES IN OWNER'S DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
For the Years Ended December 31, ------------------------------------------------------------- 1997 1996 1995 (Unaudited) (Unaudited) --------------- ---------------- ----------------- Balance at beginning of year (unaudited) $ (1,063,240) $ (979,098) $ (815,657) Capital contributed 816,419 693,522 693,133 Capital distributed (732,970) (661,969) (672,391) Net loss (7,251) (115,695) (184,183) -------------- ------------- -------------- Balance at end of year $ (987,042) $ (1,063,240) $ (979,098) ============== ============= ==============
See accompanying notes to financial Statements. FORT MEIGS PLAZA STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 (Unaudited) (Unaudited) --------------- --------------- --------------- Cash flows from operating activities: Cash received from tenants.............. $ 685,624 $ 652,870 $ 673,073 Cash paid to suppliers.................. (132,226) (94,652) (95,555) Cash paid to affiliates................. (41,207) (39,772) (40,352) Interest paid........................... (384,879) (386,688) (388,280) Interest paid to affiliate.............. (48,886) (48,886) (48,886) Property taxes paid..................... (73,782) (72,546) (70,697) -------------- -------------- --------------- Net cash provided by operating activities.............................. 4,644 10,326 29,303 ------------- ------------- -------------- Cash flows from investing activities: Additions to buildings and tenant Improvements.......................... (64,314) (30,956) (28,685) ------------- ------------- -------------- Cash flows from financing activities: Principal payments on mortgage note payable.......................... (15,117) (13,308) (11,716) Capital contributed..................... 816,419 693,522 693,133 Capital distributed..................... (732,970) (661,969) (672,391) -------------- ------------- -------------- Net cash provided by financing activities.. 68,332 18,245 9,026 ------------- ------------- -------------- Net increase (decrease) in cash............ 8,662 (2,385) 9,644 Cash at beginning of year.................. 10,291 12,676 3,032 ------------- ------------- -------------- Cash at end of year........................ $ 18,953 $ 10,291 $ 12,676 ============= ============= ==============
See accompanying notes to financial statements. FORT MEIGS PLAZA STATEMENTS OF CASH FLOWS Reconciliation of Net Loss to Net Cash Provided by Operating Activities
For the Years Ended December 31, ----------------------------------------------------- 1997 1996 1995 (Unaudited) (Unaudited) --------------- --------------- ----------------- Net loss................................... $ (7,251) $ (115,695) $ (184,183) ------------- ------------- --------------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........... - 149,474 193,711 Amortization of deferred borrowing costs................................. 102 393 360 Changes in assets and liabilities: Cash segregated for tenant security deposits................... (1,975) (3,447) 3,551 Accounts receivable................... 3,823 (30,123) 2,267 Prepaid expenses and other assets.............................. (5,278) (2,022) 1,430 Accrued interest payable.............. 12,509 12,528 12,713 Accrued property taxes................ 1,112 (7) (1,015) Accounts payable and other accrued expenses.................... 536 (2,556) 2,556 Accounts payable - affiliates......... 196 (464) 223 Tenant security deposits and deferred rental revenue............. 870 2,245 (2,310) ------------- ------------- --------------- Total adjustments..................... 11,895 126,021 213,486 ------------- ------------- -------------- Net cash provided by operating activities.............................. $ 4,644 $ 10,326 $ 29,303 ============= ============= ==============
See accompanying notes to financial statements. FORT MEIGS PLAZA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 Note 1 - Organization and Summary of Significant Accounting Policies - -------------------------------------------------------------------- Organization ------------ Fort Meigs Plaza (the "Property") is wholly-owned by McNeil Real Estate XXI, L.P. (the "Owner"). The Property is a 104,990 square foot strip shopping center located in Perrysburg, Ohio, a city lying just outside of Toledo, Ohio. 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 accompanying financial statements have been prepared from the records of the Property and include its assets, liabilities, revenues and expenses. The accompanying financial statements do not include assets, liabilities, revenues or expenses pertaining to the operation of the Owner or of other properties in which the Owner has an ownership interest. Buildings and Tenant Improvements --------------------------------- The Property's buildings and tenant improvements are stated at cost less accumulated depreciation and amortization through October 1, 1996. Depreciation and amortization were computed principally on a straight-line basis over the estimated useful lives of the related assets, which ranged from 5 to 25 years. Tenant improvements were amortized over the life of the respective lease or the estimated useful lives of the improvements, whichever was shorter. The Owner placed the Property on the market for sale October 1, 1996. 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," depreciation and amortization ceased on that date. Revenue Recognition ------------------- The Property leases its units 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 is included in accounts receivable on the Balance Sheet. Future minimum rents to be received as of December 31, 1997 are as follows: 1998.............................. $ 573,846 1999.............................. 498,124 2000.............................. 375,223 2001.............................. 337,222 2002.............................. 60,201 Thereafter........................ 362,875 -------------- Total........................... $ 2,207,491 ============== Future minimum rents do not include contingent rentals based on sales volume of tenants. Contingent rents amounted to $50,026 for the year ended December 31, 1997. Future minimum rents also do not include expense reimbursements for common area maintenance, property taxes, and other expenses. These expense reimbursements amounted to $65,786 for the year ended December 31, 1997. These contingent rents and expense reimbursements are included in rental revenue on the Statements of Operations. Note 2 - Mortgage Notes Payable - Affiliate - ------------------------------------------- The following sets forth the mortgage notes payable - affiliate of the Owner of the Property at December 31, 1997. The mortgage notes are in the Owner's name and are secured by the Property.
Mortgage Annual Monthly Lien Interest Payments/ Position(a) Rates % Maturity - ----------- -------- ---------- First 12.81 $33,333 03/98 $ 2,996,176 Second 8.25 $4,073(b) 09/97 733,900 -------------- $ 3,730,076 ==============
(a) The debt is non-recourse to the Owner. (b) Payments are interest-only equal to an effective interest rate of 6.66%. All accrued interest is due at maturity. In December 1997, McNeil Real Estate Fund XX, L.P. ("Fund XX"), the affiliated partnership of the Owner that holds the second lien mortgage secured by the Property, purchased the first lien mortgage note from the unaffiliated lender. The Owner is in default on payment of both the first and second liens on the Property as the notes matured on March 1, 1998 and September 1, 1997, respectively. The Property is currently on the market for sale and the Owner has received an offer from a non-affiliate to purchase the property for $3.8 million. The Owner will continue to make regularly scheduled debt service payments on the first and second lien mortgage notes until the Property can be sold. If the pending sales transaction is not completed, the Owner will attempt to renegotiate the terms of the affiliate debt. However, such refinancing may be at an interest rate which is higher, or otherwise on terms which are less favorable than those provided by the current mortgage. Furthermore, if alternative financing cannot be obtained, the affiliate lender could foreclose on the Property which secures the mortgage. Management believes the possibility of this outcome is unlikely. Note 3 - Transactions with Affiliates - ------------------------------------- Property Management Fees ------------------------ The Owner pays property management fees of 6% of gross receipts of the Property to McNeil Real Estate Management, Inc., an affiliate of the Owner, for providing property management and leasing services to the Property. Accounts Payable - Affiliate ---------------------------- Accounts payable - affiliate at December 31, 1997 consists of property management fees which are due and payable from current operations. Note 4 - Commitments and Contingencies - -------------------------------------- The Property is engaged in legal actions arising from the normal course of business. In management's opinion, the Property has adequate legal defenses with respect to these actions, and the resolution of these matters should have no material adverse effects upon the results of operations or financial condition of the Property. EX-10.9 4 NOTE AND MORTGAGE MODIFICATION AND EXTENSION AGREEMENT WHEREAS, SOUTHMARK REALTY PARTNERS, LTD., a California limited partnership n/k/a McNEIL REAL ESTATE FUND XXI, L.P., having an address at 13760 Noel Road, Suite 600, LB 70, Dallas, Texas 75240 (hereinafter referred to as "Maker") executed a Purchase Money Promissory Note, dated October 15, 1984, payable to the order of LURU COMPANY, an Ohio partnership, and KERMIT C. RUDOLPH and NANCY RUDOLPH, having an address at 3 Maple Street, Perrysburg, Ohio (hereinafter collectively referred to as "LuRu"), in the original principal amount of THREE MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($3,400,000.00), together with interest on the unpaid principal balance thereof at the rate therein provided (the "Note"); and WHEREAS, the Note is secured by a Mortgage dated October 15, 1984 (the "Mortgage") between the Maker, as mortgagor, and LuRu, as mortgagee, that conveys to the mortgagee a first in priority lien on real estate situated in Perrysburg Township, Wood County, State of Ohio and the improvements situated thereon and appurtenances thereto and creates a security interest in certain personal property used in connection with such real property, which real and personal property are more fully described in the Mortgage; and WHEREAS, the Note provides that the entire outstanding principal balance of the Note and all accrued and unpaid interest thereon shall be due and payable on December 15, 1997 (the "Maturity Date"); and WHEREAS, the Mortgage provides that the Mortgage shall be and remain in full force and effect, and a continuing lien until the Note obligation so secured and all renewals and extensions thereof have been paid in full; and WHEREAS, LuRu assigned all of its right, title and interest in the Mortgage, together with the indebtedness secured by the Mortgage, to McNeil Real Estate Fund XX, L.P., a California limited partnership ("Assignee") by way of Assignment of Mortgage executed to be effective December 4, 1997; and WHEREAS, as of December 15, 1997, the principal balance of the Note was Two Million Nine Hundred Ninety-Seven Thousand Five Hundred Ten and 91/100 Dollars ($2,997,510.91) and the balance of accrued interest was Thirty-One Thousand Nine Hundred Ninety-Eight and 43/100 Dollars ($31,998.43); NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Maturity Date of the Note is hereby extended to March 1, 1998. A payment of Thirty-Three Thousand Three Hundred Thirty-Three and No/100 Dollars ($33,333.00) shall continue to be due and payable on the fifteenth (15th) day of each month hereafter through and including March 1, 1998. Interest accruing before and after October 15, 1997 until March 1, 1998 shall be payable at the pre-Maturity Date rate as provided in the Note. 2. The Mortgage and any other documents evidencing, governing, securing or guaranteeing the Loan evidenced by the Note (collectively, the "Loan Instruments") are amended and modified in a manner consistent with the modifications contained herein. All references to the Note in the Mortgage and any other Loan Instruments shall be deemed to be references to the Note as modified hereby and all references in the Note to the Mortgage or any other Loan Instruments shall be deemed to be references to the Mortgage and any other Loan Instruments as modified hereby. 3. Except as expressly extended hereby, the terms and conditions of the Note and the other Loan Instruments are and will remain in full force and effect. This Note and Mortgage Modification and Extension Agreement is executed as of the date set forth in the acknowledgments below. MAKER: McNEIL REAL ESTATE FUND XXI, L.P., a California limited partnership By: McNEIL PARTNERS, L.P., a Delaware limited partnership, General Partner By: McNEIL INVESTORS, INC., a Delaware corporation, General Partner By: /s/ Ron K. Taylor -------------------------------- Ron K. Taylor, President ASSIGNEE: McNEIL REAL ESTATE FUND XX, L.P., a California limited partnership By: McNEIL PARTNERS, L.P., a Delaware limited partnership, General Partner By: McNEIL INVESTORS, INC., a Delaware corporation, General Partner By: /s/ Ron K. Taylor -------------------------------- Ron K. Taylor, President STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on this 16th day of December, 1997, by RON K. TAYLOR, President of McNEIL INVESTORS, INC., a Delaware corporation, as general partner of McNEIL PARTNERS, L.P., a Delaware limited partnership, as general partner of McNEIL REAL ESTATE FUND XXI, L.P., a California limited partnership, for and on behalf of said corporation and limited partnerships. /s/ Mary K. Schwartz -------------------------------------------- Notary Public, State of Texas Mary K. Schwartz -------------------------------------------- Notary's Printed Name My Commission Expires: -------------------------------------------- August 3, 2001 Notary Stamp Here STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on this 16th day of December, 1997, by RON K. TAYLOR, President of McNEIL INVESTORS, INC., a Delaware corporation, as general partner of McNEIL PARTNERS, L.P., a Delaware limited partnership, as general partner of McNEIL REAL ESTATE FUND XX, L.P., a California limited partnership, for and on behalf of said corporation and limited partnerships. /s/ Mary K. Schwartz -------------------------------------------- Notary Public, State of Texas Mary K. Schwartz -------------------------------------------- Notary's Printed Name My Commission Expires: -------------------------------------------- August 3, 2001 Notary Stamp Here -----END PRIVACY-ENHANCED MESSAGE-----