-----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, FzAQqE7zob+kihS5yf1TMdhMlKEFPry6XGRICu24lbhW6Tm8O7TDvXEDPeVDwoOc YiJrLIBvxHeUosoHB6YYVg== 0000750334-99-000015.txt : 19991117 0000750334-99-000015.hdr.sgml : 19991117 ACCESSION NUMBER: 0000750334-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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-Q SEC ACT: SEC FILE NUMBER: 000-14007 FILM NUMBER: 99752101 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 600 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9724485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD SUITE 600 LB 70 STREET 2: 13760 NOEL ROAD SUITE 600 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK INCOME INVESTORS LTD DATE OF NAME CHANGE: 19920413 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------------------------------ 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 ---------------------------- Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- MCNEIL REAL ESTATE FUND XX, L.P. BALANCE SHEETS (Unaudited)
September 30, December 31, 1999 1998 ------------ ------------ ASSETS - ------ Real estate investment: Land .................................................... $ 392,000 $ 392,000 Buildings and improvements .............................. 4,059,990 3,981,407 ----------- ----------- 4,451,990 4,373,407 Less: Accumulated depreciation ......................... (1,696,013) (1,525,208) ----------- ----------- 2,755,977 2,848,199 Cash and cash equivalents .................................. 1,710,453 3,070,785 Cash segregated for security deposits ...................... 34,066 28,773 Accounts receivable ........................................ 5,602 6,603 Escrow deposits ............................................ 134,336 180,267 Deferred borrowing costs, net of accumulated amortization of $88,882 and $76,154 at September 30, 1999 and December 31, 1998, respectively ............................................ 72,612 85,340 Prepaid expenses and other assets .......................... 10,174 5,500 ----------- ----------- $ 4,723,220 $ 6,225,467 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage note payable, net ................................. $ 2,570,101 $ 2,613,312 Accounts payable and other accrued expenses ................ 60,559 52,848 Accrued property taxes ..................................... 107,194 142,490 Payable to affiliates ...................................... 368,695 376,849 Security deposits and deferred rental revenue .............. 35,563 27,702 ----------- ----------- 3,142,112 3,213,201 ----------- ----------- Partners' equity (deficit): Limited partners - 60,000 limited partnership units authorized; 49,512 limited partnership units issued and outstanding at September 30, 1999 and December 31, 1998 ............................ 1,864,297 3,296,145 General Partner ......................................... (283,189) (283,879) ----------- ----------- 1,581,108 3,012,266 ----------- ----------- $ 4,723,220 $ 6,225,467 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XX, L.P. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenue: Rental revenue ................. $ 350,079 $ 320,966 $ 998,464 $ 967,846 Interest income on mortgage loan investments .............. -- 42,092 -- 180,872 Interest income on mortgage loan investments - affiliate .. -- -- -- 108,214 Other interest income .......... 18,518 93,607 70,672 178,719 Gain on extinguishment of mortgage loan investment ...... -- -- -- 1,025,833 ---------- ---------- ---------- ---------- Total revenue ............... 368,597 456,665 1,069,136 2,461,484 ---------- ---------- ---------- ---------- Expenses: Interest ....................... 59,714 60,677 180,166 182,975 Depreciation ................... 56,919 57,626 170,805 176,863 Property taxes ................. 35,826 41,046 107,478 118,984 Personnel costs ................ 37,120 37,242 116,007 111,316 Utilities ...................... 17,125 23,175 56,928 63,350 Repairs and maintenance ........ 25,407 30,005 85,669 87,283 Property management fees - affiliates ............. 16,376 15,944 48,131 45,976 Other property operating expenses ...................... 14,493 20,835 44,717 57,127 General and administrative ..... 16,840 39,384 54,874 202,584 General and administrative - affiliates .................... 47,717 30,412 135,318 161,538 ---------- ---------- ---------- ---------- Total expenses .............. 327,537 356,346 1,000,093 1,207,996 ---------- ---------- ---------- ---------- Net income ........................ $ 41,060 $ 100,319 $ 69,043 $1,253,488 ========== ========== ========== ========== Net income allocable to limited partners ............ $ 40,650 $ 99,316 $ 68,353 $1,240,953 Net income allocable to General Partner ............. 410 1,003 690 12,535 ---------- ---------- ---------- ---------- Net income ........................ $ 41,060 $ 100,319 $ 69,043 $1,253,488 ========== ========== ========== ========== Net income per limited partnership unit ............... $ .82 $ 2.00 $ 1.38 $ 25.06 ========== ========== ========== ========== Distributions per limited partnership unit ............... $ -- $ 116.14 $ 30.30 $ 146.08 ========== ========== ========== ==========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XX, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) (Unaudited) For the Nine Months Ended September 30, 1999 and 1998
Total General Limited Partners' Partner Partners Equity (Deficit) ------------ ------------ ---------------- Balance at December 31, 1997 ............. $ (296,465) $ 9,282,684 $ 8,986,219 Net income ............................... 12,535 1,240,953 1,253,488 Distributions to limited partners ........ -- (7,232,590) (7,232,590) ----------- ----------- ----------- Balance at September 30, 1998 ............ $ (283,930) $ 3,291,047 $ 3,007,117 =========== =========== =========== Balance at December 31, 1998 ............. $ (283,879) $ 3,296,145 $ 3,012,266 Net income ............................... 690 68,353 69,043 Distributions to limited partners......... -- (1,500,201) (1,500,201) ----------- ----------- ----------- Balance at September 30, 1999 ............ $ (283,189) $ 1,864,297 $ 1,581,108 =========== =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XX, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended September 30, -------------------------------- 1999 1998 ------------ ------------ Cash flows from operating activities: Cash received from tenants ..................... $ 1,006,266 $ 1,006,444 Cash paid to suppliers ......................... (344,016) (539,235) Cash paid to affiliates ........................ (191,603) (91,780) Interest received .............................. 70,672 375,076 Interest received from affiliate ............... -- 184,958 Interest paid .................................. (161,079) (165,000) Property taxes paid ............................ (284) (280) Property taxes escrowed ........................ (111,595) (115,800) ----------- ----------- Net cash provided by operating activities ......... 268,361 654,383 ----------- ----------- Cash flows from investing activities: Additions to real estate investment ............ (78,583) (47,877) Collection of principal on mortgage loan investments .................................. -- 53,364 Proceeds from payoff of mortgage loan investment ................................... -- 4,241,181 Collection of principal on mortgage loan investments - affiliate ...................... -- 9,126 Proceeds from payoff of mortgage loan investments - affiliate ...................... -- 3,570,896 ----------- ----------- Net cash provided by (used in) investing activities .................................. (78,583) 7,826,690 ----------- ----------- Cash flows from financing activities: Principal payments on mortgage note payable .... (49,909) (46,017) Distributions to limited partners .............. (1,500,201) (7,232,590) ----------- ----------- Net cash used in financing activities ............. (1,550,110) (7,278,607) ----------- ----------- Net increase (decrease) in cash and cash equivalents .................................... (1,360,332) 1,202,466 Cash and cash equivalents at beginning of period ......................................... 3,070,785 1,824,293 ----------- ----------- Cash and cash equivalents at end of period ........ $ 1,710,453 $ 3,026,759 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XX, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Income to Net Cash Provided by Operating Activities
Nine Months Ended September 30, ------------------------------- 1999 1998 ------------ ----------- Net income ........................................... $ 69,043 $ 1,253,488 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ...................................... 170,805 176,863 Amortization of deferred borrowing costs .......... 12,728 11,949 Amortization of discount on mortgage note payable ......................................... 6,698 6,366 Gain on extinguishment of mortgage loan investment ...................................... -- (1,025,833) Changes in assets and liabilities: Cash segregated for security deposits ........... (5,293) 1,914 Accounts receivable ............................. 1,001 134,062 Escrow deposits ................................. 45,931 24,207 Prepaid expenses and other assets ............... (4,674) -- Accounts payable and other accrued expenses ...................................... 7,711 (18,694) Accrued property taxes .......................... (35,296) (18,065) Payable to affiliates ........................... (8,154) 115,734 Deferred revenue ................................ -- (7,175) Security deposits and deferred rental revenue ....................................... 7,861 (433) ----------- ----------- Total adjustments ............................. 199,318 (599,105) ----------- ----------- Net cash provided by operating activities ............ $ 268,361 $ 654,383 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XX, L.P. Notes to Financial Statements (Unaudited) September 30, 1999 NOTE 1. - ------- 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 Uniform Limited Partnership Act. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, Dallas, Texas 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1998, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XX, L.P., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. NOTE 3. - ------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services. Under the terms of its partnership agreement, the Partnership pays a disposition fee to an affiliate of the General Partner equal 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 were paid in the first quarter of 1999 and were included in payable to affiliates on the Balance Sheet at December 31, 1998. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. The Partnership is paying an asset management fee which is payable 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% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter. Total accrued but unpaid asset management fees of $208,977 and $148,528 were outstanding at September 30, 1999 and December 31, 1998, respectively. Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows:
Nine Months Ended September 30, ------------------------ 1999 1998 -------- -------- Property management fees ......................... $ 48,131 $ 45,976 Charged to general and administrative - affiliates: Partnership administration .................... 64,392 81,188 Asset management fee .......................... 70,926 80,350 -------- -------- $183,449 $207,514 ======== ========
Payable to affiliates at September 30, 1999 and December 31, 1998 consisted primarily of unpaid property management fees, disposition fees (1998 only), Partnership general and administrative expenses and asset management fees and is due and payable from current operations. NOTE 4. - ------- The Partnership's mortgage loan investments - affiliate were secured by first and second liens on Fort Meigs Plaza Shopping Center, which was owned by an affiliate of the General Partner. On April 20, 1998, Fort Meigs Plaza was sold to a non-affiliate for a gross sales price of $3.8 million. The Partnership received $3,615,353 as payment in full for both principal and interest receivable on the loans, which represented the available cash proceeds from the sale of the property. $3,570,896 of this payment was applied to the principal balance of the loans and the remaining $44,457 was applied to accrued interest receivable. NOTE 5. - ------- The mortgage loan investment secured by Idlewood Nursing Home matured in February 1998. On May 1, 1998, the Partnership received $2.4 million from the borrower as payment in full for both principal and interest receivable on the loan (the actual balance of the loan was greater than the book value). Since the Partnership owned an 83% participation interest in the note, $408,000 of the $2.4 million settlement was paid to the owner of the remaining 17% of the note, resulting in a net $1,992,000 received as payment on the note. NOTE 6. - ------- On August 20, 1998, the Partnership received $2,541,572 as payment in full for both principal and interest receivable on the mortgage loan investment secured by Lakeland Nursing Home. Since the Partnership owned a 90% participation interest in the note, $254,157 of the payoff was paid to the owner of the remaining 10% of the note. Of the $2,287,415 net proceeds received, $2,249,181 was applied to the principal balance of the loan and the remaining amount was applied to accrued interest receivable. NOTE 7. - ------- On June 24, 1999, the Partnership and 18 affiliated partnerships, collectively (the "Partnerships"), the General Partner, McNeil Investors, Inc., McNeil Real Estate Management, Inc. ("McREMI"), McNeil Summerhill, Inc. and Robert A. McNeil entered into a definitive acquisition agreement (the "Master Agreement") with WXI/McN Realty L.L.C. ("Newco"), an affiliate of Whitehall Street Real Estate Limited Partnership XI, a real estate investment fund managed by Goldman, Sachs & Co., whereby Newco and its subsidiaries will acquire the Partnerships. The Master Agreement provides that the Partnerships will be merged with subsidiaries of Newco. The Master Agreement also provides for the acquisition by Newco and its subsidiaries of the assets of McREMI. The aggregate consideration in the transaction, including the assumption or prepayment of all outstanding mortgage debt of the Partnerships, is approximately $644,440,000. Pursuant to the terms of the Master Agreement, the limited partners in the Partnership will receive cash on the closing date of the transaction (the "Closing Date") in exchange for their limited partnership interests. In addition, the Partnership will declare a special distribution to its limited partners on the Closing Date equal to its then positive net working capital balance, if any. The estimated aggregate consideration and net working capital distribution to be received per unit of limited partnership interest in the Partnership were estimated as $92. The above estimates of the Partnership per unit estimated merger consideration and working capital distribution and the interest of McNeil Partners, L.P. are based upon, among other things, the balance sheet of the Partnership as of March 31, 1999, adjusted for intangible assets, non-cash liabilities, transaction expenses and the McNeil Partners, L.P. interest in the Partnership. Actual amounts, including the estimate allocable to McNeil Partners, L.P., will vary with the performance of the Partnership and McNeil Partners, L.P. through the closing date. The above estimated merger consideration and special working capital distribution will be adjusted at closing to reflect the then working capital position of the Partnership. On the Closing Date, the General Partner of the Partnership, will receive an equity interest in Newco in exchange for its contribution to Newco of the general partnership interests in the Partnerships, the limited partnership interests in Fairfax Associates II L.P. and McNeil Summerhill Associates and the assets of McREMI. The Partnership's participation in the transaction is subject to, among other conditions, the approval by a majority of the limited partners of the Partnership. In some circumstances, as defined in the Master Agreement, the Partnerships may be subject to a break-up fee, up to an aggregate maximum of $18,000,000, if the Master Agreement is terminated with respect to one or more of the Partnerships. In the case of termination of the Master Agreement in these circumstances, each of the Partnerships with respect to which the Master Agreement has been terminated will be severally, but not jointly, liable for payment to Newco of its respective break-up fee. The break-up fee ratably calculated for the Partnership is $179,226. All previous costs associated with this transaction had been allocated among the Partnerships and McREMI based on the relative number of properties contained therein. On June 24, 1999, a fairness opinion (the "Fairness Opinion") was rendered by Robert A. Stanger & Co., Inc., an independent financial advisor, to the effect that the aggregate consideration to be paid for the general partnership interests and limited partnership interests in all of the Partnerships and the assets of McREMI is fair from a financial point of view to the holders of each class of limited partnership interests. Based on the relative values as set forth in the Fairness Opinion, the Partnership recorded an adjustment to general and administrative expenses during the second quarter of 1999 in the amount of $(121,397) to reflect the reallocation of previously paid transaction costs among the Partnerships and McREMI. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- There has been no significant change in the operations of Sterling Springs Apartments, the Partnership's only property. The Partnership's mortgage loan investments - affiliate secured by Fort Meigs Plaza were repaid in April 1998. The Partnerships two mortgage loan investments secured by Idlewood Nursing Home and Lakeland Nursing Home were repaid in May 1998 and August 1998, respectively. The Partnership reported net income of $69,043 for the first nine months of 1999 as compared to $1,253,488 for the same period in 1998. Revenues for the first nine months of 1999 decreased to $1,069,136 from $2,461,484 for the first nine months of 1998, while expenses were $1,000,093 for the first nine months of 1999 as compared to $1,207,996 for the same period in 1998. Net cash provided by operating activities was $268,361 for the nine months ended September 30, 1999. The Partnership expended $78,583 for capital improvements, made $49,909 in principal payments on its mortgage note payable and distributed $1,500,201 to the limited partners. Cash and cash equivalents totaled $1,710,453 at September 30, 1999, a net decrease of $1,360,332 from the balance at December 31, 1998. RECENT DEVELOPMENTS - ------------------- On June 24, 1999, McNeil Partners, L.P. (the General Partner of the Partnership) and WXI/McN Realty L.L.C., an affiliate of Whitehall Street Real Estate Limited Partnership XI ("Whitehall"), a real estate investment fund managed by Goldman, Sachs & Co., announced that they have entered into a definitive acquisition agreement whereby the Whitehall affiliate will acquire by merger nineteen real estate limited partnerships operated by McNeil Partners, L.P. and Robert A. McNeil. The limited partnerships involved are the Partnership and McNeil Real Estate Funds IX, X, XI, XII, XIV, XV, XXI, XXII, XXIII, XXIV, XXV, XXVI and XXVII, Hearth Hollow Associates, McNeil Midwest Properties I, L.P., Regency North Associates, Fairfax Associates and McNeil Summerhill (collectively, the "Partnerships"). The Partnerships (other than Fairfax Associates and McNeil Summerhill which are wholly-owned by Robert A. McNeil and related parties) will be merged with subsidiaries of WXI/McN Realty L.L.C. The acquisition agreement also provides for the acquisition by WXI/McN Realty L.L.C. of the assets of McNeil Real Estate Management, Inc. ("McREMI"). The aggregate consideration in the transaction, including all outstanding mortgage debt of the Partnerships, is approximately $644,440,000. Pursuant to the terms of the acquisition agreement, the limited partners in each of the Partnerships (other than those wholly-owned by Robert A. McNeil) will receive cash on the closing date of the transaction in exchange for their limited partnership interests. In addition, each Partnership will make a special distribution to its limited partners on the closing date of the transaction equal to its then net positive working capital balance. McNeil Partners, L.P. will receive an equity interest in WXI/McN Realty L.L.C. in exchange for its contribution of its general partnership interests in the Partnerships, the limited partnership interests in its wholly-owned Partnerships and the assets of McREMI. The proposed transaction follows an extensive marketing effort by PaineWebber Incorporated, exclusive financial advisor to the Partnerships. The transaction has been unanimously approved by the Board of Directors of McNeil Investors, Inc., the general partner of McNeil Partners, L.P., the general partner of each of the Partnerships other than Regency North Associates, Fairfax Associates and McNeil Summerhill. The respective general partners of Regency North Associates, Fairfax Associates and McNeil Summerhill also have approved the transaction. The Board of Directors of McNeil Investors, Inc. based its approval upon, among other things, the recommendation of a Special Committee of the Board, appointed at the beginning of the discussions with Whitehall to represent the interests of holders of limited partnership interests in each of the Partnerships. In addition, the Special Committee and the Board relied upon fairness opinions given by Robert A. Stanger & Co., Inc. ("Stanger & Co."), an independent financial advisor to the Partnerships, to the effect that the aggregate consideration is fair to the holders of each class of limited partnership interests in each of the Partnerships. The Special Committee's recommendation was also based upon the separate opinions of Eastdil Realty Company ("Eastdil"), the independent financial advisor to the Special Committee. Stanger & Co. and Eastdil have each also rendered an opinion that the aggregate consideration to be paid for the general partnership interests and limited partnership interests in all of the Partnerships and the assets of McREMI is fair from a financial point of view to the holders of each class of limited partnership interests in each of the Partnerships. Each of the Partnerships' participation in the transaction is subject to, among other conditions, the approval by a majority of the limited partners of the respective Partnerships. The approval of the limited partners of the Partnerships will be sought at meetings to be held in the coming months after the filing of proxy statements with the Securities and Exchange Commission with respect to the publicly traded Partnerships, and the subsequent mailing of proxy statements to the limited partners. Preliminary proxy statements were filed with the SEC on August 3, 1999 and amended proxy statements were filed September 30, 1999, October 21, 1999 and November 10, 1999. The aggregate consideration in the transaction has been allocated preliminarily among the general partnership interests and the limited partnership interests in each of the Partnerships and McREMI, based upon an allocation analysis prepared by Stanger & Co. and confirmed by Eastdil. Based upon this allocation analysis and the fairness opinions rendered by Stanger & Co. and Eastdil, the Special Committee, the Board of Directors of McNeil Investors, Inc., the respective general partners of Regency North Associates, Fairfax Associates and McNeil Summerhill have each unanimously approved the allocation of the aggregate consideration. The estimated aggregate consideration and working capital distribution to be received per unit of limited partnership interest of the Partnership were estimated as $92. McNeil Partners, L.P. will contribute its real estate investment and management company business to a subsidiary of WXI/McN Realty, L.L.C., along with its general partnership interests in the Partnerships and its limited partnership interests in the wholly-owned Partnerships, having an aggregate allocated value, as determined by Stanger & Co., of approximately $58,640,000, of which approximately $29,400,000 reflects balances due to McNeil Partners, L.P. and McREMI as reflected on the Partnerships' financial statements as of March 31, 1999. The above estimates of the Partnership per unit estimated merger consideration and working capital distribution and the interest of McNeil Partners, L.P. are based upon, among other things, the balance sheet of the Partnership as of March 31, 1999, adjusted for intangible assets, non-cash liabilities, transaction expenses and the McNeil Partners, L.P. interest in the Partnership. Actual amounts, including the estimate allocable to McNeil Partners, L.P., will vary with the performance of the Partnership and McNeil Partners, L.P. through the closing date. The above estimated merger consideration and special working capital distribution will be adjusted at closing to reflect the then working capital position of the Partnership. Whitehall is a $2.26 billion equity fund and is the seventh in a series of funds sponsored and capitalized by Goldman, Sachs & Co. and its affiliates, along with public and private investors, to acquire real estate worldwide. RESULTS OF OPERATIONS - --------------------- Revenue: Total revenue decreased by $88,068 and $1,392,348 for the three and nine months ended September 30, 1999, respectively, as compared to the same periods in 1998. The decrease was mainly due to a gain on extinguishment of mortgage loan investment recognized in 1998. In addition, there was a decrease in interest income on mortgage loan investments, mortgage loan investments - affiliate and other interest income, as discussed below. Interest income on mortgage loan investments recognized in 1998 relates to the Lakeland Nursing Home mortgage loan investment, which was repaid by the borrower in August 1998. For the three and nine months ended September 30, 1998, the Partnership recorded $42,092 and $180,872, respectively, of interest income related to this loan. No such interest income on mortgage loan investments was recorded in the three and nine months ended September 30, 1999. Although the Idlewood Nursing Home mortgage loan investment was also repaid by the borrower in 1998, no interest was accrued on this loan in 1998. Interest income on mortgage loan investments - affiliate recognized in 1998 relates to the Fort Meigs Plaza mortgage loan investments, which were repaid by the borrower in April 1998. The Partnership recorded $108,214 of interest income related to these loans in the first quarter of 1998. No interest income related to these loans was recorded in the second quarter of 1998 as it was determined to be uncollectible. Other interest income decreased by $75,089 and $108,047 for the three and nine months ended September 30, 1999, respectively, as compared to the same periods in 1998, due to a decrease in cash available for short-term investment. The Partnership held approximately $1.7 million of cash and cash equivalents at September 30, 1999 as compared to approximately $3.0 million at September 30, 1998. Expenses: Total expenses for the three and nine month periods ended September 30, 1999 decreased by $28,809 and $207,903, respectively, in relation to the same periods in 1998. The decrease was mainly due to decreases in utilities, other property operating expenses, general and administrative expenses and general and administrative affiliates, as discussed below. For the three and nine months ended September 30, 1999, utilities decreased by $6,050 and $6,422, respectively, as compared to the same periods in 1998, mainly due to a decrease in water usage in the most recent quarter. Other property operating expenses decreased by $6,342 and $12,410 for the three and nine months ended September 30, 1999, respectively, as compared to the same periods in the prior year. The decrease was mainly due to a decrease in property insurance costs at Sterling Springs Apartments in 1999. General and administrative expenses for the three and nine months ended September 30, 1999 decreased by $22,544 and $147,710, respectively, in relation to the same periods in 1998. The decrease was mainly due to a $(121,397) reallocation of previously paid transaction costs among the Partnerships and McREMI in the second quarter of 1999, as discussed in Item 1, Note 7. General and administrative expenses - affiliates increased by $17,305 and decreased by $26,220 for the three and nine month periods ended September 30, 1999, respectively, in relation to the same periods in 1998. The overall decrease was mainly due to a decrease in asset management fees due to a decline in the tangible asset value of the Partnership, on which the fees are based, due to the payoff of the Partnership's mortgage loan investments and mortgage loan investments - affiliate in 1998. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership generated $268,361 of cash through operating activities for the first nine months of 1999 as compared to $654,383 generated during the first nine months of 1998. The decrease in 1999 was partially due to a decrease in interest received on the Lakeland Nursing Home loan and interest received from an affiliate on the Fort Meigs Plaza loans (see discussions of decreases in interest income on mortgage loan investments and mortgage loan investments - affiliate, above). In addition, the Partnership paid $124,500 of disposition fees to the General Partner in the first quarter of 1999 as discussed in Item 1, Note 3. These decreases in cash provided by operating activities were partially offset by a decrease in cash paid to suppliers due to a decline in general and administrative expenses, as discussed above. The Partnership expended $78,583 and $47,877 for additions to its real estate investment in the first nine months of 1999 and 1998, respectively. The greater amount spent in the first nine months of 1999 was mainly due to the replacement of retaining walls at Sterling Springs Apartments. In the first nine months of 1998, the Partnership collected $53,364 of principal on mortgage loan investments. No such collections were made in 1999 since the Idlewood Nursing Home loan was repaid in May 1998 and the Lakeland Nursing Home loan was repaid in August 1998. In May 1998, the Partnership received a net $1,992,000 from the borrower as payment in full for both principal and interest receivable on its 83% participation interest in the Idlewood Nursing Home mortgage loan investment. In August 1998, the Partnership received a net $2,249,181 from the borrower as payment in full for both principal and interest receivable on its 90% participation interest in the Lakeland Nursing Home mortgage loan investment. No such repayments were received in the first nine months of 1999. In April 1998, the Partnership received $3,570,896 to payoff the principal balance of the Fort Meigs Plaza mortgage loan investments - affiliate. No such repayments were received in the first nine months of 1999. The Partnership distributed $1,500,201 and $7,232,590 to the limited partners during the nine months ended September 30, 1999 and 1998, respectively. Short-term liquidity: At September 30, 1999, the Partnership held cash and cash equivalents of $1,710,453. This balance provides a reasonable level of working capital for the Partnership's immediate needs in operating its remaining property. In 1999, 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 its value and competitiveness in the market. Capital improvements to Sterling Springs in 1999 are expected to be funded from operations of the property. Additional efforts to maintain and improve Partnership liquidity have included continued attention to property management activities. The objective has been to obtain maximum occupancy rates while holding expenses to levels necessary to maximize cash flows. The Partnership has made capital expenditures on its property where improvements were expected to increase the competitiveness and marketability of the property. Long-term liquidity: The Partnership's property, Sterling Springs Apartments, is encumbered with mortgage debt. The mortgage is not due until 2003. While the outlook for maintenance of adequate levels of liquidity is favorable, should operations deteriorate and present cash resources be insufficient for current needs, the Partnership would require other sources of working capital. No such sources have been identified. The Partnership has no established lines of credit from outside sources. Other possible actions to resolve cash deficiencies include refinancings, deferral of capital expenditures on the Partnership's property except where improvements are expected to increase the competitiveness and marketability of the property, arranging financing from affiliates or the ultimate sale of the property. See "Recent Developments" above. 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 September 30, 1999. 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 and respond to changing economic and competitive factors. YEAR 2000 DISCLOSURE - -------------------- State of readiness - ------------------ 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. Management has assessed its information technology ("IT") infrastructure to identify any systems that could be affected by the year 2000 problem. The IT used by the Partnership for financial reporting and significant accounting functions was made year 2000 compliant during recent systems conversions. The software utilized for these functions is licensed by third party vendors who have warranted that their systems are year 2000 compliant. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management has inventoried all such systems and queried suppliers, vendors and manufacturers to determine year 2000 compliance. Based on this review, management believes these systems are substantially compliant. In circumstances of non-compliance management will work with the vendor to remedy the problem or seek alternative suppliers who will be in compliance. 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. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to be year 2000 compliant. Cost - ---- The cost of IT and embedded technology systems testing and upgrades is not expected to be material to the Partnership. Because all the IT systems have been upgraded over the last three years, all such systems were compliant, or made compliant at no additional cost by third party vendors. Management anticipates the costs of assessing, testing, and if necessary replacing embedded technology components will be less than $50,000. Such costs will be funded from operations of the Partnership. Risks - ----- Ultimately, the potential impact of the year 2000 issue will depend not only on the corrective measures the Partnership undertakes, but also on the way in which the year 2000 issue is addressed by government agencies and entities that provide services or supplies to the Partnership. Management has not determined the most likely worst case scenario to the Partnership. As management studies the findings of its property systems assessment and testing, management will develop a better understanding of what would be the worst case scenario. Management believes that progress on all areas is proceeding and that the Partnership will experience no adverse effect as a result of the year 2000 issue. However, there is no assurance that this will be the case. Contingency plans - ----------------- Management is developing contingency plans to address potential year 2000 non-compliance of IT and embedded technology systems. Management believes that failure of any IT system could have an adverse impact on operations. However, management believes that alternative systems are available that could be utilized to minimize such impact. Management believes that any failure in the embedded technology systems could have an adverse impact on that property's performance. Management has assessed these risks and expects to have contingency plans in place by December 31, 1999 for any material potential failures. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- 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 XXIII, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - 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 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. ("McREMI") 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. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. Because the settlement contemplated a transaction which included all of the Partnerships and plaintiffs claimed that an effort should be made to sell all of the Partnerships, in or around September 1998, plaintiffs filed a third consolidated and amended complaint which included allegations with respect to the Partnerships which had not been named in previously filed complaints. On September 15, 1998, the parties signed a Stipulation of Settlement. For purposes of settlement, the parties stipulated to a class comprised of all owners of limited partner units in the Partnerships during the period beginning June 21, 1991, the earliest date that proxy materials began to be issued in connection with the restructuring of the Partnerships, through September 15, 1998. As structured, the Stipulation of Settlement provided for the payment of over $35 million in distributions and the commitment to market the Partnerships for sale, together with McREMI, through a fair and impartial bidding process overseen by a national investment banking firm. To ensure the integrity of that process, defendants agreed, among other things, to involve plaintiffs' counsel in oversight of that process, and plaintiffs' counsel retained an independent advisor to represent the interests of limited partners of the Partnerships in the event of a transaction. The transaction described in Item 2 - Recent Developments is a result of that process. The settlement was not conditioned on the consummation of this transaction. On October 6, 1998, the court gave preliminary approval to the settlement. It granted final approval to the settlement on July 8, 1999 and entered a Final Order and Judgment dismissing the consolidated action with prejudice. As a condition of final approval, the court requested, and the parties agreed to, a slight modification of the release in the Stipulation of Settlement with respect to future claims. Plaintiffs' counsel intends to seek an order awarding attorneys' fees and reimbursing their out-of-pocket expenses in an amount which is as yet undetermined. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. A Notice of Appeal was filed September 3, 1999 by High River Limited Partnership, Unicorn Associates Corporation and Longacre Corporation. 2) High River Limited Partnership, Unicorn Associates Corporation and Longacre Corporation, et al. v. McNeil Partners, L.P. ("MPLP"), McNeil Investors, Inc., McNeil Real Estate Management, Inc. (McREMI"), Robert A. McNeil and Carole J. McNeil, - Supreme Court of the State of New York, County of New York, - Index No. 99 603526. On July 23, 1999, High River and two other affiliates of Carl C. Icahn (Unicorn Associates Corporation and Longacre Corporation), filed a complaint for damages in the Supreme Court of the State of New York, County of New York. Plaintiffs allege that the defendants improperly interfered with tender offers made by High River for limited partner units in the Partnership and other affiliated partnerships in which MPLP serves as General Partner (the "McNeil Partnerships"), by, among other things, filing purportedly frivolous litigation to delay High River's offers, issuing purportedly false and misleading statements opposing the offers and purportedly forcing High River itself to file litigation to enforce its rights. High River also alleges that as a result the defendants caused High River to incur undue expense and that the defendants ultimately prevented High River from acquiring a greater number of limited partner units. Plaintiffs also allege that the defendants improperly excluded High River from participating in the auction process for the sale of the McNeil Partnerships, and otherwise took steps to prevent its participation in the auction. In addition, plaintiffs, who are limited partners in, among others, McNeil Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and XXVII, have also sued the defendants based on their status as opt-outs from the Schofield settlement. Plaintiffs seek undisclosed damages and an accounting. On July 30, 1999, defendants filed an answer to the High River Complaint, denying each and every material allegation contained in the High River Complaint and asserting several affirmative defenses. Settlement negotiations are underway. 3) 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 3, 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. Hearing and oral argument before the Court of Appeals was heard on January 26, 1999. Judgment was entered in favor of the partnerships on June 25, 1999 and the case was once again remanded to the Trial Court. The General Partner is investigating whether it is in the limited partners' best interest to continue to pursue this case. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) Exhibits. Exhibit Number Document 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). 11. Statement regarding computation of Net Income per Limited Partnership Unit: Net income per limited partnership unit is computed by dividing net income allocated to the limited partners by the weighted average number of limited partnership units outstanding. Per unit information has been computed based on 49,512 limited partnership units outstanding in 1999 and 1998. 27. Financial Data Schedule for the quarter ended September 30, 1999. (b) Reports on Form 8-K. A Report on Form 8-K dated July 8, 1999 was filed on July 9, 1999 regarding the letter received from High River Limited Partnership. MCNEIL REAL ESTATE FUND XX, L.P. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: McNEIL REAL ESTATE FUND XX, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner November 15, 1999 By: /s/ Ron K. Taylor - ----------------- ------------------------------------------ Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) November 15, 1999 By: /s/ Carol A. Fahs - ----------------- ------------------------------------------ Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 9-MOS DEC-31-1999 SEP-30-1999 1,710,453 0 5,602 0 0 0 4,451,990 (1,696,013) 4,723,220 0 2,570,101 0 0 0 1,581,108 4,723,220 998,464 1,069,136 458,930 629,735 190,192 0 180,166 69,043 0 69,043 0 0 0 69,043 0 0
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