ITEM 1. BUSINESS - ------- --------
ORGANIZATION - ------------
McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized on June 1, 1979 as a limited partnership under provisions of the California Uniform Limited Partnership Act. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The Partnership is governed by an amended and restated partnership agreement dated October 9, 1991, as amended (the "Amended Partnership Agreement"). Prior to October 9, 1991, Pacific Investors Corporation (the prior "Corporate General Partner"), a wholly-owned subsidiary of Southmark Corporation ("Southmark"), and McNeil were the general partners of the Partnership, which was governed by an agreement of limited partnership (the "Original Partnership Agreement") dated June 1, 1979. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
On December 14, 1979, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission whereby the Partnership offered for sale $67,500,000 of limited partnership units ("Units"). The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units closed on July 17, 1980, with 135,000 Units sold at $500 each, or gross proceeds of $67,500,000 to the Partnership. The original general partners purchased an additional 200 Units for $100,000. Limited partners relinquished 220 Units between 1993 and 1996, leaving 134,980 Units outstanding at December 31, 1998.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - --------------------------------------------------
On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil nor the Corporate General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interest in the Corporate General Partner, were sold or liquidated for the benefit of creditors.
In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990 providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio.
On February 14, 1991, pursuant to the asset purchase agreement as amended on that date: (a) an affiliate of McNeil purchased the Corporate General Partner's economic interest in the Partnership; (b) McNeil became the managing general partner of the Partnership pursuant to an agreement with the Corporate General Partner that delegated management authority to McNeil; and (c) McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates and commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates.
On October 11, 1991, the limited partners approved a restructuring proposal providing for (i) the replacement of the Corporate General Partner and McNeil with the General Partner; (ii) the adoption of the Amended Partnership Agreement, which substantially alters provisions of the Original Partnership Agreement relating to, among other things, compensation, reimbursement of expenses, and voting rights; and (iii) the approval of a new property management agreement with McREMI, the Partnership's property manager.
The Amended Partnership Agreement provides for a Management Incentive Distribution ("MID") to replace all other forms of general partner compensation other than property management fees and reimbursement of certain costs. Additional Units may be issued in connection with the payment of the MID pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." For a discussion of the methodology for calculating and distributing the MID, see Item 13 - Certain Relationships and Related Transactions.
Settlement of Claims:
The Partnership filed claims with the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") against Southmark for damages relating to improper overcharges, breach of contract and breach of fiduciary duty. The Partnership settled these claims in 1991, and such settlement was approved by the Bankruptcy Court.
An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April 14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in May 1995, the Partnership received in full satisfaction of its claims $69,234 in cash, and common and preferred stock in the reorganized Southmark. The cash and stock represent the Partnership's pro-rata share of Southmark assets available for Class 8 Claimants. The Partnership sold the Southmark common and preferred stock in May 1995 for $22,283 which, when combined with the cash proceeds from Southmark, resulted in a gain on settlement of litigation of $91,517.
CURRENT OPERATIONS - ------------------
General:
The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At December 31, 1998, the Partnership owned nine income-producing properties as described in Item 2
ITEM 2. PROPERTIES - ------- ----------
The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1998. The buildings and the land on which they are located are owned by the Partnership in fee, subject in each case to a first lien deed of trust as set forth more fully in Item 8 - Note 5 - "Mortgage Notes Payable." See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - - "Real Estate Investments and Accumulated Depreciation and Amortization." In the opinion of management, the properties are adequately covered by insurance.
- ---------------------------------------- Total: Apartments - 2,383 units Retail Center - 172,252 sq. ft. Office Building - 105,500 sq. ft.
(1) Briarwood Apartments is owned by Briarwood Fund X Limited Partnership, which is wholly-owned by the Partnership.
(2) Coppermill Apartments is owned by Coppermill Fund X Limited Partnership, which is wholly-owned by the Partnership.
(3) La Plaza Office Building is owned by La Plaza Center Fund X Limited Partnership, which is wholly-owned by the Partnership.
(4) Orchard Apartments is owned by Orchard Fund X Limited Partnership, which is wholly-owned by the Partnership.
(5) Quail Meadows Apartments is owned by Quail Meadows Fund X Limited Partnership, which is wholly-owned by the Partnership.
(6) Regency Park Apartments is owned by Regency Park Fund X Associates, L.P. which is wholly-owned by the Partnership and the General Partner.
(7) Sandpiper Apartments is owned by Sandpiper Fund X Limited Partnership, which is wholly-owned by the Partnership.
(8) Spanish Oaks Apartments is owned by Spanish Fund X, Ltd., which is wholly-owned by the Partnership.
The following table sets forth the occupancy rates and rent per square foot of the Partnership's properties for each of the last five years:
Occupancy rate represents all units or square footage leased divided by the total number of units or square footage of the property as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the properties' operations divided by the leasable square footage of the property.
Competitive Conditions at Properties - ------------------------------------
Briarwood Apartments - --------------------
Most of the tenants at Briarwood Apartments are students at nearby University of Arizona. Briarwood has an excellent location near the University and a bike route to the University. Due to the heavy student-tenant profile, occupancy at the property typically drops during the summer months. After a two-year decline, the Tucson market began a recovery in the second half of 1997. New construction in the submarket has ceased, except for dormitory rooms being added by the University of Arizona. Briarwood's excellent location helps the property absorb market fluctuations better than most of its competitors.
Coppermill Apartments - ---------------------
The occupancy rate at Coppermill Apartments was 98% at year end, ahead of the 94-95% range for the market. Most properties in southern Tulsa, including Coppermill, were built by the same developer using identical floor plans. Thus, the local market is very price-sensitive. Management is working to differentiate Coppermill's units by upgrading interior fixtures and appliances. Major road work commenced in November 1998 in front of Coppermill. The road work is expected to completely block the two main entrances to the property. As a result, occupancy rates are expected to decrease as prospective and current tenants will find it difficult to get to the property. The road work is expected to continue throughout 1999.
La Plaza Business Center - ------------------------
The year end occupancy rate at La Plaza Business Center was 78%, unchanged from a year earlier. Subsequent to year end, however, the Partnership signed a lease with an existing tenant for expansion space that will increase the property's occupancy rate to 91%. The Partnership continues to invest significant sums into capital improvements at La Plaza for tenant improvements, building code compliance, updating building interiors, and reconfiguring interior space. The investments will continue throughout 1999. The Partnership intends to fund the tenant improvements as lease negotiations proceed with new tenants. Demand for office space in Las Vegas is expected to be strong in 1999. New construction is aimed at the high-end of the market, and is not expected to compete with La Plaza.
Lakeview Plaza - --------------
Over the past three years, there has been significant turnover amongst the property's tenants. One of the two anchor tenants sublet its space to two tenants in 1996. Several new tenants signed leases during 1998. The property's occupancy rate reached 97% at the end of 1998. The local market area appears to be strong, with several national retailers opening new stores or announcing plans for new stores in the Lexington area. There are several, newer competing properties in close proximity to Lakeview Plaza.
Orchard Apartments - ------------------
An aggressive marketing campaign and increasing market occupancy rates combined to raise the occupancy rate at Orchard Apartments to 95% at the end of 1998. Construction of new apartment properties is expected to have an overall impact on Indianapolis market conditions, but should not directly impact Orchard Apartments. The new construction is directed at the higher end of the market. Continued first-time home buying is expected to be the property's principal challenge for 1999. Orchard Apartments has good curb appeal, attractive grounds and a favorable local reputation. These factors allow Orchard Apartments to command rental rates slightly in excess of its competitors.
Quail Meadows Apartments - ------------------------
Quail Meadows Apartments is one of the nicer properties in the Wichita area. Both interiors and exteriors of the property are above average relative to the property's competition. Quail Meadows traditionally maintains occupancy rates higher than market averages. However, extensive layoffs in the local aircraft industry during the fourth quarter of 1998 have noticeably affected the market, and especially Quail Meadows. Market occupancy rates decreased to 91%, and Quail Meadows occupancy rate dropped to 86% by the end of 1998. Management is deferring rental rate increases until the property's occupancy rate recovers. Another concern is the continued construction of new apartment projects in the Wichita market.
Regency Park Apartments - -----------------------
The primary challenge for Regency Park Apartments is a strong single-family housing market augmented by low interest rates for home buyers. However, the capital improvements placed in service over the past several years have enabled Regency Park to be a solid performer in its market. The property competes with numerous properties, some of which are newer or have more appeal to prospective tenants. The rental market in the Ft. Wayne area, however, remains price sensitive. Improvements in operating results generally are coming through improved occupancy rather than rate increases.
Sandpiper Apartments - --------------------
Capital improvements placed in service since 1992 and a strong local economy have allowed Sandpiper Apartments to repeatedly increase its base rental rates. Occupancy and rental rates are above market averages. There is significant new construction under development in the metropolitan area, but only minimal construction is expected in Sandpiper's submarket. A well-maintained Sandpiper should be able to maintain high occupancy rates as well as periodically increase rental rates.
Spanish Oaks Apartments - -----------------------
Occupancy rates at Spanish Oaks Apartments have been suppressed the past three years due to competition with new construction, older properties that have been renovated, military cutbacks at nearby Fort Sam Houston, and rate hikes at Spanish Oaks. Rental rates at Spanish Oaks remain below San Antonio market averages. The interiors at Spanish Oaks will need to be updated to allow the property to raise its rents to current market levels.
The following schedule shows lease expirations for each of the Partnership's commercial properties for 1999 through 2008:
No residential tenant leases 10% or more of the available rental space of any residential property. The following schedule reflects information on commercial tenants occupying 10% or more of the leasable square feet for each property:
(a) The referenced lease was originally scheduled to expire in 1999. The tenant entered into a new lease with the Partnership on September 28, 1998 which increased the leased square footage to 27,224 square feet from 13,530 square feet. The lease term will commence during 1999, after the Partnership completes certain tenant improvements for the tenant. The new lease terms were utilized in the lease schedules above.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - ------- -----------------
The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except as noted below.
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. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999.
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint.
Plaintiff's counsel intends to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. 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.
For discussion of the Southmark bankruptcy, see Item 1 - Business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- ---------------------------------------------------
None.
PART II
ITEM 5.
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 5,456 as of February 1, 1999
(C) The Partnership distributed $4,499,998 to the limited partners in 1998. No distributions were paid to the limited partners in 1997. During the last week of March 1999, the Partnership distributed approximately $499,000 to limited partners of record as of March 1, 1999. The Partnership accrued distributions of $884,065, $981,440 and $1,048,667 for the benefit of the General Partner for the years ended December 31, 1998, 1997 and 1996, respectively. These distributions
are the Management Incentive Distribution ("MID") pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions with Affiliates." See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of distributions and the likelihood that the Partnership will continue distributions to the limited partners.
ITEM 6.
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.
See Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------
FINANCIAL CONDITION - -------------------
The Partnership was formed to acquire, operate and ultimately dispose of a portfolio of income-producing real properties. As of December 31, 1998, the Partnership owned seven apartment buildings, one retail shopping center and one office building. All of the Partnership's properties are subject to mortgage indebtedness.
The Partnership sold two retail shopping centers in 1997, Cave Spring Corners, located in Roanoke, Virginia, and Iberia Plaza, located in New Iberia, Louisiana. The decision to sell the properties was influenced by the General Partner's belief that the appreciation potential of the two properties was limited and by the Partnership's announced plan to liquidate its real estate by December 2001. In addition, the impending maturity of the related mortgage notes, which were secured by the properties, also affected the decision to sell the properties. The Partnership recorded a $3,063,438 gain on the sale of the two properties. Net proceeds from the sales, after repayment of the related mortgage notes, amounted to $3,679,598. The net proceeds from the sale were added to the Partnership's balance of cash reserves.
On June 26, 1997, the Partnership resolved litigation regarding the disputed pay-off amount on the former Spanish Oaks mortgage note. The mortgage note had been refinanced in 1996, but the proceeds from the refinancing were placed in escrow until a dispute regarding the exact repayment amount could be resolved. In 1997, the Partnership and the holder of the former mortgage note agreed to settle the dispute for a cash payment of $3,046,000. All remaining escrowed funds and interest thereon, in the amount of $602,961, were released to the Partnership. In connection with the refinancing, the Partnership recognized an extraordinary gain on extinguishment of debt of $518,495 and $269,596 in 1997 and 1996, respectively.
On June 5, 1998, the Partnership refinanced the La Plaza mortgage note. The Partnership obtained a three-year, $3,785,000 mortgage note from a non-affiliated lender. However, only $3,185,000 of the mortgage note has been funded by the lender. The remaining $600,000 of loan proceeds will be funded to the Partnership as required for the completion of tenant improvements at La Plaza Office Building, if such tenant improvements are needed to induce prospective or current tenants to lease or release space at the property. The new mortgage note bears interest at a variable rate equal to 1.75% plus the London Interbank Offered Rate per annum. Proceeds from the refinancing amounted to $48,971. See Item 8 - Note 8 - "Refinancing of Mortgage Notes."
RESULTS OF OPERATIONS - ---------------------
1998 compared to 1997
Revenue:
Rental revenue decreased $580,653 or 3.8% in 1998 as compared to 1997. The decreased rental revenue was due to the sale of Cave Spring Corners and Iberia Plaza during the course of 1997. Of the Partnership's remaining properties, rental revenue increased $334,014 or 2.3%. Rental revenue increased at six of the Partnership's seven residential properties. Four of the Partnership's residential properties, Briarwood Apartments, Coppermill Apartments, Sandpiper Apartments and Spanish Oaks Apartments, reported increases of both base rental rates and average occupancy rates in 1998 as compared to 1997. Rental revenue increases at these four properties amounted to 6.3%, 7.7%, 3.9% and 3.1%, respectively. Quail Meadows Apartments and Regency Park Apartments reported increases in base rental rates that were partially offset by increased vacancy losses. Rental revenue increases at these two properties amounted to 6.4% and 2.3%, respectively. Rental revenue decreased 0.4% at Orchard Apartments as an increase in base rental rates was more than offset by an increase in discounts and concessions which were given to increase occupancy rates.
The Partnership's two remaining commercial properties both reported decreased rental revenue in 1998 as compared to 1997. Base rental rates and average occupancy rates decreased at Lakeview Plaza, resulting in an 11.5% decrease in rental revenue. Several tenants relinquished their space at Lakeview. The Partnership was able to obtain new tenants for the Lexington, Kentucky property. By the end of 1998, occupancy had been restored to 97%. Decreased average occupancy at La Plaza Office Building was the factor behind a 7.7% decrease in rental revenue at the Las Vegas, Nevada property. Subsequent to year end, the property's largest tenant, a government agency, signed a new lease for 2 years and 9 months for approximately 26% of the space at the property (see Item 2 - Properties).
Interest revenue decreased $43,604 or 19% in 1998 as compared to 1997. The decrease is attributable to decreased levels of Partnership cash invested in interest bearing accounts.
In 1997, the Partnership reported a $65,800 gain on involuntary conversion related to a fire at Regency Park Apartments, and $3,063,438 of gains related to the sale of Cave Spring Corners and Iberia Plaza. The Partnership also reported a $518,495 extraordinary gain on extinguishment of debt in 1997. No such transactions occurred during 1998.
Expenses:
Partnership expenses increased $40,551 or 0.3% in 1998 as compared to 1997. After excluding expenses related to Cave Spring Corners and Iberia Plaza, however, expenses increased $613,912 or 4.2% at the Partnership's remaining properties. Increases in personnel expenses and general and administrative expenses exceeded a decrease in interest paid to affiliates.
Interest paid to affiliates decreased $122,517 to $138,268 in 1998. Interest paid to affiliates related to the La Plaza mortgage note that was due to McNeil Real Estate Fund XXVII, L.P., an affiliate of the General Partner. This affiliate mortgage note was refinanced on June 5, 1998 with an unaffiliated lender. Interest expense on this mortgage note was charged to regular interest expense subsequent to the refinancing. When considered on a combined basis, and excluding interest on the Cave Spring Corner and Iberia Plaza mortgage notes, interest expense on both affiliated and non-affiliated loans increased $34,399 or 1% in 1998 as compared to 1997.
Personnel expenses at the Partnership's remaining properties increased $199,811 or 11.7% in 1998 as compared to 1997. The Partnership increased wage rates, salaries and benefits in order to retain property personnel in a competitive job market.
General and administrative expenses increased $339,779 to $640,385 in 1998. The increase was attributable to costs incurred to explore alternatives to maximize the value of the Partnership (see Liquidity and Capital Resources).
1997 compared to 1996
Revenue:
Rental revenue decreased $617,832 or 3.8% for 1997 as compared to 1996. However, after excluding the effects of Cave Spring Corners, sold June 5, 1997, and Parkway Plaza, sold September 18, 1996, rental revenue at the remainder of the Partnership's properties increased $371,359 or 2.5% in 1997 as compared to 1996. Of the Partnership's nine remaining properties, rental revenue increased at six properties, was unchanged at one property, and decreased at two properties.
Due to strong local markets, four of the Partnership's properties, Quail Meadows Apartments, Regency Park Apartments, Sandpiper Apartments and La Plaza Office Building, were able to increase both rental rates and decrease vacancy losses. Increased rental revenue at these four properties ranged from 3.7% to 6.6%. Coppermill Apartments was also able to increase its rental rates, but the increased rental rates were partially offset by an increase in vacancy losses. The Tulsa property recorded a net increase in rental revenue of 4.6%. Briarwood Apartments also increased its rental revenue, but the 2.5% increase in rental revenue at the Tucson property was the result of decreased vacancy losses partially offset by decreased rental rates.
Increased rental rates at Spanish Oaks Apartments were offset by increases in discounts and concessions and by increased vacancy losses, resulting in an $8,773 decrease in rental revenue in 1997 as compared to 1996. Increased vacancy losses at Orchard Apartments, reflecting strong competitive pressures in the Indianapolis market, resulted in a 1.9% decrease in rental revenue. Decreased reimbursements for common area maintenance and property taxes, as well as decreased contingent rents resulted in a 5.3% decrease in rental revenue at Lakeview Plaza.
Interest revenue increased 82% to $229,447 in 1997 as the Partnership had increased amounts of cash reserves invested in interest-bearing accounts as compared to 1996.
The Partnership also reported $3,063,438 in gains on the sale of Cave Spring Corners and Iberia Plaza. In 1996, the Partnership reported a $353,389 gain on the sale of Parkway Plaza. Another non-recurring revenue item was the gain on involuntary conversion related to a fire at Regency Park Apartments. The gain amounted to $350,927, of which $65,800 was recognized in 1997, and $285,127 was recognized in 1996.
Expenses:
Total Partnership expenses decreased $788,174 or 4.9% in 1997 as compared to 1996. However, after excluding expenses related to Cave Spring Corners and Parkway Plaza, which were sold during the course of 1997 and 1996, Partnership expenses decreased $94,415 or 0.6%, in 1997 as compared to 1996. Iberia Plaza expenses are not excluded because Iberia Plaza was sold on December 12, 1997; essentially, a full year of Iberia Plaza expenses is included in 1997's figures. Interest paid to affiliates increased, while interest, general and administrative and general and administrative expenses paid to affiliates decreased.
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note due to an unaffiliated party with a $2,336,029 mortgage note due to an affiliate of the General Partner. The transfer of the La Plaza mortgage note from non-affiliate to affiliate status accounts for the $185,870 increase in interest expense due to affiliates as well as a $195,892 decrease in interest due to non-affiliates. The 1997 sales of Cave Spring Corners and Iberia Plaza, and the 1996 sale of Parkway Plaza resulted in a $419,723 decrease in interest expense. The remainder of the $716,788 decrease in interest expense results from regular monthly amortization of the Partnership's mortgage notes which gradually reduces the interest expense of the Partnership over time.
General and administrative expenses decreased $124,699 or 29% in 1997 as compared to 1996. Expenses relating to unsolicited tender offers cost the Partnership $263,124 in 1996. Such expenses for 1997 decreased to only $20,849. Legal expenses increased $106,250 in 1997 as compared to 1996. $67,795 of the increase was attributable to costs incurred to litigate and settle a lawsuit regarding management of Briarwood Apartments. Also, investor relation services that had previously been provided by an affiliate of the General Partner were provided by an independent vendor in 1997. Such costs increased general and administrative expenses by $30,148 in 1997, and correspondingly, accounted for much of the $58,021 or 13.5% decrease in general and administrative expenses paid to affiliates.
On June 26, 1997, the Partnership and the former Spanish Oaks mortgage note holder agreed to settle their dispute regarding the correct payoff amount of the former Spanish Oaks mortgage note that was refinanced during 1996. As a result of the settlement, the Partnership received $602,961, which after appropriate deductions for costs and related interest revenue, was recorded as a $518,495 extraordinary gain on extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
During the three year period ended December 31, 1998, cash provided by the Partnership's operating activities totaled $9,717,681. Despite the sale of Cave Spring Corners and Iberia Plaza in 1997, cash flow from operating activities increased 10.2% in 1998 as compared to 1997.
The sale of Cave Spring Corners and Iberia Plaza in 1997 provided cash proceeds of $8,530,207; however, $4,850,609 of that amount was used to retire the Cave Spring Corners and Iberia Plaza mortgage notes. The net sales proceeds were added to the Partnership's cash reserves. See Income Allocations and Distributions below.
The Partnership continues to invest substantial resources into capital improvements at its properties. A total of $4,980,570 of improvements have been added to the Partnership's properties over the past three years. $518,922 of the improvements were reimbursed to the Partnership by its insurance carrier as a result of a fire that destroyed 16 units at Regency Park Apartments. An additional $1,792,000 of capital improvements are budgeted for 1999.
MID payments to the General Partner, which had been suspended since the beginning of 1994, were resumed during 1997. The Partnership paid $2,000,000 of MID to the General Partner in 1997. See short-term liquidity below.
Short-term liquidity:
At December 31, 1998, the Partnership held cash and cash equivalents of $2,680,102, down $3,075,874 from the balance at the end of 1997. The General Partner believes this level of cash, combined with anticipated cash flow from operating activities, is adequate to meet the Partnership operating expenses, debt service requirements, and budgeted capital improvements for 1999.
Over the past three years, the Partnership has invested large amounts of funds in capital improvements at the Partnership's properties. The General Partner believes these capital improvements are necessary to allow the Partnership to increase its rental revenues in the competitive markets in which the Partnership's properties operate. These expenditures also allow the Partnership to reduce future repair and maintenance expenses from amounts that would otherwise be incurred. Significant resources may be needed at La Plaza Office Building to renovate and refurbish vacated space for new tenants, and to bring the property into compliance with local building codes. The new La Plaza mortgage note contains a provision whereby the Partnership may borrow an additional $600,000 to meet these capital needs, if necessary. See Item 8 - Note 8 - "Refinancing of Mortgage Notes."
Long-term liquidity:
For the long-term, property operations will remain the primary source of funds. In this regard, the General Partner expects that the approximately $5 million of capital improvements made by the Partnership during the past three years will yield improved cash flow from property operations in the future. The General Partner has budgeted an additional $1,792,000 of capital improvements for 1999. If the Partnership's cash position deteriorates, the General Partner may elect to defer certain of the capital improvements.
As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership, including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt
to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance regarding whether any such agreement will be reached nor the terms thereof.
Income Allocations and Distributions:
Terms of the Amended Partnership Agreement specify that income before depreciation is allocated to the General Partner to the extent of the cumulative amount of MID paid for which no income allocation has previously been made. Depreciation is allocated in the ratio of 95:5 to the limited partners and the General Partner, respectively. Therefore, the General Partner was allocated a loss of $7,853 and allocated income of $1,843,741 and $57,099 for the three years ended December 31, 1998, 1997 and 1996, respectively. The limited partners were allocated a loss of $149,217 and allocated income of $2,311,730 and $1,084,879 for the three years ended December 31, 1998, 1997 and 1996, respectively.
The Partnership distributed $4,499,998 to the limited partners in 1998. No distributions were paid to the limited partners in 1997 or 1996. During the last week of March 1999, the Partnership distributed approximately $499,000 to the limited partners of record as of March 1, 1999. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support additional distributions to the limited partners.
The Partnership paid $2,000,000 of MID to the General Partner in 1997. No MID payments were paid to the General Partner during 1998 or 1996. The General Partner has elected to defer payment of administrative reimbursements and MID so that the Partnership can pay distributions to the limited partners.
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 are 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. Management will complete assessment of findings by May 1, 1999. 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 will assess these risks and develop plans to mitigate possible failures by June, 1999.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- -----------------------------------------------------------
Not Applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of McNeil Real Estate Fund X, Ltd.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund X, Ltd. (a California limited partnership) as of December 31, 1998 and 1997, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of McNeil Real Estate Fund X, Ltd. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, 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 19, 1999
McNEIL REAL ESTATE FUND X, LTD.
BALANCE SHEETS
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF OPERATIONS
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
See discussion of noncash investing and financing activity in Note 2 - "Transactions with Affiliates," Note 7 "Sales of Real Estate," Note 8 - "Refinancing of Mortgage Notes," Note 9 - "Gain on Extinguishment of Debt" and Note 10 - "Gain on Involuntary Conversion."
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------------------------------------
Organization - ------------
McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized on June 1, 1979 as a limited partnership under the provisions of the California Uniform Limited Partnership Act. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The Partnership is governed by an amended and restated partnership agreement dated October 9, 1991, as amended (the "Amended Partnership Agreement"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At December 31, 1998, the Partnership owned nine income-producing properties as described in Note 4 - "Real Estate Investments."
As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership, including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance regarding whether any such agreement will be reached nor the terms thereof.
Basis of Presentation - ---------------------
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Partnership's financial statements include the accounts of the tier limited partnerships listed on the following page. These single asset tier limited partnerships were formed to accommodate the refinancing of the respective properties. The Partnership's and the General Partner's ownership interests in each tier limited partnership are detailed below. The Partnership retains effective control of each tier limited partnership. The General Partner's minority interest is not presented as it is both negative and immaterial.
(a) The general partner of these limited partnerships is a corporation whose stock is 100% owned by the Partnership.
Adoption of Recent Accounting Pronouncements - --------------------------------------------
The Partnership has adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires an enterprise to report financial information about its reportable operating segments, which are defined as components of a business for which separate financial information is evaluated regularly by the chief decision maker in allocating resources and assessing performance. The Partnership does not prepare such information for internal use, since it analyzes the performance of and allocates resources for each property individually. The Partnership's management has determined that it operates one line of business and it would be impracticable to report segment information. Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial statements.
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 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". 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.
Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred.
Depreciation and Amortization - -----------------------------
Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 38 years. Tenant improvements are amortized over the terms of the related tenant leases using the straight-line method.
Cash and Cash Equivalents - -------------------------
Cash and cash equivalents include cash on hand and cash on deposit with financial institutions with original maturities of three months or less. Carrying amounts for cash and cash equivalents approximate fair value.
Escrow Deposits - ---------------
The Partnership is required to maintain escrow accounts in accordance with the terms of various mortgage indebtedness agreements. These escrow accounts are controlled by the mortgagee and are used for payment of property taxes, hazard insurance, capital improvements and property replacements. Carrying amounts for escrow deposits approximate fair value.
Deferred Borrowing Costs - ------------------------
Loan fees and other related costs incurred to obtain long-term financing on real property are capitalized and amortized using the effective interest method over the terms of the related mortgage notes payable. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations.
Discounts on Mortgage Notes Payable - -----------------------------------
Discounts on mortgage notes payable are amortized over the remaining terms of the related mortgage notes using the effective interest method. Amortization of discounts on mortgage notes payable is included in interest expense on the Statements of Operations.
Rental Revenue - --------------
The Partnership leases its residential properties under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned.
The Partnership leases its commercial properties under non-cancelable operating leases. Certain leases provide concessions and/or periods of escalating or free rent. Rental revenue is recognized on a straight-line basis over the term of the related leases. The excess of the rental revenue recognized over the contractual rental payments is recorded as accrued rent receivable and included in accounts receivable on the Balance Sheets.
Income Taxes - ------------
No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners.
Allocation of Net Income and Net Loss - -------------------------------------
The Amended Partnership Agreement provides for net income or net loss of the Partnership for both financial statement and income tax reporting purposes to be allocated as indicated below. For allocation purposes, net income and net loss of the Partnership is determined prior to deductions for depreciation.
(a) First, 5% of all deductions for depreciation shall be allocated to the General Partner, and 95% of all deductions for depreciation shall be allocated to the limited partners;
(b) then, an amount of net income equal to the cumulative amount of the Management Incentive Distribution ("MID") paid to the General Partner for which no income has previously been allocated (see Note 2 "Transactions with Affiliates") shall be allocated to the General Partner; provided, however, that if all or a portion of such payment consists of limited partnership units ("Units"), the amount of net income allocated to the General Partner shall be equal to the amount of cash the General Partner would have otherwise received;
(c) then, any remaining net income shall be allocated to the General Partner and to the limited partners so that the total amount of net income allocated to the General Partner pursuant to (b) above and this paragraph (c) and to the limited partners pursuant to this paragraph (c) shall be in the ratio of 5% to the General Partner and 95% to the limited partners.
(d) Net loss shall be allocated 5% to the General Partner and 95% to the limited partners.
Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocations of Partnership deductions attributable to debt. The Partnership's tax allocations for 1998, 1997 and 1996 have been made in accordance with these provisions.
Distributions - -------------
Pursuant to the Amended Partnership Agreement and at the discretion of the General Partner, distributions during each taxable year shall be made as follows:
(a) first, to the General Partner, an amount equal to the MID, and
(b) any remaining distributable cash, as defined, shall be distributed 100% to the limited partners.
The Partnership distributed $4,499,998 to the limited partners in 1998. No distributions were paid to the limited partners in 1997 or 1996. The Partnership paid or accrued distributions of $884,065, $981,440 and $1,048,667 for the benefit of the General Partner for the years ended December 31, 1998, 1997 and 1996, respectively. These distributions are the MID pursuant to the Amended Partnership Agreement. During the last week of March 1999, the Partnership distributed approximately $499,000 to the limited partners of record as of March 1, 1999.
Net Income (Loss) Per Limited Partnership Unit - ----------------------------------------------
Net income (loss) per Unit is computed by dividing net income (loss) allocated to the limited partners by the weighted average number of Units outstanding. Per Unit information has been computed based on 134,980 Units outstanding in 1998, 1997 and 1996.
NOTE 2 - TRANSACTIONS WITH AFFILIATES - -------------------------------------
The Partnership pays property management fees equal to 5% of the gross rental receipts of the Partnership's properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's residential and commercial properties and leasing services for its residential properties. McREMI may choose to perform leasing services for the Partnership's commercial properties, in which case McREMI will receive a property management fee equal to 3% of the gross rental receipts of the Partnership's commercial properties plus a commission for performing leasing services equal to the prevailing market rate for such services in the area where the property is located.
The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs.
Under terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% of the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property or $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible assets. The maximum MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter.
The MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. During 1998, 1997 and 1996, no Units were issued as payment for the MID.
During 1991, the Partnership amended its capitalization policy and began capitalizing certain costs of improvements and betterments which, under policies of prior management, had been expensed when incurred. The purpose of the amendment was to more properly recognize items which were capital in nature. The effect of the amendment standing alone was evaluated at the time the change was made and determined not to be material to the financial statements of the Partnership in 1991, nor was it expected to be material in any future year. However, the amendment does have a material effect on the calculation of the Entitlement Amount which determines the amount of MID earned. Capital improvements are excluded from cash flow, as defined. The majority of the base period cash flow was measured under the previous capitalization policy, while incentive period cash flow is determined using the amended policy. Under the amended policy, more items are capitalized, and cash flow increases. The amendment of the capitalization policy did not materially affect MID for 1998, 1997 or 1996 as the Entitlement Amount was sufficient to pay the MID notwithstanding the amendment to the capitalization policy.
Any amount of MID which is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution.
Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows:
Payable to affiliates - General Partner at December 31, 1998 and 1997 consists of MID, reimbursable costs and property management fees which are due and payable from current operations. The General Partner has waived the collection terms of MID and reimbursable expenses, and has elected for the Partnership to pay limited partner distributions before the payment of such amounts.
NOTE 3 - TAXABLE INCOME - -----------------------
McNeil Real Estate Fund X, Ltd. is a partnership and is not subject to Federal and state income taxes. Accordingly, no recognition has been given to income taxes in the accompanying financial statements of the Partnership since the income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly.
The Partnership's net assets and liabilities for tax purposes exceeded the net assets and liabilities for financial reporting purposes by $16,168,845, $14,157,196 and $14,833,249 at December 31, 1998, 1997 and 1996, respectively.
NOTE 4 - REAL ESTATE INVESTMENTS - --------------------------------
The basis and accumulated depreciation and amortization of the Partnership's real estate investments at December 31, 1998 and 1997 are set forth in the following tables:
During 1994, the General Partner placed Parkway Plaza on the market for sale. Parkway Plaza was sold on September 18, 1996. On October 1, 1996, the General Partner placed Cave Spring Corners and Iberia Plaza on the market for sale. The Partnership sold Cave Spring Corners on June 5, 1997. The Partnership sold Iberia Plaza on December 12, 1997. See Note 7 - "Sales of Real Estate."
The results of operations for the assets held for sale were $339,909 and $210,456 for the years ended December 31, 1997 and 1996, respectively. Results of operations are operating revenues less operating expenses including depreciation and amortization and interest expense.
The Partnership leases its commercial properties under various non-cancelable operating leases. In most cases, the Partnership expects that in the normal course of business these leases will be renewed or replaced by other leases. Future minimum rents to be received from commercial properties as of December 31, 1998, are as follows:
1999...................................... $ 2,163,725 2000...................................... 2,017,837 2001...................................... 1,677,279 2002...................................... 973,677 2003...................................... 664,693 Thereafter................................ 855,062 ------------ $ 8,352,273 ============
Future minimum rents do not include contingent rents based on sales volume of tenants. Contingent rents amounted to $11,953, $41,589 and $199,927 for the years ended December 31, 1998, 1997 and 1996, respectively. Future minimum rents also do not include expense reimbursements for common area maintenance, property taxes, and other expenses. The expense reimbursements amounted to $105,886, $192,430 and $307,372 for the years ended December 31, 1998, 1997 and 1996, respectively. Contingent rents and expense reimbursements, including amounts for Parkway Plaza (sold September 18, 1996), Cave Spring Corners (sold June 5, 1997), and Iberia Plaza (sold December 12, 1997), are included in rental revenue on the Statements of Operations.
The Partnership's real estate investments are encumbered by mortgage indebtedness as discussed in Note 5 - "Mortgage Notes Payable" and Note 6 - "Mortgage Note Payable - Affiliate."
NOTE 5 - MORTGAGE NOTES PAYABLE - -------------------------------
The following table sets forth the mortgage notes payable of the Partnership at December 31, 1998 and 1997. All mortgage notes payable are secured by the Partnership's real estate assets.
(a) The debt is non-recourse to the Partnership.
(b) Financing for the mortgage notes referenced above was obtained under the terms of a Real Estate Mortgage Investment Conduit financing. The referenced mortgage notes are cross-collateralized. Principal prepayments made before July 2000 are subject to a Yield Maintenance Premium, as defined. Additionally, the Partnership must pay a release payment equal to 25% of the prepaid balance which will be applied to the remaining referenced mortgage notes.
(c) On June 5, 1998, the Partnership refinanced the La Plaza mortgage note. The new mortgage note bears interest at a variable rate equal to 1.75% plus the London Interbank Offered Rate. The interest rate is adjusted every three months. Terms of the mortgage note require monthly interest-only debt service payments, plus annual principal payments equal to 5% of the outstanding principal balance. At December 31, 1998, the interest rate of the mortgage note was 6.97%. See Note 8 - "Refinancing of Mortgage Notes."
(d) The Partnership refinanced the Spanish Oaks mortgage note on January 26, 1996. See Note 8 - "Refinancing of Mortgage Notes."
(e) The discount for the Regency Park mortgage note is based on an effective interest rate of 10.375%. Discounts for the Briarwood, Orchard, Quail Meadows and Sandpiper mortgage notes are based on an effective interest rate of 8.622%.
(f) Balloon payments on the Partnership's mortgage notes are due as follows:
Property Balloon Payment Date -------- --------------- ----
La Plaza......................... $ 2,874,462 06/01 Coppermill....................... 4,798,763 01/02 Spanish Oaks..................... 3,689,221 01/03 Briarwood........................ 1,804,449 07/03 Orchard.......................... 5,253,301 07/03 Quail Meadows.................... 4,987,151 07/03 Sandpiper........................ 4,628,805 07/03
Scheduled principal maturities of the Partnership's mortgage notes, but before consideration of discounts of $652,038, are shown below.
1999............................. $ 995,200 2000............................. 1,061,043 2001............................. 3,864,574 2002............................. 5,823,614 2003............................. 21,073,950 Thereafter....................... 3,973,957 ------------ $ 36,792,338
Based on borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities, the fair value of the Partnership's mortgage notes payable was approximately $36,914,000 and $35,310,000 at December 31, 1998 and 1997, respectively.
NOTE 6 - MORTGAGE NOTE PAYABLE - AFFILIATE - ------------------------------------------
The following table sets forth the Partnership's mortgage note payable due to an affiliate at December 31, 1998 and 1997. The affiliate mortgage note was secured by the La Plaza Office Center. The Partnership refinanced the La Plaza affiliate mortgage note on June 5, 1998 with a mortgage note due to a non-affiliate. See Note 8 "Refinancing of Mortgage Notes."
(a) The debt is non-recourse to the Partnership.
(b) On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 mortgage note from McNeil Real Estate Fund XXVII, L.P. ("Fund XXVII"), an affiliate of the General Partner. On August 1, 1997, the La Plaza affiliate mortgage note was amended to increase the principal amount of the affiliate mortgage note by $800,000 to $3,136,029. The Partnership used the $800,000 additional borrowings to repay the $800,000 Lakeview Plaza second mortgage note that was also due to Fund XXVII. The La Plaza affiliate mortgage note was fully repaid in 1998 with the proceeds from a new mortgage loan from an unaffiliated lender. See Note 8 - "Refinancing of Mortgage Notes."
(c) The affiliate mortgage note due to Fund XXVII required monthly interest-only payments equal to 1% plus the prime lending rate of Bank of America. The prime lending rate of Bank of America was 8.5% at December 31, 1997. The maturity date of the affiliate mortgage note was February 28, 2000.
Under terms of the Amended Partnership Agreement, borrowings from affiliates approximate fair market value.
NOTE 7 - SALES OF REAL ESTATE - ------------------------------
On June 5, 1997, the Partnership sold Cave Spring Corners Shopping Center to an unaffiliated purchaser for a cash sales price of $5,250,000. Cave Spring Corners Shopping Center is located in Roanoke, Virginia. Cash proceeds from this transaction, as well as the gain on sale are detailed below.
On September 18, 1996, the Partnership sold Parkway Plaza to an unaffiliated purchaser for a cash sales price of $2,900,000. Parkway Plaza is located in Lafayette, Louisiana. Cash proceeds from this transaction, as well as the gain on sale are detailed below.
On January 9, 1996, the Partnership sold an outparcel of land, amounting to 0.675 acres, connected with Iberia Plaza for a purchase price of $142,985. The Partnership recorded a $77,965 gain on the sale. Proceeds from the sale of the outparcel were used to pay down the Iberia Plaza mortgage note.
NOTE 8 - REFINANCING OF MORTGAGE NOTES - --------------------------------------
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 affiliate mortgage note from Fund XXVII. The affiliate mortgage note bore interest at a variable interest rate equal to 1% plus the prime lending rate of Bank of America, and required monthly interest-only debt service payments until the affiliate mortgage note's February 28, 2000 maturity date. Cash used to close the refinancing transaction was as follows:
New loan proceeds................................... $ 2,336,029 Amount required to payoff existing debt............. (2,373,955) ------------
Cash used to refinance mortgage note................ $ (37,926) ===========
On August 1, 1997, the Partnership and Fund XXVII amended the La Plaza affiliate mortgage note to increase the principal amount by $800,000. The Partnership used the $800,000 additional borrowing to repay the Lakeview Plaza second mortgage note that was also due to Fund XXVII.
On June 5, 1998, the Partnership refinanced the La Plaza affiliate mortgage note with a $3,785,000 mortgage note from an unaffiliated lender. However, only $3,185,000 of the mortgage note has been funded by the lender. The remaining $600,000 of loan proceeds will be funded to the Partnership as required for the completion of tenant improvements at La Plaza Office Building, if such tenant improvements are needed to induce prospective or current tenants to lease or release space at the property. The outstanding balance of the new La Plaza mortgage note bears interest at a variable rate equal to 1.75% plus the London Interbank Offered Rate per annum. The new La Plaza mortgage note requires monthly interest-only debt service payments and annual principal payments equal to 5% of the outstanding principal balance of the mortgage note. Terms of the new La Plaza mortgage note require the Partnership to deposit funds into a restricted cash account on a quarterly basis and are included in "Cash restricted for mortgage payments" on the Balance Sheet. The restricted funds will be used to pay the annual principal payment. The new La Plaza mortgage note matures on June 5, 2001. Cash proceeds from the refinancing transaction are as follows:
New loan proceeds.................................... $ 3,785,000 Holdback for capital improvements.................... (600,000) Amount required to payoff existing debt.............. (3,136,029) ------------
Cash proceeds from refinancing....................... $ 48,971 ============
The Partnership incurred $70,243 of deferred borrowing costs related to the refinancing of the La Plaza mortgage note.
On January 26, 1996, the Partnership refinanced the Spanish Oaks mortgage note. The new mortgage note, in the amount of $4,000,000, bears interest at 7.71%, requires monthly principal and interest payments of $28,546, and matures on January 26, 2003. Cash proceeds from the refinancing transaction received in 1996 are as follows:
New loan proceeds.................................... $ 4,000,000 New loan proceeds placed in escrow................... (3,399,592) ------------
Proceeds received in 1996............................ $ 600,408 ============
See Note 9 - "Gain on Extinguishment of Debt" for a discussion of proceeds from the refinancing transaction received in 1997.
The Partnership incurred $166,403 of deferred borrowing costs related to the refinancing of the Spanish Oaks mortgage note. The Partnership was also required to fund $165,291 into various escrows for property taxes, hazard insurance and deferred maintenance.
NOTE 9 - GAIN ON EXTINGUISHMENT OF DEBT - ---------------------------------------
In connection with the refinancing of the Spanish Oaks mortgage note (see Note 8 - - "Refinancing of Mortgage Notes"), the Partnership and the former mortgage note holder did not agree on the amount of funds necessary to retire the former mortgage note. At the time the mortgage note was refinanced, the Partnership and the former mortgage note holder agreed to place $3,399,592 of the proceeds from the new mortgage note in escrow pending negotiations regarding the amount of funds necessary to retire the former mortgage note. The excess of the carrying amount of the former mortgage note over the funds placed in escrow was recorded in 1996 as a $269,596 extraordinary gain on extinguishment of debt. Neither the former mortgage note nor the related funds placed in escrow were included on the Partnership's December 31, 1996 Balance Sheet.
On June 26, 1997, the Partnership and the former mortgage note holder reached an agreement to retire the former mortgage note for $3,046,000. The funds in the escrow account in excess of $3,046,000, plus accrued interest thereon, were released to the Partnership. The funds so released amounted to $602,961. The payment to the Partnership resulted in a $518,495 extraordinary gain on extinguishment of debt, computed as follows:
New loan proceeds placed in escrow................... $ 3,399,592 Interest earned on funds placed in escrow............ 249,369 Amount required to payoff former mortgage note payable....................................... (3,046,000) ------------ Escrowed funds released to Partnership............... 602,961
Interest recorded on funds placed in escrow.......... (41,206) Litigation and other costs........................... (43,260) ------------
Cash proceeds received in 1997 as extraordinary gain on extinguishment of debt............................................ $ 518,495 ============ NOTE 10 - GAIN ON INVOLUNTARY CONVERSION - ----------------------------------------
On March 31, 1996, a fire destroyed or damaged 16 units and 2 laundry rooms at Regency Park Apartments. The total cost to repair the fire damage was $530,148. The Partnership's insurance carrier will reimburse the Partnership for all costs incurred as a result of the fire less a standard deductible. The excess of cash to be received over the basis of the property destroyed in the fire resulted in a $350,927 gain on involuntary conversion.
Because only part of the insurance proceeds were received by December 31, 1996, only $285,127 of the gain on involuntary conversion was recognized on the Partnership's Statement of Operations for the year ended December 31, 1996. The remainder of the gain was shown as a $65,800 deferred gain on involuntary conversion on the Partnership's December 31, 1996 Balance Sheet. The $65,800 deferred gain was recognized in 1997 as a gain on involuntary conversion when the Partnership received the remaining proceeds of $96,303 from its insurance carrier.
NOTE 11 - LEGAL PROCEEDINGS - ---------------------------
The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following:
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. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999.
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint.
Plaintiff's counsel intends to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. 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.
NOTE 12 - COMMITMENTS AND CONTINGENCIES - ---------------------------------------
Environmental laws create potential liabilities that may affect property owners. The environmental laws of Federal and certain state governments, for example, impose liability on current and certain past owners of property from which there is a release or threat of release of hazardous substances. This liability includes costs of investigation and remediation of the hazardous substances and natural resource damages. Liability for costs of investigation and remediation is strict and may be imposed irrespective of whether the property owner was at fault, although there are a number of defenses. Both governments and third parties may seek recoveries under these laws.
Third parties also may seek recovery under the common law for damages to their property or person, against owners of property from which there has been a release of hazardous and other substances.
The presence of contamination or the failure to remediate contaminations may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral.
Various buildings at properties do or may contain building materials that are the subject of various regulatory programs intended to protect human health. Such building materials include, for example, asbestos, lead-based paint, and lead plumbing components. The Company has implemented programs to deal with the presence of those materials, which include, as appropriate, reduction of potential exposure situations. The Company does not believe that the costs of such programs are likely to have a material adverse effect. Failure to implement such programs can result in regulatory violations or liability claims resulting from alleged exposure to such materials.
In connection with the proposed sale transaction as more fully described in Note 1 - "Organization and Summary of Significant Accounting Policies", Phase I environmental site assessments have been completed for each property owned by the Partnership. Such environmental assessments performed on the properties have not revealed any environmental liability that the Partnership believes would have a material adverse effect on the Partnership's business, assets, or results of operations. The Partnership has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of its properties. There can be no assurances, however, that environmental liabilities have not developed since such environmental assessments were prepared, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability.
McNEIL REAL ESTATE FUND X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1998
(b) The initial cost and encumbrances reflect the present value of future loan payments discounted, if appropriate, at a rate estimated to be the prevailing interest rate at the date of acquisition or refinancing.
(c) The carrying value of Coppermill Apartments was reduced by $1,228,000 and $1,372,000 in 1986 and 1989, respectively. The carrying value of Lakeview Plaza was reduced by $129,914 in 1991.
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1998
(a) For Federal income tax purposes, the properties are depreciated over lives ranging from 5-27.5 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was $66,781,745 and accumulated depreciation and amortization was $44,860,488 at December 31, 1998.
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND X, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1998
See accompanying notes to Schedule III.
McNEIL REAL ESTATE FUND X, LTD.
Notes to Schedule III
Real Estate Investments and Accumulated Depreciation and Amortization
A summary of activity for the Partnership's real estate investments, accumulated depreciation and amortization, and assets held for sale is as follows:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ----------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------
None.
PART III
ITEM 10.
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, 78 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 an 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 55 Mrs. McNeil is Co-Chairman, with husband Co-Chairman of the Robert A. McNeil, of McNeil Investors, Board Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate associate with the Madison Company and, earlier, a commercial sales associate and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established Escrow Training Centers, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute.
Ron K. Taylor 41 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.
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, 1998, 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, 1998. 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- --------------------------------------------------------------
(A) Security ownership of certain beneficial owners.
No individual or group, as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, known to the Partnership is the beneficial owner of more than 5 percent of the Partnership's securities except as noted below:
1. High River Limited Partnership, 100 S. Bedford Road, Mount Kisco, New York, 10549, owns 11,836 Units (8.8%) as of February 1, 1999.
(B) Security ownership of management.
The General Partner and the officers and directors of its general partner collectively own 1,732 Units (1.3%) as of February 1, 1999.
(C) Change in control.
None.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------
Under terms of the Amended Partnership Agreement, the Partnership is paying the MID to the General Partner. The maximum MID is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The maximum MID percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter.
MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income (the "Entitlement Amount"), and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. For the year ended December 31, 1998, the Partnership accrued MID in the amount of $884,065.
Any amount of the MID which is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution.
The Partnership pays property management fees equal to 5% of gross rental receipts of the Partnership's properties to McREMI for providing property management and leasing services for the Partnership's residential properties and property management services for the Partnership's commercial properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1998, the Partnership paid or accrued $1,087,283 in property management fees and reimbursements.
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with a $2,336,029 mortgage note obtained from McNeil Real Estate Fund XXVII, L.P. ("Fund XXVII"), an affiliate of the General Partner. The new mortgage note was secured by a first lien on La Plaza Office Building. On August 1, 1997, the La Plaza mortgage note was amended to increase the amount outstanding by $800,000 to $3,136,029. The mortgage note bore a variable interest rate of 1% plus the prime lending rate of Bank of America. The mortgage note was refinanced with an unaffiliated lender on June 5, 1998. Total interest expense for this mortgage note was $138,268 for the year ended December 31, 1998.
See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 8 - Note 2 - "Transactions with Affiliates" and Note 6 - "Mortgage Note Payable - Affiliate."
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------- -----------------------------------------------------------------
See accompanying index to Financial Statements at Item 8 - Financial Statements and Supplementary Date.
(A) The following documents are incorporated by reference and are an integral part of this report:
Exhibits
Exhibit Number Description ------- ----------- 3. Limited Partnership Agreement (Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1987).
3.1 The Amended and Restated Limited Partnership Agreement (incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1991).
3.2 Amendment No. 1 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund X, Ltd. dated to be effective July 31, 1993. (4)
3.3 Amendment No. 2 to the Amended and Restated Partnership Agreement of McNeil Real Estate Fund X, Ltd. dated March 28, 1994. (4)
10.1 Assignment and Assumption Agreement, dated as of October 9, 1991, between Pacific Investors Corporation, Robert A. McNeil and McNeil Partners, L.P. regarding McNeil Real Estate Fund X, Ltd. (1)
10.2 Property Management Agreement, dated as of October 9, 1991, between McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Management, Inc. (1)
10.3 Asset Management Agreement, dated as of October 9, 1991, between McNeil Real Estate Fund X, Ltd. and McNeil Partners, L.P. (1)
10.5 Amendment of Property Management Agreement dated March 5, 1993, between the Partnership and McNeil Real Estate Management, Inc. (2)
10.6 Loan Agreement dated June 24, 1993, between Lexington Mortgage Company and McNeil Real Estate Fund X, Ltd., et. al. (3)
10.7 Master Property Management Agree- ment, dated as of June 24, 1993, between McNeil Real Estate Management, Inc. and McNeil Real Estate Fund X, Ltd. (4)
Exhibit Number Description ------- -----------
10.8 Multifamily Note, dated as of December 8, 1994, between Coppermill Fund X Limited Partnership and Arbor National Commercial Mortgage Corporation. (5)
10.12 Promissory Note, dated February 25, 1992, between McNeil Real Estate Fund X, Ltd. and Life Insurance Company of the Southwest. (5)
10.13 Multifamily Note, dated September 4, 1992, between Regency Park Fund X Associates, L.P. and Metmor Financial, Inc. (5)
10.15 Note, dated July 1, 1978, between M H Kentucky Ventures and First of Boston Mortgage Corporation. (5)
10.18 Property Management Agreement, dated November 30, 1994, between Coppermill Fund X Limited Partnership and McNeil Real Estate Management, Inc. (5)
10.19 Promissory Note, dated June 5, 1998, between La Plaza Center Fund X Limited Partnership and NationsBank, N.A.
11. Statement regarding computation of Net income (loss) per Limited Partnership Unit (see Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies").
22. List of subsidiaries of the Partnership.
27. Financial Data Schedule for the year ended December 31, 1998.
(1) Incorporated by reference to the Annual Report of McNeil Real Estate Fund X, Ltd., (File No. 0-9325), on Form 10-K for the period ended December 31, 1991, as filed with the Securities and Exchange Commission on March 30, 1992.
(2) Incorporated by reference to the Annual Report of McNeil Real Estate Fund X, Ltd. (File No. 0-9325), on Form 10-K for the period ended December 31, 1992, as filed with the Securities and Exchange Commission on March 30, 1993.
(3) Incorporated by reference to the Annual Report of McNeil Real Estate Fund XI, Ltd. (File No. 0-9783), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994.
(4) Incorporated by reference to the Annual Report of McNeil Real Estate Fund X, Ltd. (File No. 0-9325), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994.
(5) Incorporated by reference to the Annual Report of McNeil Real Estate Fund X, Ltd. (File No. 0-9325), on Form 10-K for the period ended December 31, 1994, as filed with the Securities and Exchange Commission on March 30, 1995.
The Partnership has omitted instruments with respect to long-term debt where the total amount of the securities authorized thereunder does not exceed 10% of the total assets of the Partnership. The Partnership agrees to furnish a copy of each such instrument to the Commission upon request.
(B) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 1998.
McNEIL REAL ESTATE FUND X, LTD. A Limited Partnership
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
McNEIL REAL ESTATE FUND X, LTD.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
March 31, 1999 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, 1999 By: /s/ Ron K. Taylor - -------------- --------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer)
March 31, 1999 By: /s/ Brandon K. Flaming - -------------- --------------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer)