UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended September 30, 1995
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-14007
MCNEIL REAL ESTATE FUND XX, L.P.
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(Exact name of registrant as specified in its charter)
California 33-0050225
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 448-5800
--------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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MCNEIL REAL ESTATE FUND XX, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
---------- ----------
ASSETS
- ------
Real estate investments:
Land..................................................... $ 699,697 $ 699,697
Buildings and improvements............................... 6,079,772 6,001,172
--------- ---------
6,779,469 6,700,869
Less: Accumulated depreciation.......................... (1,008,996) (762,675)
--------- ---------
5,770,473 5,938,194
Mortgage loan investments, net of allowance of
$792,013 at September 30, 1995 and
December 31, 1994........................................ 3,578,935 3,684,406
Mortgage loan investment - affiliate........................ 733,900 733,900
Cash and cash equivalents .................................. 3,825,648 3,734,020
Cash segregated for security deposits....................... 70,753 56,480
Interest and other accounts receivable...................... 60,701 50,244
Escrow deposits............................................. 110,382 128,642
Deferred borrowing costs, net of accumulated
amortization of $27,888 and $18,137 at September 30,
1995 and December 31, 1994, respectively................. 133,606 143,357
Prepaid expenses and other assets........................... 10,072 14,868
---------- ----------
$14,294,470 $14,484,111
========== ==========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- -----------------------------------------
Mortgage note payable, net.................................. $2,771,624 $ 2,802,303
Accounts payable and other accrued expenses................. 171,525 79,726
Accrued property taxes...................................... 96,857 112,216
Payable to affiliates - General Partner..................... 25,626 19,449
Deferred gain............................................... 170,806 150,053
Security deposits and deferred rental income................ 60,323 54,851
--------- ---------
3,296,761 3,218,598
--------- ---------
Partners' equity (deficit):
Limited partners - 60,000 limited partnership units
authorized; 49,512 limited partnership units issued and
outstanding at September 30, 1995 and December 31, 1994.. 11,318,558 11,586,184
General Partner.......................................... (320,849) (320,671)
---------- ----------
10,997,709 11,265,513
---------- ----------
$14,294,470 $14,484,111
========== ==========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XX, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
1995 1994 1995 1994
------- ------- --------- ---------
Revenue:
Rental revenue................ $339,876 $308,069 $1,004,432 $ 862,923
Interest income on mortgage
loan investments............ 74,864 90,931 216,038 354,556
Interest income on mortgage
loan investment - affiliate. 15,473 15,473 45,915 45,915
Other interest income......... 53,497 40,825 161,922 104,614
------- ------- --------- ---------
Total revenue............... 483,710 455,298 1,428,307 1,368,008
------- ------- --------- ---------
Expenses:
Interest...................... 64,811 64,933 189,817 188,198
Depreciation.................. 83,907 71,885 246,321 206,512
Property taxes................ 34,867 40,494 128,443 118,494
Personnel costs............... 38,176 35,278 123,494 102,225
Utilities..................... 26,328 19,567 67,749 61,565
Repairs and maintenance....... 35,249 32,918 92,508 87,209
Property management
fees - affiliates........... 16,601 14,722 49,444 41,783
Other property operating
expenses.................... 17,470 22,575 59,894 51,145
General and administrative.... 159,003 17,221 201,526 49,930
General and administrative -
affiliates.................. 95,341 93,778 286,914 275,657
------- ------- --------- ---------
Total expenses.............. 571,753 413,371 1,446,110 1,182,718
------- ------- --------- ---------
Net income (loss)................ $(88,043) $ 41,927 $ (17,803) $ 185,290
======= ======= ========= =========
Net income (loss) allocable
to limited partners........... $(87,163) $ 41,508 $ (17,625) $ 183,437
Net income (loss) allocable
to General Partner............ (880) 419 (178) 1,853
------- ------- --------- ---------
Net income (loss)................ $(88,043) $ 41,927 $ (17,803) $ 185,290
======= ======= ========= =========
Net income (loss) per limited
partnership unit.............. $ (1.76) $ .84 $ (.36) $ 3.70
======= ======= ========= =========
Distributions per limited
partnership unit.............. $ - $ 5.50 $ 5.05 $ 5.05
======= ======= ========= =========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XX, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
Total
General Limited Partners'
Partner Partners Equity
--------- ----------- -----------
Balance at December 31, 1993.............. $(321,560) $11,748,097 $11,426,537
Net income................................ 1,853 183,437 185,290
Distributions............................. - (249,933) (249,933)
-------- ---------- ----------
Balance at September 30, 1994............. $(319,707) $11,681,601 $11,361,894
======== ========== ==========
Balance at December 31, 1994.............. $(320,671) $11,586,184 $11,265,513
Net loss.................................. (178) (17,625) (17,803)
Distributions............................. - (250,001) (250,001)
-------- ---------- ----------
Balance at September 30, 1995............. $(320,849) $11,318,558 $10,997,709
======== ========== ==========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XX, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended
September 30,
--------------------------------
1995 1994
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Cash flows from operating activities:
Cash received from tenants........................ $ 995,491 $ 835,777
Cash paid to suppliers............................ (445,906) (384,211)
Cash paid to affiliates........................... (330,181) (326,055)
Interest received................................. 398,869 383,353
Interest received from affiliates................. 36,664 89,163
Interest paid..................................... (174,924) (177,762)
Property taxes paid............................... (31,586) (15,853)
Property taxes escrowed........................... (97,604) (76,401)
--------- ---------
Net cash provided by operating activities............ 350,823 328,011
--------- ---------
Cash flows from investing activities:
Additions to real estate investments.............. (78,600) (162,879)
Collection of principal on mortgage loan
investments..................................... 105,471 33,986
--------- ---------
Net cash provided by (used in) investing
activities........................................ 26,871 (128,893)
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage note payable....... (36,065) (33,227)
Distributions paid................................ (250,001) (249,933)
--------- ---------
Net cash used in financing activities................ (286,066) (283,160)
--------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... 91,628 (84,042)
Cash and cash equivalents at beginning of
period............................................ 3,734,020 3,811,021
--------- ---------
Cash and cash equivalents at end of period........... $3,825,648 $3,726,979
========= =========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XX, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
Nine Months Ended
September 30,
------------------------------
1995 1994
------- -------
Net income (loss).................................... $(17,803) $185,290
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 246,321 206,512
Amortization of deferred borrowing costs.......... 9,751 8,983
Amortization of discount on mortgage note
payable......................................... 5,386 1,678
Changes in assets and liabilities:
Mortgage loan investments....................... - (82,566)
Cash segregated for security deposits........... (14,273) (39,965)
Interest and other accounts receivable.......... (10,457) 42,174
Escrow deposits................................. 18,260 (54,687)
Prepaid expenses and other assets............... 4,796 (25,434)
Accrued proxy costs............................. 118,179 -
Accounts payable and other accrued
expenses...................................... 91,799 (29,185)
Accrued property taxes.......................... (15,359) 102,640
Payable to affiliates - General Partner......... 6,177 (8,615)
Deferred gain................................... 20,753 -
Security deposits and deferred rental
income........................................ 5,472 21,186
------- -------
Total adjustments............................. 368,626 142,721
------- -------
Net cash provided by operating activities............ $350,823 $328,011
======= =======
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XX, L.P.
Notes to Financial Statements
September 30, 1995
(Unaudited)
NOTE 1.
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McNeil Real Estate Fund XX, L.P. (the "Partnership"), formerly known as
Southmark Income Investors, Ltd., was organized on July 19, 1984 as a limited
partnership under the provisions of the California Revised Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil ("McNeil"). The principal place of business for the Partnership and
the General Partner is 13760 Noel Road, Suite 700, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1995
are not necessarily indicative of the results to be expected for the year ending
December 31, 1995.
NOTE 2.
- ------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1994, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund XX, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, Dallas, Texas 75240.
NOTE 3.
- ------
The Partnership pays property management fees equal to 5% of the gross rental
receipts for its properties to McNeil Real Estate Management, Inc. ("McREMI"),
an affiliate of the General Partner, for providing property management services.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
The Partnership is paying an asset management fee which is payable to the
General Partner. Through 1999, the asset management fee is calculated as 1% of
the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9% to the annualized net operating income of each property, (ii) a value of
$10,000 per apartment unit or (iii) on 1130 Sacramento, the net book value of
the property is used to arrive at the property tangible asset value. The
property tangible asset value is then added to the book value of all other
assets excluding intangible items.
The fee percentage decreases subsequent to 1999.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Nine Months Ended
September 30,
--------------------------------
1995 1994
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Property management fees............................. $ 49,444 $ 41,783
Charged to general and administrative -
affiliates:
Partnership administration........................ 157,729 148,631
Asset management fee.............................. 129,185 127,026
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$336,358 $317,440
======= =======
Payable to affiliates - General Partner at September 30, 1995 and December 31,
1994 consisted primarily of unpaid property management fees, Partnership general
and administrative expenses and asset management fees and are due and payable
from current operations.
NOTE 4.
- ------
In May 1994, the Idlewood Nursing Home mortgage loan investment was modified,
extending the maturity date to March 1999 and reducing the interest rate on the
loan from 12% to 8.5%. Unpaid accrued interest of $82,566 for November 1993
through February 1994 was added to the principal balance at March 1, 1994 and is
no longer considered interest. Monthly payments of principal and interest were
reduced from $25,067 to $17,286 beginning April 1, 1994. In February 1995, the
Idlewood Nursing Home mortgage loan investment was again modified. The interest
rate remained at 8.5% and the maturity date was changed to February 1, 1998. The
borrower paid the Partnership $33,200 in cash at the date of modification and
the monthly payments on the loan were changed such that cash flow from
operations of the property, with a minimum payment of $9,130, are due monthly.
In February 1995, the Lakeland Nursing Home mortgage loan investment was
modified extending the maturity date to February 1, 1999. The interest rate and
monthly payment amount remain the same. The borrower paid a $25,941 extension
fee which the Partnership recorded as a deferred gain.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
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There has been no significant change in the operations of Sterling Springs
Apartments or 1130 Sacramento Condominiums since December 31, 1994.
The Partnership reported a net loss of $17,803 for the first nine months of 1995
as compared to net income of $185,290 for the same period in 1994. Revenues in
1995 were $1,428,307 as compared to $1,368,008 in 1994, while expenses increased
to $1,446,110 from $1,182,718.
Net cash provided by operating activities was $350,823 for the nine months ended
September 30, 1995, a change from the $328,011 provided during the same nine
month period in 1994. The Partnership expended $78,600 for capital improvements,
made $36,065 in principal payments on its mortgage note payable, and collected
$105,471 of principal on mortgage loan investments. After distributions of
$250,001 to the limited partners, cash and cash equivalents totaled $3,825,648
at September 30, 1995, a net increase of $91,628 from the balance at December
31, 1994.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total revenue increased by $28,412 and $60,299 for the three and nine month
periods ended September 30, 1995, respectively, as compared to the same periods
in 1994. The increase was due to an increase in rental revenue and other
interest income, partially offset by a decrease in interest income on mortgage
loan investments, as discussed below.
Rental revenue for the three and nine month periods ended September 30, 1995
increased by $31,807 and $141,509, respectively, as compared to the same periods
in 1994. The increase was partially due to an increase in rental rates at
Sterling Springs Apartments in February 1995. Also contributing to the increase
in rental revenue was the increase in occupancy at 1130 Sacramento Condominiums.
Although construction of the building was completed in early 1994, two of the
four units were not leased until the third quarter of 1994.
Interest income on mortgage loan investments decreased by $16,067 and $138,518
for the three and nine months ended September 30, 1995, respectively, as
compared to the same periods in 1994 due to the modification of the Idlewood
Nursing Home mortgage loan investment in February 1995 (See Item 1 - Note 4). In
accordance with Statement of Financial Accounting Standards No. 114 "Accounting
by Creditors for Impairment of a Loan" ("SFAS 114"), which the Partnership
adopted in 1994, the Partnership has ceased accruing interest on the loan and
all payments received are recorded as a reduction of principal.
Other interest income earned on short-term investments of cash and cash
equivalents increased by $12,672 and $57,308 for the three and nine month
periods ended September 30, 1995, respectively, as compared to the respective
periods in 1994. The increase was mainly due to an increase in interest rates
earned on invested cash during the first nine months of 1995.
Expenses:
Total expenses for the three and nine month periods ended September 30, 1995
increased by $158,382 and $263,392, respectively, as compared to the respective
periods in 1994. The increase was mainly due to an increase in general and
administrative expenses, as discussed below.
Depreciation expense increased by $12,022 and $39,809 for the three and nine
months ended September 30, 1995, respectively, as compared to the same periods
in 1994. The increase was primarily due to the addition of depreciable capital
improvements at Sterling Springs Apartments and 1130 Sacramento Condominiums.
Personnel costs increased by $2,898 and $21,269 for the three and nine months
ended September 30, 1995, respectively, as compared to the respective periods in
1994. The increase was due to an increase in bonuses paid at Sterling Springs
and 1130 Sacramento, the result of an increase in the overall performance of the
properties in the first quarter of 1995.
Property management fees increased by $1,879 in the three months and by $7,661
in the nine months ended September 30, 1995, in relation to the comparable
periods in 1994, due to an increase in gross rental receipts, on which the fees
are based, at 1130 Sacramento Condominiums and Sterling Springs Apartments.
Other property operating expenses decreased by $5,105 and increased by $8,749
for the three and nine months ended September 30, 1995, respectively, as
compared to the same periods in 1994. The overall increase was mainly due to an
increase in property insurance costs in the first half of 1995.
General and administrative expenses increased by $141,782 and $151,596 for the
three and nine month periods ended September 30, 1995, respectively, as compared
to the respective periods in 1994. The increase was mainly due to the
Partnership incurring approximately $118,000 of costs relating to evaluation and
dissemination of information regarding an unsolicited tender offer as discussed
in Item 5 - Other Information. In addition, there was an increase in legal fees,
the result of the Idlewood and Lakeland note modifications.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $350,823 through operating activities for the first
nine months of 1995 as compared to $328,011 for the first nine months of 1994.
The increase in 1995 was mainly due to an increase in cash received from tenants
(see discussion of increase in rental revenue above).
The Partnership expended $78,600 and $162,879 for capital improvements to its
properties in the first nine months of 1995 and 1994, respectively. The 1994
amount includes improvements to 1130 Sacramento for which construction was
completed early in 1994.
The Partnership collected $105,471 of principal on its mortgage loan investments
in the first nine months of 1995 as compared to $33,986 collected in the same
period in 1994. As previously discussed, in accordance with SFAS 114, all
payments received on the Idlewood Nursing Home mortgage loan investment have
been recorded as a reduction of principal in 1995.
Short-term liquidity:
- --------------------
At September 30, 1995, the Partnership held cash and cash equivalents of
$3,825,648. This balance provides a reasonable level of working capital for the
Partnerships immediate needs in operating its properties.
In 1995, operations of Sterling Springs Apartments and 1130 Sacramento are
expected to provide sufficient positive cash flow for normal operations.
Management will perform routine repairs and maintenance on the properties to
preserve and enhance their value and competitiveness in the market. The
Partnership has budgeted to spend approximately $86,000 on capital improvements
to its properties in 1995, which are expected to be funded from operations of
the properties.
For 1995, management expects that cash from operations of its properties and
principal and interest collections on the mortgage loan investments, along with
the present balance of cash and cash equivalents held, will allow the
Partnership to meet its obligations as they come due.
At the present time, the Partnership anticipates making distributions to the
limited partners in the foreseeable future. Management is currently reviewing
cash requirements to determine the amount and timing of such distributions.
Long-term liquidity:
- -------------------
Only one property, Sterling Springs Apartments, is encumbered with mortgage
debt. The mortgage on this property is not due until 2003.
In the event that the Partnership acquires ownership of other properties through
foreclosure, the cash and cash equivalent balances presently held will provide a
source for the maintenance and improvement of the properties. Because the timing
and number of properties which may be foreclosed is uncertain, there is no
assurance that the balances presently held will be sufficient for needed capital
improvements. At present, there are no commitments nor any known needs for
improvements to the properties securing the Partnership's loans. The Partnership
has no existing lines of credit from outside sources.
The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships, if certain
conditions are met. Borrowings under the facility may be used to fund deferred
maintenance, refinancing obligations and working capital needs. There is no
assurance that the Partnership will receive any funds under the facility because
no amounts are reserved for any particular partnership. As of September 30,
1995, $2,362,004 remained available for borrowing under the facility; however,
additional funds could become available as other partnerships repay existing
borrowings.
Another possible source of funds is the sale of the Partnership's mortgage loan
investments or properties securing the Partnership's mortgage loans. Such sales
are possibilities only, and since the Partnership does not control the
properties securing its loans, sales of those properties may occur only if
initiated by the borrower or in the event of foreclosure by the Partnership.
There is no assurance that any sales can be contracted or closed to coincide
with the Partnership's future cash needs. For the long term, the Partnership
will remain dependent on operations of the properties it owns or of the
properties securing its loans as the primary source of debt repayment, until the
properties can be sold.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
1) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al
(Case #92-06560-A). This suit was filed on behalf of the Partnership and other
affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992, in the
14th Judicial District Court of Dallas County. The petition sought recovery
against the Partnership's former auditors, Ernst & Young, for negligence and
fraud in failing to detect and/or report overcharges of fees/expenses by
Southmark, the former general partner. The former auditors asserted
counterclaims against the Affiliated Partnerships based on alleged fraudulent
misrepresentations made to the auditors by the former management of the
Affiliated Partnerships (Southmark) in the form of client representation letters
executed and delivered to the auditors by Southmark management. The
counterclaims sought recovery of attorneys' fees and costs incurred in defending
this action. The original petition also alleged causes of action against certain
former officers and directors of the Partnership's original general partner for
breach of fiduciary duty, fraud and conspiracy relating to the improper
assessment and payment of certain administrative fees/expenses. On January 11,
1994 the allegations against the former officers and directors were dismissed.
The trial court granted summary judgment in favor of Ernst & Young and BDO
Seidman on the fraud and negligence claims based on the statute of limitations.
The Affiliated Partnerships appealed the summary judgment to the Dallas Court of
Appeals. In August 1995, the appeals court upheld all of the summary judgments
in favor of the defendants, except it overturned the summary judgment as to the
fraud claim against Ernst & Young. Therefore, the plaintiffs will proceed to
trial unless a reasonable settlement can be effected between the parties. The
ultimate outcome of this litigation cannot be determined at this time.
2) High River Limited Partnership vs. McNeil Partners, L.P., McNeil Investors,
Inc., McNeil Pacific Investors 1972, McNeil Real Estate Fund V, Ltd., McNeil
Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate
Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV,
Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P.,
McNeil Real Estate Fund XXV, L.P., Robert A. McNeil and Carole J. McNeil
(L95012). High River Limited Partnership ("High River") filed this action in the
United States District Court for the Southern District of New York against
McNeil Partners, L.P., McNeil Investors, Inc. and Mr. and Mrs. McNeil
requesting, among other things, names and addresses of the limited partners of
the ten partnerships listed above (the "Funds"). The district court issued a
preliminary injunction against the Funds requiring them to commence mailing
materials relating to High River tender offer materials on August 14, 1995.
On August 18, 1995, McNeil Partners, L.P., McNeil Investors, Inc., the Funds,
and Mr. and Mrs. McNeil filed an Answer and Counterclaim. The counterclaim
principally asserted that (1) the High River tender offers were undertaken in
violation of the federal securities laws, on the basis of material, non-public,
and confidential information, and (2) that the High River offer documents
omitted and/or misrepresented certain material information about the High River
tender offers. The counterclaim sought a preliminary and permanent injunction
against the continuation of the High River tender offers and, alternatively,
ordering corrective disclosure with respect to allegedly false and misleading
statements contained in the tender offer documents.
The High River tender offer expired on October 6, 1995. The defendants believe
that the action is moot and expect the matter to be dismissed shortly.
3) Martha Hess, et. al. v. Southmark Equity Partners II, Ltd,, Southmark Income
Investors, Ltd. (presently known as McNeil Real Estate Fund XX, L.P.), Southmark
Equity Partners, Ltd., Southmark Realty Partners III, Ltd., and Southmark Realty
Partners II, Ltd., et al. ("Hess"); Kotowski v. Southmark Equity Partners, Ltd.
and Donald Arceri v. Southmark Income Investors, Ltd. These cases were
previously pending in the Illinois Appellate Court for the First District
("Appellate Court"), as consolidated case no. 90-107. Consolidated with these
cases are an additional 14 matters against unrelated partnership entities. The
Hess case was filed on May 20, 1988, by Martha Hess, individually and on behalf
of a putative class of those similarly situated. The original, first, second and
third amended complaints in Hess sought rescission, pursuant to the Illinois
Securities Act, of over $2.7 million of principal invested in five Southmark
(now McNeil) partnerships, and other relief including damages for breach of
fiduciary duty and violation of the Illinois Consumer Fraud and Deceptive
Business Practices Act. The original, first, second and third amended complaints
in Hess were dismissed against the defendant-group because the Appellate Court
held that they were not the proper subject of a class action complaint. Hess
was, thereafter, amended a fourth time to state causes of action against
unrelated partnership entities. Hess went to judgment against that unrelated
entity and the judgment, along with the prior dismissal of the class action, was
appealed. The Hess appeal was decided by the Appellate Court during 1992. The
Appellate Court affirmed the dismissal of the breach of fiduciary duty and
consumer fraud claims. The Appellate Court did, however, reverse in part,
holding that certain putative class members could file class action complaints
against the defendant-group. Although leave to appeal to the Illinois Supreme
Court was sought, the Illinois Supreme Court refused to hear the appeal. The
effect of the denial is that the Appellate Court's opinion remains standing. On
June 15, 1994, the Appellate Court issued its mandate sending the case back to
trial court.
In late January 1995, the plaintiffs filed a Motion to File an Amended
Consolidated Class Action Complaint, which amends the complaint to name McNeil
Partners, L.P. as the successor general partner to Southmark Investment Group.
In February 1995, the plaintiffs filed a Motion for Class Certification.
In September 1995, the court granted the plaintiffs' Motion to File an Amended
Complaint, to Consolidate and for Class Certification. The defendants have
answered the complaint and have plead that the plaintiffs did not give timely
notice of their right to rescind within six months of knowing that right. The
ultimate outcome of this litigation cannot be determined at this time.
4) Robert Lewis vs. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
McNeil, et al - In the District Court of Dallas County, Texas, A-14th Judicial
District, Cause No. 95-08535 (Class Action). The plaintiff, Robert Lewis, is a
limited partner with McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund
X, Ltd. and McNeil Real Estate Fund XV, Ltd. The plaintiff brings this action on
his own behalf and as a class action on behalf of the class of all limited
partners of McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real
Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund
XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P.
and McNeil Real Estate Fund XXV, L.P as of August 4, 1995.
The plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil, and other senior officers (collectively, the "Defendants") breached
their fiduciary duties by, amoung other things, (1) failing to attempt to sell
the properties owned by the Funds (the "Properties") and extending the lives of
the Funds indefinitely, contrary to the Funds' business plans, (2) paying
distributions to themselves and generating fees for their affiliates, (3)
refusing to make significant distributions to the class members, despite the
fact that the Funds have positive cash flows and substantial cash balances, and
(4) failing to take steps to create an auction market for Fund equity interests,
despite the fact that a third party bidder filed tender offers for approximately
forty-five percent (45%) of the outstanding units of each of the Funds. The
plaintiff also claims that the Defendants have breached the partnership
agreements by failing to take steps to liquidate the Properties and by their
alteration of the Funds' primary purposes, their acts in contravention of these
agreements, and their use of the Fund assets for their own benefit instead of
for the benefit of the Funds.
The Defendants deny that there is any merit to the plaintiff's allegations and
intend to vigorously defend this action.
5) James F. Schofield, Gerald C. Gillett and Donna S. Gillett vs. McNeil
Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc.,
Robert A. McNeil, Carole J. McNeil, et al, McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real
Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund
XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P.,
McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California
for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action
Complaint), United States District Court, Southern District of New York, Case
No. 95CIV.6711 (Class and Derivative Action Complaint). These are
corporate/securities class and derivative actions brought in state and federal
court by limited partners of each of the nine limited partnerships that are
named as Nominal Defendants as listed above (the "Nine Funds").
The plaintiffs allege that defendants McNeil Investors, Inc., its affiliate
McNeil Real Estate Management, Inc. and four of their senior officers and/or
directors have breached their fiduciary duties. Specifically, the plaintiffs
allege that the defendants have caused the Nine Funds to enter into several
wasteful transactions that have no business purpose or benefit to the Nine Funds
and which have rendered such units highly illiquid and artificially depressed
the prices that are available for units on the limited resale market. The
plaintiffs also allege that the defendants have engaged in a course of conduct
to prevent the acquisition of units by Carl Icahn by disseminating false,
misleading and inadequate information. The plaintiffs further allege that the
defendants have acted to advance their own personal interests at the expense of
the Nine Funds' public unit holders by failing to sell partnership properties
and failing to make distributions to unitholders and, thereby, have breached the
partnership agreements.
The defendants deny that there is any merit to the plaintiffs' allegations and
intend to vigorously defend these actions.
6) Alfred Napoletano vs. McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, McNeil Real
Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund
X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of
the State of California, County of Los Angeles, Case No. BC133849 (class action
complaint).
The plaintiff brings this class action on behalf of a class of all persons and
entities who are current owners of units and/or are limited partners in one or
more of the partnerships referenced above (the "Funds"). The plaintiff alleges
that the defendants have breached their fiduciary duties to the class members
by, among other things, (1) taking steps to prevent the consummation of the High
River tender offers, (2) failing to take steps to maximize unitholders' or
limited partners' values, including failure to liquidate the properties owned by
the Funds, (3) managing the Funds so as to extend indefinitely the present fee
arrangements, and (4) paying itself and entities owned and controlled by the
general partner excessive fees and reimbursements of general and administrative
expenses.
The defendants deny that there is any merit to the plaintiff's allegations and
intend to vigorously defend this action.
7) Warren Heller vs. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, McNeil Real Estate
Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd.,
McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real
Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund
XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of
California, County of Los Angeles, Case No. BC133957 (class action complaint).
The plaintiff brings this class action on behalf of a class of all persons and
entities who are current owners of units and/or are limited partners in one or
more of the Funds referenced above. The plaintiff alleges that the defendants
have breached their fiduciary duties to the class members by, among other
things, (1) taking steps to prevent the consummation of the High River tender
offers, (2) failing to take steps to maximize unitholders' or limited partners'
values, including failure to liquidate the properties owned by the Funds, (3)
managing the Funds so as to extend indefinitely the present fee arrangements,
and (4) paying itself and entities owned and controlled by the general partner
excessive fees and reimbursements of general and administrative expenses.
The defendants deny that there is any merit to the plaintiff's allegations and
intend to vigorously defend this action.
8) High River Limited Partnership v. McNeil Partners L.P., McNeil Investors,
Inc., McNeil Pacific Investors 1972, McNeil Real Estate Fund V, Ltd., McNeil
Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate
Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV,
Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P.,
McNeil Real Estate Fund XXV, L.P., Robert A. McNeil and Carole J. McNeil -
United States District Court for the Southern District of New York, (Case No. 95
Civ. 9488) (Second Action).
On November 7, 1995, High River commenced a second complaint which alleges,
inter alia, that McNeil's Schedule 14D-9 filed in connection with the High River
tender offers was materially false and misleading, in violation of Sections
14(d) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78n(d)
and (e), and the SEC Regulations promulgated thereunder; and that High River
further alleges that McNeil has wrongfully refused to admit High River as a
limited partner to the Funds. Additionally, High River purports to assert claims
derivatively on behalf of Funds IX, XI, XV, XXIV and XXV, for breach of contract
and breach of fiduciary duty, asserting that McNeil has charged these Funds
excessive fees. High River's complaint seeks, inter alia, preliminary injunctive
relief requiring McNeil to admit High River as a limited partner in each of the
ten Funds and to transfer the tendered units of interest in the Funds to High
River; an unspecified award of damages payable to High River and an additional
unspecified award of damages payable to certain of the Funds; an order that
defendants must discharge their fiduciary duties and must account for all fees
they have received from certain of the Funds; and attorneys' fees.
The defendants deny that there is any merit to the plaintiff's allegations and
intend to vigorously defend this action.
ITEM 5. OTHER INFORMATION
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As previously disclosed, on an unsolicited basis, High River, a partnership
controlled by Carl Icahn, announced that it had commenced an offer to purchase
22,280 units of limited partnership interest in the Partnership (approximately
45% of the Partnership's units) at $100.00 per unit. The tender offer was
originally due to expire on August 31, 1995. In connection therewith, the
parties entered into certain negotiations and discussions regarding, among other
things, possible transactions between the parties and their affiliates, McNeil
Partners, L.P., McNeil Investors, Inc., and McREMI. On September 19, 1995, the
parties having not reached any resolution on the terms of the proposed
transactions, McNeil Partners, L.P. terminated the parties' discussion. High
River had extended its offer several times until the final expiration date of
October 6, 1995. On October 11, 1995 High River announced that based on
preliminary information furnished by the depositary for the tender offer,
approximately 5,883 limited partnership units of the Partnership were tendered
and not withdrawn prior to the expiration of the tender offer. On October 12,
1995, McNeil Partners, L.P. announced that it would continue to explore
potential avenues to enhance the value of the Partnership units, which may
include, among other things, asset sales, refinancings of Partnership properties
followed by distributions or tender offers for units of limited partnership.
There can be no assurance that any such plans will develop or that any such
transactions will be consummated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Document Description
4. Amended and Restated Limited Partnership Agreement dated March 30, 1992.
(Incorporated by reference to the Current Report of the registrant on Form 8-K
dated March 30, 1992, as filed on April 10, 1992).
11. Statement regarding computation of Net Income per Limited Partnership
Unit: Net income (loss) per limited partnership unit is computed by dividing
net income (loss) allocated to the limited partners by the weighted average
number of limited partnership units outstanding. Per unit information
has been computed based on 49,512 and 49,524 limited partnership units
outstanding in 1995 and 1994, respectively.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended September 30, 1995.
MCNEIL REAL ESTATE FUND XX, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
McNEIL REAL ESTATE FUND XX, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 13, 1995 By: /s/ Donald K. Reed
- ------------------------------- ----------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
November 13, 1995 By: /s/ Robert C. Irvine
- ------------------------------- ----------------------------------------
Date Robert C. Irvine
Chief Financial Officer of McNeil Investors, Inc.
Principal Financial Officer
November 13, 1995 By: /s/ Carol A. Fahs
- ------------------------------- -----------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil Real Estate
Management, Inc.