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 June 30, 1996
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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
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MCNEIL REAL ESTATE FUND XX, L.P.
- --------------------------------------------------------------------------------
(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
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BALANCE SHEETS
(Unaudited)
June 30, December 31,
1996 1995
---------------- --------------
ASSETS
- ------
Real estate investments:
Land..................................................... $ 699,697 $ 699,697
Buildings and improvements............................... 6,129,999 6,119,787
-------------- -------------
6,829,696 6,819,484
Less: Accumulated depreciation.......................... (1,262,461) (1,093,107)
-------------- -------------
5,567,235 5,726,377
Mortgage loan investments, net of allowance of
$792,013 at June 30, 1996 and
December 31, 1995........................................ 3,471,559 3,537,436
Mortgage loan investment - affiliate........................ 733,900 733,900
Cash and cash equivalents .................................. 3,616,730 3,927,223
Cash segregated for security deposits....................... 57,494 59,869
Interest and other accounts receivable...................... 74,463 77,480
Escrow deposits............................................. 203,810 144,844
Deferred borrowing costs, net of accumulated
amortization of $38,270 and $31,264 at June 30,
1996 and December 31, 1995, respectively................. 123,224 130,230
Prepaid expenses and other assets........................... 6,224 8,590
-------------- -------------
$ 13,854,639 $ 14,345,949
============== =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net.................................. $ 2,738,970 $ 2,760,961
Accounts payable and other accrued expenses................. 50,143 120,293
Accrued property taxes...................................... 194,738 123,530
Payable to affiliates....................................... 37,195 32,849
Deferred revenue............................................ 167,163 170,475
Security deposits and deferred rental revenue............... 55,641 58,213
-------------- -------------
3,243,850 3,266,321
-------------- -------------
Partners' equity (deficit):
Limited partners - 60,000 limited partnership units
authorized; 49,512 limited partnership units issued
and outstanding at June 30, 1996 and December 31, 1995. 10,929,508 11,399,658
General Partner.......................................... (318,719) (320,030)
-------------- -------------
10,610,789 11,079,628
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$ 13,854,639 $ 14,345,949
============== =============
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 Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
Revenue:
Rental revenue................ $ 345,660 $ 335,573 $ 708,567 $ 664,556
Interest income on mortgage
loan investments............ 70,843 72,954 141,857 141,174
Interest income on mortgage
loan investment - affiliate. 15,306 15,305 30,610 30,442
Other interest income......... 46,484 57,972 93,314 108,425
------------- ------------- ------------- -------------
Total revenue............... 478,293 481,804 974,348 944,597
------------- ------------- ------------- -------------
Expenses:
Interest...................... 62,618 61,585 125,499 125,006
Depreciation.................. 84,728 81,207 169,354 162,414
Property taxes................ 36,900 46,788 84,976 93,576
Personnel costs............... 33,740 35,775 70,724 85,318
Utilities..................... 18,221 21,088 37,931 41,421
Repairs and maintenance....... 30,915 27,476 62,050 57,259
Property management
fees - affiliates........... 16,931 17,343 33,816 32,843
Other property operating
expenses.................... 24,107 22,753 42,841 42,424
General and administrative.... 19,986 25,913 48,085 42,523
General and administrative -
affiliates.................. 84,714 96,094 167,936 191,573
------------- ------------- ------------- -------------
Total expenses.............. 412,860 436,022 843,212 874,357
------------- ------------- ------------- -------------
Net income....................... $ 65,433 $ 45,782 $ 131,136 $ 70,240
============= ============= ============= =============
Net income allocable
to limited partners........... $ 64,779 $ 45,325 $ 129,825 $ 69,538
Net income allocable
to General Partner............ 654 457 1,311 702
------------- ------------- ------------- -------------
Net income....................... $ 65,433 $ 45,782 $ 131,136 $ 70,240
============= ============= ============= =============
Net income per limited
partnership unit.............. $ 1.31 $ .92 $ 2.62 $ 1.40
============= ============= ============= =============
Distributions per limited
partnership unit.............. $ - $ - $ 12.12 $ 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 Six Months Ended June 30, 1996 and 1995
Total
General Limited Partners'
Partner Partners Equity
--------------- --------------- ---------------
Balance at December 31, 1994.............. $ (320,671) $ 11,586,184 $ 11,265,513
Net income................................ 702 69,538 70,240
Distributions............................. - (250,001) (250,001)
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Balance at June 30, 1995.................. $ (319,969) $ 11,405,721 $ 11,085,752
============= ============= =============
Balance at December 31, 1995.............. $ (320,030) $ 11,399,658 $ 11,079,628
Net income................................ 1,311 129,825 131,136
Distributions............................. - (599,975) (599,975)
------------- ------------- -------------
Balance at June 30, 1996.................. $ (318,719) $ 10,929,508 $ 10,610,789
============= ============= =============
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
Six Months Ended
June 30,
-------------------------------------------
1996 1995
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Cash flows from operating activities:
Cash received from tenants........................ $ 721,380 $ 652,466
Cash paid to suppliers............................ (331,385) (285,624)
Cash paid to affiliates........................... (197,406) (220,515)
Interest received................................. 229,412 275,641
Interest received from affiliates................. 24,443 24,443
Interest paid..................................... (114,847) (116,861)
Property taxes paid............................... (13,768) (31,586)
Property taxes escrowed........................... (58,200) (68,504)
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Net cash provided by operating activities............ 259,629 229,460
----------------- --------------
Cash flows from investing activities:
Additions to real estate investments.............. (10,212) (32,555)
Collection of principal on mortgage loan
investments..................................... 65,877 81,958
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Net cash provided by investing activities............ 55,665 49,403
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Cash flows from financing activities:
Principal payments on mortgage note payable....... (25,812) (23,799)
Distributions paid................................ (599,975) (250,001)
----------------- --------------
Net cash used in financing activities................ (625,787) (273,800)
----------------- --------------
Net increase (decrease) in cash and
cash equivalents.................................. (310,493) 5,063
Cash and cash equivalents at beginning of
period............................................ 3,927,223 3,734,020
----------------- --------------
Cash and cash equivalents at end of period........... $ 3,616,730 $ 3,739,083
================= ==============
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XX, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
Six Months Ended
June 30,
-----------------------------------------
1996 1995
----------------- -----------------
Net income........................................... $ 131,136 $ 70,240
--------------- ---------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation...................................... 169,354 162,414
Amortization of deferred borrowing costs.......... 7,006 5,347
Amortization of discount on mortgage note
payable......................................... 3,821 2,960
Changes in assets and liabilities:
Cash segregated for security deposits........... 2,375 (19,180)
Interest and other accounts receivable.......... 3,017 (7,129)
Escrow deposits................................. (58,966) 44,566
Prepaid expenses and other assets............... 2,366 6,566
Accounts payable and other accrued
expenses...................................... (70,150) (23,002)
Accrued property taxes.......................... 71,208 (50,226)
Payable to affiliates........................... 4,346 3,901
Deferred revenue................................ (3,312) 25,941
Security deposits and deferred rental
revenue....................................... (2,572) 7,062
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Total adjustments............................. 128,493 159,220
--------------- --------------
Net cash provided by operating activities............ $ 259,629 $ 229,460
=============== ==============
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
June 30, 1996
(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 six months ended June 30, 1996 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1996.
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, 1995, 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:
Six Months Ended
June 30,
------------------------
1996 1995
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Property management fees.................... $ 33,816 $ 32,843
Charged to general and administrative -
affiliates:
Partnership administration............... 81,607 106,249
Asset management fee..................... 86,329 85,324
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$ 201,752 $ 224,416
======== ========
Payable to affiliates at June 30, 1996 and December 31, 1995 consisted primarily
of unpaid property management fees, Partnership general and administrative
expenses and asset management fees and are due and payable from current
operations.
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, 1995.
The Partnership reported net income of $131,136 for the first six months of 1996
as compared to net income of $70,240 for the same period in 1995. Revenues in
1996 increased to $974,348 from $944,597 in 1995, while expenses were $843,212
in 1996 as compared to $874,357 in 1995.
Net cash provided by operating activities was $259,629 for the six months ended
June 30, 1996, a change from the $229,460 provided during the same six month
period in 1995.
The Partnership expended $10,212 for capital improvements, made $25,812 in
principal payments on its mortgage note payable, and collected $65,877 of
principal on mortgage loan investments. After distributions of $599,975 to the
limited partners, cash and cash equivalents totaled $3,616,730 at June 30, 1996,
a net decrease of $310,493 from the balance at December 31, 1995.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total revenue decreased by $3,511 and increased by $29,751 for the three and six
month periods ended June 30, 1996, respectively, as compared to the same periods
in 1995. The overall increase was mainly due to an increase in rental revenue,
as discussed below.
Rental revenue for the three and six month periods ended June 30, 1996 increased
by $10,087 and $44,011, respectively, as compared to the same periods in 1995.
The increase was primarily due to an increase in rental rates at Sterling
Springs Apartments in July 1995 and again in March 1996.
Other interest income decreased by $11,488 and $15,111 for the three and six
month periods ended June 30, 1996, respectively, as compared to the same periods
in 1995. The decrease was the result of a decrease in cash available for
short-term investment, mainly due to the payment of distributions to limited
partners.
Expenses:
Total expenses for the three and six month periods ended June 30, 1996 decreased
by $23,162 and $31,145, respectively, as compared to the same periods in 1995.
The decrease was due to a decrease in personnel costs and general and
administrative - affiliates, partially offset by an increase in general and
administrative expenses, as discussed below.
Personnel costs decreased by $2,035 and $14,594 for the three and six months
ended June 30, 1996, respectively, as compared to the same periods in 1995. The
decrease was mainly due to a worker's compensation insurance refund received for
Sterling Springs Apartments; the result of an audit performed on prior years'
workers' compensation insurance.
General and administrative expense decreased by $5,927 for the three months and
increased by $5,562 for the six months ended June 30, 1996 as compared to the
same periods in 1995. The overall increase was mainly due to the Partnership
incurring approximately $15,000 of costs in 1996 to defend class action
litigation. This increase was partially offset by a decrease in legal expenses
in the second quarter of 1996. A greater amount of legal expenses were incurred
in 1995 relating to the modification of the Idlewood and Lakeland Nursing Homes
notes receivable.
General and administrative - affiliates decreased by $11,380 and $23,637 for the
three and six months ended June 30, 1996, respectively, as compared to the same
period in 1995. The decrease was mainly due to a decrease in overhead expenses
allocated to the Partnership by McREMI.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $259,629 through operating activities for the first
six months of 1996 as compared to $229,460 for the first six months of 1995. The
increase in 1996 was mainly due to an increase in cash received from tenants
(see discussion of increase in rental revenue, above).
Short-term liquidity:
At June 30, 1996, the Partnership held cash and cash equivalents of $3,616,730.
This balance provides a reasonable level of working capital for the Partnerships
immediate needs in operating its properties.
In 1996, 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 $38,000 on capital improvements
to its properties in 1996, which are expected to be funded from operations of
the properties.
For 1996, 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.
The Partnership distributed $599,975 to the limited partners in the first
quarter of 1996. The Partnership anticipates making additional distributions in
the third quarter of 1996 totaling $600,000 to the limited partners of record as
of August 1, 1996.
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 June 30, 1996,
$4,082,159 remained available for borrowing under the facility; however,
additional funds could become available as other partnerships repay existing
borrowings. This commitment will terminate on March 30, 1997.
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
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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 Corporation ("Southmark"), the
former general partner. The former auditors initially asserted counter-
claims against the Affiliated Partnerships based on alleged fraudulent
misrepresentations made to the auditors by the former management of
the Affiliated Partnerships (Southmark) in the form of client
representation letters executed and delivered to the auditors by Southmark
management. The counterclaims sought recovery of attorneys' fees and costs
incurred in defending this action. The counterclaims were later dismissed
on appeal, as discussed below.
The trial court granted summary judgment against the Partnership based on
the statute of limitations; however, on appeal, the Dallas Court of Appeals
reversed the trial court and remanded for trial the Affiliated
Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court
denied Ernst & Young's application for writ of error on January 11, 1996.
The Partnership is continuing to pursue vigorously its claims against Ernst
& Young. Trial is set for the week of October 14, 1996; however, the final
outcome of this litigation cannot be determined at this time.
Two class action lawsuits styled Robert Lewis vs. McNeil Partners, L.P., et.
al., filed in the District Court of Dallas County, Texas, and James F.
Schofield, et. al. vs. McNeil Partners, L.P., et. al., filed in the United
States District Court, Southern District of New York, have been voluntarily
dismissed without prejudice by the respective plaintiffs in such actions.
ITEM 5. OTHER INFORMATION
- ------- -----------------
On August 5, 1996, High River Limited Partnership ("High River"), a partnership
controlled by Carl Icahn ("Icahn"), and certain Icahn's affiliates, filed
documents with the Securities and Exchange Commission disclosing that High River
had entered into a letter agreement dated August 2, 1996 with the attorneys for
the plaintiffs in the case styled James F. Schofield, et. al. ("Plaintiffs") v.
McNeil Partners, L.P., et. al. The letter agreement provided, among other
things, that (i) High River will commence, as soon as possible, but in no event
more than six months, a tender offer for any and all of the outstanding Units of
the Partnership and other affiliated partnerships (the "Partnerships") at a
price that is not less than 75% of the estimated liquidation value of the Units
(as determined by utilizing the same methodology that was used to determine the
liquidation values in High River's previous tender offers for the Partnerships,
as previously disclosed), which tender offer may be subject to such other terms
and conditions as High River determines in its sole discretion; (ii) in the
event that High River attains the position of general partner in any of the
Partnerships: (a) High River will take all actions necessary to cause a 25%
reduction of fees of such Partnerships, (b) High River will not cause such
Partnerships to take any action to discontinue the litigation with respect to
receivable claims and (c) High River and Plaintiffs' counsel will in good faith
execute an appropriate Stipulation of Settlement based upon the terms of the
letter agreement, which stipulation shall not include a settlement or provide a
release of the receivable claims; and (iii) from and after the date of the
letter agreement, Plaintiffs' counsel agreed they will not enter into any
settlement of the claims asserted in such litigation that does not provide for
all consideration contained in a demand letter dated June 24, 1996.
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. (Incorpo-
rated 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 limited partnership units outstanding
in 1996 and 1995.
27. Financial Data Schedule for the quarter
ended June 30, 1996.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended June 30, 1996.
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
August 14, 1996 By: /s/ Donald K. Reed
- ------------------------- ---------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
August 14, 1996 By: /s/ Ron K. Taylor
- ------------------------- --------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer of
McNeil Investors, Inc.
August 14, 1996 By: /s/ Carol A. Fahs
- ------------------------- --------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil
Real Estate Management, Inc.