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, 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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
------------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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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,
1996 1995
--------------- --------------
ASSETS
- ------
Real estate investments:
Land..................................................... $ 699,697 $ 699,697
Buildings and improvements............................... 6,161,828 6,119,787
-------------- -------------
6,861,525 6,819,484
Less: Accumulated depreciation.......................... (1,347,646) (1,093,107)
-------------- -------------
5,513,879 5,726,377
Mortgage loan investments, net of allowance of
$792,013 at September 30, 1996 and
December 31, 1995........................................ 3,438,037 3,537,436
Mortgage loan investment - affiliate........................ 733,900 733,900
Cash and cash equivalents .................................. 3,118,768 3,927,223
Cash segregated for security deposits....................... 57,211 59,869
Interest and other accounts receivable...................... 75,477 77,480
Escrow deposits............................................. 122,315 144,844
Deferred borrowing costs, net of accumulated amorti-
zation of $41,772 and $31,264 at September 30,
1996 and December 31, 1995, respectively................. 119,722 130,230
Prepaid expenses and other assets........................... 7,471 8,590
-------------- -------------
$ 13,186,780 $ 14,345,949
============== =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net.................................. $ 2,727,576 $ 2,760,961
Accounts payable and other accrued expenses................. 57,244 120,293
Accrued property taxes...................................... 130,599 123,530
Payable to affiliates....................................... 11,717 32,849
Deferred revenue............................................ 165,508 170,475
Security deposits and deferred rental revenue............... 47,900 58,213
-------------- -------------
3,140,544 3,266,321
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Partners' equity (deficit):
Limited partners - 60,000 limited partnership units
authorized; 49,512 limited partnership units issued
and outstanding at September 30, 1996 and
December 31, 1995...................................... 10,364,600 11,399,658
General Partner.......................................... (318,364) (320,030)
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10,046,236 11,079,628
-------------- -------------
$ 13,186,780 $ 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 Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
-------------- --------------- -------------- --------------
Revenue:
Rental revenue................ $ 338,728 $ 339,876 $ 1,047,295 $ 1,004,432
Interest income on mortgage
loan investments............ 73,221 74,864 215,078 216,038
Interest income on mortgage
loan investment - affiliate. 15,473 15,473 46,083 45,915
Other interest income......... 44,304 53,497 137,618 161,922
------------- ------------- ------------- -------------
Total revenue............... 471,726 483,710 1,446,074 1,428,307
------------- ------------- ------------- -------------
Expenses:
Interest...................... 62,348 64,811 187,847 189,817
Depreciation.................. 85,185 83,907 254,539 246,321
Property taxes................ 36,302 34,867 121,278 128,443
Personnel costs............... 37,009 38,176 107,733 123,494
Utilities..................... 24,054 26,328 61,985 67,749
Repairs and maintenance....... 32,955 35,249 95,005 92,508
Property management
fees - affiliates........... 16,358 16,601 50,174 49,444
Other property operating
expenses.................... 25,366 17,470 68,207 59,894
General and administrative.... 48,879 159,003 96,964 201,526
General and administrative -
affiliates.................. 67,848 95,341 235,784 286,914
------------- ------------- ------------- -------------
Total expenses.............. 436,304 571,753 1,279,516 1,446,110
------------- ------------- ------------- -------------
Net income (loss)................ $ 35,422 $ (88,043) $ 166,558 $ (17,803)
============= ============= ============= ============
Net income (loss) allocable
to limited partners........... $ 35,068 $ (87,163) $ 164,892 $ (17,625)
Net income (loss) allocable
to General Partner............ 354 (880) 1,666 (178)
------------- ------------- ------------- -------------
Net income (loss)................ $ 35,422 $ (88,043) $ 166,558 $ (17,803)
============= ============= ============= =============
Net income (loss) per
limited partnership unit...... $ .71 $ (1.76) $ 3.33 $ (.36)
============= ============= ============= =============
Distributions per limited
partnership unit.............. $ 12.12 $ - $ 24.24 $ 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, 1996 and 1995
Total
General Limited Partners'
Partner Partners Equity
--------------- -------------- --------------
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)
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Balance at September 30, 1995............. $ (320,849) $ 11,318,558 $ 10,997,709
============= ============= =============
Balance at December 31, 1995.............. $ (320,030) $ 11,399,658 $ 11,079,628
Net income................................ 1,666 164,892 166,558
Distributions............................. - (1,199,950) (1,199,950)
------------- ------------- -------------
Balance at September 30, 1996............. $ (318,364) $ 10,364,600 $ 10,046,236
============= ============= =============
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,
-------------------------------------------
1996 1995
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Cash flows from operating activities:
Cash received from tenants........................ $ 1,054,770 $ 995,491
Cash paid to suppliers............................ (493,926) (445,906)
Cash paid to affiliates........................... (307,090) (330,181)
Interest received................................. 345,346 398,869
Interest received from affiliates................. 36,665 36,664
Interest paid..................................... (171,873) (174,924)
Property taxes paid............................... (114,209) (31,586)
Property taxes escrowed........................... 23,571 (97,604)
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Net cash provided by operating activities............ 373,254 350,823
----------------- --------------
Cash flows from investing activities:
Additions to real estate investments.............. (42,041) (78,600)
Collection of principal on mortgage loan
investments..................................... 99,399 105,471
----------------- --------------
Net cash provided by investing activities............ 57,358 26,871
----------------- --------------
Cash flows from financing activities:
Principal payments on mortgage note payable....... (39,117) (36,065)
Distributions paid................................ (1,199,950) (250,001)
----------------- --------------
Net cash used in financing activities................ (1,239,067) (286,066)
----------------- --------------
Net increase (decrease) in cash and
cash equivalents.................................. (808,455) 91,628
Cash and cash equivalents at beginning of
period............................................ 3,927,223 3,734,020
----------------- --------------
Cash and cash equivalents at end of period........... $ 3,118,768 $ 3,825,648
================= ==============
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,
-----------------------------------------
1996 1995
---------------- ----------------
Net income (loss).................................... $ 166,558 $ (17,803)
--------------- --------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation...................................... 254,539 246,321
Amortization of deferred borrowing costs.......... 10,508 9,751
Amortization of discount on mortgage note
payable......................................... 5,732 5,386
Changes in assets and liabilities:
Cash segregated for security deposits........... 2,658 (14,273)
Interest and other accounts receivable.......... 2,003 (10,457)
Escrow deposits................................. 22,529 18,260
Prepaid expenses and other assets............... 1,119 4,796
Accounts payable and other accrued
expenses...................................... (63,049) 91,799
Accrued property taxes.......................... 7,069 (15,359)
Payable to affiliates - General Partner......... (21,132) 6,177
Deferred revenue................................ (4,967) 20,753
Security deposits and deferred rental
revenue....................................... (10,313) 5,472
--------------- --------------
Total adjustments............................. 206,696 368,626
--------------- --------------
Net cash provided by operating activities............ $ 373,254 $ 350,823
=============== ==============
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, 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 nine months ended September 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.
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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,
-----------------------
1996 1995
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Property management fees.................. $ 50,174 $ 49,444
Charged to general and administrative -
affiliates:
Partnership administration............. 113,098 157,729
Asset management fee................... 122,686 129,185
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$ 285,958 $ 336,358
======== ========
Payable to affiliates at September 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 $166,558 for the first nine months of
1996 as compared to net loss of $17,803 for the same period in 1995. Revenues in
1996 were $1,446,074 as compared to $1,428,307 in 1995, while expenses decreased
to $1,279,516 in 1996 from $1,446,110 in 1995.
Net cash provided by operating activities was $373,254 for the nine months ended
September 30, 1996, comparable to the $350,823 provided during the same nine
month period in 1995.
The Partnership expended $42,041 for capital improvements, made $39,117 in
principal payments on its mortgage note payable, and collected $99,399 of
principal on mortgage loan investments. After distributions of $1,199,950 to the
limited partners, cash and cash equivalents totaled $3,118,768 at September 30,
1996, a net decrease of $808,455 from the balance at December 31, 1995.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total revenue decreased by $11,984 and increased by $17,767 for the three and
nine month periods ended September 30, 1996, respectively, as compared to the
same periods in 1995. The overall increase was mainly due to an increase in
rental revenue, partially offset by a decrease in other interest income, as
discussed below.
Rental revenue decreased by $1,148 for the three months and increased by $42,863
for the nine months ended September 30, 1996, 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 $9,193 and $24,304 for the three and nine
month periods ended September 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 nine month periods ended September 30, 1996
decreased by $135,449 and $166,594, respectively, as compared to the same
periods in 1995. The decrease was due to a decrease in personnel costs, general
and administrative expenses and general and administrative - affiliates,
partially offset by an increase in other property operating expenses, as
discussed below.
Personnel costs decreased by $1,167 and $15,761 for the three and nine months
ended September 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.
Other property operating expenses increased by $7,896 and $8,313 for the three
and nine months ended September 30, 1996, respectively, as compared to the same
periods in 1996. The increase was mainly du to an increase in referral fees paid
in an effort to maintain occupancy at Sterling Springs and leasing commissions
paid as a result of two leases at 1130 Sacramento expiring in 1996.
General and administrative expenses decreased by $110,124 and $104,562 for the
three and nine months ended September 30, 1996, respectively, as compared to the
same periods in 1995. This decrease was mainly due to costs incurred in the
third quarter of 1995 relating to evaluation and dissemination of information
regarding an unsolicited tender offer. The Partnership anticipates incurring
such costs in the fourth quarter of 1996 in response to an additional
unsolicited tender offer, as discussed in Item 5 - Other Information.
General and administrative - affiliates decreased by $27,493 and $51,130 for the
three and nine months ended September 30, 1996, respectively, as compared to the
same periods 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 $373,254 through operating activities for the first
nine months of 1996, comparable to the $350,823 generated during the first nine
months of 1995.
The Partnership expended $42,041 and $78,600 for additions to its real estate
investments in the first nine months of 1996 and 1995, respectively. A greater
amount was spent in 1995 for landscaping, fencing and a retaining wall at
Sterling Springs Apartments.
The Partnership distributed $1,199,950 and $250,001 to the limited partners
during the nine months ended September 30, 1996 and 1995, respectively.
Short-term liquidity:
At September 30, 1996, the Partnership held cash and cash equivalents of
$3,118,768. This balance provides a reasonable level of working capital for the
Partnerships immediate needs in operating its properties.
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,
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.
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. Capital
improvements to the Partnership's properties in 1996 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.
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.
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.
The Partnership has determined to begin an orderly liquidation of all the
Partnership's assets. Although there can be no assurance as to the timing of any
liquidation, it is anticipated that such liquidation would result in
distributions to the limited partners of the cash proceeds from the sale of the
Partnership's properties, subject to cash reserve requirements, as they are sold
with the last property disposition before December 1998 followed by a
dissolution of the Partnership.
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
counterclaims against the Affiliated Partnerships based on alleged
fraudulent misrepresentations made to the auditors by the former management
of the Affiliated Partnerships (Southmark) in the form of client
representation letters executed and delivered to the auditors by Southmark
management. The counterclaims sought recovery of attorneys' fees and costs
incurred in defending this action. The counterclaims were later dismissed
on appeal, as discussed below.
The trial court granted summary judgment against the 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 anticipated to be set for early December 1996; however,
the final outcome of this litigation cannot be determined at this time.
2) McNeil Pacific Investors Fund 1972, Ltd., 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. v. High River
Limited Partnership, Riverdale Investors Corp., Inc., Carl C. Icahn, and
Unicorn Associates Corporation - United States District Court for the
Central District of California, Case No. 96-5680SVW.
On August 12, 1996, High River Limited Partnership ("High River"), a
partnership controlled by Carl C. Icahn, sent a letter to the partnerships
referenced above demanding lists of the names, current residences or
business addresses and certain other information concerning the unitholders
of such partnerships. On August 19, 1996, these partnerships commenced the
above action seeking, among other things, to declare that such partnerships
are not required to provide High River with a current list of unitholders
on the grounds that the defendants commenced a tender offer in violation of
federal securities laws by filing certain Schedule 13D Amendments on August
5, 1996.
On October 17, 1996, the presiding judge denied the partnerships' requests
for a permanent and preliminary injunction to enjoin High River's tender
offers and granted the defendants' request for an order directing the
partnerships to turn over current lists of unitholders to High River
forthwith. On October 24, 1996, the partnerships delivered the unitholder
lists to High River.
ITEM 5. OTHER INFORMATION
- ------- -----------------
On September 20, 1996, High River announced that it had commenced a tender offer
for any and all units of the Partnership at $170.38 per unit (the original offer
price of $182.50 was reduced by the August 1996 distributions to unitholders of
$12.12 per unit). The tender was originally due to expire October 18, 1996,
however, this offer has been extended until November 22, 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.
(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 limited partnership units outstanding
in 1996 and 1995.
27. Financial Data Schedule for the quarter
ended September 30, 1996.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended September 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
November 14, 1996 By: /s/ Donald K. Reed
- ----------------- ----------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
November 14, 1996 By: /s/ Ron K. Taylor
- ----------------- ----------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer of
McNeil Investors, Inc.
November 14, 1996 By: /s/ Carol A. Fahs
- ----------------- ----------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil
Real Estate Management, Inc.