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
-----------------------------------------------------
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 0-14268
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MCNEIL REAL ESTATE FUND XXII, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0085680
- --------------------------------------------------------------------------------
(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
---
<PAGE>
MCNEIL REAL ESTATE FUND XXII, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- --------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 380,414 $ 380,414
Buildings and improvements............................... 10,058,677 9,842,846
-------------- -------------
10,439,091 10,223,260
Less: Accumulated depreciation and amortization......... (5,033,814) (4,718,722)
-------------- -------------
5,405,277 5,504,538
Cash and cash equivalents................................... 783,554 629,747
Cash segregated for security deposits....................... 66,170 76,490
Accounts receivable......................................... 6,716 4,683
Escrow deposits............................................. 121,893 180,537
Prepaid expenses and other assets, net...................... 11,864 11,936
-------------- -------------
$ 6,395,474 $ 6,407,931
============== =============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage note payable, net.................................. $ 5,991,809 $ 6,026,515
Accounts payable and accrued expenses....................... 80,518 133,150
Accrued property taxes ..................................... 61,770 65,931
Payable to affiliates - General Partner..................... 1,695,764 1,527,935
Security deposits and deferred rental revenue............... 66,635 73,424
-------------- -------------
7,896,496 7,826,955
-------------- -------------
Partners' deficit:
Limited partners - 55,000,000 Units authorized;
33,176,117 and 33,208,117 Units issued and out-
standing at September 30, 1996 and December 31, 1995,
respectively (19,818,088 and 19,825,588 Current
Income Units outstanding at September 30, 1996 and
December 31, 1995, respectively, and 13,358,029 and
13,382,529 Growth/Shelter Units outstanding at
September 30, 1996 and December 31, 1995,
respectively)........................................... (1,249,494) (1,168,315)
General Partner.......................................... (251,528) (250,709)
-------------- -------------
(1,501,022) (1,419,024)
-------------- -------------
$ 6,395,474 $ 6,407,931
============== =============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
-------------- --------------- -------------- --------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue................ $ 570,705 $ 555,388 $ 1,687,006 $ 1,897,441
Interest...................... 7,889 6,041 23,714 18,983
Gain on legal settlement...... - - - 38,749
------------- ------------- ------------- -------------
Total revenue............... 578,594 561,429 1,710,720 1,955,173
------------- ------------- ------------- -------------
Expenses:
Interest...................... 145,202 146,345 436,708 537,671
Interest - affiliates......... - - - 18,568
Depreciation and
amortization................ 106,128 112,055 315,092 366,571
Property taxes................ 54,813 53,901 148,661 175,906
Personnel costs............... 74,615 77,176 226,969 250,021
Utilities..................... 20,728 24,609 89,876 103,791
Repair and maintenance........ 65,374 50,167 184,246 185,176
Property management
fees - affiliates........... 28,247 27,846 83,848 99,459
Other property operating
expenses.................... 27,661 39,816 79,526 111,495
General and administrative.... 18,229 14,103 60,017 53,783
General and administrative -
affiliates.................. 52,518 67,832 167,775 198,384
Loss on disposition of real
estate...................... - - - 245,637
------------- ------------- ------------- -------------
Total expenses.............. 593,516 613,850 1,792,718 2,346,462
------------- ------------- ------------- -------------
Net income (loss)................ $ (14,921) $ (52,421) $ (81,998) $ (391,289)
============= ============= ============= =============
Net income (loss) allocable
to limited partners - Current
Income Unit................... $ (1,343) $ (4,718) $ (7,380) $ (35,216)
Net income (loss) allocable
to limited partners - Growth
Shelter Unit.................. (13,429) (47,179) (73,798) (352,160)
Net income (loss) allocable
to General Partner............ (149) (524) (820) (3,913)
------------- ------------- ------------- -------------
Net income (loss)................ $ (14,921) $ (52,421) $ (81,998) $ (391,289)
============= ============= ============= =============
Net income (loss) per thousand
limited partnership units:
Current Income Units............. $ (.07) $ (.24) $ (.37) $ (1.78)
============= ============= ============= ============
Growth/Shelter Units............. $ (1.00) $ (3.52) $ (5.52) $ (26.31)
============= ============= ============= ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
--------------- ---------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1994.............. $ (247,625) $ (863,021) $ (1,110,646)
Net loss
General Partner........................ (3,913) - (3,913)
Current Income Units................... - (35,216) (35,216)
Growth/Shelter Units................... - (352,160) (352,160)
------------- ------------- -------------
Total net loss............................ (3,913) (387,376) (391,289)
------------- ------------- -------------
Balance at September 30,1995.............. $ (251,538) $ (1,250,397) $ (1,501,935)
============= ============= =============
Balance at December 31, 1995.............. $ (250,709) $ (1,168,315) $ (1,419,024)
Net loss
General Partner........................ (820) - (820)
Current Income Units................... - (7,380) (7,380)
Growth/Shelter Units................... - (73,798) (73,798)
------------- ------------- -------------
Total net loss............................ (820) (81,178) (81,998)
------------- ------------- -------------
Balance at September 30, 1996............. $ (251,529) $ (1,249,494) $ (1,501,022)
============= ============= =============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------------
1996 1995
------------------ ----------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants........................ $ 1,695,554 $ 1,975,284
Cash received from legal settlement............... - 38,749
Cash paid to suppliers............................ (701,953) (691,320)
Cash paid to affiliates........................... (83,794) (352,931)
Interest received................................. 23,714 18,983
Interest paid..................................... (409,159) (539,765)
Interest paid to affiliates....................... - (149,043)
Property taxes paid and escrowed.................. (92,104) (118,904)
---------------- --------------
Net cash provided by operating activities............ 432,258 181,053
---------------- --------------
Cash flows from investing activities:
Additions to real estate investments.............. (215,831) (208,526)
Proceeds from sale of real estate................. - 738,914
---------------- --------------
Net cash provided by (used in) investing activities.. (215,831) 530,388
---------------- --------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable......................................... (62,620) (71,364)
Repayment of advances from affiliates -
General Partner................................. - (784,654)
---------------- --------------
Net cash used in financing activities................ (62,620) (856,018)
---------------- --------------
Net increase (decrease) in cash and cash equivalents. 153,807 (144,577)
Cash and cash equivalents at beginning of
period............................................ 629,747 589,211
---------------- --------------
Cash and cash equivalents at end of period........... $ 783,554 $ 444,634
================ ==============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------------
1996 1995
----------------- ----------------
<S> <C> <C>
Net loss............................................. $ (81,998) $ (391,289)
--------------- --------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 315,092 366,571
Amortization of deferred borrowing costs.......... - 2,936
Amortization of discounts on mortgage
note payable.................................... 27,914 26,715
Interest added to advances from affiliates -
General Partner, net of payments................ - (130,475)
Loss on disposition of real estate................ - 245,637
Changes in assets and liabilities:
Cash segregated for security deposits........... 10,320 9,688
Accounts receivable............................. (2,033) 55,323
Escrow deposits................................. 58,644 216,550
Prepaid expenses and other assets............... 72 2,420
Accounts payable and accrued expenses........... (52,632) (23,397)
Accrued property taxes.......................... (4,161) (157,842)
Payable to affiliates - General Partner......... 167,829 (55,088)
Security deposits and deferred rental
revenue....................................... (6,789) 13,304
--------------- --------------
Total adjustments............................. 514,256 572,342
--------------- --------------
Net cash provided by operating activities............ $ 432,258 $ 181,053
=============== ==============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXII, L.P.
Notes to Financial Statements
(Unaudited)
September 30, 1996
NOTE 1.
- -------
McNeil Real Estate Fund XXII, L.P., (the "Partnership"), formerly known as
Southmark Realty Partners II, Ltd., was organized on November 30, 1984 as a
limited partnership under the provisions of the California Revised Limited
Partnership Act to acquire and operate commercial and residential properties.
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, LB70, 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 XXII, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership has suffered
recurring losses from operations and the Partnership's only property is in need
of major capital improvements in order to maintain occupancy and rental rates at
a level to continue to support operations and debt service. Additionally, the
property is part of a four phase complex. Phase I of the complex defaulted on
the mortgage loan to the United States Department of Housing and Urban
Development in January 1993. The property is subject to foreclosure unless a
refinancing agreement can be reached with the lender. If Phase I is lost to
foreclosure, it would have a significant impact on the operations of Phase III,
owned by the Partnership, as the pool and clubhouse are located in Phase I. As
of September 30, 1996, no steps have been taken towards the foreclosure of Phase
I. These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
<PAGE>
NOTE 4.
- -------
The Partnership pays property management fees equal to 5% of the gross rental
receipts for its residential property and paid 6% of gross rental revenues for
its commercial property to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of McNeil, for providing property management and leasing services.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
The Partnership is incurring an asset management fee which is payable to the
General Partner. Through 1999, the asset management fee is calculated as 1% of
the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per apartment unit for residential property and $50 per gross square
foot for commercial property to arrive at the property tangible asset value. The
property tangible asset value is then added to the book value of all other
assets excluding intangible items. The fee percentage decreases subsequent to
1999. Total accrued but unpaid asset management fees of $1,093,465 were
outstanding at September 30, 1996.
The Partnership pays a disposition fee to an affiliate of the General Partner
equal to 3% of the gross sales price for brokerage services performed in
connection with the sale of the Partnership's properties. The fee is due and
payable at the time the sale closes. The Partnership incurred $138,750 of such
fees in connection with the sale of Wyoming Mall on March 31, 1995 which was
paid in April 1995.
The General Partner has, in its discretion, advanced funds to enable the
Partnership to meet its working capital requirements. The advances were
unsecured, due on demand and accrued interest at a rate equal to the prime
lending rate plus 1%.
McNeil Real Estate Fund XXI, L.P., an affiliate of the General Partner and joint
owner of Wyoming Mall had advanced funds to the Partnership for tenant
improvements and operations at Wyoming Mall. The advances were unsecured, due on
demand and accrued interest at a rate of prime plus 3 1/2%.
In April 1995, the Partnership utilized the proceeds from the sale of Wyoming
Mall to repay all outstanding affiliate advances and the related accrued
interest.
<PAGE>
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
--------- ---------
Property management fees............................. $ 83,848 $ 99,459
Charged to interest - affiliates:
Interest on advances from affiliates - General
Partner........................................ - 18,568
Charged to loss on disposition of real estate:
Disposition fee.................................. - 138,750
Charged to general and administrative -
affiliates:
Partnership administration....................... 63,101 86,930
Asset management fee............................. 104,674 111,454
-------- --------
$ 251,623 $ 455,161
======== ========
NOTE 6.
- -------
Martha Hess; et al. vs. Southmark Equity Partners II, Ltd. (MREF XXV), Southmark
Income Investors, Ltd. (MREF XX), Southmark Equity Partners, Ltd. (MREF XXIV),
Southmark Realty Partners III, Ltd. (MREF XXIII), Southmark Realty Partners II,
Ltd. (MREF XXII), McNeil Partners, L.P. et al. ("Hess"); Kotowski vs. Southmark
Equity Partners, Ltd. (MREF XXIV) and Donald Arceri vs. Southmark Income
Investors, Ltd. (MREF XX) - Illinois Appellate Court for the First District,
Fifth Division, as consolidated Case No. 90-107 (remanded back to Trial Court -
Circuit Court of Cook County, Illinois County Department, Chancery Division, as
consolidated Case No. 88 CH 4670 (L92026).
Consolidated with these cases were 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 parties 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 (5) Southmark (now McNeil) partnerships
("Defendants"), 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, which pursuant to the Appellate Court's ruling, included
Southmark Realty Partners II, Ltd. (McNeil Real Estate Fund XXII, L.P.) (the
"Partnership"). Although leave to appeal to the Illinois Supreme Court was
sought, the Illinois Supreme Court refused to hear the appeal. On June 15, 1994,
the Appellate Court issued its mandate sending the case back to Trial Court.
<PAGE>
In late January, 1995, 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, Plaintiffs filed a Motion for Class Certification. The amended cases
against the defendant-group, and others are proceeding under the caption George
and Joy Krugler vs. I.R.E. Real Estate Income Fund, Jerry and Barbara Neumann
vs. Southmark Equity Partners II (McNeil Real Estate Fund XXV, L.P.), Richard
and Theresa Bartoszewski vs. Southmark Realty Partners III (McNeil Real Estate
Fund XXIII, L.P.), and Edward and Rose Weskerna vs. Southmark Realty Partners II
(McNeil Real Estate Fund XXII, L.P.).
In September, 1995, the Court granted Plaintiffs' Motion to File an Amended
Complaint, to Consolidate and for Class Certification. Defendants answered the
complaint and plead that the Plaintiffs did not give timely notice of their
desire to rescind within six (6) months of knowing that right, as required by
law.
Plaintiffs filed a Motion for Summary Judgment against the remaining partnership
defendants, as well as the initial general partners. The Court ruled on
Plaintiffs' Motion for Summary Judgment on April 25, 1996 and entered partial
summary judgment against the Partnership, as well as the initial general
partner. Summary judgment against McNeil Partners, L.P., as the successor
general partner, was not sought.
On October 22, 1996, the Court entered judgment against the Partnership in the
amount of $347,712, plus interest. Discussions are ongoing with respect to
the settlement of the judgment. However, the Defendants are attempting to
negotiate a settlement for a lesser amount. Since the final outcome is
uncertain, no accrual has been recorded relating to this litigation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership reported a net loss of $81,998 for the first nine months of 1996
as compared to $391,289 for the same period in 1995.
On March 31, 1995, Wyoming Mall was sold to an unrelated third party for a cash
price of $9,250,000. The Partnership had a 50% undivided interest in the assets,
liabilities and operations of Wyoming Mall, owned jointly with McNeil Real
Estate Fund XXI, L.P. The Partnership received net cash proceeds of $738,914
from the sale of the property and recorded a loss on disposition of real estate
of $245,637. The Partnership recorded $238,430 of revenue and $268,419 of
expense during the first nine months of 1995 for Wyoming Mall.
Harbour Club III is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and II of the complex are owned by partnerships
in which McNeil Partners, L.P. is the general partner; while Phase IV is owned
by University Real Estate Fund 12, Ltd., ("UREF 12"). McREMI had been managing
all four phases of the complex until December 1992, when the property management
<PAGE>
agreement between McREMI and UREF 12 was canceled. Additionally, in January
1993, Phase I defaulted on the mortgage loan to HUD and unless a refinancing
agreement can be reached with the lender, the property is subject to
foreclosure. If Phase I is lost to foreclosure, it would be extremely difficult
to operate Phases II and III because the pool and clubhouse are located in Phase
I.
In January 1995, the Partnership was able to repay $220,000 of affiliate
advances and accrued interest. In April 1995, the proceeds from the sale of
Wyoming Mall enabled the Partnership to repay the remaining $713,697 of the
affiliate advances and accrued interest.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenues increased by $17,220 for the three months and
decreased $244,453 for the nine months ended September 30, 1996, respectively,
as compared to the same periods of 1995. Rental revenue increased by $15,317 for
the three months and decreased $210,435 nine months ended September 30, 1996,
respectively, as compared to the same periods in 1995. The decrease for the nine
months ended September 30, 1996 is primarily due to the sale of Wyoming Mall in
March 1995.
The Partnership recorded $38,749 of gain on legal settlement during the first
half of 1995. In May 1995, the Partnership received cash of $29,292 and common
and preferred stock in the reorganized Southmark that was subsequently sold for
$9,457, as full satisfaction of claims previously filed in the Bankruptcy Court.
Expenses:
Total expenses decreased $20,334 and $553,744 for the three months and nine
months ended September 30, 1996, as compared to the same periods of 1995,
primarily due to the sale of Wyoming Mall. The effects from this transaction
were declines of $97,610 for interest, $74,256 for depreciation and
amortization, $14,203 for property taxes, $21,368 of personnel expenses, $14,700
for utilities, $11,659 for repairs and maintenance, $16,412 for property
management fees - affiliates, and $18,212 for other property operating expenses.
A $245,637 loss on the sale of Wyoming Mall was recorded in March 1995.
In addition to the sale of Wyoming Mall, other factors affected the level of
expenses reported by Harbor Club III. No interest - affiliates were recorded for
the nine months ended September 30, 1996 as compared to $18,568 for the same
period of 1995. The sale of Wyoming Mall enabled the Partnership to repay all
outstanding affiliate advances, thereby eliminating affiliate interest expense.
Depreciation expense increased $22,777 for the nine months ended September 30,
1996 as compared to the same period of 1995, due to the capital improvements
made at Harbour Club III Apartments.
Property tax expense decreased $13,042 for the three months and nine months
ended September 30, 1996, respectively, as compared to the same periods of 1995.
This decrease is due to the reduction in property tax expense at Harbour Club
III Apartments that occurred from a successful tax appeal.
Other operating expenses decreased $13,757 for the nine months ended September
30 ,1996 as compared to the same period last year. This decrease is due to
reductions in electrical supplies, plumbing supplies and make ready and repairs.
<PAGE>
General and administrative - affiliates decreased $15,314 and $30,609 for the
three months and the nine months ended September 30, 1996, respectively, as
compared to the same periods of 1995. This is attributable to a decrease in the
number of properties, due to the sale of Wyoming Mall, to which the overhead
costs are allocated by McREMI.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership was provided $432,258 of cash by operating activities during the
first nine months of 1996 as compared to $181,053 for the same period in 1995.
Cash received from tenants, cash paid to affiliates, interest paid, and property
taxes paid decreased due to the sale of Wyoming Mall. Due to the improved cash
position from the sale of Wyoming Mall, the Partnership was able to pay $149,043
of interest due to affiliates during the first half of 1995. The Partnership
received $38,749 of legal settlement relating to the claims previously filed
against Southmark in the Bankruptcy Court during 1995.
Net cash used in investing activities was $215,831 for the first nine months of
1996 as compared to $530,388 of cash provided by investing activities for the
same period of 1995. The Partnership received $738,914 of cash proceeds from the
sale of Wyoming Mall on March 31, 1995. Cash used for additions to real estate
totaled $215,831 during the first nine months of 1996 as compared to $208,526
during the same period of 1995.
Net cash used in financing activities was $62,620 during the first nine months
of 1996 as compared to $856,018 for the same period of 1995. Principal payments
on mortgage notes payable decreased due to the retirement of the mortgage note
related to Wyoming Mall. During the first nine months of 1995, the improved cash
position enabled the Partnership to repay all outstanding advances from
affiliates of the General Partner.
Short-term liquidity:
At September 30, 1996, the Partnership held $783,554 of cash and cash
equivalents, up $153,807 since December 31, 1995. The balance of cash and cash
equivalents can be considered no more than a minimum level of cash reserves for
the remaining property's operations. Harbour Club III Apartments is expected to
provide sufficient positive cash flow for normal operations and debt service
payments for the remainder of 1996. However, Harbour Club III is in need of
major capital improvements in order to maintain occupancy and rental rates at a
level to continue to support operations and debt service. The necessary capital
improvements will have to be funded from outside sources. No such sources have
been identified. Management is currently seeking additional financing to fund
these improvements, however such financing is not assured. If the property is
unable to obtain additional funds and cannot maintain operations at a level to
support its current debt, the property may ultimately be foreclosed on by the
lender.
McNeil Real Estate Fund XXI, L.P. had advanced funds to the Partnership for
tenant improvements and operations at Wyoming Mall. The advances were unsecured,
due on demand and accrued interest at a rate of prime plus 3 1/2%. In April
1995, the proceeds from the sale of Wyoming Mall were utilized to repay the
advances plus the accrued interest due to McNeil Real Estate Fund XXI, L.P.
<PAGE>
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 additional funds under the
facility because no amounts have been reserved for any particular partnership.
As of September 30, 1996, $4,082,159 remained available for borrowing under the
facility; however, additional funds could be available as other partnerships
repay existing borrowings. This commitment will terminate March 26, 1997.
Long-term liquidity:
While the outlook for maintenance of adequate levels of liquidity is adequate in
the short term, should operations deteriorate and present cash resources become
insufficient to fund current needs, the Partnership would require other sources
of working capital. No such sources have been identified. The Partnership has no
established lines of credit from outside sources. Other possible actions to
resolve cash deficiencies include refinancing, deferral of capital expenditures
except where improvements are expected to increase the competitiveness and
marketability of the properties, arranging financing from affiliates or the
ultimate sale of the property. A sale or refinancing is a possibility only, and
there are at present no plans for any such sale or refinancing.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Distributions:
To maintain adequate cash balances of the Partnership, distributions to Current
Income Unit holders were suspended in 1988. There have been no distributions to
Growth/Shelter Units holders. Distributions to Unit holders will remain
suspended for the foreseeable future. The General Partner will continue to
monitor the cash reserves and working capital needs of the Partnership to
determine when cash flows will support distributions to the Unit holders.
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 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.
<PAGE>
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) Martha Hess; et al. vs. Southmark Equity Partners II, Ltd. (MREF XXV),
Southmark Income Investors, Ltd. (MREF XX), Southmark Equity Partners, Ltd.
(MREF XXIV), Southmark Realty Partners III, Ltd. (MREF XXIII), Southmark
Realty Partners II, Ltd. (MREF XXII), McNeil Partners, L.P. et al.
("Hess"); Kotowski vs. Southmark Equity Partners, Ltd. (MREF XXIV) and
Donald Arceri vs. Southmark Income Investors, Ltd. (MREF XX) - Illinois
Appellate Court for the First District, Fifth Division, as consolidated
Case No. 90-107 (remanded back to Trial Court - Circuit Court of Cook
County, Illinois County Department, Chancery Division, as consolidated Case
No. 88 CH 4670 (L92026).
Consolidated with these cases were 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 parties
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 (5) Southmark (now
McNeil) partnerships ("Defendants"), 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, which pursuant to the Appellate Court's ruling, included
Southmark Realty Partners II, Ltd. (McNeil Real Estate Fund XXII, L.P.)
(the "Partnership"). Although leave to appeal to the Illinois Supreme Court
was sought, the Illinois Supreme Court refused to hear the appeal. On June
15, 1994, the Appellate Court issued its mandate sending the case back to
Trial Court.
In late January, 1995, 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, Plaintiffs filed a Motion for Class
Certification. The amended cases against the defendant-group, and others
are proceeding under the caption George and Joy Krugler vs. I.R.E. Real
Estate Income Fund, Jerry and Barbara Neumann vs. Southmark Equity Partners
II (McNeil Real Estate Fund XXV, L.P.), Richard and Theresa Bartoszewski
vs. Southmark Realty Partners III (McNeil Real Estate Fund XXIII, L.P.),
and Edward and Rose Weskerna vs. Southmark Realty Partners II (McNeil Real
Estate Fund XXII, L.P.).
<PAGE>
In September, 1995, the Court granted Plaintiffs' Motion to File an Amended
Complaint, to Consolidate and for Class Certification. Defendants answered
the complaint and plead that the Plaintiffs did not give timely notice of
their desire to rescind within six (6) months of knowing that right, as
required by law.
Plaintiffs filed a Motion for Summary Judgment against the remaining
partnership defendants, as well as the initial general partners. The Court
ruled on Plaintiffs' Motion for Summary Judgment on April 25, 1996 and
entered partial summary judgment against the Partnership, as well as the
initial general partner. Summary judgment against McNeil Partners, L.P., as
the successor general partner, was not sought.
On October 22, 1996, the Court entered judgment against the Partnership in
the amount of $347,712, plus interest. Discussions are ongoing with
respect to the settlement of the judgment. However, the Defendants are
attempting to negotiate a settlement for a lesser amount. Since the final
outcome is uncertain, no accrual has been recorded relating to this
litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
4. Amended and Restated Limited Partnership
Agreement dated March 26, 1992.
(Incorporated by reference to the Current
Report of the Registrant on Form 8-K dated
March 26, 1992, as filed on April 9, 1992).
11. Statement regarding computation of Net
Income (Loss) per Thousand Limited
Partnership Units: Net income (loss) per
thousand limited partnership units is
computed by dividing net income (loss)
allocated to the limited partners by the
weighted average number of limited
partnership units outstanding expressed in
thousands. Per unit information has been
computed based on 19,818 and 19,826 weighted
average Current Income Units (in thousands)
outstanding in 1996 and 1995, respectively,
and 13,358 and 13,383 weighted average
Growth/Shelter Units (in thousands)
outstanding in 1996 and 1995, respectively.
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.
<PAGE>
MCNEIL REAL ESTATE FUND XXII, 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 XXII, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 783,554
<SECURITIES> 0
<RECEIVABLES> 6,716
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,439,091
<DEPRECIATION> (5,033,814)
<TOTAL-ASSETS> 6,395,474
<CURRENT-LIABILITIES> 0
<BONDS> 5,991,809
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,395,474
<SALES> 1,687,006
<TOTAL-REVENUES> 1,710,720
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,356,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 436,708
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (81,998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,998)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
