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 March 31, 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
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 (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___
<PAGE>
MCNEIL REAL ESTATE FUND XXII, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- --------------
ASSETS
- ------
<S> <C> <C>
Real estate investments:
Land..................................................... $ 380,414 $ 380,414
Buildings and improvements............................... 9,861,208 9,842,846
-------------- -------------
10,241,622 10,223,260
Less: Accumulated depreciation and amortization......... (4,821,280) (4,718,722)
-------------- -------------
5,420,342 5,504,538
Cash and cash equivalents................................... 687,081 629,747
Cash segregated for security deposits....................... 68,930 76,490
Accounts receivable......................................... 10,583 4,683
Escrow deposits............................................. 149,079 180,537
Prepaid expenses and other assets, net...................... 10,834 11,936
-------------- -------------
$ 6,346,849 $ 6,407,931
============== =============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net................................. $ 6,015,309 $ 6,026,515
Accounts payable and accrued expenses....................... 82,201 133,150
Accrued property taxes ..................................... 43,002 65,931
Payable to affiliates - General Partner..................... 1,583,861 1,527,935
Security deposits and deferred rental revenue............... 74,527 73,424
-------------- -------------
7,798,900 7,826,955
-------------- -------------
Partners' deficit:
Limited partners - 55,000,000 Units authorized;
33,176,117 and 33,208,117 Units issued and
outstanding at March 31, 1996 and December 31, 1995,
respectively 19,818,088 and 19,825,588
Current Income Units outstanding at March 31, 1996
and December 31, 1995, respectively, and 13,358,029
and 13,382,529 Growth/Shelter Units outstanding
at March 31, 1996 and December 31, 1995 respectively).. (1,201,012) (1,168,315)
General Partner.......................................... (251,039) (250,709)
-------------- -------------
(1,452,051) (1,419,024)
-------------- -------------
$ 6,346,849 $ 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
March 31,
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Revenue:
Rental revenue ............................................ $ 556,155 $ 780,421
Interest................................................... 7,694 5,986
------------- -------------
Total revenue............................................. 563,849 786,407
------------- -------------
Expenses:
Interest.................................................... 145,934 244,675
Interest - affiliates....................................... - 18,292
Depreciation and amortization............................... 102,558 164,561
Property taxes.............................................. 42,972 68,104
Personnel expenses.......................................... 84,194 97,688
Utilities................................................... 42,810 44,813
Repairs and maintenance..................................... 52,115 81,265
Property management fees -affiliates........................ 27,572 44,297
Other property operating expenses........................... 26,748 42,184
General and administrative.................................. 15,487 21,358
General and administrative - affiliates..................... 56,486 64,243
Loss on disposition of real estate.......................... - 245,637
------------- -------------
Total expenses............................................ 596,876 1,137,117
------------- -------------
Net loss....................................................... $ (33,027) $ (350,710)
============= =============
Net loss allocable to limited partners -
Current Income Unit......................................... $ (2,973) $ (31,564)
Net loss allocable to limited partners -
Growth/Shelter Unit......................................... (29,724) (315,639)
Net loss allocable to General Partner.......................... (330) (3,507)
------------- -------------
Net loss....................................................... $ (33,027) $ (350,710)
============= =============
Net loss per thousand limited partnership units:
Current Income Units........................................... $ (.15) $ (1.59)
============= =============
Growth/shelter Units........................................... $ (2.23) $ (23.57)
============= =============
</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 Three Months Ended March 31, 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........................ (3,507) - (3,507)
Current Income Units................... - (31,564) (31,564)
Growth/Shelter Units................... - (315,639) (315,639)
------------- ------------- -------------
Total net loss............................ (3,507) (347,203) (350,710)
------------- ------------- -------------
Balance at March 31,1995.................. $ (251,132) $ (1,210,224) $ (1,461,356)
============= ============= =============
Balance at December 31, 1995.............. $ (250,709) $ (1,168,315) $ (1,419,024)
Net loss
General Partner........................ (330) - (330)
Current Income Units................... - (2,973) (2,973)
Growth/Shelter Units................... - (29,724) (29,724)
------------- ------------- -------------
Total net loss............................ (330) (32,697) (33,027)
------------- ------------- -------------
Balance at March 31, 1996................. $ (251,039) $ (1,201,012) $ (1,452,051)
============= ============= =============
</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 in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1996 1995
------------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from tenants........................ $ 561,968 $ 828,847
Cash paid to suppliers............................ (271,782) (296,834)
Cash paid to affiliates........................... (28,132) (42,691)
Interest received................................. 7,694 5,986
Interest paid..................................... (146,054) (264,312)
Interest paid to affiliates....................... - (70,685)
Property taxes paid and escrowed.................. (36,792) (62,243)
---------------- --------------
Net cash provided by operating activities............ 86,902 98,068
---------------- --------------
Cash flows from investing activities:
Additions to real estate investments.............. (18,362) (14,493)
Proceeds from sale of real estate................. - 877,664
---------------- --------------
Net cash provided by (used in) investing activities.. (18,362) 863,171
---------------- --------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable......................................... (11,206) (32,093)
Repayment of advances from affiliates -
General Partner................................. - (149,315)
---------------- --------------
Net cash used in financing activities................ (11,206) (181,408)
---------------- --------------
Net increase in cash and cash equivalents............ 57,334 779,831
Cash and cash equivalents at beginning of
period............................................ 629,747 589,211
---------------- --------------
Cash and cash equivalents at end of period........... $ 687,081 $ 1,369,042
================ ==============
</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>
Three Months Ended
March 31,
-----------------------------------------
1996 1995
----------------- ----------------
<S> <C> <C>
Net loss............................................. $ (33,027) $ (350,710)
--------------- --------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 102,558 164,561
Amortization of deferred borrowing costs.......... - 2,936
Amortization of discounts on mortgage
notes payable................................... - 8,905
Interest added to advances from affiliates -
General Partner, net of payments................ - 18,292
Loss on disposition of real estate................ - 245,637
Changes in assets and liabilities:
Cash segregated for security deposits........... 7,560 (6,978)
Accounts receivable............................. (5,900) 51,989
Escrow deposits................................. 31,458 168,077
Prepaid expenses and other assets............... 1,102 2,423
Accounts payable and accrued expenses........... (50,949) (66,536)
Accrued property taxes.......................... (22,929) (144,075)
Advances from affiliate - General Partner....... - (70,685)
Payable to affiliates - General Partner......... 55,926 65,849
Security deposits and deferred rental
revenue....................................... 1,103 8,383
--------------- --------------
Total adjustments............................. 119,929 448,778
--------------- --------------
Net cash provided by operating activities............ $ 86,902 $ 98,068
=============== ==============
</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)
March 31, 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 three months ended March 31, 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 March 31, 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.
NOTE 4.
- -------
Certain reclassifications have been made to prior period amounts to conform to
the current period presentation.
<PAGE>
NOTE 5.
- -------
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 $1,022,488 were
outstanding at March 31, 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:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Property management fees.................................. $ 27,572 $ 44,297
Charged to interest - affiliates:
Interest on advances from affiliates - General
Partner.............................................. - 18,292
Charged to loss on disposition of real estate:
Disposition fee........................................ - 138,750
Charged to general and administrative -
affiliates:
Partnership administration............................. 22,789 30,898
Asset management fee................................... 33,697 33,345
--------------- --------------
$ 84,058 $ 265,582
=============== ==============
</TABLE>
NOTE 6.
- -------
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. Cash proceeds and the loss on the disposition is detailed
below:
<TABLE>
<CAPTION>
Loss on Sale Cash Proceeds
----------------- ----------------
<S> <C> <C>
Sales Price.......................................... $ 4,625,000 $ 4,625,000
Selling costs........................................ (234,838) (96,088)
Mortgage note prepayment penalty..................... (138,441) (138,441)
Carrying value....................................... (4,325,663)
Accounts receivable.................................. (81,749)
Deferred borrowing costs............................. (49,910)
Prepaid expenses..................................... (40,036)
---------------
Loss on disposition of real estate................... $ (245,637)
===============
Retirement of mortgage note.......................... (3,452,337)
Payment of 1994 taxes at closing..................... (23,735)
Real estate tax proration............................ (14,154)
Credit for security deposit liability................ (22,581)
--------------
Net cash proceeds.................................... $ 877,664
==============
</TABLE>
<PAGE>
In April 1995, the Partnership paid a $138,750 disposition fee to an affiliate
of the General Partner for brokerage services performed in connection with the
sale of Wyoming Mall.
NOTE 7.
- -------
Martha Hess, et al. v. Southmark Equity Partners II, Ltd. (presently known as
McNeil Real Estate Fund XXV, L.P.), Southmark Income Investors, Ltd, Southmark
Equity Partners, Ltd., Southmark Realty Partners III, Ltd., and Southmark Realty
Partners II, Ltd., et al. ("Hess"); Kotowski v. Southmark Equity Partners, Ltd.
and Donald Arceri v. Southmark Income Investors, Ltd. These cases were
previously pending in the Illinois Appellate Court for the First District
("Appellate Court"), as consolidated Case No. 90-107. Consolidated with these
cases are an additional 14 matters against unrelated partnership entities. The
Hess case was filed on May 20, 1988, by Martha Hess, individually and on behalf
of a putative class of those similarly situated. The original, first, second and
third amended complaints in Hess sought rescission, pursuant to the Illinois
Securities Act, of over $2.7 million of principal invested in five Southmark
(now McNeil) partnerships, and other relief including damages for breach of
fiduciary duty and violation of the Illinois Consumer Fraud and Deceptive
Business Practices Act. The original, first, second and third amended complaints
in Hess were dismissed against the defendant-group because the Appellate Court
held that they were not the proper subject of a class action complaint. Hess
was, thereafter, amended a fourth time to state causes of action against
unrelated partnership entities. Hess went to judgment against that unrelated
entity and the judgment, along with the prior dismissal of the class action, was
appealed. The Hess appeal was decided by the Appellate Court during 1992. The
Appellate Court affirmed the dismissal of the breach of fiduciary duty and
consumer fraud claims. The Appellate Court did, however, reverse in part,
holding that certain putative class members could file class action complaints
against the defendant-group. Although leave to appeal to the Illinois Supreme
Court was sought, the Illinois Supreme Court refused to hear the appeal. The
effect of the denial is that the Appellate Court's opinion remains standing. On
June 15, 1994, the Appellate Court issued its mandate sending the case back to
trial court.
In late January 1995, the plaintiffs filed a Motion to File an Amended
Consolidated Class Action Complaint, which amends the complaint to name McNeil
Partners, L.P. as the successor general partner to Southmark Investment Group.
In February 1995, the plaintiffs filed a Motion for Class Certification. The
amended cases against the defendant-group, and others, are proceeding under the
caption George and Joy Kugler v. I.R.E. Real Estate Income Fund, Jerry and
Barbara Neumann v. Southmark Equity Partners II, Richard and Theresa
Bartoszewski v. Southmark Realty Partners III, and Edward and Rose Weskerna v.
Southmark Realty Partners II.
In September 1995, the court granted the plaintiffs' Motion to File an Amended
Complaint, to Consolidate and for Class Certification. The defendants have
answered the complaint and have plead that the plaintiffs did not give timely
notice of their right to rescind within six months of knowing that right. The
Court ruled on Plaintiff's Motion for Summary Judgment on April 25, 1996 and
entered partial summary judgment, holding in favor of Plaintiffs against the
Partnership, as well as the initial general partners. The Court did not enter
judgment as to the amount of damages, but, instead, set a May 17, 1996 status
hearing and requested both parties to come to an agreement on the amount of
damages by that date. The ultimate resolution of this litigation could result in
a loss of up to $355,000 in addition to related legal fees. No accrual has been
recorded related to this litigation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership reported a net loss of $33,027 for the first three months of
1996 as compared to $350,710 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 $887,664
from the sale of the property and recorded a loss on disposition of real estate
of $245,637. In April 1995, the Partnership paid a $138,750 disposition fee due
to the General Partner from the sale of Wyoming Mall. The Partnership recorded
$245,199 of revenue and $248,883 of expense during the first three 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
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 $713,421 of the
affiliate advances and accrued interest.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenues decreased by $222,558 or 28% for the three months
ended March 31, 1996. Rental revenue decreased $224,266 or 29% while interest
income increased by $1,708.
Rental revenue for the three months ended March 31, 1996 was $556,155 as
compared to $780,421 for the same period. This decrease of $224,266 is due to
the loss in rental revenue generated by Wyoming Mall, which was sold on March
31, 1995.
<PAGE>
Expenses:
Total expenses decreased $540,241 or 48% for the three months ended March 31,
1996 as compared to the same period of 1995 primarily due to the sale of Wyoming
Mall. The effects from this transaction were declines of $97,610 for interest,
$74,606 for depreciation and amortization, $14,203 for property taxes, $14,140
of personnel expenses, $11,454 for utilities, $8,431 for repairs and
maintenance, $17,518 for property management fees affiliates, and $10,116 for
other property operating expenses.
In addition to the sale of Wyoming Mall, other factors affected the level of
expenses reported by Harbor Club III. Interest - affiliates decreased $18,292
for the three months ended March 31, 1996 as compared to 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 $12,603 due to the capital improvements made at
Harbour Club III Apartments.
Property tax expense decreased an additional $10,929 for the three months ended
March 31, 1996 as compared to the same period 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.
Repairs and maintenance expense decreased $20,719 for the three months ended
March 31, 1996 as compared to the same period of 1995. This decrease is due to
the replacement of carpeting and appliances at Harbour Club III, which met the
Partnership's criteria for capitalization based on the magnitude of the
replacements in 1996, but were expensed in 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership was provided $86,902 of cash by operating activities during the
first three months of 1996 as compared to $98,068 for the same period in 1995.
Cash received from tenants, cash paid to suppliers, 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 on March
31, 1995, the Partnership was able to pay $70,685 of interest due to affiliates
during the first quarter of 1995.
Net cash used in investing activities was $18,362 for the first three months of
1996 as compared to $863,171 of cash provided by investing activities for the
same period of 1995. The Partnership received $887,664 of cash proceeds from the
sale of Wyoming Mall on March 31, 1995. Cash used for additions to real estate
totaled $18,362 during the first three months of 1996 as compared to $14,493
during the same period of 1995.
Net cash used in financing activities was $11,206 during the first three months
of 1996 as compared to $181,408 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 three months of 1995, the improved
cash position enabled the Partnership to repay all outstanding advances from
affiliates of the General Partner.
<PAGE>
Short-term liquidity:
At March 31, 1996, the Partnership held $687,087 of cash and cash equivalents,
up $57,334 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.
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 March 31, 1996, $2,662,819 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.
<PAGE>
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
- ------- -----------------
Martha Hess, et al. v. Southmark Equity Partners II, Ltd. (presently known as
McNeil Real Estate Fund XXV, L.P.), Southmark Income Investors, Ltd, Southmark
Equity Partners, Ltd., Southmark Realty Partners III, Ltd., and Southmark Realty
Partners II, Ltd., et al. ("Hess"); Kotowski v. Southmark Equity Partners, Ltd.
and Donald Arceri v. Southmark Income Investors, Ltd. These cases were
previously pending in the Illinois Appellate Court for the First District
("Appellate Court"), as consolidated Case No. 90-107. Consolidated with these
cases are an additional 14 matters against unrelated partnership entities. The
Hess case was filed on May 20, 1988, by Martha Hess, individually and on behalf
of a putative class of those similarly situated. The original, first, second and
third amended complaints in Hess sought rescission, pursuant to the Illinois
Securities Act, of over $2.7 million of principal invested in five Southmark
(now McNeil) partnerships, and other relief including damages for breach of
fiduciary duty and violation of the Illinois Consumer Fraud and Deceptive
Business Practices Act. The original, first, second and third amended complaints
in Hess were dismissed against the defendant-group because the Appellate Court
held that they were not the proper subject of a class action complaint. Hess
was, thereafter, amended a fourth time to state causes of action against
unrelated partnership entities. Hess went to judgment against that unrelated
entity and the judgment, along with the prior dismissal of the class action, was
appealed. The Hess appeal was decided by the Appellate Court during 1992. The
Appellate Court affirmed the dismissal of the breach of fiduciary duty and
consumer fraud claims. The Appellate Court did, however, reverse in part,
holding that certain putative class members could file class action complaints
against the defendant-group. Although leave to appeal to the Illinois Supreme
Court was sought, the Illinois Supreme Court refused to hear the appeal. The
effect of the denial is that the Appellate Court's opinion remains standing. On
June 15, 1994, the Appellate Court issued its mandate sending the case back to
trial court.
In late January 1995, the plaintiffs filed a Motion to File an Amended
Consolidated Class Action Complaint, which amends the complaint to name McNeil
Partners, L.P. as the successor general partner to Southmark Investment Group.
In February 1995, the plaintiffs filed a Motion for Class Certification. The
amended cases against the defendant-group, and others, are proceeding under the
caption George and Joy Kugler v. I.R.E. Real Estate Income Fund, Jerry and
Barbara Neumann v. Southmark Equity Partners II, Richard and Theresa
Bartoszewski v. Southmark Realty Partners III, and Edward and Rose Weskerna v.
Southmark Realty Partners II.
<PAGE>
In September 1995, the court granted the plaintiffs' Motion to File an Amended
Complaint, to Consolidate and for Class Certification. The defendants have
answered the complaint and have plead that the plaintiffs did not give timely
notice of their right to rescind within six months of knowing that right. The
Court ruled on Plaintiff's Motion for Summary Judgment on April 25, 1996 and
entered partial summary judgment, holding in favor of Plaintiffs against the
Partnership, as well as the initial general partners. The Court did not enter
judgment as to the amount of damages, but, instead, set a May 17, 1996 status
hearing and requested both parties to come to an agreement on the amount of
damages by that date. The ultimate resolution of this litigation could result in
a loss of up to $355,000 in addition to related legal fees. No accrual has been
recorded related 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 partner-
ship units outstanding expressed in
thousands. Per unit information has been
computed based on 19,818 and 19,876 weighted
average Current Income Units (in thousands)
outstanding in 1996 and 1995, respectively,
and 13,358 and 13,393 weighted average
Growth/Shelter Units (in thousands) out-
standing in 1996 and 1995, respectively.
27. Financial Data Schedule for the quarter
ended March 31, 1996.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended March 31, 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
May 15, 1996 By: /s/ Donald K. Reed
- ------------------- -----------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
May 15, 1996 By: /s/ Ron K. Taylor
- ------------------- -----------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer of
McNeil Investors, Inc.
May 15, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 687,081
<SECURITIES> 0
<RECEIVABLES> 10,583
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,241,622
<DEPRECIATION> (4,821,280)
<TOTAL-ASSETS> 6,346,849
<CURRENT-LIABILITIES> 0
<BONDS> 6,015,309
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,346,849
<SALES> 556,155
<TOTAL-REVENUES> 563,849
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 450,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145,934
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,027)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
