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, 1997
------------------------------------------------------
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 600, 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>
March 31, December 31,
1997 1996
---------------- --------------
<S> <C> <C>
ASSETS
- ------
Real estate investments:
Land..................................................... $ 380,414 $ 380,414
Buildings and improvements............................... 10,085,363 10,084,053
-------------- -------------
10,465,777 10,464,467
Less: Accumulated depreciation.......................... (5,252,535) (5,145,775)
-------------- -------------
5,213,242 5,318,692
Cash and cash equivalents................................... 683,171 602,462
Cash segregated for security deposits....................... 66,846 66,510
Accounts receivable......................................... 7,877 4,614
Escrow deposits............................................. 126,642 160,642
Prepaid expenses and other assets, net...................... 10,393 11,445
-------------- -------------
$ 6,108,171 $ 6,164,365
============== =============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage note payable, net.................................. $ 5,967,218 $ 5,979,501
Accounts payable and accrued expenses....................... 56,899 90,572
Accrued property taxes ..................................... 50,250 66,427
Payable to affiliates - General Partner..................... 1,804,872 1,756,367
Security deposits and deferred rental revenue............... 68,287 65,571
-------------- -------------
7,947,526 7,958,438
-------------- -------------
Partners' deficit:
Limited partners - 55,000,000 Units authorized;
32,815,117 and 33,176,117 Units issued and outstanding
at March 31, 1997 and December 31, 1996, respectively
(19,567,088 and 19,688,088 Current Income Units
outstanding at March 31, 1997 and December 31, 1996,
respectively, and 13,248,029 and 13,310,029
Growth/Shelter Units outstanding at March 31, 1997
and December 31, 1996, respectively)................... (1,585,985) (1,541,156)
General Partner.......................................... (253,370) (252,917)
-------------- -------------
(1,839,355) (1,794,073)
-------------- -------------
$ 6,108,171 $ 6,164,365
============== =============
</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,
---------------------------------
1997 1996
-------------- ---------------
Revenue:
<S> <C> <C>
Rental revenue ............................................ $ 558,423 $ 556,155
Interest................................................... 8,704 7,694
------------- -------------
Total revenue............................................. 567,127 563,849
------------- -------------
Expenses:
Interest.................................................... 138,763 145,934
Depreciation and amortization............................... 106,760 102,558
Property taxes.............................................. 50,250 42,972
Personnel expenses.......................................... 78,956 84,194
Utilities................................................... 48,504 42,810
Repair and maintenance...................................... 64,828 52,115
Property management fees -affiliates........................ 27,965 27,572
Other property operating expenses........................... 26,966 26,748
General and administrative.................................. 21,513 15,487
General and administrative - affiliates..................... 47,904 56,486
------------- -------------
Total expenses............................................ 612,409 596,876
------------- -------------
Net loss....................................................... $ (45,282) $ (33,027)
============= ==============
Net loss allocable to limited partners -
Current Income Unit......................................... $ (4,075) $ (2,973)
Net loss allocable to limited partners -
Growth/Shelter Unit......................................... (40,754) (29,724)
Net loss allocable to General Partner.......................... (453) (330)
------------- -------------
Net loss....................................................... $ (45,282) $ (33,027)
============= ==============
Net loss per thousand limited partnership units:
Current Income Units........................................... $ (.21) $ (.15)
============= ==============
Growth/shelter Units........................................... $ (3.08) $ (2.23)
============= ==============
</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, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
--------------- --------------- ---------------
<S> <C> <C> <C>
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)
============= ============= =============
Balance at December 31, 1996.............. $ (252,917) $ (1,541,156) $ (1,794,073)
Net loss
General Partner........................ (453) - (453)
Current Income Units................... - (4,075) (4,075)
Growth/Shelter Units................... - (40,754) (40,754)
------------- ------------- -------------
Total net loss............................ (453) (44,829) (45,282)
------------- ------------- -------------
Balance at March 31, 1997................. $ (253,370) $ (1,585,985) $ (1,839,355)
============= ============= =============
</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,
------------------------------------------
1997 1996
------------------ ----------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants........................ $ 557,202 $ 561,968
Cash paid to suppliers............................ (275,692) (271,782)
Cash paid to affiliates........................... (27,364) (28,132)
Interest received................................. 8,704 7,694
Interest paid..................................... (129,182) (136,749)
Property taxes paid and escrowed.................. (29,656) (36,792)
---------------- --------------
Net cash provided by operating activities............ 104,012 96,207
---------------- --------------
Cash flows from investing activities:
Additions to real estate investments.............. (1,310) (18,362)
----------------- --------------
Cash flows from financing activities:
Principal payments on mortgage note
payable......................................... (21,993) (20,511)
----------------- --------------
Net increase in cash and cash equivalents............ 80,709 57,334
Cash and cash equivalents at beginning of
period............................................ 602,462 629,747
---------------- --------------
Cash and cash equivalents at end of period........... $ 683,171 $ 687,081
================ ==============
</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,
-----------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Net loss............................................. $ (45,282) $ (33,027)
--------------- --------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 106,760 102,558
Amortization of discounts on mortgage
note payable.................................... 9,710 9,305
Changes in assets and liabilities:
Cash segregated for security deposits........... (336) 7,560
Accounts receivable............................. (3,263) (5,900)
Escrow deposits................................. 34,000 31,458
Prepaid expenses and other assets............... 1,052 1,102
Accounts payable and accrued expenses........... (33,673) (50,949)
Accrued property taxes.......................... (16,177) (22,929)
Payable to affiliates - General Partner......... 48,505 55,926
Security deposits and deferred rental
revenue....................................... 2,716 1,103
--------------- --------------
Total adjustments............................. 149,294 129,234
--------------- --------------
Net cash provided by operating activities............ $ 104,012 $ 96,207
=============== ==============
</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, 1997
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 600, 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, 1997 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
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, 1996, 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 The Herman Group, 2121 San Jacinto
St., 26th Floor, Dallas, Texas 75201.
NOTE 3.
- -------
Certain reclassifications have been made to prior period amounts to conform to
the current presentation.
NOTE 4.
- -------
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. 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") whose general partner is an affiliate of Southmark. 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.
<PAGE>
Additionally, in January 1993, Phase I defaulted on its mortgage loan to the
United States Department of Housing and Urban Development ("HUD"), the former
mortgage holder, and, unless a refinancing agreement can be reached with the new
mortgage holder, 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. As of March 31, 1997, 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 5.
- -------
The Partnership pays property management fees equal to 5% of the gross rental
receipts for its residential 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 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
$1,167,515 were outstanding at March 31, 1997.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Three Months Ended
March 31,
-------------------------
1997 1996
---------- ----------
Property management fees.................... $ 27,965 $ 27,572
Charged to general and administrative -
affiliates:
Partnership administration............... 15,667 22,789
Asset management fee..................... 32,237 33,697
--------- ---------
$ 75,869 $ 84,058
========= =========
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership reported a net loss of $45,282 for the first three months of
1997 as compared to $33,027 for the same period in 1996.
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, the former mortgage holder,
and unless a refinancing agreement can be reached with the new mortgage holder,
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.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenues were $567,127 for the three months ended March 31,
1997 as compared to $563,849 for the same period of 1996. Rental revenue was
$558,423 for the first three months of 1997, and remained comparable to $556,155
for the same period in 1996. Interest income for the first three months of 1997
increased slightly by $1,010 as compared to prior period.
Expenses:
Total expenses increased to $612,409 for the three months ended March 31, 1997,
as compared to $596,876 for the same period in 1996.
Property taxes increased $7,278 or 17% for the three months ended March 31, 1997
as compared to the same period of 1996 due to increased property tax accrual for
Harbour Club III Apartments.
Repairs and maintenance expense increased by $12,713 or 24% for the three months
ended March 31, 1997 as compared to the same period of last year. The increase
can be attributed to an increase in the replacement of appliances, which met the
Partnership's criteria for capitalization of replacements in 1996, were expensed
in 1997.
General and administrative expenses increased by $6,026 or 39% for the three
months ended March 31, 1997 as compared to the same period of 1996. The increase
was due to fees paid to a non-affiliate relating to investor services. Prior to
1997, such costs were reimbursed to McREMI and were included in general and
administrative - affiliates.
General and administrative - affiliates decreased $8,582 or 15% for the three
months ended March 31, 1997 as compared to the same period of 1996. This was
attributable to costs of investor services discussed above.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership was provided $104,012 of cash by operating activities during the
first three months of 1997 as compared to $96,207 for the same period in 1996.
Cash used for additions to real estate was $1,310 during the first three months
of 1997 as compared to $18,362 during the same period of 1996.
Cash used for principal payments on mortgage note payable was $21,993 during the
first three months of 1997 as compared to $20,511 for the same period of 1996.
Short-term liquidity:
At March 31, 1997, the Partnership held $683,171 of cash and cash equivalents.
The General Partner considers this level of cash reserves to be adequate to meet
the Partnership's operating needs. The General Partner believes that anticipated
operating results for 1997 will be sufficient to fund the Partnership's budgeted
capital improvements for 1997 and to repay the current portion of the
Partnership's mortgage note. Effective January 23, 1997, the mortgage note
payable was sold by HUD to an unaffiliated buyer. The Partnership is attempting
to negotiate a restructuring or refinancing of the mortgage note with the new
lender.
Long-term liquidity:
The Partnership determined to evaluate market and other economic conditions to
establish the optimum time to commence liquidation of the Partnership's asset in
accordance with the terms of the Amended Partnership Agreement. Although there
can be no assurance as to the timing of the liquidation due to real estate
market conditions, the general difficulty of disposing of real estate, and other
general economic factors, it is anticipated that such liquidation would result
in the dissolution of the Partnership followed by a liquidating distribution to
Unit holders by December 2001.
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
- ------- -----------------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
<PAGE>
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend.
Plaintiffs have until May 27, 1997 to file a second amended complaint, unless
otherwise agreed to by the parties.
<PAGE>
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 19,567 and 19,818 weighted
average Current Income Units (in thousands)
outstanding in 1997 and 1996, respectively,
and 13,248 and 13,358 weighted average
Growth/Shelter Units (in thousands)
outstanding in 1997 and 1996, respectively.
27. Financial Data Schedule for the quarter
ended March 31, 1997.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended March 31, 1997.
<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, 1997 By: /s/ Ron K. Taylor
- -------------- ----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
May 15, 1997 By: /s/ Carol A. Fahs
- -------------- ----------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 683,171
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,465,777
<DEPRECIATION> (5,252,535)
<TOTAL-ASSETS> 6,108,171
<CURRENT-LIABILITIES> 0
<BONDS> 5,967,218
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,108,171
<SALES> 558,423
<TOTAL-REVENUES> 567,127
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 473,646
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,763
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,282)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
