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 quarterly period ended March 31, 1998
-------------------------------------------
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>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCNEIL REAL ESTATE FUND XXII, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------- --------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 380,414 $ 380,414
Buildings and improvements............................... 10,669,180 10,595,887
-------------- -------------
11,049,594 10,976,301
Less: Accumulated depreciation.......................... (5,724,438) (5,586,872)
-------------- -------------
5,325,156 5,389,429
Cash and cash equivalents................................... 861,920 794,630
Cash segregated for security deposits....................... 68,087 67,510
Accounts receivable......................................... 11,626 11,508
Escrow deposits............................................. 54,543 68,310
Prepaid expenses and other assets........................... 9,000 9,953
-------------- -------------
$ 6,330,332 $ 6,341,340
============== =============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage note payable, net.................................. $ 5,914,149 $ 5,928,021
Accounts payable and accrued expenses....................... 118,904 114,584
Accrued property taxes ..................................... 42,501 68,129
Payable to affiliates - General Partner..................... 1,989,552 1,933,837
Security deposits and deferred rental revenue............... 88,808 69,670
-------------- -------------
8,153,914 8,114,241
-------------- -------------
Partners' deficit:
Limited partners - 55,000,000 Units authorized;
32,736,117 and 32,815,117 Units issued and out-
standing at March 31, 1998 and December 31, 1997,
respectively (19,493,088 and 19,567,088 Current Income
Units outstanding at March 31, 1998 and December 31,
1997, respectively, and 13,243,029 and 13,248,029
Growth/Shelter Units outstanding at March 31, 1998
and December 31, 1997, respectively)................... (1,570,370) (1,520,196)
General Partner.......................................... (253,212) (252,705)
-------------- -------------
(1,823,582) (1,772,901)
-------------- -------------
$ 6,330,332 $ 6,341,340
============== =============
</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,
---------------------------------
1998 1997
------------- ---------------
Revenue:
<S> <C> <C>
Rental revenue ............................................ $ 601,864 $ 558,423
Interest................................................... 12,061 8,704
------------- -------------
Total revenue............................................. 613,925 567,127
------------- -------------
Expenses:
Interest.................................................... 134,178 138,763
Depreciation................................................ 137,566 106,760
Property taxes.............................................. 42,501 50,250
Personnel expenses.......................................... 83,875 78,956
Utilities................................................... 41,201 48,504
Repair and maintenance...................................... 55,591 64,828
Property management fees -affiliates........................ 30,071 27,965
Other property operating expenses........................... 18,521 26,966
General and administrative.................................. 65,657 21,513
General and administrative - affiliates..................... 55,445 47,904
------------- -------------
Total expenses............................................ 664,606 612,409
------------- -------------
Net loss....................................................... $ (50,681) $ (45,282)
============= ==============
Net loss allocable to limited partners -
Current Income Unit......................................... (4,561) $ (4,075)
Net loss allocable to limited partners -
Growth/Shelter Unit......................................... (45,613) (40,754)
Net loss allocable to General Partner.......................... (507) (453)
------------- -------------
Net loss....................................................... $ (50,681) $ (45,282)
============= ==============
Net loss per thousand limited partnership units:
Current Income Units........................................... $ (.23) $ (.21)
============= ==============
Growth/Shelter Units........................................... $ (3.44) $ (3.08)
============= ==============
</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, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
-------------- -------------- ---------------
<S> <C> <C> <C>
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)
============= ============= =============
Balance at December 31, 1997.............. $ (252,705) $ (1,520,196) $ (1,772,901)
Net loss
General Partner........................ (507) - (507)
Current Income Units................... - (4,561) (4,561)
Growth/Shelter Units................... - (45,613) (45,613)
------------- ------------- -------------
Total net loss............................ (507) (50,174) (50,681)
------------- ------------- -------------
Balance at March 31, 1998................. $ (253,212) $ (1,570,370) $ (1,823,582)
============= ============= =============
</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>
Three Months Ended
March 31,
------------------------------------------
1998 1997
----------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants........................ $ 625,993 $ 557,202
Cash paid to suppliers............................ (265,121) (275,692)
Cash paid to affiliates........................... (29,801) (27,364)
Interest received................................. 12,061 8,704
Interest paid..................................... (124,605) (129,182)
Property taxes paid and escrowed.................. (54,362) (29,656)
---------------- --------------
Net cash provided by operating activities............ 164,165 104,012
---------------- --------------
Cash used in investing activities:
Additions to real estate investments.............. (73,293) (1,310)
----------------- --------------
Cash used in financing activities:
Principal payments on mortgage note
payable......................................... (23,582) (21,993)
----------------- --------------
Net increase in cash and cash equivalents............ 67,290 80,709
Cash and cash equivalents at beginning of
period............................................ 794,630 602,462
---------------- --------------
Cash and cash equivalents at end of period........... $ 861,920 $ 683,171
================ ==============
</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,
-----------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Net loss............................................. $ (50,681) $ (45,282)
--------------- --------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation...................................... 137,566 106,760
Amortization of discounts on mortgage
note payable.................................... 9,710 9,710
Changes in assets and liabilities:
Cash segregated for security deposits........... (577) (336)
Accounts receivable............................. (118) (3,263)
Escrow deposits................................. 13,767 34,000
Prepaid expenses and other assets............... 953 1,052
Accounts payable and accrued expenses........... 4,320 (33,673)
Accrued property taxes.......................... (25,628) (16,177)
Payable to affiliates - General Partner......... 55,715 48,505
Security deposits and deferred rental
revenue....................................... 19,138 2,716
--------------- --------------
Total adjustments............................. 214,846 149,294
--------------- --------------
Net cash provided by operating activities............ $ 164,165 $ 104,012
=============== ==============
</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, 1998
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, 1998 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
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, 1997, 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 600, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
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
$1,337,207 were outstanding at March 31, 1998.
<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,
----------------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Property management fees.................................. $ 30,071 $ 27,965
Charged to general and administrative -
affiliates:
Partnership administration............................. 15,842 15,667
Asset management fee................................... 39,603 32,237
--------------- --------------
$ 85,516 $ 75,869
=============== ==============
</TABLE>
NOTE 4.
- -------
Dick and Aloma Anderson v. McNeil Real Estate Fund XXII, L.P. , McNeil Partners,
L.P., Wayne T. Shipp, the Wayne Shipp Agency, Inc., Southmark Investment Group,
Inc. and Southmark Realty Partners, Ltd. This lawsuit was filed in November
1993, in Washington State in the Clark County Superior Court. In 1985, the
plaintiffs apparently spent $22,000 to purchase limited partnership interests in
Southmark Realty Partners Ltd. II , (not named by them as a defendant ) whose
name is now McNeil Real Estate Fund XXII, L.P. (the "Partnership"). Plaintiffs
allege that in connection with the transactions by which McNeil Partners, L.P.
became general partner of the Partnership, and by which certain changes were
made in the Partnership, the McNeil entities engaged in the offer and/or sale of
unregistered securities in violation of Washington law. The plaintiffs have
alleged that certain of the other defendants -- specifically Mr. Shipp and the
Shipp Insurance Agency -- engaged in fraud in connection with the sale of
limited partnership interests in the Partnership to plaintiffs. The plaintiffs
have not made fraud allegations against any of the McNeil or Southmark entities.
The majority of plaintiffs' claims against the Partnership are based on
allegations that the securities are not registered in the State of Washington.
Although it is the Partnership's position that it did not violate Washington
law, in order to avoid any claims of successor liability and to avoid further
legal costs, the Partnership and the Shipp defendants agreed to settle with the
plaintiffs by each paying $15,000 to plaintiffs in exchange for a release of all
claims. This amount was paid by the Partnership on April 27, 1998 and is
included in general and administrative expenses on the Statement of Operations.
Settlement documents have been executed. An Order of Dismissal issued by the
Court is expected by May 15, 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The occupancy rate at Harbour Club III Apartments was 95% at March 31, 1998. The
occupancy rate at March 31, 1997, was 94%. Harbour Club III Apartments was able
to provide enough cash flow from operations to meet ordinary operating expenses
as well as the debt service for its related mortgage note for the first three
months of 1998. The property is in need of major capital improvements in order
to compete in its local market, and the Partnership has begun a program to
complete such capital improvements to be funded from existing cash reserves.
However, there can be no assurances that such reserves will be sufficient to
complete all needed improvements.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenues increased by $46,798 or 8% for the three months ended
March 31, 1998 as compared to the same period of 1997. Rental revenue increased
$43,441 or 8% for the three months ended March 31, 1998 compared the same period
in 1997. Interest income for the first three months of 1998 increased by $3,357
as compared to prior period.
Expenses:
Total expenses increased by $52,197 or 9% for the three months ended March 31,
1998.
Depreciation expense increased $30,806 or 29% for the three months ended March
31, 1998 as compared to the same period of last year. The increase can be
attributed to depreciation of the more than $511,000 of capital improvements
added during 1997, being amortized over useful lives ranging from five to ten
years.
Property tax expense is based on estimates during the year. When the actual tax
bill is received, the expense is adjusted accordingly. During the last quarter
of 1997, an approximately $42,000 adjustment to decrease the first three
quarters estimate was made. After taking this adjustment into account, the
expense is comparable for the first three months of 1998 and 1997.
Repair and maintenance expenses were decreased by $9,237 or 14% during the three
months ended March 31, 1998 as compared to the same period for 1997. This
decrease is mainly attributable to lower snow removal expenses due to milder
winter conditions during the first three months of 1998 as compared to the same
period for 1997. Additionally, Harbour Club III replaced less carpeting and
flooring during the three months ended March 31, 1998 as compared to the same
period for 1997.
Other property operating expenses decreased $8,445 or 31% for the period ended
March 31, 1998 as compared to the same period for 1997. This is mainly
attributable to bad debt collections of more than $8,700 during the first three
months of 1998.
<PAGE>
General and administrative expenses increased by $44,144 for the three months
ended March 31, 1998 as compared to the same period of 1997. The increase was
mainly due to costs incurred to explore alternatives to maximize the value of
the Partnership (see Liquidity and Capital Resources).
General and administrative - affiliates increased $7,541 for the three months
ended March 31, 1998 as compared to the same period of 1997 due to an increase
in the asset management fee. This increase was primarily due to the increase of
the net operating income on Harbour Club III on which the asset management fee
is based.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership was provided $164,165 of cash by operating activities during the
first three months of 1998 as compared to $104,012 for the same period in 1997.
Cash received from tenants increased by $68,791 mainly due to rental income
increases of more than $43,000 at Harbour Club III Apartments.
Cash used for additions to real estate was $73,293 during the first three months
of 1998 as compared to $1,310 during the same period of 1997. A greater amount
was spent in 1998 at Harbour Club III for landscape and signage improvements, as
well as electrical upgrades. In addition, hallway renovations were capitalized
during the first three months of 1998.
Cash used for principal payments on the mortgage note payable was $23,582 during
the first three months of 1998 as compared to $21,993 for the same period of
1997.
Short-term liquidity:
At March 31, 1998, the Partnership held $861,920 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 1998 will be sufficient to fund the Partnership's budgeted
capital improvements for 1998 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.
Long-term liquidity:
Pursuant to the Partnership's previously announced liquidation plans, the
Partnership has recently retained PaineWebber, Incorporated as its exclusive
financial advisor to explore alternatives to maximize the value of the
Partnership. The alternatives being considered by the Partnership include,
without limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The General Partner of the Partnership or
entities or persons affiliated with the General Partner will not be involved as
a purchaser in any of the transactions contemplated above. Any transaction will
be subject to certain conditions including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory firm as to the fairness of the consideration received by the
Partnership pursuant to such transaction. Finally, there can be no assurance
that any transaction will be consummated, or as to the terms thereof.
<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
Dick and Aloma Anderson v. McNeil Real Estate Fund XXII, L.P. , McNeil Partners,
L.P., Wayne T. Shipp, the Wayne Shipp Agency, Inc., Southmark Investment Group,
Inc. and Southmark Realty Partners, Ltd. This lawsuit was filed in November
1993, in Washington State in the Clark County Superior Court. In 1985, the
plaintiffs apparently spent $22,000 to purchase limited partnership interests in
Southmark Realty Partners Ltd. II , (not named by them as a defendant ) whose
name is now McNeil Real Estate Fund XXII, L.P. (the "Partnership"). Plaintiffs
allege that in connection with the transactions by which McNeil Partners, L.P.
became general partner of the Partnership, and by which certain changes were
made in the Partnership, the McNeil entities engaged in the offer and/or sale of
unregistered securities in violation of Washington law. The plaintiffs have
alleged that certain of the other defendants -- specifically Mr. Shipp and the
Shipp Insurance Agency -- engaged in fraud in connection with the sale of
limited partnership interests in the Partnership to plaintiffs. The plaintiffs
have not made fraud allegations against any of the McNeil or Southmark entities.
The majority of plaintiffs' claims against the Partnership are based on
allegations that the securities are not registered in the State of Washington.
Although it is the Partnership's position that it did not violate Washington
law, in order to avoid any claims of successor liability and to avoid further
legal costs, the Partnership and the Shipp defendants agreed to settle with the
plaintiffs by each paying $15,000 to plaintiffs in exchange for a release of all
claims. Settlement documents have been executed. An Order of Dismissal issued
by the Court is expected by May 15, 1998.
<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 19,493 and 19,567 weighted
average Current Income Units (in thousands)
outstanding in 1998 and 1997, respectively,
and 13,243 and 13,248 weighted average
Growth/Shelter Units (in thousands)
outstanding in 1998 and 1997, respectively.
27. Financial Data Schedule for the quarter
ended March 31, 1998.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended March 31, 1998.
<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 14, 1998 By: /s/ Ron K. Taylor
- ------------ ----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
May 14, 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 861,920
<SECURITIES> 0
<RECEIVABLES> 11,626
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,049,594
<DEPRECIATION> (5,724,438)
<TOTAL-ASSETS> 6,330,332
<CURRENT-LIABILITIES> 0
<BONDS> 5,914,149
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,330,332
<SALES> 601,864
<TOTAL-REVENUES> 613,925
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 530,428
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,178
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (50,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,681)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
