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 September 30, 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 0-15446
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MCNEIL REAL ESTATE FUND XXV, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0120335
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(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 XXV, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ....................................................... $ 4,205,425 $ 4,205,425
Buildings and improvements ................................. 48,154,056 47,835,062
------------ ------------
52,359,481 52,040,487
Less: Accumulated depreciation and amortization ........... (28,760,650) (27,037,306)
------------ ------------
23,598,831 25,003,181
Asset held for sale ........................................... 9,006,620 8,989,818
Cash and cash equivalents ..................................... 2,942,545 3,044,669
Cash segregated for security deposits ......................... 392,571 340,879
Accounts receivable, net of allowance for doubtful
accounts of $602,041 and $730,668 at September 30,
1998 and December 31, 1997, respectively ................... 506,792 539,431
Escrow deposits ............................................... 136,350 56,758
Deferred borrowing costs, net of accumulated
amortization of $92,736 and $85,887 at September 30,
1998 and December 31, 1997, respectively ................... 226,014 232,863
Prepaid expenses and other assets ............................. 305,103 355,305
------------ ------------
$ 37,114,826 $ 38,562,904
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable ......................................... $ 7,110,083 $ 7,155,626
Accounts payable and accrued expenses ......................... 101,191 126,854
Accrued interest .............................................. 60,732 61,121
Accrued property taxes ........................................ 498,425 561,973
Payable to affiliates ......................................... 880,009 279,505
Land lease obligation ......................................... 167,132 205,902
Security deposits and deferred rental revenue ................. 479,526 382,684
------------ ------------
9,297,098 8,773,665
------------ ------------
Partners' equity (deficit):
Limited partners - 84,000,000 limited partnership
units authorized; 82,943,685 limited partnership
units issued and outstanding at September 30, 1998
and December 31, 1997 .................................... 28,301,263 30,280,535
General Partner ............................................ (483,535) (491,296)
------------ ------------
27,817,728 29,789,239
------------ ------------
$ 37,114,826 $ 38,562,904
============ ============
</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 XXV, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue ................... $ 2,550,289 $ 2,431,573 $ 7,421,788 $ 7,002,469
Interest ......................... 41,466 40,205 119,699 113,886
Other revenue .................... -- -- 126,035 --
----------- ----------- ----------- -----------
Total revenue .................. 2,591,755 2,471,778 7,667,522 7,116,355
----------- ----------- ----------- -----------
Expenses:
Interest ......................... 194,564 200,570 593,898 617,583
Depreciation and
amortization ................... 540,875 652,488 1,723,344 2,281,376
Property taxes ................... 202,426 205,914 628,168 616,600
Personnel costs .................. 213,232 203,556 606,498 629,352
Utilities ........................ 252,034 260,868 598,032 613,345
Repairs and maintenance .......... 244,946 261,326 751,538 778,138
Property management
fees - affiliates .............. 146,267 135,779 435,935 403,170
Other property operating
expenses ....................... 176,490 175,081 512,135 575,633
General and administrative ....... 87,702 38,818 363,790 122,477
General and administrative -
affiliates ..................... 229,249 202,960 678,042 618,579
----------- ----------- ----------- -----------
Total expenses ................. 2,287,785 2,337,360 6,891,380 7,256,253
----------- ----------- ----------- -----------
Net income (loss) ................... $ 303,970 $ 134,418 $ 776,142 $ (139,898)
=========== =========== =========== ===========
Net income (loss) allocable
to limited partners .............. $ 300,931 $ 133,074 $ 768,381 $ (138,499)
Net income (loss) allocable
to General Partner ............... 3,039 1,344 7,761 (1,399)
----------- ----------- ----------- -----------
Net income (loss) ................... $ 303,970 $ 134,418 $ 776,142 $ (139,898)
=========== =========== =========== ===========
Net income (loss) per thousand
limited partnership units ........ $ 3.62 $ 1.60 $ 9.26 $ (1.67)
=========== =========== =========== ===========
Distributions per thousand
limited partnership units ........ $ 6.00 $ 6.03 $ 33.13 $ 12.06
=========== =========== =========== ===========
</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 XXV, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
------------- ------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1996 ............ $ (459,375) $ 34,440,696 $ 33,981,321
Net loss ................................ (1,399) (138,499) (139,898)
Distributions to limited partners........ -- (999,995) (999,995)
------------ ------------ ------------
Balance at September 30, 1997 ........... $ (460,774) $ 33,302,202 $ 32,841,428
============ ============ ============
Balance at December 31, 1997 ............ $ (491,296) $ 30,280,535 $ 29,789,239
Net income .............................. 7,761 768,381 776,142
Distributions to limited partners ....... -- (2,747,653) (2,747,653)
------------ ------------ ------------
Balance at September 30, 1998 ........... $ (483,535) $ 28,301,263 $ 27,817,728
============ ============ ============
</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 XXV, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ................... $ 7,635,502 $ 7,094,948
Cash paid to suppliers ....................... (2,816,944) (3,561,895)
Cash paid to affiliates ...................... (513,473) (1,113,007)
Interest received ............................ 119,699 113,886
Interest paid ................................ (587,438) (727,767)
Property taxes paid and escrowed ............. (771,708) (629,952)
----------- -----------
Net cash provided by operating activities ....... 3,065,638 1,176,213
----------- -----------
Cash flows from investing activities:
Additions to real estate investments ......... (335,796) (774,521)
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage note
payable .................................... (45,543) (211,459)
Payments on capitalized land lease
obligation ................................. (38,770) (29,266)
Distributions to limited partners ............ (2,747,653) (999,995)
----------- -----------
Net cash used in financing activities ........... (2,831,966) (1,240,720)
----------- -----------
Net decrease in cash and cash equivalents ....... (102,124) (839,028)
Cash and cash equivalents at beginning of
period ....................................... 3,044,669 3,256,746
----------- -----------
Cash and cash equivalents at end of period ...... $ 2,942,545 $ 2,417,718
=========== ===========
</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 XXV, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income (Loss) to Net Cash
Provided by Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Net income (loss) ...................................... $ 776,142 $ (139,898)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ....................... 1,723,344 2,281,376
Amortization of deferred borrowing costs ............ 6,849 6,849
Changes in assets and liabilities:
Cash segregated for security deposits ............. (51,692) (30,917)
Accounts receivable, net .......................... 32,639 84,000
Escrow deposits ................................... (79,592) 66,141
Prepaid expenses and other assets ................. 50,202 8,384
Accounts payable and accrued expenses ............. (25,663) (838,858)
Accrued interest .................................. (389) (117,033)
Accrued property taxes ............................ (63,548) (98,173)
Payable to affiliates ............................. 600,504 (91,258)
Security deposits and deferred rental
revenue ......................................... 96,842 45,600
----------- -----------
Total adjustments ............................... 2,289,496 1,316,111
----------- -----------
Net cash provided by operating activities .............. $ 3,065,638 $ 1,176,213
=========== ===========
</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 XXV, L.P.
Notes to Financial Statements
September 30, 1998
(Unaudited)
NOTE 1.
- -------
McNeil Real Estate Fund XXV, L.P. (the "Partnership"), formerly known as
Southmark Equity Partners II, Ltd., was organized on February 15, 1985 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 nine months ended September 30, 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 XXV, 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 and 6% of gross rental receipts for its
commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management services for
the Partnership's residential and commercial properties and leasing services for
its residential properties. McREMI may also choose to provide leasing services
for the Partnership's commercial properties, in which case McREMI will receive
property management fees from such commercial properties equal to 3% of the
property's gross rental receipts plus leasing commissions based on the
prevailing market rate for such services where the property is located.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
<PAGE>
The Partnership is paying an asset management fee which is payable to the
General Partner. Through 1999, the asset management fee is calculated as 1% of
the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per apartment unit for residential property and $50 per gross square
foot for commercial properties 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 $709,926 and $173,976
were outstanding at September 30, 1998 and December 31, 1997, respectively.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
Nine Months Ended
September 30,
----------------------------
1998 1997
---------- ----------
Property management fees ................... $ 435,935 $ 403,170
Charged to general and administrative
expense:
Partnership administration .............. 142,092 125,592
Asset management fee .................... 535,950 492,987
---------- ----------
$1,113,977 $1,021,749
========== ==========
Payable to affiliates at September 30, 1998 and December 31, 1997 consisted
primarily of unpaid property management fees, Partnership general and
administrative expenses and asset management fees and are due and payable from
current operations.
NOTE 4.
- -------
Effective January 1, 1993, the Partnership ceased making regularly scheduled
debt service and escrow payments on the mortgage note payable secured by Harbour
Club I Apartments. In lieu of the aforementioned payments, the Partnership
funded debt service with the excess cash flow of the property. The Partnership
was notified that the mortgage note payable was in default. Effective January
23, 1997, the mortgage note payable was sold by the mortgagee to an unaffiliated
lender. In July 1997, the mortgage note was brought current after the
Partnership made all delinquent payments and paid all accrued late charges.
Regular monthly payments were resumed in July 1997.
NOTE 5.
- -------
In 1996, the Partnership adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires the cessation of depreciation on assets held for sale.
Since Northwest Plaza was placed on the market for sale, no depreciation was
taken effective August 1, 1997.
<PAGE>
NOTE 6.
- -------
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.,
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. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
There has been no significant change in the operations of the Partnership's
properties since December 31, 1997. The Partnership reported net income of
$776,142 for the first nine months of 1998 as compared to a net loss of $139,898
for the first nine months of 1997. Revenue in 1998 increased to $7,667,522 from
$7,116,355 in 1997, and expenses decreased to $6,891,380 from $7,256,253.
Net cash provided by operating activities was $3,065,638 for the nine months
ended September 30, 1998. The Partnership expended $335,796 for capital
improvements, $45,543 for principal payments on its mortgage note payable and
$38,770 for payments on the capitalized land lease obligation. After
distributions of $2,747,653 to the limited partners, cash and cash equivalents
totaled $2,942,545 at September 30, 1998, a net decrease of $102,124 from the
balance at December 31, 1997.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenue increased by $119,977 and $551,167 for the three and
nine months ended September 30, 1998, respectively, as compared to the same
periods in 1997. The increase was mainly due to increases in rental revenue and
other revenue, as discussed below.
Rental revenue for the three and nine months ended September 30, 1998 increased
by $118,716 and $419,319, respectively, in relation to the comparable periods in
1997. Rental revenue increased at all of the Partnership's properties in 1998.
The largest increase occurred at Century Park Office Building where rental
revenue increased by approximately $100,000 due to an increase in occupancy and
a decrease in discounts and concessions given to tenants. An increase in rental
rates and occupancy resulted in increases in rental revenue of approximately
$89,000 and $83,000 at Harbour Club I Apartments and Kellogg Building,
respectively. Rental revenue increased by approximately $57,000 at Fidelity
Plaza Office Building due to an increase in average occupancy in 1998 and an
increase in parking revenue.
In the second quarter of 1998, the Partnership recognized $126,035 of other
revenue consisting of the collection of tenant accounts receivable that had
previously been written off. No such other revenue was recognized in the first
nine months of the prior year.
Expenses:
Total expenses decreased by $49,575 and $364,873 for the quarter and nine months
ended September 30, 1998, respectively, as compared to the same periods in 1997.
The decrease was primarily due to decreases in depreciation and amortization and
other property operating expenses, partially offset by an increase in general
and administrative expenses, as discussed below.
<PAGE>
Depreciation and amortization expense for the three and nine months ended
September 30, 1998 decreased by $111,613 and $558,032, respectively, in relation
to the comparable periods in the prior year. The decrease was mainly due to
Northwest Plaza being classified as an asset held for sale by the Partnership
effective August 1, 1997. In accordance with the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
the Partnership ceased recording depreciation on the asset at the time it was
placed on the market for sale.
Other property operating expenses increased by $1,409 for the three months and
decreased by $63,498 for the nine months ended September 30, 1998 as compared to
the respective periods in the prior year. The overall decrease was mainly due to
decreased earthquake insurance costs incurred in the first half of 1997 at
Fidelity Plaza Office Building. In addition, there was a decline in bad debts at
Harbour Club I Apartments and Century Park Office Building.
General and administrative expenses for the three and nine months ended
September 30, 1998 increased by $48,884 and $241,313, respectively, as compared
to the same periods in 1997. The increase was mainly due to costs incurred to
explore alternatives to maximize the value of the Partnership (see Liquidity and
Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow provided by operating activities totaled $3,065,638 for the first nine
months of 1998 as compared to $1,176,213 provided during the same period in
1997. The increase in cash from operations was partially due to an increase in
cash received from tenants as a result of an increase in rental revenue, as
previously discussed, and the receipt of $126,035 of tenant accounts receivable
that had previously been written off. In addition, in February 1997, the
Partnership was required to pay the plaintiffs' attorneys $690,000 for legal
expenses for a lawsuit relating to rescission of limited partnership units. In
the first quarter of 1997, the Partnership paid $250,000 of deferred asset
management fees to an affiliate. In March 1997, defaulted interest of $184,000
was paid to the lender of Harbour Club I in addition to the required monthly
cash flow payment. These increases in cash provided by operating activities
during the first nine months of 1998 were partially offset by an increase in
property taxes paid and escrowed, mainly due to an increase in the monthly
escrow deposit required by the lender on the Harbour Club I loan.
The Partnership expended $335,796 and $774,521 for additions to its real estate
investments during the nine months ended September 30, 1998 and 1997,
respectively. A greater amount was spent in 1997 for tenant improvements at
Century Park and Fidelity Plaza office buildings.
During the nine months ended September 30, 1998, the Partnership made $45,543 in
principal payments on its mortgage note payable secured by Harbour Club I as
compared to $211,459 made in the nine months ended September 30, 1997. Effective
January 1, 1993, the Partnership ceased making regularly scheduled payments on
its loan and began funding debt service with the excess cash flow of the
property. In the second quarter of 1997, the Partnership made all delinquent
payments and paid all accrued late charges. Regularly scheduled monthly debt
service payments were resumed in July 1997.
The Partnership distributed $2,747,653 and $999,995 to the limited partners in
the first nine months of 1998 and 1997, respectively.
<PAGE>
Short-term liquidity:
At September 30, 1998, the Partnership held cash and cash equivalents of
$2,942,545. This balance provides a reasonable level of working capital for the
Partnership's immediate needs in operating its properties.
For the Partnership as a whole, management projects positive cash flow from
operations for the remainder of 1998. Only one property, Harbour Club I
Apartments, is encumbered with mortgage debt and another property, Fidelity
Plaza, is encumbered with lease obligations. Capital improvements for all
properties in 1998 are expected to be funded from available cash reserves or
from operations of the properties.
Additional efforts to maintain and improve Partnership liquidity have included
continued attention to property management activities. The objective has been to
obtain maximum occupancy rates while holding expenses to levels necessary to
maximize cash flows. The Partnership has made capital expenditures on its
properties where improvements were expected to increase the competitiveness and
marketability of the properties.
Long-term liquidity:
While the outlook for maintenance of adequate levels of liquidity is favorable,
should operations deteriorate and present cash resources be insufficient for
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 refinancings, deferral of capital expenditures on
Partnership properties except where improvements are expected to increase the
competitiveness and marketability of the properties, arranging financing from
affiliates or the ultimate sale of the properties.
As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, has provided
financial and other information to interested parties and is currently
conducting discussions with one such party in an attempt to reach a definitive
agreement with respect to a sale transaction. It is possible that the General
Partner and its affiliates will receive non-cash consideration for their
ownership interests in connection with any such transaction. There can be no
assurance that any such agreement will be reached nor the terms thereof.
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after September 30, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties, and respond to changing economic and competitive factors.
<PAGE>
Other Information:
Management has reviewed its information technology infrastructure to identify
any systems that could be affected by the year 2000 problem. The year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in major systems failure or miscalculations. The
information systems used by the Partnership for financial reporting and
significant accounting functions were made year 2000 compliant during recent
systems conversions.
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management intends to inventory
all such systems and query suppliers, vendors and manufacturers to determine
year 2000 compliance. In circumstances of non-compliance management will work
with the vendor to remedy the problem or seek alternative suppliers who will be
in compliance. Management believes that the remediation of any outstanding year
2000 conversion issues will not have a material or adverse effect on the
Partnership's operations. However, no estimates can be made as to the potential
adverse impact resulting from the failure of third party service providers and
vendors to be year 2000 compliant. Management is in the process of identifying
those risks as well as developing a contingency plan to mitigate potential
adverse effects from non-compliance.
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.,
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.
<PAGE>
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. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.
Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
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).
4.1 Amendment No. 1 to the Amended and Restated
Limited Partnership Agreement of McNeil Real
Estate Fund XXV, L.P. dated June 1995
(incorporated by reference to the Quarterly
Report of the registrant on form 10-Q for
the period ended June 30, 1995, as filed on
August 14, 1995).
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 thousand unit information has
been computed based on 82,944 weighted
average thousand limited partnership units
outstanding in 1998 and 1997.
27. Financial Data Schedule for the quarter
ended September 30, 1998.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended September 30, 1998.
<PAGE>
MCNEIL REAL ESTATE FUND XXV, 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 XXV, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 16, 1998 By: /s/ Ron K. Taylor
- ----------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
November 16, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,942,545
<SECURITIES> 0
<RECEIVABLES> 1,108,833
<ALLOWANCES> (602,041)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 52,359,481
<DEPRECIATION> (28,760,650)
<TOTAL-ASSETS> 37,114,826
<CURRENT-LIABILITIES> 0
<BONDS> 7,110,083
0
0
<COMMON> 0
<OTHER-SE> 27,817,728
<TOTAL-LIABILITY-AND-EQUITY> 37,114,826
<SALES> 7,421,788
<TOTAL-REVENUES> 7,667,522
<CGS> 3,532,306
<TOTAL-COSTS> 5,255,650
<OTHER-EXPENSES> 1,041,832
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 593,898
<INCOME-PRETAX> 776,142
<INCOME-TAX> 0
<INCOME-CONTINUING> 776,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 776,142
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
