UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1996
------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-15459
--------
McNEIL REAL ESTATE FUND XXIII, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0139793
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
-----------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE>
MCNEIL REAL ESTATE FUND XXIII, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
<TABLE>
<CAPTION>
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
--------------- ---------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 239,966 $ 239,966
Buildings and improvements............................... 5,950,265 5,836,474
-------------- --------------
6,190,231 6,076,440
Less: Accumulated depreciation.......................... (2,845,209) (2,648,343)
-------------- --------------
3,345,022 3,428,097
Cash and cash equivalents................................... 154,350 233,222
Cash segregated for security deposits....................... 43,075 54,921
Accounts receivable......................................... 1,653 11,395
Escrow deposits............................................. 69,642 91,296
Prepaid expenses and other assets........................... 6,917 6,893
-------------- --------------
$ 3,620,659 $ 3,825,824
============== ==============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net of discount...................... $ 3,766,062 $ 3,787,802
Accounts payable and accrued expenses....................... 35,841 93,165
Accrued interest............................................ 27,231 27,446
Accrued property taxes...................................... 34,104 43,142
Payable to affiliates - General Partner..................... 217,052 114,218
Security deposits and deferred rental revenue............... 42,494 50,820
-------------- --------------
4,122,784 4,116,593
-------------- --------------
Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
11,622,696 and 16,108,041 Units outstanding at
September 30, 1996 and December 31, 1995,
respectively (6,681,985 and 9,419,080 Current
Income Units outstanding, and 4,940,711 and
6,688,961 Growth/Shelter Units outstanding at
September 30, 1996 and December 31, 1995,
respectively).......................................... (5,354,317) (5,145,030)
General Partner.......................................... 4,852,192 4,854,261
-------------- --------------
(502,125) (290,769)
-------------- --------------
$ 3,620,659 $ 3,825,824
============== ==============
</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 XXIII, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
-------------- --------------- -------------- --------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue................ $ 341,968 $ 335,469 $ 986,535 $ 1,255,358
Interest...................... 1,291 3,856 5,511 10,109
Gain on sale of real estate... - - - 554,047
------------- ------------- ------------- -------------
Total revenue............... 343,259 339,325 992,046 1,819,514
------------- ------------- ------------- -------------
Expenses:
Interest...................... 91,447 92,155 274,990 358,760
Interest - affiliates......... - (6,329) - 17,846
Depreciation.................. 66,330 68,439 196,866 243,923
Property taxes................ 32,124 27,938 91,876 105,674
Personnel expenses............ 51,638 51,720 152,418 198,953
Utilities..................... 15,777 20,830 78,626 119,394
Repair and maintenance........ 67,416 24,404 157,626 168,978
Property management
fees - affiliates........... 16,966 16,084 49,238 56,435
Other property operating
expenses.................... 22,527 44,912 57,863 122,301
General and administrative.... 9,961 9,384 31,407 73,434
General and administrative -
affiliates.................. 31,794 43,914 102,650 136,269
Reorganization expenses....... - 29,432 5,362 199,998
------------- ------------- ------------- -------------
Total expenses.............. 405,980 422,883 1,198,922 1,801,965
------------- ------------- ------------- -------------
Income (loss) before
extraordinary item............ (62,721) (83,558) (206,876) 17,549
Extraordinary item............... - 1,398,925 - 1,398,925
------------- ------------- ------------- -------------
Net income (loss)................ $ (62,721) $ 1,315,367 $ (206,876) $ 1,416,474
============= ============= ============ ==============
Net income (loss) allocated
to limited partners - Current
Income Units.................. $ (5,645) $ 118,383 $ (18,619) $ 127,483
Net income (loss) allocated to
limited partners - Growth/
Shelter Units................. (56,449) 1,183,831 (186,188) 1,274,827
Net income (loss) allocated to
General Partner............... (627) 13,153 (2,069) 14,164
------------- ------------- ------------- -------------
Net income (loss)................ $ (62,721) $ 1,315,367 $ (206,876) $ 1,416,474
============= ============= ============= =============
Net income (loss) per thousand
limited partnership units:
Current Income Units:
Income (loss) before
extraordinary item........ $ (.85) $ (.81) $ (2.79) $ .16
Extraordinary item.......... - 13.40 - 13.40
------------- ------------ ------------- -------------
Net income (loss)........... $ (.85) $ 12.59 $ (2.79) $ 13.56
============= ============ ============= =============
Growth/Shelter Units:
Income (loss) before
extraordinary item........ $ (11.42) $ (11.24) $ (37.68) $ 2.36
Extraordinary item.......... - 188.23 - 188.23
------------- ------------ ------------- -------------
Net income (loss)........... $ (11.42) $ 176.99 $ (37.68) $ 190.59
============= ============ ============= =============
</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 XXIII, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
-------------- --------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1994.............. $ 4,839,769 $ (6,579,736) $ (1,739,967)
Net income:
General Partner........................ 14,164 - 14,164
Current Income Units................... - 127,483 127,483
Growth/Shelter Units................... - 1,274,827 1,274,827
------------- ------------- -------------
Total net income..................... 14,164 1,402,310 1,416,474
------------- ------------- -------------
Balance at September 30, 1995............. $ 4,853,933 $ (5,177,426) $ (323,493)
============= ============= =============
Balance at December 31, 1995.............. $ 4,854,261 $ (5,145,030) $ (290,769)
Redemption of limited partner units:
Current Income Units................... - (2,737) (2,737)
Growth/Shelter Units................... - (1,743) (1,743)
------------- ------------- -------------
Total redemption..................... - (4,480) (4,480)
Net loss:
General Partner........................ (2,069) - (2,069)
Current Income Units................... - (18,619) (18,619)
Growth/Shelter Units................... - (186,188) (186,188)
------------- ------------- -------------
Total net loss....................... (2,069) (204,807) (206,876)
------------- ------------- -------------
Balance at September 30, 1996............. $ 4,852,192 $ (5,354,317) $ (502,125)
============= ============= =============
</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 XXIII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1996 1995
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants............................... $ 1,003,726 $ 1,241,767
Cash paid to suppliers................................... (540,114) (570,775)
Cash paid to affiliates.................................. (49,054) (59,149)
Reorganization costs paid, net........................... (5,362) (199,998)
Interest received........................................ 5,511 10,109
Interest paid............................................ (262,578) (351,902)
Property taxes paid and escrowed......................... (78,363) (96,639)
-------------- --------------
Net cash provided by (used in) operating activities......... 73,766 (26,587)
-------------- --------------
Cash flows from investing activities:
Additions to real estate investments..................... (113,791) (81,981)
Proceeds from sale of real estate........................ - 319,672
-------------- --------------
Net cash provided by (used in) investing activities......... (113,791) 237,691
-------------- --------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable................................................ (34,367) (47,582)
Redemption of limited partner units...................... (4,480) -
-------------- --------------
Net cash used in financing activities....................... (38,847) (47,582)
-------------- --------------
Net increase (decrease) in cash and cash
equivalents.............................................. (78,872) 163,522
Cash and cash equivalents at beginning of
period................................................... 233,222 107,815
-------------- --------------
Cash and cash equivalents at end of period.................. $ 154,350 $ 271,337
============== ==============
</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 XXIII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income (Loss) to Net Cash Provided by (Used in)
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Net income (loss)........................................... $ (206,876) $ 1,416,474
-------------- --------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation............................................. 196,866 243,923
Amortization of discount on mortgage
notes payable.......................................... 12,627 19,845
Interest added to advances from affiliates -
General Partner........................................ - 17,846
Gain on sale of real estate.............................. - (554,047)
Extraordinary item....................................... - (1,398,925)
Changes in assets and liabilities:
Cash segregated for security deposits.................. 11,846 16,420
Accounts receivable.................................... 9,742 (3,641)
Escrow deposits........................................ 21,654 308,198
Prepaid expenses and other assets...................... (24) 27,363
Accounts payable and accrued expenses.................. (57,324) (1,227)
Accrued interest....................................... (215) -
Accrued property taxes................................. (9,038) (118,699)
Claims settlement payable.............................. - (113,162)
Payable to affiliates - General Partner................ 102,834 133,555
Security deposits and deferred rental
revenue.............................................. (8,326) (20,510)
-------------- --------------
Total adjustments.................................... 280,642 (1,443,061)
-------------- --------------
Net cash provided by (used in) operating activities......... $ 73,766 $ (26,587)
============== ==============
</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 XXIII, L.P.
Notes to Financial Statements
(Unaudited)
September 30, 1996
NOTE 1.
- -------
McNeil Real Estate Fund XXIII, L.P. (the "Partnership"), formerly known as
Southmark Realty Partners III, Ltd., was organized on March 4, 1985 as a limited
partnership under provisions of the California Revised Limited Partnership Act
to acquire and operate residential properties. The general partner of the
Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited
partnership, an affiliate of Robert A. McNeil ("McNeil"). The principal place of
business for the Partnership and the General Partner is 13760 Noel Road, Suite
700, LB70, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1996,
are not necessarily indicative of the results to be expected for the year ending
December 31, 1996.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1995, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate XXIII, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
NOTE 3.
- -------
Certain prior period amounts within the accompanying financial statements have
been reclassified to conform with current year presentation.
NOTE 4.
- -------
On June 30, 1994, the Partnership filed a voluntary petition for Chapter 11
reorganization. (The petition for Chapter 11 reorganization excluded the
Partnership's interest in Beckley Associates, the owner of Harbour Club II
Apartments.) The Partnership continued to conduct its affairs as a
debtor-in-possession, subject to the jurisdiction and supervision of the
Bankruptcy Court.
The Partnership's First Amended Plan of Reorganization ("Reorganization Plan"),
which contemplated a sale of Woodbridge Apartments, was submitted to the
Bankruptcy Court on February 13, 1995. The Partnership's Disclosure Statement of
Debtor-in-Possession ("Disclosure Statement") was approved by the Bankruptcy
Court on February 14, 1995.
<PAGE>
The Partnership's Reorganization Plan and Disclosure Statement were submitted
February 20, 1995, to a vote of the impaired creditors, as defined. The impaired
creditors included a class of creditors who had filed a judgment lien against
Woodbridge Apartments in connection with the Illinois rescission suit. The
judgment lien creditors filed objections to confirmation of the Reorganization
Plan. On April 18, 1995, the Bankruptcy Court did grant an order to sell
Woodbridge Apartments but denied confirmation of the Reorganization Plan. The
Partnership filed an appeal of the Bankruptcy Court's ruling and, in the
meantime, attempted to settle the matter with the judgment lien creditors, which
would allow for confirmation of the Reorganization Plan. On May 10, 1995, the
Reorganization Plan was amended to provide for full payment to the judgment lien
creditors. The Reorganization Plan, as amended, was subsequently confirmed by
the Bankruptcy Court on May 17, 1995.
Woodbridge Apartments was sold on May 25, 1995, and, in accordance with the
Reorganization Plan, the first and second mortgage notes payable and the related
outstanding accrued interest were paid. The Partnership also utilized $156,566
of the proceeds from the sale to pay the settlement and legal fees to the
judgment lien creditors, as discussed above.
On September 11, 1995, the Bankruptcy Court entered an Order Regarding
Objections to Claims that allowed the Partnership to pay outstanding
pre-petition claims totaling approximately $124,000 in October 1995.
The Reorganization Plan specified that advances and fees owed to affiliates of
the General Partner were limited to remaining cash, after the pre-petition
liabilities and reorganization expenses were paid. The Partnership had $37,228
of cash available to distribute to affiliate creditors. The remaining amounts
owed to affiliates of the General Partner as of May 17, 1995, were discharged
resulting in an extraordinary gain of $1,398,925 during the third quarter of
1995.
On August 15, 1995, the Partnership sent an election form to each limited
partner which allowed them to choose whether to redeem their interest in the
Partnership. The redemption price was 1/1000th of a dollar per Unit. The limited
partners were required to respond within 30 days, and at the close of the 30 day
period, 311 limited partners had elected to redeem 4,485,345 Units. In
connection with the redemption, the partnership obtained a "no-action" letter
from the Securities and Exchange Commission ("SEC") that provided that (1) the
redemption could be accomplished without compliance with Rule 13e-3 of the
Securities Exchange Act of 1934, and (2) the SEC did not intend to pursue an
enforcement action if the Reorganization Plan was consummated. Redemption of the
affected Units was completed in January 1996.
On November 18, 1995, the Partnership submitted a request for an Application to
Close Case to the Bankruptcy Court, which was entered on December 11, 1995, and
was approved on February 15, 1996.
Expenses incurred by the Partnership in connection with its Chapter 11 filing
have been expensed as "reorganization expenses" in the accompanying Statements
of Operations.
<PAGE>
NOTE 5.
- -------
The Partnership pays property management fees equal to 5% of the gross rental
receipts for its properties to McNeil Real Estate Management, Inc. ("McREMI"),
an affiliate of the General Partner, for providing property management and
leasing services. Due to the Partnership's Chapter 11 Bankruptcy filing,
property management fees for Woodbridge Apartments were reduced to 3% of the
property's gross rental receipts beginning December 1, 1994.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs. Reimbursable costs that were incurred
prior to the Partnership's bankruptcy filing, in the amount of $520,902, were
discharged under terms of the Partnership's Reorganization Plan.
The Partnership incurs asset management fees which are 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 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. As discussed in Note 4, asset management fees totaling $366,329 accrued
prior to the confirmation of the Reorganization Plan were discharged pursuant to
the Reorganization Plan. Total accrued but unpaid asset management fees incurred
subsequent to confirmation of the Reorganization Plan in the amount of $99,316
were outstanding at September 30, 1996.
<PAGE>
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Nine Months Ended
September 30,
----------------------
1996 1995
--------- ---------
Property management fees............................. $ 49,238 $ 56,435
Charged to interest - affiliates:
Interest on advances from affiliates - General
Partner......................................... - 17,846
Charged to general and administrative -
affiliates:
Partnership administration........................ 55,650 79,902
Asset management fee.............................. 47,000 56,367
--------- --------
$ 151,888 $ 210,550
========= =========
Payable to affiliates - General Partner at September 30, 1996, and December 31,
1995, consists primarily of unpaid asset management fees and reimbursable costs
that are due and payable from current operations.
<PAGE>
NOTE 6.
- -------
On May 23, 1995, Woodbridge Apartments was sold to an unrelated third party for
a cash price of $3,2000,000. Cash proceeds and the gain on the disposition are
detailed below:
Gain on Sale Cash Proceeds
------------- -------------
Sales Price............................ $ 3,200,000 $ 3,200,000
Selling costs.......................... (121,904) (121,904)
Retirement of mortgage discounts....... (214,659)
Basis of real estate sold.............. (2,309,390)
-----------
Gain on disposition of real estate..... $ 554,047
===========
Retirement of mortgage notes........... (2,641,421)
Payment of accrued interest............ (117,003)
-----------
Net cash proceeds...................... $ 319,672
===========
NOTE 7.
- -------
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 has relied on advances from affiliates to
meet its debt obligations and to fund capital improvements. There is no
guarantee that such advances will continue to be available.
Operations at Harbour Club II Apartments, the Partnership's sole remaining
property, are expected to be sufficient to provide cash for operating expenses
and debt service for 1996. However, the property is in need of major capital
improvements in order to maintain occupancy and rental rates at a level
sufficient to fund operating expenses and debt service in future years. The
Partnership's cash reserves are inadequate to fund the needed capital
improvements, and it is unlikely that cash flow from operating activities will
be sufficient to provide for the needed capital improvements. No outside sources
of financing have been identified. Although affiliates of the Partnership have
previously provided working capital for the Partnership, there can be no
assurance that the Partnership will receive additional funds from the General
Partner or other affiliates. Management is currently seeking additional
financing to fund the needed capital improvements; however, such financing is
not assured. If the property is unable to obtain additional funds and cannot
maintain operations at a level to pay operating expenses and debt service, the
property may ultimately be foreclosed on by the lender.
<PAGE>
Harbour Club II Apartments is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and III 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 Corporation, the parent corporation of the Partnership's
former general partner. McREMI managed 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 its mortgage
loan to the United States Department of Housing and Urban Development and,
unless a refinancing agreement can be reached with the lender, the property is
subject to foreclosure. If Phase I is lost to foreclosure, it would be extremely
difficult to operate Phases II and III because the pool and clubhouse are
located in Phase I. As of September 30, 1996, no steps have been taken towards
the foreclosure of Phase I.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership has suffered
recurring losses from operations and has relied on advances from affiliates to
meet its debt obligations and to fund capital improvements.
The Partnership's operating activities provided $73,766 for the first nine
months of 1996 as compared to $26,587 of cash used by operating activities in
the first nine months of 1995. The disposition of Woodbridge Apartments on May
25, 1995, is the principal cause of decreases in cash received from tenants,
cash paid to suppliers, interest paid, and property taxes paid and escrowed.
Reorganization costs paid in 1996 decreased to $5,362 from $199,998 in 1995. The
Partnership should have no further reorganization costs to pay in connection
with its Chapter 11 reorganization.
Cash used for additions to real estate improvements totaled $113,791 for the
nine months ended September 30, 1996 as compared to $81,981 for the same period
of 1995. The Partnership's capital budget will continue only at a bare minimum
until additional financing can be arranged. The Partnership received $319,672 of
proceeds from the sale of Woodbridge Apartments in 1994. The use of these
proceeds was restricted by the Bankruptcy Court for payment of bankruptcy
claims.
Scheduled principal payments through monthly debt service payments totaled
$34,367 for the nine months ended September 30, 1996, down from $47,582 for the
same period of 1995. The decrease is due to the sale of Woodbridge Apartments in
May 1995. In accordance with terms of the Partnership's Reorganization Plan, the
Partnership redeemed 4,485,345 limited partnership units from the limited
partners for a total of $4,480 during the first quarter of 1996.
<PAGE>
Short-term liquidity:
At September 30, 1996, the Partnership held $154,350 of cash and cash
equivalents, down $78,872 from the balance at December 31, 1995. For the balance
of 1996, the General Partner anticipates rental operations at Harbour Club II
Apartments will provide sufficient rental revenue to pay for the operating
expenses of the property and debt service payments on the property's mortgage
note. However, rental operations at Harbour Club II Apartments are not expected
to be sufficient to fund necessary capital improvements to the property nor to
pay the Partnership's other expenses. To the extent available, the Partnership
will use its cash reserves to fund limited capital improvements and the
Partnership's other expenses.
Although the sale of Woodbridge Apartments provided some additional cash
reserves for the Partnership, the Partnership still faces liquidity problems
because of urgently needed capital improvements at Harbour Club II Apartments,
for which no financing has been secured. Operating activities at Harbour Club II
Apartments for 1996 are expected to provide sufficient positive cash flow for
normal operating expenses and debt service payments. However, the needed capital
improvements will require the use of other sources of cash. No such sources have
been identified. The Partnership has no established lines of credit from outside
sources. Other possible actions to provide financing for the capital
improvements may include refinancing or modifying the property's mortgage debt.
Should such refinancing or modification of Harbour Club II's mortgage debt prove
unfeasible, the Partnership could be forced to either sell the property or to
relinquish control of the property to the mortgage note holder.
The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. Borrowings under the facility may be used to fund deferred maintenance,
refinancing obligations and working capital needs. The Partnership had received
advances under the revolving credit facility to fund additions to the
Partnership's real estate investments and costs incurred in connection with the
refinancing of the Partnership's mortgage note payable. Such advances were
discharged as a result of the Chapter 11 proceedings. There is no assurance that
the Partnership will receive any additional funds under the facility because no
amounts will be reserved for any particular partnership. As of September 30,
1996, $4,082,159 remained available for borrowing under the facility; however,
additional funds could become available as other partnerships repay existing
borrowings. This commitment expires on March 30, 1997.
Additionally, the General Partner has, at its discretion, advanced funds to the
Partnership in addition to the revolving credit facility. The Partnership
received other advances that were used to fund working capital requirements.
Such advances were discharged as a result of the Chapter 11 proceedings. The
General Partner is not obligated to advance funds to the Partnership and there
is no assurance that the Partnership will receive additional funds.
<PAGE>
Long-term liquidity:
The Partnership has been in a distressed cash situation for several years.
Although Harbour Club II Apartments is able to operate in such a manner as to
provide for operating expenses and debt service payments, the property has not
proven the capability to produce the cash flow necessary for capital
improvements nor to support Partnership operations. The inability to make
necessary capital improvements has led to deteriorating conditions at the
property. In the opinion of management, if capital improvements are not made to
make the property more marketable, the net realizable value of the property may
be further impaired.
Harbour Club II Apartments is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and III of the complex are owned by partnerships
affiliated with 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 Corporation, the parent corporation of the Partnership's former
general partner. McREMI managed 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 its United States
Department of Housing and Urban Development mortgage note. Unless a refinancing
agreement can be reached with the lender, the property is subject to
foreclosure. If Phase I is lost to foreclosure, it would be extremely difficult
to operate Phases II and III because the pool and clubhouse used by all three
phases are located on Phase I. As of September 30, 1996, no steps have been
taken to foreclose on 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.
Distributions
To maintain adequate cash balances, the Partnership suspended distributions to
Current Income Unit holders in 1988. There have been no distributions to
Growth/Shelter Unit 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.
FINANCIAL CONDITION
- -------------------
The occupancy rate at Harbour Club II Apartments decreased to 90% at September
30, 1996. Occupancy at December 31, 1995, was 92%. Harbour Club II 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
nine months of 1996; however, as discussed above, the property is in need of
major capital improvements in order to compete in its local market. The
Partnership is seeking alternatives to fund the necessary capital improvements,
but at this time no sources have been found.
Until the Partnership is able to generate cash from operations or sales, the
Partnership will be dependent on its present cash reserves, operation of its
property, or financial support from affiliates. Distributions will remain
suspended until cash reserves are judged adequate.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenues were $343,259 and $992,046 for the three months and
nine months ended September 30, 1996, respectively, as compared to $339,325 and
$1,819,514 for the same periods of 1995. Revenues for the three months ended
September 30, 1996 and 1995 are comparable in that both figures reflect revenues
generated from Harbour Club II Apartments only. Revenue for the nine months
ended September 31, 1996 also reflects only revenue generated by Harbour Club II
Apartments whereas revenue for the nine months ended September 30, 1995 includes
both revenue from Woodbridge Apartments through May 23, 1995 as well as a
$554,047 gain from the May 23, 1995 sale of Woodbridge Apartments.
Rental revenue at Harbour Club II Apartments increased $3,659 and $7,790 or 1.1%
and 0.8% for the three month and nine month periods ended September 30, 1996 as
compared to the same periods of 1995. Base rental rates at Harbour Club II
Apartments were increased 5.2% in 1996, but most of the increase was offset by a
decrease in the occupancy rate. The occupancy rate at Harbour Club II Apartments
was 90% at September 30, 1996, down from 92% at December 1995.
Expenses:
Total Partnership expenses decreased $16,903 and $603,043 for the three month
and nine month periods ended September 30, 1996, respectively, as compared to
the same periods of 1995. The year-to-date figures decreased primarily because
of the May 25, 1995 sale of Woodbridge Apartments. Expenses for the quarters
ended September 30, 1996 and 1995 are not affected by the sale of Woodbridge
Apartments. For the nine months ended September 30, 1996, expenses at Harbour
Club II Apartments increased $41,550 or 4.1% compared to the same period of
1995. Changes in expenses at Harbour Club II Apartments were concentrated in
repair and maintenance and other property operating expenses.
Repair and maintenance expenses increased 36% at Harbour Club II Apartments for
the nine month period ended September 31, 1996 compared to the same period of
1995. The increase resulted from the replacement of carpeting and appliances
that met the Partnership's criteria for capitalization based on the magnitude of
replacement in 1995, but were expensed in 1996.
Other property operating expenses decreased 21% at Harbour Club II Apartments
for the nine month period ended September 31, 1996 compared to the same period
of 1995. The decrease is attributable to decreased bad debt expense and
decreased advertising and marketing expenses.
Besides the changes in operating expenses at Harbour Club II Apartments noted
above, the Partnership had other expenses that decreased in 1996 compared to
1995. Pursuant to the Partnership's Reorganization Plan, all interest-bearing
liabilities due to affiliates were discharged during 1995. Thus, no interest due
to affiliates was incurred in 1996 as compared to $17,846 of such interest in
1995. Also, reorganization expenses incurred by the Partnership in connection
with its Chapter 11 filing decreased to $5,362 in 1996 from $199,998 in 1995.
The Partnership does not anticipate any further expenses in connection with its
Chapter 11 reorganization.
<PAGE>
General and administrative decreased $42,027 or 57% for the nine month period
ended September 30, 1996, respectively, as compared to the same period of 1995.
The decrease was due to $41,000 of legal fees incurred in 1995 relating to a
settlement of the judgment lien rendered in connection with the Illinois
rescission suit.
General and administrative expenses paid to affiliates decreased $12,120 or 28%
and $33,619 or 25% for the three month and nine month periods ended September
30, 1996, respectively, as compared to the same periods of 1995. Such expenses
are allocated based on, among other criteria, the number of properties owned by
the Partnership. Due to the disposition of Woodbridge Apartments in 1995,
expenses allocated to the Partnership by McREMI have decreased.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
- ------- ----------------------
In accordance with the Partnership's Reorganization Plan, on August 15, 1995,
the Partnership sent an election form to each limited partner which allowed them
to choose whether to redeem their interest in the Partnership. The redemption
price was 1/1000th of a dollar per Unit. The limited partners were required to
respond within 30 days, and at the close of the 30 day period, 311 limited
partners had elected to redeem 4,485,345 Units. In connection with the
redemption, the partnership obtained a "no-action" letter from the Securities
and Exchange Commission ("SEC") that provided that (1) the redemption could be
accomplished without compliance with Rule 13e-3 of the Securities Exchange Act
of 1934, and (2) the SEC did not intend to pursue an enforcement action if the
Reorganization Plan was consummated. Redemption of the affected Units was
completed on January 1, 1996.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- -------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
4. Amended and Restated Limited Partnership
Agreement dated March 30, 1992.
(Incorporated by reference to the Current
Report of the Registrant on Form 8-K dated
March 30, 1992, as filed on April 10,
1992).
11. Statement regarding computation of Net
Income (Loss) per Thousand Limited
Partnership Units: Net income (loss) per
thousand limited partner 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
6,682 and 9,399 Current Income Units (in
thousands) outstanding in 1996 and 1995,
respectively, and 4,941 and 6,689
Growth/Shelter Units (in thousands)
outstanding in 1996 and 1995, respectively.
27. Financial Data Schedule for the quarter
ended September 30, 1996.
b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended September 30, 1996.
<PAGE>
MCNEIL REAL ESTATE FUND XXIII, L.P.
(Debtor-in-Possession)
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 XXIII, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 14, 1996 By: /s/ Donald K. Reed
- ----------------- ----------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
November 14, 1996 By: /s/ Ron K. Taylor
- ----------------- ----------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer of
McNeil Investors, Inc.
November 14, 1996 By: /s/ Carol A. Fahs
- ----------------- ----------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil
Real Estate Management, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 154,350
<SECURITIES> 0
<RECEIVABLES> 1,653
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,190,231
<DEPRECIATION> (2,845,209)
<TOTAL-ASSETS> 3,620,659
<CURRENT-LIABILITIES> 0
<BONDS> 3,766,062
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,620,659
<SALES> 985,535
<TOTAL-REVENUES> 992,046
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 923,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274,990
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (206,876)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (206,876)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
