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 0-15459
---------
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 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 XXIII, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ......................................................... $ 239,966 $ 239,966
Buildings and improvements ................................... 6,383,176 6,260,613
----------- -----------
6,623,142 6,500,579
Less: Accumulated depreciation .............................. (3,423,225) (3,197,623)
----------- -----------
3,199,917 3,302,956
Cash and cash equivalents ....................................... 326,250 308,271
Cash segregated for security deposits ........................... 44,624 43,947
Accounts receivable and other assets ............................ 33,550 16,818
Escrow deposits ................................................. 120,024 50,876
----------- -----------
$ 3,724,365 $ 3,722,868
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net ...................................... $ 3,699,462 $ 3,726,154
Accounts payable and accrued expenses ........................... 68,079 66,691
Accrued property taxes .......................................... 87,003 44,676
Payable to affiliates - General Partner ......................... 484,839 402,922
Security deposits and deferred rental revenue ................... 89,514 50,364
----------- -----------
4,428,898 4,290,807
----------- -----------
Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
11,492,696 and 11,512,696 Units outstanding at
September 30, 1998 and December 31, 1997, respectively
(6,631,985 and 6,651,985 Current Income Units out-
standing at September 30, 1998 and December 31, 1997,
respectively; 4,860,711 Growth/Shelter Units out-
standing at September 30, 1998 and December 31, 1997) ...... (5,554,702) (5,419,474)
General Partner .............................................. 4,850,169 4,851,535
----------- -----------
(704,533) (567,939)
----------- -----------
$ 3,724,365 $ 3,722,868
=========== ===========
</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,
------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue ................... $ 382,382 $ 359,219 $ 1,098,160 $ 1,044,833
Interest ......................... 3,650 3,355 11,479 8,353
----------- ----------- ----------- -----------
Total revenue .................. 386,032 362,574 1,109,639 1,053,186
----------- ----------- ----------- -----------
Expenses:
Interest ......................... 84,277 85,260 253,586 258,284
Depreciation ..................... 76,690 66,286 225,602 205,724
Property taxes ................... 29,001 30,573 87,003 91,719
Personnel expenses ............... 51,632 52,781 153,527 146,964
Utilities ........................ 19,934 12,749 78,502 70,817
Repair and maintenance ........... 77,947 70,197 171,519 152,421
Property management
fees - affiliates .............. 19,556 17,963 55,020 52,380
Other property operating
expenses ....................... 21,027 15,416 47,094 42,475
General and administrative ....... 30,403 9,048 69,876 31,916
General and administrative -
affiliates ..................... 35,165 33,477 104,504 102,528
----------- ----------- ----------- -----------
Total expenses ................. 445,632 393,750 1,246,233 1,155,228
----------- ----------- ----------- -----------
Net loss ............................ $ (59,600) $ (31,176) $ (136,594) $ (102,042)
=========== =========== =========== ===========
Net loss allocated to
limited partners - Current
Income Units ..................... $ (5,364) $ (2,806) $ (12,293) $ (9,184)
Net loss allocated to
limited partners - Growth/
Shelter Units .................... (53,640) (28,059) (122,935) (91,838)
Net loss allocated to
General Partner .................. (596) (311) (1,366) (1,020)
----------- ----------- ----------- -----------
Net loss ............................ $ (59,600) $ (31,176) $ (136,594) $ (102,042)
=========== =========== =========== ===========
Net loss per thousand limited
partnership units:
Current Income Units ............. $ (.81) $ (.42) $ (1.85) $ (1.38)
=========== =========== =========== ===========
Growth/Shelter Units ............. $ (11.03) $ (5.77) $ (25.29) $ (18.89)
=========== =========== =========== ===========
</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, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
------------ ------------ ----------------
<S> <C> <C> <C>
Balance at December 31, 1996 ....... $ 4,852,460 $(5,327,850) $ (475,390)
Net loss:
General Partner ................. (1,020) -- (1,020)
Current Income Units ............ -- (9,184) (9,184)
Growth/Shelter Units ............ -- (91,838) (91,838)
----------- ----------- -----------
Total net loss ................ (1,020) (101,022) (102,042)
----------- ----------- -----------
Balance at September 30, 1997 ...... $ 4,851,440 $(5,428,872) $ (577,432)
=========== =========== ===========
Balance at December 31, 1997........ $ 4,851,535 $(5,419,474) $ (567,939)
Net loss:
General Partner ................. (1,366) -- (1,366)
Current Income Units ............ -- (12,293) (12,293)
Growth/Shelter Units ............ -- (122,935) (122,935)
----------- ----------- -----------
Total net loss ................ (1,366) (135,228) (136,594)
----------- ----------- -----------
Balance at September 30, 1998 ...... $ 4,850,169 $(5,554,702) $ (704,533)
=========== =========== ===========
</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,
--------------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants .................... $ 1,126,060 $ 1,059,977
Cash paid to suppliers ........................ (525,038) (410,847)
Cash paid to affiliates ....................... (77,607) (51,742)
Interest received ............................. 11,479 8,353
Interest paid ................................. (240,617) (245,296)
Property taxes paid and escrowed .............. (113,824) (67,646)
----------- -----------
Net cash provided by operating activities ........ 180,453 292,799
----------- -----------
Cash flows from investing activities:
Additions to real estate investments .......... (122,563) (116,532)
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage note
payable ..................................... (39,911) (37,037)
----------- -----------
Net increase in cash and cash equivalents ........ 17,979 139,230
Cash and cash equivalents at beginning of
period ........................................ 308,271 193,812
----------- -----------
Cash and cash equivalents at end of period........ $ 326,250 $ 333,042
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
MCNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net loss ..................................................... $(136,594) $(102,042)
--------- ---------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation .............................................. 225,602 205,724
Amortization of discount on mortgage
note payable ............................................ 13,219 13,219
Changes in assets and liabilities:
Cash segregated for security deposits ................... (677) (651)
Accounts receivable and other assets .................... (16,732) (1,055)
Escrow deposits ......................................... (69,148) 23,888
Accounts payable and accrued expenses ................... 1,388 (8,014)
Accrued property taxes .................................. 42,327 48,200
Payable to affiliates - General Partner ................. 81,917 103,166
Security deposits and deferred rental
revenue ............................................... 39,151 10,364
--------- ---------
Total adjustments ..................................... 317,047 394,841
--------- ---------
Net cash provided by operating activities .................... $ 180,453 $ 292,799
========= =========
</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, 1998
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
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 XXIII, 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 property to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management and leasing
services.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
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. Total accrued but unpaid asset management fees in the amount of $271,296
were outstanding at September 30, 1998.
<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,
------------------------
1998 1997
-------- --------
Property management fees .................... $ 55,020 $ 52,380
Charged to general and administrative -
affiliates:
Partnership administration ............... 42,996 44,037
Asset management fee ..................... 61,508 58,491
-------- --------
$159,524 $154,908
======== ========
Payable to affiliates - General Partner at September 30, 1998, and December 31,
1997, consists primarily of unpaid asset management fees and reimbursable costs
that are due and payable from current operations.
Note 4.
- -------
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.
Because McNeil Real Estate Fund XXIII, L.P. would be part of the transaction
contemplated in the settlement and Plaintiffs claim that an effort should be
made to sell the McNeil Partnerships, Plaintiffs have included allegations with
respect to McNeil Real Estate Fund XXIII, L.P. in the third consolidated and
amended complaint.
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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership incurred increased losses for the three month and nine month
periods ended September 30, 1998 than for the same periods of 1997. Net loss
increased $28,424 to $59,600 for the three month period, while net loss
increased $34,552 to $136,594 for the nine month period.
The occupancy rate at Harbour Club II Apartments was 96% at September 30, 1998.
The occupancy rate at December 31, 1997 was 89%. Operations at Harbour Club II
Apartments for 1998 have provided sufficient cash flow to pay the property's
operating expenses as well as debt service on the related mortgage note.
However, the property is in need of major capital improvements in order to
compete effectively in its local market. The Partnership does not have
sufficient cash reserves to fund the needed capital improvements, nor does the
property generate sufficient cash flow from operations to fund such capital
improvements.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Revenue:
The Partnership's rental revenue increased $23,163 or 6.4% and $53,327 or 5.1%
for the three month and nine month periods ended September 30, 1998 as compared
to the same periods of 1997. The Partnership increased rental rates 3.1% at the
beginning of 1998. In addition, rental losses, such as vacancy and concessions,
decreased 12.7% for the periods ended September 30, 1998 as compared to the same
periods of 1997.
Expenses:
Partnership expenses increased $51,882 or 13.2% and $91,005 or 7.9% for the
three month and nine month periods ended September 30, 1998 as compared to the
same periods of 1997. On a percentage basis, expenses increased the most in
utilities, repair and maintenance, other operating expenses, general and
administrative expenses and depreciation.
Utilities expense increased $7,185 to $19,934 and $7,685 to $78,502 for the
three month and nine month periods ended September 30, 1998 as compared to the
same periods of 1997. Costs for water and sewer charges, and to a lesser extent,
electricity charges, increased as a result of increased occupancy at Harbour
Club II Apartments.
Repair and maintenance expense increased $7,750 and $19,098 for the three month
and nine month periods ended September 30, 1998 as compared to the same periods
of 1997. In December 1997, a fire damaged two apartment units as Harbour Club II
Apartments. Costs incurred to repair the fire-damaged units totaled $34,385. The
Partnership's insurance carrier will reimburse the Partnership for all of these
costs except for a $10,000 deductible. The $10,000 deductible charge is the
principal reason for the increase in repair and maintenance expense.
Other operating expenses increased $5,611 to $21,027 and $4,619 to $47,094 for
the three month and nine month periods ended September 30, 1998 as compared to
the same periods or 1997. The Partnership incurred increased costs for legal
fees, collection expenses, and property insurance.
General and administrative expenses increased $21,355 to $30,403 and $37,960 to
$69,876 for the three month and nine month periods ended September 30, 1998,
respectively, as compared to the same periods of 1997. The increase is due to
costs incurred to explore alternatives to maximize the value of the Partnership
(see Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership's operating activities provided $180,453 for the first nine
months of 1998, a decrease of 38% from cash flow provided during the first nine
months of 1997. Increases in cash paid to suppliers, affiliates, and for
property taxes were greater than the increase in cash receipts from tenants.
Cash used for investing and financing activities did not significantly change in
1998 as compared to 1997. The Partnership continues to invest minimal amounts
into capital improvements at Harbour Club II Apartments and to pay down the
mortgage note as called for by terms of the mortgage note agreement.
<PAGE>
Short-term liquidity:
The Partnership's balance of cash and cash equivalents totaled to $326,250 at
September 30, 1998, an increase of $17,979 from the balance of cash and cash
equivalents at December 31, 1997. The General Partner considers the
Partnership's cash reserves adequate for anticipated operations for the
remainder of 1998.
Operating activities at Harbour Club II Apartments for 1998 are expected to
provide sufficient cash flow for operating expenses, debt service payments, and
limited capital improvements. However, Harbour Club II Apartments is in need of
extensive capital improvements to enable the property to compete effectively in
the local market. Projected cash flows from operations will not be adequate to
fund such extensive capital improvements. To date, the Partnership has been
unable to secure financing for the needed capital improvements. The Partnership
has no established lines of credit from outside sources.
In the past, the General Partner, at its discretion, has advanced funds to the
Partnership to fund working capital requirements. The General Partner is not
obligated to advance funds to the Partnership and there is no assurance that the
Partnership will receive any additional funds.
Long-term liquidity:
The long-term operating viability of Harbour Club II Apartments is dependent on
the Partnership's ability to fund substantial capital improvements to the
property. If the Partnership does not liquidate, as contemplated below, it will
seek to obtain additional financing to allow the completion of the extensive
capital improvements, which will enable the Partnership to raise rental rates at
the property to market rates.
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. Phase IV is owned by an unaffiliated
entity. McREMI managed all four phases of the complex until December 1992, when
the property management agreement between McREMI and Phase IV was canceled.
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.
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 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.
<PAGE>
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 the sale or refinancing of its
property, and respond to changing economic and competitive factors.
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.
<PAGE>
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.
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.
Because McNeil Real Estate Fund XXIII, L.P. would be part of the transaction
contemplated in the settlement and Plaintiffs claim that an effort should be
made to sell the McNeil Partnerships, Plaintiffs have included allegations with
respect to McNeil Real Estate Fund XXIII, L.P. in the third consolidated and
amended complaint.
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 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 6,632
and 6,652 Current Income Units (in
thousands) outstanding in 1998 and 1997,
respectively, and 4,861 Growth/Shelter Units
(in thousands) 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 XXIII, 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 XXIII, 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)
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 326,250
<SECURITIES> 0
<RECEIVABLES> 0
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<OTHER-EXPENSES> 992,647
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