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 June 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>
June 30, December 31,
1998 1997
-------------- ---------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 239,966 $ 239,966
Buildings and improvements............................... 6,340,309 6,260,613
-------------- --------------
6,580,275 6,500,579
Less: Accumulated depreciation.......................... (3,346,535) (3,197,623)
-------------- --------------
3,233,740 3,302,956
Cash and cash equivalents................................... 334,335 308,271
Cash segregated for security deposits....................... 44,322 43,947
Accounts receivable and other assets........................ 21,943 16,818
Escrow deposits............................................. 82,083 50,876
-------------- -------------
$ 3,716,423 $ 3,722,868
============== =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net.................................. $ 3,708,609 $ 3,726,154
Accounts payable and accrued expenses....................... 91,496 66,691
Accrued property taxes...................................... 58,002 44,676
Payable to affiliates - General Partner..................... 449,306 402,922
Security deposits and deferred rental revenue............... 53,943 50,364
-------------- --------------
4,361,356 4,290,807
-------------- --------------
Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
11,492,696 and 11,512,696 Units outstanding
at June 30, 1998 and December 31, 1997,
respectively (6,631,985 and 6,651,985 Current
Income Units outstanding at June 30, 1998
and December 31, 1997, respectively; 4,860,711
Growth/Shelter Units outstanding at June 30,
1998 and December 31, 1997)............................ (5,495,698) (5,419,474)
General Partner.......................................... 4,850,765 4,851,535
-------------- --------------
(644,933) (567,939)
-------------- --------------
$ 3,716,423 $ 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 Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue .............................. $ 367,155 $ 343,315 $ 715,778 $ 685,614
Interest .................................... 3,599 2,807 7,829 4,998
--------- --------- --------- ---------
Total revenue ............................. 370,754 346,122 723,607 690,612
--------- --------- --------- ---------
Expenses:
Interest .................................... 84,531 85,496 169,309 173,024
Depreciation ................................ 74,955 70,886 148,912 139,438
Property taxes .............................. 29,001 30,573 58,002 61,146
Personnel expenses .......................... 46,789 42,261 101,895 94,183
Utilities ................................... 26,553 26,516 58,568 58,068
Repair and maintenance ...................... 58,186 47,568 93,572 82,224
Property management
fees - affiliates ......................... 17,981 17,030 35,464 34,417
Other property operating
expenses .................................. 10,729 13,969 26,067 27,059
General and administrative .................. 20,566 9,636 39,473 22,868
General and administrative -
affiliates ................................ 35,692 35,368 69,339 69,051
--------- --------- --------- ---------
Total expenses ............................ 404,983 379,303 800,601 761,478
--------- --------- --------- ---------
Net loss ....................................... $ (34,229) $ (33,181) $ (76,994) $ (70,866)
========= ========= ========= =========
Net loss allocated to
limited partners - Current
Income Units ................................ $ (3,080) $ (2,986) $ (6,929) $ (6,378)
Net loss allocated to
limited partners - Growth/
Shelter Units ............................... (30,807) (29,863) (69,295) (63,779)
Net loss allocated to
General Partner ............................. (342) (332) (770) (709)
--------- --------- --------- ---------
Net loss ....................................... $ (34,229) $ (33,181) $ (76,994) $ (70,866)
========= ========= ========= =========
Net loss per thousand limited partnership units:
Current Income Units ........................ $ (.46) $ (.45) $ (1.04) $ (.96)
========= ========= ========= =========
Growth/Shelter Units ........................ $ (6.34) $ (6.14) $ (14.26) $ (13.12)
========= ========= ========= =========
</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 Six Months Ended June 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........................ (709) - (709)
Current Income Units................... - (6,378) (6,378)
Growth/Shelter Units................... - (63,779) (63,779)
------------- ------------- -------------
Total net loss....................... (709) (70,157) (70,866)
------------- ------------- -------------
Balance at June 30, 1997.................. $ 4,851,751 $ (5,398,007) $ (546,256)
============= ============= =============
Balance at December 31, 1997.............. $ 4,851,535 $ (5,419,474) $ (567,939)
Net loss:
General Partner........................ (770) - (770)
Current Income Units................... - (6,929) (6,929)
Growth/Shelter Units................... - (69,295) (69,295)
------------- ------------- -------------
Total net loss....................... (770) (76,224) (76,994)
------------- ------------- -------------
Balance at June 30, 1998.................. $ 4,850,765 $ (5,495,698) $ (644,933)
============= ============= ============
</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>
Six Months Ended
June 30,
-----------------------
1998 1997
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ............... $ 753,417 $ 695,166
Cash paid to suppliers ................... (334,165) (247,343)
Cash paid to affiliates .................. (58,419) (34,327)
Interest received ........................ 7,829 4,998
Interest paid ............................ (160,661) (164,363)
Property taxes paid and escrowed ......... (75,883) (46,139)
--------- ---------
Net cash provided by operating activities.... 132,118 207,992
--------- ---------
Cash flows from investing activities:
Additions to real estate investments ..... (79,696) (45,834)
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage note
payable ................................ (26,358) (24,461)
--------- ---------
Net increase in cash and cash equivalents.... 26,064 137,697
Cash and cash equivalents at beginning of
period ................................... 308,271 193,812
--------- ---------
Cash and cash equivalents at end of period... $ 334,335 $ 331,509
========= =========
</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>
Six Months Ended
June 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net loss ...................................................................... $ (76,994) $ (70,866)
--------- ---------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation ............................................................... 148,912 139,438
Amortization of discount on mortgage
note payable ............................................................. 8,813 8,813
Changes in assets and liabilities:
Cash segregated for security deposits .................................... (375) (433)
Accounts receivable and other assets ..................................... (5,125) (4,018)
Escrow deposits .......................................................... (31,207) 45,396
Accounts payable and accrued expenses .................................... 24,805 (2,382)
Accrued property taxes ................................................... 13,326 17,627
Payable to affiliates - General Partner .................................. 46,384 69,141
Security deposits and deferred rental
revenue ................................................................ 3,579 5,276
--------- ---------
Total adjustments ...................................................... 209,112 278,858
--------- ---------
Net cash provided by operating activities ..................................... $ 132,118 $ 207,992
========= =========
</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)
June 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 six months ended June 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 $251,734
were outstanding at June 30, 1998.
<PAGE>
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Six Months Ended
June 30,
-------------------
1998 1997
-------- --------
Property management fees ................. $ 35,464 $ 34,417
Charged to general and administrative -
affiliates:
Partnership administration ............ 27,393 29,782
Asset management fee .................. 41,946 39,269
-------- --------
$104,803 $103,468
======== ========
Payable to affiliates - General Partner at June 30, 1998, and December 31, 1997,
consists primarily of unpaid asset management fees and reimbursable costs that
are due and payable from current operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership reported a net loss of $34,229 and $76,994 for the three month
and six month periods ended June 30, 1998. The losses were 3.2% and 8.6% greater
than the losses reported for the same periods of 1997, respectively.
The occupancy rate at Harbour Club II Apartments was 94% at June 30, 1998. The
occupancy rate at December 31, 1997 was 89%. Operations at Harbour Club II
Apartments for the second quarter 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.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
The Partnership's rental revenue increased $23,840 or 6.9% and $30,164 or 4.4%
for the three month and six month periods ended June 30, 1998 as compared to the
same periods of 1997. The increase in rental revenue was mostly the result of
increased rental rates at Harbour Club II Apartments. Rental rates were
increased an average of 3.1% beginning in January 1998. In addition to increased
rental rates, rental losses, such as vacancy, decreased 6.6% for the periods
ended June 30, 1998 as compared to the same periods of 1997.
<PAGE>
Interest revenue increased 28% and 57% for the three month and six month periods
ended June 30, 1998 as compared to the same periods of 1997. The increase was
due to a increased amounts of cash and cash equivalents invested in
interest-bearing accounts.
Expenses:
Total Partnership expenses increased $25,680 or 6.8% and $39,123 or 5.1% for the
three month and six month periods ended June 30, 1998 as compared to the same
periods of 1997. Most of the increase was concentrated in repair and maintenance
expense and general and administrative expense.
Repair and maintenance expense increased 22.3% and 13.8% for the three month and
six month periods ended June 30, 1998 as compared to the same periods of 1997.
In 1997, costs associated with the replacement of appliances were material
enough to qualify for capitalization in accordance with the Partnership's
capitalization policy. Similar costs in 1998 did not qualify for capitalization
and were, therefore, expensed.
General and administrative expenses increased $10,930 to $20,566 and $16,605 to
$39,473 for the three month and six month periods ended June 30, 1998,
respectively, as compared to the same periods of 1997. The increase was
principally 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 $132,118 for the first six
months of 1998, a 36% decrease from cash flow provided during the first six
months of 1997. An increase in cash received from tenants was more than offset
by increased payments to suppliers, affiliates and for property taxes.
Cash used for additions to real estate improvements totaled $79,696 for the six
months ended June 30, 1998 an increase over the $45,834 expended for
improvements for the +same period of 1997. Scheduled monthly principal payments
on the Partnership's mortgage note totaled $26,358 for the six months ended June
30, 1998 as compared to $24,461 for the same period of 1997.
Short-term liquidity:
The Partnership's balance of cash and cash equivalents amounted to $334,335 at
June 30, 1998, an increase of $26,064 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.
<PAGE>
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
("PaineWebber"), Incorporated 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.
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 June 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.
<PAGE>
Other Information:
Management has begun to review 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. The Partnership is in the process of
evaluating the computer systems at its property. The Partnership also intends to
communicate with suppliers, financial institutions and others to coordinate year
2000 issues. 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.
<PAGE>
PART II. OTHER INFORMATION
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 June 30, 1998.
b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended June 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
August 14, 1998 By: /s/ Ron K. Taylor
- --------------- ----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
August 14, 1998 By: /s/ Carol A. Fahs
- --------------- ----------------------------------------
Date Carol A. Fahs
Vice President of McNeil
Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 334,335
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,580,275
<DEPRECIATION> (3,346,535)
<TOTAL-ASSETS> 3,716,423
<CURRENT-LIABILITIES> 0
<BONDS> 3,708,609
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,716,423
<SALES> 715,778
<TOTAL-REVENUES> 723,607
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 631,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169,309
<INCOME-PRETAX> (76,994)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,994)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
