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, 1999
-------------------------------------------
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
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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,
1999 1998
------------ ------------
ASSETS
- -------
Real estate investments:
<S> <C> <C>
Land ................................................. $ 239,966 $ 239,966
Buildings and improvements ........................... 6,662,859 6,534,417
----------- -----------
6,902,825 6,774,383
Less: Accumulated depreciation ...................... (3,651,644) (3,488,340)
----------- -----------
3,251,181 3,286,043
Cash and cash equivalents ............................... 267,636 263,851
Cash segregated for security deposits ................... 49,357 47,679
Accounts receivable and other assets .................... 21,146 20,971
Escrow deposits ......................................... 100,110 91,267
----------- -----------
$ 3,689,430 $ 3,709,811
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net .............................. $ 3,673,633 $ 3,692,420
Accounts payable and accrued expenses ................... 102,234 100,291
Accrued property taxes .................................. 57,077 47,083
Payable to affiliates - General Partner ................. 584,491 521,770
Deferred gain on involuntary conversion ................. 5,106 5,106
Security deposits and deferred rental revenue ........... 54,593 57,258
----------- -----------
4,477,134 4,423,928
----------- -----------
Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
11,425,696 and 11,492,696 Units outstanding at
June 30, 1999 and December 31, 1998, respectively
(6,574,985 and 6,631,985 Current Income Units out-
standing at June 30, 1999 and December 31, 1998,
respectively; 4,850,711 and 4,860,711 Growth/Shelter
Units outstanding at June 30, 1999 and December
31, 1998, respectively) ............................ (5,637,041) (5,564,190)
General Partner ...................................... 4,849,337 4,850,073
----------- -----------
(787,704) (714,117)
----------- -----------
$ 3,689,430 $ 3,709,811
=========== ===========
</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,
--------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue .............................. $ 384,261 $ 367,155 $ 760,909 $ 715,778
Interest .................................... 3,190 3,599 5,466 7,829
--------- --------- --------- ---------
Total revenue ............................. 387,451 370,754 766,375 723,607
--------- --------- --------- ---------
Expenses:
Interest .................................... 83,894 84,531 168,055 169,309
Depreciation ................................ 81,651 74,955 163,304 148,912
Property taxes .............................. 27,501 29,001 55,002 58,002
Personnel expenses .......................... 46,774 46,789 93,833 101,895
Utilities ................................... 27,560 26,553 54,882 58,568
Repair and maintenance ...................... 55,235 58,186 98,842 93,572
Property management
fees - affiliates ......................... 19,135 17,981 37,638 35,464
Other property operating
expenses .................................. 13,123 10,729 30,182 26,067
General and administrative .................. 43,495 20,566 63,813 39,473
General and administrative -
affiliates ................................ 36,454 35,692 74,411 69,339
--------- --------- --------- ---------
Total expenses ............................ 434,822 404,983 839,962 800,601
--------- --------- --------- ---------
Net loss ....................................... $ (47,371) $ (34,229) $ (73,587) $ (76,994)
========= ========= ========= =========
Net loss allocated to
limited partners - Current
Income Units ................................ $ (4,263) $ (3,080) $ (6,623) $ (6,929)
Net loss allocated to
limited partners - Growth/
Shelter Units ............................... (42,634) (30,807) (66,228) (69,295)
Net loss allocated to
General Partner ............................. (474) (342) (736) (770)
--------- --------- --------- ---------
Net loss ....................................... $ (47,371) $ (34,229) $ (73,587) $ (76,994)
========= ========= ========= =========
Net loss per thousand limited partnership units:
Current Income Units ........................ $ (.65) $ (.46) $ (1.01) $ (1.04)
========= ========= ========= =========
Growth/Shelter Units ........................ $ (8.79) $ (6.34) $ (13.65) $ (14.26)
========= ========= ========= =========
</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, 1999 and 1998
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
------------ ------------ ----------------
<S> <C> <C> <C>
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)
=========== =========== ===========
Balance at December 31, 1998 ............. $ 4,850,073 $(5,564,190) $ (714,117)
Net loss:
General Partner ....................... (736) -- (736)
Current Income Units .................. -- (6,623) (6,623)
Growth/Shelter Units .................. -- (66,228) (66,228)
----------- ----------- -----------
Total net loss ...................... (736) (72,851) (73,587)
----------- ----------- -----------
Balance at June 30, 1999 ................. $ 4,849,337 $(5,637,041) $ (787,704)
=========== =========== ===========
</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,
----------------------------
1999 1998
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants .............................. $ 756,266 $ 753,417
Cash paid to suppliers .................................. (339,307) (334,165)
Cash paid to affiliates ................................. (49,328) (58,419)
Interest received ....................................... 5,466 7,829
Interest paid ........................................... (158,614) (160,661)
Property taxes paid and escrowed ........................ (53,851) (75,883)
--------- ---------
Net cash provided by operating activities .................. 160,632 132,118
--------- ---------
Cash flows from investing activities:
Additions to real estate investments .................... (128,442) (79,696)
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage note
payable ............................................... (28,405) (26,358)
--------- ---------
Net increase in cash and cash equivalents .................. 3,785 26,064
Cash and cash equivalents at beginning of
period .................................................. 263,851 308,271
--------- ---------
Cash and cash equivalents at end of period ................. $ 267,636 $ 334,335
========= =========
</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,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net loss .................................................... $ (73,587) $ (76,994)
--------- ---------
Adjustments to reconcile net loss to net cash ...............
provided by operating activities:
Depreciation ............................................. 163,304 148,912
Amortization of discount on mortgage
note payable ........................................... 9,618 8,813
Changes in assets and liabilities:
Cash segregated for security deposits .................. (1,678) (375)
Accounts receivable and other assets ................... (175) (5,125)
Escrow deposits ........................................ (8,843) (31,207)
Accounts payable and accrued expenses .................. 1,943 24,805
Accrued property taxes ................................. 9,994 13,326
Payable to affiliates - General Partner ................ 62,721 46,384
Security deposits and deferred rental
revenue .............................................. (2,665) 3,579
--------- ---------
Total adjustments .................................... 234,219 209,112
--------- ---------
Net cash provided by operating activities ................... $ 160,632 $ 132,118
========= =========
</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, 1999
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, 1999, are
not necessarily indicative of the results to be expected for the year ending
December 31, 1999.
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, 1998, 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 $333,050
were outstanding at June 30, 1999. The fee percentage decreases to .75% in 2000,
.50% in 2001 and .25% thereafter.
<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,
------------------------
1999 1998
---------- ---------
Property management fees....................... $ 37,638 $ 35,464
Charged to general and administrative -
affiliates:
Partnership administration.................. 29,174 27,393
Asset management fee........................ 45,237 41,946
---------- ---------
$ 112,049 $ 104,803
========== =========
Payable to affiliates - General Partner at June 30, 1999, and December 31, 1998,
consists primarily of unpaid asset management fees and reimbursable costs that
are due and payable from current operations.
NOTE 4.
- -------
On June 24, 1999, the Partnership and 18 affiliated partnerships, collectively,
(the "Partnerships"),the General Partner, McNeil Investors, Inc., McNeil Real
Estate Management, Inc. ("McREMI"), McNeil Summerhill, Inc. and Robert A. McNeil
entered into a definitive acquisition agreement (the "Master Agreement") with
WXI/McN Realty L.L.C. ("Newco"), an affiliate of Whitehall Street Real Estate
Limited Partnership XI, a real estate investment fund managed by Goldman, Sachs
& Co., whereby Newco and its subsidiaries will acquire the Partnerships. The
Master Agreement provides that the Partnerships will be merged with subsidiaries
of Newco. The Master Agreement also provides for the acquisition by Newco and
its subsidiaries of the assets of McREMI. The aggregate consideration in the
transaction, including the assumption or prepayment of all outstanding mortgage
debt of the Partnerships, is approximately $644,440,000.
Pursuant to the terms of the Master Agreement, the limited partners in the
Partnership will receive cash on the closing date of the transaction (the
"Closing Date") in exchange for their limited partnership interests. In
addition, the Partnership will declare a special distribution to its limited
partners on the Closing Date equal to its then positive net working capital
balance, if any. The estimated aggregate consideration and net working capital
distribution to be received per unit of limited partnership interest in the
Partnership is currently estimated as $0.28 (Current Income Units only).
On the Closing Date, the General Partner of the Partnership, will receive an
equity interest in Newco in exchange for its contribution to Newco of the
general partnership interests in the Partnerships, the limited partnership
interests in Fairfax Associates II L.P. and McNeil Summerhill Associates and the
assets of McREMI.
The Partnership's participation in the transaction is subject to, among other
conditions, the approval by a majority of the limited partners of the
Partnership.
<PAGE>
In some circumstances, as defined in the Master Agreement, the Partnerships may
be subject to a break-up fee, up to an aggregate maximum of $18,000,000, if the
Master Agreement is terminated with respect to one or more of the Partnerships.
In the case of termination of the Master Agreement in these circumstances, each
of the Partnerships with respect to which the Master Agreement has been
terminated will be severally, but not jointly, liable for payment to Newco of
its respective break-up fee. The break-up fee ratably calculated for the
Partnership is $192,420.
All previous costs associated with this transaction had been allocated among the
Partnerships and McREMI based on the relative number of properties contained
therein. On June 24, 1999, a fairness opinion (the "Fairness Opinion") was
rendered by Robert A. Stanger & Co., Inc., an independent financial advisor, to
the effect that the aggregate consideration to be paid for the general
partnership interests and limited partnership interests in all of the
Partnerships and the assets of McREMI is fair from a financial point of view to
the holders of each class of limited partnership. Based on the relative values
as set forth in the Fairness Opinion, the Partnership recorded an adjustment to
general and administrative expenses and accounts payable and accrued expenses
during the second quarter of 1999 in the amount of $(7,200) to reflect the
reallocation of previously paid transaction costs among the Partnerships and
McREMI.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership's net loss for the second quarter of 1999 increased to $47,371
from $34,229 for the second quarter of 1998. However, for the six months ended
June 30, 1999, the Partnership's net loss narrowed to $73,587 from $76,994 in
1998. Operations at Harbour Club II Apartments are providing sufficient cash
flow to pay the property's operating expenses, debt service on the related
mortgage note, and limited capital improvements. 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.
RECENT DEVELOPMENTS
- -------------------
On June 24, 1999, McNeil Partners, L.P. (the General Partner of the Partnership)
and WXI/McN Realty L.L.C., an affiliate of Whitehall Street Real Estate Limited
Partnership XI ("Whitehall"), a real estate investment fund managed by Goldman,
Sachs & Co., announced that they have entered into a definitive acquisition
agreement whereby the Whitehall affiliate will acquire by merger nineteen real
estate limited partnerships operated by McNeil Partners, L.P. and Robert A.
McNeil. The limited partnerships involved are the Partnership and McNeil Real
Estate Funds IX, X, XI, XII, XIV, XV, XX, XXI, XXII, XXIV, XXV, XXVI and XXVII,
Hearth Hollow Associates, McNeil Midwest Properties I, L.P., Regency North
Associates, Fairfax Associates and McNeil Summerhill (collectively, the
"Partnerships"). The Partnerships (other than Fairfax Associates and McNeil
<PAGE>
Summerhill which are wholly-owned by Robert A. McNeil and related parties) will
be merged with subsidiaries of WXI/McN Realty L.L.C. The acquisition agreement
also provides for the acquisition by WXI/McN Realty L.L.C. of the assets of
McNeil Real Estate Management, Inc. ("McREMI"). The aggregate consideration in
the transaction, including all outstanding mortgage debt of the Partnerships, is
approximately $644,440,000.
Pursuant to the terms of the acquisition agreement, the limited partners in each
of the Partnerships (other than those wholly-owned by Robert A. McNeil) will
receive cash on the closing date of the transaction in exchange for their
limited partnership interests. In addition, each Partnership will make a special
distribution to its limited partners on the closing date of the transaction
equal to its then net positive working capital balance. McNeil Partners, L.P.
will receive an equity interest in WXI/McN Realty L.L.C. in exchange for its
contribution of its general partnership interests in the Partnerships, the
limited partnership interests in its wholly-owned Partnerships and the assets of
McREMI.
The proposed transaction follows an extensive marketing effort by PaineWebber
Incorporated, exclusive financial advisor to the Partnerships.
The transaction has been unanimously approved by the Board of Directors of
McNeil Investors, Inc., the general partner of McNeil Partners, L.P., the
general partner of each of the Partnerships other than Regency North Associates,
Fairfax Associates and McNeil Summerhill. The respective general partners of
Regency North Associates, Fairfax Associates and McNeil Summerhill also have
approved the transaction. The Board of Directors of McNeil Investors based its
approval upon, among other things, the recommendation of a Special Committee of
the Board, appointed at the beginning of the discussions with Whitehall to
represent the interests of holders of limited partnership interests in each of
the Partnerships. In addition, the Special Committee and the Board relied upon
fairness opinions given by Robert A. Stanger & Co., Inc. ("Stanger & Co."), an
independent financial advisor to the Partnerships, to the effect that the
aggregate consideration is fair to the holders of each class of limited
partnership interests in each of the Partnerships. The Special Committee's
recommendation was also based upon the separate opinions of Eastdil Realty
Company ("Eastdil"), the independent financial advisor to the Special Committee.
Stanger & Co. and Eastdil have each also rendered an opinion that the aggregate
consideration to be paid for the general partnership interests and limited
partnership interests in all of the Partnerships and the assets of McREMI is
fair from a financial point of view to the holders of each class of limited
partnership interests in each of the Partnerships.
Each of the Partnerships' participation in the transaction is subject to, among
other conditions, the approval by a majority of the limited partners of the
respective Partnerships. The approval of the limited partners of the
Partnerships will be sought at meetings to be held in the coming months after
the filing of proxy statements with the Securities and Exchange Commission with
respect to the publicly traded Partnerships, and the subsequent mailing of proxy
statements to the limited partners. Preliminary proxy statements were filed with
the SEC on August 3, 1999.
<PAGE>
The aggregate consideration in the transaction has been allocated preliminarily
among the general partnership interests and the limited partnership interests in
each of the Partnerships and McREMI, based upon an allocation analysis prepared
by Stanger & Co. and confirmed by Eastdil. Based upon this allocation analysis
and the fairness opinions rendered by Stanger & Co. and Eastdil, the Special
Committee, the Board of Directors of McNeil Investors, Inc., the respective
general partners of Regency North Associates, Fairfax Associates and McNeil
Summerhill have each unanimously approved the allocation of the aggregate
consideration. The estimated aggregate consideration and working capital
distribution to be received per unit of limited partnership interest of the
Partnership is currently estimated as $0.28 (Current Income Units only).
McNeil Partners, L.P. will contribute its real estate investment and management
company business to a subsidiary of WXI/McN Realty, L.L.C., along with its
general partnership interests in the Partnerships and its limited partnership
interests in the wholly-owned Partnerships, having an aggregate allocated value,
as determined by Stanger & Co., of approximately $58,640,000, of which
approximately $29,400,000 reflects balances due to McNeil Partners, L.P. and
McREMI as reflected on the Partnerships' financial statements as of March 31,
1999.
The above estimates of the Partnership per unit estimated merger consideration
and working capital distribution and the interest of McNeil Partners, L.P. are
based upon, among other things, the balance sheet of the Partnership as of March
31, 1999, adjusted for intangible assets, non-cash liabilities, transaction
expenses and the McNeil Partners, L.P. interest in the Partnership. Actual
amounts, including the estimate allocable to McNeil Partners, L.P., will vary
with the performance of the Partnership and McNeil Partners, L.P. through the
closing date. The above estimated merger consideration and special working
capital distribution will be adjusted at closing to reflect the then working
capital position of the Partnership.
Whitehall is a $2.26 billion equity fund and is the seventh in a series of funds
sponsored and capitalized by Goldman, Sachs & Co. and its affiliates, along with
public and private investors, to acquire real estate worldwide.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
The Partnership's rental revenue increased $17,106 or 4.7% and $45,131 of 6.3%
for the three month and six month periods ended June 30, 1999 as compared to the
same periods of 1998. The Partnership increased base rental rates at Harbour
Club II Apartments by an average 1.8% at the beginning of 1999, and by an
additional 4.1% during the second quarter. Vacancy, concessions and other rental
losses also decreased for the second quarter of 1999, amplifying the effects of
the increased base rental rates.
Expenses:
Partnership expenses increased $29,839 or 7.4% and $39,361 or 4.9% for the three
month and six month periods ending June 30, 1999 as compared to the same periods
of 1998. On a percentage basis, the largest increases were reported in other
property operating expenses, general and administrative expenses and
depreciation.
<PAGE>
Other property operating expenses increased $2,394 or 22% and $4,115 or 16% for
the three month and six month periods ending June 30, 1999 as compared to the
same periods for 1998. A decrease in bad debt recoveries as well as increased
legal and professional fees were the principal causes of the increase in other
operating expenses.
General and administrative expenses increased $22,929 to $43,495 and increased
$24,340 to $63,813 for the three month and six month periods ended June 30,
1999, respectively, as compared to the same periods for 1998. The Partnership
recorded increased costs to explore alternatives to maximize the value of the
Partnership (see Recent Developments), offset by a $(7,200) reallocation of
previously paid transaction costs among the Partnerships and McREMI in the
second quarter of 1999 (see Note 4).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership's operating activities provided $160,632 of cash for the first
six months of 1999, a 22% increase over cash flow provided by operating
activities for the same period of 1998. The increase was the result of decreased
amounts paid or escrowed for property taxes and decreased amounts paid to
affiliates.
The Partnership invested $128,442 in additions to its real estate investment
during the first six months of 1999, an increase of $48,746 over the $79,696
invested during the first six months of 1998. The Partnership continues to
invest minimal amounts into capital improvements at Harbour Club II Apartments,
as allowed by the Partnership's balance of cash reserves.
Cash used for financing activities did not significantly change for the
first six months of 1999 as compared to the first six months of 1998.
Short-term liquidity:
The Partnership's balance of cash and cash equivalents totaled $267,636 at June
30, 1999, an increase of $3,785 from the balance of cash and cash equivalents at
the beginning of the year. The General Partner considers the Partnership's cash
reserves adequate for anticipated operations for the remainder of 1999.
Operating activities at Harbour Club II Apartments for 1999 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.
<PAGE>
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. See "Recent Developments" above.
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.
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, 1999. 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.
YEAR 2000 DISCLOSURE
- --------------------
State of readiness
- ------------------
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.
Management has assessed its information technology ("IT") infrastructure to
identify any systems that could be affected by the year 2000 problem. The IT
used by the Partnership for financial reporting and significant accounting
functions was made year 2000 compliant during recent systems conversions. The
software utilized for these functions is licensed by third party vendors who
have warranted that their systems are year 2000 compliant.
<PAGE>
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management has inventoried all
such systems and queried suppliers, vendors and manufacturers to determine year
2000 compliance. Based on this review, management believes these systems are
substantially compliant. 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.
Cost
- ----
The cost of IT and embedded technology systems testing and upgrades is not
expected to be material to the Partnership. Because all the IT systems have been
upgraded over the last three years, all such systems were compliant, or made
compliant at no additional cost by third party vendors. Management anticipates
the costs of assessing, testing, and if necessary replacing embedded technology
components will be less than $50,000. Such costs will be funded from operations
of the Partnership.
Risks
- -----
Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is addressed by government agencies and entities that
provide services or supplies to the Partnership. Management has not determined
the most likely worst case scenario to the Partnership. As management studies
the findings of its property systems assessment and testing, management will
develop a better understanding of what would be the worst case scenario.
Management believes that progress on all areas is proceeding and that the
Partnership will experience no adverse effect as a result of the year 2000
issue. However, there is no assurance that this will be the case.
Contingency plans
- -----------------
Management is developing contingency plans to address potential year 2000
non-compliance of IT and embedded technology systems. Management believes that
failure of any IT system could have an adverse impact on operations. However,
management believes that alternative systems are available that could be
utilized to minimize such impact. Management believes that any failure in the
embedded technology systems could have an adverse impact on that property's
performance. Management has assessed these risks and expects to have contingency
plans in place by December 31, 1999 for any material potential failures.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
1) 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 XXIII, 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., Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates,
L.P., - 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 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. ("McREMI") 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. 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.
Because the settlement contemplated a transaction which included all of the
Partnerships and plaintiffs claimed that an effort should be made to sell
all of the Partnerships, in or around September 1998, plaintiffs filed a
third consolidated and amended complaint which included allegations with
respect to the Partnerships which had not been named in previously filed
complaints.
<PAGE>
On September 15, 1998, the parties signed a Stipulation of Settlement. For
purposes of settlement, the parties stipulated to a class comprised of all
owners of limited partner units in the Partnerships during the period
beginning June 21, 1991, the earliest date that proxy materials began to be
issued in connection with the restructuring of the Partnerships, through
September 15, 1998. As structured, the Stipulation of Settlement provided
for the payment of over $35 million in distributions and the commitment to
market the Partnerships for sale, together with McREMI, through a fair and
impartial bidding process overseen by a national investment banking firm.
To ensure the integrity of that process, defendants agreed, among other
things, to involve plaintiffs' counsel in oversight of that process, and
plaintiffs' counsel retained an independent advisor to represent the
interests of limited partners of the Partnerships in the event of a
transaction. The transaction described in Item 2 - Recent Developments is a
result of that process. The settlement was not conditioned on the
consummation of this transaction.
On October 6, 1998, the court gave preliminary approval to the settlement.
It granted final approval to the settlement on July 8, 1999 and entered a
Final Order and Judgment dismissing the consolidated action with prejudice.
As a condition of final approval, the court requested, and the parties
agreed to, a slight modification of the release in the Stipulation of
Settlement with respect to future claims. Plaintiffs' counsel intends to
seek an order awarding attorneys' fees and reimbursing their out-of-pocket
expenses in an amount which is as yet undetermined. 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.
2) High River Limited Partnership, Unicorn Associates Corporation and Longacre
Corporation, et al. v. McNeil Partners, L.P. ("MPLP"), McNeil Investors,
Inc., McNeil Real Estate Management, Inc. (McREMI"), Robert A. McNeil and
Carole J. McNeil, - Supreme Court of the State of New York, County of New
York, - Index No. 99 603526.
On July 23, 1999, High River and two other affiliates of Carl C. Icahn
(Unicorn Associates Corporation and Longacre Corporation), filed a
complaint for damages in the Supreme Court of the State of New York, County
of New York. Plaintiffs allege that the defendants improperly interfered
with tender offers made by High River for limited partner units in the
Partnership and other affiliated partnerships in which MPLP serves as
General Partner (the "McNeil Partnerships"), by, among other things, filing
purportedly frivolous litigation to delay High River's offers, issuing
purportedly false and misleading statements opposing the offers and
purportedly forcing High River itself to file litigation to enforce its
rights. High River also alleges that as a result the defendants caused High
River to incur undue expense and that the defendants ultimately prevented
High River from acquiring a greater number of limited partner units.
Plaintiffs also allege that the defendants improperly excluded High River
from participating in the auction process for the sale of the McNeil
Partnerships, and otherwise took steps to prevent its participation in the
auction. In addition, plaintiffs, who are limited partners in, among
others, McNeil Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and
XXVII, have also sued the defendants based on their status as opt-outs from
the Schofield settlement. Plaintiffs seek undisclosed damages and an
accounting.
<PAGE>
On July 30, 1999, defendants filed an answer to the High River Complaint,
denying each and every material allegation contained in the High River
Complaint and asserting several affirmative defenses.
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 Loss
per Thousand Limited Partnership Units: Net
loss per thousand limited partner units is
computed by dividing net 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 6,575
and 6,632 Current Income Units (in
thousands) outstanding in 1999 and 1998,
respectively, and 4,851 and 4,861
Growth/Shelter Units (in thousands)
outstanding in 1999 and 1998, respectively.
27. Financial Data Schedule for the quarter
ended June 30, 1999.
(b) Reports on Form 8-K. A Report on Form 8-K dated June 24, 1999 was
filed on June 29, 1999 regarding the transaction detailed in Note 4.
<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 16, 1999 By: /s/ Ron K. Taylor
- --------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
August 16, 1999 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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 267,636
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,902,825
<DEPRECIATION> (3,651,644)
<TOTAL-ASSETS> 3,689,430
<CURRENT-LIABILITIES> 0
<BONDS> 3,673,633
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 3,689,430
<SALES> 760,909
<TOTAL-REVENUES> 766,375
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 671,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 168,055
<INCOME-PRETAX> (73,587)
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