UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended September 30, 1995
---------------------------
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 0-15460
MCNEIL REAL ESTATE FUND XXVI, L.P.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0168395
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 448-5800
--------------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE>
MCNEIL REAL ESTATE FUND XXVI, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
September 30, December 31,
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Real estate investments:
Land..................................................... $ 9,189,092 $ 9,189,092
Buildings and improvements............................... 59,265,289 51,745,169
---------- ----------
68,454,381 60,934,261
Less: Accumulated depreciation and amortization......... (21,300,470) (19,195,571)
---------- ----------
47,153,911 41,738,690
Cash and cash equivalents................................... 1,424,827 1,473,850
Cash segregated for security deposits....................... 200,778 233,759
Accounts receivable, net of allowance for doubtful
accounts of $620,249 and $864,014 at September 30,
1995 and December 31, 1994, respectively................. 1,116,947 789,641
Prepaid commissions......................................... 388,116 404,543
Prepaid expenses and other assets........................... 457,483 179,445
Deferred borrowing costs, net of accumulated
amortization of $218,875 and $101,065 at September 30,
1995 and December 31, 1994, respectively................. 270,450 388,260
---------- -----------
$51,012,512 $45,208,188
========== ==========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- -----------------------------------------
Mortgage notes payable...................................... $15,195,256 $ 8,397,507
Mortgage note payable - affiliate........................... 952,538 952,538
Accounts payable and accrued expenses....................... 269,280 171,067
Accounts payable - Northway Mall renovation................. - 711,056
Accrued property taxes...................................... 311,953 35,325
Payable to affiliates - General Partner..................... 2,731,698 2,151,614
Advances from affiliates - General Partner.................. 165,133 155,502
Security deposits and deferred rental income................ 207,469 231,724
---------- ----------
19,833,327 12,806,333
---------- ----------
Partners' equity (deficit):
Limited Partners -90,000,000 Units authorized;
86,548,983 and 86,553,913 Units issued and outstanding
at September 30, 1995 and December 31, 1994,
respectively........................ 31,518,195 32,728,638
General Partner.......................................... (339,010) (326,783)
---------- ----------
31,179,185 32,401,855
---------- ----------
$51,012,512 $45,208,188
========== ==========
</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 XXVI, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rental revenue................ $2,059,713 $1,606,782 $5,709,792 $4,871,529
Interest...................... 25,509 15,300 66,891 49,674
Gain on legal settlement...... - - 59,874 -
--------- --------- --------- ---------
Total revenue............... 2,085,222 1,622,082 5,836,557 4,921,203
--------- --------- --------- ---------
Expenses:
Interest...................... 327,998 165,826 793,193 494,539
Interest - affiliates......... 30,622 26,203 90,851 66,867
Depreciation and
amortization................ 784,430 619,525 2,104,899 1,810,441
Property taxes................ 196,962 168,588 589,813 567,245
Personnel expenses............ 201,652 192,672 610,167 536,428
Utilities..................... 273,716 261,606 822,897 794,456
Repairs and maintenance....... 223,662 210,673 677,257 717,055
Property management
fees - affiliates........... 113,899 94,805 318,600 293,585
Other property operating
expenses.................... 161,866 176,458 422,854 456,943
General and administrative.... 22,428 46,307 59,470 83,099
General and administrative -
affiliates.................. 184,564 174,915 569,226 529,639
--------- --------- --------- ---------
Total expenses.............. 2,521,799 2,137,578 7,059,227 6,350,297
--------- --------- --------- ---------
Net loss......................... $ (436,577) $ (515,496) $(1,222,670) $(1,429,094)
========= ========= ========== ==========
Net loss allocable
to limited partners........... (432,211) (510,341) (1,210,443) (1,414,803)
Net loss allocable
to General Partner............ (4,366) (5,155) (12,227) (14,291)
--------- --------- --------- ----------
Net loss......................... $ (436,577) $ (515,496) $(1,222,670) $(1,429,094)
========= ========== ========== ==========
Net loss per thousand
limited partnership unit...... $ (4.99) $ (5.90) $ (13.99) $ (16.35)
========= ========== ========== ==========
</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 XXVI, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
<TABLE>
Total
Partners'
General Limited Equity
Partner Partners (Deficit)
--------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993.............. $(307,402) $34,647,320 $34,339,918
Net loss.................................. (14,291) (1,414,803) (1,429,094)
-------- ---------- ----------
Balance at September 30, 1994............. $(321,693) $33,232,517 $32,910,824
======== ========== ==========
Balance at December 31, 1994.............. $(326,783) $32,728,638 $32,401,855
Net loss.................................. (12,227) (1,210,443) (1,222,670)
-------- ---------- ----------
Balance at September 30, 1995............. $(339,010) $31,518,195 $31,179,185
======== ========== ==========
</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 XXVI, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Decrease in Cash and Cash Equivalents
<TABLE>
Nine Months Ended
September 30,
----------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from tenants........................ $5,392,120 $ 4,840,489
Cash received from legal settlement............... 59,874 -
Cash paid to suppliers............................ (2,904,342) (2,764,000)
Cash paid to affiliates........................... (307,742) (313,740)
Interest received................................. 66,891 49,674
Interest paid..................................... (552,637) (452,870)
Interest paid to affiliates....................... (81,220) (74,599)
Deferred borrowing costs paid..................... - (180,232)
Property taxes paid............................... (288,540) (545,566)
--------- ---------
Net cash provided by operating activities............ 1,384,404 559,156
--------- ---------
Cash flows from investing activities:
Additions to real estate investments.............. (7,520,120) (2,579,419)
Change in Northway Mall accrual................... (711,056) -
--------- ---------
Net cash used in investing activities................ (8,231,176) (2,579,419)
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage notes payable...... (92,278) (91,457)
Proceeds from mortgage notes financing............ 6,890,027 304,951
--------- ---------
Net cash provided by financing activities............ 6,797,749 213,494
--------- ---------
Net decrease in cash and cash equivalents............ (49,023) (1,806,769)
Cash and cash equivalents at beginning of
period............................................ 1,473,850 3,266,323
--------- ---------
Cash and cash equivalents at end of period........... $1,424,827 $ 1,459,554
========= ==========
</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 XXVI, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
<TABLE>
Nine Months Ended
September 30,
---------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net loss............................................. $(1,222,670) $(1,429,094)
---------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 2,104,899 1,810,441
Amortization of deferred borrowing costs.......... 117,810 58,479
Interest added to advances from affiliates-
General Partner................................. 9,631 7,622
Changes in assets and liabilities:
Cash segregated for security deposits........... 32,981 (14,647)
Accounts receivable............................. (327,306) 2,676
Prepaid commissions and marketing costs......... 16,427 (54,636)
Prepaid expenses and other assets............... (278,038) (43,336)
Deferred borrowing costs........................ - (180,232)
Accounts payable and accrued expenses........... 98,213 (155,295)
Accrued property taxes.......................... 276,628 52,486
Payable to affiliates - General Partner......... 580,084 494,130
Security deposits and deferred rental
income........................................ (24,255) 10,562
--------- ---------
Total adjustments............................. 2,607,074 1,988,250
--------- ---------
Net cash provided by operating activities............ $1,384,404 $ 559,156
========= =========
</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 XXVI, L.P.
Notes to Financial Statements
September 30, 1995
(Unaudited)
NOTE 1.
- ------
McNeil Real Estate Partners XXVI, L.P., (the "Partnership"), formerly known as
Southmark Equity Partners III, Ltd. was organized on March 4, 1985 as a limited
partnership under the provisions of the California Revised Limited Partnership
Act to acquire and operate residential and commercial properties. The General
Partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a
Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 700, LB70, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1995
are not necessarily indicative of the results to be expected for the year ending
December 31, 1995.
NOTE 2.
- ------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Report on Form 10-K for the year ended
December 31, 1994, and the notes thereto, as filed with the Securities and
Exchange Commission, which is available upon request by writing to McNeil Real
Estate Fund XXVI, L.P. c/o McNeil Real Estate Management, Inc., Investor
Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
NOTE 3.
- ------
Certain reclassifications have been made to prior period amounts to conform to
the current presentation.
NOTE 4.
- ------
The Partnership pays property management fees equal to 5% of gross rental
receipts for its residential property and 6% of gross rental revenues for its
commercial properties to McNeil Real Estate Management, Inc., ("McREMI"), an
affiliate of the General Partner, for providing property management services for
the Partnership's residential and commercial properties and leasing services for
its residential property. McREMI may also choose to provide leasing services for
the Partnership's commercial properties, in which case McREMI will receive
property management fees from such commercial properties equal to 3% of the
property's gross rental revenue plus leasing commissions based on the prevailing
market rate for such services where the property is located.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
The Partnership is incurring an asset management fee which is payable to the
General Partner. Through 1999, the Asset Management Fee is calculated as 1% of
the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per apartment unit for residential property and $50 per gross square
foot for commercial property to arrive at the property tangible asset value. The
property tangible asset value is then added to the book value of all other
assets excluding intangible items. The fee percentage decreases subsequent to
1999. Total accrued but unpaid asset management fees of $2,013,190 were
outstanding at September 30, 1995.
<PAGE>
The General Partner has, in its discretion, advanced funds to enable the
Partnership to meet its working capital requirements. These advances, which are
unsecured and due on demand, accrue interest at a rate equal to the prime
lending rate plus 1%
The advances from affiliates at September 30, 1995 and December 31, 1994 consist
of the following:
<TABLE>
September 30, December 31,
1995 1994
-------- -------
<S> <C> <C>
Advances from General Partner........................ $130,518 $130,518
Accrued interest payable............................. 34,615 24,984
------- -------
$165,133 $155,502
======= =======
</TABLE>
In March 1993, the Partnership obtained a loan from McNeil Real Estate Fund
XXVII, L.P., an affiliate of the General Partner, which allows the Partnership
to borrow funds totaling $1,536,000. Of this amount available, $952,538 was
borrowed at September 30, 1995 and December 31, 1994. The note is secured by
Continental Plaza and requires monthly interest-only payments equal to the prime
lending rate of Bank of America plus 2 1/2% with the principal balance due March
1, 1996.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
<TABLE>
Nine Months Ended
September 30,
-------------------------------
1995 1994
------- -------
<S> <C> <C>
Property management fees............................. $318,600 $293,585
Charged to interest - affiliates:
Interest on advances from affiliates - General
Partner......................................... 9,631 7,622
Interest on mortgage note payable - affiliate..... 81,220 59,245
Charged to general and administrative - affiliates:
Partnership administration........................ 220,054 184,404
Asset management fee.............................. 349,172 345,235
------- -------
$978,677 $890,091
======= =======
</TABLE>
The total payable to affiliates - General Partner at September 30, 1995 and
December 31, 1994 consisted primarily of unpaid asset management fees, property
management fees and partnership general and administrative expenses and are due
and payable from current operations.
NOTE 5.
- ------
The Partnership has been undergoing a major capital improvement program to
convert Northway Mall into a value oriented retail shopping center specializing
in brand merchandise at less-than-retail prices. In the third quarter of 1994,
management finalized a construction mortgage loan on Northway Mall totaling $11
million to finance this program. The mortgage note allows for monthly
withdrawals of principal in the amount of approved invoices. The Partnership has
drawn $8,011,500 of the loan proceeds at September 30, 1995. The principal
amount is due in two years and accrues interest at a variable rate which is
payable by the Partnership to the extent of excess cash, as defined. The
remaining amount of interest due is payable from the loan.
<PAGE>
NOTE 6.
- ------
The Partnership filed claims with the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division (the "Bankruptcy Court") against
Southmark for damages relating to improper overcharges, breach of contract and
breach of fiduciary duty. The Partnership settled these claims in 1991, and such
settlement was approved by the Bankruptcy Court.
An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April
14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in
May 1995 the Partnership received in full satisfaction of its claims, $45,263 in
cash, and common and preferred stock in the reorganized Southmark subsequently
sold for $14,611 cash, which amounts represent the Partnership's pro-rata share
of Southmark assets available for Class 8 Claimants.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
There has been no significant change in the financial condition of the
Partnership since December 31, 1994. The net loss for the first nine months of
1995 was $1,222,670 as compared to a net loss of $1,429,094 for the first nine
months of 1994.
Amargosa Creek Apartments, Continental Plaza and Westwood Office have maintained
stable occupancies during the first quarter of 1995. Edison Ford Square's
occupancy rate was 46% at September 30, 1995. Management is continuing to
evaluate alternatives to determine the highest and best use of this property.
The Partnership has been undergoing a major capital improvement program to
convert Northway Mall into a value oriented retail shopping center specializing
in brand merchandise at less-than-retail prices. In the third quarter of 1994,
management finalized a construction mortgage loan on Northway Mall totaling $11
million to finance this program. The mortgage note allows for monthly
withdrawals of principal in the amount of approved invoices. The Partnership has
drawn $8,011,500 of the loan proceeds at September 30, 1995. The principal
amount is due in two years and accrues interest at a variable rate which is
payable by the Partnership to the extent of excess cash, as defined. The
remaining amount of interest due is payable from the loan. In 1993, mortgage
loans totaling $3.4 million on Westwood Center and Continental Plaza, previously
unencumbered assets, were obtained. The proceeds from these loans are also being
used to partially finance the capital improvement program at Northway Mall. The
estimated costs to complete the project is approximately $13 million. Most of
the improvement program has been completed and four of the new anchor tenants
have opened, improving the center's occupancy rate to 84% at September 30, 1995.
One remaining anchor tenant has signed a letter of intent for space totaling
approximately 13,000 square feet and is expected to move in during the fourth
quarter of 1995.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenues were $2,085,222 and $5,836,557 for the three and nine
months ended September 30, 1995, respectively, as compared to $1,622,082 and
$4,921,203 for the three and nine months ended September 30, 1994, respectively.
Rental revenue increased $452,931 and $838,263 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods of 1994,
primarily due to the increased occupancy at Northway Mall.
As discussed in Item 1 - Note 6, in 1995 the Partnership received cash and
common and preferred stock in the reorganized Southmark in settlement of its
bankruptcy claims against Southmark. The Partnership recognized a $59,874 gain
in the second quarter of 1995 as a result of this settlement. No such gain was
recognized in 1994.
Expenses:
Total expenses increased $384,221 and $708,930 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods of 1994,
primarily due to an increase in interest and depreciation and amortization
expense, as discussed below.
Interest expense increased $162,172 and $298,654 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods of 1994,
due to the construction financing at Northway Mall.
Interest expense - affiliates increased $4,419 and $23,984 for the three and
nine months ended September 30, 1995, respectively, as compared to the same
periods of 1994, due to a higher interest rate on the affiliate mortgage.
Depreciation and amortization increased $164,905 and $294,458 for the three and
nine months ended September 30, 1995, respectively, as compared to the same
periods of 1994, due to the renovation at Northway Mall.
Property taxes increased $28,374 and $22,568 for the three and nine months ended
September 30, 1995, respectively, as compared to the same periods of 1994.
During the third quarter of 1994, Continental Plaza received a $26,113 property
tax refund. No such refund was received in 1995.
Personnel expenses increased $8,980 and $73,739 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods of 1994,
due to an increase in personnel at Northway Mall because of the increased
occupancy, as well as higher compensation for property personnel at the
Partnership's remaining properties.
Repairs and maintenance increased $12,989 and decreased $39,798 for the three
and nine months ended September 30, 1995, respectively, as compared to the same
periods of 1994. The third quarter increase is primarily due to an increase in
service and repairs and maintenance expenses at Northway Mall that is
attributable to the increased occupancy. The nine month decrease is primarily
due to a decrease in snow removal expense at Northway Mall that resulted from
the milder winter weather in 1995 as compared to 1994.
Property management fees - affiliates increased $19,094 and $25,015 for the
three and nine months ended September 30, 1995, respectively, as compared to the
same periods of 1994. The increased occupancy at Northway Mall led to an
increase in tenant receipts on which the management fee is based.
General and administrative expenses decreased $23,879 and $23,629 for the three
and nine months ended September 30, 1995, respectively, as compared to the same
periods of 1994. During the third quarter of 1994, Westwood Center incurred
$22,500 professional fees for an appraisal. No such fees were incurred during
1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow from operations was $1,384,404 for the nine months ended September 30,
1995 as compared to $559,156 for the same period of 1994. The change in cash
flow from operations is primarily due to an increase in tenant receipts and a
decrease in property taxes paid. The increased occupancy at Northway Mall led to
an increase in tenant receipts. The decrease in property tax payments is
primarily due to a change in the due date of the tax payments for Edison Ford
Square. The 1993 taxes were paid in February 1994 and the 1994 taxes were paid
in December 1994.
Additions to real estate investments totaled $7,520,120 for the nine months
ended September 30, 1995 as compared to $2,579,419 for the same period of 1994.
Proceeds from mortgage notes financing totaled $6,890,027 for the nine months
ended September 30, 1995. As previously discussed, the Partnership is currently
undergoing a major capital improvement program at Northway Mall which will
greatly enhance the property's performance. The funding for this program is
coming from a construction mortgage loan encumbering Northway Mall, as well as
mortgage loans previously obtained on Westwood Center and Continental Plaza (see
Financial Condition).
Short-term liquidity
- --------------------
The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships, if certain
conditions are met. Borrowing under the facility may be used to fund deferred
maintenance, refinancing obligations and working capital needs. There is no
assurance that the Partnership will receive any funds under the facility because
no amounts have been reserved for any particular partnership. As of September
30, 1995, $2,362,004 remained available for borrowing under the facility;
however, additional funds could be available as other partnerships repay
existing borrowings.
Additionally, the General Partner has, in its discretion, advanced funds to the
Partnership in addition to the revolving credit facility. The General Partner is
not obligated to advance funds to the Partnership and there is no assurance that
the Partnership will receive additional funds.
The present cash balance is considered adequate to meet the Partnership's needs
for debt service, normal amounts of repairs and maintenance and capital
improvements to preserve and enhance the value of the properties. There are no
mortgage maturities, other than those in connection with regular monthly
payments, until 1996, when the McNeil XXVII loan and the Northway Mall
construction loan mature.
Long-term liquidity
- -------------------
While the outlook for maintenance of adequate levels of liquidity is favorable,
should operations deteriorate and present cash resources be insufficient for
current needs, the Partnership would require other sources of working capital.
No such sources have been identified. The Partnership has no established lines
of credit from outside sources. Other possible actions to resolve cash
deficiencies include refinancings, deferral of capital expenditures on
Partnership properties except where improvements are expected to increase the
competitiveness and marketability of the properties, arranging financing from
affiliates, or the ultimate sale of the properties.
Sales and refinancings are possibilities only and cannot be assured.
The Partnership does not have any significant mortgage maturities until 1996
when the Northway Mall construction loan and the affiliate mortgage note on
Continental Plaza are due. Management is currently negotiating a permanent
financing loan on Northway Mall pursuant to the completion of the renovation
project. The permanent financing is projected to occur during 1995 with the
proceeds from the financing to be used to pay off the construction loan as well
as the affiliate mortgage note due in 1996. The mortgage notes payable on
Amargosa Creek Apartments and Westwood Center mature in 1998 and the Partnership
expects to refinance these notes at that time.
Distributions
- -------------
To maintain adequate cash balances of the Partnership, distributions to the
limited partners were suspended in 1991. Distributions to the limited partners
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
limited partners.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
1) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman,
et al (Case #92-06560-A). This suit was filed on behalf of the Partnership and
other affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992,
in the 14th Judicial District Court of Dallas County. The petition sought re-
covery against the Partnership's former auditors, Ernst & Young, for negligence
and fraud in failing to detect and/or report overcharges of fees/expenses by
Southmark, the former general partner. The former auditors asserted
counterclaims against the Affiliated Partnerships based on alleged fraudulent
misrepresentations made to the auditors by the former management of the
Affiliated Partnerships (Southmark) in the form of client representation letters
executed and delivered to the auditors by Southmark management. The
counterclaims sought recovery of attorneys' fees and costs incurred in defending
this action. The original petition also alleged causes of action against certain
former officers and directors of the Partnership's original general partner for
breach of fiduciary duty, fraud and conspiracy relating to the improper
assessment and payment of certain administrative fees/expenses. On January 11,
1994 the allegations against the former officers and directors were dismissed.
The trial court granted summary judgment in favor of Ernst & Young and BDO
Seidman on the fraud and negligence claims based on the statute of limitations.
The Affiliated Partnerships appealed the summary judgment to the Dallas Court of
Appeals. In August 1995, the Appeals Court upheld all of the summary judgments
in favor of the Defendants, except it overturned the Summary Judgment as to the
fraud claim against Ernst & Young. Therefore, Plaintiffs will proceed to trial
unless a reasonable settlement can be effected between the parties. The ultimate
outcome of this litigation cannot be determined at this time.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits.
<TABLE>
Exhibit
Number Description
<S> <C> <C>
4. Amended and Restated Limited Partnership Agreement dated March 30, 1992.
(Incorporated by reference to Current Report of the Registrant on Form 8-K
dated March 30, 1992, as filed on April 10, 1992).
4.1 Amendment No. 1 to the Amended and Restated Limited Partnership Agreement of
McNeil Real Estate Fund XXVI, L.P. dated June 1995.
11. Statement regarding computation of Net Loss per Thousand Limited Partnership
Units: Net loss per thousand limited partnership 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 86,549 and 86,554 Limited Partnership
Units (in thousands) outstanding in 1995 and 1994, respectively.
</TABLE>
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended September 30, 1995.
<PAGE>
MCNEIL REAL ESTATE FUND XXVI, 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:
<TABLE>
<S> <C>
McNEIL REAL ESTATE FUND XXVI, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 14, 1995 By: /s/ Donald K. Reed
- ---------------------------------- ----------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
November 14, 1995 By: /s/ Robert C. Irvine
- ---------------------------------- ----------------------------------------
Date Robert C. Irvine
Chief Financial Officer of McNeil Investors, Inc.
Principal Financial Officer
November 14, 1995 By: /s/ Carol A. Fahs
- ---------------------------------- ----------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil Real Estate
Management, Inc.
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