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 March 31, 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 0-15460
---------
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 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 XXVI, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- --------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land..................................................... $ 6,750,456 $ 6,750,456
Buildings and improvements............................... 54,866,005 54,854,340
-------------- -------------
61,616,461 61,604,796
Less: Accumulated depreciation and amortization......... (24,962,574) (24,345,484)
-------------- -------------
36,653,887 37,259,312
Asset held for sale......................................... 3,053,215 3,047,765
Cash and cash equivalents................................... 1,671,496 2,823,216
Cash segregated for security deposits....................... 239,441 235,617
Accounts receivable, net of allowance for doubtful
accounts of $572,392 at March 31, 1998 and
December 31, 1997........................................ 1,248,148 1,221,528
Prepaid commissions......................................... 409,504 381,923
Prepaid expenses and other assets........................... 223,049 229,664
Deferred borrowing costs, net of accumulated
amortization of $330,884 and $307,435 at
March 31, 1998 and December 31, 1997, respectively....... 242,278 265,727
-------------- -------------
$ 43,741,018 $ 45,464,752
============== =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage notes payable...................................... $ 21,344,065 $ 21,442,045
Accounts payable and accrued expenses....................... 301,364 488,719
Accrued property taxes...................................... 159,904 81,308
Payable to affiliates - General Partner..................... 485,495 292,574
Security deposits and deferred rental revenue............... 252,009 297,859
-------------- -------------
22,542,837 22,602,505
-------------- -------------
Partners' equity (deficit):
Limited Partners - 90,000,000 Units authorized;
86,530,671 Units issued and outstanding at March 31,
1998 and December 31, 1997, respectively............... 21,610,751 23,273,176
General Partner.......................................... (412,570) (410,929)
-------------- -------------
21,198,181 22,862,247
-------------- -------------
$ 43,741,018 $ 45,464,752
============== =============
</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>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1998 1997
-------------- --------------
Revenue:
<S> <C> <C>
Rental revenue ........................................... $ 2,305,260 $ 2,282,739
Interest .................................................. 29,888 25,383
------------- -------------
Total revenue............................................ 2,335,148 2,308,122
------------- -------------
Expenses:
Interest................................................... 431,508 438,260
Depreciation and amortization.............................. 617,090 643,160
Property taxes............................................. 190,233 211,372
Personnel expenses......................................... 226,794 237,319
Utilities.................................................. 233,841 259,570
Repairs and maintenance.................................... 231,502 249,489
Property management fees -affiliates....................... 131,038 126,167
Other property operating expenses.......................... 121,798 155,612
General and administrative................................. 122,726 43,245
General and administrative - affiliates.................... 192,692 158,300
------------- -------------
Total expenses........................................... 2,499,222 2,522,494
------------- -------------
Net loss....................................................... $ (164,074) $ (214,372)
============= =============
Net loss allocable to limited partners......................... $ (162,433) $ (212,228)
Net loss allocable to General Partner.......................... (1,641) (2,144)
------------- --------------
Net loss....................................................... $ (164,074) $ (214,372)
============= =============
Net loss per thousand limited partnership units................ $ (1.88) $ (2.45)
============= =============
Distributions per thousand limited partnership units........... $ 17.33 $ 2.89
============= =============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXVI, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Total
Partners'
General Limited Equity
Partner Partners (Deficit)
-------------- -------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1996.............. $ (400,892) $ 25,016,816 $ 24,615,924
Net loss.................................. (2,144) (212,228) (214,372)
Distributions to limited partners......... - (250,000) (250,000)
------------- ------------- -------------
Balance at March 31, 1997................. $ (403,036) $ 24,554,588 $ 24,151,552
============= ============= =============
Balance at December 31, 1997.............. $ (410,929) $ 23,273,176 $ 22,862,247
Net loss.................................. (1,641) (162,433) (164,074)
Distributions to limited partners......... - (1,499,992) (1,499,992)
------------- ------------- -------------
Balance at March 31, 1998................. $ (412,570) $ 21,610,751 $ 21,198,181
============= ============= =============
</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)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------------
1998 1997
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants........................ $ 2,229,814 $ 2,116,354
Cash paid to suppliers............................ (1,145,366) (1,027,959)
Cash paid to affiliates........................... (130,809) (256,078)
Interest received................................. 29,888 25,383
Interest paid..................................... (408,523) (415,741)
Property taxes paid and escrowed.................. (111,637) (130,518)
--------------- --------------
Net cash provided by operating activities............ 463,367 311,441
--------------- --------------
Cash flows from investing activities:
Additions to real estate investments.............. (11,665) (127,878)
Additions to assets held for sale................. (5,450) -
---------------- --------------
Net cash used in investing activities................ (17,115) (127,878)
--------------- ---------------
Cash flows from financing activities:
Principal payments on mortgage notes payable...... (97,980) (90,760)
Distributions to limited partners................. (1,499,992) (250,000)
--------------- --------------
Net cash used in financing activities................ (1,597,972) (340,760)
--------------- --------------
Net decrease in cash and cash equivalents............ (1,151,720) (157,197)
Cash and cash equivalents at beginning of
period............................................ 2,823,216 2,211,029
--------------- --------------
Cash and cash equivalents at end of period........... $ 1,671,496 $ 2,053,832
=============== ==============
</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>
<CAPTION>
Three Months Ended
March 31
-----------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Net loss............................................. $ (164,074) $ (214,372)
--------------- --------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 617,090 643,160
Amortization of deferred borrowing costs.......... 23,449 22,949
Changes in assets and liabilities:
Cash segregated for security deposits........... (3,824) (1,298)
Accounts receivable............................. (26,620) (167,087)
Prepaid commissions............................. (27,581) 1,518
Prepaid expenses and other assets............... 6,615 (33,065)
Accounts payable and accrued expenses........... (187,355) (91,487)
Accrued property taxes.......................... 78,596 115,526
Payable to affiliates - General Partner......... 192,921 28,389
Security deposits and deferred rental
revenue....................................... (45,850) 7,208
--------------- --------------
Total adjustments............................. 627,441 525,813
--------------- --------------
Net cash provided by operating activities............ $ 463,367 $ 311,441
=============== ==============
</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
March 31, 1998
(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 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 three months ended March 31, 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 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 Fund XXVI, 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 gross rental
receipts for its residential property and 6% of gross rental receipts 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 receipts 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.
<PAGE>
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.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Property management fees - affiliates................ $ 131,038 $ 126,167
Charged to interest - affiliates:
Charged to general and administrative affiliates:
Partnership administration........................ 42,465 34,735
Asset management fee.............................. 150,227 123,565
--------------- --------------
$ 323,730 $ 284,467
=============== ==============
</TABLE>
The total payable to affiliates - General Partner at March 31, 1998 and December
31, 1997 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 4.
- -------
On April 28, 1998, the Partnership sold to Anglo-Florida Investments I, Ltd., an
unaffiliated buyer, Edison Ford Square, an 145,417 square foot shopping center
located in Fort Myers, Florida, for a cash purchase price of $3,550,000. Net
cash proceeds to the Partnership, after various closing costs, amounted to
approximately $3,371,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
There has been no significant change in the operations of the Partnership's
properties since December 31, 1997. The Partnership reported a net loss of
$164,074 for the first three months of 1998 as compared to a net loss of
$214,372 for the first three months of 1997. Revenues increased slightly to
$2,335,148 in 1998 from $2,308,122 in 1997, while expenses dropped to $2,499,222
in 1998 from $2,522,494 in 1997.
<PAGE>
Net cash provided by operating activities was $463,367 for the first three
months of 1998. The Partnership expended $11,665 for capital improvements and
$97,980 for principal payments on its mortgage notes payable. After
distributions of $1,499,982 to the limited partners, cash and cash equivalents
totaled $1,671,496 at March 31, 1998, a decrease of $1,151,720 from the balance
at December 31, 1997.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenue for the three months ended March 31, 1998 increased by
$27,026 for the three months ended March 31, 1998 as compared to the same period
in 1997.
Rental revenue for the three months ended March 31, 1998 increased by $22,521 or
1% as compared to the same period in 1997. This increase is due to an increase
in rental rates and a decrease in the vacancy rates at three of the
Partnership's five properties.
Interest income increased by $4,505 for the three months ended March 31, 1998 as
compared to the same period last year.
Expenses:
Total expenses decreased by $23,272 for the three months ended March 31, 1998 as
compared to the same period of 1997.
Property taxes decreased $21,139 or 10% for the three months ended March 31,
1998 as compared to the same period in 1997. This decrease is primarily due to
the reduction in the estimated tax liability on Northway Mall and Westwood
Center.
Other property operating expenses decreased by $33,814 or 22% for the three
months ended March 31, 1998 as compared to the same period in 1997. The decrease
was due to decreases in advertising, space planning and bad debt at Northway
Mall.
General and administrative expenses increased for the three months ended March
31, 1998 by $79,481 as compared to the same period in 1997. The increase was
mainly due to costs incurred to explore alternatives to maximize the value of
the Partnership (see Liquidity and Capital Resources). The increase was
partially offset by decreases attributable to investor services. During 1997,
charges for investor services were provided by a third party vendor. Beginning
with 1998, these services are provided by affiliates of the General Partner.
General and administrative - affiliates expense increased by $34,392 or 22% for
the first three months of 1998 as compared to the same period last year due to
the change in investor relation charges as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generated $463,367 of cash through operating activities for the
three months ended March 31, 1998 as compared to $311,441 for the same period in
1997. The change in cash flow from operations is primarily due to an increase in
cash received from tenants and a decrease in cash paid to affiliates.
<PAGE>
Additions to real estate investments totaled $17,115 for the three months ended
March 31, 1998 as compared to $127,878 for the same period of 1997.
Total principal payments on mortgage notes payable were $97,980 for the three
months ended March 31, 1998 as compared to $90,760 for the same period of 1997.
The Partnership distributed $1,499,992 to the limited partners during 1998,
while $250,000 was paid during 1997.
Short-term liquidity:
At March 31, 1998, the Partnership held cash and cash equivalents of $1,671,496.
The present cash balance plus cash to be provided by operating activities 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. The Partnership has budgeted $1.2 for
necessary capital improvements for all properties in 1998.
On April 28, 1998, the Partnership sold to Anglo-Florida Investments I, Ltd., an
unaffiliated buyer, Edison Ford Square, an 145,417 square foot shopping center
located in Fort Myers, Florida, for a cash purchase price of $3,550,000. Net
cash proceeds to the Partnership, after various closing costs, amounted to
approximately $3,371,000.
Long-term liquidity:
While the present outlook for the Partnership's liquidity is favorable, market
conditions may change and property operations could deteriorate. In that event,
the Partnership would require other sources of working capital. No such other
sources have been identified, and the Partnership has no established lines of
credit. Other possible actions to resolve working capital deficiencies include
refinancing or renegotiating terms of existing loans, deferring major capital
expenditures on Partnership properties except where improvements are expected to
enhance the competitiveness or marketability of the properties, or arranging
working capital support from affiliates. There is no assurance that affiliate
support could be arranged, since neither the General Partner nor any affiliates
have any obligation in this regard.
The Partnership has significant mortgage maturities during 1998, and management
expects to refinance these mortgage notes as they mature. However, if management
is unable to refinance the mortgage notes as they mature, the Partnership will
require other sources of cash. No such sources have been identified.
Pursuant to the Partnership's previously announced liquidation plans, the
Partnership has recently retained PaineWebber, Incorporated as its exclusive
financial advisor to explore alternatives to maximize the value of the
Partnership. The alternatives being considered by the Partnership include,
without limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The General Partner of the Partnership or
entities or persons affiliated with the General Partner will not be involved as
a purchaser in any of the transactions contemplated above. Any transaction will
be subject to certain conditions including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory firm as to the fairness of the consideration received by the
Partnership pursuant to such transaction. Finally, there can be no assurance
that any transaction will be consummated, or as to the terms thereof.
<PAGE>
Distributions:
During 1998, the Partnership distributed $1,499,992 to the limited partners. 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 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 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
86,531 limited partnership units (in
thousands) outstanding in 1998 and 1997,
respectively.
27. Financial Data Schedule for the quarter
ended March 31, 1998.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended March 31, 1998.
<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:
McNEIL REAL ESTATE FUND XXVI, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
May 14, 1998 By: /s/ Ron K. Taylor
- ------------ ----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
May 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,671,496
<SECURITIES> 0
<RECEIVABLES> 1,820,540
<ALLOWANCES> (572,392)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 61,616,461
<DEPRECIATION> (24,962,574)
<TOTAL-ASSETS> 43,741,018
<CURRENT-LIABILITIES> 0
<BONDS> 21,344,065
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 43,741,018
<SALES> 2,305,260
<TOTAL-REVENUES> 2,335,148
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,067,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 431,508
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (164,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (164,074)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
