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 0-14268
MCNEIL REAL ESTATE FUND XXII, L.P.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0085680
- ------------------------------------------------------------------------------
(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
--- ---
MCNEIL REAL ESTATE FUND XXII, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
---------- ----------
ASSETS
- ------
Real estate investments:
Land..................................................... $ 380,414 $ 380,414
Buildings and improvements............................... 9,780,820 9,579,406
10,161,234 9,959,820
Less: Accumulated depreciation and amortization......... (4,619,676) (4,327,711)
5,541,558 5,632,109
Asset held for sale......................................... - 4,393,157
Cash and cash equivalents .................................. 444,634 589,211
Cash segregated for security deposits....................... 78,150 87,838
Accounts receivable......................................... 4,196 141,268
Escrow deposits............................................. 141,308 357,858
Prepaid expenses and other assets, net...................... 17,418 112,720
--------- ----------
$6,227,264 $11,314,161
========= ==========
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net................................. $6,037,765 $ 9,534,751
Accrued property taxes ..................................... 38,412 234,143
Accounts payable and accrued expenses....................... 124,374 147,771
Payable to affiliates - General Partner..................... 1,446,859 1,501,947
Advances from affiliates - General Partner.................. - 915,129
Security deposits and deferred rental income................ 81,789 91,066
--------- ----------
7,729,199 12,424,807
--------- ----------
Partners' deficit:
Limited partners - 55,000,000 Units authorized;
33,208,117 and 33,268,117 Units issued and outstanding
at September 30, 1995 and December 31, 1994,
respectively (19,825,588 and 19,875,588 Current Income
Units outstanding at September 30, 1995 and
December 31, 1994, respectively, and 13,382,529 and
13,392,529 Growth/Shelter Units outstanding at
September 30, 1995 and December 31, 1994 respectively). (1,250,397) (863,021)
General Partner.......................................... (251,538) (247,625)
--------- ---------
(1,501,935) (1,110,646)
--------- ---------
$ 6,227,264 $11,314,161
========== ==========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
1995 1994 1995 1994
------- ------- --------- ---------
Revenue:
Rental revenue................ $555,388 $764,224 $1,897,441 $2,203,177
Interest...................... 6,041 4,843 18,983 10,051
Gain on legal settlement...... - - 38,749 -
------- ------- --------- ---------
Total revenue............... 561,429 769,067 1,955,173 2,213,228
Expenses:
Interest...................... 146,345 241,904 537,671 736,954
Interest - affiliates......... - 18,691 18,568 51,665
Depreciation and
amortization................ 112,055 166,407 366,571 495,173
Property taxes................ 53,901 84,837 175,906 256,181
Personnel costs............... 77,176 90,563 250,021 264,753
Utilities..................... 24,609 32,617 103,791 128,979
Repairs and maintenance....... 50,167 96,335 185,176 246,266
Property management
fees - affiliates........... 27,846 38,341 99,459 116,016
Other property operating
expenses.................... 39,816 27,065 111,495 131,788
General and administrative.... 14,103 16,949 53,783 52,908
General and administrative -
affiliates.................. 67,832 75,021 198,384 216,850
Loss on disposition of real
estate...................... - - 245,637 -
------- ------- --------- ---------
Total expenses.............. 613,850 888,730 2,346,462 2,697,533
Net loss......................... $(52,421) $(119,663) $ (391,289) $ (484,305)
======= ======== ========= =========
Net loss allocable to limited
partners - Current Income
Unit.......................... $ (4,718) $ (10,769) $ (35,216) $ (43,587)
Net loss allocable to limited
partners - Growth/Shelter
Unit.......................... (47,179) (107,697) (352,160) (435,875)
Net loss allocable to
General Partner............... (524) (1,197) (3,913) (4,843)
------- -------- --------- ---------
Net loss......................... $(52,421) $(119,663) $ (391,289) $ (484,305)
======= ======== ========= =========
Net loss per thousand limited
partnership units:
Current Income Units............. $ (.24) $ (.54) $ (1.78) $ (2.19)
Growth/Shelter Units............. $ (3.53) $ (8.04) $ (26.31) $ (32.53)
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
Total
General Limited Partners'
Partner Partners Deficit
-------- --------- ----------
Balance at December 31, 1993.............. $(241,965) $ (302,688) $ (544,653)
Net loss
General Partner........................ (4,843) - (4,843)
Current Income Units................... - (43,587) (43,587)
Growth/Shelter Units................... - (435,875) (435,875)
-------- --------- ---------
Total net loss............................ (4,843) (479,462) (484,305)
-------- --------- ---------
Balance at September 30,1994.............. $(246,808) $ (782,150) (1,028,958)
======== ========= =========
Balance at December 31, 1994.............. $(247,625) $ (863,021) $(1,110,646)
Net loss
General Partner........................ (3,913) - (3,913)
Current Income Units................... - (35,216) (35,216)
Growth/Shelter Units................... - (352,160) (352,160)
-------- --------- ----------
Total net loss............................ (3,913) (387,376) (391,289)
-------- --------- ----------
Balance at September 30, 1995............. $(251,538) $(1,250,397) $(1,501,935)
======== ========== ==========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended
September 30,
---------------------------------
1995 1994
--------- ---------
Cash flows from operating activities:
Cash received from tenants........................ $1,975,284 $2,217,737
Cash received from legal settlement............... 38,749
Cash paid to suppliers............................ (691,320) (798,293)
Cash paid to affiliates........................... (352,931) (115,402)
Interest received................................. 18,983 10,051
Interest paid..................................... (539,765) (703,251)
Interest paid to affiliates....................... (149,043) -
Property taxes paid and escrowed.................. (118,904) (243,183)
--------- ---------
Net cash provided by operating activities............ 181,053 367,659
--------- ---------
Cash flows from investing activities:
Additions to real estate investments.............. (208,526) (63,104)
Proceeds from sale of real estate................. 738,914 -
--------- ---------
Net cash provided by (used in)
investing activities.............................. 530,388 (63,104)
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage notes
payable......................................... (71,364) (90,336)
Repayment of advances from affiliates -
General Partner................................. (784,654) (20,874)
--------- ---------
Net cash used in financing activities................ (856,018) (111,210)
--------- ---------
Net increase (decrease) in cash and cash equivalents. (144,577) 193,345
Cash and cash equivalents at beginning of
period............................................ 589,211 378,420
--------- ---------
Cash and cash equivalents at end of period........... $ 444,634 $ 571,765
========= =========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
Nine Months Ended
September 30,
--------------------------------
1995 1994
-------- --------
Net loss............................................. $(391,289) $(484,305)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 366,571 495,173
Amortization of deferred borrowing costs.......... 2,936 8,808
Amortization of discounts on mortgage
notes payable................................... 26,715 25,538
Interest added to advances from affiliates -
General Partner, net of payments................ (130,475) 51,665
Loss on disposition of real estate................ 245,637 -
Changes in assets and liabilities:
Cash segregated for security deposits........... 9,688 (3,649)
Accounts receivable............................. 55,323 35,942
Escrow deposits................................. 216,550 (48,895)
Prepaid expenses and other assets............... 2,420 8,848
Accrued property taxes.......................... (157,842) 38,279
Accounts payable and accrued expenses........... (23,397) 12,326
Payable to affiliates - General Partner......... (55,088) 217,464
Security deposits and deferred rental
income........................................ 13,304 10,465
-------- --------
Total adjustments............................. 572,342 851,964
-------- --------
Net cash provided by operating activities............ $ 181,053 $ 367,659
======== ========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XXII, L.P.
Notes to Financial Statements
(Unaudited)
September 30, 1995
NOTE 1.
- ------
McNeil Real Estate Fund XXII, L.P., (the "Partnership"), formerly known as
Southmark Realty Partners II, Ltd., was organized on November 30, 1984 as a
limited partnership under the provisions of the California Revised Limited
Partnership Act to acquire and operate commercial and 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 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 Annual 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 XXII, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
NOTE 3.
- ------
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership has suffered
recurring losses from operations and has a net Partners' deficit that raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 4.
- ------
Certain reclassifications have been made to prior period amounts to conform to
the current period presentation.
NOTE 5.
- ------
The Partnership pays property management fees equal to 5% of the gross rental
receipts for its residential property and 6% of gross rental revenues for its
commercial property to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of McNeil, for providing property management and leasing services.
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 $934,611 were
outstanding at September 30, 1995.
The Partnership pays a disposition fee to an affiliate of the General Partner
equal to 3% of the gross sales price for brokerage services performed in
connection with the sale of the Partnership's properties. The fee is due and
payable at the time the sale closes. The Partnership incurred $138,750 of such
fees in connection with the sale of Wyoming Mall on March 31, 1995.
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. Borrowings 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 additional 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.
The General Partner has, in its discretion, advanced funds to enable the
Partnership to meet its working capital requirements. These advances, which were
unsecured and due on demand, accrued interest at a rate equal to the prime
lending rate plus 1%.
McNeil Real Estate Fund XXI, L.P., an affiliate of the General Partner and joint
owner of Wyoming Mall had advanced funds to the Partnership for tenant
improvements and operations at Wyoming Mall. The advances were unsecured and due
on demand and accrued interest at a rate of prime plus 3 1/2%.
In April 1995, the Partnership utilized the proceeds from the sale of Wyoming
Mall to repay all outstanding affiliate advances and the related accrued
interest.
The total advances from affiliates at September 30, 1995 and December 31, 1994
consist of the following:
September 30, December 31,
1995 1994
---------- ---------
Advance from General Partner - revolving
credit facility........................................ $ - $167,102
Advances from General Partner - other..................... - 301,155
Advances purchased by General Partner..................... - 16,397
Advances from McNeil Real Estate Fund XXI, L.P............ - 300,000
Accrued interest payable.................................. - 130,475
--------- -------
$ - $915,129
========= =======
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Nine Months Ended
September 30,
--------------------------------
1995 1994
-------- --------
Property management fees.................................. $ 99,459 $116,016
Charged to interest - affiliates:
Interest on advances from affiliates - General
Partner.............................................. 18,568 51,665
Charged to loss on disposition of real estate:
Disposition fee........................................ 138,750 -
Charged to general and administrative -
affiliates:
Partnership administration............................. 86,930 85,649
Asset management fee................................... 111,454 131,201
------- -------
$455,161 $384,531
======= =======
NOTE 6.
- ------
On March 31, 1995, Wyoming Mall was sold to an unrelated third party for a cash
price of $9,250,000. The Partnership had a 50% undivided interest in the assets,
liabilities and operations of Wyoming Mall, owned jointly with McNeil Real
Estate Fund XXI, L.P. Cash proceeds and the loss on the disposition is detailed
below:
Loss on Sale Cash Proceeds
----------- -----------
Sales Price.......................................... $4,625,000 $4,625,000
Selling costs........................................ (234,838) (234,838)
Mortgage note prepayment penalty..................... (138,441) (138,441)
Carrying value....................................... (4,325,663)
Accounts receivable.................................. (81,749)
Deferred borrowing costs............................. (49,910)
Prepaid expenses..................................... (40,036)
---------
Loss on disposition of real estate................... $ (245,637)
=========
Retirement of mortgage note.......................... (3,452,337)
Payment of 1994 taxes at closing..................... (23,735)
Real estate tax proration............................ (14,154)
Credit for security deposit liability................ (22,581)
----------
Net cash proceeds.................................... $ 738,914
==========
NOTE 7.
- ------
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, $29,292 in
cash, and common and preferred stock in the reorganized Southmark subsequently
sold for $9,457, 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
- -------------------
The Partnership reported a net loss of $391,289 for the first nine months of
1995 as compared to $484,305 for the same period in 1994.
On March 31, 1995, Wyoming Mall was sold to an unrelated third party for a cash
price of $9,250,000. The Partnership had a 50% undivided interest in the assets,
liabilities and operations of Wyoming Mall, owned jointly with McNeil Real
Estate Fund XXI, L.P. The Partnership received net cash proceeds of $738,914
from the sale of the property and recorded a loss on disposition of real estate
of $245,637. The Partnership recorded $258,066 of revenue and $271,115 of
expense during the first nine months of 1995 for Wyoming Mall.
Harbour Club III is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and II of the complex are owned by partnerships
in which McNeil Partners, L.P. is the general partner; while Phase IV is owned
by University Real Estate Fund 12, Ltd., ("UREF 12"). McREMI had been managing
all four phases of the complex until December 1992, when the property management
agreement between McREMI and UREF 12 was canceled. Additionally, in January
1993, Phase I defaulted on the mortgage loan to HUD and unless a refinancing
agreement can be reached with the lender, the property is subject to
foreclosure. If Phase I is lost to foreclosure, it would be extremely difficult
to operate Phases II and III because the pool and clubhouse are located in Phase
I.
No additional advances from affiliates were required during the first nine
months of 1995. In January 1995, the Partnership was able to repay $220,000 of
affiliate advances and accrued interest. In April 1995, the proceeds from the
sale of Wyoming Mall enabled the Partnership to repay the remaining $713,697 of
the affiliate advances and accrued interest.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Rental revenue decreased $208,836 and $305,736 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods in 1994,
primarily due to the sale of Wyoming Mall.
Interest income increased $1,198 and $8,932 for the three and nine months ended
September 30, 1995, respectively, as compared to the same periods of 1994. The
increase is primarily due to higher average cash balances that resulted from the
sale proceeds of Wyoming Mall.
The Partnership recorded $38,749 of gain on legal settlement during the first
half of 1995. In May 1995, the Partnership received cash of $29,292 and common
and preferred stock in the reorganized Southmark that was subsequently sold for
$9,457, as full satisfaction of claims previously filed in the Bankruptcy Court.
Expenses:
Total expenses decreased $274,880 and $351,071 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods of 1994
primarily due to the sale of Wyoming Mall. This decrease was partially offset by
the $245,637 loss on the sale of Wyoming Mall recorded in March 1995.
Interest - affiliates decreased $18,691 and $33,097 for the three and nine
months ended September 30, 1995, respectively, as compared to the same periods
of 1994. The sale of Wyoming Mall enabled the Partnership to repay all
outstanding affiliate advances, thereby reducing affiliate interest expense.
Property tax expense decreased $30,936 and $80,275 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods of 1994.
A decrease of $19,011 and $58,703 for the respective three and nine months
periods is due to the reduction in property tax expense at Harbour Club III
Apartments that occurred from a successful tax appeal. The remaining decrease is
due to the sale of Wyoming Mall.
Repairs and maintenance expense decreased $46,168 and $61,090 for the three and
nine months ended September 30, 1995, respectively, as compared to the same
periods of 1994 primarily due to a decrease carpet and appliance replacements at
Harbour Club III Apartments. Additionally, the decrease is due to the sale of
Wyoming Mall.
Other property operating expense increased $12,751 and decreased $20,293 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, Abbey Lane and Lexington
Green Apartments received $21,828 property insurance refunds. No such refunds
were received in 1995. This increase was partially offset by a decrease in other
property operating expenses at Harbour Club III Apartments. During 1994, Harbour
Club III Apartments incurred approximately $11,000 of legal fees related to a
golf course associated with Harbour Club Apartments, while $2,000 of such fees
were incurred during 1995. Additionally, improved economic conditions in
Belleville, Michigan, where Harbour Club III Apartments is located, has enabled
the apartments to reduce bad debts approximately $26,000 during 1995. The
remaining decrease is due to the sale of Wyoming Mall.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership was provided $181,053 of cash by operating activities during the
first nine months of 1995 as compared to $367,659 for the same period in 1994.
Cash received from tenants, cash paid to suppliers, interest paid and property
taxes paid decreased due to the sale of Wyoming Mall. Due to the improved cash
position from the sale of Wyoming Mall, the Partnership was able to pay $149,043
of interest and $352,931 of fees due to affiliates.
Net cash provided by investing activities was $530,388 for the first nine months
of 1995 as compared to $63,104 of cash used in investing activities for the same
period of 1994. The Partnership received $738,914 of cash proceeds from the sale
of Wyoming Mall on March 31, 1995. Cash used for additions to real estate
totaled $208,526 during the first nine months of 1995 as compared to $63,104
during the same period of 1994. The increase in capital expenditures is
primarily due to an ongoing apartment refurbishment program as well as a partial
roof replacement at Harbour Club III Apartments.
Net cash used in financing activities was $856,018 during the first nine months
of 1995 as compared to $111,210 for the same period of 1994. Principal payments
on mortgage notes payable decreased due to the retirement of the mortgage note
related to Wyoming Mall. During the first nine months of 1995, the improved cash
position enabled the Partnership to repay all outstanding advances from
affiliates of the General Partner.
At September 30, 1995, the Partnership held cash and cash equivalents of
$444,634.
Short-term liquidity:
- --------------------
The sale of Wyoming Mall provided the Partnership $738,914 of net cash proceeds.
In April 1995, the Partnership utilized the sale proceeds to repay all
outstanding affiliate advances.
McNeil Real Estate Fund XXI, L.P. has advanced funds to the Partnership for
tenant improvements and operations at Wyoming Mall. The advances were unsecured,
due on demand and accrued interest at a rate of prime plus 3 1/2%. In April
1995, the proceeds from the sale of Wyoming Mall were utilized to repay the
advances plus the accrued interest due to McNeil Real Estate Fund XXI, L.P.
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. Borrowings 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 additional 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 balance of cash and cash equivalents can be considered no more than a
minimum level of cash reserves for the remaining property's operations. Harbour
Club III Apartments is expected to provide sufficient positive cash flow for
normal operations and debt service payments for the remainder of 1995. However,
Harbour Club III is in need of major capital improvements in order to maintain
occupancy and rental rates at a level to continue to support operations and debt
service. The necessary capital improvements will have to be funded from outside
sources. No such sources have been identified. Management is currently seeking
additional financing to fund these improvements, however such financing is not
assured. If the property is unable to obtain additional funds and cannot
maintain operations at a level to support its current debt, the property may
ultimately be foreclosed on by the lender.
Long-term liquidity:
- -------------------
While the outlook for maintenance of adequate levels of liquidity is adequate in
the short term, should operations deteriorate and present cash resources become
insufficient to fund 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 refinancing, deferral of capital expenditures
except where improvements are expected to increase the competitiveness and
marketability of the properties, arranging financing from affiliates or the
ultimate sale of the property. A sale or refinancing is a possibility only, and
there are at present no plans for any such sale or refinancing.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
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 Units 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.
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.
2) Martha Hess, et. al. v. Southmark Equity Partners II, Ltd. (presently known
as McNeil Real Estate Fund XXV, L.P.), Southmark Income Investors, Ltd.,
Southmark Equity Partners, Ltd., Southmark Realty Partners III, Ltd., and
Southmark Realty Partners II, Ltd., et al. ("Hess"); Kotowski v. Southmark
Equity Partners, Ltd. and Donald Arceri v. Southmark Income Investors, Ltd.
These cases were previously pending in the Illinois Appellate Court for the
First District ("Appellate Court"), as consolidated case no. 90-107.
Consolidated with these cases are an additional 14 matters against unrelated
partnership entities. The Hess case was filed on May 20, 1988, by Martha Hess,
individually and on behalf of a putative class of those similarly situated. The
original, first, second and third amended complaints in Hess sought rescission,
pursuant to the Illinois Securities Act, of over $2.7 million of principal
invested in five Southmark (now McNeil) partnerships, and other relief including
damages for breach of fiduciary duty and violation of the Illinois Consumer
Fraud and Deceptive Business Practices Act. The original, first, second and
third amended complaints in Hess were dismissed against the defendant-group
because the Appellate Court held that they were not the proper subject of a
class action complaint. Hess was, thereafter, amended a fourth time to state
causes of action against unrelated partnership entities. Hess went to judgment
against that unrelated entity and the judgment, along with the prior dismissal
of the class action, was appealed. The Hess appeal was decided by the Appellate
Court during 1992. The Appellate Court affirmed the dismissal of the breach of
fiduciary duty and consumer fraud claims. The Appellate Court did, however,
reverse in part, holding that certain putative class members could file class
action complaints against the defendant-group. Although leave to appeal to the
Illinois Supreme Court was sought, the Illinois Supreme Court refused to hear
the appeal. The effect of the denial is that the Appellate Court's opinion
remains standing. On June 15, 1994, the Appellate Court issued its mandate
sending the case back to Trial Court.
In late January 1995, Plaintiffs filed a Motion to File an Amended Consolidated
Class Action Complaint, which amends the complaint to name McNeil Partners, L.P.
as the successor general partner to Southmark Investment Group. In February
1995, Plaintiffs filed a Motion for Class Certification.
In September 1995, the court granted Plaintiffs' Motion to File an Amended
Complaint to Consolidate and for Class Certification. Defendants have answered
the Complaint and have plead that the Plaintiffs did not give timely notice of
their right to rescind within six months of knowing that right. The ultimate
outcome of this litigation cannot be determined at this time.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits.
Exhibit
Number Description
4. Amended and Restated Limited Partnership Agreement dated March 26, 1992.
(Incorporated by reference to the Current Report of the Registrant on
Form 8-K dated March 26, 1992, as filed on April 9, 1992).
11. Statement regarding computation of Net Income (Loss) per Thousand Limited
Partnership Units: Net income (loss) per thousand limited partnership units is
computed by dividing net income (loss) allocated to the limited partners by
the weighted average number of limited partnership units outstanding expressed
in thousands. Per unit information has been computed based on 19,826 and
19,903 weighted average Current Income Units (in thousands) outstanding in
1995 and 1994, respectively, and 13,383 and 13,398 weighted average
Growth/Shelter Units (in thousands) outstanding in 1995 and 1994, respectively.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended September 30, 1995.
MCNEIL REAL ESTATE FUND XXII, 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 XXII, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 13, 1995 By: /s/ Donald K. Reed
- ----------------------------- -----------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
November 13, 1995 By: /s/ Robert C. Irvine
- ----------------------------- -----------------------------------------
Date Robert C. Irvine
Chief Financial Officer of McNeil Investors, Inc.
Principal Financial Officer
November 13, 1995 By: /s/ Carol A. Fahs
- ----------------------------- -----------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil Real Estate
Management, Inc.