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
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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 0-15446
MCNEIL REAL ESTATE FUND XXV, L.P.
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(Exact name of registrant as specified in its charter)
California 33-0120335
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240
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(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 XXV, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
----------- ----------
ASSETS
- ------
Real estate investments:
Land..................................................... $ 5,524,462 $ 5,524,462
Buildings and improvements............................... 68,139,824 66,918,459
---------- ----------
73,664,286 72,442,921
Less: Accumulated depreciation and amortization......... (28,310,179) (25,759,358)
---------- ----------
45,354,107 46,683,563
Cash and cash equivalents................................... 3,703,999 3,125,937
Cash segregated for security deposits....................... 293,831 283,793
Note receivable............................................. 344,225 344,225
Accounts receivable, net of allowance for doubtful
accounts of $532,477 and $561,426 at September 30,
1995 and December 31, 1994, respectively................. 887,459 1,169,888
Escrow deposits............................................. 946,721 1,155,277
Deferred borrowing costs, net of accumulated
amortization of $65,340 and $58,491 at September 30,
1995 and December 31, 1994, respectively................. 253,410 260,259
Prepaid expenses and other assets........................... 477,758 409,620
---------- ----------
$52,261,510 $53,432,562
========== ==========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- -----------------------------------------
Mortgage note payable....................................... $ 7,381,507 $ 7,381,507
Accounts payable and accrued expenses....................... 321,172 175,019
Accrued interest............................................ 697,639 554,342
Accrued property taxes...................................... 338,457 858,300
Payable to affiliates - General Partner..................... 73,763 82,427
Land lease obligation....................................... 289,911 320,135
Deferred gain............................................... 344,225 348,340
Security deposits and deferred rental income................ 335,064 303,624
---------- ----------
9,781,738 10,023,694
---------- ----------
Partners' equity (deficit):
Limited partners - 84,000,000 limited partnership
units authorized; 83,894,648 and 83,900,527 limited
partnership units issued and outstanding at
September 30, 1995 and December 31, 1994, respectively... 42,863,223 43,783,028
General Partner.......................................... (383,451) (374,160)
---------- ----------
42,479,772 43,408,868
---------- ----------
$52,261,510 $53,432,562
========== ==========
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 XXV, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Revenue:
Rental revenue................ $2,392,656 $2,461,292 $6,681,341 $6,749,964
Interest...................... 53,396 30,721 154,050 94,820
Gain on legal settlement...... - - 96,731 -
--------- --------- --------- ---------
Total revenue............... 2,446,052 2,492,013 6,932,122 6,844,784
--------- --------- --------- ---------
Expenses:
Interest...................... 202,256 207,491 614,570 614,816
Depreciation and
amortization................ 889,789 790,141 2,550,821 2,326,569
Property taxes................ 160,402 196,665 582,730 595,374
Personnel costs............... 186,184 177,306 543,507 476,249
Utilities..................... 281,524 268,057 644,555 649,216
Repairs and maintenance....... 299,979 305,104 895,662 851,608
Property management
fees - affiliates........... 132,964 128,560 400,327 408,489
Other property operating
expenses.................... 193,651 181,160 630,957 580,961
General and administrative.... 258,683 26,255 314,456 80,509
General and administrative -
affiliates.................. 229,385 219,943 683,633 655,719
--------- --------- --------- ---------
Total expenses.............. 2,834,817 2,500,682 7,861,218 7,239,510
--------- --------- --------- ---------
Net loss......................... $ (388,765) $ (8,669) $ (929,096) $ (394,726)
========= ========= ========= =========
Net loss allocable
to limited partners........... $ (384,877) $ (8,582) $ (919,805) $ (390,779)
Net loss allocable
to General Partner............ (3,888) (87) (9,291) (3,947)
--------- ---------- --------- ---------
Net loss......................... $ (388,765) $ (8,669) $ (929,096) $ (394,726)
========= ========== ========= =========
Net loss per thousand
limited partnership units..... $ (4.59) $ (.10) $ (10.96) $ (4.66)
========= ========== ========= =========
Distributions per thousand
limited partnership units..... $ - $ - $ - $ 4.77
========= ========== ========= =========
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 XXV, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
Total
General Limited Partners'
Partner Partners Equity
--------- ---------- ----------
Balance at December 31, 1993.............. $(368,845) $44,709,417 $44,340,572
Net loss.................................. (3,947) (390,779) (394,726)
Distributions............................. - (400,207) (400,207)
-------- ---------- ----------
Balance at September 30, 1994............. $(372,792) $43,918,431 $43,545,639
======== ========== ==========
Balance at December 31, 1994.............. $(374,160) $43,783,028 $43,408,868
Net loss.................................. (9,291) (919,805) (929,096)
-------- ---------- ----------
Balance at September 30, 1995............. $(383,451) $42,863,223 $42,479,772
======== ========== ==========
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 XXV, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase in Cash and Cash Equivalents
Nine Months Ended
September 30,
----------------------------------
1995 1994
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Cash flows from operating activities:
Cash received from tenants........................ $ 6,965,389 $ 6,957,234
Cash paid to suppliers............................ (2,949,167) (2,865,686)
Cash paid to affiliates........................... (1,092,624) (1,071,462)
Interest received................................. 154,050 94,820
Interest paid..................................... (464,424) (317,059)
Property taxes paid and escrowed.................. (880,304) (598,849)
Cash received from legal settlement............... 96,731 -
--------- ---------
Net cash provided by operating activities............ 1,829,651 2,198,998
--------- ---------
Cash flows from investing activities:
Additions to real estate investments.............. (1,221,365) (1,414,808)
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage note
payable......................................... - (9,346)
Payments on capitalized land lease
obligation...................................... (30,224) (27,317)
Distributions paid................................ - (400,207)
--------- ---------
Net cash used in financing activities................ (30,224) (436,870)
--------- ---------
Net increase in cash and cash equivalents............ 578,062 347,320
Cash and cash equivalents at beginning of
period............................................ 3,125,937 2,759,887
--------- ---------
Cash and cash equivalents at end of period........... $3,703,999 $ 3,107,207
========= ==========
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 XXV, 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............................................. $(929,096) $ (394,726)
-------- ---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 2,550,821 2,326,569
Amortization of deferred borrowing costs.......... 6,849 6,849
Amortization of deferred gain..................... (4,115) (58,003)
Changes in assets and liabilities:
Cash segregated for security deposits........... (10,038) (16,056)
Note receivable................................. - 64,756
Accounts receivable, net........................ 282,429 175,106
Escrow deposits................................. 208,556 (61,238)
Prepaid expenses and other assets............... (68,138) (106,822)
Accounts payable and accrued expenses........... 146,153 (129,865)
Accrued interest................................ 143,297 290,908
Accrued property taxes.......................... (519,843) 87,794
Payable to affiliates - General Partner......... (8,664) (7,254)
Security deposits and deferred rental
income........................................ 31,440 20,980
--------- ---------
Total adjustments............................. 2,758,747 2,593,724
--------- ---------
Net cash provided by operating activities............ $1,829,651 $2,198,998
========= =========
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 XXV, L.P.
Notes to Financial Statements
September 30, 1995
(Unaudited)
NOTE 1.
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McNeil Real Estate Fund XXV, L.P. (the "Partnership"), formerly known as
Southmark Equity Partners II, Ltd., was organized on February 15, 1985 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 XXV, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
NOTE 3.
- ------
Certain prior period amounts have been reclassified to conform to the current
period presentation.
NOTE 4.
- ------
The Partnership pays property management fees equal to 5% of the 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 properties. 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.
The Partnership is paying 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 properties 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 or its affiliates are as follows:
Nine Months Ended
September 30,
1995 1994
Property management fees............................. $ 400,327 $ 408,489
Charged to general and administrative
expense:
Partnership administration........................ 216,369 201,366
Asset management fee.............................. 467,264 454,353
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$1,083,960 $1,064,208
========= =========
Payable to affiliates - General Partner at September 30, 1995 and December 31,
1994 consisted primarily of unpaid property management fees, Partnership general
and administrative expenses and asset management fees and are due and payable
from current operations.
NOTE 5.
- ------
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, $73,122 in
cash, and common and preferred stock in the reorganized Southmark subsequently
sold for $23,609, 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 operations of the Partnership's
properties since December 31, 1994. The Partnership reported a net loss of
$929,096 for the first nine months of 1995 as compared to a net loss of $394,726
for the first nine months of 1994. Revenues in 1995 were $6,932,122 as compared
to $6,844,784 in 1994, while expenses increased to $7,861,218 from $7,239,510.
Net cash provided by operating activities was $1,829,651 for the nine months
ended September 30, 1995, a change from $2,198,998 provided during the same nine
month period in 1994. The Partnership expended $1,221,365 for capital
improvements and $30,224 for payments on the capitalized land lease obligation.
The balance in cash and cash equivalents increased to $3,703,999 at September
30, 1995, a net increase of $578,062 from the balance at December 31, 1994.
Harbour Club I Apartments has continued to experience financial difficulties.
The cash flow from operations of the property has not been sufficient to fund
necessary capital improvements and to make the required monthly debt service
payments. Effective January 1, 1993, the Partnership ceased making regularly
scheduled debt service and escrow payments. In lieu of the aforementioned
payments, the Partnership is funding debt service with the excess cash flow of
the property. The Partnership has been notified that the mortgage note payable
is in default and that the servicing agent has assigned the mortgage to the
Department of Housing and Urban Development ("HUD"). If the Partnership is
unable to successfully cure the default, the mortgagee could declare the entire
indebtedness due and proceed with foreclosure on the property or pursue other
actions such as gaining control of the property or placing it in receivership.
Harbour Club I is part of a four-phase apartment complex located in Belleville,
Michigan. Phases II and III of the complex are also owned by partnerships of
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. The Partnership had
previously applied for an additional loan from HUD for a significant capital
improvement program that is essential to the operation of the property. During
1993, this loan was denied and management is developing an alternative plan for
funding necessary capital improvements.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total revenue decreased by $45,961 and increased by $87,338 for the three and
nine months ended September 30, 1995, respectively, as compared to the same
periods in 1994. The year to date increase was due to an increase in interest
income and a gain on legal settlement in the second quarter of 1995. These
increases were partially offset by a decrease in rental revenue, as discussed
below.
Rental revenue for the three and nine months ended September 30, 1995 decreased
by $68,636 and $68,623, respectively, as compared to the three and nine months
ended September 30, 1994. The decreases were mainly due to decreases of
approximately $101,000 and $95,000 at Northwest Plaza Shopping Center and
Kellogg Office Building, respectively. The decrease at Northwest Plaza was
mainly the result of lower rents based on sales volume of tenants due to the
restructuring of a major tenant's lease. A large tenant vacated Kellogg Building
in late 1994 and the space was not released until the second quarter of 1995.
These decreases were partially offset by an increase of approximately $107,000
at Harbour Club Apartments due to an increase in occupancy from 91% at September
30, 1994 to 95% at September 30, 1995.
Interest income earned on short-term investments of cash and cash equivalents
increased by $22,675 and $59,230 for the three and nine month periods ended
September 30, 1995, respectively, as compared to the respective periods in 1994.
The increase was due to greater average cash balances invested in these accounts
during the first nine months of 1995. The Partnership held $3.7 million of cash
and cash equivalents at September 30, 1995 as compared to $3.1 million at
September 30, 1994. In addition, there was an increase in interest rates earned
on invested cash in 1995.
As discussed in Item 1 - Note 5, 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 $96,731 gain
in the second quarter of 1995 as a result of this settlement. No such gain was
recognized in 1994.
Expenses:
Total expenses increased by $334,135 and $621,708 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods in 1994.
The increase was primarily due to an increase in depreciation and amortization
and general and administrative expenses, as discussed below.
Depreciation and amortization increased by $99,648 and $224,252 for the three
and nine month periods ended September 30, 1995, respectively, in relation to
the comparable period in 1994. The increase was primarily due to the addition of
depreciable capital improvements at the Partnership's properties, the majority
being at Kellogg and Fidelity Federal office buildings.
Personnel costs increased by $8,878 and $67,258 for the three and nine months
ended September 30, 1995, respectively, in relation to the comparable periods in
1994. The increase was due to the addition of maintenance technicians at
Fidelity Plaza and Century Park office buildings. In addition, there was an
increase in compensation paid to on-site employees at all of the properties in
1995.
For the three and nine months ended September 30, 1995, general and
administrative expenses increased by $232,428 and $233,947, respectively. The
increase was due to costs incurred by the Partnership in the third quarter of
1995 relating to evaluation and dissemination of information regarding an
unsolicited tender offer as discussed in Item 5 - Other Information.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership's primary source of cash flows is from operating activities
which generated $1,829,651 of cash in the first nine months of 1995 as compared
to $2,198,998 for the same period in 1994. The decrease in cash provided by
operating activities in 1995 was mainly the result of an increase in cash paid
for delinquent property taxes in 1995 on parcels of land adjacent to the Harbour
Club I Apartments which were acquired by the Partnership in November 1994, as
the result of a legal settlement.
The Partnership expended $1,221,365 and $1,414,808 for capital additions to its
real estate investments in the first nine months of 1995 and 1994, respectively.
The decrease in 1995 was mainly the result of the reduction of tenant
improvements at Fidelity Plaza in 1995.
The Partnership distributed $400,207 to the limited partners in the nine months
ended September 30, 1994. No distributions were paid in the nine months ended
September 30, 1995.
Short-term liquidity:
- --------------------
At September 30, 1995, the Partnership held cash and cash equivalents of
$3,703,999. This balance provides a reasonable level of working capital for the
Partnership's immediate needs in operating its properties.
For the remainder of 1995, Partnership properties are expected to provide
positive cash flow from operations after payment of debt service and capital
improvements. Only one property, Harbour Club I Apartments, is encumbered with
mortgage debt and another property, Fidelity Plaza, is encumbered with lease
obligations. The Partnership has budgeted $2,398,000 for necessary capital
improvements for all properties in 1995 which is expected to be funded from
available cash reserves or from operations of the properties. An escrow account
restricted to the funding of priority capital needs is held by the lender for
Harbour Club I in the amount of $494,725, which is included in escrow deposits
on the Balance Sheets. The present cash balance is believed to provide an
adequate reserve for property operations.
At the present time, the Partnership does not anticipate making distributions to
the limited partners in 1995. There can be no assurance as to when the
Partnership will rebuild cash reserves judged adequate to resume distributions
to the partners.
Long-term liquidity:
- -------------------
While the outlook for maintenance of adequate levels of liquidity is favorable,
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 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 there are at present no plans for any such sales or
refinancings.
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 funds under the facility because no amounts are
reserved for any particular partnership. As of September 30, 1995, $2,362,004
remained available for borrowing under the facility; however, additional funds
could become available as other partnerships repay existing borrowings.
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 recovery
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, the 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) High River Limited Partnership vs. McNeil Partners, L.P., McNeil Investors,
Inc., McNeil Pacific Investors 1972, Ltd., McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real
Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund
XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P.,
McNeil Real Estate Fund XXV, L.P., Robert A. McNeil and Carole J. McNeil
(L95012) - High River ("HR") filed this action in the United States District
Court for the Southern District of New York against McNeil Partners, McNeil
Investors and Mr. and Mrs. McNeil requesting, among other things, names and
addresses of the Partnership's limited partners. The District Court issued a
preliminary injunction against the Partnerships requiring them to commence
mailing materials relating to High River tender offer materials on August 14,
1995.
On August 18, 1995, McNeil Partners, McNeil Investors, the Partnerships, and Mr.
and Mrs. McNeil filed an Answer and Counterclaim. The Counterclaim principally
asserts (1) the HR tender offers have been undertaken in violation of the
federal securities laws, on the basis of material, non-public, and confidential
information, and (2) that the HR offer documents omit and/or misrepresent
certain material information about the HR tender offers. The counterclaim seeks
a preliminary and permanent injunction against the continuation of the HR tender
offers and, alternatively, ordering corrective disclosure with respect to
allegedly false and misleading statements contained in the tender offer
documents.
The High River tender offer expired on October 6, 1995. The Defendants believe
that the action is moot and expect the matter to be dismissed shortly.
3) 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, the 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, the plaintiffs filed a Motion for Class Certification.
In September 1995, the court granted the plaintiffs' Motion to File an Amended
Complaint, to Consolidate and for Class Certification. The 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.
4) Robert Lewis vs. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
McNeil, et al - In the District Court of Dallas County, Texas, A-14th Judicial
District, Cause No. 95-08535 (Class Action). The plaintiff, Robert Lewis, is a
limited partner with McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund
X, Ltd. and McNeil Real Estate Fund XV, Ltd. The plaintiff brings this action on
his own behalf and as a class action on behalf of the class of all limited
partners of McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real
Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund
XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P.
and McNeil Real Estate Fund XXV, L.P. (the "Partnerships") as of August 4, 1995.
The plaintiff alleges that McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil, and other senior officers (collectively, the "Defendants") breached
their fiduciary duties by, among other things, (1) failing to attempt to sell
the properties owned by the Partnerships ("Properties") and extending the lives
of the Partnerships indefinitely, contrary to the Partnerships' business plans,
(2) paying distributions to themselves and generating fees for their affiliates,
(3) refusing to make significant distributions to the class members, despite the
fact that the Partnerships have positive cash flows and substantial cash
balances, and (4) failing to take steps to create an auction market for
Partnership equity interests, despite the fact that a third party bidder filed
tender offers for approximately forty-five percent (45%) of the outstanding
units of each of the Partnerships. The plaintiff also claims that the Defendants
have breached the partnership agreements by failing to take steps to liquidate
the Properties and by their alteration of the Partnerships' primary purposes,
their acts in contravention of these agreements, and their use of the
Partnership assets for their own benefit instead of for the benefit of the
Partnerships.
The Defendants deny that there is any merit to the plaintiff's allegations and
intend to vigorously defend this action.
5) James F. Schofield, Gerald C. Gillett and Donna S. Gillett vs. McNeil
Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc.,
Robert A. McNeil, Carole J. McNeil, et al, McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real
Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund
XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P.,
McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of California
for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action
Complaint), United States District Court, Southern District of New York, Case
No. 95CIV.6711 (Class and Derivative Action Complaint).
These are corporate/securities class and derivative actions brought in state and
federal court by limited partners of each of the nine limited partnerships that
are named as Nominal Defendants as listed above ("Partnerships"). The plaintiffs
allege that defendants McNeil Investors, Inc., its affiliate McNeil Real Estate
Management, Inc. and four of their senior officers and/or directors have
breached their fiduciary duties. Specifically, the plaintiffs allege that the
defendants have caused the Partnerships to enter into several wasteful
transactions that have no business purpose or benefit to the Partnerships and
which have rendered such units highly illiquid and artificially depressed the
prices that are available for units on the limited resale market. The plaintiffs
also allege that the defendants have engaged in a course of conduct to prevent
the acquisition of units by Carl Icahn by disseminating false, misleading and
inadequate information. The plaintiffs further allege that the defendants have
acted to advance their own personal interests at the expense of the
Partnerships' public unit holders by failing to sell Partnership properties and
failing to make distributions to unitholders and, thereby, have breached the
partnership agreements.
The defendants deny that there is any merit to the plaintiffs' allegations and
intend to vigorously defend these actions.
6) Alfred Napoletano vs. McNeil Partners, L.P., McNeil Investors, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, McNeil Real
Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund
X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of
the State of California, County of Los Angeles, Case No. BC133849 (class action
complaint). The plaintiff brings this class action on behalf of a class of all
persons and entities who are current owners of units and/or are limited partners
in one or more of the partnerships referenced above ("Partnerships"). The
plaintiff alleges that the Defendants have breached their fiduciary duties to
the class members by, among other things, (1) taking steps to prevent the
consummation of the High River Limited Partnership ("High River") tender offers
(see Item 5 - Other Information), (2) failing to take steps to maximize
unitholders' or limited partners' values, including failure to liquidate the
properties owned by the Partnerships, (3) managing the Partnerships so as to
extend indefinitely the present fee arrangements, and (4) paying itself and
entities owned and controlled by the general partner excessive fees and
reimbursements of general and administrative expenses.
The defendants deny that there is any merit to the plaintiff's allegations and
intend to vigorously defend this action.
7) Warren Heller vs. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, McNeil Real Estate
Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd.,
McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real
Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund
XXIV, L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State of
California, County of Los Angeles, Case No. BC133957 (class action complaint).
The plaintiff brings this class action on behalf of a class of all persons and
entities who are current owners of units and/or are limited partners in one or
more of the partnerships referenced above ("Partnerships"). The plaintiff
alleges that the defendants have breached their fiduciary duties to the class
members by, among other things, (1) taking steps to prevent the consummation of
the High River tender offers, (2) failing to take steps to maximize unitholders'
or limited partners' values, including failure to liquidate the properties owned
by the Partnerships, (3) managing the Partnerships so as to extend indefinitely
the present fee arrangements, and (4) paying itself and entities owned and
controlled by the general partner excessive fees and reimbursements of general
and administrative expenses.
The defendants deny that there is any merit to the plaintiff's allegations and
intend to vigorously defend this action.
8) High River Limited Partnership v. McNeil Partners L.P., McNeil Investors,
Inc., Pacific Investors 1972, Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real
Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund
XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd.,
McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil
Real Estate Fund XXV, L.P., Robert A. McNeil and Carole J. McNeil - United
States District Court for the Southern District of New York, (Case No. 95 Civ.
9488) (Second Action).
On November 7, 1995, High River commenced a second complaint which alleges,
inter alia, that McNeil's Schedule 14D-9 filed in connection with the High River
tender offers was materially false and misleading, in violation of Sections
14(d) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78n(d)
and (e), and the SEC Regulations promulgated thereunder; and that High River
further alleges that McNeil has wrongfully refused to admit High River as a
limited partner to the Funds. Additionally, High River purports to assert claims
derivatively on behalf of Funds IX, XI, XV, XXIV and XXV, for breach of contract
and breach of fiduciary duty, asserting that McNeil has charged these
Partnerships excessive fees. High River's complaint seeks, inter alia,
preliminary injunctive relief requiring McNeil to admit High River as a limited
partner in each of the ten Partnerships and to transfer the tendered units of
interest in the Partnerships to High River; an unspecified award of damages
payable to High River and an additional unspecified award of damages payable to
certain of the Partnerships; an order that defendants must discharge their
fiduciary duties and must account for all fees they have received from certain
of the Partnerships; and attorneys' fees.
The Defendants deny that there is any merit to Plaintiff's allegations and
intend to vigorously defend this action.
ITEM 5. OTHER INFORMATION
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As previously disclosed, on an unsolicited basis, High River, a partnership
controlled by Carl Icahn, announced that it had commenced an offer to purchase
37,755,237 units of limited partnership interest in the Partnership
(approximately 45% of the Partnership's units) at $0.24 per unit. The tender
offer was originally due to expire on August 31, 1995. In connection therewith,
the parties entered into certain negotiations and discussions regarding, among
other things, possible transactions between the parties and their affiliates,
McNeil Partners, L.P., McNeil Investors, Inc., and McREMI. On September 19,
1995, the parties having not reached any resolution on the terms of the proposed
transactions, McNeil Partners, L.P. terminated the parties' discussion. High
River had extended its offer several times until the final expiration date of
October 6, 1995. On October 11, 1995 High River announced that based on
preliminary information furnished by the depositary for the tender offer,
approximately 4,259,342 limited partnership units of the Partnership were
tendered and not withdrawn prior to the expiration of the tender offer. On
October 12, 1995, McNeil Partners, L.P. announced that it would continue to
explore potential avenues to enhance the value of the Partnership units, which
may include, among other things, asset sales, refinancings of Partnership
properties followed by distributions or tender offers for units of limited
partnership. There can be no assurance that any such plans will develop or that
any such transactions will be consummated.
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).
4.1 Amendment No. 1 to the Amended and Restated Limited Partnership Agreement of
McNeil Real Estate Fund XXV, L.P. dated June 1995 (incorporated by reference
to the Quarterly Report of the registrant on form 10-Q for the period ended
June 30, 1995, as filed on August 14, 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
thousand unit information has been computed based on 83,895 and 83,901 weighted
average thousand limited partnership units 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 XXV, 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 XXV, 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.