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 March 31, 1997
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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
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MCNEIL REAL ESTATE FUND XXV, L.P.
- --------------------------------------------------------------------------------
(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 600, LB70, Dallas, Texas, 75240
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(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
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MCNEIL REAL ESTATE FUND XXV, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
--------------- --------------
ASSETS
- ------
Real estate investments:
Land..................................................... $ 5,524,462 $ 5,524,462
Buildings and improvements............................... 65,937,186 65,777,015
-------------- -------------
71,461,648 71,301,477
Less: Accumulated depreciation and amortization......... (33,357,719) (32,569,829)
-------------- -------------
38,103,929 38,731,648
Cash and cash equivalents................................... 2,036,705 3,256,746
Cash segregated for security deposits....................... 317,025 314,762
Note receivable............................................. 344,225 344,225
Accounts receivable, net of allowance for doubtful
accounts of $677,123 at March 31, 1997 and
December 31, 1996........................................ 790,045 791,836
Escrow deposits............................................. 41,318 75,327
Deferred borrowing costs, net of accumulated
amortization of $79,038 and $76,755 at March
31, 1997 and December 31, 1996, respectively............ 239,712 241,995
Prepaid expenses and other assets........................... 337,836 349,317
-------------- -------------
$ 42,210,795 $ 44,105,856
============== =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable....................................... $ 7,381,507 $ 7,381,507
Accounts payable and accrued expenses....................... 213,779 995,763
Accrued interest............................................ - 178,277
Accrued property taxes...................................... 395,057 502,142
Payable to affiliates....................................... 58,858 146,998
Land lease obligation....................................... 237,025 246,332
Deferred gain............................................... 344,225 344,225
Security deposits and deferred rental revenue............... 318,018 329,291
-------------- -------------
8,948,469 10,124,535
-------------- -------------
Partners' equity (deficit):
Limited partners - 84,000,000 limited partnership units
authorized; 82,943,685 limited partnership units
issued and outstanding at March 31, 1997 and
December 31, 1996...................................... 33,723,891 34,440,696
General Partner.......................................... (461,565) (459,375)
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33,262,326 33,981,321
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$ 42,210,795 $ 44,105,856
============== =============
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
March 31,
---------------------------------
1997 1996
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Revenue:
Rental revenue........................................... $ 2,215,120 $ 2,309,392
Interest ................................................. 39,437 56,130
-------------- -------------
Total revenue........................................... 2,254,557 2,365,522
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Expenses:
Interest.................................................. 211,015 216,136
Depreciation and amortization............................. 787,890 870,621
Property taxes............................................ 205,343 238,501
Personnel costs........................................... 238,505 230,575
Utilities................................................. 189,471 187,276
Repairs and maintenance................................... 258,197 238,558
Property management fees -affiliates...................... 127,106 128,129
Other property operating expenses......................... 205,501 193,786
General and administrative................................ 51,481 42,391
General and administrative - affiliates................... 199,049 227,556
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Total expenses.......................................... 2,473,558 2,573,529
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Net loss....................................................... $ (219,001) $ (208,007)
============= =============
Net loss allocable to limited partners......................... $ (216,811) $ (205,927)
Net loss allocable to General Partner.......................... (2,190) (2,080)
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Net loss....................................................... $ (219,001) $ (208,007)
============= =============
Net loss per thousand limited partnership units................ $ (2.61) $ (2.45)
============= =============
Distributions per thousand limited partnership units........... $ 6.03 $ -
============= =============
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 Three Months Ended March 31, 1997 and 1996
Total
General Limited Partners'
Partner Partners Equity (Deficit)
--------------- --------------- ----------------
Balance at December 31, 1995.............. $ (433,599) $ 37,898,581 $ 37,464,982
Net loss.................................. (2,080) (205,927) (208,007)
------------- ------------- -------------
Balance at March 31, 1996................. $ (435,679) $ 37,692,654 $ 37,256,975
============= ============= =============
Balance at December 31, 1996.............. $ (459,375) $ 34,440,696 $ 33,981,321
Net loss.................................. (2,190) (216,811) (219,001)
Distributions............................. - (499,994) (499,994)
------------- ------------- -------------
Balance at March 31, 1997................. $ (461,565) $ 33,723,891 $ 33,262,326
============= ============= =============
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 (Decrease) in Cash and Cash Equivalents
Three Months Ended
March 31,
-----------------------------------------
1997 1996
----------------- ----------------
Cash flows from operating activities:
Cash received from tenants........................ $ 2,199,446 $ 2,272,161
Cash paid to suppliers............................ (1,709,729) (1,040,342)
Cash paid to affiliates........................... (414,295) (194,584)
Interest received................................. 39,437 56,130
Interest paid..................................... (387,009) (161,864)
Property taxes paid and escrowed.................. (278,419) (303,611)
--------------- --------------
Net cash provided by (used in) operating
activities........................................ (550,569) 627,890
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Cash flows from investing activities:
Additions to real estate investments.............. (160,171) (239,230)
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Cash flows from financing activities:
Payments on capitalized land lease
obligation...................................... (9,307) (6,948)
Distributions paid................................ (499,994) -
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Net cash used in financing activities................ (509,301) (6,948)
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Net increase (decrease) in cash and
cash equivalents.................................. (1,220,041) 381,712
Cash and cash equivalents at beginning of
period............................................ 3,256,746 3,987,381
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Cash and cash equivalents at end of period........... $ 2,036,705 $ 4,369,093
=============== ==============
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 (Used in)
Operating Activities
Three Months Ended
March 31,
-----------------------------------------
1997 1996
----------------- -----------------
Net loss............................................. $ (219,001) $ (208,007)
--------------- ---------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 787,890 870,621
Amortization of deferred borrowing costs.......... 2,283 2,283
Changes in assets and liabilities:
Cash segregated for security deposits........... (2,263) (2,249)
Accounts receivable, net........................ 1,791 (49,854)
Escrow deposits................................. 34,009 75,933
Prepaid expenses and other assets............... 11,481 3,923
Accounts payable and accrued expenses........... (781,984) (212,269)
Accrued interest................................ (178,277) 51,989
Accrued property taxes.......................... (107,085) (79,285)
Payable to affiliates........................... (88,140) 161,101
Security deposits and deferred rental
revenue....................................... (11,273) 13,704
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Total adjustments............................. (331,568) 835,897
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Net cash provided by (used in) operating
activities........................................ $ (550,569) $ 627,890
=============== ==============
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
March 31, 1997
(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 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, 1997 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
NOTE 2.
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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, 1996, 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 The Herman Group, 2121 San Jacinto
St., 26th Floor, Dallas, Texas 75201.
NOTE 3.
- -------
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:
Three Months Ended
March 31,
--------------------------
1997 1996
----------- ----------
Property management fees..................... $ 127,106 $ 128,129
Charged to general and administrative
expense:
Partnership administration................ 42,928 62,570
Asset management fee...................... 156,121 164,986
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$ 326,155 $ 355,685
========== =========
Payable to affiliates at March 31, 1997 and December 31, 1996 consisted
primarily of unpaid property management fees, Partnership general and
administrative expenses and asset management fees and are due and payable from
current operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
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FINANCIAL CONDITION
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There has been no significant change in the operations of the Partnership's
properties since December 31, 1996. The Partnership reported a net loss of
$219,001 for the first three months of 1997 as compared to $208,007 for the
first three months of 1996. Revenue in 1997 decreased slightly to $2,254,557
from $2,365,522 in 1996, and expenses dropped to $2,473,558 from $2,573,529.
Net cash used in operating activities was $550,569 for the three months ended
March 31, 1997. The Partnership expended $160,171 for capital improvements and
$9,307 for payments on the capitalized land lease obligation. After
distributions of $499,994 to the limited partners, cash and cash equivalents
totaled $2,036,705 at March 31, 1997, a net decrease of $1,220,041 from the
balance at December 31, 1996.
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. Effective January 23, 1997, the mortgage note payable was sold by
the United States Department of Housing and Urban Development to an unaffiliated
lender. The Partnership is currently attempting to negotiate a cure of the
default and a modification of the note agreement with the new lender. 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. As of March 31, 1997, no steps have been taken toward foreclosure.
RESULTS OF OPERATIONS
- ---------------------
Revenue:
Total Partnership revenue decreased by $110,965 for the three months ended March
31, 1997 as compared to the same period in 1996. The decrease was due to
decreases in rental revenue and interest income, as discussed below.
Rental revenue for the three months ended March 31, 1997 decreased by $94,272 as
compared to the three months ended March 31, 1996. The decrease was mainly due
to decreases of approximately $41,000 at both Northwest Plaza Office Building
and Fidelity Plaza Shopping Center, and $21,000 at Century Park Office Building.
The decreases were primarily the result of decreased occupancy rates from 98%,
87% and 95%, respectively, at March 31, 1996 to 87%, 84% and 91%, respectively,
at March 31, 1997. In addition, a tenant at Fidelity Plaza paid approximately
$29,000 of lease termination fees in 1996. No such fees were received in the
first quarter of 1997.
Interest income decreased by $16,693 for the three months ended March 31, 1997
as compared to the same period in 1996 due to a lower amount of cash available
for short-term investment in 1997. The Partnership held $2 million of cash and
cash equivalents at March 31, 1997 as compared to $4.4 million at March 31,
1996.
Expenses:
Total expenses decreased by $99,971 for the three months ended March 31, 1997 as
compared to the same period in 1996. The decrease was primarily due to a
decrease in depreciation and amortization, property taxes and general and
administrative - affiliates, partially offset by an increase in general and
administrative expenses, as discussed below.
Property taxes decreased by $33,158 for the three months ended March 31, 1997 as
compared to the same period in 1996. The decrease was mainly due to adjustments
made to estimate accrued property taxes at Northwest Plaza and Kellogg Building
in 1996.
General and administrative expenses increased by $9,090 for the three months
ended March 31, 1997 as compared to the same period in 1996. Costs incurred for
investor services were paid to an unrelated third party in 1997. In the first
quarter of 1996, such costs were paid to an affiliate of the General Partner and
were included in general and administrative - affiliates on the Statements of
Operations.
General and administrative - affiliates decreased by $28,507 for the three
months ended March 31, 1997 as compared to the same period in 1996. The decrease
was mainly due to a decrease in overhead expenses allocated to the Partnership
by McREMI, which was partially due to investor services being performed by an
unrelated third party in 1997, as discussed above. In addition there was a
slight decrease in asset management fees as a result of a decrease in the
tangible asset value of the Partnership, on which the fees are based.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow used in operating activities was $550,569 for the first three months
of 1997 as compared to $627,890 provided for the same period in 1996. The change
in cash flow from operations was due to increases in cash paid to suppliers,
cash paid to affiliates and interest paid. In February 1997, the Partnership was
required to pay the plaintiffs' attorneys $690,000 for legal expenses for a
lawsuit relating to the rescission of limited partnership units. During the
first three months of 1997, the Partnership paid $250,000 of deferred asset
management fees. In March 1997, defaulted interest of $184,000 was paid to the
lender of Harbour Club I in addition to the required monthly cash flow payment.
The Partnership is currently attempting to negotiate a cure of the default and a
modification of the note agreement with the new lender.
The Partnership expended $160,171 and $239,230 for additions to its real estate
investments during the three months ended March 31, 1997 and 1996, respectively.
A greater amount was spent in 1996 at Harbour Club I for roof replacement and
hallway upgrades and at Fidelity Plaza for lighting.
The Partnership distributed $499,994 to the limited partners in the first
quarter of 1997. No such distributions were paid to the limited partners in the
first quarter of 1996.
Short-term liquidity:
At March 31, 1997, the Partnership held cash and cash equivalents of $2,036,705.
This balance provides a reasonable level of working capital for the
Partnership's immediate needs in operating its properties.
For the remainder of 1997, 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. As previously discussed, the Harbour Club I mortgage debt is
currently in default. The Partnership has budgeted approximately $1,416,000 for
necessary capital improvements for all properties in 1997 which is expected to
be funded from available cash reserves or from operations of the properties.
Additional efforts to maintain and improve Partnership liquidity have included
continued attention to property management activities. The objective has been to
obtain maximum occupancy rates while holding expenses to levels necessary to
maximize cash flows. The Partnership has made capital expenditures on its
properties where improvements were expected to increase the competitiveness and
marketability of the properties.
Long-term liquidity:
While the outlook for maintenance of adequate levels of liquidity is favorable,
should operations deteriorate and present cash resources be insufficient for
current needs, the Partnership would require other sources of working capital.
No such sources have been identified. The Partnership has no established lines
of credit from outside sources. Other possible actions to resolve cash
deficiencies include refinancings, deferral of capital expenditures on
Partnership properties except where improvements are expected to increase the
competitiveness and marketability of the properties, arranging financing from
affiliates or the ultimate sale of the properties. Sales and refinancings are
possibilities only, and there are at present no plans for any such sales or
refinancings.
The Partnership determined to evaluate market and other economic conditions to
establish the optimum time to commence an orderly liquidation of the
Partnership's assets in accordance with the terms of the Amended Partnership
Agreement. Taking such conditions as well as other pertinent information into
account, the Partnership has determined to begin orderly liquidation of all its
assets. Although there can be no assurance as to the timing of the liquidation
due to real estate market conditions, the general difficulty of disposing of
real estate, and other general economic factors, it is anticipated that such
liquidation would result in the dissolution of the Partnership followed by a
liquidating distribution to the limited partners by December 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend.
Plaintiffs have until May 27, 1997 to file a second amended complaint, unless
otherwise agreed to by the parties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(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).
Exhibit
Number Description
------- -----------
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 82,944 and 83,895 weighted average
thousand limited partnership units
outstanding in 1997 and 1996, respectively.
27. Financial Data Schedule for the quarter
ended March 31, 1997.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended March 31, 1997.
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
May 14, 1997 By: /s/ Ron K. Taylor
- -------------- ------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
May 14, 1997 By: /s/ Carol A. Fahs
- -------------- ------------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)