UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
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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 0-15459
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McNEIL REAL ESTATE FUND XXIII, L.P.
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(Exact name of registrant as specified in its charter)
California 33-0139793
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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
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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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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCNEIL REAL ESTATE FUND XXIII, L.P.
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1998 1997
--------------- ---------------
ASSETS
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Real estate investments:
Land..................................................... $ 239,966 $ 239,966
Buildings and improvements............................... 6,270,985 6,260,613
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6,510,951 6,500,579
Less: Accumulated depreciation.......................... (3,271,580) (3,197,623)
-------------- --------------
3,239,371 3,302,956
Cash and cash equivalents................................... 346,405 308,271
Cash segregated for security deposits....................... 44,322 43,947
Accounts receivable and other assets........................ 13,824 16,818
Escrow deposits............................................. 44,141 50,876
-------------- --------------
$ 3,688,063 $ 3,722,868
============== ==============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net.................................. $ 3,717,505 $ 3,726,154
Accounts payable and accrued expenses....................... 52,104 66,691
Accrued property taxes...................................... 29,001 44,676
Payable to affiliates - General Partner..................... 436,421 402,922
Security deposits and deferred rental revenue............... 63,736 50,364
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4,298,767 4,290,807
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Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
11,492,696 and 11,512,696 Units outstanding at
March 31, 1998 and December 31, 1997, respectively
(6,631,985 and 6,651,985 Current Income Units out-
standing at March 31, 1998 and December 31, 1997,
respectively; 4,860,711 Growth/Shelter Units
outstanding at March 31, 1998 and December 31, 1997)... (5,461,811) (5,419,474)
General Partner.......................................... 4,851,107 4,851,535
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(610,704) (567,939)
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$ 3,688,063 $ 3,722,868
============== ==============
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 XXIII, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-----------------------------------
1998 1997
--------------- --------------
Revenue:
Rental revenue .......................................... $ 348,623 $ 342,299
Interest................................................. 4,230 2,191
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Total revenue.......................................... 352,853 344,490
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Expenses:
Interest................................................. 84,778 87,528
Depreciation............................................. 73,957 68,552
Property taxes........................................... 29,001 30,573
Personnel expenses....................................... 55,106 51,922
Utilities................................................ 32,015 31,552
Repairs and maintenance.................................. 35,386 34,656
Property management fees - affiliates.................... 17,483 17,387
Other property operating expenses........................ 15,338 13,090
General and administrative............................... 18,907 13,232
General and administrative - affiliates.................. 33,647 33,683
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Total expenses......................................... 395,618 382,175
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Net loss.................................................... $ (42,765) $ (37,685)
============== ==============
Net loss allocated to limited
partners - Current Income Units.......................... $ (3,849) $ (3,392)
Net loss allocated to limited
partners - Growth/Shelter Units.......................... (38,488) (33,916)
Net loss allocated to General Partner....................... (428) (377)
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Net loss.................................................... $ (42,765) $ (37,685)
============== ==============
Net loss per thousand limited partnership units:
Current Income Units..................................... $ (.58) $ (.51)
============== ==============
Growth/Shelter Units..................................... $ (7.92) $ (6.98)
============== ==============
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 XXIII, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Three Months Ended March 31, 1998 and 1997
Total
General Limited Partners'
Partner Partners Equity (Deficit)
-------------- --------------- ----------------
Balance at December 31, 1996.............. $ 4,852,460 $ (5,327,850) $ (475,390)
Net loss:
General Partner........................ (377) - (377)
Current Income Units................... - (3,392) (3,392)
Growth/Shelter Units................... - (33,916) (33,916)
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Total net loss....................... (377) (37,308) (37,685)
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Balance at March 31, 1997................. $ 4,852,083 $ (5,365,158) $ (513,075)
============= ============= =============
Balance at December 31, 1997.............. $ 4,851,535 $ (5,419,474) $ (567,939)
Net loss:
General Partner........................ (428) - (428)
Current Income Units................... - (3,849) (3,849)
Growth/Shelter Units................... - (38,488) (38,488)
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Total net loss....................... (428) (42,337) (42,765)
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Balance at March 31, 1998................. $ 4,851,107 $ (5,461,811) $ (610,704)
============= ============= =============
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 XXIII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
March 31,
----------------------------------
1998 1997
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Cash flows from operating activities:
Cash received from tenants............................... $ 365,986 $ 348,902
Cash paid to suppliers................................... (172,630) (178,649)
Cash paid to affiliates.................................. (17,631) (21,641)
Interest received........................................ 4,230 2,191
Interest paid............................................ (80,453) (83,197)
Property taxes paid and escrowed......................... (37,941) (24,631)
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Net cash provided by operating activities................... 61,561 42,975
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Cash flows from investing activities:
Additions to real estate investments..................... (10,372) (5,307)
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Cash flows from financing activities:
Principal payments on mortgage note
payable................................................ (13,055) (12,116)
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Net increase in cash and cash equivalents................... 38,134 25,552
Cash and cash equivalents at beginning of
period................................................... 308,271 193,812
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Cash and cash equivalents at end of period.................. $ 346,405 $ 219,364
============== ==============
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 XXIII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by Operating Activities
Three Months Ended
March 31,
------------------------------------
1998 1997
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Net loss.................................................... $ (42,765) $ (37,685)
-------------- --------------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation............................................. 73,957 68,552
Amortization of discount on mortgage
note payable........................................... 4,406 4,406
Changes in assets and liabilities:
Cash segregated for security deposits.................. (375) (219)
Accounts receivable and other assets................... 2,994 2,387
Escrow deposits........................................ 6,735 17,210
Accounts payable and accrued expenses.................. (14,587) (30,212)
Accrued property taxes................................. (15,675) (12,946)
Payable to affiliates - General Partner................ 33,499 29,429
Security deposits and deferred rental
revenue.............................................. 13,372 2,053
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Total adjustments.................................... 104,326 80,660
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Net cash provided by operating activities................... $ 61,561 $ 42,975
============== ==============
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 XXIII, L.P.
Notes to Financial Statements
(Unaudited)
March 31, 1998
NOTE 1.
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McNeil Real Estate Fund XXIII, L.P. (the "Partnership"), formerly known as
Southmark Realty Partners III, Ltd., was organized on March 4, 1985 as a limited
partnership under provisions of the California Revised Limited Partnership Act
to acquire and operate 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, 1998,
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
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, 1997, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate XXIII, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
NOTE 3.
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The Partnership pays property management fees equal to 5% of the gross rental
receipts for its property to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management and leasing
services.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
The Partnership incurs asset management fees which are 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 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 in the amount of $230,761
were outstanding at March 31, 1998.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Three Months Ended
March 31,
-----------------------------------
1998 1997
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Property management fees.................................... $ 17,483 $ 17,387
Charged to general and administrative -
affiliates:
Partnership administration............................... 12,674 14,427
Asset management fee..................................... 20,973 19,256
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$ 51,130 $ 51,070
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Payable to affiliates - General Partner at March 31, 1998, and December 31,
1997, consists primarily of unpaid asset management fees and reimbursable costs
that 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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The occupancy rate at Harbour Club II Apartments was 90% at March 31, 1998. The
occupancy rate at December 31, 1997 was 89%. Operations at Harbour Club II
Apartments for the first quarter provided sufficient cash flow to pay the
property's operating expenses as well as debt service on the related mortgage
note. However, the property is in need of major capital improvements in order to
compete effectively in its local market. The Partnership does not have
sufficient cash reserves to fund the needed capital improvements, nor does the
property generate sufficient cash flow from operations to fund such capital
improvements.
RESULTS OF OPERATIONS
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Revenue:
Rental revenue at Harbour Club II Apartments increased $6,324 or 1.8% for the
first quarter of 1998 as compared to the first quarter of 1997. Management began
implementing a 3% increase in base rental rates effective January 1, 1998.
However, part of the increase in rental rates was offset by an increase in
vacancy losses.
Interest income increased $2,039 or 93% for the first quarter of 1998 as
compared to the first quarter of 1997. The increase was the result of increased
levels of Partnership cash and cash equivalents invested in interest-earning
accounts.
Expenses:
Total Partnership expenses increased $13,443 or 3.5% for the first quarter of
1998 as compared to the first quarter of 1997. Increases in depreciation and
general and administrative expenses were primarily responsible for the increase
in total Partnership expenses.
During the twelve month period ended March 31, 1998, the Partnership added
$235,780 of capital improvements to Harbour Club II Apartments. Depreciation
charges on the new assets account for the $5,405 or 7.9% increase in
depreciation expense for the first quarter of 1998 as compared to the first
quarter of 1997.
General and administrative expenses increased by $5,675 or 43% for the first
quarter of 1998 as compared to the first quarter of 1997. The increase was
mainly due to costs incurred to explore alternatives to maximize the value of
the Partnership (see Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
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The Partnership's operating activities provided $61,561 for the first quarter of
1998, a 43% increase over cash flow provided during the first quarter of 1997.
The increased cash flow from operations came from increased cash receipts from
tenants. An increase in cash payments for property taxes was offset by decreases
in cash payments to suppliers and affiliates.
Cash used for additions to real estate improvements totaled $10,372 for the
three months ended March 31, 1998 an increase over the $5,307 expended for
improvements for the same period of 1997. Scheduled monthly principal payments
on the Partnership's mortgage note totaled $13,055 for the three months ended
March 31, 1998 as compared to $12,116 for the same period of 1997.
Short-term liquidity:
The Partnership's balance of cash and cash equivalents amounted to $346,405 at
March 31, 1998, an increase of $38,134 from the balance of cash and cash
equivalents at December 31, 1997. The General Partner considers the
Partnership's cash reserves adequate for anticipated operations for the
remainder of 1998.
Operating activities at Harbour Club II Apartments for 1998 are expected to
provide sufficient cash flow for operating expenses, debt service payments, and
limited capital improvements. However, Harbour Club II Apartments is in need of
extensive capital improvements to enable the property to compete effectively in
the local market. Projected cash flows from operations will not be adequate to
fund such extensive capital improvements. To date, the Partnership has been
unable to secure financing for the needed capital improvements. The Partnership
has no established lines of credit from outside sources.
In the past, the General Partner, at its discretion, has advanced funds to the
Partnership to fund working capital requirements. The General Partner is not
obligated to advance funds to the Partnership and there is no assurance that the
Partnership will receive any additional funds.
Long-term liquidity:
The long-term operating viability of Harbour Club II Apartments is dependent on
the Partnership's ability to fund substantial capital improvements to the
property. If the Partnership does not liquidate, as contemplated below, it will
seek to obtain additional financing to allow the completion of the extensive
capital improvements, which will enable the Partnership to raise rental rates at
the property to market rates.
Harbour Club II Apartments is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and III of the complex are owned by partnerships
in which the General Partner is the general partner; while Phase IV is owned by
an unaffiliated entity. McREMI managed all four phases of the complex until
December 1992, when the property management agreement between McREMI and Phase
IV was canceled.
Pursuant to the Partnership's previously announced liquidation plans, the
Partnership has recently retained PaineWebber, Incorporated as its exclusive
financial advisor to explore alternatives to maximize the value of the
Partnership. The alternatives being considered by the Partnership include,
without limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The General Partner of the Partnership or
entities or persons affiliated with the General Partner will not be involved as
a purchaser in any of the transactions contemplated above. Any transaction will
be subject to certain conditions including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory firm as to the fairness of the consideration received by the
Partnership pursuant to such transaction. Finally, there can be no assurance
that any transaction will be consummated, or as to the terms thereof.
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 Unit 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 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits.
Exhibit
Number Description
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4. Amended and Restated Limited Partnership
Agreement dated March 30, 1992.
(Incorporated by reference to the Current
Report of the Registrant on Form 8-K dated
March 30, 1992, as filed on April 10, 1992).
11. Statement regarding computation of Net
Income (Loss) per Thousand Limited
Partnership Units: Net income (loss) per
thousand limited partner 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 6,632
and 6,652 Current Income Units (in
thousands) outstanding in 1998 and 1997,
respectively, and 4,861 Growth/Shelter Units
(in thousands) outstanding in 1998 and 1997.
27. Financial Data Schedule for the quarter
ended March 31, 1998.
b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended March 31, 1998.
McNEIL REAL ESTATE FUND XXIII, 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 XXIII, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
May 14, 1998 By: /s/ Ron K. Taylor
- ------------ ----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
May 14, 1998 By: /s/ Carol A. Fahs
- ------------ ----------------------------------------
Date Carol A. Fahs
Vice President of McNeil
Investors, Inc.
(Principal Accounting Officer)