-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DxIn7iD+qyWJUhpuU4eRDGqkKvF82OIHXwM+kEVeECZQXxJ9nsdpV0ABobuk+Roi RW2/Gjd2JmNSSpl+CrWCDQ== 0000758745-96-000006.txt : 19960816 0000758745-96-000006.hdr.sgml : 19960816 ACCESSION NUMBER: 0000758745-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXII L P CENTRAL INDEX KEY: 0000758745 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330085680 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14268 FILM NUMBER: 96612924 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 2: 13760 NOEL ROAD SUITE 700 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK REALTY PARTNERS II LTD DATE OF NAME CHANGE: 19920413 10-Q 1 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 June 30, 1996 -------------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-14268 -------- MCNEIL REAL ESTATE FUND XXII, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 33-0085680 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (214) 448-5800 ----------------------------- Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- MCNEIL REAL ESTATE FUND XXII, L.P. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- BALANCE SHEETS (Unaudited)
June 30, December 31, 1996 1995 --------------- -------------- ASSETS - ------ Real estate investments: Land..................................................... $ 380,414 $ 380,414 Buildings and improvements............................... 9,990,652 9,842,846 -------------- ------------- 10,371,066 10,223,260 Less: Accumulated depreciation and amortization......... (4,927,686) (4,718,722) -------------- ------------- 5,443,380 5,504,538 Cash and cash equivalents................................... 703,847 629,747 Cash segregated for security deposits....................... 65,831 76,490 Accounts receivable......................................... 6,793 4,683 Escrow deposits............................................. 184,966 180,537 Prepaid expenses and other assets, net...................... 11,840 11,936 -------------- ------------- $ 6,416,657 $ 6,407,931 ============== ============= LIABILITIES AND PARTNERS' DEFICIT - --------------------------------- Mortgage note payable, net.................................. $ 6,003,743 $ 6,026,515 Accounts payable and accrued expenses....................... 90,301 133,150 Accrued property taxes ..................................... 93,878 65,931 Payable to affiliates - General Partner..................... 1,643,701 1,527,935 Security deposits and deferred rental revenue............... 71,135 73,424 -------------- ------------- 7,902,758 7,826,955 -------------- ------------- Partners' deficit: Limited partners - 55,000,000 Units authorized; 33,176,117 and 33,208,117 Units issued and outstanding at June 30, 1996 and December 31, 1995, respectively (19,818,088 and 19,825,588 Current Income Units outstanding at June 30, 1996 and December 31, 1995, respectively, and 13,358,029 and 13,382,529 Growth/Shelter Units outstanding at June 30, 1996 and December 31, 1995, respectively)..... (1,234,721) (1,168,315) General Partner.......................................... (251,380) (250,709) -------------- ------------- (1,486,101) (1,419,024) -------------- ------------- $ 6,416,657 $ 6,407,931 ============== =============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXII, L.P. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 1996 1995 1996 1995 -------------- -------------- -------------- -------------- Revenue: Rental revenue................ $ 560,146 $ 561,632 $ 1,116,301 $ 1,342,053 Interest...................... 8,131 6,956 15,825 12,942 Gain on legal settlement...... - 38,749 - 38,749 ------------- ------------- ------------- ------------- Total revenue............... 568,277 607,337 1,132,126 1,393,744 ------------- ------------- ------------- ------------- Expenses: Interest...................... 145,572 146,651 291,506 391,326 Interest - affiliates......... - 276 - 18,568 Depreciation and amortization................ 106,406 89,955 208,964 254,516 Property taxes................ 50,876 53,901 93,848 122,005 Personnel costs............... 68,160 75,157 152,354 172,845 Utilities..................... 26,338 34,369 69,148 79,182 Repair and maintenance........ 66,757 53,744 118,872 135,009 Property management fees - affiliates........... 28,029 27,316 55,601 71,613 Other property operating expenses.................... 25,117 29,495 51,865 71,679 General and administrative.... 26,301 18,322 41,788 39,680 General and administrative - affiliates.................. 58,771 66,309 115,257 130,552 Loss on disposition of real estate...................... - - - 245,637 ------------- ------------- ------------- ------------- Total expenses.............. 602,327 595,495 1,199,203 1,732,612 ------------- ------------- ------------- ------------- Net income (loss)................ $ (34,050) $ 11,842 $ (67,077) $ (338,868) ============= ============= ============= ============= Net income (loss) allocable to limited partners - Current Income Unit................... $ (3,064) $ 1,066 $ (6,037) $ (30,498) Net income (loss) allocable to limited partners - Growth Shelter Unit.................. (30,645) 10,658 (60,369) (304,981) Net income (loss) allocable to General Partner............ (341) 118 (671) (3,389) ------------- ------------- ------------- ------------- Net income (loss)................ $ (34,050) $ 11,842 $ (67,077) $ (338,868) ============= ============= ============= ============= Net income (loss) per thousand limited partnership units: Current Income Units............. $ (.15) $ .05 $ (.30) $ (1.54) ============= ============= ============= ============= Growth/Shelter Units............. $ (2.29) $ .80 $ (4.52) $ (22.79) ============= ============= ============= ==============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXII, L.P. STATEMENTS OF PARTNERS' DEFICIT (Unaudited) For the Six Months Ended June 30, 1996 and 1995
Total General Limited Partners' Partner Partners Deficit --------------- --------------- --------------- Balance at December 31, 1994.............. $ (247,625) $ (863,021) $ (1,110,646) Net loss General Partner........................ (3,389) - (3,389) Current Income Units................... - (30,498) (30,498) Growth/Shelter Units................... - (304,981) (304,981) ------------- ------------- ------------- Total net loss............................ (3,389) (335,479) (338,868) ------------- ------------- ------------- Balance at June 30,1995................... $ (251,014) $ (1,198,500) $ (1,449,514) ============= ============= ============= Balance at December 31, 1995.............. $ (250,709) $ (1,168,315) $ (1,419,024) Net loss General Partner........................ (671) - (671) Current Income Units................... - (6,037) (6,037) Growth/Shelter Units................... - (60,369) (60,369) ------------- ------------- ------------- Total net loss............................ (671) (66,406) (67,077) ------------- ------------- ------------- Balance at June 30, 1996.................. $ (251,380) $ (1,234,721) $ (1,486,101) ============= ============= =============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXII, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Six Months Ended June 30, ------------------------------------------ 1996 1995 ------------------ ---------------- Cash flows from operating activities: Cash received from tenants........................ $ 1,127,749 $ 1,414,899 Cash received from legal settlement............... - 38,749 Cash paid to suppliers............................ (487,610) (505,101) Cash paid to affiliates........................... (55,091) (225,655) Interest received................................. 15,825 12,942 Interest paid..................................... (273,137) (402,209) Interest paid to affiliates....................... - (149,043) Property taxes paid and escrowed.................. (64,448) (89,698) ---------------- -------------- Net cash provided by operating activities............ 263,288 94,884 ---------------- -------------- Cash flows from investing activities: Additions to real estate investments.............. (147,806) (102,673) Proceeds from sale of real estate................. - 738,914 ---------------- -------------- Net cash provided by (used in) investing activities.. (147,806) 636,241 ---------------- -------------- Cash flows from financing activities: Principal payments on mortgage notes payable......................................... (41,382) (51,557) Repayment of advances from affiliates - General Partner................................. - (784,654) ---------------- -------------- Net cash used in financing activities................ (41,382) (836,211) ---------------- -------------- Net increase (decrease)in cash and cash equivalents.. 74,100 (105,086) Cash and cash equivalents at beginning of period............................................ 629,747 589,211 ---------------- -------------- Cash and cash equivalents at end of period........... $ 703,847 $ 484,125 ================ ==============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXII, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Loss to Net Cash Provided by Operating Activities
Six Months Ended June 30, ----------------------------------------- 1996 1995 ----------------- ---------------- Net loss............................................. $ (67,077) $ (338,868) --------------- -------------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization..................... 208,964 254,516 Amortization of deferred borrowing costs.......... - 2,936 Amortization of discounts on mortgage note payable.................................... 18,610 17,810 Interest added to advances from affiliates - General Partner, net of payments................ - 18,568 Loss on disposition of real estate................ - 245,637 Changes in assets and liabilities: Cash segregated for security deposits........... 10,659 10,147 Accounts receivable............................. (2,110) 57,439 Escrow deposits................................. (4,429) 130,686 Prepaid expenses and other assets............... 96 (5,577) Accounts payable and accrued expenses........... (42,849) (47,764) Accrued property taxes.......................... 27,947 (88,422) Advances from affiliate - General Partner....... - (149,043) Payable to affiliates - General Partner......... 115,766 (23,490) Security deposits and deferred rental revenue....................................... (2,289) 10,309 --------------- -------------- Total adjustments............................. 330,365 433,752 --------------- -------------- Net cash provided by operating activities............ $ 263,288 $ 94,884 =============== ==============
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXII, L.P. Notes to Financial Statements (Unaudited) June 30, 1996 NOTE 1. - ------- McNeil Real Estate Fund XXII, L.P., (the "Partnership"), formerly known as Southmark Realty Partners II, Ltd., was organized on November 30, 1984 as a limited partnership under the provisions of the California Revised Limited Partnership Act to acquire and operate commercial and residential properties. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the year ending December 31, 1996. 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, 1995, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XXII, L.P., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240. NOTE 3. - ------- The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. The Partnership has suffered recurring losses from operations and the Partnership's only property is in need of major capital improvements in order to maintain occupancy and rental rates at a level to continue to support operations and debt service. Additionally, the property is part of a four phase complex. Phase I of the complex defaulted on the mortgage loan to the United States Department of Housing and Urban Development in January 1993. The property is subject to foreclosure unless a refinancing agreement can be reached with the lender. If Phase I is lost to foreclosure, it would have a significant impact on the operations of Phase III, owned by the Partnership, as the pool and clubhouse are located in Phase I. As of June 30, 1996, no steps have been taken towards the foreclosure of Phase I. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE 4. - ------- Certain reclassifications have been made to prior period amounts to conform to the current period presentation. NOTE 5. - ------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its residential property and paid 6% of gross rental revenues for its commercial property to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, for providing property management and leasing services. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. The Partnership is incurring an asset management fee which is payable to the General Partner. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. Total accrued but unpaid asset management fees of $1,058,574 were outstanding at June 30, 1996. The Partnership pays a disposition fee to an affiliate of the General Partner equal to 3% of the gross sales price for brokerage services performed in connection with the sale of the Partnership's properties. The fee is due and payable at the time the sale closes. The Partnership incurred $138,750 of such fees in connection with the sale of Wyoming Mall on March 31, 1995 which was paid in April 1995. The General Partner has, in its discretion, advanced funds to enable the Partnership to meet its working capital requirements. The advances were unsecured, due on demand and accrued interest at a rate equal to the prime lending rate plus 1%. McNeil Real Estate Fund XXI, L.P., an affiliate of the General Partner and joint owner of Wyoming Mall had advanced funds to the Partnership for tenant improvements and operations at Wyoming Mall. The advances were unsecured, due on demand and accrued interest at a rate of prime plus 3 1/2%. In April 1995, the Partnership utilized the proceeds from the sale of Wyoming Mall to repay all outstanding affiliate advances and the related accrued interest. Compensation and reimbursements paid to or accrued for the benefit of the General Partner and its affiliates are as follows: Six Months Ended June 30, ----------------------- 1996 1995 ---------- ---------- Property management fees............................ $ 55,601 $ 71,613 Charged to interest - affiliates: Interest on advances from affiliates - General Partner........................................ - 18,568 Charged to loss on disposition of real estate: Disposition fee.................................. - 138,750 Charged to general and administrative - affiliates: Partnership administration....................... 45,474 61,825 Asset management fee............................. 69,783 68,727 --------- --------- $ 170,858 $ 359,483 ========= ========= NOTE 6. - ------- The Partnership filed claims with the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") against Southmark Corporation ("Southmark") for damages relating to improper overcharges, breach of contract and breach of fiduciary duty. The Partnership settled these claims in 1991, and such settlement was approved by the Bankruptcy Court. An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April 14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in May 1995 the Partnership received in full satisfaction of its claims, $29,292 in cash, and common and preferred stock in the reorganized Southmark subsequently sold for $9,457, which amounts represent the Partnership's pro-rata share of Southmark assets available for Class 8 Claimants. NOTE 7. - ------- Martha Hess, et al. v. Southmark Realty Partners II, Ltd. (presently known as McNeil Real Estate Fund XXII, L.P.), Southmark Income Investors, Ltd, Southmark Equity Partners, Ltd., Southmark Realty Partners III, Ltd., and Southmark Equity 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. The amended cases against the defendant-group, and others, are proceeding under the caption George and Joy Kugler v. I.R.E. Real Estate Income Fund, Jerry and Barbara Neumann v. Southmark Equity Partners II, Richard and Theresa Bartoszewski v. Southmark Realty Partners III, and Edward and Rose Weskerna v. Southmark Realty Partners II. 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 Court ruled on Plaintiff's Motion for Summary Judgment on April 25, 1996 and entered partial summary judgment, holding in favor of Plaintiffs against the Partnership, as well as the initial general partners. The Court did not enter judgment as to the amount of damages, but, instead, set a May 17, 1996 status hearing and requested both parties to come to an agreement on the amount of damages. The parties have begun settlement negotiations; however, the Partnership defendants are still discussing whether to appeal the Summary Judgment. The ultimate resolution of this litigation could result in a loss of up to $355,000 in addition to related legal fees. No accrual has been recorded related to this litigation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- The Partnership reported a net loss of $67,077 for the first six months of 1996 as compared to $338,868 for the same period in 1995. On March 31, 1995, Wyoming Mall was sold to an unrelated third party for a cash price of $9,250,000. The Partnership had a 50% undivided interest in the assets, liabilities and operations of Wyoming Mall, owned jointly with McNeil Real Estate Fund XXI, L.P. The Partnership received net cash proceeds of $738,914 from the sale of the property and recorded a loss on disposition of real estate of $245,637. The Partnership recorded $256,873 of revenue and $268,759 of expense during the first six months of 1995 for Wyoming Mall. Harbour Club III is part of a four-phase apartment complex located in Belleville, Michigan. Phases I and II of the complex are owned by partnerships in which McNeil Partners, L.P. is the general partner; while Phase IV is owned by University Real Estate Fund 12, Ltd., ("UREF 12"). McREMI had been managing all four phases of the complex until December 1992, when the property management agreement between McREMI and UREF 12 was canceled. Additionally, in January 1993, Phase I defaulted on the mortgage loan to HUD and unless a refinancing agreement can be reached with the lender, the property is subject to foreclosure. If Phase I is lost to foreclosure, it would be extremely difficult to operate Phases II and III because the pool and clubhouse are located in Phase I. In January 1995, the Partnership was able to repay $220,000 of affiliate advances and accrued interest. In April 1995, the proceeds from the sale of Wyoming Mall enabled the Partnership to repay the remaining $713,697 of the affiliate advances and accrued interest. RESULTS OF OPERATIONS - --------------------- Revenue: Total Partnership revenues decreased by $39,060 and $261,618 for the three and six months ended June 30, 1996, respectively, as compared to the same periods of 1995. Rental revenue decreased $1,486 and $225,752 for the three and six months ended June 30, 1996, respectively, as compared to the same periods in 1995, primarily due to the sale of Wyoming Mall in March 1995. The Partnership recorded $38,749 of gain on legal settlement during the first half of 1995. In May 1995, the Partnership received cash of $29,292 and common and preferred stock in the reorganized Southmark that was subsequently sold for $9,457, as full satisfaction of claims previously filed in the Bankruptcy Court. Expenses: Total expenses increased $6,832 for the three months and decreased $533,409 for the six months ended June 30, 1996, as compared to the same periods of 1995, primarily due to the sale of Wyoming Mall. The effects from this transaction were declines of $97,610 for interest, $74,606 for depreciation and amortization, $14,203 for property taxes, $21,368 of personnel expenses, $15,049 for utilities, $11,917 for repairs and maintenance, $17,518 for property management fees - affiliates, and $16,488 for other property operating expenses. A $245,637 loss on the sale of Wyoming Mall was recorded in March 1995. In addition to the sale of Wyoming Mall, other factors affected the level of expenses reported by Harbor Club III. No interest - affiliates were recorded for the six months ended June 30, 1996 as compared to $18,568 for the same period of 1995. The sale of Wyoming Mall enabled the Partnership to repay all outstanding affiliate advances, thereby eliminating affiliate interest expense. Depreciation expense increased $16,451 and $29,054 for the three months and six months ended June 30, 1996, respectively, as compared to the same periods of 1995, due to the capital improvements made at Harbour Club III Apartments. Property tax expense decreased $3,025 and $13,954 for the three months and six months ended June 30, 1996, respectively, as compared to the same periods of 1995. This decrease is due to the reduction in property tax expense at Harbour Club III Apartments that occurred from a successful tax appeal. General and administrative - affiliates decreased $7,538 and $15,295 for the three months and the six months ended June 30, 1996, respectively, as compared to the same periods of 1995. This is attributable to a decrease in the number of properties, due to the sale of Wyoming Mall, to which the overhead costs are allocated by McREMI. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership was provided $263,288 of cash by operating activities during the first six months of 1996 as compared to $94,884 for the same period in 1995. Cash received from tenants, cash paid to suppliers, cash paid to affiliates, interest paid, and property taxes paid decreased due to the sale of Wyoming Mall. Due to the improved cash position from the sale of Wyoming Mall, the Partnership was able to pay $149,043 of interest due to affiliates during the first half of 1995. The Partnership received $38,749 of legal settlement relating to the claims previously filed against Southmark in the Bankruptcy Court. Net cash used in investing activities was $147,806 for the first six months of 1996 as compared to $636,241 of cash provided by investing activities for the same period of 1995. The Partnership received $738,914 of cash proceeds from the sale of Wyoming Mall on March 31, 1995. Cash used for additions to real estate totaled $147,806 during the first six months of 1996 as compared to $102,673 during the same period of 1995. Net cash used in financing activities was $41,382 during the first six months of 1996 as compared to $836,211 for the same period of 1995. Principal payments on mortgage notes payable decreased due to the retirement of the mortgage note related to Wyoming Mall. During the first six months of 1995, the improved cash position enabled the Partnership to repay all outstanding advances from affiliates of the General Partner. Short-term liquidity: At June 30, 1996, the Partnership held $703,847 of cash and cash equivalents, up $74,100 since December 31, 1995. The balance of cash and cash equivalents can be considered no more than a minimum level of cash reserves for the remaining property's operations. Harbour Club III Apartments is expected to provide sufficient positive cash flow for normal operations and debt service payments for the remainder of 1996. However, Harbour Club III is in need of major capital improvements in order to maintain occupancy and rental rates at a level to continue to support operations and debt service. The necessary capital improvements will have to be funded from outside sources. No such sources have been identified. Management is currently seeking additional financing to fund these improvements, however such financing is not assured. If the property is unable to obtain additional funds and cannot maintain operations at a level to support its current debt, the property may ultimately be foreclosed on by the lender. McNeil Real Estate Fund XXI, L.P. had advanced funds to the Partnership for tenant improvements and operations at Wyoming Mall. The advances were unsecured, due on demand and accrued interest at a rate of prime plus 3 1/2%. In April 1995, the proceeds from the sale of Wyoming Mall were utilized to repay the advances plus the accrued interest due to McNeil Real Estate Fund XXI, L.P. The General Partner has established a revolving credit facility not to exceed $5,000,000 in the aggregate which is available on a "first-come, first-served" basis to the Partnership and other affiliated partnerships, if certain conditions are met. Borrowings under the facility may be used to fund deferred maintenance, refinancing obligations and working capital needs. There is no assurance that the Partnership will receive any additional funds under the facility because no amounts have been reserved for any particular partnership. As of June 30, 1996, $4,082,159 remained available for borrowing under the facility; however, additional funds could be available as other partnerships repay existing borrowings. This commitment will terminate March 26, 1997. Long-term liquidity: While the outlook for maintenance of adequate levels of liquidity is adequate in the short term, should operations deteriorate and present cash resources become insufficient to fund current needs, the Partnership would require other sources of working capital. No such sources have been identified. The Partnership has no established lines of credit from outside sources. Other possible actions to resolve cash deficiencies include refinancing, deferral of capital expenditures except where improvements are expected to increase the competitiveness and marketability of the properties, arranging financing from affiliates or the ultimate sale of the property. A sale or refinancing is a possibility only, and there are at present no plans for any such sale or refinancing. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Distributions: To maintain adequate cash balances of the Partnership, distributions to Current Income Unit holders were suspended in 1988. There have been no distributions to Growth/Shelter Units holders. Distributions to Unit holders will remain suspended for the foreseeable future. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support distributions to the Unit holders. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- 1) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought 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 Corporation ("Southmark"), the former general partner. The former auditors initially 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 counterclaims were later dismissed on appeal, as discussed below. The trial court granted summary judgment against the Partnership based on the statute of limitations; however, on appeal, the Dallas Court of Appeals reversed the trial court and remanded for trial the Affiliated Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court denied Ernst & Young's application for writ of error on January 11, 1996. The Partnership is continuing to pursue vigorously its claims against Ernst & Young. Trial is set for the week of October 14, 1996; however, the final outcome of this litigation cannot be determined at this time. 2) Martha Hess, et al. v. Southmark Realty Partners II, Ltd. (presently known as McNeil Real Estate Fund XXII, L.P.), Southmark Income Investors, Ltd, Southmark Equity Partners, Ltd., Southmark Realty Partners III, Ltd., and Southmark Equity 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. The amended cases against the defendant-group, and others, are proceeding under the caption George and Joy Kugler v. I.R.E. Real Estate Income Fund, Jerry and Barbara Neumann v. Southmark Equity Partners II, Richard and Theresa Bartoszewski v. Southmark Realty Partners III, and Edward and Rose Weskerna v. Southmark Realty Partners II. 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 Court ruled on Plaintiff's Motion for Summary Judgment on April 25, 1996 and entered partial summary judgment, holding in favor of Plaintiffs against the Partnership, as well as the initial general partners. The Court did not enter judgment as to the amount of damages, but, instead, set a May 17, 1996 status hearing and requested both parties to come to an agreement on the amount of damages. The parties have begun settlement negotiations; however, the Partnership defendants are still discussing whether to appeal the Summary Judgment. The ultimate resolution of this litigation could result in a loss of up to $355,000 in addition to related legal fees. No accrual has been recorded related to this litigation. 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. (Incorpo- rated by reference to the Current Report of the Registrant on Form 8-K dated March 26, 1992, as filed on April 9, 1992). 11. Statement regarding computation of Net Income (Loss) per Thousand Limited Partner- ship Units: Net income (loss) per thousand limited partnership units is computed by dividing net income (loss) allocated to the limited partners by the weighted average number of limited partnership units out- standing expressed in thousands. Per unit information has been computed based on 19,818 and 19,826 weighted average Current Income Units (in thousands) outstanding in 1996 and 1995, respectively, and 13,358 and 13,383 weighted average Growth/Shelter Units (in thousands) outstanding in 1996 and 1995, respectively. 27. Financial Data Schedule for the quarter ended June 30, 1996. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended June 30, 1996. MCNEIL REAL ESTATE FUND XXII, L.P. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: McNEIL REAL ESTATE FUND XXII, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner August 14, 1996 By: /s/ Donald K. Reed - ---------------------------- ---------------------------------------- Date Donald K. Reed President and Chief Executive Officer August 14, 1996 By: /s/ Ron K. Taylor - ---------------------------- ---------------------------------------- Date Ron K. Taylor Acting Chief Financial Officer of McNeil Investors, Inc. August 14, 1996 By: /s/ Carol A. Fahs - ---------------------------- ---------------------------------------- Date Carol A. Fahs Chief Accounting Officer of McNeil Real Estate Management, Inc. EX-27 2
5 6-MOS DEC-31-1996 JUN-30-1996 703,847 0 6,793 0 0 0 10,371,066 (4,927,686) 6,416,657 0 6,003,743 0 0 0 0 6,416,657 1,116,301 1,132,126 0 0 907,697 0 291,506 0 0 (67,077) 0 0 0 (67,077) 0 0
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