-----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, SxwGfxmwDxgzkXuifocYNyfwxGj2utMG+IYxU3xbtOLrsCi6gVSudfwuU2H4ZXlv PA7bWULQJqTzKhohjdu+iA== 0000783414-98-000008.txt : 19981118 0000783414-98-000008.hdr.sgml : 19981118 ACCESSION NUMBER: 0000783414-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXIII LP CENTRAL INDEX KEY: 0000783414 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330139793 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15459 FILM NUMBER: 98751275 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 III 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 quarterly period ended September 30, 1998 ------------------------------------------ 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 --------- McNEIL REAL ESTATE FUND XXIII, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 33-0139793 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (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 --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- MCNEIL REAL ESTATE FUND XXIII, L.P. BALANCE SHEETS (Unaudited)
September 30, December 31, 1998 1997 ------------ ------------ ASSETS - ------ Real estate investments: Land ......................................................... $ 239,966 $ 239,966 Buildings and improvements ................................... 6,383,176 6,260,613 ----------- ----------- 6,623,142 6,500,579 Less: Accumulated depreciation .............................. (3,423,225) (3,197,623) ----------- ----------- 3,199,917 3,302,956 Cash and cash equivalents ....................................... 326,250 308,271 Cash segregated for security deposits ........................... 44,624 43,947 Accounts receivable and other assets ............................ 33,550 16,818 Escrow deposits ................................................. 120,024 50,876 ----------- ----------- $ 3,724,365 $ 3,722,868 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage note payable, net ...................................... $ 3,699,462 $ 3,726,154 Accounts payable and accrued expenses ........................... 68,079 66,691 Accrued property taxes .......................................... 87,003 44,676 Payable to affiliates - General Partner ......................... 484,839 402,922 Security deposits and deferred rental revenue ................... 89,514 50,364 ----------- ----------- 4,428,898 4,290,807 ----------- ----------- Partners' equity (deficit): Limited partners - 45,000,000 Units authorized; 11,492,696 and 11,512,696 Units outstanding at September 30, 1998 and December 31, 1997, respectively (6,631,985 and 6,651,985 Current Income Units out- standing at September 30, 1998 and December 31, 1997, respectively; 4,860,711 Growth/Shelter Units out- standing at September 30, 1998 and December 31, 1997) ...... (5,554,702) (5,419,474) General Partner .............................................. 4,850,169 4,851,535 ----------- ----------- (704,533) (567,939) ----------- ----------- $ 3,724,365 $ 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 Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenue: Rental revenue ................... $ 382,382 $ 359,219 $ 1,098,160 $ 1,044,833 Interest ......................... 3,650 3,355 11,479 8,353 ----------- ----------- ----------- ----------- Total revenue .................. 386,032 362,574 1,109,639 1,053,186 ----------- ----------- ----------- ----------- Expenses: Interest ......................... 84,277 85,260 253,586 258,284 Depreciation ..................... 76,690 66,286 225,602 205,724 Property taxes ................... 29,001 30,573 87,003 91,719 Personnel expenses ............... 51,632 52,781 153,527 146,964 Utilities ........................ 19,934 12,749 78,502 70,817 Repair and maintenance ........... 77,947 70,197 171,519 152,421 Property management fees - affiliates .............. 19,556 17,963 55,020 52,380 Other property operating expenses ....................... 21,027 15,416 47,094 42,475 General and administrative ....... 30,403 9,048 69,876 31,916 General and administrative - affiliates ..................... 35,165 33,477 104,504 102,528 ----------- ----------- ----------- ----------- Total expenses ................. 445,632 393,750 1,246,233 1,155,228 ----------- ----------- ----------- ----------- Net loss ............................ $ (59,600) $ (31,176) $ (136,594) $ (102,042) =========== =========== =========== =========== Net loss allocated to limited partners - Current Income Units ..................... $ (5,364) $ (2,806) $ (12,293) $ (9,184) Net loss allocated to limited partners - Growth/ Shelter Units .................... (53,640) (28,059) (122,935) (91,838) Net loss allocated to General Partner .................. (596) (311) (1,366) (1,020) ----------- ----------- ----------- ----------- Net loss ............................ $ (59,600) $ (31,176) $ (136,594) $ (102,042) =========== =========== =========== =========== Net loss per thousand limited partnership units: Current Income Units ............. $ (.81) $ (.42) $ (1.85) $ (1.38) =========== =========== =========== =========== Growth/Shelter Units ............. $ (11.03) $ (5.77) $ (25.29) $ (18.89) =========== =========== =========== ===========
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 Nine Months Ended September 30, 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 ................. (1,020) -- (1,020) Current Income Units ............ -- (9,184) (9,184) Growth/Shelter Units ............ -- (91,838) (91,838) ----------- ----------- ----------- Total net loss ................ (1,020) (101,022) (102,042) ----------- ----------- ----------- Balance at September 30, 1997 ...... $ 4,851,440 $(5,428,872) $ (577,432) =========== =========== =========== Balance at December 31, 1997........ $ 4,851,535 $(5,419,474) $ (567,939) Net loss: General Partner ................. (1,366) -- (1,366) Current Income Units ............ -- (12,293) (12,293) Growth/Shelter Units ............ -- (122,935) (122,935) ----------- ----------- ----------- Total net loss ................ (1,366) (135,228) (136,594) ----------- ----------- ----------- Balance at September 30, 1998 ...... $ 4,850,169 $(5,554,702) $ (704,533) =========== =========== ===========
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
Nine Months Ended September 30, -------------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Cash received from tenants .................... $ 1,126,060 $ 1,059,977 Cash paid to suppliers ........................ (525,038) (410,847) Cash paid to affiliates ....................... (77,607) (51,742) Interest received ............................. 11,479 8,353 Interest paid ................................. (240,617) (245,296) Property taxes paid and escrowed .............. (113,824) (67,646) ----------- ----------- Net cash provided by operating activities ........ 180,453 292,799 ----------- ----------- Cash flows from investing activities: Additions to real estate investments .......... (122,563) (116,532) ----------- ----------- Cash flows from financing activities: Principal payments on mortgage note payable ..................................... (39,911) (37,037) ----------- ----------- Net increase in cash and cash equivalents ........ 17,979 139,230 Cash and cash equivalents at beginning of period ........................................ 308,271 193,812 ----------- ----------- Cash and cash equivalents at end of period........ $ 326,250 $ 333,042 =========== ===========
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
Nine Months Ended September 30, ---------------------------- 1998 1997 ---------- ---------- Net loss ..................................................... $(136,594) $(102,042) --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation .............................................. 225,602 205,724 Amortization of discount on mortgage note payable ............................................ 13,219 13,219 Changes in assets and liabilities: Cash segregated for security deposits ................... (677) (651) Accounts receivable and other assets .................... (16,732) (1,055) Escrow deposits ......................................... (69,148) 23,888 Accounts payable and accrued expenses ................... 1,388 (8,014) Accrued property taxes .................................. 42,327 48,200 Payable to affiliates - General Partner ................. 81,917 103,166 Security deposits and deferred rental revenue ............................................... 39,151 10,364 --------- --------- Total adjustments ..................................... 317,047 394,841 --------- --------- Net cash provided by operating activities .................... $ 180,453 $ 292,799 ========= =========
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) September 30, 1998 NOTE 1. - ------- 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 nine months ended September 30, 1998, are not necessarily indicative of the results to be expected for the year ending December 31, 1998. 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, 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. - ------- 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 $271,296 were outstanding at September 30, 1998. Compensation and reimbursements paid to or accrued for the benefit of the General Partner and its affiliates are as follows: Nine Months Ended September 30, ------------------------ 1998 1997 -------- -------- Property management fees .................... $ 55,020 $ 52,380 Charged to general and administrative - affiliates: Partnership administration ............... 42,996 44,037 Asset management fee ..................... 61,508 58,491 -------- -------- $159,524 $154,908 ======== ======== Payable to affiliates - General Partner at September 30, 1998, and December 31, 1997, consists primarily of unpaid asset management fees and reimbursable costs that are due and payable from current operations. Note 4. - ------- 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. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing on final Court approval is scheduled for December 17, 1998. Because McNeil Real Estate Fund XXIII, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P. in the third consolidated and amended complaint. Plaintiff's counsel intend to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- The Partnership incurred increased losses for the three month and nine month periods ended September 30, 1998 than for the same periods of 1997. Net loss increased $28,424 to $59,600 for the three month period, while net loss increased $34,552 to $136,594 for the nine month period. The occupancy rate at Harbour Club II Apartments was 96% at September 30, 1998. The occupancy rate at December 31, 1997 was 89%. Operations at Harbour Club II Apartments for 1998 have 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 - --------------------- Revenue: The Partnership's rental revenue increased $23,163 or 6.4% and $53,327 or 5.1% for the three month and nine month periods ended September 30, 1998 as compared to the same periods of 1997. The Partnership increased rental rates 3.1% at the beginning of 1998. In addition, rental losses, such as vacancy and concessions, decreased 12.7% for the periods ended September 30, 1998 as compared to the same periods of 1997. Expenses: Partnership expenses increased $51,882 or 13.2% and $91,005 or 7.9% for the three month and nine month periods ended September 30, 1998 as compared to the same periods of 1997. On a percentage basis, expenses increased the most in utilities, repair and maintenance, other operating expenses, general and administrative expenses and depreciation. Utilities expense increased $7,185 to $19,934 and $7,685 to $78,502 for the three month and nine month periods ended September 30, 1998 as compared to the same periods of 1997. Costs for water and sewer charges, and to a lesser extent, electricity charges, increased as a result of increased occupancy at Harbour Club II Apartments. Repair and maintenance expense increased $7,750 and $19,098 for the three month and nine month periods ended September 30, 1998 as compared to the same periods of 1997. In December 1997, a fire damaged two apartment units as Harbour Club II Apartments. Costs incurred to repair the fire-damaged units totaled $34,385. The Partnership's insurance carrier will reimburse the Partnership for all of these costs except for a $10,000 deductible. The $10,000 deductible charge is the principal reason for the increase in repair and maintenance expense. Other operating expenses increased $5,611 to $21,027 and $4,619 to $47,094 for the three month and nine month periods ended September 30, 1998 as compared to the same periods or 1997. The Partnership incurred increased costs for legal fees, collection expenses, and property insurance. General and administrative expenses increased $21,355 to $30,403 and $37,960 to $69,876 for the three month and nine month periods ended September 30, 1998, respectively, as compared to the same periods of 1997. The increase is due to costs incurred to explore alternatives to maximize the value of the Partnership (see Liquidity and Capital Resources). LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership's operating activities provided $180,453 for the first nine months of 1998, a decrease of 38% from cash flow provided during the first nine months of 1997. Increases in cash paid to suppliers, affiliates, and for property taxes were greater than the increase in cash receipts from tenants. Cash used for investing and financing activities did not significantly change in 1998 as compared to 1997. The Partnership continues to invest minimal amounts into capital improvements at Harbour Club II Apartments and to pay down the mortgage note as called for by terms of the mortgage note agreement. Short-term liquidity: The Partnership's balance of cash and cash equivalents totaled to $326,250 at September 30, 1998, an increase of $17,979 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 affiliated with the General Partner. 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. As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, has provided financial and other information to interested parties and is currently conducting discussions with one such party in an attempt to reach a definitive agreement with respect to a sale transaction. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance that any such agreement will be reached nor 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. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after September 30, 1998. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate the sale or refinancing of its property, and respond to changing economic and competitive factors. Other Information: Management has reviewed its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management intends to inventory all such systems and query suppliers, vendors and manufacturers to determine year 2000 compliance. In circumstances of non-compliance management will work with the vendor to remedy the problem or seek alternative suppliers who will be in compliance. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to be year 2000 compliant. Management is in the process of identifying those risks as well as developing a contingency plan to mitigate potential adverse effects from non-compliance. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- 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. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing on final Court approval is scheduled for December 17, 1998. Because McNeil Real Estate Fund XXIII, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P. in the third consolidated and amended complaint. Plaintiff's counsel intend to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) Exhibits. Exhibit Number Description ------- ----------- 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 September 30, 1998. b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended September 30, 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 November 16, 1998 By: /s/ Ron K. Taylor - ----------------- ------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) November 16, 1998 By: /s/ Carol A. Fahs - ----------------- ------------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 9-MOS DEC-31-1998 SEP-30-1998 326,250 0 0 0 0 0 6,623,142 (3,423,225) 3,724,365 0 3,699,462 0 0 0 0 3,724,365 1,098,160 1,109,639 0 0 992,647 0 253,586 (136,594) 0 0 0 0 0 (136,594) 0 0
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