-----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, ULS2JmEYhs6wUzaBRsRZihc5JXtNjU1/Lncv/1xygTMVQbduDIftLG9ygtoThAYd gfqUDu2pcN85WLgl81X50A== 0000783414-99-000003.txt : 19990402 0000783414-99-000003.hdr.sgml : 19990402 ACCESSION NUMBER: 0000783414-99-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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-K405 SEC ACT: SEC FILE NUMBER: 000-15459 FILM NUMBER: 99580917 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-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K405 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: None - ---------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Current Income Limited Partnership Units Growth/Shelter Limited Partnership Units 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___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 11,487,696 of the Registrant's 11,492,696 limited partnership units are held by non-affiliates. The aggregate market value of units held by non-affiliates is not determinable since there is no public trading market for limited partnership units and transfers of units are subject to certain restrictions. Documents Incorporated by Reference: See Item 14, Page 31 TOTAL OF 33 PAGES PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ 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 the provisions of the California Uniform 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 General Partner was elected at a meeting of limited partners on March 30, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 30, 1992, the general partner of the Partnership was Southmark Investment Group 85, Inc. (the "Original General Partner"), a Nevada corporation and a wholly-owned subsidiary of Southmark Corporation ("Southmark"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. On February 25, 1986, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 33-1620) and commenced a public offering for the sale of $45,000,000 of limited partnership units. Two classes of limited partnership units were offered, designated as Current Income Units and Growth/Shelter Units (referred to collectively as "Units"). The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units closed on February 24, 1987, with 16,204,041 Units (9,461,580 Current Income Units and 6,742,461 Growth/Shelter Units) sold at $1 each, or gross proceeds of $16,204,041. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered its Units under the Securities Exchange Act of 1934 (File No. 0-15459). In 1991, 76,000 Units were rescinded and in 1994, 20,000 Units were relinquished. On January 1, 1996, pursuant to the Partnership's bankruptcy reorganization plan, the Partnership redeemed 4,485,345 Units for cash consideration equal to 1/1,000th of a dollar per Unit redeemed. 110,000 and 20,000 Units were relinquished in 1997 and 1998, respectively, leaving 11,492,696 Units (6,631,985 Current Income Units and 4,860,711 Growth/Shelter Units) outstanding at December 31, 1998. SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - -------------------------------------------------- On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, the General Partner nor the Original General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interests in the Original General Partner, were sold or liquidated for the benefit of creditors. In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990, providing for, among other things, the transfer of control of 34 limited partnerships (including the Partnership) in the Southmark portfolio to McNeil or his affiliates. On February 14, 1991, pursuant to the asset purchase agreement as amended on that date, McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates and commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates. On March 30, 1992, the limited partners approved a restructuring proposal that provided for (i) the replacement of the Original General Partner with a new general partner, McNeil Partners, L.P.; (ii) the adoption of the Amended Partnership Agreement which substantially alters the provisions of the original partnership agreement relating to, among other things, compensation, reimbursement of expenses and voting rights; (iii) the approval of an amended property management agreement with McREMI, the Partnership's property manager; and (iv) the approval to change the Partnership's name to McNeil Real Estate Fund XXIII, L.P. Under the Amended Partnership Agreement, the Partnership began accruing an asset management fee, retroactive to February 14, 1991, which is payable to the new General Partner. For a discussion of the methodology for calculating the asset management fee, see Item 13 Certain Relationships and Related Transactions. The proposals approved at the March 30, 1992, meeting were implemented as of that date. Concurrent with the approval of the restructuring, the General Partner acquired from Southmark and its affiliates, for aggregate consideration of $350,466 (i) the right to receive payment on the advances owing from the Partnership to Southmark and its affiliates in the amount of $4,375,661, and (ii) the general partner interest of the Original General Partner. The General Partner owns in the aggregate less than 1% of the Units. CURRENT OPERATIONS - ------------------ General: The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential real estate. At December 31, 1998, the Partnership owned one income-producing property as described in Item 2 - - Properties. The Partnership filed for protection under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on June 30, 1994. The Partnership's reorganization plan was confirmed by the Bankruptcy Court on May 17, 1995. See Chapter 11 Reorganization below. The Partnership does not directly employ any personnel. The General Partner conducts the business of the Partnership directly and through its affiliates. The Partnership reimburses affiliates of the General Partner for such services rendered in accordance with the Amended Partnership Agreement. See Item 8 - Note 3 "Transactions with Affiliates." The business of the Partnership to date has involved only one industry segment. See Item 8 - Financial Statements and Supplementary Data. The Partnership has no foreign operations. The business of the Partnership is not seasonal. Chapter 11 Reorganization: On June 30, 1994, the Partnership filed a voluntary petition for Chapter 11 reorganization with the United States Bankruptcy Court - Northern District of Texas, Dallas Division (the "Bankruptcy Court"). The Partnership continued to conduct its affairs as a debtor-in-possession, subject to the jurisdiction and supervision of the Bankruptcy Court. Concurrent with the Chapter 11 filing, the General Partner contributed to the Partnership $4,375,661 of advances and $704,482 of accrued interest on advances that were payable by the Partnership to the General Partner. The Partnership's financial statements include the accounts of Beckley Associates ("Beckley"). Beckley, which owns Harbour Club II Apartments, is 99.99% owned by the Partnership. Beckley was excluded from the Chapter 11 filing. Woodbridge Apartments, one of the Partnership's former properties, was encumbered by two mortgage notes payable. The first lien mortgage note payable was co-insured by the Federal Housing Administration and was, therefore, regulated by the United States Department of Housing and Urban Development ("HUD"). The second lien mortgage note payable was payable in monthly installments of interest only. Such payments were limited to "surplus cash" as defined by HUD and as calculated at June 30 and December 31 of each year. No "surplus cash" was available to make the interest payments on the second lien; therefore, the Partnership ceased making such payments in April 1994. The Partnership was unsuccessful in attempting to negotiate a restructuring of the mortgage, and the second lienholder was expected to initiate foreclosure proceedings. The Chapter 11 proceeding was filed to prevent the foreclosure proceedings. The Partnership's First Amended Plan of Reorganization (the "Reorganization Plan"), which contemplated a sale of Woodbridge Apartments, was submitted to the Bankruptcy Court on February 13, 1995. The Partnership's Disclosure Statement of Debtor-in-Possession (the "Disclosure Statement") was approved by the Bankruptcy Court on February 14, 1995. The Partnership's Reorganization Plan and Disclosure Statement were submitted February 20, 1995 to a vote of the impaired creditors, as defined. The impaired creditors included a class of creditors who had filed a judgment lien against Woodbridge Apartments in connection with an Illinois rescission suit. The judgment lien creditors filed objections to confirmation of the Reorganization Plan. On April 18, 1995, the Bankruptcy Court did grant an order to sell Woodbridge Apartments but denied confirmation of the Reorganization Plan. The Partnership filed an appeal of the Bankruptcy Court's ruling and, in the meantime, attempted to settle the matter with the judgment lien creditors which would allow for confirmation of the Reorganization Plan. On May 10, 1995, the Reorganization Plan was amended to provide for full payment to the judgment lien creditors. The Reorganization Plan, as amended, was subsequently confirmed by the Bankruptcy Court on May 17, 1995. Woodbridge Apartments was sold on May 25, 1995 and, in accordance with the Reorganization Plan, the first and second mortgage notes payable and the related outstanding accrued interest were paid. The Partnership also utilized $156,566 of the proceeds from the sale to pay the settlement and legal fees to the judgment lien creditors, as discussed above. On September 11, 1995, the Bankruptcy Court entered an Order Regarding Objections to Claims that allowed the Partnership to pay outstanding pre-petition claims totaling approximately $12,000 in October 1995. As outlined in the Reorganization Plan, any payments of advances and fees owed to affiliates of the General Partner were limited to remaining cash, after the pre-petition and reorganization related costs were paid. The Partnership had $37,228 of such cash available to distribute to affiliate creditors. The remaining amounts owed to affiliates of the General Partner as of May 17, 1995 were discharged resulting in an extraordinary gain of $1,435,024. On August 15, 1995, the Partnership sent an election form to each limited partner which allowed them to choose whether to redeem their interest in the Partnership. The redemption price was 1/1,000th of a dollar per Unit. The limited partners were required to respond within 30 days, and at the close of the 30 day period, 311 limited partners had elected to redeem 4,485,345 Units. In connection with the redemption, the partnership obtained a "no-action" letter from the SEC that provided that (1) the redemption could be accomplished without compliance with Rule 13e-3 of the Securities Exchange Act of 1934, and (2) the SEC did not intend to pursue an enforcement action if the Reorganization Plan was consummated. Redemption of the affected Units was effective on January 1, 1996. On November 18, 1995, the Partnership submitted to the Bankruptcy Court a request for an Application to Close Case, which was entered on December 11, 1995, and was approved on February 15, 1996. Expenses incurred by the Partnership in connection with its Chapter 11 filing have been expensed as "reorganization expenses" in the accompanying Statements of Operations. Business Plan: 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, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. 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 regarding whether any such agreement will be reached nor the terms thereof. Competitive Conditions: Since the principal business of the Partnership is to own and operate real estate, the Partnership is subject to all of the risks incident to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and Federal or local economic or rent controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changed circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership) in connection with the sale, financing and leasing of properties. The impact of these risks on the Partnership, including losses from operations and foreclosure of the Partnership's property, is described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. For a detailed discussion of the competitive conditions for the Partnership's property see Item 2 - Properties. 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 December 31, 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. Environmental Matters: Environmental laws create potential liabilities that may affect property owners. The environmental laws of Federal and certain state governments, for example, impose liability on current and certain past owners of property from which there is a release or threat of release of hazardous substances. This liability includes costs of investigation and remediation of the hazardous substances and natural resource damages. Liability for costs of investigation and remediation is strict and may be imposed irrespective of whether the property owner was at fault, although there are a number of defenses. Both governments and third parties may seek recoveries under these laws. Third parties also may seek recovery under the common law for damages to their property or person, against owners of property from which there has been a release of hazardous and other substances. The presence of contamination or the failure to remediate contaminations may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. Various buildings at properties do or may contain building materials that are the subject of various regulatory programs intended to protect human health. Such building materials include, for example, asbestos, lead-based paint, and lead plumbing components. The Company has implemented programs to deal with the presence of those materials, which include, as appropriate, reduction of potential exposure situations. The Company does not believe that the costs of such programs are likely to have a material adverse effect. Failure to implement such programs can result in regulatory violations or liability claims resulting from alleged exposure to such materials. In connection with the proposed sale transaction as more fully described above, Phase I environmental site assessments have been completed for each property owned by the Partnership. Such environmental assessments performed on the properties have not revealed any environmental liability that the Partnership believes would have a material adverse effect on the Partnership's business, assets, or results of operations. The Partnership has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of its properties. There can be no assurances, however, that environmental liabilities have not developed since such environmental assessments were prepared, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability. ITEM 2. PROPERTIES - ------- ---------- The following table sets forth the investment portfolio of the Partnership at December 31, 1998. The buildings and the land on which the property is located are owned by the Partnership in fee, subject to a first lien deed of trust as described more fully in Item 8 - Note 6 - "Mortgage Note Payable." See also Item 8 - Note 5 - "Real Estate Investment" and Schedule III - "Real Estate Investment and Accumulated Depreciation." In the opinion of management, the property is adequately covered by insurance.
Net Basis of 1998 Date Property Description Property Debt Property Taxes Acquired - -------- ----------- ------------- ------ -------------- -------- Harbour Club II (1) Apartments Belleville, MI 220 units $3,286,043 $ 3,692,420 $ 110,109 6/86
(1) Harbour Club II Apartments is owned by Beckley Associates which is 99.99% owned by the Partnership. The following table sets forth the property's occupancy rate and rent per square foot for the last five years:
1998 1997 1996 1995 1994 ------------- ------------- -------------- ------------- ------------ Harbour Club II Occupancy Rate............ 94% 89% 92% 92% 86% Rent Per Square Foot...... $7.36 $6.99 $6.60 $6.55 $5.96
Occupancy rate represents all units leased divided by the total number of units of the property as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property. No residential tenant leases 10% or more of the available rental space. Competitive conditions - ---------------------- Harbour Club II Apartments, located in Belleville, Michigan, was built in 1971 as a part of a four-phase apartment complex. The property offers a complete package of amenities including a golf course, clubhouse, exercise room, tanning beds, tennis courts, saunas, boat docks and launch, and playgrounds. Average occupancy rates in the Belleville market increased in 1998 to an average of 94%. Harbour Club II's closest competitor has rental rates approximately $50 per month above Harbour Club II's rates. The lack of capital improvements at Harbour Club II Apartments has constricted the property's ability to increase rental rates to the levels charged by competitors. The property has a large amount of deferred maintenance and has been unable to generate cash to meet its capital improvement needs. The property's ability to compete effectively in its market will be determined by the amount of capital dollars spent to upgrade the property to market standards. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: 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 XXIII, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - 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 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 for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999. Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint. Plaintiff's counsel intends 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND - ------- ------------------------------------------------------------ RELATED SECURITY HOLDER MATTERS ------------------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders Limited partnership units 779 as of February 1, 1999 (C) No distributions were made to the partners during 1998 or 1997 and none are anticipated in 1999. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies - Distributions." ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in Item 8 - Financial Statements and Supplementary Data.
Statements of Years Ended December 31, Operations 1998 1997 1996 1995 1994 - ------------------ ------------- ------------- -------------- ------------- -------- Rental revenue ............... $ 1,476,246 $ 1,398,644 $ 1,324,331 $ 1,591,118 $ 1,894,443 Write-down for impairment of real estate .............. -- -- -- -- (661,921) Gain on disposition of real estate ...................... -- -- -- 554,047 -- Income (loss) before extraordinary items ......... (146,178) (92,549) (180,141) 14,174 (1,465,830) Extraordinary items .......... -- -- -- 1,435,024 -- Net income (loss) ............ (146,178) (92,549) (180,141) 1,449,198 (1,465,830) Net income (loss) per thousand limited partnership units: Income (loss) before extraordinary items: Current Income Units ........ $ (1.98) $ (1.25) $ (2.43) $ 28.89 $ (14.01) Growth/Shelter Units ........ (27.07) (17.14) (32.81) (38.59) (197.23) Extraordinary items: Current Income Units ........ -- -- -- 88.20 -- Growth/Shelter Units ........ -- -- -- 88.20 -- Net income (loss): Current Income Units ........ (1.98) (1.25) (2.43) 117.09 (14.01) Growth/Shelter Units ........ (27.07) (17.14) (32.81) 49.61 (197.23)
As of December 31, Balance Sheets 1998 1997 1996 1995 1994 - -------------- ----------- ----------- ----------- ----------- ----------- Real estate investment, net $ 3,286,043 $ 3,302,956 $ 3,354,442 $ 3,428,097 $ 3,546,322 Asset held for sale ....... -- -- -- -- 2,373,130 Total assets .............. 3,709,811 3,722,868 3,701,423 3,825,824 6,520,408 Mortgage note payable, net 3,692,420 3,726,154 3,758,380 3,787,802 3,814,667 Liabilities subject to compromise ............. -- -- -- -- 4,184,977 Partners' deficit ......... (714,117) (567,939) (475,390) (290,769) (1,739,967)
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Woodbridge Apartments was sold on May 25, 1995. This property was placed on the market for sale during 1994 and was classified as an asset held for sale at December 31, 1994. As a result of its Chapter 11 proceeding, the realization of assets and liquidation of liabilities attributable to the Partnership were subject to significant uncertainties. The Partnership's balance sheet as of December 31, 1994, reflects the liabilities that were deferred under the Chapter 11 proceeding as "Liabilities subject to compromise." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- FINANCIAL CONDITION - ------------------- The Partnership was formed to acquire, operate and ultimately dispose of a portfolio of income-producing real properties. At the end of 1998, the Partnership owned one apartment property, Harbour Club II Apartments, located in Belleville, Michigan. Harbour Club II Apartments is subject to mortgage indebtedness. RESULTS OF OPERATIONS - --------------------- 1998 compared to 1997 The Partnership's rental revenue increased $77,602 or 5.5% in 1998 as compared to 1997. The Partnership increased base rental rates 3.1% at the beginning of 1998. In addition, vacancy and other rental losses decreased $27,178 or 14.9% for 1998 as compared to 1997. Harbour Club II Apartments was 94% occupied at the end of December 1998, an increase from the 89% occupancy rate at the end of 1997. The Partnership recorded a $6,201 gain on involuntary conversion in 1998 as a result of a fire that destroyed one apartment unit and damaged two adjacent units and a hallway. No such gain was recorded in 1997. Expenses: Partnership expenses increased $141,283 or 9.4% in 1998 as compared to 1997. Significant increases were reported in personnel expenses, repairs and maintenance, and general and administrative expenses. Personnel expenses increased 9.5% in 1998 as compared to 1997. The Partnership increased wage and salary rates and benefits in order to retain property personnel in a competitive job market. Retention of a stable work force is one factor that promotes stable property operations and increased tenant satisfaction. Repair and maintenance expenses increased 9.6% in 1998 as compared to 1997. The Partnership increased expenditures in 1998 for replacement of interior fixtures such as countertops and ceiling fans, as well as for landscaping and grounds maintenance. General and administrative expenses increased $65,902 to $106,337 in 1998. The increase is due to costs incurred to explore alternatives to maximize the value of the Partnership (see Liquidity and Capital Resources). 1997 compared to 1996 Revenue: Rental revenue at Harbour Club II Apartments increased $74,313 or 5.6% for 1997 as compared to 1996. Management was able to implement small increases in base rental rates at Harbour Club II Apartments during 1997. Average occupancy rates and other rental losses were essentially unchanged in 1997 as compared to 1996. Interest income increased $3,084 or 38% for 1997 as compared to 1996. The increase is the result of increased levels of Partnership cash and cash equivalents invested in interest-earning accounts. Expenses: Total Partnership expenses decreased $10,195 or 0.7% for 1997 as compared to 1996. Decreases in interest expense and other property operating expenses were partially offset by increased repair and maintenance expenses. Interest expense decreased $22,850 or 6.2% for 1997 because the Partnership is no longer required to pay mortgage insurance premiums. The former holder of the mortgage note, the Department of Housing and Urban Development ("HUD"), required mortgage insurance premiums be paid with the scheduled monthly debt service payments. Early in 1997, HUD sold its interest in the mortgage note to another unaffiliated holder. The new holder does not require mortgage insurance premiums. This change in debt service requirements accounts for $20,026 of the decrease in interest expense in 1997 compared to 1996. Other property operating expenses decreased $18,029 or 23% for 1997 as compared to 1996. Approximately 50% of the decrease is attributable to decreased expenses for audits and other regulatory compliance costs associated with the mortgage note held by HUD. The new mortgage note holder does not require the Partnership to adhere to the restrictive government reporting standards that were required when the mortgage note was held by HUD. The Partnership also experienced a decrease in bad debt losses in 1997 compared to 1996. Repair and maintenance expenses increased $21,166 or 13.5% for 1997 as compared to 1996. Expenditures for floor covering replacements met the Partnership's criteria for capitalization in 1996. However, such expenditures were expensed in 1997 as the amount of expenditures was not large enough to qualify for capitalization. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash flows from operations decreased $97,338 to $297,687 in 1998. Increases in cash paid to suppliers, cash paid to affiliates, and cash paid for property taxes exceeded the increase in cash received from tenants. The Partnership has increased its expenditures for capital improvements over the past four years. Capital improvements have increased from $124,698 in 1995 to $301,749 in 1998. Continued funding of capital improvements is critical to the long-term success of Harbour Club II Apartments. The Partnership has lacked the resources to complete all the capital improvements that management would like to complete. Until these capital improvements are completed, the property will be unlikely to realize rental rates that are achieved by its competitors in the Belleville market. Capital improvements for 1998 were funded by cash flow from operations and the Partnership's cash reserves. Cash flow from operations were also used to repay $53,733 of mortgage indebtedness through regularly scheduled debt service payments. Of the $301,749 of capital improvements funded during 1998, $34,385 was expended to restore and repair damage caused by a December 1997 fire that destroyed one unit and damaged two adjacent units and a hallway. During 1998, the Partnership received $13,375 of proceeds from its insurance carrier to reimburse the Partnership for these costs. The Partnership expects to receive an additional $11,010 of insurance reimbursements in 1999. Short-term liquidity: The Partnership's balance of cash and cash equivalents amounted to $263,851 at December 31, 1998, a decrease of $44,420 from the balance of cash and cash equivalents at December 31, 1997. The General Partner considers the Partnership's cash reserves adequate for normal operating expenses, for debt service payments, and for limited capital improvements in 1999. 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. Such advances were discharged as a result of the Chapter 11 proceedings. 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. 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, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. 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 regarding whether 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. YEAR 2000 DISCLOSURE - -------------------- State of readiness - ------------------ 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. Management has assessed its information technology ("IT") infrastructure to identify any systems that could be affected by the year 2000 problem. The IT used by the Partnership for financial reporting and significant accounting functions was made year 2000 compliant during recent systems conversions. The software utilized for these functions are licensed by third party vendors who have warranted that their systems are year 2000 compliant. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management has inventoried all such systems and queried suppliers, vendors and manufacturers to determine year 2000 compliance. Management will complete assessment of findings by May 1, 1999. 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. Cost - ---- The cost of IT and embedded technology systems testing and upgrades is not expected to be material to the Partnership. Because all the IT systems have been upgraded over the last three years, all such systems were compliant, or made compliant at no additional cost by third party vendors. Management anticipates the costs of assessing, testing, and if necessary replacing embedded technology components will be less than $50,000. Such costs will be funded from operations of the Partnership. Risks - ----- Ultimately, the potential impact of the year 2000 issue will depend not only on the corrective measures the Partnership undertakes, but also on the way in which the year 2000 issue is addressed by government agencies and entities that provide services or supplies to the Partnership. Management has not determined the most likely worst case scenario to the Partnership. As management studies the findings of its property systems assessment and testing, management will develop a better understanding of what would be the worst case scenario. Management believes that progress on all areas is proceeding and that the Partnership will experience no adverse effect as a result of the year 2000 issue. However, there is no assurance that this will be the case. Contingency plans - ----------------- Management is developing contingency plans to address potential year 2000 non-compliance of IT and embedded technology systems. Management believes that failure of any IT system could have an adverse impact on operations. However, management believes that alternative systems are available that could be utilized to minimize such impact. Management believes that any failure in the embedded technology systems could have an adverse impact on that property's performance. Management will assess these risks and develop plans to mitigate possible failures by June, 1999. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- ---------------------------------------------------------- Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Page Number -------- INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements: Report of Independent Public Accountants....................................... 14 Balance Sheets at December 31, 1998 and 1997................................... 15 Statements of Operations for each of the three years in the period ended December 31, 1998........................................................ 16 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1998.......................................... 17 Statements of Cash Flows for each of the three years in the period ended December 31, 1998........................................................ 18 Notes to Financial Statements.................................................. 20 Financial Statement Schedule - Schedule III - Real Estate Investment and Accumulated Depreciation............................................................. 27
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of McNeil Real Estate Fund XXIII, L.P.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XXIII, L.P. (a California limited partnership), as of December 31, 1998 and 1997, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of McNeil Real Estate Fund XXIII, L.P. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Dallas, Texas March 19, 1999 McNEIL REAL ESTATE FUND XXIII, L.P. BALANCE SHEETS
December 31, -------------------------------- 1998 1997 ------------ ------------ ASSETS - ------- Real estate investment: Land ................................................. $ 239,966 $ 239,966 Buildings and improvements ........................... 6,534,417 6,260,613 ----------- ----------- 6,774,383 6,500,579 Less: Accumulated depreciation ...................... (3,488,340) (3,197,623) ----------- ----------- 3,286,043 3,302,956 Cash and cash equivalents ............................... 263,851 308,271 Cash segregated for security deposits ................... 47,679 43,947 Accounts receivable and other assets .................... 20,971 16,818 Escrow deposits ......................................... 91,267 50,876 ----------- ----------- $ 3,709,811 $ 3,722,868 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage note payable, net .............................. $ 3,692,420 $ 3,726,154 Accounts payable and accrued expenses ................... 100,291 66,691 Accrued property taxes .................................. 47,083 44,676 Payable to affiliates - General Partner ................. 521,770 402,922 Deferred gain on involuntary conversion ................. 5,106 -- Security deposits and deferred rental revenue ........... 57,258 50,364 ----------- ----------- 4,423,928 4,290,807 ----------- ----------- Partners' equity (deficit): Limited partners - 45,000,000 Units authorized; 11,492,696 and 11,512,696 Units outstanding at December 31, 1998 and 1997, respectively .......... (6,631,985 and 6,651,985 Current Income Units outstanding at December 31, 1998 and 1997, respectively; 4,860,711 Growth/Shelter Units outstanding at December 31, 1998 and 1997) ..................................... (5,564,190) (5,419,474) General Partner ...................................... 4,850,073 4,851,535 ----------- ----------- (714,117) (567,939) ----------- ----------- $ 3,709,811 $ 3,722,868 =========== ===========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIII, L.P. STATEMENTS OF OPERATIONS
For the Years Ended December 31, --------------------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Revenue: Rental revenue .............................. $ 1,476,246 $ 1,398,644 $ 1,324,331 Interest .................................... 15,104 11,253 8,169 Gain on involuntary conversion .............. 6,201 -- -- ----------- ----------- ----------- Total revenue ............................. 1,497,551 1,409,897 1,332,500 ----------- ----------- ----------- Expenses: Interest .................................... 339,968 343,306 366,156 Depreciation ................................ 305,584 282,201 267,079 Property taxes .............................. 110,109 104,476 101,291 Personnel expenses .......................... 206,209 188,365 193,887 Utilities ................................... 96,979 91,947 97,183 Repairs and maintenance ..................... 194,855 177,753 156,587 Property management fees - affiliates ....... 73,718 70,248 65,869 Other property operating expenses ........... 68,086 59,813 77,842 General and administrative .................. 106,337 40,435 36,825 General and administrative - affiliates ..... 141,884 143,902 144,560 Reorganization expenses ..................... -- -- 5,362 ----------- ----------- ----------- Total expenses ............................ 1,643,729 1,502,446 1,512,641 ----------- ----------- ----------- Net loss ....................................... $ (146,178) $ (92,549) $ (180,141) =========== =========== =========== Net loss allocated to limited partners - Current Income Units ........................ $ (13,156) $ (8,330) $ (16,213) Net loss allocated to limited partners - Growth/Shelter Units ........................ (131,560) (83,294) (162,127) Net loss allocated to General Partner .......... (1,462) (925) (1,801) ----------- ----------- ----------- Net loss ....................................... $ (146,178) $ (92,549) $ (180,141) =========== =========== =========== Net loss per thousand limited partnership units: Current Income Units: Net loss .................................. $ (1.98) $ (1.25) $ (2.43) =========== =========== =========== Growth/Shelter Units: Net loss .................................. $ (27.07) $ (17.14) $ (32.81) =========== =========== ===========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIII, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1998, 1997 and 1996
Total General Limited Partners' Partner Partners Equity (Deficit) -------------- --------------- ---------------- Balance at December 31, 1995.............. $ 4,854,261 $ (5,145,030) $ (290,769) Redemption of limited partner units: Current Income Units................... -- (2,737) (2,737) Growth/Shelter Units................... -- (1,743) (1,743) ------------- ------------- ------------- Total redemption.......................... -- (4,480) (4,480) ------------- ------------- ------------- Net loss: General Partner........................ (1,801) -- (1,801) Current Income Units................... -- (16,213) (16,213) Growth/Shelter Units................... -- (162,127) (162,127) ------------- ------------- ------------- Total net loss............................ (1,801) (178,340) (180,141) ------------- ------------- ------------- Balance at December 31, 1996.............. 4,852,460 (5,327,850) (475,390) Net loss: General Partner........................ (925) -- (925) Current Income Units................... -- (8,330) (8,330) Growth/Shelter Units................... -- (83,294) (83,294) ------------- ------------- ------------- Total net loss............................ (925) (91,624) (92,549) ------------- ------------- ------------- Balance at December 31, 1997.............. 4,851,535 (5,419,474) (567,939) Net loss: General Partner........................ (1,462) -- (1,462) Current Income Units................... -- (13,156) (13,156) Growth/Shelter Units................... -- (131,560) (131,560) ------------- ------------- ------------- Total net loss............................ (1,462) (144,716) (146,178) ------------- ------------- ------------- Balance at December 31, 1998.............. $ 4,850,073 $ (5,564,190) $ (714,117) ============= ============= =============
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIII, L.P. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended December 31, ---------------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Cash flows from operating activities: Cash received from tenants ........ $ 1,522,298 $ 1,415,663 $ 1,339,047 Cash paid to suppliers ............ (674,563) (530,303) (621,756) Cash paid to affiliates ........... (96,754) (70,010) (65,865) Reorganization costs paid, net .... -- -- (5,362) Interest received ................. 15,104 11,253 8,169 Interest paid ..................... (320,305) (325,992) (349,610) Property taxes paid and escrowed .. (148,093) (105,586) (99,871) ----------- ----------- ----------- Net cash provided by operating activities ........................ 297,687 395,025 204,752 ----------- ----------- ----------- Cash flows from investing activities: Additions to real estate investments ..................... (301,749) (230,715) (193,424) Proceeds from insurance claim ..... 13,375 -- -- ----------- ----------- ----------- Net cash used in investing activities (288,374) (230,715) (193,424) ----------- ----------- ----------- Cash flows from financing activities: Principal payments on mortgage notes payable ................... (53,733) (49,851) (46,258) Redemption of limited partner units -- -- (4,480) ----------- ----------- ----------- Net cash used in financing activities (53,733) (49,851) (50,738) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ................ (44,420) 114,459 (39,410) Cash and cash equivalents at beginning of year ............... 308,271 193,812 233,222 ----------- ----------- ----------- Cash and cash equivalents at end of year ......................... $ 263,851 $ 308,271 $ 193,812 =========== =========== ===========
See discussion of noncash investing and financing activities in Note 3 - "Transactions with Affiliates" and Note 7 - "Gain on Involuntary Conversion." See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIII, L.P. STATEMENTS OF CASH FLOWS Reconciliation of Net Loss to Net Cash Provided by Operating Activities
For the Years Ended December 31, ---------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Net loss ............................ $(146,178) $ (92,549) $(180,141) --------- --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation ..................... 305,584 282,201 267,079 Amortization of discounts on mortgage notes payable ......... 19,999 17,625 16,836 Gain on involuntary conversion ... (6,201) -- -- Changes in assets and liabilities: Cash segregated for security deposits ..................... (3,732) (651) 11,625 Accounts receivable and other assets ................. 6,857 (3,569) 5,039 Escrow deposits ................ (40,391) 45,748 (5,328) Accounts payable and accrued expenses ..................... 33,600 (6,888) (47,032) Accrued property taxes ......... 2,407 1,157 377 Payable to affiliates - General Partner ...................... 118,848 144,140 144,564 Security deposits and deferred rental revenue ............... 6,894 7,811 (8,267) --------- --------- --------- Total adjustments .......... 443,865 487,574 384,893 --------- --------- --------- Net cash provided by operating activities ....................... $ 297,687 $ 395,025 $ 204,752 ========= ========= =========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXIII, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ 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 the 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. The General Partner was elected at a meeting of limited partners on March 30, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 30, 1992, the general partner of the Partnership was Southmark Investment Group 85, Inc. (the "Original General Partner"), a Nevada corporation and a wholly-owned subsidiary of Southmark Corporation ("Southmark"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. The Partnership is engaged in real estate activities, including the ownership, operation and management of residential real estate and other real estate related assets. At December 31, 1998, the Partnership owned one income-producing property as described in Note 5 - "Real Estate Investment." 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, provided financial and other information to interested parties as part of an auction process and until early March 1999 was conducting discussions with one bidder in an attempt to reach a definitive agreement with respect to a sale transaction. In early March 1999, because the Partnership had been unable to conclude negotiations for a transaction with such bidder, the Partnership terminated such discussions and commenced discussions with respect to a sale transaction with another well-financed bidder who had been involved in the original auction process. During the last full week of March, the Partnership entered into a 45 day exclusivity agreement with such party. 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 regarding whether any such agreement will be reached nor the terms thereof. Basis of Presentation - --------------------- The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Partnership's financial statements include the accounts of Beckley Associates ("Beckley"), a single asset limited partnership formed to accommodate the refinancing of Harbour Club II Apartments. The Partnership is the general partner of Beckley, and holds a 99.99% interest in Beckley. The Partnership exercises effective control of Beckley. The minority interest is not presented as it is both negative and immaterial. Adoption of Recent Accounting Pronouncements - --------------------------------------------- The Partnership has adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 requires an enterprise to report financial information about its reportable operating segments, which are defined as components of a business for which separate financial information is evaluated regularly by the chief decision maker in allocating resources and assessing performance. The Partnership does not prepare such information for internal use, since it analyzes the performance of and allocates resources for each property individually. The Partnership's management has determined that it operates one line of business and it would be impracticable to report segment information. Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial statements. Real Estate Investment - ---------------------- Real estate investments are generally stated at the lower of depreciated cost or fair value. Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". When the carrying value of a property exceeds the sum of all estimated future cash flows, an impairment loss is recognized. At such time, a write-down is recorded to reduce the basis of the property to its estimated fair value. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. Depreciation - ------------ Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand and cash on deposit in financial institutions with original maturities of three months or less. Carrying amounts for cash and cash equivalents approximate fair value. Escrow Deposits - --------------- The Partnership is required to maintain escrow accounts in accordance with the terms of its mortgage indebtedness agreement. These escrow accounts are controlled by the mortgagee and are used for payment of property taxes, hazard insurance, capital improvements and/or property replacements. Carrying amounts for escrow deposits approximate fair value. Discount on Mortgage Note Payable - --------------------------------- The discount on the mortgage note payable is amortized over the remaining term of the mortgage note using the effective interest method. Amortization of the discount on the mortgage note payable is included in interest expense on the Statements of Operations. Rental Revenue - -------------- The Partnership leases its residential property under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. Income Taxes - ------------ No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners. Allocation of Net Income and Net Loss - ------------------------------------- The Amended Partnership Agreement generally provides that net income (other than net income arising from sales or refinancing) shall be allocated one percent (1%) to the General Partner and ninety-nine percent (99%) to the limited partners equally as a group, and net loss shall be allocated one percent (1%) to the General Partner, nine percent (9%) to the limited partners owning Current Income Units and ninety percent (90%) to the limited partners owning Growth/Shelter Units. For financial statement purposes, net income arising from sales or refinancings shall be allocated 1% to the General Partner and 99% to the limited partners equally as a group. For tax reporting purposes, net income arising from sales or refinancing shall be allocated as follows: (a) first, amounts of such net income shall be allocated among the General Partner and limited partners in proportion to, and to the extent of, the portion of such partner's share of the net decrease in Partnership Minimum Gain determined under Treasury Regulations, (b) second, to the General Partner and limited partners in proportion to, and to the extent of, the amount by which their respective capital account balances are negative by more than their respective remaining shares of the Partnership's Minimum Gain attributable to property still owned by the Partnership and (c) third, 1% of such net income shall be allocated to the General Partner and 99% of such net income shall be allocated to the limited partners. Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocation of Partnership deductions attributable to debt. The Partnership's tax allocations for 1998, 1997 and 1996 have been made in accordance with these criteria. Distributions - ------------- At the discretion of the General Partner, distributable cash (other than cash from sales or refinancings) shall be distributed 100% to the limited partners, with such distributions first paying the Current Income Priority Return and then the Growth/Shelter Priority Return. Also at the discretion of the General Partner, the limited partners will receive 100% of distributable cash from sales or refinancing with such distributions first paying the Current Income Priority Return, then the Growth/Shelter Priority Return, then repayment of Original Invested Capital, and of the remainder, 5.88% to limited partners owning Current Income Units and 94.12% to limited partners owning Growth/Shelter Units. The limited partners' Current Income and Growth/Shelter Priority Returns represent a 10% and 8%, respectively, cumulative return on their Adjusted Invested Capital balance, as defined. No distributions of Current Income Priority Return have been made since 1988, and no distributions of Growth/Shelter Priority Return have been made since the Partnership began. In connection with a Terminating Disposition, as defined, cash from sales or refinancing and any remaining reserves shall be allocated among, and distributed to, the General Partner and limited partners in proportion to, and to the extent of, their positive capital account balances after the net income has been allocated, except for positive balances created by amounts contributed by the General Partner related to the bankruptcy, as discussed above. Net Income (Loss) Per Thousand Limited Partnership Units - -------------------------------------------------------- Net income (loss) per thousand limited partner Current Income and Growth/Shelter units ("Units") is computed by dividing net income (loss) allocated to the limited partners by the weighted average number of Units outstanding expressed in thousands. Per thousand Unit information has been computed based on 6,632, 6,652 and 6,682 weighted average Current Income Units (in thousands) outstanding in 1998, 1997 and 1996, respectively, and 4,861, 4,861 and 4,941 weighted average Growth/Shelter Units outstanding in 1998, 1997 and 1996, respectively. NOTE 2 - CHAPTER 11 REORGANIZATION - ----------------------------------- On June 30, 1994, the Partnership, excluding Beckley, filed a voluntary petition for Chapter 11 reorganization. The Partnership continued to conduct its affairs as a debtor-in-possession, subject to the jurisdiction and supervision of the Bankruptcy Court. Woodbridge Apartments, one of the Partnership's former properties, was encumbered by two mortgage notes payable. The first lien mortgage note payable was co-insured by the Federal Housing Administration and was, therefore, regulated by the United States Department of Housing and Urban Development ("HUD"). The second lien mortgage note payable was payable in monthly installments of interest only. Such payments were limited to "surplus cash," as defined by HUD and as calculated at June 30 and December 31 of each year. No "surplus cash" was available to make the interest payments on the second lien, and therefore, the Partnership ceased making such payments in April 1994. The Partnership was unsuccessful in attempting to negotiate a restructuring of the mortgage, and the second lienholder was expected to initiate foreclosure proceedings. The Chapter 11 proceeding was filed to prevent the foreclosure proceedings. The Partnership's Reorganization Plan, which contemplated a sale of Woodbridge Apartments, was submitted to the Bankruptcy Court on February 13, 1995. The Partnership's Disclosure Statement of Debtor-in-Possession (the "Disclosure Statement") was approved by the Bankruptcy Court on February 14, 1995. The Partnership's Reorganization Plan and Disclosure Statement were submitted February 20, 1995, to a vote of the impaired creditors, as defined. The impaired creditors included a class of creditors who had filed a judgment lien against Woodbridge Apartments in connection with an Illinois rescission suit. The judgment lien creditors filed objections to confirmation of the Reorganization Plan. On April 18, 1995, the Bankruptcy Court granted an order to sell Woodbridge Apartments but denied confirmation of the Reorganization Plan. The Partnership filed an appeal of the Bankruptcy Court's ruling and, in the meantime, attempted to settle the matter with the judgment lien creditors that would allow for confirmation of the Reorganization Plan. On May 10, 1995, the Reorganization Plan was amended to provide for full payment to the judgment lien creditors. The Reorganization Plan, as amended, was subsequently confirmed by the Bankruptcy Court on May 17, 1995. The Partnership sold Woodbridge Apartments on May 25, 1995. On August 15, 1995, the Partnership sent an election form to each limited partner which allowed them to choose whether to redeem their interest in the Partnership. The redemption price was 1/1000th of a dollar per Unit. The limited partners were required to respond within 30 days, and at the close of the 30 day period, 311 limited partners had elected to redeem 4,485,345 Units. In connection with the redemption, the Partnership obtained a "no-action" letter from the Securities and Exchange Commission ("SEC") that provided that (1) the redemption could be accomplished without compliance with Rule 13e-3 of the Securities Exchange Act of 1934, and (2) the SEC did not intend to pursue an enforcement action if the Reorganization Plan was consummated. Redemption of the affected Units was completed on January 1, 1996. On November 18, 1995, the Partnership submitted to the Bankruptcy Court a request for an Application to Close Case, which was entered on December 11, 1995, and approved on February 15, 1996. NOTE 3 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- The Partnership pays property management fees equal to 5% of the Partnership's gross rental receipts to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management and leasing services for the Partnership's residential properties. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under the terms of the Amended Partnership Agreement, the Partnership incurs an asset management fee 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 each 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 to .75% in 2000, .50% in 2001 and .25% thereafter. Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows:
For the Years Ended December 31, ---------------------------------------- 1998 1997 1996 -------- -------- -------- Property management fees - affiliates $ 73,718 $ 70,248 $ 65,869 Charged to general and administrative - affiliates: Partnership administration ....... 56,674 60,011 70,979 Asset management fee ............. 85,210 83,891 73,581 -------- -------- -------- $215,602 $214,150 $210,429 ======== ======== ========
Payable to affiliates - General Partner at December 31, 1998 and 1997 consists of property management fees, reimbursable costs and asset management fees that are due and payable from current operations. NOTE 4 - TAXABLE INCOME (LOSS) - ------------------------------ McNeil Real Estate Fund XXIII, L.P. is a partnership and is not subject to Federal and state income taxes. Accordingly, no recognition has been given to income taxes in the accompanying financial statements of the Partnership since the income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly. The Partnership's net assets and liabilities for tax reporting purposes exceeded the net assets and liabilities for financial purposes by $2,343,520, $2,314,356 and $2,271,179 at December 31, 1998, 1997 and 1996, respectively. NOTE 5 - REAL ESTATE INVESTMENT - ------------------------------- The basis and accumulated depreciation of the Partnership's real estate investment at December 31, 1998 and 1997, are set forth in the following table:
Harbour Club II December 31, Belleville, MI 1998 1997 ----------------- ----------- ----------- Land ............................................... $ 239,966 $ 239,966 Building and improvements .......................... 6,534,417 6,260,613 ---------- ----------- 6,774,383 6,500,579 Accumulated depreciation ........................... (3,488,340) (3,197,623) ---------- ----------- Net book value ..................................... $ 3,286,043 $ 3,302,956 ========== ===========
The Partnership's real estate investment is encumbered by a mortgage note as discussed in Note 6 - "Mortgage Note Payable." NOTE 6 - MORTGAGE NOTE PAYABLE - ------------------------------ The following table sets forth the mortgage note payable of the Partnership at December 31, 1998 and 1997. The mortgage note payable is secured by the Partnership's real estate investment.
Mortgage Annual Monthly Lien Interest Payments/ December 31, Property Position(a) Rates % Maturity Date 1998 1997 - -------- ----------- ------- -------------------- --------------- --------- Harbour Club II First 7.50 $ 31,170 05/24 $ 4,241,468 $ 4,295,201 Discount (b) (549,048) (569,047) ---------- ----------- $ 3,692,420 $ 3,726,154 ========== ===========
(a) The debt is non-recourse to the Partnership. (b) The discount for Harbour Club II mortgage note is based on an effective interest rate of 9.13%. Scheduled principal maturities of the mortgage note under the existing agreement, excluding the $549,048 discount, are as follows: 1999............................. $ 57,891 2000............................. 62,385 2001............................. 67,229 2002............................. 72,448 2003............................. 78,072 Thereafter ...................... 3,903,443 ---------- Total $ 4,241,468 ========== Based on borrowing rates currently available to the Partnership for a mortgage loan with similar terms and average maturities, the fair value of the mortgage note payable was approximately $4,238,000 and $4,387,000 at December 31, 1998 and 1997, respectively. NOTE 7 - GAIN ON INVOLUNTARY CONVERSION - ---------------------------------------- On December 17, 1997, a fire destroyed one unit of Harbour Club II Apartments and damaged two adjacent units and a hallway. The cost to repair the fire damage was $34,385. The Partnership has received $13,375 of reimbursements from its insurance carrier, and expects to receive an additional $11,010. The Partnership will record an $11,307 gain on involuntary conversion equal to the insurance proceeds received and expected to be received less the $13,078 adjusted basis of the property damaged by the fire. Because all of the insurance proceeds have not been received at December 31, 1998, only $6,201 of the gain on involuntary conversion was recognized on the Statement of Operations for the year ended December 31, 1998. The remaining $5,106 of the gain on involuntary conversion was deferred and reported on the Partnership's December 31, 1998 Balance Sheet. The $5,106 deferred gain on involuntary conversion will be recognized when the Partnership receives the remainder of the insurance proceeds. NOTE 8 - LEGAL PROCEEDINGS - -------------------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: 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 XXIII, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - 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 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 for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999. Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, 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., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint. Plaintiff's counsel intends 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. NOTE 9 - COMMITMENTS AND CONTINGENCIES - -------------------------------------- Environmental laws create potential liabilities that may affect property owners. The environmental laws of Federal and certain state governments, for example, impose liability on current and certain past owners of property from which there is a release or threat of release of hazardous substances. This liability includes costs of investigation and remediation of the hazardous substances and natural resource damages. Liability for costs of investigation and remediation is strict and may be imposed irrespective of whether the property owner was at fault, although there are a number of defenses. Both governments and third parties may seek recoveries under these laws. Third parties also may seek recovery under the common law for damages to their property or person, against owners of property from which there has been a release of hazardous and other substances. The presence of contamination or the failure to remediate contaminations may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. Various buildings at properties do or may contain building materials that are the subject of various regulatory programs intended to protect human health. Such building materials include, for example, asbestos, lead-based paint, and lead plumbing components. The Company has implemented programs to deal with the presence of those materials, which include, as appropriate, reduction of potential exposure situations. The Company does not believe that the costs of such programs are likely to have a material adverse effect. Failure to implement such programs can result in regulatory violations or liability claims resulting from alleged exposure to such materials. In connection with the proposed sale transaction as more fully described in Note 1 - "Organization and Summary of Significant Accounting Policies", Phase I environmental site assessments have been completed for each property owned by the Partnership. Such environmental assessments performed on the properties have not revealed any environmental liability that the Partnership believes would have a material adverse effect on the Partnership's business, assets, or results of operations. The Partnership has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of its properties. There can be no assurances, however, that environmental liabilities have not developed since such environmental assessments were prepared, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability. McNEIL REAL ESTATE FUND XXIII, L.P. SCHEDULE III REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION December 31, 1998
Costs Initial Cost (a) Cumulative Capitalized Related Buildings and Write-down for Subsequent Description Encumbrance (a) Land Improvements Impairment (b) To Acquisition - ----------- --------------- ------ ------------- -------------- --------------- APARTMENTS: Harbour Club II (c) Belleville, MI $ 3,692,420 $ 311,119 $ 7,488,130 $ (2,104,290) $ 1,079,424 ============= ============= ============= =========== ============
(a) The initial cost and encumbrances reflect the present value of future loan payments discounted, if appropriate, at a rate estimated to be the prevailing interest rate at the date of acquisition. (b) The carrying value of Harbour Club II Apartments was reduced by $1,783,702 in 1992 and $320,588 in 1989. (c) For Federal income tax purposes, the property is depreciated over lives ranging from 7-27.5 years using ACRS or MACRS methods. The aggregate cost of the real estate investment for Federal income tax purposes was $9,468,364 and accumulated depreciation was $6,279,390 at December 31, 1998. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXIII, L.P. SCHEDULE III REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION December 31, 1998
Gross Amount at Which Carried at Close of Period Buildings and Accumulated Description Land Improvements Total (c) Depreciation - ----------- ---- ------------- --------- ------------ APARTMENT: Harbour Club II (c) Belleville, MI $ 239,966 $ 6,534,417 $ 6,774,383 $ (3,488,340) ============= ============= =============== =============
(c) For Federal income tax purposes, the property is depreciated over lives ranging from 7-27.5 years using ACRS or MACRS methods. The aggregate cost of the real estate investment for Federal income tax purposes was $9,468,364 and accumulated depreciation was $6,279,390 at December 31, 1998. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXIII, L.P. SCHEDULE III REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION December 31, 1998
Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------- APARTMENTS: Harbour Club II (c) Belleville, MI 1971 6/86 5-25
(c) For Federal income tax purposes, the property is depreciated over lives ranging from 7-27.5 years using ACRS or MACRS methods. The aggregate cost of the real estate investment for Federal income tax purposes was $9,468,364 and accumulated depreciation was $6,279,390 at December 31, 1998. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXIII, L.P. Notes to Schedule III Real Estate Investment and Accumulated Depreciation A summary of activity for the Partnership's real estate investment and accumulated depreciation is as follows:
For the Years Ended December 31, -------------------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Real estate investment: Balance at beginning of year..... $ 6,500,579 $ 6,269,864 $ 6,076,440 Improvements .................... 301,749 230,715 193,424 Assets replaced ................. (27,945) -- -- ----------- ----------- ----------- Balance at end of year .......... $ 6,774,383 $ 6,500,579 $ 6,269,864 =========== =========== =========== Accumulated depreciation: Balance at beginning of year .... $ 3,197,623 $ 2,915,422 $ 2,648,343 Depreciation .................... 305,584 282,201 267,079 Assets replaced ................. (14,867) -- -- ----------- ----------- ----------- Balance at end of year .......... $ 3,488,340 $ 3,197,623 $ 2,915,422 =========== =========== ===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ----------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------ None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- Neither the Partnership nor the General Partner has any directors or executive officers. The names and ages of, as well as the positions held by, the officers and directors of McNeil Investors, Inc., the general partner of the General Partner, are as follows: Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Robert A. McNeil, 78 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such an entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate financing since the late 1940's and in real estate acquisitions, syndications and dispositions since 1960. From 1986 until active operations of McREMI and McNeil Partners, L.P. began in February 1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the International Board of Directors of the Salk Institute, which promotes research in improvements in health care. Carole J. McNeil 55 Mrs. McNeil is Co-Chairman, with husband Co-Chairman of the Robert A. McNeil, of McNeil Investors, Board Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate associate with the Madison Company and, earlier, a commercial sales associate and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established Escrow Training Centers, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute. Ron K. Taylor 41 Mr. Taylor is the President and Chief President and Chief Executive Officer of McNeil Real Estate Executive Officer Management which is an affiliate of the General Partner. Mr. Taylor has been in this capacity since the resignation of Donald K. Reed on March 4, 1997. Prior to assuming his current responsibilities, Mr. Taylor served as a Senior Vice President of McREMI. Mr. Taylor has been in this capacity since McREMI commenced operations in 1991. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management firm. In this capacity, Mr. Taylor had the responsibility for the management and leasing of a 21,000,000 square foot portfolio of commercial properties. Mr. Taylor has been actively involved in the real estate industry since 1983. Each director shall serve until his successor shall have been duly elected and qualified. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1998, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1998. The Partnership has no plans to pay any such remuneration to any directors or officers of the General Partner in the future. See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- (A) Security ownership of certain beneficial owners. No individual or group as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, known to the registrant is the beneficial owner of more than 5 percent of the Partnership's Units. (B) Security ownership of management. The General Partner owns 5,000 limited partnership units at February 1, 1999, which represents less than 1% of the outstanding Units. (C) Change in control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------- The amendments to the Partnership compensation structure included in the Amended Partnership Agreement provide for an asset management fee to replace all other forms of General Partner compensation other than property management fees and reimbursements of certain costs. 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 to .75% in 2000, .50% in 2001 and .25% thereafter. For the year ended December 31, 1998, the Partnership accrued $85,210 of such asset management fees. Total accrued but unpaid asset management fees of $294,998 were outstanding at December 31, 1998. The Partnership pays property management fees equal to 5% of the gross rental receipts of its residential properties to McREMI, an affiliate of the General Partner, for providing property management and leasing services. Additionally, the Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1998, the Partnership incurred $130,392 of such property management fees and reimbursements. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K - -------- ---------------------------------------------------------------- See accompanying Index to Financial Statements at Item 8 - Financial Statements and Supplementary Data. (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). 10.1 Portfolio Services Agreement dated February 14, 1991, between Southmark Realty Partners III, Ltd. and McNeil Real Estate Management, Inc. (1) 10.2 Modification of Note and Mortgage dated May 1, 1984, between Knoblinks Associates II and Samuel R. Pierce, Jr., as Secretary of Housing and Urban Development relating to Harbour Club II. (1) 10.3 Property Management Agreement dated March 30, 1992, between McNeil Real Estate Fund XXIII, L.P. and McNeil Real Estate Management, Inc. (2) 10.4 Amendment of Property Management Agreement dated March 5, 1993. (2) 10.6 Property Management Agreement dated March 30, 1992 between Beckley Associates and McNeil Real Estate Management, Inc. (3) 10.7 Disclosure Statement of Debtor-in-Possession pursuant to Section 1125 of the Bankruptcy Code. (4) 10.8 Debtor's First Amended Plan of Reorganization (as Modified), dated February 13, 1995. (5) Exhibit Number Description ------- ----------- 10.9 Order Confirming Plan, dated May 17, 1995. (5) 11. Statement regarding computation of net income (loss) per limited partnership unit (see Note 1 to Financial Statements appearing in Item 8). 22. Following is a list of subsidiaries of the Partnership: Names Under Jurisdiction Which It Is Name of Subsidiary Incorporation Doing Business ------------------ ------------- -------------- Beckley Associates Michigan None The Partnership has omitted certain documents pertaining to the Partnership's Chapter 11 filing and other instruments with respect to long-term debt where the total amount of the securities authorized thereunder does not exceed 10% of the total assets of the Partnership. The Partnership agrees to furnish a copy of each such instrument to the Commission upon request. (1) Incorporated by reference to the Quarterly Report of the registrant, on Form 10-Q for the period ended March 31, 1991, as filed on May 14, 1991. (2) Incorporated by reference to the Annual Report of the registrant, on Form 10-K for the period ended December 31, 1992, as filed on March 30, 1993. (3) Incorporated by reference to the Annual Report of the registrant, on Form 10-K for the period ended December 31, 1993, as filed on March 30, 1994. (4) Incorporated by reference to the Annual Report of the registrant, on Form 10-K for the period ended December 31, 1994, as filed on March 30, 1995. (5) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1995, as filed on April 1, 1996. (B) Reports on Form 8-K. There were no reports on Form 8-K filed by the Partnership during the quarter ended December 31, 1998. McNEIL REAL ESTATE FUND XXIII, L.P. SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) 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 March 31, 1999 By: /s/ Robert A. McNeil - -------------- -------------------------------------------- Date Robert A. McNeil Chairman of the Board and Director Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 31, 1999 By: /s/ Ron K. Taylor - -------------- -------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) March 31, 1999 By: /s/ Carol A. Fahs - -------------- -------------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 12-MOS DEC-31-1998 DEC-31-1998 263,851 0 0 0 0 0 6,774,383 (3,488,340) 3,709,811 0 3,692,420 0 0 0 0 3,709,811 1,476,246 1,497,551 0 0 1,303,761 0 339,968 (146,178) 0 0 0 0 0 (146,178) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----