-----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, SF1Yn2YBOizAYyN69NNzLVXyW5/4qyoknYycDaSgEv0BPbQ0Ip3Qcqft4wqF3Sy1 47k7IxOYV3VdaqtSimNiAA== 0000783414-99-000011.txt : 19990817 0000783414-99-000011.hdr.sgml : 19990817 ACCESSION NUMBER: 0000783414-99-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXIII LP CENTRAL INDEX KEY: 0000783414 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330139793 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15459 FILM NUMBER: 99690708 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 2: 13760 NOEL ROAD SUITE 700 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK REALTY PARTNERS III LTD DATE OF NAME CHANGE: 19920413 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 ------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _____________ Commission file number 0-15459 ---------- MCNEIL REAL ESTATE FUND XXIII, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 33-0139793 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (972) 448-5800 ------------------------------ Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- MCNEIL REAL ESTATE FUND XXIII, L.P. BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ ASSETS - ------- Real estate investments: Land ................................................. $ 239,966 $ 239,966 Buildings and improvements ........................... 6,662,859 6,534,417 ----------- ----------- 6,902,825 6,774,383 Less: Accumulated depreciation ...................... (3,651,644) (3,488,340) ----------- ----------- 3,251,181 3,286,043 Cash and cash equivalents ............................... 267,636 263,851 Cash segregated for security deposits ................... 49,357 47,679 Accounts receivable and other assets .................... 21,146 20,971 Escrow deposits ......................................... 100,110 91,267 ----------- ----------- $ 3,689,430 $ 3,709,811 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage note payable, net .............................. $ 3,673,633 $ 3,692,420 Accounts payable and accrued expenses ................... 102,234 100,291 Accrued property taxes .................................. 57,077 47,083 Payable to affiliates - General Partner ................. 584,491 521,770 Deferred gain on involuntary conversion ................. 5,106 5,106 Security deposits and deferred rental revenue ........... 54,593 57,258 ----------- ----------- 4,477,134 4,423,928 ----------- ----------- Partners' equity (deficit): Limited partners - 45,000,000 Units authorized; 11,425,696 and 11,492,696 Units outstanding at June 30, 1999 and December 31, 1998, respectively (6,574,985 and 6,631,985 Current Income Units out- standing at June 30, 1999 and December 31, 1998, respectively; 4,850,711 and 4,860,711 Growth/Shelter Units outstanding at June 30, 1999 and December 31, 1998, respectively) ............................ (5,637,041) (5,564,190) General Partner ...................................... 4,849,337 4,850,073 ----------- ----------- (787,704) (714,117) ----------- ----------- $ 3,689,430 $ 3,709,811 =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXIII, L.P. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Revenue: Rental revenue .............................. $ 384,261 $ 367,155 $ 760,909 $ 715,778 Interest .................................... 3,190 3,599 5,466 7,829 --------- --------- --------- --------- Total revenue ............................. 387,451 370,754 766,375 723,607 --------- --------- --------- --------- Expenses: Interest .................................... 83,894 84,531 168,055 169,309 Depreciation ................................ 81,651 74,955 163,304 148,912 Property taxes .............................. 27,501 29,001 55,002 58,002 Personnel expenses .......................... 46,774 46,789 93,833 101,895 Utilities ................................... 27,560 26,553 54,882 58,568 Repair and maintenance ...................... 55,235 58,186 98,842 93,572 Property management fees - affiliates ......................... 19,135 17,981 37,638 35,464 Other property operating expenses .................................. 13,123 10,729 30,182 26,067 General and administrative .................. 43,495 20,566 63,813 39,473 General and administrative - affiliates ................................ 36,454 35,692 74,411 69,339 --------- --------- --------- --------- Total expenses ............................ 434,822 404,983 839,962 800,601 --------- --------- --------- --------- Net loss ....................................... $ (47,371) $ (34,229) $ (73,587) $ (76,994) ========= ========= ========= ========= Net loss allocated to limited partners - Current Income Units ................................ $ (4,263) $ (3,080) $ (6,623) $ (6,929) Net loss allocated to limited partners - Growth/ Shelter Units ............................... (42,634) (30,807) (66,228) (69,295) Net loss allocated to General Partner ............................. (474) (342) (736) (770) --------- --------- --------- --------- Net loss ....................................... $ (47,371) $ (34,229) $ (73,587) $ (76,994) ========= ========= ========= ========= Net loss per thousand limited partnership units: Current Income Units ........................ $ (.65) $ (.46) $ (1.01) $ (1.04) ========= ========= ========= ========= Growth/Shelter Units ........................ $ (8.79) $ (6.34) $ (13.65) $ (14.26) ========= ========= ========= =========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXIII, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) (Unaudited) For the Six Months Ended June 30, 1999 and 1998
Total General Limited Partners' Partner Partners Equity (Deficit) ------------ ------------ ---------------- Balance at December 31, 1997 ............. $ 4,851,535 $(5,419,474) $ (567,939) Net loss: General Partner ....................... (770) -- (770) Current Income Units .................. -- (6,929) (6,929) Growth/Shelter Units .................. -- (69,295) (69,295) ----------- ----------- ----------- Total net loss ...................... (770) (76,224) (76,994) ----------- ----------- ----------- Balance at June 30, 1998 ................. $ 4,850,765 $(5,495,698) $ (644,933) =========== =========== =========== Balance at December 31, 1998 ............. $ 4,850,073 $(5,564,190) $ (714,117) Net loss: General Partner ....................... (736) -- (736) Current Income Units .................. -- (6,623) (6,623) Growth/Shelter Units .................. -- (66,228) (66,228) ----------- ----------- ----------- Total net loss ...................... (736) (72,851) (73,587) ----------- ----------- ----------- Balance at June 30, 1999 ................. $ 4,849,337 $(5,637,041) $ (787,704) =========== =========== ===========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXIII, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Six Months Ended June 30, ---------------------------- 1999 1998 ---------- ---------- Cash flows from operating activities: Cash received from tenants .............................. $ 756,266 $ 753,417 Cash paid to suppliers .................................. (339,307) (334,165) Cash paid to affiliates ................................. (49,328) (58,419) Interest received ....................................... 5,466 7,829 Interest paid ........................................... (158,614) (160,661) Property taxes paid and escrowed ........................ (53,851) (75,883) --------- --------- Net cash provided by operating activities .................. 160,632 132,118 --------- --------- Cash flows from investing activities: Additions to real estate investments .................... (128,442) (79,696) --------- --------- Cash flows from financing activities: Principal payments on mortgage note payable ............................................... (28,405) (26,358) --------- --------- Net increase in cash and cash equivalents .................. 3,785 26,064 Cash and cash equivalents at beginning of period .................................................. 263,851 308,271 --------- --------- Cash and cash equivalents at end of period ................. $ 267,636 $ 334,335 ========= =========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXIII, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Loss to Net Cash Provided by Operating Activities
Six Months Ended June 30, ---------------------------- 1999 1998 ---------- ---------- Net loss .................................................... $ (73,587) $ (76,994) --------- --------- Adjustments to reconcile net loss to net cash ............... provided by operating activities: Depreciation ............................................. 163,304 148,912 Amortization of discount on mortgage note payable ........................................... 9,618 8,813 Changes in assets and liabilities: Cash segregated for security deposits .................. (1,678) (375) Accounts receivable and other assets ................... (175) (5,125) Escrow deposits ........................................ (8,843) (31,207) Accounts payable and accrued expenses .................. 1,943 24,805 Accrued property taxes ................................. 9,994 13,326 Payable to affiliates - General Partner ................ 62,721 46,384 Security deposits and deferred rental revenue .............................................. (2,665) 3,579 --------- --------- Total adjustments .................................... 234,219 209,112 --------- --------- Net cash provided by operating activities ................... $ 160,632 $ 132,118 ========= =========
The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. MCNEIL REAL ESTATE FUND XXIII, L.P. Notes to Financial Statements (Unaudited) June 30, 1999 NOTE 1. - ------- McNeil Real Estate Fund XXIII, L.P. (the "Partnership"), formerly known as Southmark Realty Partners III, Ltd., was organized on March 4, 1985 as a limited partnership under provisions of the California Revised Limited Partnership Act to acquire and operate residential properties. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the six months ended June 30, 1999, are not necessarily indicative of the results to be expected for the year ending December 31, 1999. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1998, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate XXIII, L.P., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. NOTE 3. - ------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its property to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management and leasing services. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. The Partnership incurs asset management fees which are payable to the General Partner. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. Total accrued but unpaid asset management fees in the amount of $333,050 were outstanding at June 30, 1999. 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 and its affiliates are as follows: Six Months Ended June 30, ------------------------ 1999 1998 ---------- --------- Property management fees....................... $ 37,638 $ 35,464 Charged to general and administrative - affiliates: Partnership administration.................. 29,174 27,393 Asset management fee........................ 45,237 41,946 ---------- --------- $ 112,049 $ 104,803 ========== ========= Payable to affiliates - General Partner at June 30, 1999, and December 31, 1998, consists primarily of unpaid asset management fees and reimbursable costs that are due and payable from current operations. NOTE 4. - ------- On June 24, 1999, the Partnership and 18 affiliated partnerships, collectively, (the "Partnerships"),the General Partner, McNeil Investors, Inc., McNeil Real Estate Management, Inc. ("McREMI"), McNeil Summerhill, Inc. and Robert A. McNeil entered into a definitive acquisition agreement (the "Master Agreement") with WXI/McN Realty L.L.C. ("Newco"), an affiliate of Whitehall Street Real Estate Limited Partnership XI, a real estate investment fund managed by Goldman, Sachs & Co., whereby Newco and its subsidiaries will acquire the Partnerships. The Master Agreement provides that the Partnerships will be merged with subsidiaries of Newco. The Master Agreement also provides for the acquisition by Newco and its subsidiaries of the assets of McREMI. The aggregate consideration in the transaction, including the assumption or prepayment of all outstanding mortgage debt of the Partnerships, is approximately $644,440,000. Pursuant to the terms of the Master Agreement, the limited partners in the Partnership will receive cash on the closing date of the transaction (the "Closing Date") in exchange for their limited partnership interests. In addition, the Partnership will declare a special distribution to its limited partners on the Closing Date equal to its then positive net working capital balance, if any. The estimated aggregate consideration and net working capital distribution to be received per unit of limited partnership interest in the Partnership is currently estimated as $0.28 (Current Income Units only). On the Closing Date, the General Partner of the Partnership, will receive an equity interest in Newco in exchange for its contribution to Newco of the general partnership interests in the Partnerships, the limited partnership interests in Fairfax Associates II L.P. and McNeil Summerhill Associates and the assets of McREMI. The Partnership's participation in the transaction is subject to, among other conditions, the approval by a majority of the limited partners of the Partnership. In some circumstances, as defined in the Master Agreement, the Partnerships may be subject to a break-up fee, up to an aggregate maximum of $18,000,000, if the Master Agreement is terminated with respect to one or more of the Partnerships. In the case of termination of the Master Agreement in these circumstances, each of the Partnerships with respect to which the Master Agreement has been terminated will be severally, but not jointly, liable for payment to Newco of its respective break-up fee. The break-up fee ratably calculated for the Partnership is $192,420. All previous costs associated with this transaction had been allocated among the Partnerships and McREMI based on the relative number of properties contained therein. On June 24, 1999, a fairness opinion (the "Fairness Opinion") was rendered by Robert A. Stanger & Co., Inc., an independent financial advisor, to the effect that the aggregate consideration to be paid for the general partnership interests and limited partnership interests in all of the Partnerships and the assets of McREMI is fair from a financial point of view to the holders of each class of limited partnership. Based on the relative values as set forth in the Fairness Opinion, the Partnership recorded an adjustment to general and administrative expenses and accounts payable and accrued expenses during the second quarter of 1999 in the amount of $(7,200) to reflect the reallocation of previously paid transaction costs among the Partnerships and McREMI. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- The Partnership's net loss for the second quarter of 1999 increased to $47,371 from $34,229 for the second quarter of 1998. However, for the six months ended June 30, 1999, the Partnership's net loss narrowed to $73,587 from $76,994 in 1998. Operations at Harbour Club II Apartments are providing sufficient cash flow to pay the property's operating expenses, debt service on the related mortgage note, and limited capital improvements. However, the property is in need of major capital improvements in order to compete effectively in its local market. The Partnership does not have sufficient cash reserves to fund the needed capital improvements, nor does the property generate sufficient cash flow from operations to fund such capital improvements. RECENT DEVELOPMENTS - ------------------- On June 24, 1999, McNeil Partners, L.P. (the General Partner of the Partnership) and WXI/McN Realty L.L.C., an affiliate of Whitehall Street Real Estate Limited Partnership XI ("Whitehall"), a real estate investment fund managed by Goldman, Sachs & Co., announced that they have entered into a definitive acquisition agreement whereby the Whitehall affiliate will acquire by merger nineteen real estate limited partnerships operated by McNeil Partners, L.P. and Robert A. McNeil. The limited partnerships involved are the Partnership and McNeil Real Estate Funds IX, X, XI, XII, XIV, XV, XX, XXI, XXII, XXIV, XXV, XXVI and XXVII, Hearth Hollow Associates, McNeil Midwest Properties I, L.P., Regency North Associates, Fairfax Associates and McNeil Summerhill (collectively, the "Partnerships"). The Partnerships (other than Fairfax Associates and McNeil Summerhill which are wholly-owned by Robert A. McNeil and related parties) will be merged with subsidiaries of WXI/McN Realty L.L.C. The acquisition agreement also provides for the acquisition by WXI/McN Realty L.L.C. of the assets of McNeil Real Estate Management, Inc. ("McREMI"). The aggregate consideration in the transaction, including all outstanding mortgage debt of the Partnerships, is approximately $644,440,000. Pursuant to the terms of the acquisition agreement, the limited partners in each of the Partnerships (other than those wholly-owned by Robert A. McNeil) will receive cash on the closing date of the transaction in exchange for their limited partnership interests. In addition, each Partnership will make a special distribution to its limited partners on the closing date of the transaction equal to its then net positive working capital balance. McNeil Partners, L.P. will receive an equity interest in WXI/McN Realty L.L.C. in exchange for its contribution of its general partnership interests in the Partnerships, the limited partnership interests in its wholly-owned Partnerships and the assets of McREMI. The proposed transaction follows an extensive marketing effort by PaineWebber Incorporated, exclusive financial advisor to the Partnerships. The transaction has been unanimously approved by the Board of Directors of McNeil Investors, Inc., the general partner of McNeil Partners, L.P., the general partner of each of the Partnerships other than Regency North Associates, Fairfax Associates and McNeil Summerhill. The respective general partners of Regency North Associates, Fairfax Associates and McNeil Summerhill also have approved the transaction. The Board of Directors of McNeil Investors based its approval upon, among other things, the recommendation of a Special Committee of the Board, appointed at the beginning of the discussions with Whitehall to represent the interests of holders of limited partnership interests in each of the Partnerships. In addition, the Special Committee and the Board relied upon fairness opinions given by Robert A. Stanger & Co., Inc. ("Stanger & Co."), an independent financial advisor to the Partnerships, to the effect that the aggregate consideration is fair to the holders of each class of limited partnership interests in each of the Partnerships. The Special Committee's recommendation was also based upon the separate opinions of Eastdil Realty Company ("Eastdil"), the independent financial advisor to the Special Committee. Stanger & Co. and Eastdil have each also rendered an opinion that the aggregate consideration to be paid for the general partnership interests and limited partnership interests in all of the Partnerships and the assets of McREMI is fair from a financial point of view to the holders of each class of limited partnership interests in each of the Partnerships. Each of the Partnerships' participation in the transaction is subject to, among other conditions, the approval by a majority of the limited partners of the respective Partnerships. The approval of the limited partners of the Partnerships will be sought at meetings to be held in the coming months after the filing of proxy statements with the Securities and Exchange Commission with respect to the publicly traded Partnerships, and the subsequent mailing of proxy statements to the limited partners. Preliminary proxy statements were filed with the SEC on August 3, 1999. The aggregate consideration in the transaction has been allocated preliminarily among the general partnership interests and the limited partnership interests in each of the Partnerships and McREMI, based upon an allocation analysis prepared by Stanger & Co. and confirmed by Eastdil. Based upon this allocation analysis and the fairness opinions rendered by Stanger & Co. and Eastdil, the Special Committee, the Board of Directors of McNeil Investors, Inc., the respective general partners of Regency North Associates, Fairfax Associates and McNeil Summerhill have each unanimously approved the allocation of the aggregate consideration. The estimated aggregate consideration and working capital distribution to be received per unit of limited partnership interest of the Partnership is currently estimated as $0.28 (Current Income Units only). McNeil Partners, L.P. will contribute its real estate investment and management company business to a subsidiary of WXI/McN Realty, L.L.C., along with its general partnership interests in the Partnerships and its limited partnership interests in the wholly-owned Partnerships, having an aggregate allocated value, as determined by Stanger & Co., of approximately $58,640,000, of which approximately $29,400,000 reflects balances due to McNeil Partners, L.P. and McREMI as reflected on the Partnerships' financial statements as of March 31, 1999. The above estimates of the Partnership per unit estimated merger consideration and working capital distribution and the interest of McNeil Partners, L.P. are based upon, among other things, the balance sheet of the Partnership as of March 31, 1999, adjusted for intangible assets, non-cash liabilities, transaction expenses and the McNeil Partners, L.P. interest in the Partnership. Actual amounts, including the estimate allocable to McNeil Partners, L.P., will vary with the performance of the Partnership and McNeil Partners, L.P. through the closing date. The above estimated merger consideration and special working capital distribution will be adjusted at closing to reflect the then working capital position of the Partnership. Whitehall is a $2.26 billion equity fund and is the seventh in a series of funds sponsored and capitalized by Goldman, Sachs & Co. and its affiliates, along with public and private investors, to acquire real estate worldwide. RESULTS OF OPERATIONS - --------------------- Revenue: The Partnership's rental revenue increased $17,106 or 4.7% and $45,131 of 6.3% for the three month and six month periods ended June 30, 1999 as compared to the same periods of 1998. The Partnership increased base rental rates at Harbour Club II Apartments by an average 1.8% at the beginning of 1999, and by an additional 4.1% during the second quarter. Vacancy, concessions and other rental losses also decreased for the second quarter of 1999, amplifying the effects of the increased base rental rates. Expenses: Partnership expenses increased $29,839 or 7.4% and $39,361 or 4.9% for the three month and six month periods ending June 30, 1999 as compared to the same periods of 1998. On a percentage basis, the largest increases were reported in other property operating expenses, general and administrative expenses and depreciation. Other property operating expenses increased $2,394 or 22% and $4,115 or 16% for the three month and six month periods ending June 30, 1999 as compared to the same periods for 1998. A decrease in bad debt recoveries as well as increased legal and professional fees were the principal causes of the increase in other operating expenses. General and administrative expenses increased $22,929 to $43,495 and increased $24,340 to $63,813 for the three month and six month periods ended June 30, 1999, respectively, as compared to the same periods for 1998. The Partnership recorded increased costs to explore alternatives to maximize the value of the Partnership (see Recent Developments), offset by a $(7,200) reallocation of previously paid transaction costs among the Partnerships and McREMI in the second quarter of 1999 (see Note 4). LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership's operating activities provided $160,632 of cash for the first six months of 1999, a 22% increase over cash flow provided by operating activities for the same period of 1998. The increase was the result of decreased amounts paid or escrowed for property taxes and decreased amounts paid to affiliates. The Partnership invested $128,442 in additions to its real estate investment during the first six months of 1999, an increase of $48,746 over the $79,696 invested during the first six months of 1998. The Partnership continues to invest minimal amounts into capital improvements at Harbour Club II Apartments, as allowed by the Partnership's balance of cash reserves. Cash used for financing activities did not significantly change for the first six months of 1999 as compared to the first six months of 1998. Short-term liquidity: The Partnership's balance of cash and cash equivalents totaled $267,636 at June 30, 1999, an increase of $3,785 from the balance of cash and cash equivalents at the beginning of the year. The General Partner considers the Partnership's cash reserves adequate for anticipated operations for the remainder of 1999. Operating activities at Harbour Club II Apartments for 1999 are expected to provide sufficient cash flow for operating expenses, debt service payments, and limited capital improvements. However, Harbour Club II Apartments is in need of extensive capital improvements to enable the property to compete effectively in the local market. Projected cash flows from operations will not be adequate to fund such extensive capital improvements. To date, the Partnership has been unable to secure financing for the needed capital improvements. The Partnership has no established lines of credit from outside sources. In the past, the General Partner, at its discretion, has advanced funds to the Partnership to fund working capital requirements. The General Partner is not obligated to advance funds to the Partnership and there is no assurance that the Partnership will receive any additional funds. Long-term liquidity: The long-term operating viability of Harbour Club II Apartments is dependent on the Partnership's ability to fund substantial capital improvements to the property. If the Partnership does not liquidate, as contemplated below, it will seek to obtain additional financing to allow the completion of the extensive capital improvements, which will enable the Partnership to raise rental rates at the property to market rates. See "Recent Developments" above. Harbour Club II Apartments is part of a four-phase apartment complex located in Belleville, Michigan. Phases I and III of the complex are owned by partnerships affiliated with the General Partner. Phase IV is owned by an unaffiliated entity. McREMI managed all four phases of the complex until December 1992, when the property management agreement between McREMI and Phase IV was canceled. Distributions: To maintain adequate cash balances of the Partnership, distributions to Current Income Unit holders were suspended in 1988. There have been no distributions to Growth/Shelter Unit holders. Distributions to Unit holders will remain suspended for the foreseeable future. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support distributions to the Unit holders. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after June 30, 1999. 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. 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 is 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. Based on this review, management believes these systems are substantially compliant. 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 has assessed these risks and expects to have contingency plans in place by December 31, 1999 for any material potential failures. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- 1) 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. ("McREMI") 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. 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. Because the settlement contemplated a transaction which included all of the Partnerships and plaintiffs claimed that an effort should be made to sell all of the Partnerships, in or around September 1998, plaintiffs filed a third consolidated and amended complaint which included allegations with respect to the Partnerships which had not been named in previously filed complaints. On September 15, 1998, the parties signed a Stipulation of Settlement. For purposes of settlement, the parties stipulated to a class comprised of all owners of limited partner units in the Partnerships during the period beginning June 21, 1991, the earliest date that proxy materials began to be issued in connection with the restructuring of the Partnerships, through September 15, 1998. As structured, the Stipulation of Settlement provided for the payment of over $35 million in distributions and the commitment to market the Partnerships for sale, together with McREMI, through a fair and impartial bidding process overseen by a national investment banking firm. To ensure the integrity of that process, defendants agreed, among other things, to involve plaintiffs' counsel in oversight of that process, and plaintiffs' counsel retained an independent advisor to represent the interests of limited partners of the Partnerships in the event of a transaction. The transaction described in Item 2 - Recent Developments is a result of that process. The settlement was not conditioned on the consummation of this transaction. On October 6, 1998, the court gave preliminary approval to the settlement. It granted final approval to the settlement on July 8, 1999 and entered a Final Order and Judgment dismissing the consolidated action with prejudice. As a condition of final approval, the court requested, and the parties agreed to, a slight modification of the release in the Stipulation of Settlement with respect to future claims. Plaintiffs' counsel intends to seek an order awarding attorneys' fees and reimbursing their out-of-pocket expenses in an amount which is as yet undetermined. 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. 2) High River Limited Partnership, Unicorn Associates Corporation and Longacre Corporation, et al. v. McNeil Partners, L.P. ("MPLP"), McNeil Investors, Inc., McNeil Real Estate Management, Inc. (McREMI"), Robert A. McNeil and Carole J. McNeil, - Supreme Court of the State of New York, County of New York, - Index No. 99 603526. On July 23, 1999, High River and two other affiliates of Carl C. Icahn (Unicorn Associates Corporation and Longacre Corporation), filed a complaint for damages in the Supreme Court of the State of New York, County of New York. Plaintiffs allege that the defendants improperly interfered with tender offers made by High River for limited partner units in the Partnership and other affiliated partnerships in which MPLP serves as General Partner (the "McNeil Partnerships"), by, among other things, filing purportedly frivolous litigation to delay High River's offers, issuing purportedly false and misleading statements opposing the offers and purportedly forcing High River itself to file litigation to enforce its rights. High River also alleges that as a result the defendants caused High River to incur undue expense and that the defendants ultimately prevented High River from acquiring a greater number of limited partner units. Plaintiffs also allege that the defendants improperly excluded High River from participating in the auction process for the sale of the McNeil Partnerships, and otherwise took steps to prevent its participation in the auction. In addition, plaintiffs, who are limited partners in, among others, McNeil Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and XXVII, have also sued the defendants based on their status as opt-outs from the Schofield settlement. Plaintiffs seek undisclosed damages and an accounting. On July 30, 1999, defendants filed an answer to the High River Complaint, denying each and every material allegation contained in the High River Complaint and asserting several affirmative defenses. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) Exhibits. Exhibit Number Description ------- ----------- 4. Amended and Restated Limited Partnership Agreement dated March 30, 1992. (Incorporated by reference to the Current Report of the Registrant on Form 8-K dated March 30, 1992, as filed on April 10, 1992). 11. Statement regarding computation of Net Loss per Thousand Limited Partnership Units: Net loss per thousand limited partner units is computed by dividing net loss allocated to the limited partners by the weighted average number of limited partnership units outstanding expressed in thousands. Per unit information has been computed based on 6,575 and 6,632 Current Income Units (in thousands) outstanding in 1999 and 1998, respectively, and 4,851 and 4,861 Growth/Shelter Units (in thousands) outstanding in 1999 and 1998, respectively. 27. Financial Data Schedule for the quarter ended June 30, 1999. (b) Reports on Form 8-K. A Report on Form 8-K dated June 24, 1999 was filed on June 29, 1999 regarding the transaction detailed in Note 4. MCNEIL REAL ESTATE FUND XXIII, L.P. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: MCNEIL REAL ESTATE FUND XXIII, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner August 16, 1999 By: /s/ Ron K. Taylor - --------------- ------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) August 16, 1999 By: /s/ Carol A. Fahs - --------------- ------------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 6-MOS DEC-31-1999 JUN-30-1999 267,636 0 0 0 0 0 6,902,825 (3,651,644) 3,689,430 0 3,673,633 0 0 0 0 3,689,430 760,909 766,375 0 0 671,907 0 168,055 (73,587) 0 0 0 0 0 (73,587) 0 0
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