-----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, Te4hoL9jT1/+QWmkKBZu7gvj1EOkqevY6oUPC7F8I4lWpbLLYw5yBx9jpXnO7uLb qp+m3iEBs/zmvlp2N88esA== 0000793307-98-000010.txt : 19981118 0000793307-98-000010.hdr.sgml : 19981118 ACCESSION NUMBER: 0000793307-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXVI LP CENTRAL INDEX KEY: 0000793307 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330168395 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15460 FILM NUMBER: 98750229 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 EQUITY PARTNERS III LTD DATE OF NAME CHANGE: 19920413 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-15460 ---------- MCNEIL REAL ESTATE FUND XXVI, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 33-0168395 - -------------------------------------------------------------------------------- (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 XXVI, L.P. BALANCE SHEETS (Unaudited)
September 30, December 31, 1998 1997 ------------ ------------ ASSETS - ------ Real estate investments: Land .................................................. $ 6,750,456 $ 6,750,456 Buildings and improvements ............................ 55,358,854 54,854,340 ------------ ------------ 62,109,310 61,604,796 Less: Accumulated depreciation and amortization ...... (26,226,630) (24,345,484) ------------ ------------ 35,882,680 37,259,312 Asset held for sale ...................................... -- 3,047,765 Cash and cash equivalents ................................ 4,644,012 2,823,216 Cash segregated for security deposits .................... 261,028 235,617 Accounts receivable, net of allowance for doubtful accounts of $536,718 at September 30, 1998 and $572,392 at December 31, 1997 ......................... 1,095,613 1,221,528 Prepaid commissions ...................................... 370,486 381,923 Prepaid expenses and other assets ........................ 165,171 229,664 Deferred borrowing costs, net of accumulated amortization of $377,782 and $307,435 at September 30, 1998 and December 31, 1997, respectively .......................................... 195,380 265,727 ------------ ------------ $ 42,614,370 $ 45,464,752 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage notes payable ................................... $ 21,150,903 $ 21,442,045 Accounts payable and accrued expenses .................... 416,658 488,719 Accrued property taxes ................................... 116,568 81,308 Payable to affiliates - General Partner .................. 815,816 292,574 Security deposits and deferred rental revenue ............ 231,640 297,859 ------------ ------------ 22,731,585 22,602,505 ------------ ------------ Partners' equity (deficit): Limited Partners - 90,000,000 Units authorized; 86,530,671 Units issued and outstanding at September 30, 1998 and December 31, 1997 ......... 20,298,125 23,273,176 General Partner ....................................... (415,340) (410,929) ------------ ------------ 19,882,785 22,862,247 ------------ ------------ $ 42,614,370 $ 45,464,752 ============ ============
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 XXVI, L.P. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenue: Rental revenue ..................... $ 2,270,860 $ 2,189,623 $ 6,675,894 $ 6,721,468 Interest ........................... 63,234 35,975 137,789 120,250 Gain on sale of real estate ........ -- -- 116,297 -- ----------- ----------- ----------- ----------- Total revenue .................... 2,334,094 2,225,598 6,929,980 6,841,718 ----------- ----------- ----------- ----------- Expenses: Interest ........................... 413,723 434,704 1,274,837 1,308,462 Depreciation and amortization ..................... 632,028 638,845 1,881,146 1,955,972 Property taxes ..................... 238,248 217,719 606,466 640,471 Personnel expenses ................. 197,168 209,368 602,042 639,756 Utilities .......................... 240,044 242,615 710,204 739,254 Repairs and maintenance ............ 209,381 225,863 688,288 690,615 Property management fees - affiliates ................ 122,840 137,550 391,093 392,540 Other property operating expenses ......................... 94,231 135,933 325,488 416,011 General and administrative ......... 62,703 31,556 294,145 101,803 General and administrative - affiliates ....................... 202,790 175,549 597,374 537,899 ----------- ----------- ----------- ----------- Total expenses ................... 2,413,156 2,449,702 7,371,083 7,422,783 ----------- ----------- ----------- ----------- Net loss .............................. $ (79,062) $ (224,104) $ (441,103) $ (581,065) =========== =========== =========== =========== Net loss allocable to limited partners ................ $ (78,271) $ (221,863) $ (436,692) $ (575,254) Net loss allocable to General Partner ................. (791) (2,241) (4,411) (5,811) ----------- ----------- ----------- ----------- Net loss .............................. $ (79,062) $ (224,104) $ (441,103) $ (581,065) =========== =========== =========== =========== Net loss per thousand limited partnership units .......... $ (.90) $ (2.56) $ (5.05) $ (6.65) =========== =========== =========== =========== Distribution per thousand limited partnership units .......... $ 12.00 $ 5.78 $ 29.33 $ 8.67 =========== =========== =========== ===========
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 XXVI, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) (Unaudited) For the Nine Months Ended September 30, 1998 and 1997
Total Partners' General Limited Equity Partner Partners (Deficit) ------------- ------------- ------------- Balance at December 31, 1996 ........... $ (400,892) $ 25,016,816 $ 24,615,924 Net loss ............................... (5,811) (575,254) (581,065) Distributions to limited partners....... -- (749,988) (749,988) ------------ ------------ ------------ Balance at September 30, 1997 .......... $ (406,703) $ 23,691,574 $ 23,284,871 ============ ============ ============ Balance at December 31, 1997 ........... $ (410,929) $ 23,273,176 $ 22,862,247 Net loss ............................... (4,411) (436,692) (441,103) Distributions to limited partners ...... -- (2,538,359) (2,538,359) ------------ ------------ ------------ Balance at September 30, 1998 .......... $ (415,340) $ 20,298,125 $ 19,882,785 ============ ============ ============
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 XXVI, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended September 30, -------------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Cash received from tenants ......................... $ 6,601,739 $ 6,588,450 Cash paid to suppliers ............................. (2,655,693) (2,124,428) Cash paid to affiliates ............................ (465,225) (912,643) Interest received .................................. 137,789 120,250 Interest paid ...................................... (1,205,910) (1,241,933) Property taxes paid and escrowed ................... (571,206) (354,256) ----------- ----------- Net cash provided by operating activities ............. 1,841,494 2,075,440 ----------- ----------- Cash flows from investing activities: Additions to real estate investments ............... (504,514) (425,100) Additions to assets held for sale .................. (11,638) -- Proceeds from sale of real estate .................. 3,324,955 -- ----------- ----------- Net cash provided by (used in) investing activities ............................... 2,808,803 (425,100) ----------- ----------- Cash flows from financing activities: Principal payments on mortgage notes payable........ (291,142) (277,577) Distributions to limited partners .................. (2,538,359) (749,988) ----------- ----------- Net cash used in financing activities ................. (2,829,501) (1,027,565) ----------- ----------- Net increase in cash and cash equivalents ............. 1,820,796 622,775 Cash and cash equivalents at beginning of period ............................................. 2,823,216 2,211,029 ----------- ----------- Cash and cash equivalents at end of period ............ $ 4,644,012 $ 2,833,804 =========== ===========
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 XXVI, L.P. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Loss to Net Cash Provided by Operating Activities
Nine Months Ended September 30 -------------------------------- 1998 1997 ------------ ------------ Net loss ............................................ $ (441,103) $ (581,065) ----------- ----------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization .................... 1,881,146 1,955,972 Amortization of deferred borrowing costs ......... 70,347 68,846 Gain on sale of real estate ...................... (116,297) -- Changes in assets and liabilities: Cash segregated for security deposits .......... (25,411) (920) Accounts receivable ............................ 11,246 (170,414) Prepaid commissions ............................ 11,437 7,702 Prepaid expenses and other assets .............. 29,907 550,371 Accounts payable and accrued expenses .......... (72,061) (42,823) Accrued property taxes ......................... 35,260 216,212 Payable to affiliates - General Partner ........ 523,242 17,796 Security deposits and deferred rental revenue ...................................... (66,219) 53,763 ----------- ----------- Total adjustments ............................ 2,282,597 2,656,505 ----------- ----------- Net cash provided by operating activities ........... $ 1,841,494 $ 2,075,440 =========== ===========
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 XXVI, L.P. Notes to Financial Statements September 30, 1998 (Unaudited) NOTE 1. - ------- McNeil Real Estate Partners XXVI, L.P., (the "Partnership"), formerly known as Southmark Equity 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 and commercial properties. The General Partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Report on Form 10-K for the year ended December 31, 1997, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XXVI, 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 gross rental receipts for its residential property and 6% of gross rental receipts for its commercial properties to McNeil Real Estate Management, Inc., ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's residential and commercial properties and leasing services for its residential property. McREMI may also choose to provide leasing services for the Partnership's commercial properties, in which case McREMI will receive property management fees from such commercial properties equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. The Partnership is incurring an asset management fee which is payable to the General Partner. Through 1999, the Asset Management Fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. Total accrued but unpaid asset management fees of $657,024 were outstanding at September 30, 1998. Compensation and reimbursements paid to or accrued for the benefit of the General Partner and its affiliates are as follows: Nine Months Ended September 30 -------------------------- 1998 1997 ---------- ---------- Property management fees - affiliates ........ $ 391,093 $ 392,540 Charged to gain on sale of real estate: Disposition fee ........................... 106,500 -- Charged to general and administrative - affiliates: Partnership administration ................ 136,887 107,506 Asset management fee ...................... 460,487 430,393 ---------- ---------- $1,094,967 $ 930,439 ========== ========== The total payable to affiliates - General Partner at September 30, 1998 and December 31, 1997 consisted primarily of unpaid asset management fees, property management fees and partnership general and administrative expenses and are due and payable from current operations. NOTE 4. - ------- On April 28, 1998, the Partnership sold to Anglo-Florida Investments I, Ltd., an unaffiliated buyer, Edison Ford Square, an 145,417 square foot shopping center located in Fort Myers, Florida, for a cash purchase price of $3,550,000. Cash proceeds from this transaction, as well as the gain on sale is detailed below: Gain on Sale Cash Proceeds Cash sales price ...................... $ 3,550,000 $ 3,550,000 Selling costs ......................... (225,045) (225,045) Basis of real estate sold ............. (3,208,658) ----------- Gain on sale of real estate ........... $ 116,297 =========== ----------- Proceeds from sale of real estate...... $ 3,324,955 =========== The selling costs above include a disposition fee at 3% of the gross sales price paid to the General Partner in the amount of $106,500. NOTE 5. - ------- James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing on final Court approval is scheduled for December 17, 1998. Plaintiff's counsel intend to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- The Partnership is engaged in diversified real estate activities, including the ownership, operation and management of residential and commercial real estate and other real estate related assets. At September 30, 1998, the Partnership owned one apartment property, two office buildings and one retail center. Three of the four Partnership's properties are subject to mortgage notes. The Partnership recorded a $116,297 gain on the sale of Edison Ford Square. Net proceeds from the sale amounted to $3,324,955. The net proceeds from the sale were added to the Partnership's balance of cash reserves. RESULTS OF OPERATIONS - --------------------- Revenue: Total Partnership revenue increased by $108,496 and $88,262 for the three months and nine months ended September 30, 1998 as compared to the same period in 1997. Rental revenue for the three and nine months ended September 30, 1998 increased by $81,237 and decreased by $45,574, respectively, as compared to the same periods in 1997. This decrease is primarily due to the sale of Edison Ford Square on April 28, 1998. Interest income for the three and nine months ended September 30, 1998 increased by $27,259 and $17,539, respectively, as compared to the same periods last year due to an increase in the average cash balance being invested in interest bearing accounts. The Partnership recorded a $116,297 gain on the sale of Edison Ford Square for the period ended September 30, 1998. Net proceeds from the sale amounted to $3,324,955. The net proceeds from the sale were added to the Partnership's balance of cash reserves. Expenses: Total expenses decreased by $36,546 and $51,700 for the three months and nine months ended September 30, 1998 as compared to the same periods of 1997. Other property operating expenses decreased by $41,702 and $90,523 for the quarter and nine months ended September 30, 1998, respectively, as compared to the same period in 1997. The decrease was due to decreases in marketing and leasing, bad debt and property insurance premiums. General and administrative expenses increased for the three and nine months ended September 30, 1998 by $31,147 and $192,342, respectively, as compared to the same period in 1997. The increase was mainly due to costs incurred to explore alternatives to maximize the value of the Partnership (see Liquidity and Capital Resources). The increase was partially offset by decreases attributable to investor services. During 1997, charges for investor services were provided by a third party vendor. Beginning with 1998, these services are provided by affiliates of the General Partner. General and administrative - affiliates expense increased by $27,241 and $59,475 for the three and nine months ended September 30, 1998, respectively, as compared to the same period last year due to the change in investor services as discussed above. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership generated $1,841,494 of cash through operating activities for the nine months ended September 30, 1998 as compared to $2,075,440 for the same period in 1997. The $233,946 decrease can be attributed to the increase in cash paid to suppliers and property taxes paid, which was offset by a decrease in cash paid to affiliates. The Partnership expended $516,152 and $425,100 in capital improvements to its properties for the nine months ended September 30, 1998 and 1997, respectively. In addition the Partnership received proceeds of $3,324,955 from the sale of Edison Ford Square during the nine months ended September 30, 1998. Total principal payments on mortgage notes payable were $291,142 for the nine months ended September 30, 1998 as compared to $277,577 for the same period of 1997. The Partnership distributed $2,538,359 to the limited partners during 1998, while $749,988 was paid during 1997. Short-term liquidity: At September 30, 1998, the Partnership held cash and cash equivalents of $4,644,012. The present cash balance plus cash to be provided by operating activities is considered adequate to meet the Partnership's needs for debt service, normal amounts of repairs and maintenance and capital improvements to preserve and enhance the value of the properties. The Partnership has budgeted $1.2 million for necessary capital improvements for all properties in 1998. The Partnership has significant mortgage maturities during 1998. On October 1, 1998, the Partnership paid off the mortgage note payable on Westwood Center in the amount of $2,105,721 and the Partnership is currently negotiating a two-year extension on the mortgage note payable on Amargosa Creek. Long-term liquidity: While the present outlook for the Partnership's liquidity is favorable, market conditions may change and property operations could deteriorate. In that event, the Partnership would require other sources of working capital. No such other sources have been identified, and the Partnership has no established lines of credit. Other possible actions to resolve working capital deficiencies include refinancing or renegotiating terms of existing loans, deferring major capital expenditures on Partnership properties except where improvements are expected to enhance the competitiveness or marketability of the properties, or arranging working capital support from affiliates. There is no assurance that affiliate support could be arranged, since neither the General Partner nor any affiliates have any obligation in this regard. As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, has provided financial and other information to interested parties and is currently conducting discussions with one such party in an attempt to reach a definitive agreement with respect to a sale transaction. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance that any such agreement will be reached nor the terms thereof. Distributions: During 1998, the Partnership distributed $2,538,359 to the limited partners. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after September 30, 1998. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual occupancy trends, financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties, and respond to changing economic and competitive factors. Other Information: Management has reviewed its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management intends to inventory all such systems and query suppliers, vendors and manufacturers to determine year 2000 compliance. In circumstances of non-compliance management will work with the vendor to remedy the problem or seek alternative suppliers who will be in compliance. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to be year 2000 compliant. Management is in the process of identifying those risks as well as developing a contingency plan to mitigate potential adverse effects from non-compliance. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). The action involves purported class and derivative actions brought by limited partners of each of the fourteen limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders. On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid. Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing on final Court approval is scheduled for December 17, 1998. Plaintiff's counsel intend to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) Exhibits. Exhibit Number Description ------- ----------- 4. Amended and Restated Limited Partnership Agreement dated March 30, 1992. (Incorporated by reference to Current Report of the Registrant on Form 8-K dated March 30, 1992, as filed on April 10, 1992). 4.1 Amendment No. 1 to the Amended and Restated Limited Partnership Agreement of McNeil Real Estate Fund XXVI, L.P. dated June 1995. 11. Statement regarding computation of Net Loss per Thousand Limited Partnership Units: Net loss per thousand limited partnership 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 86,531 limited partnership units (in thousands) outstanding in 1998 and 1997, respectively. 27. Financial Data Schedule for the quarter ended September 30, 1998. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended September 30, 1998. MCNEIL REAL ESTATE FUND XXVI, 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 XXVI, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner November 16, 1998 By: /s/ Ron K. Taylor - ----------------- ------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) November 16, 1998 By: /s/ Carol A. Fahs - ----------------- ------------------------------------------- Date Carol A. Fahs Vice President of McNeil Investors, Inc. (Principal Accounting Officer) EX-27 2
5 9-MOS DEC-31-1998 SEP-30-1998 4,644,012 0 1,632,331 (536,718) 0 0 62,109,310 (26,226,630) 42,614,370 0 21,150,903 0 0 0 0 42,614,370 6,675,894 6,929,980 0 0 6,096,246 0 1,274,837 0 0 (441,103) 0 0 0 (441,103) 0 0
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