-----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, PcLLu0WihtnLH6EgulFP/t9No8pSfUdYqs1fOrOcN3tgZRKSFnE6C6yVn5h+y4or kVlblV2rQG9bv9xSyvPBtA== 0000793307-96-000010.txt : 19961118 0000793307-96-000010.hdr.sgml : 19961118 ACCESSION NUMBER: 0000793307-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-15460 FILM NUMBER: 96664190 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 period ended September 30, 1996 ------------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-15460 --------- 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 700, 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 --- --- MCNEIL REAL ESTATE FUND XXVI, L.P. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- BALANCE SHEETS (Unaudited)
September 30, December 31, 1996 1995 ---------------- --------------- ASSETS - ------- Real estate investments: Land..................................................... $ 6,750,456 $ 9,189,092 Buildings and improvements............................... 53,709,446 56,695,050 -------------- ------------- 60,459,902 65,884,142 Less: Accumulated depreciation and amortization......... (21,005,809) (21,255,141) -------------- ------------- 39,454,093 44,629,001 Asset held for sale......................................... 4,095,374 - Cash and cash equivalents................................... 2,291,803 6,761,516 Cash segregated for security deposits....................... 225,145 202,396 Accounts receivable, net of allowance for doubtful accounts of $582,765 and $596,156 at September 30, 1996 and December 31, 1995, respectively...................... 1,400,425 1,096,937 Prepaid commissions......................................... 357,900 379,444 Prepaid expenses and other assets........................... 635,616 716,091 Deferred borrowing costs, net of accumulated amortization of $192,473 and $125,641 at Septem- ber 30, 1996 and December 31, 1995, respectively......... 380,689 431,838 -------------- ------------- $ 48,841,045 $ 54,217,223 ============== ============= LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage notes payable...................................... $ 21,904,787 $ 22,144,921 Mortgage note payable - affiliate........................... - 952,538 Accounts payable and accrued expenses....................... 241,783 358,856 Accrued property taxes...................................... 259,315 59,864 Payable to affiliates - General Partner..................... 62,944 2,983,409 Advances from affiliates - General Partner.................. - 168,330 Security deposits and deferred rental revenue............... 230,238 210,496 -------------- ------------- 22,699,067 26,878,414 -------------- ------------- Partners' equity (deficit): Limited Partners -90,000,000 Units authorized; 86,533,671 and 86,548,983 Units issued and outstanding at September 30, 1996 and December 31, 1995, respectively........................ 26,527,610 27,716,222 General Partner.......................................... (385,632) (377,413) -------------- ------------- 26,141,978 27,338,809 -------------- ------------- $ 48,841,045 $ 54,217,223 ============== =============
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, --------------------------------- --------------------------------- 1996 1995 1996 1995 -------------- --------------- -------------- -------------- Revenue: Rental revenue................ $ 2,201,332 $ 2,059,713 $ 6,584,975 $ 5,709,792 Interest...................... 29,933 25,509 150,172 66,891 Gain on legal settlement...... - - - 59,874 ------------- ------------- ------------- ------------ Total revenue............... 2,231,265 2,085,222 6,735,147 5,836,557 ------------- ------------- ------------- ------------ Expenses: Interest...................... 441,012 327,998 1,327,994 793,193 Interest - affiliates......... - 30,622 16,090 90,851 Depreciation and amortization................ 665,724 846,195 2,036,655 2,104,899 Property taxes................ 186,650 196,962 595,118 589,813 Personnel expenses............ 208,043 201,652 611,881 610,167 Utilities..................... 256,755 273,716 766,602 822,897 Repair and maintenance........ 222,765 223,662 738,678 677,257 Property management fees - affiliates........... 121,639 113,899 373,088 318,600 Other property operating expenses.................... 138,622 161,866 440,602 422,854 General and administrative.... 36,947 22,428 95,442 59,470 General and administrative - affiliates.................. 179,744 184,564 554,863 569,226 Loss on demolition and removal of assets........... - - - 1,247,940 ------------- ------------- ------------- ------------- Total expenses.............. 2,457,901 2,583,564 7,557,013 8,307,167 ------------- ------------- ------------- ------------- Net loss......................... $ (226,636) $ (498,342) $ (821,866) $ (2,470,610) ============= ============= ============= ============= Net loss allocable to limited partners........... $ (224,370) $ (493,359) $ (813,647) $ (2,445,904) Net loss allocable to General Partner............ (2,266) (4,983) (8,219) (24,706) ------------- ------------- ------------- ------------- Net loss......................... $ (226,636) $ (498,342) $ (821,866) $ (2,470,610) ============= ============= ============= ============= Net loss per thousand limited partnership unit...... $ (2.59) $ (5.70) $ (9.40) $ (28.26) ============= ============= ============= ============= Distributions per thousand limited partnership unit...... $ 4.33 $ - $ 4.33 $ - ============= ============= ============= =============
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, 1996 and 1995
Total Partners' General Limited Equity Partner Partners (Deficit) --------------- --------------- --------------- Balance at December 31, 1994.............. $ (326,783) $ 32,728,638 $ 32,401,855 Net loss.................................. (24,706) (2,445,904) (2,470,610) -------------- ------------- ------------- Balance at September 30, 1995............. $ (351,489) $ 30,282,734 $ 29,931,245 ============= ============= ============= Balance at December 31, 1995.............. $ (377,413) $ 27,716,222 $ 27,338,809 Net loss.................................. (8,219) (813,647) (821,866) Limited partner distribution.............. - (374,965) (374,965) ------------- ------------- ------------- Balance at September 30, 1996............. $ (385,632) $ 26,527,610 $ 26,141,978 ============= ============= =============
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, ----------------------------------------- 1996 1995 ----------------- ---------------- Cash flows from operating activities: Cash received from tenants........................ $ 6,261,641 $ 5,392,120 Cash received from legal settlement............... - 59,874 Cash paid to suppliers............................ (2,807,695) (2,904,342) Cash paid to affiliates........................... (3,848,416) (307,742) Interest received................................. 150,172 66,891 Interest paid..................................... (1,168,527) (552,637) Interest paid to affiliates....................... (53,903) (81,220) Property taxes paid and escrowed.................. (332,027) (288,540) --------------- -------------- Net cash provided by (used in) operating activities........................................ (1,798,755) 1,384,404 --------------- -------------- Net cash used in investing activities: Additions to real estate investments.............. (957,121) (8,231,176) --------------- -------------- Cash flows from financing activities: Principal payments on mortgage notes payable...... (240,134) (92,278) Proceeds from mortgage notes financing............ - 6,890,027 Retirement of mortgage note - affiliate........... (952,538) - Repayments of advances from affiliates - General Partner................................. (130,517) - Deferred borrowing costs paid..................... (15,683) - Limited partner distribution...................... (374,965) - --------------- -------------- Net cash provided by (used in) financing activities........................................ (1,713,837) 6,797,749 --------------- -------------- Net increase (decrease) in cash and cash equivalents....................................... (4,469,713) (49,023) Cash and cash equivalents at beginning of period............................................ 6,761,516 1,473,850 --------------- -------------- Cash and cash equivalents at end of period........... $ 2,291,803 $ 1,424,827 =============== ==============
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 (Used In) Operating Activities
Nine Months Ended September 30, ----------------------------------------- 1996 1995 ----------------- ----------------- Net loss............................................. $ (821,866) $ 2,470,610) --------------- --------------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization..................... 2,036,655 2,104,899 Amortization of deferred borrowing costs.......... 66,832 117,810 Allowance for doubtful accounts................... (13,391) (243,765) Interest added to advances from affiliates - General Partner................................. - 9,631 Loss on demolition and removal of assets.......... - 1,247,940 Changes in assets and liabilities: Cash segregated for security deposits........... (22,749) 32,981 Accounts receivable............................. (290,097) (83,541) Prepaid commissions............................. 21,544 16,427 Prepaid expenses and other assets............... 80,475 (278,038) Accounts payable and accrued expenses........... (154,886) 98,213 Accrued property taxes.......................... 199,451 276,628 Payable to affiliates - General Partner......... (2,920,465) 580,084 Security deposits and deferred rental revenue....................................... 19,742 (24,255) --------------- -------------- Total adjustments............................. (976,889) 3,855,014 --------------- -------------- Net cash provided by (used in) operating activities........................................ $ (1,798,755) $ 1,384,404 =============== ==============
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, 1996 (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 700, LB70, Dallas, Texas 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the nine months ended September 30, 1996 are not necessarily indicative of the results to be expected for the year ending December 31, 1996. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Report on Form 10-K for the year ended December 31, 1995, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XXVI, L.P. c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240. NOTE 3. - ------- Certain reclassifications have been made to prior period amounts to conform to the current presentation. NOTE 4. - ------- 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. The General Partner has, in its discretion, advanced funds to enable the Partnership to meet its working capital requirements. These advances, which were unsecured and due on demand, accrue interest at a rate equal to the prime lending rate plus 1%. The advances from affiliates at September 30, 1996 and December 31, 1995 consist of the following:
September 30, December 31, 1996 1995 ---------------- --------------- Advances from General Partner........................ $ - $ 130,518 Accrued interest payable............................. - 37,812 --------------- --------------- $ - $ 168,330 =============== ===============
In May 1996, the Partnership repaid all outstanding affiliate advances and the related accrued interest. In March 1993, the Partnership obtained a loan from McNeil Real Estate Fund XXVII, L.P., an affiliate of the General Partner, which allows the Partnership to borrow funds totaling $1,536,000. Of this amount available, $952,538 was borrowed at December 31, 1995. The note was secured by Continental Plaza and required monthly interest-only payments equal to the prime lending rate of Bank of America plus 2 1/2% with the principal balance due March 1, 1996. On January 8, 1996 the Partnership repaid the mortgage loan. 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, ---------------------------------------- 1996 1995 ---------------- ---------------- Property management fees - affiliates................ $ 373,088 $ 318,600 Charged to interest - affiliates: Interest on advances from affiliates - General Partner......................................... 4,692 9,631 Interest on mortgage note payable - affiliate..... 11,398 81,220 Charged to general and administrative affiliates: Partnership administration........................ 154,642 220,054 Asset management fee.............................. 400,221 349,172 --------------- --------------- $ 944,041 $ 978,677 =============== ===============
The total payable to affiliates - General Partner at September 30, 1996 and December 31, 1995 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 5. - ------- In 1996, the Partnership adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires the cessation of depreciation on assets held for sale. Since Edison Ford Square is currently classified as an asset held for sale, no depreciation was taken effective April 1, 1996. NOTE 6. - ------- The Partnership recognized a loss on the Northway Mall renovation of $1,247,940 in 1995. This loss is due to the demolition or removal of assets that were previously capitalized. ITEM 2. 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 properties. At September 30, 1996, the Partnership owned one apartment property, two office buildings and two shopping centers. Three of the Partnership's properties are subject to mortgage notes. RESULTS OF OPERATIONS - --------------------- Revenue: Total Partnership revenue was $2,231,265 and $6,735,147 for the three and nine months ended September 30, 1996, respectively, as compared to $2,085,222 and $5,836,557 for the three and nine months ended September 30, 1995, respectively. Rental revenue for the three and nine months ended September 30, 1996 increased by $141,619 or 7% and $875,183 or 15%, respectively, as compared to the same periods of 1995. This increase is primarily due to the increased occupancy rate at Northway Mall as a result of the recent capital improvements program. Interest income increased $4,424 and $83,281 for the three and nine months ended September 30, 1996, respectively, as compared to the same periods of 1995. The increase is due to the higher cash balance maintained as a result of the December 1995 Northway Mall mortgage refinancing. The Partnership received cash and common and preferred stock in the reorganized Southmark in settlement of its bankruptcy claims against Southmark. The Partnership recognized a $59,874 gain in the second quarter of 1995 as a result of this settlement. Expenses: Total expenses were $2,457,901 and $7,557,013 for the three and nine months ended September 30, 1996, respectively, as compared to $2,583,564 and $8,307,167 for the three and nine months ended September 30, 1995, respectively. During 1995, the Partnership recognized a loss on the Northway Mall renovation of $1,247,940 for the demolition and removal of assets previously capitalized. Interest expense increased $113,014 and $534,801 for the three and nine months ended September 30, 1996, respectively, as compared to the same periods of 1995 due to the December 1995 mortgage refinancing at Northway Mall. Interest expense - affiliates decreased $30,622 and $74,761 for the three and nine months ended September 30, 1996, respectively, as compared to the same periods of 1995 due to the repayment of the loan from McNeil Real Estate Fund XXVII, L.P. in January 1996, as well as the repayment of all advances from affiliates in May 1996. Repairs and maintenance increased $61,421 or 9% for nine months ended September 1996, as compared to the same period of 1995. The increase is primarily due to an increase in repairs and maintenance expenses at Northway Mall that is attributable to the increased occupancy, as well as the increased snow removal expenses at the property due to the winter weather. Property management fees - affiliates increased $7,740 or 7% and $54,488 or 17% for the three and nine months ended September 30, 1996, respectively, as compared to the same periods of 1995. The increased occupancy at Northway Mall led to an increase in tenant receipts on which the management fee is based. General and administrative expenses increased $35,972 for the nine months ended September 30, 1996, as compared to the same period of 1995 due to increased professional fees. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash flow used in operations was $1,798,755 for the nine months ended September 30, 1996 as compared to $1,384,404 provided for the same period of 1995. The change in cash flow from operations is primarily due to an increase in cash paid to affiliates. With the loan proceeds of the Northway Mall's financing, the Partnership paid $3.8 million to affiliates including accrued asset management fees and overhead reimbursements to McREMI. The increased occupancy at Northway Mall led to an increase in tenant receipts. The increase in cash paid to suppliers is primarily due to Northway Mall's renovations. The increase in interest paid is due to the Northway Mall's new mortgage loan. Property taxes paid and escrowed increased due to the refund of escrow overage in 1995. Additions to real estate investments totaled $957,121 for the nine months ended September 30, 1996 as compared to $8,231,176 for the same period of 1995. Proceeds from mortgage notes financing totaled $6,890,027 for the nine months ended September 30, 1995. The Partnership has undergone a major capital improvement program at Northway Mall in 1995 which greatly enhanced the property's performance. The funding for this program came from a construction mortgage loan encumbering Northway Mall, as well as mortgage loans previously obtained on Westwood Center and Continental Plaza. Permanent financing was obtained in December 1995. Total principal payments on mortgage notes payable were $240,134 for the nine months ended September 30, 1996 as compared to $92,278 for the same period of 1995. With the loan proceeds of Northway Mall, the Partnership repaid a loan of $952,538 from McNeil Real Estate Fund XXVII, L.P., and advances of $130,517 from affiliates in the first half of 1996. The Partnership also paid additional deferred borrowing costs of $15,683 relating to the Northway Mall's refinancing in 1995 and distributed $374,965 to the limited partners. Short-term liquidity: The General Partner has established a revolving credit facility not to exceed $5,000,000 in the aggregate which is available on a "first-come, first-served" basis to the Partnership and other affiliated partnerships, if certain conditions are met. Borrowing under the facility may be used to fund deferred maintenance, refinancing obligations and working capital needs. There is no assurance that the Partnership will receive any funds under the facility because no amounts have been reserved for any particular partnership. As of September 30, 1996, $4,082,159 remained available for borrowing under the facility; however, additional funds could be available as other partnerships repay existing borrowings. This commitment will terminate on March 30, 1997. Additionally, the General Partner has, in its discretion, advanced funds to the Partnership in addition to the revolving credit facility. The General Partner is not obligated to advance funds to the Partnership and there is no assurance that the Partnership will receive additional funds. 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 $1,941,000 for necessary capital improvements for all properties in 1996. Long-term liquidity: While the present outlook for Partnership's liquidity is favorable, market conditions may change and property operations can 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. No affiliate support has been required in the past, and there is no assurance that support would be provided in the future, since neither the General Partner nor any affiliates have any obligation in this regard. The partnership has determined to begin an orderly liquidation of all the Partnership's assets. Although there can be no assurance as to the timing of any liquidation it is anticipated that such liquidation would result in distributions to the limited partners of the cash proceeds from the sale of the Partnership's properties, subject to cash reserve requirements, as they are sold with the last property disposition before December 2001 followed by a dissolution of the Partnership. In this regard, the Partnership has placed Edison Ford Square on the market for sale. The mortgage notes payable on Amargosa Creek Apartments and Westwood Center mature in 1998 and the Partnership expects to refinance these notes at that time. Distributions: During the third quarter of 1996, the Partnership distributed $374,965 to the limited partners. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought recovery against the Partnership's former auditors, Ernst & Young, for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark Corporation ("Southmark"), the former general partner. The former auditors initially asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims sought recovery of attorneys' fees and costs incurred in defending this action. The counterclaims were later dismissed on appeal, as discussed below. The trial court granted summary judgment against the Partnership based on the statute of limitations; however, on appeal, the Dallas Court of Appeals reversed the trial court and remanded for trial the Affiliated Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court denied Ernst & Young's application for writ of error on January 11, 1996. The Partnership is continuing to pursue vigorously its claims against Ernst & Young. Trial is anticipated to be set for early December 1996; however, the final outcome of this litigation cannot be determined at this time. ITEM 5. OTHER INFORMATION On September 20, 1996, High River announced that it had commenced a tender offer for any and all units of the Partnership at $0.092 per unit (the original offer price of $0.096 was reduced by the August 1996 distributions to unitholders of $0.004 per unit). The tender was originally due to expire October 18, 1996, however, this offer has been extended until November 22, 1996. 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 86,534 and 86,549 limited partnership units (in thousands) outstanding in 1996 and 1995, respectively. 27. Financial Data Schedule for the quarter ended September 30, 1996. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended September 30, 1996. 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 14, 1996 By: /s/ Donald K. Reed - ----------------- ---------------------------------------- Date Donald K. Reed President and Chief Executive Officer November 14, 1996 By: /s/ Ron K. Taylor - ----------------- ---------------------------------------- Date Ron K. Taylor Acting Chief Financial Officer of McNeil Investors, Inc. November 14, 1996 By: /s/ Carol A. Fahs - ----------------- ---------------------------------------- Date Carol A. Fahs Chief Accounting Officer of McNeil Real Estate Management, Inc. EX-27 2
5 9-MOS DEC-31-1996 SEP-30-1996 2,291,803 0 1,983,190 (582,765) 0 0 60,459,902 (21,005,809) 48,841,045 0 21,904,787 0 0 0 0 48,841,045 6,584,975 6,735,147 0 0 6,212,929 0 1,344,084 0 0 (821,866) 0 0 0 (821,866) 0 0
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