SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1995 Commission file number 0-8915
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
(Exact name of registrant as specified in its charter)
Illinois 36-2875192
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/915-1987
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . .
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . .
PART II OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . .
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . .
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1). . . . . . . . . . . . . . . . . . . . . . . . . $ 7,253,567 2,047,492
Short-term investments (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . -- 122,949
Rents and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266,142 397,575
Restricted construction loan proceeds (note 2). . . . . . . . . . . . . . . . . . . 5,010,982 --
Escrow deposits and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . 387,005 968,312
------------ -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,917,696 3,536,328
------------ -----------
Investment property, at cost:
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,179,147 2,179,147
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,898,667 25,021,609
------------ -----------
31,077,814 27,200,756
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,178,134 16,700,459
------------ -----------
Total investment property, net of accumulated depreciation. . . . . . . . . . 13,899,680 10,500,297
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,262,249 932,899
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 801,599 808,365
Venture partner's deficit in venture. . . . . . . . . . . . . . . . . . . . . . . . . 478,929 616,099
------------ -----------
$ 29,360,153 16,393,988
============ ===========
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
Current liabilities:
Current portion of long-term debt, (note 2) . . . . . . . . . . . . . . . . . . . . $ 1,365,290 503,634
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,880,811 1,306,228
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,104 108,954
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,921 --
------------ -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,583,126 1,918,816
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,503 65,106
Long-term debt, less current portion, (note 2). . . . . . . . . . . . . . . . . . . . 24,894,141 13,741,800
------------ -----------
Commitments and contingencies (note 2)
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,543,770 15,725,722
Venture partner's subordinated equity in venture. . . . . . . . . . . . . . . . . . . 105,529 105,529
Partners' capital accounts (deficits):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (752,273) (758,198)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (279,075) (279,075)
------------ -----------
(1,030,348) (1,036,273)
------------ -----------
Limited partners (18,005 interests):
Capital contributions, net of offering costs. . . . . . . . . . . . . . . . . . . 16,269,038 16,269,038
Cumulative net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,713,060 12,570,868
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (27,240,896) (27,240,896)
------------ -----------
1,741,202 1,599,010
------------ -----------
Total partners' capital accounts (deficits) . . . . . . . . . . . . . . . . . 710,854 562,737
------------ -----------
$ 29,360,153 16,393,988
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . . . . . . . $ 1,937,262 2,013,820 5,500,017 5,512,718
Interest income . . . . . . . . . . . . . . . . . . . . . 291,606 51,687 365,004 120,602
----------- ---------- ----------- ----------
2,228,868 2,065,507 5,865,021 5,633,320
----------- ---------- ----------- ----------
Expenses:
Mortgage and other interest . . . . . . . . . . . . . . . 615,790 422,968 1,753,882 1,229,228
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 159,225 133,533 477,675 400,600
Property operating expenses . . . . . . . . . . . . . . . 813,916 904,066 2,300,774 2,342,691
Professional services . . . . . . . . . . . . . . . . . . -- 696 54,594 49,075
Amortization of deferred expenses . . . . . . . . . . . . 37,156 37,524 111,470 112,571
Management fees to corporate
general partner . . . . . . . . . . . . . . . . . . . . -- -- -- 4,078
General and administrative. . . . . . . . . . . . . . . . 8,035 13,305 17,279 52,976
----------- ---------- ----------- ----------
1,634,122 1,512,092 4,715,674 4,191,219
----------- ---------- ----------- ----------
Operating earnings . . . . . . . . . . . . . . . . . 594,746 553,415 1,149,347 1,442,101
Venture partner's share of
venture's operations. . . . . . . . . . . . . . . . . . . (286,194) (271,002) (569,200) (730,583)
----------- ---------- ----------- ----------
Net operating earnings before
extraordinary item . . . . . . . . . . . . . . . . 308,552 282,413 580,147 711,518
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
Extraordinary item:
Prepayment penalty and deferred mortgage
expense on refinanced long-term debt,
net of venture partner's share of
$432,030 (note 2) . . . . . . . . . . . . . . . . . . . -- -- (432,030) --
----------- ---------- ----------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . $ 308,552 282,413 148,117 711,518
=========== ========== =========== ==========
Net earnings per limited
partnership interest (note 1):
Net operating earnings . . . . . . . . . . . . . $ 16.45 15.06 30.93 37.94
Extraordinary item . . . . . . . . . . . . . . . -- -- (23.03) --
----------- ---------- ----------- ----------
Net earnings . . . . . . . . . . . . . . . . . . $ 16.45 15.06 7.90 37.94
=========== ========== =========== ==========
Cash distributions per limited
partnership interest . . . . . . . . . . . . . . . $ -- -- -- 5.00
=========== ========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 148,117 711,518
Items not requiring (providing) cash or cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477,675 400,600
Amortization of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,470 112,571
Venture partner's share of venture's operations . . . . . . . . . . . . . . . . . . . . 569,200 730,583
Extraordinary item, net of venture partner's share of $432,030. . . . . . . . . . . . . 432,030 --
Changes in:
Rents and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,433 55,191
Escrow deposits and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 384,311 (662,329)
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,766 7,813
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574,583 (66,502)
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,150 (2,606)
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,921 134,323
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,397 15,949
------------ -----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 3,065,053 1,437,111
------------ -----------
Cash flows from investing activities:
Net sales and maturities of short-term investments. . . . . . . . . . . . . . . . . . . . 122,949 787,087
Additions to investment property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,877,058) (3,310,272)
Payments of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (399,650) (281,978)
------------ -----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . (4,153,759) (2,805,163)
------------ -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (14,986,003) (340,752)
Venture partner's contributions to venture. . . . . . . . . . . . . . . . . . . . . . . . -- 837,500
Initial proceeds received on refinanced long-term debt (note 2) . . . . . . . . . . . . . 19,000,000 --
Payments received from refinanced long-term debt holdback
(note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,989,018 --
Prepayment penalty on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (708,234) --
Distributions to limited partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (90,025)
Distributions to general partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,751)
------------ -----------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . 6,294,781 402,972
------------ -----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . 5,206,075 (965,080)
Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . . . . . 2,047,492 1,260,020
------------ -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . . $ 7,253,567 294,940
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . . . . . . . . . . . . . . . . . . . . $ 1,661,732 1,231,834
============ ===========
Non-cash investing and financing activities:
Extraordinary item - deferred mortgage expense. . . . . . . . . . . . . . . . . . . . . $ 155,826 --
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the year ended December 31, 1994 which are
included in the Partnership's 1994 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the
accounts of the Partnership and its venture, Oakridge Associates
("Oakridge") (note 2). The effect of all transactions between the
Partnership and the venture has been eliminated.
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to reflect the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to include the accounts of the venture described above. Such
adjustments are not recorded on the records of the Partnership. The net
effect of the adjustments is summarized as follows for the nine months
ended September 30:
<TABLE>
<CAPTION>
1995 1994
----------------------- -------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net earnings. . . . . . $148,117 422,732 711,518 782,875
Net earnings
per limited
partnership
interest . . . . . . . $ 7.90 22.54 37.94 41.74
======== ======= ======= =======
</TABLE>
The net earnings per limited partnership interest is based upon the
limited partnership interests outstanding at the end of each period
(18,005). Deficit capital accounts will result, through the duration of
the Partnership, in net gain for financial reporting and Federal income tax
purposes.
The Partnership records amounts held in U.S. Government obligations at
cost, which approximates market. For the purposes of these statements, the
Partnership's policy is to consider all such amounts held with original
maturities of three months or less ($1,966,899 and $1,832,040 at September
30, 1995 and at December 31, 1994, respectively) as cash equivalents, with
any remaining amounts (generally with original maturities of one year or
less) reflected as short-term investments being held to maturity.
No provision for State or Federal income taxes has been made as the
liability for such taxes is that of the Partners rather than the
Partnership. However, in certain instances, the Partnership has been
required under applicable law to remit directly to the taxing authorities
amounts representing withholding from distributions paid to Partners.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(2) OAKRIDGE
The Partnership acquired, through Oakridge, a regional shopping mall
in San Jose, California which is in operation at September 30, 1995.
Pursuant to such venture agreement, the Partnership made initial capital
contributions of $3,352,642 (before legal and other acquisition costs).
Under certain circumstances, either pursuant to the venture agreement or
due to the Partnership's obligation as a general partner, the Partnership
may be required to make additional cash contributions to the venture.
There are certain risks associated with the Partnership's investment
made through a joint venture including the possibility that the
Partnership's venture partner in the investment might become unable or
unwilling to fulfill its financial or other obligations, or that such
venture partner may have economic or business interests or goals that are
inconsistent with those of the Partnership.
In February 1995, Oakridge refinanced the existing mortgage loan
secured by the property (which had a balance of approximately $14,165,000
at the February 1995 closing) in the amount of $27,000,000. The venture
received approximately $4,300,000 in net proceeds including the refundable
deposit of $540,000 (after payoff of the existing loan, the construction
holdback discussed below, closing costs and a prepayment penalty of
approximately $708,000 on the original mortgage loan). These proceeds are
being utilized for capital expenditures and previously deferred maintenance
at the mall. The lender held back $8,000,000 of the loan proceeds for the
construction of an expansion and remodeling of the mall which commenced in
April 1995 and which is expected to be completed in November, 1995. The
venture has drawn down approximately $2,989,000 from the holdback as of
September 30, 1995 and an additional $1,038,965 as of the date of this
report. Due to the foregoing, there will be no distribution of proceeds
from this refinancing. The terms of the refinanced mortgage loan require
monthly payments of principal and interest at 9.19% based on a 12-year
amortization schedule until maturity in February, 1998. The principal and
interest payment required to be made monthly is $310,165. In addition, the
loan terms provide an option to the venture for two 3-year extensions. The
interest rate on these extensions would be adjusted for each 3-year period
based on the then current three-year U.S. Treasury rates and would continue
to be amortized based on the original 12-year schedule. At the time of
application, the Oakridge venture was required to make a refundable deposit
of $540,000, which was returned at the February 1995 closing. Also, the
Oakridge venture was required to pay a non-refundable $135,000 loan
commitment fee. The Partnership and its venture partner made contributions
to the Oakridge venture in 1994 to fund their respective share of these
costs.
In January 1992, the prior parent organization of the Macy's store at
the Oakridge Mall had filed for protection under Chapter 11 of the United
States Bankruptcy Code. In December 1994, Macy's was acquired by Federated
Department Stores and was removed from protection under Chapter 11 of the
United States Bankruptcy Code. The Macy's store continues to operate and
although the Macy's store owns its site and facility, it is required to
make certain contributions towards common area maintenance costs, all of
which have been paid as of the date of this report. In October 1995,
Macy's began an approximately $1.7 million remodeling project which
includes new flooring and other amenities. Phase I of the project is
scheduled for completion in time for the 1995 Thanksgiving weekend and
Phase II is scheduled to be completed in early 1996.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
Nordstrom (which owned its own store) left the center in March 1995.
Nordstrom had an obligation to operate their department store under their
trade name through August 22, 1993 and operate a department store under any
name through August 22, 1998. Nordstrom has assigned, transferred and
conveyed its interest in its land, building and the Reciprocal Easement
Agreement ("REA") to Sears Roebuck and Co., which opened its new store on
October 28, 1995. It is not expected that the Nordstrom closing and Sears
opening will have a significant adverse impact on the operations of the
mall. The property's other anchor tenants, Montgomery Wards and R.H. Macy,
are also subject to the REA. The REA requirement to operate a department
store under each tenant's specific name expired in August 1993 and in
addition, the REA requirement for each anchor tenant to operate a
department store under any name expires in August 1998. Due to recent
developments, including the opening of Sears in the former Nordstrom store
and commencement of Macy's renovation work (both in October 1995), the
Partnership and its joint venture partner have decided not to continue to
pursue extensions of the operating covenants in the REA until such time, if
ever, that negotiations for such extensions are deemed to be in the best
interest of the property.
(3) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the
Partnership to the General Partners and their affiliates as of September
30, 1995 and for the nine months ended September 30, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
Unpaid at
September 30,
1995 1994 1995
------- ------ -------------
<S> <C> <C> <C>
Management fees to corporate
general partner . . . . . . . . . $ -- 4,078 --
Reimbursement (at cost) for
out-of-pocket expenses. . . . . . 11,170 10,386 --
------- ------ -----
$11,170 14,464 --
======= ====== =====
</TABLE>
The Limited Partners have received an amount from sale or refinancing
proceeds in excess of their initial capital investment plus any deficiency
in a 6% cumulative annual return on their average capital investment.
The Corporate General Partner of the Partnership has determined to use
independent third parties to perform certain administrative services
beginning in the fourth quarter of 1995. Use of such third parties is not
expected to have a material effect on the operations of the Partnership.
(4) ADJUSTMENTS
In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of September 30,
1995 and for the three and nine months ended September 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are to Notes to Consolidated Financial
Statements contained in this report.
At September 30, 1995, the Partnership and its consolidated venture
had cash and cash equivalents of approximately $7,254,000. Such funds will
be utilized for working capital requirements (including costs to be
incurred for previously deferred maintenance projects at the Oakridge
Shopping Mall). The Partnership and its consolidated venture have
currently budgeted in 1995 approximately $1,542,000 for such deferred
maintenance (including roof replacement and parking lot repairs) and other
capital projects at the Oakridge investment property (approximately
$888,000 has been incurred at September 30, 1995). The Partnership's share
of such items is approximately $771,000. In addition, the Oakridge
Shopping Mall is currently undergoing a major remodeling and expansion
which is scheduled to be complete in November 1995. Capital expenditures
related to the expansion and remodeling (budgeted at approximately
$6,673,000 for 1995) and anticipated tenant improvement and other leasing
costs associated with the mall expansion (budgeted at approximately
$760,000 for 1995) are to be funded by an $8,000,000 construction holdback
from the February 1995 refinancing as described below. The balance of the
holdback is expected to be used in 1996 for leasing costs. Pursuant to the
Oakridge venture agreement, 50% of any partner funding obligations for
items such as capital costs are required to be funded by each venture
partner. However, funding obligations are not expected to be required
currently due to the February 1995 mortgage loan refinancing. Actual
amounts expended in 1995 may vary depending on a number of factors
including actual leasing activity, results of property operations,
liquidity considerations and other market conditions over the course of the
year. Also, in anticipation of the significant capital expenditures at the
Oakridge investment property, including the potential costs associated with
securing, if deemed to be in the best interest of the property, the anchor
tenant's extensions of the REA operating covenants as more fully described
below, the Partnership suspended distributions to the partners effective
with the first quarter of 1994. The sources of capital (in addition to the
cash and cash equivalents and refinancing proceeds from the first mortgage
loan noted above) for such items and for both short-term and long-term
future liquidity and distributions are expected to be through net cash
generated by Oakridge (the Partnership's remaining investment property) and
from its sale and/or refinancing. In such regard, reference is made to the
Partnership's property specific discussion below. The Partnership's and
its Venture's mortgage obligation and its replacement financing secured by
the Oakridge investment property is non-recourse. Therefore, the
Partnership and its Venture are not obligated to pay mortgage indebtedness
unless the related property produces sufficient net cash flow from
operations or sale.
There are certain risks associated with the Partnership's investment
made through a joint venture including the possibility that the
Partnership's joint venture partner in the investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partner may have economic or business interests or goals that
are inconsistent with those of the Partnership.
In February 1995, Oakridge refinanced the existing mortgage loan
secured by the property (which had a balance of approximately $14,165,000
at the February 1995 closing) in the amount of $27,000,000. The venture
received approximately $4,300,000 in net proceeds including the refundable
deposit of $540,000 (after payoff of the existing loan, the construction
holdback discussed below, closing costs and a prepayment penalty of
approximately $708,000 on the original mortgage loan). These proceeds are
being utilized for capital expenditures and previously deferred maintenance
at the mall. The lender held back $8,000,000 of the loan proceeds for the
construction of an expansion and remodeling of the mall which commenced in
April 1995 and which is expected to be completed in November, 1995. The
venture has drawn down approximately $2,989,000 from the holdback as of
September 30, 1995 and an additional $1,038,965 as of the date of this
report. Due to the foregoing, there will be no distribution of proceeds
from this refinancing. The terms of the refinanced mortgage loan require
monthly payments of principal and interest at 9.19% based on a 12-year
amortization schedule until maturity in February, 1998. The principal and
interest payment required to be made monthly is $310,165. In addition, the
loan terms provide an option to the venture for two 3-year extensions. The
interest rate on these extensions would be adjusted for each 3-year period
based on the then current three-year U.S. Treasury rates and would continue
to be amortized based on the original 12-year schedule. At the time of
application, Oakridge venture was required to make a refundable deposit of
$540,000, which was returned at the February 1995 closing. Also, the
Oakridge venture was required to pay a non-refundable $135,000 loan
commitment fee. The Partnership and its venture partner made contributions
to the Oakridge venture in 1994 to fund their respective share of these
costs.
In January 1992, the prior parent organization of the Macy's store at
the Oakridge Mall had filed for protection under Chapter 11 of the United
States Bankruptcy Code. In December 1994, Macy's was acquired by Federated
Department Stores and was removed from protection under Chapter 11 of the
United States Bankruptcy Code. The Macy's store continues to operate and
although the Macy's store owns its site and facility, it is required to
make certain contributions towards common area maintenance costs, all of
which have been paid as of the date of this report. In October 1995,
Macy's began an approximately $1.7 million remodeling project which
includes new flooring and other amenities. Phase I of the project is
scheduled for completion in time for the 1995 Thanksgiving weekend and
Phase II is scheduled to be completed in early 1996.
Nordstrom (which owned its own store) left the center in March 1995.
Nordstrom had an obligation to operate their department store under their
trade name through August 22, 1993 and operate a department store under any
name through August 22, 1998. Nordstrom has assigned, transferred and
conveyed its interest in its land, building and the Reciprocal Easement
Agreement ("REA") to Sears Roebuck and Co., which opened its new store on
October 28, 1995. It is not expected that the Nordstrom closing and Sears
opening will have a significant adverse impact on the operations of the
mall. The property's other anchor tenants, Montgomery Wards and R.H. Macy,
are also subject to the REA. The REA requirement to operate a department
store under each tenant's specific name expired in August 1993 and in
addition, the REA requirement for each anchor tenant to operate a
department store under any name expires in August 1998. Due to recent
developments, including the opening of Sears in the former Nordstrom store
and commencement of Macy's renovation work (both in October 1995), the
Partnership and its joint venture partner have decided not to continue to
pursue extensions of the operating covenants in the REA until such time, if
ever, that negotiations for such extensions are deemed to be in the best
interest of the property.
While the real estate markets are recuperating, highly competitive
market conditions continue to exist in most locations. As a result of the
real estate market conditions discussed above, the Partnership continues to
conserve its working capital. All expenditures are carefully analyzed and
certain capital projects are deferred when appropriate. By conserving
working capital, the Partnership will be in a better position to meet its
future needs since outside sources of capital may be limited. Due to these
factors, the Partnership has held its remaining investment property longer
than originally anticipated in an effort to maximize the return to the
Limited Partners. After reviewing the remaining property and its
competitive marketplace, and considering the mall renovation to be
completed in November 1995, the General Partners of the Partnership expect
to be able to liquidate the remaining asset as quickly as practicable. The
affairs of the Partnership are expected to be wound up no later than 1999
(sooner if the property is sold in the nearer term), barring unforeseen
economic developments.
RESULTS OF OPERATIONS
The increase in cash and cash equivalents, restricted construction
loan proceeds, deferred expenses, current portion of long-term debt, long-
term debt and accrued interest at September 30, 1995 as compared to
December 31, 1994 and the increase in interest income and mortgage and
other interest expense for the three and nine months ended September 30,
1995 as compared to the same periods in 1994 is primarily due to
refinancing of the mortgage debt at the Oakridge investment property in
February, 1995. Reference is made to Note 2.
The decrease in short-term investments at September 30, 1995 as
compared to December 31, 1994 is primarily due to the timing of maturities
of the Partnership's short-term investments. Reference is made to Note 1.
The decrease in rents and other receivables at September 30, 1995 as
compared to December 31, 1994 is primarily due to the 1995 receipt of
certain 1994 escalations from tenants at the Oakridge investment property.
The decrease in escrow deposits and other assets at September 30, 1995
as compared to December 31, 1994 is primarily due to the receipt of the
refundable deposit in February, 1995 in the amount of $540,000 related to
the refinancing of the mortgage debt at the Oakridge investment property.
Reference is made to Note 2.
The increase in buildings and improvements at September 30, 1995 as
compared to December 31, 1994 is primarily due to capital additions related
to the expansion and remodeling project at the Oakridge investment property
as more fully discussed above.
The decrease in venture partner's deficit in venture at September 30,
1994 as compared to December 31, 1994 is due to the venture partner's share
of 1995 net income at the Oakridge investment property.
The increase in accounts payable at September 30, 1995 as compared to
December 31, 1994 is primarily due to the timing of payments related to the
capital additions at the Oakridge investment property.
The increase in accrued real estate taxes at September 30, 1995 as
compared to December 31, 1994 is primarily due to the timing of real estate
tax payments at the Oakridge investment property.
The decrease in rental income and property operating expenses for the
three and nine months ended September 30, 1995 as compared to the same
periods in 1994 is primarily due to reduced average occupancy at the
Oakridge investment property. Reference is made to Item 5.
The increase in depreciation expense for the three and nine months
ended September 30, 1995 as compared to the same periods in 1994 is
primarily due to the capital additions incurred in 1994 and 1995 at the
Oakridge Mall investment property.
The decrease in management fees to corporate general partner for the
nine months ended September 30, 1995 as compared to the same period in 1994
is primarily due to the temporary suspension of operating distributions to
partners as discussed above, a portion of which is its management fee to
the Corporate General Partner.
The decrease in general and administrative expense for the three and
nine months ended September 30, 1995 as compared to the same periods in
1994 are primarily due to refunds received by the Partnership in 1995 from
the General Partner and its affiliates for certain 1993 general and
administrative reimbursements which were paid by the Partnership in 1994.
Reference is made to Note 3.
The decrease in venture partner's share of venture's operations for
the three and nine months ended September 30, 1995 as compared to the three
and nine months ended September 30, 1994 is primarily due to increased
mortgage interest expense related to the February 1995 refinancing,
partially offset by higher interest income due to receipt of approximately
$4,300,000 in net proceeds from the refinancing. Reference is made to Note
2.
The extraordinary item in the amount of $432,030 for the nine months
ended September 30, 1995 is due to refinancing of the mortgage debt at the
Oakridge investment property in February, 1995. Reference is made to Note
2.
<TABLE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
OCCUPANCY
The following is a listing of approximate physical occupancy levels by quarter for the Partnership's
remaining investment property.
<CAPTION>
1994 1995
------------------------------------- ------------------------------
At At At At At At At At
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---- ---- ---- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Oakridge Mall
San Jose, California. . . . . . 88% 92% 92% 93% 91% 91% 90%
</TABLE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10-A. Acquisition documents relating to the purchase by the
Partnership of an interest in Oakridge mall in San Jose, California, are
hereby incorporated herein by reference to the Partnership's Registration
Statement on Form S-11 (File No. 2-59231) dated October 17, 1977 as
amended.
10-B. Closing statement dated February 15, 1995 relating to
the refinancing by Oakridge Associates, Ltd. which owns Oakridge Mall in
San Jose, California is hereby incorporated herein by reference to the
Partnership's Report for March 31, 1995 on Form 10-Q (File No. 0-8915)
dated May 11, 1995).
10-C. Secured promissory note #1 dated February 15, 1995 in
the amount of $23,900,000 relating to the refinancing of the mortgage note
by Oakridge Associates, Ltd. which owns Oakridge Mall in San Jose,
California is hereby incorporated herein by reference to the Partnership's
Report for March 31, 1995 on Form 10-Q (File No. 0-8915) dated May 11,
1995).
10-D. Secured promissory note #2 dated February 15, 1995 in
the amount of $3,100,000 relating to the refinancing of the mortgage note
by Oakridge Associates, Ltd. which owns Oakridge Mall in San Jose,
California is hereby incorporated herein by reference to the Partnership's
Report for March 31, 1995 on Form 10-Q (File No. 0-8915) dated May 11,
1995).
27. Financial Data Schedule
(b) No reports on Form 8-K have been filed for the quarter covered
by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
BY: JMB Realty Corporation
(Corporate General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
Date: November 9, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date: November 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<CIK> 0000215371
<NAME> CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,253,567
<SECURITIES> 0
<RECEIVABLES> 266,142
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,917,696
<PP&E> 31,077,814
<DEPRECIATION> 17,178,134
<TOTAL-ASSETS> 29,360,153
<CURRENT-LIABILITIES> 3,583,126
<BONDS> 24,894,141
<COMMON> 0
0
0
<OTHER-SE> 710,854
<TOTAL-LIABILITY-AND-EQUITY> 29,360,153
<SALES> 5,500,017
<TOTAL-REVENUES> 5,865,021
<CGS> 0
<TOTAL-COSTS> 2,889,919
<OTHER-EXPENSES> 71,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,753,882
<INCOME-PRETAX> 1,149,347
<INCOME-TAX> 0
<INCOME-CONTINUING> 580,147
<DISCONTINUED> 0
<EXTRAORDINARY> (432,030)
<CHANGES> 0
<NET-INCOME> 148,117
<EPS-PRIMARY> 7.90
<EPS-DILUTED> 7.90
</TABLE>
