<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP--VII
(NAME OF SUBJECT COMPANY)
CARLYLE REAL ESTATE LIMITED PARTNERSHIP--VII
(NAME OF PERSON FILING STATEMENT)
LIMITED PARTNERSHIP INTERESTS
(TITLE OF CLASS OF SECURITIES)
143099307
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
----------------
GARY NICKELE
JMB REALTY CORPORATION
900 NORTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60611
(312) 440-4800
(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY
The subject company is Carlyle Real Estate Limited Partnership--VII, an
Illinois limited partnership (the "Partnership"). The address of the principal
executive offices of the Partnership and JMB Realty Corporation, a Delaware
corporation and the Corporate General Partner of the Partnership ("JMB"), is
900 North Michigan Avenue, Chicago, Illinois 60611. The title of the class of
equity securities to which this statement relates is the outstanding limited
partnership interests (the "Interests") of the Partnership.
ITEM 2. TENDER OFFER OF THE BIDDER
This statement (the "Statement") relates to the offer by Accelerated High
Yield Institutional Fund 1, L.P.; MacKenzie Fund VI, LTD.; MacKenzie Specified
Income Fund, L.P.; MP Income Fund 13, LLC; JDF & Associates, LLC; Steven Gold
and Moraga Gold, LLC (collectively, the "Purchasers"), disclosed on a Tender
Offer Statement on Schedule 14D-1 dated May 8, 1998 (the "Purchasers' Schedule
14D-1") to purchase from the holders of Interests ("Interestholders") up to
2,700 Interests, representing approximately 15% of the total Interests
outstanding as of April 30, 1998, at a purchase price of $800 per Interest,
net to the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated May 8, 1998 (the
"Purchasers' Offer to Purchase"), and the related Letter of Transmittal
(collectively with the Purchasers' Offer to Purchase, the "Offer"), copies of
which are attached to the Purchasers' Schedule 14D-1.
The principal business address of the Purchasers other than JDF &
Associates, LLC and Steven Gold is 1640 School Street, Moraga, California
94556. The principal business address of JDF & Associates, LLC is 118 Glynn
Way, Houston, Texas 77056, and the principal business address of Steven Gold
is Four Embarcadero, Suite 3610, San Francisco, California 94111.
ITEM 3. IDENTITY AND BACKGROUND
(a)(1) The name and business address of the Partnership, which is the person
filing this statement, are set forth in Item 1 above.
(b)(1) Pursuant to the Partnership's Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement", filed as Exhibit (c)(1)
hereto), JMB is the Corporate General Partner of the Partnership. All of the
outstanding shares of JMB are owned directly or indirectly by its officers,
directors, members of their families and their affiliates. JMB has
responsibility for the operation of the Partnership. The Associate General
Partner of the Partnership is AGPP Associates, L.P., an Illinois limited
partnership with JMB as its sole general partner. The limited partners of the
Associate General Partner are generally current and former officers and
directors of JMB, members of their families and their affiliates. Except as
described below or in the Partnership's annual report on Form 10-K with
respect to the year ended December 31, 1997, a copy of which is on file with
the Securities and Exchange Commission (the "Partnership's 10-K"), there are
no material contracts, agreements, arrangements or understandings or any
actual or potential material conflicts of interest between JMB or its
affiliates, on the one hand, and the Partnership, its executive officers,
directors or affiliates, on the other hand. Capitalized terms not otherwise
defined herein are used as defined in the Partnership Agreement.
Please refer to the notes to the consolidated financial statements set forth
in the Partnership's 10-K, which are incorporated herein by reference (and a
copy of which has been filed as Exhibit (c)(2) to this Statement), for a
description of certain material contracts, agreements (including the
Partnership Agreement), arrangements and understandings between (i) the
Partnership and (ii) the General Partners and their respective executive
officers, directors, partners and affiliates.
The Partnership will make a distribution in May 1998 from operating cash
flow and sale proceeds in the aggregate amount of $22,155,000. Pursuant to the
terms of the Partnership Agreement, Interestholders will receive approximately
$18,900,000 as their share of this distribution ($1,050 per Interest) and the
General Partners will receive approximately $3,255,000 as their share of this
distribution. In addition, the Partnership
2
<PAGE>
expects to make a final liquidating distribution in December 1998 of between
$815,000 and $1,650,000, based upon its estimate of the likely expense of
winding down the Partnership's affairs (which assumes that there are no claims
made for breach of the representations, warranties and covenants made by the
Partnership in connection with the sale of its sole remaining real property
interest). Based on this estimate, Interestholders would receive between
approximately $720,000 and $1,440,000 as their share of the final liquidating
distribution ($40 to $80 per Interest), and the General Partners would receive
between approximately $95,000 and $211,000 as their share of the final
liquidating distribution.
The Partnership Agreement exculpates the General Partners and their
respective officers, directors and partners from liabilities to the
Partnership and indemnifies the General Partners and each partner of the
Associate General Partner against liability to third parties resulting from
its or their acts or omissions, unless such action or omission was performed
fraudulently or in bad faith or constituted negligence (gross or ordinary). As
a result of the exculpation and indemnification provisions, an Interestholder
may be entitled to a more limited right of action than he or she would
otherwise have if such provisions were not included in the Partnership
Agreement.
JMB entered into Indemnification Agreements, effective June 1, 1996, with
each of the members of the Special Committee (the "Special Committee") formed
by the Board of Directors of JMB to consider offers for Interests (each such
member, individually, an "Indemnitee"), which provide that, subject to certain
provisions of the Indemnification Agreements, in the event an Indemnitee is,
or becomes a party to, or witness or other participant in, or is threatened to
be made a party to, or witness or other participant in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, investigative or other, by reason of (or arising in part out
of) an Indemnifiable Event (as hereinafter defined), JMB will indemnify such
Indemnitee from and against any and all expenses, judgments, fines, penalties
and amounts paid in settlement incurred or suffered by the Indemnitee to the
fullest extent permitted by law. The rights to receive indemnification and the
advancement of expenses under the Indemnification Agreement are not exclusive
of any other rights to which any Indemnitee may be entitled under any statute,
the Partnership Agreement or otherwise. "Indemnifiable Event," as used in the
Indemnification Agreements, means any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee or agent of JMB, or is
or was serving at the request of JMB as a director, officer, employee,
trustee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise or by reason of
anything done or not done by Indemnitee in any such capacity.
The obligation of JMB to make indemnification payments is subject to the
condition that Independent Legal Counsel (as hereinafter defined) shall not
have determined in a written opinion that Indemnitee is not permitted to be
indemnified under applicable law. If the Independent Legal Counsel determines
that Indemnitee substantively would not be entitled to indemnification under
applicable law, Indemnitee has the right to commence arbitration proceedings
to determine his right to indemnification. Otherwise any determination by such
Counsel shall be conclusive and binding on JMB and the Indemnitee.
"Independent Legal Counsel" is defined as an attorney or firm of attorneys
selected by Indemnitee and approved by JMB who shall not have otherwise
performed services for JMB or Indemnitee within the last five years. The fees
of any Independent Legal Counsel are to be borne by JMB.
The Indemnification Agreement provides that if requested by Indemnitee, JMB
shall advance within two business days any and all expenses of Indemnitee. If
and to the extent that Independent Legal Counsel determines that Indemnitee is
not permitted to be indemnified under applicable law, JMB shall be entitled to
be reimbursed, provided that if Indemnitee exercises his right to have such
issue determined by arbitration or other legal proceedings his obligation to
reimburse JMB shall be deferred pending the outcome of such arbitration or
proceedings.
The by-laws of JMB also provide that its officers, directors, employees and
other agents shall be indemnified by JMB to the fullest extent permitted under
Delaware law, whether acting in their capacities as officers, directors,
employees or other agents of JMB or serving, at the request of JMB, as an
officer, director, employee, fiduciary or other agent of another corporation,
partnership or other entity.
3
<PAGE>
(b)(2) The Purchasers have reported in the Purchasers' Offer to Purchase
that affiliates of the Purchasers hold 313 Interests or approximately 1.74% of
the total outstanding Interests.
Except as set forth herein, to the knowledge of JMB, there are no material
contracts, agreements, arrangements or understandings or any actual or
potential material conflicts of interest between the Partnership, JMB or its
affiliates, on the one hand, and the Purchasers, or their respective executive
officers, directors or affiliates, on the other hand.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Following the Partnership's receipt of the Offer, the Special Committee
of the Board of Directors of JMB met to review and consider the Purchasers'
Offer. Based on its analysis, including consideration of the factors discussed
below, the Special Committee has determined that the Purchasers' Offer is
inadequate and not in the best interests of Interestholders. Accordingly, the
Partnership recommends that Interestholders reject the Offer and not tender
their Interests pursuant to the Offer.
(b) The Special Committee concluded that, in view of the fact that the
Partnership has sold all of its interests in real estate and is in
liquidation, that its assets are primarily cash or cash equivalents and that
the Partnership will make a cash distribution in May 1998 that is
substantially in excess of the purchase price under the Offer, it would not be
meaningful or cost-effective to have its financial advisor prepare a current
valuation of the Partnership's business and assets or the value of an Interest
or to express an opinion with regard to the adequacy of the Offer.
Accordingly, the financial advisor was not requested to render, and has not
rendered, any such valuation or opinion in connection with the Offer. The
Special Committee reached the conclusions set forth in Item 4(a) after
considering a variety of factors, including, but not limited to, the
following:
(i) On April 8, 1998, the Partnership sold its sole remaining real
property interest. During 1998 the Partnership expects to make total
distributions to Interestholders of between $1,090 and $1,130 per Interest,
based upon its estimate of the likely expense of winding down the
Partnership's affairs (which assumes that there are no claims made for
breach of the representations, warranties and covenants made by the
Partnership in connection with the sale of its sole remaining real property
interest). Of that amount, the Partnership will make a distribution of
$1,050 per Interest in May 1998 to Interestholders of record as of May 22,
1998 as the first installment of the liquidating distributions. Under the
terms of the Offer, Interestholders who sell their Interests pursuant to
the Offer will not receive the benefit of this distribution.
(ii) The Purchasers are making the Offer with a view to making a profit.
Accordingly, there is a conflict of interest between their desire to
purchase the Interests at a low price and Interestholders' desire to obtain
the maximum cash return for their Interests.
(iii) The Partnership believes that the Interests are an illiquid
investment whose full value generally can only be realized by an
Interestholder who retains his or her Interests through the liquidation of
the Partnership. In this regard, the Partnership has sold its sole
remaining real property interest and, pursuant to Section 17.2 of the
Partnership, is dissolved. Under Section 18.1 of the Partnership Agreement,
JMB, as the Corporate General Partner, is required to wind up the affairs
of the Partnership, subject to the discretion of the Corporate General
Partner to determine the time, manner and terms of the sale of any
Partnership property (e.g., securities investments) and the right of the
Corporate General Partner, pursuant to Section 18.2 of the Partnership
Agreement, to set up such reserves as it may deem reasonably necessary for
any contingent or unforeseen liabilities or obligations of the Partnership.
It is expected that the Partnership will complete its liquidation and wind
up its affairs during 1998. In such event, 1998 would be the last year for
which an Interestholder would receive a form K-1 from the Partnership.
(iv) The Offer price of $800 per Interest is only 76% of the $1,050 per
Interest that the Partnership will distribute in May 1998.
ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED
In July 1996, the Partnership retained Lehman Brothers Inc. ("Lehman") as
financial advisor to the Special Committee for a two-year period to prepare an
estimate of the present discounted value (the "Lehman Estimated
4
<PAGE>
Liquidation Value") of an Interest based on certain financial projections of
the Partnership and an assumed liquidation of the Partnership. Pursuant to its
engagement, Lehman rendered the Lehman Estimated Liquidation Value of an
Interest as of June 30, 1996 and June 30, 1997. Because the Partnership has
sold its sole remaining interest in real property and holds primarily cash and
cash equivalents, the Special Committee does not believe it would be
meaningful or cost-effective to have Lehman provide a current Lehman Estimated
Liquidation Value of an Interest for an additional fee. Accordingly, Lehman
has not been requested to render, and has not rendered, any valuation or
opinion in connection with the Offer. However, under the terms of its
engagement of Lehman, the Partnership agreed, among other things, that upon
consummation of certain tender offers for Interests, including the Offer, it
will pay Lehman a fee equal to 2.5% of any Incremental Value (as hereinafter
defined) created up to a final tender offer price 5% over the highest tender
offer price per Interest at the time the Partnership files this Schedule 14D-9
with the Securities and Exchange Commission (the "Base Tender Offer Price"),
plus 5% of any additional Incremental Value thereafter, subject to a maximum
additional fee in respect of Incremental Value. For purposes of this
paragraph, "Incremental Value" means the product of the excess of the final
tender offer price over the Base Tender Offer Price per Interest multiplied by
the number of Interests tendered at such price. Any amount that the
Partnership may be required to pay Lehman with respect to Incremental Value
for the Offer is not expected to be material to the Partnership.
Except as described above, neither the Partnership nor any person acting on
its behalf has employed, retained, or compensated or intends to employ,
retain, or compensate any other person or class of persons to make
solicitations or recommendations to Interestholders on its behalf concerning
the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Neither the Partnership nor JMB has effected any transactions in the
Interests during the past 60 days. JMB is not aware of any transactions in the
Interests during the past 60 days by any of its executive officers, directors,
affiliates, or subsidiaries.
(b) Neither JMB nor, to the knowledge of JMB, any of its executive officers,
directors, affiliates, or subsidiaries intends to tender Interests owned by
them in the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Partnership or JMB in response to the Offer which relates to
or would result in any extraordinary transaction involving, or a purchase,
sale or transfer of a material amount of assets by, or any tender offer for or
other acquisition of securities by or of, the Partnership or any subsidiary of
the Partnership, or any material change in the present capitalization or
dividend policy of the Partnership.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
In a current report on Form 8-K dated as of April 8, 1998, the Partnership
reported [in part] as follows:
"Carlyle Real Estate Limited Partnership--VII (the "Partnership") was a
partner in Oakridge Associates, a California general partnership (the
"Venture") with an unaffiliated venture partner, Trizechahn Centers Inc.
(the "Venture Partner"). The Venture owned a leasehold interest in the land
and improvements known as Oakridge Mall in San Jose, California (the
"Property"). The Partnership had been in discussions with potential buyers
for the Property (on behalf of the venture) or the Partnership's interest
in the Property. Per the Venture agreement, the Venture Partner in Oakridge
Associates held the right of first opportunity to purchase the
Partnership's interest in the Venture had the Partnership pursued a sale of
the Property. Pursuant to the Venture agreement, if the Venture Partner
elected to exercise its right of first opportunity, the Venture Partner
would then have 90 days after making such an election to close such sale.
The purchase price of the Partnership's interest would be such as would
produce for the Partnership the same consideration as the sale of the
property to an unaffiliated third party. In March 1998, the Partnership
5
<PAGE>
and the Venture Partner reached an agreement in principle to sell the
Partnership's interest in the Venture to the Venture Partner. On April 8,
1998, the Partnership sold its interest to the Venture Partner. At the time
of the sale, Oakridge Mall was 94% occupied. The purchase price of the
interest was $31,950,000 ($20,700,000 plus the assumption of the
Partnership's share of the mortgage loan of approximately $11,250,000). The
Partnership received approximately $20,900,000 in cash at closing including
a distribution of previously undistributed cash flow from operations of
approximately $494,000 and adjustments for prorations and closing costs,
but before consideration of certain costs of sale incurred by the
Partnership, including a sale commission, if any, due to the General
Partner. Pursuant to the sale agreement, a cash reserve of $250,000 was
established to pay for certain costs that may be incurred related to
certain maintenance items at the Property. Any funds remaining in the cash
reserve at December 1, 1998 will be distributed one-half to the Partnership
and one-half to the Venture Partner. As a result of this transaction, the
Partnership recognized a gain of approximately $23,000,000 for financial
reporting purposes and expects to realize a gain of approximately
$24,000,000 for Federal income tax purposes in 1998. In addition, in
connection with the sale of the Partnership's interest in the Venture and
as is customary in such transactions, the Partnership agreed to certain
representations, warranties and covenants with a stipulated survival period
which expires December 1, 1998. Although it is not expected, the
Partnership may ultimately have some liability under such representations,
warranties and covenants which are limited to actual damages and shall in
no event exceed $1,000,000. Additionally, the Partnership provided a
representation regarding its title relating to its Partnership Interest in
the Venture. Such representation is for the full sale price of the interest
and also expires December 1, 1998.
"The Partnership Agreement provides that the net sale proceeds be
distributed 85% to the Limited Partners and 15% to the General Partners.
"The Partnership's interest in the Venture was its only remaining
investment and due to its sale, the Partnership intends to wind up its
affairs and liquidate by year end. The Partnership will distribute its
remaining cash after payment of expenses and liabilities. During 1998, it
is currently expected that the Partnership will distribute sale and final
liquidating distributions in the aggregate in excess of $1,000 per Limited
Partnership Interest. However, this is an estimate only and the sale and
final liquidating distribution to the Limited Partners, which will depend
on, among other things, amounts needed to pay or provide for the
Partnership's remaining expenses and liabilities, may vary from such
estimate."
Secondary market sales activity for the Interests, including privately
negotiated sales, has been limited and sporadic. The Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997 states that "there is
no public market for Interests, and it is not anticipated that a public market
for Interests will develop." Privately negotiated sales and sales through
intermediaries currently are the only means available to an Interestholder to
liquidate an investment in Interests (other than offers to purchase, including
the Offer) because the Interests are not listed or traded on any exchange or
quoted on any Nasdaq list or system. High and low sales prices of Interests
may be obtained through certain entities such as Partnership Spectrum, an
independent, third-party source which reports such information; however, the
gross sales prices reported by Partnership Spectrum do not necessarily reflect
the net sales proceeds received by sellers of Interests, which typically are
reduced by commissions and other secondary market transaction costs to amounts
less than the reported prices.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
Letter, dated May 26, 1998, from the Partnership to its
(a)(1) Interestholders.
(c)(1) Amended and Restated Agreement of Limited Partnership of the
Partnership, (previously filed with the Securities and
Exchange Commission as Exhibit 3-B to the Partnership's Form
10-K Report for its fiscal year ended December 31, 1993
(File No. 0-8915)
filed on March 25, 1994 and hereby incorporated herein by
reference).
Pages from the Partnership's 10-K that are referred to
(c)(2) herein.
(c)(3) Press Release of the Partnership, dated May 26, 1998.
</TABLE>
6
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Carlyle Real Estate Limited
Partnership--VII
By: JMB Realty Corporation
Corporate General Partner of the
Partnership
/s/ Judd D. Malkin
By: _________________________________
Name: Judd D. Malkin
Title: Chairman
Dated: May 26, 1998
7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
------- ----------- -------
<C> <S> <C>
Letter, dated May 26, 1998, from the Partnership to its
(a)(1) Interestholders.
(c)(1) Amended and Restated Agreement of Limited Partnership of the
Partnership, (previously filed with the Securities and
Exchange Commission as Exhibit 3-B to the Partnership's Form
10-K Report for its fiscal year ended December 31, 1993
(File No. 0-8915)
filed on March 25, 1994 and hereby incorporated herein by
reference).
Pages from the Partnership's 10-K that are referred to
(c)(2) herein.
(c)(3) Press Release of the Partnership, dated May 26, 1998.
</TABLE>
8
<PAGE>
EXHIBIT (a)(1)
CARLYLE REAL ESTATE LIMITED PARTNERSHIP--VII
900 NORTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60611
312-440-4800
May 26, 1998
Dear Interestholders:
A group that includes affiliates of MacKenzie Patterson, Inc. has commenced
a tender offer (the "Offer") to acquire up to approximately 15% of the
outstanding limited partnership interests (the "Interests") in Carlyle Real
Estate Limited Partnership--VII (the "Partnership") at a purchase price of
$800 per Interest.
The Board of Directors of JMB Realty Corporation ("JMB"), the Corporate
General Partner of the Partnership, has formed a special committee (the
"Special Committee") consisting of certain Directors of JMB to consider and
respond to offers for Interests that may be received, including the Offer. THE
SPECIAL COMMITTEE HAS DETERMINED THAT THE OFFER IS INADEQUATE AND NOT IN THE
BEST INTERESTS OF INTERESTHOLDERS. ACCORDINGLY, THE SPECIAL COMMITTEE
RECOMMENDS THAT INTERESTHOLDERS REJECT THE OFFER AND NOT TENDER THEIR
INTERESTS.
The Special Committee recommends that you consider the following, together
with the information in the Partnership's Schedule 14D-9 accompanying this
letter, in connection with the $800 Offer:
. On April 8, 1998, the Partnership sold its sole remaining real property
interest. During 1998 the Partnership expects to make distributions of
between $1,090 and $1,130 per Interest, based upon its estimate of the
likely expense of winding down the Partnership's affairs. A DISTRIBUTION
OF $1,050 PER INTEREST WILL BE MADE IN MAY 1998 TO INTERESTHOLDERS OF
RECORD AS OF MAY 22, 1998 AS THE FIRST INSTALLMENT OF YOUR FINAL
LIQUIDATING DISTRIBUTIONS. IF YOU SELL YOUR INTERESTS PURSUANT TO THE
OFFER YOU WILL NOT RECEIVE THE BENEFIT OF THIS DISTRIBUTION.
. Is your right as an Interestholder to receive $1,050 to be distributed in
May 1998 plus a potential additional distribution before year-end worth
only $800 to you? In other words, do you want to sell your Interests
pursuant to the Offer for substantially less money than you will get from
a distribution in May 1998 if you do not sell your Interests?
If you have tendered your Interests pursuant to the Offer, you may wish to
withdraw your Interests by complying with the requirements of Section 4 of the
Offer to Purchase. If you wish to retain your Interests and have not already
tendered them pursuant to the Offer, you need not take any action. You should
consult with your personal tax advisor and financial consultant prior to
accepting any offer and tendering your Interests.
On behalf of the Special Committee.
Very truly yours,
Carlyle Real Estate Limited
Partnership--VII
By: JMB Realty Corporation
Corporate General Partner
By:
Judd D. Malkin, Chairman
<PAGE>
EXHIBIT (c)(2)
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - VII
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
OPERATIONS AND BASIS OF ACCOUNTING
GENERAL
The Partnership holds (through a joint venture) an equity investment in a
shopping center in San Jose, California. Business activities consist of rentals
to a variety of retail companies, and the ultimate sale or disposition of such
real estate. The Partnership currently expects to conduct an orderly liquidation
of its remaining investment and wind up its affairs not later than December 31,
1999, perhaps in 1998, barring any unforeseen economic developments.
The accompanying consolidated financial statements include the accounts of
the Partnership and its consolidated venture, Oakridge Associates
("Oakridge"), in which the Partnership has certain preferential claims and
rights, as discussed below. The effect of all transactions between the
Partnership and the consolidated venture has been eliminated in the consolidated
financial statements.
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 where applicable to reflect the Partnership's
accounts in accordance with generally accepted accounting principles ("GAAP")
and to include the accounts of the venture as described above. Such GAAP and
consolidation adjustments are not recorded on the records of the Partnership.
The net effect of these items for the years ended December 31, 1997 and 1996 is
summarized as follows:
26
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---------------------------- --------------------------
TAX BASIS TAX BASIS
GAAP BASIS (UNAUDITED) GAAP BASIS (UNAUDITED)
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Total assets............................. $25,211,227 3,279,035 24,881,744 2,919,787
Partners' capital accounts
(deficit):
General partners..................... (1,306,890) (1,345,360) (1,372,930) (1,388,326)
Limited partners..................... 2,092,400 1,222,278 507,428 191,085
Net earnings (loss):
General partners..................... 66,040 42,966 26,248 25,942
Limited partners..................... 1,584,972 1,031,193 629,964 589,061
Net earnings (loss) per
limited partnership
1nterest................................ 88.03 57.27 34.99 32.72
=========== ========== ========== ==========
</TABLE>
27
<PAGE>
The net earnings (loss) per limited partnership interest is based upon the
number of limited partnership interests outstanding at the end of each year
(18,005). Deficit capital accounts will result, through the duration of the
Partnership, in net gain for financial and Federal income tax purposes.
The preparation of financial statements in accordance with GA&P requires
the Partnership to make estimates and assumptions that affect the reported or
disclosed amount of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statement of Financial Accounting Standards No. 95 requires the Partnership
to present a statement which classifies receipts and payments according to
whether they stem from operating, investing or financing activities. The
required information has been segregated and accumulated according to the
classifications specified in the pronouncement. 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 ($3,219,670 and
$2,979,126 at December 31, 1997 and 1996, respectively) as cash equivalents,
which includes investments in commercial paper and an institutional mutual fund
which holds U.S. Government obligations. Remaining amounts, if any, (generally
with original maturities of one year or less) are reflected as short-term
investments being held to maturity.
Deferred expenses consist primarily of commitment fees incurred in
connection with the acquisition and financing of the Partnership's sole
operating property along with lease commissions paid on the Partnership's sole
operating property. Deferred loan fees and leasing fees are amortized using the
straight-line method over the terms stipulated in the related agreements.
Although certain leases of the Partnership provide for tenant occupancy
during periods for which no rent is due and/or increases in minimum lease
payments over the term of the lease, the Partnership accrues rental income for
the full period of occupancy on a straight-line basis.
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 or may be required under
applicable law to remit directly to the tax authorities amounts representing
withholding from distributions paid to Partners.
The Partnership has or had acquired, either directly or through joint
ventures, eight apartment complexes and four shopping centers. All of the
properties have been sold or disposed of, except one shopping center. The
remaining investment property owned at December 31, 1997 is operating. The cost
of the remaining investment property represents the total cost to the
Partnership and its venture, plus miscellaneous acquisition costs.
Depreciation on the Partnership's remaining property has been provided over
the estimated useful lives of its various components as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building and improvements (new)-
straight-line or 150% declining-balance . . . . . . 5-40
Building and improvements (used)-
125% declining-balance or
straight-line . . . . . . . . . . . . . . . . . . . 5-40
====
</TABLE>
The investment property is pledged as security for the long-term debt, for
which there is no recourse to the Partnership.
28
<PAGE>
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated over
their estimated useful lives.
The Partnership adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121") as required in the first quarter of 1996. SFAS 121
requires that the Partnership record an impairment loss on its property to be
held for investment whenever its carrying value cannot be fully recovered
through estimated undiscounted future cash flows from its operations and sale.
The amount of the impairment loss to be recognized would be the difference
between the property's carrying value and the property's estimated fair value.
The Partnership's policy is to consider a property to be held for sale or
disposition when the Partnership has committed to a plan to sell such property
and active marketing activity has commenced or is expected to commence in the
near term. In accordance with SFAS 121, any property identified as "held for
sale or disposition" is no longer depreciated. Adjustments for impairment loss
for such property (subsequent to the date of adoption of SFAS 121) are made in
each period as necessary to report these properties at the lower of carrying
value or fair value less costs to sell. The adoption of SFAS 121 did not have
any effect on the Partnership's financial position, results of operations or
liquidity.
As the venture had committed to a plan to sell the Partnership's remaining
property, the property was classified as held for sale as of December 31, 1996,
and therefore, is not subject to continued depreciation beginning January 1,
1997. The results of operations of the Partnership's remaining property included
in the accompanying consolidated financial statements were net income of
$3,398,168, $1,440,046 and $1,939,659 for the years ended December 31, 1997,
1996 and 1995, respectively.
During the second quarter of 1997, Statements of Financial Accounting
Standards No. 128 ("Earnings per Share") and No. 129 ("Disclosure of
Information about Capital Structure") were issued. These standards became
effective for reporting periods after December 15, 1997. As the Partnership's
capital structure only has general and limited partnership interests, the
Partnership will not experience any significant impact on its consolidated
financial statements.
The Partnership at December 31, 1997 is a party to one operating joint
venture agreement. Pursuant to such agreement, the Partnership made initial
capital contributions of $3,352,642 (before legal and other acquisition costs
and its share of operating deficits as discussed below). In general, the joint
venture partner, who was the seller of the property investment being acquired,
made no cash contributions to the venture, but its retention of an interest in
the property, through the joint venture, was taken into account in determining
the purchase price of the Partnership's interest (which was determined by arm's-
length negotiations). 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.
The Partnership has acquired, through the one remaining venture, one
regional shopping mall. The joint venture partner (who was primarily responsible
for constructing the property) was to contribute any excess of cost over the
aggregate amount available from Partnership contributions and financing and, to
the extent such funds exceeded the aggregate costs, was to retain such excesses.
The venture property has been financed under the long-term debt arrangement as
described below.
29
<PAGE>
INVESTMENT PROPERTY
OAKRIDGE MALL
The Partnership is a general partner in the Oakridge Associates Ltd.
venture with the seller of the property.
Pursuant to the venture agreement, beginning January 1, 1983, any net cash
flow is to be and has been distributed equally to the Partnership and the
seller. The Partnership has a preferred position (related to the Partnership's
cash investment in the venture) with respect to distributions of sale or
refinancing proceeds from the venture. Once the preferred position has been
satisfied, any excess sale or refinancing proceeds from the venture are to be
distributed so that the Partnership and the venture partner equally share the
proceeds.
Venture operating profits and losses are allocated to the venture partners
generally in proportion to their distributions of net cash flow. In 1997, 1996
and 1995, profits and losses were allocated 50% to the Partnership and 50% to
the venture partner. An affiliate of the venture partner manages the property
pursuant to an agreement which provides for a management fee calculated at a
percentage of certain types of income.
The Partnership has been in discussions with potential buyers for the
Oakridge Shopping Mall (on behalf of the venture) or the Partnership's interest
in the property.
In March 1998, an agreement in principle was reached to sell the
Partnership's interest in the property to the venture partner. If the sale is
consummated on the proposed terms, the Partnership would recognize a gain for
financial reporting and Federal income tax purposes. There can be no assurances
that the sale will be consummated under the terms of the agreement or under any
other terms.
In October 1990, the Partnership and its Oakridge venture partner finalized
negotiations with the lessors to amend the ground lease at the Oakridge Mall by
adding a "purchase option" provision. The price for obtaining the purchase
option was $2,000,000. The Partnership and its venture partner funded their
respective 50% shares of these costs from the cash flow of the property. The
option (which may be exercised five years after the death of both lessors)
provides for the price of the land to be determined by a formula related to
ground rent paid during the most recent few years of the lease, and is payable
in addition to the cost of the purchase option discussed above.
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 mortgage loan was scheduled to
mature in February 1998, however, the venture exercised its option to extend the
loan for six months to August 1998. Accordingly, the mortgage loan has been
classified as current in the accompanying consolidated financial statements at
December 31, 1997. Such short-term extension is currently considered adequate
given the venture's current property sale plans. However, if the venture is
unsuccessful in selling the property before the current loan maturity date, the
venture would seek an additional loan extension from the current lender or would
seek to refinance the mortgage loan.
At the February 1995 refinancing, the venture received approximately
$4,300,000 in net proceeds (after payoff of the existing loan including a
prepayment penalty of approximately $708,000 and closing costs). These proceeds
were utilized for capital expenditures, including the replacement of the roof,
and previously deferred maintenance at the mall. Such refinancing resulted in
recognition of an extraordinary item of $782,020 (including deferred mortgage
costs and accrued interest), of which the Partnership's share was $391,010. 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 was
completed in 1996. As a result
30
<PAGE>
of the venture completing the renovation and remodel of the mall in 1996,
approximately $2,800,000 of excess proceeds from the refinancing was released
from escrow by the lender. Additionally, after the venture's review of the
requirements for operating reserves, repairs and deferred maintenance projects,
the remaining loan proceeds of $4,294,143 were distributed to the partners of
the venture. As a result of this distribution of refinancing proceeds, the
Partnership's preferential position in the venture, as discussed above, was
satisfied. Accordingly, any additional distributions of sale or refinancing
proceeds will be allocated equally to the partners of the venture.
Nordstrom (which owned its own store) left the center in March 1995.
Nordstrom assigned, transferred and conveyed its interest in its land, building
and Reciprocal Easement Agreement ("REA") to Sears Roebuck and Co. which
opened its new store on October 28, 1995. The Nordstrom closing and Sears
Roebuck and Co. opening did not have a significant adverse impact on the
operations of the mall. The property's other anchor tenants, Montgomery Ward and
R.H. Macy, are also subject to the REA. The REA requirement for each anchor
tenant to operate a department store under it'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. The Partnership and its
joint venture partner have decided not 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 Oakridge.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
9.19% mortgage note; secured
by the Oakridge Mall Shopping
Center in San Jose, California;
balance payable in monthly
installments of $310,165
(including interest) until
maturity in August 1998......................... $23,002,015 24,532,837
Less current portion of
long-term debt............................ 23,002,015 1,530,822
----------- ----------
Total long-term debt........................ $ -- 23,002,015
=========== ==========
Five year maturities of long-term debt are summarized as follows:
1998........................................... $23,002,015
1999........................................... --
2000........................................... --
2001........................................... --
2002........................................... --
===========
</TABLE>
PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits or losses
of the Partnership from operations are allocated 96% to the Limited Partners and
4% to the General Partners. Profits from the sale or refinancing of investment
properties will be allocated to the General Partners in an amount equal to the
greater of any cash distributions of the proceeds of any such sale or
refinancing (as described below) or 1% of the profits from the sale or
refinancing. Losses from the sale or refinancing of investment properties will
be allocated 1% to the General Partners. The remaining sale or refinancing
profits and losses will be allocated to the Limited Partners.
31
<PAGE>
An amendment to the Partnership Agreement, effective January 1, 1991,
generally provides that notwithstanding any allocation contained in the
Agreement, if at any time profits are realized by the Partnership, any current
or anticipated event that would cause the deficit balance in absolute amount in
the Capital Account of the General Partners to be greater than their share of
the Partnership's indebtedness (as defined) after such event, then the
allocation of profits to the General Partners shall be increased to the extent
necessary to cause the deficit balance in the Capital Account of the General
Partners to be no less than their respective shares of the Partnership's
indebtedness after such event. In general, the effect of this amendment is to
allow the deferral of the recognition of taxable gain to the Limited Partners.
Pursuant to such provisions, the General Partners were allocated in 1996
additional amounts of gain for Federal income tax purposes. Such allocations had
no effect on total Partnership assets or results of operations.
The Partnership Agreement provides that the General Partners shall receive
as a distribution from the sale of a real property by the Partnership 6% of the
selling price, and that the remaining proceeds (net after expenses and retained
working capital) be distributed 85% to the Limited Partners and 15% to the
General Partners. However, the Limited Partners shall receive 100% of such net
sale proceeds until the Limited Partners (i) have received cash distributions of
sale or refinancing proceeds in an amount equal to the Limited Partners'
aggregate initial capital investment in the Partnership and (ii) have received
cumulative cash distributions from the Partnership's operations which, when
combined with sale or refinancing proceeds previously distributed, equal a 6%
annual return on the Limited Partners' average capital investment for each year
(their initial capital investment as reduced by sale or refinancing proceeds
previously distributed) commencing with the third fiscal quarter of 1978. The
Limited Partners have received cash distributions that satisfied the
requirements in (i) and (ii) above.
LEASES - AS PROPERTY LESSOR
At December 31, 1997, the Partnership and its consolidated venture's
principal asset is one shopping center. The Partnership has determined that all
leases relating to this property are properly classified as operating leases;
therefore, rental income is reported when earned and the cost of the property,
excluding cost of land, is depreciated over its estimated useful life. Leases
with shopping center tenants range from one to thirty years and provide for
fixed minimum rent and partial reimbursement of operating costs. In addition,
leases with shopping center tenants provide for additional rent based upon
percentages of tenants' sales volumes. A substantial portion of the ability of
retail tenants to honor their leases is dependent upon the retail economic
sector.
Minimum lease payments including amounts representing executory costs
(e.g.,taxes, maintenance, insurance) and any related profit in excess of
specific reimbursements, to be received in the future under the above operating
lease agreements relating to the shopping center, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 . . . . . . . . $ 6,387,773
1999 . . . . . . . . 5,743,192
2000 . . . . . . . . 4,894,754
2001 . . . . . . . . 4,426,709
2002 . . . . . . . . 3,881,238
Thereafter . . . . . . 10,688,519
-----------
Total . . . . . . $36,022,185
===========
</TABLE>
32
<PAGE>
Additional contingent rent (based on sales by property tenants) included in
rental income was as follows:
1995 . . . . . . . . $115,566
1996 . . . . . . . . 301,074
1997 . . . . . . . . 456,881
========
LEASES - AS PROPERTY LESSEE
The following lease agreement has been determined to be an operating lease.
The Oakridge venture owns a net leasehold interest in the land underlying
the San Jose, California shopping center expiring August 31, 2008, subject to
renewal for twelve five-year periods. The lease provides for an annual base rent
of $203,357. The lease provides that the venture pays real estate taxes
applicable to the leased land and the improvements situated thereon. The lease
also provides for additional annual percentage rent based upon the operations of
the shopping center. In October 1990, the Partnership and the joint venture
partner finalized negotiations with the lessor to amend the ground lease at
Oakridge Mall by adding a "purchase option" provision.
Minimum rental expense for 1997, 1996 and 1995 under the above operating
lease was $203,3S7 in each year. Additional rental expense under the above
operating lease was $1,092,293, $850,773 and $696,896 for 1997, 1996 and 1995,
respectively.
Future minimum rental commitments under the lease are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 . . . . . . . . $ 203,357
1999 . . . . . . . . 203,357
2000 . . . . . . . . 203,357
2001 . . . . . . . . 203,357
2002 . . . . . . . . 203,357
Thereafter. . . . . . 1,059,198
----------
$2,075,983
==========
TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the Partnership
to the General Partners and their affiliates as of December 31, 1997 and for the
years ended December 31, 1997, 1996 and 1995 are as follows:
UNPAID AT
DECEMBER 31,
1997 1996 1995 1997
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Reimbursement (at
cost) for out-of-
pocket expenses . . . $ -- 5,716 10,445 --
------ ------ ------ ------
$ -- 5,716 10,445 --
====== ====== ====== ======
</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 General
Partners, therefore, are entitled to participate in sale and refinancing
proceeds to the extent of their previously deferred disposition fees earned on
the properties sold to date. All such fees, which total $940,488, were paid as
of December 31, 1997.
33
<PAGE>
Exhibit (c)(3)
FOR IMMEDIATE RELEASE
FOR FURTHER INFORMATION:
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-VII
ANNOUNCES LIQUIDATING DISTRIBUTION;
RECOMMENDS AGAINST ACCEPTANCE OF
INFERIOR TENDER OFFER
Chicago, May 26, 1998--Carlyle Real Estate Limited Partnership-VII (the
"Partnership") announced today that it will make a distribution in May of $1,050
per interest in the Partnership payable to interest holders of record as of the
close of business on May 22, 1998. Judd D. Malkin, chairman of JMB Realty
Corporation, the corporate general partner of the Partnership, stated, "The
distribution is being made in connection with liquidation of the Partnership now
that it has sold its last remaining real property interest, and a final
distribution, which could be as much as $40-$80 per interest, may be made at
year-end, depending on the costs of winding down the Partnership."
The Partnership also announced that in response to a tender offer made by a
group that includes affiliates of MacKenzie Patterson, Inc. to purchase up to
2,700 interests in the Partnership at a purchase price of $800 per interest, a
special committee consisting of certain directors of JMB has concluded that the
offer is inadequate and has recommended against acceptance of the offer to the
Partnership's interest holders. Mr. Malkin stated, "In view of the cash
distribution of $1,050 per Interest to be made in May, it should be self-evident
to interest holders that the $800 offer is inadequate." He pointed out, "Any
interest holder who accepted the offer would not receive the benefit of the
substantially superior liquidating distributions to be made by the Partnership."
