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 June 30, 1997 Commission file number 0-10494
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XI
(Exact name of registrant as specified in its charter)
Illinois 36-3102608
(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
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . 14
PART II OTHER INFORMATION
Item 3. Defaults on Senior Securities. . . . . . . . . . 17
Item 5. Other Information. . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 18
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
ASSETS
------
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 3,593,659 3,697,163
Rents and other receivables (net of allowance for
doubtful accounts of $1,502,416 and $1,495,915 at
June 30, 1997 and December 31, 1996, respectively). . . . . . . . 559,637 628,039
Escrow deposits and restricted funds. . . . . . . . . . . . . . . . 3,739,946 3,678,237
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 1,128,725 1,167,702
------------ -----------
Total current assets. . . . . . . . . . . . . . . . . . . . 9,021,967 9,171,141
------------ -----------
Mortgage notes receivable (net of reserve for
uncollectibility of $327,774). . . . . . . . . . . . . . . . . . . . 1,867,695 1,867,695
------------ -----------
Investment property, at cost:
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,403,077 4,845,861
Buildings and improvements. . . . . . . . . . . . . . . . . . . . 49,924,411 60,783,454
------------ -----------
53,327,488 65,629,315
Less accumulated depreciation . . . . . . . . . . . . . . . . . . 24,011,856 23,002,534
------------ -----------
Total investment property, net
of accumulated depreciation . . . . . . . . . . . . . . . . 29,315,632 42,626,781
Properties held for sale or disposition . . . . . . . . . . . . . 66,537,681 66,102,154
------------ -----------
Total investment properties . . . . . . . . . . . . . . . . . 95,853,313 108,728,935
------------ -----------
Investment in unconsolidated venture, at equity . . . . . . . . . . . 924,711 628,276
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,825,507 3,802,233
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . 2,468,669 2,965,832
Venture partner's deficit in venture. . . . . . . . . . . . . . . . . 405,564 405,564
------------ -----------
$114,367,426 127,569,676
============ ===========
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
JUNE 30, DECEMBER 31,
1997 1996
------------- -----------
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . $ 47,441,292 517,413
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 3,203,936 3,005,313
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . 507,927 612,197
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . 2,207,320 1,883,331
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . 717,000 713,459
------------ -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 54,077,475 6,731,713
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . 207,004 215,186
Long-term debt, less current portion. . . . . . . . . . . . . . . . . 83,993,106 130,058,240
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 184,481 200,749
------------ -----------
Commitments and contingencies
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 138,462,066 137,205,888
------------ -----------
Deferred gain on sale of investment property. . . . . . . . . . . . . 1,867,695 1,867,695
------------ -----------
Venture partner's subordinated equity in venture. . . . . . . . . . . 2,660,832 2,600,108
------------ -----------
Partners' capital accounts (deficits):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net earnings (losses). . . . . . . . . . . . . . . . . (13,476,553) (12,895,787)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . (1,116,446) (1,116,446)
------------ -----------
(14,591,999) (14,011,233)
------------ -----------
Limited partners:
Capital contributions, net of offering costs. . . . . . . . . . . 121,935,233 121,935,233
Cumulative net earnings (losses). . . . . . . . . . . . . . . . . (90,898,426) (76,960,040)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . (45,067,975) (45,067,975)
------------ -----------
(14,031,168) (92,782)
------------ -----------
Total partners' capital accounts (deficits) . . . . . . . . . (28,623,167) (14,104,015)
------------ -----------
$114,367,426 127,569,676
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- ---------------------------
1997 1996 1997 1996
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . $ 6,789,238 8,468,033 13,942,058 16,720,469
Interest income . . . . . . . . . . . . . . . 297,880 57,040 372,173 103,344
------------ ---------- ---------- -----------
7,087,118 8,525,073 14,314,231 16,823,813
------------ ---------- ---------- -----------
Expenses:
Mortgage and other interest . . . . . . . . . 3,262,224 4,126,688 6,529,500 7,983,358
Depreciation. . . . . . . . . . . . . . . . . 504,686 1,639,818 1,009,322 3,155,982
Property operating expenses . . . . . . . . . 3,894,746 4,743,670 7,475,052 9,141,407
Professional services . . . . . . . . . . . . 92,031 51,248 172,449 146,918
Amortization of deferred expenses . . . . . . 266,239 355,949 493,283 618,120
General and administrative. . . . . . . . . . 164,760 139,376 246,488 224,001
Provision for value impairment. . . . . . . . 13,143,000 -- 13,143,000 --
Provision for unrealizable venture
partner deficit . . . . . . . . . . . . . . -- -- -- 8,500,000
------------ ---------- ---------- -----------
21,327,686 11,056,749 29,069,094 29,769,786
------------ ---------- ---------- -----------
Operating earnings (loss) . . . . . . . (14,240,568) (2,531,676) (14,754,863) (12,945,973)
Partnership's share of operations of
unconsolidated venture . . . . . . . . . . . 129,911 42,490 296,435 97,679
Venture partner's share of venture's
operations. . . . . . . . . . . . . . . . . . (113,157) 607,656 (60,724) 894,953
------------ ---------- ----------- -----------
Net operating earnings (loss) . . . . . (14,223,814) (1,881,530) (14,519,152) (11,953,341)
Gain on sale of investment property . . . . . . -- 200,000 -- 200,000
------------ ---------- ----------- -----------
Net earnings (loss) . . . . . . . . . . $(14,223,814) (1,681,530) (14,519,152) (11,753,341)
============ ========== =========== ===========
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- ---------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
Net earnings (loss) per limited
partnership interest:
Net operating earnings
(loss). . . . . . . . . . . . . . $ (99.37) (13.14) (101.43) (83.50)
Gain on sale of invest-
ment property . . . . . . . . . . -- 1.44 -- 1.44
----------- ---------- ---------- -----------
$ (99.37) (11.70) (101.43) (82.06)
=========== ========== ========== ===========
Cash distributions per limited
partnership interest. . . . . . . . . $ -- -- -- --
=========== ========== ========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $(14,519,152) (11,753,341)
Items not requiring (providing) cash or cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,009,322 3,155,982
Amortization of deferred expenses . . . . . . . . . . . . . . . . . . . 493,283 618,120
Long-term debt - deferred accrued interest. . . . . . . . . . . . . . . 1,110,868 1,300,070
Partnership's share of operations of unconsolidated
venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (296,435) (97,679)
Venture partner's share of venture's operations . . . . . . . . . . . . 60,724 (894,953)
Provision for value impairment. . . . . . . . . . . . . . . . . . . . . 13,143,000 --
Provision for unrealizable venture partner deficit. . . . . . . . . . . -- 8,500,000
Gain on sale of investment property . . . . . . . . . . . . . . . . . . -- (200,000)
Changes in:
Rents and other receivables . . . . . . . . . . . . . . . . . . . . . . 68,402 707,719
Escrow deposits and restricted funds. . . . . . . . . . . . . . . . . . (61,709) (2,108,612)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,977 1,090,097
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . (54,343) 261,109
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 595,132 (177,267)
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104,270) (181,139)
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 323,989 60,217
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . 3,541 (360,871)
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . (8,182) (980)
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,268) 197,063
------------ -----------
Net cash provided by (used in) operating activities . . . . . . . . 1,786,879 115,535
------------ -----------
Cash flows from investing activities:
Collection of notes receivable. . . . . . . . . . . . . . . . . . . . . . -- 200,000
Additions to investment properties. . . . . . . . . . . . . . . . . . . . (998,641) (1,071,071)
Payment of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . (639,619) (173,432)
------------ -----------
Net cash provided by (used in) investing activities . . . . . . . . (1,638,260) (1,044,503)
------------ -----------
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1997 1996
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . (252,123) (227,719)
Venture partners' contributions to venture. . . . . . . . . . . . . . . . -- 160,000
------------ -----------
Net cash provided by (used in) financing activities . . . . . . . (252,123) (67,719)
------------ -----------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . (103,504) (996,687)
Cash and cash equivalents, beginning of year. . . . . . . . . . . 3,697,163 3,928,706
------------ -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . $ 3,593,659 2,932,019
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . . . . . . . . . . . . $ 5,094,643 6,743,505
============ ===========
Non-cash investing and financing activities . . . . . . . . . . . . . . . $ -- --
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
GENERAL
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the year ended December 31, 1996, which
are included in the Partnership's 1996 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.
The preparation of financial statements in accordance with GAAP
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.
The Partnership adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" as required in the first
quarter of 1996. 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 or dispose of such property and active marketing activity has
commenced or is expected to commence in the near term or the Partnership
has concluded that it may dispose of the property by no longer funding
operating deficits or debt service requirements of the property thus
allowing the lender to realize upon its security. In accordance with SFAS
121, any properties identified as "held for sale or disposition" are no
longer depreciated.
The net results of operations, net of venture partner's share, for the
six months ended June 30, 1997 and 1996 for consolidated properties
classified as held for sale or disposition or sold or disposed of during
the past two years were $(510,859) and $(10,713,332), respectively. In
addition, the accompanying consolidated financial statements include
$296,435 and $97,679, respectively, of the Partnership's share of total
property operations of $2,159,730 and $711,661 for its unconsolidated
property for the six months ended June 30, 1997 and 1996, respectively,
which is held for sale or disposition.
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. As the Partnership's
capital structure only has general and limited partnership interests, the
Partnership does not expect any significant impact on its consolidated
financial statements upon adoption of these standards when required at the
end of 1997.
<PAGE>
TRANSACTIONS WITH AFFILIATES
The Partnership, pursuant to the Partnership Agreement, is permitted
to engage in various transactions involving the Corporate General Partner
and its affiliates including the reimbursement for salaries and salary-
related expenses of its employees, certain of its officers, and other
direct expenses relating to the administration of the Partnership and the
operation of the Partnership's investments. Fees, commissions and other
expenses required to be paid by the Partnership to the General Partners and
their affiliates as of June 30, 1997 and for the six months ended June 30,
1997 and 1996 were as follows:
Unpaid at
June 30,
1997 1996 1997
-------- ------- -------------
Property management
and leasing fees . . . . . . $163,314 98,696 --
Insurance commissions . . . . 31,597 -- --
Reimbursement (at cost)
for out-of-pocket salary
and salary-related expenses
related to the on-site
and other costs for the
Partnership and its
investment properties. . . . 25,458 42,414 22,013
-------- ------- ------
$220,369 141,110 22,013
======== ======= ======
The Corporate General Partner has deferred payment of partnership
management fees of $11,936. In addition, distributions to the General
Partners of the first quarter 1991 net cash flow of the Partnership
aggregating $7,161 have been deferred. The General Partners and their
affiliates have also deferred payment of the Partnership's share of
property management and leasing fees of approximately $171,000 for the
Partnership's unconsolidated venture, which is not included in the
consolidated financial statements. These amounts do not bear interest and
are expected to be paid in future periods.
RIVERFRONT OFFICE BUILDING
In 1996, Blue Cross Blue Shield, occupying approximately 88,000 square
feet, or approximately 26% of the leasable space of the building, notified
the venture that it would be vacating the premises upon its lease
expiration, originally set for March 1998. As a result, the venture
entered into a termination agreement with Blue Cross Blue Shield whereby
the tenant would vacate certain spaces by certain dates before its lease
expiration date for a set payment. Although the venture will incur
substantial lease-up costs as a result of the Blue Cross Blue Shield lease
expiration, the venture is hopeful that it can fulfill future debt service
requirements of the restructured loan. Additionally, the Cambridge,
Massachusetts market, in which the property operates, has been improving.
As a result, the Partnership has recently been successful in attracting new
tenants to the property such that as of June 30, 1997, the property is 90%
occupied and 98% leased. However, if future operating shortfalls are
greater than expected and funding of deficits becomes necessary, the
Partnership would make a decision to commit additional funds to this
investment property based on, among other things, the likelihood of the
return of such additional investments plus a reasonable profit thereon.
The ability of this investment property to provide liquidity to the
Partnership is dependent on the property's value and the satisfaction of
certain preference levels to the unaffiliated venture partner pursuant to
the joint venture agreement.
<PAGE>
The restructured loan secured by the building and improvements
requires that net cash flow after debt service and capital be paid into an
escrow account controlled by the lender to be used for future operating
shortfalls, principal payments and costs associated with additional leasing
as approved by the lender. The agreement further prohibits the venture
owning the property from distributing excess cash flow after full funding
of the escrow accounts. Such excess funds are to be retained and utilized
for operating shortfalls, principal payments and costs associated with
additional leasing as approved by the lender prior to withdrawing escrow
deposits.
In addition, as a condition of the loan restructure discussed above,
the ground lease was amended and provides for the deferral of any and all
ground lease payments from February 1993 until the earlier of any future
mortgage loan prepayment date (resulting from a sale or refinancing of the
property) or December 31, 2007. However, if the property produces certain
levels of gross receipts (as defined by the restructured loan) for the
years 1998 through 2003, the restructured loan allows for partial payments
of ground rent to be reinstated beginning in 1998. The ground lessor is a
general partner of the venture partner. At June 30, 1997, the total amount
of deferred and accrued ground lease expense is approximately $768,900.
As a result of the adoption of SFAS 121, the Partnership recorded a
provision for unrealizable venture partner deficit of $8,500,000 as a
result of the uncertainty of the Partnership recovering the deficit capital
account from future operations and ultimate sale of the property. Such
provision was recorded as of January 1, 1996 based upon an analysis of the
property's discounted estimated future cash flows over the projected
holding period and was recorded to reduce the venture partner's deficit
account to its then estimated recoverable amount. In addition, no
additional venture losses have been allocated to the venture partner as of
January 1, 1996.
The property has been considered held for sale or disposition as of
December 31, 1996, and therefore, is no longer subject to continued
depreciation.
767 THIRD AVENUE OFFICE BUILDING
Occupancy at the property is 96% at June 30, 1997. During the
remainder of 1997 and 1998, expiration of tenant leases will be
approximately 5% and 19%, respectively. There is no assurance that the
expiring tenants can be retained. The Partnership is obligated to fund its
share of the net cash flow deficits resulting from costs associated with
any leasing activity at the property.
Vacancy rates in Midtown Manhattan (the sub-market for this property)
remain high and the increased competition for tenants has resulted in
reduced effective rental rates. The adverse market conditions and the
negative impact of the reduced effective rental rates are expected to
continue through 1998.
The 767 Third Avenue Venture has a mortgage loan which matures in May
1999, and bears interest at 10%. The venture is currently discussing
obtaining replacement financing to extend the term of the loan as well as
reduce the interest rate. In conjunction with such discussions, the
Partnership has had discussions with the venture partner regarding a sale
of the Partnership's interest to the venture partner and have reached an
agreement in principle for such sale. If the sale is consummated at the
proposed terms, the Partnership would recognize a net gain for financial
reporting and Federal income tax purposes. However, there can be no
assurance that any refinancing or sale will be finalized. The property has
been considered held for sale or disposition as of December 31, 1996, and
therefore, is no longer subject to continued depreciation.
The 767 Third Avenue Venture also has a $2,500,000 unsecured
promissory note payable to the venture partner which matures in May 1998.
Accordingly, this note has been classified as a current liability in the
accompanying consolidated financial statements.
<PAGE>
MALL OF MEMPHIS
Occupancy at the property is 73% at June 30, 1997. The mall has
suffered from a number of store closings, many prior to lease expiration,
primarily as a result of tenants filing for bankruptcy and liquidation. In
addition, the property has been subjected to increased competition for
shoppers and tenants from strip centers and large discount stores in its
market area. Although certain tenants continue to perform well, overall
tenant sales at the property have continued to decline. Due to poor sales
performances, many tenants are electing not to renew their leases or are
renewing at lower rates. Several other tenants whose leases are not due to
expire in the near term have approached the Partnership seeking rent
relief. The Partnership has granted rent relief to certain tenants that
could demonstrate that without a reduction in their rent, they would no
longer be able to remain in business at the mall. As a result of these
market and property conditions, the property's cash flow has been
decreasing and is expected to decline further in the future.
Due to the vacancies discussed above and other property operating
considerations, the Partnership did not make the required debt service
payments which were due on August 1, 1997 on its first, second and third
mortgage notes secured by the Mall of Memphis investment property with an
aggregate balance at June 30, 1997 of $39,941,292. As a result, these
mortgage notes have been classified as current in the accompanying
consolidated financial statements. The Partnership is planning to approach
the lender regarding a loan modification. If substantial future operating
deficits are incurred and the lender is unwilling to grant an acceptable
loan modification, the Partnership would likely decide not to commit
additional amounts to the property. Any decision to commit additional
funds to this investment property for any purpose will be based on, among
other things, the likelihood of the return of such additional investment
plus a reasonable profit thereon. This would result in the Partnership no
longer having an ownership interest in the property and would result in a
gain for Federal income tax purposes with no corresponding distributable
proceeds.
Pursuant to the terms of the note payable to the former venture
partner, the Partnership had guaranteed a portion of the debt service
payments payable on June 1, 1997 in the amount of $300,000. As of the date
of this report, the Partnership has not made the debt service payment. As
a result, the Partnership is in default and the $5,000,000 note payable has
been classified as current in the accompanying consolidated financial
statements. Due to provisions of the associated underlying agreements, the
former venture partner may only realize upon its security (its former
partnership interest in the joint venture). However if the June 1997
guaranteed payment is not paid, it is possible that the former venture
partner may attempt to exercise its remedies against the Partnership
respecting the guaranteed amounts.
Due to the current and anticipated market conditions outlined above,
the Partnership is uncertain about its ability to recover the net carrying
value of the Mall of Memphis investment property through future operations
and sale. Therefore, as of June 30, 1997, the Partnership recorded, as a
matter of prudent accounting practice, a provision for value impairment of
such investment of $13,143,000. Such provision was recorded to reflect the
estimated fair value of the property based upon an analysis of discounted
estimated future cash flows over the projected holding period. There can
be no assurance that the estimated fair value of the property would
ultimately be realized by the Partnership in any future sale or disposition
transaction.
The property has been considered held for sale or disposition as of
July 1, 1997 and will therefore no longer be subject to continued
depreciation.
<PAGE>
NATIONAL CITY CENTER
At the National City Center Office Building located in Cleveland,
Ohio, a tenant who occupied approximately 66,000 square feet (12.5% of the
building) whose lease expired in late 1996 informed the Partnership that it
intended to vacate a portion (approximately 45,000 square feet) upon
expiration of its existing lease. In the fourth quarter of 1996, the
venture and the tenant reached an agreement in which the tenant delayed
downsizing its space until February 1997 and extended the term of the
remaining space (approximately 21,000 square feet) until late 2000 at a
slightly higher rate. In addition, a tenant (who occupied approximately
12,500 square feet and was operating a restaurant on the building's plaza
level) terminated its lease effective August 31, 1996. Upon termination,
the tenant was required to pay the venture a lease termination fee of
$45,000. In January 1997, the Carlyle/National City venture collected the
termination fee from the tenant. The venture is currently exploring its
options and is seeking replacement tenants for the vacant space in the
building. However, there can be no assurance that any replacement tenants
will be obtained.
In the first quarter of 1997, the venture successfully appealed its
1995 and 1994 real estate taxes and received a refund of approximately
$270,000. Additionally, the venture was informed that it had successfully
appealed its 1996 real estate taxes (payable in 1997). This will result in
a decrease in real estate taxes of approximately $165,000. However,
portions of such refunds will cause the issuance of rent credits to the
tenants as the tenants are generally responsible for their allocable
portion of the real estate taxes pursuant to their lease agreements.
The venture is currently marketing the property for sale.
YERBA BUENA OFFICE BUILDING
In June 1992, title to the Yerba Buena Office Building in San
Francisco, California was transferred to the lender by the joint venture (a
partnership comprised of the Partnership, two other limited partnerships
sponsored by the Partnership's Corporate General Partner and four
unaffiliated limited partners). In return for a transition of title and
management of the property, the joint venture negotiated the right to share
in future sale or refinancing proceeds, if any, above certain specified
levels. In addition, the joint venture has a right of first opportunity to
purchase the property during the time frame of June 1995 through May 1998
should the lender wish to market the property for sale. The joint venture
has learned that the lender sold the property during 1996 without having
given the joint venture its right of first opportunity. The joint venture
has filed a suit against the lender for breach of its obligations. There
are no assurances that the joint venture will recover any amounts as a
result of this action.
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 June 30, 1997
and for the three and six months ended June 30, 1997 and 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the notes to the accompanying financial
statements for additional information concerning certain of the
Partnership's investments.
During 1996 and 1997 some of the Limited Partners in the Partnership
received from unaffiliated third parties unsolicited tender offers to
purchase up to 4.8% of the Interests in the Partnership at amounts ranging
from $25 to $50 per Interest. The Partnership recommended against
acceptance of these offers on the basis that, among other things, the offer
price was inadequate. Certain of such offers have expired and one other is
currently scheduled to expire in August 1997. As of the date of this
report, the Partnership is aware that 2.39% of the Interests have been
purchased by such unaffiliated third parties either pursuant to such tender
offers or through negotiated purchases. It is possible that other offers
for Interests may be made by unaffiliated third parties in the future,
although there is no assurance that any other third party will commence an
offer for Interests, the terms of any such offer or whether any such offer,
if made, will be consummated, amended or withdrawn. The board of directors
of JMB Realty Corporation ("JMB") the corporate general partner of the
Partnership, has established a special committee (the "Special Committee")
consisting of certain directors of JMB to deal with all matters relating to
tender offers for Interests in the Partnership, including any and all
responses to such tender offers. The Special Committee has retained
independent counsel to advise it in connection with any potential tender
offers for Interests and has retained Lehman Brothers Inc. as financial
advisor to assist the Special Committee in evaluating and responding to any
additional potential tender offers for Interests.
At June 30, 1997, the Partnership and its consolidated ventures had
cash and cash equivalents of approximately $3,594,000. Such funds are
available for working capital requirements including the Partnership's
portion of the anticipated net cash flow deficits at the Mall of Memphis
and 767 Third Avenue Office Building and its share of potential leasing
costs at the Mall of Memphis, 767 Third Avenue Office Building and National
City Center Office Building. Based upon current market conditions, the
Partnership may not commit any significant additional amounts to any of the
properties which are incurring, or in the future do incur, unanticipated
operating deficits.
Although the Partnership expects to distribute sale proceeds from the
disposition of certain of the Partnership's remaining assets, the Limited
Partners are expected to receive less than half of their original
investment from all sources. The General Partners of the Partnership
expect to be able to conduct an orderly liquidation of the remaining
investment portfolio as quickly as practicable. Therefore, the affairs of
the Partnership are expected to be wound up no later than December 31, 1999
(sooner if the properties are sold in the nearer term), barring unforeseen
economic developments.
RESULTS OF OPERATIONS
The decrease in cash and cash equivalents at June 30, 1997 as compared
to December 31, 1996 is primarily due to the funding of tenant improvements
at Mall of Memphis.
The decrease in rents and other receivables and the decrease in
unearned rents at June 30, 1997 as compared to December 31, 1996 is
primarily due to the timing of receipts of rental income at Mall of
Memphis.
<PAGE>
The decrease in investment property and accrued rents receivable at
June 30, 1997 as compared to December 31, 1996 and the $13,143,000
provision for value impairment for the three and six months ended June 30,
1997 is due to the Partnership's recording, as of June 30, 1997, a
provision for value impairment of the Mall of Memphis investment property
due to the uncertainty of the Partnership's ability to recover the
property's previous net carrying value from future operations and sale as
discussed in the Notes.
The increase in investment in unconsolidated venture, at equity, at
June 30, 1997 as compared to December 31, 1996 and related increase in
Partnership's share of operations of unconsolidated venture for the three
and six months ended June 30, 1997 as compared to the three and six months
ended June 30, 1996 is primarily due to a decrease in depreciation as a
result of the classification of the National City Center Office Building as
an asset held for sale as of December 31, 1996, and therefore, not subject
to continued depreciation.
The increase in current portion of long-term debt and the
corresponding decrease in long-term debt, less current portion at June 30,
1997 as compared to December 31, 1996 is primarily due to the
classification of: 1) the first, second and third mortgage notes secured
by Mall of Memphis; 2) the promissory note payable to the Partnership's
former venture partner in Mall of Memphis; and 3) the unsecured promissory
note payable to venture partner related to 767 Third Avenue; as current in
the accompanying consolidated financial statements.
The increase in accrued interest at June 30, 1997 as compared to
December 31, 1996 is primarily due to the non-payment of the guaranteed
interest payment on the note payable to the former venture partner of Mall
of Memphis Associates (as discussed in the Notes). Additionally, the
increase is due to the interest accrued on the unsecured promissory note
payable to the Partnership's venture partner in the 767 Third Avenue
venture.
The decreases in rental income, mortgage and other interest and
property operating expenses for the three and six months ended June 30,
1997 as compared to the three and six months ended June 30, 1996 is
primarily due to the sales of Scotland Yard I & II Apartments and El Dorado
View Apartments on November 1, 1996 and July 23, 1996, respectively.
The increase in interest income for the three and six months ended
June 30, 1997 as compared to the three and six months ended June 30, 1996
is primarily due to the receipt at 767 Third Avenue of interest earned in
connection with amounts received in June 1997 which had previously been
deemed uncollectible by the Partnership.
The decrease in depreciation expense for the three and six months
ended June 30, 1997 as compared to the three and six months ended June 30,
1996 is primarily due to the 767 Third Avenue Office Building and
Riverfront Office Building being classified as of December 31, 1996 as held
for sale or disposition and therefore were not subject to continued
depreciation. In addition, the sales of El Dorado View (sold July 23,
1996) and Scotland Yard I and II (sold November 1, 1996) apartments
contributed to the decrease during the six month periods under comparison.
The increase in professional services for the three and six months
ended June 30, 1997 as compared to June 30, 1996 is primarily due to the
fees associated with evaluating and responding to any potential tender
offers for Partnership Interests as discussed above.
The $8,500,000 provision for unrealizable venture partner deficit at
June 30, 1996 is the result of the uncertainty of the Partnership
recovering the deficit capital account from further operations and ultimate
sale of the Riverfront Office Building.
<PAGE>
The decrease in venture partner's share of venture operations for the
three and six months ended June 30, 1997 as compared to the three and six
months ended June 30, 1996 is due to the increase in the results of
operations of the 767 Third Avenue Office Building primarily as a result of
the property being classified as held for sale, and therefore not subject
to depreciation, as discussed above.
The gain on sale of investment property for the three and six months
ended June 30, 1996 is due to a collection of a portion of past due amounts
on notes receivable related to the 1986 sale of Pavillion Towers.
<PAGE>
<TABLE>
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference is made to the Notes to Consolidated Financial Statements filed with this report for discussions of
defaults under the note payable secured by the Partnership's former venture partner's interest in the Mall of
Memphis and the mortgage notes secured by the Mall of Memphis investment property, which discussions are hereby
incorporated herein by reference.
ITEM 5. OTHER INFORMATION
OCCUPANCY
The following is a listing of approximate occupancy levels by quarter for the Partnership's investment
properties owned during 1997.
<CAPTION>
1996 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. Mall of Memphis
Memphis, Tennessee . . . . 78% 74% 76% 75% 73% 73%
2. Riverfront Office
Building
Cambridge,
Massachusetts. . . . . . . 99% 99% 80% 85% 90% 90%
3. 767 Third Ave.
Office Building
New York, New York . . . . 96% 97% 95% 96% 95% 96%
4. National City Center
Office Building
Cleveland, Ohio. . . . . . 97% 97% 95% 95% 89% 89%
</TABLE>
<PAGE>
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
Response:
(a) Exhibits:
3-A. The Prospectus of the Partnership dated May 8, 1981, as
supplemented on July 27, 1981, October 9, 1981, November 5, 1981, December
10, 1981, February 19, 1982 and April 23, 1982, as filed with the
Commission pursuant to Rules 424(b) and 424(c), is hereby incorporated
herein by reference to Exhibit 3-A to the Partnership's Report for December
31, 1992 on Form 10-K (File No. 0-10494) filed on March 19, 1993.
3-B. Amended and Restated Agreement of Limited Partnership set
forth as Exhibit A to the Prospectus, which agreement is hereby
incorporated by reference to Exhibit 3-B to the Partnership's Report for
December 31, 1992 on Form 10-K (File No. 0-10494) filed on March 19, 1993.
4-A. Long-term debt modification relating to the 767 Third
Avenue Office Building in New York, New York is hereby incorporated by
reference to Exhibit 4-A to the Partnership's Report for December 31, 1994
on Form 10-K (File No. 0-10494) dated on March 27, 1995.
4-B. Mortgage loan documents secured by the Mall of Memphis in
Memphis, Tennessee are hereby incorporated by reference to the
Partnership's Registration Statement on Post-Effective Amendment No. 2 to
Form S-11 (File No. 2-70724) dated May 8, 1981.
4-C. First through third mortgage loan documents secured by the
Riverfront Office Building in Cambridge, Massachusetts are hereby
incorporated by reference to the Partnership's Registration Statement on
Post-Effective Amendment No. 3 to Form S-11 (File No. 2-70724) dated May 8,
1981.
4-D. Fourth mortgage loan document secured by the Riverfront
Office Building in Cambridge, Massachusetts is hereby incorporated by
reference to Exhibit 4-D to the Partnership's Report for December 31, 1992
on Form 10-K (File No. 0-10494) filed on March 19, 1993.
4-E. Deed of trust note document dated March 31, 1993 secured by
the Mall of Memphis in Memphis, Tennessee is hereby incorporated by
reference to Exhibit 4-E to the Partnership's Report for December 31, 1994
on Form 10-K (File No. 0-10494) dated March 27, 1995.
4-F. Loan repayment agreement related to the first through
fourth mortgage loan documents secured by the Riverfront Office Building in
Cambridge Massachusetts is incorporated by reference to Exhibit 4-F to the
Partnership's Report for December 31, 1996 on Form 10-K (File No. 0-10494)
dated March 21, 1997.
10-A. Acquisition documents relating to the purchase by the
Partnership of an interest in the 767 Third Avenue Office Building in New
York, New York are hereby incorporated by reference to the Partnership's
Registration Statement on Post-Effective Amendment No. 2 to Form S-11 (File
No. 2-70724) dated May 8, 1981.
<PAGE>
10-B. Acquisition documents relating to the purchase by the
Partnership of an interest in the Mall of Memphis in Memphis, Tennessee are
hereby incorporated by reference to the Partnership's Registration
Statement on Post-Effective Amendment No. 2 to Form S-11 (File No. 2-70724)
dated May 8, 1981.
10-C. Acquisition documents relating to the purchase by the
Partnership of an interest in the Riverfront Office Building in Cambridge,
Massachusetts are hereby incorporated by reference to the Partnership's
Registration Statement on Post-Effective Amendment No. 3 to Form S-11 (File
No 2-70724) dated May 8, 1981.
10-D. Amended and Restated Promissory Note, dated April 30, 1994
between Carlyle/National City Associates and New York Life Insurance
Company relating to the National City Center Office Building is hereby
incorporated by reference to the Partnership's report on Form 10-Q (File
No. 0-10494) for June 30, 1994 dated August 12, 1994.
10-E. Acquisition documents relating to the purchase by the
Partnership of the venture partner's interest in the Mall of Memphis in
Memphis, Tennessee incorporated by reference to the Partnership's report on
Form 10-Q (File No. 0-10494) for September 30, 1995 dated November 9, 1995.
27. Financial Data Schedule
(b) No reports on Form 8-K have been filed during the last quarter
of the period covered by this report.
<PAGE>
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 - XI
BY: JMB Realty Corporation
(Corporate General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
Date: August 8, 1997
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: August 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH
REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,593,659
<SECURITIES> 0
<RECEIVABLES> 5,428,308
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,021,967
<PP&E> 53,327,488
<DEPRECIATION> 24,011,856
<TOTAL-ASSETS> 114,367,426
<CURRENT-LIABILITIES> 54,077,475
<BONDS> 83,993,106
<COMMON> 0
0
0
<OTHER-SE> (28,623,167)
<TOTAL-LIABILITY-AND-EQUITY>114,367,426
<SALES> 13,942,058
<TOTAL-REVENUES> 14,314,231
<CGS> 0
<TOTAL-COSTS> 8,977,657
<OTHER-EXPENSES> 418,937
<LOSS-PROVISION> 13,143,000
<INTEREST-EXPENSE> 6,529,500
<INCOME-PRETAX> (14,754,863)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,519,152)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,519,152)
<EPS-PRIMARY> (101.43)
<EPS-DILUTED> (101.43)
</TABLE>
