SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
IRS Employer Identification
Commission File No. 0-12791 No. 36-3207212
The undersigned registrant hereby amends the following sections of its
Report for September 30, 1995 on Form 10-Q as set forth in the pages
attached hereto:
ITEM 1. FINANCIAL STATEMENTS
Pages 3 to 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pages 29 to 38
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
By: JMB Realty Corporation
Corporate General Partner
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
and Principal Accounting Officer
Dated: November 20, 1995
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1). . . . . . . . . . . . . . . . . . . . . . . . . $ 4,145,141 9,551,909
Short-term investments (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . 2,166,910 18,959,986
Restricted funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,131 484,234
Rents and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,141,110 3,115,173
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580,300 318,336
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,402,370 6,064,754
------------- ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,638,962 38,494,392
------------- ------------
Investment properties, at cost:
Land and leasehold interests. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,935,810 20,935,810
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,241,383 409,040,913
------------- ------------
432,177,193 429,976,723
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,698,642 149,525,406
------------- ------------
Total investment properties, net of
accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 272,478,551 280,451,317
------------- ------------
Investment in unconsolidated ventures,
at equity (notes 1, 2 and 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,407,839 2,451,859
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,151,011 5,151,072
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,833 514,291
Venture partners' deficits in ventures. . . . . . . . . . . . . . . . . . . . . . . . 10,890,125 6,514,971
------------- ------------
$ 305,055,321 333,577,902
============= ============
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(a limited partnership)
and Consolidated Ventures
Consolidated Balance Sheets (Continued)
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- -----------
Current liabilities:
Current portion of long-term debt (note 3). . . . . . . . . . . . . . . . . . . . . $ 49,268,602 52,006,208
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,367,292 2,018,276
Amounts due to affiliates (note 5). . . . . . . . . . . . . . . . . . . . . . . . . 4,243,395 14,210,085
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585,438 618,410
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,795,974 9,112,566
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,680,853 1,755,290
-------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 69,941,554 79,720,835
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721,583 765,933
Investment in unconsolidated venture, at equity
(notes 1, 2 and 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,514,169 78,812,861
Long-term debt, less current portion (note 3) . . . . . . . . . . . . . . . . . . . . 370,138,208 361,563,239
------------- ------------
Commitments and contingencies (notes 1, 2, 3 and 7)
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523,315,514 520,862,868
Venture partners' subordinated equity in ventures . . . . . . . . . . . . . . . . . . 329,787 329,785
Partners' capital accounts (deficits) (note 1):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,365,811) (20,494,612)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (1,149,967) (1,039,022)
------------- ------------
(22,514,778) (21,532,634)
------------- ------------
Limited partners:
Capital contributions, net of offering costs. . . . . . . . . . . . . . . . . . . 326,224,167 326,224,167
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (481,340,952) (462,331,395)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (40,958,417) (29,974,889)
------------- ------------
(196,075,202) (166,082,117)
------------- ------------
Total partners' deficits. . . . . . . . . . . . . . . . . . . . . . . . . . . (218,589,980) (187,614,751)
------------- ------------
$ 305,055,321 333,577,902
============= ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE> CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . . . . . . . $16,209,286 14,671,145 47,921,257 48,605,544
Interest income . . . . . . . . . . . . . . . . . . . . . 266,523 230,490 711,260 626,048
----------- ---------- ----------- ----------
16,475,809 14,901,635 48,632,517 49,231,592
----------- ---------- ----------- ----------
Expenses:
Mortgage and other interest . . . . . . . . . . . . . . . 9,510,277 10,035,107 28,852,133 29,833,796
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 3,391,079 3,399,098 10,173,236 10,355,491
Property operating expenses . . . . . . . . . . . . . . . 10,364,692 10,043,718 28,237,348 28,627,018
Professional services . . . . . . . . . . . . . . . . . . -- 56,001 423,016 444,859
Amortization of deferred expenses . . . . . . . . . . . . 300,267 310,297 918,978 1,158,809
General and administrative. . . . . . . . . . . . . . . . 200,853 120,835 580,206 410,617
----------- ---------- ----------- ----------
23,767,168 23,965,056 69,184,917 70,830,590
----------- ---------- ----------- ----------
Operating loss. . . . . . . . . . . . . . . . . . . (7,291,359) (9,063,421) (20,552,400) (21,598,998)
Partnership's share of gain (loss) from
operations of unconsolidated
ventures (notes 1, 2 and 6) . . . . . . . . . . . . . . . (15,801,531) (1,537,644) (19,193,624) (4,345,904)
Venture partners' share of earnings
from ventures' operations
(note 2). . . . . . . . . . . . . . . . . . . . . . . . . 2,001,602 2,704,581 4,375,152 5,094,872
----------- ---------- ----------- ----------
Net operating loss. . . . . . . . . . . . . . . . . (21,091,288) (7,896,484) (35,370,872) (20,850,030)
Gain on sale or disposition of
investment properties, net of
venture partners' share of
$2,887,659 in 1994 (notes 3(c), 3(d)
and 7(b)) . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 18,364,792
Gain on sale of interest in
unconsolidated venture (note 2(d)). . . . . . . . . . . . -- 1,702,082 -- 1,702,082
----------- ---------- ----------- ----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
Net earnings (loss) before
extraordinary item. . . . . . . . . . . . . . . . (21,091,288) (6,194,402) (35,370,872) (783,156)
Extraordinary items:
Partnership's share of gain on extinguish-
ment of debt of unconsolidated
venture (note 2(b)) . . . . . . . . . . . . . . 15,490,116 -- 15,490,116 --
Extraordinary gain on extinguishment
of debt (net of venture partner's
share) (note 3(b)) . . . . . . . . . . . . . . -- -- -- 996,126
----------- ---------- ----------- ----------
Net earnings (loss) . . . . . . . . . . . . . . . . $(5,601,172) (6,194,402) (19,880,756) 212,970
=========== ========== =========== ==========
Net earnings (loss) per
limited partnership interest
(note 1):
Net operating loss. . . . . . . . . . . . . . . . $ (56.37) (20.70) (93.81) (54.67)
Gain on sale or disposition
of investment properties. . . . . . . . . . . . -- -- -- 49.66
Gain on sale of interest in
unconsolidated venture. . . . . . . . . . . . . -- 4.60 -- 4.60
Partnership's share of gain on extinguish-
ment of debt of unconsolidated venture
(note 2(b)) . . . . . . . . . . . . . . . . . . 41.88 -- 41.88 --
Extraordinary gain on extinguishment of
debt (net of venture partner's share)
(note 3(b)) . . . . . . . . . . . . . . . . . . -- -- -- 2.69
----------- ---------- ----------- ----------
Net earnings (loss) . . . . . . . . . . . . . $ (14.49) (16.10) (51.93) 2.28
=========== ========== =========== ==========
Cash distributions per
limited partnership
interest. . . . . . . . . . . . . . . . . . . . . $ -- -- 30.00 --
=========== ========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(19,880,756) 212,970
Items not requiring (providing) cash or
cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,173,236 10,355,491
Amortization of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 918,978 1,158,809
Amortization of discount on long-term debt. . . . . . . . . . . . . . . . . . . . . . . 190,143 85,983
Partnership's share of loss from operations
of unconsolidated ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,193,624 4,345,904
Venture partners' share of loss from ventures'
operations and gain on disposition of
investment property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,375,152) (5,094,872)
Long-term debt - deferred accrued interest. . . . . . . . . . . . . . . . . . . . . . . 8,864,263 8,079,317
Gain on sale or disposition of investment properties. . . . . . . . . . . . . . . . . . -- (18,364,792)
Gain on sale of interest in unconsolidated venture. . . . . . . . . . . . . . . . . . . -- (1,702,082)
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,490,116) (996,126)
Changes in:
Restricted funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,103 --
Rents and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,974,063 2,697,527
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (261,964) (78,163)
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (337,616) (1,404,672)
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,458 12,127
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433,690 510,683
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,051,364) (295,945)
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,972) 421,806
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,683,408 205,507
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,437) (833,488)
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,350) (296,124)
------------ -----------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . (5,810,761) (980,140)
------------ -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1995 1994
------------ -----------
Cash flows from investing activities:
Net sales and maturities (purchases) of short-term investments. . . . . . . . . . . . . . 16,793,076 (2,894,227)
Additions to investment properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,200,470) (1,192,364)
Cash sales proceeds from sale of investment properties,
net of selling expenses (note 7(b)) . . . . . . . . . . . . . . . . . . . . . . . . . . -- 11,781,988
Cash expended in disposition of investment
property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,014)
Partnership's contributions to unconsolidated
ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (10,000)
Partnership's distribution from unconsolidated
ventures (note 2(d)). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,041,820 1,702,082
Payment of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (918,917) (405,256)
------------ -----------
Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . 14,715,509 8,981,209
------------ -----------
Cash flows from financing activities:
Cash distributions to limited partners. . . . . . . . . . . . . . . . . . . . . . . . . . (10,983,528) --
Cash distributions to general partners. . . . . . . . . . . . . . . . . . . . . . . . . . (110,945) --
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (3,217,043) (9,753,662)
Ventures partners contribution to venture . . . . . . . . . . . . . . . . . . . . . . . . -- 705,010
------------ -----------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . (14,311,516) (9,048,652)
------------ -----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . (5,406,768) (1,047,583)
Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . . . . . . 9,551,909 5,362,152
------------ -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . . . $ 4,145,141 4,314,569
============ ===========
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1995 1994
------------ -----------
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . . . . . . . . . . . . . . . . . . . . $ 18,559,400 29,411,990
============ ===========
Non-cash investing and financing activities:
Principal balance due on mortgages payable. . . . . . . . . . . . . . . . . . . . . . . $ -- 9,696,126
Payment on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (8,700,000)
------------ -----------
Extraordinary items - non-cash gain recognized
on forgiveness of indebtedness (note 3(b)). . . . . . . . . . . . . . . . . . . $ -- 996,126
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1994,
which are included in the Partnership's 1994 Annual Report as certain
footnote disclosures which would substantially duplicate those contained in
such audited financial statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the
accounts of the Partnership and its consolidated ventures (note 2) - Copley
Place Associates ("Copley Place"), Eastridge Associates, Ltd. (property
sold in June 1994, see note 7(b)), Gables Corporate Plaza Associates
("Gables") (property transferred to lender in January 1994, see note 3(d)),
Carrollwood Station Associates, Ltd. ("Carrollwood"), Jacksonville Cove I
Associates, Ltd. ("Glades") and Sherry Lane Associates ("Sherry Lane").
The effect of all transactions between the Partnership and the ventures has
been eliminated.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Partnership's
interests in Orchard Associates (note 2(d)) and Carlyle-XIII Associates,
L.P., which has an interest in JMB/NYC Office Building Associates L.P.
("JMB/NYC") (note 2(b)).
The Partnership records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to present the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of the ventures as described
above. Such adjustments are not recorded on the records of the
Partnership. The effect of these items is summarized as follows for the
nine months ended September 30:
<TABLE>
<CAPTION>
1995 1994
----------------------- -------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net earnings
(loss) . . . . . . . . $(19,880,756) (12,111,191) 212,970 535,616
Net earnings
(loss) per
limited
partnership
interest . . . . . . . $ (51.93) (31.81) 2.28 7.73
============ =========== ========= =========
</TABLE>
The net earnings (loss) per limited partnership interest is based upon
the limited partnership interests outstanding at the end of each period.
Deficit capital accounts will result, through the duration of the
Partnership, in a gain for financial reporting and Federal income tax
purposes.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Partnership distributions from unconsolidated ventures are considered
cash flow from operating activities only to the extent of the Partnership's
cumulative share of net earnings. In addition, the Partnership records
amounts held in U.S. Government obligations at cost, which approximates
market. Therefore, 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 (approximately $1,793,000 and $9,724,000 at September
30, 1995 and December 31, 1994, respectively) as cash equivalents with any
remaining amounts (generally with original maturities of one year or less)
reflected as short-term investments being held to maturity.
Certain amounts in the 1994 consolidated financial statements have
been reclassified to conform with the 1995 presentation.
During March 1995, 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" was issued. SFAS 121, when effective,
will require that the Partnership record an impairment loss on its long-
lived assets to be held and used whenever their carrying value cannot be
fully recovered through estimated undiscounted future cash flows from
operations and sale. The amount of the impairment loss to be recognized
would be the difference between the long-lived asset's carrying value and
the asset's estimated fair value. Any long-lived assets identified "to be
disposed of" would no longer be depreciated but adjustments for impairment
loss would be made in each period as necessary to report those assets at
the lower of historical cost and fair value less costs to sell. In certain
situations, such estimated fair value could be less that the existing non-
recourse debt which is secured by the property.
The amount of any impairment loss recognized by the Partnership under
its current accounting policy has been limited to the excess, if any, of
the property's carrying value over the outstanding balance of the
property's non-recourse indebtedness. An impairment loss under SFAS 121
would be determined without regard to the nature or the balance of such
non-recourse indebtedness. Upon the disposition of a property for which an
impairment loss has been recognized under SFAS 121, the Partnership would
recognize, at a minimum, a net gain for financial reporting purposes to the
extent of the then outstanding balance of the property's non-recourse
indebtedness over the then carrying value of the property, including the
effect of any reduction for impairment loss under SFAS 121.
The Partnership expects to adopt SFAS 121 no later than the first
quarter of 1996. Although the Partnership has not finalized its assessment
of the full impact of adopting SFAS 121, it is likely that additional
provisions for value impairment would be required for the properties owned
by the Partnership and its consolidated ventures, or by the Partnership's
unconsolidated ventures. Such provisions, including the Partnership's
share of such unconsolidated venture provisions, are currently estimated to
total approximately $10,500,000 in the first period of implementation of
SFAS 121. In addition, upon the disposition of an impaired property, the
Partnership would generally recognize more net gain for financial reporting
purposes under SFAS 121 than it would have under the Partnership's current
impairment policy, without regard to the amount, if any, of cash proceeds
received by the Partnership in connection with the disposition. Although
implementation of this new accounting statement could significantly impact
the Partnership's reported earnings, there would be no impact on cash
flows. Further, any such impairment loss would not be recognized for
Federal income tax purposes.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(2) VENTURE AGREEMENTS
(a) General
The Partnership at September 30, 1995 is a party to seven operating
joint venture agreements. Pursuant to such agreements, the Partnership
made initial capital contributions of approximately $152,831,130 (before
legal and other acquisition costs and its share of operating deficits as
discussed below). In general, the joint venture partners, who are either
the sellers (or their affiliates) of the property investments acquired, or
parties which have contributed an interest in the property developed, or
were subsequently admitted to the ventures, made no cash contributions to
the ventures, but their 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
agreements or due to the Partnership's obligations as a general partner,
the Partnership may be required to make additional cash contributions to
the ventures. The Partnership has acquired, through the above ventures,
two apartment complexes, four office buildings and a multi-use complex.
The Partnership generally has a cumulative preferred interest in net
cash receipts (as defined) from the properties. Such preferential interest
relates to a negotiated rate of return on contributions made by the
Partnership. After the Partnership receives its preferential return, the
venture partner is generally entitled to a non-cumulative return on its
interest in the venture; net cash receipts are generally shared in a ratio
relating to the various ownership interests of the Partnership and its
venture partners. During the nine months ended September 30, 1995, two of
the ventures' properties (Carrollwood Station Apartments and the Glades
Apartments) produced net cash receipts. In addition, the Partnership
generally has preferred positions (related to the Partnership's cash
investment in the ventures) with respect to distribution of sale or
refinancing proceeds from the ventures. In general, operating profits and
losses are shared in the same ratio as net cash receipts; however, if there
are no net cash receipts, substantially all profits or losses are allocated
to the partners in accordance with their respective economic interest.
There are certain risks associated with the Partnership's investments
made through joint ventures, including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.
The terms of the significant venture agreements are summarized as
follows:
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(b) JMB/NYC
The Partnership owns indirectly through Carlyle-XIII Associates, L.P.
and JMB/NYC an interest in (i) the 237 Park Avenue Associates venture which
owns an existing 23-story office building, (ii) the 1290 Associates venture
which owns an existing 44-story office building, and (iii) the 2 Broadway
Associates and 2 Broadway Land Co. ventures which sold their 32-story
office building in September 1995 (together "Three Joint Ventures" and
individually a "Joint Venture"). All of the buildings are located in New
York, New York. In addition to JMB/NYC, the partners of the Three Joint
Ventures include O&Y Equity Company, L.P. and O&Y NY Building Corp.
(hereinafter sometimes referred to as the "Olympia & York affiliates"),
both of which are affiliates of Olympia and York Developments, Limited
(hereinafter sometimes referred to as "O&Y").
JMB/NYC is a joint venture among Carlyle-XIII Associates, L.P.,
Carlyle-XIV Associates, L.P. and Property Partners, L.P. as limited
partners and Carlyle Managers, Inc. as the sole general partner. The
Partnership is a 20% shareholder of Carlyle Managers, Inc. and related to
this investment, has an obligation to fund, on demand, $600,000 of
additional paid-in capital to Carlyle Managers, Inc. (reflected in amounts
due to affiliates in the accompanying financial statements). JMB/NYC is a
limited partnership, and the Partnership's interest in JMB/NYC, which
previously had been held directly, was contributed to Carlyle-XIII
Associates, L.P. in exchange for its limited partnership interest in that
partnership. As a result of these transactions, the Partnership currently
holds, indirectly as a limited partner of Carlyle-XIII Associates, L.P., an
approximate 25% limited partnership interest in JMB/NYC. The sole general
partner of Carlyle-XIII Associates, L.P. is Carlyle Investors, Inc., of
which the Partnership is a 20% shareholder. Related to this investment,
the Partnership has an obligation to fund, on demand, $600,000 of
additional paid-in capital (reflected in amounts due to affiliates in the
accompanying financial statements). The general partner in each of JMB/NYC
and Carlyle-XIII Associates, L.P. is an affiliate of the Partnership. For
financial reporting purposes, the allocation of profits and losses of
JMB/NYC to the Partnership is 25%.
The terms of the JMB/NYC venture agreement generally provide that
JMB/NYC's share of the Three Joint Ventures' annual cash flow, sale or
refinancing proceeds, operating and capital costs (to the extent not
covered by cash flow from a property) and profit and loss will be
distributed to, contributed by or allocated to the Partnership in
proportion to its (indirect) share of capital contributions to JMB/NYC. As
discussed below, an agreement with the Olympia & York affiliates, when
effective, would provide first for allocation of cash flow to the Olympia &
York affiliates to the level of certain Preference Amounts, as defined.
This agreement would also, among other things, provide for no further
allocation from the Joint Ventures of depreciation, amortization or
operating losses and the allocation of operating income from the Joint
Ventures only to the extent of cash flow distributions to JMB/NYC.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In October 1994, JMB/NYC entered into an agreement ("the Agreement")
with the Olympia and York affiliates to resolve certain disputes which
became more fully discussed below. Certain provisions of the Agreement
became immediately effective and, therefore, binding upon the partners,
while others become effective either upon certain conditions being met or
upon execution and delivery of final documentation. In general, the
parties have agreed to: (i) amend the Three Joint Ventures' agreements to
eliminate any funding obligation by JMB/NYC for any purpose in return for
JMB/NYC relinquishing its rights to approve almost all property management,
leasing, sale (certain rights to control a sale would be retained by
JMB/NYC through March 31, 2001) or refinancing decisions and the
establishment of a new preferential distribution level payable to the
Olympia & York affiliates from all future sources of cash, (ii) sell the 2
Broadway Building, and (iii) restructure the first mortgage loan. A more
detailed discussion of these items is contained below. As part of the
Agreement, in order to facilitate the restructuring, JMB/NYC and the
Olympia & York affiliates have agreed to file for each of the Three Joint
Ventures a pre-arranged bankruptcy plan for reorganization under Chapter 11
of the Bankruptcy Code. In June 1995, the 2 Broadway Joint Ventures filed
their pre-arranged bankruptcy plans for reorganization, and in August 1995,
the bankruptcy court entered an order confirming their plans of
reorganization. Bankruptcy filings for the other Joint Ventures are
expected to occur in 1996 and JMB/NYC would seek to incorporate the
proposed transactions contained in the Agreement in the reorganization
plans for the other Joint Ventures, although there is no assurance that
such proposed transactions would be incorporated. During the bankruptcy
proceedings, there exists a possibility that one or more of the proposed
transactions could be challenged by certain creditors resulting in the
elimination or changes to all or portions of the Agreement by the
bankruptcy court. Consequently, there are no assurances that the
transactions contemplated in the Agreement will be finalized. If the
transactions contemplated in the Agreement are finalized, there would
nevertheless need to be a significant improvement in current market and
property operating conditions resulting in a significant increase in the
value of the 237 Park Avenue and 1290 Avenue of the Americas properties
before JMB/NYC would receive any significant share of future net proceeds
from operations, sale or refinancing. The restructuring of the Three Joint
Ventures' agreements would include the elimination of any funding
obligation by JMB/NYC for any purposes. Consequently, in such event,
JMB/NYC would recognize, for financial reporting purposes, a gain to the
extent of the then current deficit investment balance (which amount was
$251,588,694 as of September 30, 1995). In the event that one or more of
the transactions proposed in the Agreement are not consummated, JMB/NYC and
the Partnership may, among other things, recognize substantial gain for
Federal income tax purposes with no corresponding distributable proceeds.
In September 1995, the 2 Broadway Joint Ventures concluded the sale of
2 Broadway with a third party for a net purchase price, after commissions
and certain other payments, but before prorations, of approximately $18.3
million. As a result of this sale and the disposition of its interest in
the 2 Broadway Joint Ventures, JMB/NYC recognized a net gain of
approximately $10,000,000 (of which the Partnership's share is
approximately $2.5 million) for financial reporting purposes. In
anticipation of this sale and in accordance with the Agreement, the unpaid
first mortgage indebtedness previously allocated to 2 Broadway was
allocated to 237 Park Avenue and 1290 Avenue of the Americas during 1994.
A provision for value impairment was recorded at December 31, 1993 for
financial reporting purposes for $192,627,560, net of the non-recourse
portion of the Purchase Notes given to the Olympia & York affiliates as
part of the consideration for JMB/NYC's acquisition of its interests in the
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three Joint Ventures, including accrued interest related to the 2 Broadway
Joint Venture interests payable by JMB/NYC to the Olympia & York affiliates
in the amount of $46,646,810. The provision for value impairment was
allocated $136,534,366 and $56,093,194 to the Olympia & York affiliates and
JMB/NYC, respectively. Such provision was allocated to the joint venture
partners to reflect their respective ownership percentages before the
effect of the non-recourse Purchase Notes including accrued interest.
In October 1995, certain affiliates of O&Y, including one of the
partners in the Joint Ventures, filed for protection from creditors under
Chapter 11 of the United States Bankruptcy Code. These affiliates of O&Y
are preparing a plan to restructure their ownership interests in various
office buildings, including the 237 Park Avenue and 1290 Avenue of the
Americas office buildings, which could take the form of one or more real
estate investment trusts. Any such restructuring would be subject to the
approval of their various creditors as well as the bankruptcy court, and
would likely result in such creditors collectively obtaining control of
such ownership interests. Although JMB/NYC has had discussions with the
Olympia & York affiliates and certain of the creditors concerning possible
restructuring proposals, because of the preliminary status and the
complexity of the proposals, as well as the current divergence in the
interests of certain of the creditors, the Partnership does not know at
this time how a restructuring would affect the Joint Ventures, the
JMB/NYC's ownership interest therein and/or the effectuation of various
transactions pursuant to the Agreement. One or more of the proposed
transactions contemplated by the Agreement may not be effected as a result
of such a restructuring, which could result in, among other things, JMB/NYC
and the Partnership recognizing a substantial gain for Federal income tax
purposes with no corresponding distributable proceeds.
JMB/NYC purchased a 46.5% interest in each of the Three Joint Ventures
for approximately $173,600,000, subject to a long-term first mortgage loan
which has been allocated between the 1290 Associates and 237 Park Joint
Ventures. A portion of the purchase price is represented by four 12-3/4%
promissory notes (the "Purchase Notes") which have an aggregate outstanding
principal balance of $14,272,592 and $34,158,225 at September 30, 1995 and
December 31, 1994, respectively. Such Purchase Notes, which contain cross-
default provisions, and are non-recourse to JMB/NYC, are secured by
JMB/NYC's interests in the Three Joint Ventures, and such Purchase Note
relating to the purchase of the interest in the 2 Broadway Joint Venture is
additionally secured by JMB/NYC's interest in $20,000,000 of distributable
sale proceeds from the other two Joint Ventures. A default under the
Purchase Notes would include, among other things, a failure by JMB/NYC to
repay a Purchase Note upon acceleration of the maturity, and could cause an
immediate acceleration of the Purchase Notes for the other Joint Ventures.
Beginning in 1992, the Purchase Notes provide for monthly interest only
payments on the principal and accrued interest based upon the level of
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
distributions payable to JMB/NYC discussed below. If there are no
distributions payable to JMB/NYC or if the distributions are insufficient
to cover monthly interest on the Purchase Notes, then the shortfall
interest (as defined) accrues and compounds monthly. Interest accruals
total $44,487,575 at September 30, 1995. During 1994 and through September
30, 1995, no payments were made on any of the Purchase Notes. All of the
principal and accrued interest on the Purchase Notes is due in 1999 or, if
earlier, on the sale or refinancing of the related property. The Agreement
with the Olympia & York affiliates, when effective, would provide for a 5-
year extension of the due dates on the Purchase Notes to 2004. It further
provides for the cancellation of indebtedness under the 2 Broadway Purchase
Notes in excess of $20 million. As discussed more fully below, in
September 1995 the 2 Broadway Joint Ventures concluded the sale of the 2
Broadway Building at a price which did not provide any proceeds to JMB/NYC
to repay the related Purchase Notes. Consequently, $20,000,000 of the 2
Broadway Purchase Notes has been reallocated and is payable out of
JMB/NYC's share of distributable cash flow or sale proceeds, if any, from
the other two Joint Ventures.
Prior to 1992, operating profits (excluding depreciation and
amortization) were allocated 30% to JMB/NYC and 70% to the Olympia & York
affiliates, and operating losses (excluding depreciation and amortization)
were allocated 96% to JMB/NYC and 4% to the Olympia & York affiliates.
Depreciation and amortization were allocated 46.5% to JMB/NYC and 53.5% to
the Olympia & York affiliates. Subsequent to 1991, pursuant to the
agreement reached in March, 1993 between JMB/NYC and the Olympia & York
affiliates, for the period January 1, 1992 to June 30, 1993, as discussed
below, gross income was allocable to the Olympia & York affiliates to the
extent of the distributions of excess monthly cash flow received for the
period with the balance of operating profits or losses allocated 46.5% to
JMB/NYC and 53.5% to the Olympia & York affiliates. Beginning July 1,
1993, operating profits or losses, in general, are allocated 46.5% to
JMB/NYC and 53.5% to the Olympia & York affiliates. The Agreement with the
Olympia & York affiliates, when effective, would provide for no further
allocation to JMB/NYC of depreciation, amortization or operating losses and
the allocation of operating income only to the extent of cash flow
distributions, if any, during the remaining term of the Joint Ventures.
There was no allocation of depreciation, amortization or operating income
or losses to JMB/NYC for Federal income tax purposes in 1994.
Under the terms of the Three Joint Ventures' agreements, JMB/NYC was
entitled to a preferred return of annual cash flow, with any additional
cash flow distributable 99% to the Olympia & York affiliates and 1% to
JMB/NYC, through 1991. The Olympia & York affiliates were obligated to
make capital contributions to the Three Joint Ventures to pay any operating
deficits (as defined) and to pay JMB/NYC's preferred return through
December 31, 1991. JMB/NYC did not receive its preferred return for the
fourth quarter 1991 and the Olympia & York affiliates applied JMB/NYC's
preferred return to 1992 disputed interest calculations (see below).
Subsequent to 1991, capital contributions to pay for property operating
deficits and other requirements that may be called for under the Three
Joint Ventures' agreements are required to be shared 46.5% by JMB/NYC and
53.5% by the Olympia & York affiliates. The Olympia & York affiliates have
alleged that pursuant to the Three Joint Ventures' agreements between the
Olympia & York affiliates and JMB/NYC, the effective rate of interest with
reference to the first mortgage loan for the purpose of calculating
JMB/NYC's share of operating cash flow or deficits after 1991 is as though
the rate were fixed at 12-3/4% per annum (versus the variable short-term
U.S. Treasury obligation rate plus 1-3/4% per annum (with a minimum 7%)
payable on the first mortgage loan). JMB/NYC believes that, commencing in
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1992, the Three Joint Ventures' agreements require an effective rate of
interest with reference to the first mortgage loan, based upon each Joint
Venture's allocable share of the loan, to be 1-3/4% over the variable
short-term U.S. Treasury obligation rate plus any excess monthly operating
cash flow after capital costs of each of the Three Joint Ventures, such sum
not to be less than a 7% nor to exceed a 12-3/4% per annum interest rate,
rather than the 12-3/4% per annum fixed rate that applied prior to 1992.
The Olympia & York affiliates have disputed this calculation of interest
expense and contended that the 12-3/4% per annum fixed rate applied after
1991.
During the quarter ended March 31, 1993, an agreement was reached
between JMB/NYC and the Olympia & York affiliates (the "1993 Agreement")
which rescinded the default notices previously received by JMB/NYC and
eliminated the alleged operating deficit funding obligation of JMB/NYC for
the period January 1, 1992 through June 30, 1993. Pursuant to the 1993
Agreement, during this period, JMB/NYC recorded interest expense at 1-3/4%
over the variable short-term U.S. Treasury obligation rate (subject to a
minimum rate of 7% per annum), which is the interest rate on the underlying
first mortgage loan. Under the terms of the 1993 Agreement, during this
period, the amount of capital contributions that the Olympia & York
affiliates and JMB/NYC would have been required to make to the Three Joint
Ventures, if the first mortgage loan bore interest at a rate of 12-3/4% per
annum (the Olympia & York affiliates' interpretation), became a priority
distribution level to the Olympia & York affiliates from the Three Joint
Ventures' annual cash flow or net sale or refinancing proceeds. The 1993
Agreement also entitles the Olympia & York affiliates to a 7% per annum
return on such unpaid priority distribution level. During this period, the
excess available operating cash flow after the payment of the priority
distribution level discussed above from any of the Three Joint Ventures was
advanced in the form of loans to pay operating deficits and/or unpaid
priority distribution level amounts of any of the other Three Joint
Ventures. Such loans bear a market rate of interest, have a final maturity
of ten years from the date when made and are repayable only out of first
available annual cash flow or net sale or refinancing proceeds. The 1993
Agreement also provides that, except as specifically agreed otherwise, the
parties each reserve all rights and claims with respect to each of the
Three Joint Ventures and each of the partners thereof, including, without
limitation, the interpretation of or rights under each of the joint venture
partnership agreements for the Three Joint Ventures. As a result of the
above noted agreement with the Olympia & York affiliates, the cumulative
priority distribution level payable to the Olympia & York affiliates at
September 30, 1995 is approximately $50,000,000. The term of the 1993
Agreement expired on June 30, 1993. Therefore, effective July 1, 1993,
JMB/NYC is recording interest expense at 1-3/4% over the variable short-
term U.S. Treasury obligation rate plus any excess operating cash flow
after capital costs of the Three Joint Ventures, such sum not to be less
than 7% nor exceed a 12-3/4% per annum interest rate. The Olympia & York
affiliates continue to dispute this calculation and for the period
commencing July 1, 1993 contend that a 12-3/4% per annum fixed rate
applies. Based upon this interpretation, interest expense for the Three
Joint Ventures for the nine months ended September 30, 1995 was
$87,363,401. Based upon the amount of interest determined by JMB/NYC for
the nine months ended September 30, 1995, interest expense for the Three
Joint Ventures was $51,700,688. The cumulative effect of recording the
interest expense calculated by JMB/NYC is to reduce the losses of the Three
Joint Ventures by $108,734,142 (of which the Partnership's share is
$12,640,344) for the period July 1, 1993 through September 30, 1995 and to
correspondingly reduce what would otherwise be JMB/NYC's funding obligation
with respect to the Three Joint Ventures.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Certain provisions of the Agreement with the Olympia & York
affiliates, when effective, would resolve the funding obligation dispute.
In general, the priority distribution level created in the 1993 Agreement
and JMB/NYC's alleged funding obligation subsequent to June 30, 1993 would
be eliminated in return for the creation of a new preferential distribution
level to the Olympia & York affiliates payable from all sources of
available cash ("Preference Amount"). Such Preference Amount would be
$81.5 million for 1290 Avenue of the Americas and $38.5 million for 237
Park Avenue and both amounts would bear interest at 9% per annum,
compounded monthly, retroactively effective from May 1, 1994. Net proceeds
available, if any, after repayment of the Preference Amounts plus interest,
would then be distributable in accordance with the original terms of the
Three Joint Ventures' Agreements which provide for, in general, that net
proceeds from all sources will be distributable 46.5% to JMB/NYC and 53.3%
to the Olympia & York affiliates, subject to, as described above, repayment
by JMB/NYC of its Purchase Notes.
The terms of the current joint venture partnership agreements between
the Olympia & York affiliates and JMB/NYC for the Three Joint Ventures
provide, in the event of a dissolution and liquidation of a Joint Venture,
that if there is a deficit balance in the tax basis capital account of
JMB/NYC, after the allocation of profits or losses and the distribution of
all liquidation proceeds, then JMB/NYC generally would be required to
contribute cash to the Joint Venture in the amount of its deficit capital
account balance. Taxable gain arising from the sale or other disposition
of a Joint Venture's property generally would be allocated to the joint
venture partner or partners then having a deficit balance in its or their
respective capital accounts in accordance with the terms of the joint
venture agreement. However, if such taxable gain is insufficient to
eliminate the deficit balance in its account in connection with a
liquidation of a Joint Venture, JMB/NYC would be required to contribute
funds to the Joint Venture (regardless of whether any proceeds were
received by JMB/NYC from the disposition of the Joint Venture's property)
to eliminate any remaining deficit capital account balance.
The Partnership's potential liability for such contribution, if any,
would be its share, if any, of the liability of JMB/NYC and would depend
upon, among other things, the amounts of JMB/NYC's and the Olympia & York
affiliates' respective capital accounts at the time of a sale or other
disposition of Joint Venture property, the amount of JMB/NYC's share of the
taxable gain attributable to such sale or other disposition of the Joint
Venture property and the timing of the dissolution and liquidation of the
Joint Venture. In such event, the Partnership could be required to sell or
dispose of other assets in order to satisfy any obligation attributable to
it as a partner of JMB/NYC to make such contribution. Although the amount
of such liability could be material, the Limited Partners of the
Partnership would not be required to make additional contributions of
capital to satisfy such obligation, if any, of the Partnership. The
Partnership's deficit investment balance in JMB/NYC as reflected in the
balance sheet (aggregating $82,514,169 at September 30, 1995) does not
necessarily represent the amount, if any, the Partnership would be required
to pay to satisfy a deficit capital account restoration obligation. Under
the Agreement with the Olympia & York affiliates, subject to the
satisfaction of certain conditions, any deficit capital account funding
obligation of JMB/NYC to the Joint Ventures would be eliminated.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The 237 Park Avenue and the 1290 Avenue of the Americas office
buildings currently serve as collateral for the first mortgage loan. The
lender has asserted various defaults under the loan. A restructuring of
the loan now appears likely to depend upon the restructuring of the
ownership interests of various affiliates of O&Y in a number of office
buildings, as discussed above. The Olympia & York affiliates reached an
agreement with the first mortgage lender whereby effective January 1, 1993,
the Olympia & York affiliates are limited to taking distributions of
$250,000 on a monthly basis from the Three Joint Ventures and reserving the
remaining excess cash flow in a separate interest-bearing account to be
used exclusively to meet the obligations of the Three Joint Ventures as
approved by the lender. Interest on the first mortgage loan is currently
calculated based upon a variable rate related to the short-term U.S.
Treasury obligation rate, subject to a minimum rate on the loan of 7% per
annum.
The properties are being managed by an affiliate of the Olympia & York
affiliates for a fee equal to 1% of gross receipts. An affiliate of the
Olympia & York affiliates performs certain maintenance and repair work and
construction of certain tenant improvements at the investment properties.
Additionally, the Olympia & York affiliates have lease agreements and
occupy approximately 95,000 square feet of space at 237 Park Avenue at
rental rates which approximate market.
Should a restructuring of the joint venture partnership agreements
providing for the elimination of JMB/NYC's funding obligations in
accordance with the Agreement not be finalized, JMB/NYC may decide not to
commit any additional amounts to the Three Joint Ventures. In addition,
under these circumstances, it is possible that JMB/NYC may determine to
litigate these issues with the Olympia & York affiliates. A decision not
to commit any additional funds or an adverse litigation result could, under
certain circumstances, result in the loss of JMB/NYC's interest in the
related Joint Ventures. The loss of an interest in a particular Joint
Venture could, under certain circumstances, permit an acceleration of the
maturity of the related Purchase Note (each Purchase Note is secured by
JMB/NYC's interest in the related venture). Under certain circumstances,
the failure to repay a Purchase Note could constitute a default under, and
permit an immediate acceleration of, the maturity of the Purchase Notes for
the other Joint Ventures. In such event, JMB/NYC may decide not to repay,
or may not have sufficient funds to repay, any of the Purchase Notes and
accrued interest thereon. This could result in JMB/NYC no longer having an
interest in any of the related Joint Ventures, which would result in
substantial net gain for financial reporting and Federal income tax
purposes to JMB/NYC (and through JMB/NYC and the Partnership, to the
Limited Partners) with no distributable proceeds. In such event, JMB/NYC
would then proceed to terminate its affairs.
(c) Copley Place
The Partnership acquired in 1983, through a joint venture with the
developer, an interest in a portion of Copley Place, a multi-use complex in
Boston, Massachusetts. Initially, the Partnership purchased an interest in
the complex from the developer for consideration which included a purchase
price note. The Partnership has made total cash contributions of
$60,000,000 for its interest in Copley Place Associates. In December 1984,
an affiliate of the Corporate General Partner of the Partnership acquired
ownership of the joint venture partner.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The joint venture partner was obligated to fund (through capital
contributions and loans, as defined) any deficiency in the Partnership's
guaranteed return to 1989 and any operating deficits (as defined).
Commencing January 1, 1990, the Partnership was entitled to a preferred
return of $6,000,000 per year through December 31, 1991 of any available
cash flow. The joint venture partner was obligated through December 31,
1991 to loan amounts to pay for any operating deficits (as defined). The
joint venture partner has loaned approximately $13,398,000 through
September 30, 1995, to fund its required obligation. The loan accrues
interest at the contract rate based on the joint venture partner's line of
credit. The line of credit bears interest at a floating rate (currently
averaging 9.25% per annum at September 30, 1995). The outstanding
principal and accrued interest, if any, are to be repaid from future
available cash flow (as defined). The joint venture paid approximately
$1,518,000 and $3,597,000 of accrued interest on these loans in 1995 and
1994, respectively. In addition, the Partnership and the joint venture
partner were obligated to contribute equally to tenant improvement and
other capital costs beginning in 1990. Commencing January 1, 1992, the
Partnership and the venture partner are required to equally fund all cash
deficits of the property. Annual cash flow (as defined), after repayment
to the joint venture partner of operating deficit loans and funding
requirements, is to be allocated equally between the Partnership and joint
venture partner. In March 1994, the venture partner and the Partnership
each contributed $424,980 for the payment of certain previously deferred
management fees.
Operating profits and losses of the joint venture are 50% to the
Partnership and 50% to the joint venture partner.
The joint venture agreement further provides that, in general, upon
any sale or refinancing of the complex, the first $60,000,000, after
repayment of the joint venture loans, of net proceeds will be distributed
equally between the Partnership and the joint venture partner. The
Partnership will then be entitled to receive an amount equal to any
cumulative deficiencies of its annual preferred return of cash flow for
1990 and 1991 (balance at September 30, 1995 is $12,000,000). The
Partnership will then be entitled to receive the next $190,000,000 plus an
amount equal to certain interest which has been paid or is payable to the
developer on its $20,000,000 purchase price note (which at September 30,
1995 has an outstanding balance, including accrued interest, of
$76,749,633). The joint venture partner will then be entitled to receive
the next $190,000,000 plus an amount equal to certain interest paid to it
on the $20,000,000 purchase price note, with any remaining proceeds
distributable equally to the Partnership and the joint venture partner.
However, the Partnership is obligated to use its share of any sale or
refinancing proceeds to satisfy, in full, the purchase price note payable
to the joint venture partner, as more fully discussed in note 3(b) of the
Partnership's 1994 Annual Report. Reference is made to note 3(e) for a
discussion of the modification of the mortgage loan for the property.
An affiliate of the Partnership and joint venture partner manages the
portion of the complex owned by the joint venture, pursuant to an agreement
which provides for a fee calculated as a percentage of certain types of
income from the property.
(d) Orchard Associates
The Partnership's interest in Old Orchard shopping center (through
Orchard Associates and Old Orchard Urban Venture ("OOUV")) was sold in
September 1993, as described below.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
At sale, OOUV and an unaffiliated third party contributed the Old
Orchard shopping center and $60,366,572 in cash (before closing costs and
prorations), respectively, to a newly formed limited partnership.
Immediately at closing, the new partnership distributed to OOUV $60,366,572
in cash (before closing costs and prorations) in redemption of
approximately 89.5833% of OOUV's interest in the new partnership. OOUV,
the limited partner, has retained a 10.4167% interest in the new limited
partnership after such redemption. OOUV was also entitled to receive up to
an additional $4,300,000 based upon certain events (as defined), all of
which was earned in 1993 and received in 1994. Upon receipt, OOUV
distributed the $4,300,000 to the respective partners, based upon their
pre-contribution percentage interests. OOUV still may earn up to an
additional $3,400,000 based upon certain future earnings of the property
(as defined), none of which has been earned or received as of the date of
this report.
Contemporaneously with the formation of the new limited partnership,
OOUV redeemed Orchard Associates' ("Orchard") interest in OOUV for
$56,689,747 (before closing costs and prorations). This transaction has
resulted in Orchard having no ownership interest in the property as of the
effective date of the redemption agreement.
At the time of redemption, OOUV retained a portion of the Orchard
Associates redemption proceeds in order to fund certain contingent amounts
which may have been due in the future. In July 1995, OOUV distributed to
Orchard Associates their redemption holdback of $2,083,644. As a result,
the Partnership received its share of the holdback of $1,041,820. In
October 1995, OOUV distributed to Orchard their share of the pre-sale
settlement with Federated department stores of $288,452. As a result,
Orchard distributed to the Partnership its share of the settlement of
$144,226. The Partnership currently intends to retain these funds for
working capital purposes.
OOUV and Orchard have also entered into a contribution agreement
whereby they have agreed to share future gains and losses which may arise
with respect to potential revenues and liabilities from events which
predated the contribution of the property to the new venture (including,
without limitation, the distribution to OOUV of $4,300,000 and the
potential future distribution of $3,400,000 as described above) in
accordance with their pre-contribution percentage interests. In September
1994, Orchard received its share of the contingent $4,300,000 as discussed
above and distributed to each of the respective partners their share
($1,702,082) of such amount. The Partnership recognized a gain of
$1,702,082 for financial reporting and Federal income tax purposes in 1994.
Upon receipt of all or a portion of the remaining contingent amounts,
Orchard and the Partnership would expect to recognize additional gain for
Federal income tax and financial reporting purposes in the year of such
receipts. However, there can be no assurance that any portion of the
remaining contingent amounts will be received.
(3) LONG-TERM DEBT MODIFICATIONS AND REFINANCINGS
(a) General
As described below and in response to operating deficits incurred at
certain properties, the Partnership or its ventures are seeking and/or have
received mortgage note modifications on certain properties. Certain of the
modifications received have expired and others expire on various dates
commencing November 1996. In addition, certain properties have loans with
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
scheduled maturities commencing August 1998. Upon expiration of such
modifications or at maturity, should the Partnership or its ventures be
unable to secure new or additional modifications to the loans, based upon
current and anticipated future market conditions, the Partnership may
decide not to commit any significant additional amounts to these
properties. This generally would result in the Partnership no longer
having an ownership interest in such properties and may result in a gain
for financial reporting purposes and Federal income tax purposes without
any net distributable proceeds. Such decisions would be made on a
property-by-property basis.
(b) Eastridge Apartments
The mortgage note secured by the Eastridge Apartments was modified in
August 1990 and remodified effective May, 1993. The 1993 remodification
established release prices for the mortgage obligation (as defined), upon
execution until May 1, 1995.
In April 1994, the Partnership exercised its option, under the latest
loan modification, for a discounted payoff of its mortgage obligation. The
loan balance of approximately $9,696,000 was fully satisfied with a payment
of approximately $8,700,000. As a result of this transaction, the
Partnership recognized an extraordinary gain of $996,126 for financial
reporting purposes in 1994. The Partnership determined that exercising its
option for the early payoff was necessary in order to maximize its return
upon sale of the property which occurred on June 30, 1994 (see note 7(b)).
(c) University Park Office Building
Effective July 1989, the Partnership remodified the note such that the
interest payment rate was reduced to 10% per annum for a period of two
years, at which time the loan was to be due and payable. The difference
between the contract rate and the interest paid was deferred and was
accruing at 12.5% per annum. In July 1991, the Partnership exercised its
option to extend the maturity date from July 1991 to maturity in July 1993,
during which time interest only payments were due at a rate of 10.66% per
annum.
In April 1993, the Partnership began submitting cash flow debt service
payments to the lender due to the move-out of the building's primary
tenant. The Partnership's discussions with the first mortgage lender to
further modify the note were unsuccessful. The Partnership transferred
title to the property to the lender on January 10, 1994. This resulted in
the Partnership's no longer having an ownership interest in the property,
and resulted in a gain of approximately $5,676,000 for financial reporting
purposes. The Partnership also recognized a gain for Federal income tax
purposes of approximately $6,897,000 in 1994. There were no corresponding
distributable proceeds as a result of the transfer of title.
(d) Gables Corporate Plaza
Effective March 1, 1989, the Gables venture modified the long-term
first mortgage note secured by Gables Corporate Plaza located in Coral
Gables, Florida, to permanently lower the contract rate on the loan.
Commencing January 1991, interest only payments were remitted at a 5%
pay rate instead of the required 7% rate to the extent of available
property cash flow while the Gables venture negotiated for an additional
modification or refinancing of the first mortgage loan. Negotiations with
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
the lender were unsuccessful and the Partnership on behalf of the venture
decided to not commit any significant additional amounts to the property.
On May 3, 1993, the lender appointed a receiver and took possession and
control of the property. In addition, the venture entered into an
agreement with the lender whereby the venture would transfer title to the
lender in January, 1994 if the venture was unable to sell the property
prior to such time. On January 5, 1994, the venture transferred title of
the property to the lender in accordance with its previous agreement. This
resulted in the venture no longer having an ownership interest in the
property and resulted in a gain to the venture in 1994 of approximately
$10,565,000 for financial reporting purposes (of which the Partnership's
share was approximately $7,678,000). The venture also recognized a gain in
1994 of approximately $12,464,000 for Federal income tax purposes (of which
the Partnership's share was approximately $3,793,000) in 1994. There were
no corresponding distributable proceeds as a result of the transfer of
title.
(e) Copley Place
The joint venture modified the existing first mortgage note effective
March 1, 1992. The modification lowered the pay rate from 12% to 9% per
annum through August 1993 and, at that time, further reduced it to 7-1/2%
per annum through August 1998. The contract rate was lowered to 10% per
annum through August 1993 and, at that time, further reduced it to 8-1/2%
per annum through August 1998. After each monthly payment, the difference
between the contract interest rate on the outstanding principal balance on
the loan, including the difference between deferred interest and interest
paid at the applicable pay rate, (as defined), will be added to the
principal balance and will accrue interest at the contract interest rate.
All outstanding principal, including the unpaid deferred interest, is due
and payable on August 31, 1998. In return, the lender will be entitled to
receive, as additional interest, a minority residual participation of 10%
of net proceeds (if any, as defined) from a sale or refinancing after the
Partnership and its joint venture partner have recovered their investments
(as defined). No amounts have been required to be accrued for such
contingent additional interest as of the date of this report. Any cash
flow from the property, after all capital and leasing expenditures, but
before payment of a portion of the property management fees, is escrowed
for the purpose of paying for future capital and leasing requirements.
As a result of the debt modification, the property produced cash flow
in 1993 and 1994. This cash flow has been escrowed ($4,519,085 at
September 30, 1995) for future potential leasing requirements as set forth
in the loan modification. The property experienced a significant loss of
rental income in 1995 due to the expiration of a major tenant's lease in
1994. A portion of the former tenant's space was released in August 1995.
Based on this fact, the joint venture initiated discussions with the first
mortgage lender regarding an additional modification of the loan. There
can be no assurances such additional modification will be consummated. If
the joint venture is unable to secure such remodification, it may decide
not to commit any significant additional amounts to the property. This
would result in the joint venture no longer having an ownership interest in
the property and would result in a net gain for financial reporting and
Federal income tax purposes with no corresponding distributable proceeds.
The joint venture is aggressively marketing the balance of the recently
vacated space.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(f) Sherry Lane Place
The existing long-term note secured by the Sherry Lane Place office
building located in Dallas, Texas was modified effective February 1, 1988
to lower both the contract and payment interest rates. In November 1993,
the Partnership reached an agreement with the current lender to further
modify the existing long-term non-recourse mortgage note secured by the
property. Under the terms of the remodification, the existing mortgage
balance was divided into two notes. The first note of $22,000,000 now
bears a contract interest rate of 8% per annum for the period retroactive
from January 1, 1993 through December 31, 1994, increasing to 8.5% per
annum for the period from January 1, 1995 through April 1, 1998. Interest
only is payable on the first note at 5.75% per annum for the period
retroactive to January 1, 1993 through December 31, 1993, at 8% per annum
from January 1, 1994 through December 31, 1994 and at 8.5% per annum from
January 1, 1995 through April 1, 1998. The difference between the contract
rate and the pay rate was added to the principal balance. The second note,
consisting of the remaining unpaid principal and accrued interest has a
zero pay and accrual rate and is due and payable April 1, 1998. All excess
cash flow after debt service on the first note is to be applied first
against accrued interest on the first note and then as contingent interest
on the second note (as defined).
(g) Marshall's Aurora Plaza
The long-term note secured by the Marshall's Aurora Plaza shopping
center located in Aurora, Colorado reached its scheduled maturity in June
1993. The Partnership had continued remitting debt service under the
original terms of the loans until January 1994, when the Partnership
reached an agreement with the current lender to modify and extend the
existing long-term note. The modification, which became effective in
November 1993, lowered the pay and accrual rates from 12.75% per annum to
8.375% per annum and extended the loan for a three-year period to November
1996. Concurrent with the closing of the modification, the Partnership
paid down the existing mortgage balance in the amount of $250,000.
(h) Carrollwood Apartments
In September 1993, the venture refinanced with an unaffiliated third
party lender the existing mortgage loan (approximately $7,200,000). The
new loan was in the amount of $7,455,000. In addition, the venture was
obligated to establish an escrow account to fund, subject to lender
approval, future capital improvements. The escrow account was initially
funded by the Partnership's capital contribution to the venture and is
subsequently funded, subject to a maximum total, by the operations of the
venture plus interest. As of the date of this report, the escrow account
is approximately $131,000 and no amounts have been withdrawn.
(i) Long Beach Plaza
The Partnership initiated discussions with the first mortgage lender
regarding a modification of the mortgage loan secured by the Long Beach
Plaza located in Long Beach, California. In December 1994, the Partnership
reached an agreement with the lender whereby the loan term was extended
through August 31, 1995. This extension required that the Partnership
commit to fund approximately $923,000 for future leasing costs of which
$672,000 has been paid. The lender further agreed to fund $414,000 to be
used for leasing and tenant improvements by way of a second note bearing
interest at 13% per annum until August 31, 1995, at which time, principal
and accrued interest would have been due in full. No amounts were drawn on
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
this note. The Partnership was unable to secure a permanent modification
of the first and second notes from the lender. The Partnership is
discussing other possible options with the lender, however, the Partnership
has decided not to commit any significant additional amounts to the
property. This could result in the Partnership no longer having an
ownership interest in the property and could result in a net gain for
financial reporting and Federal income tax purposes with no corresponding
distributable proceeds. Prior to its most recent agreement, the
Partnership had not remitted all of the scheduled debt service payments
since June 1993. The combined balances of the mortgage note and related
accrued interest of approximately $43,124,000 at September 30, 1995 and
approximately $39,835,000 at December 31, 1994 have been classified as
current liabilities in the accompanying consolidated financial statements.
As of the date of this report, payments of principal and interest in
arrears are approximately $9,390,000.
(j) Plaza Tower
The first mortgage loan secured by the property matured on November 1,
1994. The Partnership reached an agreement for a short-term extension
until January 1, 1995 and paid an extension fee of $15,000 to the existing
lender. During January 1995, the Partnership reached another agreement
with the existing lender for an additional extension until March 31, 1995
provided the Partnership pay down the principal balance by $1,500,000 and
find an alternative source of financing. The Partnership continued to
remit debt service payments during this period under the existing loan
terms.
In April 1995, the Partnership agreed with a new third party lender to
refinance approximately $14,900,000 of the existing mortgage note. As
such, the Partnership paid the previous mortgage lender another $1,100,000
on the existing mortgage note in order to further extend the loan until the
refinancing closed. The refinancing closed in April 1995 and there were no
distributable proceeds available. The new six-year loan bears an interest
rate of 9.02% per annum. Interest only payments are required to be
remitted monthly until maturity in May 2001.
(4) MANAGEMENT AGREEMENTS
The Partnership has entered into agreements for the operation and
management of the investment properties. Such agreements are summarized as
follows:
The Partnership entered into an agreement with an affiliate of the
seller for the operation and management of Marshall's Aurora Plaza, Aurora,
Colorado for a management fee calculated at a percentage of certain types
of cash income from the property.
The Long Beach Plaza in Long Beach, California, Glades Apartments in
Jacksonville, Florida, Copley Place in Boston, Massachusetts, Plaza Tower
office building in Knoxville, Tennessee, Eastridge Apartments in Tucson,
Arizona, (prior to its sale in June 1994), University Park office building
in Sacramento, California (prior to transferring title to the lender in
January 1994), Sherry Lane Place office building in Dallas, Texas, and
Gables Corporate Plaza in Coral Gables, Florida (prior to the lender
appointing a receiver in May 1993), are or were managed by an affiliate of
the Corporate General Partner until December 1994 for a fee equal to a
percentage of defined gross income from the property. In December 1994,
one of the affiliated property managers sold substantially all of its
assets and assigned its interest in its management contracts to an
unaffiliated third party. In addition, certain of the management personnel
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
of the property manager became management personnel of the purchaser and
its affiliates. The successor to the affiliated property manager's assets
is acting as the property manager of the Plaza Tower office building,
Glades Apartments, and the Sherry Lane office building on the same terms
that existed prior to the sale.
(5) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the
Partnership or the Partnership's consolidated ventures to the General
Partners and their affiliates as of September 30, 1995 and for the nine
months ended September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Unpaid at
September 30,
1995 1994 1995
---------- --------- -------------
<S> <C> <C> <C>
Property manage-
ment and leasing
fees . . . . . . . . . . . . . . . $1,272,024 2,022,357 2,919,353
Insurance commissions . . . . . . . 65,106 56,710 --
Reimbursement (at
cost) for out-of-
pocket expenses. . . . . . . . . . 972 1,736 --
---------- --------- ---------
$1,338,102 2,080,803 2,919,353
========== ========= =========
</TABLE>
Payment of certain pre-1993 property management and leasing fees
payable under the terms of the management agreements ($2,919,353 or approx-
imately $8 per $1,000 Interest at September 30, 1995) has been deferred.
All property management fees and leasing fees are being paid currently. In
February 1995, the Partnership paid $10,000,000 of previously deferred
property management and leasing fees to an affiliate of the General
Partner.
As more fully discussed in note 2(b), the Partnership has an
obligation to fund, on demand, $600,000 and $600,000 to Carlyle Managers,
Inc. and Carlyle Investors, Inc., respectively, of additional paid-in
capital (reflected in amounts due to affiliates in the accompanying
financial statements). As of September 30, 1995, these obligations bore
interest at 7.07% per annum and interest accrued on these obligations was
$124,042.
The Corporate General Partner and its affiliates are entitled to
reimbursement for salaries of employees and direct expenses of officers and
employees of the Corporate General Partner and its affiliates relating to
the administration of the Partnership and operation of the properties.
Such costs were $175,794 and $241,136 for the nine months ended September
30, 1995 and the year ended December 31, 1994, respectively, all of which
were paid as of September 30, 1995.
The Corporate General Partner of the Partnership has determined to use
independent third parties to perform certain administrative services
beginning in the fourth quarter of 1995. Use of such third parties is not
expected to have a material effect on the operations of the Partnership.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(6) UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
Summary income statement information for JMB/NYC venture for the nine
months ended September 30, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Total income from
properties
(unconsolidated). . . . . . . . . $103,041,028 117,625,535
============ ===========
Operating loss. . . . . . . . . . . $ 46,678,713 17,369,731
============ ===========
Partnership's share
of loss from
operations. . . . . . . . . . . . $ 19,191,424 4,342,433
============ ===========
Partnership's share
of gain on extinquish-
ment of debt. . . . . . . . . . . $ 15,490,116 --
============ ===========
</TABLE>
(7) SALE OF INVESTMENT PROPERTY
(a) Allied Automotive Center
On October 10, 1990, the Partnership sold the land, building, and
related improvements of the Allied Automotive Center located in Southfield,
Michigan for $19,613,121 (in cash before prorations and cost of sale).
The sale included the adjacent undeveloped land, building and
improvements owned by two other partnerships affiliated with the Corporate
General Partner. The Partnership has retained title to a defined 1.9 acre
piece of land (the "Parcel"). During the buyer's due diligence
investigation, the buyer found traces of contamination located on a portion
of the Parcel as well as on a portion of the land owned by the two
affiliated selling entities. It was subsequently determined that such
contamination was most likely the result of certain activities of the
previous owner. As a result, the purchase price was reduced by
approximately $682,000 for the Partnership's excluded parcel. The parcel
may be purchased by the buyer after the environmental clean-up is
completed. As a condition of the sale, the Partnership has agreed to
conduct investigations to determine all contaminants and to conduct clean-
up of any such contaminants. The Partnership was also required to
indemnify the buyer from specified potential clean-up related liabilities.
If the clean-up is successful, the buyer will purchase the parcel for
$682,000, the purchase price adjustment. In addition, the Partnership has
reached an agreement with the previous owner of the Allied Automotive
Center, who has agreed to cause such investigation and clean-up to be done
at the previous owner's expense. The previous owner has also indemnified
the Partnership from specified potential clean-up related liabilities. The
Partnership, in cooperation with the previous owner, has approved a plan to
clean up the parcel, and the previous owner has undertaken the clean-up and
is paying the costs thereof. Recently, the Partnership has been informed
that certain regulatory agencies have approved the clean-up of the site and
approved the shut down of the clean-up operation. The gain associated with
this Parcel, approximately $543,000, will be recognized if and when the
closing occurs (currently estimated to be in the first quarter of 1996).
There can be no assurance that the sale of this Parcel will be consummated
on these or any other terms.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(b) Eastridge Apartments
On June 30, 1994, the Partnership sold the land, related improvements,
and personal property of the Eastridge Apartments, located in Tucson
Arizona for $12,000,000 (before selling costs and prorations) which was
paid in cash at closing. The mortgage note was satisfied in full prior to
the sale date (see note 3(b)). The Partnership recognized a gain of
approximately $5,010,000 for financial reporting purposes and a gain of
approximately $7,081,000 for Federal income tax purposes in 1994.
(8) ADJUSTMENTS
In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments and adjustments to
reflect the treatment given certain transactions in the Partnership's 1994
Annual Report) necessary for a fair presentation have been made to the
accompanying figures as of September 30, 1995 and for the three and nine
months ended September 30, 1995 and 1994 (see note 1).
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are to Notes to Consolidated Financial
Statements contained in this report.
At September 30, 1995, the Partnership and its consolidated ventures
had cash and cash equivalents of approximately $4,145,000. Such funds and
short-term investments of approximately $2,167,000 are available for
distributions to partners, for potential funding requirements at Copley
Place for its share of management fees, for working capital requirements,
including potential future operating deficits, and for significant leasing
and tenant improvement costs at certain of the Partnership's other
investment properties. The Partnership and its consolidated ventures have
currently budgeted in 1995 approximately $6,661,000 for tenant improvements
and other capital expenditures. The Partnership's share of such items and
its share of such similar items for its unconsolidated ventures in 1995 is
currently budgeted to be approximately $4,870,000. The Partnership and
joint ventures have revised its current budgeted amounts since the second
quarter of 1995. This is primarily the result of unmet leasing activity.
Actual amounts expended in 1995 may vary depending on a number of factors
including actual leasing activity, results of property operations,
liquidity considerations and other market conditions over the course of the
year. The source of capital for such items and for both short-term and
long-term future liquidity and distributions is expected to be through the
net cash generated by the Partnership's investment properties and through
the sale or refinancing of such investments as well as the cash and short-
term investments currently held by the Partnership and its ventures.
However, the Partnership does not consider the 1290 Avenue of the Americas
and 237 Park Avenue Office buildings as well as the Copley Place multi-use
complex, the Long Beach Plaza and the Sherry Lane Place office building to
be significant sources of long-term liquidity. The Partnership's and its
ventures' mortgage obligations are generally non-recourse and therefore,
the Partnership and its ventures are not personally obligated to pay such
mortgage indebtedness.
Based upon estimated operations of certain of the Partnership's
investment properties and on the anticipated requirements of the
Partnership to fund its share of potential leasing and capital improvement
costs at these properties, the Partnership suspended operating cash
distributions to the Limited and General Partners effective as of the first
quarter of 1992. However, in February 1995, the Partnership made a sales
distribution totalling $11,094,473 (approximately $30 per limited
partnership interest) out of net sale proceeds resulting primarily from the
sale of Old Orchard shopping center.
As described more fully below and/or in Note 3, the Partnership has
received (certain of which have expired and others of which expire at
various dates commencing November 1996) or is negotiating mortgage note
modifications or refinancings for the Sherry Lane Place office building,
Glades Apartments, Long Beach Plaza, Carrollwood Apartments, Marshall's
Aurora Plaza, Plaza Tower office building and Copley Place multi-use
complex. The Partnership has not remitted the required debt service
payments for the loan on the Long Beach Plaza, which matured August 1995,
and was unsuccessful in negotiating a permanent loan modification with the
lender. The Partnership is discussing other possible options with the
lender, however, the Partnership has decided not to commit any significant
additional amounts to the property. The corresponding balance of its
mortgage note and related deferred accrued interest thereon has been
classified as a current liability in the accompanying consolidated
financial statements. The Partnership was unsuccessful in its efforts to
obtain modifications of the loans secured by the University Park office
building and the Gables Corporate Plaza. In January 1994, the Partnership
or its venture transferred title to Gables Corporate Plaza and the
University Park office buildings to their respective lenders and the
related mortgage loans were fully discharged by each. In April 1994, the
Partnership exercised its option to fully satisfy its obligation with
respect to the Eastridge Apartment mortgage loan at the previously agreed
upon release price. The loan balance of approximately $9,696,000 was fully
satisfied with a payment of approximately $8,700,000, which was paid out of
the Partnership's cash and cash equivalents and proceeds from the sale and
maturity of short-term investments. (See Notes 3(b) and 7(b)). For those
investment properties where modifications are being sought, or with expired
or short-term modifications, if the Partnership is unable to secure new or
additional modifications to the loans, based upon current and anticipated
market conditions, the Partnership may decide not to commit any significant
additional amounts to any of the properties which are incurring, or in the
future do incur, operating deficits. This generally would result in the
Partnership no longer having an ownership interest in such properties and
would result in gain for financial reporting and Federal income tax
purposes to the Partnership with no corresponding distributable proceeds.
Such decisions would be made on a property-by-property basis.
The indebtedness on certain other of the Partnership's investment
properties matures and is due and payable commencing in August 1998 and
subsequent years (Reference is made to Note 3). The source of repayment is
expected to be from proceeds from the sale or refinancing of such
properties, or extension of such indebtedness. However, there can be no
assurance that any such sales, refinancings or extensions will occur.
Copley Place
The Boston office market remains very competitive due to the large
supply of available space and the prevalence of concessions being offered
to attract and retain tenants.
Commencing January 1, 1992, cash deficits and funding requirements are
allocated equally between the Partnership and the joint venture partner.
The joint venture modified the existing first mortgage note effective March
1, 1992. The modification lowered the pay rate from 12% to 9% per annum
through August 1993, and at that time, further reduced it to 7-1/2% per
annum through August 1998. The contract rate was lowered to 10% per annum
through August 1993 and at that time further reduced to 8-1/2% per annum
through August 1998. After each monthly payment, the difference between
the contract interest rate on the outstanding principal balance of the loan
and interest paid at the applicable pay rate (as defined), will be added to
the principal balance and will accrue interest at the contract interest
rate. The outstanding principal balance, including the unpaid deferred
interest, is due and payable on August 31, 1998. In return, the lender
will be entitled to receive, as additional interest, a minority residual
participation of 10% of net proceeds (as defined) from a sale or
refinancing after the Partnership and its joint venture partner have
recovered their investments (as defined). Any cash flow from the property,
after all current capital and leasing expenditures, but before payment of a
portion of the property management fees, will be escrowed for the purpose
of paying for future capital and leasing requirements. As a result of the
debt modification, the property produced cash flow in 1993 and 1994, which
has been escrowed for future potential leasing requirements as set forth in
the current loan modification ($4,519,085 at September 30, 1995).
In 1994, the property experienced a significant loss in rental income
in connection with the expiration of the IBM lease (279,432 square feet in
April 1994) representing 23% of the leasable office space in the aggregate.
Although the structure of the modification of the first mortgage loan took
into account the potential downsizing of IBM, it was originally anticipated
that IBM would renew approximately 80,000 square feet. However, IBM has
renewed only 8,398 square feet. In addition, the John Hancock Property and
Casualty Co. (which leased 97,180 square feet representing 11.5% of the
leasable office space) vacated its space upon the expiration of its lease
in October 1994. During the quarter, the joint venture entered into a one-
year lease with a tenant which took occupancy of approximately 128,000
square feet of the former IBM space in August 1995. Currently, as leases
at the office portion of Copley Place expire, lease renewals and new leases
are likely to be at rental rates less than the rates on existing leases.
Although the previous decline in rental rates appeared to have been
stabilized in 1994 and leasing activity has increased, the supply of office
space has caused increased competition for tenants, a corresponding decline
in rental rates and a corresponding increase in time required to release
tenant space in these markets. In addition, new leases will likely require
expenditures for lease commissions and tenant improvements prior to tenant
occupancy. This anticipated decline in rental rates, the anticipated
increase in releasing time and the costs upon releasing will result in a
decrease in cash flow from operations over the near term. Therefore, the
property's operations may be insufficient to pay the modified debt service
in the near term. The joint venture has initiated discussions with the
first mortgage lender regarding an additional modification of the loan.
There can be no assurances such remodification will be consummated. If the
joint venture is unable to secure such remodification, the joint venture
may decide not to commit any significant additional amounts to the
property. This could result in the joint venture no longer having an
ownership interest in the property, which would result in a gain for
financial reporting and Federal income tax purposes with no corresponding
distributable proceeds. The joint venture is aggressively marketing IBM's
and John Hancock's remaining vacant space and currently has several
possible replacements for the space, although replacement cannot be
assured.
The joint venture partners decided to pay previously deferred property
management fees owed to an affiliate for 1993 and to end the deferment of
any subsequent fees incurred. As a result, the venture partners have made
contributions of $1,569,447 in 1994, of which the Partnership's share was
$784,724, for the payment of the above mentioned fees. As of September 30,
1995, the aggregate amount of such deferred management fees was
approximately $335,000.
On March 31, 1995, the joint venture received $1,517,994 from a tenant
for rental amounts due from previous years. The joint venture used this
amount to pay a portion of the accrued interest on the outstanding loan
from the joint venture partner, as more fully discussed in Note 2(c).
Old Orchard
In the third quarter of 1993, Orchard Associates in which the
Partnership and an affiliated partnership sponsored by the Corporate
General Partner each have a 50% interest, sold its interest in the Old
Orchard shopping center (reference is made to Note 2(d)).
At the time of redemption, OOUV retained a portion of the Orchard
Associates redemption proceeds in order to fund certain contingent amounts
which may have been due in the future. In July 1995, OOUV distributed to
Orchard Associates its redemption holdback of $2,083,644. As a result, the
Partnership received its share of the holdback of $1,041,820. In October
1995, OOUV distributed to Orchard their share of the pre-sale settlement
with Federated department stores of $288,452. As a result, Orchard
distributed to the Partnership its share of the settlement of $144,226.
The Partnership currently intends to retain these funds for working capital
purposes.
JMB/NYC
Occupancy at 1290 Avenue of the Americas remained at 94% during the
quarter. A new lease with Alex Brown (78,000 square feet or approximately
4% of the building's leasable space) was executed during the third quarter
of 1994. The lease has an eighteen year term. It is expected that the
property will continue to be adversely affected by low effective rental
rates achieved upon releasing of space under existing leases which expire
over the next few years and may be adversely affected by an increased
vacancy rate over the next few years. Approximately 21% of the building's
space under tenant leases will expire by the end of 1995. During the third
quarter of 1995, the Joint Venture that owns the building executed a lease
with a major insurance company for approximately 506,000 square feet of
space in the building, for a fifteen year term with occupancy to commence
in early 1996. During the fourth quarter of 1994, the Joint Venture that
owns the building negotiated an amendment with a tenant, Deutsche Bank
Financial Products Corporation, under which the tenant will surrender space
on the 12th and 13th floors (137,568 square feet or approximately 7% of the
building's leasable space) on or before June 30, 1996. The original lease
(as amended) was to terminate on December 31, 2003. The amendment also
added space on the 8th and 9th floors (44,360 square feet or approximately
2% of the building's leasable space) which will expire on or before
December 31, 1997. In consideration for this amendment, the tenant paid an
early termination fee of $29,000,000 to the Joint Venture on December 1,
1994.
Occupancy at 237 Park Avenue during the quarter remained at 98%. It
is expected that the property will be adversely affected by the low
effective rental rates achieved upon releasing of space under existing
leases which expire over the next few years and may be adversely affected
by an increased vacancy rate over the next few years.
In October 1994, JMB/NYC entered into an agreement (the "Agreement")
with the Olympia & York affiliates to resolve certain disputes which are
more fully discussed below. Certain provisions of the Agreement became
immediately effective and, therefore, binding upon the partners, while
others become effective either upon certain conditions being met or upon
execution and delivery of final documentation. In general, the parties
have agreed to: (i) amend the Three Joint Ventures' agreements to
eliminate any funding obligation by JMB/NYC for any purpose in return for
JMB/NYC relinquishing its rights to approve almost all property management,
leasing, sale (certain rights to control a sale would be retained by
JMB/NYC through March 31, 2001) or refinancing decisions and the
establishment of a new preferential distribution level payable to the
Olympia & York affiliates from all future sources of cash, (ii) sell the 2
Broadway Building, and (iii) restructure the first mortgage loan. A more
detailed discussion of these items is contained below and in Note 2(b). As
part of the Agreement, in order to facilitate the restructuring, JMB/NYC
and the Olympia & York affiliates agreed to file for each of the Three
Joint Ventures a pre-arranged bankruptcy plan for reorganization under
Chapter 11 of the Bankruptcy Code. In June 1995, the 2 Broadway Joint
Ventures filed their pre-arranged bankruptcy plans for reorganization, and
in August 1995 the bankruptcy court entered an order confirming their plans
of reorganization. Bankruptcy filings for the other Joint Ventures are
expected to occur in 1996 and JMB/NYC would seek to incorporate the
proposed transactions contained in the Agreement in the reorganization
plans for the other Joint Ventures, although there is no assurance that
such proposed transactions would be incorporated. During the bankruptcy
proceedings, there exists a possibility that one or more of the proposed
transactions could be challenged by certain creditors resulting in the
elimination or changes to all or portions of the Agreement by the
bankruptcy court. Consequently, there are no assurances that the
transactions contemplated in the Agreement will be finalized. If the
transactions contemplated in the Agreement are finalized, there would
nevertheless need to be a significant improvement in current market and
property operating conditions resulting in a significant increase in the
value of the 237 Park Avenue and 1290 Avenue of the Americas properties
before JMB/NYC would receive any significant share of future net proceeds
from operations, sale or refinancing. The restructuring of the Joint
Ventures' agreements would include the elimination of any funding
obligation by JMB/NYC for any purpose. Consequently, in such event,
JMB/NYC would recognize, for financial reporting purposes, a gain to the
extent of the then current deficit investment balance (which amount was
$251,588,694 as of September 30, 1995). In the event that one or more of
the transactions proposed in the Agreement are not consummated, JMB/NYC and
the Partnership may, among other things, recognize substantial gain for
Federal income tax purposes with no corresponding distributable proceeds.
In September 1995, the 2 Broadway Joint Ventures concluded the sale of
2 Broadway with a third party for a net purchase price, after commissions
and certain other payments, of approximately $18.3 million. As a result of
this sale and the disposition of its interest in the 2 Broadway Joint
Ventures, JMB/NYC recognized a net gain approximately $10,000,000 (of which
the Partnership's share is approximately $2.5 million) for financial
reporting purposes. In anticipation of this sale and in accordance with
the Agreement, the unpaid first mortgage indebtedness previously allocated
to 2 Broadway was allocated to 237 Park Avenue and 1290 Avenue of the
Americas during 1994. A provision for value impairment was recorded at
December 31, 1993 for financial reporting purposes for $192,627,560, net of
the non-recourse portion of the Purchase Notes given to the Olympia & York
affiliates as part of the consideration for JMB/NYC's acquisition of its
interests in the Three Joint Ventures, including accrued interest related
to the 2 Broadway Joint Venture interests payable by JMB/NYC to the Olympia
& York affiliates in the amount of $46,646,810. The provision for value
impairment was allocated $136,534,366 and $56,093,194 to the Olympia & York
affiliates and JMB/NYC, respectively. Such provision was allocated to the
joint venture partners to reflect their respective ownership percentages
before the effect of the non-recourse Purchase Notes including accrued
interest.
JMB/NYC has had a dispute with the Olympia & York affiliates over the
calculation of the effective interest rate with reference to the first
mortgage loan, which covers all three properties, for the purpose of
determining JMB/NYC's deficit funding obligation, as described more fully
in Note 2(b). During the quarter ended March 31, 1993, an agreement was
reached between JMB/NYC and the Olympia & York affiliates (the "1993
Agreement") which rescinded the default notices previously received by
JMB/NYC and eliminated the operating deficit funding obligation of JMB/NYC
for the period January 1, 1992 through June 30, 1993. Pursuant to the 1993
Agreement, during this period, JMB/NYC recorded interest expense at 1-3/4%
over the variable short-term U.S. Treasury obligation rate (subject to a
minimum rate of 7% per annum), which is the interest rate on the underlying
first mortgage loan. Under the terms of the 1993 Agreement, during this
period, the amount of capital contributions that the Olympia & York
affiliates and JMB/NYC would have been required to make to the Three Joint
Ventures, if the first mortgage loan bore interest at a rate of 12-3/4% per
annum (the Olympia & York affiliates' interpretation), became a priority
distribution level to the Olympia & York affiliates from the Three Joint
Ventures' annual cash flow or net sale or refinancing proceeds. The 1993
Agreement also entitles the Olympia & York affiliates to a 7% per annum
return on such unpaid priority distribution level. During this period, the
excess available operating cash flow after the payment of the priority
distribution level discussed above from any of the Three Joint Ventures was
advanced in the form of loans to pay operating deficits and/or unpaid
priority distribution level amounts of any of the other Three Joint
Ventures. Such loans bear a market rate of interest, have a final maturity
of ten years from the date when made and are repayable only out of first
available annual cash flow or net sale or refinancing proceeds. The 1993
Agreement also provides that, except as specifically agreed otherwise, the
parties each reserve all rights and claims with respect to each of the
Three Joint Ventures and each of the partners thereof, including, without
limitation, the interpretation of or rights under each of the joint venture
partnership agreements for the Three Joint Ventures. The term of the 1993
Agreement expired on June 30, 1993. Therefore, effective July 1, 1993,
JMB/NYC is recording interest expense at 1-3/4% over the variable short-
term U.S. Treasury obligation rate plus any excess operating cash flow
after capital costs of each of the Three Joint Ventures, such sum not to be
less than 7% nor exceed a 12-3/4% per annum interest rate. The Olympia &
York affiliates continue to dispute this calculation for the period
commencing July 1, 1993, and contend that a 12-3/4% per annum fixed rate
applies. Certain provisions of the Agreement with the Olympia & York
affiliates, when effective, would resolve the funding obligation dispute.
In October 1995, certain affiliates of O&Y, including one of the
partners in the Joint Ventures, filed for protection from creditors under
Chapter 11 of the United States Bankruptcy Code. These affiliates of O&Y
are preparing a plan to restructure their ownership interests in various
office buildings, including the 237 Park Avenue and 1290 Avenue of the
Americas office buildings, which could take the form of one or more real
estate investment trusts. Any such restructuring would be subject to the
approval of their various creditors as well as the bankruptcy court, and
would likely result in such creditors collectively obtaining control of
such ownership interests. Although JMB/NYC has had discussions with the
Olympia & York affiliates and certain of the creditors concerning possible
restructuring proposals, because of the preliminary status and the
complexity of the proposals, as well as the current divergence in the
interests of certain of the creditors, the Partnership does not know at
this time how a restructuring would affect the Joint Ventures, the
JMB/NYC's ownership interest therein and/or the effectuation of various
transactions pursuant to the Agreement. One or more of the proposed
transactions contemplated by the Agreement may not be effected as a result
of such a restructuring, which could result in, among other things, JMB/NYC
and the Partnership recognizing a substantial gain for Federal income tax
purposes with no corresponding distributable proceeds.
The 237 Park Avenue and the 1290 Avenue of the Americas office
buildings currently serve as collateral for the first mortgage loan. The
lender has asserted various defaults under the loan. A restructuring of
the loan now appears likely to depend upon the restructuring of the
ownership interests of various affiliates of O&Y in a number of office
buildings, as discussed above. In previous negotiations, the Olympia &
York affiliates reached an agreement with the first mortgage lender whereby
effective January 1, 1993, the Olympia & York affiliates are limited to
taking distributions of $250,000 on a monthly basis from the Three Joint
Ventures reserving the remaining excess cash flow in a separate interest-
bearing account to be used exclusively to meet the obligations of the Three
Joint Ventures as approved by the lender. Interest on the first mortgage
loan is currently calculated based upon a variable rate related to the
variable short-term U.S. Treasury obligation rate, subject to a minimum
rate on the loan of 7% per annum.
Should a restructuring of the joint venture partnership agreements
providing for the elimination of JMB/NYC's funding obligations in
accordance with the Agreement not be finalized, JMB/NYC may decide not to
commit any additional amounts to the Three Joint Ventures. In addition,
under these circumstances, it is possible that JMB/NYC may determine to
litigate these issues with the Olympia & York affiliates. A decision not
to commit any additional funds or an adverse litigation result could, under
certain circumstances, result in the loss of the interest in the related
Joint Ventures. The loss of an interest in a particular Joint Venture
could, under certain circumstances, permit an acceleration of the maturity
of the related purchase note (each purchase note is secured by JMB/NYC's
interest in the related Joint Venture). Under certain circumstances, the
failure to repay a purchase note could constitute a default under, and
permit an immediate acceleration of, the maturity of the purchase notes for
the other Joint Ventures. In such event, JMB/NYC may decide not to repay,
or may not have sufficient funds to repay, any of the purchase notes and
accrued interest thereon. This could result in JMB/NYC no longer having an
interest in any of the related Joint Ventures, which would result in
substantial net gain for financial reporting and Federal income tax
purposes to JMB/NYC (and through JMB/NYC and the Partnership, to the
Limited Partners) with no distributable proceeds. In such event, the
Partnership would then proceed to terminate its affairs.
Due to the various factors discussed above, it is unlikely that the
Partnership will be able to return a substantial amount of the Limited
Partners' original capital. It should be noted, however, that in
connection with any sale or other disposition (including a foreclosure) of
the properties (or interests therein) owned by the Three Joint Ventures (or
JMB/NYC), the Limited Partners would be allocated substantial net gain for
Federal income tax purposes even though the Partnership would not be able
to return a substantial amount of the Limited Partners' original capital.
Long Beach Plaza
The Partnership had discussions with several tenants regarding their
requests for temporary rent relief commencing in 1992. The tenants
indicated that, due to the poor sales levels of their stores at the mall,
such relief was necessary if they were to continue to operate. After
review of those tenants requesting relief, the Partnership decided to grant
temporary relief (approximately 50% of their minimum rent) to certain
tenants through December 31, 1992. The Partnership has re-evaluated each
tenant's sales level and financial situation. Based on discussions with
certain tenants, additional relief continues to be granted. As a result of
the foregoing, the Partnership initiated discussions with the first
mortgage lender regarding a permanent modification of its mortgage loan
secured by the property. In December 1994, the lender agreed to extend the
maturity of the loan until August 1995. This extension required that the
Partnership commit to fund approximately $923,000 for future leasing costs.
The lender further agreed to fund $414,000 to be used for leasing and
tenant improvements by way of a second note bearing interest at 13% per
annum. No amounts were drawn on this note. The Partnership was unable to
secure a permanent modification of the first and second notes from the
lender. The Partnership is discussing other possible options with the
lender, however, the Partnership has decided not to commit any significant
additional amounts to the property. This could result in the Partnership
no longer having an ownership interest in the property and could result in
a net gain for financial reporting and Federal income tax purposes with no
corresponding distributable proceeds. Due to declining retail sales at the
center along with one of the center's anchor tenants vacating its space in
1991, the Partnership has not remitted all of the scheduled debt service
payments since June 1993. As of the date of this report, payments of
principal and interest in arrears are approximately $9,390,000. (Reference
is made to Note 3(i)).
Plaza Tower Office Building
The mortgage loan secured by the Plaza Tower office building matured
November 1, 1994. Subsequently, the Partnership reached an agreement for a
short-term extension until January 1, 1995 upon paying a $15,000 extension
fee to the existing lender. During 1995, the Partnership reached two
agreements with the existing lender for extensions through April 1995
provided the Partnership pay down the principal balance and find an
alternative source of financing.
The Partnership made principal payments in the amounts of $1,500,000
and $1,100,000 to the existing lender during February and April 1995,
respectively, and reached an agreement with a new third party lender to
refinance the mortgage note. Reference is made to Note 3(j) for the terms
of the refinancing.
General
The affiliates of the Corporate General Partner have deferred certain
pre-1993 property management and leasing fees payable to them under the
terms of the management agreements in an aggregate amount of approximately
$2,919,000 (approximately $8 per Interest) through September 30, 1995. The
Partnership paid $10,000,000 of previously deferred fees during February
1995. The current deferred amounts do not bear interest and are payable in
future periods. Reference is made to Note 5.
A number of the Partnership's investments have been made through joint
ventures. There are certain risks associated with these investments,
including the possibility that the Partnership's joint venture partners in
an investment might become unable or unwilling to fulfill their financial
or other obligations or, that such joint venture partners may have economic
or business interests or goals that are inconsistent with those of the
Partnership.
While the real estate markets are recuperating, highly competitive
market conditions continue to exist in most locations. The Partnership's
approach has been to aggressively and creatively manage the Partnership's
real estate assets to attract and retain tenants. Net effective rents to
the landlord from renewal tenants are much more favorable than lease terms
which can be negotiated with new tenants. However, the Partnership's
capital resources must also be preserved and allocated in such a manner as
to maximize the total value of the portfolio. As a result of the real
estate market conditions discussed above, the Partnership continues to
conserve its working capital. All expenditures are carefully analyzed and
certain capital projects are deferred when appropriate. The Partnership
has also sought or is seeking additional loan modifications where
appropriate. By conserving working capital, the Partnership will be in a
better position to meet the future needs of its properties since outside
sources of capital may be limited. After reviewing the remaining
properties and their competitive marketplace, the General Partners of the
Partnership expect to be able to conduct an orderly liquidation of the
remaining assets as quickly as practicable. Therefore, with the possible
exception of the Partnership's interest in JMB/NYC, the affairs of the
Partnership are expected to be wound up no later than 1999 (sooner if the
properties are sold or disposed of in the nearer term), barring unforeseen
economic developments.
As we have reported previously, the Partnership has held certain of
its investment properties longer than originally anticipated in an effort
to maximize the return to the Limited Partners. However, in light of the
current severely depressed real estate markets, it currently appears that
the Partnership's goal of capital appreciation will not be achieved.
Although the Partnership expects to distribute from sale proceeds some
portion of the Limited Partners' original capital, without a dramatic
improvement in market conditions, the Limited Partners will receive
substantially less than half of their original investment.
RESULTS OF OPERATIONS
The decreases in cash and cash equivalents, short-term investments and
restricted funds and the corresponding increase in buildings and
improvements and the decreases in the current portion of long-term debt,
amounts due to affiliates and partners' capital at September 30, 1995 as
compared to December 31, 1994 are due primarily to: (a) payment for tenant
improvement costs of approximately $1,626,000 primarily relating to the
releasing of a portion of a former major tenant's space at Long Beach Plaza
and the former IBM space at Copley Place multi-use complex, (b) principal
payments of $2,600,000 relating to the refinancing of the mortgage loan
secured by the Plaza Tower office building, (c) payment of $10,000,000 for
previously deferred property management and leasing fees and (d)
distributions to partners of previous sales proceeds of $11,094,473.
Reference is made to Notes 3(j) and 5.
The decrease in rents and other receivables and unearned rents at
September 30, 1995 as compared to December 31, 1994 is primarily due to the
timing of rental collections, primarily at the Copley Place multi-use
complex.
The increase in prepaid expenses at September 30, 1995 as compared to
December 31, 1994 is primarily due to the timing of the payment of
insurance premiums for Long Beach Plaza and Copley Place multi-use complex.
The increase in venture partners' deficits in ventures at September
30, 1995 as compared to December 31, 1994 is due primarily to operating
losses being incurred at the Copley Place multi-use complex.
The increase in accrued interest at September 30, 1995 as compared to
December 31, 1994 is primarily due to the suspension of debt service
payments in June 1993 on the long-term mortgage loan secured by Long Beach
Plaza (Note 3(i)).
The increase in escrow deposits and the decrease in accrued real
estate taxes at September 30, 1995 as compared to December 31, 1994 and the
decreases in property operating expenses for the nine months ended
September 30, 1995 as compared to the same period in 1994 are due primarily
to the decrease in assessed property values for the Copley Place multi-use
complex and the Plaza Tower office building, which lowered the related
property tax liability for these investment properties in 1995. The
decrease in property operating expenses is also attributable to the sale of
Eastridge Apartments in June 1994 (see Note 7(b)).
The increase in long-term debt at September 30, 1995 as compared to
December 31, 1994 is due to the accrual of long-term deferred interest of
approximately $6,313,000 on the Copley Place purchase price note.
The decrease in rental income for the nine months ended September 30,
1995 as compared to the same period in 1994 is primarily attributable to
the loss of IBM and John Hancock as tenants of the Copley Place multi-use
complex during April and October 1994, respectively, partially offset by
the Registry of Motor Vehicles taking occupancy of 128,000 square feet in
August of 1995, which increased rental income for the three months ended
September 30, 1995 as compared to the same period in 1994.
The increase in interest income for the three and nine months ended
September 30, 1995 as compared to the same periods in 1994 is due primarily
to an increase in the average balance of U.S. Government obligations held
in the first quarter of 1995 and higher yields earned on those investments.
The decreases in mortgage and other interest, depreciation and
amortization for the three and nine months ended September 30, 1995 as
compared to the same periods in 1994 are due primarily to the sale of
Eastridge Apartments in June 1994 (see Note 7(b)). The decrease in
mortgage and other interest was partially offset by an increase in interest
accrued related to the suspension of debt service payments in June 1993 on
the long-term mortgage loan secured by Long Beach Plaza (Note 3(i)).
The increase in general and administrative expenses for the three and
nine months ended September 30, 1995 as compared to the three and nine
months ended September 30, 1994 are attributable primarily to an increase
in reimbursable costs to affiliates of the General Partners in 1995 and the
recognition of certain additional prior year reimbursable costs to such
affiliates. Reference is made to Note 5.
The increase in the Partnership's share of loss from operations of
unconsolidated ventures for the three and nine months ended September 30,
1995 as compared to the same periods in 1994 and the related increase in
the Partnership's deficit investment in unconsolidated venture at September
30, 1995 as compared to December 31, 1994 is primarily due to the sale of
the 2 Broadway building in September 1995 as more fully discussed in Note
2(b).
The net gain of $18,364,792 on sale or disposition of investment
property for the nine months ended September 30, 1994 consists of a gain of
$5,676,413 on the transfer of the University Park office building, a gain
(net of venture partner's share) of $7,677,508 on the transfer of Gables
Corporate Plaza office building, and a gain of $5,010,871 related to the
sale of the Eastridge Apartments (as more fully discussed in Notes 3(c),
3(d), and 7(b)).
The net gain of $1,702,082 on sale of interest in unconsolidated
venture for the nine months ended September 30, 1994 is due to a
distribution of sales proceeds from Orchard Associates.
The extraordinary item of $15,490,116 for the three and nine months
ended September 30, 1995 is due to the cancellation of indebtedness under
the 2 Broadway Purchase Notes in excess of $20 million in conjunction with
the September 1995 sale of the 2 Broadway Building, as more fully discussed
in Note 2(b).
The extraordinary item of $996,126 for the nine months ended September
30, 1994 is due to the April 1994 discounted payoff of the mortgage note
secured by the Eastridge Apartments (see Note 7(b)).
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference is made to Notes 2(b), and 3(i) of the Notes to Consolidated
Financial Statements and to the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations filed with this report for discussions of defaults under
mortgage loans secured by the 237 Park Avenue and 1290 Avenue of the
Americas office buildings and Long Beach Plaza, which discussions are
hereby incorporated herein by reference.
