SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1995 Commission file number 0-16516
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(Exact Name of registrant as specified in its charter)
Illinois 36-3437938
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/915-1987
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 20
PART II OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 25
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 26
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . . . . . . . . . $ 14,280,457 14,266,786
Short-term investments (note 1). . . . . . . . . . . . . . . . . . . . . . . . . 203,468 783,716
Interest, rents and other receivables. . . . . . . . . . . . . . . . . . . . . . 168,711 594,170
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,294 156,909
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,694,930 15,801,581
------------ ------------
Investment properties, at cost (note 2):
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,071,090 60,061,137
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 13,021,259 12,018,826
------------ ------------
Total investment properties, net of
accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . 47,049,831 48,042,311
Investment in unconsolidated ventures,
at equity (notes 1, 2 and 5) . . . . . . . . . . . . . . . . . . . . . . . . . . 3,446,931 3,318,589
Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,881 434,303
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,699 247,850
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,958,909 1,779,451
------------ ------------
$ 67,890,181 69,624,085
============ ============
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
JUNE 30, DECEMBER 31,
1995 1994
------------ -----------
Current liabilities:
Current portion of long-term debt (notes 2(e) and 2(f)). . . . . . . . . . . . . $ 339,165 319,509
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372,599 391,070
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482,525 464,383
Amounts due to affiliates (note 4) . . . . . . . . . . . . . . . . . . . . . . . 38,985 65,984
Unearned rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,400 21,119
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 1,241,674 1,262,065
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,031 78,406
Ground rent payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 979,456 889,727
Investment in unconsolidated ventures, at equity (notes 1, 2 and 4). . . . . . . . 5,396,402 5,669,281
Long-term debt, less current portion (notes 2(e) and 2(f)) . . . . . . . . . . . . 41,670,751 41,845,394
------------ ------------
Commitments and contingencies (notes 1, 2 and 4)
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,348,314 49,744,873
Venture partners' subordinated equity in ventures. . . . . . . . . . . . . . . . . 4,364,688 4,676,235
Partners' capital accounts (deficits) (note 1):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Cumulative net losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,969,809) (3,129,431)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . . . (1,348,937) (1,300,486)
------------ ------------
(4,298,746) (4,409,917)
------------ ------------
Limited partners:
Capital contributions, net of offering
costs and purchase discounts . . . . . . . . . . . . . . . . . . . . . . . . 120,541,353 120,541,353
Cumulative net losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,252,242) (58,238,035)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . . . (43,813,186) (42,690,424)
------------ ------------
18,475,925 19,612,894
------------ ------------
Total partners' capital accounts . . . . . . . . . . . . . . . . . . . . . 14,177,179 15,202,977
------------ ------------
$ 67,890,181 69,624,085
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . . . $ 2,599,282 2,533,092 5,279,902 4,957,724
Interest income. . . . . . . . . . . . . . . . . . . . 219,535 153,837 462,852 394,466
----------- ---------- ----------- ----------
2,818,817 2,686,929 5,742,754 5,352,190
----------- ---------- ----------- ----------
Expenses:
Mortgage and other interest. . . . . . . . . . . . . . 1,261,089 1,268,641 2,544,206 2,553,523
Depreciation . . . . . . . . . . . . . . . . . . . . . 501,223 501,849 1,002,433 1,003,428
Property operating expenses. . . . . . . . . . . . . . 1,169,652 1,087,380 2,460,456 2,379,354
Professional services. . . . . . . . . . . . . . . . . 42,621 73,527 183,618 213,616
Amortization of deferred expenses. . . . . . . . . . . 25,494 10,268 50,987 24,422
Management fees to corporate
general partner (note 4) . . . . . . . . . . . . . . 38,985 38,985 80,752 77,971
General and administrative . . . . . . . . . . . . . . 84,350 69,531 184,943 151,575
----------- ---------- ----------- ----------
3,123,414 3,050,181 6,507,395 6,403,889
----------- ---------- ----------- ----------
Operating loss . . . . . . . . . . . . . . . . . (304,597) (363,252) (764,641) (1,051,699)
Partnership's share of loss
from operations of unconsolidated
ventures (notes 1, 2 and 4). . . . . . . . . . . . . . (297,112) (2,463,561) (181,559) (5,100,126)
Venture partners' share of ventures'
operations . . . . . . . . . . . . . . . . . . . . . . 122,952 268,434 424,172 551,047
----------- ---------- ----------- ----------
Net operating loss . . . . . . . . . . . . . . . (478,757) (2,558,379) (522,028) (5,600,778)
Gain on sale of Partnership's investment
in unconsolidated venture (note 3(a)). . . . . . . . . 61,647 -- 667,443 --
----------- ---------- ----------- ----------
Net earnings (loss). . . . . . . . . . . . . . . $ (417,110) (2,558,379) 145,415 (5,600,778)
=========== ========== =========== ==========
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
Net earnings (loss) per limited
partnership interest (note 1):
Net operating loss. . . . . . . . . . . . . . $ (3.27) (17.50) (3.57) (38.31)
Gain on sale of Partnership's
investment in unconsolidated
venture. . . . . . . . . . . . . . . . . . . .44 -- 4.71 --
----------- ---------- ----------- ----------
$ (2.83) (17.50) 1.14 (38.31)
=========== ========== =========== ==========
Cash distributions per
limited partnership
interest (note 1). . . . . . . . . . . . . . . $ 4.00 4.00 8.00 108.00
=========== ========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(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). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 145,415 (5,600,778)
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,002,433 1,003,428
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . 50,987 24,422
Partnership's share of loss from operations of
unconsolidated ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,559 5,100,126
Venture partners' share of ventures' operations. . . . . . . . . . . . . . . . . . (424,171) (551,047)
Gain on sale of Partnership's investment in
unconsolidated venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (667,443) --
Changes in:
Interest, rents and other receivables. . . . . . . . . . . . . . . . . . . . . . . 425,459 670,943
Other prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,615 111,502
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,849) 48,134
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179,458) (104,442)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,471) 33,524
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,142 6,759
Amounts due to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,999) 788
Unearned rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,719) (52,482)
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,375) (8,730)
Ground rent payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,729 26,111
----------- -----------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . 648,854 708,258
----------- -----------
Cash flows from investing activities:
Net sales and maturities of short-term investments . . . . . . . . . . . . . . . . . 580,248 29,294,396
Additions to investment properties . . . . . . . . . . . . . . . . . . . . . . . . . (9,953) --
Partnership's distributions from unconsolidated ventures . . . . . . . . . . . . . . 129,663 298,982
Partnership's contributions to unconsolidated ventures . . . . . . . . . . . . . . . (45,000) (105,800)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76,565) (68,586)
----------- -----------
Net cash provided by investing activities. . . . . . . . . . . . . . . . . . . 578,393 29,418,992
----------- -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (154,987) (137,543)
Venture partners' distributions from venture . . . . . . . . . . . . . . . . . . . . (24,496) (1,127,160)
Venture partners' contributions to venture . . . . . . . . . . . . . . . . . . . . . 137,120 743,887
Distributions to limited partners. . . . . . . . . . . . . . . . . . . . . . . . . . (1,122,762) (15,157,556)
Distributions to general partners. . . . . . . . . . . . . . . . . . . . . . . . . . (48,451) (188,548)
----------- -----------
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . (1,213,576) (15,866,920)
----------- -----------
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . 13,671 14,260,330
Cash and cash equivalents, beginning of the year . . . . . . . . . . . . . . . 14,266,786 286,137
----------- -----------
Cash and cash equivalents, end of the period . . . . . . . . . . . . . . . . . $14,280,457 14,546,467
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . . . . . . . . . . . . $ 2,526,064 2,546,764
=========== ===========
Non-cash investing and financing activities. . . . . . . . . . . . . . . . . . . . . $ -- --
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the year ended December 31, 1994, which
are included in the Partnership's 1994 Annual Report on Form 10-K (File No.
0-16516) filed on March 25, 1995, 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, JMB/Warner
Center Associates ("JMB/Warner") (note 2(e)), JMB/Hahn PDTC Associates,
L.P. ("Palm Desert") (note 2(f)) and Carlyle-XVI Associates, L.P. (note
2(b)). The effect of all transactions between the Partnership and its
consolidated ventures has been eliminated. The Partnership, through
JMB/Warner, sold the Blue Cross Building in November 1993.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Partnership's
interests in JMB/Owings Mills Associates ("JMB/Owings"); 260 Franklin
Street Associates ("260 Franklin"); Villages Northeast Associates
("Villages Northeast"); JMB/NewPark Associates ("JMB/NewPark"); and its
indirect ownership of JMB/125 Broad Building Associates, L.P. ("JMB/125").
The Partnership, through JMB/Owings, sold its interest in Owings Mills Mall
in June 1993.
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 reflect 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
six months ended June 30:
1995 1994
----------------------- -----------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
Net earnings
(loss). . . . . . . . $145,415 (1,211,256) (5,600,778) (3,361,266)
Net earnings
(loss) per
limited
partnership
interest. . . . . . . $ 1.14 (8.24) (38.31) (22.99)
======== ========== ========== ==========
The net earnings (loss) per limited partnership interest is based upon
the Interests outstanding at the end of each period. Deficit capital
accounts will result, through the duration of the Partnership, in the
recognition of net gain for financial reporting and income tax purposes.
Certain amounts in the 1994 consolidated financial statements have
been reclassified to conform to the 1995 presentation.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Statement of Financial Accounting Standards No. 95 requires the
Partnership to present a statement which classifies receipts and payments
according to whether they stem from operating, investing or financing
activities. The required information has been segregated and accumulated
according to the classifications specified in the pronouncement.
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. 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 ($13,590,078 and $14,137,500 held at June 30, 1995 and December 31,
1994, respectively) as cash equivalents with any remaining (generally with
original maturities of one year or less) amounts reflected as short-term
investments being held to maturity.
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 (primarily its consolidated investments in land, buildings and
improvements) 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 less costs to sell.
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 any excess 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 currently assessed the
full impact of adopting SFAS 121, the amount of any such required
impairment loss could be materially higher than the amounts that have been
recorded in the past or may be recorded in 1995 under the Partnership's
current impairment policy. 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 - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(2) VENTURE AGREEMENTS
(a) General
The Partnership at June 30, 1995 is party to five joint venture
agreements (JMB/Owings, JMB/125, 260 Franklin, Villages Northeast and
JMB/NewPark) directly or indirectly with Carlyle Real Estate Limited
Partnership - XV ("Carlyle-XV") (and for JMB/125, Carlyle Advisors, Inc.)
and one joint venture agreement (Palm Desert) with Carlyle Real Estate
Limited Partnership-XVII ("Carlyle-XVII"). Carlyle-XV and Carlyle-XVII are
each sponsored by the Corporate General Partner. In addition, the
Partnership was a party to a joint venture agreement with Carlyle-XVII for
JMB/Warner, which sold its interest in its property in November 1993 and
terminated. The terms of the affiliated joint venture agreements provide,
in general, that the benefits and obligations of ownership, including tax
effects, net cash receipts and net sale and refinancing proceeds and
capital contribution obligations are allocated or distributed, as the case
may be, between the Partnership and the affiliated partner in proportion to
their respective capital contributions to the affiliated venture. Under
certain circumstances, either pursuant to the venture agreements or due to
the Partnership's obligations as general partner, the Partnership may be
required to make additional cash contributions to the ventures.
The Partnership at June 30, 1995 owns interests through the above
ventures in three apartment complexes, one office building and two shopping
centers. In 1993, the Partnership, through JMB/Owings, sold its interest
in Owings Mills Shopping Center and, through JMB/Warner, sold the Blue
Cross Building. In 1994, the Partnership through its indirect ownership of
JMB/125 assigned its interest in the 125 Broad Street Building (note 3(b)).
There are certain risks associated with Partnership's investments made
through joint ventures, including the possibility that 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.
(b) JMB/125
In November 1994, the Partnership through its indirect ownership of
JMB/125 assigned its interest in the 125 Broad Street Building (note 3(b)).
In December 1985, the Partnership, through the JMB/125 joint venture
partnership, acquired an interest in an existing joint venture partnership
("125 Broad") which owns a 40-story office building, together with a
leasehold interest in the underlying land, located at 125 Broad Street in
New York, New York. In addition to JMB/125, the other partners (the "O&Y
partners") of 125 Broad included O&Y 25 Realty Company L.P., Olympia & York
Broad Street Holding Company L.P. (USA) and certain other affiliates of
Olympia & York Developments, Ltd. ("O&Y").
JMB/125 is a joint venture between Carlyle-XVI Associates, L.P. (in
which the Partnership holds a 99% limited partnership interest), Carlyle-XV
Associates, L.P. and Carlyle Advisors, Inc. The terms of the JMB/125
venture agreement generally provided that JMB/125's share of 125 Broad's
annual cash flow and sale or refinancing proceeds would be distributed or
allocated to the Partnership in proportion to its (indirect) approximate
40% share of capital contributions to JMB/125. In April 1993, JMB/125,
originally a general partnership, was converted to a limited partnership,
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
and the Partnership's interest in JMB/125, which previously has been held
directly, was converted to a limited partnership interest and was
contributed to Carlyle-XVI Associates, L.P. in exchange for a limited
partnership interest in Carlyle-XVI Associates, L.P. As a result of these
transactions, the Partnership acquired, indirectly through Carlyle-XVI
Associates, L.P., an approximate 40% limited partnership interest in
JMB/125. The general partner in each of JMB/125 and Carlyle-XVI
Associates, L.P. is an affiliate of the Partnership. For financial
reporting purposes, profits and losses of JMB/125 are generally allocated
40% to the Partnership.
JMB/125 acquired an approximately 48.25% interest in 125 Broad for a
purchase price of $16,000,000, subject to a first mortgage loan of
$260,000,000 and a note payable to an affiliate of the joint venture
partners in the amount of $17,410,516 originally due September 30, 1989.
In June 1987, the note payable was consolidated with the first mortgage
loan forming a single consolidated note in the principal amount of
$277,410,516. The consolidated note bore interest at a rate of 10-1/8% per
annum payable in semi-annual interest only payments and was to mature on
December 27, 1995. JMB/125 also contributed $14,055,500 to 125 Broad to be
used for working capital purposes and to pay an affiliate of O&Y for its
assumption of JMB/125's share of the obligations incurred by 125 Broad
under the "takeover space" agreement described below. In addition, JMB/125
contributed $24,222,042, plus interest thereon of approximately $1,089,992,
on June 30, 1986 for working capital purposes. Thus, JMB/125's original
cash investment (exclusive of acquisition costs) was $55,367,534, of which
the Partnership's share was approximately $22,147,000.
The land underlying the office building was subject to a ground lease
which has a term through June 2067 and provided for annual rental payments
of $1,075,000. The terms of the ground lease granted 125 Broad a right of
first refusal to acquire the fee interest in the land in the event of any
proposed sale of the land during the term of the lease and an option to
purchase the fee interest in the land for $15,000,000 at 10-year intervals.
The partnership agreement of 125 Broad, as amended, provided that the
O&Y partners were obligated to make advances to pay operating deficits
incurred by 125 Broad from the earlier of 1991 or the achievement of a 95%
occupancy rate of the office building through 1995. In addition, from
closing through 1995, the O&Y partners were required to make capital
contributions to 125 Broad for the cost of tenant improvements and leasing
expenses up to certain specified amounts and to make advances to 125 Broad
to the extent such costs exceed such specified amounts and such costs are
not paid for by the working capital provided by JMB/125 or the cash flow of
125 Broad. The amount of all costs for such tenant improvements and
leasing expenses over the specified amounts and the advances for operating
deficits from the earlier of the achievement of a 95% occupancy rate of the
office building or 1991 were treated by 125 Broad as non-recourse loans
bearing interest, payable monthly, at the floating prime rate of an
institutional lender. Due to a major tenant vacating in 1991 and the O&Y
affiliates' default under the "takeover space" agreement, the property
operated at a deficit in 1994 and was expected to operate at a deficit for
the next several years. Such deficits were required to be funded by
additional loans from the O&Y partners, although as discussed below the O&Y
partners were in default of such funding obligation since June 1992. The
outstanding principal balance and any accrued and unpaid interest on such
loans were to be payable from 125 Broad's annual cash flow or net sale or
refinancing proceeds, as described below. Any unpaid principal of such
loans and any accrued and unpaid interest thereon were to be due and
payable on December 31, 2000. JMB/125 and the O&Y partners were obligated
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
to make capital contributions, in proportion to their respective interests
in 125 Broad, in amounts sufficient to enable 125 Broad to pay any excess
expenditures not covered by the capital contributions or advances of the
O&Y partners described above.
The 125 Broad partnership agreement also provided that beginning in
1991, annual cash flow, if any, was distributable first to JMB/125 and to
the O&Y partners in certain proportions up to certain specified amounts.
Next, the O&Y partners were entitled to repayment of principal and any
accrued but unpaid interest on the loans for certain tenant improvements,
leasing expenses and operating deficits described above, and remaining
annual cash flow, if any, was distributable approximately 48.25% to JMB/125
and approximately 51.75% to the O&Y partners. In general, operating
profits or losses were allocable approximately 48.25% to JMB/125 and
approximately 51.75% to the O&Y partners, except for certain specified
items of profits or losses which were allocable to JMB/125 or the O&Y
partners.
The 125 Broad partnership agreement further provided that, in general,
upon sale or refinancing of the property, net sale or refinancing proceeds
(after repayment of the outstanding principal balance and any accrued and
unpaid interest on any loans from the O&Y partners described above) were
distributable approximately 48.25% to JMB/125 and approximately 51.75% to
the O&Y partners.
As a result of the assignment by JMB/125 of its interest in 125 Broad
to an affiliate of the O&Y partners and the release of JMB/125 of claims
related to 125 Broad, JMB/125 was relieved of any obligation to contribute
any additional amounts to 125 Broad, including any amount of its deficit
capital account to 125 Broad. Reference is made to note 3(b) for a
discussion of JMB/125's assignment of interest in 125 Broad.
In October 1993, 125 Broad entered into an agreement with Salomon
Brothers, Inc. to terminate its lease covering approximately 231,000 square
feet (17% of the building) at the property on December 31, 1993 rather than
its scheduled termination in January 1997. In consideration for the early
termination of the lease, Salomon Brothers, Inc. paid 125 Broad
approximately $26,500,000, plus interest thereon of approximately $200,000,
which 125 Broad in turn paid its lender to reduce amounts outstanding under
the mortgage loan. In addition, Salomon Brothers, Inc. paid JMB/125
$1,000,000 in consideration of JMB/125's consent to the lease termination.
Due to the O&Y partners' previous failure to advance necessary funds
to 125 Broad as required under the joint venture agreement, 125 Broad in
June 1992 defaulted on its mortgage loan by failing to pay approximately
$4,722,000 of the semi-annual interest payment due on the loan. As a
result of this default, the loan agreement provided for a default interest
rate of 13-1/8% per annum on the unpaid principal amount. In addition,
during 1992 affiliates of O&Y defaulted on a "takeover space" agreement
with Johnson & Higgins, Inc. ("J&H"), one of the major tenants at the 125
Broad Street Building, whereby such affiliates of O&Y agreed to assume
certain lease obligations of J&H at another office building in
consideration of J&H's leasing space in the 125 Broad Street Building. As
a result of this default, J&H offset rent payable to 125 Broad for its
lease at the 125 Broad Street Building in the amount of approximately
$43,500,000 through the date of the assignment, and it was expected that
J&H would continue to offset amounts due under its lease corresponding to
amounts by which the affiliates of O&Y were in default under the "takeover
space" agreement. As a result of the O&Y affiliates' default under the
"takeover space" agreement and the continuing defaults of the O&Y partners
to advance funds to cover operating deficits, as of the date of the
assignment by JMB/125 of its interest in 125 Broad, the arrearage under the
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
mortgage loan had increased to approximately $69,447,000. As discussed
above, approximately $26,700,000 was remitted to the lender in October 1993
in connection with the early termination of the Salomon Brothers lease, and
was applied towards mortgage principal for financial reporting purposes.
Due to their obligations relating to the "takeover space" agreement, the
affiliates of O&Y were obligated for the payment of the rent receivable
associated with the J&H lease at the 125 Broad Street Building. Based on
the continuing defaults of the O&Y partners, 125 Broad provided loss
reserves for the entire $43,500,000 of rent offset by J&H, and also
reserved approximately $32,600,000 in 1992 of accrued rents receivable
relating to such J&H lease, since the ultimate collectability of such
amounts depended upon the O&Y partners' and the O&Y affiliates' performance
of their obligations. The Partnership's share of such losses was
approximately $1,737,000 for the six months ended June 30, 1994 and is
included in the Partnership's share of loss from operations of
unconsolidated venture.
(c) 260 Franklin
In May 1986, the Partnership, through the 260 Franklin joint venture
partnership, acquired an interest in an office building in Boston,
Massachusetts known as the 260 Franklin Street Building.
The property is currently subject to a first mortgage loan in the
original principal amount of $75,000,000. 260 Franklin's original cash
investment (exclusive of acquisition costs) was approximately $35,000,000
of which the Partnership's share was approximately $10,500,000.
260 Franklin reached an agreement with the lender to modify the terms
of the long-term mortgage note secured by the 260 Franklin Street Building
in December 1991. Beginning May 1991, the modified mortgage note provides
for monthly payments of interest only based upon the then outstanding
balance at a rate of 6% per annum through January 1992 and 8% per annum
thereafter. Upon the scheduled or accelerated maturity, or prepayment of
the mortgage loan, 260 Franklin shall be obligated to pay an amount
sufficient to provide the lender with an 11% per annum yield on the
mortgage note from January 1, 1991 through the date of maturity or
prepayment. In addition, upon maturity (scheduled for January 1996) or
prepayment, 260 Franklin is obligated to pay to the lender a residual
interest amount equal to 60% of the highest amount, if any, of (i) net
sales proceeds, (ii) net refinancing proceeds, or (iii) net appraisal
value, as defined. No amounts have been required to be accrued for such
contingent payments. 260 Franklin is required to (i) escrow excess cash
flow from operations (computed without a deduction for property management
fees and leasing commissions to an affiliate), beginning in 1991, to cover
future cash flow deficits, (ii) make an initial contribution to the escrow
account of $250,000, of which the Partnership's share was $75,000, and
(iii) make annual escrow contributions, through January 1995, of $150,000,
of which the Partnership's share is $45,000. The escrow account
($5,328,560 at June 30, 1995 including accrued interest) is to be used to
cover the cost of capital and tenant improvements and lease inducements
($1,220,236 used as of June 30, 1995) as defined, with the balance, if any,
of such escrowed funds available at the scheduled or accelerated maturity
to be used for the payment of principal and interest due to the lender as
described above. The joint venture has commenced discussions with the
lender regarding an additional modification or extension of the loan,
however, there can be no assurance that the joint venture will be able to
obtain any such modification or extension.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(d) JMB/NewPark
In December 1986, the Partnership, through the JMB/NewPark joint
venture partnership, acquired an interest in an existing joint venture
partnership ("NewPark Associates") with the developer which owns an
interest in an existing enclosed regional shopping center in Newark,
California known as NewPark Mall.
JMB/NewPark acquired its 50% interest in NewPark Associates for a
purchase price of $32,500,000 paid in cash at closing, subject to an
existing first mortgage loan of approximately $23,556,000, and certain
loans from the joint venture partner of approximately $6,300,000.
On December 31, 1992, NewPark Associates refinanced the shopping
center with an institutional lender. The new mortgage note payable in the
principal amount of $50,620,219 is due on November 1, 1995. Monthly
payments of interest only of $369,106 were due through November 30, 1993.
Commencing on December 1, 1993 through October 30, 1995, principal and
interest are due in monthly payments of $416,351 with a final balloon
payment due November 1, 1995. Interest on the note payable accrues at
8.75% per annum. The joint venture has an option to extend the term of the
mortgage note payable to November 1, 2000 upon payment of a $250,000 option
fee and satisfaction of certain conditions (which the Partnership currently
expects the joint venture to be able to satisfy if required) as specified
in the mortgage note. The joint venture is continuing discussions with the
lender regarding a five year extension of the loan, however, there can be
no assurance that the joint venture will be able to obtain such an
extension. In addition, the joint venture has also commenced discussions
with other lenders to refinance the entire principal amount. A portion of
the proceeds from the note payable were used to pay the outstanding
balance, including accrued interest, under the previous mortgage note
payable and the notes payable to the unaffiliated joint venture partner.
(e) JMB/Warner
In December 1987, the Partnership acquired through JMB/Warner an
interest in an existing five-structure office complex in Woodland Hills
(Los Angeles), California known as the Blue Cross Building. On November 2,
1993, JMB/Warner sold the Blue Cross Building to an unaffiliated purchaser
for a sales price of $76,909,292, of which the Partnership's share was
$57,061,733. The sales price consisted of $23,300,000 (before costs of
sale) paid in cash at closing and the assumption by the purchaser of the
existing mortgage note having an unpaid amount of $53,609,292. The
Partnership's share of net cash proceeds (before costs of sale and after
consideration of the prorations) was approximately $17,833,000. In 1994,
JMB/Warner distributed $1,078,168 to the affiliated venture partner,
Carlyle-XVII as its remaining share of the funds from the joint venture.
(f) Palm Desert
In December 1988, the Partnership, Carlyle-XVII and an affiliate of
the seller acquired, through Palm Desert, an interest in an existing,
enclosed regional shopping center known as Palm Desert Town Center in Palm
Desert, California and a leasehold interest in the underlying land.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Partnership and Carlyle-XVII acquired their interests in Palm
Desert, subject to a first mortgage loan with an outstanding principal
balance of approximately $43,500,000, for an initial aggregate contribution
of approximately $17,400,000, all of which was paid in cash at closing, of
which the Partnership's share was approximately $14,925,000. The
Partnership's and Carlyle-XVII's initial aggregate contributions were used
to make the distribution to the joint venture partner as described below
and to pay a portion of the closing costs. Except for amounts to be
contributed to Palm Desert to pay certain closing costs, the joint venture
partner was not required to make any capital contributions to Palm Desert
at closing. However, in consideration of a distribution from Palm Desert
at closing, the joint venture partner was obligated to make periodic
contributions to Palm Desert to retire the $13,752,746 purchase price
obligation of Palm Desert to the seller of the shopping center, of which
the final $4,826,906 was paid in January 1993. In addition, the joint
venture partner has made and was obligated to make contributions to Palm
Desert through December 1994 to pay any operating deficits and to pay a
portion of the returns to the Partnership and Carlyle-XVII. Amounts
required to pay the cost of tenant improvements and allowances and other
capital expenditures, as well as any operating deficits of Palm Desert
after December 1994, have been and are expected to be contributed in the
future to Palm Desert 25% by the joint venture partner and 75% by the
Partnership and Carlyle-XVII in the aggregate. Reference is made to Note
3(h) of Notes to Consolidated Financial Statements contained in the
Partnership's 1994 Report on Form 10-K for further information concerning
the joint venture agreement.
The shopping center is being managed pursuant to a long-term agreement
with an affiliate of the joint venture partner. The manager is paid a fee
equal to 3% of the base and percentage rents collected under tenant leases,
increasing to 4% of the base and percentage rents for those years that the
Partnership and Carlyle-XVII have received their current cash return and
all of their cumulative preferred return for current and previous periods.
In addition, under the terms of the management agreement, the manager or an
affiliate will be entitled to receive compensation for leasing services.
(g) Villages Northeast
The Villages Northeast joint venture, through a joint venture with an
affiliate of the developer, refinanced in 1992 the first mortgage loan
secured by the Dunwoody Crossing (Phase II) Apartments located in Atlanta,
Georgia. The new lender required the establishment of an escrow account
for real estate taxes to be deposited on a monthly basis through maturity
on November 1, 1997.
The first mortgage loan in the principal amount of approximately
$20,525,000 at September 30, 1994, secured by the Dunwoody Crossing Phase I
and III Apartments was scheduled to mature in October 1994. The joint
venture owning the property negotiated an extension of the mortgage loan
until December 15, 1994 and then reached an agreement with the existing
lender for a new loan, which requires monthly payments of principal and
interest (8.65% per annum) of $171,737 beginning February 15, 1995 and
continuing through November 15, 1997, when the remaining balance will be
payable.
An affiliate of the General Partners managed the property until
December 1994 for a fee equal to 5% of the gross revenues of the complexes.
The property is currently (reference to Note 4) being managed by the
purchaser of the affiliate's assets on the same terms.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(3) SALE OF INVESTMENT PROPERTIES
(a) JMB/Owings
On June 30, 1993, JMB/Owings sold its partnership interest in Owings
Mills Limited Partnership ("OMLP"), which owns an allocated portion of the
land, building and related improvements of the Owings Mills Mall located in
Owings Mills, Maryland. The purchaser, O.M. Investment II Limited
Partnership, is an affiliate of the JMB/Owing's joint venture partner in
OMLP.
The sale price of the interest in OMLP was $9,416,000, all of which
was received in the form of a promissory note. In addition, the
Partnership and Carlyle-XV were relieved of their allocated portion of the
debt secured by the property. The promissory note (which is secured by a
guaranty from an affiliate of the purchaser and of JMB/Owing's joint
venture partner in OMLP) bears interest at a rate of 7% per annum unless a
certain specified event occurs, in which event the rate would increase to
8% per annum for the remainder of the term of the note. The promissory
note requires principal and interest payments of approximately $109,000 per
month with the remaining principal balance of approximately $5,500,000 due
and payable on June 30, 1998. The monthly installment of principal and
interest would be adjusted for the increase in the interest rate if
applicable. Early prepayment of the promissory note may be required under
certain circumstances (as defined), including the sale or further
encumbrance of Owings Mills Mall.
The net cash proceeds and gain from sale of the interest in OMLP is
allocated 50% to the Partnership and 50% to Carlyle-XV in accordance to the
JMB/Owings partnership agreement.
For financial reporting purposes, JMB/Owings recognized, on the date
of sale, gain of $5,254,855, of which the Partnership's share is
$2,627,427, attributable to JMB/Owings being relieved of its obligations
under the OMLP's partnership agreement pursuant to the terms of the sale
agreement. The Partnership had adopted the cost recovery method until such
time as the purchaser's initial investment was sufficient in order to
recognize gain under Statement of Financial Accounting Standards No. 66
("SFAS #66"). At December 31, 1994, the total deferred gain of JMB/Owings,
including principal and interest payments of $1,858,572 received through
December 31, 1994, was $10,305,210, of which the Partnership's share was
$5,152,655. As JMB/Owings has collected a sufficient amount of the
purchaser's initial investment in accordance with SFAS #66 at March 31,
1995, the joint venture has adopted the installment method for the
recognition of the remaining deferred gain. JMB/Owings recognized
$1,334,888 of deferred gain and $1,179,650 of interest income in the six
months ended June 30, 1995, of which the Partnership's share is $667,444
and $589,825, respectively.
(b) JMB/125
On November 15, 1994, effective as of October 31, 1994, JMB/125 and
certain affiliates of O&Y reached an agreement to settle their disputes
regarding 125 Broad and its property. Under the terms of the agreement,
JMB/125 assigned its interest in 125 Broad to an affiliate of O&Y and
released the O&Y partners from any claims related to 125 Broad. In return,
JMB/125 received an unsecured promissory note in the principal amount of $5
million bearing simple interest at 4.5% per annum with all principal and
accrued interest due at maturity in October 1999, subject to mandatory
prepayments of principal and interest or acceleration of the maturity date
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
under certain circumstances. As of December 31, 1994, the note has been
fully reserved for by JMB/125 due to the uncertainty of the collectibility
of the note. In addition, JMB/125 received a release from any claims of
certain O&Y affiliates and will generally be indemnified against any
liability as a general partner of 125 Broad. JMB/125 was also relieved of
any obligation to contribute cash to 125 Broad in the amount of its deficit
capital account balance. Affiliates of O&Y subsequently filed a
prearranged bankruptcy plan for reorganization of 125 Broad under Chapter
11 of the Bankruptcy Code in order to facilitate 125 Broad's transfer of
the office building to the mortgage lender in satisfaction of the mortgage
indebtedness and other claims. In January 1995, the plan for
reorganization was approved by the bankruptcy court and was consummated,
and the bankruptcy case was concluded. As a result of the assignment of
its interest, JMB/125 no longer has an ownership interest in the office
building and recognized in 1994 gains of $53,412,105 and $49,616,240 for
financial reporting and Federal income tax purposes, respectively. The
Partnership's share of such gains (all recognized in 1993) was $20,162,696
and $17,786,455 for financial reporting and Federal income tax purposes,
respectively.
(4) TRANSACTIONS WITH AFFILIATES
Certain of the Partnership's properties have been managed by an
affiliate of the General Partners for fees computed as a percentage of
certain rents received by the properties. In December 1994, the affiliated
property manager 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 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 Dunwoody Crossing Apartments (Phases I, II and III) and
260 Franklin Office Building after the sale on the same terms that existed
prior to the sale.
Fees, commissions and other expenses required to be paid by the
Partnership (or its consolidated ventures) to the General Partners and
their affiliates as of June 30, 1995 and for the six months ended June 30,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Unpaid at
June 30,
1995 1994 1995
-------- ------ -------------
<S> <C> <C> <C>
Management fees to
Corporate General
Partner . . . . . . . . . . . . . $ 80,752 77,971 38,985
Insurance commissions. . . . . . . 19,277 -- --
Reimbursement (at cost)
for out-of-pocket
expenses and salaries
and salary related
expenses. . . . . . . . . . . . . 65,177 37,610 --
-------- ------- ------
$165,206 115,581 38,985
======== ======= ======
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
The Corporate General Partner and its affiliates are entitled to
reimbursement for salaries (and salary related expenses) and direct
expenses of their officers and employees and direct expenses of the
Corporate General Partner and its affiliates while directly engaged in the
administration of the Partnership and operation of its properties. Such
costs relating to the administration of the Partnership were $64,270 and
$134,843 for the six months ended June 30, 1995 and for the twelve months
ended December 31, 1994, respectively, all of which were paid as of June
30, 1995.
The General Partners deferred their share of net cash flow of the
Partnership due to them over a five-year period ending December 1992, to
the receipt by the Holders of Interests of a 5% per annum cumulative non-
compounded return on their Current Capital Accounts (as defined) for such
five-year period. These deferred amounts consisted of the Corporate
General Partner's management fees and the General Partners' distributive
share of net cash flow. In July 1994, the Partnership paid the cumulative
combined amount of such deferred distributions and management fees which
aggregated $889,519 and $1,482,537, respectively, to the General Partners.
All amounts deferred did not bear interest and were paid in full.
Subsequent to June 30, 1995, the Corporate General Partner of the
Partnership has determined to use an independent third-party or parties to
perform certain of these administrative services beginning in late 1995.
Use of a third-party rather then reimbursement to the Corporate General
Partner and its affiliates is not expected to have a material effect on the
operations of the Partnership.
(5) UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
Summary income statement information for JMB/125 (for the six months
ended June 30, 1994 (note 3(b)) and 260 Franklin for the six months ended
June 30, 1995 and 1994 is as follows:
1995 1994
----------- ----------
Total income . . . . . . . . . . . . . . . . $ 5,922,774 23,499,632
Expenses applicable to
operating loss . . . . . . . . . . . . . . $ 8,256,025 48,530,906
----------- ----------
Operating loss . . . . . . . . . . . . . . . $ 2,333,251 25,031,274
=========== ==========
Partnership's share of loss. . . . . . . . . $ 699,975 5,000,936
=========== ==========
(6) ADJUSTMENTS
In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of June 30, 1995
and for the three and six months ended June 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are to Notes to Consolidated Financial
Statements contained in this report.
At June 30, 1995, the Partnership and its consolidated ventures had
cash and cash equivalents of approximately $14,280,000. Such funds and
short-term investments of approximately $203,000 are available for
distributions to partners, capital improvements and working capital
requirements. Anticipated deficits for 1995, including those for expected
tenant improvement and other lease inducement costs, at the 260 Franklin
office building are expected to be paid out of the unconsolidated joint
venture's restricted reserve account. The joint venture that owns the 260
Franklin office building is seeking a further modification and extension to
its mortgage loan to reduce anticipated deficits in future years. The
Partnership and its consolidated ventures have currently budgeted in 1995
approximately $620,000 for tenant improvements and other capital
expenditures. The Partnership's share of such items, including its share
of such items for its unconsolidated ventures, is currently budgeted to be
approximately $974,000. Actual amounts expended may vary depending on a
number of factors including actual leasing activity, results of 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 cash
generated by the investment properties, and from the sale and refinancing
of such properties. In such regard, reference is made to the Partnership's
property specific discussions below. Because the cash flow from the Blue
Cross Building, which was sold in November 1993, was a significant portion
of the Partnership's total operating cash flow, beginning in 1994,
Partnership distributions to partners from operations were reduced.
The Partnership's and its ventures' mortgage obligations are separate
non-recourse loans secured by the investment properties individually and
are not obligations of the entire investment portfolio. For any particular
investment property that is incurring deficits or for which the existing
financing has matured, the Partnership or its ventures may seek a
modification or refinancing of the existing indebtedness and, in the
absence of a satisfactory debt modification, may decide, in light of the
then existing and expected future market conditions for such investment
property, not to commit additional funds to such investment property. This
would result in the Partnership no longer having an ownership interest in
such property and generally would result in gain for financial reporting
and Federal income tax purposes to the Partnership with no corresponding
distributable proceeds.
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partner(s) in an investment might become unable
or unwilling to fulfill its (their) financial or other obligations, or that
such joint venture partner(s) may have economic or business interests or
goals that are inconsistent with those of the Partnership.
The first mortgage loan secured by the Dunwoody Crossing Phase I and
III Apartments in the principal amount of $21,500,000 was scheduled to
mature in October 1994. The joint venture owning the property negotiated
an extension of the mortgage loan until December 15, 1994. The joint
venture then reached an agreement with the existing lender for a new loan,
which requires monthly payments of principal and interest (8.65% per annum)
of $171,737 beginning February 15, 1995 and continuing through November 15,
1997, when the remaining balance will be payable.
The mortgage note secured by NewPark Mall in the principal amount of
approximately $49,000,000 matures November 1, 1995. The loan can be
extended until November 1, 2000 upon payment of a $250,000 option fee and
satisfaction of certain conditions (which the Partnership currently expects
the joint venture to be able to satisfy if required). The joint venture
has commenced discussions with the existing lender regarding an extension
of the loan. In addition, the joint venture has also commenced discussions
with other lenders to refinance the entire principal amount. However,
there can be no assurance that the joint venture will be able to obtain
such an extension or refinancing. Reference is made to Note 2(d).
In November 1994, JMB/125 and certain affiliates of Olympia & York
Developments, Ltd. ("O&Y") reached an agreement to settle their dispute
regarding 125 Broad and its property. Under the terms of the agreement,
JMB/125 assigned its interest in 125 Broad to an affiliate of O&Y and
released its venture partners (the "O&Y partners") from any claims related
to 125 Broad. In return, JMB/125 received an unsecured promissory note in
the principal amount of $5 million bearing simple interest at 4.5% per
annum with all principal and accrued interest due at maturity in October
1999, subject to mandatory prepayments of principal and interest or
acceleration of the maturity date under certain circumstances. In
addition, JMB/125 received a release from any claims of certain O&Y
affiliates and will generally be indemnified against any liability as a
general partner of 125 Broad. JMB/125 was also relieved of any obligation
to contribute cash to 125 Broad in the amount of its deficit capital
account balance. Affiliates of O&Y subsequently filed a pre-arranged
bankruptcy plan for reorganization of 125 Broad under Chapter 11 of the
Bankruptcy Code in order to facilitate 125 Broad's transfer of the office
building to the mortgage lender in satisfaction of the mortgage debt and
other claims. In January 1995, the plan for reorganization was approved by
the bankruptcy court and was consummated, and the bankruptcy case was
concluded.
Vacancy rates in the downtown Manhattan office market have increased
significantly over the last few years. As vacancy rates rise, competition
for tenants increases, which results in lower effective rental rates. The
increased vacancy rate in the downtown Manhattan office market has resulted
primarily from layoffs, cutbacks and consolidations by many of the
financial service companies which, along with related businesses, dominate
this submarket. The Partnership believed that these adverse market
conditions and the negative impact on effective rental rates would continue
over the next several years. The depressed market in downtown Manhattan
had significantly affected the 125 Broad Street Building as the occupancy
had decreased to 66%, partially as a result of a major tenant vacating
395,000 square feet (30% of the building) at the expiration of its lease
during 1991. Additionally, in October 1993, 125 Broad entered into an
agreement with Salomon Brothers, Inc. to terminate its lease covering
approximately 231,000 square feet (17% of the building) at the property on
December 31, 1993 rather than its scheduled termination in January 1997.
It was expected that the property would be adversely affected by lower than
originally expected effective rental rates to be achieved upon re-leasing
of the space. The low effective rental rates coupled with the lower
occupancy during the re-leasing period were expected to result in the
property operating at a significant deficit in 1995 and for the next
several years. The O&Y partners were obligated to fund (in the form of
interest-bearing loans) operating deficits and costs of lease-up and
capital improvements through the end of 1995. However, the O&Y partners
were in default in respect to certain of their funding obligations, and it
appeared unlikely that the O&Y partners would fulfill their obligations to
125 Broad and JMB/125. Based on the facts discussed above and as described
more fully in Note 2(b), 125 Broad recorded a provision for value
impairment as of December 31, 1991 to reduce the net book value of the 125
Broad Street Building to the then outstanding balance of the related non-
recourse financing and O&Y partner loans due to the uncertainty of the
joint venture's ability to recover the net carrying value of the investment
property through future operations or sale.
The O&Y partners failed to advance necessary funds to 125 Broad as
required under the joint venture agreement, and as a result, 125 Broad in
June 1992 defaulted on its mortgage loan. In addition, during 1992
affiliates of O&Y defaulted on a "takeover space" agreement with Johnson &
Higgins, Inc. ("J&H"), one of the major tenants at the 125 Broad Street
Building, whereby such affiliates of O&Y had agreed to assume certain lease
obligations of J&H at another office building in consideration of J&H's
leasing space in the 125 Broad Street Building. As a result of this
default, J&H offset rent payable to 125 Broad for its lease at the 125
Broad Street Building and it was expected that J&H would continue to offset
amounts due under its lease corresponding to amounts by which the
affiliates of O&Y were in default under the "takeover space" agreement.
Due to their obligations relating to the "takeover space" agreement, the
affiliates of O&Y were obligated for the payment of the rent receivable
associated with the J&H lease at the 125 Broad Street Building. Based on
the continuing defaults of the O&Y partners, 125 Broad reserved the entire
$43,500,000 of rent offset by J&H, and also reserved approximately
$32,600,000 of accrued rents receivable relating to such J&H lease in 1992,
since the ultimate collectability of such amounts depended upon the O&Y
partners' and the O&Y affiliates' performance of their obligations. The
Partnership's share of such losses was approximately $1,737,000 for the six
months ended June 30, 1994 and is included in the Partnership's share of
loss from operations of unconsolidated ventures.
The office market in the Financial District of Boston remains
competitive due to new office building developments and layoffs, cutbacks
and consolidations by financial service companies. The effective rental
rates achieved upon releasing have been substantially below the rates which
were received under the previous leases for the same space. In December
1991, the affiliated joint venture reached an agreement with the lender to
modify the long-term mortgage note secured by 260 Franklin Street Building.
The property is currently expected to operate at a deficit for 1995 and for
several years thereafter. The loan modification required that 260 Franklin
establish an escrow account for excess cash flow from the property's
operations (computed without a deduction for property management fees and
lease commissions to an affiliate) to be used to cover the cost of capital
and tenant improvements and lease inducements (as defined), which are the
primary components of the anticipated operating deficits noted above, with
the balance, if any, of such escrowed funds available at the scheduled or
accelerated maturity to be used for the payment of principal and interest
due to the lender. Beginning January 1, 1992, 260 Franklin began escrowing
the payment of property management fees and lease commissions owed to an
affiliate of the Corporate General Partner pursuant to the terms of the
debt modification. The Partnership's share of such fees and lease
commissions is approximately $348,000 at June 30, 1995. The effective
rental rates achieved on renewals and expansions of leases and those
achieved on or to be achieved on re-leasing of vacant space are
substantially below the rates received under previous leases for the same
space. In 1995, the leases of tenants occupying approximately 107,000
square feet (approximately 31% of the property) at the 260 Franklin Street
Building expire. Approximately 63,000 square feet of this space has been
leased subsequent to the end of the second quarter. It is anticipated that
there would be significant costs related to releasing the remaining space
for which leases expire in 1995. In addition, the long-term mortgage loan
in the principal amount of approximately $75,000,000 matures January 1,
1996. The joint venture has commenced discussions with the lender
regarding an additional modification or extension of the loan, however,
there can be no assurance that the joint venture will be able to obtain any
modification or extension. If 260 Franklin is unable to refinance or
extend the mortgage loan, the Partnership may decide not to commit any
significant additional funds. This may result in the Partnership no longer
having an ownership interest in the property. This would result in the
Partnership recognizing a gain for financial reporting and Federal income
tax purposes with no distributable proceeds.
On November 2, 1993, the Partnership through JMB/Warner Center
Associates sold the Blue Cross Building to an unaffiliated buyer for a sale
price of $76,909,292, of which the Partnership's share was $57,061,733.
The sales price consisted of $23,300,000 (before costs of sale) paid in
cash at closing and the assumption by the purchaser of the existing
mortgage note having an unpaid amount of $53,609,292. Reference is made to
Note 2(e). In February 1994, the Partnership made cash distributions to
its Limited Partners that included $100 per Interest from proceeds received
in connection with the sale of the Blue Cross Building.
The Partnership received (through a joint venture with an affiliate)
its specified cash return relating to Palm Desert Town Center, which was
being funded by the unaffiliated venture partner through December 31, 1994
pursuant to the terms of the applicable joint venture agreement. Since the
preferred return period has expired as discussed above, the Partnership's
share of cash flow will be subject to the operations of the property. In
addition, the Partnership is receiving cash distributions from operations
of the Dunwoody Crossings Apartments and NewPark Mall.
In June 1993, JMB/Owings sold its interest in the Owings Mills
Shopping Center for $9,416,000 represented by a purchase price note.
Reference is made to Note 3(a).
In January 1992, the prior parent organization of Macy's at NewPark
Mall and Bullock's and Bullock's Mens at Palm Desert Town Center had filed
for protection under Chapter 11 of the United States Bankruptcy Code. In
December 1994, Macy's, Bullock's and Bullock's Mens were acquired by
Federated Department Stores and were removed from protection under Chapter
11 of the United States Bankruptcy Code and the stores continue to operate
at the centers.
While the real estate markets are recuperating, highly competitive
market conditions continue to exist in most locations. The Partnership's
philosophy and 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.
As previously reported, due to these factors, it is likely that the
Partnership will hold certain of its investment properties longer than
originally anticipated in an effort to maximize the return to the Limited
Partners. Although the Partnership expects to distribute sale proceeds
from the disposition of the Partnership's remaining assets, without a
dramatic improvement in market conditions, Limited Partners will receive
significantly less than their original investment.
The General Partners had deferred through December 31, 1992, their
receipt of partnership management fees and distributions of net cash
generated from operations. The cumulative amount of such deferrals at June
30, 1994 was $2,372,056. Such amount did not bear interest and was paid in
full in July 1994. Beginning in 1993, the General Partners are receiving
partnership management fees and distributions of net cash generated from
operations. Reference is made to Note 4.
RESULTS OF OPERATIONS
The decrease in interest, rents and other receivables at June 30, 1995
as compared to December 31, 1994 is primarily due to the timing of receipt
of expense recoveries and percentage rent from tenants at Palm Desert Town
Center.<PAGE>
The decrease in prepaid expenses at June 30, 1995 as compared to
December 31, 1994 is primarily due to the timing of payment of insurance
premiums at Palm Desert Town Center.
The increase in accrued rents receivable at June 30, 1995 as compared
to December 31, 1994 is primarily due to the Partnership recognizing rental
income for certain major tenant leases at Palm Desert Town Center over the
life of the lease rather than as due per the terms of their respective
leases.
The increase in rental income for the three and six months ended June
30, 1995 as compared to the three and six months ended June 30, 1994 is due
primarily to increased real estate tax tenant recoveries in 1995 at Palm
Desert Town Center.
The increase in interest income for the three and six months ended
June 30, 1995 as compared to the three and six months ended June 30, 1994
is primarily due to an increase in the average daily balance of funds
invested and an increase in the average interest rate earned on funds
invested.
The increase in property operating expenses for the three and six
months ended June 30, 1995 as compared to the three and six months ended
June 30, 1994 is primarily due to an increase in real estate taxes
(partially recoverable from tenants) at the Palm Desert Town Center.
The decrease in professional services for the three and six months
ended June 30, 1995 as compared to the three and six months ended June 30,
1994 is primarily due to a reduction in audit fees due to the 1993
disposition of Owings Mills Shopping Center. (Reference is made to Note 3
(a)).
The increase in amortization of deferred expenses for the three and
six months ended June 30, 1995 as compared to the three and six months
ended June 30, 1994 is primarily due to increased amortization of
capitalized leasing costs at Palm Desert Town Center.
The decrease in Partnership's share of loss from operations of
unconsolidated ventures for the three and six months ended June 30, 1995 as
compared to the three and six months ended June 30, 1994 is primarily due
to the assignment of the Partnership's interest in the 125 Broad Street
Building in November 1994. (Reference is made to Note 3 (b)). The
decrease is also due to the recognition of interest on the sale of the
Partnership's interest in Owings Mills. (Reference is made to Note 3 (a)).
The decrease in venture partners' share of venture operations for the
three and six months ended June 30, 1995 as compared to the three and six
months ended June 30, 1994 is primarily due to the change in the allocation
of the losses at Palm Desert Shopping Center to the venture partner
commencing in January 1995. (Reference is made to Note 2 (f)).
The gain on sale of Partnership's investment is unconsolidated venture
for the three and six months ended June 30, 1995 is due to the recognition
of gain on sale of the Partnership's interest in Owings Mills in accordance
with Statement of Financial Accounting Standards No. 66. (Reference is
made to Note 3 (a)).
<TABLE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
OCCUPANCY
The following is a listing of approximate occupancy levels by quarter for the Partnership's investment
properties:
<CAPTION>
1994 1995
------------------------------- ------------------------------
At At At At At At At At
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---- ---- ---- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. 125 Broad Street Building
New York, New York. . . . . . . . 54% 54% 54% N/A N/A N/A
2. 260 Franklin Street Building
Boston, Massachusetts . . . . . . 99% 99% 99% 99% 99% 99%
3. Dunwoody Crossing
(Phase I, II, and III)
Apartments
DeKalb County (Atlanta),
Georgia . . . . . . . . . . . . . 91% 93% 91% 88% 93% 93%
4. NewPark Mall
Newark (Alameda County),
California. . . . . . . . . . . . 80% 80% 80% 81% 80% 80%
5. Palm Desert Town Center
Palm Desert (Palm Springs),
California. . . . . . . . . . . . 97% 95% 96% 97% 97% 96%
<FN>
------------------
An "N/A" indicates that the property was not owned by the Partnership at the end of the quarter.
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4-A. The Amended and Restated Agreement of Limited Partnership and
the Assignment Agreement set forth as Exhibit B to the Prospectus, copies
of which are hereby incorporated by reference to Exhibit 3 and Exhibit 4-A
to the Partnership's report for December 31, 1992 on Form 10-K (File No. 0-
16516) dated March 19, 1993.
4-B. Documents relating to the loan modification of the mortgage loan
secured by the 260 Franklin Street Building is hereby incorporated by
reference to Exhibit 4-B to the Partnership's report for December 31, 1991
on Form 10-K (File No. 0-16516) dated March 27, 1992.
10-A. Escrow Deposit Agreement is hereby incorporated by reference to
Exhibit 10.1 to the Partnership's Amendment No. 1 to Form S-11 (File No.
33-3567) Registration Statement dated May 14, 1986.
10-B. Acquisition documents relating to the purchase of an interest in
the 260 Franklin Street Building, Boston, Massachusetts, are hereby
incorporated herein by reference to Exhibit 10.4 to the Partnership's
Amendment No. 2 to Form S-11 (File No. 33-3567) dated July 25, 1986.
10-C. Additional acquisition documents relating to the purchase of an
interest in the 260 Franklin Street Building, Boston, Massachusetts, are
hereby incorporated herein by reference to Exhibit 10.4.1 to the
Partnership's Post-Effective Amendment No. 1 to Form S-11 (File No. 33-
3567) dated September 30, 1986.
10-D. Acquisition documents relating to the purchase by the
Partnership of an interest in the Post Crest Apartments, Post Terrace
Apartments, and Post Crossing Apartments in DeKalb County (Atlanta),
Georgia, are hereby incorporated herein by reference to Exhibit 10.5 to the
Partnership's Post-Effective Amendment No. 2 to Form S-11 (File No. 33-
3567) dated September 30, 1986.
10-E. Acquisition documents relating to the purchase by the
Partnership of an interest in NewPark Mall in Newark (Alameda County),
California, are hereby incorporated herein by reference to Exhibit 10.6 to
the Partnership's Post-Effective Amendment No. 2 to Form S-11 (File No. 33-
3567) dated December 30, 1986.
10-F. Acquisition documents relating to the acquisition by the
Partnership of an interest in the Palm Desert Town Center in Palm Desert,
California, dated December 23, 1988 are hereby incorporated by reference to
Exhibit 1 to the Partnership's Form 8-K (File No. 0-16516) dated January 6,
1989.
10-G. Sale document and exhibits thereto relating to the Partnership's
contract of sale of the Blue Cross Building in Woodland Hills, California
is hereby incorporated by reference to Exhibit 10-N to the Partnership's
Form 10-Q for September 30, 1993 (File No. 0-16516) dated November 11,
1993.
10-H. Takeover Agreement relating to the Johnson & Higgins space at
the 125 Broad Building is hereby incorporated by reference to the
Partnership's Form 10-Q for March 31, 1994 (File No. 0-16516) dated May 11,
1994.
10-I. First Amendment to Loan Documents relating to the mortgage loan
secured by Dunwoody Crossing Apartments (Phases I and III) is hereby
incorporated by reference to the Partnership's Form 10-Q for September 30,
1994 (File No. 0-16516) dated November 10, 1994.
10-J. Documents relating to the modification of the mortgage loan
secured by Dunwoody Crossing Apartments (Phases I and III) are hereby
incorporated by reference to the Partnership's Form 10-K for December 31,
1994 (File No. 0-16516) dated March 27, 1995.
10-K. Documents relating to the assignment of JMB/125's interest in
125 Broad Street Company are hereby incorporated by reference to the
Partnership's Form 10-K for December 31, 1994 (File No. 0-16516) dated
March 27, 1995.
10-L. Modification to Reserve Escrow Agreement relating to the 260
Franklin Street Building is hereby incorporated by reference to the
Partnership's Form 10-Q for March 31, 1995 (File No. 0-16516) dated May 11,
1995.
27. Financial Data Schedule
(b) The following reports on Form 8-K were filed since the beginning of
the last quarter of the period covered by this report.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
BY: JMB Realty Corporation
(Corporate General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
Date: August 9, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date: August 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED
IN SUCH REPORT.
</LEGEND>
<CIK> 0000789950
<NAME> CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> $ 14,280,457
<SECURITIES> 203,468
<RECEIVABLES> 211,005
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,694,930
<PP&E> 60,071,090
<DEPRECIATION> 13,021,259
<TOTAL-ASSETS> 67,890,181
<CURRENT-LIABILITIES> 1,241,674
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 14,177,179
<TOTAL-LIABILITY-AND-EQUITY> 67,890,181
<SALES> 5,279,902
<TOTAL-REVENUES> 5,742,754
<CGS> 0
<TOTAL-COSTS> 3,513,876
<OTHER-EXPENSES> 449,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,544,206
<INCOME-PRETAX> (764,641)
<INCOME-TAX> 0
<INCOME-CONTINUING> (522,028)
<DISCONTINUED> 667,443
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,415
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
