SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1995 Commission file #0-17705
CARLYLE INCOME PLUS, L.P.-II
(Exact name of registrant as specified in its charter)
Illinois 36-3555432
(State of organization) (I.R.S. Employer Identification No.)
900 N. Michigan Ave., Chicago, Illinois 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. . . . 14
PART II OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K. . . . . . 19
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
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) . . . . . . . . . . . . . $ 4,689,905 2,024,097
Short-term investments (note 1). . . . . . . . . . . . . . . -- 2,109,006
Interest, rents and other receivables. . . . . . . . . . . . 22,552 43,467
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 19,176 12,073
------------ ------------
Total current assets . . . . . . . . . . . . . . . . 4,731,633 4,188,643
------------ ------------
Investment property, at cost (note 2(c)):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,586,545 4,586,545
Buildings and improvements . . . . . . . . . . . . . . . . . 16,765,386 16,672,244
------------ ------------
21,351,931 21,258,789
Less accumulated depreciation. . . . . . . . . . . . 3,799,755 3,364,658
------------ ------------
Total investment property,
net of accumulated depreciation. . . . . . . . . . 17,552,176 17,894,131
------------ ------------
Investment in unconsolidated affiliated corporation,
at equity (notes 1, 2(d) and 4(b)) . . . . . . . . . . . . . 24,187,096 24,799,536
Investment in unconsolidated venture (notes 2(b) and 4(a)) . . 3,951,390 5,747,537
------------ ------------
$ 50,422,295 52,629,847
============ ============
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 130,362 86,728
Amounts due to affiliates (note 3) . . . . . . . . . . . . . 1,872 14,953
Unearned rents . . . . . . . . . . . . . . . . . . . . . . . 67,438 10,900
Accrued real estate taxes. . . . . . . . . . . . . . . . . . 84,949 --
------------ ------------
Total current liabilities. . . . . . . . . . . . . . 284,621 112,581
------------ ------------
Tenant security deposits . . . . . . . . . . . . . . . . . . . 109,046 111,900
------------ ------------
Commitments and contingencies (note 2)
Total liabilities. . . . . . . . . . . . . . . . . . 393,667 224,481
------------ ------------
Venture partner's subordinated equity in venture . . . . . . . 5,490,936 5,559,836
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . 25,000 25,000
Cumulative net earnings. . . . . . . . . . . . . . . . . . 411,820 418,968
Cumulative cash distributions. . . . . . . . . . . . . . . (689,849) (581,606)
------------ ------------
(253,029) (137,638)
------------ ------------
Limited partners (64,269.53 interests):
Capital contributions, net of offering costs
and purchase discounts . . . . . . . . . . . . . . . . . 55,256,131 55,256,131
Cumulative net earnings. . . . . . . . . . . . . . . . . . 6,321,266 6,457,088
Cumulative cash distributions. . . . . . . . . . . . . . . (16,786,676) (14,730,051)
------------ ------------
44,790,721 46,983,168
------------ ------------
Total partners' capital accounts . . . . . . . . . . 44,537,692 46,845,530
------------ ------------
$ 50,422,295 52,629,847
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
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. . . . . . . . . . . . . . $ 826,742 789,318 2,448,050 2,403,586
Interest income. . . . . . . . . . . . . 66,178 41,591 180,064 103,842
----------- ---------- ----------- ----------
892,920 830,909 2,628,114 2,507,428
----------- ---------- ----------- ----------
Expenses:
Depreciation . . . . . . . . . . . . . . 148,781 142,432 435,097 521,034
Property operating expenses. . . . . . . 378,636 373,512 1,196,731 1,188,144
Professional services. . . . . . . . . . -- 4,500 58,500 64,325
General and administrative . . . . . . . 75,217 17,679 134,876 69,638
Provision for value impairment
(notes 1 and 2(c)) . . . . . . . . . . -- 7,572,479 -- 7,572,479
----------- ---------- ----------- ----------
602,634 8,110,602 1,825,204 9,415,620
----------- ---------- ----------- ----------
Operating earnings (loss). . . . 290,286 (7,279,693) 802,910 (6,908,192)
Partnership's share of earnings of
unconsolidated affiliated corporation
(notes 2(d) and 4(b)). . . . . . . . . . 299,347 352,235 856,867 1,068,703
Partnership's share of operations of
unconsolidated venture (notes 2(b) and 4(a))(1,700,987) 63,786 (1,546,147) 187,694
Venture partner's share of venture's operations(94,308) 2,261,870 (256,600) 2,121,032
----------- ---------- ----------- ----------
Net loss . . . . . . . . . . . . $(1,205,662) (4,601,802) (142,970) (3,530,763)
=========== ========== =========== ==========
Net loss per limited
partnership interest (note 1). . $ (17.82) (68.02) (2.11) (52.19)
=========== ========== =========== ==========
Cash distributions per limited
partnership interest (note 1). $ 8.00 8.00 32.00 24.00
=========== ========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ (142,970) (3,530,763)
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 435,097 521,034
Partnership's share of earnings of unconsolidated
affiliated corporation, net of dividends . . . . . . . . . . 612,440 215,297
Partnership's share of operations of unconsolidated
venture, net of distributions. . . . . . . . . . . . . . . . 1,546,147 137,306
Venture partner's share of venture operations . . . . . . . . 256,600 (2,121,032)
Provision for value impairment . . . . . . . . . . . . . . . . -- 7,572,479
Changes in:
Interest, rents and other receivables. . . . . . . . . . . . . . 20,915 2,364
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . (7,103) (5,983)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 43,634 (2,294)
Amounts due to affiliates. . . . . . . . . . . . . . . . . . . . (13,081) (33,628)
Unearned rents . . . . . . . . . . . . . . . . . . . . . . . . . 56,538 49,422
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . 84,949 65,225
Tenant security deposits . . . . . . . . . . . . . . . . . . . . (2,854) (2,743)
------------ -----------
Net cash provided by operating activities. . . . . . . . 2,890,312 2,866,684
------------ -----------
Cash flows from investing activities:
Net sales and maturities of short-term investments . . . . . . . 2,109,006 1,141,953
Additions to investment properties . . . . . . . . . . . . . . . (93,142) (265,487)
Partnership's distributions from unconsolidated venture. . . . . 250,000 --
------------ -----------
Net cash provided by investing activities. . . . . . . . 2,265,864 876,466
------------ -----------
Cash flows from financing activities:
Distributions to venture partner . . . . . . . . . . . . . . . . (325,500) (1,069,500)
Distributions to limited partners. . . . . . . . . . . . . . . . (2,056,625) (1,542,469)
Distributions to general partners. . . . . . . . . . . . . . . . (108,243) (81,183)
------------ -----------
Net cash used in financing activities. . . . . . . . . . (2,490,368) (2,693,152)
------------ -----------
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
------------ -----------
Net increase in cash and cash equivalents. . . . . . . . 2,665,808 1,049,998
Cash and cash equivalents, beginning of year . . . . . . 2,024,097 267,409
------------ -----------
Cash and cash equivalents, end of period . . . . . . . .$ 4,689,905 1,317,407
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . .$ -- --
============ ===========
Non-cash investing and financing activities. . . . . . . . . . .$ -- --
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the year ended December 31, 1994, which
are included in the Partnership's 1994 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the
accounts of the Partnership and its consolidated venture, CIP/Ashby
Partners ("CIP/Ashby") (note 2(c)). The effect of all transactions between
the Partnership and the consolidated venture 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 JMB/Landings Associates ("JMB/Landings") (note 2(b)), and 1225
Investment Corporation ("1225 Connecticut Avenue, N.W.") (note 2(d)).
Accordingly, the accompanying consolidated financial statements do not
include the accounts of JMB/Landings, or of 1225 Connecticut Avenue, N.W.
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to present the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of the venture as described above.
Such adjustments are not recorded on the records of the Partnership. The
net effect of these items for the nine months ended September 30, 1995 and
1994 is summarized as follows:
1995 1994
----------------------- --------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
Net earnings
(loss). . . . . $(142,970) 2,092,031 (3,530,763) 1,915,975
Net earnings
(loss) per
limited
partnership
interest. . . . $ (2.11) 30.92 (52.19) 28.32
========= ========= ========= =========
The net earnings (loss) per limited partnership interest ("Interest")
is based upon the number of Interests outstanding at the end of each period
(64,269.53).
At September 30, 1994, the CIP/Ashby Partners joint venture had
substantially completed a significant (approximately $3,400,000) renovation
project. At such time, the venture assessed its recoverable value against
its revised carrying costs and revised estimated holding period. Based on
these assessments and due to the uncertainty relating to CIP/Ashby Partners
joint venture's ability to recover the net carrying value of the Ashby at
McLean Apartments investment property through future operations or sale,
the CIP/Ashby Partners joint venture, as a matter of prudent accounting
practice and for financial reporting purposes, recorded a provision for
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
value impairment at September 30, 1994 in the amount of $7,572,479 (of
which the Partnership's share was $5,225,011). Such provision was recorded
to reduce the net basis of the investment property to its then estimated
recoverable value.
In response to the uncertainty relating to the JMB/Landings Associates
joint venture's ability to recover the net carrying value of The Landings
Shopping Center investment property through future operations or sale, as
the joint venture has shortened its intended holding period for this
investment property to not later than 1999, the JMB/Landings Associates
joint venture, as a matter of prudent accounting practice and for financial
reporting purposes, has recorded a provision for value impairment at
September 30, 1995 in the amount of $3,500,000 (of which the Partnership's
share was $1,750,000). Such provision was recorded to reduce the net basis
of the investment property to its then estimated recoverable value.
Partnership distributions or dividends from unconsolidated investments
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 ($4,287,120 and $2,024,097 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.
(2) INVESTMENTS
(a) General
The Partnership has acquired, either by purchase of stock or through
joint ventures, interests in one apartment building, one shopping center
and one office building, all of which are operating at September 30, 1995.
Under certain circumstances, the Partnership may be required to make cash
contributions to the ventures either pursuant to the venture agreements or
due to the Partnership's obligations as a general partner. The cost of The
Ashby investment property represents the total cost to the Partnership,
including certain acquisition costs (see note 2(c)).
(b) JMB/Landings
In August 1988, the Partnership, through JMB/Landings, a joint venture
partnership with Carlyle Income Plus, Ltd. ("CIP-I"), another partnership
sponsored by the General Partners of the Partnership, acquired a 50%
interest in a shopping center located in Sarasota, Florida and known as The
Landings Shopping Center. The Partnership contributed ($6,550,000) to
JMB/Landings for its 50% interest. The terms of the JMB/Landings
partnership agreement provide generally that annual cash flow, sale
proceeds and tax items will be distributed or allocated based on the
capital contributions made by each partner. Distributions and allocations
to date have been made (and any obligations to make additional capital
contributions will be made) 50% to the Partnership.
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The JMB/Landings Associates joint venture, for financial reporting
purposes, has recorded a provision for value impairment at September 30,
1995 in the amount of $3,500,000 (of which the Partnership's share was
$1,750,000). Reference is made to note 1.
An affiliate of the General Partners of the Partnership manages the
property for a fee equal to 4% of the property's gross receipts. Such
property management fees for the nine months ended September 30, 1995 and
1994 aggregated $34,354 and $34,366, respectively.
(c) CIP/Ashby
In February 1990, the Partnership, through CIP/Ashby, a joint venture
partnership with CIP-I, acquired a 69% interest in an apartment building
located in McLean, Virginia and known as The Ashby at McLean Apartments
("The Ashby"). The apartment building has 250 units, commercial space and
related parking facilities.
CIP/Ashby purchased The Ashby for a purchase price of $25,327,132,
which was paid in cash at closing. In addition, the joint venture has
incurred approximately $3,380,000 for certain renovations, leasing and
maintenance costs, with the work related to such costs completed at
December 31, 1994. The majority of these costs were contemplated at the
time of the initial acquisition of the property. CIP/Ashby's total cash
investment in The Ashby is approximately $28,705,000, of which the
Partnership's share is approximately $19,806,000.
The terms of the CIP/Ashby partnership agreement provide generally
that annual cash flow, sale proceeds and tax items will be distributed or
allocated based on the capital contributions made by each partner.
Distributions and allocations to date have been made (and any obligations
to make additional capital contributions will be made) 69% to the
Partnership.
The CIP/Ashby Partners joint venture, for financial reporting
purposes, recorded a provision for value impairment at September 30, 1994
in the amount of $7,572,479 (of which the Partnership's share was
$5,225,011). Reference is made to note 1.
(d) 1225 Connecticut Avenue, N.W.
In May 1990, the Partnership acquired approximately 44% of the common
stock of 1225 Investment Corporation. The 1225 Investment Corporation
(owned jointly with affiliates of the General Partners and other
unaffiliated third parties) owns an office building located in Washington,
D.C., known as 1225 Connecticut Avenue, N.W.
The 1225 Investment Corporation purchased 1225 Connecticut Avenue,
N.W. office building for a purchase price of approximately $54,125,000,
which included the assumption of existing indebtedness of $2,700,000. The
purchase price reflects a credit of $600,000, which was intended to allow
the 1225 Investment Corporation to pay certain future expenses related to
the removal of asbestos from the property. As of September 30, 1995,
approximately $76,000 has been spent relating to the removal of asbestos.
Furthermore, the 1225 Investment Corporation has created reserves in the
amount of approximately $532,000 and $1,000,000 for working capital and for
certain possible capital improvements to the property, respectively. The
Partnership has contributed $24,000,000 for its approximate 44% interest in
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
the stock of the 1225 Investment Corporation. The 1225 Investment
Corporation has qualified as a real estate investment trust ("REIT")
pursuant to sections 856 through 860 of the Internal Revenue Code of 1986,
as amended. The Partnership is expected to be paid approximately 44% of
the 1225 Investment Corporation's dividends. The majority of such dividends
will constitute taxable income to the Partnership.
In August 1993, 1225 Investment Corporation agreed with its major
financial services tenant (Ernst & Young) to extend the initial term of its
existing lease from June 2000 to June 2007 at the same annual base rent,
but with a slight decrease in occupancy. This lease extension would have
reduced Ernst & Young's square footage from approximately 79% of the
building total to approximately 65%, effective January 1, 1995. However,
Ernst & Young and 1225 Investment Corporation agreed to extend the lease
for the additional space which had been leased by Ernst & Young on a
temporary basis and which was scheduled to expire on December 31, 1994.
This extension is coterminous with the existing long-term lease in effect
(as discussed above) and will keep Ernst & Young's occupancy at
approximately 79% of the building until June, 2007. Also in 1994, 1225
Investment Corporation leased the building's remaining unoccupied space to
another financial services company. This increased the occupancy of the
building to 100%. 1225 Investment Corporation currently expects to incur
approximately $5,500,000 of tenant improvement costs, lobby renovation and
sprinkler system costs related to the lease extension for Ernst & Young, as
well as anticipated tenant improvement costs for other tenants
(approximately $4,900,000 of such costs have been incurred as of September
30, 1995). Such costs were paid in 1994 and 1995 from the approximately
$1,500,000 of working capital reserves (described in the preceding
paragraph) held by the 1225 Investment Corporation and from the net
proceeds of approximately $5,300,000 from the January 1994 refinancing of
the existing mortgage loan secured by the property. The remaining costs to
be incurred in 1995 are also expected to be funded by the loan proceeds, as
discussed above. The existing loan had an outstanding balance of
$1,667,247 at the time of the refinancing and would have matured in March,
1998. The refinanced mortgage loan is in the amount of $7,000,000 and
requires payments of interest only, at an annual interest rate of 6.98%,
for a period of 7 years. The loan matures February 1, 2001.
(3) TRANSACTIONS WITH AFFILIATES
All of the Partnership's properties are managed by affiliates of the
General Partners or their assignees for fees computed as a percentage of
certain rents received by the properties. 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 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 Ashby at McLean Apartments and 1225 Connecticut
Ave. N.W. after the sale on the same terms that existed prior to the sale.
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fees, commissions and other expenses required to be paid by the
Partnership to the General Partners and their affiliates as of September
30, 1995 and for the nine months ended September 30, 1995 and 1994 are as
follows:
Unpaid at
September 30,
1995 1994 1995
------ ------- -------------
Property management fees . $ -- 118,430 --
Insurance commissions. . . 2,984 2,986 --
Reimbursement (at cost)
for other out-of-pocket
expenses . . . . . . . . 1,561 2,800 64
------ ------- ---
$4,545 124,216 64
====== ======= ===
The Corporate General Partner and its affiliates are entitled to
reimbursement for salaries and direct expenses of officers and employees of
the Corporate General Partner and its affiliates relating to the
administration of the Partnership and the operation of the Partnership
investment properties. In fiscal 1994 and for the nine months ended
September 30, 1995, such costs aggregated $66,493 and $84,210,
respectively, of which $1,808 was unpaid 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.
(4) UNCONSOLIDATED INVESTMENTS - SUMMARY INFORMATION
(a) JMB/Landings
Summary income statement information for JMB/Landings for the nine
months ended September 30, 1995 and 1994 is as follows:
1995 1994
----------- ----------
Total income . . . $ 975,791 903,286
=========== ==========
Operating earnings
(loss) . . . . . $(3,092,294) 375,388
=========== ==========
Partnership's share
of earnings (loss) $(1,546,147) 187,694
=========== ==========
CARLYLE INCOME PLUS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(b) 1225 Connecticut Avenue, N.W.
Summary income statement information for 1225 Investment Corporation
for the nine months ended September 30, 1995 and 1994 is as follows:
1995 1994
---------- ----------
Total income . . . $5,108,000 5,510,506
========== ==========
Operating earnings $1,968,000 2,454,532
========== ==========
Partnership's share
of earnings. . . $ 856,867 1,068,703
========== ==========
(5) ADJUSTMENTS
In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of September 30,
1995 and for the three and nine months ended September 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Partnership and its consolidated venture
had cash and cash equivalents of approximately $4,690,000. Such funds are
available for tenant and capital improvements at The Ashby investment
property, distributions to partners and for other working capital
requirements. The Partnership and its consolidated venture have currently
budgeted in 1995 approximately $165,000 for tenant improvements and other
capital expenditures (of which approximately $87,000 has been incurred at
September 30, 1995). The Partnership's share of similar items for its
unconsolidated venture and corporation in 1995 is currently budgeted to be
approximately $730,000. 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 (in addition to the
cash and cash equivalents noted above) for such items and for both future
short-term and long-term liquidity and distributions to the Limited and
General Partners is expected to be from net cash generated by the
Partnership's investment properties and from the sale of such investments.
In such regard, reference is made to the Partnership's property specific
discussions below. The General Partners do not intend to incur any
additional indebtedness secured by a mortgage or otherwise, unless it is
determined by the Corporate General Partner that it is in the best
interests of the Holders of Interests. Also, the Partnership, based upon
the annual determination of the Corporate General Partner, has included a
special distribution of $8.00 per $1,000 Interest with the distribution for
the fourth quarter of 1994. Therefore, the total distribution paid in
February 1995 was $16.00 per $1,000 Interest.
At September 30, 1994, the CIP/Ashby Partners joint venture had
substantially completed a significant (approximately $3,400,000) renovation
project. At such time, the venture assessed its recoverable value against
its revised carrying costs and revised estimated holding period. Based on
these assessments and due to the uncertainty relating to CIP/Ashby Partners
joint venture's ability to recover the net carrying value of the Ashby at
McLean Apartments investment property through future operations or sale,
the CIP/Ashby Partners joint venture, as a matter of prudent accounting
practice and for financial reporting purposes, recorded a provision for
value impairment at September 30, 1994 in the amount of $7,572,479 (of
which the Partnership's share was $5,225,011.) Such provision was recorded
to reduce the net basis of the investment property to its then estimated
recoverable value. Additionally, two apartment complexes (one to contain
624 units, the other 600 units) are being developed in the sub-market.
These new properties are expected to compete directly with The Ashby upon
their completion in the latter part of 1996, which could adversely affect
future cash flow. The Ashby is 98% occupied at September 30, 1995.
In August 1993, 1225 Investment Corporation agreed with its major
financial services tenant (Ernst & Young) to extend the initial term of its
existing lease from June 2000 to June 2007 at the same annual base rent,
but with a slight decrease in occupancy. This lease extension would have
reduced Ernst & Young's square footage from approximately 79% of the total
building to approximately 65%, effective January 1, 1995. However, Ernst &
Young and 1225 Investment Corporation agreed to extend the lease for the
additional space which had been leased by Ernst & Young on a temporary
basis and which was scheduled to expire on December 31, 1994. This
extension is coterminous with the existing long-term lease in effect (as
discussed above) and will keep Ernst & Young's occupancy at approximately
79% of the building until June, 2007. Also in 1994, 1225 Investment
Corporation leased the building's remaining unoccupied space to another
financial services company. This increased the occupancy of the building
to 100%. 1225 Investment Corporation currently expects to incur
approximately $5,500,000 of tenant improvement costs, lobby renovation and
sprinkler system costs related to the lease extension for Ernst & Young, as
well as anticipated tenant improvement costs for other tenants
(approximately $4,900,000 of such costs have been incurred at September 30,
1995). Such costs were paid in 1994 and 1995 from the approximately
$1,500,000 of working capital reserves held by the 1225 Investment
Corporation and from the net proceeds of approximately $5,300,000 from the
January 1994 refinancing of the existing mortgage loan secured by the
property. The remaining costs to be incurred in 1995 are also expected to
be funded by the loan proceeds, as discussed above, and these costs have
been included in the budget amounts described above. The existing loan had
an outstanding balance of $1,667,247 at the time of refinancing and would
have matured in March, 1998. The refinanced mortgage loan is in the amount
of $7,000,000 and requires payments of interest only, at an annual interest
rate of 6.98%, for a period of 7 years. The loan matures February 1, 2001.
In response to the uncertainty relating to the JMB/Landings Associates
joint venture's ability to recover the net carrying value of The Landings
Shopping Center investment property through future operations or sale, as
the joint venture has shortened its intended holding period for this
investment property to not later than 1999, the JMB/Landings Associates
joint venture, as a matter of prudent accounting practice and for financial
reporting purposes, has recorded a provision for value impairment at
September 30, 1995 in the amount of $3,500,000 (of which the Partnership's
share was $1,750,000). Such provision was recorded to reduce the net basis
of the investment property to its then estimated recoverable value. At The
Landing's Shopping Center, the Partnership negotiated a three-year lease
renewal with a tenant occupying approximately 9,211 square feet (10%) of
the leasable space at the property and whose prior lease expired May 31,
1995. Occupancy at the property decreased to 88% at September 30, 1995,
from 91% at June 30, 1995, primarily as a result of the vacating by a
tenant occupying approximately 2,200 square feet. However, the Partnership
has negotiated a five-year lease with a tenant which will occupy 6,167
square feet (approximately 6.5%) of the leasable space at the property.
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.
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. 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. In an effort to reduce Partnership operating expenses, the
Partnership has elected to make semiannual rather than quarterly
distributions of operating cash flow beginning in November 1995. After
reviewing the Partnership's properties and their competitive marketplace,
the General Partners of the Partnership expect to be able to liquidate
these assets as quickly as practicable. Therefore, the affairs of the
Partnership are expected to be wound up no later than 1999 (sooner if the
properties are sold in the nearer term), barring unforeseen economic
developments.<PAGE>
RESULTS OF OPERATIONS
The increase in cash and cash equivalents and the decrease in short-
term investments at September 30, 1995 as compared to December 31, 1994 is
due primarily to a portion of the Partnership's investments in U.S.
Government obligations being classified as short-term investments at
December 31, 1994 and all of the Partnership's investments in U.S.
Government obligations being classified as cash equivalents at September
30, 1995. Reference is made to Note 1.
The decrease in interest, rents and other receivables at September 30,
1995 as compared to December 31, 1994 is attributable primarily to a
decrease in interest receivable on the Partnership's short-term investments
at September 30, 1995, due to the timing of purchases of such investments.
The increase in prepaid expenses at September 30, 1995 as compared to
December 31, 1994 is due primarily to the terms of the property insurance
premiums (which cover the period June 1995 through May 1996) for the Ashby
at McLean Apartments.
The decreases in investment in unconsolidated venture at September 30,
1995 as compared to December 31, 1994 and in Partnership's share of
operations of unconsolidated venture for the three and nine months ended
September 30, 1995 as compared to the same periods in 1994 are attributable
primarily to the Partnership's share of the provision for value impairment
recorded by JMB/Landings at September 30, 1995. Reference is made to Notes
1 and 2(b).
The increase in accounts payable at September 30, 1995 as compared to
December 31, 1994 is due primarily to the timing of payments of operating
expenses at the Ashby at McLean Apartments.
The decrease in amounts due to affiliates at September 30, 1995 as
compared to December 31, 1994 is due primarily to the payment in 1995 of
certain previously unpaid 1994 reimbursable costs to affiliates of the
General Partners.
The increase in unearned rents at September 30, 1995 as compared to
December 31, 1994 is due primarily to the timing of rental collections at
the Ashby at McLean Apartments.
The increase in accrued real estate taxes at September 30, 1995 as
compared to December 31, 1994 is due primarily to the 1995 real estate tax
accrual for three months at the Ashby at McLean Apartments. Such accrual
is due to the real estate tax payments (due semiannually) in the
jurisdiction in which the property operates.
The increases in rental income 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 higher effective rents at The Ashby
due to rental increases implemented during the three months ended September
30, 1995.
The increases in interest income for the three and nine months ended
September 30, 1995 as compared to the same periods in 1994 are due
primarily to higher average balances in 1995 in the Partnership's and its
consolidated venture's short-term investments and the related increase in
interest earned.
The decrease in depreciation expense for the nine months ended
September 30, 1995, as compared to the same period in 1994 is due primarily
to the provision for value impairment of $7,572,479 which was recorded at
September 30, 1994 relating to The Ashby at McLean Apartments (Notes 1 and
2(c)).<PAGE>
Property operating expenses for the three and nine months ended
September 30, 1995 remained comparable with those for the same periods in
1994, as 1995 decreases in advertising and in real estate tax expense,
which resulted from a real estate tax refund of the prior year's tax
recognized during the three months ended September 30, 1995, at The Ashby
were substantially offset by increases in security and certain
administrative expenses in 1995.
The increases 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 3.
The provision for value impairment in the amount of $7,572,459 for the
three and nine months ended September 30, 1994 was recorded due to the
uncertainty of the CIP/Ashby Partners joint venture's ability to recover
the net carrying value of the Ashby at McLean Apartments. Reference is
made to Notes 1 and 2(c).
The decreases in the Partnership's share of earnings of unconsolidated
corporation for the three and nine months ended September 30, 1995 as
compared to the same periods in 1994 are due primarily to the 1225
Connecticut Avenue, N.W. office building's increased debt service interest
payments associated with the refinanced mortgage loan, lower net effective
rents due to Ernst & Young's lease renewals in 1993 and 1994 which extended
the terms of the lease to the year 2007, and increased depreciation expense
related to the capitalization of tenant improvements, lobby renovation and
sprinkler systems costs related to the lease extensions. Reference is made
to Note 2(d).
The changes in venture partner's share of venture's operations for the
three and nine months ended September 30, 1995 as compared to the year-ago
periods are due primarily to the venture partner's share of the provision
for value impairment recorded by CIP/Ashby at September 30, 1994 and to a
decrease in depreciation expense recorded at the Ashby at McLean Apartments
in 1995 as a result of the abovementioned value impairment.
<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. The Landings Shopping Center
Sarasota, Florida. . . . . . . . . . . . . . . 90% 87% 91% 92% 93% 91% 88%
2. The Ashby at McLean Apartments
McLean, Virginia . . . . . . . . . . . . . . . 98% 97% 97% 96% 97% 97% 98%
3. 1225 Connecticut Avenue, N.W.
Washington, D.C. . . . . . . . . . . . . . . . 95% 93% 97% 100% 100% 100% 100%
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.1 Assignment Agreement, incorporated by reference to
Exhibit B to the Partnership's Prospectus
10.1- *Material Contracts
10.10
10.11 Closing statement dated January 28, 1994 relating to
the refinancing by 1225 Investment Corporation which owns 1225 Connecticut
Avenue in Washington, D.C., are herein incorporated by reference to the
Partnership's report for March 31, 1994 on Form 10-Q (File No. 0-17705)
dated May 11, 1994.
10.12 Secured promissory note dated January 28, 1994 in the
amount of $6,500,000 relating to the refinancing by 1225 Investment
Corporation which owns 1225 Connecticut Avenue in Washington, D.C., are
herein incorporated by reference to the Partnership's report for March 31,
1994 on Form 10-Q (File No. 0-17705) dated May 11, 1994.
10.13 Secured promissory note dated January 28, 1994 in the
amount of $500,000 relating to the refinancing by 1225 Investment
Corporation which owns 1225 Connecticut Avenue in Washington, D.C., are
herein incorporated by reference to the Partnership's report for March 31,
1994 on Form 10-Q (File No. 0-17705) dated May 11, 1994.
27. Financial Data Schedule
(b) No reports on Form 8-K have been filed for the quarter covered
by this report.
- --------------------
* Previously filed as exhibits to the Partnership's Registration
Statement (as amended) on Form S-11 (File No. 33-194463) to the Securities
Act of 1933.
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 INCOME PLUS, L.P.-II
BY: JMB Realty Corporation
(Corporate General Partner)
GAILEN J. HULL
By: Gailen J. Hull, Senior Vice President
Date:November 9, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
GAILEN J. HULL
Gailen J. Hull,
Principal Accounting Officer
Date:November 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<CIK> 0000827086
<NAME> CARLYLE INCOME PLUS, L.P.-II
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,689,905
<SECURITIES> 0
<RECEIVABLES> 22,552
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,731,633
<PP&E> 21,351,931
<DEPRECIATION> 3,799,755
<TOTAL-ASSETS> 50,422,295
<CURRENT-LIABILITIES> 284,621
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 44,537,692
<TOTAL-LIABILITY-AND-EQUITY> 50,422,295
<SALES> 2,448,050
<TOTAL-REVENUES> 2,628,114
<CGS> 0
<TOTAL-COSTS> 1,631,828
<OTHER-EXPENSES> 193,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 802,910
<INCOME-TAX> 0
<INCOME-CONTINUING> (142,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,970)
<EPS-PRIMARY> (2.11)
<EPS-DILUTED> (2.11)
</TABLE>
