ITEM 1. BUSINESS
Unless otherwise indicated all references to "Notes" are to Notes to Consolidated Financial Statements contained in this report. Capitalized terms used herein, but not defined, have the same meanings as used in the Notes.
The registrant, Carlyle Real Estate Limited Partnership-XVI (the "Partnership"), is a limited partnership formed in December of 1985 and currently governed by the Revised Uniform Limited Partnership Act of the State of Illinois to invest in income-producing commercial and residential real property. On August 27, 1986, the Partnership commenced an offering to the public of $250,000,000 (subject to increase by up to $250,000,000) of Limited Partnership Interests (and assignee interests therein) ("Interests") pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933 (No. 33-3567). A total of 140,342.82534 Interests were sold to the public at $1,000 per Interest. The offering closed on December 31, 1987. Subsequent to admittance to the Partnership, no holder of Interests (hereinafter, a "Holder" or "Holder of Interests") has made any additional capital contribution. The Holders of Interests of the Partnership share in their portion of the benefits of ownership of the Partnership's real property investments according to the number of Interests held.
The Partnership is engaged solely in the business of the acquisition, operation and sale and disposition of equity real estate investments. Such equity investments are held by fee title, leasehold estates and/or joint venture partnership interests. The Partnership's real property investments are located throughout the nation, and it has no real estate investments located outside of the United States. A presentation of information about industry segments, geographic regions, raw materials or seasonality is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. Pursuant to the Partnership Agreement, the Partnership is required to terminate no later than December 31, 2036. The Partnership is self-liquidating in nature. At sale of a particular property, the net proceeds, if any, are generally distributed or reinvested in existing properties rather than invested in acquiring additional properties. As discussed further in Item 7, the Partnership currently expects to conduct an orderly liquidation of its remaining investment portfolio as quickly as practicable and to wind up its affairs not later than December 31, 1999, barring any unforeseen economic developments.
The Partnership has made the real property investments set forth in the following table:
The Partnership's real property investments are subject to competition from similar types of properties (including, in certain areas, properties owned by affiliates of the General Partners) in the respective vicinities in which they are located. Such competition is generally for the retention of existing tenants. Additionally, the Partnership is in competition for new tenants in markets where significant vacancies are present. Reference is made to Item 7 below for a discussion of competitive conditions of the Partnership and certain of its significant investment properties. Approximate occupancy levels for the properties are set forth in the table in Item 2
ITEM 2. PROPERTIES
The Partnership owns or owned through joint venture partnerships the interests in the properties referred to under Item 1 above to which reference is hereby made for a description of said properties.
The following is a listing of principal businesses or occupations carried on in and approximate occupancy levels by quarter during fiscal years 1996 and 1995 for the Partnership's investment properties owned during 1996:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not subject to any material pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during fiscal years 1995 and 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1996, there were 15,671 record Holders of the 140,339.10268 Interests outstanding in the Partnership. There is no public market for Interests and it is not anticipated that a public market for Interests will develop. Upon request, the Corporate General Partner may provide information relating to a prospective transfer of Interests to an investor desiring to transfer his Interests. The price to be paid for the Interests, as well as any other economic aspects of the transaction, will be subject to negotiation by the investor. There are certain conditions and restrictions on the transfer of Interests, including, among other things, the requirement that the substitution of a transferee of Interests as a Limited Partner of the Partnership be subject to the written consent of the Corporate General Partner, which may be granted or withheld in its sole and absolute discretion. The rights of a transferee of Interests who does not become a substituted Limited Partner will be limited to the rights to receive his share of profits or losses and cash distributions from the Partnership, and such transferee will not be entitled to vote such Interests or have other rights of a Limited Partner. No transfer will be effective until the first day of the next succeeding calendar quarter after the requisite transfer form satisfactory to the Corporate General Partner has been received by the Corporate General Partner. The transferee consequently will not be entitled to receive any cash distributions or any allocable share of profits or losses for tax purposes until such next succeeding calendar quarter. Profits or losses from operations of the Partnership for a calendar year in which a transfer occurs will be allocated between the transferor and the transferee based upon the number of quarterly periods in which each was recognized as the Holder of the Interests, without regard to the results of the Partnership's operations during particular quarterly periods and without regard to whether cash distributions were made to the transferor or transferee. Profits or losses arising from the sale or other disposition of Partnership properties will be allocated to the recognized Holder of the Interests as of the last day of the quarter in which the Partnership recognized such profits or losses. Cash distributions to a Holder of Interests arising from the sale or other disposition of Partnership properties will be distributed to the recognized Holder of the Interests as of the last day of the quarterly period with respect to which such distribution is made.
Reference is made to Item 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As a result of the public offering of Interests as described in Item 1, the Partnership had approximately $120,541,000 after deducting selling expenses and other offering costs with which to make investments in income-producing commercial and residential real property, to pay legal fees and other costs (including acquisition fees) related to such invest- ments and for working capital reserves. A portion of the proceeds was utilized to acquire the properties described in Item 1 above.
During the second quarter of 1996 some of the Holders of Interests in the Partnership received from an unaffiliated third party an unsolicited offer to purchase up to 12,150 Interests in the Partnership at between $80 and $100 per Interest. The Partnership recommended against acceptance of this offer on the basis that, among other things, the offer price was inadequate. In June, such offer expired. As of the date of this report, the Partnership is aware that 2,392 Interests have been purchased by such unaffiliated third party either pursuant to such tender offers or through negotiated purchases. The Partnership has recently received a request from another unaffiliated third party for the list of Holders of Interests. It is possible that other offers for Interests may be made by unaffiliated third parties in the future, although there is no assurance that any third party will commence an offer for Interests, the terms of any such offer or whether any such offer, if made, will be consummated, amended or withdrawn.
The board of directors of JMB Realty Corporation ("JMB"), the corporate general partner of the Partnership, has established a special committee (the "Special Committee") consisting of certain directors of JMB to deal with all matters relating to tender offers for Interests in the Partnership, including any and all responses to such tender offers. The Special Committee has retained independent counsel to advise it in connection with any potential tender offers for Interests and has retained Lehman Brothers Inc. as financial advisor to assist the Special Committee in evaluating and responding to any additional potential tender offers for Interests.
At December 31, 1996, the Partnership and its consolidated venture had cash and cash equivalents of approximately $14,791,000. Such cash and cash equivalents are available for distributions to partners, capital improvements and working capital requirements, including the Partnership's share of the costs for a possible expansion of the mall and restructuring of the ground lease and loan at Palm Desert Town Center. Anticipated operating deficits at the 260 Franklin Street office building are expected to be funded out of the unconsolidated joint venture's restricted reserve account (with a balance of approximately $2,429,000 at December 31, 1996). The Partnership and its consolidated venture have currently budgeted in 1997 approximately $489,000 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 $645,000 inclusive of 260 Franklin. Actual amounts expended in 1997 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 net cash generated by the investment properties, escrowed funds for 260 Franklin, the Partnership's working capital reserve and from the sale and refinancing of such properties. The Partnership's investment in 260 Franklin is not expected to be a source of future liquidity. In such regard, reference is made to the Partnership's property specific discussions below and also to the Partnership's disclosure of certain property lease expirations in Item 6.
The Partnership's and its ventures' mortgage obligations are separate non-recourse loans secured individually by the investment properties and are not obligations of the entire investment portfolio, and the Partnership and its ventures are not personally liable for the payment of the mortgage indebtedness. For any particular investment property that is incurring deficits, or for which the mortgage indebtedness has matured or will mature in the near future the Partnership or its ventures may seek a modification of the mortgage 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 taxable income to the Partnership with no corresponding distributable proceeds.
DUNWOODY CROSSING APARTMENTS
On May 7, 1996, the joint venture through which the Partnership owned an interest in the Dunwoody Crossing Apartments sold the property to the unaffiliated venture partner for $47,000,000. The Partnership made a distribution of $30.00 per Interest from the net sale proceeds of this sale in August 1996. Reference is made to the Notes for a further description of such sale. The General Partners have elected to waive their right to receive their distributive share of up to 3% of the sale price of the Dunwoody Crossing Apartments as discussed further in the Notes.
JMB/125
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 generally was to 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, was consummated, and the bankruptcy was concluded. In October 1995, the makers of the $5 million promissory note payable to JMB/125 filed for protection from creditors under Chapter 11 of the Bankruptcy Code. Pursuant to the bankruptcy reorganization of the makers of the note, JMB/125, as an unsecured creditor, received limited partnership interests and a convertible note interest in a reorganized entity that has majority or controlling interests in six office buildings in New York, New York and Boston, Massachusetts. The assigned value, as of the bankruptcy confirmation date, of the interests and note received by JMB/125 was approximately $400,000. The convertible note was fully reserved due to the uncertainty of the realizable value of the note.
260 FRANKLIN
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 re-leasing have been substantially below the rates which were received under the previous leases for the same space. The property is currently expected to operate at a deficit for 1997 and for several years thereafter. In December 1991, 260 Franklin, the affiliated joint venture, reached an agreement with the lender to modify the long-term mortgage note secured by the 260 Franklin Street Building. The loan modification required that the affiliated joint venture establish an escrow account for excess cash flow from the property's operations (computed without a deduction for property management fees and leasing commissions) to be used to cover the cost of capital and tenant improvements and lease inducements, 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, which is more fully described in the Notes, and accordingly, such fees and commissions remained unpaid. In addition, as the long-term mortgage loan in the original principal amount of approximately $75,000,000 plus accrued and deferred interest, matured January 1, 1996, 260 Franklin as of such date began submitting the net operating cash flow of the property to the lender while seeking an extension or refinancing of the loan. 260 Franklin also began investigating market conditions to determine whether conditions were favorable for selling the property. However, it was determined that conditions were not favorable and the property continues to be held as investment property. The joint venture reached an agreement with the lender for an extension of the mortgage loan through January 1, 1997. In addition to substantially the same terms as were in effect prior to such extension, the agreement requires that the property submit net operating cash flow of the property to the lender. The joint venture is currently seeking a further extension of the mortgage loan through January 1, 1998. However, there can be no assurance that the joint venture will be able to obtain a further extension of the loan. If 260 Franklin is unable to extend the mortgage loan to the property, the Partnership may decide not to commit any significant additional funds. This may result in 260 Franklin and the Partnership no longer having an ownership interest in the property.
In such event, 260 Franklin and the Partnership would recognize a net gain for financial reporting and Federal income tax purposes with no distributable proceeds.
JMB/OWINGS
In June 1993, JMB/Owings sold its interest in the Owings Mills Shopping Center for $9,416,000 represented by a purchase price note which 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. Payments are current on the purchase price note as of the date of this report. Reference is made to the Notes.
NEWPARK
As a result of the acquisition by Federated Department Stores ("Federated") of the company which owns the Emporium Capwell store at NewPark Mall, Federated, which also owns Macy's store at NewPark, approached the NewPark joint venture regarding a sale of the Emporium Capwell building. Simultaneously with its negotiations to acquire the Emporium Capwell building, the NewPark joint venture is negotiating to sell the building to a national retail store owner. The NewPark joint venture expects to receive net proceeds from the transactions if they are closed as currently contemplated. However, there is no assurance that the transactions will be closed or, if so, will be on the terms currently contemplated.
PALM DESERT TOWN CENTER
The Partnership received (through a joint venture with an affiliate) its specified cash return relating to Palm Desert Town Center, which was being funded in part by the unaffiliated venture partner through December 31, 1994 pursuant to the terms of the applicable joint venture agreement. Since the unaffiliated venture partner's funding obligation expired at the end of 1994, the Partnership's share of cash is dependent upon the operations of the property. Occupancy at the portion of the shopping center in which the Partnership owns an interest increased to 95% at December 31, 1996 from 93% at December 31, 1995. Sales at the center have been negatively impacted during the last several quarters by new competition in the center's trade area. The increased competition has resulted in lower effective rents upon re-leasing of space. The center will continue to be subject to increased competition from new developments that are expected to be opening in the vicinity in the near future. In addition, the property's operations have been affected by tenant bankruptcies during the past year. The property is operating at an approximately break-even level.
The joint venture continues to consider a possible expansion of the mall and restructuring of the ground lease and loan. In the event that the joint venture decides to proceed, the Partnership expects that it would utilize a portion of its available funds to pay for its share of costs.
GENERAL
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.
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. In an effort to reduce partnership operating expenses, the Partnership elected to make semi-annual rather than quarterly distributions of available operating cash flow commencing with the 1996 distributions. The Partnership, through a joint venture, also is seeking an additional loan modification or extension for the 260 Franklin Office Building. By conserving working capital, the Partnership will be in a better position to meet the future needs of its properties since the availability of satisfactory outside sources of capital may be limited given the portfolio's current debt levels, among other factors.
Due to the real estate market conditions experienced over the past several years, the Partnership has held its remaining investment properties longer than originally anticipated in an effort to maximize the return of their investment to the Holders of Interests. However, after reviewing the remaining properties and the marketplaces in which they operate, the General Partners of the Partnership expect to be able to conduct an orderly liquidation of its remaining investment portfolio as quickly as practicable. As a result, the affairs of the Partnership are expected to be wound up no later than December 31, 1999 (sooner if the properties are sold in the near term), barring unforeseen economic developments.
The Partnership's goal of capital appreciation will not be achieved. Although the Partnership expects to distribute sale proceeds from the disposition of the Partnership's remaining investments in Palm Desert Town Center and NewPark Mall, aggregate distributions of sale and refinancing proceeds received by Holders of Interests over the entire term of the Partnership are expected to be significantly less than one-half of their original investment. However, in connection with sales or other dispositions (including transfers of title to a lender) of properties (or
interests therein) owned by the Partnership or its joint ventures, the Holders of Interests may be allocated substantial gain for Federal income tax purposes regardless of whether any proceeds are distributable from such sales or other dispositions.
RESULTS OF OPERATIONS
The decrease in interest, rents and other receivables at December 31, 1996 as compared to December 31, 1995 is primarily due to an increase in the allowance for doubtful accounts as a result of tenant bankruptcies at Palm Desert Town Center.
The decrease in investment in unconsolidated ventures, at equity at December 31, 1996 as compared to December 31, 1995 is primarily due to the distribution of approximately $4,900,000 of sales proceeds to the Partnership from the May 1996 sale of the Dunwoody Crossing Apartments, partially offset by the recognition of gain on the sale of the Dunwoody Crossing Apartments.
The increase in accrued rents receivable at December 31, 1996 as compared to December 31, 1995 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 on a straight-line basis rather than as due per the terms of their respective leases.
The increase in accounts payable at December 31, 1996 as compared to December 31, 1995 is primarily due to the timing of certain annual recurring professional services of the Partnership and an accrual of certain employee benefits associated with employees at Palm Desert Town Center.
The unearned rents at December 31, 1996 as compared to December 31, 1995 is due to the prepayment of rents at Palm Desert Town Center.
The increased deficit in investment in unconsolidated ventures, at equity, at December 31, 1996 as compared to December 31, 1995 and the increase in Partnership's share of loss from operations of unconsolidated ventures for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the Partnership's share ($3,343,634) of 260 Franklin's provision for value impairment recorded at January 1, 1996 at the 260 Franklin venture. With respect to the increase in Partnership's share of loss from operations of unconsolidated ventures, the increase is also due to the Partnership's share ($430,000) of NewPark Mall's provision for value impairment recorded at June 30, 1996 at the NewPark joint venture.
The increase in amortization of deferred expenses for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to additional deferred leasing commissions paid for new tenants at Palm Desert Town Center and the write-off of leasing commissions due to tenants vacating the mall.
The decrease in management fees to corporate general partner for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is due to the fact that the Partnership's distributions in 1996 were predominately from sales proceeds whereas the distributions in 1995 were predominately from operations, a portion of which was in the form of a management fee.
The decrease in general and administrative expenses for the year ended December 31, 1996 as compared to the year ended December 31, 1995 and the increase for the year ended December 31, 1995 as compared to the year ended December 31, 1994 is attributable primarily to an increase in 1995 of reimbursable costs to affiliates of the General Partners and the recognition in 1995 of certain additional prior year reimbursable costs to such affiliates.
The decrease in venture partners' share of venture operations for the year ended December 31, 1996 as compared to the year ended December 31, 1995 and the year ended December 31, 1995 as compared to the year ended December 31, 1994 is primarily due to the change in the allocation of the losses under the venture agreement for Palm Desert. This is a result of the venture partners satisfying its obligations to contribute to the venture for operating deficits, and the Partnership's and the affiliated partner's preferred returns in the fourth quarter of 1995.
The increase in gain on sale of Partnership's investment in unconsolidated venture for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is due primarily to the recognition of gain on sale of the Partnership's interest in Dunwoody Crossing Apartments.
The gain on sale of Partnership's investment in unconsolidated venture for the year ended December 31, 1995 is due to the recognition of gain on sale of JMB/Owing's interest in Owings Mills. The gain on sale or disposition of Partnership's investment in unconsolidated venture for the year ended December 31, 1994 is due to the assignment of the Partnership's interest in the 125 Broad Street building. Reference is made to the Notes.
The extraordinary item reported for the year ended December 31, 1996 represents the Partnership's share of pre-payment penalties and unamortized deferred loan fees resulting from the extinguishment of debt related to the 1996 sale of Dunwoody Crossing Apartments.
INFLATION
Due to the decrease in the level of inflation in recent years, inflation generally has not had a material effect on rental income or property operating expenses.
Inflation is not expected to significantly impact future operations due to the expected liquidation of the Partnership by 1999. However, to the extent that inflation in future periods would have an adverse impact on property operating expenses, the effect would generally be offset by amounts recovered from tenants as many of the long-term leases at the Partnership's commercial properties have escalation clauses covering increases in the cost of operating and maintaining the properties as well as real estate taxes. Therefore, the effect on operating earnings generally will depend upon whether the properties are substantially occupied. In addition, substantially all of the leases at the Partner- ship's shopping center investments contain provisions which entitle the property owner to participate in gross receipts of tenants above fixed minimum amounts.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURE
INDEX
Independent Auditors' Report Consolidated Balance Sheets, December 31, 1996 and 1995 Consolidated Statements of Operations, Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Partners' Capital Accounts (Deficits), Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements
SCHEDULE --------
Consolidated Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . III
Schedules not filed:
All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
260 FRANKLIN STREET ASSOCIATES
AN UNCONSOLIDATED VENTURE OF CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
INDEX
Independent Auditors' Report Balance Sheets, December 31, 1996 and 1995 Statements of Operations, Years ended December 31, 1996, 1995 and 1994 Statements of Partners' Capital Accounts (Deficits), Years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements
SCHEDULE --------
Real Estate and Accumulated Depreciation . . . . III
Schedules not filed:
All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the combined financial statements or related notes.
INDEPENDENT AUDITORS' REPORT
The Partners CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI:
We have audited the consolidated financial statements of Carlyle Real Estate Limited Partnership - XVI (a limited partnership) and Consolidated Venture as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Carlyle Real Estate Limited Partnership - XVI and Consolidated Venture at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in the Notes to the consolidated financial statements, in 1996, the Partnership and its consolidated venture changed their method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois March 21, 1997
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
OPERATIONS AND BASIS OF ACCOUNTING
GENERAL
The Partnership holds (through joint ventures) an equity investment portfolio of United States real estate. Business activities consist of rentals to a wide variety of commercial and retail companies, and the ultimate sale or disposition of such real estate. The Partnership currently expects to conduct an orderly liquidation of its remaining investment portfolio and wind up its affairs not later than December 31, 1999.
The accompanying consolidated financial statements include the accounts of the Partnership and its majority-owned consolidated venture, JMB/Hahn PDTC Associates, L.P. ("Palm Desert"). The effect of all transactions between the Partnership and its 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/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. In November 1994, the Partnership through its indirect ownership of JMB/125 assigned its interest in the 125 Broad Street Building. The Partnership through Villages Northeast Associates, sold its interest in Dunwoody Crossing Apartments in May 1996.
The Partnership records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying 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 venture as described above. Such GAAP and consolidation adjustments are not recorded on the records of the Partnership. The net effect of these items for the years ended December 31, 1996 and 1995 is summarized as follows:
The net earnings (loss) per limited partnership interest is based upon the number of limited partnership interests outstanding at the end of the period. Deficit capital accounts will result, through the duration of the Partnership, in net gain for financial reporting and income tax purposes.
The preparation of financial statements in accordance with GAAP requires the Partnership to make estimates and assumptions that affect the reported or disclosed amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 ($13,477,600 at December 31, 1996 and $13,734,000 at December 31, 1995) as cash equivalents, which includes investments in an institutional mutual fund which holds U.S. Government obligations, with any remaining amounts (generally with original maturities of one year or less) reflected as short-term investments being held to maturity.
Deferred expenses are comprised of loan fees which are amortized over the term of the related loan and lease commissions which are amortized over the terms of the related leases using the straight-line method.
Although certain leases of the Partnership provide for tenant occupancy during periods for which no rent is due and/or increases in minimum lease payments over the term of the lease, the Partnership accrues prorated rental income for the full period of occupancy on a straight-line basis.
Certain amounts in the 1995 and 1994 consolidated financial statements have been reclassified to conform to the 1996 presentation.
No provision for State or Federal income taxes has been made as the liability for such taxes is that of the partners rather than the Partnership. However, in certain instances, the Partnership has been or may be required under applicable law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners.
The Partnership acquired, through joint ventures, interests in three contiguous apartment complexes, three office buildings and three shopping centers. One office building and one shopping center had been sold prior to January 1, 1994. During 1994, the Partnership, through its indirect ownership of JMB/125, assigned its interest in the 125 Broad Street Building. During 1996, the Partnership, through the Villages Northeast joint venture, sold its interest in the Dunwoody Crossing Apartments. All of the properties owned at December 31, 1996 were in operation. The cost of the investment properties represents the total cost to the Partnership or its ventures plus miscellaneous acquisition costs.
Depreciation on the consolidated investment property has been provided over the estimated useful lives of 5 to 40 years using the straight-line method.
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated over their estimated useful lives.
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 in March 1995. The Partnership adopted SFAS 121 as required in the first quarter of 1996. SFAS 121 requires that the Partnership record an impairment loss on its properties to be held for investment whenever their carrying value cannot be fully recovered through estimated undiscounted future cash flows from their operations and sale. The amount of the impairment loss to be recognized would be the difference between the property's carrying value and the property's estimated fair value. The Partnership's policy is to consider a property to be held for sale or disposition when the Partnership has committed to a plan to sell or dispose of such property and active marketing activity has commenced or is expected to commence in the near term or the Partnership has concluded that it may dispose of the property by no longer funding operating deficits or debt service requirements of the property thus allowing the lender to realize upon its security. In accordance with SFAS 121, any properties identified as "held for sale or disposition" are no longer depreciated. Adjustments for impairment loss for such properties (subsequent to the date of adoption of SFAS 121) are made in each period as necessary to report these properties at the lower of carrying value or fair value less costs to sell. In certain situations, such estimated fair value could be less than the existing non-recourse debt which is secured by the property. There can be no assurance that any estimated fair value of these properties would ultimately be realized by the Partnership in any future sale or disposition transaction.
Under the prior accounting policy, provisions for value impairment were recorded with respect to investment properties whenever the estimated future cash flows from a property's operations and projected sale were less than the property's carrying value. The amount of any such impairment loss recognized by the Partnership was 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 is determined without regard to the nature or the balance of such non-recourse indebtedness. Upon the disposition of a property with the related extinguishment of the long-term debt 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 (comprised of gain on extinguishment of debt and gain or loss on the sale or disposition of property) 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.
In addition, upon the disposition of any impaired property, the Partnership will generally recognize more net gain for financial reporting purposes under SFAS 121 than it would have under the Partnership's prior 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 accounting statement could significantly impact the Partnership's reported earnings, there would be no impact on cash flows. Further, any such impairment loss is not recognized for Federal income tax purposes.
The accompanying consolidated financial statements include $348,710, $725,814 and ($6,811,116), respectively, of the Partnership's share of total property operations of $810,873, $1,403,830 and $(7,238,685) of unconsolidated properties sold or disposed of in the past three years.
The investment properties are pledged as security for the long-term debt, for which generally there is no recourse to the Partnership.
VENTURE AGREEMENTS - GENERAL
The Partnership entered into 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 (Palm Desert) with Carlyle Real Estate Limited Partnership-XVII ("Carlyle-XVII").
Carlyle-XV and Carlyle-XVII are each sponsored by the Corporate General Partner. The terms of these 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. Pursuant to such agreements, the Partnership made capital contributions aggregating $137,944,640 through December 31, 1996.
Certain of these affiliated partnerships have entered into joint venture agreements with unaffiliated joint venture partners. In general, the unaffiliated joint venture partners, who are either the sellers (or their affiliates) of the property investments acquired or parties which have contributed an interest in the property developed, or were subsequently admitted to the ventures, made no cash contributions to the ventures, but their retention of an interest in the property, through the joint venture, is taken into account in determining the purchase price of the Partnership's interest, which was determined by arm's-length negotiations. Under certain circumstances, either pursuant to the venture agreements or due to the Partnership's obligations as general partner, the Partnership may be required to make additional cash contributions to the ventures.
The Partnership acquired, through the above ventures, three apartment complexes, three office buildings and three shopping centers. In 1993, the Partnership through JMB/Owings sold its interest in Owings Mills Mall 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. During 1996, the Partnership, through the Villages Northeast joint venture, sold its interest in the Dunwoody Crossing Apartments. Certain of the ventures' properties have been financed under various long-term debt arrangements as described in the Notes and in the Notes to Financial Statements of 260 Franklin Street Associates filed with this report.
There are certain risks associated with 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.
INVESTMENT PROPERTIES
JMB/125
In December 1985, the Partnership, through the JMB/125 joint venture partnership, acquired an interest in an existing joint venture partnership ("125 Broad") which owned 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").
In November 1994, the Partnership through its indirect ownership of JMB/125 assigned its interest in the 125 Broad Street Building to the venture partners as described below.
JMB/125 was a joint venture between Carlyle-XVI Associates, L.P. (in which the Partnership held a 99% limited partnership interest), Carlyle-XV Associates, L.P. and Carlyle Advisors, Inc. The Partnership held, 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. The terms of the JMB/125 venture agreement generally provide 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.
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. The first mortgage loan (in the principal amount of $277,410,516) 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 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 had been 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 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.
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 JMB/125's assignment of its interest in 125 Broad, 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 assignment, the arrearage under the mortgage loan had increased to approximately $69,447,000. 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 rent offset by J&H, $14,900,000, $19,300,000 and $9,300,000 in 1994, 1993 and 1992, respectively, 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 $2,875,000, $3,725,000 and $8,106,000 for the years ended December 31, 1994, 1993 and 1992, respectively, and was included in the Partnership's share of loss from operations of unconsolidated venture.
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 under certain circumstances. As of December 31, 1994, the note had been fully reserved for by JMB/125. 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 debt and other claims. In January 1995, the plan for reorganization was approved by the bankruptcy court, 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 was $20,162,696 and $17,786,455 for financial reporting and Federal income tax purposes, respectively. In October 1995, the makers of the $5 million promissory note payable to JMB/125 filed for protection from creditors under Chapter 11 of the Bankruptcy Code. Pursuant to the bankruptcy reorganization of the makers of the note, JMB/125, as an unsecured creditor, received limited partnership interests and a convertible note interest in a reorganized entity that has majority or controlling interests in six office buildings in New York, New York and Boston, Massachusetts. The assigned value, as of the bankruptcy confirmation date, of the interests and note received by JMB/125 was approximately $400,000. The convertible note was fully reserved due to the uncertainty of the realizable value of the note.
JMB/OWINGS
In December 1985, the Partnership, through the JMB/Owings joint venture partnership, acquired an interest in an existing joint venture partnership ("Owings Mills") which owns an interest in an enclosed regional shopping center. JMB/Owings's original cash investment was $7,000,000, of which the Partnership's share was $3,500,000. On June 30, 1993, JMB/Owings sold its interest in Owings Mills Shopping Center as described below.
JMB/Owings sold its partnership interest in Owings Mills to an affiliate of the Partnership's unaffiliated joint venture partners. The sale price of the interest 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 the unaffiliated joint venture partner) bears interest at a rate of 7% per annum subject to 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 including the sale or further encumbrance of Owings Mills Mall.
The net cash proceeds and gain from sale of the interest was 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 was $2,627,427, attributable to JMB/Owings being relieved of its obligations under the Owings Mills partnership agreement pursuant to the terms of the sale agreement. JMB/Owings adopted the cost recovery method until such time as the purchaser's initial investment was sufficient in order to recognize additional 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 and distributed through December 31, 1994 was $10,305,310 of which the Partnership's share was $5,152,655. As JMB/Owings collected a sufficient amount of the purchaser's initial investment, at March 31, 1995, the joint venture adopted the installment method for the recognition of the remaining deferred gain. JMB/Owings recognized $870,121 and $1,713,501 of deferred gain and $527,237 and $1,501,936 of interest income for the years ended December 31, 1996 and 1995, respectively, of which the Partnership's share of deferred gain was $435,060 and $856,750 and the Partnership's share of interest income was $263,619 and $750,968, respectively.
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.
An affiliate of the General Partner managed the property until December 1994 for a fee computed at 3% of the property's gross receipts. Beginning January 1, 1992, 260 Franklin Street was escrowing the payment of property management fees and leasing commissions to the affiliate pursuant to the terms of the debt modification described below. 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. The property is currently managed by the purchaser of the affiliate's assets on the same terms provided in the property management agreement, with the payment of the management fees guaranteed by JMB in 1995. Beginning in January 1996, the unaffiliated property manager was paid management fees by the property. Reference is made to the Notes to the Financial Statements of 260 Franklin Street Associates.
The long-term mortgage loan in the original principal amount of approximately $75,000,000 plus accrued and deferred interest matured January 1, 1996. 260 Franklin, as of such date, began submitting the net operating cash flow of the property to the lender while seeking an extension or refinancing of the loan. Concurrent with such lender negotiations, 260 Franklin also began investigating market conditions to determine whether conditions were favorable for selling the property. However, it was determined that conditions were not favorable and the property continues to be held as investment property. The joint venture reached an agreement with the lender for an extension of the mortgage loan through January 1, 1997. In addition to substantially the same terms as were in effect prior to such extension, the agreement requires that the property submit net operating cash flow of the property to the lender. The joint venture is currently seeking a further extension of the mortgage loan through January 1, 1998. However, there can be no assurance that the joint venture will be able to obtain a further extension of the loan. If 260 Franklin is unable to extend the mortgage loan to the property, the Partnership may decide not to commit any significant additional funds. This may result in 260 Franklin and the Partnership no longer having an ownership interest in the property. This would result in 260 Franklin and the Partnership recognizing a gain for financial reporting and Federal income tax purposes with no distributable proceeds.
The office market in the Financial District of Boston remains competitive due to the new office building developments and lay-offs, cutbacks and consolidations by financial service companies. The effective rental rates achieved upon re-leasing have been substantially below the rates which were received under the previous leases for the same space. Therefore, 260 Franklin recorded a provision for value impairment of $11,145,446 as of January 1, 1996, of which the Partnership's share is $3,343,634, to reflect the then estimated fair value of the property based upon the use of an appropriate capitalization rate applied to the property's net operating income.
The long-term mortgage note secured by the 260 Franklin Street Building, as modified in December 1991, provided for monthly payments of interest only based upon the then outstanding balance at a rate of 8% per annum. Upon maturity, 260 Franklin was obligated to pay an amount sufficient to provide the lender with an 11% per annum yield on the mortgage note from January 1, 1991. In addition, upon maturity, 260 Franklin was 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. 260 Franklin has been required to (i) escrow excess cash flow from operations (computed without a deduction for property management fees and leasing commissions), 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 ($2,428,695 at December 31, 1996 including accrued interest) was to be used to cover the cost of capital and tenant improvements and lease inducements (approximately $3,551,000 used as of December 31, 1996) 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.
VILLAGES NORTHEAST
The property was classified as held for sale or disposition as of January 1, 1996, and therefore, had not been subject to continued depreciation prior to its sale in May 1996.
In September 1986, the Partnership, through the Villages Northeast joint venture partnership, acquired through a joint venture ("Post Associates") with an affiliate of the developer, an interest in three apartment complexes known as the Dunwoody Crossing (Phase I, II and III) Apartments, respectively, located near Atlanta, Georgia.
Villages Northeast acquired its interest in the apartment complexes from an affiliate of the developer subject to an existing first mortgage loan secured by the Dunwoody Crossing (Phase II).
As contemplated at the time of acquisition, in September 1987 an additional mortgage loan was obtained in the amount of $21,000,000 and was secured by the Dunwoody (Phase I and III) Apartments. After such financing, Villages Northeast's cash investment was approximately $15,398,000, of which the Partnership's share was approximately $4,619,000.
The Phase I and III note bore interest at a rate of 9.75% and required monthly debt service payments of $180,425 representing principal and interest until October 1, 1994, when the entire outstanding balance of principal of $20,692,324 and any unpaid interest was due. Villages Northeast 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 required 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 was payable. The Dunwoody (Phase II) Apartments secured a $9,800,000 first mortgage loan, which bore interest of 7.64% per annum, required monthly payments of principal and interest of $73,316 through November 1, 1997, when the remaining balance was payable.
Villages Northeast was entitled to a cumulative preferred return of annual net cash receipts (as defined) from the properties. Villages Northeast received cash distributions from property operations through May 7, 1996. After Villages Northeast received its preferential return, the unaffiliated venture partner was entitled to a non-cumulative return on its interest in the venture; additional net cash receipts were shared in a ratio relating to the ownership interests of Villages Northeast (90%) and its unaffiliated venture partner (10%). Villages Northeast also had preferred positions (related to Villages Northeast's investment in Post Associates) with respect to distribution of net sale or refinancing proceeds from Post Associates. Operating profits and losses, in general, were allocable 90% to Villages Northeast and 10% to the unaffiliated venture partner, except that certain expenses paid for out of Villages Northeast's cash payments were to be allocated solely to Villages Northeast and certain costs of operations paid for out of capital contributions, if any, of the unaffiliated venture partner were allocable solely to it.
An affiliate of the unaffiliated venture partner entered into an agreement to manage the complexes through December 31, 2002 (subject to earlier termination by either party upon 60 days' prior written notice) for a fee equal to 5% of the gross revenues of the complexes. In August 1993, an affiliate of the General Partners assumed management of the property until December 1994 for a fee equal to 5% of the gross revenues of the complexes. 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. The property was being managed by the purchaser of the affiliate's assets on the same terms.
On May 7, 1996, the Partnership sold (through the Villages Northeast venture) the Dunwoody apartment complex to the unaffiliated venture partner, pursuant to such venture partner's right of first refusal, for $47,000,000 less brokerage commissions, transfer taxes and legal fees of approximately $470,000. Approximately $30,900,000 of the sales proceeds were utilized to retire the mortgage debt including a prepayment penalty of approximately $435,000 (of which the Partnership's share of approximately $130,500 was included as an extraordinary item in the Partnership's 1996 consolidated financial statements). Additionally, approximately $787,000 (of which the Partnership's share was approximately $236,000) was paid to the State of Georgia on behalf of the Holders of Interests for withholding tax related to the sale. As a result of the sale, the Partnership recognized a gain of approximately $4,300,000 for financial reporting purposes and a gain of approximately $8,600,000 for Federal income tax purposes in 1996. The Partnership made a distribution of $30 per Interest from the net sales proceeds of this sale in August 1996.
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 invested $32,500,000 for its 50% interest in NewPark Associates. In December 1995, the developer transferred its interest in NewPark Associates to a new venturer which is affiliated with the developer.
The NewPark Mall secured a mortgage note payable in the principal amount of $50,620,219 that was originally 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 were due in monthly payments of $416,351 with a final balloon payment due November 1, 1995. In October 1995, JMB/NewPark was granted a loan extension until December 15, 1995. Interest on the note payable accrued at 8.75% per annum. On December 21, 1995, NewPark Associates obtained a new mortgage loan with an institutional lender. The new mortgage loan in the principal amount of $60,000,000 is due on December 31, 2000. The loan provides for monthly interest-only payments of $357,500. Interest on the non-recourse loan accrues at 7.15% per annum.
A portion of the proceeds from the note payable was used to pay the outstanding balance, including accrued interest, under the previous mortgage note payable. The Partnership's share of net refinancing proceeds (after payment of the previous mortgage note payable and costs and fees relating to the refinancing) was $535,000.
The NewPark Associates partnership agreement provides that JMB/NewPark and the joint venture partner are each entitled to receive 50% of profits and losses, net cash flow and net sale or refinancing proceeds of NewPark Associates and are each obligated to advance 50% of any additional funds required under the terms of the NewPark Associates partnership agreement. In December 1995, the joint venture partner sold and assigned its interest in NewPark Associates to a third party, who was admitted as the new venture partner.
As a result of the acquisition by Federated Department Stores ("Federated") of the company which owns the Emporium Capwell store at NewPark Mall, Federated, which also owns the Macy's store at NewPark, approached the NewPark joint venture regarding a sale of the Emporium Capwell building. Simultaneously with its negotiations to acquire the Emporium Capwell building, the NewPark joint venture is negotiating to sell the building to a national retail store owner. The NewPark joint venture expects to receive net proceeds from the transactions if they are closed as currently contemplated. However, there is no assurance that the transactions will be closed or, if so, will be on the terms currently contemplated.
In response to uncertainty concerning the NewPark joint venture's ability to recover the net carrying value of the NewPark Mall investment property through future operations or sale and since the NewPark joint venture has shortened its intended holding period for this investment to not later than 1999, the NewPark joint venture, in accordance with SFAS 121, recorded a provision for value impairment at June 30, 1996 in the amount of $8,600,000 of which the Partnership's share is $430,000. Such provision was recorded to reduce the venture's carrying value of the investment property to the then estimated fair market value of the property based upon an analysis of discounted estimated future cash flows over the projected holding period.
The portion of the shopping center owned by NewPark Associates was managed by the former joint venture partner under a long-term agreement pursuant to which it was obligated to manage the property and collect all receipts from operations of the property. In December 1995, the former joint venture partner assigned its interest in the management agreement to the new venture partner. The manager is paid a management fee equal to 4% of the fixed and percentage rent. An amendment to the management agreement provides that the new manager will pay to an affiliate of the General Partner of the Partnership an annual consulting fee in the amount of $100,000 in consideration for assisting NewPark Associates and the new venture partner in the evaluation of property budgets, and leasing and long-term strategies for NewPark Mall. Such consulting fee is paid out of the management fee noted above.
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.
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 and Carlyle-XVII's initial aggregate contribution was 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 contributions to Palm Desert to pay 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 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 as described below. Amounts required to pay the cost of tenant improvements and allowances (the "Tenant Improvement Costs") and other capital expenditures, as well as any operating deficits of Palm Desert after December 1994, have been and are expected to be contributed to Palm Desert 25% by the joint venture partner and 75% by the Partnership and Carlyle-XVII in the aggregate.
The terms of the Palm Desert venture agreement provide that the Partnership and Carlyle-XVII are entitled to receive out of net cash flow a current preferred return and a cumulative preferred return, each based on a negotiated rate of return on their respective initial capital contributions (other than those used to pay closing costs). Such current preferred return, which the Partnership was entitled to receive through December 31, 1994 (as defined) was received. The Partnership, Carlyle-XVII and the joint venture partner are entitled to a cumulative preferred return, based on a negotiated rate of return on their respective contributions to pay the Tenant Improvement Costs through December 1994 (the "Tenant Improvement Cost Contributions"). All cumulative preferred returns are distributable on an equal priority level; however, they are subordinate to the receipt by the Partnership and Carlyle-XVII of their respective current year preferred return. Any remaining annual cash flow will be distributable 75% to the Partnership and Carlyle-XVII and 25% to the joint venture partner until the Partnership and Carlyle-XVII have received an amount equal to their initial capital contributions (other than those used to pay closing costs) plus a negotiated annual internal rate of return thereon and an amount equal to their Tenant Improvement Cost contributions, and thereafter any remaining annual cash flow shall be distributable 50% to the Partnership and Carlyle- XVII and 50% to the joint venture partner.
The Palm Desert venture agreement also provides that upon sale or refinancing of the property, net sale or refinancing proceeds will be distributable first to the Partnership, Carlyle-XVII and the joint venture partner to the extent of any deficiencies in the receipt of their respective cumulative preferred returns; second, to the Partnership and Carlyle-XVII in an amount equal to their initial capital contributions (other than those used to pay closing costs) and their Tenant Improvement Cost contributions and, as an equal priority, to the joint venture partner in an amount equal to its Tenant Improvement Cost contributions; third, to the joint venture partner in an amount equal to the amount contributed by it to pay operating deficits through December 1994 and to provide a portion of the Partnership's and Carlyle-XVII's current and cumulative preferred return described above (not to exceed $1,700,000); fourth, 75% to the Partnership and Carlyle-XVII and 25% to the joint venture partner until the Partnership and Carlyle-XVII have received a negotiated annual internal rate of return on their respective initial capital contributions (other than those used to pay closing costs), and any remaining proceeds will be distributable 50% to the Partnership and Carlyle-XVII and 50% to the joint venture partner.
The portion of the shopping center owned by Palm Desert is currently subject to a first mortgage loan from an institutional lender with an outstanding principal balance of approximately $41,485,000 and $41,845,000 at December 31, 1996 and 1995, respectively. The loan provides for fixed interest at the rate of 12% per annum and monthly payments of principal and interest of $446,842 until January 1, 2019, when the loan will have been fully amortized.
The land underlying the shopping center is owned by the lender under the first mortgage loan. Palm Desert leases the land by assignment of an existing ground lease which has a term through December 2038 and provides for minimum annual rental payments of $900,000, as well as for additional rental payments for each calendar year equal to 50% of the amount by which certain of the ground lessee's gross receipts from the shopping center exceed $6,738,256. Total ground rent expense for the years ended December 31, 1996, 1995 and 1994 was $1,293,112, $1,261,322 and $1,347,204, respectively. The ground lease provides for two 10-year extensions at the option of the lessee. The ground lease does not provide for any option on the part of Palm Desert to purchase the land.
Operating profits and losses, in general, are allocable in proportion to the amount of net cash flow distributed to the partners of Palm Desert, or, if there are no distributions of net cash flow, generally 75% to the Partnership and Carlyle-XVII and 25% to the joint venture partner, except that the deductions allocable with respect to certain expenses are allocable to the partner whose contributions are used to pay such expenses. For 1996 and 1995, losses were allocated 75% to the Partnership and Carlyle-XVII and 25% to the joint venture partner as there were no distributions made to the partner in 1996 and 1995. For 1994, in accordance with the Palm Desert venture agreement, losses were allocated to the joint venture partner to the extent that it had cumulatively contributed capital to fund the Partnership's and Carlyle-XVII's preferred return less any losses previously allocated to the joint venture partner as discussed above. The remainder of the loss was allocated 75% to the Partnership and Carlyle-XVII and 25% to the joint venture partner.
The Palm Desert agreement also provides that the annual cash flow, net sale or refinancing proceeds and tax items distributed or allocated collectively to the Partnership and Carlyle-XVII generally are distributable or allocable between them based upon their respective capital contributions. Such capital contributions are generally in the percentages of approximately 85.8% for the Partnership and approximately 14.2% for Carlyle-XVII.
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 preferred 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.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
1996 1995 ------------ ------------ 12% per annum mortgage note; secured by the Palm Desert Town Center; payable in monthly installments of principal and interest of $446,842 until paid in full in January 2019. . . . . . . . . . $41,485,363 41,845,394 ----------- -----------
Total debt . . . . . . . . . . . . . 41,485,363 41,845,394 Less current portion of long-term debt . . . . . . . . . . 405,690 360,031 ----------- -----------
Total long-term debt . . . . . . . . $41,079,673 41,485,363 =========== ===========
Five year maturities of long-term debt are summarized as follows:
1997 . . . . . . . . $405,690 1998 . . . . . . . . 457,143 1999 . . . . . . . . 515,121 2000 . . . . . . . . 580,451 2001 . . . . . . . . 654,066 ========
PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits and losses of the Partnership from operations are allocated 96% to the Holders of Interests and 4% to the General Partners. Profits from the sale or other disposition of investment properties generally will be allocated first to the General Partners in an amount equal to the greater of the General Partners' share of cash distributions from the proceeds of any such sale or other disposition (as described below) or 1% of the total profits from any such sales or other dispositions, plus an amount which will reduce deficits (if any) in the General Partners' capital accounts to a level consistent with the gain anticipated to be realized from the sale of investment properties. Losses from the sale or other disposition of investment properties generally will be allocated 4% to the General Partners. The remaining sale or other disposition profits and losses will be allocated to the Holders of Interests.
The General Partners are not required to make any additional capital contributions except under certain limited circumstances upon dissolution and termination of the Partnership or the General Partners' interests in the Partnership. "Net cash receipts" from operations of the Partnership will be allocated 90% to the Holders of Interests and 10% to the General Partners (of which 6.25% constitutes a management fee to the Corporate General Partner for services in managing the Partnership). However, for the five year period through the end of 1992, the General Partners deferred their allocation of "net cash receipts" to a stipulated return on capital for the Holders of Interests. The deferred amounts are payable out of any "net cash receipts" and "sale or refinancing proceeds" of the Partnership, without interest at such times as the General Partners may determine.
The Partnership Agreement provides that, subject to certain conditions, the General Partners shall receive as a distribution of the proceeds (net after expenses and liabilities and retained working capital) from the sale or refinancing of a real property up to 3% of the selling price for any property sold, and that the remaining net proceeds be distributed 85% to the Holders of Interest and 15% to the General Partners.
However, prior to such distributions the Holders of Interests are entitled to receive 99% and the General Partners 1% of net sale or refinancing proceeds until the Holders of Interest (i) have received cumulative cash distributions from the Partnership's operations which, when combined with net sale or refinancing proceeds previously distributed, equal a 6% annual non-compound return on the Holders' of Interests average capital investment for each year (their initial capital investment as reduced by net sale or refinancing proceeds previously distributed) commencing with the third fiscal quarter of 1987 and (ii) have received cash distributions of net sale or refinancing proceeds in an amount equal to the Holders' of Interests aggregate initial capital investment in the Partnership. The Holders of Interests are not expected to receive the return levels in (i) and (ii) above.
LEASES - AS PROPERTY LESSOR
At December 31, 1996, the Partnership and its consolidated venture's principal asset is a shopping center. The Partnership has determined that all leases are properly classified as operating leases; therefore rental income is reported when earned and the cost of the property, excluding the cost of land, is depreciated over the estimated useful lives. Leases with tenants at Palm Desert Town Center range in term from one to twenty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. In addition, leases with shopping center tenants generally provide for additional rent based upon percentages of tenants' sales volumes over certain specified amounts. A substantial portion of the ability of the retail tenants at Palm Desert Town Center to honor their leases is dependent upon the retail economic sector.
Minimum lease payments, including amounts representing executory costs (e.g. taxes, maintenance, insurance) and any related profit in excess of specific reimbursements, to be received in the future under the above operating commercial lease agreements are as follows:
1997. . . . . . . . . . . . . . . . . . $ 6,674,812 1998. . . . . . . . . . . . . . . . . . 6,547,570 1999. . . . . . . . . . . . . . . . . . 5,971,994 2000. . . . . . . . . . . . . . . . . . 5,620,424 2001. . . . . . . . . . . . . . . . . . 5,286,046 Thereafter. . . . . . . . . . . . . . . 19,098,492 ----------- $49,199,338 ===========
LEASES - AS PROPERTY LESSEE
The following lease agreement has been determined to be an operating lease:
The Partnership owns, through Palm Desert, a leasehold interest which expires in December 2038 in the land underlying the Palm Desert Town Center. The ground lease provides for annual rental payments of $900,000 plus 50% of certain gross receipts of the shopping center above $6,738,256.
In addition to cash payments due, periodic ground rent expense also reflects an adjustment equal to 50% of the net change in accrued rents receivable. Total ground rent expense for the years ended December 31, 1996, 1995 and 1994 was $1,293,112, $1,261,322 and $1,347,204, respectively. Actual cash payments for 1996, 1995 and 1994 were $1,084,121, $1,092,049 and $1,050,000, respectively.
Future minimum rental commitments under the lease are as follows:
1997. . . . . . . . . . . . . $ 900,000 1998. . . . . . . . . . . . . 900,000 1999. . . . . . . . . . . . . 900,000 2000. . . . . . . . . . . . . 900,000 2001. . . . . . . . . . . . . 900,000 Thereafter. . . . . . . . . . 33,300,000 ----------- $37,800,000 ===========
TRANSACTIONS WITH AFFILIATES
The General Partners deferred their share of net cash flow of the Partnership due to them over a five-year period ended 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 consist of the Corporate General Partner's management fees and the General Partners' distributive share of net cash flow. The cumulative combined amount of such deferred distributions and management fees aggregated $2,372,056 at December 31, 1993. In July 1994, the Partnership paid the cumulative combined amount of such deferred distributions and management fees to the General Partners. All amounts deferred did not bear interest and were paid in full. The General Partners received distributions from the operations of the Partnership in the amount of $38,009 and $93,683 for 1996 and 1995, respectively.
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 acted as the property manager of Dunwoody Crossing Apartments (Phases I, II and III) (prior to its sale in May 1996) and acts as the property manager of 260 Franklin Office Building after the sale of the affiliated property manager's assets on the same terms that existed prior to such sale. JMB has guaranteed payment of such property management fees.
The Partnership, pursuant to the Partnership Agreement, is permitted to engage in various transactions involving the Corporate General Partner and its affiliates including the reimbursement for salaries and salary- related expenses of its employees, certain of its officers, and other direct expenses relating to the administration of the Partnership and the operation of the Partnership's investments. Fees, commissions and other expenses required to be paid by the Partnership to the General Partners and their affiliates for the years ending December 31, 1996, 1995 and 1994 are as follows:
UNPAID AT DECEMBER 31, 1996 1995 1994 1996 -------- -------- -------- ------------ Management fees to Corporate General Partners. . . . . . . . . . $63,349 112,427 155,942 -- Insurance commissions. . . . 28,153 28,811 24,307 -- Reimbursement (at cost) for accounting services . . 4,553 93,892 98,129 1,003 Reimbursement (at cost) for portfolio management services . . . . 23,481 31,844 33,490 5,111 Reimbursement (at cost) for legal services. . . . . 4,357 7,213 3,224 2,348 Reimbursement (at cost) for administrative charges and other out-of-pocket expenses. . . -- 110,709 4,050 -- -------- ------- ------- ------ $123,893 384,896 319,142 8,462 ======== ======= ======= ======
UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
Summary combined financial information for JMB/125 (through the effective date of assignment - October 31, 1994), JMB/Owings, 260 Franklin, Villages Northeast (prior to its sale in May 1996) and JMB/NewPark are as follows:
1996 1995 ----------- ------------
Current assets . . . . . . . . . . $ 12,006,191 10,073,925 Current liabilities. . . . . . . . (93,167,248) (90,693,683) ------------ ------------ Working capital. . . . . . . . (81,161,057) (80,619,758) ------------ ------------
1996 1995 ----------- ------------ Deferred expenses and accrued rents receivable. . . . . . . . . 2,227,784 2,193,737 Ventures partners' (equity) deficit . . . . . . . . . . . . . 2,602,219 (18,749,959) Investment properties, net . . . . 127,144,504 184,112,280 Other liabilities. . . . . . . . . (192,852) (230,522) Long-term debt . . . . . . . . . . (60,000,000) (90,256,644) ------------ ------------ Partnership's capital (deficit) . . . . . . . . . . $ (9,379,402) (3,550,866) ============ ============ Represented by: Invested capital . . . . . . . . $ 58,008,483 58,008,483 Cumulative cash distributions. . (27,179,568) (21,783,531) Cumulative losses. . . . . . . . (40,208,317) (39,775,818) ------------ ------------ $ (9,379,402) (3,550,866) ============ ============ Total income . . . . . . . . . . . $ 26,526,465 32,780,960 Expenses applicable to operating loss . . . . . . . . . 47,299,819 37,312,297 ------------ ------------ Net operating loss . . . . . . . . (20,773,354) (4,531,337) Gain on sale or disposition of investment in uncon- solidated ventures . . . . . . . 15,258,640 1,713,501 ------------ ------------ Net earnings (loss) income . . $ (5,514,714) (2,817,836) ============ ============ Partnership's share of earnings (loss) income . . . . . $ (432,499) (14,545) ============ ============
Additionally, for the year ended December 31, 1994, total income was $61,459,559, expenses applicable to operating loss were $103,034,572, the gain on sale on investment in unconsolidated ventures was $52,412,102 and the net earnings was $10,837,089 for the unconsolidated ventures listed above.
INDEPENDENT AUDITORS' REPORT
The Partners CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XVI:
We have audited the financial statements of 260 Franklin Street Associates, an unconsolidated joint venture of Carlyle Real Estate Limited Partnership-XVI as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 260 Franklin Street Associates, an unconsolidated joint venture of Carlyle Real Estate Limited Partnership-XVI at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The accompanying financial statements and financial statement schedule have been prepared assuming that the 260 Franklin Street Associates Venture ("Venture") will continue as going concern. As discussed in the Partnership's Notes to Consolidated Financial Statements, incorporated by reference in the Notes of the Venture's financial statements, the 260 Franklin Street Building is expected to operate at a deficit for 1996 and several years thereafter. In addition, the mortgage loan matured January 1, 1997. The Venture is attempting to extend the loan, but there can be no assurance that such efforts will be successful. If the Venture is unable to extend the mortgage loan, the venture partners may decide not to commit additional funds to the property. This may result in the Venture no longer having an ownership interest in the property. These circumstances raise substantial doubt about the Venture's ability to retain its ownership interest in the 260 Franklin Street Building and continue as a going concern. The venture partners' plans with regard to this matter are also described in the Notes of the Partnership's Notes to Consolidated Financial Statements. The accompanying financial statements and financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty.
/continued
As discussed in the Notes to the financial statements, in 1996, 260 Franklin Street Associates changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois March 21, 1997
260 FRANKLIN STREET ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
OPERATIONS AND BASIS OF ACCOUNTING
GENERAL
The accompanying financial statements have been prepared for the purpose of complying with Rule 3.09 of Regulation S-X of the Securities and Exchange Commission.
260 Franklin holds an equity investment in an office building in Boston, Massachusetts. Business activities consist of rentals to a wide variety of commercial companies, and the ultimate sale or disposition of such real estate.
The records of 260 Franklin are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying financial statements have been prepared from such records after making appropriate adjustments to reflect the 260 Franklin accounts in accordance with generally accepted accounting principles. Such adjustments are not recorded on the records of 260 Franklin.
The preparation of financial statements in accordance with GAAP requires 260 Franklin to make estimates and assumptions that affect the reported or disclosed amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
As 260 Franklin's accounting policies are the same as those of the Partnership, reference is made to the Notes to Consolidated Financial Statements of the Partnership filed with this annual report. Such Notes are incorporated herein by reference.
260 Franklin recorded a provision for value impairment of $11,145,446 as of January 1, 1996, of which the Partnership's share is approximately $3,343,634, to reflect the then estimated fair value of the property based upon the use of an appropriate capitalization rate on the property's net operating income.
VENTURE AGREEMENT
A description of the venture agreement is contained in the Notes to Consolidated Financial Statements of the Partnership. Such note is hereby incorporated herein by reference.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
1996 1995 ------------ ------------
11.0% per annum mortgage note in default; secured by the 260 Franklin Street Building; monthly payments of interest only (8% per annum) of $499,273 from February 1, 1992 through December 1, 1995, with the unpaid balance of principal of $74,891,013 plus accrued unpaid interest due on January 1, 1997. Additional interest payable upon maturity to provide an 11% per annum return to lender and 60% of the greater of net sales or refinancing proceeds or the net appraised value, as defined. Reference is made to the Notes to Consolidated Financial State- ments of the Partnership. . . . . . $89,870,355 87,623,625 ----------- ------------
Total debt . . . . . . . . 89,870,355 87,623,625 Less current portion of long-term debt. . . . 89,870,355 87,623,625 ----------- ------------
Total long-term debt . . . $ -- -- =========== ============
Included in the above debt is $14,979,342 and $12,732,612 for 1996 and 1995, respectively, which represents mortgage interest accrued pursuant to the terms of the 260 Franklin mortgage note.
LEASES - AS PROPERTY LESSOR
At December 31, 1996, 260 Franklin's primary leased asset was an office building. 260 Franklin has determined that all leases relating to the property are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the property, excluding cost of land, is depreciated over the estimated useful lives. Leases range in term from one to 25 years and provide for fixed minimum rent and partial to full reimbursement of operating costs.
Minimum lease payments including amounts representing executory costs (e.g., taxes, maintenance, insurance), to be received in the future under the above operating commercial lease agreements, are as follows:
1997 . . . . . . . . . . $ 8,492,636 1998 . . . . . . . . . . 8,533,871 1999 . . . . . . . . . . 8,272,376 2000 . . . . . . . . . . 7,597,027 2001 . . . . . . . . . . 5,937,884 Thereafter . . . . . . . 19,337,422 ----------- $58,171,216 ===========
TRANSACTIONS WITH AFFILIATES
During 1994 and 1993, an affiliate of the Corporate General Partner provided management and leasing services. In December 1994, the affiliate sold substantially all of its assets and assigned its interest in its management contracts, including the one for 260 Franklin Street building, to an unaffiliated third party. (See the Notes to Consolidated Financial Statements of the Partnership). In connection with such sale, JMB guaranteed payment to the unaffiliated third party of the property management and leasing fees for the 260 Franklin Street building. Beginning in January 1996, the unaffiliated property manager is being paid management and leasing fees by the property. As a result of the affiliate's payment of management fees for 1995 to the unaffiliated third party manager pursuant to the guarantee, the amount of such management fees is reflected as payable to an affiliate in the accompanying financial statements. In 1995, pursuant to the terms of the loan modification for 260 Franklin, cash flow from the property in an amount equal to all management fees and leasing fees were escrowed by 260 Franklin and are reported as escrow deposits in the accompanying financial statements. Such affiliate is entitled to property management fees of $331,811 and $320,385 in 1995 and 1994, respectively. Such affiliate also is entitled to leasing fees of none and $100,855 for 1995 and 1994, respectively. As of December 31, 1996, $1,510,132 of management and leasing fees were unpaid. Remaining amounts due to affiliates at December 31, 1996 represents advances from Carlyle Real Estate Limited Partnership-XV and the Partnership of $118,686 and $200,482, respectively, which can be repaid pursuant to the reserve escrow agreement.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with the accountants during fiscal years 1995 and 1996.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Corporate General Partner of the Partnership is JMB Realty Corporation ("JMB"), a Delaware corporation. Substantially all of the outstanding shares of JMB are owned, directly or indirectly, by certain of its officers, directors, members of their families and their affiliates. JMB has responsibility for all aspects of the Partnership's operations subject to the requirement that purchases and sales of real property must be approved by the Associate General Partner of the Partnership, ABPP Associates, L.P. ABPP Associates, L.P., an Illinois limited partnership with JMB as its sole general partner, shall be directed by a majority in interest of its limited partners (who are generally officers, directors and affiliates of JMB or its affiliates) as to whether to provide its approval of any purchase or sale of real property (or any interest therein) of the Partnership.
The Partnership is subject to certain conflicts of interest arising out of its relationships with the General Partners and their affiliates as well as the fact that the General Partners and their affiliates are engaged in a range of real estate activities. Certain services have been and may in the future be provided to the Partnership or its investment properties by affiliates of the General Partners, including property management services and insurance brokerage services. In general, such services are to be provided on terms no less favorable to the Partnership than could be obtained from independent third parties and are otherwise subject to conditions and restrictions contained in the Partnership Agreement. The Partnership Agreement permits the General Partners and their affiliates to provide services to, and otherwise deal and do business with, persons who may be engaged in transactions with the Partnership, and permits the Partnership to borrow from, purchase goods and services from, and otherwise to do business with, persons doing business with the General Partners or their affiliates. The General Partners and their affiliates may be in competition with the Partnership under certain circumstances, including, in certain geographical markets, for tenants for properties and/or for the sale of properties. Because the timing and amount of cash distributions and profits and losses of the Partnership may be affected by various determinations by the General Partners under the Partnership Agreement, including whether and when to sell or refinance a property, the establishment and maintenance of reasonable reserves, the timing of expenditures and the allocation of certain tax items under the Partnership Agreement, the General Partners may have a conflict of interest with respect to such determinations.
The names, positions held and length of service therein of each director, the executive officers and certain other officers of the Corporate General Partner are as follows:
Served in Name Office Office Since ---- ------ ------------
Judd D. Malkin Chairman 5/03/71 Director 5/03/71 Chief Financial Officer 2/22/96 Neil G. Bluhm President 5/03/71 Director 5/03/71 Burton E. Glazov Director 7/01/71 Stuart C. Nathan Executive Vice President 5/08/79 Director 3/14/73 A. Lee Sacks Director 5/09/88 John G. Schreiber Director 3/14/73 H. Rigel Barber Executive Vice President 1/02/87 Chief Executive Officer 8/01/93 Glenn E. Emig Executive Vice President 1/01/93 Chief Operating Officer 1/01/95 Gary Nickele Executive Vice President 1/01/92 General Counsel 2/27/84 Gailen J. Hull Senior Vice President 6/01/88 Howard Kogen Senior Vice President 1/02/86 Treasurer 1/01/91
There is no family relationship among any of the foregoing directors or officers. The foregoing directors have been elected to serve a one-year term until the annual meeting of the Corporate General Partner to be held on June 7, 1997. All of the foregoing officers have been elected to serve one-year terms until the first meeting of the Board of Directors held after the annual meeting of the Corporate General Partner to be held on June 7, 1997. There are no arrangements or understandings between or among any of said directors or officers and any other person pursuant to which any director or officer was elected as such.
JMB is the corporate general partner of Carlyle Real Estate Limited Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-IX ("Carlyle-IX"), Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"), Carlyle Real Estate Limited Partnership-XII ("Carlyle-XII"), Carlyle Real Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited Partnership-XV ("Carlyle-XV"), Carlyle Real Estate Limited Partnership-XVII ("Carlyle-XVII"), JMB Mortgage Partners, Ltd.-III ("Mortgage Partners-III"), JMB Mortgage Partners, Ltd.-IV ("Mortgage Partners-IV"), Carlyle Income Plus, Ltd. ("Carlyle Income Plus") and Carlyle Income Plus, Ltd.-II ("Carlyle Income Plus-II") and the managing general partner of JMB Income Properties, Ltd.-IV ("JMB Income-IV"), JMB Income Properties, Ltd.-V ("JMB Income-V"), JMB Income Properties, Ltd.-VI ("JMB Income-VI"), JMB Income Properties, Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-X ("JMB Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"), JMB Income Properties, Ltd.-XII ("JMB Income-XII"), and JMB Income Properties, Ltd.-XIII ("JMB Income-XIII"). JMB is also the sole general partner of the associate general partner of most of the foregoing partnerships.
Most of the foregoing directors and officers are also officers and/or directors of various affiliated companies of JMB including Arvida/JMB Managers, Inc. (the general partner of Arvida/JMB Partners, L.P. ("Arvida")), Arvida/JMB Managers-II, Inc. (the general partner of Arvida/JMB Partners, L.P.-II ("Arvida-II")) and Income Growth Managers, Inc. (the corporate general partner of IDS/JMB Balanced Income Growth, Ltd.
("IDS/BIG")). Most of such directors and officers are also partners of certain partnerships which are associate general partners in the following real estate limited partnerships: the Partnership, Carlyle-VII, Carlyle- IX, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle-XVII, JMB Income-VI, JMB Income-VII, JMB Income-X, JMB Income-XI, JMB Income-XII, JMB Income-XIII, Mortgage Partners-III, Mortgage Partners-IV, Carlyle Income Plus, Carlyle Income Plus-II and IDS/BIG. Certain of such officers are also officers and the sole director of Carlyle Advisors, Inc., the general partner of JMB/125.
The business experience during the past five years of each such director and officer of the Corporate General Partner of the Partnership in addition to that described above is as follows:
Judd D. Malkin (age 59) is an individual general partner of JMB Income-IV and JMB Income-V. Mr. Malkin has been associated with JMB since October, 1969. Mr. Malkin is a director of Urban Shopping Centers, Inc. ("USC, Inc."), an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a Certified Public Accountant.
Neil G. Bluhm (age 59) is an individual general partner of JMB Income-IV and JMB Income-V. Mr. Bluhm has been associated with JMB since August, 1970. Mr. Bluhm is a director of USC, Inc. He is a member of the Bar of the State of Illinois and a Certified Public Accountant.
Burton E. Glazov (age 58) has been associated with JMB since June, 1971 and served as an Executive Vice President of JMB until December 1990. He is a member of the Bar of the State of Illinois and a Certified Public Accountant.
Stuart C. Nathan (age 55) has been associated with JMB since July, 1972. Mr. Nathan is also a director of Sportmart Inc., a retailer of sporting goods. He is a member of the Bar of the State of Illinois.
A. Lee Sacks (age 63) (President and Director of JMB Insurance Agency, Inc.) has been associated with JMB since December, 1972.
John G. Schreiber (age 50) has been associated with JMB since December, 1970 and served as an Executive Vice President of JMB until December 1990. Mr. Schreiber is President of Schreiber Investments, Inc., a company which is engaged in the real estate investing business. He is also a senior advisor and partner of Blackstone Real Estate Partners, an affiliate of the Blackstone Group, L.P. He is also a director of USC, Inc. as well as a director of a number of investment companies advised or managed by T. Rowe Price Associates with its affiliates. Since 1994, Mr. Schreiber has also served as a Trustee of Amli Residential Property Trust, a publicly-traded real estate investment trust that invests in multi-family properties. He holds a Masters degree in Business Administration from Harvard University Graduate School of Business.
H. Rigel Barber (age 47) has been associated with JMB since March, 1982. He holds a J.D. degree from the Northwestern Law School and is a member of the Bar of the State of Illinois.
Glenn E. Emig (age 49) has been associated with JMB since December, 1979. Prior to becoming Executive Vice President of JMB in 1993, Mr. Emig was Executive Vice President and Treasurer of JMB Institutional Realty Corporation. He holds a Masters degree in Business Administration from the Harvard University Graduate School of Business and is a Certified Public Accountant.
Gary Nickele (age 44) has been associated with JMB since February, 1984. He holds a J.D. degree from the University of Michigan Law School and is a member of the Bar of the State of Illinois.
Gailen J. Hull (age 48) has been associated with JMB since March, 1982. He holds a Masters degree in Business Administration from Northern Illinois University and is a Certified Public Accountant.
Howard Kogen (age 61) has been associated with JMB since March, 1973. He is a Certified Public Accountant.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Officers and directors of the Corporate General Partner receive no direct remuneration in such capacities from the Partnership. The Partnership is required to pay a management fee to the Corporate General
Partner and the General Partners are entitled to receive a share of cash distributions, when and as cash distributions are made to the Holders of Interests, and a share of profits or losses. Reference is made to the Notes for a description of such distributions and allocations. In 1996, the General Partners received $38,009 of distributions and the Corporate General Partner received management fees of $63,349. The General Partners received a share of Partnership income for tax purposes aggregating $276,297 in 1996.
The Partnership is permitted to engage in various transactions involving the General Partners and their affiliates, certain of which may involve conflicts of interest, as discussed in Item 10 above. The relationship of the Partnership to the Corporate General Partner (and its directors and officers) and its affiliates is set forth above in Item 10.
An affiliate of the Corporate General Partner provided property management and services for the 260 Franklin Street Building in Boston, Massachusetts in 1994 and prior years. As required by the terms of a modification for the mortgage loan secured by the 260 Franklin Street Building, property management and leasing fees payable to the affiliate since January 1992 have been escrowed. Pursuant to the affiliate selling its interest in the management contracts at the 260 Franklin Street Building, JMB guaranteed payment of the management fees to the unaffiliated third party in 1995. Beginning in January 1996, the unaffiliated property manager is being paid management fees by the property. As a result of the affiliate paying the management fees to the unaffiliated third party manager, the affiliate is entitled to reimbursement of prior year fees of $331,811. As of December 31, 1996, $1,510,132 of property management and leasing fees were unpaid. Such amount does not bear interest.
As set forth in the Prospectus of the Partnership, the Corporate General Partner must negotiate such agreements on terms no less favorable to the Partnership than those customarily charged for similar services in the relevant geographical area (but in no event at rates greater than 6% of the gross income from the property), and such agreements must be terminated by either party thereto, without penalty, upon 60 days notice.
In December 1995, the joint venture partner in NewPark Associates, a joint venture that owns NewPark Mall, agreed to pay to an affiliate of the Corporate General Partner an annual consulting fee of $100,000 in consideration of such affiliate's assisting NewPark Associates and the joint venture partner in the evaluation of property budgets and leasing and long-term strategies for NewPark Mall. Such consulting fee does not increase the management fee payable by NewPark Associates under the management agreement with the joint venture partner.
JMB Insurance Agency, Inc., an affiliate of the Corporate General Partner, earned and received insurance brokerage commissions in 1996 aggregating $28,153 in connection with the provision of insurance coverage for certain of the real property investments of the Partnership. Such commissions are at rates set by insurance companies for the classes of coverage provided.
The General Partners of the Partnership or their affiliates may be reimbursed for their direct expenses or out-of-pocket expenses, salaries, administrative, legal and accounting services relating to the administration of the Partnership and the acquisition and operation of the Partnership's real property investments. Such costs for 1996 were $32,391 of which $8,462 was unpaid as of December 31, 1996. Reference is made to the Notes.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business relationships with the Corporate General Partner, affiliates or their management other than those described in Items 10 and 11 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements (See Index to Financial Statements filed with this annual report).
(2) Exhibits.
3. Amended and Restated Agreement of Limited Partnership, which is incorporated by reference to Exhibit 3 to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16516) dated March 19, 1993.
4-A. Assignment Agreement set forth as Exhibit B to the Prospectus, a copy of which is incorporated by reference to Exhibit 4-A to the Partnership's Report on Form 10-K for December 31, 1992 (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 Form 10-K for December 31, 1992 (File No. 0-16516) dated March 27, 1992.
4-C. Documents relating to the third mortgage modification and extension agreement secured by the 260 Franklin Street Building dated December 4, 1996 are filed herewith.
4-D. 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.
4-E. 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.
4-F. Forbearance agreement relating to the modification of the mortgage loan secured by NewPark Mall dated October, 1995 is hereby incorporated by reference to the Partnership's Report on Form 10-Q for September 30, 1995 (File No. 0-16516) dated November 9, 1995.
4-G. Documents relating to the Promissory Note secured by NewPark Mall dated December 19, 1995 are hereby incorporated by reference to the Partnership's Report on Form 10-K for December 31, 1995 (File No. 0-16516) dated March 25, 1996.
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 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-E. 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 Report on Form 8-K (File No. 0- 16516) dated January 6, 1989.
10-F. Documents relating to the assignment of JMB/125's interest in 125 Broad Street Company are hereby incorporated by reference to the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0- 16516) dated March 27, 1995.
10-G. Modification to Reserve Escrow Agreement relating to the 260 Franklin Street Building is hereby incorporated by reference to the Partnership's Report on Form 10-Q for March 31, 1995 (File No. 0-16516) dated May 11, 1995.
10-H. Modification to Reserve Escrow Agreement relating to the 260 Franklin Street Building dated December 4, 1996 are filed herewith.
10-I. Sale documents relating to the contract for sale between VNE Partners, L.P. and Post Apartment Homes, L.P. dated May 7, 1996 regarding the sale of the Partnership's interest in the Dunwoody Crossing Apartments are hereby incorporated by reference to the Partnership's Report on Form 10-Q for June 30, 1996 (File No. 0-16516) dated August 9, 1996.
21. List of Subsidiaries
24. Powers of Attorney
27. Financial Data Schedule
Although certain additional long-term debt instruments of the Registrant have been excluded from Item 4 above, pursuant to Rule 601(b)(4)(iii), the Registrant commits to provide copies of such to the Securities and Exchange Commission upon request.
---------------------
* FILED ON PAPER IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS THIRD MORTGAGE MODIFICATION AND EXTENSION AGREEMENT SECURED BY THE 260 FRANKLIN STREET BUILDING IS BEING FILED IN PAPER PURSUANT TO A TEMPORARY HARDSHIP EXEMPTION.
(b) No reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report.
No annual report or proxy material for the fiscal year 1996 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Partnership 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
GAILEN J. HULL By: Gailen J. Hull Senior Vice President Date: March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: JMB Realty Corporation Corporate General Partner
JUDD D. MALKIN* By: Judd D. Malkin, Chairman and Chief Financial Officer Date: March 21, 1997
NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 21, 1997
H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 21, 1997
GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 21, 1997
GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 21, 1997
A. LEE SACKS* By: A. Lee Sacks, Director Date: March 21, 1997
STUART C. NATHAN* By: Stuart C. Nathan, Executive Vice President and Director Date: March 21, 1997
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 21, 1997
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
EXHIBIT INDEX -------------
DOCUMENT EXHIBIT INCORPORATED SEQUENTIALLY NO. EXHIBIT BY REFERENCE NUMBERED PAGE - ------- ------- ------------ -------------
3. Amended and Restated Agree- ment of Limited Partnership of the Partnership Yes
4-A. Assignment Agreement Yes
4-B. Documents relating to the loan modification of the mortgage loan secured by the 260 Franklin Street Office Building Yes
4-C.* Documents relating to the third mortgage modification and extension agreement secured by the 260 Franklin Street Building No
4-D. First Amendment to Loan Documents relating to the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) Yes
4-E. Documents relating to the modification of the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) Yes
4-F. Forbearance agreement relating to the modification of the mortgage loan secured by New Park Mall Yes
4-G. Documents relating to the Promissory Note secured by New Park Mall Yes
10-A. Escrow Deposit Agreement Yes
10-B. Acquisition documents relating to the purchase of an interest in the 260 Franklin Street Building, Boston, Massachusetts Yes
10-C. Additional acquisition documents relating to the purchase of an interest in the 260 Franklin Street Building, Boston, Massachusetts Yes
10-D. Acquisition documents relating to the purchase by the Partnership of an interest in NewPark Mall in Newark (Alameda County), California Yes
10-E. Acquisition documents relating to the acquisition by the Partnership of an interest in the Palm Desert Town Center in Palm Desert, California, dated Decem- ber 23, 1988 Yes
10-F. Documents relating to the assignment of JMB/125's interest in 125 Broad Street Company Yes
10-G. Modification to Reserve Escrow Agreement relating to the 260 Franklin Street Building Yes
10-H.* Modification to Reserve Escrow Agreement dated December 4, 1996, relating to the 260 Franklin Street Building No
10-I Sale documents relating to the contract for sale between VNE Partners, L.P. and Post Apartment Homes, L.P. regarding the sale of the Partnership's interest in the Dunwoody Crossing Apartments Yes
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No
--------------------- * FILED ON PAPER IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS THIRD MORTGAGE MODIFICATION AND EXTENSION AGREEMENT SECURED BY THE 260 FRANKLIN STREET BUILDING IS BEING FILED IN PAPER PURSUANT TO A TEMPORARY HARDSHIP EXEMPTION.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business relationships with the Corporate General Partner, affiliates or their management other than those described in Items 10 and 11 above.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements (See Index to Financial Statements filed with this annual report).
(2) Exhibits.
3. Amended and Restated Agreement of Limited Partnership, which is incorporated by reference to Exhibit 3 to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16516) dated March 19, 1993.
4-A. Assignment Agreement set forth as Exhibit B to the Prospectus, a copy of which is incorporated by reference to Exhibit 4-A to the Partnership's Report on Form 10-K for December 31, 1992 (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 Form 10-K for December 31, 1992 (File No. 0-16516) dated March 27, 1992.
4-C. Documents relating to the third mortgage modification and extension agreement secured by the 260 Franklin Street Building dated December 4, 1996 are filed herewith.
4-D. 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.
4-E. 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.
4-F. Forbearance agreement relating to the modification of the mortgage loan secured by NewPark Mall dated October, 1995 is hereby incorporated by reference to the Partnership's Report on Form 10-Q for September 30, 1995 (File No. 0-16516) dated November 9, 1995.
4-G. Documents relating to the Promissory Note secured by NewPark Mall dated December 19, 1995 are hereby incorporated by reference to the Partnership's Report on Form 10-K for December 31, 1995 (File No. 0-16516) dated March 25, 1996.
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 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-E. 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 Report on Form 8-K (File No. 0- 16516) dated January 6, 1989.
10-F. Documents relating to the assignment of JMB/125's interest in 125 Broad Street Company are hereby incorporated by reference to the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0- 16516) dated March 27, 1995.
10-G. Modification to Reserve Escrow Agreement relating to the 260 Franklin Street Building is hereby incorporated by reference to the Partnership's Report on Form 10-Q for March 31, 1995 (File No. 0-16516) dated May 11, 1995.
10-H. Modification to Reserve Escrow Agreement relating to the 260 Franklin Street Building dated December 4, 1996 are filed herewith.
10-I. Sale documents relating to the contract for sale between VNE Partners, L.P. and Post Apartment Homes, L.P. dated May 7, 1996 regarding the sale of the Partnership's interest in the Dunwoody Crossing Apartments are hereby incorporated by reference to the Partnership's Report on Form 10-Q for June 30, 1996 (File No. 0-16516) dated August 9, 1996.
21. List of Subsidiaries
24. Powers of Attorney
27. Financial Data Schedule
Although certain additional long-term debt instruments of the Registrant have been excluded from Item 4 above, pursuant to Rule 601(b)(4)(iii), the Registrant commits to provide copies of such to the Securities and Exchange Commission upon request.
---------------------
* FILED ON PAPER IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS THIRD MORTGAGE MODIFICATION AND EXTENSION AGREEMENT SECURED BY THE 260 FRANKLIN STREET BUILDING IS BEING FILED IN PAPER PURSUANT TO A TEMPORARY HARDSHIP EXEMPTION.
(b) No reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report.
No annual report or proxy material for the fiscal year 1996 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Partnership 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
GAILEN J. HULL By: Gailen J. Hull Senior Vice President Date: March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: JMB Realty Corporation Corporate General Partner
JUDD D. MALKIN* By: Judd D. Malkin, Chairman and Chief Financial Officer Date: March 21, 1997
NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 21, 1997
H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 21, 1997
GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 21, 1997
GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 21, 1997
A. LEE SACKS* By: A. Lee Sacks, Director Date: March 21, 1997
STUART C. NATHAN* By: Stuart C. Nathan, Executive Vice President and Director Date: March 21, 1997
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 21, 1997
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
EXHIBIT INDEX -------------
DOCUMENT EXHIBIT INCORPORATED SEQUENTIALLY NO. EXHIBIT BY REFERENCE NUMBERED PAGE - ------- ------- ------------ -------------
3. Amended and Restated Agree- ment of Limited Partnership of the Partnership Yes
4-A. Assignment Agreement Yes
4-B. Documents relating to the loan modification of the mortgage loan secured by the 260 Franklin Street Office Building Yes
4-C.* Documents relating to the third mortgage modification and extension agreement secured by the 260 Franklin Street Building No
4-D. First Amendment to Loan Documents relating to the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) Yes
4-E. Documents relating to the modification of the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) Yes
4-F. Forbearance agreement relating to the modification of the mortgage loan secured by New Park Mall Yes
4-G. Documents relating to the Promissory Note secured by New Park Mall Yes
10-A. Escrow Deposit Agreement Yes
10-B. Acquisition documents relating to the purchase of an interest in the 260 Franklin Street Building, Boston, Massachusetts Yes
10-C. Additional acquisition documents relating to the purchase of an interest in the 260 Franklin Street Building, Boston, Massachusetts Yes
10-D. Acquisition documents relating to the purchase by the Partnership of an interest in NewPark Mall in Newark (Alameda County), California Yes
10-E. Acquisition documents relating to the acquisition by the Partnership of an interest in the Palm Desert Town Center in Palm Desert, California, dated Decem- ber 23, 1988 Yes
10-F. Documents relating to the assignment of JMB/125's interest in 125 Broad Street Company Yes
10-G. Modification to Reserve Escrow Agreement relating to the 260 Franklin Street Building Yes
10-H.* Modification to Reserve Escrow Agreement dated December 4, 1996, relating to the 260 Franklin Street Building No
10-I Sale documents relating to the contract for sale between VNE Partners, L.P. and Post Apartment Homes, L.P. regarding the sale of the Partnership's interest in the Dunwoody Crossing Apartments Yes
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No
--------------------- * FILED ON PAPER IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS THIRD MORTGAGE MODIFICATION AND EXTENSION AGREEMENT SECURED BY THE 260 FRANKLIN STREET BUILDING IS BEING FILED IN PAPER PURSUANT TO A TEMPORARY HARDSHIP EXEMPTION.