SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended
June 30, 1998 Commission file number 0-16516
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(Exact Name of registrant as specified in its charter)
Illinois 36-3437938
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/915-1987
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . 13
PART II OTHER INFORMATION
Item 5. Other Information. . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
ASSETS
------
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 17,627,030 16,214,633
Interest, rents and other receivables, net of allowances for
doubtful accounts of approximately $206,000 and $710,000 at
June 30, 1998 and December 31, 1997, respectively. . . . . . . . . 71,135 68,335
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . -- 111,897
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . 17,698,165 16,394,865
------------ ------------
Investment property held for sale or disposition. . . . . . . . . . . 43,168,068 43,146,694
------------ ------------
Total investment properties . . . . . . . . . . . . . . . . . 43,168,068 43,146,694
------------ ------------
Investment in unconsolidated ventures, at equity. . . . . . . . . . . 4,163,316 1,904,784
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 498,017 518,228
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 100,442 108,362
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . 2,393,648 2,755,038
------------ ------------
$ 68,021,656 64,827,971
============ ============
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . $ 485,267 457,144
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 1,431,021 987,066
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 218,929
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . 408,579 410,797
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . 2,324,867 2,073,936
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . 48,758 66,157
Ground rent payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,196,556 1,377,521
Investment in unconsolidated ventures, at equity. . . . . . . . . . . 113,976 12,771,462
Long-term debt, less current portion. . . . . . . . . . . . . . . . . 40,372,655 40,622,529
------------ ------------
Commitments and contingencies
Total liabilities . . . . . . . . . . . . . . . . . . . . . 44,056,812 56,911,605
Venture partners' subordinated equity in ventures . . . . . . . . . . 3,848,372 3,751,845
Partners' capital accounts (deficits):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Cumulative net earnings (losses). . . . . . . . . . . . . . . . . (3,221,624) (3,413,841)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . (1,455,567) (1,443,873)
------------ ------------
(4,657,191) (4,837,714)
------------ ------------
Limited partners:
Capital contributions, net of offering
costs and purchase discounts. . . . . . . . . . . . . . . . . . 120,541,353 120,541,353
Cumulative net earnings (losses). . . . . . . . . . . . . . . . . (44,606,984) (60,675,076)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . (51,160,706) (50,864,042)
------------ ------------
24,773,663 9,002,235
------------ ------------
Total partners' capital accounts. . . . . . . . . . . . . . . 20,116,472 4,164,521
------------ ------------
$ 68,021,656 64,827,971
============ ============
<FN>
See accompanying notes to consolidated financial statements.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1998 1997 1998 1997
----------- ---------- ----------- ----------
Income:
Rental income . . . . . . . . . . . . . . . . $ 2,298,634 2,351,876 4,706,690 5,009,765
Interest income . . . . . . . . . . . . . . . 289,107 183,090 493,618 355,003
Other income. . . . . . . . . . . . . . . . . 149,519 -- 299,039 --
----------- ---------- ---------- ----------
2,737,260 2,534,966 5,499,347 5,364,768
----------- ---------- ---------- ----------
Expenses:
Mortgage and other interest . . . . . . . . . 1,226,870 1,278,957 2,457,083 2,521,586
Depreciation. . . . . . . . . . . . . . . . . -- 502,133 -- 1,004,060
Property operating expenses . . . . . . . . . 977,888 935,616 1,697,137 2,069,534
Professional services . . . . . . . . . . . . 38,068 56,563 105,736 125,552
Amortization of deferred expenses . . . . . . 38,604 33,710 77,208 67,420
Management fee to corporate
general partner . . . . . . . . . . . . . . 19,492 19,492 19,492 19,492
General and administrative. . . . . . . . . . 102,918 130,976 173,027 242,483
----------- ---------- ---------- ----------
2,403,840 2,957,447 4,529,683 6,050,127
----------- ---------- ---------- ----------
333,420 (422,481) 969,664 (685,359)
Partnership's share of earnings (loss)
from operations of unconsolidated
ventures. . . . . . . . . . . . . . . . . . . 99,642 (374,046) 228,573 (706,954)
Venture partners' share of ventures'
operations. . . . . . . . . . . . . . . . . . (51,403) 121,935 (211,131) 207,871
----------- ---------- ---------- ----------
Earnings (loss) before gains on sale or
disposition of investment properties. 381,659 (674,592) 987,106 (1,184,442)
Gain on sale or disposition of Partnership's
investments in unconsolidated ventures. . . . 2,934,052 332,187 10,037,662 402,477
Loss on liquidation of unconsolidated venture . -- (269,147) -- (269,147)
----------- ---------- ---------- ----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1998 1997 1998 1997
----------- ---------- ----------- ----------
Earnings (loss) before Partnership's
share of extraordinary item from
unconsolidated venture. . . . . . . . 3,315,711 (611,552) 11,024,768 (1,051,112)
Partnership's share of unconsolidated
venture's forgiveness of indebtedness . . . -- -- 5,235,541 --
----------- ---------- ---------- ----------
Net earnings (loss) . . . . . . . . . . $ 3,315,711 (611,552) 16,260,309 (1,051,112)
=========== ========== ========== ==========
Net earnings (loss) per limited
partnership interest:
Earnings (loss) before gains on sale
or disposition of investment
properties . . . . . . . . . . . . $ 2.61 (4.61) 6.75 (8.10)
Gain on sale or disposition of
Partnership's investments in
unconsolidated ventures. . . . . . 20.70 2.34 70.81 2.84
Loss on liquidation of venture . . . -- (1.84) -- (1.84)
Partnership's share of
extraordinary item from
unconsolidated venture . . . . . . -- -- 36.93 --
----------- ---------- ---------- ----------
$ 23.31 (4.11) 114.49 (7.10)
=========== ========== ========== ==========
Cash distributions per limited
partnership interest. . . . . . . . . $ 2.11 2.11 2.11 2.11
=========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
------------ ------------
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,260,309 (1,051,112)
Items not requiring (providing) cash or cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,004,060
Amortization of deferred expenses . . . . . . . . . . . . . . . . . . . 77,208 67,420
Partnership's share of (earnings) loss from operations of
unconsolidated ventures, net of distributions . . . . . . . . . . . . (228,573) 706,954
Venture partners' share of ventures' operations . . . . . . . . . . . . 208,337 (207,871)
Gains on sale or disposition of Partnership's investments in
unconsolidated ventures . . . . . . . . . . . . . . . . . . . . . . . (10,037,662) (402,477)
Loss on liquidation of unconsolidated venture . . . . . . . . . . . . . -- 269,147
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . . . (5,235,541) --
Changes in:
Interest, rents and other receivables . . . . . . . . . . . . . . . . . (2,800) 235,626
Other prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . 111,897 123,513
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,920 56,980
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . 361,390 62,373
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,953 (65,824)
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (218,928) (168,611)
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,218) (1,968)
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . (17,399) (15,600)
Ground rent payable . . . . . . . . . . . . . . . . . . . . . . . . . . (180,965) (31,203)
----------- -----------
Net cash provided by (used in)
operating activities. . . . . . . . . . . . . . . . . . . . . . . 1,546,928 581,407
----------- -----------
Cash flows from investing activities:
Additions to investment properties. . . . . . . . . . . . . . . . . . . . (21,374) (76,576)
Partnership's distributions from unconsolidated ventures and
proceeds from sale of investment property . . . . . . . . . . . . . . . 1,038,797 374,355
Partnership's contributions to unconsolidated ventures. . . . . . . . . . (453,039) --
Payment of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . (56,997) (37,616)
----------- -----------
Net cash provided by (used in) investing activities . . . . . . . . 507,387 260,163
----------- -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1998 1997
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . (221,750) (196,792)
Distributions to venture partners . . . . . . . . . . . . . . . . . . . . (111,810) --
Distributions to limited partners . . . . . . . . . . . . . . . . . . . . (296,664) (296,677)
Distributions to general partners . . . . . . . . . . . . . . . . . . . . (11,694) (11,695)
----------- -----------
Net cash provided by (used in) financing activities . . . . . . . . (641,918) (505,164)
----------- -----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . 1,412,397 336,406
Cash and cash equivalents, beginning of the year. . . . . . . . . . 16,214,633 14,791,381
----------- -----------
Cash and cash equivalents, end of the period. . . . . . . . . . . . $17,627,030 15,127,787
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . . . . . . . . . . . . $ 2,459,301 2,523,554
=========== ===========
Non-cash investing and financing activities . . . . . . . . . . . . . . . $ -- --
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
GENERAL
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the year ended December 31, 1997, which
are included in the Partnership's 1997 Annual Report on Form 10-K (File No.
0-16516) dated on March 21, 1998, as certain footnote disclosures which
would substantially duplicate those contained in such audited financial
statements have been omitted from this report. Capitalized terms used but
not defined in this quarterly report have the same meaning as in the
Partnership's 1997 Annual Report on Form 10-K.
The preparation of financial statements in accordance with GAAP
requires the Partnership to make estimates and assumptions that affect the
reported or disclosed amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Partnership adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" as required in the first
quarter of 1996. The Partnership's policy is to consider a property to be
held for sale or disposition when the Partnership has committed to a plan
to sell or dispose of such property and active marketing activity has
commenced or is expected to commence in the near term or the Partnership
has concluded that it may dispose of the property by no longer funding
operating deficits or debt service requirements of the property thus
allowing the lender to realize upon its security. In accordance with SFAS
121, any properties identified as "held for sale or disposition" are no
longer depreciated. As of June 30, 1997, the Partnership and its
consolidated venture have or have previously committed to plans to sell or
dispose of their remaining investment property. Accordingly, the property
has been classified as held for sale or disposition in the accompanying
consolidated financial statements. The results of operations, net of
venture partners' share, for this property and for properties sold or
disposed of in the past two years were $380,790 and ($374,911),
respectively, for the six months ended June 30, 1998 and 1997.
In addition, the accompanying consolidated financial statements
include $228,573 and ($425,612), respectively, of the Partnership's share
of total property operations of $1,250,572 and ($1,151,576) for
unconsolidated properties for the six months ended June 30, 1998 and 1997,
respectively, all of which are held for sale or disposition or have been
sold or disposed of during the past two years.
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, and
will be, required under applicable law to remit directly to the taxing
authorities amounts representing withholding from distributions paid to
partners. Due to this, $16,000 representing such withholding was remitted
in 1998 to the state of Maryland on behalf of the Holders of Interest
during the first quarter of 1998.
TRANSACTIONS WITH AFFILIATES
The Partnership, pursuant to the Partnership Agreement, is permitted
to engage in various transactions involving the Corporate General Partner
and its affiliates including the reimbursement for salaries and salary-
related expenses of its employees and certain of its officers, and for
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 (or its consolidated
venture) to the General Partners and their affiliates as of June 30, 1998
and for the six months ended June 30, 1998 and 1997 were as follows:
Unpaid at
June 30,
1998 1997 1998
------- ------- -------------
Management fees to
Corporate General Partner. . $19,492 19,492 --
Insurance commissions . . . . 31,468 29,843 --
Reimbursement (at cost)
for out-of-pocket
salary and salary-related
expenses related to the
on-site personnel and for
other costs for the
Partnership and its
investment properties. . . . 22,322 21,238 --
------- ------- ------
$73,282 70,573 --
======= ======= ======
An affiliate of the General Partners was entitled to payment of
property management and leasing fees relating to 260 Franklin through
November 1994 and subsequently JMB guaranteed payment to the unaffiliated
third party property manager for the property management and leasing fees.
Pursuant to a loan modification for the property, property management and
leasing fees were required to be escrowed through December 1995. Beginning
in January 1996, the unaffiliated property manager was paid management and
leasing fees by the property. As of June 30, 1998, $1,510,132 of
management and leasing fees remained payable (as a result of the escrowing
of certain 1995 and prior years' management and leasing fees payable to an
affiliate of the General Partners and JMB's payment pursuant to its
guarantee of the fees to the unaffiliated property manager) of which the
Partnership's share is $453,039. In connection with the sale of the 260
Franklin Street building, the Partnership assumed the liability for its
prorata share of the unpaid fees, which amount was transferred to the
accounts of the Partnership upon the sale of 260 Franklin.
260 FRANKLIN
On January 2, 1998, 260 Franklin, through a trust, disposed of the
land, building and related improvements of the 260 Franklin Street
Building. 260 Franklin transferred title to the land, building and
improvements, and all other assets and liabilities related to the property
in consideration of a discharge of the mortgage loan and receipt of $200 in
cash. 260 Franklin recognized a gain on disposal of approximately
$23,200,000 in 1998, in part as a result of previous impairment losses
recognized by the joint venture in 1996 aggregating $11,145,446, and an
extraordinary gain on forgiveness of indebtedness of approximately
$17,500,000 for financial reporting purposes, of which the Partnership's
share is approximately $7,000,000 and $5,000,000, respectively. In
addition, 260 Franklin expects to recognize a gain of approximately
$25,200,000 for Federal income tax reporting purposes, of which the
Partnership's share is approximately $7,500,000, with no distributable
proceeds in 1998. 260 Franklin and the Partnership have no future
liability for any representations, warranties or covenants to the purchaser
as a result of the sale.
PALM DESERT TOWN CENTER
Occupancy at the portion of the shopping center in which the
Partnership owns an interest decreased to 84% at June 30, 1998 down from
88% at December 31, 1997. 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. The property has been
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 mortgage loan.
The Partnership and Carlyle-XVII entered into an agreement with the
unaffiliated venture partner, effective January 1, 1998, pursuant to which
the Partnership and Carlyle-XVII granted the unaffiliated venture partner
an option to acquire their interests in the joint venture. Pursuant to
such option, the unaffiliated venture partner has the right (but not the
obligation) to purchase all (but not less than all) of the Partnership's
and Carlyle-XVII's interests in the joint venture by giving notice of its
exercise of the option during the term of the option, which was originally
scheduled to expire July 15, 1998 but was extended through August 14, 1998
pursuant to a first amendment to the Palm Desert Option Agreement with
substantially the same terms as the original agreement. The unaffiliated
venture partner has requested an additional extension of the expiration
date for the option and the Partnership and Carlyle-XVII are considering
that request. The aggregate purchase price for the interests is
$7,000,000. In consideration for the option, the unaffiliated venture
partner is required to pay $58,333 for each month of the option term. The
Partnership and Carlyle-XVII will share the consideration for the option
and, if applicable, the purchase price in proportion to their respective
capital contributions to the joint venture (i.e., approximately 85.8% for
the Partnership and approximately 14.2% for Carlyle-XVII). Concurrently
with the execution of the option agreement, the joint venture made a
distribution to the Partnership and Carlyle-XVII in the aggregate amount of
approximately $740,000 (of which the Partnership's share was approximately
$635,000), which represents undistributed net cash flow of the joint
venture through the end of 1997. All other funds and net cash flow of the
joint venture during the term of the option are to be held by the joint
venture for its use, and if the sale of the Partnership's and Carlyle-
XVII's interests closes pursuant to the option agreement, such funds and
net cash flow will inure to the benefit of the unaffiliated venture
partner. The unaffiliated venture partner agreed to pay deficits of the
joint venture incurred in the ordinary course of its business that arise or
accrue during the term of the option, to the extent that the joint
venture's funds and net cash flow are insufficient to cover such deficits.
The property is expected to operate near the break-even level during the
term of the option. In general, the Partnership, Carlyle-XVII and the
unaffiliated venture partner agreed not to sell or refinance the Palm
Desert Town Center or engage in other actions outside the ordinary course
of the joint venture's business, not to make any distribution of the joint
venture's funds to its partners except for the distribution to the
Partnership and Carlyle-XVII described above, and, unless consented to by
all of the partners in the joint venture, not to amend or modify existing
leases and other contracts, and not to enter into new leases or agreements,
affecting the property during the term of the option. The unaffiliated
venture partner may terminate the option by giving notice of termination to
the Partnership and Carlyle-XVII, and under certain extraordinary
circumstances involving a termination of the option, the Partnership and
Carlyle-XVII may be obligated to refund the option consideration. In the
event such a sale does occur, the Partnership and Carlyle-XVII would not
participate in, or be required to pay a share of the costs of, an expansion
of the mall and restructuring of the ground lease and mortgage loan for the
joint venture. The Partnership could thereafter distribute a majority of
the funds it currently holds as working capital reserves for the possible
payment of its share of such costs, as well as any distributable net
proceeds from such sale. There is no assurance that the option will be
exercised or that a sale of the Partnership's and Carlyle-XVII's interest
in the joint venture will occur. During the term of the option, the
unaffiliated venture partner is entitled to pursue a possible expansion of
the mall and restructuring of the ground lease and mortgage loan on its
own, provided that no contracts are made effective prior to the exercise of
the option and the close of escrow and no liability accrues to the
Partnership or Carlyle-XVII from the unaffiliated venture partner's
actions.
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 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 six months ended June 30, 1998 and 1997 was $450,000 and
$547,716, respectively.
NEWPARK MALL
At June 30, 1998, occupancy of the portion of the shopping center in
which the Partnership owns an interest remained at 77%. As a result of the
acquisition by Federated Department Stores 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 negotiated to sell the building to a national retail store owner.
These transactions closed in 1997 and the joint venture received net
proceeds of approximately $2,000,000. The property is producing cash flow
for the joint venture. The Partnership and its affiliated venture partner
(Carlyle-XV) have commenced efforts to market their interest in the NewPark
joint venture for sale. There is no assurance that such efforts will
result in a sale of such joint venture interest.
UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
Summary income statement information for 260 Franklin during 1998
until disposition (on January 2, 1998) and for the six months ended June
30, 1998 and 1997 is as follows:
1998 1997
----------- ----------
Total income . . . . . . . . . $ 107,704 5,027,636
Expenses applicable to
operating income (loss). . . 39,932 7,775,465
----------- ----------
Operating income (loss). . . . 67,772 (2,747,829)
Gain on sale . . . . . . . . . 23,212,184 --
Extraordinary item . . . . . . 17,451,802 --
----------- ----------
Net earnings (loss). . . . . . $40,731,758 (2,747,829)
=========== ==========
Partnership's share
of income (loss) . . . . . . $12,243,970 (824,349)
=========== ==========
ADJUSTMENTS
In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments and adjustments to
reflect the treatment given certain transactions in the Partnership's 1997
Annual Report) necessary for a fair presentation have been made to the
accompanying figures as of June 30, 1998 and for the three and six months
ended June 30, 1998 and 1997.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the notes to the accompanying financial
statements for additional information concerning the Partnership's
investment properties.
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 previously
retained Lehman Brothers Inc. as financial advisor to assist the Special
Committee in evaluating and responding to any additional potential tender
offers for Interests.
During the first half of 1998, some of the Holders of Interests in the
Partnership received from unaffiliated third parties unsolicited offers to
purchase up to 4.9% of the outstanding Interests in the Partnership at
prices of $50 and $105 per Interest, respectively. Such offers have
expired. The Special Committee recommended against acceptance of these
offers on the basis that, among other things, the offer prices were
inadequate. As of the date of this report, the Partnership is aware that
2.89% of the Interests have been purchased by all unaffiliated third
parties who have made unsolicited offers for Interests, either pursuant to
all such tender offers or through negotiated purchases. It is possible
that other offers for Interests may be made in the future. However, there
is no assurance that any such offer will be made, the terms of any such
offer or whether any such offer will be consummated, amended or withdrawn.
At June 30, 1998, the Partnership and its consolidated venture had
cash and cash equivalents of approximately $17,627,000. Such cash and cash
equivalents are available for capital improvements and other 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. The Partnership and its consolidated
venture have currently budgeted in 1998 approximately $177,000 (excluding
costs of the possible expansion and restructuring) of which approximately
$21,000 has been spent as of June 30, 1998 for tenant improvements and
other capital expenditures. The Partnership's share of such items,
including its share of such items for its unconsolidated venture, is
currently budgeted to be approximately $275,000 of which approximately
$28,000 has been spent as of June 30, 1998. Actual amounts expended in
1998 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 and whether the Palm Desert joint
venture proceeds with the possible expansion of the mall and restructuring
of the ground lease and mortgage loan. In addition, the Partnership has
entered into an agreement with Carlyle-XVII and the unaffiliated venture
partner in the Palm Desert joint venture pursuant to which the unaffiliated
joint venture has the option through August 14, 1998 to elect to purchase
the Partnership's and Carlyle-XVII's interests in the Palm Desert joint
venture for an aggregate purchase price of $7,000,000 (of which the
Partnership's share would be approximately $6,000,000). The unaffiliated
venture partner has requested an extension of the option expiration date,
and the Partnership and Carlyle-XVII are considering the request. Pursuant
to the option agreement, the Palm Desert joint venture made a distribution
to the Partnership and Carlyle-XVII in the aggregate amount of $740,000 (of
which the Partnership's share was approximately $635,000), which represents
undistributed net cash flow of the joint venture through the end of 1997.
All other funds and net cash flow of the joint venture during the term of
the option are to be held by the joint venture for its use, and if the sale
of the Partnership's and Carlyle-XVII's interests closes pursuant to the
option agreement, such funds and net cash flow will inure to the benefit of
the unaffiliated venture partner. Reference is made to the Notes for a
further discussion of the option agreement. In the event of a sale of its
interest pursuant to the exercise of such option, the Partnership would not
participate in, or be required to pay a share of the costs of, an expansion
of the mall and restructuring of the ground lease and mortgage loan for
Palm Desert. The Partnership may also use a portion of its reserves to pay
its share of the costs for a possible mall enhancement program at NewPark
Mall, although there are no specific plans currently for such a program.
During the second quarter the Partnership and Carlyle-XV commenced
marketing their interest in the NewPark joint venture for sale. There is
no assurance that a sale of the interest will occur.
On June 30, 1998, JMB/Owings collected approximately $5,598,000, of
which the Partnership's share is approximately $2,800,000, on the remaining
principal balance of the purchase price note received in the sale of its
interest in Owings Mills Shopping Center in 1993. In early July 1998,
JMB/Owings distributed approximately $3,033,000 to the Partnership which
represented the Partnership's share of the remaining operating cash flow
and proceeds from the collection of the purchase price note.
The source of capital for tenant improvements and other capital
expenditures and for both short-term and long-term future liquidity and
distributions is expected to be through net cash generated by the
investment properties, the Partnership's working capital reserve and from
the sale of such properties (or the Partnership's interest therein). Any
working capital reserves of the Partnership not ultimately used for tenant
improvements, other capital expenditures or working capital requirements
(including those relating to Palm Desert) would be available for future
distributions.
In May 1998, the Partnership made an annual distribution of cash
generated from operations of $2 per Interest.
After reviewing the remaining properties and the marketplaces in which
they operate, the General Partners of the Partnership expect to be able to
sell 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. Moreover, although the
Partnership expects to distribute sale proceeds from the disposition of
Palm Desert Town Center and NewPark Mall investment properties, aggregate
distributions of sale or 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, as
a result of sale or other disposition of properties (including a transfer
to a lender) or of the Partnership's interest in the properties, Holders of
Interest will be allocated gain for Federal income tax purposes, regardless
of whether any proceeds are distributable to the Holders of Interest from
such sale or other disposition. In this regard, the Partnership expects to
recognize a gain of approximately $7,500,000 for Federal income tax
purposes from the disposition in January 1998 of the 260 Franklin Street
building with no distributable proceeds from such disposition.
RESULTS OF OPERATIONS
The decrease in allowance for doubtful accounts at June 30, 1998 as
compared to December 31, 1997 and the decrease in rental income and
property operating expenses for the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997 is primarily due to the
resolution of litigation with a former tenant which resulted in the
reversal, in the first quarter of 1998, of a tenant receivable balance
which had been recognized in prior years and fully reserved for. The
allowance for doubtful accounts was also reduced in the first quarter of
1998 in conjunction with the reversal of the aforementioned tenant
receivable balance. The decrease was also due to the collection, in the
first quarter of 1998, of certain tenant accounts receivable balances which
were reserved for in prior years.
The decrease in prepaid expenses at June 30, 1998 as compared to
December 31, 1997 is primarily due to the timing of payment of insurance
premiums at Palm Desert Town Center.
The increase in investment in unconsolidated ventures, at equity, at
June 30, 1998 as compared to December 31, 1997 is primarily due to the
recognition of previously deferred gain in conjunction with the collection
of the remaining principal balance of the purchase price note received in
the sale of JMB/Owings interest in Owings Mills Shopping Center partially
offset by the distribution to the Partnership in the first quarter of 1998
of $1,000,000 of previously undistributed operating cash flow and proceeds
from the sale of JMB/Owings interest in Owings Mills.
The increase in accounts payable at June 30, 1998 as compared to
December 31, 1997 is primarily due to the Partnership's assumption of its
prorata share of the unpaid management and leasing fees payable to an
affiliate of the General Partners and to JMB (as a result of its payment
under a gurantee of such fees to the unaffiliated property manager) which
amount was transferred to the accounts of the Partnership upon the sale of
260 Franklin.
The unearned rents at December 31, 1997 is due to the prepayment of
rents at Palm Desert Town Center.
The decreased deficit in investment in unconsolidated ventures, at
equity, at June 30, 1998 as compared to December 31, 1997 is primarily due
to the disposition of the 260 Franklin Street property in the first quarter
of 1998.
The other income reported for the three and six months ended June 30,
1998 represents the Partnership's share of the consideration paid by the
unaffiliated venture partner of the Palm Desert Town Center during 1998
pursuant to the option agreement.
The decrease in depreciation expense for the three and six months
ended June 30, 1998 as compared to the three and six months ended June 30,
1997 is due to the Palm Desert Town Center being classified as held for
sale or disposition as of July 1, 1997, and therefore, no longer being
subject to continued depreciation.
The increase in venture partners' share of ventures' operations for
the three and six months ended June 30, 1998 as compared to the three and
six months ended June 30, 1997 is due to an increase in net operating
earnings at the Palm Desert Town Center primarily as a result of the
property being classified as held for sale or disposition as of July 1,
1997, and therefore, no longer being subject to continued depreciation.
The increase in Partnership's share of earnings (loss) from operations
of unconsolidated ventures for the three and six months ended June 30, 1998
as compared to the three and six months ended June 30, 1997 is primarily
due to the disposition of the 260 Franklin Street building on January 2,
1998.
The gain on sale of Partnership's investments in unconsolidated
ventures for the three and six months ended June 30, 1998 represents
recognition of deferred gain on sale of JMB/Owing's interest in Owings
Mills and gain on the disposition of the 260 Franklin Street building.
The extraordinary item for the six months ended June 30, 1998
represents the Partnership's share of the gain on forgiveness of
indebtedness resulting from the loan modification agreement with the lender
of the 260 Franklin Street building in which the lender waived accrued
unpaid interest for the period prior to January 1, 1998.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
OCCUPANCY
The following is a listing of approximate occupancy levels by quarter for the Partnership's investment
properties owned during 1998:
1997 1998
-------------------------------------- -------------------------------
At At At At At At At At
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---- ---- ---- ----- ---- ---- ----- -----
1. 260 Franklin Street Building
Boston, Massachusetts. . . . 96% 97% 98% 98% N/A N/A
2. NewPark Mall
Newark (Alameda County),
California . . . . . . . . . 75% 75% 76% 79% 77% 77%
3. Palm Desert Town Center
Palm Desert (Palm Springs),
California . . . . . . . . . 88% 86% 87% 88% 85% 84%
- --------------------
<FN>
An "N/A" indicates that the property was not owned by the Partnership at the end of the quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3-A. The Amended and Restated Agreement of Limited Partnership and
the Assignment Agreement set forth as Exhibit B to the Prospectus, copies
of which are hereby incorporated herein by reference to Exhibit 3 and
Exhibit 4-A to the Partnership's Report for December 31, 1992 on Form 10-K
(File No. 0-16516) dated March 19, 1993.
3-B. Acknowledgement of rights and duties of the General Partners of
the Partnership between ABPP Associates, L.P. (a successor Associated
General Partner of the Partnership) and JMB Realty Corporation as of
December 31, 1995 dated November 18, 1996 are hereby incorporated herein by
reference to the Partnership's Report for September 30, 1996 on Form 10-Q
(File No. 0-16516) dated November 8, 1996.
4-A. Documents relating to the loan modification of the mortgage loan
secured by the 260 Franklin Street Building is hereby incorporated herein
by reference to Exhibit 4-B to the Partnership's Report for December 31,
1991 on Form 10-K (File No. 0-16516) dated March 27, 1992.
4-B. Documents dated December 19,1995 relating to the Promissory Note
secured by NewPark Mall are hereby incorporated herein by reference to the
Partnership's Report for December 31, 1995 on Form 10-K (File No. 0-16516)
dated March 25, 1996.
4-C. Documents relating to the third mortgage modification and
extension agreement secured by the 260 Franklin Street Building dated
December 4, 1996 are hereby incorporated herein by reference to the
Partnership's Report for December 31, 1996 on Form 10-K (File No. 0-16516)
dated March 21, 1997.
10-A. 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-B. 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-C. 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-D. 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 herein by
reference to Exhibit 1 to the Partnership's Form 8-K (File No. 0-16516)
dated January 6, 1989.
10-E. Modification to Reserve Escrow Agreement relating to the 260
Franklin Street Building is hereby incorporated herein by reference to the
Partnership's Report for March 31, 1995 on Form 10-Q (File No. 0-16516)
dated May 11, 1995.
10-F. Modification Reserve Escrow Agreement relating to the 260
Franklin Street Building dated December 4, 1996 are hereby incorporated
herein by reference to the Partnership's Report for December 31, 1996 on
Form 10-K (File No. 0-16516) dated March 21, 1997.
10-G. Modification to Reserve Escrow Agreement relating to the 260
Franklin Street Building dated May 22, 1997 is incorporated herein by
reference to the Partnership's Report for June 30, 1997 on Form 10-Q (File
No. 0-16516) dated August 8, 1997.
10-H. Agreement for purchase and sale by 260 Franklin Street
Associates Trust of its interest in the 260 Franklin Street property is
hereby incorporated by reference to the Partnership's Report for January 2,
1998 on Form 8-K (File No. 0-16516) dated January 27, 1998.
10-I. Palm Desert Option Agreement by the Partnership and Carlyle-XVII
relating to the unaffiliated venture partner's option to purchase the
Partnership and Carlyle-XVII's interest in the joint venture dated March
11, 1998 is hereby incorporated by reference to the Partnership's Report
for March 31, 1998 on Form 10-Q (File No. 16516) dated May 13, 1998.
27. Financial Data Schedule
(b) No reports on Form 8-K was required to be filed during the last
quarter of the period covered by this quarterly report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
BY: JMB Realty Corporation
(Corporate General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
Date: August 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date: August 12, 1998