ITEM 1. BUSINESS
Unless otherwise indicated all references to "Notes" are to Notes to Consolidated Financial Statements contained in this report.
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 holders of 76,819.23 Interests were admitted to the Partnership in 1986 and the holders of 63,523.59534 Interests were admitted to the Partnership in 1987. 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 on or before December 31, 2036. Accordingly, the Partnership intends to hold the real properties it acquires for investment purposes until such time as sale or other disposition appears to be advantageous. Unless otherwise described, the Partnership expects to hold its properties for long-term investment. Due to current market conditions, the Partnership is unable to determine the holding period for such properties. 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.
The Partnership has made the real property investments set forth in the following table:
Reference is made to Note 8 and to Note 4 of Notes to Combined Statements for a schedule of minimum lease payments to be received in each of the next five years, and in the aggregate thereafter, under leases in effect at certain of the Partnership's properties as of December 31, 1994.
The Partnership's real property investments are subject to competition from similar types of properties (including, in certain areas, properties owned or advised 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 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 1994 and 1993 for the Partnership's investment properties owned during 1994:
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 1993 and 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1994, there were 16,256 record Holders of Interests of 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. 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. 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
On August 27, 1986, the Partnership commenced an offering of $250,000,000 (subject to increase by up to $250,000,000) of limited partnership interests (and assignee interests therein) pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The offering terminated on December 31, 1987. A total of 140,342.82534 Interests were issued by the Partnership and assigned to the public at $1,000 per Interest (fractional interests are due to a Distribution Reinvestment Program).
After deducting selling expenses and other offering costs, the Partnership had approximately $120,541,000 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.
At December 31, 1994, the Partnership and its consolidated ventures had cash and cash equivalents of approximately $14,267,000. Such funds and short-term investments of approximately $784,000 were available for distributions to partners, capital improvements and working capital requirements. Anticipated operating deficits at the 260 Franklin Street office building are expected to be paid out of the unconsolidated joint venture's restricted reserve account. The Partnership and its consolidated ventures have currently budgeted in 1995 approximately $620,000 for tenant improvements and other capital expenditures. The Partnership's share of such items, including its share of such items for its unconsolidated ventures is currently budgeted to be approximately $616,000. Actual amounts expended may vary depending on a number of factors including actual leasing activity, results of operations, liquidity considerations and other market conditions over the course of the year. The source of capital for such items and for both short-term and long-term future liquidity and distributions is expected to be through cash generated by the investment properties and from the sale and refinancing of such properties. In such regard, reference is made to the Partnership's property specific discussions below and also to the Partnership's disclosure of certain property lease expirations in Item 6. Because the cash flow from the Blue Cross Building was a significant portion of the Partnership's total operating cash flow, beginning in 1994, Partnership distributions to partners from operations were reduced.
The Partnership's and its ventures' mortgage obligations are non- recourse. Therefore, the Partnership and its ventures are not personally obligated to pay mortgage indebtedness. For any particular investment property that is incurring deficits, the Partnership or its ventures may seek a modification of existing indebtedness and, in the absence of a satisfactory debt modification, may decide, in light of the then existing and expected future market conditions for such investment property, not to commit additional funds to such investment property. This would result in the Partnership no longer having an ownership interest in such property and generally would result in taxable income to the Partnership with no corresponding distributable proceeds.
There are certain risks associated with the Partnership's investments made through joint ventures including the possibility that the Partnership's joint venture partner(s) in an investment might become unable or unwilling to fulfill its (their) financial or other obligations, or that such joint venture partner(s) may have economic or business interests or goals that are inconsistent with those of the Partnership.
The first mortgage loan secured by the Dunwoody Crossing Phase I and III Apartments was scheduled to mature in October 1994. The joint venture owning the property negotiated an extension of the mortgage loan until December 15, 1994. The joint venture then reached an agreement with the existing lender for a new loan, which requires monthly payments of principal and interest (8.65% per annum) of $171,737 beginning February 15, 1995 and continuing through November 15, 1997, when the remaining balance will be payable.
NewPark Associates commenced a renovation of NewPark Mall in early 1993 and such renovation was completed later that year. The approximate $14 million of excess proceeds from the refinancing of NewPark Associates' loans were sufficient to pay for substantially all of the renovation as well as tenant improvement costs incurred to date in connection with leasing vacant space at the mall. The mortgage note secured by the property matures November 1, 1995. The mortgage can be extended until November 1, 2000 upon payment of a $250,000 option fee and satisfaction of certain conditions (which the Partnership currently expects to be able to satisfy if required). The joint venture has commenced discussions with the existing lender regarding an extension of the loan. However, there can be no assurance that the joint venture will be able to obtain such an extension. Reference is made to Note 3(f).
In November 1994, JMB/125 and certain affiliates of Olympia & York Developments, Ltd. ("O&Y") reached an agreement to settle their dispute regarding 125 Broad and its property. Under the terms of the agreement, JMB/125 assigned its interest in 125 Broad to an affiliate of O&Y and released its venture partners (the "O&Y partners") from any claims related to 125 Broad. In return, JMB/125 received an unsecured promissory note in the principal amount of $5 million bearing simple interest at 4.5% per annum with all principal and accrued interest due at maturity in October 1999, subject to mandatory prepayments of principal and interest or acceleration of the maturity date under certain circumstances. In addition, JMB/125 received a release from any claims of certain O&Y affiliates and will generally be indemnified against any liability as a general partner of 125 Broad. JMB/125 was also relieved of any obligation to contribute cash to 125 Broad in the amount of its deficit capital account balance. Affiliates of O&Y subsequently filed a pre-arranged bankruptcy plan for reorganization of 125 Broad under Chapter 11 of the Bankruptcy Code in order to facilitate 125 Broad's transfer of the office building to the mortgage lender in satisfaction of the mortgage debt and other claims. In January 1995, the plan for reorganization was approved by the bankruptcy court, was consummated, and the bankruptcy was concluded.
Vacancy rates in the downtown Manhattan office market have increased significantly over the last few years. As vacancy rates rise, competition for tenants increases, which results in lower effective rental rates. The increased vacancy rate in the downtown Manhattan office market has resulted primarily from layoffs, cutbacks and consolidations by many of the financial service companies which, along with related businesses, dominate this submarket. The Partnership believed that these adverse market conditions and the negative impact on effective rental rates would continue over the next several years. The depressed market in downtown Manhattan has significantly affected the 125 Broad Street Building as the occupancy had decreased to 66%, at the date of assignment partially as a result of a major tenant vacating 395,000 square feet (30% of the building) at the expiration of its lease during 1991. Additionally, in October 1993, 125 Broad entered into an agreement with Salomon Brothers, Inc. to terminate its lease covering approximately 231,000 square feet (17% of the building) at the property on December 31, 1993 rather than its scheduled termination in January 1997. In consideration for the early termination of the lease, Salomon Brothers, Inc. paid 125 Broad approximately $26,500,000 plus interest thereon of approximately $200,000, which 125 Broad in turn paid its lender to reduce amounts outstanding under the mortgage loan. In addition, Salomon Brothers, Inc. paid JMB/125 $1,000,000 in consideration of JMB/125's consent to the lease termination. The property would be adversely affected by lower than originally expected effective rental rates to be achieved upon re-leasing of the space. The low effective rental rates coupled with the lower occupancy during the re-leasing period were expected to result in the property operating at a significant deficit in 1995 and for the next several years. The O&Y partners were obligated to fund (in the form of interest-bearing loans) operating deficits and costs of lease-up and capital improvements through the end of 1995. However, as discussed below, the O&Y partners were in default in respect to certain of their funding obligations, and it appeared unlikely that the O&Y partners would fulfill their obligations to 125 Broad and JMB/125. Releasing of the vacant space would depend upon, among other things, the O&Y partners advancing the costs associated with such releasing since JMB/125 did not intend to contribute funds to 125 Broad to pay such costs. Based on the facts discussed above and as described more fully in Note 3(b), 125 Broad recorded a provision for value impairment as of December 31, 1991 to reduce the net book value of the 125 Broad Street Building to the then outstanding balance of the related non-recourse financing and O&Y partner loans due to the uncertainty of the joint venture's ability to recover the net carrying value of the investment property through future operations or sale.
O & Y and certain of its affiliates have been involved in bankruptcy proceedings in the United States and Canada and similar proceedings in England. In addition, a reorganization of the management of the company's United States operations has been completed, and certain O&Y affiliates are in the process of renegotiating or restructuring various loans affecting properties in the United States in which they have an interest. In view of the financial condition of O&Y and its affiliates and the anticipated deficits for the property as well as the defaults of the O&Y partners, it appeared unlikely that the O&Y partners would meet their financial and other obligations to JMB/125 and 125 Broad.
The O&Y partners previously failed to advance necessary funds to 125 Broad as required under the joint venture agreement, and as a result, 125 Broad in June 1992 defaulted on its mortgage loan, which had an outstanding principal balance of approximately $277,000,000 by failing to pay approximately $4,722,000 of the semi-annual interest payment due on the loan. In addition, during 1992 affiliates of O&Y defaulted on a "takeover space" agreement with Johnson & Higgins, Inc. ("J&H"), one of the major tenants at the 125 Broad Street Building, whereby such affiliates of O&Y 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 assignment, and it was expected that J&H would continue to offset amounts due under its lease corresponding to amounts by which the affiliates of O&Y were in default under the "takeover space" agreement. As a result of the O&Y affiliates' default under the "takeover space" agreement and the continuing defaults of the O&Y partners to advance funds to cover operating deficits, as of the date of assignment, the arrearage under the mortgage loan had increased to approximately $69,447,000. However, as discussed above, approximately $26,700,000 was remitted to the lender in October 1993 in connection with the early termination of the Salomon Brothers lease, and was applied towards the 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 reserved 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 of accrued rents receivable relating to such J&H lease in 1992, since the ultimate collectability of such amounts depended upon the O&Y partners' and the O&Y affiliates' performance of their obligations. The Partnership's share of such losses was approximately $2,900,000, $3,725,000 and $8,106,000 for 1994, 1993 and 1992, respectively, and is included in the Partnership's share of loss from operations of unconsolidated ventures.
The office market in the Financial District of Boston remains competitive due to new office building developments and layoffs, cutbacks and consolidations by financial service companies. The effective rental rates achieved upon re-leasing have been substantially below the rates which were received under the previous leases for the same space. 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 property is currently expected to operate at a deficit for 1995 and for several years thereafter. 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 an affiliate) 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 Note 3(d), and accordingly, such fees and commissions remained unpaid. The Partnership's share of such fees and lease commissions is approximately $102,000 at December 31, 1994. In 1995, the leases of tenants occupying approximately 107,000 square feet (approximately 31% of the property) at the 260 Franklin Street Building expire. It is anticipated that there will be significant costs related to re-leasing this space. In addition, the long-term mortgage loan matures January 1, 1996. The Partnership will attempt to refinance or extend this loan when it matures, but there can be no assurance that the Partnership will be able to do so. If the Partnership is unable to refinance or extend the mortgage loan, the Partnership may decide not to commit any significant additional funds. This may result in the Partnership no longer having an ownership interest in the property. This would result in the Partnership recognizing a gain for financial reporting and Federal income tax purposes with no distributable proceeds.
In June 1993, JMB/Owings sold its interest in the Owings Mills Shopping Center for $9,416,000 represented by a purchase price note. Reference is made to Note 7(a).
The Partnership received (through joint ventures with affiliates) its specified cash returns relating to the Owings Mills Shopping Center (through the date of sale) and the Palm Desert Town Center through 1994, which were funded by unaffiliated venture partners pursuant to the terms of the joint venture agreements. In addition, the Partnership is receiving cash distributions from operations of the Dunwoody Crossing Apartments and NewPark Mall.
In January 1992, the prior parent organization of Macy's at NewPark Mall and Bullock's and Bullock's Mens at Palm Desert Town Center had filed for protection under Chapter 11 of the United States Bankruptcy Code. In December 1994, Macy's, Bullock's and Bullock's Mens were acquired by Federated Department Stores and were removed from protection under Chapter 11 of the United States Bankruptcy Code and the stores continue to operate at the centers. The Partnership received through December 1994 preferred returns of annual cash flow with respect to the Palm Desert Town Center investment property through the obligations of its unaffiliated joint venture partner. Since the preferred return period has expired as discussed above, the Partnership's share of cash flow will be subject to the operations of the property and may be lower than the return received in previous years.
On November 2, 1993, the Partnership through JMB/Warner Center Associates ("JMB/Warner") sold the Blue Cross Building to an unaffiliated buyer for a sale price of $76,909,292 of which the Partnership's share was $57,061,733. The sales price consisted of $23,300,000 (before costs of sale) paid in cash at closing and the assumption by the purchaser of the existing mortgage note having an unpaid amount of $53,609,292. Reference is made to Note 7(b). In February 1994, the Partnership made cash distributions to the Limited Partners that included $100 per Interest from proceeds received in connection with the sale of the Blue Cross Building.
Though the economy has recently shown signs of improvement and financing is generally becoming more available for certain types of higher- quality properties in healthy markets, real estate lenders are typically requiring a lower loan-to-value ratio for mortgage financing than in the past. This has made it difficult for owners to refinance real estate assets at their current debt levels unless the value of the underlying property has appreciated significantly. As a consequence, and due to the weakness of some of the local real estate markets in which the Partnership's properties operate, the Partnership is taking steps to preserve its working capital. Therefore, the Partnership is carefully scrutinizing the appropriateness of any discretionary expenditures, particularly in relation to the amount of working capital reserves it has available. By conserving working capital, the Partnership will be in a better position to meet future needs of its properties without having to rely on external financing sources.
The General Partners had deferred through December 31, 1992, their receipt of partnership management fees and distributions of net cash generated from operations. The cumulative amount of such deferrals at June 30, 1994 was $2,372,056. Such amount did not bear interest and was paid in full in July 1994. Beginning in 1993, the General Partners are receiving partnership management fees and distributions of net cash generated from operations. Reference is made to Note 9.
Due to the factors discussed above and the general lack of buyers of real estate today, it is likely that the Partnership may hold some of its investment properties longer than originally anticipated in order to maximize the recovery of its investments and any potential for returns thereon. Also, in light of the current severely depressed real estate markets, it currently appears that the Partnership's goal of capital appreciation will not be achieved. Although the Partnership expects to distribute from sale proceeds some additional portion of the Limited Partners' original capital, without a dramatic improvement in market conditions, the Limited Partners will receive significantly less than their original investment.
RESULTS OF OPERATIONS
At December 31, 1992, the Partnership owned an interest in seven operating investment properties. During 1993, the Partnership sold its interests in the Blue Cross Building and the Owings Mills Shopping Center (reference is made to Notes 7(a) and (b)). During 1994, the Partnership assigned its interest in the 125 Broad Street Building (reference is made to Note 7(c)). Reference is made to Notes 2 and 3 for a description of agreements which the Partnership, either directly or through joint venture partnerships, has entered into with sellers or affiliates of sellers of the Partnership's properties for the operation and management of such properties.
The increase in cash and cash equivalents and corresponding decrease in short-term investments at December 31, 1994 as compared to December 31, 1993 is primarily due to the majority of the Partnership's investments in U.S. Government obligations being classified as cash equivalents at December 31, 1994 as compared to December 31, 1993. (Reference is made to Note 1.) The decrease in the aggregate amount of cash and cash equivalents and short-term investments and interest, rents and other receivables at December 31, 1994 as compared to December 31, 1993 is primarily due to the distribution of $14,034,783 in February 1994 relating to the sale of the Blue Cross Building as discussed above.
The change in the asset, investment in unconsolidated ventures as of December 31, 1994 as compared to December 31, 1993 is primarily due to distributions from the Dunwoody Crossing Apartments in 1994.
The changes in the Partnership's liability investments in unconsolidated ventures at December 31, 1994 as compared to December 31, 1993 and the gain on sale or disposition of Partnership's investment in unconsolidated venture for the year ending December 31, 1994 is due to the assignment of the Partnership's interest in the 125 Broad Street Building as discussed above. The increase in Partnership's share of loss from operations of unconsolidated ventures for the year ended December 31, 1994 as compared to the year ended December 31, 1993 and the decrease in the Partnership's share of loss from operations of unconsolidated ventures and gain on sale of Partnership's investment in unconsolidated venture for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is primarily due to the sale of the Partnership's interest in Owings Mills and a decrease in the share of loss attributable to 125 Broad as a result of the Salomon Brothers lease termination payment in 1993 as discussed above. Reference is also made to Notes 3(b), 7(a) and (c).
The increase in accrued rents receivable and ground rent payable at December 31, 1994 as compared to December 31, 1993 is due to rental income accrued on a straight-line basis for certain tenants at Palm Desert Town Center. Reference is made to Notes 1 and 8(b).
The increase in accounts payable at December 31, 1994 as compared to December 31, 1993 is primarily due to the timing of payment of operating expenses at Palm Desert Town Center.
The decrease in unearned rents at December 31, 1994 as compared to December 31, 1993 is primarily due to the timing of receipt of rental income at Palm Desert Town Center.
The decrease in amounts due to affiliates at December 31, 1994 as compared to December 31, 1993 is primarily due to the payment in full of deferred management fees to the Corporate General Partner in July 1994. Reference is made to Note 9.
The decrease in venture partners subordinated equity in ventures at December 31, 1994 as compared to December 31, 1993 is primarily due to the distribution of remaining sales proceeds, from the Blue Cross Building in 1994.
The decrease in rental income, mortgage and other interest and depreciation for the year ended December 31, 1994 as compared to the year ended December 31, 1993 and for December 31, 1993 as compared to December 31, 1992 is primarily due to the sale of the Blue Cross Building in November 1993.
The decreases in interest income for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is primarily due to the Partnership earning lower interest rates on its interest bearing U.S. Government obligations.
The decrease in management fees to the Corporate General Partner for the year ended December 31, 1994 as compared to the years ended December 31, 1993 and 1992 is due to a decrease in the distribution paid to the partners, a portion of which is in the form of a management fee to the Corporate General Partner.
The increase in venture partner's share of ventures' operations for the years ended December 31, 1994 and 1993 as compared to the year ended December 31, 1992 is primarily due to a change in the allocation in 1994 and 1993 of operating losses to the venture partner to JMB/PDTC Associates in accordance with the venture agreement.
The loss on sale of investment property for the year ended December 31, 1993 is due to the sale of the Blue Cross Building in November 1994 as discussed above. 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.
To the extent that inflation in future periods does have an adverse impact on property operating expenses, the effect will 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.
Future inflation may also cause capital appreciation of the Partnership's investment properties over a period of time to the extent that rental rates and replacement costs of properties increase.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
INDEX
Independent Auditors' Report Consolidated Balance Sheets, December 31, 1994 and 1993 Consolidated Statements of Operations, Years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Partners' Capital Accounts (Deficits), Years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows, Years ended December 31, 1994, 1993 and 1992 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.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI CERTAIN UNCONSOLIDATED VENTURES
INDEX
Independent Auditors' Report Combined Balance Sheets, December 31, 1994 and 1993 Combined Statements of Operations, Years ended December 31, 1994, 1993 and 1992 Combined Statements of Partners' Capital Accounts (Deficits), Years ended December 31, 1994, 1993 and 1992 Combined Statements of Cash Flows, Years ended December 31, 1994, 1993 and 1992 Notes to Combined Financial Statements
SCHEDULE --------
Combined 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 Ventures 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 Ventures at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, 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.
KPMG PEAT MARWICK LLP
Chicago, Illinois March 27, 1995
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the accounts of the Partnership and its consolidated ventures, JMB/Warner Center Associates ("JMB/Warner") (note 3(g)) and JMB/Hahn PDTC Associates, L.P. ("Palm Desert") (note 3(h)). The effect of all transactions between the Partnership and its ventures has been eliminated. The Partnership, through JMB/Warner, sold the Blue Cross Building in November 1993.
The equity method of accounting has been applied in the accompanying consolidated financial statements with respect to the Partnership's interests (notes 3 and 10) 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 ("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 125 Broad Street Building.
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 ventures as described above. Such adjustments are not recorded on the records of the Partnership. The effect of these items for the years ended December 31, 1994 and 1993 is summarized as follows:
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The net 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.
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 ($14,137,500 and none at December 31, 1994 and 1993, respectively) as cash equivalents with any remaining amounts (generally with original maturities of one year or less) reflected as short-term investments being held to maturity.
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.
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated over their estimated useful lives. Provisions for value impairment are recorded with respect to the investment properties whenever the estimated future cash flows from a property's operations and projected sale are less than the property's net carrying value.
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 1993 and 1992 consolidated financial statements have been reclassified to conform to the 1994 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 required under applicable law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners.
(2) INVESTMENT PROPERTIES
The Partnership has acquired, through joint ventures, interests in three contiguous apartment complexes, three office buildings and three shopping centers. During 1993, the Partnership, through JMB /Warner, sold its interest in the Blue Cross Building and, through JMB/Owings, its interest in Owings Mills Mall (notes 7(a) and (b)). During 1994, the Partnership, through its indirect ownership of JMB/125 assigned its interest in the 125 Broad Street Building (note 7(c)). All of the properties owned at December 31, 1994 were in operation. The cost of the investment properties represents the total cost to the Partnership or its ventures plus miscellaneous acquisition costs.
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Depreciation on the consolidated investment properties has been provided over the estimated useful lives of 5 to 30 years using the straight-line method.
The investment properties are pledged as security for the long-term debt, for which generally there is no recourse to the Partnership.
(3) VENTURE AGREEMENTS
(a) General
The Partnership at December 31, 1994 is party to five joint venture agreements (JMB/Owings, JMB/125, 260 Franklin, Villages Northeast and JMB/NewPark) with Carlyle Real Estate Limited Partnership - XV ("Carlyle- XV") (and for JMB/125, Carlyle Advisors, Inc.), and two (JMB/Warner and Palm Desert) with Carlyle Real Estate Limited Partnership-XVII ("Carlyle- XVII"), all sponsored by the General Partners or their affiliates. The terms of these affiliated partnerships 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 $137,805,218 through December 31, 1994.
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, make 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 is 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 has 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 (notes 7(a) and (b)). In 1994, the Partnership through its indirect ownership of JMB/125 assigned its interest in the 125 Broad Street Building (note 7(c)). Certain of the ventures' properties have been financed under various long- term debt arrangements as described in note 4 and in note 3 of Notes to Combined Financial Statements 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.
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(b) JMB/125
In November 1994, the Partnership through its indirect ownership of JMB/125 assigned its interest in the 125 Broad Street Building (note 7(c)).
In December 1985, the Partnership, through the JMB/125 joint venture partnership, acquired an interest in an existing joint venture partnership ("125 Broad") which owns a 40-story office building, together with a leasehold interest in the underlying land, located at 125 Broad Street in New York, New York. In addition to JMB/125, the other partners (the "O&Y partners") of 125 Broad include O&Y 25 Realty Company L.P., Olympia & York Broad Street Holding Company L.P. (USA) and certain other affiliates of Olympia & York Developments, Ltd. ("O&Y").
JMB/125 is a joint venture between Carlyle-XVI Associates, L.P. (in which the Partnership holds a 99% limited partnership interest), Carlyle-XV Associates, L.P. and Carlyle Advisors, Inc. The terms of the JMB/125 venture agreement generally provide that JMB/125's share of 125 Broad's annual cash flow and sale or refinancing proceeds will be distributed or allocated to the Partnership in proportion to its (indirect) approximate 40% share of capital contributions to JMB/125. In April 1993, JMB/125, originally a general partnership, was converted to a limited partnership, and the Partnership's interest in JMB/125, which previously has been held directly, was converted to a limited partnership interest and was contributed to Carlyle-XVI Associates, L.P. in exchange for a limited partnership interest in Carlyle-XVI Associates, L.P. As a result of these transactions, the Partnership currently holds, indirectly through Carlyle- XVI Associates, L.P., an approximate 40% limited partnership interest in JMB/125. The general partner in each of JMB/125 and Carlyle-XVI Associates, L.P. is an affiliate of the Partnership. For financial reporting purposes, profits and losses of JMB/125 are generally allocated 40% to the Partnership.
JMB/125 acquired an approximately 48.25% interest in 125 Broad for a purchase price of $16,000,000, subject to a first mortgage loan of $260,000,000 and a note payable to an affiliate of the joint venture partners in the amount of $17,410,516 originally due September 30, 1989. In June 1987, the note payable was consolidated with the first mortgage loan forming a single consolidated note in the principal amount of $277,410,516. The consolidated note bore interest at a rate of 10-1/8% per annum payable in semi-annual interest only payments and was to mature on December 27, 1995. JMB/125 also contributed $14,055,500 to 125 Broad to be used for working capital purposes and to pay an affiliate of O&Y for its assumption of JMB/125's share of the obligations incurred by 125 Broad under the "takeover space" agreement described below. In addition, JMB/125 contributed $24,222,042, plus interest thereon of approximately $1,089,992, on June 30, 1986 for working capital purposes. Thus, JMB/125's original cash investment (exclusive of acquisition costs) was $55,367,534, of which the Partnership's share was approximately $22,147,000.
The land underlying the office building was subject to a ground lease which has a term through June 2067 and provided for annual rental payments of $1,075,000. The terms of the ground lease granted 125 Broad a right of first refusal to acquire the fee interest in the land in the event of any proposed sale of the land during the term of the lease and an option to purchase the fee interest in the land for $15,000,000 at 10-year intervals.
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The partnership agreement of 125 Broad, as amended, provided that the O&Y partners are 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 have 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.
The 125 Broad partnership agreement also provided that beginning in 1991, annual cash flow, if any, was distributable first to JMB/125 and to the O&Y partners in certain proportions up to certain specified amounts. Next, the O&Y partners were entitled to repayment of principal and any accrued but unpaid interest on the loans for certain tenant improvements, leasing expenses and operating deficits described above, and remaining annual cash flow, if any, was distributable approximately 48.25% to JMB/125 and approximately 51.75% to the O&Y partners. In general, operating profits or losses were allocable approximately 48.25% to JMB/125 and approximately 51.75% to the O&Y partners, except for certain specified items of profits or losses which were allocable to JMB/125 or the O&Y partners.
The 125 Broad partnership agreement further provided that, in general, upon sale or refinancing of the property, net sale or refinancing proceeds (after repayment of the outstanding principal balance and any accrued and unpaid interest on any loans from the O&Y partners described above) were distributable approximately 48.25% to JMB/125 and approximately 51.75% to the O&Y partners.
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As a result of the assignment by JMB/125 of its interest in 125 Broad to an affiliate of the O&Y partners and the release of JMB/125 of claims related to 125 Broad, JMB/125 was relieved of any obligation to contribute any additional amounts to 125 Broad, including any amount of its deficit capital account to 125 Broad. Reference is made to note 7(c).
In October 1993, 125 Broad entered into an agreement with Salomon Brothers, Inc. to terminate its lease covering approximately 231,000 square feet (17% of the building) at the property on December 31, 1993 rather than its scheduled termination in January 1997. In consideration for the early termination of the lease, Salomon Brothers, Inc. paid 125 Broad approximately $26,500,000, plus interest thereon of approximately $200,000, which 125 Broad in turn paid its lender to reduce amounts outstanding under the mortgage loan. In addition, Salomon Brothers, Inc. paid JMB/125 $1,000,000 in consideration of JMB/125's consent to the lease termination.
Due to the O&Y partners' previous failure to advance necessary funds to 125 Broad as required under the joint venture agreement, 125 Broad in June 1992 defaulted on its mortgage loan by failing to pay approximately $4,722,000 of the semi-annual interest payment due on the loan. As a result of this default, the loan agreement provided for a default interest rate of 13-1/8% per annum on the unpaid principal amount. In addition, during 1992 affiliates of O&Y defaulted on a "takeover space" agreement with Johnson & Higgins, Inc. ("J&H"), one of the major tenants at the 125 Broad Street Building, whereby such affiliates of O&Y agreed to assume certain lease obligations of J&H at another office building in consideration of J&H's leasing space in the 125 Broad Street Building. As a result of this default, J&H offset rent payable to 125 Broad for its lease at the 125 Broad Street Building in the amount of approximately $43,500,000 through the date of its assignment, and it was expected that J&H would continue to offset amounts due under its lease corresponding to amounts by which the affiliates of O&Y were in default under the "takeover space" agreement. As a result of the O&Y affiliates' default under the "takeover space" agreement and the continuing defaults of the O&Y partners to advance funds to cover operating deficits, as of the date of assignment,
the arrearage under the mortgage loan had increased to approximately $69,447,000. As discussed above, approximately $26,700,000 was remitted to the lender in October 1993 in connection with the early termination of the Salomon Brothers lease, and was applied towards mortgage principal for financial reporting purposes. Due to their obligations relating to the "takeover space" agreement, the affiliates of O&Y were obligated for the payment of the rent receivable associated with the J&H lease at the 125 Broad Street Building. Based on the continuing defaults of the O&Y partners, 125 Broad provided loss reserves for the entire 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 depends 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 is included in the Partnership's share of loss from operations of unconsolidated venture.
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The office building was being managed pursuant to a long-term agreement with an affiliate of the O&Y partners. Under the terms of the management agreement, the manager is obligated to manage the office building, collect all receipts from operations and to the extent available from such receipts pay all expenses of the office building. The manager was entitled to receive a management fee equal to 1% of gross receipts of the property.
(c) JMB/Owings
On June 30, 1993, JMB/Owings sold its interest in Owings Mills Shopping Center (note 7(a)).
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 which was completed in July 1986.
JMB/Owings acquired its interest in Owings Mills for an initial capital contribution of $500,000, subject to the interim mortgage loan of approximately $60,000,000 (maximum commitment $99,000,000). In July 1987, the permanent mortgage loan funded in the amount of $99,000,000, of which $90,000,000 represents financing of the venture and $9,000,000 represents financing of an affiliate of the joint venture partners with respect to its leasehold interest in the ground lease described below. JMB/Owings made additional capital contributions of $1,300,000 and $3,000,000 in December 1986 and July 1987, respectively. JMB/Owings was obligated to pay operating deficits of the shopping center incurred for the period from commencement of the shopping center operations (July 1986) through March 31, 1987, and JMB/Owings paid an affiliate of the developer a fee of $2,200,000 in December 1986 in consideration of its assumption of JMB/Owings's obligation to fund such operating deficits. Thus, JMB/Owings's original cash investment was $7,000,000, of which the Partnership's share was $3,500,000.
Operating profits and losses of Owings Mills, in general, were allocable 40% to JMB/Owings and 60% to the joint venture partners.
JMB/Owings had a cumulative preferred interest in net cash receipts (as defined) from the property. Such preferential interest related to a negotiated rate of return on contributions made by JMB/Owings. Such preferential interest was received through June 1993. After JMB/Owings received its preferential return, the joint venture partners were entitled to a non-cumulative return on their interest in Owings Mills; additional net cash receipts were to be shared in a ratio relating to the various ownership interests of JMB/Owings and its joint venture partners. JMB/Owings also had preferred positions (related to JMB/Owings's cash investment in Owings Mills) with respect to distribution of net sale or refinancing proceeds from Owings Mills.
Owings Mills had entered into a long-term ground lease under which it has leased approximately 79 acres of the land owned by Owings Mills to an affiliate of the joint venture partners. In general, all rent and proceeds of the sale of sub-parcels received by Owings Mills pursuant to the ground lease would have been distributable to the joint venture partners.
The shopping center was managed by an affiliate of the developer under a long-term agreement for a fee equal to 3-1/2% of the gross receipts of the property.
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(d) 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 is escrowing the payment of property management fees and leasing commissions to the affiliate pursuant to the terms of the debt modification described below. The property is currently managed by the purchaser of the affiliates assets on the same terms. Reference is made to Note 6.
The office market in the Financial District of downtown Boston remains competitive due to new office building developments and layoffs, cutbacks and consolidations by many of the financial service companies which, along with related businesses, dominate this sub-market. Due to the competitive nature of the Boston office market, various rental concessions and lower effective rates have been required to facilitate leasing at the property. This resulted in uncertainty as to 260 Franklin's ability to recover the net carrying value of the investment property through future operations and sales. As a matter of prudent accounting practice, a provision for value impairment of such investment property of $17,120,734 was recorded as of December 31, 1990. The Partnership's share of such provision was $5,136,220. Such provision was recorded to reduce the net book value of the investment property to the then outstanding balance of the related non- recourse financing. The property is currently expected to operate at a deficit for 1995 and for several years thereafter. In 1995, the leases of tenants occupying approximately 107,000 square feet (approximately 31% of the property) at the 260 Franklin Street Building expire. It is anticipated that there will be significant cost related to re-leasing this space. In addition, the long-term mortgage loan matures January 1, 1996. The Partnership will attempt to refinance this loan when it matures, but there can be no assurance the Partnership will be able to obtain such financing. If the Partnership is unable to refinance or extend the mortgage loan, the Partnership may decide not to commit any significant additional funds. This may result in the Partnership no longer having an ownership interest in the property. This would result in the Partnership recognizing a gain for financial reporting purposes.
260 Franklin reached an agreement with the lender to modify the terms of the long-term mortgage note secured by the 260 Franklin Street Building in December 1991. The modified mortgage note currently provides for monthly payments of interest only based upon the then outstanding balance at a rate of 8% per annum. Upon the scheduled or accelerated maturity, or prepayment of the mortgage loan, 260 Franklin shall be obligated to pay an amount sufficient to provide the lender with an 11% per annum yield on the mortgage note from January 1, 1991 through the date of maturity (January 1, 1996) or prepayment. In addition, upon maturity or prepayment, 260 Franklin is obligated to pay to the lender a residual interest amount equal to 60% of the highest amount, if any, of (i) net sales proceeds, (ii) net refinancing proceeds, or (iii) net appraisal value, as defined. 260 Franklin is required to (i) escrow excess cash flow from operations, beginning in 1991, to cover future cash flow deficits, (ii) make an initial
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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 is 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 ($1,151,566 used as of December 31, 1994) as defined, with the balance, if any, (including interest) 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.
(e) Villages Northeast
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, formerly known as Post Crest Apartments, Post Terrace Apartments and Post Crossing Apartments, respectively, located near Atlanta, Georgia.
Villages Northeast acquired its interest in the apartment complexes from an affiliate of the developer for a purchase price of $35,027,117 paid at closing, subject to an existing first mortgage loan of $9,557,600 secured by the Dunwoody Crossing (Phase II). Villages Northeast and the seller formed Post Associates with each contributing its interest in the complexes to Post Associates. In addition, Villages Northeast contributed $1,371,043 to Post Associates to pay certain expenses in connection with the retirement of indebtedness related to the complexes.
As contemplated at the time of acquisition, in September 1987 an additional mortgage loan funded in the amount of $21,000,000, of which the Partnership's share was $6,300,000. The note was secured by the Dunwoody (Phase I and III) Apartments, bore interest at a rate of 9.75% and required monthly debt service payments consisting of interest only through April 1991 and monthly payments of $180,425 thereafter 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. Thus, Villages Northeast's cash investment was approximately $15,398,000, of which the Partnership's share was approximately $4,619,000. 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 requires monthly payments of principal and interest (8.65% per annum) of $171,737 beginning February 15, 1995 and continuing through November 15, 1997, when the remaining balance will be payable.
Post Associates refinanced the first mortgage loan of approximately $9,467,000 secured by the Dunwoody (Phase II) Apartments effective October 6, 1992, with a $9,800,000 replacement loan from an institutional lender. The new first mortgage loan, bearing interest of 7.64% per annum, is collateralized by the property and requires monthly payments of principal and interest of $73,316 beginning November 1, 1992 and continuing through November 1, 1997, when the remaining balance is payable.
Villages Northeast is entitled to a cumulative preferred return of annual net cash receipts (as defined) from the properties. Such preferential return relates to a negotiated rate of return on contributions made by Villages Northeast. Villages Northeast has received cash distributions from property operations through December 31, 1994. In addition, pursuant to the terms of the venture agreement, the unaffiliated
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venture partner was obligated to fund the shortfall in the Villages Northeast's cumulative preferred cash return through September 30, 1990, all of which was received. After Villages Northeast receives its preferential return, the unaffiliated venture partner is entitled to a non-cumulative return on its interest in the venture; additional net cash receipts are shared in a ratio relating to the various ownership interests of Villages Northeast (90%) and its unaffiliated venture partner (10%). Villages Northeast also has 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, are 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 are 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 are 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. The property is currently being managed by the purchaser of the affiliate's assets on the same terms. Reference is made to Note 6.
(f) JMB/NewPark
In December 1986, the Partnership, through the JMB/NewPark joint venture partnership, acquired an interest in an existing joint venture partnership ("NewPark Associates") with the developer which owns an interest in an existing enclosed regional shopping center in Newark, California known as NewPark Mall.
JMB/NewPark acquired its 50% interest in NewPark Associates for a purchase price of $32,500,000 paid in cash at closing, subject to an existing first mortgage loan of approximately $23,556,000, and certain loans from the joint venture partner of approximately $6,300,000.
In 1990, NewPark Associates reached an agreement with J.C. Penney to open an anchor store at NewPark Mall, which opened in November 1991. Under the terms of the agreement, J.C. Penney built its own store and NewPark Associates constructed a parking deck to accommodate the addition of J.C. Penney to the center. NewPark Associates incurred costs of approximately $10,400,000 related to this addition, of which $2,000,000 was reimbursed by J.C. Penney. The unaffiliated joint venture partner loaned NewPark Associates all of the funds to cover the costs incurred related to the addition. In December 1992, proceeds from the refinancing described below were used to repay all amounts due to the unaffiliated joint venture partner.
On December 31, 1992, NewPark Associates refinanced the shopping center with an institutional lender. The new mortgage note payable in the principal amount of $50,620,219 is due on November 1, 1995. Monthly payments of interest only of $369,106 were due through November 30, 1993. Commencing on December 1, 1993 through October 30, 1995, principal and interest are due in monthly payments of $416,351 with a final balloon payment due November 1, 1995. Interest on the note payable accrues at 8.75% per annum. The joint venture has an option to extend the term of the mortgage note payable to November 1, 2000 upon payment of a $250,000 option fee and satisfaction of certain conditions (which the Partnership currently
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expects to be able to satisfy if required) as specified in the mortgage note. The joint venture has commenced discussions with the existing lender regarding an extension of the loan, however, there can be no assurance that the joint venture will be able to obtain such an extension. 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 and the notes payable to the unaffiliated joint venture partner. NewPark Associates commenced a renovation of approximately $14 million at NewPark Mall in early 1993 and such renovation was completed later that year.
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.
The portion of the shopping center owned by NewPark Associates is managed by the unaffiliated joint venture partner under a long-term agreement pursuant to which it is obligated to manage the property and collect all receipts from operations of the property. The joint venture partner is paid a management fee equal to 4% of the fixed and percentage rent.
(g) JMB/Warner
On November 2, 1993, the Partnership through JMB/Warner sold its interest in the Blue Cross Building (note 7(b)).
In December 1987, the Partnership, through a joint venture partnership (JMB/Warner), (with Carlyle-XVII) acquired an interest in an existing five- structure office complex in Woodland Hills (Los Angeles), California known as the Blue Cross Building. The purchase price of the property of $90,000,000 was paid in cash at closing. During 1989, JMB/Warner obtained a permanent mortgage loan in the principal amount of $55,000,000 secured by the Blue Cross Office Building. Thus, JMB/Warner's initial cash investment in the property, excluding certain acquisition costs, was approximately $35,000,000, of which the Partnership's share was $25,967,742 (or approxi- mately 74%). The JMB/Warner venture agreement generally provided that any allocation of profits or losses and distributions of cash flow, net sale proceeds or net financing proceeds were to be distributed or allocated, as the case may be, to the Partnership in proportion to its capital contributions.
In connection with the sale of the property to JMB/Warner, the seller had entered into a triple net lease of the entire office complex, which the seller has occupied since its construction. The obligations under such lease were secured by certain collateral pledged by the seller/tenant which was subsequently released, as described below. The lease had an initial term of 13-1/2 years for certain space and 15-3/4 years for the remainder of the property with three five-year renewal options. The lease provided for an initial annual base rent of $7,947,000 with periodic increases in the annual base rent equal to the lesser of (i) the periodic increase in a consumer price index, or (ii) 5% per annum compounded over the period. In general, the tenant was also obligated to pay the cost of property taxes and operating and maintenance expenses (other than the cost of flood or earthquake insurance) during the initial lease term and any renewal period.
Commencing in 1993, JMB/Warner was obligated to pay the cost of any structural maintenance and repairs and any expenses for changes in the office complex attributable to governmental compliance. As a result of the sale of its interest, JMB/Warner was relieved of such obligations.
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As contemplated at the time of acquisition, the seller/tenant of the Blue Cross Building sold to an affiliate of the General Partners of the Partnership an 85% interest in approximately 24 acres of land adjacent to the property owned in fee simple by the seller/tenant, and a joint venture was formed between such affiliate and the seller/tenant to develop a major commercial center on such property. As of the date of sale, there had not been any significant development activity relating to such property. In connection with this transaction, the collateral securing the seller/tenant obligations under the lease was terminated and such affiliate issued a guaranty to JMB/Warner to secure the obligations of the seller/tenant up to $35,000,000, subject to certain conditions. In connection with JMB/Warner's sale of the Blue Cross Building, this guarantee was terminated.
(h) 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 (note 4), 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, 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 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 was received through December 31, 1994. 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
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 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 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, 1994, 1993 and 1992 was $1,347,204, $1,015,968 and $1,021,382, 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. Reference is also made to Note 8(b).
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 1994 and 1993, in accordance with the Palm Desert partnership 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. For 1992, profits and losses were allocated in accordance with the cash flow distributed.
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.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The shopping center is being managed pursuant to a long-term agreement with an affiliate of the joint venture partner. The manager is paid a fee equal to 3% of the base and percentage rents collected under tenant leases, increasing to 4% of the base and percentage rents for those years that the Partnership and Carlyle-XVII have received their current cash return and all of their cumulative preferred return for current and previous periods. In addition, under the terms of the management agreement, the manager or an affiliate will be entitled to receive compensation for leasing services.
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1994 and 1993:
1994 1993 ------------ ------------ 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. . . . . . . . $42,164,903 42,448,451 ----------- -----------
Total debt . . . . . . . . . . . 42,164,903 42,448,451 Less current portion of long-term debt . . . . . . . . 319,509 283,548 ----------- -----------
Total long-term debt . . . . . . $41,845,394 42,164,903 =========== ===========
Five year maturities of long-term debt are summarized as follows:
1995. . . . . . . . $319,509 1996. . . . . . . . 360,031 1997. . . . . . . . 405,692 1998. . . . . . . . 457,143 1999. . . . . . . . 515,121 ========
(5) 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.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 (note 9). The deferred amounts are payable out of any "net cash receipts" and "sales 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 from the sale of a real property by the Partnership up to 3% of the selling price, and that the remaining proceeds (net after expenses and retained working capital) be distributed 85% to the Holders of Interest and 15% to the General Partners. However, prior to such distributions the Holders of Interest are entitled to receive 99% and the General Partners 1% of net sale or refinancing proceeds until the Holders of Interest (i) have received cash distributions of "sale proceeds" or "refinancing proceeds" in an amount equal to the Holders' of Interest aggregate initial capital investment in the Partnership and (ii) have received cumulative cash distributions from the Partnership's operations which, when combined with "sale proceeds" or "refinancing proceeds" previously distributed, equal a 6% annual return on the Holders' of Interest average capital investment for each year (their initial capital investment as reduced by "sale proceeds" or "refinancing proceeds" previously distributed) commencing with the third fiscal quarter of 1987. The General Partners have elected to waive their right to receive their distributive share of up to 3% of the sale price of the Blue Cross Building.
(6) MANAGEMENT AGREEMENTS
Certain of the Partnership's properties have been managed by an affiliate of the General Partners for fees computed as a percentage of certain rents received by the properties. In December 1994, the affiliated property manager sold substantially all of its assets and assigned its interest in its management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. The successor to the affiliated property manager's assets is acting as the property manager of Dunwoody Crossing Apartments (Phases I, II and III) and 260 Franklin Office Building after the sale on the same terms that existed prior to the sale.
(7) SALE OF INVESTMENT PROPERTIES
(a) JMB/Owings
On June 30, 1993, JMB/Owings sold its partnership interest in Owings Mills Limited Partnership ("OMLP"), which owns an allocated portion of the land, building and related improvements of the Owings Mills Mall located in Owings Mills, Maryland. The purchaser, O.M. Investment II Limited Partnership, is an affiliate of the Partnership's joint venture partner in OMLP. CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The sale price of the interest in OMLP was $9,416,000, all of which was received in the form of a promissory note. In addition, the Partnership and Carlyle-XV were relieved of their allocated portion of the debt secured by the property. The promissory note (which is secured by a guaranty from an affiliate of the purchaser and of the Partnership's joint venture partner in OMLP) bears interest at a rate of 7% per annum unless a certain specified event occurs, in which event the rate would increase to 8% per annum for the remainder of the term of the note. The promissory note requires principal and interest payments of approximately $109,000 per month with the remaining principal balance of approximately $5,500,000 due and payable on June 30, 1998. The monthly installment of principal and interest would be adjusted for the increase in the interest rate if applicable. Early prepayment of the promissory note may be required under certain circumstances including the sale or further encumbrance of Owings Mills Mall.
The net cash proceeds and gain from sale of the interest in OMLP will be allocated 50% to the Partnership and 50% to Carlyle-XV in accordance to the JMB/Owings Mills Associates partnership agreement.
For financial reporting purposes, JMB/Owings recognized, on the date of sale, gain of $5,254,855, of which the Partnership's share is $2,627,427, attributable to JMB/Owings being relieved of its obligations under the OMLP's partnership agreement pursuant to the terms of the sale agreement. The Partnership has adopted the cost recovery method until such time as the purchaser's initial investment is 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 is $10,305,310 of which the Partnership's share is $5,152,655. The Partnership expects to recognize a portion of the deferred gain in 1995 when it collects a sufficient amount of the purchaser's investment in accordance with SFAS #66.
(b) JMB/Warner
On November 2, 1993, JMB/Warner sold the Blue Cross Building to an unaffiliated buyer for a sales price of $76,909,292 of which the Partnership's share was $57,061,733. The sales price consisted of $23,300,000 (before costs of sale) paid in cash at closing and the assumption by the purchaser of the existing mortgage note having an unpaid amount of $53,609,292. For financial reporting purposes, the Partnership allocated approximately $735,000 of prorations to the purchase price. The Partnership's share of net cash proceeds (before costs of sale and after consideration of the prorations) was approximately $17,833,000. In 1994, the Partnership distributed $1,078,168 to the affiliated venture partner, Carlyle-XVII. As a result of the sale, the Partnership recognized in 1993 a loss of $299,039 and a gain of $1,837,983 for financial reporting and Federal income tax purposes, respectively.
(c) JMB/125
On November 15, 1994, effective as of October 31, 1994, JMB/125 and certain affiliates of O&Y reached an agreement to settle their disputes regarding 125 Broad and its property. Under the terms of the agreement, JMB/125 assigned its interest in 125 Broad to an affiliate of O&Y and released the O&Y partners from any claims related to 125 Broad. In return, JMB/125 received an unsecured promissory note in the principal amount of $5 million bearing simple interest at 4.5% per annum with all principal and accrued interest due at maturity in October 1999, subject to mandatory prepayments of principal and interest or acceleration of the maturity date
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
under certain circumstances. As of December 31, 1994, the note has been fully reserved for by JMB/125. 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 plans 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 is $20,162,696 and $17,786,455 for financial reporting and Federal income tax purposes, respectively.
(8) LEASES
(a) As Property Lessor
At December 31, 1994, the Partnership and its consolidated ventures' 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 properties, 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:
1995 . . . . . . . . . . . . . . . . $ 7,838,734 1996 . . . . . . . . . . . . . . . . 7,053,208 1997 . . . . . . . . . . . . . . . . 6,759,832 1998 . . . . . . . . . . . . . . . . 6,184,821 1999 . . . . . . . . . . . . . . . . 5,199,109 Thereafter . . . . . . . . . . . . . 22,386,073 ----------- $55,421,777 ===========
(b) As Property Lessee
The following lease agreement has been determined to be an operating lease:
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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, 1994, 1993 and 1992 was $1,347,204, $1,015,968 and $1,021,382, respectively. Actual cash payments for 1994, 1993 and 1992 were $1,050,000, $900,000, and $900,000, respectively.
Future minimum rental commitments under the lease are as follows:
1995 . . . . . . . . . . . $ 900,000 1996 . . . . . . . . . . . 900,000 1997 . . . . . . . . . . . 900,000 1998 . . . . . . . . . . . 900,000 1999 . . . . . . . . . . . 900,000 Thereafter . . . . . . . . 35,100,000 ----------- $39,600,000 ===========
(9) 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 (see note 5). The cumulative combined amount of such deferred distributions and management fees aggregated $2,372,056 at December 31, 1993. In July 1994, the Partnership paid the cumulative combined amount of such deferred distributions and management fees to the General Partners. All amounts deferred did not bear interest and were paid in full.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fees, commissions and other expenses required to be paid by the Partnership (or its consolidated ventures) to the General Partners and their affiliates as of December 31, 1994 and for the years ended December 31, 1994, 1993 and 1992 are as follows: UNPAID AT DECEMBER 31, 1994 1993 1992 1994 -------- -------- -------- ------------
Insurance commissions. . . .$ 24,307 28,810 17,634 -- Reimbursement (at cost) for administrative and accounting services . . . .133,937 76,669 90,567 26,999 Reimbursement (at cost) for data processing . . . . -- -- 434 -- Reimbursement (at cost) for legal services. . . . . 906 6,775 5,106 -- Management fees to Corporate General Partner .155,942 331,376 331,376 38,985 Reimbursement (at cost) for out-of-pocket expenses. 4,050 29,407 14,421 -- -------- -------- -------- ------- $319,142 473,037 459,538 65,984 ======== ======== ======== =======
The Corporate General Partner and its affiliates are entitled to reimbursement for salaries (and salary related expenses) and direct expenses of officers and employees of the Corporate General Partner and its affiliates while directly engaged in the administration of the Partnership.
(10) UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
Summary combined financial information for JMB/125 (through the effective date of assignment - October 31, 1994), JMB/Owings, and OMLP (through the date of sale - June 30, 1993), 260 Franklin, Villages Northeast and JMB/NewPark are as follows:
1994 1993 ----------- ------------
Current assets . . . . . . . . . $ 8,923,337 21,169,710 Current liabilities, including $296,919,801 of mortgage debt in default in 1993 (note 3(b)) . . . . . . . . . . (3,031,777) (325,829,424) ------------ ------------ Working capital (deficit). . 5,891,560 (304,659,714) ------------ ------------ Deferred expenses and accrued rents receivable. . . . . . . . 1,407,694 35,176,540 Ventures partners' equity. . . . (33,657,364) (13,051,155) Investment properties, net . . . 192,034,618 437,509,566 Other liabilities. . . . . . . . (2,017,084) (9,887,673) Long-term debt . . . . . . . . . (166,010,116) (158,357,756) ------------ ------------ Partnership's capital (deficit) . . . . . . . . . $ (2,350,692) (13,270,192) ============ ============
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
1994 1993 ----------- ------------ Represented by: Invested capital . . . . . . . $ 57,873,483 57,623,233 Cumulative cash distributions. (20,462,902) (19,275,162) Cumulative losses. . . . . . . (39,761,273) (51,618,263) ------------ ------------ $ (2,350,692) (13,270,192) ============ ============
Total income . . . . . . . . . . $ 61,459,559 104,538,897 Expenses applicable to operating loss . . . . . . . . 103,034,572 134,358,616 ------------ ------------ Net operating loss . . . . . . . (41,575,013) (29,819,719) Gain on sale or disposition of investment in uncon- solidated ventures (notes 7(a) and (c)) . . . . . 52,412,102 5,254,855 Loss on sale of investment property (note 7(b)) . . . . . -- (37,383) ------------ ------------ Net income (loss) (see note 3(b)). . . . . . $ 10,837,089 (24,602,247) ============ ============ Partnership's share of income (loss) . . . . . . . . . . . . $ 11,856,990 (2,224,720) ============ ============
Additionally, for the year ended December 31, 1992, total income was $88,026,766, expenses applicable to operating loss were $160,292,419 and the net loss was $72,265,653 for the unconsolidated ventures listed above.
(11) SUBSEQUENT EVENT - DISTRIBUTIONS
In February 1995, the Partnership paid an operating distribution of $561,383 ($4 per Interest) and $63,488 to the General Partners (of which $39,680 constituted a management fee).
INDEPENDENT AUDITORS' REPORT
The Partners CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XVI:
We have audited the combined financial statements of Certain Uncon- solidated Joint Ventures of Carlyle Real Estate Limited Partnership-XVI (note 1) as listed in the accompanying index. In connection with our audits of the combined financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These combined 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 combined 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 combined financial statements referred to above present fairly, in all material respects, the financial position of Certain Unconsolidated Joint Ventures of Carlyle Real Estate Limited Partnership-XVI at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic combined financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The accompanying Combined Financial Statements and Financial Statement Schedule have been prepared assuming that the ventures comprising Certain Unconsolidated Joint Ventures of Carlyle Real Estate Limited Partnership- XVI will continue as going concerns. 260 Franklin Street Associates (260 Franklin) comprises 100%, 27.4%, and 12% of combined assets, revenues, and net loss, respectively, in the accompanying Combined Financial Statements as of and for the year ended December 31, 1994. As discussed in Note 3(d) of the Partnership's Notes to Consolidated Financial Statements, incorporated by reference in Note 2 of the Combined Financial Statements, the 260 Franklin Street Building is expected to operate at a deficit for 1995 and several years thereafter. In addition, the mortgage loan matures January 1, 1996. The Partnership will attempt to refinance this loan, but there can be no assurance that such efforts will be successful. If the Partnership is unable to refinance or extend the mortgage loan, the Partnership may decide not to commit additional funds to the property. This may result in the Partnership no longer having an ownership interest in the property. These circumstances raise substantial doubt about 260
(Continued)
Franklin's ability to retain its ownership interest in the 260 Franklin Street Building and continue as a going concern. The General Partners' plans with regard to this matter are also described in Note 3(d) of the Partnership's Notes to Consolidated Financial Statements. The accompanying Combined Financial Statements and Financial Statement Schedule do not include any adjustments that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
Chicago, Illinois March 27, 1995
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI CERTAIN UNCONSOLIDATED VENTURES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) ORGANIZATION AND BASIS OF ACCOUNTING
The accompanying combined financial statements have been prepared for the purpose of complying with Rule 3.09 of Regulation S-X of the Securities and Exchange Commission. They include the accounts of certain of the unconsolidated joint ventures in which Carlyle Real Estate Limited Partnership-XVI ("Carlyle-XVI" or "Partnership") owns a direct interest. Also included are the accounts of certain of those joint venture partnerships (underlying ventures) in which Carlyle-XVI owned an indirect interest through one of the unconsolidated joint ventures. Certain unconsolidated ventures previously included in the combined financial statements have been excluded. The entities included in the combined financial statements are as follows:
VENTURE DATE ACQUIRED ------- -------------
1. Carlyle-XVI Associates, L.P. (a) - JMB/125 Broad Building Associates, L.P. ("JMB/125") (b) 12/31/85 - 125 Broad Street Company (b)
2. 260 Franklin Street Associates ("260 Franklin") (a) 5/21/86
(a) Represents an unconsolidated venture in which Carlyle-XVI owns a direct ownership interest.
(b) Represents a joint venture in which Carlyle-XVI owned an indirect ownership interest through an unconsolidated venture.
For purposes of preparing the combined financial statements, the effect of all transactions between an unconsolidated joint venture and an underlying venture has been eliminated.
In November 1994, effective October 31, 1994, the Partnership through its indirect ownership of JMB/125 assigned its interest in the 125 Broad Street Building to the unaffiliated venture partner. Reference is made to Notes 3(b) and 7(c) of Notes to Consolidated Financial Statements of Carlyle-XVI. Therefore, the balance sheet presented as of December 31, 1994 does not contain 125 Broad Street as the net assets were deemed to be distributed to the venture partners as of the assignment date. The statement of operations and cash flows for the year ended December 31, 1994 contain 125 Broad Street Company activity through October 31, 1994.
The records of the ventures are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying combined financial statements have been prepared from such records after making appropriate adjustments to reflect the ventures' accounts in accordance with generally accepted accounting principles. Such adjustments are not recorded on the records of the ventures.
Statement of Financial Accounting Standards No. 95 requires the ventures 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. The ventures record amounts held in U.S. government obligations at costs which
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI CERTAIN UNCONSOLIDATED VENTURES
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
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 as cash equivalents with any remaining amounts (generally with original maturities of one year or less) reflected as short-term investments being held to maturity.
Deferred expenses are comprised of deferred leasing costs, which are amortized using the straight-line method over the terms of the related leases and financing costs which are amortized over the term of the related debt.
Depreciation on the investment properties has been provided over the estimated useful lives of 5 to 30 years using the straight-line method.
Investment property is pledged as security for the long-term debt, for which there is no recourse to the venture.
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated over their estimated useful lives. Provisions for value impairment are recorded with respect to the investment property whenever the estimated future cash flows from a property's operations and projected sale are less than the Property's net carrying value.
Certain amounts in the 1992 and 1993 combined financial statements have been reclassified to conform to the 1994 presentation.
Although certain leases 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 ventures accrue prorated rental income for the full period of occupancy on a straight-line basis.
No provision for State or Federal income taxes has been made as the liability for such taxes is that of the venture partners rather than the ventures.
As more fully described in Note 3(b) of Notes to the Consolidated Financial Statements of Carlyle-XVI, JMB/125 reserved for certain receivables relating to one of the major tenants at 125 Broad Street. In 1992, 125 Broad reserved for approximately $32,600,000 of accrued rents receivable relating to such tenant's lease. Additionally, 125 Broad provided for additional losses of approximately $14,900,000, $19,300,000 and $9,300,000 in 1994, 1993 and 1992, respectively, relating to amounts currently due from the O&Y partners relating to such tenant's lease.
In October 1993, 125 Broad entered into an agreement with Salomon Brothers, Inc. to terminate its lease covering approximately 236,000 square feet at the property on December 31, 1993 rather than its scheduled termination in January 1997. In consideration for the early termination of the lease, Salomon Brothers, Inc. paid 125 Broad approximately $26,700,000, which 125 Broad in turn paid to its lender to reduce mortgage principal outstanding under the mortgage loan. In addition, Salomon Brothers, Inc. paid JMB/125 $1,000,000 in consideration of JMB/125's consent of the lease termination.
(2) VENTURE AGREEMENTS
A description of the venture agreements is contained in Note 3 of Notes to Consolidated Financial Statements of Carlyle-XVI. Such note is hereby incorporated herein by reference.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI CERTAIN UNCONSOLIDATED VENTURES
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
As of December 1993, accrued interest relating to the 125 Broad Street mortgage note in default was $48,180,063.
Included in the above total long-term debt is $10,485,882 and $8,738,425 for 1994 and 1993, respectively, which represents mortgage interest accrued but not currently payable pursuant to the terms of the 260 Franklin mortgage note.
Five year maturities of long-term debt are as follows:
1995. . . . . . . . . $ -- 1996. . . . . . . . . 85,376,895 1997. . . . . . . . . -- 1998. . . . . . . . . -- 1999. . . . . . . . . -- ============
(4) LEASES
(a) As Property Lessor
At December 31, 1994, the property in the combined group consisted of an office building. The ventures have determined that all leases relating to the properties are properly classified as operating leases; therefore, rental income is reported when earned and the cost of each of the properties, 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:
1995. . . . . . . . . $ 7,972,632 1996. . . . . . . . . 5,988,083 1997. . . . . . . . . 3,681,702 1998. . . . . . . . . 3,105,684 1999. . . . . . . . . 3,025,911 Thereafter. . . . . . 3,986,973 -----------
$27,760,985 =========== CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI CERTAIN UNCONSOLIDATED VENTURES
NOTES TO COMBINED FINANCIAL STATEMENTS - CONCLUDED
(5) TRANSACTIONS WITH AFFILIATES
An affiliate of the Corporate General Partner has provided property management services at 260 Franklin Street since June of 1988. Additionally, during 1994, 1993 and 1992, an affiliate of the Corporate General Partner provided leasing services. 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 payable to affiliates of the Corporate General Partner are being escrowed by 260 Franklin and are reported as escrow deposits in the accompanying Combined Financial Statements. Such affiliates earned property management fees of $320,385, $340,753 and $308,339 in 1994, 1993 and 1992, respectively, of which $988,374 was unpaid at December 31, 1994. Such affiliate also earned leasing fees of $100,855, $6,789 and $65,157 for 1994, 1993 and 1992, res- pectively. As of December 31, 1994, $189,947 of these fees were unpaid. Remaining amounts due to affiliates at December 31, 1994 represents advances from Carlyle-XV and Carlyle-XVI of $404,600 and $173,400, 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 year 1993 and 1994.
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. The outstanding shares of JMB are owed by certain of its officers and directors and members of their families. JMB has responsibility for all aspects of the Partnership's operations, subject to the requirement that sales of real property must be approved by the Associate General Partner of the Partnership, Realty Associates-XVI, L.P., an Illinois limited partnership with JMB as the sole general partner. The Associate 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 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 and executive officer and certain 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 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
Served in Name Office Office Since ---- ------ ------------
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 Jeffrey R. Rosenthal Managing Director-Corporate 4/22/91 Chief Financial Officer 8/01/93 Douglas H. Cameron Executive Vice President 1/01/95 Ira J. Schulman Executive Vice President 6/01/88 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 one-year terms until the annual meeting of the Corporate General Partner to be held on June 7, 1995. 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, 1995. 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-X ("Carlyle-X"), 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. ("Mortgage Partners"), JMB Mortgage Partners, Ltd.-II ("Mortgage Partners-II"), 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.-VIII ("JMB Income-VIII"), JMB Income Properties, Ltd.-IX ("JMB Income-IX"), 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"). 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-X, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle- XV, Carlyle-XVII, JMB Income-VI, JMB Income-VII, JMB Income-VIII, JMB Income-IX, JMB Income-X, JMB Income-XI, JMB Income-XII, JMB Income-XIII, Mortgage Partners, Mortgage Partners-II, 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. Reference is made to Note 7(c).
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 57) 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., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers, and a director of Catellus Development Corporation, a major diversified real estate development company. He is a Certified Public Accountant.
Neil G. Bluhm (age 57) 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 Urban Shopping Centers, 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 member of the Bar of the State of Illinois and a Certified Public Accountant.
Burton E. Glazov (age 56) 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 53) 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 61) (President and Director of JMB Insurance Agency, Inc.) has been associated with JMB since December, 1972.
John G. Schreiber (age 48) 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 Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers 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 45) 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 47) 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.
Jeffrey R. Rosenthal (age 43) has been associated with JMB since December, 1987. He is a Certified Public Accountant.
Douglas H. Cameron (age 45) has been associated with JMB since April 1977. Prior to becoming Executive Vice President of JMB in 1995, Mr. Cameron was Managing Director of Capital Markets-Property Sales from June 1990. He holds a Masters degree in Business Administration from the University of Southern California.
Gary Nickele (age 42) 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.
Ira J. Schulman (age 43) has been associated with JMB since February, 1983. He holds a Masters degree in Business Administration from the University of Pittsburgh.
Gailen J. Hull (age 46) 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 59) 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 Limited Partners, and a share of profits or losses as described in Notes 5 and 9 for a description of such distributions and allocations. In 1994, the General Partners received $235,331 of distributions and the Corporate General Partner earned management fees of $155,942. In July 1994, the Partnership paid the cumulative combined amount of deferred distributions and management fees which aggregated $2,372,056 to the General Partners. See Note 9. The General Partners received a share of Partnership income for tax purposes aggregating $2,683,078 in 1994.
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 Corporate General Partner (and its directors and officers) to its affiliates is set forth above in Item 10.
An affiliate of the Corporate General Partner provided property management services in 1994 for the 260 Franklin Street Building in Boston, Massachusetts. In 1994, such affiliate earned property management fees of $320,349 for such services. Additionally during 1994, an affiliate of the Corporate General Partner provided leasing services for the 260 Franklin Building amounting to $100,855, of which all were unpaid as of December 31, 1994. All property management and leasing fees earned in 1994 were escrowed by 260 Franklin. See Note 3(d) for a description of the accounting for these fees. Additionally, during 1994, an affiliate of the Corporate General Partner provided property management services for the Dunwoody Crossing (Phases I, II and III) Apartments and earned property management fees amounting to $329,429, all of which was paid as of December 31, 1994. 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 terminable by either party thereto, without penalty, upon 60 days notice. In December 1994, the property manager sold substantially all of its assets to an unaffiliated third party, who has assumed management of 260 Franklin and the Dunwoody Crossing Apartments on the same terms that existed prior to the sale. Reference is made to Note 6.
JMB Insurance Agency, Inc., an affiliate of the Corporate General Partner, earned and received insurance brokerage commissions in 1994 aggregating $24,307 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 relating to the administration of the Partnership and the acquisition and operation of the Partnership's real property investments. In 1994, the Corporate General Partner of the Partnership was due reimbursement for such out-of-pocket expenses in the amount of $4,050 all of which was paid as of December 31, 1994.
Additionally, the General Partners or their affiliates are also entitled to reimbursements for administrative, legal, accounting and data processing services. Such costs for 1994 were $134,843, $26,999 of which was unpaid as of December 31, 1994. Amounts of these reimbursements may not exceed cost or 90% of what an independent party would charge.
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.
10-A.Escrow Deposit Agreement is hereby incorporated by reference to Exhibit 10.1 to the Partnership's Amendment No. 1 to Form S-11 (File No. 33-3567) Registration Statement dated May 14, 1986.
10-B.Acquisition documents relating to the purchase of an interest in the 260 Franklin Street Building, Boston, Massachusetts, are hereby incorporated herein by reference to Exhibit 10.4 to the Partnership's Amendment No. 2 to Form S-11 (File No. 33-3567) dated July 25, 1986.
10-C.Additional acquisition documents relating to the purchase of an interest in the 260 Franklin Street Building, Boston, Massachusetts, are hereby incorporated herein by reference to Exhibit 10.4.1 to the Partnership's Post-Effective Amendment No. 1 to Form S-11 (File No. 33-3567) dated September 30, 1986.
10-D.Acquisition documents relating to the purchase by the Partnership of an interest in the Post Crest Apartments, Post Terrace Apartments, and Post Crossing Apartments in DeKalb County (Atlanta), Georgia, are hereby incorporated herein by reference to Exhibit 10.5 to the Partnership's Post-Effective Amendment No. 2 to Form S-11 (File No. 33- 3567) dated September 30, 1986.
10-E.Acquisition documents relating to the purchase by the Partnership of an interest in NewPark Mall in Newark (Alameda County), California, are hereby incorporated herein by reference to Exhibit 10.6 to the Partnership's Post-Effective Amendment No. 2 to Form S-11 (File No. 33- 3567) dated December 30, 1986.
10-F.Acquisition documents relating to the acquisition by the Partnership of an interest in the Palm Desert Town Center in Palm Desert, California, dated December 23, 1988 are hereby incorporated by reference to Exhibit 1 to the Partnership's Form 8-K (File No. 0-16516) dated January 6, 1989.
10-G.Sale documents and exhibits thereto relating to the Partnership's contract of sale of the Blue Cross Building, Woodland Hills (Los Angeles), California are hereby incorporated by reference to Exhibit 10-N to the Partnership's Report on Form 10-Q for September 30, 1993 (File No. 0-16516) dated November 11, 1993.
10-H.Takeover Agreement relating to the Johnson & Higgins space at the 125 Broad Building is hereby incorporated by reference to the Partnership's Form 10-Q for March 31, 1994 (File No. 0-16516) dated May 11, 1994.
10-I.First Amendment to Loan Documents relating to the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) is hereby incorporated by reference to the Partnership's Form 10-Q for September 30, 1994 (File No. 0-16516) dated November 10, 1994.
10-J.Documents relating to the modification of the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) are filed herewith.
10-K.Documents relating to the assignment of JMB/125's interest in 125 Broad Street Company are filed herewith.
21. List of Subsidiaries.
24. Powers of Attorney
Although certain additional long-term debt instruments of the Registrant have been excluded from Exhibit 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.
(b) The following report on Form 8-K was filed since the beginning of the last quarter of the period covered by this report.
(i) The Partnership's report on Form 8-K describing the assignment of interest in the 125 Broad Street Building. The Report was dated November 15, 1994. No financial statements were filed herewith.
No annual report or proxy material for the fiscal year 1994 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 27, 1995
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 Director Date: March 27, 1995
NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 27, 1995
H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 27, 1995
GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 27, 1995
JEFFREY R. ROSENTHAL* By: Jeffrey R. Rosenthal, Chief Financial Officer Principal Financial Officer Date: March 27, 1995
GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 27, 1995
A. LEE SACKS* By: A. Lee Sacks, Director Date: March 27, 1995
STUART C. NATHAN* By: Stuart C. Nathan, Executive Vice President and Director Date: March 27, 1995
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 27, 1995
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
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 Part- nership of an interest in the Post Crest Apartments, Post Terrace Apartments, and Post Crossing Apartments in DeKalb County (Atlanta), Georgia Yes
10-E. Acquisition documents relating to the purchase by the Partnership of an interest in NewPark Mall in Newark (Alameda County), California Yes
10-F. Acquisition documents relating to the acquisition by the Partnership of an interest in the Palm Desert Town Center in Palm Desert, California, dated Decem- ber 23, 1988 Yes
10-G. Sale documents and exhibits thereto relating to the Partnership's contract of sale of the Blue Cross Building, Woodland Hills (Los Angeles), California Yes
10-H. Takeover Agreement relating to the Johnson & Higgins space at the 125 Broad Building Yes
DOCUMENT EXHIBIT INCORPORATED SEQUENTIALLY NO. EXHIBIT BY REFERENCE NUMBERED PAGE ------- ------- ------------ -------------
10-I. First Amendment to Loan Documents relating to the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) Yes
10-J. Documents relating to the modification of the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) No
10-K. Documents relating to the assignment of JMB/125's interest in 125 Broad Street Company No
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No
-----------------
* Previously filed as exhibits to the Partnership's Registration Statement (as amended) on Form S-11 (File No. 33-3567) to the Securities Act of 1933 and to Carlyle Real Estate Limited Partnership - XVI's, Registration Statement (as amended) on Form S-11 (File No. 2-95382) to the Securities Act of 1933 and the Partnership's prior Reports on Form 8-K and Form 10-K of the Securities Act of 1934.
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.
10-A.Escrow Deposit Agreement is hereby incorporated by reference to Exhibit 10.1 to the Partnership's Amendment No. 1 to Form S-11 (File No. 33-3567) Registration Statement dated May 14, 1986.
10-B.Acquisition documents relating to the purchase of an interest in the 260 Franklin Street Building, Boston, Massachusetts, are hereby incorporated herein by reference to Exhibit 10.4 to the Partnership's Amendment No. 2 to Form S-11 (File No. 33-3567) dated July 25, 1986.
10-C.Additional acquisition documents relating to the purchase of an interest in the 260 Franklin Street Building, Boston, Massachusetts, are hereby incorporated herein by reference to Exhibit 10.4.1 to the Partnership's Post-Effective Amendment No. 1 to Form S-11 (File No. 33-3567) dated September 30, 1986.
10-D.Acquisition documents relating to the purchase by the Partnership of an interest in the Post Crest Apartments, Post Terrace Apartments, and Post Crossing Apartments in DeKalb County (Atlanta), Georgia, are hereby incorporated herein by reference to Exhibit 10.5 to the Partnership's Post-Effective Amendment No. 2 to Form S-11 (File No. 33- 3567) dated September 30, 1986.
10-E.Acquisition documents relating to the purchase by the Partnership of an interest in NewPark Mall in Newark (Alameda County), California, are hereby incorporated herein by reference to Exhibit 10.6 to the Partnership's Post-Effective Amendment No. 2 to Form S-11 (File No. 33- 3567) dated December 30, 1986.
10-F.Acquisition documents relating to the acquisition by the Partnership of an interest in the Palm Desert Town Center in Palm Desert, California, dated December 23, 1988 are hereby incorporated by reference to Exhibit 1 to the Partnership's Form 8-K (File No. 0-16516) dated January 6, 1989.
10-G.Sale documents and exhibits thereto relating to the Partnership's contract of sale of the Blue Cross Building, Woodland Hills (Los Angeles), California are hereby incorporated by reference to Exhibit 10-N to the Partnership's Report on Form 10-Q for September 30, 1993 (File No. 0-16516) dated November 11, 1993.
10-H.Takeover Agreement relating to the Johnson & Higgins space at the 125 Broad Building is hereby incorporated by reference to the Partnership's Form 10-Q for March 31, 1994 (File No. 0-16516) dated May 11, 1994.
10-I.First Amendment to Loan Documents relating to the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) is hereby incorporated by reference to the Partnership's Form 10-Q for September 30, 1994 (File No. 0-16516) dated November 10, 1994.
10-J.Documents relating to the modification of the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) are filed herewith.
10-K.Documents relating to the assignment of JMB/125's interest in 125 Broad Street Company are filed herewith.
21. List of Subsidiaries.
24. Powers of Attorney
Although certain additional long-term debt instruments of the Registrant have been excluded from Exhibit 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.
(b) The following report on Form 8-K was filed since the beginning of the last quarter of the period covered by this report.
(i) The Partnership's report on Form 8-K describing the assignment of interest in the 125 Broad Street Building. The Report was dated November 15, 1994. No financial statements were filed herewith.
No annual report or proxy material for the fiscal year 1994 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 27, 1995
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 Director Date: March 27, 1995
NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 27, 1995
H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 27, 1995
GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 27, 1995
JEFFREY R. ROSENTHAL* By: Jeffrey R. Rosenthal, Chief Financial Officer Principal Financial Officer Date: March 27, 1995
GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 27, 1995
A. LEE SACKS* By: A. Lee Sacks, Director Date: March 27, 1995
STUART C. NATHAN* By: Stuart C. Nathan, Executive Vice President and Director Date: March 27, 1995
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 27, 1995
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
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 Part- nership of an interest in the Post Crest Apartments, Post Terrace Apartments, and Post Crossing Apartments in DeKalb County (Atlanta), Georgia Yes
10-E. Acquisition documents relating to the purchase by the Partnership of an interest in NewPark Mall in Newark (Alameda County), California Yes
10-F. Acquisition documents relating to the acquisition by the Partnership of an interest in the Palm Desert Town Center in Palm Desert, California, dated Decem- ber 23, 1988 Yes
10-G. Sale documents and exhibits thereto relating to the Partnership's contract of sale of the Blue Cross Building, Woodland Hills (Los Angeles), California Yes
10-H. Takeover Agreement relating to the Johnson & Higgins space at the 125 Broad Building Yes
DOCUMENT EXHIBIT INCORPORATED SEQUENTIALLY NO. EXHIBIT BY REFERENCE NUMBERED PAGE ------- ------- ------------ -------------
10-I. First Amendment to Loan Documents relating to the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) Yes
10-J. Documents relating to the modification of the mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) No
10-K. Documents relating to the assignment of JMB/125's interest in 125 Broad Street Company No
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No
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* Previously filed as exhibits to the Partnership's Registration Statement (as amended) on Form S-11 (File No. 33-3567) to the Securities Act of 1933 and to Carlyle Real Estate Limited Partnership - XVI's, Registration Statement (as amended) on Form S-11 (File No. 2-95382) to the Securities Act of 1933 and the Partnership's prior Reports on Form 8-K and Form 10-K of the Securities Act of 1934.