<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 Fee Required For the fiscal year ended December 31, 1993
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Commission File Number 0-17684
ML/EQ REAL ESTATE PORTFOLIO, L.P.
(Exact name of registrant as specified in governing instrument)
Delaware 58-1739523
(State of organization) (IRS Employer Identification No.)
3414 Peachtree Road, Atlanta, Georgia 30326
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (404) 239-5002
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Certificates ("BACs")
representing assignments of Limited Partnership Interests
(Title of Class)
Limited Partnership Interests underlying BACs
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /x/
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Prospectus of the Registrant dated April 23, 1987, as
supplemented by supplements dated March 3, 1988 and March 17, 1988 (File No.
33-11064) filed pursuant to Rule 424 of the Securities Act of 1933, as amended,
are incorporated by reference in Parts I, II, III and IV of this Annual Report
on Form 10-K.
<PAGE> 2
PART I.
ITEM 1. BUSINESS
General. The registrant, ML/EQ Real Estate Portfolio, L.P. (the
"Partnership"), is a limited partnership formed on December 2, 1986 under the
Revised Uniform Limited Partnership Act of the State of Delaware.
The Partnership's two general partners are EREIM Managers Corp., a
Delaware corporation (the "Managing General Partner"), and MLH Real Estate
Associates Limited Partnership, a Delaware limited partnership (the "Associate
General Partner" and, together with the Managing General Partner the "General
Partners"). The Managing General Partner is an indirect, wholly-owned
subsidiary of The Equitable Life Assurance Society of the United States
("Equitable") and the general partner of the Associate General Partner is an
indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch").
The Partnership offered to the public $150,000,000 of Beneficial Assignee
Certificates (the "BACs"), which evidence the economic rights attributable to
limited partnership interests in the Partnership (the "Interests"), in an
offering which commenced in 1987. The offering was made pursuant to a
Prospectus dated April 23, 1987, as supplemented by Supplements dated December
29, 1987 (the "December Supplement"), March 3, 1988 (the "March 3 Supplement")
and March 17, 1988 (the "March 17 Supplement"), filed with the Securities and
Exchange Commission (the "SEC") in connection with a Registration Statement on
Form S-11 (No. 33-11064). The Prospectus as supplemented is hereinafter
referred to as the "Prospectus." Capitalized terms used in this annual report
and that are not defined herein have the same meaning as in the Prospectus.
The offering terminated on March 29, 1988. On March 10, 1988, the
Partnership's initial investor closing occurred at which time the Partnership
received $92,190,120, representing the proceeds from the sale of 4,609,506
BACs. On May 3, 1988, the Partnership's final investor closing occurred at
which time the Partnership received $16,294,380, representing the proceeds from
the sale of an additional 814,719 BACs. In total, the Partnership realized
gross proceeds of $108,484,500 from the public offering, representing the sale
of 5,424,225 BACs.
Business of the Partnership. The Partnership was formed to invest in a
diversified portfolio of properties and mortgage loans and considers its
business to represent one industry segment, investment in real property. The
Partnership does not segregate revenues by geographic region and such a
presentation is not required as it would not be material to an understanding of
the Partnership's business taken as a whole. The Partnership has no employees.
As expected, following its investor closings, the Partnership contributed
the net proceeds of its offering to EML Associates (the "Venture"), a joint
venture with EREIM LP Associates, a New York general partnership between
Equitable and EREIM LP Corp., a wholly-owned subsidiary of Equitable. The
Venture was formed in March 1988. The capital of the Venture was provided
approximately 80% by the Partnership and approximately 20% by EREIM LP
Associates.
The Venture has completed its acquisition of a diversified portfolio of
real properties and mortgage loans secured by real properties. Based on
acquisition prices, approximately 52% of the Venture's original contributed
capital was invested in existing income-producing real
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properties acquired without permanent mortgage indebtedness
(the "Properties"), approximately 25% in zero coupon or similar
mortgage notes (the "Zero Notes"), and the balance was invested in
fixed-rate first mortgage loans (the Zero Notes and the fixed rate
first mortgage loans are hereinafter referred to as the "Mortgage
Loans"). The Properties and the properties securing Mortgage Loans
include commercial, industrial, residential and warehouse/distribution
properties.
At December 31, 1993, the Venture owned nine Properties (one of
which consists of two adjacent office buildings) purchased at an
aggregate cost of approximately $68.1 million. In addition, the
Venture owned interests in two Zero Notes representing principal and
accrued interest on the dates of acquisition of approximately $33.1
million, and had two remaining fixed-rate first mortgage loans in the
aggregate principal amount of $15.5 million. The Partnership accepted
an early $10.5 million pay-off in November 1993 of a third fixed-rate
first mortgage loan which had an original principal amount of $14
million and which would have matured in 1998. (Amounts identified, in
each case, are exclusive of closing costs.) Reference is made to ITEM
2. PROPERTIES for information concerning the Properties, the Zero
Notes (including the proposed terms of a transaction with respect to
Northland Center and the Zero Notes) and the fixed rate first mortgage
loans.
Real estate investments are recorded at historical cost less
accumulated depreciation. For purposes of financial statement
presentation, the Properties are stated at cost, unless it is
determined that the value of the Properties has been impaired to a
level below cost. Impairment is determined by calculating the sum of
undiscounted future cash flows including the projected undiscounted
future net proceeds from sale of the Property. In the event this sum
is less than the undepreciated cost of the Property, the Property will
be recorded on the financial statements at this amount. With respect
to Mortgage Loans, Management reviews the valuation of the underlying
security as determined by third party appraisals when available.
Third party appraisals have been performed on an ongoing basis only
for the Brookdale Center and Northland Center. Due to ongoing
negotiations with respect to the Northland transaction, the 1994
third party appraisal has been deferred until a later date, although
an internal appraisal has been performed on the Northland Center.
Appraisals have not been conducted with respect to the remaining
Mortgage Loans. Management reviews the underlying security through a
reinspection process that occurs no less frequently than once every
three years. This review process includes an estimate of future cash
flows produced by the security. Reinspection on the Bank of Delaware
Building was performed in 1993. All remaining mortgages were
reinspected in 1992. Based on Management's valuation of the
Northland Center, the Partnership has, as of June 30, 1993,
determined that it would not continue to accrete interest on the
Northland Zero Note for book purposes. As of December 31, 1993, the
Partnership recognized a loss of $7,628,000 and reduced the value of
the asset on its books from $35,145,363 to $27,517,363 to
reflect its carrying value.
Neither the Partnership nor the Venture has any real property
investments located outside the United States.
Leasing Information. At December 31, 1993, approximately 91.8%
of the aggregate rentable square feet of the Venture's Properties was
leased. Leases covering approximately 5.2%, 13.8% and 10.6% of the
Properties rentable square feet are scheduled to expire in 1994, 1995,
and 1996 respectively. See Item 2. PROPERTIES for infomation
regarding percentages of space under
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lease for each of the Properties securing Mortgage Loans, as
well as information relating to the percentage of rentable space at
each Property covered by leases that are scheduled to expire in each
of the years 1994 to 1996.
Competition. The Properties and the properties that secure the
Mortgage Loans may compete for, among other things, desirable tenants
with other properties in the areas in which they are located, which
may include properties owned or managed directly or indirectly by
Equitable or its subsidiaries and affiliates or affiliates of the
Associate General Partner. Owners of some of these properties may
have greater resources than the Venture or the owners of properties
securing Mortgage Loans and/or may be willing or able to make greater
concessions (e.g., lower rent or higher allowances for tenant
improvements) to attract tenants. Similarly, tenants in the
Properties and the properties that secure the Mortgage Loans may
compete for business with other businesses in the area. Such
competition may adversely affect the business (and, in some cases, the
viability) of such tenants and, particularly in the case of retail
tenants, may reduce the amount of rent received by the Venture under
percentage rent provisions. See Item 2. PROPERTIES for a discussion
of competition pressures experienced by the Partnership's Richland
Mall Property.
Currently, many areas of the country including some in which
one or more of the Properties or properties that secure Mortgage Loans
are located are experiencing relatively high vacancy rates which may
adversely impact the ability of the Venture and the owners of the
properties that secure the Mortgage Loans to retain or attract tenants
as leases expire or may adversely affect the level of rents which may
be obtained (or increase the levels of concessions that may have to be
granted). The Venture's income from Properties may be affected by
many factors, including reductions in rental income due to an
inability to maintain occupancy levels, adverse changes in general
economic conditions, adverse local conditions (such as decreases in
demand for similar or competing facilities or competitive
over-building, adverse changes in tax, real estate, zoning and
environmental laws or decreases in employment), energy shortages or
increased energy costs, or acts of God (such as earthquakes and
floods). In addition, the ability of the borrowers on the Mortgage
Loans to meet their obligations under such loans will be affected by
these same factors. See Item 2. PROPERTIES for a description of
difficulties experienced by certain of the Properties and the
properties secured by the Mortgage Loans.
The holding period for the Properties was originally intended
to be 7 to 10 years and, other than the Property located at 1850
Westfork Drive, Lithia Springs, Georgia, the lease for which grants an
option to purchase to the tenant within the first year, the
Partnership currently does not anticipate that the Properties
generally will be sold prior to that time unless market conditions
demand that earlier action be taken. It is anticipated that if the
Northland Center transaction, as further described below, is
consummated, the holding period for the Northland Center will be
approximately 3 to 6 years from consummation. The ability of the
Venture to dispose of its Properties will be influenced by, among
other things, prevailing interest rates and the availability of
mortgage financing at the time that the Properties are sought to be
sold. For example, if high interest rates or shortages of mortgage
funds were prevailing at the time the Venture was attempting to
dispose of a Property, the sale or other disposition of a Property
might be rendered difficult or the Venture might be required to assume
credit risks if it becomes necessary to extend mortgage financing to
buyers. Similarly, such factors may affect the ability of borrowers
under Mortgage Loans, none of which mature before June 1995, to sell
or refinance the properties securing such Loans, which may adversely
affect the ability of borrowers to pay such loans at
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maturity. In this regard, it should be noted that many lenders
have continued to curtail extending credit to many businesses and
industries, including real estate owners and developers. The reasons
for such action include, but are not limited to, defaults experienced
on such loans. There can be no assurance whether or when the
availability of credit for real estate financing will increase.
Liquidation or dissolution of the Venture will be delayed until all of
the Mortgage Loans it holds (other than purchase money notes from the
sale of a property) are paid or sold, but not beyond December 31,
2002. See INVESTMENT GUARANTY AGREEMENT AND RELATED MATTERS below.
Conflicts of Interest. Equitable and its subsidiaries and
affiliates are among the largest managers of real estate assets in the
country and certain activities in which they currently or in the
future may engage will be competitive with the Partnership and the
Venture. As Managing General Partner of the managing partner of the
Venture, EREIM Managers Corp. may encounter various conflicts of
interest in managing the Partnership's and the Venture's businesses.
These conflicts may, for example, arise in connection with the
allocation of leasing or sale opportunities, selection of service
providers such as property managers (including whether to retain an
affiliate or a non-affiliate), determination to exercise or forbear
exercise of certain rights (e.g., eviction or foreclosure), or the
timing of investment dispositions or liquidations. While EREIM
Managers Corp. believes that it will be able to resolve such conflicts
in an equitable manner, it is possible that such conflicts may not be
resolved in favor of the Partnership or the Venture.
Presently, a significant number of the properties owned by the
Venture are managed by Compass Management and Leasing, Inc.
("Compass"), an affiliate of Equitable. The property management
agreements are at market rates but not in excess of the rates
permitted under the Partnership Agreement. It is anticipated that
additional property management services will be provided by Compass
or another Equitable affiliate, Compass Retail, Inc., for other
Properties at market rates, including the Northland Mall if that
transaction, as further described below, is completed. If the
Venture forecloses on the Bank of Delaware Building, it is
anticipated that the Venture would retain Compass as property manager
of such Property. See Item
2. PROPERTIES - Mortgage Loans.
Working Capital Reserves. The Partnership intends to maintain
adequate working capital reserves to meet short and long-term
commitments. The Partnership's reserves may be increased or decreased
from time to time based upon the Managing General Partner's
determination as to their adequacy; provided, however, that such
working capital reserves may not be decreased below 1% of gross
offering proceeds prior to the time that the Partnership enters its
liquidation phase. Working capital reserves are approximately 15% of
the Partnership's gross offering proceeds as of December 31, 1993.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Insurance. The Properties are covered under insurance
contracts which provide comprehensive general liability as well as
physical damage protection. Such insurance contracts also cover other
properties in accounts which are advised or managed by Equitable or
its subsidiaries as well as certain properties in which Equitable, its
subsidiaries or its insurance company separate accounts have an
ownership interest. The general liability coverage has a limit of $1
million per occurrence, and is supplemented by an umbrella policy with
a limit of $100 million per occurrence. The contract for general
liability coverage has a one year term and expires on October 1, 1994.
The property damage coverage has a limit of $1 billion per
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occurrence, except that coverage for earthquake damage (other
than for California properties) is subject to an annual and per
occurrence limit of $500 million ($90 million for California
properties), coverage for flood is subject to an annual and per
occurrence limit of $500 million, and coverage for boiler and
machinery damage is subject to a limit of $50 million per occurrence.
The property damage coverage has a deductible of $100,000 per
occurrence, except that earthquake coverage on California properties
is subject to a $5 million deductible per occurrence. The contract
for property damage coverage has a one year term and expires on August
1, 1994. Discussions are currently ongoing for improvements to the
policy for earthquake coverage.
Although the Venture carries comprehensive insurance on the
Properties and the terms of each of the Venture's Mortgage Loans
require the borrower to obtain and maintain general liability,
property damage and certain other insurance in specified amounts,
there are certain risks (such as earthquakes, floods and wars) which
may be uninsurable or not fully insurable at a cost believed to be
economically feasible. Moreover, there can be no assurance that
particular risks that are currently insurable will continue to be so,
or that current levels of coverage will continue to be available, at a
cost believed to be economically feasible. The Managing General
Partner, on behalf of the Partnership as managing partner of the
Venture, will use its discretion in determining the scope of coverage,
limits and deductible provisions on insurance, with a view to
maintaining appropriate insurance on the Properties at an appropriate
cost. Similarly, the Managing General Partner will use its discretion
in determining whether and when to permit borrowers under the Mortgage
Loans to obtain and maintain coverage that differs from the
requirements of the mortgages, with a view to requiring appropriate
insurance on the properties which secure the Mortgage Loans in light
of prevailing insurance market, economic and other factors. This may
result, however, in insurance which will not cover the full extent of
a loss or claim.
Investment Guaranty Agreement and Related Matters. Under an
investment guaranty agreement entered into between EREIM LP Associates
and the Venture (the "Guaranty Agreement"), EREIM LP Associates has
guaranteed to pay the Venture, if necessary, ninety days after the
earlier of the sale or other disposition of all of the Properties and
Mortgage Loans or the liquidation of the Partnership, an amount which
when added to all distributions from the Partnership to the BAC
Holders will enable the Partnership to provide the BAC Holders with
the Minimum Return equal to their Capital Contributions plus a simple
annual return equal to 9.75% multiplied by their Adjusted Capital
Contributions calculated from the investor closing at which an
investor acquired one's BACs.
The Venture has assigned the Guaranty Agreement to the
Partnership in exchange for the Partnership's assumption of the
Venture's obligation to pay the Guaranty Fee. Any monies distributed
by the Partnership to BAC Holders and/or Limited Partners on account
of payments made under the Guaranty Agreement will be distributed to
BAC Holders and/or Limited Partners based on the total number of BACs
or Interests owned by each BAC Holder and/or Limited Partner as of the
date the Minimum Return is calculated.
If the Venture holds a purchase money note from the sale of a
Property at the time all other investments of the Partnership and the
Venture have been disposed of and the proceeds distributed, any
remaining obligation of EREIM LP Associates under the Guaranty
Agreement will be reduced by the discounted value (at the market rate
of interest on the date the Venture
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acquired the purchase money note of a U.S. Treasury security
having a comparable term) of principal and interest payments on the
purchase money note. EREIM LP Associates will be required to either
purchase the purchase money note from the Venture at its discounted
value or guarantee timely payment of principal and interest under the
note, but only to the extent such note reduces obligations under the
Guaranty Agreement, so long as the note does not reduce obligations
below zero. If, as it is permitted to do, the Venture sells a
purchase money note at a premium over the discounted value of the
note, the premium will be paid to EREIM LP Associates to the extent of
any payments made under the Guaranty Agreement. Moreover, EREIM LP
Associates will be entitled to receive any cash payments paid to the
Partnership (other than payments from a purchase money note guaranteed
by EREIM LP Associates) to the extent that it has made any payment
under the Guaranty Agreement.
The obligation of EREIM LP Associates to pay the Minimum Return
is subject to reduction for (i) any Federal, state or local corporate
income or franchise tax imposed upon the Partnership or the Venture,
and (ii) any Federal, state or local income, gross receipts,
value-added, excise or similar tax imposed on the Partnership or the
Venture not imposed under law at the time of the offering, other than
any such local tax imposed as a result of owning real property in the
locality. All distributions from the Partnership to BAC Holders from
whatever source will reduce the amount of EREIM LP Associates'
obligation under the Guaranty Agreement. The obligations of EREIM LP
Associates under the Guaranty Agreement will terminate in the event
that upon the written consent or the affirmative vote of BAC Holders
or Limited Partners owning more than 50% of the Interests either (i)
EREIM Managers Corp. is removed as the Managing General Partner of the
Partnership or (ii) the Partnership is dissolved without the consent
of EREIM Managers Corp. The obligations of EREIM LP Associates under
the Guaranty Agreement as of December 31, 1993 are limited to
$251,496,465 plus the value of EREIM LP Associates' interest in the
Venture less any amounts contributed by EREIM LP Associates to the
Venture to fund cash deficits.
The general partners of EREIM LP Associates are EREIM LP Corp.,
a wholly-owned subsidiary of Equitable, and Equitable. The
obligations of EREIM LP Associates under the Guaranty Agreement are
nonrecourse to Equitable but are recourse to EREIM LP Corp. Equitable
has entered into a Keep Well Agreement with EREIM LP Corp. which
provides that Equitable will make capital contributions to EREIM LP
Corp. in such amounts as to permit EREIM LP Corp. to pay its
obligations with respect to the Guaranty Agreement as they become due.
The maximum liability of Equitable under the Keep Well Agreement as of
December 31, 1993 is $251,496,465. The Keep Well Agreement provides
that only EREIM LP Corp. and its successors will have the right to
enforce Equitable's obligations thereunder.
The Keep Well Agreement is an unsecured contractual liability
of Equitable and is not a policy of insurance. Since the Guaranty
Agreement is nonrecourse to Equitable as a partner of EREIM LP
Associates and the obligation under the Keep Well Agreement to pay all
obligations of EREIM LP Corp. is not for the benefit of third parties,
including the Partnership and BAC Holders, BAC Holders will have no
direct cause of action against Equitable to enforce such obligations
of Equitable under the Keep Well Agreement. However, if the assets of
EREIM LP Associates and EREIM LP Corp. are insufficient to satisfy
EREIM LP Associates' obligations under the Guaranty Agreement, a
proceeding in bankruptcy could be commenced against EREIM LP Corp. In
such event the debtor-in-possession or trustee in bankruptcy would
have a claim against Equitable to compel performance under the Keep
Well Agreement. If the Managing General Partner, which is an
affiliate of Equitable, did not commence an involuntary bankruptcy
proceeding against EREIM
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LP Corp. on behalf of the Partnership, the Initial Limited
Partner on behalf of BAC Holders would have a right to compel the
Partnership to commence such involuntary bankruptcy proceeding.
The New York Insurance Law contains provisions limiting the
amount of an investment by a New York life insurance company, such as
Equitable, in certain of its subsidiaries and in real estate. The
Keep Well Agreement provides that Equitable's obligation thereunder is
subject to compliance with any applicable limitation on investment
contained in the New York Insurance Law.
At December 31, 1993, 1992, and 1991, Equitable's total
surplus, calculated in accordance with the statutory method of
accounting, was approximately $1.83 billion, $1.64 billion, and $1.11
billion, respectively. At December 31, 1993, and 1992, Equitable's
total capital, calculated in accordance with the statutory method of
accounting and consisting of surplus and the Asset Valuation Reserve,
was approximately $ 3.26 billion and $2.27 billion, respectively, and
at December 31, 1991, Equitable's total capital, calculated in
accordance with the statutory method of accounting and consisting of
surplus and the Mandatory Securities Valuation Reserve, was
approximately $1.65 billion.
The Equitable Companies Incorporated (the "Holding Company"), a
Delaware corporation which owns all of Equitable's outstanding capital
stock, files consolidated financial statements with the SEC in
connection with its Form 10-K (File No. 1-11166), which includes
financial information pertaining to the Holding Company and its
subsidiaries including Equitable. Such Form 10-K can be inspected and
copied at the public reference facilities maintained by the SEC in
Washington, D.C. and at certain of its Regional Offices at prescribed
rates.
Equitable is a diversified financial service organization
serving a broad spectrum of insurance, investment management and
investment banking customers. It has been in business since 1859. In
1992, it converted from a mutual life insurance company into a stock
life insurance company through a process called "demutualization."
The process was completed in July 1992 after the approval of the New
York Insurance Department and the closing of the initial public
offering of the common stock of the Holding Company.
The largest stockholder of the Holding Company is AXA, a member
of a group of companies that is the second largest insurance group in
France and one of the largest insurance groups in Europe. AXA
currently owns 49% of the outstanding shares of common stock of the
Holding Company plus convertible preferred stock and redeemable
preferred stock. Under its investment agreement with Equitable and
the Holding Company, AXA is able to exercise significant influence
over the operations and capital structure of the Holding Company,
Equitable and its subsidiaries. After September 19, 1994 (or earlier
under certain circumstances) AXA may increase its ownership of the
Holding Company's common stock by converting certain convertible
securities that it currently owns or through purchases.
AXA made its initial investment in Equitable in July 1991 when
Equitable was a mutual insurance company. It purchased $1 billion in
notes that were exchanged for capital stock of the Holding Company in
July 1992 in connection with the demutualization.
As part of the investment agreement, AXA has the right to
nominate representatives to the board of directors of Equitable, the
Holding Company and all of their significant subsidiaries, and
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to committees of those boards, in proportion to the percentage of the
Holding Company's common stock beneficially owned by AXA. Currently, AXA has
8 directors on the Holding Company board out of a total of 19 directors and 11
directors on Equitable's board out of a total of 23 directors.
ITEM 2. PROPERTIES.
Set forth below is a brief description of each of the Venture's
investments at December 31, 1993 which includes, where applicable, the
percentage of space covered by leases which are scheduled to expire in 1994,
1995, and 1996. Reference is made to Notes 3-5 and 9 of the Notes to
Consolidated Financial Statements in ITEM 8. FINANCIAL STATEMENTS, the
relevant provisions of which are incorporated herein by reference, for
additional descriptive information concerning the investments.
PROPERTIES
<TABLE>
<CAPTION>
Name, Location
and Type of Approximate Date of Year of Type of
Property Size Acquisition Completion Ownership
----------------- --------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
1200 Whipple Road 257,500 3/17/88 1963 Fee ownership
Union City, CA sq. ft. of land and
warehouse/distrib. improvements
Richland Mall 182,408 7/19/88 1974-75 Fee ownership
Bucks County, PA sq. ft. of land and
shopping center improvements
16/18 Sentry Park 190,616 12/22/88 1988 Fee ownership
West sq. ft. of land and
Montgomery County, PA improvements
office buildings
701 Maple Lane 58,230 12/27/88 1980 Fee ownership
Bensenville, IL sq. ft . of land and
733 Maple Lane 23,520 12/27/88 1980 improvements
Bensenville, IL sq. ft.
7550 Plaza Court 49,500 12/27/88 1980
Willowbrook, IL sq. ft.
warehouse/office
800 Hollywood Avenue 50,337 6/8/89 1979 Fee ownership
Itasca, IL sq. ft. of land and
warehouse/office improvements
</TABLE>
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PROPERTIES (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
1850 Westfork Drive 103,505 1/6/89 1988 Fee ownership
Lithia Springs, GA sq. ft. of land and
warehouse/distrib. improvements
1345 Doolittle Drive 326,414 5/18/89 1964 Fee ownership
San Leandro, Ca. sq. ft. of land and
warehouse/distrib. improvements
</TABLE>
ANNUAL AGGREGATE LEASE PAYMENTS (IN DOLLARS)*
<TABLE>
<CAPTION>
Name of Property 1994 1995 1996 1997 1998 Thereafter
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1200 Whipple Rd. 1,009,340 1,009,340 1,009,340 1,009,340 1,098,200 5,864,076
Richland Mall 972,637 971,510 734,825 631,517 599,992 3,021,703
16/18 Sentry Park West 1,352,060 1,049,479 812,627 512,732 393,119 155,435
701 and 733 Maple Lane 232,860 237,625 238,740 238,740 99,475 0
7550 Plaza Ct. 223,230 204,627 0 0 0 0
1850 Westfork Dr. 219,689 146,460 0 0 0 0
1345 Doolittle Dr. 1,009,648 1,048,442 936,455 584,080 428,192 345,600
800 Hollywood Ave. 199,251 201,348 201,348 83,895 0 0
--------- --------- --------- --------- --------- ---------
5,218,715 4,868,831 3,933,335 3,060,304 2,618,978 9,386,814
========= ========= ========= ========= ========= =========
</TABLE>
* Lease payments to be received under noncancelable
operating leases in effect as of December 31, 1993.
RANGE OF LEASE EXPIRATIONS
<TABLE>
<CAPTION>
Name of Property Years
---------------- -----
<S> <C>
1200 Whipple Road 2003
Richland Mall 1994-2006
16/18 Sentry Park West 1994-1999
701 and 733 Maple Lane 1994-1997
7550 Plaza Court 1995
1850 Westfork Drive 1995
1345 Doolittle Drive 1996-2002
800 Hollywood Avenue 1997
</TABLE>
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MAJOR TENANTS
The following lists major tenants for certain properties together with
percentage of space used:
<TABLE>
<CAPTION>
Properties Major Tenants Percentage of Leasable Space
---------- ------------- ----------------------------
<S> <C> <C>
16 & 18 Sentry Martin Marietta 13.4%
Park West Liberty Mutual 12.4%
Richland Mall Hess Department Store 46.2%
Clemens Market 14.2%
Doolittle Drive Gruner & Jahr 44.6%
National Dist. Agency 23.0%
Jay-N Company 18.6%
</TABLE>
All of the remaining properties are leased in their entirety to their
respective tenants. Information concerning tenants occupying Properties not
otherwise listed above follows.
Properties
1200 Whipple Road is a one-story warehouse/distribution property
located in the Hayward-Fremont market area, approximately 25 miles
southeast of San Francisco. At December 31, 1993, the property was 100%
leased to Permer Control, Inc. under a lease which runs through August
2003. The property is used as a distribution center for the Emporium
Capwell and Weinstocks divisions of Carter Hawley Hale Stores, Inc.
("CHH") and is described in the March 17 Supplement, which is included
as an exhibit to this annual report and is incorporated herein by
reference. As noted in that description, the Permer Control lease is
assignable to CHH or a subsidiary thereof at any time during the lease,
in which event Permer Control is released from liability. On February
11, 1991, CHH filed for protection from creditors under Chapter 11 of
the Federal bankruptcy law. CHH's plan of reorganization was approved
by the bankruptcy court on September 14, 1992 and became effective on
October 8, 1992. As part of the plan, Zell/Chillmark purchased
approximately 85% of CHH's indebtedness which was subsequently
exchanged for approximately 75% of CHH's equity. All payments due
under the lease to date have been made.
Richland Mall is a one-level enclosed mall shopping center located in
Richland Township, Pennsylvania. Tenants include Hess Department
Store, Clemens Market, Footlocker, Kinney Shoes and Radio Shack. At
December 31, 1993, the mall was approximately 97.4% leased with
approximately 4,700 square feet vacant as of December 31, 1993.
Excluding the two anchor stores, the Mall was 92.6% leased. Leases
covering approximately 3.2%, 0.5%, and 22.5% of the space are scheduled
to expire in 1994, 1995, and 1996, respectively. Richland Mall is
described in the Partnership's Current Report on Form 8-K dated July
19, 1988 (the "July Report"), which is included as an exhibit to this
annual report and is incorporated herein by reference. Over the past
three years, the general economic recession has severely hampered the
property's leasing efforts. During this period Richland Mall suffered
from lease expirations as well as cancellations by virtue of tenant
bankruptcies. During 1993 the property began to show signs of
recovery. Potential retail tenants began to show interest in leasing
space again which enabled Management to improve store occupancy.
Management continues to aggressively pursue tenants for the
<PAGE> 12
12
remaining vacant space. Wal-Mart Stores, a national discount
retailer, has announced that it is planning to locate a new store
within 2-1/2 miles of Richland Mall; however, zoning for the proposed
shopping center which was to include Wal-Mart was rejected by Richland
Township in June 1992. The Partnership cannot predict the extent to
which the Wal-Mart project, if completed, would affect Richland Mall.
Should Wal-Mart enter the local market, its size and advertising
strength will undoubtedly affect the business of the Hess Department
Store and other specialty retail stores within Richland Mall. In
addition, the Partnership has been advised that as a result of the
downturn in retailing generally, and same store sales, specifically,
the Hess Department Store chain suffered reduced earnings requiring it
to obtain working capital revolver loans from a consortium of lenders
(including Equitable) in the first quarter of 1992. These loans were
repaid in late 1993. The loans provided Hess with the time needed to
restructure and reorganize its operations, which includes selling or
closing of stores in certain locations. Although the Managing General
Partner has been advised that the Hess Department Store at the
Richland Mall is performing positively, there can be no assurance that
such store will not be sold or closed prior to the termination of its
lease (which is scheduled to expire in 2006). The current competitive
leasing environment and weak retail economy create significant
obstacles to maintaining the past level of performance of this
Property.
16/18 Sentry Park West are two four-story office buildings that
together contain approximately 190,616 rentable square feet. Tenants
include Martin Marietta (formerly General Electric), The Prudential
Insurance Company and Liberty Mutual Insurance Company. Martin
Marietta acquired General Electric's defense related operations in the
first quarter 1993. At December 31, 1993, the property was
approximately 60% leased. Leases covering approximately 18.7%, 9.2%,
and 7.4% of the space are scheduled to expire in 1994, 1995, and 1996,
respectively. Martin Marietta decided not to renew 70,836 square feet
of space under a lease which expired in December 1993. In addition to
the reduction of rental revenue until a new tenant is secured,
reletting of this space will likely require the Venture to incur
expenditures for tenant improvements and leasing commissions in its
releasing efforts. The Venture has been building reserves for such a
contingency. The 16/18 Sentry Park West Property is described in the
Partnership's Current Report on Form 8-K dated December 2, 1988, which
is included as an exhibit to this annual report and is incorporated
herein by reference.
701 Maple Lane, 733 Maple Lane and 7550 Plaza Court are three
one-story office/warehouse buildings located in the Chicago
metropolitan area. At December 31, 1993, all of the buildings were
100% leased. Tenants include Triangle Engineered Products, Co., Nema
Industries, Inc. and Precise Data Service. One lease comprising 18%
of available space is scheduled to expire in 1994. These properties
are described in the Partnership's Current Report on Form 8-K dated
December 27, 1988 (the "December Report"), which is included as an
exhibit to this annual report and is incorporated herein by reference.
1850 Westfork Drive is a one-story warehouse/distribution
facility located approximately 15 miles west of the Atlanta central
business district. At December 31, 1993 the Property was 100% leased
to Treadway Exports Limited. Prior to this, the property was 100%
leased to Saab-Scania of America, Inc. ("Saab"), however, as part of
an effort to consolidate its parts distribution facilities, Saab
vacated the property in January 1991. In late February, 1992, the
Venture and Saab entered into an agreement, pursuant to which Saab
agreed to pay to the Venture $1,100,000 in return for release from the
remaining term of its lease. The Partnership's share of this amount
constituted Sale or Financing Proceeds (as defined in the Partnership
Agreement) and was distributed to BAC Holders and Limited Partners
<PAGE> 13
13
together with the semi-annual distribution on August 31, 1992.
The lease with Treadway commenced on September 1, 1992 and is for an
initial term of three years with two renewal options for total of an
additional three years. The 1850 Westfork Drive Property is
described in the December Report, which is included as an exhibit to
this annual report and is incorporated herein by reference.
1345 Doolittle Drive is a one-story warehouse/distribution property
located in San Leandro, California approximately one mile south of
Oakland International Airport. At December 31, 1993 the property was
93.1% leased to Gruner & Jahr Printing and Publishing, Stericycle,
Inc., National Distribution Agency and Jay-N Company. The Venture
continues to actively market the remaining vacant space which consists
of 22,500 square feet. The Gruner & Jahr lease covering approximately
44% of the rentable square feet was renewed in 1992 for a five year
term commencing in August, 1993. The 1345 Doolittle Drive Property is
described in the Partnership's Current Report on Form 8-K dated May
18, 1989, which is included as an exhibit to the annual report and is
incorporated herein by reference.
800 Hollywood Avenue is a one-story warehouse/office building located
in Itasca, Illinois. The building contains 2,500 rentable square feet
of office space and 47,837 rentable square feet of warehouse space.
The property is 100% leased to Concentric, Inc. through May 31, 1997
at a rate of $3.90 per square foot through May 31, 1994, to $4.00 per
square foot for the remainder of the term. This reflects a renewal of
the previous lease which otherwise would have expired in January 1994
at a rate of $4.09 per square foot. The lease requires the tenant to
pay 100% of real estate taxes, insurance, and certain maintenance
costs. The property is used for the production and distribution of
automotive parts and the manufacture, sale and distribution of
extruded plastics and cast-iron parts.
MORTGAGE LOANS
<TABLE>
<CAPTION>
Principal &
Name, Location Accrued Int.
and Type of Date of at Date of Interest
Property Investment Investment Rate Maturity
-------- ---------- ---------- ---- --------
<S> <C> <C> <C> <C>
Northland Center 3/10/88 $17,835,653 10.2%* 6/30/95
Southfield, MI 5/3/88 $ 2,939,332 10.2%* 6/30/95
regional shopping
mall
Brookdale Center 3/10/88 $10,541,617 10.2%* 6/30/95
Brooklyn Center, MN 5/3/88 $ 1,737,268 10.2%* 6/30/95
regional shopping
mall
Jericho Village 1/31/89 $ 6,000,000 10.25% 2/1/99
Weston, MA
apartment complex
</TABLE>
<PAGE> 14
14
MORTGAGE LOANS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
Bank of Delaware 2/28/89 $9,500,000 10.375% 3/1/99
Building
Wilmington, DE
office building
</TABLE>
____________________
* Effective implicit rate, compounded semiannually. These notes
are zero coupon notes and provide that borrowers may elect to pay
interest currently. However, as expected, all interest payments have
been deferred and it is expected that interest payments will continue
to be deferred until maturity, subject to the transaction described
below.
Mortgage Loans
Northland and Brookdale Zero Notes are first mortgage notes secured
by the Northland and Brookdale Centers, two regional shopping malls
located outside Detroit, Michigan and Minneapolis, Minnesota,
respectively. The Venture owns a 71.66% interest in each of the Zero
Notes under the terms of participation agreements with Equitable. A
portion of the interest acquired by the Venture in each of the Notes
was contributed by EREIM LP Associates in exchange for its interest in
the Venture, and the balance was purchased by the Venture from
Equitable. The borrower under the Zero Notes is Equitable Real Estate
Shopping Centers, L.P. ("ERESC"), a public limited partnership not
affiliated with Equitable. The parent company of the Managing General
Partner, Equitable Real Estate Investment Management, Inc, ("EREIM"),
serves as an asset manager. The terms of the Zero Notes permit the
borrower to defer payment of principal and interest on the Zero Notes
until June 30, 1995, and all such payments have been deferred to date.
The Zero Notes may each be redeemed at any time at a redemption price
of 100% of its accreted amount at maturity. Since the value of the
assets securing the Northland Zero Note did not support its carrying
value, the Venture has not accrued additional interest on the
Northland Zero Note on its books since June 30, 1993. As of December
31, 1993, the Venture recognized a loss of $7,628,000 and reduced
the value of the asset on its books from $35,145,363 to $27,517,363 to
reflect its carrying value. For additional information concerning the
Northland and Brookdale Notes and the Northland and Brookdale Centers,
reference is made to the information under "REAL PROPERTY INVESTMENTS
-- The Zero Notes" and "REAL PROPERTY INVESTMENTS --Brookdale and
Northland Zero Notes" in the Prospectus, "REAL PROPERTY INVESTMENTS --
The Zero Notes" in the March 17 Supplement, and Note 1 to Notes to
Financial Statements to the Partnership's Current Report on Form 10-Q
for the Quarter ended June 30, 1988, all of which information is
included as an exhibit to this annual report and incorporated herein
by reference.
ERESC is subject to the informational requirements under the
Securities Exchange Act of 1934, as amended, and in accordance
therewith files reports and other information, including financial
statements, with the Securities Exchange Commission under Commission
File No. 1-9331. Such reports and other information filed by ERESC
can be inspected and copied at the public reference facilities
maintained by the SEC in Washington, D.C. and at certain of its
Regional Offices, and copies may be obtained from the Public Reference
Section of the SEC, Washington, D.C. 20549, at prescribed rates.
Brookdale Center is located approximately five miles northwest
of the central business district of Minneapolis. At December 31,
1993, Brookdale Center was 83% leased
<PAGE> 15
15
(excluding its anchor stores all of which are in operation).
Although one of the anchors, the Carson Pirie and Scott chain, has
recently entered bankruptcy, it continues to operate its store in the
Brookdale Center and is, to date, fulfilling its lease obligations.
Northland Center is a regional shopping mall located
approximately 11 miles northwest of the central business district of
Detroit. At December 31, 1993, Northland Center was approximately 71%
leased (excluding its anchor stores all of which are in operation).
One of the anchor stores, Hudson, has notified ERESC that it intends
to discontinue operations at the Northland Center. Discussions are
underway with Hudson to continue its tenancy. Managment believes that
significant capital improvements to the Northland Center are needed to
maintain the value and marketability of the Property. ERESC has
declined to incur such expenses. On March 25, 1994 Equitable entered
into an agreement with ERESC (the "ERESC Agreement") in connection
with the Zero Notes, which agreement reflected a letter of intent
between the parties dated January 19, 1994. The ERESC Agreement
provides Equitable and the Venture, in proportion to their respective
interests in the Zero Notes, would (a) accept a deed-in-lieu of
foreclosure of the Northland Center effective as of January 1, 1994,
(b) pay the owner $6.6 million, which amount is the present value of
the anticipated cash flow of the Northland Center for the period from
January 1, 1994 through June 30, 1995, the maturity date of the Zero
Notes and (c) upon the sale of the Brookdale Center, to an
unaffiliated third party, permit the owner to prepay the Zero Note
secured by the Brookdale Center at the then accreted amount of such
Note, plus a defeasance fee equal to 75% of the sale price in excess
of $45,000,000 up to the amount of the defeasance fee provided in the
Brookdale Note.
The consummation of the transactions is subject to certain
conditions, including the following: (a) Hudson agreeing to continue
to operate as an anchor at the Northland Center on terms acceptable
to the Venture and Equitable, (b) Montgomery Ward entering into
agreements to operate as an additional anchor at the Northland
Center on terms acceptable to the Venture and Equitable, (c) the
Venture's agreement to participate in the transaction, and (d) receipt
of approval of ERESC's limited partners to the proposed transaction.
Under the terms of the ERESC Agreement, EREIM was terminated as asset
manager of the Northland Center and Brookdale Center and EREIM
released its right of first offer to purchase the Brookdale Center.
Management is currently considering this transaction to
determine if it is in the best interest of the Partnership. In
connection with its determination the Managing General Partner
retained Arthur Andersen & Co. S.C. to analyze the proposed
transaction to determine whether it is fair from a financial point of
view to the Partnership and the BAC Holders. Such analysis considered
the effect of the proposed transaction both with and without the
benefit of the Guaranty Agreement. Based upon certain assumptions
contained in its report, Arthur Andersen & Co. S.C. has rendered an
opinion that such transaction is fair from a financial point of view
to the Partnership and to its BAC Holders. Since the consummation of
the transaction is dependent upon numerous conditions, most of which
are beyond the control of the Partnership, there can be no assurance
that this transaction as presently described will be consummated, nor
that such transaction, if consummated, will be consummated on the
terms described herein.
201 Merritt Seven Loan is a first mortgage loan made jointly by
the Venture and Equitable and is secured by an eight-story office
building in Norwalk, Connecticut. On November 22, 1993, the Venture
received cash of $10.5 million reflecting the Venture's 50% share of a
$21 million pay-off on the note. The Venture had a 50% participation
interest in a loan made by Equitable to the Second Merritt Seven Joint
Venture (borrower). The borrower had approached Equitable and the
Venture to renegotiate the terms of the nonrecourse 10-1/4%
<PAGE> 16
16
interest-only loan which bore a maturity date in 1998. In
November 1993, it was agreed that borrower would have a six-month
option to purchase the loan at an amount not less than the fair market
value of the property securing such mortgage loan, as determined by an
independent appraisal, but in no event less than $21 million.
Adequate reserves had been established by the Partnership during the
first and third quarters of 1993 to reflect the diminution of value of
the underlying security for such mortgage loan. In receiving $8.4
million, its 80% share of the $10.5 million payment, the Partnership
realized the carrying value of the mortgage loan on its books. The
Partnership's share of the amount represents Sale or Financing
Proceeds (as defined in the Partnership Agreement). To the extent
those proceeds were not used to augment reserves with regard to the
proposed Northland transaction, a $0.10 per unit distribution
characterized as Sale or Financing Proceeds was paid in February 1994
to BAC Holders of record as of December 31, 1993. Management believes
that accepting the pay-off was in the best interest of the
Partnership, given the prospects for the property in a difficult
leasing environment. The 201 Merritt Seven Loan and the property
which secures it are described in the Partnership's Current Report on
Form 8-K dated September 27, 1988, which is included as an exhibit to
this annual report and incorporated herein by reference.
Jericho Village Loan is a first mortgage loan secured by an
apartment complex in Weston, Massachusetts. Interest-only payments on
the loan in the amount of $51,250 are due monthly in arrears during
the term of the loan, with the full principal amount of the loan due
upon expiration of the term of the loan. The loan may not be prepaid
for three years. After the third year, the borrower may prepay the
loan in full subject to a prepayment penalty based on a yield
maintenance formula, but not less than 2% of the principal balance of
the loan. The property which secures the loan consists of 22
free-standing one and two-story apartment buildings, containing a
total of 99 apartment units. At December 31, 1993 the property was
approximately 98% leased. The Jericho Village Loan and the property
which secures it are described in the December Report, which is
included as an exhibit to this annual report and incorporated herein
by reference.
Bank of Delaware Building Loan is a first mortgage loan secured
by a 17-story office building in the Wilmington central business
district. Interest-only payments on the loan in the amount of $82,135
are due monthly in arrears during the term of the loan, with the full
principal amount of the loan due upon expiration of the term of the
loan. The loan may not be prepaid for five years. After the fifth
year, the borrower may prepay the loan in full subject to a prepayment
penalty based on a yield maintenance formula, but not less that 1/2%
of the principal balance of the loan. The property which secures the
loan contains approximately 314,000 rentable square feet. At December
31, 1993 such property was approximately 67.7% leased. The borrower
approached the Venture in November, 1992 regarding the potential
restructure of this loan. The borrower referred to significant lease
rollover exposure in late 1993 and the resultant capital expenditures
potentially necessary to renew or release this space. The lease with
DuPont, a major tenant in the building, leasing approximately 27% of
the property, expired in December, 1993. The borrower stated in its
third quarter 1993 report to its investors that it has been notified
that DuPont will not renew any of its space. The report continued to
state:
"...the Partnership estimates that the costs associated with
re-leasing any space which becomes available during the next few
years including those costs to remove the remaining asbestos in
tenant space, will be substantial. In this regard, the
Partnership is carefully analyzing whether or not it is
economically wise to allocate additional capital to this building
based upon the likelihood of ultimately recovering any additional
amounts required to
<PAGE> 17
17
cover these re-leasing costs, asbestos removal costs and other
capital improvements which may be required. If it is determined that
recovery of such additional amounts is unlikely, the Partnership may
decide not to commit any additional amounts to the property beyond
those costs which may be required in the future to remove asbestos in
the building, which represent a recourse obligation to the
Partnership. This would result in the Partnership no longer having
an ownership interest in the property.. "
No specific terms of a restructure have been discussed with the borrower, nor
is it certain that a restructure will occur. Management continues to monitor
this situation, especially considering the statement of the borrower that it
may not fund expenditures necessary to maintain the building's occupancy. It
is Management's belief that the property remains adequate security for the
mortgage. Discussions with the borrower are continuing; however, Management is
willing to consider foreclosure on this property if it is in the Venture's best
interest to do so. In February 1994, the owner of the Bank of Delaware
Building defaulted on the Mortgage Loan. At this time Management does not
believe that foreclosure, if required, would result in a material loss. The
Bank of Delaware Building Loan and the property which secures it are described
in the December Report, which is included as an exhibit to this annual report
and incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings material to the Partnership to
which the Partnership, the Venture, any of the Properties, or to the knowledge
of the Managing General Partner, the properties that secure the Mortgage Loans
are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year to a
vote of BAC Holders.
<PAGE> 18
18
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCK HOLDER MATTERS.
No public trading market for BACs or Interests exists nor is it
expected that one will develop. Accordingly, accurate information as to the
market value of a BAC at any given date is not available. Effective November
9, 1992, the Partnership was advised that Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") introduced a new limited partnership secondary service
through the Merrill Lynch Limited Partnership Secondary Transaction Department
("LPSTD"). This service assists MLPF&S clients wishing to buy or sell
Partnership BACs or interests. The LPSTD has replaced the Merrill Lynch
Investor Service, a service which was designed to match interested buyers and
sellers of partnership interests, but which had been suspended since September
1991 for transactions involving the Partnership's BACs or Interests.
BACs are transferable as provided in Article Seven of the
Partnership's Amended and Restated Agreement of Limited Partnership, as amended
(the "Partnership Agreement"), which is incorporated by reference herein.
Subject to certain restrictions, the General Partners are authorized to impose
restrictions on the transfer of BACs or Interests (or take such other action as
they deem necessary or appropriate) so that the Partnership is not treated as a
"publicly-traded partnership" as defined in Section 7704(b) of the Internal
Revenue Code of 1986 (or any similar provision of succeeding law) which could
result in adverse tax consequences. See "AMENDMENTS TO PARTNERSHIP AGREEMENT
- -- TRANSFER OF INTERESTS" in the March 3 Supplement.
The number of BAC Holders at December 31, 1993 was 12,659.
The Partnership is a limited partnership and, accordingly, does not
pay dividends. It does, however, make distributions of cash to its BAC Holders
and General Partners. BAC Holders will be entitled to receive cash
distributions, allocations of taxable income and tax loss and guaranty proceeds
as provided in Article Four of the Partnership Agreement, which is included as
an exhibit to this annual report and incorporated herein by reference. For
additional information regarding the Guaranty Agreement, see ITEM 1. BUSINESS.
The Partnership has on February 28, 1993, made cash distributions to BAC
Holders in the amount of $0.40 per BAC in respect of the fiscal semi-annual
period ended December 31, 1992. The Partnership withheld its semi-annual
distribution in August 1993 in anticipation of the capital needs of the
Partnership. The Partnership made a cash distribution to BAC Holders on
February 28, 1994, in the amount of $0.10 per BAC to Holders of record at
December 31, 1993. The Partnership reduced the February 1994 distribution to
supplement reserves. This distribution constitutes a distribution of Sale or
Financing Proceeds derived from a portion of the proceeds from the pay-off of
the Second Merritt Seven mortgage loan. Reference is made to ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS for further information regarding cash distributions, which
information is incorporated herein by reference.
<PAGE> 19
19
ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth a summary of the selected financial data for the
Partnership for the years ended December 31, 1989, 1990, 1991, 1992 and 1993:
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue.. $ 14,855,639 $ 17,347,435 $ 16,080,453 $ 15,117,182 $ 14,651,718
Net income .... $ 2,250,110 $ 9,517,222 $ 8,587,245 $ 8,061,766 $ 8,019,000
Net income per
limited
partnership
interest .... $0.39 $1.67 $1.50 $1.41 $1.46
Cash
distributions
per limited
partnership
interest .... $0.40 $1.16 $0.75 None None
Total assets .. $ 159,739,772 $159,297,484 $155,127,826 $150,830,355 $146,273,744
</TABLE>
The above selected financial data for the years 1991 through 1993 should be
read in conjunction with the financial statements and the related notes
appearing elsewhere in this annual report.
<PAGE> 20
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
At December 31, 1993, the Partnership had cash and short-term
investments of approximately $3.0 million. Such cash and short-term
investments are expected to be utilized for general working capital
requirements including, to the extent that scheduled lease expirations occur,
shortfalls associated with such lease expirations on the Properties until such
time as such leases can be replaced, and for participation with Equitable in
the proposed Northland Center transaction. In addition, to the extent that
cash distributions from the Partnership's interest in the Venture are
insufficient, the payment or reimbursement of fees and expenses to the General
Partners and their affiliates will be paid out of such cash and short term
investments. Amounts which the Managing General Partner determines are not
needed for general working capital requirements will be available for
distribution. The Partnership's policy is to maintain adequate cash reserves
(taking into consideration reserves of the Venture) to enable it to meet short
and long-term requirements. The Partnership's working capital reserves may be
increased or decreased, from time to time, depending on the Managing General
Partner's determination as to their adequacy. However, working capital
reserves may not be decreased below 1% of gross offering proceeds prior to the
time that the Partnership enters its liquidation phase.
In addition, the Partnership owns an 80% interest in the Venture. At
December 31, 1993, the Venture's portfolio was fully invested and included
interests in nine real properties and four first mortgage loans on real
properties (including the two Zero Notes) representing an aggregate acquisition
cost of approximately $116.7 million (exclusive of closing costs). At December
31, 1993, the Venture also had approximately $18.8 million in cash and
short-term investments which is intended to be utilized primarily to create
reserves to consummate the proposed Northland Center transaction and thereafter
to fund capital improvements at the Northland Center, fund capital improvements
at the Venture's other Properties and cover general working capital
requirements. Remaining funds are available for distribution to Venture
partners.
All of the Venture's properties were acquired without mortgage
indebtedness, and neither the Venture nor the Partnership has incurred any
borrowings. All of the Venture's Properties as well as its Mortgage Loans
(other than the Zero Notes) are currently producing cash flow to the Venture
which, net of expenses of the Venture and the establishment or increase of
reserves, is being distributed 80% to the Partnership and 20% to EREIM LP
Associates. The Venture's Brookdale Zero Note does not provide current cash
flow to the Venture but is accruing interest at an implicit rate of 10.2% per
annum. Since the value of the assets securing the Northland Zero Note did not
support the carrying value of the such note, the Venture has not accrued
additional interest on the Northland Zero Note on its books since June 30,
1993. Under the terms of the Zero Notes, principal and interest in the
aggregate amount of $68,227,857 is due in June 1995. If the Northland
transaction is consummated, Equitable and the Venture will acquire the
property securing the Loan and the Venture's $42,882,504 share will not be
received in June 1995. Proceeds are expected to be received at a later date
upon the disposition of the Property.
Although it was contemplated and disclosed at the time of the
Partnership's offering of BACs that all of the Partnership's cash flow for 1990
would be utilized to pay various deferred fees and expenses, cash flow exceeded
the amount necessary to fully pay such fees and expenses,
<PAGE> 21
21
enabling the Partnership to make its first distribution of Distributable Cash
to BAC Holders in the first quarter of 1991. For 1992 and 1993, the
Partnership's distributions received from the Venture totaled $7,176,400, and
$3,040,000 respectively.
Cash received from tenant-related revenues decreased approximately $1.0
million in comparison to the same period last year. This decrease is due to
the $1.1 million payment received pursuant to an agreement between Saab and the
Venture regarding the termination of its lease. The Partnership's share of the
proceeds were distributed to the BAC Holders and limited partners as Sale or
Financing Proceeds as defined in the Partnership Agreement.
Distributable Cash from operations will be distributed in accordance with
the terms of the Partnership Agreement which in general provide that such
amounts will be distributed 95% to the BAC Holders and Limited Partners and 5%
to the General Partners with the BAC Holders and limited partners entitled to a
non-cumulative preferred 6% simple return on their adjusted capital
contribution during each period. The first semi-annual distribution of
Distributable Cash reflecting the portion of the Partnership's cash flow that
was available for distribution after payment of the fees and expenses referred
to above and other Partnership obligations for the period ended December 31,
1990, was also made on February 28, 1991, at the rate of $0.25 per BAC. A
semi-annual distribution of Distributable Cash, for the period ended June 30,
1991, was also made on August 30, 1991, at the rate of $0.50 per BAC and
another semi-annual distribution of Distributable Cash, for the period ended
December 31, 1991 was made on February 28, 1992 at the rate of $0.50 per BAC.
In addition, a semi-annual distribution of Distributable Cash, for the period
ended June 30, 1992, was made on August 31, 1992, at the rate of $0.50 per BAC,
and another semi-annual distribution of Distributable Cash for the period ended
December 31, 1992 was made on February 28, 1993 at the rate of $0.40 per BAC.
The Partnership withheld the distribution for the semi-annual period that would
have been made in August 1993. The determination to withhold such
distributions at that time was based upon the then anticipated needs of the
Venture to fund capital improvements to the Northland Center in order to
preserve the Venture's equity in the Northland Zero Note in addition to other
working capital needs of the Venture. The levels of future cash distributions
principally will be dependent on the distributions to the Partnership by the
Venture, which in turn will be dependent on returns from the Venture's
investments and future reserve requirements.
It is anticipated that the Partnership will not make distributions of
Distributable Cash from operations in 1994 which will equal or exceed the
amount distributed in 1993, and such distributions will probably be less.
Amounts distributed to BAC Holders fluctuate from time to time based on changes
in occupancy, rental and expense rates at the Venture's Properties and other
factors. The Partnership has increased its working capital reserves, and
reduced distributions of Distributable Cash in connection with its efforts to
relet vacant space at certain of its Properties, most significantly at Sentry
Park West and the property secured by the Bank of Delaware Mortgage Loan, and
future distributions are expected to be reduced by amounts to be contributed by
the Partnership in connection with the consummation of the proposed Northland
transaction and the renovation of the Northland Center. The Partnership would
be required to contribute $3.8 million upon the consummation of the proposed
Northland transaction and thereafter contribute approximately $6.7 million
towards the renovation of the Northland Center. There can be no assurance that
distributions of Distributable Cash from operations will be made at any
particular level or at all. As a result of the increase in reserves and the
continued accretion of interest on the Brookdale Zero Note, the tax liability
of the BAC Holders arising from taxable
<PAGE> 22
22
income allocated to a BAC Holder may substantially exceed the amounts,
if any, distributed to such BAC Holder.
As discussed, the Partnership's share of Sale or Financing Proceeds in the
amount of $0.162 per BAC associated with the termination of the lease with Saab
at 1850 Westfork Drive was distributed to BAC Holders and Limited Partners on
August 31, 1992. In addition, the Partnership's share of Sale or Financing
Proceeds, to the extent the funds were not allocated to increase reserves, in
the amount of $0.10 per BAC associated with the pay-off of the 201 Merritt
Seven Loan was distributed to BAC Holders and Limited Partners on February, 28,
1994. The amount and timing of distributions from Sale or Financing Proceeds
depend upon payments of the Mortgage Loans and maturity schedules, the timing
of disposition of Properties as well as the need to allocate such funds to
increase reserves.
At December 31, 1993, approximately 91.8% of the aggregate rentable
square feet of the Venture's Properties was leased. Leases covering
approximately 5.2%, 13.8%, and 10.6% of the Properties rentable square feet are
scheduled to expire in 1994, 1995, and 1996, respectively. The Properties and
the properties that secure the Mortgage Loans will compete for, among other
things, desirable tenants with other properties in the areas in which they are
located which may include properties owned or managed directly or indirectly by
Equitable or its subsidiaries and affiliates. Currently, many areas of the
country including some in which one or more of the Properties or properties
that secure Mortgage Loans are located are experiencing relatively high vacancy
rates and competition which may adversely impact the ability of the Venture and
the owners of the properties that secure the Mortgage Loans to retain or
attract tenants as leases expire or may adversely affect the level of rents
which may be obtained (or increase the levels of concessions that may have to
be granted). Some of the tenants have recently experienced serious financial
difficulties. See Item 2. PROPERTIES - 1200 Whipple Road and Richland Mall.
Management believes that the value of the Venture's equity in the
Northland Zero Note, and the value of the underlying asset, is likely to
decline if the Northland Center is not upgraded. ERESC has declined to
undertake such steps. This led to negotiations between ERESC and Equitable
resulting in the ERESC Agreement described under ITEM 2. PROPERTIES - Mortgage
Loans. As discussed above, Management is considering whether the proposed
Northland transaction is in the best interests of the Partnership. If Hudson
agrees to continue to occupy its anchor space and Montgomery Ward agrees to
become the fourth anchor, and the renovations are completed as contemplated,
Management believes the market value of the Northland Center, and the Venture's
interest therein, would be increased from its current value. The expected
increase in value of the Northland Center as upgraded over its current market
value may be less than the amount that is expected to be contributed towards
renovations. Management believes, however, that the increase in the future
value of the Northland Center if none of the upgrading actions are undertaken
is expected to be significantly greater than the amounts contributed toward the
renovations. Management believes that the expected increase in value of
Northland Center would be of benefit to the BAC Holders. It would also have
the effect of reducing the liability of EREIM LP Associates under the Guarantee
Agreement.
The Partnership is intended to be self-liquidating in nature, meaning that
proceeds from the sale of properties or principal repayments of loans will not
be reinvested but instead will be distributed to BAC Holders and partners,
subject to certain limitations. Under the terms of the Guaranty Agreement
which has been assigned to the Partnership, following the earlier of the sale
<PAGE> 23
23
or other disposition of all of the Properties and Mortgage Loans or the
liquidation of the Partnership, EREIM LP Associates has guaranteed to pay an
amount which, when added to all distributions from the Partnership to the BAC
Holders, will enable the Partnership to provide the BAC Holders with the
Minimum Return equal to their Capital Contributions plus a simple annual return
equal to 9.75% multiplied by their adjusted capital contributions from time to
time calculated from the investor closing at which an investor acquired his
BACs, subject to certain limitations.
The distribution declared as of December 31, 1993, paid on
February 28, 1994, was $542,448 ($0.10 per BAC). This brings the total
distributions to BAC Holders and limited partners to $13,083,776. The
cumulative minimum return (computed at 9.75% simple return per annum on the
limited partners' adjusted capital contributions) less the distributions to
date total that portion of guarantee liability payable to date. As of December
31, 1993, the cumulative minimum return resulting from the Guarantee Agreement
is $61,129,209. Assuming that the last Property is sold on December 31, 2002,
upon the expiration of the Partnership, EREIM LP Associate's maximum liability
under the Guarantee Agreement as of December 31, 1993, is $251,496,465.
Financial Condition
The Partnership's financial statements include the consolidated statements
of the Partnership and the Venture, through which the Partnership conducts its
business of investment in real property. Although the Partnership was formed
in 1986, it did not commence operations until March, 1988, following receipt of
the first proceeds of its offering of BACs. Thereafter, utilizing the net
proceeds of the Partnership's offering of BACs, the Partnership, through the
Venture, began its acquisition of real estate investments. The Partnership
substantially completed its acquisition phase in 1989.
Total real estate investments decreased in 1993 as compared to 1992
primarily as a result of the pay-off of the 201 Merritt Seven Loan, the
$7,628,000 loss recognized on the Northland Zero Note and depreciation. Such
decrease is offset somewhat by the increase in the balance of the Zero Notes
due to the accretion of interest thereon. Other assets (primarily cash and
short-term investments) increased in 1993 as compared to 1992 due to the
receipt of the pay-off of the 201 Merritt Seven Loan and Management's decision
to withhold the semi-annual distribution that would have been made in August
1993. Total liabilities decreased in 1993 as compared to 1992 primarily due to
a reduction in the distributions declared to the limited partners. The
Partnership had a net loss of $1,533,890 for the year ended December 31, 1993
as compared to net income of $9,517,222 for the year ended December 31, 1992.
The net loss is attributable to the realized loss on the 201 Merritt Seven
Loan and the write-down on the Northland Zero Note.
Inflation has been at relatively low levels during the periods presented
in the financial statements and, as a result, has not had a significant effect
on the operations of the Partnership, the Venture or their investments.
Although the spread is small, inflation is continuing to exceed the rise in
market rental rates at many of the Venture's properties. In fact, at several
of the Venture's properties, market rental rates are decreasing. If this trend
continues, the increase in real estate operating expenses may exceed increases
in rental income.
<PAGE> 24
24
Results of Operations
Rental income for 1993 decreased approximately $1.1 million as compared
to 1992. As stated above, this change is primarily a result of the receipt of
$1.1 million pursuant to an agreement between Saab and the Venture regarding
the termination of its lease. Operating expenses increased from 1992 to 1993
primarily due to the loss realized on the pay-off of the 201 Merritt Seven Loan
and the loss on write-down of the Northland Zero Note. Rental income increased
in 1992 as compared to 1991 as a result of the termination of lease income
received from Saab. Real estate operating expenses remained consistent from
1992 to 1991. Interest on short-term investments remained relatively constant
between 1992 and 1993. Interest earned on the Zero Notes decreased from 1992
to 1993 due to the non-accrual of interest in June 1993 on the Northland Zero
Note. The non-accrual of interest offset an increase in interest attributable
to the compounding effect typical of these types of investments for Brookdale
for the full year and for Northland during the first half of the year.
Interest income on the Zero Notes increased from 1991 to 1992 as a result of
the interest compounding effect.
<PAGE> 25
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
INDEX
Page
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Balance Sheets, December 31, 1993 and
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Operations for the years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . 28
Consolidated Statements of Partners' Capital for the
years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . 29
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . 30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 32
Consolidated Supplemental Schedules:
Indebtedness to Related Parties for the years ended
December 31, 1993, 1992 and 1991 (Schedule IV) . . . . . . . . . 43
Real Estate and Accumulated Depreciation
as of December 31, 1993 (Schedule XI). . . . . . . . . . . . . . 44
Mortgage Loans on Real Estate as of
December 31, 1993 (Schedule XII) . . . . . . . . . . . . . . . . 45
--------------------------
</TABLE>
Schedules Not Filed:
All schedules except those indicated above have been omitted as the
required information is not applicable or the information is shown in the
financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE> 26
26
INDEPENDENT AUDITORS' REPORT
ML/EQ REAL ESTATE PORTFOLIO, L.P.:
We have audited the accompanying consolidated balance sheets of ML/EQ
Real Estate Portfolio L.P. (the "Partnership") as of December 31, 1993 and
1992, and the related consolidated statements of operations, partners' capital,
and cash flows for each of the three years ended December 31, 1993, 1992 and
1991. These financial statements and the supplemental schedules discussed
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements 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 management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of ML/EQ Real Estate
Portfolio, L.P. at December 31, 1993 and 1992 and the results of its operations
and its cash flows for each of the three years ended December 31, 1993, 1992
and 1991 in conformity with generally accepted accounting principles.
Our audits also comprehended the consolidated supplemental schedules of
the Partnership as of December 31, 1993 and for each of the three years ended
December 31, 1993, 1992 and 1991. In our opinion, such consolidated
supplemental schedules, when considered in relation to the basic consolidated
financial statements, present fairly in all material respects the information
shown therein.
/s/ Deloitte & Touche
- ---------------------
March 18, 1994
Atlanta, Georgia
<PAGE> 27
27
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
------------ -------------
ASSETS
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Rental properties (Note 3) $ 70,939,638 $ 70,232,358
Less accumulated depreciation (7,688,554) (6,028,984)
------------- -------------
Net rental properties 63,251,084 64,203,374
Other real estate assets (Note 4 and 5) 37,017,363 -
Zero coupon mortgage notes receivable (Note 4) 21,831,834 53,204,374
Mortgage loans receivable (Note 5) 6,000,000 29,500,000
------------- -------------
Total real estate investments 128,100,281 146,907,748
------------- -------------
OTHER ASSETS:
Cash and short-term investments 21,825,747 7,113,665
Rental income receivable 798,839 906,668
Interest income receivable 120,851 210,166
Guaranty fee, net of accumulated amortization of $1,328,458
in 1993 and $1,060,207 in 1992 (Notes 6 and 7) 2,414,257 2,682,508
Organization costs, net of accumulated amortization of $27,882
in 1993 and $26,828 in 1992 - 1,054
Other 1,749,797 1,475,675
------------- -------------
Total other assets 26,909,491 12,389,736
------------- -------------
TOTAL ASSETS $ 155,009,772 $ 159,297,484
============= =============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Due to affiliates (Notes 6 and 7) $ 543,014 $ 532,792
Distributions declared 542,448 2,169,790
Accrued liabilities 394,691 393,578
Accrued capital expenditures 225,000 -
Security deposits and unearned rent 276,298 307,396
------------- -------------
Total liabilities 1,981,451 3,403,556
------------- -------------
MINORITY INTEREST IN THE VENTURE 29,740,464 30,529,733
------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 6 and 7)
PARTNERS' CAPITAL:
General partners 1,417,856 1,494,551
Initial limited partner 6,174 6,266
Limited partners (5,424,225 BACs
issued and outstanding) 121,863,827 123,863,378
------------- -------------
Total partners' capital 123,287,857 125,364,195
------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 155,009,772 $ 159,297,484
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 28
28
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
REVENUE: 1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Rental income (Note 9) $ 7,972,278 $ 7,941,677 $ 7,898,324
Lease termination rental income (Note 9) - 1,100,000 -
Interest on short-term investments 227,623 231,897 356,858
Interest on zero coupon mortgage notes (Note 4) 3,772,823 5,038,236 4,561,137
Interest on mortgage loans (Note 5) 2,882,915 3,035,625 3,035,625
Other - - 228,509
------------ ------------ ------------
TOTAL REVENUE 14,855,639 17,347,435 16,080,453
------------ ------------ ------------
OPERATING EXPENSES:
Depreciation 1,659,570 1,541,840 1,446,614
Real estate taxes 906,062 936,633 874,158
Real estate operating expenses 1,232,640 1,161,775 1,198,711
Amortization 269,305 273,827 273,827
General and administrative,
including $1,047,831 in 1993 and
$1,052,219 in 1992 and 1991 to affiliates (Note 7) 1,229,092 1,197,018 1,265,724
Realized loss on mortgage loan receivable (Note 5) 3,494,129 - -
Loss on write down of zero coupon mortgage (Note 4) 7,628,000 - -
------------ ------------ ------------
TOTAL OPERATING EXPENSES 16,418,798 5,111,093 5,059,034
------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST (1,563,159) 12,236,342 11,021,419
MINORITY INTEREST IN NET (INCOME) LOSS OF
CONSOLIDATED VENTURE 29,269 (2,719,120) (2,434,174)
------------ ------------ ------------
NET INCOME (LOSS) $ (1,533,890) $ 9,517,222 $ 8,587,245
============ ============ ============
ALLOCATION OF NET INCOME (LOSS):
General partners $ (76,695) $ 475,861 $ 429,362
Initial limited partner (67) 420 379
Limited partners (1,457,128) 9,040,941 8,157,504
------------ ------------ ------------
TOTAL $ (1,533,890) $ 9,517,222 $ 8,587,245
============ ============ ============
NET INCOME (LOSS) PER LIMITED PARTNER UNIT $ (0.27) $ 1.67 $ 1.50
============ ============ ============
WEIGHTED AVERAGE UNITS OUTSTANDING 5,424,225 5,424,225 5,424,225
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 29
29
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
Initial
General Limited Limited
Partners Partner Partners Total
----------- ------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 $ 589,328 $ 6,004 $ 119,205,724 $119,801,056
Net income 429,362 379 8,157,504 8,587,245
Cash distributions - (187) (4,068,169) (4,068,356)
Distributions declared - (125) (2,712,113) (2,712,238)
----------- ------- ------------- ------------
BALANCE, DECEMBER 31, 1991 1,018,690 6,071 120,582,946 121,607,707
Net income 475,861 420 9,040,941 9,517,222
Cash distributions - (125) (3,590,819) (3,590,944)
Distributions declared - (100) (2,169,690) (2,169,790)
----------- ------- ------------- ------------
Balance, December 31, 1992 1,494,551 6,266 123,863,378 125,364,195
Net loss (76,695) (67) (1,457,128) (1,533,890)
Distributions declared - (25) (542,423) (542,448)
----------- ------- ------------- ------------
BALANCE, DECEMBER 31, 1993 $1,417,856 $ 6,174 $ 121,863,827 $123,287,857
=========== ======= ============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 30
30
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Tenant rentals received $ 7,758,761 $ 8,708,280 $ 7,674,387
Interest received 3,199,853 3,203,007 3,524,286
------------ ------------ ------------
Cash received from operations 10,958,614 11,911,287 11,198,673
Cash paid for operating activities (4,100,333) (3,291,435) (3,996,300)
Cash distributions to minority interest - (1,794,099) (1,810,000)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,858,281 6,825,753 5,392,373
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and additions to rental
properties, including cash in escrow (482,280) (602,507) (702,801)
Payments received under master lease agreement - - 29,016
Payments received from mortgage receivable 10,505,871 - -
Reduction of cash in escrow - - 119,140
------------ ------------ ------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 10,023,591 (602,507) (554,645)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to limited partners (2,169,790) (6,303,182) (4,068,356)
------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (2,169,790) (6,303,182) (4,068,356)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 14,712,082 (79,936) 769,372
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 7,113,665 7,193,601 6,424,229
------------ ------------ ------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF YEAR $ 21,825,747 $ 7,113,665 $ 7,193,601
============ ============ ============
</TABLE>
(Continued)
See notes to consolidated financial statements.
<PAGE> 31
31
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES: 1993 1992 1991
------------- ----------- -----------
<S> <C> <C> <C>
Net Income (Loss) $ (1,533,890) $ 9,517,222 $ 8,587,245
------------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
ACTIVITIES:
Amortization and depreciation 1,928,875 1,815,667 1,720,442
Minority interest in Venture operations (29,269) 2,719,120 2,434,174
Cash distributions to minority interest (760,000) (1,794,099) (1,810,000)
Realized loss on mortgage loan receivable 3,494,129 - -
Loss on write down of zero coupon mortgage 7,628,000 - -
Changes in assets (increase) decrease:
Interest accrual on zero coupon mortgage notes (3,772,823) (5,038,237) (4,561,137)
Rental income receivable 107,829 (110,504) 222,377
Interest income receivable 89,315 (64,515) 131,803
Other assets (274,122) (249,498) (486,938)
Changes in liabilities increase (decrease):
Accrued operating expenses due to affiliates 10,222 (16,123) (666,022)
Accrued liabilities 1,113 5,334 (192,923)
Security deposits and unearned rent (31,098) 41,386 13,352
------------- ----------- -----------
Total adjustments 8,392,171 (2,691,469) (3,194,872)
------------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,858,281 $ 6,825,753 $ 5,392,373
============= =========== ===========
</TABLE>
SUPPLEMENTAL INFORMATION REGARDING NONCASH
INVESTING AND FINANCING ACTIVITIES
The partnership accrued $225,000 in capital expenditures that were not paid
before December 31, 1993.
See notes to consolidated financial statements.
<PAGE> 32
32
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
ML/EQ Real Estate Portfolio, L.P., a Delaware limited partnership
(the "Partnership"), was formed on December 22, 1986. The Partnership
was formed to invest in existing income-producing real properties,
zero coupon or similar mortgage notes and fixed rate mortgage loans
through a joint venture, EML Associates (the "Venture").
The Venture was formed on March 10, 1988 with EREIM LP Associates,
an affiliate of the Equitable Life Assurance Society of the United
States ("Equitable"). The Partnership owns an 80% interest in the
Venture. The Managing General Partner of the Partnership is EREIM
Managers Corp., (the "Managing General Partner"), an affiliate of the
Equitable, and the Associate General Partner is MLH Real Estate
Associates Limited Partnership (the "Associate General Partner"), an
affiliate of Merrill Lynch, Hubbard Inc. The initial limited partner
is MLH Real Estate Assignor, Inc., an affiliate of Merrill Lynch,
Hubbard Inc.
The Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") authorized the sale of up to
7,500,000 Beneficial Assignee Certificates ("BACs") at $20 per BAC.
The BACs evidence the economic rights attributable to limited partners
hip interests in the Partnership. On March 10, 1988, the
Partnership's initial investor closing occurred, at which time the
Partnership received $92,190,120 representing the proceeds from the
sale of 4,609,506 BACs. On May 3, 1988, the Partnership had its
second and final investor closing. The Partnership received
$16,294,380 representing the proceeds from the sale of an additional
814,719 BACs.
Total capital contributions to the Partnership are summarized as
follows:
<TABLE>
<S> <C>
General partners $ 25,000
Initial limited partner 5,000
Limited partners 108,484,500
-----------
Total $108,514,500
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership utilizes the accrual basis of accounting for
financial accounting and tax reporting purposes.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Partnership and the Venture. EREIM LP Associates' 20% ownership
in the Venture is reflected as a minority interest in the
Partnership's consolidated financial statements. All significant
intercompany accounts are eliminated in consolidation.
Allocation of Partnership Income
Partnership net income was allocated 99% to the limited
partners as a group and 1% to the general partners until 1990 at which
time the Partnership paid the final portion of the
acquisition/syndication fees to the general partners. Partnership net
income is now allocated 95% to the limited partners as a group and 5%
to the general partners, consistent with the provision in the limited
partnership agreement for the allocation of distributable cash.
<PAGE> 33
33
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Rental Properties
Rental properties are stated at cost. Cost is allocated
between land and buildings based upon preacquisition appraisals of
each property. Impairment is determined by calculating the sum of
undiscounted future cash flows including the projected future
undiscounted net proceeds from sale of the property. In the event
such sum is less than the depreciated cost of the property, the
property will be recorded on the financial statements at the lower
amount.
Depreciation
Depreciation of buildings and building improvements is provided
using the straight-line method over estimated useful lives of forty
years. Tenant improvements are amortized using the straight-line
method over the life of the related lease.
Rental Income
Rental income is recognized on a straight-line basis over the
terms of the leases.
Other Real Estate Assets
Other real estate assets represent the fair market value of the
underlying collateral of the Northland zero coupon loan receivable and
the Bank of Delaware mortgage loan receivable at the date such
receivables were considered to be in-substance foreclosures (see Notes
4 and 5).
Zero Coupon Mortgage Notes Receivable
Zero coupon mortgage notes receivable are carried at their
present value which is equal to the discounted principal plus accrued
interest. Interest income is recognized ratably over the term of the
notes using the constant rate of interest implicit in the notes (Note
4). In 1993, the Partnership recorded a write-down and stopped
accruing interest on the Northland zero coupon note since the value of
the underlying collateral was less than the carrying value (see Note
4).
Mortgage Loans Receivable
Mortgage loans receivable are stated at cost (Note 5).
Organization and Offering Costs
Organization costs incurred in the organization and formation
of the Partnership are amortized over five years. Offering costs,
including the acquisition/syndication fee payable to the general
partners and other offering and issuance costs of the BACs, totaling
$11,037,537, were charged against the limited partners' capital in
accordance with the provisions of the Partnership Agreement, following
the investor closings in 1988.
Guaranty Fees
Guaranty fees are being recognized as expense over the
estimated life of the Partnership through a combination of the
amortization of the nonrecurring portion of the fees incurred during
the first three years of the Partnership and the expense of the
recurring portion of the fees as incurred (Note 7).
<PAGE> 34
34
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents
Cash equivalents include cash, demand deposits, money market
accounts and highly liquid short-term investments purchased with a
maturity of three months or less. The short-term investments are
stated at cost.
Income Taxes
No provisions for income taxes have been made since all income
and losses are allocated to the partners for inclusion in their
respective tax returns.
Reclassifications
Certain prior year amounts have been reclassified to conform
with the 1993 presentation.
Fair Value of Financial Instruments
Management has reviewed the various assets and liabilities of
the Partnership in accordance with the Statement of Financial
Accounting Standards No. 107 "Disclosures about Fair Value of
Financial Instruments" (which is not applicable to real estate
assets). Management has concluded that the fair value of its
financial instruments, principally the zero coupon note receivable,
the mortgage loan receivables and other real estate assets,
approximates the fair market value of the underlying collateral.
Considerable judgement is required in developing estimates of fair
value and accordingly, the use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated
fair value amounts. The actual market value of the underlying
collateral can be determined only by negotiation between parties in an
arms length sale transaction. See Note 4 regarding the write-down of
the Northland zero coupon mortgage note.
3. RENTAL PROPERTIES
As of December 31, 1993, the Partnership's rental properties consisted
of the following:
<TABLE>
<CAPTION>
Square Lease
Feet Percentage
----- ----------
<S> <C> <C> <C>
Office
16 and 18 Sentry Park West Montgomery County,
Pennsylvania 190,616 60%
Industrial
1200 Whipple Road Union City, California 257,500 100%
701 Maple Lane and 733 Maple Lane Bensenville, Illinois 81,750 100%
7550 Plaza Court Willowbrook, Illinois 49,500 100%
800 Hollywood Avenue Itasca, Illinois 50,337 100%
1850 Westfork Drive Lithia Springs, Georgia 103,505 100%
1345 Doolittle Drive San Leandro, California 326,414 93%
Retail
Richland Mall Richland Township,
Pennsylvania 182,408 97%
</TABLE>
<PAGE> 35
35
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The costs related to the rental properties are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Land $12,978,626 $12,978,626
Buildings 57,961,012 57,253,732
----------- -----------
Total 70,939,638 70,232,358
Less accumulated depreciation (7,688,554) (6,028,984)
----------- -----------
Net rental properties $63,251,084 $64,203,374
============ ===========
Office $27,105,690 $26,817,937
Retail 13,479,455 13,198,484
Industrial 30,354,493 30,215,937
----------- -----------
Total 70,939,638 70,232,358
Less accumulated depreciation (7,688,554) (6,028,984)
----------- -----------
Net rental properties $63,251,084 $64,203,374
============ ===========
</TABLE>
4. ZERO COUPON MORTGAGE NOTES RECEIVABLE
In 1988, The Venture acquired two zero coupon mortgage notes
with fair value (including accrued interest) of $33,053,870, which
represents the Venture's 71.66 ownership percentage. Equitable Life
Assurance Society of the United States owns the remaining 28.34%.
These notes provide financing for Equitable Real Estate Shopping
Centers L.P. ("ERESC") and are secured by nonrecourse first mortgages
on the two properties owned by ERESC: Brookdale Center and Northland
Center. ERESC is not affiliated with the Venture. The notes have an
implicit interest rate of 10.2% compounded semiannually with the
Venture's portion of the entire amount of principal and accrued
interest totaling $68,227,857 due June 1995. The notes provide that
the borrowers may elect to pay interest currently; however, it is
expected that interest payments will be deferred until maturity.
Management discontinued the accrual of interest during the quarter
ended June 30, 1993 on the Northland zero coupon mortgage as the
accreted value of such mortgage approximates the underlying value.
On January 19, 1994, the Equitable entered into a letter of intent
with Equitable Real Estate Shopping Centers L.P. (ERESC) to obtain,
together with the Venture, Northland Mall from ERESC by means of a
surrender of deed in lieu of foreclosure. The letter of intent
provides that if the transaction is consummated, ERESC will be
released from the existing first mortgage and receive $6,600,000.
Such transaction is accounted for as an in-substance foreclosure at
December 31, 1993 and is classified as an other real estate asset.
The Partnership recognized a loss of $7,628,000 as of December 31,
1993 to record the mall at its fair market value. Such loss includes
a $4,730,000 provision in anticipation of a payment to terminate the
mortgage to be made at closing during 1994.
The unaudited financial position and results of operations of ERESC
for fiscal year ended December 31, 1993 are summarized as follows:
<PAGE> 36
36
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. ZERO COUPON MORTGAGE NOTES RECEIVABLE (CONTINUED)
EQUITABLE REAL ESTATE SHOPPING CENTERS L.P.
UNAUDITED
Summary Statement of Financial Position
<TABLE>
<S> <C>
Property held for disposition 100,264,096
Other assets 13,183,578
-------------
Total assets $ 113,447,674
=============
Mortgage notes payable and accrued interest $ 82,011,121
Other liabilities 4,771,246
Partners' capital 26,665,307
-------------
Total liabilities and partners' capital $ 113,447,674
=============
Summary Statement of Operations
Rental income $ 29,849,106
Interest and other income 462,420
-------------
Total income 30,311,526
-------------
Expenses:
Operating expenses 13,025,506
Loss on write-down of real estate 16,163,153
Real estate taxes 5,705,170
Interest expense 7,857,584
Depreciation and amortization 3,854,330
General and administrative 1,289,480
Management fee 563,654
Professional fees 229,616
-------------
Total expenses 48,688,493
-------------
Net loss $ (18,376,967)
=============
</TABLE>
<PAGE> 37
37
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. MORTGAGE LOANS RECEIVABLE
In 1988, the Venture and Equitable jointly invested in a $28,000,000
nonrecourse first mortgage loan to Second Merritt Seven Joint Venture,
a Connecticut General Partnership. The Venture, Equitable and Second
Merritt Seven Joint Venture agreed to a $21,000,000 pay-off of the
loan by Second Merritt Seven Joint Venture in the fourth quarter of
1993. The Venture received $10,500,000 for its 50% share of the loan
resulting in a realized loss of $3.5 million. Adequate reserves had
been established by the Partnership during the first and third
quarters of 1993 to reflect the diminution of value of the underlying
security for the loan. In receiving $8,400,000, the Partnership's 80%
share of the $10,500,000 payment, the Partnership realized the
carrying value of the mortgage on its books. Management believes that
accepting a pay-off was in the best interest of the Venture, given the
prospects for the property in a difficult leasing environment.
In 1989, the Venture made a $6,000,000 nonrecourse first mortgage
loan to the Wilcon Company. The loan is collateralized by an
apartment complex in Weston, Massachusetts. The loan bears interest
at 10.25% per annum with interest only of $51,250 due monthly to the
maturity date of February 1999.
In 1989, the Venture made a $9,500,000 nonrecourse first mortgage
loan to Three Hundred Delaware Avenue Associates. This loan
is collateralized by a seventeen-story office building in Wilmington,
Delaware. The loan bears interest at 10.375% per annum with interest
only of $82,135 due monthly to the maturity date of March 1999.
Subsequent to year-end, the owner of the Bank of Delaware Building
defaulted on the mortgage loan receivable. As such, at year-end, the
Partnership accounted for this transaction as an in-substance
foreclosure. The mortgage loan receivable was reclassified to other
real estate assets at its current fair market value.
6. GUARANTY AGREEMENT
EREIM LP Associates has entered into a guaranty agreement with
the Venture to provide a minimum return to the Partnership's limited
partners on their contributions. The Venture has assigned its rights
under the guaranty agreement to the Partnership. The guaranty, if
necessary, will be paid ninety days following the earlier of the sale
or other disposition of all the properties and mortgage loans and
notes or the liquidation of the Partnership. The minimum return will
be an amount which, when added to the cumulative distributions to the
limited partners, will enable the Partnership to provide the limited
partners with a minimum return equal to their capital contributions
plus a simple annual return of 9.75% on their adjusted capital
contributions, as defined in the Partnership Agreement, calculated
from the dates of the investor closings. Adjusted capital
contributions are the limited partners' original cash contributions
less distributions of guaranty proceeds, sale or financing proceeds,
and liquidation proceeds, as defined in the Partnership Agreement.
The limited partners' original cash contributions have been adjusted
by that portion of distributions paid through December 31, 1993,
resulting from cash available to the Partnership as a result of sale
or financing proceeds paid to the Venture. The minimum return is
subject to reduction in the event that certain taxes, other than local
property taxes, are imposed on the Partnership or the Venture, and is
also subject to certain other limitations set forth in the prospectus.
Based upon the assumption that the last property is sold on December
31, 2002, upon expiration of the term of the Partnership, the maximum
liability of EREIM LP Associates to the Venture to fund cash deficits
under the guaranty agreement as of December 31, 1993 is limited to
$251,496,465, plus the value of EREIM LP Associates.
<PAGE> 38
38
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. GUARANTY AGREEMENT (Continued)
As of December 31, 1993 and 1992, the cumulative minimum return
(computed at 9.75% per annum) on ML/EQ's limited partners' capital
contributions was $61,129,209 and $50,637,645, respectively. The
guarantee amount is the minimum return reduced by the semi-annual
distributions of cash to the limited partners of the Partnership,
other than cash distributed to the limited partners as a result of
sale or financing proceeds, guaranty proceeds, and liquidation
proceeds, as defined in the Partnership Agreement. As of December 31,
1993, the cumulative amount of cash distributions paid other than cash
distributions paid as a result of sale or financing proceeds was
$11,662,621. As of December 31, 1993, the cumulative amount of cash
distributions paid as a result of sale or financing proceeds received
by the Venture was $878,707. Distributions constituting sale or
financing proceeds declared as of December 31, 1993 and paid in
February 1994 total $542,448.
7. COMPENSATION AND FEES
Acquisition/Syndication Fee
The acquisition/syndication fee was paid to the general
partners for initial acquisition, management and administrative
services to the Partnership. The fee was 8.7% of the proceeds from
the offering of BACs, which amounted to $9,438,152 based upon the
total number of BACs sold and has been included in the offering costs
charged to limited partners' capital. The outstanding balance of this
fee was paid to the general partners in August 1990.
Venture Supervisory Fee
The Venture supervisory fee is payable to the Managing General
Partner for supervising the Partnership's investment in the Venture.
The fee is payable semiannually in an amount equal to .75% per annum
of the Partnership's allocable share of the acquisition price of
properties owned by the Venture. For each of the years ended December
31, 1993, 1992 and 1991, the total expense for this fee was $409,710.
Mortgage Loan Servicing Fee
The mortgage loan servicing fee is payable to the Managing
General Partner for servicing mortgage loans owned by the Venture.
The fee is payable semiannually in an amount equal to .20% per annum
of the outstanding principal amount of the Partnership's allocable
share of fixed rate first mortgage loans and .20% per annum of the
Partnership's allocable share of the accreted amount of zero coupon
mortgage notes at the time of acquisition or contribution to the
venture. For each of the years ended December 31, 1993, 1992 and 1991
the total expense for this fee was $100,086.
Partnership Administration Fee
The partnership administration fee is payable to the Associate
General Partner as compensation for providing investor services
limited to processing investor information and disseminating
Partnership reports and tax information. The fee is payable on a
semiannual basis at an annual rate of .15% per annum of the average
annual adjusted capital contributions of the offering of BACs. For
the years ended December 31, 1993, 1992 and 1991, the total expense
for this fee was $161,409, $162,066 and $162,727, respectively.
<PAGE> 39
39
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMPENSATION AND FEES (Continued)
Guaranty Fee
The guaranty fee is payable to the Venture in consideration of
the assignment of the guaranty agreement. The fee was initially paid
in six semiannual installments, which commenced on June 30, 1988 and
ended on December 31, 1990, at an annual rate of 1.15% of gross
proceeds plus .35% of average annual adjusted capital contributions.
Subsequent to December 31, 1990, the fee is payable on a semiannual
basis at an annual rate of .35% of the average annual adjusted capital
contributions of the offering of BACs. The guaranty fee is assigned
to EREIM LP Associates. For the years ended December 31, 1993, 1992
and 1991, the total expense for this fee was $644,871, $646,405 and
$647,947, respectively. Each of these totals include $268,251 of
amortization expense on the nonrecurring portion of the fee.
Disposition Fee
The disposition fee is payable to the Managing General Partner
in the case of a sale of a property. Upon distribution of the
proceeds of the sale to the limited partners, the fee is payable in
the amount of 1.50% of the aggregate gross proceeds received by the
Partnership. The Managing General Partner will not receive any
portion of the disposition fee which, when combined with amounts paid
to all other entities as real estate brokerage commissions in
connection with the sale, exceeds 6% of the aggregate gross sale
proceeds.
8. PARTNERSHIP AGREEMENT
The general partners are liable for all general obligations of
the Partnership to the extent not paid by the Partnership. The
limited partners are not liable for the obligations of the Partnership
beyond the amount of their contributed capital.
After payment of the acquisition/syndication fee to the general
partners, which has been charged to the limited partners' capital,
distributable cash from operations, less any amounts set aside for
Reserves, will be allocated semiannually on the basis of 95% to the
BAC holders and limited partners as a group and 5% to the general
partners. Distributions to the general partners for any semiannual
period will be deferred until the limited partners have received a 6%
per annum simple return on their adjusted capital contribution during
the period. During 1993, the Partnership declared a distribution in
the amount of $542,448 ($0.10 per BAC) which was paid in February
1994.
Taxable income and loss will generally be allocated 1% to the
general partners and 99% to the limited partners.
Distributions from sale or financing proceeds, if applicable
during a period, will be distributed on a semiannual basis with
priority return given to the limited partners. An exception in the
agreement provides that the distribution of sale or financing proceeds
may be delayed if the purpose for withholding such a distribution is
to supplement cash reserves. Subsequent to a complete return of the
limited partners' capital contributions and the receipt of the minimum
return by the limited partners, as defined in the Partnership
Agreement, sales proceeds will be allocated to the general partners to
the extent of any distributable cash that has been deferred, net of
disposition fees paid to the Managing General Partner. The balance
will be allocated 85% to the limited partners and 15% to the general
partners.
<PAGE> 40
40
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LEASES
Future minimum rentals to be received for the properties under
noncancelable operating leases in effect as of December 31, 1993 are
as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
<S> <C>
1994 $ 5,218,715
1995 4,868,831
1996 3,933,335
1997 3,060,304
1998 2,618,978
1999 and thereafter 9,386,814
-----------
Total $29,086,977
===========
</TABLE>
In addition to the minimum lease amounts, certain leases provide for
escalation charges to tenants for common area maintenance, real estate
taxes and, in the case of retail tenants, rent concessions and
percentage rents. The amount of escalation charges, rent concessions
and percentage rents included in rental income totaled $1,632,857,
$1,811,905 and $1,740,010 for the years ended December 31, 1993, 1992
and 1991, respectively.
Information with respect to significant individual leases is as
follows:
Permer Control, Inc. occupies all (257,500 square feet) of 1200
Whipple Road at a current annual base rent of $807,469 under a lease
which expires in August 2003. The lease agreement calls for increases
in annual rent to $1,009,340 in September 1993 and $1,261,675 in
September 1998. Martin Marietta (formerly General Electric) occupied
all (96,386 square feet) of 16 Sentry Park West at an annual base rent
of $1,453,512 under a lease which expired in December 1993. Martin
Marietta decided not to renew 70,836 square feet of space under the
lease. Martin Marietta acquired General Electric's defense related
operations in the first quarter of 1993.
Liberty Mutual Insurance Group occupies approximately 12.4% (23,685
square feet) of 18 Sentry Park West at an annual base rent of $358,236
under a lease which expires in May 1999.
Pursuant to an agreement with Saab-Scania of America, Inc. ("Saab"),
the former tenant of 1850 Westfork Drive, in connection with the
termination of its lease, Saab paid to the Venture $1.1 million in the
first quarter of 1992. This agreement released Saab from the lease
obligation at 1850 Westfork Drive, which had been scheduled to
terminate in June 1998. The Partnership recognized such proceeds as
income in 1992. During the third quarter of 1992, the Westfork Drive
property was leased in its entirety to Treadway Exports Limited. This
lease is for an initial term of three years at an annual base rent of
$219,689 with two renewal options for a total of an additional three
years.
Gruner & Jahr Printing Company occupies approximately 44.6% (143,852
square feet) of Doolittle Drive at an annual base rent of $477,816.
The lease was renewed in 1992 for a five year term commencing in
August 1993.
The buildings located at 701 Maple Lane, 733 Maple Lane, 7550 Plaza
Court are 100% leased as of December 31, 1993. One lease comprising
18% of the available space is scheduled to expire in 1994.
<PAGE> 41
41
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. TAXABLE NET INCOME AND TAX NET WORTH
The following is a reconciliation of the Partnership's financial net income to
taxable net income and a reconciliation of partners' capital for financial
reporting purposes to net worth on a tax basis.
<TABLE>
<CAPTION>
1993 1992 1991
------------- -------------- ------------
<S> <C> <C> <C>
FINANCIAL NET INCOME (LOSS) $ (1,533,890) $ 9,517,222 $ 8,587,245
Net book to tax difference from joint venture 7,348,583 (128,188) (303,161)
------------ ------------ ------------
TAXABLE NET INCOME $ 5,814,693 $ 9,389,034 $ 8,284,084
============ ============ ============
CAPITAL BALANCE - FINANCIAL REPORTING $123,287,857 $125,364,195 $121,607,707
Cumulative book to tax income differences
from joint venture 7,267,107 (81,476) 46,712
------------ ------------ ------------
NET WORTH - TAX BASIS $130,554,964 $125,282,719 $121,654,419
============ ============ ============
</TABLE>
<PAGE> 42
42
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Quarterly financial data for 1993 and 1992 is summarized as follows:
<TABLE>
<CAPTION>
Net Income (Loss) Per
Limited Partnership
Total Income Net Income (Loss) Unit
1993 1992 1993 1992 1993 1992
----------- ---------- ---------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31 $ 4,164,040 $ 5,226,336 $ 1,001,975 $3,139,049 $ 0.18 $ 0.55
June 30 4,223,311 3,826,721 2,227,004 1,970,110 0.39 0.35
September 30 3,292,599 3,922,353 (88,042) 2,029,822 (0.02) 0.36
December 31 3,175,689 4,372,025 (4,674,827)(A) 2,378,241 (0.82) 0.41
----------- ----------- ---------- ---------- ------- ------
Total $14,855,639 $17,347,435 $(1,533,890) $9,517,222 $ (0.27) $ 1.67
=========== =========== =========== ========== ======= ======
</TABLE>
(A) Note: In the fourth quarter, a write-down of $7,628,000 was taken against
one of the zero coupon mortgage notes since the value of underlying collateral
was less than the carrying value of the mortgage.
<PAGE> 43
43
<TABLE>
<CAPTION>
SCHEDULE IV
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED SCHEDULE OF INDEBTEDNESS TO RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
MLH REAL ESTATE EQUITABLE
ASSOCIATES EREIM LIFE ASSURANCE
LIMITED MANAGERS EREIM LP SOCIETY OF THE
PARTNERSHIP (a) CORP. (b) ASSOCIATES (c) UNITED STATES (d) TOTAL
-------------- --------- ------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990 $ 82,032 $256,993 $ 815,194 $ 60,718 $ 1,214,937
Additions 162,727 509,796 379,694 18,482 1,070,699
Payments (162,727) (509,800) (1,003,476) (60,718) (1,736,721)
--------- -------- ----------- -------- -----------
Balance, December 31, 1991 82,032 256,989 191,412 18,482 548,915
Additions 162,066 509,801 378,150 21,227 1,071,244
Payments (163,173) (511,193) (380,736) (32,265) (1,087,367)
--------- -------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1992 80,925 255,597 188,826 7,444 532,792
Additions 161,409 509,802 376,620 7,345 1,055,176
Payments (160,966) (508,400) (375,588) - (1,044,954)
--------- -------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1993 $ 81,368 $256,999 $ 189,858 $ 14,789 $ 543,014
========= ======== =========== ======== ===========
</TABLE>
(a) Acquisition/syndication fees and partnership administration fees.
(b) Acquisition/syndication fees, management fees and costs related to the
offering including reimbursable legal, accounting and printing costs.
(c) Guaranty fees.
(d) Equitable Legal Department to reimburse legal expenses incurred in connecti
on with the organization and offering of the Partnership and ongoing
Partnership operations.
<PAGE> 44
44
SCHEDULE XI
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent to Gross cost at which carried
Initial Cost to Company Acquisition at end of the year
----------------------- ---------------- ----------------------------------------
Buildings Buildings
and and
Improve- Improve- Improve-
Description Land ments ments Land ments Total
- ----------- ---- ----------- -------- ---- ----------- -----------
Industrial:
<S> <C> <C> <C> <C> <C> <C>
1200 Whipple Road,
Union City, CA $ 2,759,162 $ 5,112,652 $ 161,659 $ 2,762,332 $ 5,271,141 $ 8,033,473
Maple Lane,
Plaza Court and
Hollywood Ave,
Bensenville, IL 1,670,158 5,167,581 307,337 1,673,062 5,472,014 7,145,076
1850 Westfork Drive
Lithia Springs, GA 750,000 3,009,802 140,806 750,000 3,150,608 3,900,608
1345 Doolittle Drive
San Leandro, CA 4,000,000 6,269,526 1,005,810 4,026,312 7,249,024 11,275,336
Retail:
Richland Mall
Richland
Township, PA 1,115,321 11,663,922 700,212 1,115,535 12,363,920 13,479,455
Office:
Sentry Park West,
Montgomery
County, PA 2,624,777 23,981,032 499,881 2,651,385 24,454,305 27,105,690
----------- ----------- ------------ ----------- ----------- -----------
Total $12,919,418 $55,204,515 $ 2,815,705 $12,978,626 $57,961,012 $70,939,638
=========== =========== ============ =========== =========== ===========
<CAPTION>
Accumulated Date of Date
Description Depreciation Construction Acquired
- ----------- ------------ ------------ --------
Industrial:
<S> <C> <C> <C>
1200 Whipple Road,
Union City, CA $ 766,081 1963 3/17/88
Maple Lane,
Plaza Court and
Hollywood Ave, 12/27/88,
Bensenville, IL 693,967 1979-80 6/8/89
1850 Westfork Drive
Lithia Springs, GA 410,240 1988 1/6/89
1345 Doolittle Drive
San Leandro, CA 952,954 1964 5/18/89
Retail:
Richland Mall
Richland
Township, PA 1,663,551 1974-75 7/19/88
Office:
Sentry Park West,
Montgomery
County, PA 3,201,761 1988 12/22/88
----------
Total $7,688,554
==========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Beginning and Ending Balances: 1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Rental Properties -
Balance at beginning of year $70,232,358 $69,629,851 $68,956,066
Improvements 707,280 602,507 702,801
----------- ----------- -----------
Subtotal 70,939,638 70,232,358 69,658,867
Reductions - receipt of master lease payments - - (29,016)
----------- ----------- -----------
Balance at end of year $70,939,638 $70,232,358 $69,629,851
=========== =========== ===========
Accumulated depreciation -
Balance at beginning of year $ 6,028,984 $ 4,487,144 $ 3,040,530
Depreciation for year 1,659,570 1,541,840 1,446,614
----------- ----------- -----------
Balance at end of year $ 7,688,554 $ 6,028,984 $ 4,487,144
=========== =========== ===========
</TABLE>
<PAGE> 45
45
SCHEDULE XII
------------
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1993
------------------------------------------------------
<TABLE>
<CAPTION>
PERIODIC
INTEREST FINAL PAYMENT FACE AMOUNT CARRYING AMOUNT BALLOON PAYMENT
DESCRIPTION RATE MATURITY DATE TERMS OF MORTGAGES OF MORTGAGES AT MATURITY
- ----------- --------- ------------- --------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Zero coupon, first
mortgage on shopping
mall in Minnesota 10.20% June 1995 (a) $10,874,506(e) $21,831,834 (a) (c) $25,345,353
First mortgage loan
on apartment complex
in Massachusetts 10.25% February 1999 (f) 6,000,000 6,000,000 6,000,000
----------- ----------- ----------
Total $16,874,506 $27,831,834 (b) (d) $31,345,353
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $82,704,374 $77,666,137 $73,105,000
Interest accrued on zero coupon notes 3,772,823 5,038,237 4,561,137
Repayment/write-off of mortgage loan receivable (14,000,000) - -
Write-down of zero coupon mortgage (7,628,000) - -
Loans reclassified as other real estate
assets (37,017,363) - -
----------- ----------- -----------
Balance at end of period $27,831,834 $82,704,374 $77,666,137
=========== =========== ===========
</TABLE>
Notes:
(a) Interest at the imputed rate shown is compounded semi-annually and added
to the note balance.
(b) None of the loans are subject to any delinquencies.
(c) EREIM LP Associates, an affiliate, contributed a total of $26,443,097 of
zero coupon mortgage notes to the Venture, including principal plus
interest at the contribution date.
(d) The aggregate cost for book purposes is equal to the tax basis.
(e) Represents the Venture's 71.66% interest in the original face amount of the
note excluding compounded interest.
(f) Payments of interest only of $51,250 are due monthly until the maturity
date of February 1999.
<PAGE> 46
46
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Partnership is a limited partnership and has no directors or officers.
For informational purposes, certain information regarding the General
Partners and their respective directors and officers is set forth below.
Managing General Partner
The Managing General Partner is a wholly-owned subsidiary of Equitable
Real Estate Investment Management, Inc. ("Equitable Real Estate"). Equitable
Real Estate is a wholly-owned subsidiary of Equitable Investment Corporation,
which is a wholly-owned subsidiary of Equitable Holding Corporation, which is a
wholly-owned subsidiary of Equitable.
The names and dates of election of the directors and officers of the
Managing General Partner as of March 15, 1994 are as follows:
<TABLE>
<CAPTION>
Date of
Name Age Office Election
- ---- --- ------ --------
<S> <C> <C> <C>
George R. Puskar 49 Chairman of the Board December 19, 1986
Paul J. Dolinoy 46 President, Chief Executive
Officer and Director December 19, 1986
Eugene F. Conway 43 Executive Vice President,
Chief Operating Officer
and Director December 19, 1986*
Harry D. Pierandri 48 Executive Vice President March 1, 1987
Edward G. Smith 44 Executive Vice President March 1, 1987
Timothy J. Welch 45 Executive Vice President March 1, 1987
Peter F. Arata 53 Senior Vice President March 1, 1987
Tommy V. Clinton 54 Senior Vice President March 1, 1987**
Richard R. Dolson 56 Senior Vice President March 1, 1987**
B. Stanton Breon 34 Vice President, Secretary September 30, 1993
Peter J. Urdanick 46 Vice President, Controller
and Treasurer December 19, 1986
</TABLE>
___________________________________
* Named Director on December 12, 1986.
** Elected Vice President on December 19, 1986.
The business experience of the directors and executive officers
of the Managing General Partner is set forth below.
George R. Puskar has been Chairman and Chief Executive Officer of
Equitable Real Estate since August 1988. Before that he was President and
Chief Operating Officer of Equitable Real Estate since its formation in 1984.
He is also a Vice President of Equitable.
<PAGE> 47
47
Paul J. Dolinoy is a Senior Executive Vice President of Equitable Real
Estate in charge of the Institutional Accounts and Portfolio Management area.
He is responsible for Equitable Real Estate's corporate, public and union
pension fund business and also oversees the development of institutional-grade
real estate investment products for individual investors. He is also a Vice
President of Equitable.
Eugene F. Conway is an Executive Vice President of Equitable Real Estate
responsible for institutional accounts/retail markets. He also serves as
portfolio manager for approximately $1.8 billion of assets. Prior to becoming
an Executive Vice President of Equitable Real Estate in 1989, he was a Senior
Vice President since 1986 and a Vice President since 1984.
Harry D. Pierandri is a Senior Executive Vice President of Equitable Real
Estate responsible for overseeing all of its discretionary portfolio management
activities, in addition to overseeing its Capital Markets, Asset Management and
Valuation divisions. Prior to becoming a Senior Executive Vice President in
1988, he was an Executive Vice President since 1984.
Edward G. Smith is an Executive Vice President of Equitable Real Estate
responsible since 1988 for overseeing the $14 billion real estate portfolio of
Equitable's General Account. Prior to becoming an Executive Vice President in
1988, he was a Senior Vice President since 1984. From 1986 to 1988 he was
responsible for development, management and administration at Equitable Real
Estate's home office in Atlanta.
Timothy J. Welch is a Senior Executive Vice President of Equitable Real
Estate in charge of its New York regional office. Prior to assuming his
current responsibilities, he was responsible for Investment Sales and
International Marketing.
Peter F. Arata is an Executive Vice President and has been Chief Financial
Officer of Equitable Real Estate since 1984. Since 1992, he has also been a
Director of Equitable Agri-Business, an Equitable Real Estate affiliate, one of
the nation's leading agricultural property investment organizations with more
than $2 billion in assets under management. From 1990 to 1992, he was Chairman
and Chief Executive Officer of Equitable Agri-Business.
Tommy V. Clinton is an Executive Vice President of Equitable Real Estate
responsible for new mortgage loan origination and mortgage sourcing. Prior to
becoming an Executive Vice President in 1988, he was Senior Vice President
since 1984.
Richard R. Dolson is an Executive Vice President of Equitable Real Estate
and is in charge of asset management. Prior to becoming an Executive Vice
president in 1988, Mr. Dolson was a Senior Vice President since 1984.
B. Stanton Breon joined Equitable Real Estate in 1982 and was elected a
Vice President in 1993. He is currently responsible for the management of
portfolios aggregating approximately $1 billion of assets.
Peter J. Urdanick is Senior Vice President and Treasurer of Equitable Real
Estate. Prior to becoming Senior Vice President and Treasurer in 1992, Mr.
Urdanick was Vice President and Controller since 1985. He is responsible for
its corporate finance department, including its treasury operations.
<PAGE> 48
48
Associate General Partner
The general partner of the Associate General Partner is MLH Real Estate
Inc., a wholly-owned subsidiary of MLH Group Inc., which is a wholly-owned
subsidiary of Merrill Lynch, Hubbard Inc. ("MLH"). MLH is a wholly-owned
subsidiary of Merrill Lynch Group, Inc., which is a wholly-owned subsidiary of
Merrill Lynch.
The names and dates of election of the directors and executive officers of
the general partner of the Associate General Partner as of March 15, 1994 are
as follows:
<TABLE>
<CAPTION>
Date of
Name Age Office Election
- ---- --- ------ --------
<S> <C> <C> <C>
D. Bruce Brunson 49 Chairman, Chief Executive September 12, 1991
Officer and Director
James A. Vinson 48 President and Chief December 5, 1986
Operating Officer
and Director
Thomas J. Brown 45 Executive Vice President December 5, 1986
and Director
Jack A. Cuneo 46 Senior Vice President December 5, 1986
and Director
Ronald J. Solotruk 42 Treasurer July 19, 1991
Bruce S. Fenton 47 Vice President and December 5, 1986 and
Secretary September 28, 1989
</TABLE>
The business experience of the directors and executive officers of the
general partner of the Associate General Partner is set forth below.
D. Bruce Brunson joined Merrill Lynch in 1986 and was elected Chairman and
Chief Executive Officer of MLH in August 1991. He has been Senior Vice
President of Merrill Lynch since 1986. From 1986 to 1990, he served as
Treasurer of Merrill Lynch and subsequently he coordinated Merrill Lynch's
restructuring activities.
James A. Vinson joined MLPF&S, a subsidiary of Merrill Lynch, in 1971 and
has been President and Chief Operating Officer of MLH since 1984 and a Director
of MLH since 1978. Mr. Vinson has been involved since 1971 in real property
acquisitions and structuring the equity financing of limited partnerships
formed for the purpose of acquiring properties.
Thomas J. Brown joined MLPF&S in 1971 and has been involved since 1972 in
real property acquisitions and structuring the equity financing of limited
partnerships formed for the purpose of acquiring properties. He has been
responsible for real estate management since 1984. Mr. Brown became a director
of MLH in 1987 and has been Executive Vice President since 1985.
Jack A. Cuneo joined MLPF&S in 1975 and is a Senior Vice President of MLH
and Manager of its Real Estate Acquisitions and Dispositions Group. Mr. Cuneo
is involved in real property acquisitions and sales.
<PAGE> 49
49
Bruce S. Fenton joined MLH in 1981 and is a Vice President of MLH and
Manager of its Product Development and Investor Services Group.
Ronald J. Solotruk joined MLH in 1988 and is a Vice President and the
Chief Financial Officer of MLH and the Manager of its Financial and Investment
Services Group.
There is no family relationship among any of the above-listed directors
and officers of the Managing General Partner and the general partner of the
Associate General Partner. All of the directors have been elected to serve
until the next annual meeting of the shareholder of the Managing General
Partner or general partner of the Associate General Partner, respectively, or
until their successors are elected and qualify. All of the officers have been
elected to serve until their successors are elected and qualify.
ITEM 11. EXECUTIVE COMPENSATION.
The General Partners are entitled to receive a share of cash distributions and
a share of taxable income or tax loss as provided in Article Four of the
Partnership Agreement which is incorporated herein by reference.
The General Partners and their affiliates may be paid certain fees and
commissions and reimbursed for certain out-of-pocket expenses. Information
concerning such fees, commissions and reimbursements is set forth under
"Compensation and Fees" in the Prospectus and in Schedule IV and Note 7 to
notes to Consolidated Financial Statements in ITEM 8: FINANCIAL STATEMENTS,
which is incorporated herein by reference.
All of the directors and officers of the Managing General Partner are
employees of Equitable or its subsidiaries and are not separately compensated
for services provided to the Managing General Partner or, on behalf of the
Managing General Partner, to the Partnership. All of the directors and
officers of the general partner of the Associate General Partner are employees
of Merrill Lynch or its subsidiaries and are not separately compensated for
services provided to the Associate General Partner or, on behalf of the
Associate General Partner, to the Partnership.
The Partnership Agreement indemnifies the General Partners and the Initial
Limited Partner against liability for losses resulting from errors in judgment
or other action or inaction, whether or not disclosed, if such course of
conduct did not constitute negligence or misconduct (see Section 5.7 of the
Partnership Agreement which is incorporated herein by reference). As a result
of such indemnification provisions, a purchaser of BACs may have a more limited
right of legal action than he would have if such provision were not included in
the Partnership Agreement. In the opinion of the Securities and Exchange
Commission, indemnification for liabilities arising under the Federal
Securities laws is against public policy and therefore unenforceable.
Indemnification of general partners involves a developing and changing area of
the law and since the law relating to the rights of assignees of limited
partnership interests, such as BAC Holders, is largely undeveloped, investors
who have questions concerning the duties of the General Partners should consult
their own counsel.
<PAGE> 50
50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Initial Limited Partner, an affiliate of the Associate General
Partner, is the record owner of substantially all of the Interests in the
Partnership, although it has assigned such Interests to BAC Holders. In its
capacity as record owner of the Interests, the Initial Limited Partner has no
authority to transact business for, or to participate in the activities and
decisions of, the Partnership. Merrill Lynch, Pierce, Fenner & Smith,
Incorporated is the record owner of approximately 84% of the BACs, holding such
BACs in a nominee capacity and having no beneficial interest in the BACs.
Otherwise, there is no person known to the Partnership who owns beneficially or
of record more than five percent of the BACs of the Partnership. Neither of
the General Partners owns any BACs of the Partnership. The directors and
officers of the Managing General Partner and the general partner of the
Associate General Partner, as a group, own no BACs.
There are no arrangements known to the Partnership, the operation of which
may, at a subsequent date, result in a change in control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
<PAGE> 51
51
PART IV.
<TABLE>
<S> <C>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a) (1) The following financial statements, appearing in Item 8 hereof and incorporated by reference herein, are filed with
this report:
See Index at Item 8.
(2) The following financial statement schedules, appearing in Item 8 hereof and incorporated by reference herein, are
filed with this report:
See Index at Item 8.
(b) The following Reports on Form 8-K were filed during the last quarter of the period covered by this Report.
1. Current Report on Form 8-K of the Partnership dated November 22, 1993 (incorporated by reference
to File No. 33-11064)
(c) Exhibits.
4. (a) Amended and Restated Agreement of Limited Partnership dated April 23, 1987. Included as an
Exhibit to the Prospectus (see Exhibit 28).
(b) Amendment to Amended and Restated Agreement of Limited Partnership dated February 9, 1988
(incorporated by reference to Exhibit 4(b) to the Partnership's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1987 (File No. 33-11064) (the "1987 10-K")).
10. Material Contracts.
(a) Form of Beneficial Assignee Certificate (incorporated by reference to Exhibit 10(a) to
Pre-Effective Amendment No. 1 to the Registration Statement of the Partnership (File No. 33-11064)).
(b) Agreement Between General Partners (incorporated by reference to Exhibit 10(c) to the 1987 10-K).
(c) Venture Agreement of EML Associates (incorporated by reference to Exhibit 10(d) to the 1987 10-K).
(d) Investment Guaranty Agreement between the Venture and EREIM LP Associates (incorporated by
reference to Exhibit 10(e) to the 1987 10-K).
(e) Assignment Agreement between Registrant and Venture (incorporated by reference to Exhibit 10(f) to
the 1987 10-K).
(f) Keep Well Agreement between The Equitable Life Assurance Society of the United States and EREIM LP
Corp. (incorporated by reference to Exhibit 10(g) to the 1987 10-K).
(g) Amended and Restated Agreement of General Partnership of EREIM LP Associates (incorporated by
reference to Exhibit 10(h) to the 1987 10-K).
</TABLE>
<PAGE> 52
52
<TABLE>
<S> <C>
(h) Promissory Notes and Mortgages Relating to Brookdale and Northland (incorporated by reference to Exhibit 10(i) to
Pre-Effective Amendment No. 1 to the Registration Statement of the Partnership (File No. 33-11064)).
(i) Contract to Purchase 1200 Whipple Road, Union City, California (incorporated by reference to Exhibit 10(j)) to
Post-Effective Amendment No. 1 to the Registration Statement of the Partnership (File No. 33-11064)).
(j) Lease Agreement Pertaining to 1200 Whipple Road, Union City, California (incorporated by reference to Exhibit
10(k) to Post-Effective Amendment No. 1 to the Registration Statement of the Partnership (File No. 33-11064)).
(k) Participation Agreements relating to Brookdale and Northland Notes (incorporated by reference to Exhibit 10(1) to
the 1987 10-K).
(l) Amendments to Participation Agreements relating to Brookdale and Northland Notes (incorporated by reference to
Exhibit 10(1) to the Partnership's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1988
(File No. 33-11064) (the "1988 10-K").
(m) Agreement of Sale between Richland Mall Associates and EML Associates dated July 19, 1988 (incorporated by
reference to Exhibit No. 1 to Form 8-K dated July 19, 1988 of ML/EQ Real Estate Portfolio, L.P. (File No.
33-11064)).
(n) Note and Mortgage dated September 27, 1988 relating to the loan by EML to Second Merritt Seven (incorporated by
reference to Exhibit No. 1 to Form 8-K dated September 27, 1988 of ML/EQ Real Estate Portfolio, L.P. (File No.
33-11064)).
(o) Form of Participation Agreement between The Equitable Life Assurance Society of The United States and EML
Associates dated September 27, 1988 (incorporated by reference to Exhibit No. 2 to Form 8-K dated September 27,
1988 of ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)).
(p) Agreement of Sale among EML, Blue Bell Office Campus Associates, a Pennsylvania limited partnership, E. F. Hansen
Jr. and G. Eileen Hansen dated December 2, 1988 (incorporated by reference to Exhibit No. 1 to Form 8-K dated
December 2, 1988 of ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)).
(q) Agreement of Sale between Provident Mutual Life Insurance Company of Philadelphia and EML Associates dated
December 27, 1988 (incorporated by reference to Exhibit No. 1 to Form 8-K dated December 27, 1988 of ML/EQ Real
Estate Portfolio, L.P. (File No. 33-11064)).
(r) Agreement of Sale between Anderson Partners (Southside/Corporate Lakes) L.P., Gene Anderson, Auerbach Associates
Ltd. and EML Associates dated as of December 31, 1988 (incorporated by reference to
</TABLE>
<PAGE> 53
53
<TABLE>
<S> <C>
Exhibit No. 2 to Form 8-K dated December 27, 1988 of ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)).
(s) Note and Mortgage and Security Agreement dated January 31, 1989 relating to loan by EML to The Wilcon Company
(incorporated by reference to Exhibit No. 4 to Form 8-K dated December 27, 1988 of ML/EQ Real Estate Portfolio,
L.P. (File No. 33-11064)).
(t) Note and Mortgage dated February 28, 1989 relating to the loan by EML to 300 Delaware Avenue Associates
(incorporated by reference to Exhibit 10(u) to the 1988 10-K.)
(u) Agreement of Sale among Lincoln San Leandro IV Limited Partnership, Patrician Associates, Inc. and EML Associates
dated April 21, 1989 (incorporated by reference to Exhibit (c)1 to Form 8-K dated May 18, 1989 of ML/EQ Real
Estate Portfolio, L.P. (File No. 33-11064)).
28. Additional Exhibits.
(a) Prospectus dated April 23, 1987, as supplemented by supplements dated March 3, 1988 and March 17, 1988
(incorporated by reference to Exhibit 28 to the 1987 10-K).
(b) Current Report on Form 8-K of the Partnership dated July 19, 1988 (incorporated by reference to File No. 33-
11064).
(c) Current Report on Form 8-K of the Partnership dated September 27, 1988 (incorporated by reference to File No.
33-11064).
(d) Current Report on Form 8-K of the Partnership dated December 2, 1988 (incorporated by reference to File No.
33-11064).
(e) Current Report on Form 8-K of the Partnership dated December 27, 1988 (incorporated by reference to File No.
33-11064).
(f) Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1988 of the Partnership (incorporated by
reference to File No. 33-11064).
(g) Current Report on Form 8-K of the Partnership dated May 18, 1989 (incorporated by reference to File No. 33-11064).
(h) Current Report on Form 8-K of the Partnership dated November 22, 1993 (incorporated by reference to File No.
33-11064) filed with the Securities and Exchange on December 2, 1993.
(i) Current Report on Form 8-K of the Partnership dated November 22, 1993 (incorporated by reference to File No. 33-
11064) filed with the Securities and Exchange Commission on February 28, 1994.
(j) Agreement between The Equitable Life Assurance Society of the United States and Equitable Real Estate Shopping
Centers L.P. dated March 25, 1994 (incorporated by reference to Exhibit 28(o) to Form 10-K dated December 31,
1993 of EREIM LP Associates (File No. 33-11064)).
</TABLE>
<PAGE> 54
54
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities
indicated on March 25,1994.
<TABLE>
<S> <C>
Chairman of the Board of
EREIM Managers Corp.
/s/ GEORGE R. PUSKAR
----------------------
GEORGE R. PUSKAR
President, Chief Executive
Officer, Principal Executive Officer
and Director of EREIM Managers Corp.
/s/ PAUL J. DOLINOY
-------------------
PAUL J. DOLINOY
Executive Vice President,
Chief Operating Officer and
Director of EREIM Managers Corp.
/s/ EUGENE F. CONWAY
---------------------
EUGENE F. CONWAY
Vice President, Controller
and Treasurer (Principal
Financial Officer and
Principal Accounting Officer)
of EREIM Managers Corp.
/s/ PETER J. URDANICK
---------------------
PETER J. URDANICK
Vice President and
Secretary of EREIM Managers Corp.
/s/ B. STANTON BREON
--------------------
B. STANTON BREON
</TABLE>
<PAGE> 55
55
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
25th day of March, 1994.
ML/EQ REAL ESTATE PORTFOLIO, L.P.
EREIM MANAGERS CORP.
(Managing General Partner)
By: /s/ Eugene F. Conway
--------------------
Eugene F. Conway
Executive Vice President
