<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, 1994
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.)
1150 Lake Hearn Dr., Atlanta, Georgia 30342-1522
(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 and II of this Annual Report on Form
10-K.
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PART I.
ITEM 1. BUSINESS
General. The registrant, ML/EQ Real Estate Portfolio, L.P. (the
"Partnership"), is a limited partnership formed on December 22, 1986 under the
Revised Uniform Limited Partnership Act of the State of Delaware. The
Partnership operates pursuant to the Amended and Restated Agreement of Limited
Partnership dated as of April 23, 1987 as amended as of February 9, 1988 (the
"Partnership Agreement"), which is included as an exhibit to this annual
report. Capitalized terms used in this annual report that are not defined
herein have the same meaning as in the Partnership Agreement.
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
affiliate 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 (the "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."
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 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. The Partnership
considers its business to represent one industry segment, investment in real
property. The Partnership does not segregate revenues by geographical region
and such a presentation would not be material to an understanding of the
Partnership's business taken as a whole.
Following its investor closings, the Partnership contributed the net
proceeds of the 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 acquired a diversified portfolio of real properties and
mortgage loans secured by real properties. Based on original acquisition
prices, approximately 52% of the Venture's original contributed capital was
invested in existing income-producing real properties acquired without
permanent mortgage indebtedness (the "Properties"), approximately 25% of such
capital was invested in zero coupon or similar mortgage notes (the "Zero
Notes"), and the balance was invested in fixed-rate first mortgage loans (the
"Fixed-Rate Mortgage Loans;" together with the Zero Notes, the "Mortgage
Loans"). The Properties and the properties that secure the Mortgage Loans
include commercial, industrial, residential and warehouse/distribution
properties.
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At December 31, 1994, the Venture owned ten Properties (one of which
consists of two adjacent office buildings) and one undivided interest in a
Property (Northland Center) as a tenant in common with Equitable. All
references herein to the Venture's ownership of Northland Center shall be
deemed to refer to the Venture's undivided interest as a tenant in common with
Equitable unless otherwise indicated. Nine of the Properties were purchased at
an aggregate cost of approximately $68.1 million. The other two Properties,
Northland Center and The Bank of Delaware Building (originally properties that
secured a Zero Note and a Fixed-Rate Mortgage Loan, respectively), were
transferred to the Venture during 1994 in separate deed in lieu of foreclosure
transactions. The fair market value of the Venture's undivided interest in the
Northland Center Zero Coupon Mortgage Note Receivable immediately preceding the
transfer was approximately $32.2 million and the fair market value of the Bank
of Delaware Building Mortgage Note immediately preceding the transfer was
approximately $8.5 million. In addition, at December 31, 1994, the Venture
owned an interest in one remaining Zero Note representing principal and accrued
interest on the date of acquisition of approximately $12.3 million and one
remaining Fixed-Rate Mortgage Loan in the principal amount of $6.0 million.
(Amounts identified are exclusive of closing costs.) Reference is made to
Item 2. PROPERTIES for information concerning the Properties and the 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 depreciated 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 depreciated 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.
In addition, management reviews the underlying security through a reinspection
process that occurs at least once every three years. This review process
includes an estimate of future cash flows produced by the security.
Neither the Partnership nor the Venture has any real property
investments located outside the United States. The Partnership has no
employees.
Leasing Information. See Item 2. PROPERTIES for information regarding
percentages of space under lease for each of the Properties and the properties
that secure the 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 1995 to 1997.
Competition. The Properties and the properties that secure the
Mortgage Loans may compete with other properties in the areas in which they
are located for, among other things, desirable tenants. Competitors may
include properties owned or managed directly or indirectly by Equitable or its
subsidiaries or affiliates or by affiliates of the Associate General Partner.
Owners of some of these properties may have greater resources than the Venture
or the owners of the properties that secure the 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 of
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 the 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
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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 that secure the Mortgage Loans.
The holding period for the Properties was originally intended to be 7
to 10 years and the Partnership currently does not anticipate that the
Properties will be sold prior to that time unless market conditions demand that
earlier action be taken. The Partnership can not state whether or not the
Properties will be sold within this original period. It is anticipated that
the holding period for the Northland Center will be approximately 3 to 6 years
from July 22, 1994, the acquisition date. 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 such
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 held by the Venture which are scheduled to mature in June 1995 and
February 1999 to sell or refinance the properties that secure such loans, which
may adversely affect the ability of borrowers to pay such loans at 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 the
Mortgage Loans held by the Venture (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 nine Properties are managed by Compass Management and
Leasing, Inc. ("Compass") and Compass Retail, Inc. ("Compass Retail"),
affiliates of Equitable. The property management agreements are at market
rates but not in excess of the rates permitted under the Partnership Agreement.
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 as of December 31,
1994, including the Partnership's allocable share of Venture cash reserves,
are approximately 15% of the Partnership's gross offering proceeds. See Item
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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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.
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 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 dated March 10, 1988 by and 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,
retirement or other disposition of all of the Mortgage Loans and Properties or
the liquidation of the Partnership, an amount which when added to all
distributions from the Partnership to the holders of BACs ("BAC Holders") will
enable the Partnership to provide the BAC Holders with a minimum return (the
"Minimum Return") equal to their Capital Contributions plus a simple annual
return equal to 9.75% multiplied by their Adjusted Capital Contributions (as
defined in the Guaranty Agreement), calculated from the investor closing at
which the BAC Holder acquired its BACs.
The Venture has assigned the Guaranty Agreement to the Partnership in
exchange for the Partnership's assumption of the Venture's obligations,
including the obligation to pay the Guaranty Fee. Any moneys distributed by
the Partnership to BAC Holders and/or limited partners of the Partnership
("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 (i) the aggregate
amount of all cash payments to BAC Holders and Limited Partners and (ii) the
discounted value (at the market rate of interest 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 and so long as the
note does not reduce obligations below zero. If 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.
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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
maximum liability of EREIM LP Associates under the Guaranty Agreement is
$271,211,250. Subject to the foregoing, the obligations of EREIM LP Associates
under the Guaranty Agreement as of December 31, 1994 are limited to
$249,485,801 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.
As described above, 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 as to EREIM LP Corp. Equitable has entered into
an agreement dated as of March 10, 1988 (the "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; provided, however,
that the maximum liability of Equitable under the Keep Well Agreement is an
amount equal to the lesser of (i) two percent of the total admitted assets of
Equitable (as determined in accordance with New York Insurance Law) or (ii)
$271,211,250. 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 as to Equitable 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 the 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
LP Corp. on behalf of the Partnership, MLH Real Estate Assignor Inc., the
initial limited partner 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, 1994, 1993 and 1992, Equitable's total surplus,
calculated in accordance with the statutory method of accounting, was
approximately $2.12 billion, $1.83 billion, and $1.64 billion, respectively.
At December 31, 1994, 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 $3.11 billion, $3.10 billion
and $2.27 billion, respectively.
The Equitable Companies Incorporated (the "Holding Company"), a
Delaware corporation, owns all of Equitable's outstanding capital stock. The
Holding Company is subject to the informational requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information, including financial
statements, with the Securities Exchange Commission
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under Commission File No. 1-11166. Such reports and other information filed by
the Holding Company 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.
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."
ITEM 2. PROPERTIES
At December 31, 1994, approximately 87.8% of the aggregate rentable
square feet of the Venture's Properties was leased. Leases covering
approximately 7.5%, 7.3% and 4.8% of the Properties rentable square feet are
scheduled to expire in 1995, 1996, and 1997 respectively.
Set forth below is a brief description of each of the Venture's
investments at December 31, 1994. Reference is made to Notes 3, 4, 5 and 9 of
the Notes to Consolidated Financial Statements in Item 8. FINANCIAL
STATEMENTS. The Venture has fee ownership of the land and improvements
relating to each of the Properties.
<TABLE>
<CAPTION>
Name, Location Approximate Date of Year of
and Type of Property Size Acquisition Completion
-------------------- ----------- ----------- ----------
<S> <C> <C> <C>
1200 Whipple Road 257,500 3/17/88 1963
Union City, CA sq. ft.
warehouse/distribution
Richland Mall 182,408 7/19/88 1974-75
Bucks County, PA sq. ft.
shopping center
16/18 Sentry Park West 190,616 12/22/88 1988
Montgomery County, PA sq. ft.
office buildings
701 Maple Lane 58,230 12/27/88 1980
Bensenville, IL sq. ft.
warehouse/office
733 Maple Lane 23,520 12/27/88 1980
Bensenville, IL sq. ft.
warehouse/office
7550 Plaza Court 49,500 12/27/88 1980
Willowbrook, IL sq. ft.
warehouse/office
1850 Westfork Drive 103,505 1/6/89 1988
Lithia Springs, GA sq. ft.
warehouse/distribution
1345 Doolittle Drive 326,414 5/18/89 1964
San Leandro, CA sq. ft.
warehouse/distribution
</TABLE>
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<TABLE>
<S> <C> <C> <C>
800 Hollywood Avenue 50,337 6/8/89 1979
Itasca, IL sq. ft.
warehouse/office
Northland Center 1,369,255 7/22/94 1954
Southfield, MI sq. ft.
regional mall
The Bank of Delaware Building 302,130 11/15/94 1970
Wilmington, DE sq. ft.
office building
</TABLE>
Projected Annual Aggregate Lease Payments to be Received (in dollars)*
<TABLE>
<CAPTION>
Name of Property 1995 1996 1997 1998 1999 Thereafter
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1200 Whipple Rd. $1,009,340 $1,009,340 $1,009,340 $1,098,200 $1,261,675 $4,602,401
Richland Mall 1,015,117 766,749 647,752 625,352 510,756 2,292,521
16/18 Sentry Park West 1,818,166 1,708,020 1,275,467 1,017,895 652,504 288,245
701 and 733 Maple Lane 323,865 332,820 333,604 202,963 104,174 269,990
7550 Plaza Ct. 210,375 0 0 0 0 0
1850 Westfork Dr. 167,678 0 0 0 0 0
1345 Doolittle Dr. 1,097,868 1,067,209 838,192 859,468 708,685 624,016
800 Hollywood Ave. 201,348 201,348 83,895 0 0 0
Northland Center 5,798,522 5,362,606 4,795,683 4,226,899 3,837,668 9,996,488
The Bank of Delaware Building 1,294,646 885,736 594,378 451,779 405,224 2,120,154
----------- ----------- ---------- ---------- ---------- -----------
$12,936,925 $11,333,828 $9,578,311 $8,482,556 $7,480,686 $20,193,815
=========== =========== ========== ========== ========== ===========
</TABLE>
Range of Lease Expirations
<TABLE>
<CAPTION>
Name of Property Years
------------------------- ---------
<S> <C>
1200 Whipple Road 2003
Richland Mall 1995-2006
16/18 Sentry Park West 1995-2000
701 and 733 Maple Lane 1998-2002
7550 Plaza Court 1995
1850 Westfork Drive 1995
1345 Doolittle Drive 1996-2002
800 Hollywood Avenue 1997
Northland Center 1995-2005
The Bank of Delaware Building 1995-2005
</TABLE>
Major Tenants
The following list sets forth major tenants for certain Properties together
with percentage of space used by such tenants:
--------------------------------
* Lease payments to be received under noncancelable operating leases in
effect as of December 31, 1994.
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<TABLE>
<CAPTION>
Properties Major Tenants Percentage of Leasable Space
---------- ------------- ----------------------------
<S> <C> <C>
Richland Mall Bon Ton Department Store 46.3%
Clemens Market 14.3%
16/18 Sentry Park West Martin Marietta 12.6%
Liberty Mutual 14.9%
1345 Doolittle Drive Gruner & Jahr 44.6%
National Distribution Agency 23.5%
Jay-N Company 18.6%
Northland Center Hudson's Department Store 35.6%
J.C. Penney 27.0%
The Bank of Delaware Building PNC Bank 38.1%
</TABLE>
All of the remaining Properties are leased in their entirety to their
respective tenants.
Description of 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, 1994, 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. 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. All payments
due under the lease to date have been made.
Richland Mall is a one-level enclosed mall located in Richland
Township, Pennsylvania. Tenants include Bon Ton Department Store
(formerly Hess Department Store), Clemens Market, Footlocker, and Radio
Shack. At December 31, 1994, the Mall was approximately 88.9% leased
with approximately 20,000 square feet vacant. Excluding the two anchor
stores, the Mall was 71.8% leased. Leases covering approximately 1.0%,
28.5% and 1.0% of the space are scheduled to expire in 1995, 1996 and
1997, 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. The Hess
Department store chain, including the anchor store at Richland Mall, was
purchased in 1994 by Bon Ton department stores. The change is
considered positive for Richland Mall and preliminary discussions with
Bon Ton representatives indicate that the store will remain open and
operating.
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 and cancellations by virtue of
tenant bankruptcies. Management continues to aggressively pursue
tenants for the remaining vacant space. Wal-Mart Stores, a national
discount retailer, has announced plans 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 Bon Ton Department Store
and other specialty retail stores within Richland Mall. The current
competitive leasing environment and weak retail economy create
significant obstacles to maintaining the current level of performance of
this Property. Management may attempt to market the property for sale
or may decide to undertake a significant renovation of the property. A
definite plan of action has not yet been formulated.
-9-
<PAGE> 10
16/18 Sentry Park West are two four-story office buildings that
together contain 190,616 rentable square feet. Tenants include Martin
Marietta (formerly General Electric), Liberty Mutual Insurance Company
and The Prudential Insurance Company. At December 31, 1994, the
property was approximately 73.0% leased. Leases covering approximately
4.3%, 11.9% and 12.1% of the space are scheduled to expire in 1995, 1996
and 1997, respectively. In order to lease the vacant space, the Venture
is continuing to incur expenditures for tenant improvements and leasing
commissions. 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.
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, 1994, all of the buildings were 100% leased.
Tenants include Triangle Engineered Products, Co., Hi Performance, Inc.
and Precise Data Service. One lease comprising 37.7% of available space
is scheduled to expire in 1995. 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.
1850 Westfork Drive is a one-story warehouse/distribution facility
located approximately 15 miles west of the Atlanta central business
district. At December 31, 1994 the Property was 100% leased to
Treadway Exports Limited. 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.
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, 1994 the property was
100% leased. One lease covering approximately 23.5% of the space is
schedule to expire in 1996. Tenants include Gruner & Jahr Printing and
Publishing, Stericycle, Inc., National Distribution Agency, Jay-N
Company, and OKI Supply Company. 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.
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. This
reflects a renewal of the previous lease which otherwise would have
expired in January 1994. The lease requires the tenant to pay 100% of
real estate taxes, insurance, and certain maintenance costs.
Northland Center is a regional enclosed mall located in Southfield,
Michigan which was transferred to the Venture and Equitable by a deed
in lieu of foreclosure on July 22, 1994. Tenants include J.C. Penney,
Hudsons, Kohl's and Montgomery Ward. As of December 31, 1994, the
Center was approximately 86.4% leased. Leases covering approximately
1.6%, 3.3%, and 10.5% are scheduled to expire in 1995, 1996 and 1997,
respectively. A renovation program has commenced at Northland Center
in order to improve the marketability of the Center and attract tenants.
The construction costs of the renovations are expected to be
approximately $12.0 million, of which the Venture's share is expected
to be approximately $8.6 million. As of December 31, 1994,
approximately $5.2 million of these costs had been expended, of which
the Venture's share was approximately $3.7 million. Approximately
$4.1 million in capital costs have been accrued but not paid as of
December 31, 1994 of which the Venture's share is approximately $2.9
million. The program is expected to be complete in May 1995.
On February 17, 1995, Equitable Real Estate, on behalf of the Venture
and Equitable, as tenants in common, signed an agreement whereby Kohl's
Department Store would be allowed to terminate its lease obligation at
Northland Mall. The agreement provides for a payment by Kohl's to
the Venture and Equitable totaling $1,750,000 (of which the Venture's
share is approximately $1,400,000), in satisfaction of its remaining
lease obligations. On March 10, 1995, Equitable, the Venture and Dayton
Hudson Corporation signed an agreement allowing Target to locate a store
at Northland. Target is a division of Dayton Hudson, which currently
operates a Hudson's Department
-10-
<PAGE> 11
Store at Northland. Equitable and the Venture agreed to expend funds in
the amount of $1,700,000 (of which the Venture's share is approximately
$1,200,000) to ready a site for the Target store and to partially
demolish the Kohl's store and redemise the remaining portion of Kohl's
into mall shops. Management believes that this transaction is positive
for the Center. Target will build its own store, and is considered a
more appropriate retailer for the Northland market.
The Bank of Delaware Building is a seventeen story office building in
Wilmington, Delaware which was transferred to the Venture and
Equitable by deed in lieu of foreclosure on November 15, 1994. PNC
Bank, a major tenant, occupies 115,085 square feet or 38.1% of the
building. PNC's lease expires in May 2005 and contains an option to
renew. PNC's rent is substantially below market rates. As of December
31, 1994, the building was approximately 60.5% leased. Leasing the
119,429 square feet of currently vacant space may require substantial
renovation expenditures as asbestos is present in a majority of such
space. The Venture is currently analyzing the costs of such renovation
and cannot make a reasonable prediction as to the extent of such costs.
Leases covering approximately 10.1%, 4.2% and 8.0% are scheduled to
expire in 1995, 1996 and 1997, respectively.
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>
Brookdale Center 3/10/88 $10,541,617(1) 10.2%(2) 6/30/95
Brooklyn Center, MN 5/3/88 $ 1,737,268(1) 10.2%(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>
Outstanding Mortgage Loans
Brookdale Zero Note is a first mortgage note secured by Brookdale
Center, a regional shopping mall located approximately five miles
northwest of the central business district of Minneapolis, Minnesota.
The Venture holds a 71.66% participation interest in the zero mortgage
note. The Venture acquired its participation interest in 1988 from
Equitable which holds the remaining 28.34% interest. The Venture's
participation interest had a fair value (including accrued
interest) at the time of acquisition of $12,278,885. The borrower
is Midwest Real Estate Shopping Center L.P. ("Midwest"), a publicly
traded limited partnership (formerly Equitable Real Estate Shopping
Centers L.P.). The note has an implicit interest rate of 10.2%
compounded semiannually with the Venture's portion of the entire amount
of principal and accrued interest totaling $25,345,353 due on June 30,
1995. The note provides that the borrower may elect to pay interest
currently; however, no interest has been paid to
--------------------------------------------
1 Represents the value of the Venture's 71.66% participation interest in
principal and accrued interest on the date of acquisition.
2 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.
-11-
<PAGE> 12
date. As part of the Northland Center transaction (discussed below),
the Brookdale mortgage was modified on July 22, 1994 to provide that
if Midwest sells Brookdale Center prior to June 30, 1995, the
outstanding principal and accrued interest of the zero note will be
paid at the time of sale, together with a defeasance fee equal to 75%
of the amount, if any, by which the sale price of Brookdale Center
exceeds $45,000,000. For additional information concerning the
Brookdale Note and the Brookdale Center, see "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 Quarterly Report
on Form 10-Q for the quarter ended June 30, 1988, all of which
information is included as exhibits to this annual report.
Although Midwest is currently attempting to sell the Brookdale Center
to a third party, there are currently no agreements, arrangements or
understandings with respect to such sale. The Partnership believes
that it is unlikely that Midwest would be able to refinance the
Brookdale Zero Note between the date hereof and June 30, 1995.
Accordingly, if Midwest is unable to consummate a sale of Brookdale
Center and repay the Brookdale Zero Note prior to June 30, 1995, the
Brookdale Zero Note will be in default.
Midwest is subject to the informational requirements under the Exchange
Act, 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 Midwest 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.
At December 31, 1994, Brookdale Center was 80% leased (excluding its
anchor stores all of which are in operation). Although the Carson
Pirie and Scott chain has recently entered bankruptcy, it continues
to operate its anchor store (144,546 sq. ft.) in the Brookdale Center
and is, to date, fulfilling its lease obligations.
Jericho Village Loan is a first mortgage loan to the Wilcon Company
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 maturity of the loan on February 1, 1999.
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, 1994 the
property was approximately 99% 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.
Mortgage Loans Pursuant to which the Venture Acquired Properties in 1994
Northland Zero Note was a first mortgage note secured by Northland
Center, a regional enclosed mall which is located outside of Detroit,
Michigan. The Venture acquired its 71.66% participation interest in
1988 from Equitable which held the remaining 28.34% interest. The
Venture's participation interest had a fair value (including accrued
interest) at the time of acquisition of $20,774,985. The borrower was
Midwest. The note had an implicit interest rate of 10.2% compounded
semiannually with the Venture's portion of the principal and accrued
interest totaling $42,882,504 due June 30, 1995. The note provided
that the borrower could elect to pay interest currently; however, no
interest was paid through July 22, 1994.
Management discontinued the accrual of interest on the Northland note
during the quarter ended June 30, 1993 as the accreted value of the
mortgage approximated the underlying value of the Northland Center.
The Northland mortgage note and first mortgage were accounted for as
an in-substance
-12-
<PAGE> 13
foreclosure at December 31, 1993 and the zero mortgage note was
reclassified as an other real estate asset. The Venture recognized a
loss of $7,628,000 as of December 31, 1993 to record Northland Center
at its fair market value. This amount included $4,730,000 reserved by
the Venture as its share of the $6.6 million to be paid to Midwest on
the transfer of Northland Center (see below).
On July 22, 1994, Midwest transferred Northland Center to the Venture
and Equitable in proportion to their respective undivided interests in
the Northland mortgage. Following the transfer which was retroactive
as of January 1, 1994, Northland Center was reclassified from other
real estate assets to rental properties and income and expenses were
recorded from that date. The Venture records its proportionate share
of the assets, liabilities, revenues, and expenses of the undivided
interests in the Northland Center in accordance with the tenancy in
common arrangements set forth in the Participation Agreement dated
September 27, 1988 between the Venture and Equitable, which is
included as an exhibit to this annual report. The Venture and
Equitable paid the owner $6.6 million at the time of transfer (an
amount which was determined to approximate the net present value of the
anticipated cash flow from Northland Center, subject to closing
adjustments, for the period from January 1, 1994 through June 30, 1995,
the date the Northland mortgage would have matured). As part of the
transaction, the Brookdale mortgage was modified as discussed above.
For additional information concerning the Northland Note, reference is
made to the information under "REAL PROPERTY INVESTMENTS--The Zero
Notes" and "REAL PROPERTY INVESTMENT--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 Quarterly Report of Form 10-Q for the Quarter
ended June 30, 1988, all of which information are included as exhibits
to this annual report.
Bank of Delaware Building Loan was a first mortgage loan secured by a
17-story office building in the Wilmington central business district.
The owners of The Bank of Delaware Building defaulted on the mortgage
loan receivable and the Venture accounted for the transaction as an
in-substance foreclosure at December 31, 1993. Accordingly, the
mortgage loan receivable was reclassified to other real estate assets
at its estimated fair market value as of that date and the Venture
began recording operating revenues and expenses of the building. In
the third quarter, 1994, the Venture recognized a loss of $1,000,000
due to valuing The Bank of Delaware Building at the most recent
estimated fair market value. Subsequently, on November 15, 1994, the
Venture acquired title to The Bank of Delaware Building by a deed in
lieu of foreclosure. In connection with the deed in lieu transaction,
the Venture received a $350,000 cash payment plus the property's
operating cash account, which reduced the loss on the transaction to
approximately $380,000.
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.
On December 29, 1994, a class action suit was filed in United States
District Court, Southern District of New York (94 Civ. 9293), against Midwest,
the general partner of Midwest, the members of the Board of Directors of such
general partner, Equitable and Equitable Real Estate. The complaint alleges
that defendants breached their fiduciary duties and violated federal securities
laws in connection with the Midwest's sale of Northland Center to the Venture
and Equitable. Neither the Venture nor the Partnership has been named as a
party to the lawsuit.
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.
-13-
<PAGE> 14
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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. However, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") offers a 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 BACs or Interests.
BACs are transferable as provided in Article Seven of the Partnership
Agreement. 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 March 13, 1995 was 12,454.
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 are entitled to receive cash distributions,
allocations of taxable income and tax loss and guaranty proceeds as provided in
Article Four of the Partnership Agreement. For information regarding the
Guaranty Agreement, see Item 1. BUSINESS. Since inception, the Partnership has
made the following distributions:
<TABLE>
<CAPTION>
Period Ended Date Paid Distribution per BAC
------------ --------- --------------------
<S> <C> <C>
December 31, 1990 February 28, 1991 $0.25
June 30, 1991 August 31, 1991 $0.50
December 31, 1991 February 28, 1992 $0.50
June 30, 1992 August 31, 1992 $0.662
December 31, 1992 February 28, 1993 $0.40
June 30, 1993 -- $0.00
December 31, 1993 February 28, 1994 $0.10
June 30, 1994 August 31, 1994 $0.10
December 31, 1994 February 28, 1995 $0.15
</TABLE>
The distribution made on August 31, 1992 to holders of record as of
June 30, 1992 includes a $0.162 distribution of Sale or Financing Proceeds
associated with the termination of the lease with Saab-Scania of America, Inc.
("Saab") at 1550 Westfork Drive.
All of the distributions made in 1994 and 1995 constitute distributions
of Sale or Financing Proceeds derived from a portion of the proceeds from the
pay-off of the Mortgage Loan to the Second Merritt Seven Joint Venture (the
"201 Merritt Seven Loan") on November 22, 1993. See Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for
further information regarding cash distributions.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth the selected financial data for the
Partnership on a consolidated basis for the years ended December 31, 1990,
1991, 1992, 1993 and 1994:
-14-
<PAGE> 15
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 26,856,321 $ 14,855,639 $ 17,347,435 $ 16,080,453 $ 15,117,182
Net income (loss) $ 7,543,402 $ (1,533,890) $ 9,517,222 $ 8,587,245 $ 8,061,766
Net income (loss) per
limited partnership
interest $ 1.32 $ (0.27) $ 1.67 $ 1.50 $ 1.41
Cash distributions
per limited
partnership interest $ 0.20 $ 0.40 $ 1.16 $ 0.75 --
Total assets $168,009,262 $155,009,772 $159,297,484 $155,127,826 $150,830,355
</TABLE>
The above selected financial data for the years 1992 through 1994 should be
read in conjunction with the financial statements and the related notes
appearing elsewhere in this annual report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At December 31, 1994, the Partnership had cash and short-term
investments of approximately $1.8 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 Northland Center
renovation program, and for capital needs at the Venture's other Properties. 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.
In addition, the Partnership owns an 80% interest in the Venture. At
December 31, 1994, the Venture owned ten real properties, one undivided interest
in a real property as a tenant in common with Equitable and two Mortgage Loans
on real properties (including a Zero Note). Nine of the Properties were
purchased at an aggregate cost of approximately $68.1 million. The other two
Properties, Northland Center and The Bank of Delaware Building (originally
properties that secured a Zero Note and a Fixed-Rate Mortgage Loan,
respectively), were transferred to the Venture during 1994 in separate deed in
lieu of foreclosure transactions. The fair market value of the Venture's
undivided interest in the Northland Center Zero Coupon Mortgage Note Receivable
immediately preceding the transfer was approximately $32.2 million and the fair
market value of The Bank of Delaware Building Mortgage Note immediately
preceding the transfer was $8.5 million. At December 31, 1994 the Venture also
had approximately $19.7 million in cash and short-term investments which is
intended to be utilized primarily to create reserves to complete the Northland
Center renovation program, fund capital improvements at the Venture's other
Properties, cover general working capital requirements, and make distributions
to the Venture partners. Reserves may also be utilized to complete renovations
at Richland Mall. For 1992, 1993 and 1994, the Partnership received
distributions from the Venture totaling $7,176,400, $3,040,000 and $1,084,996,
respectively.
-15-
<PAGE> 16
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 Fixed-Rate Mortgage
Loan 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. Under the terms of the
Brookdale Zero Note, principal and interest in the aggregate amount of
$25,345,353 is due in June 1995.
Cash received from tenant-related revenues increased approximately $14.1
million from 1993 to 1994. This increase is due to the cash flow for the period
from January 1, 1994 to December 31, 1994 for Northland Center and The Bank of
Delaware Building of approximately $12.6 million and $1.7 million, respectively.
Interest received decreased approximately $1.7 million from 1993 to 1994
due to the fact that subsequent to the December 31, 1993 interest payment made
in January 1994, the previous owners of The Bank of Delaware Building defaulted
on their mortgage by not paying the monthly interest payments of approximately
$82,000 for the remainder of 1994. Additionally, approximately $1.3 million of
interest relating to the 201 Merritt Seven Mortgage Loan was received in 1993.
However, due to the early payoff of the Mortgage Loan in the fourth quarter of
1993, no such interest was received in 1994. This decrease in interest received
is offset by an increase in interest received from cash and short-term
investments of approximately $500,000 which is directly related to the increased
balance in cash short-term investments and an increase in the interest rates in
the later part of 1994.
Cash paid for operating activities increased approximately $9.6 million
from 1993 to 1994. This increase is due primarily to the cash outflows for the
period from January 1, 1994 to December 31, 1994 for Northland Center and The
Bank of Delaware Building of approximately $7.6 million and $1.6 million,
respectively.
Distributable Cash from operations is distributed in accordance with the
terms of the Partnership Agreement, which provides 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 semiannual 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 made on February 28,
1991 at the rate of $0.25 per BAC. A semiannual distribution of Distributable
Cash, for the period ended June 30, 1991, was made on August 30, 1991 at the
rate of $0.50 per BAC and another semiannual 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 semiannual 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 semiannual 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
semiannual period that would have been made in August 1993. There were no
distributions of Distributable Cash from operations during 1994. The
determination to withhold such distributions 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, including but not limited
to renovations which may be required at the Bank of Delaware Building as well as
at Richland Mall.
It is anticipated that the Partnership will not make distributions of
Distributable Cash from operations in 1995. 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
-16-
<PAGE> 17
vacant space at certain of its Properties, most significantly at 16 and 18
Sentry Park West, Richland Mall, Northland Center, and The Bank of Delaware
Building. 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 income allocated to a BAC Holder may substantially exceed
the amounts, if any, distributed to such BAC Holder.
The Partnership's share of Sale or Financing Proceeds in the amount of
$0.162 per BAC associated with the termination of its lease with Saab at 1850
Westfork Drive was distributed to BAC Holders and Limited Partners on August 31,
1992. In addition, the Partnership received $8.4 million during 1993 in
connection with the pay-off of the 201 Merritt Seven Loan which also constitutes
Sale or Financing Proceeds. In connection with the Northland Mall transaction,
the Venture received approximately $498,691 for early lease termination payments
of which the Partnership's share is approximately $398,952. This amount is
classified as Sale or Financing Proceeds and is being held as reserve for future
improvements on the Properties. Portions of the Sale or Financing Proceeds
associated with the 201 Merritt Seven Loan pay-off were distributed to the BAC
Holders and Limited Partners in 1994 and 1995. See Item 5. MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 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.
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 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 a minimum return equal to their
original capital contributions plus a simple annual return equal to 9.75% simple
interest per annum 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. Capital contributions by the BAC Holders
totaled $108,484,500. As of December 31, 1994, the cumulative 9.75% simple
annual return was $71,541,224. As of December 31, 1994, cumulative
distributions by the Partnership to the BAC Holders totaled $13,626,224, of
which $11,662,621 is attributable to income from operations and $1,963,603 is
attributable to sales of Venture assets, principal payments on Mortgage Loans
and other capital events. Another $813,671 in capital proceeds was distributed
to the BAC Holders in February 1995.
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 Offering, 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 increased approximately $11.8 million in
1994 as compared to 1993. A large portion of this increase is due to the
Northland Center transaction and renovation program. The Venture's portion of
the $6.6 million paid to the previous owners of Northland Center for the cash
flows from January 1, 1994 to July 22, 1994 (the transfer date) was
approximately $4.7 million. Additionally, as a result of the renovation program
in place at Northland Center, the Venture has capitalized approximately $6.6
million in improvements to the Center. Other properties which incurred
significant improvements during 1994 as an effort to lease vacant space were
16/18 Sentry Park West and 1345 Doolittle Drive, each of which had
-17-
<PAGE> 18
approximately $600,000 in improvements during the year. These increases are
offset by the $1.0 million write-down on The Bank of Delaware Building and an
approximately $2.2 million increase in accumulated depreciation.
Other assets increased in 1994 as compared to 1993 primarily due to the
tenant rentals receivable at December 31, 1994 for Northland Center which was
approximately $1.3 million.
Total liabilities increased in 1994 as compared to 1993 due partially to
the renovation program at Northland Center which resulted in accrued capital
expenditures at December 31, 1994 of approximately $2.9 million. Additionally,
the accrued liabilities relating to the operations at Northland Center and The
Bank of Delaware Building at December 31, 1994 were approximately $1.3 million
and $200,000, respectively. Also, the distribution declared as of December 31,
1994 was approximately $271,000 greater than the distribution declared as of
December 31, 1993.
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. Over
the past several years, the rate of inflation has exceeded the rate of rental
rate growth in many of the Venture's properties. During the recent real estate
downturn, rental rates have dropped, indicating a negative growth rate. This
negative growth appears to have ceased, and rental rates have stopped dropping
in many of the Properties' markets. Real recovery in rental rates, if achieved
at all, will likely occur over an extended period of time.
Results of Operations
Rental income for 1994 increased approximately $15.1 million as compared
to 1993. This change is primarily the result of Northland Center and The Bank
of Delaware Building generating rental income of approximately $14.1 and $1.9,
respectively. These increases are partially offset by a decrease in rental
income due to a vacancy at 16/18 Sentry Park West which occurred during the
fourth quarter 1993 and which was not completely released during 1994. Rental
income for 1993 decreased approximately $1.1 million as compared to 1992. This
change is primarily a result of the receipt of $1.1 million pursuant to an
agreement between the tenant and Venture regarding the termination of the lease
on 1850 Westfork Drive.
Interest on Zero Notes receivable decreased in 1994 as compared to 1993,
and in 1993 as compared to 1992, due to the non-accrual of interest beginning
June 1993 on the Northland Zero Note and the transfer of Northland Center to the
Venture and Equitable during 1994. The non-accrual of interest offset an
increase in interest attributable to the compounding effect typical of these
types of investments for the full year 1994 and 1993 for the Brookdale Zero Note
and for the first half of the year in 1993 for the Northland Zero Note.
As stated above, interest on Mortgage Loans decreased in 1994 as
compared to 1993 due to the fact that subsequent to the December 1993 payment
made in January 1994, the previous owner of The Bank of Delaware Building
defaulted on its mortgage by not paying the monthly interest payments on the
mortgage of approximately $82,000 per month for the remainder of 1994.
Additionally, approximately $1.3 million of interest relating to the 201 Merritt
Seven Loan was received in 1993. However, due to the early payoff of the
Mortgage Loan in the fourth quarter of 1993, no such interest was received in
1994. Interest on Mortgage Loans remained fairly constant from 1992 to 1993.
Also stated above, interest from short-term investments increased in
1994 and compared to 1993 primarily as a result of having a large cash and
short-term investments balance for the whole year due to the creation of
reserves for Northland Center and an increase in interest rates in the later
part of 1994. Additionally, interest income from a money market account at
Northland Center which earned approximately $100,000 for the period from January
1, 1994 to December 31, 1994. Interest on short-term investments remained
fairly constant from 1992 to 1993.
-18-
<PAGE> 19
Operating expenses excluding the realized loss on mortgage loan
receivable, loss on write-down of zero coupon mortgage, and loss on write-down
of other real estate assets increased from 1993 to 1994 primarily as a result of
the operating expenses of Northland Center and The Bank of Delaware Building
from the period from January 1, 1994 to December 31, 1994 of approximately $9.1
million and $1.7 million, respectively. Operating expenses excluding the
realized loss on mortgage loan receivable, loss on write-down of zero coupon
mortgage, and loss on write-down of other real estate assets remained fairly
constant from 1992 to 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are included in Item 14 of this
annual report:
Independent Auditors' Report.
Consolidated Balance Sheets, December 31, 1994 and 1993.
Consolidated Statements of Operations for the years
ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Partners' Capital for the
years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
Selected Quarterly Financial Data (included in Note 11 to the
Notes to Consolidated Financial Statements).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-19-
<PAGE> 20
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 only, 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, which is a wholly-owned subsidiary of the
Holding Company.
The names and titles of the directors and officers of the Managing
General Partner as of March 15, 1995 are as follows:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
George R. Puskar 50 Chairman of the Board
Paul J. Dolinoy 47 President, Chief Executive
Officer and Director
Eugene F. Conway 44 Executive Vice President,
Chief Operating Officer
and Director
Harry D. Pierandri 49 Executive Vice President
Edward G. Smith 45 Executive Vice President
Timothy J. Welch 46 Executive Vice President
B. Stanton Breon 35 Vice President, Secretary
Peter J. Urdanick 47 Vice President, Controller
and Treasurer
Charles R. Beaver 42 Vice President
Patricia C. Snedeker 39 Vice President, Chief Financial Officer
</TABLE>
The business experience of the directors and executive officers of the
Managing General Partner is set forth below.
George R. Puskar has been Chairman of the Board of the Managing General
Partner since December 1986 and Chairman and Chief Executive Officer of
Equitable Real Estate since August 1988. He is also a Vice President of
Equitable.
Paul J. Dolinoy has been President, Chief Executive Officer and a
Director of the Managing General Partner since December 1986 and 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.
-20-
<PAGE> 21
Eugene F. Conway has been Executive Vice President, Chief Operating
Officer and a director of the Managing General Partner since December 1986 and
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.
Harry D. Pierandri has been an Executive Vice President of the Managing
General Partner since March 1987 and 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.
Edward G. Smith has been an Executive Vice President of the Managing
General Partner since March 1987 and has been an Executive Vice President of
Equitable Real Estate since 1988. Mr. Smith currently heads the commercial
mortgage origination business unit of Equitable Real Estate.
Timothy J. Welch has been an Executive Vice President of the Managing
General Partner since March 1987 and is a Senior Executive Vice President of
Equitable Real Estate in charge of its relationship with the Equitable's General
Account Real Estate Portfolio. Prior thereto, Mr. Welch was in charge of
Equitable's New York office.
B. Stanton Breon has been Vice President and Secretary of the Managing
General Partner since September 1993. He 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. Prior
thereto, Mr. Breon was a Director of Appraisal for the Philadelphia regional
office of Equitable Real Estate, responsible for valuation of real estate
portfolios as well as coordination of the Commercial Loan Restructuring/Workout
division of the office.
Peter J. Urdanick has been Vice President and Assistant Treasurer of the
Managing General Partner since January 1995. Prior thereto, Mr. Urdanick was
Vice President, Controller and Treasurer of the Managing General Partner since
December 1986. Mr. Urdanick is also 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.
Charles R. Beaver has been a Vice President of the Managing General
Partner since June 1994, and is an Executive Vice President of Equitable Real
Estate. Mr. Beaver is in charge of the Chicago regional office of Equitable
Real Estate. Prior thereto, Mr. Beaver was in charge of the Denver regional
office of Equitable Real Estate.
Patricia C. Snedeker has been Chief Financial Officer of the Managing
General Partner since June 1994 and Vice President and Controller since January
1995. Mrs. Snedeker is also a Senior Vice President of Equitable Real Estate,
responsible for overseeing the Institutional Advisors real estate accounting
area of the organization. Mrs. Snedeker has been with Equitable Real Estate
since October 1982.
Associate General Partner
The Associate General Partner is a limited partnership and has no
directors or officers. 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, 1995 are
as follows:
-21-
<PAGE> 22
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
D. Bruce Brunson 50 Chairman, Chief Executive
Officer, President, Chief Operating
Officer and Director
Thomas J. Brown 46 Executive Vice President
and Director
Jack A. Cuneo 47 Senior Vice President
and Director
Michael A. Karmelin 48 Vice President and Treasurer
George I. Wagner 52 Vice President
</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 has been Chairman, Chief Executive Officer and a
director of the Associate General Partner since September 1991 and President and
Chief Operating Officer of the Associate General Partner since January 1995.
Mr. Brunson joined Merrill Lynch in 1986 and was elected Chairman and Chief
Executive Officer of MLH in August 1991. From 1986 to 1990, he served as
Treasurer of Merrill Lynch and subsequently he coordinated Merrill Lynch's
restructuring activities.
Thomas J. Brown has been Executive Vice President and Director of the
Associate General Partner since December 1986, 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 has been Senior Vice President and Director of the
Associate General Partner since December 1986, joined MLPF&S in 1975 and is a
Senior Vice President of MLH and Manager of its Real Estate Acquisitions and
Dispositions Group.
Michael A. Karmelin joined MLH in 1994 and is a Vice President and Chief
Financial Officer of MLH, responsible for its accounting, treasury and tax
functions. Prior to joining MLH, Mr. Karmelin held several senior financial
positions with Merrill Lynch since 1985.
George I. Wagner joined MLH in 1993 and is a Senior Vice President of
MLH and is responsible for managing its information systems and the Investor
Services and Human Resources functions. Prior to joining MLH, Mr. Wagner worked
in various information systems management positions at Merrill Lynch since 1987.
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 Partner 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
-22-
<PAGE> 23
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). 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.
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. MLPF&S is the record owner of approximately 79%
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.
-23-
<PAGE> 24
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. The following financial statements are filed with this
report on the pages indicated:
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report.................................. 28
Consolidated Balance Sheets, December 31, 1994 and 1993....... 29
Consolidated Statements of Operations for the years
ended December 31, 1994, 1993 and 1992..................... 30
Consolidated Statements of Partners' Capital for the
years ended December 31, 1994, 1993 and 1992............... 31
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993 and 1992..................... 32
Notes to Consolidated Financial Statements.................... 34
Selected Quarterly Financial Data............................. 44
</TABLE>
2. The following audited financial statement schedules are filed
with this report on the pages indicated:
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Supplemental Schedules:
Real Estate and Accumulated Depreciation
as of December 31, 1994 (Schedule III).................. 45
Mortgage Loans on Real Estate as of
December 31, 1994 (Schedule IV)......................... 46
</TABLE>
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.
3. Exhibits
See Item 14(c) below.
(b) The Partnership filed no Current Reports on Form 8-K during the
last quarter of the period covered by this Report.
(c) Exhibits.
4. (a) Amended and Restated Agreement of Limited
Partnership dated April 23, 1987. Included as an
Exhibit to the Prospectus (see Exhibit 99(a)).
-24-
<PAGE> 25
(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) Joint 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).
(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 Annual Report on Form
10-K for the Fiscal Year Ended December 31, 1988 of
ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)
(the "1988 10-K").
-25-
<PAGE> 26
(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
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)).
(v) Agreement dated March 25, 1994 between The Equitable
Life Assurance Society of the United States and
Midwest Real Estate Shopping Centers L.P. (formerly
Equitable Real Estate Shopping Centers L.P.)
(incorporated by reference to Item 10(v) to Form
10-K dated December 31, 1994 of EREIM LP Associates
(the "1994 10-K")).
(w) Deed in Lieu of Foreclosure Agreement dated November
15, 1994 by and between Three Hundred Delaware Avenue
Associates, L.P. and EML Associates (incorporated by
reference to Exhibit 10(w) to the 1994 10-K).
-26-
<PAGE> 27
(x) Lease Termination Agreement dated as of January 27, 1995
by and between The Equitable Life Assurance Society of
the United States and Kohl's Department Stores, Inc.
(incorporated by reference to Exhibit 10(x) to the
1994 10-K).
(y) Amendment to Lease Termination Agreement dated as of
February 17, 1995 by and between The Equitable Life
Assurance Society of the United States and Kohl's
Department Stores, Inc. (incorporated by reference to
Exhibit 10(y) to the 1994 10-K).
(z) Purchase Agreement dated as of March 10, 1995 by and
among The Equitable Life Assurance Society of the United
States, the Venture and Dayton Hudson Corporation
(incorporated by reference to Exhibit 10(z) to the
1994 10-K).
27. Financial Data Schedule
99. Additional Exhibits.
(a) Prospectus dated April 23, 1987, as supplemented by
supplements dated December 29, 1987, March 3, 1988 and
March 17, 1988 (incorporated by reference to Exhibit
28 to the 1987 10-K).
(b) Quarterly Report on Form 10-Q for the quarter ended
June 30, 1988 (incorporated by reference to File No.
33-11064).
(c) Current Report on Form 8-K of the Partnership dated
July 19, 1988 (incorporated by reference to File No.
33-11064).
(d) Current Report on Form 8-K of the Partnership dated
September 27, 1988 (incorporated by reference to File
No. 33-11064).
(e) Current Report on Form 8-K of the Partnership dated
December 2, 1988 (incorporated by reference to File
No. 33-11064).
(f) Current Report on Form 8-K of the Partnership dated
December 27, 1988 (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) Audited Financial Statements of Midwest Shopping
Center, L.P. (incorporated by reference to Exhibit
10(h) to 1994 10-K).
-27-
<PAGE> 28
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, 1994
and 1993, and the related consolidated statements of operations,
partners' capital, and cash flows for each of the three years ended December 31,
1994, 1993 and 1992. 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, 1994 and 1993 and the results of its operations and its
cash flows for each of the three years ended December 31, 1994, 1993 and 1992 in
conformity with generally accepted accounting principles.
Our audits also comprehended the consolidated supplemental schedules of
the Partnership as of December 31, 1994 and for each of the three years ended
December 31, 1994, 1993 and 1992. 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
---------------------
February 14, 1995 (February 17, 1995
as to Note 12)
Atlanta, Georgia
-28-
<PAGE> 29
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
------ ---- ----
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Rental properties (Note 3) $119,650,903 $ 70,939,638
Less accumulated depreciation (9,875,416) (7,688,554)
------------ ------------
Net rental properties 109,775,487 63,251,084
Other real estate assets (Notes 4 and 5) - 37,017,363
Zero coupon mortgage note receivable (Note 4) 24,115,465 21,831,834
Mortgage loan receivable (Note 5) 6,000,000 6,000,000
------------ ------------
Total real estate investments 139,890,952 128,100,281
------------ ------------
OTHER ASSETS:
Cash and short-term investments 21,538,416 21,825,747
Guaranty fee, net of accumulated
amortization of $1,596,709 in
1994 and $1,328,458 in 1993
(Notes 6 and 7) 2,146,006 2,414,257
Rental income receivable 1,996,909 798,839
Interest income receivable 84,521 120,851
Other 2,352,458 1,749,797
------------ ------------
Total other assets 28,118,310 26,909,491
------------ ------------
TOTAL ASSETS $168,009,262 $155,009,772
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Accrued capital expenditures $ 2,948,006 $ 225,000
Accrued liabilities 1,938,448 394,691
Distributions declared 813,671 542,448
Due to affiliates (Notes 6 and 7) 605,618 543,014
Security deposits and unearned rent 486,284 276,298
------------ ------------
Total liabilities 6,792,027 1,981,451
------------ ------------
MINORITY INTEREST IN THE VENTURE 31,742,095 29,740,464
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 6 and 7)
PARTNERS' CAPITAL:
General partners 1,795,026 1,417,856
Initial limited partner 6,442 6,174
Limited partners (5,424,225 BACs
issued and outstanding) 127,673,672 121,863,827
------------ ------------
Total partners' capital 129,475,140 123,287,857
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $168,009,262 $155,009,772
============ ============
</TABLE>
See notes to consolidated financial statements.
-29-
<PAGE> 30
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
REVENUE: 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Rental income (Note 9) $22,574,035 $ 7,972,278 $ 7,941,677
Lease termination rental income 498,691 - 1,100,000
Interest on zero coupon mortgage notes (Note 4) 2,283,631 3,772,823 5,038,236
Interest on mortgage loans (Note 5) 615,000 2,882,915 3,035,625
Interest on short-term investments 884,964 227,623 231,897
----------- ----------- -----------
TOTAL REVENUE 26,856,321 14,855,639 17,347,435
=========== =========== ===========
OPERATING EXPENSES:
Depreciation 2,186,862 1,659,570 1,541,840
Amortization 268,251 269,305 273,827
Real estate operating expenses 9,655,296 1,033,428 973,919
Real estate taxes 2,691,844 906,062 936,633
General and administrative,
including $1,096,021 in 1994,
$1,047,831 in 1993
and $1,052,219 in 1992 to
affiliates (Note 7) 1,380,986 1,229,092 1,197,018
Property management fees (Note 7) 476,905 199,212 187,856
Realized loss on mortgage loan
receivable (Note 5) - 3,494,129 -
Loss on write-down of zero coupon
mortgage (Note 4) - 7,628,000 -
Loss on write-down of other real estate
assets (Note 5) 379,895 - -
----------- ----------- -----------
TOTAL OPERATING EXPENSES 17,040,039 16,418,798 5,111,093
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST 9,816,282 (1,563,159) 12,236,342
MINORITY INTEREST IN NET (INCOME) LOSS OF
CONSOLIDATED VENTURE (2,272,880) 29,269 (2,719,120)
----------- ----------- -----------
NET INCOME (LOSS) $ 7,543,402 $(1,533,890) $ 9,517,222
=========== =========== ===========
ALLOCATION OF NET INCOME (LOSS):
General partners $ 377,170 $ (76,695) $ 475,861
Initial limited partner 330 (67) 420
Limited partners 7,165,902 (1,457,128) 9,040,941
----------- ----------- -----------
TOTAL $ 7,543,402 $(1,533,890) $ 9,517,222
=========== =========== ===========
NET INCOME (LOSS) PER BENEFICIAL ASSIGNEE
CERTIFICATE $1.32 $(0.27) $1.67
===== ====== =====
WEIGHTED AVERAGE BENEFICIAL ASSIGNEE
CERTIFICATES OUTSTANDING 5,424,225 5,424,225 5,424,225
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-30-
<PAGE> 31
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION> Initial
General Limited Limited
Partners Partner Partners Total
-------- ------- -------- -----
<S> <C> <C> <C> <C>
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
Net income 377,170 330 7,165,902 7,543,402
Cash distributions - (25) (542,423) (542,448)
Distributions declared - (37) (813,634) (813,671)
---------- ------ ------------ ------------
BALANCE, DECEMBER 31, 1994 $1,795,026 $6,442 $127,673,672 $129,475,140
========== ====== ============ ============
</TABLE>
See notes to consolidated financial statements.
-31-
<PAGE> 32
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Tenant rentals received $21,845,655 $ 7,758,761 $ 8,708,280
Interest received 1,536,294 3,199,853 3,203,007
----------- ----------- -----------
Cash received from operations 23,381,949 10,958,614 11,911,287
Cash paid for operating activities (12,962,344) (3,340,333) (3,291,435)
Cash distributions to minority interest (271,249) (760,000) (1,794,099)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,148,356 6,858,281 6,825,753
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and additions to rental properties (9,970,896) (482,280) (602,507)
Payments received from mortgage receivable - 10,505,871 -
Proceeds from other real estate assets 620,105 - -
----------- ----------- -----------
NET CASH (USED) PROVIDED BY
INVESTING ACTIVITIES (9,350,791) 10,023,591 (602,507)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to limited partners (1,084,896) (2,169,790) (6,303,182)
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (1,084,896) (2,169,790) (6,303,182)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (287,331) 14,712,082 (79,936)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 21,825,747 7,113,665 7,193,601
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS AT
END OF YEAR $21,538,416 $21,825,747 $ 7,113,665
=========== =========== ===========
(Continued)
</TABLE>
See notes to consolidated financial statements.
-32-
<PAGE> 33
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES: 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
NET INCOME (LOSS) $ 7,543,402 $(1,533,890) $9,517,222
----------- ----------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Amortization and depreciation 2,455,113 1,928,875 1,815,667
Minority interest in Venture operations 2,272,880 (29,269) 2,719,120
Cash distributions to minority interest (271,249) (760,000) (1,794,099)
Realized loss on mortgage loan receivable - 3,494,129 -
Loss on write-down of zero coupon mortgage - 7,628,000 -
Loss on write-down of other real estate assets 379,895 - -
Changes in assets (increase) decrease:
Interest accrual on zero coupon
mortgage notes (2,283,631) (3,772,823) (5,038,237)
Rental income receivable (1,198,070) 107,829 (110,504)
Interest income receivable 36,330 89,315 (64,515)
Other assets (602,661) (274,122) (249,498)
Changes in liabilities increase (decrease):
Accrued liabilities 1,543,757 1,113 5,334
Due to affiliates 62,604 10,222 (16,123)
Security deposits and unearned rent 209,986 (31,098) 41,386
----------- ----------- ----------
TOTAL ADJUSTMENTS 2,604,954 8,392,171 (2,691,469)
----------- ----------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $10,148,356 $ 6,858,281 $6,825,753
=========== =========== ==========
</TABLE>
SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING ACTIVITIES
The Venture accrued $2,948,006 and $225,000 in capital expenditures that were
not paid before December 31, 1994 and 1993, respectively.
The Venture reclassified $27,517,363 relating to Northland Center from other
real estate assets to rental properties as a result of the deed in lieu of
foreclosure transaction executed on July 22, 1994.
During 1994, the Venture took a $1,000,000 write-down on other real estate
assets which reduced other real estate assets relating to The Bank of Delaware
Building to $8,500,000. On November 15, 1994, a deed in lieu of foreclosure
was executed resulting in a reclassification of the remaining $8,500,000 from
other real estate assets to rental properties.
See notes to consolidated financial statements.
-33-
<PAGE> 34
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 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 dated
April 23, 1987 as amended on February 9, 1988 (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 partnership 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 at which time 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.
The Venture records it's proportionate share of the assets, liabilities,
revenues, and expenses of the undivided interests in Northland Center.
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
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<PAGE> 35
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 five to 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 note receivable and The Bank of
Delaware Building mortgage loan receivable at the date such receivables were
considered to be in-substance foreclosures (see Notes 4 and 5). Subsequent to
such determination, operating revenues and expenses were recorded for Northland
Center and The Bank of Delaware Building. During 1994, both Northland Center
and The Bank of Delaware Building were acquired through separate deed in lieu of
foreclosure transactions and the related assets were reclassified to rental
properties.
Zero Coupon Mortgage Note Receivable
The zero coupon mortgage note receivable is carried at the present value which
is equal to the discounted principal plus accrued interest. Interest income is
recognized ratably over the term of the note using the constant rate of
interest implicit in the note (Note 4).
Mortgage Loan Receivable
The mortgage loan receivable is stated at cost (Note 5).
Offering Costs
Offering costs, including the acquistion/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.
-35-
<PAGE> 36
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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).
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 1994
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 the Partnership's financial instruments, including the mortgage loan
receivable, have terms such that the book value approximates fair value. There
is no readily available source of zero coupon mortgage financing and, therefore,
Management has determined that the estimation of a fair value of the zero coupon
note is not practicable. See Note 4 regarding the write-down of the Northland
zero coupon mortgage note and Note 5 regarding the write-down of other real
estate assets relating to The Bank of Delaware Building.
3. RENTAL PROPERTIES
As of December 31, 1994, the Partnership's rental properties consisted of the
following:
<TABLE>
<CAPTION>
Rentable Lease
Office Square Feet Percentage
------ ----------- ----------
<S> <C> <C> <C>
16/18 Sentry Park West Montgomery County,
Pennsylvania 190,616 73%
The Bank of Delaware Building Wilmington, Delaware 302,130 60%
</TABLE>
-36-
<PAGE> 37
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Industrial
----------
<S> <C> <C> <C>
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 326,414 100%
</TABLE>
<TABLE>
<CAPTION>
Retail
------
<S> <C> <C> <C>
Richland Mall Richland Township,
Pennsylvania 182,408 89%
Northland Center Southfield, Michigan 1,369,255 86%
</TABLE>
The costs related to the rental properties are summarized below. The Bank of
Delaware Building and Northland Center properties are not included in the 1993
amounts presented below. Refer to Notes 4 and 5 for further discussion of
these properties.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land $ 24,403,102 $12,978,626
Buildings and Improvements 95,247,801 57,961,012
------------ -----------
Total 119,650,903 70,939,638
Less accumulated depreciation (9,875,416) (7,688,554)
------------ -----------
Net rental properties $109,775,487 $63,251,084
============ ===========
Office $ 36,245,556 $27,105,690
Retail 52,396,186 13,479,455
Industrial 31,009,161 30,354,493
------------ -----------
Total 119,650,903 70,939,638
Less accumulated depreciation (9,875,416) (7,688,554)
------------ -----------
Net rental properties $109,775,487 $63,251,084
============ ===========
</TABLE>
4. ZERO COUPON MORTGAGE NOTES RECEIVABLE
The Venture holds a 71.66% participation interest in a zero coupon mortgage
note. The property which secures this first mortgage note is Brookdale Center
which is located outside of Minneapolis, Minnesota. The Venture acquired
its participation interest in 1988 from Equitable which holds the remaining
28.34% interest. The Venture's participation interest had a fair value
(including accrued interest) at the time of acquisition of $12,278,885. The
borrower is Midwest Real Estate Shopping Center L.P. ("Midwest"), a publicly
traded limited partnership, (formerly Equitable Real Estate Shopping Centers,
L.P.). The note has an implicit interest rate of 10.2% compounded semiannually
with the Venture's portion of the entire amount of principal and accrued
interest totaling $25,345,353 due on June 30, 1995. The note provides that the
borrower may elect to pay interest currently; however, no interest has been paid
to date. As part of the Northland Center transaction (discussed below), the
Brookdale mortgage was modified on July 22, 1994 to provide that if
-37-
<PAGE> 38
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Midwest sells Brookdale Center prior to June 30, 1995, the outstanding
principal and accrued interest of the zero note will be paid at the time of
sale, together with a defeasance fee equal to 75% of the amount, if any, by
which the sale price of Brookdale Center exceeds $45 million.
Until July 22, 1994 the Venture also held a 71.66% participation interest in
a zero coupon mortgage note and the first mortgage on Northland Center which
is located outside of Detroit, Michigan. The Venture acquired its
participation interest in 1988 from Equitable which held the remaining 28.34%
interest. The Venture's participation interest had a fair value (including
accrued interest) at the time of acquisition of $20,774,985. The borrower was
Midwest. The note had an implicit interest rate of 10.2% compounded
semiannually with the Venture's portion of the entire amount of principal and
accrued interest totaling $42,882,504 due on June 30, 1995. The note provided
that the borrower could elect to pay interest currently; however, no interest
was paid through July 22, 1994.
Management discontinued the accrual of interest on the Northland note during
the quarter ended June 30, 1993 as the accreted value of the mortgage
approximated the underlying value of the Northland Center. The Northland
mortgage note and first mortgage were accounted for as an in-substance
foreclosure at December 31, 1993 and the zero coupon mortgage note was
reclassified as an other real estate asset. The Venture recognized a loss of
$7,628,000 as of December 31,1993 to record Northland Center at its fair market
value. This amount included $4,730,000 reserved by the Venture as its share of
the $6.6 million to be paid to Midwest on the transfer of Northland Center (see
below).
On July 22, 1994, Midwest transferred Northland Center to the Venture and
Equitable in proportion to their respective undivided interests in the
Northland mortgage. Following the transfer, which was retroactive as of January
1, 1994, Northland Center was reclassified from other real estate assets to
rental properties and income and expenses were recorded from that date. The
Venture records its proportionate share of the assets, liabilities, revenues,
and expenses of the undivided interests in Northland Center in accordance with
the tenancy in common arrangements in the Participation Agreement between the
Venture and Equitable. The Venture and Equitable paid the owner $6.6 million at
the time of transfer (an amount which was determined to approximate the net
present value of the anticipated cash flow from Northland Center, subject to
closing adjustments for the period from January 1, 1994 through June 30, 1995,
the date the Northland mortgage would have matured). As part of the
transaction, the Brookdale mortgage was modified as discussed above.
In connection with the transfer of Northland Center, the Venture and Equitable
modified their agreement with Dayton Hudson, which operates one of the anchor
stores at Northland Center, and entered into an agreement to add Montgomery
Ward as an additional anchor. Montgomery Ward has since been added. The
Venture and Equitable have also commenced a renovation program at Northland
Center. The construction costs of the renovations are expected to be
approximately $12.0 million, of which the Venture's share is expected to be
approximately $8.6 million. As of December 31, 1994, approximately $5.2 million
of these costs had been expended, of which the Venture's share was approximately
$3.7 million. Approximately $4.1 million in capital costs have been accrued but
not paid as of December 31, 1994 of which the Venture's share is approximately
$2.9 million.
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 in value of the
underlying security for the loan. In
-38-
<PAGE> 39
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 was collateralized
by a seventeen-story office building in Wilmington, Delaware. The loan
was bearing interest at 10.375% per annum with interest only of $82,135 due
monthly to the maturity date of March 1999. The owners of The Bank of Delaware
Building defaulted on the mortgage loan receivable and the Venture accounted for
this transaction as an in-substance foreclosure at December 31, 1993.
Accordingly, the mortgage loan receivable was reclassified to other real estate
assets at its estimated fair market value as of that date and the Venture began
recording operating revenues and expenses of the building. In the third
quarter, 1994, the Venture recognized a loss of $1,000,000 due to valuing The
Bank of Delaware Building to the most recent estimated fair market value.
Subsequently, on November 15, 1994, the Venture acquired title to The Bank of
Delaware Building by a deed in lieu of foreclosure. In connection with the deed
in lieu transaction, the Venture received a $350,000 cash payment plus the
property's operating cash account which reduced the loss on the transaction to
approximately $380,000.
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. Payments on the guaranty are due 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 sale or financing proceeds, and funds
in reserves, as defined in the Partnership Agreement. The limited partners'
original cash contributions have been adjusted by that portion of distributions
paid through December 31, 1994, 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 under the guaranty agreement as of December 31,
1994 is limited to $249,485,801, 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.
Capital contributions by the BAC Holders totaled $108,484,500. As of December
31, 1994, the cumulative 9.75% simple annual return was $71,541,224. As of
December 31, 1994, cumulative distributions by the Partnership to the BAC
Holders totaled $13,626,224, of which $11,662,621 is attributable to income
from operations and $1,963,603 is attributable to sales of Venture assets,
principal payments on Mortgage Loans and other capital events. Another
$813,671 in capital proceeds was distributed to the BAC Holders in February
1995.
-39-
<PAGE> 40
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1994, 1993 and 1992, the total expense
for this fee was $502,682, $409,710, and $409,710, respectively.
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, 1994, 1993 and 1992 the
total expense for this fee was $58,492, $100,086, and $100,086, respectively.
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, 1994, 1993 and 1992, the total expense for this
fee was $160,460, $161,409, and $162,066, respectively.
Property Management Fees
Properties are managed and leased by either third-party managing and leasing
agents or by affiliates of Equitable Real Estate, Compass Management
and Leasing, Inc. ("Compass") and Compass Retail, Inc. ("Compass Retail").
Property management fees are generally established at specified percentages of
1% to
-40-
<PAGE> 41
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5% of the gross receipts of the properties as defined in the management
agreements. Property management fees for properties managed by Compass and
Compass Retail were $217,513, $39,137, and $14,842 in 1994, 1993, and 1992,
respectively.
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 has been assigned to EREIM LP Associates. For the years ended December 31,
1994, 1993 and 1992, the total expense for this fee was $642,645, $644,871, and
$646,405, 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 distributed
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.
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.
-41-
<PAGE> 42
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, 1994 are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1995 $12,936,925
1996 11,333,828
1997 9,578,311
1998 8,482,556
1999 7,480,686
2000 and thereafter 20,193,815
-----------
Total $70,006,121
===========
</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, percentage rents. Contingent rentals,
which include percentage rents included in rental income for the years ended
December 31, 1994, 1993, and 1992, totaled $525,673, $93,065, and $133,109,
respectively. The amount of escalation charges included in rental income
totaled $9,007,436, $1,249,544, and $1,269,548 for the years ended December 31,
1994, 1993, and 1992, 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 an annual base rent of $1,026,156 under a lease which expires in August
2003.
Martin Marietta (formerly General Electric) occupies approximately 48.2% of
16 Sentry Park West at an annual base rent of $348,360 under two six month
extensions of their lease which expired in December 1993. Martin Marietta
signed a third six month extension of their lease effective January 1,
1995 which expires June 30, 1995. Liberty Mutual Insurance Group occupies
approximately 30.1% (28,355 square feet) of 18 Sentry Park West at an annual
base rent of $343,927 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 ending August 1995 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 44.1% (143,852 square
feet) of 1345 Doolittle Drive at an annual base rent of $473,868 under a
lease which expires in August 1998.
The buildings located at 701 Maple Lane, 733 Maple Lane, 7550 Plaza Court and
800 Hollywood are 100% leased as of December 31, 1994. One lease comprising
approximately 27.3% of the available space is scheduled to expire in
November 1995.
-42-
<PAGE> 43
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hudson's department store (a division of Dayton-Hudson) occupies
approximately 35.6% (487,035 square feet) of Northland Center under a lease
which expires January 2004. Additionally, Montgomery Ward operates a 117,750
square foot store at Northland Center under a ground lease. This store,
constructed by Montgomery Ward, is not included in the gross leasable area of
the mall.
PNC Bank occupies approximately 38.1% of the Three Hundred Delaware
Building at an annual rent of $350,000. The lease expires in May 2005.
Bon Ton Department Store (formerly Hess) occupies approximately 46.3%
(84,405 square feet) of Richland Mall, under a lease which expires in December
2006. Additionally, Clemens Markets (a regional grocer) occupies approximately
14.3% (25,988 square feet) of Richland Mall under a lease which expires May
1996.
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>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
FINANCIAL NET INCOME (LOSS) $ 7,543,402 $ (1,533,890) $ 9,517,222
Net book to tax difference
from investment in joint venture (7,145,661) 7,348,583 (128,188)
------------ ------------ ------------
TAXABLE NET INCOME $ 397,741 $ 5,814,693 $ 9,389,034
============ ============ ============
CAPITAL BALANCE - FINANCIAL REPORTING $129,475,140 $123,287,857 $125,364,195
Cumulative book to tax income
differences from investment
in joint venture 121,446 7,267,107 (81,476)
------------ ------------ ------------
NET WORTH - TAX BASIS $129,596,586 $130,554,964 $125,282,719
============ ============ ============
</TABLE>
-43-
<PAGE> 44
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Quarterly financial data for 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
Net Income (Loss) Per
Limited Partnership
Total Income Net Income (Loss) Unit
---------------------- ----------------------- ---------------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31 $ 2,615,429 $ 4,164,040 $ 930,208 $ 1,001,975 $ 0.16 $ 0.18
June 30 9,745,104 (A) 4,223,311 2,887,181 (A) 2,227,004 0.51 0.39
September 30 6,176,513 3,292,599 823,104 (B) (88,042) 0.14 (0.02)
December 31 8,319,275 (C) 3,175,689 2,902,909 (D) (4,674,827) (E) 0.51 (0.82)
Total $26,856,321 $14,855,639 $7,543,402 $(1,533,890) $1.32 $(0.27)
</TABLE>
(A) In the second quarter, 1994 operating results became available to record
the operating revenues and expenses of Northland Center which had been
classified as an in-substance foreclosure as of December 31, 1993. Prior to such
quarter, the Partnership did not record operating results due to the lack of
reliable estimates. Therefore, six months of operating activity for Northland
Center was recorded in the second quarter of 1994. Total income and net income
for the six month period ended June 30, 1994 for Northland Center was $7,058,996
and $2,566,734, respectively.
(B) In the third quarter 1994, a write-down of $1,000,000 was taken on other
real estate assets relating to The Bank of Delaware Building based on the
most recent estimated fair value of the property.
(C) The net income from The Bank of Delaware Building was estimated to be
immaterial to the overall financial statements for the first three quarters
of 1994, therefore, a detailed break-out of the revenues and expenses was not
provided. Detailed estimates became available after the deed in lieu of
foreclosure transaction was executed in the fourth quarter 1994. Total income
and net income (loss) recorded in the fourth quarter 1994 was $1,853,630 and
$(248,506), respectively.
(D) In connection with the deed in lieu of foreclosure on The Bank of
Delaware Building in the fourth quarter 1994, cash of $350,000 was received in
addition to the operating cash account of the property which resulted in a
reduction of $620,105 to the $1,000,000 loss previously recorded in the third
quarter.
(E) In the fourth quarter 1993, 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.
12. SUBSEQUENT EVENT
Pursuant to an agreement with Kohl's Department Stores, Inc. ("Kohl's")
finalized on February 17, 1995, Equitable agreed to accept $1,750,000 in
connection with the termination of the Kohl's lease on behalf of the tenancy in
common arrangement between the Venture and Equitable. The Venture's portion of
the termination payment is approximately $1,400,000 which will be recognized by
the Venture in the first quarter of 1995. Upon termination of the lease, Kohl's
is released from any remaining lease obligation under the original lease
agreement. Such agreement is subject to the tenancy in common executing an
agreement to lease or build-out the vacated space.
-44-
<PAGE> 45
SCHEDULE III
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
<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- Accumulated Date of Date
Description Land ments ments Land ments Total Depreciation Construction Acquired
----------- ---- --------- -------- ---- --------- ----- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial
1200 Whipple Road,
Union City, CA $ 2,759,162 $ 5,112,652 $ 161,659 $2,762,332 $ 5,271,141 $ 8,033,473 $ 897,845 1963 3/17/88
Maple Lane,
Plaza Court and
Hollywood Ave, 12/27/88
Bensenville, IL 1,670,158 5,167,581 384,117 1,673,062 5,548,794 7,221,856 842,381 1979-80 6/8/89
1850 Westfork Drive
Lithia Springs, GA 750,000 3,009,802 142,156 750,000 3,151,958 3,901,958 512,009 1988 1/6/89
1345 Doolittle Drive
San Leandro, CA 4,000,000 6,269,526 1,582,348 4,026,312 7,825,562 11,851,874 1,281,465 1964 5/18/89
Retail:
Richland Mall
Richland
Township, PA 1,115,321 11,663,922 735,549 1,115,535 12,399,257 13,514,792 2,016,845 1974-75 7/19/88
Northland Center
Southfield,MI 7,424,476 24,822,493 6,634,425 7,424,476 31,456,918 38,881,394 324,804 1954 7/22/94
Office:
Sentry Park West
Montgomery
County, PA 2,624,777 23,981,032 1,137,860 2,651,385 25,092,284 27,743,669 3,972,980 1988 12/22/88
The Bank of Delaware
Wilmington, DE 4,000,000 4,500,000 1,887 4,000,000 4,501,887 8,501,887 27,087 1970 11/15/94
----------- ----------- ----------- ----------- ----------- ------------ ----------
Total $24,343,894 $84,527,008 $10,780,001 $24,403,102 $95,247,801 $119,650,903 $9,875,416
=========== =========== =========== =========== =========== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Beginning and Ending Balances: 1994 1993 1992
------------------------------------------------ ---- ---- ----
<S> <C> <C> <C>
Rental Properties -
Balance at beginning of year $ 70,939,638 $70,232,358 $69,629,851
Transfer by deed in lieu of foreclosure 40,746,969 -- --
Improvements 7,964,296 707,280 602,507
------------ ----------- -----------
Balance at end of year $119,650,903 $70,939,638 $70,232,358
============ =========== ===========
Accumulated depreciation -
Balance at beginning of year $ 7,688,554 $ 6,028,984 $ 4,487,144
Depreciation for year 2,186,862 1,659,570 1,541,840
------------ ----------- -----------
Balance at end of year $ 9,875,416 $ 7,688,554 $ 6,028,984
============ =========== ===========
</TABLE>
-45-
<PAGE> 46
SCHEDULE IV
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERIODIC CARRYING
INTEREST FINAL PAYMENT FACE AMOUNT 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) $24,115,465 (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 $30,115,465 (b) (d) $31,345,353
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $27,831,834 $82,704,374 $77,666,137
Interest accrued on zero coupon notes 2,283,631 3,772,823 5,038,237
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 $30,115,465 $27,831,834 $82,704,374
---------- ---------- ----------
</TABLE>
Notes:
(a) Interest at the imputed rate shown is compounded semiannually and added
to the note balance.
(b) None of the loans are subject to any delinquencies.
(c) EREIM LP Associates, an affiliate, contributed $9,823,108 of the zero
coupon mortgage note 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.
-46-
<PAGE> 47
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 24th day of March, 1995.
ML/EQ REAL ESTATE PORTFOLIO, L.P.
By: EREIM MANAGERS CORP.
(Managing General Partner)
By: /s/ Eugene F. Conway
-------------------------
Eugene F. Conway
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 24,1995.
<TABLE>
<S> <C>
/s/ GEORGE R. PUSKAR Chairman of the Board of
--------------------------- EREIM Managers Corp.
GEORGE R. PUSKAR
/s/ PAUL J. DOLINOY President, Chief Executive
--------------------------- Officer, Principal Executive Officer
PAUL J. DOLINOY and Director of EREIM Managers Corp.
/s/ EUGENE F. CONWAY Executive Vice President,
--------------------------- Chief Operating Officer and
EUGENE F. CONWAY Director of EREIM Managers Corp.
/s/ PATRICIA C. SNEDEKER Vice President and Chief Financial
--------------------------- Officer of EREIM Managers Corp.
PATRICIA C. SNEDEKER
/s/ B. STANTON BREON Vice President and Secretary of
--------------------------- EREIM Managers Corp.
B. STANTON BREON
</TABLE>
-47-
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
<S> <C>
4. (a) Amended and Restated Agreement of Limited Partnership dated April
23, 1987. Included as an Exhibit to the Prospectus (see Exhibit
99(a)).
(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) Joint 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).
(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)).
</TABLE>
-48-
<PAGE> 49
<TABLE>
<S> <C>
(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
Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1988 of ML/EQ Real Estate Portfolio, L.P. (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 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)).
</TABLE>
-49-
<PAGE> 50
<TABLE>
<S> <C>
(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)).
(v) Agreement dated March 25, 1994 between The Equitable Life
Assurance Society of the United States and Midwest Real Estate
Shopping Centers L.P. (formerly Equitable Real Estate Shopping
Centers L.P.) (incorporated by reference to Item 10(v) to Form 10-K
dated December 31, 1994 of EREIM LP Associates (the "1994 10-K")).
(w) Deed in Lieu of Foreclosure Agreement dated November 15, 1994 by
and between Three Hundred Delaware Avenue Associates, L.P. and
EML Associates (incorporated by reference to Exhibit 10(w) to the
1994 10-K).
(x) Lease Termination Agreement dated as of January 27, 1995 by and
between the Equitable Life Assurance Society of the United States
and Kohl's Department Stores, Inc. (incorporated by reference to
Exhibit 10(x) to the 1994 10-K).
(y) Amendment to Lease Termination Agreement dated as of February 17,
1995 by and between The Equitable Life Assurance Society of the
United States and Kohl's Department Stores, Inc. (incorporated by
reference to Exhibit 10(y) to the 1994 10-K).
(z) Purchase Agreement dated as of March 10, 1995 by and among The
Equitable Life Assurance Society of the United States, the Venture
and Dayton Hudson Corporation (incorporated by reference to Exhibit
10(z) to the 1994 10-K).
27. Financial Data Schedule (for SEC use only) 51
99. 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) Quarterly Report on Form 10-Q for the quarter ended June 30, 1988
(incorporated by reference to File No. 33-11064).
(c) Current Report on Form 8-K of the Partnership dated July 19, 1988
(incorporated by reference to File No. 33-11064).
(d) Current Report on Form 8-K of the Partnership dated September 27,
1988 (incorporated by reference to File No. 33-11064).
(e) Current Report on Form 8-K of the Partnership dated December 2,
1988 (incorporated by reference to File No. 33-11064).
(f) Current Report on Form 8-K of the Partnership dated December 27,
1988 (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) Audited Financial Statements of Midwest Shopping Center, L.P.
(incorporated by reference to Exhibit 10(h) to 1994 10-K).
</TABLE>
-50-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<CASH> 21,538,416
<SECURITIES> 0
<RECEIVABLES> 2,081,430
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,619,846
<PP&E> 119,650,903
<DEPRECIATION> 9,875,416
<TOTAL-ASSETS> 168,009,262
<CURRENT-LIABILITIES> 6,305,743
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 129,475,140
<TOTAL-LIABILITY-AND-EQUITY> 168,009,262
<SALES> 0
<TOTAL-REVENUES> 26,856,321
<CGS> 0
<TOTAL-COSTS> 12,824,045
<OTHER-EXPENSES> 2,455,113
<LOSS-PROVISION> 379,895
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,816,282
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,543,402
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,543,402
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 0
</TABLE>
