<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, 1995
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 has, however, developed a concentration of retail
real estate investments with the inclusion of the Venture's interest in
Northland Center which is located in Southfield, Michigan. Such property was
transferred to the Venture and Equitable by a deed-in-lieu of foreclosure on
July 22, 1994. The Venture's interest in Northland Center represented
approximately 30% and 28% of the real estate investments owned by the Venture
as of December 31, 1995 and 1994, respectively, and approximately 54% of total
revenues of the Venture in each of the years ended December 31, 1995 and 1994.
Combined retail real estate investments represented approximately 53% of real
estate investments owned by the Venture as of
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December 31, 1995 and 1994, and approximately 66% and 70% of total revenues of
the Venture for the years ended December 31, 1995 and 1994, respectively.
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.
At December 31, 1995, 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 estimated 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
estimated fair market value of the Bank of Delaware Building Mortgage Loan
immediately preceding the transfer was approximately $8.5 million. In
addition, at December 31, 1995, the Venture owned an interest in one remaining
Zero Note, which interest (including principal and accrued interest) on the
date of acquisition was 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 the estimated 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 written down to estimated fair market value.
With respect to Mortgage Loans, management reviews the valuation of the
underlying security. If the Venture's portion of the estimated fair market
value of the underlying collateral declines below the recorded investment in
the Mortgage Loans, impairment will be recognized through the creation of a
valuation allowance.
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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 1996 to 1998.
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 Venture'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 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
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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, and have affected,
the ability of the borrowers under the Mortgage Loans held by the Venture to
sell or refinance the properties that secure such loans, which may adversely
affect the ability of the borrowers to pay such loans at maturity. See
Item 2. PROPERTIES for a discussion of competitive pressures experienced with
respect to the Brookdale Loan. 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 sale, retirement or other disposition of all of the
Mortgage Loans and Properties held by the Venture (other than purchase money
notes from the sale of a property) or the liquidation of the Partnership, 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,
1995, including the Partnership's allocable share of Venture cash reserves,
are approximately 15.9% of the Partnership's gross offering proceeds. See Item
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Insurance. The Properties are covered under insurance contracts which
provide comprehensive general liability as well as physical damage protection.
Such insurance contracts also cover other properties in accounts which are
advised or managed by Equitable or its subsidiaries
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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
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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.
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, 1995 are limited to $246,687,614 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. Subject to the foregoing, the obligations of Equitable under the
Keep Well Agreement as of December 31, 1995 are $246,687,614. 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
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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, 1995, 1994 and 1993, Equitable's total surplus, calculated
in accordance with the statutory method of accounting, was approximately $2.20
billion, $2.12 billion, and $1.83 billion, respectively. At December 31, 1995,
1994 and 1993, Equitable's total capital, calculated in accordance with the
statutory method of accounting and consisting of surplus and the Asset
Valuation Reserve, was approximately $3.55 billion, $3.11 billion, and $3.10
billion, respectively.
The Equitable Companies Incorporated (the "Holding Company"), a Delaware
corporation, owns all of Equitable's outstanding capital stock. Equitable and
the Holding Company are subject to the informational requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information, including financial
statements, with the Securities Exchange Commission under Commission File No.
0-25280 and 1-11166, respectively. Such reports and other information filed by
Equitable and 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, 1995, approximately 82.2% of the aggregate rentable square
feet of the Venture's Properties was leased. Leases covering approximately
9.9%, 11.2% and 5.2% of the Properties rentable square feet are scheduled to
expire in 1996, 1997 and 1998 respectively.
Set forth below is a brief description of each of the Venture's
investments at December 31, 1995. 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.
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<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 182,507 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
800 Hollywood Avenue 50,337 6/8/89 1979
Itasca, IL sq. ft.
warehouse/office
Northland Center 552,992(1) 7/22/94 1954
Southfield, MI sq. ft.
regional mall
The Bank of Delaware 314,313 11/15/94 1970
Building sq. ft.
Wilmington, DE
office building
- ---------------------
(1) Excludes square feet of properties owned by certain anchor stores.
</TABLE>
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Projected Annual Aggregate Lease Payments to be Received (in dollars)(1)
<TABLE>
<CAPTION>
Name of Property 1996 1997 1998 1999 2000 Thereafter
- ----------------------------- ----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1200 Whipple Rd. $ 1,009,340 $ 1,009,340 $ 1,098,200 $1,261,675 $1,261,675 $ 3,340,726
Richland Mall 799,932 689,371 669,722 619,482 546,955 2,352,842
16/18 Sentry Park West 2,554,540 2,150,563 1,957,423 1,648,799 877,603 0
701 and 733 Maple Lane 338,646 339,430 205,391 104,174 111,720 158,270
7550 Plaza Ct. 0 0 0 0 0 0
1850 Westfork Dr. 269,113 179,409 0 0 0 0
1345 Doolittle Dr. 1,067,209 838,192 859,468 708,685 451,216 172,800
800 Hollywood Ave. 201,348 83,895 0 0 0 0
Northland Center 5,478,124 5,042,198 4,631,591 4,185,906 3,663,624 9,458,213
The Bank of Delaware Building 1,034,377 720,683 595,297 554,161 524,432 1,770,190
----------- ----------- ----------- ---------- ---------- -----------
$12,752,629 $11,053,081 $10,017,092 $9,082,882 $7,437,225 $17,253,041
=========== =========== =========== ========== ========== ===========
</TABLE>
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(1) Lease payments to be received under noncancelable operating leases in
effect as of December 31, 1995.
Range of Lease Expirations
<TABLE>
<CAPTION>
Name of Property Years
----------------------------- ---------
<S> <C>
1200 Whipple Road 2003
Richland Mall 1996-2006
16/18 Sentry Park West 1996-2000
701 and 733 Maple Lane 1998-2002
7550 Plaza Court N/A
1850 Westfork Drive 1997
1345 Doolittle Drive 1996-2002
800 Hollywood Avenue 1997
Northland Center 1996-2005
The Bank of Delaware Building 1996-2005
</TABLE>
Major Tenants
The following list sets forth major tenants for certain Properties
together with percentage of space used by such tenants:
<TABLE>
<CAPTION>
Properties Major Tenants Percentage of Leasable Space
- ------------------ ------------- ----------------------------
<S> <C> <C>
Richland Mall Bon Ton Department 46.2%
Store Clemens Market 14.2%
16/18 Sentry Park West Liberty Mutual 14.9%
</TABLE>
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<TABLE>
<S> <C> <C>
1345 Doolittle Drive Gruner & Jahr 44.1%
National Distribution Agency 23.5%
Jay-N Company 18.6%
Northland Center Hudson's Department Store (A)
J.C. Penney (A)
Montgomery Ward (A)
The Bank of PNC Bank 36.6%
Delaware Building
</TABLE>
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(A) Hudson's Department Store, J.C. Penney, and Montgomery Ward independently
constructed and operate their stores at Northland Center and each
contributes common area maintenance payments for operating expenses and
real estate taxes under separate agreements. These stores covering
511,509 square feet, 283,534 square feet, and 117,750 square feet,
respectively, are not included in the gross leasable area of the mall.
All of the remaining Properties, excluding 7550 Plaza Court, 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, 1995, the property was 100% leased to Permer
Control, Inc. ("Permer") 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. Permer has vacated the property. CCH continues to
make payments in accordance with the lease, and is actively attempting to
sublet the property as permitted under the lease. The lease is
guaranteed by CHH and management expects all obligations under the lease
to be fulfilled.
Richland Mall is a one-level enclosed mall located in Richland Township,
Pennsylvania. Tenants include Bon Ton Department Store, Clemens Market,
Footlocker, and Radio Shack. At December 31, 1995, the Mall was
approximately 88.2% leased with 21,400 square feet vacant. Excluding the
two anchor stores, the Mall was 70.3% leased. Leases covering
approximately 26.1%, 1.0% and 5.9% of the space are scheduled to expire
in 1996, 1997 and 1998, 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.
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
-11-
<PAGE> 12
and cancellations by virtue of tenant bankruptcies. Management
continues to aggressively pursue tenants for the remaining vacant space.
The Clemens Market lease expires in April 1996. While Clemens Market
will most likely request that the Venture permit it to hold over for a
short period of time, it has notified management that it will leave
Richland Mall upon completion of its new store within 1-1/2 miles of
Richland Mall. Management has not signed a lease with a replacement
tenant, but is in negotiations with several potential users of this
space. Wal-Mart Stores, a national discount retailer, announced plans
several years ago 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.
Management expects Wal-Mart to again approach the local Zoning board for
approval of a site approximately two miles north of Richland Mall. Due
to traffic and congestion issues, the Partnership cannot predict whether
or when this request will be approved. Furthermore, 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.
16/18 Sentry Park West are two four-story office buildings that together
contain 190,616 rentable square feet. Tenants include Liberty Mutual
Insurance Company and The Prudential Insurance Company. At December 31,
1995, the property was approximately 85.0% leased. Leases covering
approximately 10.4%, 12.8% and 3.6% of the space are scheduled to expire
in 1996, 1997 and 1998, 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, 1995, the Maple Lane buildings were 100% leased, while the
Plaza Court building was vacant. Precise Data Service was a tenant in
the Plaza Court property, but vacated in November 1995. Tenants include
Triangle Engineered Products, Co. and Hi Performance, Inc. 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. One lease covering approximately 44.4% of
the space is scheduled to expire in 1998.
1850 Westfork Drive is a one-story warehouse/distribution facility
located approximately 15 miles west of the Atlanta central business
district. At December 31, 1995, the Property was 100% leased to Treadway
Exports Limited ("Treadway"). The lease with Treadway commenced on
September 1, 1992 and is for an initial term of three years with two
renewal options for a total of an additional three years. On August 30,
1995, Treadway exercised the first renewal option for a term of two
years. The 1850 Westfork Drive Property is described in the December
Report, which is included as an exhibit to this annual report.
-12-
<PAGE> 13
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, 1995, the property was
100% leased. One lease covering approximately 23.5% of the space is
scheduled 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, which was transferred to the Venture and Equitable by a
deed in lieu of foreclosure on July 22, 1994, is a regional enclosed mall
located in Southfield, Michigan. Anchor stores include J.C. Penney,
Hudsons and Montgomery Ward. As of December 31, 1995, the Center was
approximately 75.1% leased. Leases covering approximately 7.6%, 5.3% and
5.6% are scheduled to expire in 1996, 1997 and 1998, respectively. A
renovation program was commenced at Northland Center in order to improve
the marketability of the Center and attract tenants. The renovations
were completed during the second quarter of 1995 at a total cost of
approximately $11.0 million, of which the Venture's share was
approximately $7.9 million.
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 was allowed to terminate its lease obligation at
Northland Center. The agreement provided for a payment by Kohl's to the
Venture and Equitable totaling $1,750,000 (of which the Venture's share
was approximately $1,300,000), in satisfaction of its remaining lease
obligations. The Venture recognized these proceeds as lease termination
income. On March 17, 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 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. Target is scheduled to open in April 1996.
Competitive conditions in the retail industry in general and shopping
malls in particular have remained difficult. The Venture has tried to
reposition its shopping malls to take advantage of the changing
demographics of retail customers. However, give the continuing
competitive difficulties in the retail industry, the Venture may be
unable to sell its shopping malls at a favorable price within the next
few years.
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<PAGE> 14
The Bank of Delaware Building, which was transferred to the Venture by
deed in lieu of foreclosure on November 15, 1994, is a seventeen story
office building in Wilmington, Delaware. PNC Bank, a major tenant,
occupies 115,085 square feet or 36.6% 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, 1995, the building
was approximately 56.3% leased. Leasing the 137,307 square feet of
currently vacant space will require substantial renovation expenditures
as asbestos is present in a majority of such space. Leases covering
approximately 6.8%, 8.5% and 0.8% are scheduled to expire in 1996, 1997
and 1998, respectively.
Management has established a three-year enhancement/stabilization and
renovation program for the Bank of Delaware building. See Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS for further information regarding this renovation program.
Mortgage Loans
<TABLE>
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) 19.0%(2) 6/30/95(3)
Brooklyn Center, MN 5/3/88 $ 1,737,268(1) 19.0%(2) 6/30/95(3)
regional shopping mall
Jericho Village 1/31/89 $6,000,000 10.25% 2/1/99
Weston, MA
apartment complex
</TABLE>
- -----------------
(1) Represents the value of the Venture's 71.66% participation interest in
principal and accrued interest on the date of acquisition.
(2) On July 1, 1995, in accordance with the mortgage agreement, the Venture
began accruing interest off the books on these zero coupon mortgage notes
at the default rate of 19.0%.
(3) The borrower has defaulted on its obligation to repay the Brookdale Note.
-14-
<PAGE> 15
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, and it matured on June
30, 1995. The principal and accrued interest at maturity totaled
$35,368,572, and the Venture's portion of the entire amount of principal
and accrued interest at maturity totaled $25,345,353.
The accrual of interest relating to the Brookdale note was discontinued
on the Venture's books beginning with the second quarter of 1995 as the
accreted value of the mortgage approximated the estimated fair market
value of the Brookdale Center. The Venture's share of the note plus
accrued interest at the time was $24,730,409. Midwest defaulted on its
obligation to repay the Brookdale Note in full when it matured on June
30, 1995. Notice of default has been given to Midwest. Equitable and
the Venture have commenced foreclosure by advertisement proceedings and a
court-appointed receiver has been named.
A recently completed internal review of the property, performed for the
Venture as of September 30, 1995, estimated the fair market value of
Brookdale Center to be $30,000,000. The Venture recorded a valuation
allowance of $3,232,210 to value its interest in the Brookdale Zero Note
at an amount equal to the Venture's participation interest in the note
multiplied by the estimated fair market value of the Center, or
$21,498,199. This valuation allowance is presented on the consolidated
balance sheets as a decrease in assets and partners' capital and on the
consolidated statements of operations as a provision for impairment on
zero coupon mortgage. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
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.
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
-15-
<PAGE> 16
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, 1995, Brookdale Center was 80% leased (excluding its
anchor stores all of which are in operation). One of the anchor stores,
having 144,546 square feet, was sold by Carson Pirie and Scott to
Mervyn's in April 1995 and continues operation under the Mervyn's name.
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, 1995, 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 an estimated fair market 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 estimated fair market 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
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 estimated 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.
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,
-16-
<PAGE> 17
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).
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 of 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
On November 29, 1995, a class action suit was filed in the Superior
Court of the State of California, County of San Diego (No. 694936), against
the Partnership, Merrill Lynch, the principal operating subsidiary of Merrill
Lynch, and certain subsidiaries and limited partnerships affiliated with
Merrill Lynch. The complaint alleges, among other things, that defendants
breached their fiduciary duties, committed fraud and violated California
business practice laws in connection with the sale of certain limited partner
interests. The suit has been removed to the United States District Court for
the Southern District of California and transferred to the Southern District in
New York. The case has been dismissed with respect to the Partnership on the
grounds that the statute of limitations be tolled through November 27, 1996.
Several class action suits have been filed against Midwest, the general
partner of Midwest, certain officers of such general partner, Lehman Brothers,
Inc., Equitable and Equitable Real Estate. The complaints allege, among other
things, that defendants breached their fiduciary duties and violated federal
securities laws in connection with the initial sale of BACs, the operation of
Midwest,
-17-
<PAGE> 18
and 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.
-18-
<PAGE> 19
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 1, 1996 was 12,166.
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
June 30, 1995 August 31, 1995 $0.15
December 31, 1995 February 29, 1996 $0.10
</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 1850 Westfork Drive.
-19-
<PAGE> 20
All of the distributions made in 1994, 1995 and 1996 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, 1991, 1992, 1993, 1994
and 1995:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 24,374,185 $ 25,922,117 $ 14,628,016 $ 17,347,435 $ 16,080,453
Net income (loss) 4,760,605 $ 7,543,402 $ (1,533,890) $ 9,517,222 $ 8,587,245
Net income (loss)
per BAC $ 0.83 $ 1.32 $ (0.27) $ 1.67 $ 1.50
Cash distributions
paid per BAC $ 0.30 $ 0.20 $ 0.40 $ 1.16 $ 0.75
Total assets $171,924,760 $168,009,262 $155,009,772 $159,297,484 $155,127,826
</TABLE>
The above selected financial data for the years 1993 through 1995 should
be read in conjunction with the financial statements and the related notes
appearing elsewhere in this annual report.
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<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Partnership had cash and short-term investments
of approximately $2.0 million. Such cash and short-term investments are expected
to be utilized for general working capital requirements including, to the extent
that scheduled lease expirations occur, shortfalls associated with such lease
expirations on the Properties until such time as such leases can be replaced and
for capital needs at the Venture's 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. However, pursuant to the
Partnership Agreement working capital reserves may not be decreased below 1% of
gross offering proceeds prior to the time that the Partnership enters its
liquidation phase.
In addition, the Partnership owns an 80% interest in the Venture. At
December 31, 1995, 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 estimated 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 estimated fair market value of The Bank of Delaware Building Mortgage
Loan immediately preceding the transfer was $8.5 million. At December 31, 1995,
the Venture also had approximately $19.7 million in cash and short-term
investments which is intended to be utilized primarily to fund the renovation
work on the Bank of Delaware Building, to fund possible costs incurred to
increase tenancy at Richland Mall, to fund capital improvements at the Venture's
other Properties, to cover general working capital requirements, and to make
distributions to the Venture's partners. These funds, in addition to reserves
from future operations, may also be used in connection with actions taken
relating to the Brookdale Zero Note, including costs of legal action as well as
improvements deemed to be necessary to protect the Venture's investment in the
event a foreclosure is effected. For 1993, 1994 and 1995, the Partnership
received distributions from the Venture totaling $3,040,000, $1,084,996 and
$3,100,000, respectively.
All of the Venture's properties and Mortgage Loans were acquired without
mortgage indebtedness, and neither the Venture nor the Partnership has incurred
any borrowings. All of the Venture's Properties and its Mortgage Loans 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.
Under the terms of the Brookdale Zero Note, which is secured by the
Brookdale Center, principal and interest in the aggregate amount of $35,368,572
was due on June 30, 1995, of which the Venture's portion was $25,345,353.
Midwest defaulted on its obligation to repay the Brookdale Zero Note in full on
the maturity date. Notice of default has been given to Midwest. For book
purposes, beginning with the second quarter of 1995, the Venture discontinued
the accrual of interest on the Brookdale Zero Note as the accreted value of the
mortgage approximated the estimated fair market value of the Brookdale Center.
Under the terms of the mortgage agreement, however, the Venture continued to
accrue interest off the books at the effective implicit rate of 10.2% until June
30, 1995. On July 1, 1995, the Venture began to accrue interest off the books on
the Brookdale Zero Note at the default rate of 19.0%. Additionally, Equitable
and the Venture have commenced foreclosure by advertisement proceedings and a
court-appointed receiver has been named. The receiver is
21
<PAGE> 22
responsible for collecting rent proceeds from the tenants at Brookdale Center
and applying the proceeds to payments of operating costs at the Center. Any
remaining funds are to be paid to Equitable and the Venture on account of the
Brookdale Zero Note. The Venture records cash received from operations of
Brookdale Center on a cash basis as interest income. As of December 31, 1995,
$700,000 had been remitted under the terms of the receivership. The Venture's
portion of this payment was approximately $502,000.
As of September 30, 1995, an internal review of the Brookdale Center was
performed for the Venture. Based on this review, the estimated fair market value
of Brookdale Center was $30,000,000 at that date. The Venture recorded a
valuation allowance of $3,232,210 to value its interest in the Brookdale Zero
Note at an amount equal to the Venture's participation interest in the note
multiplied by the estimated fair market value of the Brookdale Center, or
$21,498,199. The valuation allowance is presented on the consolidated balance
sheets as a decrease in assets and partners' capital and on the consolidated
statements of operations as a loss on write-down of zero coupon mortgage.
Management has established an enhancement/stabilization and renovation
program for the Bank of Delaware Building which was transferred to the Venture
by deed in lieu of foreclosure on November 15, 1994. Estimated costs for this
three year program total $4.3 million, of which $1.6 million was incurred in
1995, $1.3 million is expected to be incurred in 1996, and $1.4 million is
expected to be incurred in 1997. As of December 31, 1995, approximately $724,000
of these costs had been expended. Approximately $878,000 in capital costs have
been accrued but not paid as of December 31, 1995. Included in the estimated
$4.3 million of renovation expenditures is approximately $2.3 million for
asbestos abatement expected to be incurred evenly over 1995, 1996, and 1997.
Also included in the $4.3 million is $400,000 for sprinkler installation and
$400,000 for exterior deferred maintenance including recaulking all four sides
of the building. The other components of the renovation program are minor
interior common area and exterior plaza cosmetic upgrades totaling approximately
$600,000 to be incurred evenly over 1995 and 1996. Management expects these
upgrades to give the building a fresher, more inviting look. Additional costs
not included in the above figures are estimated tenant improvements of $2.5
million. The tenant improvement costs are directly associated with actual
leasing and will only be expended as leasing transactions occur in the building.
Cash provided by operating activities remained fairly constant from 1994 to
1995. Cash provided by operating activities increased approximately 48% from
1993 to 1994. This increase is primarily due to net cash flows from Northland
Center and The Bank of Delaware Building of approximately $5.0 million and
$100,000, respectively. This increase is offset by an approximate $1.7 million
decrease in interest received. Interest received decreased 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 and short-term investments and an increase in the interest rates in the
latter part of 1994.
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-
22
<PAGE> 23
cumulative preferred 6% simple return on their Adjusted Capital Contribution
during each period. Since inception, the Partnership has made the following
distributions:
<TABLE>
<CAPTION>
DISTRIBUTION
PERIOD ENDED DATE PAID 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
June 30, 1995........................................... August 31, 1995 $0.15
December 31, 1995....................................... February 29, 1996 $0.10
</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
1850 Westfork Drive. The Partnership withheld the distribution for the
semiannual period that would have been made in August 1993. All of the
distributions made in 1994, 1995, and 1996 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. There were no distributions of Distributable
Cash from operations during 1994 or 1995. The determination to withhold the 1994
distribution 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 determination to withhold the 1995 distribution was based on
the likelihood of significant capital expenditures for the renovation of The
Bank of Delaware Building as well as uncertainty regarding the level and timing
of any expenditures relating to Brookdale Center. 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 at the Bank of Delaware Building and at Richland Mall and costs
which may be incurred in connection with actions taken relating to the Brookdale
Zero Note.
It is anticipated that the Partnership will not make distributions of
Distributable Cash from operations in 1996. 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 actions taken relating to the Broodale
Zero Note its efforts to relet 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, 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.
During 1994 and 1995, the Venture received approximately $499,000 and
$1,502,000, respectively, for early lease termination payments of which the
Partnership's share is approximately $399,000 and $1,202,000, respectively.
These early lease termination payments are classified as Sale or Financing
Proceeds and are being held as reserve for future improvements on the
Properties. 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
23
<PAGE> 24
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 calculated from the investor closing at which an
investor acquired its BACs, subject to certain limitations. Capital
contributions by the BAC Holders totaled $108,484,500. As of December 31, 1995,
the cumulative 9.75% simple annual return was $81,866,083. As of December 31,
1995, cumulative distributions by the Partnership to the BAC Holders totaled
$15,252,905, of which $11,662,084 is attributable to income from operations and
$3,590,821 is attributable to sales of Venture assets, principal payments on
Mortgage Loans and other capital events. Another $542,423 in capital proceeds
was distributed to the BAC Holders in February 1996.
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 $2.1 million in 1995
as compared to 1994. The Venture capitalized approximately $4.3 million in
improvements relating to the Northland Center renovation program. Other
properties which incurred significant improvements during 1995 as an effort to
lease vacant space were 16/18 Sentry Park West, which had approximately $1.2
million in improvements during the year and The Bank of Delaware Building, which
had approximately $1.8 million in improvements during the year. Interest accrued
for the first three months of 1995 on the Brookdale Zero Note was approximately
$615,000. These increases are offset by the $3.2 million provision on the
Brookdale Zero Note and an approximately $2.7 million increase in accumulated
depreciation.
Other assets increased approximately $1.8 million in 1995 as compared to
1994 primarily as the result of a $1.4 million increase in tenant rentals
receivable due to increased occupancy at 16/18 Sentry Park West and due to
billings and collections of escalations at a later date in 1995 as compared to
1994 at The Bank of Delaware Building, Northland Center, Whipple Road, and Maple
Lane.
Total liabilities decreased approximately $294,000 in 1995 as compared to
1994 primarily because the distribution declared as of December 31, 1995 was
approximately $271,000 less than the distribution declared as of December 31,
1994.
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 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 decreased approximately $1.4 million in 1995 as compared to
1994. Rental income decreased approximately $1.8 million due to decreased
occupancy at Northland Center. This decrease is offset by an increase in rental
income of approximately $460,000 due to increased occupancy at 16/18 Sentry Park
West. Rental income for 1994 increased approximately $14.5 million as compared
to 1993. This change is primarily the result of Northland Center and The Bank of
Delaware Building generating rental income of
24
<PAGE> 25
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 of 1993 and which was not completely
re-leased during 1994.
Lease termination rental income increased approximately $1.0 million in
1995 as compared to 1994 primarily due to the receipt of approximately $1.8
million, of which the Venture's portion was approximately $1.3 million, pursuant
to the agreement between Kohl's Department Store and the Venture regarding the
termination of Kohl's lease at Northland Center.
Interest on loans receivable decreased approximately $1.2 million in 1995
as compared to 1994 due to the non-accrual of interest, commencing April 1,
1995, on the Brookdale Zero Note. Interest on loans receivable decreased in 1994
as compared to 1993 partially due to the non-accrual of interest beginning June
1993 on the Northland Zero Note and the subsequent 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. Additionally, 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. Also, 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.
Operating expenses excluding the loss on write-down of zero coupon mortgage
(see "Liquidity and Capital Resources") and the loss on write-down of other real
estate assets decreased approximately $697,000 in 1995 as compared to 1994. This
decrease is partially due to decreased occupancy at Northland Center and The
Bank of Delaware Building. The decrease is also due to a decrease in common area
maintenance costs incurred at Northland Center. 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
approximately $11.2 million 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.
Total other expense net of other income decreased approximately $227,000 in
1995 as compared to 1994 and approximately $550,000 in 1994 as compared to 1993
primarily due to an increase in interest on short-term investments. Interest on
short-term investments increased from 1994 to 1995 due to a higher average
interest rate throughout 1995 as compared to 1994. Interest from short-term
investments increased in 1994 as 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 latter part of 1994. Additionally, interest income was received from a
money market account at Northland Center which earned approximately $100,000 for
the period from January 1, 1994 to December 31, 1994.
25
<PAGE> 26
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, 1995 and 1994.
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Partners' Capital for the
years ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
Selected Quarterly Financial Data (included in Note 11
to the Notes to Consolidated Financial Statements).
-26-
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
-27-
<PAGE> 28
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, 1996 are as follows:
<TABLE>
<S> <C> <C>
Name Age Office
- ---------------- --- --------------------------
George R. Puskar 51 Chairman of the Board
Paul J. Dolinoy 48 President, Chief Executive
Officer and Director
Eugene F. Conway 45 Executive Vice President,
Chief Operating Officer
and Director
Harry D. Pierandri 50 Executive Vice President
Edward G. Smith 46 Executive Vice President
Timothy J. Welch 47 Executive Vice President
B. Stanton Breon 36 Vice President, Secretary
Peter J. Urdanick 48 Vice President and Assistant Treasurer
Charles R. Beaver 43 Vice President
Patricia C. Snedeker 40 Vice President, Controller and Treasurer
</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.
-28-
<PAGE> 29
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.
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.
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<PAGE> 30
Patricia C. Snedeker has been Chief Financial Officer of the Managing
General Partner since June 1994 and Vice President, Controller and Treasurer
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
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 31, 1996 are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Office
- ------------------- --- ------------------------------------
D. Bruce Brunson 51 Chairman, Chief Executive
Officer, President, Chief Operating
Officer and Director
Thomas J. Brown 47 Executive Vice President
and Director
Jack A. Cuneo 48 Senior Vice President
and Director
Michael A. Karmelin 49 Vice President and Treasurer
George I. Wagner 53 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.
-30-
<PAGE> 31
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 forth under
"Compensation and Fees" in the Prospectus 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,
-31-
<PAGE> 32
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
77.1% 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.
-32-
<PAGE> 33
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 . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets, December 31, 1995 and 1994 . . . . . . . . . F-3
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . F-4
Consolidated Statements of Partners' Capital for the
years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-7
Selected Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . F-16
2. The following audited financial statement schedules are filed
with this report on the pages indicated:
Page
Consolidated Supplemental Schedules:
Real Estate and Accumulated Depreciation
as of December 31, 1995 (Schedule III) . . . . . . . . . . . . . . . F-18
Mortgage Loans on Real Estate as of
December 31, 1995 (Schedule IV) . . . . . . . . . . . . . . . . . . F-19
</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.
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<PAGE> 34
(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)).
(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) t
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 th
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)).
-34-
<PAGE> 35
(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
-35-
<PAGE> 36
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).
(x) Lease Termination Agreement dated 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, which is submitted electronically to the
Securities and Exchange Comission for information only and not filed.
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).
-36-
<PAGE> 37
(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 Centers,
L.P. (incorporated by reference to the Form 10-K for the year
ended December 31, 1995 of Midwest Shopping Centers, L.P.
(File No. 1-9331))
-37-
<PAGE> 38
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 29th day of
March, 1996.
ML/EQ REAL ESTATE PORTFOLIO, L.P.
By: EREIM MANAGERS CORP.
(Managing General Partner)
By: 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 29,1996.
Chairman of the Board of
EREIM Managers Corp.
GEORGE R. PUSKAR
---------------------------------------
GEORGE R. PUSKAR
Chairman of the Board of EREIM Managers Corp.
PAUL J. DOLINOY
---------------------------------------
PAUL J. DOLINOY
President, Chief Executive Officer
and Director of EREIM Managers Corp.
EUGENE F. CONWAY
----------------------------------------
EUGENE F. CONWAY
Executive Vice President, Chief Operating
Officer and Director of EREIM Managers Corp.
PATRICIA C. SNEDEKER
----------------------------------------
PATRICIA C. SNEDEKER
Vice President, Controller and Treasurer
of EREIM Managers Corp.
B. STANTON BREON
----------------------------------------
B. STANTON BREON
Vice President and Secretary of EREIM
Managers Corp.
-38-
<PAGE> 39
ML/EQ REAL ESTATE PORTFOLIO, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... F-2
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994............................... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND
1993................................................................................ F-4
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1995,
1994, AND 1993...................................................................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND
1993................................................................................ F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................ F-7
CONSOLIDATED SUPPLEMENTAL SCHEDULES FOR THE YEAR ENDED DECEMBER 31, 1995:
Schedule III -- Real Estate and Accumulated Depreciation.............................. F-18
Schedule IV -- Mortgage Loans on Real Estate.......................................... F-19
</TABLE>
F-1
<PAGE> 40
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, 1995 and 1994 and
the related consolidated statements of operations, partners' capital, and cash
flows for the years ended December 31, 1995, 1994, and 1993. Our audits also
included the financial statement schedules listed in the index as consolidated
supplemental schedules. 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 and supplemental schedules 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, 1995 and 1994 and the results of its operations and its
cash flows for the years ended December 31, 1995, 1994, and 1993 in conformity
with generally accepted accounting principles.
Our audits also comprehended the consolidated supplemental schedules of the
Partnership as of December 31, 1995 and for the years ended December 31, 1995,
1994, and 1993. 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.
Deloitte & Touche LLP
February 1, 1996
F-2
<PAGE> 41
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS:
Rental properties, net of accumulated depreciation (Note 3)..... $113,964,724 $109,249,898
Zero coupon mortgage note receivable, net of valuation allowance
(Note 4)..................................................... 21,498,199 24,115,465
Mortgage loan receivable (Note 5)............................... 6,000,000 6,000,000
------------ ------------
Total real estate investments........................... 141,462,923 139,365,363
OTHER ASSETS:
Cash and short-term investments................................. 21,738,499 21,538,416
Accounts receivable and accrued investment income, net of
allowance for doubtful accounts of $460,313 in 1995 and
$740,973 in 1994............................................. 3,446,102 1,996,584
Deferred rent concessions....................................... 2,030,727 1,752,428
Guaranty fee, net of accumulated amortization of $1,864,960 in
1995 and $1,596,709 in 1994 (Notes 6 and 7).................. 1,877,755 2,146,006
Deferred leasing costs, net of accumulated amortization of
$393,867 in 1995 and $132,212 in 1994........................ 713,979 525,589
Prepaid expenses and other assets............................... 495,509 599,630
Interest receivable............................................. 150,233 84,846
Due from affiliates............................................. 9,033 400
------------ ------------
Total other assets...................................... 30,461,837 28,643,899
------------ ------------
$171,924,760 $168,009,262
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accrued capital expenditures.................................... $ 2,647,092 $ 2,948,006
Accounts payable and accrued real estate expenses............... 2,221,132 1,938,448
Distributions declared.......................................... 542,423 813,671
Due to affiliates (Notes 6 and 7)............................... 609,615 605,618
Security deposits and unearned rent............................. 477,737 486,284
------------ ------------
Total liabilities 6,497,999 6,792,027
MINORITY INTEREST IN THE VENTURE.................................. 32,547,073 31,742,095
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 6 and 7)
PARTNERS' CAPITAL:
General partners................................................ 2,033,056 1,795,026
Initial limited partner......................................... 6,650 6,442
Limited partners (5,424,225 BACs issued and outstanding)........ 130,839,982 127,673,672
------------ ------------
Total partners' capital................................. 132,879,688 129,475,140
------------ ------------
$171,924,760 $168,009,262
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 42
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Rental income (Note 9)................................ $21,137,579 $22,512,719 $ 7,972,278
Lease termination income (Note 9)..................... 1,502,020 498,691
Interest on loans receivable (Note 5)................. 1,734,586 2,910,707 6,655,738
----------- ----------- -----------
Total revenue................................. 24,374,185 25,922,117 14,628,016
----------- ----------- -----------
OPERATING EXPENSES:
Real estate operating expenses........................ 8,231,795 9,649,243 1,033,428
Depreciation and amortization......................... 3,130,783 2,186,862 1,660,624
Real estate taxes..................................... 2,437,099 2,691,844 906,062
Property management fees (Note 7)..................... 507,820 476,905 199,212
Realized loss on mortgage loan receivable (Note 5).... 3,494,129
Loss on write-down of zero coupon mortgage (Note 4)... 3,232,210 7,628,000
Loss on write-down of other real estate assets
(Note 5)........................................... 379,895
----------- ----------- -----------
Total operating expenses...................... 17,539,707 15,384,749 14,921,455
----------- ----------- -----------
INCOME (LOSS) FROM PROPERTY OPERATIONS.................. 6,834,478 10,537,368 (293,439)
OTHER INCOME (EXPENSE):
Interest and other nonoperating income................ 1,177,018 934,206 227,623
Asset management fees (Note 7)........................ (683,438) (561,173) (509,802)
Amortization of guarantee fee (Note 7)................ (268,251) (268,251) (268,251)
General and administrative, including $527,834 in
1995, $534,848 in 1994, and $538,029 in 1993 to
affiliates (Note 7)................................ (719,223) (825,868) (719,290)
----------- ----------- -----------
Total other expense -- net.................... (493,894) (721,086) (1,269,720)
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST.................. 6,340,584 9,816,282 (1,563,159)
MINORITY INTEREST IN NET INCOME (LOSS) OF CONSOLIDATED
VENTURE............................................... (1,579,979) (2,272,880) 29,269
----------- ----------- -----------
NET INCOME (LOSS)....................................... $ 4,760,605 $ 7,543,402 $(1,533,890)
========== ========== ==========
ALLOCATION OF NET INCOME (LOSS):
General partners...................................... $ 238,030 $ 377,170 $ (76,695)
Initial limited partner............................... 208 330 (67)
Limited partners...................................... 4,522,367 7,165,902 (1,457,128)
----------- ----------- -----------
Total......................................... $ 4,760,605 $ 7,543,402 $(1,533,890)
========== ========== ==========
NET INCOME (LOSS) PER BENEFICIAL ASSIGNEE CERTIFICATE... $ 0.83 $ 1.32 $ (0.27)
========== ========== ==========
WEIGHTED AVERAGE BENEFICIAL ASSIGNEE CERTIFICATES
OUTSTANDING........................................... 5,424,225 5,424,225 5,424,225
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 43
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
INITIAL
GENERAL LIMITED LIMITED
PARTNERS PARTNER PARTNERS TOTAL
---------- ------- ------------ ------------
<S> <C> <C> <C> <C>
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
Net income................................... 238,030 208 4,522,367 4,760,605
Cash distributions........................... (813,634) (813,634)
Distributions declared....................... (542,423) (542,423)
---------- ------- ------------ ------------
BALANCE, DECEMBER 31, 1995..................... $2,033,056 $ 6,650 $130,839,982 $132,879,688
========= ====== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 44
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Tenant rentals received........................................ $20,922,265 $ 21,845,655 $ 7,758,761
Interest received.............................................. 2,222,384 1,536,294 3,199,853
----------- ------------ -----------
Cash received from operations................................ 23,144,649 23,381,949 10,958,614
Cash paid for operating activities............................. (12,207,347) (12,962,344) (3,340,333)
Cash distributions to minority interest........................ (775,000) (271,249) (760,000)
----------- ------------ -----------
Net cash provided by operating activities............... 10,162,302 10,148,356 6,858,281
----------- ------------ -----------
INVESTING ACTIVITIES:
Purchases and additions to rental properties................... (7,884,869) (9,591,521) (399,153)
Expenditures for deferred leasing costs........................ (450,045) (379,375) (83,127)
Payments received from mortgage receivable..................... 10,505,871
Proceeds from other real estate assets......................... 620,105
----------- ------------ -----------
Net cash (used in) provided by investing activities..... (8,334,914) (9,350,791) 10,023,591
----------- ------------ -----------
FINANCING ACTIVITIES:
Cash distributions to limited partners......................... (1,627,305) (1,084,896) (2,169,790)
----------- ------------ -----------
Net cash used in financing activities................... (1,627,305) (1,084,896) (2,169,790)
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS....... 200,083 (287,331) 14,712,082
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF YEAR............... 21,538,416 21,825,747 7,113,665
----------- ------------ -----------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR..................... $21,738,499 $ 21,538,416 $21,825,747
=========== ============ ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
NET INCOME (LOSS)................................................ $ 4,760,605 $ 7,543,402 $(1,533,890)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Depreciation and amortization.................................. 3,399,034 2,455,113 1,928,875
Minority interest in Venture operations........................ 1,579,979 2,272,880 (29,269)
Cash distributions to minority interest........................ (775,000) (271,249) (760,000)
Realized loss on mortgage loan receivable...................... 3,494,129
Loss on write-down of zero coupon mortgage..................... 3,232,210 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............... (614,944) (2,283,631) (3,772,823)
Accounts receivable and accrued investment income............ (1,449,518) (1,198,070) 107,829
Interest receivable.......................................... (65,387) 36,330 89,315
Deferred rent concessions.................................... (278,299) (239,328) (290,248)
Due from affiliates.......................................... (8,633) 11,821 (9,830)
Prepaid expenses and other assets............................ 104,121 (375,154) 25,956
Changes in liabilities increase (decrease):
Accounts payable and accrued real estate expenses............ 282,684 1,543,757 1,113
Due to affiliates............................................ 3,997 62,604 10,222
Security deposits and unearned rent.......................... (8,547) 209,986 (31,098)
----------- ------------ -----------
Total adjustments....................................... 5,401,697 2,604,954 8,392,171
----------- ------------ -----------
Net cash provided by operating activities............... $10,162,302 $ 10,148,356 $ 6,858,281
=========== ============ ===========
</TABLE>
SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING ACTIVITIES:
The Venture accrued $2,647,092 and $2,948,006 in capital expenditures that
were not paid before December 31, 1995 and 1994, 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 recorded 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.
F-6
<PAGE> 45
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
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
(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. 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
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 its 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 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.
F-7
<PAGE> 46
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rental Properties -- Rental properties are stated at cost. Cost is
allocated between land and buildings based upon preacquisition appraisals of
each property. The Venture has adopted Statement of Financial Accounting
Standards No. 121, "Impairment of Long-Lived Assets." Impairment is determined
by calculating the sum of the estimated undiscounted future cash flows including
the projected undiscounted future net proceeds from sale of property. In the
event such sum is less than the depreciated cost of the property, the property
will be written down to estimated fair market value.
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 and leasing commissions 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.
Zero Coupon Mortgage Note Receivable -- During 1995, the Venture adopted
Statement of Financial Accounting Standards No 114, "Accounting by Creditors for
Impairment of a Loan," as amended by Statement of Financial Accounting Standards
No. 118. The Venture measures impairment of the zero coupon mortgage note
receivable based upon the estimated fair market value of the underlying
collateral. If the Venture's portion of the estimated fair market value of the
collateral declines below the recorded investment in the loans, impairment will
be recognized through the creation of a valuation allowance. The Venture records
interest received on the cash method (Note 4).
Mortgage Loan Receivable -- The mortgage loan receivable is stated at cost
(Note 5).
Offering Costs -- Offering costs, including the acquisition/syndication fee
payable to the general partners and other offering and issuance costs of the
BACs totaling $11,037,537, were charged against the limited partners' capital in
accordance with the provisions of the Partnership Agreement, following the
investor closings in 1988.
Guaranty Fees -- Guaranty fees are being recognized as expense over the
estimated life of the Partnership through a combination of the amortization of
the nonrecurring portion of the fees incurred during the first three years of
the Partnership and the expense of the recurring portion of the fees as incurred
(Note 7).
Cash and Cash Equivalents -- Cash equivalents include cash, demand
deposits, money market accounts, and highly liquid short-term investments
purchased with original maturities 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.
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 estimated fair market value of the
Partnership's financial instruments, including the mortgage loan receivable,
have terms such that the carrying value approximates the estimated fair market
value. There is no readily available source of zero coupon mortgage financing
and, therefore, Management has determined that the estimation of a fair market
value of the zero coupon note is not practicable. See Note 4 regarding the
write-down of the zero coupon mortgage note receivable.
Reclassifications -- Certain prior year amounts have been reclassified to
conform with the 1995 presentation.
F-8
<PAGE> 47
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RENTAL PROPERTIES
As of December 31, 1995, the Partnership's rental properties consisted of
the following:
<TABLE>
<CAPTION>
RENTABLE PERCENTAGE
SQUARE FEET LEASED
----------- ----------
<S> <C> <C> <C>
OFFICE
16 and 18 Sentry Park West............ Montgomery County, Pennsylvania 190,616 85%
The Bank of Delaware Building......... Wilmington, Delaware 314,313 56%
INDUSTRIAL
1200 Whipple Road..................... Union City, California 257,500 100%
701 and 733 Maple Lane................ Bensenville, Illinois 81,750 100%
7550 Plaza Court...................... Willowbrook, Illinois 49,500 0%
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%
RETAIL
Richland Mall......................... Richland Township, Pennsylvania 182,507 88%
Northland Center...................... Southfield, Michigan 552,992 75%
</TABLE>
The costs related to the rental properties are summarized below:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Land.................................................... $ 24,441,111 $ 24,403,102
Buildings and Improvements.............................. 101,955,291 94,590,000
------------ ------------
Total......................................... 126,396,402 118,993,102
Less accumulated depreciation........................... (12,431,678) (9,743,204)
------------ ------------
Net rental properties......................... $113,964,724 $109,249,898
=========== ===========
Office.................................................. $ 38,982,689 $ 35,981,596
Retail.................................................. 56,677,049 52,396,186
Industrial.............................................. 30,736,664 30,615,320
------------ ------------
Total......................................... 126,396,402 118,993,102
Less accumulated depreciation........................... (12,431,678) (9,743,204)
------------ ------------
Net rental properties......................... $113,964,724 $109,249,898
=========== ===========
</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 an estimated fair market
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 provided that the
borrower could elect to pay interest currently; however, no interest was paid
through maturity.
Midwest defaulted on its obligation to repay the Brookdale zero note in
full on the maturity date. Notice of default has been given to Midwest. For book
purposes, beginning with the second quarter of 1995, Management discontinued the
accrual of interest on the Brookdale zero note as the accreted value of the
F-9
<PAGE> 48
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
mortgage approximated the estimated fair market value of the Brookdale Center.
Under the terms of the mortgage agreement, however, the Venture continued to
accrue interest off the books at the effective implicit rate of 10.2% until June
30, 1995. On July 1, 1995, the Venture began to accrue interest off the books on
the Brookdale zero note at the default rate of 19.0%. Equitable and the Venture
have commenced foreclosure by advertisement proceedings and a court appointed
receiver has been named. The receiver is responsible for collecting rent
proceeds from the tenants at Brookdale Center and applying the proceeds to
payments of operating costs at Brookdale Center. Any remaining funds are to be
paid to Equitable and the Venture on account of the Brookdale zero note. The
Venture records cash received from the operation of Brookdale Center on a cash
basis as interest income. As of December 31,1995, $700,000 had been remitted
under the terms of the receivership. The Venture's portion of this payment was
approximately $502,000.
As of September 30, 1995, an internal review of the Brookdale Center was
performed for the Venture. Based on this review, the estimated fair market value
of the Brookdale Center was $30,000,000. The Venture recorded a valuation
allowance of $3,232,210 to value the note at an amount equal to the Venture s
participation interest in the note multiplied by the estimated fair market value
of Brookdale Center, or $21,498,199.
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 an estimated fair market 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 Center
note during the quarter ended June 30, 1993 as the accreted value of the
mortgage approximated the estimated fair market value of the Northland Center.
The Northland Center 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 estimated
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.
On July 22, 1994, Midwest transferred Northland Center to the Venture and
Equitable in proportion to their respective undivided interests in the Northland
Center 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 adjusted as of 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 arrangement 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 Center mortgage would have matured).
In connection with the transfer of Northland Center, the Venture and
Equitable modified the 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. The Venture and Equitable also
commenced a renovation program at Northland Center. The renovations were
completed during the second quarter of 1995 at a total cost of approximately
$11.0 million, of which the Venture s share was approximately $7.9 million.
F-10
<PAGE> 49
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
17-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 of 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 90 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 calculated from the dates of
the investor closings. Adjusted capital contributions are the limited partners'
original cash contributions reduced by distributions of sale or financing
proceeds and by distributions of certain funds in reserves, as more particularly
described in the Partnership Agreement. The limited partners' original cash
contributions have been adjusted by that portion of distributions paid through
December 31, 1995, 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, 1995 is limited to $246,687,614,
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.
F-11
<PAGE> 50
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital contributions by the BAC holders totaled $108,484,500. As of
December 31, 1995, the cumulative 9.75% simple annual return was $81,866,083. As
of December 31, 1995, cumulative distributions by the Partnership to the BAC
holders totaled $15,252,905, of which $11,662,084 is attributable to income from
operations and $3,590,821 is attributable to sales of Venture assets, principal
payments on mortgage loans and other capital events. Another $542,423 in capital
proceeds was distributed to the BAC holders in February 1996. To the extent that
future cash distributions to the limited partners are insufficient to provide
the specified minimum return, any shortfall will be funded by the guarantor, up
to the above described maximum.
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, 1995, 1994 and 1993,
the total expense for this fee was $654,192, $502,682, 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, 1995, 1994, and 1993 the total expense for this fee was $29,246,
$58,492, 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, 1995,
1994, and 1993, the total expense for this fee was $158,350, $160,460, and
$161,409, 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 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 $442,906, $217,513, and $39,137 in
1995, 1994, and 1993, respectively.
Leasing commissions are based on a percentage of the rent payable during
the term of the lease as specified in each lease agreement. Leasing commissions
paid by the Venture to Compass and Compass Retail were $93,519, $0, and $4,775
in 1995, 1994, and 1993, respectively. Leasing commissions are capitalized in
deferred leasing costs on the balance sheet or expensed in real estate operating
expenses on the statement of operations in accordance with the Venture's
capitalization policy. The Venture has reimbursed Compass and Compass Retail for
payroll incurred of $1,974,425, $763,727 and $0 in 1995, 1994 and 1993,
respectively. Payroll reimbursements are included in real estate operating
expenses on the statement of operations. Additionally,
F-12
<PAGE> 51
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Venture has paid construction management fees to Compass and Compass Retail
of $167,861 and $297,948 in 1995 and 1994, respectively. The construction
management fees have been capitalized as a portion of the construction projects
to which they relate.
Guaranty Fee -- The guaranty fee is payable to the Venture in consideration
of the assignment of the guaranty agreement. The fee was initially paid in six
semiannual installments, which commenced on June 30, 1988 and ended on December
31, 1990, at an annual rate of 1.15% of gross proceeds plus .35% of average
annual adjusted capital contributions. Subsequent to December 31, 1990, the fee
is payable on a semiannual basis at an annual rate of .35% of the average annual
adjusted capital contributions of the offering of BACs. The guaranty fee is
assigned to EREIM LP Associates. The total of the recurring portion of the
guaranty fee which is included in general and administrative expense on the
statement of operations was $369,484, $374,394, and $376,620 for the years ended
December 31, 1995, 1994, and 1993, respectively. The amortization expense on the
nonrecurring portion of the fee was $268,251 in each of the years ended December
1995, 1994, and 1993.
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.
F-13
<PAGE> 52
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASES
Future minimum rentals to be received for the properties under
noncancelable operating leases in effect as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------------------------------
<S> <C>
1996.................................................................... $12,752,629
1997.................................................................... 11,053,081
1998.................................................................... 10,017,092
1999.................................................................... 9,082,882
2000.................................................................... 7,437,225
2001 and thereafter..................................................... 17,253,041
-----------
Total......................................................... $67,595,950
===========
</TABLE>
In addition to the minimum lease amounts, certain leases provide for
escalation charges to tenants for common area maintenance and real estate taxes.
The amount of escalation charges included in rental income totaled, $7,792,848,
$9,007,436, and $1,249,544 for the years ended December 31, 1995, 1994, and
1993, respectively.
In the case of retail tenants, certain leases provide for percentage rents.
Contingent rentals which include percentage rents included in rental income for
the years ended December 31, 1995, 1994, and 1993 totaled $601,316, $525,673,
and $93,065, respectively.
Information with respect to significant individual leases is as follows:
- Gruner & Jahr Printing Company occupies approximately 44.1% (143,852
square feet) of Doolittle Drive at an annual base rent of $478,104 under a
lease which expires in August 2000.
- Hudson's Department Store, J.C. Penney, and Montgomery Ward independently
constructed and operate their stores at Northland Center and each
contributes common area maintenance payments for operating expenses and
real estate taxes under separate agreements. These stores, covering
511,509 square feet, 283,534 square feet, and 117,750 square feet,
respectively, are not included in the gross leasable area of the mall.
- 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 Kohl's lease at Northland Center on
behalf of the tenancy in common arrangement between the Venture and
Equitable. The Venture's portion of the termination payment was
$1,254,062. Upon termination of the lease, Kohl's was released from any
remaining lease obligation under the original lease agreement.
- PNC Bank occupies approximately 36.6% of the Bank of Delaware Building at
an annual rent of $570,708. The majority of the lease commitment expires
in May 2005.
- Permer Control, Inc. occupied the entire Whipple Road property (257,500
square feet) at December 31, 1995. Permer has assigned the lease to Carter
Hawley Hale Stores, Inc. who will continue to fulfill the obligations of
the lease.
F-14
<PAGE> 53
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Financial net income (loss).................. $4,760,605... $ 7,543,402 $ (1,533,890)
Net book to tax difference from investment in
joint venture.............................. 2,639,006 (7,145,661) 7,348,583
------------ ------------ ------------
Taxable net income........................... $ 7,399,611 $ 397,741 $ 5,814,693
============ ============ ============
Capital balance -- financial reporting....... $132,879,688 $129,475,140 $123,287,857
Cumulative book to tax income differences
from investment in joint venture........... 2,760,452 121,446 7,267,107
------------ ------------ ------------
Net worth -- tax basis....................... $135,640,140 $129,596,586 $130,554,964
============ ============ ============
</TABLE>
F-15
<PAGE> 54
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
NET INCOME
(LOSS) PER
TOTAL INCOME NET INCOME (LOSS) BAC
--------------------------- --------------------------- -------------
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED
March 31....... $ 7,483,449(e) $ 2,615,429 $ 2,789,849(e) $ 930,208 $0.49 $0.16
June 30........ 6,074,817 9,745,104(a) 1,761,024 2,887,181(a) 0.31 0.51
September 30... 5,498,546 6,176,513 (1,389,749)(f) 823,104(b) (0.24) 0.14
December 31.... 6,504,532 8,319,275(c) 1,599,481 2,902,909(d) 0.27 0.51
----------- ----------- ----------- ---------- ----- -----
Total.. $25,561,344 $26,856,321 $ 4,760,605 $7,543,402 $0.83 $1.32
=========== =========== =========== ========== ===== =====
</TABLE>
- ---------------
(a) Note: In the second quarter of 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) Note: In the third quarter of 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 market value of the property.
(c) Note: 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 of 1994. Total
income and net income (loss) recorded in the fourth quarter of 1994 was
$1,853,630 and $(248,506), respectively.
(d) Note: In connection with the deed in lieu of foreclosure on The Bank of
Delaware Building in the fourth quarter of 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) Note: In the first quarter of 1995, the Venture recorded $1,254,062 of lease
termination rental income which represents the Venture's portion of a lease
termination payment received from Kohl's Department Stores, Inc., a former
tenant at Northland Center.
(f) Note: In the third quarter of 1995, a write-down of $3,232,210 was taken
against the Brookdale zero note since the estimated fair market value of
the underlying collateral was less than the carrying value of the mortgage.
F-16
<PAGE> 55
SCHEDULE III
ML/EQ REAL ESTATE PORTFOLIO, L.P.
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COSTS
CAPITALIZED GROSS COST AT WHICH CARRIED
INITIAL COST TO COMPANY SUBSEQUENT AT END OF THE YEAR
-------------------------- TO ---------------------------------------
BUILDINGS ACQUISITION BUILDINGS
AND ----------- AND ACCUMULATED DATE OF DATE
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENT LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED
- ----------- ------------ ------------ ----------- ----------- ------------ ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial:
1200 Whipple
Road, Union
City,
California..... $ 2,759,162 $ 5,112,652 $ 161,659 $ 2,762,332 $ 5,271,141 $ 8,033,473 $ 1,029,317 1963 3/17/88
Maple Lane,
Plaza Court,
and Hollywood
Avenue,
Bensenville, 12/27/88,
Illinois....... 1,670,158 5,167,581 317,123 1,673,062 5,481,800 7,154,862 953,745 1979-80 6/8/89
1850 Westfork
Drive, Lithia
Springs,
Georgia........ 750,000 3,009,802 134,330 788,008 3,106,124 3,894,132 543,288 1988 1/6/89
1345 Doolittle
Drive, San
Leandro,
California..... 4,000,000 6,269,526 1,384,671 4,026,313 7,627,884 11,654,197 1,445,224 1964 5/18/89
Retail:
Richland
Mall Richland
Township,
Pennsylvania... 1,115,321 11,663,922 724,649 1,115,535 12,388,357 13,503,892 2,361,867 1974-75 7/19/88
Northland
Center
Southfield,
Michigan....... 7,424,476 24,822,493 10,926,188 7,424,476 35,748,681 43,173,157 1,257,305 1954 7/22/94
Office:
Sentry Park
West,
Montgomery
County,
Pennsylvania... 2,624,777 23,981,032 2,093,772 2,651,385 26,048,196 28,699,581 4,704,672 1988 12/22/88
The Bank
of Delaware
Building
Wilmington,
Delaware...... 4,000,000 4,500,000 1,783,108 4,000,000 6,283,108 10,283,108 136,260 1970 11/15/94
------------ ------------ ----------- ----------- ------------ ------------ -----------
$ 24,343,894 $ 84,527,008 $17,525,500 $24,441,111 $101,955,291 $126,396,402 $12,431,678
============ ============ =========== =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF BEGINNING AND ENDING BALANCES: 1995 1994 1993
------------------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Rental Properties --
Balance at beginning of year................................................. $118,993,102 $ 70,587,171 $69,963,018
Transfers by deed in lieu of foreclosure................................... 40,746,969
Improvements............................................................... 7,403,300 7,658,962 624,153
------------ ------------ -----------
Balance at end of year....................................................... $126,396,402 $118,993,102 $70,587,171
============ ============ ===========
Accumulated Depreciation --
</TABLE>
F-17
<PAGE> 56
SCHEDULE IV
ML/EQ REAL ESTATE PORTFOLIO, L.P.
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
<TABLE>
<CAPTION>
CARRYING BALLOON
FINAL PERIODIC FACE AMOUNT PAYMENT
INTEREST MATURITY PAYMENT AMOUNT OF OF AT
DESCRIPTION RATE DATE TERMS MORTGAGES MORTGAGES MATURITY
- ---------------------------- -------- -------------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Zero coupon first mortgage
on shopping mall
in Minnesota.............. 10.20% June 1995 (a) $10,874,506(e) $21,498,199(a)(c) $25,345,353
First mortgage loan on
apartment complex in
Massachusetts............. 10.25% February 1999 (f) 6,000,000 6,000,000(b) 6,000,000
----------- ----------- -----------
Total.............. $16,874,506 $27,498,199(d) $31,345,353
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Balance at beginning of period......................... $30,115,465 $27,831,834 $ 82,704,374
Interest accrued on zero coupon notes.................. 614,944 2,283,631 3,772,823
Repayment/write-off of mortgage loan receivable........ (14,000,000)
Write-down of zero coupon mortgage..................... (3,232,210) (7,628,000)
Loans reclassified as other real estate assets......... (37,017,363)
----------- ----------- ------------
Balance at end of year................................. $27,498,199 $30,115,465 $ 27,831,834
=========== =========== ============
</TABLE>
- ---------------
Notes:
(a) Interest at the imputed rate shown is compounded semiannually and added to
the note balance. For book purposes, the Venture discontinued the accretion
of interest at the beginning of the second quarter of 1995. The note is
currently in default. Since July 1, 1995, under the terms of the mortgage
agreement, interest on the note has been accruing off the books at the
default rate of 19%.
(b) This loan is not 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. The Venture recorded a valuation allowance of $3,232,210
at September 30, 1995 to value the note at an amount equal to the Venture's
participation interest in the note multiplied by the estimated fair market
value of the underlying collateral.
(d) The aggregate tax basis is $30,730,409.
(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.
F-18
<PAGE> 57
<TABLE>
<CAPTION>
Exhibit Exhibit Index Page
- ------- ------------- -----
<S> <C> <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)).
</TABLE>
<PAGE> 58
(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").
(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)).
-40-
<PAGE> 59
(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(w) 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(x) to the 1994
10-K).
(x) Lease Termination Agreement dated 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(y) to
the 1994 10-K).
-41-
<PAGE> 60
(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, which is submitted electronically to
the Securities and Exchange Commission for information only and not filed.
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 Centers, L.P.
(incorporated by reference to the Form 10-K for the year ended
December 31, 1995 of Midwest Shopping Centers, L.P. (File No. 1-9331))
-42-
<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, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFEENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 21,738,499
<SECURITIES> 0
<RECEIVABLES> 4,065,681
<ALLOWANCES> 460,313
<INVENTORY> 0
<CURRENT-ASSETS> 25,839,376
<PP&E> 126,396,402
<DEPRECIATION> 12,431,678
<TOTAL-ASSETS> 171,924,760
<CURRENT-LIABILITIES> 6,020,262
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 132,879,688
<TOTAL-LIABILITY-AND-EQUITY> 171,924,760
<SALES> 0
<TOTAL-REVENUES> 25,551,203
<CGS> 0
<TOTAL-COSTS> 11,176,714
<OTHER-EXPENSES> 3,130,783
<LOSS-PROVISION> 3,232,210
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,340,584
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,760,605
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,760,605
<EPS-PRIMARY> .83
<EPS-DILUTED> 0
</TABLE>
