<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ______________________ to ______________________
Commission file number 0-17684
--------
ML/EQ Real Estate Portfolio, L.P.
(Exact name of registrant as specified in its governing instrument)
Delaware 58-1739523
(State of Organization) (I.R.S. Employer Identification No.)
3424 Peachtree Road N.E., Suite 800, Atlanta, Georgia 30326
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (404) 239-5002
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 [ ]
<PAGE> 2
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial statements:
Consolidated balance sheets at September 30, 2000 and
December 31, 1999
Consolidated statements of operations for the three and nine
months ended September 30, 2000 and 1999
Consolidated statement of partners' capital for the nine
months ended September 30, 2000
Consolidated statements of cash flows for the nine months
ended September 30, 2000 and 1999
Notes to consolidated financial statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS:
Rental property, held for sale............................ $ -- $21,814,303
OTHER ASSETS:
Cash and cash equivalents................................. 16,030,869 11,809,525
Accounts receivable and accrued investment income, net of
allowance for doubtful accounts of $680,741 in 2000 and
$727,534 in 1999........................................ 1,313,069 3,038,359
Deferred rent concessions................................. -- 608,330
Guaranty fee, net of accumulated amortization of
$3,139,152 in 2000 and $2,937,964 in 1999............... 603,563 804,751
Prepaid expenses and other assets......................... -- 240,060
Interest receivable....................................... 19,365 50,676
Due from affiliates....................................... 25,453 3,471
------------ -----------
Total other assets................................. 17,992,319 16,555,172
------------ -----------
TOTAL ASSETS................................................ $ 17,992,319 $38,369,475
============ ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES:
Accounts payable and accrued real estate expenses......... $ 522,949 $ 1,092,148
Accrued capital expenditures.............................. -- 198,189
Security deposits and unearned rent....................... -- 454,055
Due to affiliates......................................... 48,766 195,187
Distributions declared.................................... 13,940,328 --
------------ -----------
Total liabilities.................................. 14,512,043 1,939,579
------------ -----------
MINORITY INTEREST IN THE VENTURE............................ 16,614,469 29,861,970
------------ -----------
COMMITMENTS AND CONTINGENT LIABILITIES
PARTNERS' CAPITAL (DEFICIT):
General partners.......................................... 2,334,471 2,234,711
Initial limited partner................................... 5,748 6,088
Limited partners (5,424,225 BACs issued and
outstanding)............................................ (15,474,412) 4,327,127
------------ -----------
Total partners' capital (deficit).................. (13,134,193) 6,567,926
------------ -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)........... $ 17,992,319 $38,369,475
============ ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ -------------------------
2000 1999 2000 1999
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income............................................. $ 2,084,456 $3,634,522 $ 6,989,856 $12,646,826
Lease termination income.................................. 717 191,661 717 191,661
Interest on loans receivable.............................. -- -- -- 51,250
----------- ---------- ----------- -----------
Total revenue...................................... 2,085,173 3,826,183 6,990,573 12,889,737
----------- ---------- ----------- -----------
OPERATING EXPENSES:
Real estate operating expenses............................ 1,312,628 1,207,977 4,118,903 5,540,003
Depreciation and amortization............................. -- -- -- 789,345
Real estate taxes......................................... 216,790 406,210 1,056,113 1,602,427
Property management fees.................................. 41,731 82,638 148,803 262,017
Loss on write-down of real estate assets.................. -- -- 3,734,174 11,371,847
Asset management fees..................................... 48,768 92,815 145,244 300,804
Amortization of guarantee fee............................. 67,062 67,062 201,188 201,188
General and administrative, including $0 and $110,580 for
the nine months ended September 30, 2000 and 1999,
respectively, to affiliates............................. 38,638 72,488 51,564 336,579
----------- ---------- ----------- -----------
Total operating expenses........................... 1,725,617 1,929,190 9,455,989 20,404,210
----------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS............................... 359,556 1,896,993 (2,465,416) (7,514,473)
OTHER INCOME (EXPENSE):
Loss on sale of real estate............................... (7,154,379) (141,417) (7,154,379) (212,979)
Interest and other non-operating income................... 94,465 145,181 367,502 482,836
----------- ---------- ----------- -----------
Total other income (expense) -- net................ (7,059,914) 3,764 (6,786,877) 269,857
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST...................... (6,700,358) 1,900,757 (9,252,293) (7,244,616)
MINORITY INTEREST IN NET (INCOME) LOSS OF CONSOLIDATED
VENTURE................................................... 7,751,121 (424,730) 11,247,501 1,306,911
----------- ---------- ----------- -----------
NET INCOME/(LOSS)........................................... $ 1,050,763 $1,476,027 $ 1,995,208 $(5,937,705)
=========== ========== =========== ===========
ALLOCATION OF NET INCOME/(LOSS):
General partners.......................................... $ 52,538 $ 73,802 $ 99,760 $ (296,885)
Initial limited partner................................... 46 65 87 (260)
Limited partners.......................................... 998,179 1,402,160 1,895,361 (5,640,560)
----------- ---------- ----------- -----------
$ 1,050,763 $1,476,027 $ 1,995,208 $(5,937,705)
=========== ========== =========== ===========
NET INCOME/(LOSS) PER BAC................................... $ 0.18 $ 0.26 $ 0.35 $ (1.04)
=========== ========== =========== ===========
WEIGHTED AVERAGE BACs OUTSTANDING........................... 5,424,225 5,424,225 5,424,225 5,424,225
=========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
INITIAL
GENERAL LIMITED LIMITED
PARTNERS PARTNER PARTNERS TOTAL
---------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999............................... $2,234,711 $6,088 $ 4,327,127 $ 6,567,926
Net income............................................. 99,760 87 1,895,361 1,995,208
Distributions.......................................... -- (427) (21,696,900) (21,697,327)
---------- ------ ------------ ------------
Balance, September 30, 2000.............................. $2,334,471 $5,748 $(15,474,412) $(13,134,193)
========== ====== ============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Tenant rentals received................................... $ 8,206,347 $10,803,349
Interest received......................................... 398,813 408,302
----------- -----------
Cash received from operations............................. 8,605,160 11,211,651
Cash paid for operating activities........................ (6,349,926) (8,481,322)
Cash distributions to minority interest................... (2,000,000) --
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 255,234 2,730,329
----------- -----------
INVESTING ACTIVITIES:
Additions to rental properties............................ (644,112) (2,188,317)
Expenditures for deferred leasing costs................... -- (43,743)
Proceeds from sales of real estate properties............. 12,367,221 17,145,833
Repayment of mortgage loan receivable..................... -- 6,000,000
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES................... 11,723,109 20,913,773
----------- -----------
FINANCING ACTIVITIES:
Cash distributions to limited partners.................... (7,756,999) (25,602,342)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES....................... (7,756,999) (25,602,342)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 4,221,344 (1,958,240)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 11,809,525 11,939,314
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $16,030,869 $ 9,981,074
=========== ===========
RECONCILIATION OF NET INCOME/(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income/(loss)........................................... $ 1,995,208 $(5,937,705)
----------- -----------
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 201,188 990,533
Minority interest in Venture operations................... (11,247,501) (1,306,911)
Cash distributions to minority interest................... (2,000,000) --
Loss on sale of real estate............................... 7,154,379 212,979
Loss on write-down of real estate......................... 3,734,174 11,371,847
Changes in assets (increase) decrease:
Accounts receivable and accrued investment income......... 1,725,290 (1,712,635)
Deferred rent concessions................................. (55,461) (209,084)
Interest receivable....................................... 31,311 (125,784)
Prepaid expenses and other assets......................... (91,697) (16,706)
Due from affiliates....................................... (21,982) (31,964)
Changes in liabilities increase (decrease):
Accounts payable and accrued real estate expenses......... (569,199) (32,099)
Security deposits and unearned rent....................... (454,055) (113,419)
Due to affiliates......................................... (146,421) (358,723)
----------- -----------
Total adjustments........................................... (1,739,974) 8,668,034
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 255,234 $ 2,730,329
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
The consolidated financial statements of the Partnership included herein
have been prepared by the Partnership pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all
adjustments, which are of a normal recurring nature, to present fairly the
Partnership's financial position, results of operations, and cash flows at the
dates and for the periods presented. These consolidated financial statements
should be read in conjunction with the Partnership's audited financial
statements and notes thereto included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1999, as certain footnote disclosures which
would substantially duplicate those contained in such audited financial
statements have been omitted from this report. Interim results of operations are
not necessarily indicative of results to be expected for the fiscal year.
1. TRANSACTIONS WITH AFFILIATES
The general partners (or affiliates) are entitled to receive various
recurring fees for the supervision and administration of Partnership assets and
for providing the guaranty of minimum return to BAC holders and to be reimbursed
for certain expenses incurred on behalf of the Partnership. At September 30,
2000 and December 31, 1999, the accrued balance of these fees and reimbursements
totaled $48,766 and $195,187, respectively. For each of the nine months ended
September 30, 2000 and 1999, the expense for these recurring fees totaled
$145,244 and $411,384, respectively, and is included in the statements of
operations as asset management fees and as components of general and
administrative expense. Asset management fees are paid by the Partnership to
EREIM Managers Corp. (the "Managing General Partner"), which then pays the fees
to Lend Lease Real Estate Investments, Inc., ("Lend Lease"), its investment
advisor. Asset management fees accrued by the Partnership and due to the
Managing General Partner were $145,244 and $300,804 for the nine months ended
September 30, 2000 and 1999, respectively.
2. GUARANTY AGREEMENT
EREIM LP Associates, a general partnership between The Equitable Life
Assurance Society of the United States ("Equitable") and EREIM LP Corp., a
wholly owned subsidiary of Equitable, 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
September 30, 2000 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. The maximum liability of EREIM LP
Associates to the Venture under the guaranty agreement as of September 30, 2000
is limited to $66,056,814, 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. This liability was reduced by $13,940,258 after the
distribution made to BAC holders in October, 2000.
Capital contributions by the BAC holders of the Partnership totaled
$108,484,500. As of September 30, 2000, the cumulative 9.75% simple annual
return was $111,468,412. As of September 30, 2000, cumulative distributions by
the
7
<PAGE> 8
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Partnership to the BAC holders totaled $153,896,098, of which $35,420,190 is
attributable to income from operations and $118,475,908 is attributable to sales
of Venture assets, principal payments on mortgage loans, and other capital
events. Additionally, $12,421,475 of sale proceeds and $1,518,783 of income from
operations was distributed to BAC holders in October, 2000. 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. Management does not currently believe that
future cash distributions to the limited partners from liquidation of Venture
assets will be sufficient to provide the specified minimum return. Accordingly,
the shortfall will be funded by the guarantor, up to the above described
maximum. All amounts owed due to the specified minimum return will be paid to
BAC holders prior to December 27, 2000.
Effective as of January 1, 1997, the Partnership entered into an amendment
to the Joint Venture Agreement of the Venture between the Partnership and EREIM
LP Associates pursuant to which EREIM LP Associates agreed to defer, without
interest, its rights to receive 20% of the Venture's distributions of sale or
financing proceeds until the Partnership has received aggregate distributions
from the Venture in an amount equal to the capital contributions made to the
Partnership by the BAC holders plus a noncompounded cumulative return computed
at the rate of 9.75% per annum on contributions outstanding from time to time.
Prior to the amendment, EREIM LP Associates had a right to receive 20% of all
the Venture's distributions of sale or financing proceeds on a pari passu basis
with the Partnership. The amendment has the effect of accelerating the return of
original contributions to BAC holders to the extent that sale or financing
proceeds are realized prior to the dissolution of the Partnership.
Effective as of January 1, 1997, EREIM LP Associates deferred its right to
receive its proportionate share of the Venture's distributions of sale or
financing proceeds until the Partnership has received aggregate distributions
from the Venture in an amount equal to the capital contributions made to the
Partnership by the BAC holders plus a non-compounded cumulative return computed
at a rate of 9.75% per annum. As a result, the Partnership is not recording
losses of the Venture in excess of its investment as all losses in excess of its
investment are borne by EREIM LP Associates in accordance with the amended Joint
Venture Agreement. As such, the Partnership has a net loss before minority
interest for the three and nine months ended September 30, 2000, however, the
Partnership has net income after minority interest for the three and nine months
ended September 30, 2000 as EREIM LP Associates is responsible for the losses of
the Venture which are in excess of the Partnership's investment.
3. RENTAL PROPERTY HELD FOR SALE
On September 28, 2000, the Venture completed the sale of the last remaining
property, Northland Center. The Venture's share of net proceeds from the sale
was $12,367,221, resulting in a loss of $7,154,379.
4. LEGAL PROCEEDINGS
As discussed in the Notes to Consolidated Financial Statements of the
Partnership's December 31, 1999 audited financial statements, the Partnership is
a defendant in a consolidated action brought in the Court of Chancery of the
State of Delaware entitled IN RE: ML/EQ Real Estate Partnership Litigation. The
parties have reached an agreement in principle to settle the case subject to
approval of the court and are finalizing the documentation.
8
<PAGE> 9
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SEGMENT REPORTING
The Partnership owns or has owned real estate investments in the retail,
office and industrial sectors, and mortgage loan investments. Revenues,
depreciation and amortization, loss on write-down of assets, income (loss)
before minority interest, identifiable assets and capital expenditures for the
three and nine month periods ending September 30, are as follows:
<TABLE>
<CAPTION>
CORPORATE/
RETAIL OFFICE OTHER TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
3 months
2000........................................................ 2,085,173 2,085,173
1999........................................................ 2,776,579 1,049,604 3,826,183
9 months
2000........................................................ 6,970,589 19,984 6,990,573
1999........................................................ 8,811,100 4,037,387 41,250 12,889,737
Depreciation and amortization
3 months
2000........................................................ 67,062 67,062
1999........................................................ 67,062 67,062
9 months
2000........................................................ 201,188 201,188
1999........................................................ 789,345 201,188 990,533
Loss on write-down of assets
3 months
2000........................................................
1999........................................................
9 months
2000........................................................ 3,734,174 3,734,174
1999........................................................ 9,257,167 2,114,680 11,371,847
Income (loss) before minority interest
3 months
2000........................................................ (6,736,550) 36,192 (6,700,358)
1999........................................................ 1,385,458 611,841 (96,542) 1,900,757
9 months
2000........................................................ (9,200,906) 19,024 (70,411) (9,252,293)
1999........................................................ (6,970,975) 143,049 (416,690) (7,244,616)
Identifiable assets
At September 30
2000........................................................ 2,425,054 11,583 15,555,682 17,992,319
1999........................................................ 36,718,535 24,269,687 10,824,014 71,812,236
Capital expenditures
3 months
2000........................................................ 209,567 209,567
1999........................................................ 93,929 295,577 389,506
9 months
2000........................................................ 445,923 445,923
1999........................................................ 760,557 857,640 1,618,197
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and
financial condition of the Partnership should be read in conjunction with the
consolidated financial statements and the related notes to consolidated
financial statements included elsewhere herein.
Certain Forward-Looking Information
Certain of the statements contained in this Quarterly Report on Form 10-Q
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements are included in this
Quarterly Report on Form 10-Q based on the intent, belief or current
expectations of the Partnership. However, such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
actual results may differ materially from those projected in the forward-looking
statements as a result of various factors. Although the Partnership believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, it can give no assurance that its expectations will
be achieved.
Liquidity and Capital Resources
As of September 30, 2000, cash and cash equivalents on the balance sheet
totaled approximately $16.0 million. The Partnership had directly held cash and
cash equivalents of approximately $257,000, which is available for distribution
to the extent not required for working capital. In addition, at September 30,
2000, the Venture, in which the Partnership owns an 80% interest, had
approximately $15.8 million in cash and cash equivalents.
On September 28, 2000, the Venture completed the sale of the last remaining
property, Northland Center. The Venture's share of net proceeds received was
$12,367,221, resulting in a net loss of $7,154,379. On October 27, 2000, the
Partnership made a distribution of $2.57 per BAC to holders of record as of
September 28, 2000. The distribution was comprised of $2.29 per BAC representing
a return of capital from the sale proceeds, and $0.28 per BAC representing a
distribution of cash on hand from operations. The cash had been retained by the
Venture to cover operating and working capital requirements at Northland Center,
but became available for distribution due to the sale of the property.
Cash received by the Venture from tenant rentals for the nine months ended
September 30, 2000 decreased approximately $2.6 million, or 24%, to $8.2 million
from $10.8 million for the nine months ended September 30, 1999. The decrease is
due primarily to the sales of the 300 Delaware and 16/18 Sentry Park West
properties in 1999, resulting in a decrease in tenant rentals received of
approximately $3.9 million. This decrease was partially offset by an increase in
cash from tenant rentals at Northland Center of approximately $1.4 million, due
to the timing of the remittance of rental income.
Financial Condition
There are no remaining real estate assets at September 30, 2000 due to the
sale of Northland Center in September, 2000.
Cash and cash equivalents increased approximately $4.2 million, or 36%, from
$11.8 million at December 31, 1999 to $16.0 million at September 30, 2000. The
increase is due primarily to proceeds from the sale of Northland Center of
approximately $12.4 million and cash received from operations of $2.3 million,
partially offset by distributions to limited partners of $7.8 million and
distributions to minority interest of $2.0 million.
10
<PAGE> 11
Accounts receivable and accrued investment income decreased approximately
$1.7 million, or 57%, from $3.0 million at December 31, 1999 to $1.3 million at
September 30, 2000, due primarily to the timing of the remittance of rental
income at Northland Center.
Deferred rent concessions decreased approximately $608,000, from $608,000 at
December 31, 1999 to $0 at September 30, 2000, due to the sale of Northland
Center.
Results of Operation
Rental income decreased approximately $1.6 million, or 43%, and $5.7
million, or 45%, for the three and nine months ended September 30, 2000,
respectively, from $3.6 million for the three months and $12.6 million for the
nine months ended September 30, 1999 to $2.1 million for the three months and
$7.0 million for the nine months ended September 30, 2000. The decrease is due
primarily to the sales of the 300 Delaware and 16/18 Sentry Park West properties
in 1999. Rental income for these properties for the nine months ended September
30, 1999 was approximately $4.0 million. Additionally, rental income at
Northland Center decreased by approximately $1.7 million due to tenant
bankruptcies and renegotiation of a number of leases.
Interest on loans receivable decreased approximately $51,000, or 100%, from
$51,000 for the nine months ended September 30, 1999 to $0 for the nine months
ended September 30, 2000. The decrease is due to the payoff of the Jericho
mortgage note on February 1, 1999.
Real estate operating expenses decreased approximately $1.4 million, or 26%,
for the nine months ended September 30, 2000, from $5.5 million for the nine
months ended September 30, 1999 to $4.1 million for the nine months ended
September 30, 2000. Approximately $1.1 million of the decrease is due to the
sales of 300 Delaware and 16/18 Sentry Park West.
Depreciation and amortization decreased approximately $789,000, or 100%, for
the nine months ended September 30, 2000, from $789,000 for the nine months
ended September 30, 1999 to $0 for the nine months ended September 30, 2000. The
decrease is due to the Venture's remaining property, Northland Center, being
classified as held for sale in June 1999, resulting in no further depreciation
being recorded.
Loss on write-down of real estate assets was approximately $3.7 million for
the nine months ended September 30, 2000, compared to losses of $11.4 million
for the nine months ended September 30, 1999, due to the write-downs of
Northland Center in 2000 and the write-downs of 300 Delaware and Northland
Center in 1999.
General and administrative expense decreased approximately $34,000 or 47%,
and $285,000, or 85%, for the three and nine months ended September 30, 2000,
respectively, from $72,000 for the three months and $337,000 for the nine months
ended September 30, 1999 to $39,000 for the three months and $52,000 for the
nine months ended September 30, 2000. The decrease is due primarily to the
Partnership paying legal fees of $212,000 during first quarter 1999 which should
have been paid by Equitable. Equitable reimbursed the Partnership for these fees
during March 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices, and equity prices. As
of September 30, 2000, the Partnership had no material exposure to market risk.
YEAR 2000
As of September 30, 2000, the Partnership and the Venture have not
experienced any material disruption of their internal computer systems or
software applications, and have not experienced any problem with the computer
systems or software applications of their third party vendors, suppliers or
service providers. The Partnership and the Venture will continue to monitor
these third parties to determine the impact, if any, on the business of the
Partnership and the actions the Partnership must take, if any, in the event of
non-compliance by any of these third parties. Based upon the Partnership's
assessment of compliance by third parties, there appears to be no material
business risk posed by any such noncompliance.
11
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PART II
Item 1. Legal Proceedings
As discussed in the Notes to the Consolidated Financial Statements of the
Partnership's December 31, 1999 audited financial statements, the Partnership
is a defendant in a consolidated action brought in the Court of Chancery of the
State of Delaware entitled IN RE: ML/EQ Real Estate Partnership Litigation. The
parties have reached an agreement in principle to settle the case subject to
approval of the court and are finalizing the documentation.
Item 2. Changes in Securities
Response: None
Item 3. Default Upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule (for SEC filing purposes only)
b) Reports
None
13
<PAGE> 13
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ML/EQ Real Estate Portfolio, L.P.
By: EREIM Managers Corp.
Managing General Partner
By: /s/ DEBRA L. KELLER
----------------------------------------
Debra L. Keller
Vice President and Assistant Treasurer
(Principal Accounting Officer)
Dated:
14
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ------------------------------------------------------
<S> <C>
27 Financial Data Schedule (for SEC filing purposes only)
</TABLE>
15
