<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 June 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 June 30, 2000 and
December 31, 1999
Consolidated statements of operations for the three and six
months ended June 30, 2000 and 1999
Consolidated statement of partners' capital/(deficit) for
the six months ended June 30, 2000
Consolidated statements of cash flows for the six months
ended June 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
JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS:
Rental property, held for sale............................ $18,316,484 $21,814,303
OTHER ASSETS:
Cash and cash equivalents................................. 5,075,869 11,809,525
Accounts receivable and accrued investment income, net of
allowance for doubtful accounts of $1,244,793 in 2000
and $727,534 in 1999.................................... 1,929,853 3,038,359
Deferred rent concessions................................. 644,937 608,330
Guaranty fee, net of accumulated amortization of
$3,072,089 in 2000 and $2,937,964 in 1999............... 670,626 804,751
Prepaid expenses and other assets......................... 146,459 240,060
Interest receivable....................................... 17,516 50,676
Due from affiliates....................................... 25,453 3,471
----------- -----------
Total other assets................................. 8,510,713 16,555,172
----------- -----------
TOTAL ASSETS................................................ $26,827,197 $38,369,475
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES:
Accounts payable and accrued real estate expenses......... $ 838,919 $ 1,092,148
Accrued capital expenditures.............................. 33,583 198,189
Security deposits and unearned rent....................... 352,362 454,055
Due to affiliates......................................... 96,476 195,187
Distributions declared.................................... 1,084,895 --
----------- -----------
Total liabilities.................................. 2,406,235 1,939,579
----------- -----------
MINORITY INTEREST IN THE VENTURE............................ 24,665,590 29,861,970
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
PARTNERS' CAPITAL (DEFICIT):
General partners.......................................... 2,281,933 2,234,711
Initial limited partner................................... 5,772 6,088
Limited partners (5,424,225 BACs issued and
outstanding)............................................ (2,532,333) 4,327,127
----------- -----------
Total partners' capital (deficit).................. (244,628) 6,567,926
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)........... $26,827,197 $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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income.......................................... $ 2,380,535 $ 4,425,027 $ 4,905,400 $ 9,012,304
Interest on loans receivable........................... -- -- -- 51,250
----------- ----------- ----------- -----------
Total revenue..................................... 2,380,535 4,425,027 4,905,400 9,063,554
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Real estate operating expenses......................... 1,414,941 1,925,996 2,806,275 4,332,026
Depreciation and amortization.......................... -- 395,237 -- 789,345
Real estate taxes...................................... 352,811 743,773 839,323 1,196,217
Property management fees............................... 58,006 83,180 107,072 179,379
Loss on write-down of real estate assets............... 2,235,987 9,257,167 3,734,174 11,371,847
Asset management fees.................................. 48,238 101,342 96,476 207,989
Amortization of guarantee fee.......................... 67,063 67,063 134,126 134,126
General and administrative, including $0 and $81,665
for the six months ended June 30, 2000 and 1999,
respectively, to affiliates......................... 95,816 165,027 12,926 264,091
----------- ----------- ----------- -----------
Total operating expenses.......................... 4,272,862 12,738,785 7,730,372 18,475,020
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS....................................... (1,892,327) (8,313,758) (2,824,972) (9,411,466)
OTHER INCOME (EXPENSE):
Loss on sale of real estate............................ -- -- -- (71,562)
Interest and other non-operating income................ 103,422 152,777 273,037 337,655
----------- ----------- ----------- -----------
Total other income -- net......................... 103,422 152,777 273,037 266,093
----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST.............................. (1,788,905) (8,160,981) (2,551,935) (9,145,373)
MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED VENTURE..................................... 3,352,095 1,585,057 3,496,380 1,731,641
----------- ----------- ----------- -----------
NET INCOME/(LOSS).......................................... $ 1,563,190 $(6,575,924) $ 944,445 $(7,413,732)
=========== =========== =========== ===========
ALLOCATION OF NET INCOME/(LOSS):
General partners....................................... $ 78,160 $ (328,797) $ 47,222 $ (370,687)
Initial limited partner................................ 68 (288) 41 (325)
Limited partners....................................... 1,484,962 (6,246,839) 897,182 (7,042,720)
----------- ----------- ----------- -----------
$ 1,563,190 $(6,575,924) $ 944,445 $(7,413,732)
=========== =========== =========== ===========
NET INCOME/(LOSS) PER BENEFICIAL ASSIGNEE.................. $ .27 $ (1.15) $ .16 $ (1.30)
=========== =========== =========== ===========
WEIGHTED AVERAGE BENEFICIAL ASSIGNEE....................... 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 SIX MONTHS ENDED JUNE 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............................................ 47,222 41 897,182 944,445
Distributions......................................... -- (357) (7,756,642) (7,756,999)
---------- ------ ----------- -----------
Balance, June 30, 2000.................................. $2,281,933 $5,772 $(2,532,333) $ (244,628)
========== ====== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Tenant rentals received................................... $ 5,875,606 $ 7,744,684
Interest received......................................... 306,197 397,383
----------- ------------
Cash received from operations............................. 6,181,803 8,142,067
Cash paid for operating activities........................ (4,142,393) (5,355,312)
Cash distributions to minority interest................... (1,700,000) --
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 339,410 2,786,755
----------- ------------
INVESTING ACTIVITIES:
Additions to rental properties............................ (400,962) (1,407,559)
Expenditures for deferred leasing costs................... -- (43,743)
Proceeds from sales of real estate properties............. -- 8,718,106
Repayment of mortgage loan receivable..................... -- 6,000,000
----------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... (400,962) 13,266,804
----------- ------------
FINANCING ACTIVITIES:
Cash distributions to limited partners.................... (6,672,104) (17,194,793)
----------- ------------
NET CASH USED IN FINANCING ACTIVITIES....................... (6,672,104) (17,194,793)
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (6,733,656) (1,141,234)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 11,809,525 11,939,314
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 5,075,869 $ 10,798,080
=========== ============
RECONCILIATION OF NET INCOME/(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net Income/(Loss)........................................... $ 944,445 $ (7,413,732)
----------- ------------
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 134,126 923,471
Minority interest in Venture operations................. (3,496,380) (1,731,641)
Cash distributions to minority interest................. (1,700,000) --
Loss on sale of real estate............................. -- 71,562
Loss on write-down of real estate....................... 3,734,174 11,371,847
Changes in assets (increase) decrease:
Accounts receivable and accrued investment income....... 1,108,506 (1,105,232)
Deferred rent concessions............................... (36,607) (221,335)
Interest receivable..................................... 33,160 8,478
Prepaid expenses and other assets....................... 93,601 751,252
Due from affiliates..................................... (21,982) (25,284)
Changes in liabilities increase (decrease):
Accounts payable and accrued real estate expenses....... (253,229) 289,221
Security deposits and unearned rent..................... (101,693) 58,947
Due to affiliates....................................... (98,711) (190,799)
----------- ------------
Total adjustments........................................... 605,036 10,200,487
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 339,410 $ 2,786,755
=========== ============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 June 30, 2000 and
December 31, 1999, the accrued balance of these fees and reimbursements totaled
$96,476 and $195,187, respectively. For each of the six months ended June 30,
2000 and 1999, the expense for these recurring fees totaled $96,476 and
$289,654, 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 $96,476
and $207,989 for the six months ended June 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
June 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. If there were no distributions until
7
<PAGE> 8
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2002, the expiration of the term of the Partnership, the maximum
liability of EREIM LP Associates to the Venture under the guaranty agreement as
of June 30, 2000 is limited to $67,141,659, plus the value of EREIM LP
Associates' interest in the Venture less any amounts contributed by EREIM LP
Associates to the Venture to fund cash deficits.
Capital contributions by the BAC holders of the Partnership totaled
$108,484,500. As of June 30, 2000, the cumulative 9.75% simple annual return was
$111,468,412. As of June 30, 2000, cumulative distributions by the Partnership
to the BAC holders totaled $152,811,253, of which $34,335,345 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. 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.
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.
As EREIM LP Associates has deferred its rights 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 noncompounded cumulative return computed at rate of 9.75% per annum, the
Partnership is not recording losses of the Venture in excess of its investment
in the Venture. As a result, the Partnership has not recorded its proportionate
share of losses of the Venture for the three and six months ended June 30, 2000.
3. RENTAL PROPERTY HELD FOR SALE
At June 30, 2000, Northland Center, the Venture's remaining property
("Northland Center" or the "Property"), is classified as held for sale.
Northland Center is recorded at the lower of cost or estimated fair market
value, less estimated costs to sell and depreciation is no longer recorded. In
April 2000, the Partnership executed a purchase and sale agreement to sell
Northland Center for $30 million. The carrying value of Northland Center was
adjusted to the lower of cost or estimated net realizable value resulting in a
loss of $1,498,187 recorded during the three months ended March 31, 2000. An
additional loss of $2,235,987 was recorded in the second quarter in anticipation
of price reductions as a result of issues that have arisen during the due
diligence process. Previously, the Partnership expected to close this
transaction prior to the end of the second quarter, subject to customary closing
conditions and results of due diligence procedures. However,
8
<PAGE> 9
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
various issues that have arisen in the due diligence process have delayed the
closing. Assuming that these issues can be resolved, the closing is now expected
to occur prior to year-end. If these issues cannot be brought to resolution,
then this transaction may not close.
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.
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 six month periods ending June 30, are as follows:
<TABLE>
<CAPTION>
CORPORATE/
RETAIL OFFICE OTHER TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
3 months
2000............................................ 2,380,535 2,380,535
1999............................................ 2,869,600 1,555,427 4,425,027
6 months
2000............................................ 4,885,416 19,984 4,905,400
1999............................................ 6,034,520 2,987,784 41,250 9,063,554
Depreciation and amortization
3 months
2000............................................ 67,063 67,063
1999............................................ 395,237 67,063 462,300
6 months
2000............................................ 134,126 134,126
1999............................................ 789,345 134,126 923,471
Loss on write-down of assets
3 months
2000............................................ 2,235,987 2,235,987
1999............................................ 9,257,167 9,257,167
6 months
2000............................................ 3,734,174 3,734,174
1999............................................ 9,257,167 2,114,680 11,371,847
</TABLE>
9
<PAGE> 10
ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CORPORATE/
RETAIL OFFICE OTHER TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (loss) before minority interest
3 months
2000............................................ (1,639,611) (149,294) (1,788,905)
1999............................................ (8,845,320) 909,976 (225,637) (8,160,981)
6 months
2000............................................ (2,464,356) 19,024 (106,603) (2,551,935)
1999............................................ (8,356,433) (468,792) (320,148) (9,145,373)
Identifiable assets
At June 30
2000............................................ 22,725,675 11,583 4,089,939 26,827,197
1999............................................ 36,241,996 32,404,890 10,725,005 79,371,891
Capital expenditures
3 months
2000............................................ 110,308 110,308
1999............................................ 119,073 372,529 491,602
6 months
2000............................................ 236,356 236,356
1999............................................ 666,628 562,063 1,228,691
</TABLE>
10
<PAGE> 11
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 statements include, without limitation,
statements regarding the future sale of the Property. 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. Factors that could cause
actual results to differ materially from the Partnership's current expectations
include general local market conditions, the investment climate for real estate,
leasing activities, individual property issues, construction delays due to
unavailability of materials, weather conditions or other causes, and the other
risks detailed from time to time in the Partnership's SEC reports, including the
Annual Report on Form 10-K for the year ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, cash and cash equivalents on the balance sheet were
approximately $5.1 million. The Partnership had directly held cash and cash
equivalents of approximately $171,000. Such cash and cash equivalents are
available for distribution to the extent not required for working capital. In
addition, at June 30, 2000, the Venture, in which the Partnership owns an 80%
interest, had approximately $4.9 million in cash and cash equivalents. In
August, the Venture intends to distribute $1.5 million in the aggregate, of
which $1.2 million or 80% will be distributed to the Partnership and $300,000 or
20% will be distributed to EREIM LP Associates. The Partnership in turn will
distribute approximately $1.1 million, representing 20 cents per BAC to BAC
Holders of record as of June 30, 2000. Approximately $100,000 will be retained
by the Partnership to cover general partnership obligations. The Partnership
will continue to make periodic determinations of the advisability of
distributing operating cash flow.
In April 2000, the Partnership executed a purchase and sale agreement to
sell Northland Center for $30 million. The carrying value of Northland Center
was adjusted to the lower of cost or estimated net realizable value resulting in
a loss of $1,498,187 recorded during the three months ended March 31, 2000. An
additional loss of $2,235,987 was recorded in the second quarter in anticipation
of price reductions as a result of issues that have arisen during the due
diligence process. Previously, the Partnership expected to close this
transaction prior to the end of the second quarter, subject to customary closing
conditions and results of due diligence procedures. However, various issues that
have arisen in the due diligence process have delayed the closing.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Assuming that these issues can be resolved, the closing is now expected to occur
prior to year-end. If these issues cannot be brought to resolution, then this
transaction may not close.
Cash received by the Venture from tenant rentals for the six months ended
June 30, 2000 decreased approximately $1.9 million, or 24%, to $5.9 million from
$7.7 million for the six months ended June 30, 1999. The decrease is due
primarily to sales, resulting in a decrease in tenant rentals received of
approximately $3.0 million. This decrease was partially offset by an increase in
cash from tenant rentals at Northland Center of approximately $1.1 million, due
to the timing of the remittance of rental income.
FINANCIAL CONDITION
Accounts receivable and accrued investment income decreased approximately
$1.1 million, or 36%, from $3.0 million at December 31, 1999 to $1.9 million at
June 30, 2000, due primarily to the timing of the remittance of rental income at
Northland Center.
Cash and cash equivalents decreased approximately $6.7 million, or 57%,
from $11.8 million at December 31, 1999 to $5.1 million at June 30, 2000, due
primarily to the Venture making cash distributions of $8.5 million and expending
$.4 million in additions to real estate during 2000, partially offset by
approximately $2.0 million of cash provided by operations during 2000.
The percentage of leased space at the Venture's property at June, 2000 was
53.8% compared to the percentage of leased space at December 31, 1999 of 56%.
RESULTS OF OPERATIONS
Rental income decreased approximately $2.0 million, or 46%, and $4.1
million, or 46%, for the three and six months ended June 30, 2000, respectively,
from $4.4 million for the three months and $9.0 million for the six months ended
June 30, 1999 to $2.4 million for the three months and $4.9 million for the six
months ended June 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 six months ended June 30, 1999 was approximately $3.0
million. Additionally, rental income at Northland Center decreased by
approximately $1.1 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 six months ended June 30, 1999 to $0 for the six months ended
June 30, 2000. The decrease is due to the payoff of the Jericho mortgage note on
February 1, 1999.
Real estate operating expenses decreased approximately $511,000, or 27%,
and $1.5 million, or 35%, for the three and six months ended June 30, 2000,
respectively, from $1.9 million for the three months and $4.3 million for the
six months ended June 30, 1999 to $1.4 million for the three months and $2.8
million for the six months ended June 30, 2000. Approximately $1.0 million of
the decrease is due to the sales of 300 Delaware and 16/18 Sentry Park West. The
decrease is also due to a $502,000 legal reserve recorded in 1999 for pending
litigation at Northland Center.
Depreciation and amortization decreased approximately $395,000, or 100%,
and $789,000, or 100%, for the three and six months ended June 30, 2000,
respectively, from $395,000 for the three months and $789,000
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
for the six months ended June 30, 1999 to $0 for the three and six months ended
June 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 $2.2 million and
$3.7 million for the three and six months ended June 30, 2000, compared to
losses of $9.3 million and $11.4 million for the three and six months ended June
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 $69,000 or 42%,
and $251,000, or 95%, for the three and six months ended June 30, 2000,
respectively, from $165,000 for the three months and $264,000 for the six months
ended June 30, 1999 to $96,000 for the three months and $13,000 for the six
months ended June 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 June 30, 2000, the Partnership had no material exposure to market risk.
YEAR 2000
As of June 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.
13
<PAGE> 14
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
14
<PAGE> 15
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/Linda M. Hart
-----------------------------
Linda M. Hart
Vice President and Treasurer
(Principal Accounting Officer)
Dated: August 14, 2000
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule (for SEC filing purposes only)
</TABLE>
16
