<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 33-11064
EREIM LP ASSOCIATES
(Exact name of registrant as specified in governing instrument)
New York 58-1739527
(State of organization) (IRS Employer Identification No.)
787 Seventh Avenue, New York, N.Y. 10019
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 554-1926
-----------------
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:
The Investment Guarantee Agreement (Title of Class) has
not been registered as of the date of this Report
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 ML/EQ Real Estate Portfolio, L.P., a
Delaware limited partnership, 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.
<PAGE> 2
PART I.
ITEM 1. BUSINESS
General. The registrant, EREIM LP Associates (the "Partnership"), is a
general partnership formed on December 18, 1986 under the Partnership Law of
the State of New York.
The Partnership's two general partners are EREIM LP Corp., a Delaware
corporation ("LP Corp."), and The Equitable Life Assurance Society of the
United States, a New York mutual life insurance company ("Equitable", and,
together with LP Corp., the "General Partners"). LP Corp. is an indirect,
wholly-owned subsidiary of Equitable.
The Partnership has issued an investment guaranty agreement dated as
of March 10, 1988 (the "Guaranty Agreement") to EML Associates (the "Venture"),
a joint venture formed in March 1988, between the Partnership and ML/EQ Real
Estate Portfolio, L.P. ("ML/EQ"), a Delaware limited partnership of which an
indirect, wholly-owned subsidiary of Equitable, EREIM Managers Corp., is the
Managing General Partner and an affiliate of Merrill Lynch & Co., Inc., MLH
Real Estate Associates Limited Partnership, is the Associate General Partner
(the "Associate General Partner"). The Guaranty Agreement has been assigned to
ML/EQ. Capitalized terms used in this annual report that are not defined
herein have the same meaning as in the Partnership Agreement of ML/EQ dated as
of February 9, 1988, which is included as an exhibit to this annual report.
ML/EQ offered to the public $150,000,000 of Beneficial Assignee
Certificates (the "BACs"), which evidence the economic rights attributable to
limited partnership interests in ML/EQ (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, ML/EQ's initial investor closing occurred at which time
ML/EQ received $92,190,120, representing the proceeds from the sale of
4,609,506 BACs. On May 3, 1988, ML/EQ's final investor closing occurred at
which time ML/EQ received $16,294,380, representing the proceeds from the sale
of an additional 814,719 BACs. In total, ML/EQ 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
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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 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. The Partnership conducts its real
estate investment business through the Venture. The capital of the Venture was
provided approximately 20% by the Partnership through the contribution of
interests in two zero coupon mortgage notes (see Item 2. PROPERTIES) and
approximately 80% by ML/EQ, the managing partner of the Venture, through the
contribution of net proceeds of the Offering.
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
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through the creation of a valuation allowance.
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
such 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 ML/EQ 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 cannot 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,
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prevailing interest rates and the availability of mortgage financing at the
time that the Properties are sought to be sold. For example, if high interest
rates or shortages of mortgage funds were prevailing at the time the Venture
was attempting to dispose of a Property, the sale or other disposition of such
Property might be rendered difficult or the Venture might be required to assume
credit risks if it becomes necessary to extend mortgage financing to buyers.
Similarly, such factors may affect 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 ML/EQ, 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, ML/EQ, 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 ML/EQ'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 ML/EQ, the Venture, or the
Partnership.
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 has not established working
capital reserves at any level. The Partnership may establish and maintain such
working capital reserves as the General Partners from time to time may
determine appropriate, in light of the nature of the Venture's investments and
other considerations.
Insurance. The Properties are covered under insurance contracts which
provide comprehensive general liability as well as physical damage protection.
Such insurance contracts also cover other properties in accounts which are
advised or managed by Equitable or its subsidiaries as well as certain
properties in which Equitable, its subsidiaries, or its insurance company
separate accounts have an ownership interest.
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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 ML/EQ
as managing partner of the Venture, will use its discretion in determining the
scope of coverage, limits and deductible provisions on insurance, with a view
to maintaining appropriate insurance on the Properties at an appropriate cost.
Similarly, the Managing General Partner will use its discretion in determining
whether and when to permit borrowers under the Mortgage Loans to obtain and
maintain coverage that differs from the requirements of the mortgages, with a
view to requiring appropriate insurance on the properties which secure the
Mortgage Loans in light of prevailing insurance market, economic, and other
factors. This may result, however, in insurance which will not cover the full
extent of a loss or claim.
Investment Guaranty Agreement and Related Matters. Under an
investment guaranty agreement dated March 10, 1988 by and between the
Partnership and the Venture (the "Guaranty Agreement"), the Partnership 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 ML/EQ, an amount which when added to all
distributions from ML/EQ to the holders of BACs ("BAC Holders") will enable
ML/EQ 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 ML/EQ in exchange
for ML/EQ's assumption of the Venture's obligations, including the obligation
to pay the Guaranty Fee. Any moneys distributed by ML/EQ to BAC Holders and/or
limited partners of ML/EQ ("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 ML/EQ and the Venture have been disposed
of and the proceeds distributed, any remaining obligation of the Partnership
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. The
Partnership will be required to either purchase the purchase money note from
the Venture at its discounted value or guarantee timely payment of principal
and interest under the note, but only to the extent such note reduces
obligations under the Guaranty Agreement and so long as the note does not
reduce obligations below zero. If, the Venture sells a purchase money note at
a premium over the discounted value of the note, the premium will be paid to
the Partnership to the extent of any payments made under the Guaranty
Agreement. Moreover, the Partnership will be entitled to receive any cash
payments
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paid to ML/EQ (other than payments from a purchase money note guaranteed by the
Partnership) to the extent that it has made any payment under the Guaranty
Agreement.
The obligation of the Partnership to pay the Minimum Return is subject
to reduction for (i) any Federal, state or local corporate income or franchise
tax imposed upon ML/EQ or the Venture, and (ii) any Federal, state or local
income, gross receipts, value-added, excise or similar tax imposed on ML/EQ 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 ML/EQ to BAC Holders from whatever source will reduce
the amount of the Partnership's obligation under the Guaranty Agreement. The
obligations of the Partnership 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 ML/EQ or (ii)
ML/EQ is dissolved without the consent of EREIM Managers Corp. The maximum
liability of the Partnership under the Guaranty Agreement is $271,211,250.
Subject to the foregoing, the obligations of the Partnership under the Guaranty
Agreement as of December 31, 1995 are limited to $246,687,614 plus the value of
the Partnership's interest in the Venture less any amounts contributed by the
Partnership to the Venture to fund cash deficits.
The obligations of the Partnership under the Guaranty Agreement are
nonrecourse to Equitable but are recourse as to LP Corp. Equitable has entered
into an agreement dated as of March 10, 1988 (the "Keep Well Agreement") with
LP Corp. which provides that Equitable will make capital contributions to LP
Corp. in such amounts as to permit 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 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 LP Corp. is not for the benefit of third parties,
including ML/EQ 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 the Partnership and LP Corp. are
insufficient to satisfy the Partnership's obligations under the Guaranty
Agreement, a proceeding in bankruptcy could be commenced against 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 LP Corp. on behalf of
ML/EQ, MLH Real Estate Assignor Inc., the initial limited partner of ML/EQ
("the Initial Limited Partner") on behalf of BAC Holders would have a right to
compel ML/EQ to commence such involuntary bankruptcy proceeding.
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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 552,922(1) 7/22/94 1954
Southfield, MI sq. ft.
regional mall
The Bank of Delaware Building 314,313 11/15/94 1970
Wilmington, DE sq. ft.
office building
</TABLE>
--------------
(1) Excludes square feet of properties owned by certain anchor stores.
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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>
- ------------------
(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 Store 46.2%
Clemens Market 14.2%
16/18 Sentry Park West Liberty Mutual 14.9%
1345 Doolittle Drive Gruner & Jahr 44.1%
National Distribution Agency 23.5%
Jay-N Company 18.6%
</TABLE>
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<TABLE>
<S> <C> <C>
Northland Center Hudson's Department Store (A)
J.C. Penney (A)
Montgomery Ward (A)
The Bank of Delaware Building PNC Bank 36.6%
</TABLE>
(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 ML/EQ'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 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
-11-
<PAGE> 12
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, has announced plans to locate a
new store within 2-1/2 miles of Richland Mall; however, zoning for the
proposed shopping center which was to include Wal-Mart was rejected by
Richland Township in June 1992. 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 Venture cannot predict whether or when this request will
be approved. Furthermore, the Venture 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 ML/EQ'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 ML/EQ'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 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.
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<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 ML/EQ'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 inJanuary 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 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, given 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>
<CAPTION>
Principal &
Name, Location Accrued Int.
and Type of Date of at Date of Interest
Property Investment Investment Rate Maturity
- ------------------------ ---------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Brookdale Center 3/10/88 $10,541,617(1) 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 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.
-15-
<PAGE> 16
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, 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
-16-
<PAGE> 17
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 ML/EQ's Quarterly Report on 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
ML/EQ, 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 of New York.
The case has been dismissed with respect to ML/EQ 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, and Midwest's sale of Northland Center to the Venture and Equitable.
Neither the Venture, ML/EQ, or the Partnership has been named as a party to
the lawsuit.
-17-
<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-18-
<PAGE> 19
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER
MATTERS
There is no market for the Guaranty Agreement and it is not expected
that one will develop. No public trading market for BACs or Interests exists
nor is it expected that one will develop. BACs are transferable as provided in
Article Seven of the Partnership Agreement. Subject to certain restrictions,
the General Partners of ML/EQ 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 ML/EQ 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.
BAC Holders will receive cash distributions, allocations of taxable
income and tax loss and guaranty proceeds as provided in Article Four of the
Partnership Agreement. For additional information regarding the Guaranty
Agreement, see Item 1. BUSINESS.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of the selected financial data for
the Partnership for the years ended December 31, 1995, 1994, 1993, 1992 and
1991.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenue $ 2,199,500 $ 2,909,580 $ 596,866 $ 3,346,781 $ 3,063,384
Net Income $ 2,024,609 $ 2,860,139 $ 578,581 $ 3,309,809 $ 3,036,583
Total Assets $32,743,147 $31,940,356 $29,940,317 $30,728,554 $29,806,123
</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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION ANDRESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership has not established working capital reserves at any
level. The Partnership may establish and maintain such working capital
reserves as the General Partners, from time to time, determine are appropriate
in light of the Venture's investments and other considerations. The
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<PAGE> 20
Partnership owns a 20% interest in the Venture. At December 31, 1995, the
Venture owned interests in 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.
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 20% to the Partnership and 80% to ML/EQ.
Under the terms of the Venture's 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%. Additionally, 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
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 interset 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
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<PAGE> 21
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 balance sheets as a decrease in assets and partners' capital
and on the statements of operations as a loss on write-down of zero coupon
mortgage.
Management of the Venture 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.
For 1995, the Partnership's distributions received from the Venture
totaled $775,000. In addition, the Partnership received payments totaling
$372,194 in respect of the fee for providing the guarantee of minimum return
pursuant to the Guarantee Agreement. The Partnership will continue to be
entitled to the recurring portion of the Guarantee Fee at the rate of .35% of
average annual adjusted capital contributions of BAC Holders. The Partnership
currently distributes all or substantially all of its share of cash
distributions from the Venture (as well as payments of the Guarantee Fee) to
its partners and expects to continue to do so.
Under the terms of the Guaranty Agreement which has been assigned to
ML/EQ, following the earlier of the sale or other disposition of the Properties
and Mortgage Loans or the liquidation of ML/EQ, the Partnership has guaranteed
to pay an amount which, when added to all distributions from ML/EQ to the BAC
Holders, will enable ML/EQ 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 his or her BACs, subject to certain limitations. Since inception,
ML/EQ 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
</TABLE>
-21-
<PAGE> 22
<TABLE>
<S> <C> <C>
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. ML/EQ 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 distributions was based upon the then anticipated needs of
the Venture to fund capital improvements to the Northland Center in order to
preserve the Venture's equity in the Northland Zero Note in addition to other
working capital needs of the Venture. The determination to withhold the 1995
distributions 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 amounts of Distributable Cash will be dependent on the results of
the Venture's and ML/EQ's operations.
The levels of cash distributions from the Venture to the Partnership
and ML/EQ principally will be dependent on returns from the Venture's
investments, after taking account of capital expenditures and future reserve
requirements. These amounts are expected to fluctuate from time to time based
on changes in occupancy, rental and expense rates at the Venture's properties,
mortgage loan payment and maturity schedules, and other factors.
During 1994 and 1995, the Venture received approximately $499,000 and
$1,502,000, respectively, for early lease termination payments. These early
lease termination payments are classified as Sale or Financing Proceeds and are
being held as reserve for future improvements on the Properties. 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 Venture, ML/EQ, and the Partnership are all intended to be
self-liquidating in nature, meaning that proceeds from the sale of properties
or principal repayments of loans will not be reinvested but instead will be
distributed to BAC Holders and partners, subject to certain limitations.
The obligations of the Partnership under the Guaranty Agreement are
nonrecourse as to Equitable but are recourse as to LP Corp. Equitable has
entered into a Keep Well Agreement with LP Corp. which provides that Equitable
will make capital contributions to LP Corp. in such amounts as to permit 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
-22-
<PAGE> 23
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 LP Corp. and its successors will have the right to enforce
Equitable's obligation thereunder. See "INVESTMENT GUARANTY AGREEMENT AND
RELATED MATTERS."
As of December 31, 1995, the cumulative minimum return (computed at
9.75% simple interest per annum on ML/EQ's Limited Partners' Adjusted Capital
Contributions) was $81,866,083 plus the Limited Partners' Adjusted Capital
Contributions. The guarantee amount is the Minimum Return reduced by the
semiannual distributions of cash to the Limited Partners of ML/EQ, other than
cash distributed to the Limited Partners as a result of Sale or Financing
Proceeds, Guaranty Proceeds, and Liquidation Proceeds, as defined in ML/EQ's
Partnership Agreement. As of December 31, 1995, the cumulative amount of cash
distributions paid other than cash distributions paid as a result of Sale or
Financing Proceeds to the BAC Holders and limited partners was $11,662,084. As
of December 31, 1995, the cumulative amount of cash distributions paid as a
result of Sale or Financing Proceeds received by the Venture was $3,590,821.
Distributions constituting Sale or financing Proceeds declared as of December
31, 1995, paid in February 1996, totaled $542,423. Assuming that the last
property is sold on December 31, 2002, upon expiration of ML/EQ, the
Partnership's maximum liability under the Guarantee Agreement as of December
31, 1995 is $246,687,614.
Financial Condition
The Partnership's financial statements reflect its proportionate
ownership interest in, and its share of the results of operations of, 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 ML/EQ's receipt of the first
proceeds of the offering of BACs. Thereafter, utilizing the net proceeds of
the Offering, the Partnership and ML/EQ (through the Venture) began the
acquisition of real estate investments. The Venture substantially completed
its acquisition phase in 1989.
The increase in investment in joint venture at December 31, 1995 as
compared to December 31, 1994 resulted from the excess of equity in net income
of the Venture over actual cash distributions from the Venture.
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.
-23-
<PAGE> 24
Results of Operations
Equity in net income of the Venture decreased approximately $693,000
from 1994 to 1995 due to a decrease in the Venture's net income. The Venture's
net income decreased approximately $3.5 million primarily as a result of the
valuation allowance of approximately $3.2 million established on the Brookdale
Zero Note as previously discussed. Equity in net income of the Venture
increased approximately $2.3 million from 1993 to 1994 primarily as a result of
increased income to the Venture from Northland Center which was transferred to
the Venture by deed in lieu of foreclosure on July 22, 1994. The transaction
was retroactive to January 1, 1994 which resulted in the Venture recording
twelve months of operating activity relating to Northland Center.
Advisory fees increased approximately $104,000 from 1994 to 1995 due
to a change in the allocation of fees to the Partnership from Equitable.
Advisory fees remained fairly constant from 1993 to 1994. General and
Administrative expenses increased approximately $21,000 from 1994 to 1995 and
approximately $33,000 from 1993 to 1994 due to the timing of the accrual and
payment of audit and tax fees in 1995 compared to 1994 and 1994 compared to
1993, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are included in Item 14 of this
annual report:
EREIM LP ASSOCIATES
Independent Auditors' Report
Balance Sheets, December 31, 1995 and 1994
Statements of Income for the years ended
December 31, 1995, 1994 and 1993
Statements of Partners' Capital for the years ended
December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Financial Statements
EML ASSOCIATES
Independent Auditor's Report
Balance Sheets, December 31, 1995 and 1994
Statements of Operations for the years ended
-24-
<PAGE> 25
December 31, 1995, 1994, and 1993
Statements of Partners' Capital for the years ended
December 31, 1995, 1994, and 1993
Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993
Notes to Financial Statements
-25-
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a general partnership and has no directors or
officers.
For informational purposes only, certain information regarding LP
Corp. and its directors and officers is set forth below.
The names and titles of the directors and officers of LP Corp. as of
March 15, 1996 are as follows:
<TABLE>
<CAPTION>
Date of
Name Age Office
- ---- --- ------
<S> <C> <C>
Harry D. Pierandri 51 Chairman of the Board
President, Chief Executive
Officer and Director
Joyce R. Frater 49 Vice President, Director
and Treasurer
B. Stanton Breon 36 Director
Janet E. Hannon 59 Secretary
</TABLE>
All of the directors have been elected to serve until the next annual
meeting of the shareholder of LP Corp. or until their successors are elected
and qualify. All of the officers have been elected to serve until their
successors are elected and qualify.
The business experience of the directors and executive officers of LP
Corp. is set forth below.
Harry D. Pierandri has been Chairman of the Board, President, Chief
Executive Officer and
-26-
<PAGE> 27
a director of LP Corp. since June 1987. Mr. Pierandri joined
Equitable in 1972 and is a Senior Executive Vice President of
Equitable Real Estate Investment Management, Inc. ("Equitable Real
Estate"), a wholly-owned subsidiary of Equitable, responsible for
managing the $3 billion Prime Property Fund, an open-end fund
comprised of all major property types. He has also been a Vice
President of Equitable since 1981.
Joyce R. Frater has been Vice President and a director of LP
Corp. since June 1987. Ms. Frater joined Equitable in 1969, was
elected Executive Vice President in 1990 and was elected Senior Vice
President of Equitable Real Estate in 1984. Ms. Frater is responsible
for institutional marketing and communications.
B. Stanton Breon has been a Director of LP Corp. since March
1996. 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.
Janet Hannon has been Secretary of LP Corp. since June 1987.
Ms. Hannon joined Equitable in 1986 and was elected Assistant Secretary
of Equitable in 1989. Ms. Hannon performs the function of Corporate
Secretary to numerous investment and insurance subsidiaries of
Equitable.
ITEM 11. EXECUTIVE COMPENSATION
All of the directors and officers of the LP Corp. are employees
of Equitable Real Estate. Neither they, nor any officer or director of
Equitable or Equitable Real Estate is separately compensated for
services provided to the General Partners or, on behalf of the General
Partners or the Partnership, to the Venture.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Partnership has not issued any voting securities. There are
no arrangements known to the Partnership, the operation of which may,
at a subsequent date, result in change in control of the Partnership.
Certain information regarding ownership of BACs is set forth under Item
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in
the Annual Report on Form 10-K of ML/EQ for the fiscal year ended
December 31, 1995, which is filed as an exhibit to this annual report
and incorporated herein by reference.
-27-
<PAGE> 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Item 2. PROPERTIES (and the relevant portions of
the Prospectus and Supplements thereto incorporated therein) for information
relating to the acquisition by the Venture of the Notes from Equitable.
-28-
<PAGE> 29
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>
EREIM LP ASSOCIATES
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets, December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Income for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Partners' Capital for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
EML ASSOCIATES
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
Balance Sheets, December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Statements of Partners' Capital for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
</TABLE>
-29-
<PAGE> 30
2. The following audited financial statement schedules are filed
with this report on the pages indicated:
<TABLE>
<CAPTION>
Page
----
Supplemental Schedules:
<S> <C>
Real Estate and Accumulated Depreciation
as of December 31, 1995 (Schedule III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Loans on Real Estate as of
December 31, 1995 (Schedule IV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
Schedules Not Filed:
All schedules except those indicated above have been omitted as the
required information is not applicable or the information is shown in the
financial statements or notes thereto.
3. Exhibits
See Item 14(c) below.
(b) The Partnership filed no current Reports on Form 8-K during the last
quarter of the period covered by this Report.
(c) Exhibits.
4. (a) Amended and Restated Agreement of Limited Partnership
of ML/EQ Estate Portfolio, L.P. 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
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1987 of ML/EQ Real Estate Portfolio,
L.P. (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)).
-30-
<PAGE> 31
(b) Agreement Between General Partners of ML/EQ
(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
the Partnership (incorporated by reference to Exhibit
10(e) to the 1987 10-K).
(e) Assignment Agreement between ML/EQ and Venture
(incorporated by reference to Exhibit 10(f) to the
1987 10-K).
(f) Keep Well Agreement between The Equitable Life
Assurance Society of the United States and EREIM LP
Corp. (incorporated by reference to Exhibit 10(g) to
the 1987 10-K).
(g) Amended and Restated Agreement of General Partnership
of EREIM LP Associates (incorporated by reference to
Exhibit 10(h) to the 1987 10-K).
(h) Promissory Notes and Mortgages Relating to Brookdale
and Northland (incorporated by reference to Exhibit
10(i) to Pre-Effective Amendment No. 1 to the
Registration Statement of the Partnership (File No.
33-11064)).
(i) Contract to Purchase 1200 Whipple Road, Union City,
California (incorporated by reference to Exhibit
10(j)) to Post-Effective Amendment No. 1 to the
Registration Statement of the Partnership (File No.
33-11064)).
(j) Lease Agreement Pertaining to 1200 Whipple Road,
Union City, California (incorporated by reference to
Exhibit 10(k) to Post-Effective Amendment No. 1 to
the Registration Statement of the Partnership (File
No. 33-11064)).
(k) Participation Agreements relating to Brookdale and
Northland Notes (incorporated by reference to Exhibit
10(1) to the 1987 10-K).
(l) Amendments to Participation Agreements relating to
Brookdale and Northland Notes (incorporated by
reference to Exhibit 10(1) to Annual Report on Form
10-K for the Fiscal Year Ended December 31, 1988 of
ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)
(the "1988 10-K").
(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)).
-31-
<PAGE> 32
(n) Note and Mortgage dated September 27, 1988 relating
to the loan by EML to Second Merritt Seven
(incorporated by reference to Exhibit No. 1 to Form
8-K dated September 27, 1988 of ML/EQ Real Estate
Portfolio, L.P. (File No. 33-11064)).
(o) Form of Participation Agreement between The Equitable
Life Assurance Society of The United States and EML
Associates dated September 27, 1988 (incorporated by
reference to Exhibit No. 2 to Form 8-K dated
September 27, 1988 of ML/EQ Real Estate Portfolio,
L.P. (File No. 33-11064)).
(p) Agreement of Sale among EML, Blue Bell Office Campus
Associates, a Pennsylvania limited partnership, E. F.
Hansen Jr. and G. Eileen Hansen dated December 2,
1988 (incorporated by reference to Exhibit No. 1 to
Form 8-K dated December 2, 1988 of ML/EQ Real Estate
Portfolio, L.P. (File No. 33-11064)).
(q) Agreement of Sale between Provident Mutual Life
Insurance Company of Philadelphia and EML Associates
dated December 27, 1988 (incorporated by reference to
Exhibit No. 1 to Form 8-K dated December 27, 1988 of
ML/EQ Real Estate Portfolio, L.P. (File No.
33-11064)).
(r) Agreement of Sale between Anderson Partners
(Southside/Corporate Lakes) L.P., Gene Anderson,
Auerbach Associates Ltd. and EML Associates dated as
of December 31, 1988 (incorporated by reference to
Exhibit No. 2 to Form 8-K dated December 27, 1988 of
ML/EQ Real Estate Portfolio, L.P. (File No.
33-11064)).
(s) Note and Mortgage and Security Agreement dated
January 31, 1989 relating to loan by EML to The
Wilcon Company (incorporated by reference to Exhibit
No. 4 to Form 8-K dated December 27, 1988 of ML/EQ
Real Estate Portfolio, L.P. (File No. 33-11064)).
(t) Note and Mortgage dated February 28, 1989 relating to
the loan by EML to 300 Delaware Avenue Associates
(incorporated by reference to Exhibit 10(u) to the
1988 10-K.)
(u) Agreement of Sale among Lincoln San Leandro IV
Limited Partnership, Patrician Associates, Inc. and
EML Associates dated April 21, 1989 (incorporated by
reference to Exhibit (c)1 to Form 8-K dated May 18,
1989 of ML/EQ Real Estate Portfolio, L.P. (File No.
33-11064)).
(v) Agreement dated March 25,1994 between The Equitable
Life Assurance Society of the United States and
Midwest Real Estate Shopping Center L.P.
-32-
<PAGE> 33
(formerly Equitable Real Estate Shopping Centers
L.P.) (incorporated by reference to Exhibit 10(v) to
Form 10-K for the year ended December 31, 1994 of
EREIM LP Associates) (the "1994 Form 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 Form 10-K).
(x) Lease Termination Agreement dated as of January 27,
1995 by and between The Equitable Life Assurance
Society of the United States and Kohl's Department
Stores (incorporated by reference to Exhibit 10(x) to
the 1994 Form 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 Form 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 Form 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 of ML/EQ Real Estate
Portfolio, L.P. for the quarter ended June 30, 1988
(incorporated by reference to File No. 33-11064)
(c) Current Report on Form 8-K of ML/EQ Real Estate
Portfolio, L.P dated July 19, 1988 (incorporated by
reference to File No. 33-11064).
(d) Current Report on Form 8-K of ML/EQ Real Estate
Portfolio, L.P. dated September 27, 1988
(incorporated by reference to File No. 33-11064).
-33-
<PAGE> 34
(e) Current Report on Form 8-K of ML/EQ Real
Estate Portfolio, L.P. dated December 2, 1988
(incorporated by reference to File No.
33-11064).
(f) Current Report on Form 8-K of ML/EQ Real Estate
Portfolio, L.P. dated December 27, 1988 (incorporated
by reference to File No. 33-11064).
(g) Current Report on Form 8-K of ML/EQ Real Estate
Portfolio, L.P. 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 Annual
Report on Form 10-K for the year ended December 31,
1995, of Midwest Shopping Centers L.P. File No.
1-9331)
-34-
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on behalf by the undersigned, thereunto duly authorized on the 29th day of
March, 1996.
EREIM LP ASSOCIATES
By: EREIM LP CORP.
(General Partner)
By: Harry Pierandri
----------------------------
HARRY D. PIERANDRI
President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1996.
<TABLE>
<S> <C>
Chairman of the Board of,
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Harry Pierandri of EREIM LP Corp.
- -------------------------------------
HARRY D. PIERANDRI
Vice President and Director
Joyce R. Frater of EREIM LP Corp.
- -------------------------------------
JOYCE R. FRATER
B. Stanton Breon Director of EREIM LP Corp.
- -------------------------------------
B. STANTON BREON
</TABLE>
-35-
<PAGE> 36
EREIM LP ASSOCIATES
TABLE OF CONTENTS
- ---------------------------------------------------------------------------
PAGE
----
INDEPENDENT AUDITORS' REPORT F-1
BALANCE SHEETS, DECEMBER 31, 1995 AND 1994 F-2
STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993 F-3
STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994, AND 1993 F-4
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993 F-5
NOTES TO FINANCIAL STATEMENTS F-6
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
EREIM LP Associates:
We have audited the accompanying balance sheets of EREIM LP Associates (the
"Partnership") as of December 31, 1995 and 1994 and the related statements of
income, partners' capital, and cash flows for the years ended December 31, 1995,
1994, and 1993. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of EREIM LP Associates 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.
/s/ Deloitte & Touche LLP
February 1, 1996
F-1
<PAGE> 38
<TABLE>
<CAPTION>
EREIM LP ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------------
1995 1994
ASSETS
<S> <C> <C>
Cash $ 10,000 $ 10,000
Guaranty fee receivable from affiliate (Notes 3 and 4) 186,074 188,262
Investment in joint venture, at equity (Note 5) 32,547,073 31,742,094
----------- -----------
$32,743,147 $31,940,356
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Deferred guaranty fee (Notes 3 and 4) $ 1,746,601 $ 1,996,115
Due to affiliates 9,033
Accrued liabilities 24,584
----------- -----------
Total liabilities 1,780,218 1,996,115
PARTNERS' CAPITAL:
General partners:
Equitable 32,198,220 31,434,573
EREIM LP Corp. (1,235,291) (1,490,332)
----------- -----------
Total partners' capital 30,962,929 29,944,241
----------- -----------
$32,743,147 $31,940,356
=========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE> 39
<TABLE>
<CAPTION>
EREIM LP ASSOCIATES
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- -------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
REVENUE:
Equity in net income (loss) of joint venture (Note 5) $1,579,979 $2,272,880 ($29,269)
Guaranty fee from affiliate (Notes 3 and 4) 619,521 623,908 626,135
Miscellaneous income 12,792
---------- ---------- --------
Total revenue 2,199,500 2,909,580 596,866
EXPENSES:
Advisory fees 119,830 15,455 17,653
General and administrative 55,061 33,986 632
---------- ---------- --------
Total expenses 174,891 49,441 18,285
---------- ---------- --------
NET INCOME $2,024,609 $2,860,139 $578,581
========== ========== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 40
<TABLE>
<CAPTION>
EREIM LP ASSOCIATES
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- ---------------------------------------------------------------------------------------------------
EREIM
Equitable LP Corp. Total
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $30,234,335 ($2,000,925) $28,233,410
Capital contributions 18,102 182 18,284
Distributions to partners (752,400) (383,188) (1,135,588)
Net income (loss) (47,079) 625,660 578,581
----------- ---------- -----------
BALANCE, DECEMBER 31, 1993 29,452,958 (1,758,271) 27,694,687
Capital contributions 48,946 495 49,441
Distributions to partners (281,200) (378,826) (660,026)
Net income 2,213,869 646,270 2,860,139
----------- ---------- -----------
BALANCE, DECEMBER 31, 1994 31,434,573 (1,490,332) 29,944,241
Capital contributions 139,860 1,413 141,273
Distributions to partners (767,250) (379,944) (1,147,194)
Net income 1,391,037 633,572 2,024,609
----------- ---------- -----------
BALANCE, DECEMBER 31, 1995 $32,198,220 ($1,235,291) $30,962,929
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 41
<TABLE>
<CAPTION>
EREIM LP ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,024,609 $ 2,860,139 $ 578,581
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net (income) loss of Joint Venture (1,579,979) (2,272,880) 29,269
Distributions from Joint Venture 775,000 271,249 760,000
Decrease in deferred guaranty fee (249,514) (249,515) (249,514)
Increase in due to affiliates 9,033
Increase in accrued liabilities 24,584
Decrease (increase) in guaranty fee receivable from
affiliate 2,188 1,592 (1,032)
----------- ----------- -----------
Total adjustments (1,018,688) (2,249,554) 538,723
----------- ----------- -----------
Net cash provided by operating activities 1,005,921 610,585 1,117,304
FINANCING ACTIVITIES:
Contributions from partners 141,273 49,441 18,284
Distributions to partners (1,147,194) (660,026) (1,135,588)
----------- ----------- -----------
Net cash used in financing activities (1,005,921) (610,585) (1,117,304)
----------- ----------- -----------
NET CHANGE IN CASH -- -- --
CASH AT BEGINNING OF YEAR 10,000 10,000 10,000
----------- ----------- -----------
CASH AT END OF YEAR $ 10,000 $ 10,000 $ 10,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 42
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------
1. ORGANIZATION
EREIM LP Associates (the "Partnership") was formed on December 18, 1986
for the primary purpose of serving as a general partner of EML Associates
(the "Venture"), a joint venture with ML/EQ Real Estate Portfolio, L.P.
("ML/EQ"). The Venture was formed to invest in existing income-producing
real properties, zero coupon or similar mortgage notes, and fixed rate
mortgage loans. The Partnership owns a 20% interest in the Venture.
The Partnership is a New York general partnership between The Equitable
Life Assurance Society of the United States ("Equitable") and EREIM LP
Corp., a wholly owned subsidiary of Equitable.
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.
Partnership Allocations - In accordance with the provisions of the
Amended and Restated Agreement of General Partnership of EREIM LP
Associates, all income, gains, losses, deductions, credits, and
distributions are allocated to each partner in proportion to their
respective capital contributions (99% to Equitable and 1% to EREIM LP
Corp.) except for fees received under the Guaranty Agreement which are to
be distributed entirely to the 1% partner, EREIM LP Corp. Accordingly,
all guarantee fee income is allocated to EREIM LP Corp.
Investment in Joint Venture - The Partnership's investment in the Venture
is accounted for using the equity method.
Guaranty Fees - Guaranty fees are recognized as income ratably over the
15-year estimated life of the Partnership.
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.
3. GUARANTY AGREEMENT
The Partnership has entered into a guaranty agreement with the Venture to
provide a minimum return to ML/EQ's limited partners on their capital
contributions. 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 ML/EQ. The minimum return
will be an amount which, when added to the cumulative distributions from
ML/EQ to its limited partners, will enable ML/EQ to provide its limited
partners with a minimum return equal to their capital contributions plus a
simple annual return of 9.75% on their adjusted
F-6
<PAGE> 43
capital contributions, calculated from the dates of ML/EQ's investor
closings at which investors acquired their Beneficial Assignee Certificates
("BACs"). 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 ML/EQ's 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 ML/EQ 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 ML/EQ or the Venture, and
is also subject to certain other limitations. Based upon the assumption
that the last property is sold on December 31, 2002, upon expiration of the
term of ML/EQ, the maximum liability of the Partnership to the Venture
under the guaranty agreement as of December 31, 1995 is limited to
$246,687,614, plus the value of the Partnership's interest in the Venture
less any amounts contributed by the Partnership to fund cash deficits. The
Venture has assigned its rights under the guaranty agreement to ML/EQ.
ML/EQ will have recourse under the guaranty agreement only to the
Partnership and EREIM LP Corp. as a general partner of the Partnership but
not to Equitable. Equitable has entered into a Keep Well Agreement with
EREIM LP Corp. 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) 2% of the total admitted assets of Equitable (as
determined in accordance with New York Insurance Law) or (ii)
$271,211,250. The Keep Well Agreement provides that only EREIM LP Corp.
and its successors will have the right to enforce Equitable's obligations
to make capital contributions to EREIM LP Corp. to pay its obligation with
respect to the guaranty agreement.
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 ML/EQ 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 of ML/EQ are insufficient to meet the specified
minimum return, any shortfall will be funded by the guaranty.
4. GUARANTY FEE
The guaranty fee was initially paid by ML/EQ to the Partnership 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 from
ML/EQ's offering of BACs plus .35% of average annual adjusted capital
contributions of ML/EQ's limited partners. 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 ML/EQ's limited
partners.
5. INVESTMENT IN JOINT VENTURE
On March 10, 1988, ML/EQ had its initial investor closing. ML/EQ
contributed $90,807,268 to the Venture. The Partnership contributed zero
coupon mortgage notes to the Venture in the amount of $22,701,817. The
Venture purchased an additional $5,675,453 of zero coupon mortgage notes
from Equitable.
On May 3, 1988, ML/EQ had its second and final investor closing. ML/EQ
contributed $14,965,119 to the Venture. The Partnership contributed
zero coupon mortgage notes to the Venture in the amount of $3,741,280
including accrued interest. The Venture purchased an additional $935,320
of zero coupon mortgage notes from Equitable to bring the total amount of
zero coupon
F-7
<PAGE> 44
mortgage notes owned by the Venture to $33,053,870 including accrued
interest as of the dates of acquisition. One of the zero notes was
accounted for as a deed in lieu of foreclosure by the Venture on July 22,
1994. The remaining note was due on June 30, 1995. The borrower defaulted
on its obligation to repay the loan, and Equitable is pursuing foreclosure
by advertisement on the collateral, Brookdale Center, a mall located
outside of Minneapolis, Minnesota.
The financial position and results of operations of the Venture are
summarized as follows:
Summary of Financial Position
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Assets:
Rental properties $126,336,402 $118,933,102
Less accumulated depreciation (12,421,010) (9,734,036)
------------ ------------
Net rental properties 113,915,392 109,199,066
Zero coupon mortgage note receivable, net of
valuation allowance 21,498,199 24,115,465
Mortgage loan receivable 6,000,000 6,000,000
Cash and short-term investments 19,734,941 19,725,901
Accounts receivable and accrued investment income 3,446,102 1,996,584
Deferred rent concessions 2,030,727 1,752,428
Deferred leasing costs 713,979 525,589
Prepaid expenses and other assets 495,509 599,630
Interest income receivable 140,921 84,846
------------ ------------
$167,975,770 $163,999,509
============ ============
Liabilities and equity:
Accrued capital expenditures $ 2,647,092 $2,948,006
Accounts payable and accrued real estate expenses 2,115,576 1,854,748
Security deposits and unearned rent 477,737 486,284
Joint venturers' equity 162,735,365 158,710,471
------------ ------------
$167,975,770 $163,999,509
============ ============
Partnership's share of joint venture equity $ 32,547,073 $ 31,742,094
============ ============
</TABLE>
F-8
<PAGE> 45
SUMMARY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenue:
Rental income $21,137,579 $22,512,719 $ 7,972,279
Lease termination income 1,502,020 498,691
Interest on loans receivable 1,734,586 2,910,707 6,655,738
----------- ----------- -----------
Total revenue 24,374,185 25,922,117 14,628,017
Operating expenses:
Real estate operating expenses 8,231,795 9,649,243 1,033,428
Depreciation and amortization 3,129,283 2,185,362 1,658,070
Real estate taxes 2,437,099 2,691,844 906,062
Property management fees 507,820 476,905 199,212
Realized loss on mortgage loan receivable 3,494,129
Loss on write-down of zero coupon
mortgage notes 3,232,210 7,628,000
Loss on write-down of other real
estate assets 379,895
----------- ----------- -----------
Total operating expenses 17,538,207 15,383,249 14,918,901
----------- ----------- -----------
Income (loss) from property operations 6,835,978 10,538,868 (290,884)
----------- ----------- -----------
Other income (expense):
Interest and other nonoperating income 1,068,026 831,587 144,538
General and administrative (4,110) (6,053)
----------- ----------- -----------
Total other income 1,063,916 825,534 144,538
----------- ----------- -----------
Net income (loss) $7,899,894 $11,364,402 $ (146,346)
=========== =========== ===========
Partnership's share of equity in net income
(loss) of Joint Venture $1,579,979 $ 2,272,880 $ (29,269)
=========== =========== ===========
</TABLE>
F-9
<PAGE> 46
6. 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 partner's capital for
financial reporting purposes to net worth on a tax basis.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Financial net income $ 2,024,609 $ 2,860,139 $ 578,581
Book to tax difference on guaranty
fee income (249,514) (249,515) (249,515)
Net book to tax difference from
joint venture 659,751 (1,786,415) 1,837,146
----------- ----------- -----------
Taxable net income $ 2,434,846 $ 824,209 $ 2,166,212
=========== =========== ===========
Capital balance, financial reporting $30,962,929 $29,944,241 $27,694,687
Cumulative book to tax difference on
guaranty fee income 931,407 1,180,921 1,430,436
Cumulative book to tax income
differences from joint venture 690,106 30,355 1,816,770
----------- ----------- -----------
Net worth, tax basis $32,584,442 $31,155,517 $30,941,893
=========== =========== ===========
</TABLE>
F-10
<PAGE> 47
<TABLE>
<CAPTION>
EML ASSOCIATES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-12
BALANCE SHEETS, DECEMBER 31, 1995 AND 1994 F-13
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993 F-14
STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994, AND 1993 F-15
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993 F-16
NOTES TO FINANCIAL STATEMENTS F-18
SUPPLEMENTAL SCHEDULES FOR THE YEAR
ENDED DECEMBER 31, 1995:
Schedule III - Real Estate and Accumulated Depreciation F-25
Schedule IV - Mortgage Loans on Real Estate F-26
</TABLE>
F-11
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
EML Associates:
We have audited the accompanying balance sheets of EML Associates (the
"Venture") as of December 31, 1995 and 1994, and the related 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 supplemental schedules. These financial
statements and the supplemental schedules discussed below are the
responsibility of the Venture'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 financial statements present fairly, in all material
respects, the financial position of EML Associates 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 supplemental schedules of the Venture as of
December 31, 1995 and for the years ended December 31, 1995, 1994, and 1993.
In our opinion, such supplemental schedules, when considered in relation to the
basic financial statements, present fairly in all material respects the
information shown therein.
/s/ Deloitte & Touche LLP
February 1, 1996
F-12
<PAGE> 49
<TABLE>
<CAPTION>
EML ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- ------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Rental properties, net of accumulated depreciation (Note 3) $113,915,392 $109,199,066
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 141,413,591 139,314,531
OTHER ASSETS:
Cash and short-term investments 19,734,941 19,725,901
Accounts receivable and accrued investment income,
net of allowance for doubtful accounts of $460,313
in 1995 and $740,973 in 1994 3,446,101 1,996,584
Deferred rent concessions 2,030,727 1,752,428
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 income receivable 140,921 84,846
------------ ------------
Total other assets 26,562,179 24,684,978
------------ ------------
$167,975,770 $163,999,509
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accrued capital expenditures $ 2,647,092 $ 2,948,006
Accounts payable and accrued real estate expenses 2,115,576 1,854,748
Security deposits and unearned rent 477,737 486,284
------------ ------------
Total liabilities 5,240,405 5,289,038
COMMITMENTS AND CONTINGENT LIABILITIES (Note 6)
PARTNERS' CAPITAL 162,735,365 158,710,471
------------ ------------
$167,975,770 $163,999,509
============ ============
</TABLE>
See notes to financial statements.
F-13
<PAGE> 50
<TABLE>
<CAPTION>
EML ASSOCIATES
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- ---------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
REVENUE:
Rental income (Note 7) $21,137,579 $22,512,719 $ 7,972,279
Lease termination income (Note 7) 1,502,020 498,691
Interest on loans receivable (Note 4) 1,734,586 2,910,707 6,655,738
----------- ----------- -----------
Total revenue 24,374,185 25,922,117 14,628,017
OPERATING EXPENSES:
Real estate operating expenses 8,231,795 9,649,243 1,033,428
Depreciation and amortization 3,129,283 2,185,362 1,658,070
Real estate taxes 2,437,099 2,691,844 906,062
Property management fees (Note 8) 507,820 476,905 199,212
Realized loss on mortgage loan receivable 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 17,538,207 15,383,249 14,918,901
----------- ----------- -----------
INCOME (LOSS) FROM PROPERTY
OPERATIONS 6,835,978 10,538,868 (290,884)
OTHER INCOME (EXPENSE):
Interest and other nonoperating income 1,068,026 831,587 144,538
General and administrative (4,110) (6,053)
----------- ----------- -----------
Total other income 1,063,916 825,534 144,538
----------- ----------- -----------
NET INCOME (LOSS) $ 7,899,894 $11,364,402 $ (146,346)
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-14
<PAGE> 51
<TABLE>
<CAPTION>
EML ASSOCIATES
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- ----------------------------------------------------------------------------------------------------------
ML/EQ
EREIM LP REAL ESTATE
ASSOCIATES PORTFOLIO, L.P. TOTAL
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $30,529,732 $122,118,928 $152,648,660
Net loss (29,269) (117,077) (146,346)
Cash distributions (760,000) (3,040,000) (3,800,000)
----------- ------------ ------------
BALANCE, DECEMBER 31, 1993 29,740,463 118,961,851 148,702,314
Net income 2,272,880 9,091,522 11,364,402
Cash distributions (271,249) (1,084,996) (1,356,245)
----------- ------------ ------------
BALANCE, DECEMBER 31, 1994 31,742,094 126,968,377 158,710,471
Net income 1,579,979 6,319,915 7,899,894
Cash distributions (775,000) (3,100,000) (3,875,000)
----------- ------------ ------------
BALANCE, DECEMBER 31, 1995 $32,547,073 $130,188,292 $162,735,365
=========== ============ ============
</TABLE>
See notes to financial statements.
F-15
<PAGE> 52
<TABLE>
<CAPTION>
EML ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- -----------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Tenant rentals received $20,922,265 $21,824,036 $ 7,758,761
Interest received 2,122,704 1,455,296 3,116,769
----------- ----------- -----------
Cash received from operations 23,044,969 23,279,332 10,875,530
Cash paid for operating activities (10,826,016) (11,661,813) (2,115,557)
----------- ----------- -----------
Net cash provided by operating activities 12,218,953 11,617,519 8,759,973
INVESTING ACTIVITIES:
Purchases and additions to rental properties (7,884,868) (9,591,521) (399,153)
Expenditures for deferred leasing costs (450,045) (379,375) (83,127)
Repayment of mortgage receivable 10,505,871
Proceeds from other real estate assets 620,105
----------- ----------- -----------
Net cash (used in) provided by investing
activities (8,334,913) (9,350,791) 10,023,591
FINANCING ACTIVITIES:
Cash distributions to General Partners (3,875,000) (1,356,245) (3,800,000)
----------- ----------- -----------
Net cash used in financing activities (3,875,000) (1,356,245) (3,800,000)
----------- ----------- -----------
NET INCREASE IN CASH AND SHORT-TERM
INVESTMENTS 9,040 910,483 14,983,564
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR 19,725,901 18,815,418 3,831,854
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR $19,734,941 $19,725,901 $18,815,418
=========== =========== ===========
</TABLE>
(Continued)
F-16
<PAGE> 53
<TABLE>
<CAPTION>
EML ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 7,899,894 $11,364,402 $ (146,346)
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 3,129,283 2,185,362 1,658,070
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)
Interest receivable (56,075) 36,330 89,315
Accounts receivable and accrued investment income (1,449,518) (1,197,729) 107,488
Prepaid expenses and other assets 104,121 (375,094) 26,296
Deferred rent concessions (278,299) (239,328) (290,248)
Changes in liabilities increase (decrease):
Accounts payable and accrued real estate expenses 260,828 1,537,326 (2,810)
Security deposits and unearned rent (8,547) 209,986 (31,098)
----------- ----------- ----------
Total adjustments 4,319,059 253,117 8,906,319
----------- ----------- ----------
Net cash provided by operating activities $12,218,953 $11,617,519 $8,759,973
=========== =========== ==========
</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 took a $1,000,000 write-down on other real estate
assets which reduced other real estate assets relating to The Bank of
Delaware Building to $8,500,000. On November 15, 1994, a deed in lieu of
foreclosure was executed resulting in a reclassification of the remaining
$8,500,000 from other real estate assets to rental properties.
See notes to financial statements.
(Concluded)
F-17
<PAGE> 54
EML ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------
1. ORGANIZATION
EML Associates (the "Venture") is a New York general partnership
formed March 10, 1988 between EREIM LP Associates, an affiliate of The
Equitable Life Assurance Society of the United States ("Equitable")
and ML/EQ Real Estate Portfolio, L.P., a Delaware limited partnership
("ML/EQ"). The Venture was formed to invest in existing
income-producing real properties, zero coupon or similar mortgage
notes, and fixed-rate mortgage loans. EREIM LP Associates and ML/EQ
own 20% and 80% interests in the Venture, respectively.
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.
Pro-rata Consolidation - The Venture records its proportionate share
of the assets, liabilities, revenues, and expenses of the undivided
interests in Northland Center.
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 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).
F-18
<PAGE> 55
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.
Reclassifications - Certain prior year amounts have been reclassified
to conform with the 1995 presentation.
Fair Value of Financial Instruments - Management has reviewed
the various assets and liabilities of the Venture 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 Venture'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.
3. RENTAL PROPERTIES
As of December 31, 1995, the Venture'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>
F-19
<PAGE> 56
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 101,895,291 94,530,000
------------ ------------
Total 126,336,402 118,933,102
Less accumulated depreciation (12,421,010) (9,734,036)
------------ ------------
Net rental properties $113,915,392 $109,199,066
============ ============
Office $ 38,972,689 $ 35,971,596
Retail 56,662,049 52,381,186
Industrial 30,701,664 30,580,320
------------ ------------
Total 126,336,402 118,933,102
Less accumulated depreciation (12,421,010) (9,734,036)
------------ ------------
Net rental properties $113,915,392 $109,199,066
============ ============
</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 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.
F-20
<PAGE> 57
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. 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 arrangements in the Participation Agreement between
the Venture and Equitable. The Venture and Equitable paid the owner
$6.6 million at the time of transfer (an amount which was determined
to approximate the net present value of the anticipated cash flow from
Northland Center, subject to closing adjustments, for the period from
January 1, 1994 through June 30, 1995, the date the Northland 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.
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 Venture during the first and third quarters of
1993 to reflect the diminution of value of the underlying security for
F-21
<PAGE> 58
the loan. The Venture 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 ML/EQ's limited partners on
their capital contributions. The Venture has assigned its rights
under the guaranty agreement to ML/EQ. 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
ML/EQ. The minimum return will be an amount which, when added to the
cumulative distributions to the limited partners of ML/EQ, will enable
ML/EQ to provide their 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
ML/EQ's investor closings at which investors acquired their Beneficial
Assignee Certificates ("BACs"). The BACs evidence the economic rights
attributable to limited partnership interests in ML/EQ. 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 ML/EQ's 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 ML/EQ 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 ML/EQ or the Venture and is also subject to certain other
limitations set forth in ML/EQ's prospectus. Based upon the
assumption that the last property is sold on December 31, 2002, upon
expiration of the term of ML/EQ, the maximum liability of EREIM LP
Associates 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.
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
F-22
<PAGE> 59
distributions by ML/EQ 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. 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>
<S> <C>
YEAR ENDING DECEMBER 31,
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 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 the
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 approximately
$1,254,062. Upon termination of the lease, Kohl's was
released from any remaining lease obligation under the
original
F-23
<PAGE> 60
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.
8. 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, 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.
F-24
<PAGE> 61
SCHEDULE III
<TABLE>
<CAPTION>
EML ASSOCIATES
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------------------
COSTS
INITIAL COST TO COMPANY CAPITALIZED
--------------------------------- SUBSEQUENT TO
BUILDINGS AND ACQUISITION
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS
<S> <C> <C> <C>
INDUSTRIAL
1200 Whipple Road, Union City, California $ 2,759,162 $ 5,108,652 $ 161,659
Maple Lane, Plaza Court, and Hollywood Avenue,
Bensenville, Illinois 1,670,158 5,141,581 317,123
1850 Westfork Drive, Lithia Springs, Georgia 750,000 3,009,802 134,330
1345 Doolittle Drive, San Leandro, California 4,000,000 6,264,526 1,384,671
RETAIL
Richland Mall, Richland Township, Pennsylvania 1,115,321 11,648,922 724,649
Northland Center, Southfield, Michigan 7,424,476 24,822,493 10,926,188
OFFICE
Sentry Park West, Montgomery County, Pennsylvania 2,624,777 23,971,032 2,093,772
The Bank of Delaware Building, Wilmington, Delaware 4,000,000 4,500,000 1,783,108
------------ ------------ -----------
$ 24,343,894 $ 84,467,008 $17,525,500
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF BEGINNING AND ENDING BALANCES 1995 1994 1993
<S> <C> <C> <C>
Rental Properties:
Balance at beginning of year $118,933,102 $ 70,527,171 $69,903,018
Transfers by deed in lieu foreclosure 40,746,969
Improvements 7,403,300 7,658,962 624,153
------------ ------------ -----------
Balance at end of year $126,336,402 $118,933,102 $70,527,171
============ ============ ===========
Accumulated Depreciation:
Balance at beginning of year $ 9,734,036 $ 7,660,435 $ 6,022,816
Depreciation for year 2,686,974 2,073,601 1,637,619
------------ ------------ -----------
Balance at end of year $ 12,421,010 $ 9,734,036 $ 7,660,435
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS COST AT WHICH CARRIED
AT END OF THE YEAR
-----------------------------------------
BUILDINGS AND ACCUMULATED DATE OF DATE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
1200 Whipple Road, Union City,
California $ 2,762,332 $ 5,267,141 $ 8,029,473 $ 1,028,546 1963 3/17/88
Maple Lane, Plaza Court, and
Hollywood Avenue,
Bensenville, Illinois 1,673,062 5,455,800 7,128,862 949,204 1979-80 12/27/88, 6/8/89
1850 Westfork Drive,
Lithia Springs, Georgia 788,008 3,106,124 3,894,132 543,288 1988 1/6/89
1345 Doolittle Drive,
San Leandro, California 4,026,313 7,622,884 11,649,197 1,444,411 1964 5/18/89
RETAIL
Richland Mall, Richland Township,
Pennsylvania 1,115,535 12,373,357 13,488,892 2,359,053 1974-75 7/19/88
Northland Center, Southfield, Michigan 7,424,476 35,748,681 43,173,157 1,257,305 1954 7/22/94
OFFICE
Sentry Park West, Montgomery County,
Pennsylvania 2,651,385 26,038,196 28,689,581 4,702,943 1988 12/22/88
The Bank of Delaware Building,
Wilmington, Delaware 4,000,000 6,283,108 10,283,108 136,260 1970 11/15/94
----------- ------------ ------------ -----------
$24,441,111 $101,895,291 $126,336,402 $12,421,010
=========== ============ ============ ===========
</TABLE>
F-25
<PAGE> 62
SCHEDULE IV
<TABLE>
<CAPTION>
EML ASSOCIATES
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
FACE CARRYING BALLOON
FINAL PERIODIC AMOUNT AMOUNT PAYMENT
INTEREST MATURITY PAYMENT 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 year $30,115,465 $27,831,834 $82,704,374
Interest accrued on zero coupons 614,944 2,283,631 3,772,823
Repayment/write-off of mortgage note 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 a total of $9,823,108
of zero coupon mortgage notes 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-26
<PAGE> 63
EXHIBIT INDEX
4. (a) Amended and Restated Agreement of Limited Partnership of ML/EQ
Estate Portfolio, L.P. 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 Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1987 of ML/EQ Real Estate Portfolio, L.P. (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 of ML/EQ (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 the
Partnership (incorporated by reference to Exhibit 10(e) to the 1987
10-K).
(e) Assignment Agreement between ML/EQ 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)).
-36-
<PAGE> 64
(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)).
(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
-37-
<PAGE> 65
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
Center L.P. (formerly Equitable Real Estate Shopping Centers L.P.)
(incorporated by reference to Exhibit 10(v) to Form 10-K for the
year ended December 31, 1994 of EREIM LP Associates) (the "1994
Form 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
Form 10-K).
(x) Lease Termination Agreement dated as of January 27, 1995 by and
between The Equitable Life Assurance Society of the United States
and Kohl's Department Stores (incorporated by reference to Exhibit
10(x) to the 1994 Form 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 Form 10-K).
-38-
<PAGE> 66
(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 Form 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 of ML/EQ Real Estate Portfolio, L.P.
for the quarter ended June 30, 1988 (incorporated by reference to
File No. 33-11064)
(c) Current Report on Form 8-K of ML/EQ Real Estate Portfolio, L.P
dated July 19, 1988 (incorporated by reference to File No.
33-11064).
(d) Current Report on Form 8-K of ML/EQ Real Estate Portfolio, L.P.
dated September 27, 1988 (incorporated by reference to File No.
33-11064).
(e) Current Report on Form 8-K of ML/EQ Real Estate Portfolio, L.P.
dated December 2, 1988 (incorporated by reference to File No.
33-11064).
(f) Current Report on Form 8-K of ML/EQ Real Estate Portfolio, L.P.
dated December 27, 1988 (incorporated by reference to File No.
33-11064).
(g) Current Report on Form 8-K of ML/EQ Real Estate Portfolio, L.P.
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 Annual Report on Form 10-K for the
year ended December 31, 1995, of Midwest Shopping Centers, L.P.
File No. 1-9331)
-39-
<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 REFERENCE 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> 10,000
<SECURITIES> 0
<RECEIVABLES> 186,074
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 196,074
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,743,147
<CURRENT-LIABILITIES> 33,617
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,962,929
<TOTAL-LIABILITY-AND-EQUITY> 32,743,147
<SALES> 0
<TOTAL-REVENUES> 2,199,500
<CGS> 0
<TOTAL-COSTS> 119,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,024,609
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,024,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,024,609
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
