<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ______________________ to _______________________
Commission file number 33-11064
--------
EREIM LP Associates
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its governing instrument)
New York 58-1739527
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(State of Organization) (I.R.S. Employer Identification No.)
787 Seventh Avenue, New York, New York 10019
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(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (212) 554-1926
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes --X-- No
----- -----
<PAGE> 2
EREIM LP ASSOCIATES
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial statements:
Balance sheets at September 30, 1997 and December 31, 1996
Statements of income for the three and nine months ended
September 30, 1997 and 1996
Statement of partners' capital for the nine months ended
September 30, 1997
Statements of cash flows for the nine months ended September
30, 1997 and 1996
Notes to financial statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
<PAGE> 3
EREIM LP ASSOCIATES
BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
- ------
Cash $ 10,000 $ 10,000
Guaranty fee receivable from affiliate (Note 1) 90,862 182,980
Investment in joint venture, at equity (Note 2) 30,534,478 32,894,839
------------ ------------
TOTAL ASSETS $ 30,635,340 $ 33,087,819
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Deferred guaranty fee (Note 1) $ 1,309,951 $ 1,497,086
Due to affiliates 2,434 5,260
Accrued liabilities 19,362 22,712
------------ ------------
TOTAL LIABILITIES 1,331,747 1,525,058
------------ ------------
PARTNERS' CAPITAL:
General partners:
Equitable 30,217,454 32,548,098
EREIM LP Corp. (913,861) (985,337)
------------ ------------
TOTAL PARTNERS' CAPITAL 29,303,593 31,562,761
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 30,635,340 $ 33,087,819
============ ============
</TABLE>
See notes to financial statements.
-3-
<PAGE> 4
EREIM LP ASSOCIATES
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
-------------------- -------------------
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Equity in net income of joint venture (Note 2) $ 415,894 $ 570,265 $1,459,639 $1,510,967
Guaranty fee from affiliate (Note 1) 153,239 154,029 457,217 460,714
---------- ---------- ---------- ----------
TOTAL REVENUE 569,133 724,294 1,916,856 1,971,681
---------- ---------- ---------- ----------
EXPENSES:
Advisory fees -- 31,924 -- 94,494
General and administrative 7,012 7,012 21,037 23,166
---------- ---------- ---------- ----------
TOTAL EXPENSES 7,012 38,936 21,037 117,660
---------- ---------- ---------- ----------
NET INCOME $ 562,121 $ 685,358 $1,895,819 $1,854,021
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 5
EREIM LP ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
<TABLE>
<CAPTION>
EREIM
Equitable LP Corp. Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1996 $ 32,548,098 $ (985,337) $ 31,562,761
Capital contributions 26,941 272 27,213
Distributions to partners (3,781,800) (400,400) (4,182,200)
Net income 1,424,215 471,604 1,895,819
------------ ------------ ------------
Balance, September 30, 1997 $ 30,217,454 $ (913,861) $ 29,303,593
============ ============ ============
</TABLE>
See notes to financial statements.
-5-
<PAGE> 6
EREIM LP ASSOCIATES
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 1,895,819 $ 1,854,021
----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of joint venture (1,459,639) (1,510,967)
Distributions from joint venture 3,820,000 600,000
Decrease in guaranty fee receivable from affiliate 92,118 94,424
Decrease in deferred guaranty fee (187,135) (187,136)
Decrease in due to affiliates (2,826) (5,930)
Decrease in accrued liabilities (3,350) (6,728)
----------- -----------
Total adjustments 2,259,168 (1,016,337)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,154,987 837,684
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Contributions from general partners 27,213 130,318
Distributions to general partners (4,182,200) (968,002)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (4,154,987) (837,684)
----------- -----------
NET CHANGE IN CASH -- --
CASH AT BEGINNING OF PERIOD 10,000 10,000
----------- -----------
CASH AT END OF PERIOD $ 10,000 $ 10,000
=========== ===========
</TABLE>
See notes to financial statements.
-6-
<PAGE> 7
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
The financial statements of the Partnership included herein have been prepared
by the Partnership pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the accompanying unaudited
financial statements reflect all adjustments, which are of a normal recurring
nature, to present fairly the Partnership's financial position, results of
operations and cash flows at the dates and for the periods presented. These
financial statements should be read in conjunction with the Partnership's
audited financial statements and notes thereto included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1996, as certain
footnote disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report. Interim results
of operations are not necessarily indicative of results to be expected for the
fiscal year.
1. GUARANTY AGREEMENT
The Partnership has entered into a guaranty agreement with EML Associates (the
"Venture"), a joint venture in which the Partnership holds a 20% interest and
invests in income-producing real properties and a fixed-rate mortgage loan, to
provide a minimum return to ML/EQ Real Estate Portfolio, L.P.'s ("ML/EQ")
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 capital contributions calculated from the
dates of ML/EQ's investor closings at which investors acquired their Beneficial
Assignee Certificates ("BAC's"). 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 September 30, 1997, 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 September 30, 1997 is limited to $228,963,170, 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 The Equitable Life Assurance Society of
the United States ("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) two percent of the total admitted assets of
Equitable (as determined in accordance with New York Insurance Law) or (ii)
$271,211,250. The Keep Well Agreement provides that only EREIM LP Corp. and its
successors will have the right to enforce Equitable's obligations 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 September
30, 1997, the cumulative 9.75% simple annual return was $99,554,795. As of
September 30, 1997, cumulative distributions by ML/EQ to the BAC Holders totaled
$31,796,793, of which $26,307,492 is attributable to income from operations and
$5,489,301 is attributable to sales of Venture assets, principal payments on
mortgage loans, and other capital events. To the extent that future cash
distributions to the limited partners of ML/EQ are insufficient to meet the
specified minimum return, any shortfall will be funded by the guaranty, up to
the above described maximum.
-7-
<PAGE> 8
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
2. INVESTMENT IN JOINT VENTURE
In March 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.
In May 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 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 the
collateral, Brookdale Center, was transferred to Equitable and the Venture on
December 16, 1996 as tenants in common, pursuant to a Chapter 11 bankruptcy plan
of reorganization filed with the Bankruptcy Court by the borrower. In July 1997,
the Venture and Equitable received an offer to purchase Brookdale Center and
subsequently executed a binding purchase and sale agreement in October whereby
Talisman Brookdale L.L.C. agreed to purchase Brookdale Center for $24,830,000,
of which the Venture's portion is approximately $17,793,000. The Venture, in
which the Partnership holds a 20% interest, holds a 71.66% participation
interest in Brookdale Center. Management anticipates making a special
distribution of the net proceeds shortly after the transaction is complete.
Based on the amendment to the Joint Venture Agreement effective as of January
1, 1997, EREIM LP Associates agreed to defer, without interest, its right to
receive 20% of the Venture's distribution of sale and financing proceeds,
thereby entitling ML/EQ to receive currently 100% of the sale and financing
proceeds attributable to the sale. A closing is anticipated to occur prior to
year end, subject to customary closing conditions. At September 30, 1997,
Brookdale Center was classified as held for sale; no gain or loss was recorded
as a result of the reclassification.
-8-
<PAGE> 9
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
2. INVESTMENT IN JOINT VENTURE (Continued)
The financial position and results of operations of the Venture are summarized
as follows:
SUMMARY OF FINANCIAL POSITION
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
September 30 December 31
------------- -------------
<S> <C> <C>
Assets:
Rental properties $ 132,420,648 $ 145,197,804
Rental properties held for sale 15,389,863 --
Accumulated depreciation (18,656,992) (15,886,436)
------------- -------------
Net rental properties 129,153,519 129,311,368
Mortgage loan receivable 6,000,000 6,000,000
Cash and cash equivalents 11,355,662 25,329,713
Accounts receivable and accrued investment income 3,762,268 3,532,898
Deferred rent concessions 2,300,611 2,178,371
Deferred leasing costs 1,046,753 1,167,420
Prepaid expenses and other assets 1,566,640 683,920
Interest receivable 42,084 111,134
------------- -------------
Total assets $ 155,227,537 $ 168,314,824
============= =============
Liabilities and equity:
Accounts payable and accrued real estate expenses $ 2,367,411 $ 2,194,256
Accrued capital expenditures 561,156 1,120,796
Security deposits and unearned rent 768,278 525,578
Other liabilities 358,304 --
Joint venturers' equity 151,172,388 164,474,194
------------- -------------
Total liabilities and equity $ 155,227,537 $ 168,314,824
============= =============
Partnership's share of joint venture equity $ 30,534,478 $ 32,894,839
============= =============
</TABLE>
-9-
<PAGE> 10
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
2. INVESTMENT IN JOINT VENTURE (Continued)
SUMMARY STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenue:
Rental income $19,067,500 $14,814,521
Lease termination income 132,840 62,171
Interest on loans receivable 461,250 2,753,488
----------- -----------
Total revenue 19,661,590 17,630,180
----------- -----------
Operating expenses:
Real estate operating expenses 7,272,728 5,938,809
Depreciation and amortization 3,213,676 2,891,678
Real estate taxes 2,478,275 1,690,027
Property management fees 420,380 347,502
----------- -----------
Total operating expenses 13,385,059 10,868,016
----------- -----------
Income from property operations 6,276,531 6,762,164
----------- -----------
Other income:
Interest and other nonoperating income 1,021,666 792,670
----------- -----------
Total other income 1,021,666 792,670
----------- -----------
Net income $ 7,298,197 $ 7,554,834
=========== ===========
Partnership's share of equity in net income of joint venture $ 1,459,639 $ 1,510,967
=========== ===========
</TABLE>
-10-
<PAGE> 11
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
3. LEGAL PROCEEDINGS
The Partnership is a defendant in a consolidated action brought in the Court of
Chancery of the State of Delaware entitled In Re: ML/EQ Real Estate Partnership
Litigation. The consolidated action results from two related cases. Scher v.
ML/EQ Real Estate Portfolio, L.P., et al., was served on ML/EQ on July 14, 1997.
On September 8, 1997, the Partnership was named as a defendant in Follette v.
ML/EQ Real Estate Portfolio, L.P., et al., a substantially similar complaint,
also brought in the Court of Chancery of the State of Delaware. The cases were
consolidated pursuant to a stipulation between the parties by order of the court
on October 3, 1997. In addition to the Partnership, the complaint names as
defendants EREIM Managers Corp., Equitable, Equitable Real Estate Investment
Management, Inc., EREIM L.P. Corp. and ML/EQ.
The Plaintiffs purport to sue on behalf of a class of all limited partners of
ML/EQ who purportedly have been or will be adversely affected by the conduct of
the defendants. The complaint alleges that the defendants have caused the
Venture to accumulate excessive cash rather than distribute it to the limited
partners, and that defendants' motive in so doing was (i) to manipulate ML/EQ's
cash flow so as to limit certain defendants' exposure under the guarantee
agreement and (ii) to secure for certain defendants additional fees. The
complaint also alleges that defendants have utilized the Venture to provide
liquidity for illiquid assets and to acquire and continue to hold
under-performing properties. The complaint purports to state claims for breach
of fiduciary duties, breach of contract, and aiding and abetting breach of
fiduciary duties. The complaint requests, among other things, money damages in
an unspecified amount and orders that defendants distribute to the purported
class the cash which defendants have allegedly wrongfully failed to distribute
and disgorge all earnings, profits, interests and other benefits which they
have realized on account of their allegedly wrongful conduct. The Partnership
intends to defend vigorously against these claims. On November 6, 1997,
defendants asserted the complaint, denying any wrongdoing. Additionally,
defendants have noticed a motion to dismiss the case on the pleadings in the
Delaware Court of Chancery. Although the outcome of any litigation cannot be
predicted with certainty, particularly in the early stages of an action, the
Partnership's management believes that the ultimate resolution of the
litigation should not have a material adverse effect on the financial condition
of the Partnership. Due to the early stage of such litigation, the
Partnership's management cannot make an estimate of loss, if any, or predict
whether or not such litigation will have a material adverse effect on the
Partnership's results of operations in any particular period.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the results of operations and financial
condition of the Partnership should be read in conjunction with the financial
statements and the related notes to financial statements included elsewhere
herein.
Liquidity and Capital Resources
As of September 30, 1997, the Partnership had cash of $10,000. The cash
is expected to be used for general working capital purposes. The Partnership may
establish additional working capital reserves as the General Partners from time
to time determine are appropriate. In addition, at September 30, 1997, the
Venture, in which the Partnership owns a 20% interest, had approximately $11.4
million in cash and cash equivalents. This money was retained for the specific
purpose of funding ongoing capital improvement programs for The Bank of Delaware
Building and Richland Mall and as otherwise required.
Management continues to evaluate appropriate strategies for the ownership
of each of the assets in the portfolio in order to achieve maximum value. In
this regard, we take into account improving capital markets and investment
markets for most types of real estate; local market conditions; future capital
needs, including potential lease exposure for specific properties; and other
issues that impact property performance. Among other things, this analysis will
provide the basis for hold/sell recommendations for the properties.
On December 16, 1996, Brookdale Center was transferred to the Venture
and Equitable, as tenants in common (collectively, the "Owners"), following
default by the borrower on the mortgage note securing the property. The Owners
considered alternative strategies for Brookdale Center, and ultimately
determined that the best course of action was to sell the property. In July
1997, the Owners received an offer to purchase Brookdale Center and subsequently
executed a binding purchase and sale agreement in October whereby Talisman
Brookdale L.L.C. agreed to purchase Brookdale Center for $24,830,000, of which
the Venture's portion is approximately $17,793,000. The Venture, in which the
Partnership holds a 20% interest, holds a 71.66% participation interest in
Brookdale Center. Management anticipates making a special distribution of the
net proceeds shortly after the transaction is complete. Based on the amendment
to the Joint Venture Agreement effective as of January 1, 1997, EREIM LP
Associates agreed to defer, without interest, its right to receive 20% of the
Venture's distribution of sale and financing proceeds, thereby entitling ML/EQ
to receive currently 100% of the sale and financing proceeds attributable to
the sale. A closing is anticipated to occur prior to year end, subject to
customary closing conditions.
Given the improving capital markets and the investment climate for
industrial properties, Management has decided to market the four Chicago
Industrial properties for sale. To that end, a brokerage firm has been engaged.
If offers to purchase the properties are within the expected price range,
Management anticipates the properties will be sold.
Management has established an enhancement, stabilization, and
renovation program for The Bank of Delaware Building which was transferred to
the Venture by deed in lieu of foreclosure on November 15, 1994. Estimated costs
for this program total $4.4 million, of which $1.6 million was incurred in 1995,
$1.2 million was incurred in 1996, and the balance is expected to be expended
through 1999. As of September 30, 1997, approximately $2.9 million of these
costs had been expended.
Included in the estimated $4.4 million of renovation expenditures is
approximately $2.3 million for asbestos abatement, $400,000 for sprinkler
installation, $400,000 for exterior deferred maintenance and $600,000 for
interior and exterior common area cosmetic upgrades. Management expects the
cosmetic upgrades to give the building a fresher, more inviting look. Additional
costs not included in the above figures are estimated tenant improvements of
$3.0 million. The tenant improvement costs are directly associated with actual
leasing and will only be expended as leasing transactions occur in the building.
As of September 30, 1997, approximately $619,000 has been expended for tenant
improvements. The remaining tenant improvement costs of approximately $2.4
million are expected to be expended over the next few years to lease the
currently vacant space.
The Venture expects to incur costs of approximately $3.8 million to
increase tenancy at Richland Mall, including $2.1 million for tenant
improvements in connection with leasing approximately 55,000 square feet of
space to Redner's Market. Management has executed a lease with Redner's Market
that will expand the current 26,000 square foot vacant grocery to approximately
55,000 square feet in order to accommodate the tenant's requirements. The
Redner's Market lease is for an initial 20-year term with renewal options
thereafter. The balance of approximately $1.7 million is to be expended in
connection with the relocation of tenants in order to accommodate Redner's as
well as other work required in connection with the project. Additional funds may
be expended in connection with any future leasing at the property. Of the total
$3.8 million to be expended, approximately $2.3 million of these costs have been
incurred as of September 30, 1997.
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to Note 1 in the Notes to Financial Statements for
information regarding the Guaranty Agreement issued by the Partnership to the
Venture and assigned to ML/EQ, and the related Keep Well Agreement between EREIM
LP Corp. and Equitable.
Financial Condition
The Partnership's financial statements reflect its proportional
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 and first mortgages.
The decrease in investment in joint venture to $30.5 million at
September 30, 1997 as compared to $32.9 million at December 31, 1996 resulted
from the excess of actual cash distributions from the Venture over equity in net
income of the Venture. The decrease in Equitable's capital account to $30.2
million at September 30, 1997 as compared to $32.5 million at December 31,
1996 is attributable to cash distributions by the Partnership to Equitable
exceeding Equitable's share of net income of the Partnership.
Results of Operations
The Partnership did not incur any advisory fees for the three and nine
months ended September 30, 1997 compared to approximately $32,000 and $94,000
for the three and nine months ended September 30, 1996. No advisory fees were
incurred due to a change in the allocation of fees to the Partnership from
Equitable.
Certain Forward-Looking Information
Certain of the statements contained in this Quarterly Report on Form
10-Q constitute forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements include, without limitation,
statements regarding the sale of Brookdale Center and future capital
expenditures relating to renovation and development activities. These
forward-looking statements are included in this Quarterly Report on Form 10-Q
based on the intent, belief or current expectations of the Partnership. However,
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. Although the Partnership believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, it can
give no assurance that its expectations will be achieved. Factors that could
cause actual results to differ materially from the Partnership's current
expectations include general local market conditions, the investment climate for
particular property types, individual property issues, construction delays due
to unavailability of materials, weather conditions or other causes, leasing
activities, and the other risks detailed from time to time in the Partnership's
SEC reports, including the report on Form 10-K for the year ended December 31,
1996.
-13-
<PAGE> 14
PART II
Item l. Legal Proceedings
The Partnership is a defendant in a consolidated action brought in the
Court of Chancery of the State of Delaware entitled In Re: ML/EQ Real Estate
Partnership Litigation. The consolidated action results from two related cases.
Scher v. ML/EQ Real Estate Portfolio, L.P., et al., was served on ML/EQ on July
14, 1997. On September 8, 1997, the Partnership was named as a defendant in
Follette v. ML/EQ Real Estate Portfolio, L.P., et al., a substantially similar
complaint, also brought in the Court of Chancery of the State of Delaware. The
cases were consolidated pursuant to a stipulation between the parties by order
of the court on October 3, 1997. In addition to the Partnership, the complaint
names as defendants EREIM Managers Corp., Equitable, Equitable Real Estate
Investment Management, Inc., EREIM L.P. Corp. and ML/EQ.
The Plaintiffs purport to sue on behalf of a class of all limited
partners of ML/EQ who purportedly have been or will be adversely affected by the
conduct of the defendants. The complaint alleges that the defendants have caused
the Venture to accumulate excessive cash rather than distribute it to the
limited partners, and that defendants' motive in so doing was (i) to manipulate
ML/EQ's cash flow so as to limit certain defendants' exposure under the
guarantee agreement and (ii) to secure for certain defendants additional fees.
The complaint also alleges that defendants have utilized the Venture to provide
liquidity for illiquid assets and to acquire and continue to hold
under-performing properties. The complaint purports to state claims for breach
of fiduciary duties, breach of contract, and aiding and abetting breach of
fiduciary duties. The complaint requests, among other things, money damages in
an unspecified amount and orders that defendants distribute to the purported
class the cash which defendants have allegedly wrongfully failed to distribute
and disgorge all earnings, profits, interests and other benefits which they have
realized on account of their allegedly wrongful conduct. The Partnership intends
to defend vigorously against these claims. On November 6, 1997, defendants
asserted the complaint, denying any wrongdoing. Additionally, defendants have
noticed a motion to dismiss the case on the pleadings in the Delaware Court of
Chancery. Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, the Partnership's
management believes that the ultimate resolution of the litigation should not
have a material adverse effect on the financial condition of the Partnership.
Due to the early stage of such litigation, the Partnership's management cannot
make an estimate of loss, if any, or predict whether or not such litigation will
have a material adverse effect on the Partnership's results of operations in any
particular period.
Item 2. Changes in Securities
Response: None
Item 3. Default Upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
Response:
a) Exhibits
27 Financial Data Schedule (for SEC filing purposes only)
-14-
<PAGE> 15
b) Reports
None
-15-
<PAGE> 16
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EREIM LP Associates
By: EREIM LP Corp.
General Partner
By: Patricia C. Snedeker
------------------------------
Patricia C. Snedeker
Vice President, Controller
and Treasurer
(Principal Accounting Officer)
Dated: November 14, 1997
-16-
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule (for SEC filing purposes only)
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EREIM LP ASSOCIATES FOR THE PERIOD ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,000
<SECURITIES> 0
<RECEIVABLES> 90,862
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,862
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,635,340
<CURRENT-LIABILITIES> 21,796
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,303,593
<TOTAL-LIABILITY-AND-EQUITY> 30,635,340
<SALES> 0
<TOTAL-REVENUES> 1,916,856
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,895,819
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,895,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,895,819
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
