<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
OR
[x] 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
(State of Organization) (I.R.S. Employer Identification No.)
787 Seventh Avenue, New York, New York 10019
(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 June 30, 1998 and
December 31, 1997
Statements of income for the three and six
months ended June 30, 1998 and 1997
Statement of partners' capital for the six
months ended June 30, 1998
Statements of cash flows for the six months
ended June 30, 1998 and 1997
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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EREIM LP ASSOCIATES
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
- ------ ------------ ------------
<S> <C> <C>
Cash $ 10,000 $ 10,000
Guaranty fee receivable from affiliate (Note 1) 130,476 180,367
Investment in joint venture, at equity (Note 2) 31,210,347 31,508,850
------------ ------------
TOTAL ASSETS $ 31,350,823 $ 31,699,217
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Deferred guaranty fee (Note 1) $ 1,122,815 $ 1,247,572
Due to affiliates 36,751 10,590
Accrued liabilities 6,082 18,219
------------ ------------
TOTAL LIABILITIES 1,165,648 1,276,381
------------ ------------
PARTNERS' CAPITAL:
General partners:
Equitable 30,865,738 31,175,140
EREIM LP Corp. (680,563) (752,304)
------------ ------------
TOTAL PARTNERS' CAPITAL 30,185,175 30,422,836
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 31,350,823 $ 31,699,217
============ ============
</TABLE>
See notes to financial statements.
<PAGE> 4
EREIM LP ASSOCIATES
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Equity in net income (loss) of joint venture (Note 2) $ (316,671) $ 473,500 $ 33,088 1,043,745
Guaranty fee from affiliate (Note 1) 123,806 152,253 255,233 303,978
---------- ---------- ---------- ----------
TOTAL REVENUE (192,865) 625,753 288,321 1,347,723
---------- ---------- ---------- ----------
EXPENSES:
General and administrative 7,012 7,013 14,024 14,025
---------- ---------- ---------- ----------
TOTAL EXPENSES 7,012 7,013 14,024 14,025
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (199,877) $ 618,740 $ 274,297 $1,333,698
========== ========== ========== ==========
</TABLE>
See notes to financial statements
<PAGE> 5
EREIM LP ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(unaudited)
<TABLE>
<CAPTION>
EREIM
Equitable LP Corp. Total
------------- ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1997 $ 31,175,140 $ (752,304) $ 30,422,836
Capital contributions -- -- --
Distributions to partners (328,275) (183,683) (511,958)
Net income 18,873 255,424 274,297
------------ ------------ ------------
Balance, June 30, 1998 $ 30,865,738 $ (680,563) $ 30,185,175
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE> 6
EREIM LP ASSOCIATES
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 274,297 $ 1,333,698
----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of joint venture (33,088) (1,043,745)
Distributions from joint venture 331,591 --
Decrease in guaranty fee receivable from affiliate 49,891 3,760
Decrease in deferred guaranty fee (124,757) (124,757)
Increase in due to affiliates 26,161 4,501
Increase (decrease) in accrued liabilities (12,137) 9,523
----------- -----------
Total adjustments 237,661 (1,150,718)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 511,958 182,980
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to general partners (511,958) (182,980)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (511,958) (182,980)
----------- -----------
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.
<PAGE> 7
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(unaudited)
The financial statements of EREIM LP Associates ("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, 1997, 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 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 ("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 June 30, 1998 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 there are no distributions until December 31, 2002, the expiration of
the term of ML/EQ, the maximum liability of the Partnership to the Venture
under the guaranty agreement as of June 30, 1998 is limited to
$180,657,022, 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 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 obligation with
respect to the guaranty agreement.
Capital contributions by the BAC holders of ML/EQ totaled $108,484,500. As
of June 30, 1998, the cumulative 9.75% simple annual return was
$105,682,834. As of June 30, 1998, cumulative distributions by ML/EQ to the
BAC holders totaled $64,396,385, of which $26,307,492 is attributable to
income from operations and $38,088,893 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 provide the specified minimum return, any shortfall
will be funded by the guarantor, up to the above described maximum.
<PAGE> 8
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(unaudited)
1. GUARANTY AGREEMENT (Continued)
Effective as of January 1, 1997, the Partnership entered into an amendment
to the Joint Venture Agreement of the Venture between the Partnership and
ML/EQ pursuant to which the Partnership agreed to defer, without interest,
its rights to receive 20% of the Venture's distributions of sale or
financing proceeds until ML/EQ has received aggregate distributions from
the Venture in an amount equal to the capital contributions made to ML/EQ
by the BAC holders plus a noncompounded cumulative return computed at the
rate of 9.75% per annum on contributions outstanding from time to time.
Prior to the amendment, the Partnership had a right to receive 20% of all
the Venture's distributions of sale or financing proceeds on a pari passu
basis with ML/EQ. The amendment has the effect of accelerating the return
of original contributions to BAC holders to the extent that sale or
financing proceeds are realized prior to the dissolution of ML/EQ.
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 for
reorganization filed with the Bankruptcy Court by the borrower.
During 1997, the Venture consummated the sale of Brookdale Center and the
Chicago Industrial properties. Brookdale Center was sold for a cash price
of $24,830,000, of which the Venture's portion was $17,793,352. Prior to
the sale, the Venture held a 71.66% interest in Brookdale Center. The sale
of Brookdale Center resulted in net sales proceeds of $17,734,260. The
Chicago Industrial properties were sold for a cash price of $7,860,000,
which results in net sales proceeds of $7,649,000.
Management evaluates appropriate strategies for the ownership of each of
the assets in the portfolio in order to achieve maximum value. As a result
of this evaluation, management has decided to market for sale the 1200
Whipple Road, 1345 Doolittle Drive, Richland Mall, 300 Delaware and 16/18
Sentry Park West properties. To that end, brokerage firms have been
engaged. If offers to purchase the properties are within the targeted price
range, management expects the properties to be sold. As of June 30, 1998,
these properties are classified as held for sale. A loss of $2,931,890 was
recorded as a result of the reclassification of Richland Mall. Management,
through discussions with real estate brokers, determined that the carrying
value for Richland Mall was in excess of the estimated market value. The
Venture has established a valuation allowance for the asset to reduce the
carrying value to represent management's best estimate of the property's
market value less selling costs. For each of the other properties
classified as held for sale, management believes that the carrying value
does not exceed market value less selling costs. For the three and six
months ended June 30, 1998, income from property operations includes
approximately $719,000, or 52% and $1,327,000, or 45%, respectively, of
income from the five rental properties held for sale.
<PAGE> 9
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(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
JUNE 30, 1998 AND DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
June 30 December 31
------------ ------------
<S> <C> <C>
Assets:
Rental properties, net of accummulated depreciation of
$5,584,995 in 1998 and $18,371,261 in 1997 $ 43,387,261 $109,235,378
Rental properties held for sale 62,170,341 --
------------ ------------
Net rental properties 105,557,602 109,235,378
Mortgage loan receivable 6,000,000 6,000,000
Cash and cash equivalents 6,777,574 19,282,597
Accounts receivable and accrued investment income 2,696,788 3,364,216
Deferred rent concessions 2,062,521 2,159,595
Deferred leasing costs 1,310,901 1,399,382
Prepaid expenses and other assets 419,126 807,596
Interest receivable 78,432 99,848
------------ ------------
Total assets $124,902,944 $142,348,612
============ ============
Liabilities and equity:
Accounts payable and accrued real estate expenses $ 1,522,014 $ 1,737,566
Accrued capital expenditures 247,462 1,566,226
Security deposits and unearned rent 494,965 683,546
Joint venturers' equity 122,638,503 138,361,274
------------ ------------
Total liabilities and equity $124,902,944 $142,348,612
============ ============
Partnership's share of joint venture equity $ 31,210,347 $ 31,508,850
============ ============
</TABLE>
<PAGE> 10
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(unaudited)
2. INVESTMENT IN JOINT VENTURE (Continued)
SUMMARY STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenue:
Rental income $ 10,087,457 $ 12,847,174
Lease termination income 12,501 132,840
Interest on loans receivable 307,500 307,500
------------ ------------
Total revenue 10,407,458 13,287,514
------------ ------------
Operating expenses:
Real estate operating expenses 4,029,815 4,692,360
Depreciation and amortization 2,118,228 2,140,880
Real estate taxes 1,084,285 1,654,968
Property management fees 222,570 286,413
------------ ------------
Total operating expenses 7,454,898 8,774,621
------------ ------------
Income from property operations 2,952,560 4,512,893
------------ ------------
Other income (expense):
Loss on write-down of real estate assets (2,931,890)
General and administrative expense (108,021) --
Interest and other nonoperating income 252,790 705,833
------------ ------------
Total other income (expense), net (2,752,926) 705,833
------------ ------------
Net income $ 165,439 $ 5,218,726
============ ============
Partnership's share of equity in net income of joint
venture $ 33,088 $ 1,043,745
============ ============
- ------------------------------------------------------------------------------------------
</TABLE>
3. LEGAL PROCEEDINGS
As discussed in the Notes to Financial Statements of the Partnership's
December 31, 1997 audited financial statements, the Partnership is a
defendant in a consolidated action brought in the Court of Chancery of the
State of Delaware entitled IN RE: ML/EQ Real Estate Partnership Litigation.
There have been no new developments associated with this action for the six
months ended June 30, 1998.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the 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.
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 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 Annual Report
on Form 10-K for the year ended December 31, 1997.
Liquidity and Capital Resources
As of June 30, 1998, the Partnership had cash of $10,000. The cash is
expected to be used for general working capital requirements. The Partnership
may establish additional working capital reserves as the General Partners from
time to time determine are appropriate. In addition, at June 30, 1998, the
Venture, in which the Partnership owns a 20% interest, had approximately $6.8
million in cash and cash equivalents. This money was retained for the specific
purpose of funding the renovation work on 300 Delaware, to fund possible costs
to be incurred to increase tenancy at Northland Mall, 1850 Westfork and Richland
Mall and to cover general working capital requirements.
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, management takes 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 provides the basis for hold/sell recommendations for the
properties. As a result of the evaluation, management has decided to market for
sale the 1200 Whipple Road, 1345 Doolittle Drive, Richland Mall, 300 Delaware
and 16/18 Sentry Park West properties. To that end, brokerage firms have been
engaged. If offers to purchase the properties are within the targeted price
range, management expects the properties to be sold. As of June 30, 1998, these
properties are classified as held for sale. A loss of $2,931,890 was recorded as
a result of the reclassification of Richland Mall. Management, through
discussions with real estate brokers, determined that the carrying value for
Richland Mall was in excess of the estimated market value. The Venture has
established a valuation allowance for the asset to reduce the carrying value to
represent management's best estimate of the property's market value less selling
costs. In an effort to refocus the marketing strategy for 1850 Westfork,
management has selected a broker to market the property for sale or lease. While
there is no guarantee that efforts to sell these properties will be successful,
management will continue to look for selling opportunities. Additionally,
management continues to evaluate appropriate strategies for Northland Mall.
While management has not engaged a broker to market the property for sale,
several brokers have provided an evaluation of the property to help determine an
appropriate plan of action for an exit strategy.
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 1997, whereby Talisman
Brookdale L.L.C. agreed to purchase Brookdale Center for approximately $24.8
million, of which the Venture's portion was approximately $17.8 million. The
Venture, in which the Partnership holds a 20% interest, held a 71.66%
participation interest in Brookdale Center. In November 1997, the Venture sold
Brookdale Center to Talisman Brookdale L.L.C. and made a special distribution of
the net proceeds in December 1997. Based on the amendment to the Joint Venture
Agreement effective as of January 1, 1997, the Partnership agreed to defer,
without interest, its right to receive currently 100% of the sale or financing
proceeds attributable to the sale.
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Management has established an enhancement, stabilization, and
renovation program for 300 Delaware 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, $398,000 was incurred in 1997, $268,000 was incurred for the
six months ended June 30, 1998, and the remaining balance is expected to be
expended through 1998. As of June 30, 1998, approximately $3.4 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. The deferred maintenance
and cosmetic upgrades have been substantially completed as of June 30, 1998.
Management expects to complete the asbestos abatement and sprinkler installation
projects by the end of 1998. Additional costs not included in the above figures
are estimated tenant improvements of $4.7 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 June 30, 1998, approximately $2.0
million had been expended for tenant improvements. The remaining tenant
improvement costs of approximately $2.7 million are expected to be expended over
the next few years in connection with leasing the currently vacant space.
As of June 30, 1998, the Venture has incurred costs of approximately
$3.8 million to renovate Richland Mall and to increase tenancy at the property.
This project is near completion and management does not expect to incur any
additional significant renovation costs related to the project. One block of
vacant space remains and is being actively marketed by management.
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.
The decrease in guaranty receivable of approximately $50,000, or 28%,
from $180,000 at December 31, 1997 to $130,000 at June 30, 1998 is attributable
to the payment to EREIM LP by ML/EQ of the $180,000 guaranty fee in February,
1998, offset by the accrual of $130,000 of guaranty fee receivable for the first
six months of 1998.
Deferred guaranty fees decreased $125,000, or 10%, from $1.2 million at
December 31, 1997 to $1.1 million at June 30, 1998 due to the return of capital
distribution made in February, 1998, which lowered the basis on which the
guaranty is calculated.
Due to affiliates increased $26,000, or 247% from $11,000 at December
31, 1997 to $37,000 at June 30, 1998 due to the accrual of the Partnership's
year-end audit and tax fees which were paid by ML/EQ.
Accrued liabilities decreased $12,000, or 67%, from $18,000 at
December 31, 1997 to $6,000 at June 30, 1998 due to the timing of the payment
of invoices.
Results of Operations
Equity in net income (loss) of the Venture decreased approximately
$790,000, or 167%, and $1.0 million, or 97% for the three and six months ended
June 30, 1998, respectively from $474,000 for the three months and $1.0 million
for the six months ended June 30, 1997 to $(316,000) for the three months and
$33,000 for the six months ended June 30, 1998. The decrease is due primarily to
the valuation allowance on Richland Mall in 1998. The Venture has been in
discussions with brokers to market the property for sale. Through these
discussions, management determined that the carrying value for Richland Mall is
in excess of the estimated market value. The Venture has established a valuation
allowance for the asset to reduce the carrying value to represent management's
best estimate of the property's market value less selling costs. Also
contributing to the decrease is the sale of Brookdale Center and the Chicago
Industrial properties at the end of 1997, resulting in lower net income for the
Venture for the three and six months ended June 30, 1998.
Guaranty fee from affiliates decreased approximately $28,000, or 19%,
and $49,000, or 16% from $152,000 for the three months and $304,000 for the six
months ended June 30, 1997 to $124,000 for the three months and $255,000 for the
six months ended June 30, 1998, due to the return of capital distribution in
February, 1998, which decreased the basis on which the guaranty fee is
calculated.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Year 2000
The inability of computers, software and other equipment to recognize
and properly process data fields containing a two digit year is commonly
referred to as the Year 2000 compliance issue. As the year 2000 approaches, such
systems may be unable to accurately process certain date-based information.
The Partnership and the Venture rely on the services of third-party
providers, including Merrill Lynch & Co., Inc. and Lend Lease Corporation
Limited , for all its computing needs. Lend Lease is in the process of updating
or replacing applications, computer systems and real estate operating systems
with embedded processors that are not known to be Year 2000 compliant. This
process involves, in part, sending letters to vendors of such systems to
ascertain whether and when necessary updates, remediation or replacement will be
available. If vendors can not assure Year 2000 compliance within Lend Lease's
implementation deadlines, Lend Lease will look for alternative providers who are
able to warrant Year 2000 compliance in a timely manner. Lend Lease has not yet
determined the possible costs relating to finding alternative providers. The
Partnership and the Venture are in the process of communicating with other
third-party providers to obtain assurance that such providers will be Year 2000
compliant. There can be no assurance that the systems of such providers will be
Year 2000 compliant or that any third party's failure to have Year 2000
compliant systems will not have a material adverse effect on the Partnership and
the Venture.
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
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)
b) Reports
None
<PAGE> 15
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EREIM LP Associates
By: EREIM LP Corp.
General Partner
By: /s/Patricia C. Snedeker
-------------------------------
Patricia C. Snedeker
Vice President, Controller
and Treasurer
(Principal Accounting Officer)
Dated: August 13, 1998
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------------------------------------------------
<S> <C>
27 Financial Data Schedule (for SEC filing purposes only)
</TABLE>
<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 JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,000
<SECURITIES> 0
<RECEIVABLES> 130,476
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,350,823
<CURRENT-LIABILITIES> 1,165,648
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,185,175
<TOTAL-LIABILITY-AND-EQUITY> 31,350,823
<SALES> 0
<TOTAL-REVENUES> 288,321
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,024
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 274,297
<INCOME-TAX> 0
<INCOME-CONTINUING> 274,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274,297
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
