ITEM 1. BUSINESS
Certain of the statements contained in this Annual Report on Form 10-K 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 expected future sale of the Property (as hereinafter defined). These forward-looking statements are included in this Annual Report on Form 10-K based on the intent, belief or current expectations of the Partnership (as hereinafter defined). However, such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Although the Partnership believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that could cause actual results to differ materially from the Partnership's current expectations include general local market conditions, the investment climate for real estate, leasing activities, individual property issues, construction delays due to unavailability of materials, weather conditions or other causes, and the other risks detailed from time to time in the Partnership's reports filed with the Securities and Exchange Commission (the "SEC") .
General. The registrant, ML/EQ Real Estate Portfolio, L.P. (the "Partnership"), is a limited partnership formed on December 22, 1986 under the Revised Uniform Limited Partnership Act of the State of Delaware. The Partnership operates pursuant to the Amended and Restated Agreement of Limited Partnership dated as of April 23, 1987 as amended as of February 9, 1988 (the "Partnership Agreement"), which is included as an exhibit to this annual report. Capitalized terms used in this annual report that are not defined herein have the same meaning as in the Partnership Agreement.
The Partnership's two general partners are EREIM Managers Corp., a Delaware corporation (the "Managing General Partner"), and MLH Real Estate Associates Limited Partnership, a Delaware limited partnership (the "Associate General Partner" and, together with the Managing General Partner the "General Partners"). The Managing General Partner is an indirect, wholly-owned subsidiary of The Equitable Life Assurance Society of the United States ("Equitable") and the general partner of the Associate General Partner is an affiliate of Merrill Lynch & Co., Inc. ("Merrill Lynch").
The Managing General Partner was a wholly-owned subsidiary of Equitable Real Estate Investment Management, Inc. ("Equitable Real Estate"), which was a wholly owned subsidiary of Equitable. On June 10, 1997, Equitable sold Equitable Real Estate to a subsidiary of Lend Lease Corporation Limited. The shares of the Managing General Partner were not included in the sale and the Managing General Partner continues to be a wholly-owned indirect subsidiary of Equitable. Lend Lease Corporation Limited merged its existing U.S. real estate investment advisor, The Yarmouth Group, Inc., into Equitable Real Estate and changed the name of Equitable Real Estate to ERE Yarmouth, Inc. ("ERE Yarmouth"). On July 13, 1998, Lend Lease
Corporation Limited changed the name of ERE Yarmouth to Lend Lease Real Estate Investments, Inc. ("Lend Lease"). Lend Lease was retained by the Managing General Partner, at the Managing General Partner's expense, to continue providing the same services with respect to the Partnership, EML Associates (the "Venture"), a joint venture with EREIM LP Associates, a New York general partnership between Equitable and EREIM LP Corp., a wholly-owned subsidiary of Equitable, and the properties that Equitable Real Estate had historically provided to the Managing General Partner. The Venture was formed in March 1988. See "Advisory Agreement."
The Partnership offered to the public $150,000,000 of Beneficial Assignee Certificates (the "BACs"), which evidence the economic rights attributable to limited partnership interests in the Partnership (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 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, the Partnership's initial investor closing occurred at which time the Partnership received $92,190,120, representing the proceeds from the sale of 4,609,506 BACs. On May 3, 1988, the Partnership's final investor closing occurred at which time the Partnership received $16,294,380, representing the proceeds from the sale of an additional 814,719 BACs. In total, the Partnership realized gross proceeds of $108,484,500 from the Offering, representing the sale of 5,424,225 BACs.
Following its investor closings, the Partnership contributed the net proceeds of the Offering to the Venture. The capital of the Venture was provided approximately 80% by the Partnership and approximately 20% by EREIM LP Associates.
Effective as of January 1, 1997, the Partnership entered into an amendment to the Joint Venture Agreement of the Venture between the Partnership and EREIM LP Associates pursuant to which EREIM LP Associates agreed to defer, without interest, its rights to receive 20% of the Venture's distributions of sale or financing proceeds until the Partnership has received aggregate distributions from the Venture in an amount equal to the capital contributions made to the Partnership by the BAC holders plus a noncompounded cumulative return computed at the rate of 9.75% per annum on contributions outstanding from time to time. Prior to the amendment, EREIM LP Associates had a right to receive 20% of all of the Venture's distributions of sale or financing proceeds on a pari passu basis with the Partnership. The amendment has the effect of accelerating the return of original contributions to BAC holders to the extent that sale or financing proceeds are realized prior to the dissolution of the Partnership.
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.
Following 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, approximately 25% of such capital was invested in zero coupon or similar mortgage notes, and the balance was invested in fixed-rate first mortgage loans. The properties that secured the mortgage loans included commercial, industrial, residential, retail and warehouse/distribution properties. The Venture has an undivided interest in one property ("Northland Center" or the "Property") as a tenant in common with Equitable, which Property was transferred to the Venture and Equitable on July 22, 1994. 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. The Partnership conducts an on-going analysis of the Venture's properties as a basis for hold/sell recommendations for the properties. As a result of the analysis, three of the Venture's properties were sold in 1999. The remaining Property, Northland Center, was classified as held for sale. The Partnership is continuing its efforts to sell the remaining Property. However, there is no certainty as to when the Property will be sold. The Venture's interest in Northland Center represented approximately 100%, 49% and 37% of the real estate investments owned by the Venture as of December 31, 1999, 1998 and 1997, respectively, and approximately 71%, 53% and 42% of total revenues of the Venture for the years ended December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999, the Venture owned an undivided interest in Northland Center, originally a property that secured a zero coupon mortgage note and was transferred to the Venture and Equitable during 1994 in a deed in lieu of foreclosure transaction. The estimated fair market value of the Venture's undivided interest in the Property's zero coupon mortgage note receivable immediately preceding the transfer was approximately $32.2 million. The carrying value of the Property was adjusted to the lower of cost or estimated net realizable value, resulting in a loss of approximately $18.9 million in 1999. Reference is made to Item 2.
Item 2. PROPERTIES for information regarding percentages of space under lease for the Property, as well as information relating to the percentage of rentable space at the Property.
Competition. The Property may compete with other properties in the area in which it is located for, among other things, desirable tenants. Competitors may include properties owned or managed directly or indirectly by Equitable or Lend Lease or their subsidiaries or affiliates or by affiliates of the Associate General Partner. Owners of some of these properties may have greater resources than the Venture 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 Property may compete for business with other businesses in the area. While it is currently the intention of management to sell the Property, 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.
The Venture's income from the Property 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). See Item 2. PROPERTIES for a description of difficulties experienced by the Property.
Conflicts of Interest. Equitable and its subsidiaries and affiliates and its advisor, Lend Lease, are among the largest owners and 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 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 the Partnership'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 the Managing General Partner 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 the Partnership or the Venture.
The General Partners or their affiliates are entitled to receive various recurring fees for the supervision and administration of partnership assets and for providing the guaranty of minimum return to BAC holders and to be reimbursed for certain expenses incurred on behalf of the Partnership. At December 31, 1999, 1998 and 1997 the accrued balance for these fees and reimbursements totaled approximately $195,000, $480,000 and $630,000, respectively.
Supervisory and mortgage loan servicing fees paid by the Partnership to the Managing General Partner were approximately $362,000, $612,000, and $747,000 for the years ended December 31, 1999, 1998 and 1997, respectively. These amounts, which were then paid by the Managing General Partner at its sole expense to Lend Lease or its predecessor as asset management fees, are included in the statements of operations as asset management fees and as components of general and administrative expense.
Advisory Agreement. On June 10, 1997, in connection with Lend Lease Corporation Limited's purchase of Equitable Real Estate, the Managing General Partner entered into a real estate investment advisory agreement with Equitable Real Estate whereby Equitable Real Estate (currently known as Lend Lease) agreed to perform, at the Managing General Partner's sole expense, certain duties and obligations in respect of the Partnership. The agreement automatically terminates upon such date as (i) all of the Venture's properties are sold, (ii) all mortgage loans are paid and discharged and (iii) the affairs of the Partnership and the Venture are fully wound up, unless sooner terminated by the Managing General Partner. The agreement is terminable by the Managing General Partner (a) upon a material breach by Lend Lease, (b) for any reason or without cause upon ten days prior written notice to Lend Lease by the Managing General Partner or (c) upon the termination of the investment advisory agreement between Lend Lease and Equitable with respect to Equitable's general account.
Working Capital Reserves. The Partnership intends to maintain adequate working capital reserves to meet short and long-term commitments. The Partnership's reserves may be increased or decreased from time to time based upon the Managing General Partner's determination as to their adequacy. See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Insurance. The Property is covered under insurance contracts that provide comprehensive general liability as well as physical damage protection. Such insurance contracts also cover other properties in which Equitable, its subsidiaries, or its insurance company separate accounts have an ownership interest. Although the Venture carries comprehensive insurance on the Property, there are certain risks (such as earthquakes, floods and wars) that 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 Partnership 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 Property at an appropriate cost.
Investment Guaranty Agreement and Related Matters. Under an investment guaranty agreement dated March 10, 1988 by and between EREIM LP Associates and the Venture (the "Guaranty Agreement"), EREIM LP Associates has guaranteed to pay the Venture, if necessary, ninety days after the earlier of the sale, retirement, or other disposition of the Property, or the liquidation of the Partnership, an amount which when added to all distributions from the Partnership to the holders of BACs ("BAC Holders") will enable the Partnership 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. 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 reserve, as more particularly described in the Partnership Agreement. The limited partners' original cash contributions have been adjusted by that portion of distributions paid through December 31, 1999 resulting from cash available to the Partnership as a result of sale or financing proceeds paid by the Venture. The Minimum Return is subject to reduction in the event that certain taxes, other than local property taxes, are imposed on the Partnership or the Venture, and is also subject to certain other limitations set forth in the Prospectus. If there were no distributions until December 31, 2002, the expiration of the term of the Partnership, the maximum liability of EREIM LP Associates to the Venture under the Guaranty Agreement as of December 31, 1999 is limited to $73,813,456, 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. The unpaid cumulative Minimum Return under the Guaranty Agreement as of December 31, 1999 was $13.61 per BAC. The unpaid cumulative Minimum Return under the Guaranty Agreement does not necessarily represent the price at which a BAC may be purchased or sold. While the Partnership Agreement provides that the term of the Partnership may extend until December 31, 2002, the Partnership's present intention is to sell the remaining Property in advance of the foregoing date. The Partnership is continuing its efforts to sell the remaining Property. However, there is no certainty as to when the remaining Property will be sold.
The Venture has assigned the Guaranty Agreement to the Partnership in exchange for the Partnership's assumption of the Venture's obligations thereunder, including the obligation to pay the Guaranty Fee. Any moneys distributed by the Partnership to BAC Holders and/or limited partners of the Partnership ("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.
Capital contributions by the BAC holders to the Partnership totaled $108,484,500. As of December 31, 1999, the cumulative 9.75% simple annual return was $111,468,412. As of December 31, 1999, cumulative distributions by the Partnership to the BAC holders totaled $146,139,456, of which $27,663,548 is attributable to income from operations and $118,475,908 is attributable to sales of Venture assets, principal payments on mortgage loans, and other capital events. Management does not currently believe that future cash distributions to the Limited Partners from liquidation of Venture assets will be sufficient to provide the specified Minimum Return. Accordingly, the shortfall will be funded by the guarantor, up to the above described maximum.
The obligations of EREIM LP Associates under the Guaranty Agreement will terminate if, 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 the Partnership or (ii) the Partnership is dissolved without the consent of EREIM Managers Corp.
As described above, the general partners of EREIM LP Associates are EREIM LP Corp., a wholly-owned subsidiary of Equitable, and Equitable. The obligations of EREIM LP Associates under the Guaranty Agreement are nonrecourse to Equitable but are recourse as to EREIM LP Corp. Equitable has entered into an agreement dated as of March 10, 1988 (the "Keep Well Agreement") with EREIM LP Corp. which provides that Equitable will make capital contributions to EREIM LP Corp. in such amounts as 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. If there were no distribution until December 31, 2002, the expiration of the term of the Partnership, and subject to the foregoing description of the Guaranty Agreement, the obligations of Equitable under the Keep Well Agreement as of December 31, 1999 would be limited to $73,813,456. The Keep Well Agreement provides that only EREIM 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 EREIM LP Corp. is not for the benefit of third parties, including the Partnership 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 EREIM LP Associates and EREIM LP Corp. are insufficient to satisfy EREIM LP Associates' obligations under the Guaranty Agreement, a proceeding in bankruptcy could be commenced against EREIM 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 EREIM LP Corp. on behalf of the Partnership, MLH Real Estate Assignor Inc., the initial limited partner of the Partnership (the "Initial Limited Partner"), on behalf of BAC Holders would have a right to compel the Partnership to commence such involuntary bankruptcy proceeding.
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, 1999, 1998 and 1997, Equitable's total surplus, calculated in accordance with the statutory method of accounting, was approximately $4.02 billion, $3.17 billion and $2.46 billion, respectively. At December 31, 1999, 1998 and 1997, Equitable's total consolidated capital, calculated in accordance with the statutory method of accounting and consisting of surplus and the Asset Valuation Reserve, was approximately $5.57 billion, $4.72 billion and $3.91 billion, respectively.
AXA Financial, Inc. (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
As described above, the Partnership conducts an on-going analysis of the Venture's properties as a basis for hold/sell recommendations for the properties. As a result of the analysis on January 27, 1999, the Venture completed the sale of Richland Mall for $9.01 million. On July 23, 1999 the Venture completed the sale of the 300 Delaware Property for $8.75 million, and on October 28, 1999, the Venture completed the sale of the 16/18 Sentry Park West Property for $29.05 million. In addition, at December 31, 1999, the Venture's only remaining Property was classified as held for sale. The Partnership is continuing its efforts to sell the remaining Property. However, there is no certainty as to when the Property will be sold.
At December 31, 1999, approximately 56% of the aggregate rentable square feet of the Venture's Property was leased. Leases covering approximately 3.1%, 2.7% and 2.9% of the Property's rentable square feet are scheduled to expire in 2000, 2001 and 2002, respectively.
Set forth below is a brief description of the Venture's Property at December 31, 1999. Reference is made to Notes 3 and 4 of the Notes to Consolidated Financial Statements in Item 8. FINANCIAL STATEMENTS. The Venture has fee ownership of the land and improvements relating to the Property.
- ---------------------- (1) Excludes square feet of buildings owned by certain anchor stores and storage space.
Annual Aggregate Lease Payments to be Received (in dollars)(a)
(a) Lease payments to be received under noncancelable operating leases in effect as of December 31, 1999.
Range of Lease Expiration
Major Tenants
The following list sets forth major tenants for the Property together with percentage of space used by such tenants as of December 31, 1999:
- -----------------
(1) Hudson's Department Store, J.C. Penney, and Target 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 117,000 square feet, respectively, are not included in the gross leasable area of the mall. In addition, J.C. Penney pays ground rent. These percentage calculations are based on a total mall area of 1,498,417 square feet, including unowned anchors and excluding storage space of approximately 290,000 square feet.
Description of Property
Northland Center, the Venture's only remaining Property which was transferred to the Venture and Equitable by a deed in lieu of foreclosure on July 22, 1994, is a regional enclosed mall located in Southfield, Michigan. Major tenants include Hudson's Department Store, J.C. Penney and Target. The Venture does not own the buildings occupied by these three major tenants. As of December 31, 1999, excluding these three anchor tenant spaces, Northland Center was approximately 56% leased. Excluding all the anchor space, the inline tenant space was approximately 75.6% occupied. Leases covering approximately 3.1%, 2.7% and 2.9% of the space (excluding the anchor stores) are scheduled to expire in 2000, 2001 and 2002, respectively.
In July 1997, Montgomery Ward, a former tenant, declared bankruptcy. The Partnership continues its efforts to lease 117,500 square feet of the space vacated by Montgomery Ward. A significant amount of capital may be required to retenant this vacant space. This anchor vacancy as well as the age of the mall place Northland Center at a competitive disadvantage.
On February 25, 2000, J.C. Penney announced that they would be closing 45 unprofitable department stores in their chain. On March 9, 2000, J.C. Penney provided a list of the stores that they intend to close. Included on that list was the Northland Center store, which is scheduled to be closed on June 1, 2000. J.C. Penney currently occupies 283,534 square feet at Northland Center and leases the building from a third party and ground leases the underlying land from another third party. Their lease expires on May 31, 2005, but their operating agreement expired in 1997. J.C. Penney is contractually obligated to pay rent and reimbursements through the end of their lease term. The Venture's portion of the anticipated amount of this obligation is approximately $750,000 per year. There are a number of tenants in Northland Center who have co-tenancy clauses in their leases that entitle them to terminate their respective leases or convert to percentage rent in the event that one or more anchor tenants vacate and/or the space remains vacant for a specified period of time. The anticipated closure of J.C. Penney on June 1, 2000 may trigger such clauses in the future and negatively impact the performance of the Property.
In 1999, the Venture spent $676,000 in capital cost for HVAC/Central Plant, $443,000 on tenant improvements and leasing commissions, and approximately $47,000 on asbestos removal. In 2000, the Venture anticipates spending $36,000 on asbestos removal throughout Northland Center, $32,000 to replace 1,000 feet of failed underground electrical cable, and approximately $16,000 on HVAC/Central Plant.
In 1999, as a result of the analysis that was performed by the Partnership as a basis for hold/sell recommendations for the Venture's properties, the Property was classified as held for sale. The Partnership is continuing its efforts to sell the Property. However, there is no certainty as to when the Property will be sold.
ITEM 3.
ITEM 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 the Partnership on July 14, 1997. On September 8, 1997, the Partnership was named as a defendant in Folette 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 the Managing General Partner, Equitable, Equitable Real Estate, EREIM L.P. Corp. and EREIM LP Associates.
The Plaintiffs purport to sue on behalf of a class of all limited partners of the Partnership who purportedly have been or will be adversely affected by the conduct of the defendants. The complaints filed in 1997 alleged 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 the Partnership'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. In August, 1999, Plaintiffs filed an amended complaint alleging that, in addition to the allegations made previously, certain distributions from the Partnership were improperly characterized as a sale or financing proceeds rather than distributable cash. Defendants answered the complaint, denying any wrongdoing and filed a motion to dismiss the amended complaint on statute of limitations grounds. The court granted in part and denied in part defendants' motion to dismiss the amended complaint. Plaintiff's claim that defendants failed to distribute cash and part of plaintiff's mischaracterization claim remain in this case. Plaintiff has filed a motion for reconsideration. Although the outcome of any litigation cannot be predicted with certainty, the Partnership's management believes that the ultimate resolution of the litigation will not have a material adverse effect on the financial condition of the Partnership. 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 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted during the fourth quarter of the fiscal year to a vote of BAC Holders.
PART II.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No public trading market for BACs or Interests exists nor is it expected that one will develop. Accordingly, accurate information as to the market value of a BAC at any given date is not available. BACs are transferable as provided in Article Seven of the Partnership Agreement. Subject to certain restrictions, the General Partners 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 the Partnership 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. See "AMENDMENTS TO PARTNERSHIP AGREEMENT--TRANSFER OF INTERESTS" in the March 3 Supplement.
The number of BAC Holders at March 6, 2000 was 10,374.
The Partnership is a limited partnership and, accordingly, does not pay dividends. It does, however, make distributions of cash to its BAC Holders and General Partners. BAC Holders are entitled to receive cash distributions, allocations of taxable income and tax loss and guaranty proceeds as provided in Article Four of the Partnership Agreement. For information regarding the Guaranty Agreement, see Item 1. BUSINESS. Since inception, the Partnership has made the following distributions:
(1) The distribution made on August 31, 1992 to holders of record on 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 Westford Drive.
(2) All of the distributions made from 1994 through February 28, 1997 constitute distributions of sale or financing proceeds derived from a portion of the proceeds from the pay-off of a mortgage loan to the Second Merritt Seven Joint Venture on November 22, 1993.
(3) The August 29, 1997 distribution represents a distribution of distributable cash from operations. The Partnership made a decision to distribute a major portion of the monies previously held following its decision to sell one of its properties, Brookdale Center.
(4) The December 23, 1997 distribution constitutes distributions of sale or financing proceeds derived from the sale of Brookdale Center.
(5) The February 27, 1998 distribution constitutes distributions of sale or financing proceeds derived from the sale of the Chicago Industrial Properties during 1997, remaining proceeds from both the sale of Brookdale Center and the pay-off of the mortgage loan to the Second Merritt Seven Joint Venture and early lease termination payments.
(6) The December 21, 1998 distribution constitutes distributions of sale or financing proceeds derived from the sale of the properties located at 1200 Whipple Road and 1345 Doolittle Drive.
(7) The distribution made on February 26, 1999 to holders of record on December 18, 1998 represents sale or financing proceeds from the sale of 1850 Westfork Drive Property.
(8) The distribution made on February 26, 1999 to holders of record on January 27, 1999 represents sale or financing proceeds from the sale of Richland Mall.
(9) The distribution made on March 12, 1999 to holders of record on February 1, 1999 constitutes distributions of the proceeds from the payoff of the Jericho Village loan.
(10) The distribution made on August 16, 1999 to holders of record on July 23, 1999 represents sale or financing proceeds from the sale of the 300 Delaware Property.
(11) The distribution made on November 17, 1999 to holders of record on October 28, 1999 represents sale or financing proceeds from the sale of the 16/18 Sentry Park West Property.
See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for further information regarding cash distributions.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth the selected financial data for the Partnership on a consolidated basis for the years ended December 31, 1995, 1996, 1997, 1998 and 1999:
_____________ (1) Includes $18,905,658 loss to adjust the carrying value of Northland Center to its lower of cost or estimated net realizable value.
The above selected financial data for the years 1995 through 1999 should be read in conjunction with the financial statements and the related notes appearing elsewhere in this annual report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At December 31, 1999, the Partnership had cash and cash equivalents of approximately $339,000. Such cash and cash equivalents are available for distribution to the extent not utilized for general working capital requirements and for capital needs at the Venture's Property. In addition, to the extent that cash distributions from the Partnership's interest in the Venture are insufficient, the payment or reimbursement of fees and expenses to the General Partners and their affiliates will be paid out of such cash and cash equivalents.
The Partnership's policy is to maintain adequate cash reserves (taking into consideration reserves of the Venture) to enable it to meet short and long-term requirements. The Partnership's working capital reserves may be increased or decreased, from time to time, depending on the Managing General Partner's determination as to their adequacy.
The Partnership owns an 80% interest in the Venture. At December 31, 1999, the Venture owned an undivided interest in Northland Center as a tenant in common with Equitable. Northland Center (originally a property that secured a zero coupon mortgage note of the Venture), was transferred to the Venture during 1994 in a deed in lieu of foreclosure transaction. 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. The carrying value of Northland Center was adjusted to the lower of cost or estimated net realizable value, resulting in a loss of approximately $18.9 million in 1999.
At December 31, 1999, the Venture also had approximately $11.5 million in cash and cash equivalents. The Venture retained this amount primarily to fund potential capital expenditures that might have been required to retenant or reconfigure the Montgomery Ward and J.C. Penney buildings. J.C. Penney had expressed an interest in relocating to the smaller vacant Montgomery Ward space and another national anchor tenant had expressed interest in occupying a significant portion of the larger J.C. Penney space. The proposals related to this retenanting scenario involved a significant amount of capital expenditure to be incurred by the Venture. In March 2000, J.C. Penney announced that they would be closing their Northland Center store on June 1, 2000. At this time, it also appears to be highly unlikely that the other National anchor tenant with which the Venture was negotiating will agree to open a store in Northland Center. No other potential anchor tenant candidates have been identified. In light of this turn of events, the Venture has reevaluated its operating and working capital requirements and will retain approximately $3.0 million to cover potential operating and working capital expenses. The Partnership will distribute approximately $8.5 million on May 1, 2000 to BAC Holders of record as of March 1, 2000. The Partnership will continue to make periodic determinations of the advisability of distributing operating cash flow. For 1999, 1998 and 1997, the Partnership received distributions from the Venture totaling approximately $54.2 million, $43.1 million and $34.5 million, respectively.
The Venture's remaining Property and the properties sold during 1999 were acquired without mortgage indebtedness, and neither the Venture nor the Partnership has incurred any borrowings. In aggregate, the Venture's Property is currently producing operating cash flow to the Venture which, net of expenses of the Venture and the establishment or increase of reserves, is distributable 80% to the Partnership and 20% to EREIM LP Associates as provided in the Joint Venture Agreement.
The Partnership conducts an on-going analysis of the Venture's properties as a basis for hold/sell recommendations for the properties. As a result of the analysis, on January 27, 1999 the Venture completed the sale of the Richland Mall property for $9.01 million, on July 23, 1999, the Venture completed the sale of the 300 Delaware property for $8.75 million and on October 28, 1999, the Venture completed the sale of the 16/18 Sentry Park West Property for $29.05 million. In addition, at December 31, 1999, the Venture's only remaining property was classified as held for sale. While the Partnership Agreement provides that the term of the Partnership may extend until December 31, 2002, the Partnership's present intention is to sell the remaining Property in advance of the foregoing date.
Cash provided by operating activities decreased approximately $3.6 million, or 40.9%, from $8.8 million in 1998 to $5.2 million in 1999. This decrease is due to (i) a decrease of approximately $5.7 million in tenant rentals received, (ii) a decrease of approximately $454,000 in interest received, offset by a decrease of approximately $1.9 million in cash paid for operating activities and a decrease of approximately $672,000 in cash distributions to minority interest. The decrease in tenant rentals and cash paid for operating activities is due primarily to the sales of 1200 Whipple and 1345 Doolittle in late 1998 and the sales of Richland Mall, 300 Delaware and 16/18 Sentry Park West in 1999. The decrease in interest received is due primarily to the payoff of the Jericho Village mortgage loan receivable on February 1, 1999.
Cash provided by operating activities increased approximately $1.3 million, or 17.6%, from $7.5 million in 1997 to $8.8 million in 1998. This increase is due to (i) a decrease of approximately $3.2 million in cash paid for operating activities and (ii) a decrease of approximately $3.1 million in cash distributions to minority interest, offset by a decrease of approximately $4.3 million in tenant rentals received and a decrease of approximately $747,000 in interest received. The decrease in cash paid for operating activities and tenant rentals received is primarily due to the sale of Brookdale Center and the Chicago Industrial properties in late 1997. The decrease in interest received is due to lower cash balances held by the Venture during 1998 as compared to 1997.
Distributable Cash from operations is distributed in accordance with the terms of the Partnership Agreement, which provides that such amounts will be distributed 95% to the BAC Holders and Limited Partners and 5% to the General Partners with the BAC Holders and Limited Partners entitled to a non-cumulative preferred 6% simple return on their Adjusted Capital Contribution during each period. Since inception, the Partnership has made the following distributions:
(1) The distribution made on August 31, 1992 to holders of record on 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 Westford Drive.
(2) All of the distributions made from 1994 through February 28, 1997 constitute distributions of sale or financing proceeds derived from a portion of the proceeds from the pay-off of a mortgage loan to the Second Merritt Seven Joint Venture on November 22, 1993.
(3) The August 29, 1997 distribution represents a distribution of distributable cash from operations. The Partnership made a decision to distribute a major portion of the monies previously held following its decision to sell one of its properties, Brookdale Center.
(4) The December 23, 1997 distribution constitutes distributions of sale or financing proceeds derived from the sale of Brookdale Center.
(5) The February 27, 1998 distribution constitutes distributions of sale or financing proceeds derived from the sale of the Chicago Industrial Properties during 1997, remaining proceeds from both the sale of Brookdale Center and the pay-off of the mortgage loan to the Second Merritt Seven Joint Venture and early lease termination payments.
(6) The December 21, 1998 distribution constitutes distributions of sale or financing proceeds derived from the sale of the properties located at 1200 Whipple Road and 1345 Doolittle Drive.
(7) The distribution made on February 26, 1999 to holders of record on December 18, 1998 represents sale or financing proceeds from the sale of 1850 Westfork Drive Property.
(8) The distribution made on February 26, 1999 to holders of record on January 27, 1999 represents sale or financing proceeds from the sale of Richland Mall.
(9) The distribution made on March 12, 1999 to holders of record on February 1, 1999 constitutes distributions of the proceeds from the payoff of the Jericho Village loan.
(10) The distribution made on August 16, 1999 to holders of record on July 23, 1999 represents sale or financing proceeds from the sale of the 300 Delaware Property.
(11) The distribution made on November 17, 1999 to holders of record on October 28, 1999 represents sale or financing proceeds from the sale of the 16/18 Sentry Park West Property.
During 1997, 1998 and 1999, the Venture received approximately $133,000, $13,000 and $249,000, respectively, for early lease termination payments. These early lease termination payments were classified as sale or financing proceeds and were distributed in 1998 and 1999. See Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The amount and timing of distributions from sale or financing proceeds depend upon the timing of disposition of properties as well as the need to allocate such funds to increase reserves.
The Partnership is 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. Under the terms of the Guaranty Agreement which has been assigned to the Partnership, following the earlier of the sale or other disposition of the remaining Property or the liquidation of the Partnership, EREIM LP Associates has guaranteed to pay an amount which, when added to all distributions from the Partnership to the BAC Holders, will enable the Partnership 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 BACs, subject to certain limitations.
Capital contributions by the BAC Holders totaled $108,484,500. As of December 31, 1999, the cumulative 9.75% simple annual return was $111,468,412. As of December 31, 1999, cumulative distributions by the Partnership to the BAC Holders totaled $146,139,456, or $26.94 per BAC, of which $27,663,548 is attributable to income from operations and $118,475,908 is attributable to sales of Venture assets, principal payments on mortgage loans and other capital events. Management does not currently believe that future cash distributions to the limited partners from liquidation of Venture assets will be sufficient to provide the specified Minimum Return. Accordingly, the shortfall will be funded by the guarantor, up to the above described maximum.
Financial Condition
The Partnership's financial statements include the consolidated statements of the Partnership and 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 receipt of the first proceeds of its offering of BACs. Thereafter, utilizing the net proceeds of the Offering, the Partnership (through the Venture) began its acquisition of real estate investments. The Partnership substantially completed its acquisition phase in 1989.
Total real estate investments decreased approximately $66 million or 75.1%, from $87.8 million in 1998 to $21.8 million in 1999. This decrease is due to (i) the sales of Richland Mall, 300 Delaware and 16/18 Sentry Park West during 1999 with a combined book value of $41.9 million, (ii) valuation losses of $18.9 million which were recorded on Northland Mall during 1999, and (iii) the payoff of the Jericho Village mortgage loan receivable during 1999 of $6 million.
Total real estate investments decreased approximately $27.5 million, or 23.8%, from $115.3 million in 1997 to $87.8 million in 1998. This decrease is due to (i) the sale of 1200 Whipple Road, 1345 Doolittle Drive and 1850 Westfork properties in late 1998 with a combined net book value of $19.8 million and (ii) valuation losses of $9.6 million which were recorded on the Richland Mall and 300 Delaware properties during 1998.
Other assets did not change significantly from 1998 to 1999.
Other assets decreased approximately $12.5 million, or 40.9%, from $30.5 million in 1997 to $18.0 million in 1998 due primarily to a decrease in cash and cash equivalents. Cash and cash equivalents decreased approximately $9.3 million as a result of the Partnership making a cash distribution of $14.9 million in February 1998, partially offset by approximately $2.5 million in net proceeds received in December, 1998 from the sale of the 1850 Westfork property.
Total liabilities decreased approximately $3.9 million, or 66.6%, from $5.8 million in 1998 to $1.9 million in 1999. The decrease is due primarily to $2.4 million in distributions declared as of December 31, 1998 compared to no distributions declared as of December 31, 1999. Additionally, capital expenditures of approximately $789,000 that were accrued as of December 31, 1998 were paid during 1999, offset by the accrual of approximately $198,000 of
capital expenditures at December 31, 1999.
Total liabilities decreased approximately $13.8 million, or 70.3%, from $19.6 million in 1997 to $5.8 million in 1998. The decrease is due primarily due to $14.9 million in distributions declared in 1997 compared to $2.4 million in distributions declared in 1998.
Results of Operations
Rental income decreased approximately $5.3 million, or 26.4%, from $20 million in 1998 to $14.7 million in 1999. The decrease is due primarily to the sales of 1200 Whipple and 1345 Doolittle in late 1998 and the sales of Richland Mall, 300 Delaware, and 16/18 Sentry Park West in 1999, resulting in a decrease in rental income of approximately $4.7 million. Additionally, rental income decreased at Northland Center by approximately $430,000, due primarily to adjustments to prior year common area maintenance income resulting from the resolution of a tenant initiated common area maintenance audit, as well as revision of various expense recovery estimates. Rental income decreased approximately $4.5 million, or 18.3 %, from $24.5 million in 1997 to $20 million in 1998. The decrease is due primarily to the sale of Brookdale Center and the Chicago Industrial properties during late 1997. Rental income for Brookdale Center and the Chicago industrial properties for 1997 was approximately $5.9 million, offset by an increase in rental income at 300 Delaware, Richland Mall and Northland Mall of approximately $700,000, $300,000 and $500,000, respectively.
Lease termination rental income increased approximately $236,000, or 1,892%, from $13,000 in 1998 to $249,000 in 1999. The increase is due to approximately $129,000 of lease termination income recognized at Northland Mall and $120,000 of lease termination income recognized at 16/18 Sentry Park West during 1999, compared to approximately $13,000 of lease termination income recognized during 1998 at 300 Delaware.
Lease termination rental income decreased approximately $120,000, or 90.5%, from $133,000 in 1997 to $13,000 in 1998. The decrease is due to approximately $13,000 of lease termination income recognized during 1998 at 300 Delaware compared to approximately $133,000 of lease termination income recognized during 1997 at Richland Mall.
Interest on loans receivable decreased approximately $564,000, or 92%, from $615,000 in 1998 to $51,000 in 1999. This decrease is due to the payoff of the Jericho Village mortgage loan on February 1, 1999.
Interest on loans receivable did not change from 1997 to 1998.
Real estate operating expenses decreased approximately $1.1 million , or 14.2%, from $8.1 million in 1998 to $7 million in 1999. This decrease is due primarily to the sales of 1200 Whipple and 1345 Doolittle in late 1998, and the sales of Richland Mall, 300 Delaware and 16/18 Sentry Park West in 1999, resulting in a decrease in real estate operating expenses of approximately $1.2 million.
Real estate operating expenses decreased approximately $1.5 million, or 15.9% from $9.7
million in 1997 to $8.1 million in 1998. This decrease is due primarily to the sale of Brookdale Center in late 1997, resulting in a decrease in real estate operating expenses of approximately $1.6 million.
Depreciation and amortization expense decreased approximately $2.1 million, or 72.9%, from $2.9 million in 1998 to $789,000 in 1999. This decrease is due to the reclassification of Northland Mall to held for sale during 1999, on which the recognition of depreciation expense was suspended.
Depreciation and amortization expense decreased approximately $1.4 million, or 32.1%, from $4.3 million in 1997 to $2.9 million in 1998. Approximately $1 million of this decrease is due to the reclassification of properties to held for sale during 1998, on which the recognition of depreciation expense was suspended, and approximately $393,000 of this decrease is due to the sale of Brookdale Center and the Chicago Industrial properties during late 1997.
Loss on write-down of real estate assets increased approximately $10.8 million, or 105%, from $10.2 million in 1998 to $20 million in 1999. The increase is due to the writedowns of $20 million recorded for Northland Center and 300 Delaware during 1999 compared to writedowns of $10.2 million recorded for Richland Mall, 300 Delaware, and 1850 Westfork in 1998.
Loss on write-down of real estate assets increased approximately $10.2 million, or 100%, from a zero balance in 1997 to $10.2 million in 1998. The increase is due to writedowns of $10.2 million recorded for Richland Mall, 300 Delaware, and 1850 Westfork in 1998 compared to no writedowns in 1997.
Asset management fees decreased approximately $250,000, or 40.8%, from $612,000 in 1998 to $362,000 in 1999. The decrease is due primarily to the sales of Richland Mall, 300 Delaware, and 16/18 Sentry Park West in 1999 as well as the sales of 1200 Whipple, 1345 Doolittle, and 1850 Westfork properties in late 1998.
Asset management fees decreased approximately $135,000, or 18.1%, from $747,000 in 1997 to $612,000 in 1998. The decrease is due primarily to the sale of Brookdale Center in late 1997.
General and administrative expenses decreased approximately $385,000, or 48.2%, from $797,000 in 1998 to $412,000 in 1999. The decrease is due primarily to a $241,000 decrease in guaranty fees and partnership administration fees incurred in 1999 due to a reduction in Adjusted Capital Contributions. In addition, the remaining difference of $144,000 is due primarily to decreased legal fees incurred by the Partnership in 1999.
General and administrative expenses increased approximately $72,000, or 9.9%, from $725,000 in 1997 to $797,000 in 1998. The increase is due primarily to increased legal fees during 1998 offset by a $150,000 reduction in guaranty fees and partnership administration fees incurred in 1998 due to a reduction in Adjusted Capital Contributions.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, and equity prices. As of December 31, 1999, the Partnership had no material exposure to market risk.
Year 2000
As of March 30, 2000, the Partnership and the Venture have not experienced any material disruptions of their internal computer systems or software applications, and have not experienced any problems with the computer systems or software applications of their third party vendors, suppliers or service providers. The Partnership and the Venture will continue to monitor these third parties to determine the impact, if any, on the business of the Partnership and the actions the Partnership must take, if any, in the event of non-compliance by any of these third parties. Based upon the Partnership's assessment of compliance by third parties, there appears to be no material business risk posed by any such noncompliance.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are included in Item 14 of this annual report:
Independent Auditors' Report.
Consolidated Balance Sheets, December 31, 1999 and 1998.
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Partners' Capital for the years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership and has no directors or officers.
For informational purposes only, certain information regarding the General Partners and their respective directors and officers is set forth below.
Managing General Partner
The Managing General Partner was a wholly-owned subsidiary of Equitable Real Estate, which was a wholly owned subsidiary of Equitable. On June 10, 1997, Equitable sold Equitable Real Estate to a subsidiary of Lend Lease Corporation Limited. The shares of the Managing General Partner were not included in the sale and the Managing General Partner continues to be a wholly-owned indirect subsidiary of Equitable. Lend Lease Corporation Limited merged its existing U.S. real estate investment advisor, The Yarmouth Group, Inc., into Equitable Real Estate and changed the name of Equitable Real Estate to ERE Yarmouth., Inc. ("ERE Yarmouth"). On July 13, 1998, Lend Lease Corporation Limited changed the name of ERE Yarmouth to Lend Lease Real Estate Investments, Inc. ("Lend Lease"). Lend Lease was retained by the Managing General Partner, at the Managing General Partner's expense, to continue providing the same services with respect to the Partnership, the Venture, and the properties that Equitable Real Estate has historically provided to the Managing General Partner. The sale did not affect the ownership of EREIM LP Associates, the guarantor under the Guaranty Agreement. The obligations of EREIM LP Associates under the Guaranty Agreement and of Equitable under the Keep Well Agreement were not affected by the sale.
The names and titles of the directors and officers of the Managing General Partner as of March 30, 2000 are as follows:
The business experience of the directors and executive officers of the Managing General Partner is set forth below.
Peter D. Noris has been Executive Vice President and Chief Investment Officer of Equitable, since May 1995. In this position, he manages Equitable's General Account investment portfolio backing the company's traditional life insurance and annuity business, and oversees certain accounts managed for third parties by Equitable's investment subsidiary, Alliance Capital Management. Mr. Noris joined Equitable in 1995. Prior thereto, he was Vice President and Manager at Salomon Brothers Inc. from November 1992 to May 1995, where he provided investment and asset/liability expertise to insurance companies. Before joining Salomon in 1992, Mr. Noris was Principal of Morgan Stanley & Co., Inc. where he worked since 1984 in its Insurance Group and its Synthetic Equity Group.
Anthony C. Pasquale has been Senior Vice President of Equitable, since June 1991. He has held numerous managerial positions within Pension and Investment Organizations of Equitable since joining the Equitable in 1965. Mr. Pasquale has been working in the Chief Investment Office for the last eight years where he brings professional expertise along with experience and knowledge of each business segment, investment subsidiaries and Equitable's General Account. He is responsible for all investment financial reporting to the Investment Committee of Equitable's Board which includes forecasting investment income, capital gains and losses and assets under management and he is Chairman of the Investments Under Surveillance Committee.
Mr. DeLuca has been the Director of Real Estate Investments for Equitable since June 1999, overseeing a portfolio of approximately $7 billion in real estate projects, equities, mortgages, CMBS, and REIT Securities. Mr. DeLuca's career in the real estate industry has spanned over 20 years including Division Executive of the Chase Real Estate Finance Group. He also previously served as the head of Real Estate Finance for Chemical Banking Corporation both prior to and subsequent to the merger of Chemical with the Manufacturers Hanover Corporation.
Thomas P. Kennedy has been Vice President of the Managing General Partner since August 1999. Mr. Kennedy is a Principal of Lend Lease, where he is a portfolio manager in charge of Insurance Company Operations. Mr. Kennedy joined Equitable in 1982 and has held various management positions at Lend Lease throughout his career.
Linda M. Hart has been Vice President and Treasurer of the Managing General Partner since September 1999. Ms. Hart is also a Principal of Lend Lease, where she is Senior Operating Officer for the Insurance Company and Debt Business Units. Ms. Hart joined Equitable in 1987 as a member of the finance department. Before she joined Equitable, she was employed by Price Waterhouse as a senior auditor.
Debra L. Keller has been Vice President and Assistant Treasurer of the Managing General Partner since September 1999. Ms. Keller is a Vice President of Lend Lease, responsible for overseeing the accounting and financial reporting of one of five business units
containing several equity real estate portfolios. Ms. Keller has been with Lend Lease since April 1986.
J. Mark Hillis has been Vice President of the Managing General Partner since 1997. Mr. Hillis is a Vice President of Lend Lease , in the disposition group, where he is responsible for dispositions of client assets including the Partnership's assets. Previously he was assistant portfolio manager for several limited partnerships including the partnership. Mr. Hillis joined in August 1994 as Director of Appraisal, where he was responsible for preparing annual valuations of properties owned by Equitable. Before he joined , he was employed by Price Waterhouse in their Real Estate Valuation Group since 1991, where he was responsible for audit valuation compliance, general real estate appraisal and due diligence services.
Bruce Polifka has been Vice President of the Managing General Partner since 1998. Mr. Polifka is a Vice President of Lend Lease, where he is currently employed in several capacities. He is an assistant portfolio manager, as well as the chief appraiser responsible for overseeing the valuation of Equitable's General Account portfolio. Mr. Polifka joined Lend Lease in the Dallas region in 1993 where he performed various functions including asset management, appraisal and acquisitions. Prior to joining Lend Lease Mr. Polifka had 10 years of diverse real estate experience including appraisal, leasing and real estate development.
Michael L. Jacobson has been Vice President of the Managing General Partner since 1997. Mr. Jacobson has been a Senior Vice President of Lend Lease since 1989, where he is responsible for overseeing fund and joint venture investments for certain Japanese accounts and Equitable's general account. Mr. Jacobson joined Equitable in 1976 in the accounting area and has held various management positions.
Thomas A. McKean became Secretary of the Managing General Partner in early 1998. He has been a Vice President and Secretary of Lend Lease since January 1, 1999 and a member of the legal department at Lend Lease since January, 1993.
Debbie J. Newmark has been Vice President and Assistant Secretary of the Managing General Partner since March 1998. Ms. Newmark joined Lend Lease in January 1998 as a Paralegal and was appointed Assistant Secretary in April, 1998.
Associate General Partner
The Associate General Partner is a limited partnership and has no directors or officers. The general partner of the Associate General Partner is MLH Real Estate Inc., a wholly-owned subsidiary of MLH Group Inc., which is a wholly-owned subsidiary of Merrill Lynch, Hubbard Inc. ("MLH"). MLH is a wholly-owned subsidiary of Merrill Lynch Group, Inc., which is a wholly-owned subsidiary of Merrill Lynch.
The names and dates of election of the directors and executive officers of the general partner of the Associate General Partner as of March 21, 2000 are as follows:
The business experience of the directors and executive officers of the general partner of the Associate General Partner is set forth below.
Allen N. Jones has been Chairman, Chief Executive Officer and Director of the Associate General Partner since January 1997. Mr. Jones joined Merrill Lynch in 1973. From June 1992 through February 1994, Mr. Jones was the President and Chief Executive Officer of Merrill Lynch Insurance Group, Inc., and he currently serves on its Board of Directors. Since June 1992, Mr. Jones has held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith ("MLPF&S") where he has held various senior executive responsibilities.
James V. Caruso has been Executive Vice President and Director of the Associate General Partner since December, 1998. Mr. Caruso joined Merrill Lynch in 1975 and is a Director in its Investment Banking Group ("IBK"). Since September 1992, he has been responsible for managing the IBK Finance Department and the Controller's area of the Partnership Analysis & Finance Group. Mr. Caruso also serves as the Chief Financial Officer for certain Merrill Lynch limited partnerships for which Merrill Lynch affiliates serve as general partner.
Steven N. Baumgarten has been a Vice President and Director of the Associate General Partner since December 1998. Mr. Baumgarten first joined Merrill Lynch in 1986 and is a Vice President in its Private Client Group. Prior to 1998, Mr. Baumgarten worked in Merrill Lynch's Partnership Management department where he was involved with the ongoing management of various project-related limited partnerships for which Merrill Lynch affiliates act as general partner.
Rosalie Y. Goldberg has been President and Chief Operating Officer since December 1998, was Vice President since January 1997 and a Director of the Associate General Partner since February 1997. Ms. Goldberg joined Merrill Lynch in 1975 and is a First Vice President of its Private Client Group. Since February 1995, she has served as Senior Director of the Special Investments Group. Ms. Goldberg is also an officer and Director of ML Private Equity Inc., and certain other Merrill Lynch affiliates which serve as general partners or managers of various Merrill Lynch limited partnerships and other entities.
Michael E. Lurie has been Vice President since January 1997 and a Director of the Associate General Partner since February 1997. Mr. Lurie joined Merrill Lynch in 1970 and is a First Vice President of its Corporate Credit Department and the Director of the Asset Recovery
Management Group. Prior to his present position, Mr. Lurie has held several senior positions at Merrill Lynch.
Michael A. Gabriel has been a Vice President and Treasurer of the Associate General Partner since December 1998. Mr. Gabriel first joined Merrill Lynch in 1985 and has been a Tax Specialist in Merrill Lynch's Partnership Analysis and Finance Group at MLPF&S since June 1998 where he also serves as Treasurer of certain Merrill Lynch limited partnerships for which Merrill Lynch affiliates act as general partner.
There is no family relationship among any of the above-listed directors and officers of the Managing General Partner and the general partner of the Associate General Partner. All of the directors have been elected to serve until the next annual meeting of the shareholder of the Managing General Partner or general partner of the Associate General Partner, respectively, or until their successors are elected and qualify. All of the officers have been elected to serve until their successors are elected and qualify.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive a share of cash distributions and a share of taxable income or tax loss as provided in Article Four of the Partnership Agreement which is incorporated herein by reference.
The General Partner and their affiliates may be paid certain fees and commissions and reimbursed for certain out-of-pocket expenses. Information concerning such fees, commissions and reimbursements is set forth under "Compensation and Fees" in the Prospectus and Note 8 to notes to Consolidated Financial Statements in Item 8. FINANCIAL STATEMENTS, which is incorporated herein by reference.
All of the directors and officers of the Managing General Partner are employees of Equitable or Lend Lease and are not separately compensated for services provided to the Managing General Partner or, on behalf of the Managing General Partner, to the Partnership. All of the directors and officers of the general partner of the Associate General Partner are employees of Merrill Lynch or its subsidiaries and are not separately compensated for services provided to the Associate General Partner or, on behalf of the Associate General Partner, to the Partnership.
The Partnership Agreement indemnifies the General Partners and the Initial Limited Partner against liability for losses resulting from errors in judgment or other action or inaction, whether or not disclosed, if such course of conduct did not constitute negligence or misconduct (see Section 5.7 of the Partnership Agreement). As a result of such indemnification provisions, a purchaser of BACs may have a more limited right of legal action than he would have if such provision were not included in the Partnership Agreement. In the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Federal Securities laws is against public policy and therefore unenforceable. Indemnification of general partners involves a developing and changing area of the law and since the law relating to the rights of assignees of
limited partnership interests, such as BAC Holders, is largely undeveloped, investors who have questions concerning the duties of the General Partners should consult their own counsel.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Initial Limited Partner, an affiliate of the Associate General Partner, is the record owner of substantially all of the Interests in the Partnership, although it has assigned such Interests to BAC Holders. In its capacity as record owner of the Interests, the Initial Limited Partner has no authority to transact business for, or to participate in the activities and decisions of, the Partnership. As of March 21, 2000, MLPF&S was the record owner of approximately 66% of the BACs, holding such BACs in a nominee capacity and having no beneficial interest in the BACs. Otherwise, there is no person known to the Partnership who owns beneficially or of record more than five percent of the BACs of the Partnership. Neither of the General Partners owns any BACs of the Partnership. The directors and officers of the Managing General Partner and the general partner of the Associate General Partner, as a group, own no BACs.
There are no arrangements known to the Partnership, the operation of which may, at a subsequent date, result in a change in control of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV.
ITEM 14.
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:
Page
Independent Auditors' Report............................................... 1
Consolidated Balance Sheets, December 31, 1999 and 1998.................... 2
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.................................. 3
Consolidated Statements of Partners' Capital for the years ended December 31, 1999, 1998 and 1997............................ 4
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.................................. 5
Notes to Consolidated Financial Statements................................. 7
2. The following audited financial statement schedules are filed with this report on the pages indicated:
Page Consolidated Supplemental Schedules:
Real Estate and Accumulated Depreciation as of December 31, 1999 and for the years ended December 31, 1999, 1998 and 1997 (Schedule III)............. 20
Mortgage Loans on Real Estate as of December 31, 1999 and for the years ended December 31, 1999, 1998 and 1997 (Schedule IV).......... 21
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 a Current Report on Form 8-K on October 28, 1999, pursuant to which the sale of the Venture's property, 16/18 Sentry Park West, was reported. In connection with the filing of the preceding report, the Partnership filed a pro forma consolidation balance sheet as of September 30, 1999 and a pro forma consolidation statement of operations for the nine months ended September 30, 1999.
(c) Exhibits.
4. (a) Amended and Restated Agreement of Limited Partnership 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 Partnership's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1987 (File No. 33-11064) (the "1987 10-K")).
10. Material Contracts.
(a) Purchase and Sale Agreement between EML Associates and The Rubenstein Company, L.P. dated April 21, 1999.
(b) Purchase and Sale Agreement between EML Associates and Income Growth Fund II, Inc. dated August 20, 1999.
(c) Real Estate Investment Advisory Agreement by and between EREIM Managers Corp. and Equitable Real Estate Investment Management, Inc. (currently Lend Lease, Inc.) dated as of June 10, 1997 (incorporated by reference to Exhibit 10(a) to the 1998 10-K).
(d) Purchase and Sale Agreement by and between The Equitable Life Assurance Society of the United States and Talisman Brookdale L.L.C., dated September 2, 1997 (incorporated by reference to Exhibit 10(b) to the 1998 10-K).
(e) Purchase and Sale Agreement by and between EML Associates and SPP Real Estate (O'Hare), Inc., dated December 31, 1997 (incorporated by reference to Exhibit 10(c) to the 1997 10-K).
(f) 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)).
(g) Agreement Between General Partners (incorporated by reference to Exhibit 10(c) to the 1987 10-K).
(h) Joint Venture Agreement of EML Associates (incorporated by reference to Exhibit 10(d) to the 1987 10-K).
(i) Investment Guaranty Agreement between the Venture and EREIM LP Associates (incorporated by reference to Exhibit 10(e) to the 1987 10-K).
(j) Assignment Agreement between Registrant and Venture (incorporated by reference to Exhibit 10(f) to the 1987 10-K).
(k) 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).
(l) Amended and Restated Agreement of General Partnership of EREIM LP Associates (incorporated by reference to Exhibit 10(h) to the 1987 10-K).
(m) 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)).
(n) 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)).
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 December 29, 1987, March 3, 1988 and March 17, 1988 (incorporated by reference to Exhibit 28 to the 1987 10-K).
(b) Amendment to Joint Venture Agreement dated as of January 1, 1997 between ML/EQ Real Estate Portfolio, L.P. and EREIM LP Associates (incorporated by reference to Exhibit 99(i) of the Form 10-K of the Partnership for the year ended December 31, 1996)
ML/EQ REAL ESTATE PORTFOLIO, L.P.
Consolidated Financial Statements as of December 31, 1999 and 1998, and for the Years Ended December 31, 1999, 1998, and 1997, Consolidated Supplemental Schedules as of December 31, 1999 and for the Years Ended December 31, 1999, 1998, and 1997, and Independent Auditors' Report
ML/EQ REAL ESTATE PORTFOLIO, L.P.
INDEPENDENT AUDITORS' REPORT
ML/EQ Real Estate Portfolio, L.P.:
We have audited the accompanying consolidated balance sheets of ML/EQ Real Estate Portfolio L.P. (the "Partnership") as of December 31, 1999 and 1998, and the related consolidated statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States of America. 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 consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as whole. The consolidated supplemental schedules listed in the table of contents are presented for the purpose of additional analysis and are not a required part of the basic consolidated financial statements. These schedules are the responsibility of the Partnership's management. Such schedules have been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic consolidated financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP Atlanta, Georgia
March 24, 2000
ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
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ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
See notes to consolidated financial statements.
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ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
See notes to consolidated financial statements.
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ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
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ML/EQ REAL ESTATE PORTFOLIO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING ACTIVITIES: The Venture accrued $198,187 and $788,395 in capital expenditures that were not paid before December 31, 1999 and 1998, respectively.
See notes to consolidated financial statements. (Concluded)
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ML/EQ REAL ESTATE PORTFOLIO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998, AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1. ORGANIZATION
ML/EQ Real Estate Portfolio, L.P., a Delaware limited partnership (the "Partnership"), was formed on December 22, 1986. The Partnership was formed to invest in existing income-producing real properties, zero coupon or similar mortgage notes, and fixed-rate mortgage loans through a joint venture, EML Associates (the "Venture"). The Venture was formed on March 10, 1988 with EREIM LP Associates, an affiliate of The Equitable Life Assurance Society of the United States ("Equitable"). The Partnership owns an 80% interest in the Venture.
The Managing General Partner of the Partnership is EREIM Managers Corp. (the "Managing General Partner"), an affiliate of Equitable, and the Associate General Partner is MLH Real Estate Associates Limited Partnership (the "Associate General Partner"), an affiliate of Merrill Lynch, Hubbard Inc. The initial limited partner is MLH Real Estate Assignor, Inc., an affiliate of Merrill Lynch, Hubbard Inc.
The Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") authorized the sale of up to 7,500,000 Beneficial Assignee Certificates ("BACs") at $20 per BAC. The BACs evidence the economic rights attributable to limited partnership interests in the Partnership. On March 10, 1988, the Partnership's initial investor closing occurred, at which time the Partnership received $92,190,120 representing the proceeds from the sale of 4,609,506 BACs. On May 3, 1988, the Partnership had its second and final investor closing. The Partnership received $16,294,380 representing the proceeds from the sale of an additional 814,719 BACs.
Total capital contributions to the Partnership are summarized as follows:
The Managing General Partner was a wholly owned subsidiary of Equitable Real Estate Investment Management, Inc. ("ERE"), which was a wholly owned subsidiary of Equitable. On June 10, 1997, Equitable sold ERE to a subsidiary of Lend Lease Corporation Limited. The shares of the Managing General Partner were not included in the sale and the Managing General Partner continues to be a wholly owned indirect subsidiary of Equitable. Lend Lease Corporation Limited merged its existing U.S. real estate investment advisor, The Yarmouth Group, Inc. into ERE and changed the name of ERE to ERE Yarmouth, Inc. ("ERE Yarmouth"). On July 13, 1998, Lend Lease Corporation Limited changed the name of ERE Yarmouth to Lend Lease Real Estate Investments, Inc. ("Lend Lease"). Lend Lease was retained by the Managing General Partner, at the Managing General Partner's expense, to continue providing the same services with respect to the Partnership, the Venture and the
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
properties that ERE has historically provided to the Managing General Partner. The sale did not affect the ownership of EREIM LP Associates, the guarantor under the Guaranty Agreement, as ERE had no interest therein. The obligations of EREIM LP Associates under the Guaranty Agreement and of Equitable under the Keep Well Agreement were not affected by the sale.
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.
Principles of Consolidation - The consolidated financial statements include the accounts of the Partnership and the Venture. EREIM LP Associates' 20% ownership in the Venture is reflected as a minority interest in the Partnership's consolidated financial statements. The Venture's investment in Northland Center and Brookdale Center represent a tenant in common interest with Equitable. These investments are reflected using the proportionate consolidation method in accordance with standard industry practice. All significant intercompany accounts are eliminated in consolidation.
Allocation of Partnership Income - Partnership net income was allocated 99% to the limited partners as a group and 1% to the general partners until 1990 at which time the Partnership paid the final portion of the acquisition/syndication fees to the general partners. Since 1990, partnership net income has been allocated 95% to the limited partners as a group and 5% to the general partners, consistent with the provisions in the limited partnership agreement for the allocation of distributable cash (see Note 9).
Rental Properties - At December 31, 1998, rental properties were stated at cost. Cost was allocated between land and buildings based upon preacquisition appraisals of each property. Impairment was 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 was less than the depreciated cost of the property, the property was written down to estimated fair market value.
Rental Properties Held for Sale - Rental properties are classified as held for sale when management, having authority to approve the action, commits to a plan to sell rental properties and all of the criteria for classifying such properties as held for sale in accordance with Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, have been met. Individual real estate properties held for sale, including deferred leasing costs and deferred rent concessions, are recorded at lower of cost or estimated fair market value, less estimated costs to sell. Depreciation is not recorded for properties classified as held for sale.
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 and leasing commissions 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.
Deferred Rent Concessions - Deferred rent concessions include the excess of straight-line minimum base rentals over contractual minimum base rentals.
Mortgage Loan Receivable - The mortgage loan receivable is stated at cost (see Note 6).
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Offering Costs - Offering costs, including the acquisition/syndication fee payable to the general partners and other offering and issuance costs of the BACs totaling $11,037,537, were charged against the limited partners' capital in accordance with the provisions of the Partnership Agreement, following the investor closings in 1988.
Guaranty Fees - Guaranty fees are being recognized as expense over the estimated life of the Partnership through a combination of the amortization of the nonrecurring portion of the fees incurred during the first three years of the Partnership and the expense of the recurring portion of the fees as incurred (see Note 8).
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.
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.
Fair Value of Financial Instruments - Management has reviewed the various assets and liabilities of the Partnership and has concluded that the estimated fair market value of the Partnership's financial instruments, including the mortgage loan receivable, have terms such that the carrying value approximates the estimated fair market value.
Reclassifications - Certain prior year amounts have been reclassified to conform with the 1999 presentation.
3. RENTAL PROPERTIES
As of December 31, 1999, the Partnership's total rental properties consisted of the following:
* See Note 4, Rental properties held for sale
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
The costs related to the rental properties held for investment at December 31, 1998 are summarized below:
During 1999, the Venture consummated the sale of Richland Mall, 300 Delaware and 16/18 Sentry Park West.
During 1998, the Venture consummated the sale of 1200 Whipple Road, 1345 Doolittle Drive, and 1850 Westfork Drive. Information related to these transactions is as follows:
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.
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
4. RENTAL PROPERTIES HELD FOR SALE
At December 31, 1999, Northland Center is classified as held for sale. The carrying value of Northland Center was adjusted to the lower of cost or estimated net realizable value, resulting in a loss of $18,905,658 in 1999. Prior to being sold in 1999 (see Note 3), 300 Delaware was adjusted to the lower of cost or estimated net realizable value, resulting in a loss of $2,114,680.
At December 31, 1998, Richland Mall, 300 Delaware, and 16/18 Sentry Park West properties were classified as held for sale. The carrying values of Richland Mall and 300 Delaware were adjusted to the lower of cost or estimated net realizable value, resulting in losses of $5,155,515 and $4,438,162, respectively, recorded during 1998.
Rental properties held for sale consist of the following at December 31, 1999 and 1998:
5. ZERO COUPON MORTGAGE NOTES RECEIVABLE
Brookdale Center
The Venture held a 71.66% participation interest in a zero coupon mortgage note. The property which secured this first mortgage note is Brookdale Center, located outside Minneapolis, Minnesota. The borrower was Midwest Real Estate Shopping Center L.P. ("Midwest"), a publicly traded limited partnership (formerly Equitable Real Estate Shopping Centers, L.P.).
On December 16, 1996, Brookdale Center was transferred to the Venture and Equitable, as tenants in common. Following the transfer, Brookdale Center was reclassified from zero coupon mortgage note receivable to rental properties and income and expenses were recorded from that date. In November 1997, the Venture sold Brookdale Center to Talisman Brookdale L.L.C. for $24,830,000, of which the Venture's portion was approximately $17,793,000.
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
Northland Center
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 borrower was Midwest.
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.
6. MORTGAGE LOAN RECEIVABLE
In 1989, the Venture made a $6,000,000 nonrecourse first mortgage loan bearing interest at 10.25% per annum. The loan was collateralized by an apartment complex in Weston, Massachusetts. This note matured and was paid in full on February 1, 1999.
7. GUARANTY AGREEMENT
EREIM LP Associates has entered into a guaranty agreement with the Venture to provide a minimum return to the Partnership's limited partners on their contributions. The Venture has assigned its rights under the guaranty agreement to the Partnership. Payments on the guaranty are due 90 days following the earlier of the sale or other disposition of all the properties and mortgage loans and notes or the liquidation of the Partnership. The minimum return will be an amount which, when added to the cumulative distributions to the limited partners, will enable the Partnership to provide the limited partners with a minimum return equal to their capital contributions plus a simple annual return of 9.75% on their adjusted capital contributions calculated from the dates of the investor closings. Adjusted capital contributions are the limited partners' original cash contributions reduced by distributions of sale or financing proceeds and by distributions of certain funds in reserves, as more particularly described in the Partnership Agreement. The limited partners' original cash contributions have been adjusted by that portion of distributions paid through December 31, 1999, resulting from cash available to the Partnership as a result of sale or financing proceeds paid to the Venture. The minimum return is subject to reduction in the event that certain taxes, other than local property taxes, are imposed on the Partnership or the Venture, and is also subject to certain other limitations set forth in the prospectus. If there were no further distributions until December 31, 2002, the expiration of the term of the Partnership, the maximum liability of EREIM LP Associates to the Venture under the guaranty agreement as of December 31, 1999, would be limited to $73,813,456, 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, 1999, the cumulative 9.75% simple annual return was $111,468,412. As of December 31, 1999, cumulative distributions by the Partnership to the BAC holders totaled $146,139,456, of which $27,663,548 is attributable to income from operations and $118,475,908 is attributable to sales of Venture assets, principal payments on mortgage loans, and other capital events. To the extent that future cash
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
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.
Effective as of January 1, 1997, the Partnership entered into an amendment to the Joint Venture Agreement of the Venture between the Partnership and EREIM LP Associates pursuant to which EREIM LP Associates agreed to defer, without interest, its rights to receive 20% of the Venture's distributions of sale or financing proceeds until the Partnership has received aggregate distributions from the Venture in an amount equal to the capital contributions made to the Partnership by the BAC holders plus a noncompounded cumulative return computed at the rate of 9.75% per annum on contributions outstanding from time to time. Prior to the amendment, EREIM LP Associates had a right to receive 20% of all the Venture's distributions of sale or financing proceeds on a pari passu basis with the Partnership. The amendment has the effect of accelerating the return of original contributions to BAC holders to the extent that sale or financing proceeds are realized prior to the dissolution of the Partnership.
8. COMPENSATION AND FEES
Acquisition/Syndication Fee - The acquisition/syndication fee was paid to the general partners for initial acquisition, management, and administrative services to the Partnership. The fee was 8.7% of the proceeds from the offering of BACs, which amounted to $9,438,152 based upon the total number of BACs sold and has been included in the offering costs charged to limited partners' capital. The outstanding balance of this fee was paid to the general partners in August 1990.
Asset Management Fees:
Venture supervisory fee - The Venture supervisory fee is payable to the Managing General Partner for supervising the Partnership's investment in the Venture. The fee is payable semiannually in an amount equal to .75% per annum of the Partnership's allocable share of the acquisition price of properties owned by the Venture. For each of the years ended December 31, 1999, 1998, and 1997, the total expense for this fee was $361,999, $602,323, and $737,702, respectively.
Mortgage loan servicing fee - The mortgage loan servicing fee is payable to the Managing General Partner for servicing mortgage loans owned by the Venture. The fee is payable semiannually in an amount equal to .20% per annum of the outstanding principal amount of the Partnership's allocable share of fixed-rate first mortgage loans and .20% per annum of the Partnership's allocable share of the accreted amount of zero coupon mortgage notes at the time of acquisition or contribution to the Venture. For each of the years ended December 31, 1999, 1998, and 1997, the total expense for this fee was $800, $9,600, and $9,600, respectively.
Partnership Administration Fee - The Partnership administration fee is payable to the Associate General Partner as compensation for providing investor services limited to processing investor information and disseminating Partnership reports and tax information. The fee is payable on a semiannual basis at an annual rate of .15% per annum of the average annual adjusted capital contributions of the offering of BACs. For the years ended December 31, 1999, 1998, and 1997, the total expense for this fee was $36,853, $109,210, and $154,109, respectively.
Property Management Fees - Properties are managed and leased by third-party managing and leasing agents, including Compass Management and Leasing, Inc. ("Compass") and ERE Yarmouth Retail,
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
Inc. ("Retail"), which were affiliates of Lend Lease. As discussed in Note 1, until June 10, 1997, ERE, the predecessor company to Lend Lease, was an affiliate of Equitable. 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. On September 30, 1998, Compass and Retail were sold to LaSalle Partners Incorporated ("LaSalle"). Compass and Retail earned approximately $292,713 and $396,440 in property management fees for properties managed for the nine months ended September 30, 1998 and the year ended December 31, 1997, 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 Retail were $58,698 and $276,314 for the nine months ended September 30, 1998 and the year ended December 31, 1997, 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 reimbursed Compass and Retail for payroll incurred of $1,321,615 and $1,785,133 for the nine months ended September 30, 1998 and the year ended December 31, 1997, respectively. Payroll reimbursements are included in real estate operating expenses on the statement of operations. Additionally, the Venture paid construction management fees to Compass and Retail of $11,829 for the year ended December 31, 1997. The construction management fees were capitalized as a portion of the construction projects to which they related.
Guaranty Fee - The guaranty fee is payable to the Venture in consideration of the assignment of the guaranty agreement. The fee was initially paid 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 plus .35% of average annual adjusted capital contributions. 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 the offering of BACs. The guaranty fee is assigned to EREIM LP Associates. The total of the recurring portion of the guaranty fee which is included in general and administrative expense on the statement of operations was $85,990, $254,824, and $359,587, for the years ended December 31, 1999, 1998, and 1997, respectively. The amortization expense on the nonrecurring portion of the fee was $268,251 in each of the years ended December 1999, 1998, and 1997.
Disposition Fee - The disposition fee is payable to the Managing General Partner in the case of a sale of a property. Upon distribution of the proceeds of the sale to the limited partners, the fee is payable in the amount of 1.50% of the aggregate gross proceeds received by the Partnership. The Managing General Partner will not receive any portion of the disposition fee which, when combined with amounts paid to all other entities as real estate brokerage commissions in connection with the sale, exceeds 6% of the aggregate gross sale proceeds. Such amounts shall not be payable until such time as the BAC holders and limited partners as a class have received distributions of sale or financing proceeds in a cumulative amount equal to their capital contributions. The disposition fees related to all of the properties sold during 1999, 1998, and 1997 have been deferred, without interest, until such time as the required distributions to BAC holders and limited partners are met, and therefore, have not been accrued.
9. PARTNERSHIP AGREEMENT
The general partners are liable for all general obligations of the Partnership to the extent not paid by the Partnership. The limited partners are not liable for the obligations of the Partnership beyond the amount of their contributed capital.
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
After payment of the acquisition/syndication fee to the general partners, which has been charged to the limited partners' capital, distributable cash from operations, less any amounts set aside for reserves, will be distributed semiannually on the basis of 95% to the BAC holders and limited partners as a group and 5% to the general partners. Distributions to the general partners for any semiannual period will be deferred until the limited partners have received a 6% per annum simple return on their adjusted capital contribution during the period.
Taxable income and loss will generally be allocated 1% to the general partners and 99% to the limited partners.
Distributions from sale or financing proceeds, if applicable during a period, will be distributed on a semiannual basis with priority return given to the limited partners. An exception in the agreement provides that the distribution of sale or financing proceeds may be delayed if the purpose for withholding such a distribution is to supplement cash reserves. Subsequent to a complete return of the limited partners' capital contributions and the receipt of the minimum return by the limited partners, as defined in the Partnership Agreement, sales proceeds will be allocated to the general partners to the extent of any distributable cash that has been deferred, net of disposition fees paid to the Managing General Partner. The balance will be allocated 85% to the limited partners and 15% to the general partners.
10. LEASES
Future minimum rentals to be received for the properties under noncancellable operating leases in effect as of December 31, 1999 are as follows:
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 $6,036,240, $6,948,710, and $9,172,055, for the years ended December 31, 1999, 1998, and 1997, 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, 1999, 1998, and 1997 totaled $448,308, $532,987, and $621,290, respectively.
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
Information with respect to significant individual leases is as follows:
o Hudson's Department Store, J.C. Penney, and Target 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 117,000 square feet, respectively, are not included in the gross leasable area of the mall.
11. 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 partners' capital for financial reporting purposes to net worth on a tax basis:
12. 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 the Partnership on July 14, 1997. On September 8, 1997, the Partnership was named as a defendant in Folette 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, ERE, EREIM L.P. Corp., and EREIM LP Associates.
The Plaintiffs purport to sue on behalf of a class of all limited partners of the Partnership who purportedly have been or will be adversely affected by the conduct of the defendants. The complaints filed in 1997 alleged 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 the Partnership'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
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
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. In August 1999, Plaintiffs filed an amended complaint alleging that, in addition to the allegations made previously, certain distributions from the Partnership were improperly characterized as a sale or financing proceeds rather than distributable cash. Defendants answered the complaint, denying any wrongdoing, and filed a motion to dismiss the amended complaint on statute of limitation grounds. The court granted in part, and denied in part, defendants' motion to dismiss the amended complaint. Plaintiff's claim that the defendants failed to distribute cash and part of Plaintiff's mischaracterization claim remain in this case. Plaintiff filed a motion for reconsideration. Although the outcome of any litigation cannot be predicted with certainty, the Partnership's management believes that the ultimate resolution of the litigation will not have a material adverse effect on the financial condition of the Partnership.
13. SEGMENT REPORTING
The Partnership owns or has owned real estate investments in the retail, office and industrial sectors, and mortgage loan investments. Revenues, depreciation and amortization, loss on write-down of assets, income (loss) before minority interest, identifiable assets and capital expenditures are as follows:
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ML/EQ REAL ESTATE PORTFOLIO, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
Mortgage loans transferred to the retail segment were transferred at the lower of cost or market value at such time that the Venture gained control of the underlying asset.
14. SUBSEQUENT EVENT
On February 25, 2000, J.C. Penney announced that they would be closing 45 unprofitable department stores in their chain. On March 9, 2000, J.C. Penney provided a list of the stores that they intend to close. Included on that list was the Northland Center store, which is scheduled to be closed on June 1, 2000. J.C. Penney currently occupies 283,534 square feet at Northland Center and leases the building from a third party and ground leases the underlying land from another third party. Their lease expires on May 31, 2005, but their operating agreement expired in 1997. J.C. Penney is contractually obligated to pay rent and reimbursements through the end of their lease term. Future minimum rentals in effect as of December 31, 1999 for J.C. Penney included in Note 10 are as follows: $64,495 in each of the years 2000 through 2004 and $26,873 thereafter. There are a number of tenants in Northland Center who have co-tenancy clauses in their leases that entitle them to terminate their respective leases or convert to percentage rent in the event that one or more anchor tenants vacate and/or the space remains vacant for a specified period of time. The anticipated closure of J.C. Penney on June 1, 2000 may trigger such clauses in the future and negatively impact the performance of Northland Center.
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CONSOLIDATED SUPPLEMENTAL SCHEDULES
(See Independent Auditors' Report)
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ML/EQ REAL ESTATE PORTFOLIO, L.P. SCHEDULE III
CONSOLIDATED SCHEDULE OF REAL ESTATE HELD FOR INVESTMENT AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1999 AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
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ML/EQ REAL ESTATE PORTFOLIO, L.P. SCHEDULE IV
CONSOLIDATED SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE AS OF DECEMBER 31, 1999 AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTES:
(a) Loan matured and was paid in full on February 1, 1999.
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SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30th day of March, 2000.
ML/EQ REAL ESTATE PORTFOLIO, L.P.
By: EREIM MANAGERS CORP. (Managing General Partner)
By: /s/Joseph A. DeLuca ------------------------------------------------ JOSEPH A. DELUCA President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on March 30, 2000.
/s/Joseph A. DeLuca ---------------------------------------------------- JOSEPH A. DELUCA President, Chief Executive Officer and Director of EREIM Managers Corp. (principal executive officer)
/s/Linda M. Hart ---------------------------------------------------- LINDA M. HART Vice President and Treasurer of EREIM Managers Corp.(principal financial officer)
/s/Peter D. Noris ---------------------------------------------------- PETER D. NORIS Director of EREIM Managers Corp.
/s/Anthony C. Pasquale ---------------------------------------------------- ANTHONY C. PASQUALE Director of EREIM Managers Corp.
EXHIBIT INDEX
Exhibit
4. (a) Amended and Restated Agreement of Limited Partnership 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 Partnership's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1987 (File No. 33-11064) (the "1987 10-K")).
10. Material Contracts.
(a) Purchase and Sale Agreement between EML Associates and The Rubenstein Company, L.P. dated April 21, 1999.
(b) Purchase and Sale Agreement between EML Associates and Income Growth Fund II, Inc. dated August 20, 1999.
(c) Real Estate Investment Advisory Agreement by and between EREIM Managers Corp. and Equitable Real Estate Investment Management, Inc. (currently Lend Lease, Inc.) dated as of June 10, 1997 (incorporated by reference to Exhibit 10(a) to the 1998 10-K).
(d) Purchase and Sale Agreement by and between The Equitable Life Assurance Society of the United States and Talisman Brookdale L.L.C., dated September 2, 1997 (incorporated by reference to Exhibit 10(b) to the 1998 10-K).
(e) Purchase and Sale Agreement by and between EML Associates and SPP Real Estate (O'Hare), Inc., dated December 31, 1997 (incorporated by reference to Exhibit 10(c) to the 1997 10-K).
(f) 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)).
(g) Agreement Between General Partners (incorporated by reference to Exhibit 10(c) to the 1987 10-K).
(h) Joint Venture Agreement of EML Associates (incorporated by reference to Exhibit 10(d) to the 1987 10-K).
(i) Investment Guaranty Agreement between the Venture and EREIM LP Associates (incorporated by reference to Exhibit 10(e) to the 1987 10-K).
(j) Assignment Agreement between Registrant and Venture (incorporated by reference to Exhibit 10(f) to the 1987 10-K).
(k) 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).
(l) Amended and Restated Agreement of General Partnership of EREIM LP Associates (incorporated by reference to Exhibit 10(h) to the 1987 10-K).
(m) 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)).
(n) 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)).
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 December 29, 1987, March 3, 1988 and March 17, 1988 (incorporated by reference to Exhibit 28 to the 1987 10-K).
(b) Amendment to Joint Venture Agreement dated as of January 1, 1997 between ML/EQ Real Estate Portfolio, L.P. and EREIM LP Associates (incorporated by reference to Exhibit 99(i) of the Form 10-K of the Partnership for the year ended December 31, 1996)