1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 33-11064
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EREIM LP Associates.
(Exact name of registrant as specified in its governing instrument)
New York 58-1739527
(State of Organization) (I.R.S. Employer Identification No.)
787 Seventh Avenue, New York, New York 10019
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (212) 554-1926
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
2
EREIM LP ASSOCIATES
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial statements:
Balance sheets at June 30, 2000 and
December 31, 1999
Statements of operations for the three and six
months ended June 30, 2000 and 1999
Statement of partners' capital for the six
months ended June 30, 2000
Statements of cash flows for the six months
ended June 30, 2000 and 1999
Notes to financial statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
EREIM LP ASSOCIATES
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(unaudited)
June 30, December 31,
2000 1999
------------ ------------
ASSETS
Cash $ 10,000 $ 10,000
Guaranty receivable -- 26,317
------------ ------------
TOTAL ASSETS $ 10,000 $ 36,317
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Deferred guarantee fee $ 623,785 $ 748,543
Due to affiliates 25,453 3,471
Accrued liabilities 2,574 10,532
------------ ------------
Total liabilities 651,812 762,546
Equitable 24,401,087 29,559,387
EREIM (377,309) (423,646)
Investment in EML Associates (24,665,590) (29,861,970)
------------ ------------
Total partners' capital and investment in EML Associates (641,812) (726,229)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 10,000 $ 36,317
============ ============
See notes to financial statements.
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4
EREIM LP ASSOCIATES
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUE:
Loss from equity in EML Associates $ (3,352,095) $ (1,585,057) $ (3,496,380) $ (1,731,641)
Guarantee revenue (ML/EQ) 62,379 85,988 127,265 181,923
------------ ------------ ------------ ------------
Total revenue (3,289,716) (1,499,069) (3,369,115) (1,549,718)
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 7,012 7,012 14,024 14,024
------------ ------------ ------------ ------------
Total operating expenses 7,012 7,012 14,024 14,024
------------ ------------ ------------ ------------
NET LOSS $ (3,296,728) $ (1,506,081) $ (3,383,139) $ (1,563,742)
============ ============ ============ ============
See notes to financial statements
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5
EREIM LP ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(unaudited)
EREIM LP
Equitable Corp. Total
------------ ---------- ------------
Balance, December 31, 1999 $ 29,559,387 $ (423,646) $ 29,135,741
Net income (loss) (3,475,300) 92,161 (3,383,139)
Distributions (1,683,000) (45,824) (1,728,824)
------------ ---------- ------------
Balance, June 30, 2000 $ 24,401,087 $ (377,309) $ 24,023,778
============ ========== ============
See notes to financial statements.
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EREIM LP ASSOCIATES
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(unaudited)
June 30, June 30,
2000 1999
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OPERATING ACTIVITIES:
Net loss $ (3,383,139) $ (1,563,742)
------------ ------------
Adjustments to reconcile net loss to
net cash provided by operating activities:
Equity in net loss of joint venture 3,496,380 1,731,641
Distributions from joint venture 1,700,000 --
Decrease in deferred guaranty fee (124,758) (124,757)
Increase in due to affiliates 21,982 25,284
Decrease in accrued liabilities (7,958) (11,260)
Decrease in guaranty fee receivable from affiliate 26,317 67,039
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,728,824 124,205
------------ ------------
FINANCING ACTIVITIES:
Distributions to partners (1,728,824) (124,205)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (1,728,824) (124,205)
------------ ------------
NET CHANGE IN CASH -- --
CASH:
Beginning of year 10,000 10,000
------------ ------------
End of year $ 10,000 $ 10,000
============ ============
See notes to financial statements.
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7
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(unaudited)
The financial statements of the Partnership included herein have been prepared
by the Partnership pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the accompanying unaudited
financial statements reflect all adjustments, which are of a normal recurring
nature, to present fairly the Partnership's financial position, results of
operations, and cash flows at the dates and for the periods presented. These
financial statements should be read in conjunction with the Partnership's
audited financial statements and notes thereto included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1999, as certain
footnote disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report. Interim results
of operations are not necessarily indicative of results to be expected for the
fiscal year.
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8
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(unaudited)
1. GUARANTY AGREEMENT
The Partnership has entered into a guaranty agreement with EML
Associates (the "Venture"), a joint venture in which the Partnership
holds a 20% interest and invests in income-producing real properties,
to provide a minimum return to ML/EQ Real Estate Portfolio, L.P.'s
("ML/EQ") limited partners on their contributions. Payments on the
guaranty are due 90 days following the earlier of the sale or other
disposition of all the properties and mortgage loans and notes or the
liquidation of ML/EQ. The minimum return will be an amount which, when
added to the cumulative distributions from ML/EQ to its limited
partners, will enable ML/EQ to provide its limited partners with a
minimum return equal to their capital contributions plus a simple
annual return of 9.75% on their adjusted capital contributions
calculated from the dates of ML/EQ's investor closings at which
investors acquired their Beneficial Assignee Certificates ("BACs").
Adjusted capital contributions are the limited partners' original cash
contributions reduced by distributions of sale or financing proceeds
and by distributions of certain funds in reserves, as more particularly
described in ML/EQ's Partnership Agreement. The limited partners'
original cash contributions have been adjusted by that portion of
distributions paid through June 30, 2000 resulting from cash available
to ML/EQ as a result of sale or financing proceeds paid to the Venture.
The minimum return is subject to reduction in the event that certain
taxes, other than local property taxes, are imposed on ML/EQ or the
Venture, and is also subject to certain other limitations. If there
were no distributions until December 31, 2002, the expiration of the
term of ML/EQ, the maximum liability of the Partnership to the Venture
under the guaranty agreement as of June 30, 2000 is limited to
$67,141,659, plus the value of the Partnership's interest in the
Venture less any amounts contributed by the Partnership to the Venture
to fund cash deficits. The Venture has assigned its rights under the
guaranty agreement to ML/EQ. ML/EQ will have recourse under the
guaranty agreement only to the Partnership and EREIM LP Corp. as a
general partner of the Partnership but not to The Equitable Life
Assurance Society of the United States ("Equitable"). Equitable has
entered into a Keep Well Agreement with EREIM LP Corp. to permit EREIM
LP Corp. to pay its obligations with respect to the guaranty agreement
as they become due; provided, however, that the maximum liability of
Equitable under the Keep Well Agreement is an amount equal to the
lesser of (i) two percent of the total admitted assets of Equitable (as
determined in accordance with New York Insurance Law) or (ii)
$271,211,250. The Keep Well Agreement provides that only EREIM LP Corp.
and its successors will have the right to enforce Equitable's
obligation with respect to the guaranty agreement.
Capital contributions by the BAC holders to ML/EQ totaled $108,484,500.
As of June 30, 2000, the cumulative 9.75% simple annual return was
$111,468,412. As of June 30, 2000 cumulative distributions by ML/EQ to
the BAC holders totaled $152,811,253, of which $34,335,345 is
attributable to income form operations and $118,475,908 is attributable
to sales of Venture assets, principal payments on mortgage loans, and
other capital events. To the extent that future cash distributions to
the limited partners are insufficient to provide the specified minimum
return, any shortfall will be funded by the guarantor, up to the above
described maximum. Management does not currently believe that future
cash distributions to the limited partners from liquidation of Venture
assets will be sufficient to provide the specified minimum return.
Accordingly, the shortfall will be funded by the guarantor, up to the
above described maximum.
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EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(unaudited)
1. GUARANTY AGREEMENT (Continued)
Effective as of January 1, 1997, the Partnership entered into an
amendment to the Joint Venture Agreement of the Venture between the
Partnership and ML/EQ pursuant to which the Partnership agreed to
defer, without interest, its rights to receive 20% of the Venture's
distributions of sale or financing proceeds until ML/EQ has received
aggregate distributions from the Venture in an amount equal to the
capital contributions made to ML/EQ by the BAC holders plus a
noncompounded cumulative return computed at the rate of 9.75% per annum
on contributions outstanding from time to time. Prior to the amendment,
the Partnership had a right to receive 20% of all the Venture's
distributions of sale or financing proceeds on a pari passu basis with
ML/EQ. The amendment has the effect of accelerating the return of
original contributions to BAC holders to the extent that sale or
financing proceeds are realized prior to the dissolution of ML/EQ.
2. INVESTMENT IN JOINT VENTURE
In March, 1988, ML/EQ had its initial investor closing. ML/EQ
contributed $90,807,268 to the Venture. The Partnership contributed
zero coupon mortgage notes to the Venture in the amount of $22,701,817.
The Venture purchased an additional $5,675,453 of zero coupon mortgage
notes from Equitable.
In May, 1988, ML/EQ had its second and final investor closing. ML/EQ
contributed $14,965,119 to the Venture. The Partnership contributed
zero coupon mortgage notes to the Venture in the amount of $3,741,280,
including accrued interest. The Venture purchased an additional
$935,320 of zero coupon mortgage notes from Equitable to bring the
total amount of zero coupon mortgage notes owned by the Venture to
$33,053,870, including accrued interest as of the dates of acquisition.
One of the zero notes was accounted for as a deed in lieu of
foreclosure by the Venture on July 22, 1994. The remaining note was due
on June 30, 1995. The borrower defaulted on its obligation to repay the
loan, and the collateral, Brookdale Center, was transferred to
Equitable and the Venture on December 16, 1996 as tenants in common,
pursuant to a Chapter 11 bankruptcy plan for reorganization filed with
the Bankruptcy Court by the borrower.
The Partnership has classified its investment in the Venture within
partners' capital because the agreement entered into by the Partnership
to defer the Partnership's rights to receive its proportionate share of
the Venture's distribution of sale or financing proceeds is expected to
result in substantially all of the net proceeds from the Venture's sale
of its assets and satisfaction of its liabilities being distributed to
ML/EQ.
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EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(unaudited)
2. INVESTMENT IN JOINT VENTURE (Continued)
The financial position and results of operations of the Venture are
summarized as follows:
Summary of Financial Position
JUNE 30, 2000 and December 31, 1999
(unaudited)
June 30, December 31,
2000 1999
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Assets:
Rental property held for sale $ 18,316,484 $ 21,814,303
Cash and cash equivalents 4,842,657 11,470,313
Accounts receivable and accrued investment income 1,928,654 3,037,159
Deferred rent concessions 644,937 608,330
Prepaid expenses and other assets 146,459 240,060
Interest receivable 16,085 49,198
------------ ------------
Total assets $ 25,895,276 37,219,363
============ ============
Liabilities and equity:
Accounts payable and accrued real estate expenses $ 843,741 1,057,511
Accrued capital expenditures 33,583 198,189
Security deposits and unearned rent 352,362 454,055
Joint venturers' equity 24,665,590 35,509,608
------------ ------------
Total liabilities and equity $ 25,895,276 $ 37,219,363
============ ============
Partnership's share of joint venture equity $ 24,665,590 $ 29,861,970
============ ============
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EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(unaudited)
2. INVESTMENT IN JOINT VENTURE (Continued)
SUMMARY STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
Revenue:
Rental income $ 4,904,400 $ 9,012,304
Interest on loans receivable - 51,250
------------ ------------
Total revenue 4,904,400 9,063,554
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Operating expenses:
Real estate operating expenses 2,770,371 4,325,772
Depreciation and amortization - 789,345
Real estate taxes 839,323 1,196,217
Property management fees 107,072 179,379
Loss on write-down of real estate assets 3,734,174 11,371,847
General and administrative expense 56,409 90,141
------------ ------------
Total operating expenses 7,507,349 17,952,701
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Loss from property operations (2,602,949) (8,889,147)
------------ ------------
Other income (expense):
Loss on sale of real estate assets - (71,562)
Interest and other nonoperating income 258,931 302,509
------------ ------------
Total other income 258,931 230,947
------------ ------------
Net loss $ (2,344,018) $ (8,658,200)
============ ============
Partnership's share of equity in net loss of joint venture
$ (3,496,380) $ (1,731,641)
============ ============
3. RENTAL PROPERTY HELD FOR SALE
At June 30, 2000, Northland Center, the Venture's remaining property
("Northland Center" or the "Property"), is classified as held for sale.
Northland Center is recorded at the lower of cost or estimated fair
market value, less estimated costs to sell and depreciation is no
longer recorded. In April 2000, Management executed a purchase and sale
agreement to sell Northland Center for $30 million. The carrying value
of Northland Center was adjusted to the lower of cost or estimated net
realizable value resulting in a loss of $1,498,187 recorded during the
three months ended March 31, 2000. An additional loss of $2,235,987 was
recorded in the second quarter in anticipation of price reductions as a
result of issues that have arisen during the due diligence process.
Previously, Management expected to close this transaction prior to the
end of the second quarter, subject to customary closing conditions and
results of due diligence procedures. However, various issues that have
arisen in the due diligence process have delayed the closing. Assuming
that these issues can be resolved, the closing is now expected to occur
prior to year-end. If these issues cannot be brought to resolution,
then this transaction may not close.
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4. LEGAL PROCEEDINGS
As discussed in the Notes to Consolidated Financial Statements of the
Partnership's December 31, 1999 audited financial statements, the
Partnership is a defendant in a consolidated action brought in the
Court of Chancery of the State of Delaware entitled in RE: ML/EQ Real
Estate Partnership Litigation. The parties have reached an agreement in
principle to settle the case subject to approval of the court and are
finalizing the documentation.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the results of operations and financial condition of
the Partnership should be read in conjunction with the financial statements and
the related notes to financial statements included elsewhere herein.
Certain Forward-Looking Information
Certain of the statements contained in this Quarterly Report on Form 10-Q
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements include, without limitation,
statements regarding the future sale of the Property. These forward-looking
statements are included in this Quarterly Report on Form 10-Q based on the
intent, belief or current expectations of the Partnership. However, such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
Although the Partnership believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Factors that could cause
actual results to differ materially from the Partnership's current expectations
include general local market conditions, the investment climate for real estate,
leasing activities, individual property issues, construction delays due to
unavailability of materials, weather conditions or other causes, and the other
risks detailed from time to time in the Partnership's SEC reports, including the
Annual Report on Form 10-K for the year ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Partnership had cash of $10,000. The cash is expected
to be used for general working capital purposes. The Partnership may establish
additional working capital reserves as the General Partners, from time to time
determine are appropriate.
In addition, at June 30, 2000, the Venture, in which the Partnership owns a 20%
interest, had approximately $4.9 million in cash and cash equivalents. In
August, the Venture intends to distribute $1.5 million in the aggregate, of
which $1.2 million or 80% will be distributed to ML/EQ and $300,000 or 20% will
be distributed to the Partnership.
At June 30, 2000, Northland Center, the Venture's remaining property ("Northland
Center" or the "Property"), is classified as held for sale. Northland Center is
recorded at the lower of cost or estimated fair market value, less estimated
costs to sell and depreciation is no longer recorded. In April 2000, Management
executed a purchase and sale agreement to sell Northland Center for $30 million.
The carrying value of Northland Center was adjusted to the lower of cost or
estimated net realizable value resulting in a loss of $1,498,187 recorded during
the three months ended March 31, 2000. An additional loss of $2,235,987 was
recorded in the second quarter in anticipation of price reductions as a result
of issues that have arisen during the due diligence process. Previously,
Management expected to close this transaction prior to the end of the second
quarter, subject to customary closing conditions and results of due diligence
procedures. However, various issues that have arisen in the due diligence
process have delayed the closing. Assuming that these issues can be resolved,
the closing is now expected to occur prior to year-end. If these issues cannot
be brought to resolution, then this transaction may not close.
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION
The decrease in guaranty fee receivable of $26,317, or 100%, from $26,317 at
December 31, 1999 to $0 at June 30, 2000 is attributable to the payment to EREIM
LP by ML/EQ of the $26,317 guaranty fee in February 2000.
RESULTS OF OPERATIONS
Equity in net income of the Venture increased approximately $1.3 million, or
80%, and $1.3 million, or 73%, for the three and six months ended June 30, 2000,
respectively, from ($1,585,000) for the three months and ($1,732,000) for the
six months ended June 30, 1999 to ($325,000) for the three months and ($469,000)
for the six months ended June 30, 2000. The increase is due primarily to the
$11.4 million write-downs of Northland Center and 300 Delaware recorded in 1999,
of which the Partnership's portion was approximately $2.3 million, partially
offset by the $3.7 million write-down of Northland Center recorded in 2000, of
which the Partnership's portion was approximately $747,000.
YEAR 2000
As of June 30, 2000, the Partnership and the Venture have not experienced any
material disruption of their internal computer systems or software applications,
and have not experienced any problem with the computer systems or software
applications of their third party vendors, suppliers or service providers. The
Partnership and the Venture will continue to monitor these third parties to
determine the impact, if any, on the business of the Partnership and the actions
the Partnership must take, if any, in the event of non-compliance by any of
these third parties. Based upon the Partnership's assessment of compliance by
third parties, there appears to be no material business risk posed by any such
noncompliance.
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PART II
Item 1. Legal Proceedings
As discussed in the Notes to the Consolidated Financial Statements of the
Partnership's December 31, 1999 audited financial statements, the Partnership is
a defendant in a consolidated action brought in the Court of Chancery of the
State of Delaware entitled IN RE: ML/EQ Real Estate Partnership Litigation. The
parties have reached an agreement in principle to settle the case subject to
approval of the court and are finalizing the documentation.
Item 2. Changes in Securities
Response: None
Item 3. Default Upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule (for SEC filing purposes
only)
b) Reports
None
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Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EREIM LP ASSOCIATES
By: EREIM LP Corp.
General Partner
By: /s/ Linda M. Hart
-----------------------------------
Linda M. Hart
Vice President and Treasurer
(Principal Accounting Officer)
Dated: August 14, 2000
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EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------------------------------------------------
27 Financial Data Schedule (for SEC filing purposes only)
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