1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998
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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
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2
EREIM LP ASSOCIATES
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial statements:
Balance sheets at September 30, 1998 and
December 31, 1997
Statements of income for the three and nine
months ended September 30, 1998 and 1997
Statement of partners' capital for the nine
months ended September 30, 1998
Statements of cash flows for the nine months
ended September 30, 1998 and 1997
Notes to financial statements
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EREIM LP ASSOCIATES
BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(unaudited)
September 30, December 31,
ASSETS 1998 1997
- ------ ------------- -------------
Cash $ 10,000 $ 10,000
Guaranty fee receivable from affiliate (Note 1) 62,102 180,367
Investment in joint venture, at equity (Note 2) 31,200,870 31,508,850
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TOTAL ASSETS $31,272,972 $31,699,217
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LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Deferred guaranty fee (Note 1) $ 1,060,436 $ 1,247,572
Due to affiliates 37,311 10,590
Accrued liabilities 12,534 18,219
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TOTAL LIABILITIES 1,110,281 1,276,381
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PARTNERS' CAPITAL:
General partners:
Equitable 30,849,414 31,175,140
EREIM LP Corp. (686,723) (752,304)
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TOTAL PARTNERS' CAPITAL 30,162,691 30,422,836
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TOTAL LIABILITIES AND PARTNERS' CAPITAL $31,272,972 $31,699,217
=========== ===========
See notes to financial statements.
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4
EREIM LP ASSOCIATES
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------------ ------------ ------------ -----------
REVENUE:
Equity in net income of joint venture (Note 2) $330,523 $415,894 $363,611 $1,459,639
Guaranty fee from affiliate (Note 1) 124,481 153,239 379,714 457,217
-------- -------- -------- ----------
455,004 569,133 743,325 1,916,856
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TOTAL REVENUE
EXPENSES:
Advisory fees -- -- -- --
General and administrative 7,012 7,012 21,036 21,037
-------- -------- -------- ----------
TOTAL EXPENSES 7,012 7,012 21,036 21,037
-------- -------- -------- ----------
NET INCOME $447,992 $562,121 $722,289 $1,895,819
======== ======== ======== ==========
See notes to financial statements
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5
EREIM LP ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
EREIM
Equitable LP Corp. Total
------------ ------------ ------------
Balance, December 31, 1997 $ 31,175,140 $(752,304) $ 30,422,836
Capital contributions -- -- --
Distributions to partners (664,875) (317,559) (982,434)
Net income 339,149 383,140 722,289
------------ --------- ------------
Balance, September 30, 1998 $ 30,849,414 $(686,723) $ 30,162,691
============ ========= ============
See notes to financial statements.
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6
EREIM LP ASSOCIATES
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
September 30, September 30,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net income $ 722,289 $ 1,895,819
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Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of joint venture (363,611) (1,459,639)
Distributions from joint venture 671,591 3,820,000
Decrease in guaranty fee receivable from affiliate 118,265 92,118
Decrease in deferred guaranty fee (187,136) (187,135)
Increase (decrease) in due to affiliates 26,721 (2,826)
Decrease in accrued liabilities (5,685) (3,350)
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Total adjustments 260,145 2,259,168
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NET CASH PROVIDED BY OPERATING ACTIVITIES 982,434 4,154,987
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CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Contributions from general partners -- 27,213
Distributions to general partners (982,434) (4,182,200)
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NET CASH USED IN FINANCING ACTIVITIES (982,434) (4,154,987)
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NET CHANGE IN CASH -- --
CASH AT BEGINNING OF PERIOD 10,000 10,000
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CASH AT END OF PERIOD $ 10,000 $ 10,000
========= ===========
See notes to financial statements.
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7
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(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, 1997, as certain footnote disclosures which would
substantially duplicate those contained in such audited financial
statements have been omitted from this report. Interim results of
operations are not necessarily indicative of results to be expected for
the fiscal year.
1. GUARANTY AGREEMENT
The Partnership has entered into a guaranty agreement with EML Associates
(the "Venture"), a joint venture in which the Partnership holds a 20%
interest and invests in income-producing real properties and a fixed-rate
mortgage loan, to provide a minimum return to ML/EQ Real Estate Portfolio,
L.P.'s ("ML/EQ") limited partners on their contributions. Payments on the
guaranty are due 90 days following the earlier of the sale or other
disposition of all the properties and mortgage loans and notes or the
liquidation of ML/EQ. The minimum return will be an amount which, when
added to the cumulative distributions from ML/EQ to its limited partners,
will enable ML/EQ to provide its limited partners with a minimum return
equal to their capital contributions plus a simple annual return of 9.75%
on their adjusted capital contributions calculated from the dates of
ML/EQ's investor closings at which investors acquired their Beneficial
Assignee Certificates ("BACs"). Adjusted capital contributions are the
limited partners' original cash contributions reduced by distributions of
sale or financing proceeds and by distributions of certain funds in
reserves, as more particularly described in ML/EQ's Partnership Agreement.
The limited partners' original cash contributions have been adjusted by
that portion of distributions paid through September 30, 1998 resulting
from cash available to ML/EQ as a result of sale or financing proceeds
paid to the Venture.
The minimum return is subject to reduction in the event that certain
taxes, other than local property taxes, are imposed on ML/EQ or the
Venture, and is also subject to certain other limitations. 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 September 30, 1998 would be limited to
$179,315,069, plus the value of the Partnership's interest in the Venture
less any amounts contributed by the Partnership to the Venture to fund
cash deficits. The Venture has assigned its rights under the guaranty
agreement to ML/EQ. ML/EQ will have recourse under the guaranty agreement
only to the Partnership and EREIM LP Corp. as a general partner of the
Partnership but not to The Equitable Life Assurance Society of the United
States ("Equitable"). Equitable has entered into a Keep Well Agreement
with EREIM LP Corp. to permit EREIM LP Corp. to pay its obligations with
respect to the guaranty agreement as they become due; provided, however,
that the maximum liability of Equitable under the Keep Well Agreement is
an amount equal to the lesser of (i) two percent of the total admitted
assets of Equitable (as determined in accordance with New York Insurance
Law) or (ii) $271,211,250. The Keep Well Agreement provides that only
EREIM LP Corp. and its successors will have the right to enforce
Equitable's obligation with respect to the guaranty agreement.
Capital contributions by the BAC holders of the Partnership totaled
$108,484,500. As of September 30, 1998, the cumulative 9.75% simple annual
return was $107,412,830. As of September 30, 1998, cumulative
distributions by ML/EQ to the BAC holders totaled $65,752,441, of which
$27,663,548 is attributable to income from operations and $38,088,893 is
attributable to sales of Venture assets, principal payments on mortgage
loans, and other capital events. To the extent that future cash
distributions to the limited partners of ML/EQ are insufficient to provide
the specified minimum return, any shortfall will be funded by the
guarantor, up to the above described maximum.
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8
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
1. GUARANTY AGREEMENT (Continued)
Effective as of January 1, 1997, the Partnership entered into an amendment
to the Joint Venture Agreement of the Venture between the Partnership and
ML/EQ pursuant to which the Partnership agreed to defer, without interest,
its rights to receive 20% of the Venture's distributions of sale or
financing proceeds until ML/EQ has received aggregate distributions from
the Venture in an amount equal to the capital contributions made to ML/EQ
by the BAC holders plus a noncompounded cumulative return computed at the
rate of 9.75% per annum on contributions outstanding from time to time.
Prior to the amendment, the Partnership had a right to receive 20% of all
the Venture's distributions of sale or financing proceeds on a pari passu
basis with ML/EQ. The amendment has the effect of accelerating the return
of original contributions to BAC holders to the extent that sale or
financing proceeds are realized prior to the dissolution of ML/EQ.
2. INVESTMENT IN JOINT VENTURE
In March, 1988, ML/EQ had its initial investor closing. ML/EQ contributed
$90,807,268 to the Venture. The Partnership contributed zero coupon
mortgage notes to the Venture in the amount of $22,701,817. The Venture
purchased an additional $5,675,453 of zero coupon mortgage notes from
Equitable.
In May, 1988, ML/EQ had its second and final investor closing. ML/EQ
contributed $14,965,119 to the Venture. The Partnership contributed zero
coupon mortgage notes to the Venture in the amount of $3,741,280,
including accrued interest. The Venture purchased an additional $935,320
of zero coupon mortgage notes from Equitable to bring the total amount of
zero coupon mortgage notes owned by the Venture to $33,053,870, including
accrued interest as of the dates of acquisition. One of the zero notes was
accounted for as a deed in lieu of foreclosure by the Venture on July 22,
1994. The remaining note was due on June 30, 1995. The borrower defaulted
on its obligation to repay the loan, and the collateral, Brookdale Center,
was transferred to Equitable and the Venture on December 16, 1996 as
tenants in common, pursuant to a Chapter 11 bankruptcy plan for
reorganization filed with the Bankruptcy Court by the borrower.
During 1997, the Venture consummated the sale of Brookdale Center and the
Chicago Industrial properties. Brookdale Center was sold for a cash price
of $24,830,000, of which the Venture's portion was $17,793,352. Prior to
the sale, the Venture held a 71.66% interest in Brookdale Center. The sale
of Brookdale Center resulted in net sales proceeds of $17,734,260. The
Chicago Industrial properties were sold for a cash price of $7,860,000,
which results in net sales proceeds of $7,649,000.
Management evaluated appropriate strategies for the ownership of each of
the assets in the portfolio in order to achieve maximum value. As a result
of this evaluation, management decided to market for sale the 1200 Whipple
Road, 1345 Doolittle Drive, Richland Mall, 300 Delaware, and 16/18 Sentry
Park West properties, and to market for sale or lease the 1850 Westfork
property. As of September 30, 1998, these properties are classified as
held for sale. Management, through discussions with real estate brokers,
determined that the carrying values for Richland Mall and 1850 Westfork
were in excess of the estimated market values less selling costs, and
losses of $2,931,890 and $650,000, respectively, were recorded as a result
of the reclassifications. For each of the other properties classified as
held for sale, management believes that the carrying value does not exceed
market value less selling costs. For the three and nine months ended
September 30, 1998, income from property operations includes approximately
$1.2 million, or 56% and $2.5 million, or 49%, respectively, of income
from the six rental properties held for sale.
In September 1998, management executed a purchase and sale agreement to
sell 1200 Whipple Road and 1345 Doolittle Drive as a package for $26.5
million. In October 1998, management executed a purchase and sale agreement
to sell 1850 Westfork Drive for $2.6 million. Management anticipates making
a special distribution of the net proceeds to BAC holders shortly after the
transactions are complete. Based on the amendment to the Joint Venture
Agreement effective as of January 1, 1997, the Partnership agreed to defer,
without interest, its right to receive 20% of the Venture's distribution of
sale or financing proceeds, thereby entitling ML/EQ to receive 100% of the
sale or financing proceeds attributable to the sales. Management expects to
close these transactions prior to year end, subject to customary closing
conditions and results of due diligence procedures.
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9
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
2. INVESTMENT IN JOINT VENTURE (Continued)
The financial position and results of operations of the Venture are
summarized as follows:
Summary of Financial Position
SEPTEMBER 30, 1998 and December 31, 1997
(unaudited)
September 30 December 31
------------ ------------
Assets:
Rental properties $ 45,055,513 $127,606,639
Rental properties held for sale 65,163,947 --
Accumulated depreciation (5,214,061) (18,371,261)
------------ ------------
Net rental properties 105,005,399 109,235,378
Mortgage loan receivable 6,000,000 6,000,000
Cash and cash equivalents 5,740,384 19,282,597
Accounts receivable and accrued investment income 4,214,224 3,364,216
Deferred rent concessions 1,982,521 2,159,595
Deferred leasing costs 1,424,146 1,399,382
Prepaid expenses and other assets 546,094 807,596
Interest receivable 21,481 99,848
------------ ------------
Total assets $124,934,249 $142,348,612
============ ============
Liabilities and equity:
Accounts payable and accrued real estate expenses $ 1,746,563 $ 1,737,566
Accrued capital expenditures 88,718 1,566,226
Security deposits and unearned rent 507,849 683,546
Joint venturers' equity 122,591,119 138,361,274
------------ ------------
Total liabilities and equity $124,934,249 $142,348,612
============ ============
Partnership's share of joint venture equity $ 31,200,870 $ 31,508,850
============ ============
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10
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
2. INVESTMENT IN JOINT VENTURE (Continued)
SUMMARY STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
1998 1997
Revenue:
Rental income $15,115,871 $19,067,500
Lease termination income 12,501 132,840
Interest on loans receivable 461,250 461,250
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Total revenue 15,589,622 19,661,590
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Operating expenses:
Real estate operating expenses 6,207,514 7,272,728
Depreciation and amortization 2,519,718 3,213,676
Real estate taxes 1,363,810 2,478,275
Property management fees 334,383 420,380
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Total operating expenses 10,425,425 13,385,059
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Income from property operations 5,164,197 6,276,531
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Other income (expense):
Interest and other nonoperating income 351,684 1,021,666
Loss on write-down of real estate assets (3,581,890) --
General and administrative expense (115,936) --
----------- -----------
Total other income, net (3,346,142) 1,021,666
----------- -----------
Net income $ 1,818,055 $ 7,298,197
=========== ===========
Partnership's share of equity in net income of joint venture $ 363,611 $ 1,459,639
=========== ===========
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3. LEGAL PROCEEDINGS
As discussed in the Notes to Financial Statements of the Partnership's
December 31, 1997 audited financial statements, the Partnership is a
defendant in a consolidated action brought in the Court of Chancery of the
State of Delaware entitled IN RE: ML/EQ Real Estate Partnership
Litigation. There have been no new developments associated with this
action for the nine months ended September 30, 1998.
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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 future capital expenditures relating to renovation and
development activities, and statements regarding expectations of future sales
of the properties. 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, availability of financing, the investment climate for
particular property types, individual property issues, construction delays due
to unavailability of materials, weather conditions or other causes, leasing
activities, results of due diligence procedures on properties under contract
for sale, and the other risks detailed from time to time in the Partnership's
SEC reports, including the Annual Report on Form 10-K for the year ended
December 31, 1997.
Liquidity and Capital Resources
As of September 30, 1998, the Partnership had cash of $10,000. The cash
is expected to be used for general working capital purposes. The Partnership may
establish additional working capital reserves as the General Partners from time
to time determine are appropriate. In addition, at September 30, 1998, the
Venture, in which the Partnership owns an 20% interest, had approximately $5.7
million in cash and cash equivalents. This money was retained for the specific
purpose of funding the renovation work on 300 Delaware, to fund possible costs
to be incurred to increase tenancy at Northland Mall, and, to the extent
required, to increase tenancy at the other properties, and to cover general
working capital requirements.
Management evaluated appropriate strategies for the ownership of each
of the assets in the portfolio in order to achieve maximum value. In this
regard, management took into account capital market and investment market
conditions for most types of real estate; local market conditions; future
capital needs, including potential lease exposure for specific properties; and
other issues that impact property performance. Among other things, this
analysis provided the basis for hold/sell recommendations for the properties.
As a result of the evaluation, management decided to market for sale the 1200
Whipple Road, 1345 Doolittle Drive, Richland Mall, 300 Delaware,and 16/18
Sentry Park West properties, and to market for sale or lease the 1850 Westfork
property. As of September 30, 1998, these properties are classified as held for
sale. Management, through discussions with real estate brokers, determined that
the carrying values for Richland Mall and 1850 Westfork were in excess of the
estimated market values less selling costs, and losses of $2,931,890 and
$650,000, respectively, were recorded as a result of the reclassifications.
While there is no guarantee that efforts to sell these properties will be
successful, the Partnership will continue to look for selling opportunities.
The Partnership continues to evaluate appropriate strategies for Northland
Mall. While management has not engaged a broker to market the property for
sale, several brokers have provided an evaluation of the property to help
determine an appropriate plan for an exit strategy.
In September 1998, management executed a purchase and sale agreement to
sell 1200 Whipple Road and 1345 Doolittle Drive as a package for $26.5 million.
In October 1998, management executed a purchase and sale agreement to sell 1850
Westfork Drive for $2.6 million. Management anticipates making a special
distribution of the net proceeds to BAC holders shortly after the transactions
are complete. Based on the amendment to the Joint Venture Agreement effective as
of January 1, 1997, the Partnership agreed to defer, without interest, its right
to receive 20% of the Venture's distribution of sale or financing proceeds,
thereby entitling ML/EQ to receive 100% of the sale or financing proceeds
attributable to the sales. Management expects to close these transactions prior
to year end, subject to customary closing conditions and results of due
diligence procedures.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
On December 16, 1996, Brookdale Center was transferred to the Venture
and Equitable, as tenants in common (collectively, the "Owners"), following
default by the borrower on the mortgage note securing the property. In November
1997, the Venture sold Brookdale Center for approximately $24.8 million, of
which the Venture's portion was approximately $17.8 million. Management made a
special distribution of the net proceeds in December 1997. Based on the
amendment to the Joint Venture Agreement effective as of January 1, 1997, the
Partnership agreed to defer, without interest, its right to receive 20% of the
Venture's distribution of the sale or financing proceeds, thereby entitling the
Partnership to receive 100% of the sale or financing proceeds attributable to
the sale.
Management has established an enhancement, stabilization, and
renovation program for 300 Delaware which was transferred to the Venture by
deed in lieu of foreclosure on November 15, 1994. Estimated costs for this
program total $4.4 million, of which $1.6 million was incurred in 1995, $1.2
million was incurred in 1996, $398,000 was incurred in 1997, $764,000 was
incurred for the nine months ended September 30, 1998, and the remaining
balance is expected to be expended through 1998.
Included in the estimated $4.4 million of renovation expenditures is
approximately $2.3 million for asbestos abatement, $400,000 for sprinkler
installation, $400,000 for exterior deferred maintenance and $600,000 for
interior and exterior common area cosmetic upgrades. The deferred maintenance
and cosmetic upgrades have been substantially completed as of September 30,
1998. Management expects to complete the asbestos abatement and sprinkler
installation projects by the end of 1998. Additional costs not included in the
above figures are estimated tenant improvements of $3.7 million. The tenant
improvement costs are directly associated with actual leasing and will only be
expended as leasing transactions occur in the building. As of September 30,
1998, approximately $2.0 million had been expended for tenant improvements. The
remaining tenant improvement costs of approximately $1.7 million are expected
to be expended over the next few years in connection with leasing the currently
vacant space.
As of September 30, 1998, the Venture has incurred costs of
approximately $3.8 million to renovate Richland Mall and to increase tenancy at
the property. This project is near completion and management does not expect to
incur any additional significant renovation costs related to the project. One
block of vacant space remains and is being actively marketed by management.
Financial Condition
The Partnership's financial statements reflect its proportional
ownership interest in, and its share of the results of operations of the
Venture, through which the Partnership conducts its business of investment in
real property.
The decrease in guaranty receivable of approximately $118,000, or 66%,
from $180,000 at December 31, 1997 to $62,000 at September 30, 1998 is
attributable to the payment to EREIM LP by ML/EQ of the $180,000 guaranty fee
in February 1998, offset by the accrual of $62,000 of guaranty fee receivable
for the period from July through September 1998.
Deferred guaranty fees decreased $187,000, or 15%, from $1.2 million
at December 31, 1997 to $1.1 million at September 30, 1998 due to the return of
capital distribution made in February 1998, which lowered the basis on which
the guaranty is calculated.
Due to affiliates increased $26,000 or 247%, from $11,000 at December
31, 1997 to $37,000 at September 30, 1998 due to the accrual of the
Partnership's year-end audit and tax fees, which were paid by ML/EQ.
Accrued liabilities decreased $6,000 or 33%, from $18,000 at December
31, 1997 to $12,000 at September 30, 1998 due to the timing of the payment of
invoices.
Results of Operations
Equity in net income of the Venture decreased approximately $1.1
million or 75%, from $1.5 million for the nine months ended September 30, 1997
to $364,000 for the nine months ended September 30, 1998. The decrease is due
primarily to the valuation allowances on Richland Mall and 1850 Westfork in
1998. The Venture has been in discussions with brokers to market the properties
for sale. Through these discussions, management determined that the carrying
values for Richland Mall and 1850 Westfork were in excess of the estimated
market values. The Venture has established valuation allowances for these
assets to reduce their carrying values to represent management's best estimate
of each property's market value less selling costs. The sale of Brookdale
Center and the Chicago Industrial properties at the end of 1997 resulted in
lower net income for the Venture for the nine months ended September 30, 1998,
contributing to the decrease.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Guaranty fee from affiliates decreased approximately $28,000 or 18%,
and $77,000 or 17%, for the three and nine months ended September 30, 1998,
respectively from $153,000 for the three months and $457,000 for the nine
months ended September 30, 1997 to $124,000 for the three months and $380,000
for the nine months ended September 30, 1998, due to the return of capital
distribution in February 1998, which decreased the basis on which the guaranty
fee is calculated.
Year 2000
The inability of computers, software and other equipment to recognize
and properly process data fields containing a two-digit year is commonly
referred to as the Year 2000 compliance issue (Y2K). As the year 2000
approaches, such systems may be unable to accurately process certain date-based
information.
Y2K exposures of the Partnership and the Venture are currently being
assessed. Potential critical exposures include reliance on third party vendors
and building systems that are not Y2K compliant. The Venture has begun to
communicate with our third party service vendors such as Lend Lease, Merrill
Lynch and property managers in an effort to assess their Y2K compliance status
and the adequacy of their Y2K efforts.
Each property owned by the Venture is being individually assessed in
an effort to identify Y2K issues specific to each property. Required
remediation strategies will depend on the outcome of the assessments and
therefore will not be developed until the property assessments are complete. We
expect the majority of critical property assessments to be completed and
remediation efforts to be underway by the end of the first quarter of 1999.
Neither the Partnership nor the Venture has incurred any costs to date
relating to Y2K. Total property assessment costs to the Venture are expected to
total approximately $55,000. These costs were not incurred and therefore not
accrued as of September 30, 1998. Remediation efforts may vary significantly
from one building to the next. Therefore remediation costs can not be
reasonably estimated until the assessments are complete and remediation
strategies determined.
The failure to adequately address the Year 2000 issue may result in
the closure of buildings owned by the Venture, or delay in distributions to BAC
Holders. In order to reduce the potential impact on the operations of the
Partnership and the Venture, contingency plans will be developed once Y2K
exposures have been assessed.
Building contingency plans will only be developed on a property by
property basis once assessments have been completed. This will allow the
efficient development of contingency plans that take into account individual
circumstances surrounding each property. Contingency plans may involve the
engagement of additional security services, implementation of temporary systems
modifications, and the identification and engagement of alternate service
vendors. Additional contingency plans may be developed as circumstances warrant.
13
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities and Use of Proceeds
Response: None
Item 3. Default Upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
Response:
a) Exhibits
10 Material Contracts
(a) 1200 Whipple Road, Union City, California and 1345
Doolittle Drive, San Leandro, California. Purchase
and Sale Agreement between EML Associates, a New
York general partnership as seller, and SPP Real
Estate (USA), Inc., a Delaware corporation, as
purchaser.
(b) 1850 Westfork Drive, Westfork Business Park, Lithia
Springs, Douglas County, Georgia. Purchase and Sale
Agreement between EML Associates, a joint venture in
the form of a New York general partnership as
seller, and Glenn E. Wyatt, Jr., an individual
resident of the State of Georgia as purchaser.
27 Financial Data Schedule (for SEC filing purposes
only)
b) Reports
None
14
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EREIM LP ASSOCIATES
By: EREIM LP Corp.
General Partner
By: /s/ Patricia C. Snedeker
------------------------------------
Patricia C. Snedeker
Vice President, Controller
and Treasurer
(Principal Accounting Officer)
Dated: November 13, 1998
15
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EREIM LP Associates
By: EREIM LP Corp.
General Partner
By: /s/Patricia C. Snedeker
------------------------------------
Patricia C. Snedeker
Vice President, Controller
and Treasurer
(Principal Accounting Officer)
Dated: November 13, 1998
16
17
EXHIBIT INDEX
Exhibit No. Description
- ----------- --------------------------------------------------------
10 Material Contracts
(a) 1200 Whipple Road, Union City, California and
1345 Doolittle Drive, San Leandro, California.
Purchase and Sale Agreement between EML
Associates, a New York general partnership as
seller, and SPP Real Estate (USA), Inc., a
Delaware corporation, as purchaser.
(b) 1850 Westfork Drive, Westfork Business Park,
Lithia Springs, Douglas County, Georgia. Purchase
and Sale Agreement between EML Associates, a
joint venture in the form of a New York general
partnership as seller, and Glenn E. Wyatt, Jr.,
an individual resident of the State of Georgia as
purchaser.
27 Financial Data Schedule (for SEC filing purposes only)
17