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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 0-14438
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3239107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check 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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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
INDEX
Part I. Financial Information:
Balance Sheets -- March 31, 1997 and December 31, 1996..........................
Statements of Operations -- Three Months Ended
March 31, 1997 and 1996.....................................................
Statement of Partners' Equity -- Three Months Ended
March 31, 1997..............................................................
Statements of Cash Flows -- Three Months Ended
March 31, 1997 and 1996.....................................................
Notes to Financial Statements...................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................
Part II. Other Information:
Legal Proceedings, Exhibits and Reports on Form 8-K.............................
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
BALANCE SHEETS
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS
Real estate .............................. $32,151,343 $32,154,253
Cash and cash equivalents ................ 4,675,970 4,870,517
Other assets ............................. 2,136,041 2,107,211
Receivables .............................. 120,476 158,204
----------- -----------
$39,083,830 $39,290,185
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses .... $ 1,258,204 $ 1,061,732
Due to affiliates ........................ 279,773 1,164,121
Distributions payable .................... 315,797 252,638
----------- -----------
1,853,774 2,478,491
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Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (400,010
units issued and outstanding) ........ 35,367,602 34,970,158
General partners' equity ............... 1,862,454 1,841,536
----------- -----------
37,230,056 36,811,694
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$39,083,830 $39,290,185
=========== ===========
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
--------------------------
1997 1996
---------- ----------
Rental Revenue ...................................... $2,356,528 $2,413,390
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Costs and Expenses:
Operating expenses ............................. 872,018 857,605
Depreciation and amortization .................. 309,935 319,365
Partnership management fee ..................... 227,043 227,043
Administrative expenses ........................ 202,260 131,460
Property management fee ........................ 69,069 75,297
---------- ----------
1,680,325 1,610,770
---------- ----------
Income before interest and other income ............. 676,203 802,620
Interest income ................................ 42,666 27,286
Other income ................................... 15,290 14,450
---------- ----------
Net income .......................................... $ 734,159 $ 844,356
========== ==========
Net income attributable to:
Limited partners ............................... $ 697,451 $ 802,138
General partners ............................... 36,708 42,218
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Net income .......................................... $ 734,159 $ 844,356
========== ==========
Net income per unit of limited
partnership interest (400,010 units outstanding) $ 1.74 $ 2.01
========== ==========
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
STATEMENT OF PARTNERS' EQUITY
General Limited
Partners' Partners'
Equity Equity Total
------------ ------------ ------------
Balance, January 1, 1997 ................... $ 1,841,536 $ 34,970,158 $ 36,811,694
Net income for the three
months ended March 31, 1997 ............ 36,708 697,451 734,159
Distributions as a return of capital for the
three months ended March 31, 1997
($.75 per limited partnership unit) .... (15,790) (300,007) (315,797)
------------ ------------ ------------
Balance, March 31, 1997 .................... $ 1,862,454 $ 35,367,602 $ 37,230,056
============ ============ ============
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
STATEMENTS OF CASH FLOWS
For The Three Months Ended
March 31,
---------------------------
1997 1996
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Cash Flows From Operating Activities:
Net income .................................. $ 734,159 $ 844,356
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ......... 309,935 319,365
Straight-line adjustment for stepped
lease rentals ......................... (13,228) (10,442)
Changes in assets and liabilities:
Accounts payable and accrued expenses . 196,472 182,102
Receivables ........................... 37,728 55,889
Due to affiliates ..................... (884,348) (63,430)
Other assets .......................... (72,855) (75,889)
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Net cash provided by operating activities ... 307,863 1,251,951
----------- -----------
Cash Flows From Investing Activities:
Improvements to real estate ................. (249,772) (184,897)
----------- -----------
Cash Flows From Financing Activities:
Distributions to partners ................... (252,638) (252,638)
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Increase (Decrease) In Cash And Cash Equivalents . (194,547) 814,416
Cash And Cash Equivalents, Beginning of Year ..... 4,870,517 2,450,943
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Cash And Cash Equivalents, End of Quarter ........ $ 4,675,970 $ 3,265,359
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See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
NOTES TO FINANCIAL STATEMENTS
l. GENERAL
The accompanying financial statements, notes and discussions should be
read in conjunction with the financial statements, related notes and
discussions contained in the Partnership's annual report on Form 10-K/A
for the year ended December 31, 1996.
The financial information contained herein is unaudited; however, in
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such
financial information have been included.
2. SIGNIFICANT ACCOUNTING POLICIES
Impairment of Assets
The Partnership evaluates the recoverability of the net carrying value
of its real estate and related assets at least annually, and more often
if circumstances dictate. If this review indicates that the carrying
value of a property may not be recoverable, the Partnership estimates
the future cash flows expected to result from the use of the property
and its eventual disposition, generally over a five-year holding
period. In performing this review, management takes into account, among
other things, the existing occupancy, the expected leasing prospects of
the property and the economic situation in the region where the
property is located.
If the sum of the expected future cash flows, undiscounted, is less
than the carrying amount of the property, the Partnership recognizes an
impairment loss, and reduces the carrying amount of the asset to its
estimated fair value. Fair value is the amount at which the asset could
be bought or sold in a current transaction between willing parties,
that is, other than in a forced or liquidation sale. Management
estimates fair value using discounted cash flows or market comparables,
as most appropriate for each property. Independent certified appraisers
are utilized to assist management, when warranted.
Impairment write-downs recorded by the Partnership do not affect the
tax basis of the assets and are not included in the determination of
taxable income or loss.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Assets (continued)
Because the cash flows used to evaluate the recoverability of the
assets and their fair values are based upon projections of future
economic events such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, the amounts
ultimately realized at disposition may differ materially from the net
carrying values at the balance sheet dates. The cash flows and market
comparables used in this process are based on good faith estimates and
assumptions developed by management. Unanticipated events and
circumstances may occur and some assumptions may not materialize;
therefore, actual results may vary materially from the estimates. The
Partnership may in the future provide additional write-downs, which
could be material, if real estate markets or local economic conditions
change.
Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" in February, 1997.
This pronouncement establishes standards for computing and presenting
earnings per share, and is effective for the Partnerhsip's 1997
year-end financial statements. The Partnership's management has
determined that this standard will have no impact on the Partnership's
computation or presentation of net income per unit of limited
partnership interest.
Certain reclassifications were made to the prior year financial
statements in order to conform them to the current period presentation.
Results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire
year.
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Managing General Partner of the Partnership, Resources High Equity,
Inc. is a wholly-owned subsidiary of Presidio Capital Corp.,
("Presidio"). Presidio AGP Corp., which is a wholly-owned subsidiary of
Presidio is the Associate General Partner (together with the Managing
General Partner, the "General Partner"). The General Partners and
affiliates of the General Partners are also engaged in businesses
related to the acquisition and operation of real estate. Presidio is
also the parent of other corporations that are or may in the future be
engaged in businesses that may be in competition with the Partnership.
Accordingly, conflicts of interest may arise between the Partnership
and such other businesses. Wexford Management LLC ("Wexford") has been
engaged to perform administrative services to Presidio and its direct
and indirect subsidiaries as well as the Partnership. During the three
months ended March 31, 1997, reimbursable expenses to Wexford by the
Partnership amounted to $23,650. Wexford is engaged to perform similar
services for other similar entities that may be in competition with the
Partnership.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The Partnership has a property management services agreement with
Resources Supervisory Management Corp. ("Resources Supervisory"), an
affiliate of the General Partners, to perform certain functions
relating to the management of the properties of the Partnership. A
portion of the property management fees were paid to unaffiliated
management companies which are engaged for the purpose of performing
the management functions for certain properties. For the quarters ended
March 31, 1997 and 1996, Resources Supervisory was entitled to receive
$69,069 and $75,297, respectively, of which $53,839 and $50,637 was
paid to unaffiliated management companies, respectively.
For the administration of the Partnership, the Managing General Partner
is entitled to receive reimbursement of expenses up to a maximum of
$150,000 per year (exclusive of the administrative expenses paid to
Wexford ). For each of the quarters ended March 31, 1997 and 1996, the
Managing General Partner was entitled to receive $37,500.
For managing the affairs of the Partnership, the Managing General
Partner is entitled to receive an annual partnership management fee
equal to 1.05% of the amount of original gross proceeds paid or
allocable to the acquisition of property by the Partnership. For each
of the quarters ended March 31, 1997 and 1996, the Managing General
Partner was entitled to receive $227,043.
The general partners are allocated 5% of the net income of the
Partnership, which amounted to $36,708 and $42,218 for the quarters
ended March 31, 1997 and 1996, respectively. They are also entitled to
receive 5% of distributions, which amounted to $15,790 and $12,632 for
the quarters ended March 31, 1997 and 1996, respectively.
During the liquidation stage of the Partnership, the Managing General
Partner or an affiliate may be entitled to receive certain fees, which
are subordinated to the limited partners receiving their original
invested capital and certain specified minimum returns on their
investment.
From July 1996 through April 1997, Millenium Funding II Corp., a wholly
owned indirect subsidiary of Presidio, purchased 19,951 units of the
Partnership from various limited partners. These units represent less
than 5% of the outstanding limited partnership units of the
Partnership.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as
of:
March 31, December 31,
1997 1996
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Land ................................... $ 11,056,966 $ 11,056,966
Building and improvements .............. 35,066,854 34,817,081
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46,123,820 45,874,047
Less: Accumulated depreciation ......... (13,972,477) (13,719,794)
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$ 32,151,343 $ 32,154,253
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No write-downs were recorded for the three months ended March 31, 1997
and 1996.
5. DISTRIBUTIONS PAYABLE
March 31, December 31,
1997 1996
-------- --------
Limited partners ($.75 and $.60 per unit) ........ $300,007 $240,006
General partners ................................. 15,790 12,632
-------- --------
$315,797 $252,638
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Such distributions were paid in the quarters subsequent to March 31,
1997 and December 31, 1996, respectively.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
NOTES TO FINANCIAL STATEMENTS
6. DUE TO AFFILIATES
March 31, December 31,
1997 1996
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Partnership management fee .......................... $ 227,043 $ 227,044
Settlement and litigation cost reimbursement (Note 7) -- 824,510
Property management fee ............................. 15,230 75,067
Non-accountable expense reimbursement ............... 37,500 37,500
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$ 279,773 $1,164,121
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Such amounts were paid in the quarters subsequent to March 31, 1997 and
December 31, 1996, respectively.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES
On or about May 11, 1993 High Equity Partners L.P. - Series 86
("HEP-86"), an affiliated partnership, was advised of the existence of
an action (the "California Action") in which a complaint (the "HEP
Complaint") was filed in the Superior Court for the State of California
for the County of Los Angeles (the "Court") on behalf of a purported
class consisting of all of the purchasers of limited partnership
interests in HEP-86. On April 7, 1994 the plaintiffs were granted leave
to file an amended complaint (the "Amended Complaint").
On November 30, 1995, after the Court preliminarily approved a
settlement of the California Action but ultimately declined to grant
final approval and after the Court granted motions to intervene by the
original plaintiffs, the original and intervening plaintiffs filed a
Consolidated Class and Derivative Action Complaint ( the "Consolidated
Complaint") against the Administrative and Investment General Partners
of HEP-86, the managing general partner of the Partnership, the
managing general partner of HEP-88 and the indirect corporate parent of
the General Partners. The Consolidated Complaint alleges various state
law class and derivative claims, including claims for breach of
fiduciary duties; breach of contract; unfair and fraudulent business
practices under California Bus. & Prof. Code Sec. 17200; negligence;
dissolution, accounting and receivership; fraud; and negligent
misrepresentation. The Consolidated Complaint alleges, among other
things, that the general partners caused a waste of HEP Partnership
assets by collecting management fees in lieu of pursuing a strategy to
maximize the value of the investments owned by the limited partners;
that the general partners breached their duty of loyalty and due care
to the limited partners by expropriating management fees from the
partnerships without trying to run the HEP Partnerships for the
purposes for which they are intended; that the general partners are
acting improperly to enrich themselves in their position of control
over the HEP Partnerships and that their actions prevent non-affiliated
entities from making and completing tender offers to purchase HEP
Partnership Units; that by refusing to seek the sale of the HEP
Partnerships' properties, the general partners have diminished the
value of the limited partners' equity in the HEP Partnerships; that the
general partners have taken a heavily overvalued partnership asset
management fee; and that limited partnership units were sold and
marketed through the use of false and misleading statements.
On February 24, 1997, after the Court again approved a settlement of
the California Action but again ultimately declined to grant final
approval, the Court recused itself from considering a motion to
intervene and to file a new complaint in intervention by one of the
objectors to the Revised Settlement, granted the request of one
plaintiffs' law firm to withdraw as class counsel and scheduled future
hearings on various matters.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Limited Partnership Agreement provides for indemnification of the
General Partners and their affiliates in certain circumstances. The
Partnership has agreed to reimburse the General Partners for their
actual costs incurred in defending this litigation and the costs of
preparing settlement materials. Through December 31, 1996, the General
Partners had billed the Partnership a total of $824,510 for these costs
which was paid in February 1997.
The Partnerships and the General Partners believe that each of the
claims asserted in the Consolidated Complaint are meritless and intend
to continue to vigorously defend the California Action. It is
impossible at this time to predict what the defense of the California
Action will cost, the Partnership's financial exposure as a result of
the indemnification agreement discussed above, and whether the costs of
defending could adversely affect the Managing General Partner's ability
to perform its obligations to the Partnership.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital reserves are temporarily invested in short-term instruments and,
together with cash flow from operations, are expected to be sufficient to fund
future capital improvements to the Partnership's properties. As of March 31,
1997, the Partnership had total working capital reserves of approximately
$2,975,000. The Partnership intends to distribute to its partners less than all
of its future cash flow from operations in order to assure adequate reserves for
capital improvements and capitalized lease procurement costs.
During the three months ended March 31, 1997, cash and cash equivalents
decreased $194,547 as a result of capital expenditures and distributions to
partners in excess of cash provided by operations. The Partnership's primary
source of funds is cash flow from the operation of its properties, principally
rents received from tenants, which amounted to $307,863 for the three months
ended March 31, 1997. The Partnership used $249,772 for capital expenditures
related to capital and tenant improvements to the properties and $252,638 for
distributions to partners for the three months ended March 31, 1997.
The Partnership expects to continue to utilize a portion of its cash flow from
operations to pay for various capital and tenant improvements to the properties
and leasing commissions. Capital and tenant improvements and leasing
commisssions may in the future exceed the Partnership's cash flow from
operations. In that event, the Partnership would utilize the remaining working
capital reserves or sell one or more properties.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Partnership experienced a decrease in net income for the three months ended
March 31, 1997 compared to the same period in the prior year due primarily to
slightly lower revenues at certain properties and higher administrative epenses
in 1997.
Revenues were lower at Southport during the first quarter of 1997 compared to
1996 due to lower percentage rent collected in 1997 as a result of lower sales
volume reported by one of the major tenants at that property. This decrease was
partially offset by higher revenues at 568 Broadway for the three months ended
March 31, 1997 compared to 1996 due to higher occupancy rates in the current
period.
Costs and expenses increased during the three months ended March 31, 1997
compared to the same period in 1996. Operating expenses, depreciation and
amortization, the partnership asset management fee and the property management
fees remained relatively consistent for the three months ended March 31, 1997
compared to the same period in 1996. Administrative expenses for the three
months ended March 31, 1997 increased compared to the same period in 1996 due to
higher legal and accounting fees related to ongoing litigation and the HEP
settlement, as previously discussed.
Interest income increased due to higher cash balances during the three months
ended March 31, 1997 compared to the same period in 1996. Other income, which
consists of investor ownership transfer fees, remained relatively consistent
during the three month period ended March 31, 1997 compared to the same period
in 1996 as there was no significant variance in the number of transfers.
Inflation is not expected to have a material impact on the Partnership's
operations or financial position.
Legal Proceedings
The Partnership is a party to certain litigation. See Note 7 to the financial
statements for a description thereof.
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
Part II. - Other Information
Item 1 - Legal Proceedings
(a) See Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes to Financial
Statements - Note 7 which is herein incorporated by reference.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: There were no exhibits filed.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated January 31, 1997
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - March 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Integrated Resources High Equity
Partners, Series 85,
A California Limited Partnership
By: Resources High Equity, Inc.,
Managing General Partner
Dated: May 20, 1997 By: /S/ Joseph M. Jacobs
--------------------
Joseph M. Jacobs
President
(Duly Authorized Officer)
Dated: May 20, 1997 By: /S/ Jay L. Maymudes
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Jay L. Maymudes
Vice President, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)