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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 September 30, 1998
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) 862-7444
(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 [ ]
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
INDEX
Part I. Financial Information:
Balance Sheets - September 30, 1998 and December 31, 1997
Statements of Operations -- Three and Nine Months Ended
September 30, 1998 and 1997
Statement of Partners' Equity -- Nine Months Ended
September 30, 1998
Statements of Cash Flows -- Nine Months Ended
September 30, 1998 and 1997
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
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
BALANCE SHEETS
September 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Real estate - net .................... $32,295,273 $33,033,710
Cash and cash equivalents ............ 6,628,331 4,350,887
Other assets ......................... 2,212,341 2,033,252
Receivables .......................... 90,439 182,568
----------- -----------
$41,226,384 $39,600,417
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,631,857 $ 1,183,720
Distributions payable ................ 395,799 395,799
Due to affiliates .................... 281,652 577,739
----------- -----------
2,309,308 2,157,258
----------- -----------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (400,010
units issued and outstanding) 36,970,271 35,570,050
General partners' equity ........ 1,946,805 1,873,109
----------- -----------
38,917,076 37,443,159
----------- -----------
$41,226,384 $39,600,417
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental Revenue ......................... $2,399,569 $2,172,283 $7,166,179 $6,926,885
---------- ---------- ---------- ----------
Costs and Expenses:
Operating expenses ................ 870,212 900,086 2,775,832 2,629,694
Depreciation and amortization ..... 312,099 349,935 970,685 969,805
Partnership management fee ........ 221,832 227,043 675,918 681,129
Administrative expenses ........... 173,675 126,029 729,617 532,387
Property management fee ........... 70,694 64,045 211,380 204,378
---------- ---------- ---------- ----------
1,648,512 1,667,138 5,363,432 5,017,393
---------- ---------- ---------- ----------
Income before gain on sale of property,
interest and other income ....... 751,057 505,145 1,802,747 1,909,492
Gain on sale of property .......... 730,368 -- 730,368 --
Interest income ................... 26,245 55,533 105,189 146,628
Other income ...................... 3,560 23,030 23,010 69,660
---------- ---------- ---------- ----------
Net income ............................. $1,511,230 $ 583,708 $2,661,314 $2,125,780
========== ========== ========== ==========
Net income attributable to:
Limited partners .................. $1,435,668 $ 554,523 $2,528,248 $2,019,491
General partners .................. 75,562 29,185 133,066 106,289
---------- ---------- ---------- ----------
Net income ............................. $1,511,230 $ 583,708 $2,661,314 $2,125,780
========== ========== ========== ==========
Net income per unit of limited
partnership interest (400,010 units
outstanding) ...................... $ 3.59 $ 1.39 $ 6.32 $ 5.05
========== ========== ========== ==========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
STATEMENT OF PARTNERS' EQUITY
General Limited
Partners' Partners'
Equity Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1998 ........................ $ 1,873,109 $ 35,570,050 $ 37,443,159
Net income for the nine
months ended September 30, 1998 ............ 133,066 2,528,248 2,661,314
Distributions as a return of capital for the nine
months ended September 30, 1998 ($2.82 per
limited partnership unit) .................. (59,370) (1,128,027) (1,187,397)
------------ ------------ ------------
Balance, September 30, 1998 ..................... $ 1,946,805 $ 36,970,271 $ 38,917,076
============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income .................................. $ 2,661,314 $ 2,125,780
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of property ................ (730,368) --
Depreciation and amortization ........... 970,685 969,805
Straight-line adjustment for stepped
lease rentals ......................... (232,881) (46,902)
Changes in assets and liabilities:
Accounts payable and accrued expenses ... 448,137 478,689
Receivables ............................. 92,129 (133,609)
Due to affiliates ....................... (296,087) (883,936)
Other assets ............................ (27,160) (183,173)
----------- -----------
Net cash provided by operating activities .. 2,885,769 2,326,654
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of property .............. 2,042,964 --
Improvements to real estate ................. (1,463,892) (708,233)
----------- -----------
Net cash provided by (used in) investing
activities ............................ 579,072 (708,233)
----------- -----------
Cash Flows From Financing Activities:
Distributions to partners ................... (1,187,397) (964,234)
----------- -----------
Increase In Cash And Cash Equivalents ............ 2,277,444 654,187
Cash And Cash Equivalents, Beginning of Year ..... 4,350,887 4,870,517
----------- -----------
Cash And Cash Equivalents, End of Quarter ........ $ 6,628,331 $ 5,524,704
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
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
for the year ended December 31, 1997.
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 the 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.
Because the expected 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 materially vary 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.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 nine months ended September 30, 1998 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 Partners"). 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 (and affiliated with other
entities) 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.
Subject to the right of the limited partners under the Limited
Partnership Agreement, Presidio controls the Partnership through its
indirect ownership of the General Partners. Effective July 31, 1998,
Presidio is indirectly controlled by NorthStar Capital Investment
Corp., a Maryland corporation.
Effective as of November 28, 1997, Presidio has a management agreement
with NorthStar Presidio Management Company LLC ("NorthStar Presidio),
an affiliate of NorthStar Capital Investment Corp., pursuant to which,
NorthStar Presidio will provide the day-to-day management of Presidio
and its direct and indirect subsidiaries and affiliates. For the nine
months ended September 30, 1998, reimbursable expenses incurred by
NorthStar Presidio amounted to approximately $71,000.
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
September 30, 1998 and 1997, Resources Supervisory was entitled to
receive $70,694 and $64,045 respectively, of which $48,374 and $48,403
was paid to unaffiliated management companies, respectively, for
on-site management and the balance was retained by Resources
Supervisory.
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. For the quarters ended September 30, 1998 and 1997,
the Managing General Partner was entitled to receive $37,500.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
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 the
quarters ended September 30, 1998 and 1997, the Managing General
Partner was entitled to receive $221,832 and $227,043, respectively The
General Partners are allocated 5% of the net income of the Partnership,
which amounted to $75,562 and $29,185 for the quarters ended September
30, 1998 and 1997, respectively. They are also entitled to receive 5%
of distributions, which amounted to $19,790 and for each of the
quarters ended September 30, 1998 and 1997.
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. All fees received by the General Partners are subject to
certain limitations as set forth in the Partnership Agreement.
From July 1996 through March 12, 1998, Millenium Funding II Corp., a
wholly owned indirect subsidiary of Presidio, purchased 39,123 units of
the Partnership from various limited partners. Subsequent to the
expiration of the offer described below, Millennium Funding II Corp.
purchased 10,258 limited partnership units in August 1998 through
November 1998. The total of these purchases represents approximately
12.3% of the outstanding limited partnership units of the Partnership.
In connection with a tender offer for units of the Partnership made
March 12, 1998 (the "Offer") by Olympia Investors, L.P., a Delaware
limited partnership controlled by Carl Ichan ("Olympia"), Olympia and
Presido entered into an agreement dated March 6, 1998 (the
"Agreement"). On July 28, 1998, Olympia announced that it had accepted
for payment 32,078 units properly tendered pursuant to the Offer. As a
consequence of the Agreement, Presidio may be deemed to beneficially
own the units owned by Olympia.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as
of:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Land ......................... $ 9,632,166 $ 11,056,966
Building and improvements .... 36,910,215 36,784,708
------------ ------------
46,542,381 47,841,674
Less: Accumulated depreciation (14,247,108) (14,807,964)
------------ ------------
$ 32,295,273 $ 33,033,710
============ ============
</TABLE>
No write-downs for impairment were recorded for the nine months ended
September 30, 1998 or 1997.
On August 28, 1998, the Partnership closed on the sale of the Westbrook
property, located in Brooklyn Center, Minnesota, to an unrelated party. In
connection with the sale, the Partnership received proceeds of $2,042,964 and
recognized a gain on the sale of property of $730,368 under generallly accepted
accounting principles.
5. DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Limited partners ($.94 per unit) $ 376,009 $ 376,009
General partners 19,790 19,790
--------- ---------
$ 395,799 $ 395,799
========= =========
</TABLE>
Such distributions were paid in the quarters subsequent to September
30, 1998 and December 31, 1997, respectively.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
6. DUE TO AFFILIATES
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
Partnership management fee ..................... $221,832 $227,044
Reorganization and litigation cost reimbursement
(Note 7) ....................................... -- 210,000
Property management fee ........................ 22,320 103,195
Non-accountable expense reimbursement .......... 37,500 37,500
-------- --------
$281,652 $577,739
======== ========
</TABLE>
Such amounts were paid in the quarters subsequent to September 30, 1998
and December 31, 1997, respectively.
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 the Partnership. On April 7, 1994 the plaintiffs were
granted leave to file an amended complaint (the "Amended Complaint") on
behalf of a class consisting of all the purchasers of limited
partnership interest in HEP-86, the Partnership, and High Equity
Partners L.P. - Series 88 ("HEP-88"), another affiliated partnership.
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, the
original and intervening plaintiffs filed a Consolidated Class and
Derivative Action Complaint (the "Consolidated Complaint") against the
managing general partner of HEP-85 and HEP-88 and the Investment
General Partner of HEP-86; the Administrative General Partner of HEP-86
(the "General Partners"); a subsidiary of the indirect corporate parent
of the General Partners; and the indirect corporate parent of the
General Partners. The Consolidated Complaint alleged 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.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Consolidated Complaint alleged, among other things, that the
General Partners caused a waste of the 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 acted improperly to enrich
themselves in their position of control over the HEP partnerships and
that their actions prevented non-affiliated entities from making and
completing tender offers to purchase units in the HEP partnership; that
by refusing to seek the sale of the HEP partnerships' properties, the
General Partners diminished the value of the limited partners' equity
in the HEP partnerships; that the General Partners took a heavily
overvalued partnership asset management fee; and that limited
partnership units were sold and marketed through the use of false and
misleading statements.
The Court entered an order on January 14, 1997 rejecting the settlement
and concluding that there had not been an adequate showing that the
settlement was fair and reasonable. On February 24, 1997, the Court
granted the request of one plaintiffs' law firm to withdraw as class
counsel. Thereafter, in June 1997, the plaintiffs again amended their
complaint (the "Second Amended Complaint"). The Second Amended
Complaint asserts substantially the same claims as the Consolidated
Complaint, except that it no longer contains causes of action for
fraud, for negligent misrepresentation, or for negligence. The
defendants served answers denying the allegations and asserting
numerous affirmative defenses. In February 1998, the Court certified
three plaintiff classes consisting of the current unit holders in each
of the three HEP partnerships. On March 11, 1998, the Court stayed the
California Action temporarily to permit the parties to engage in
renewed settlement discussions. On July 30, 1998, the Court lifted the
stay.
In September 1998, the parties in the lawsuit entered into a Memorandum
of Understanding with respect to a settlement of the lawsuit. The
Memorandum of Understanding provides, among other things, for a
modification of the fees payable under the partnership agreement and a
release of all claims against the defendants. The Memorandum of
Understanding is subject to a number of conditions, including agreement
among the parties with respect to definitive documentation, approval by
the court and approval by the limited partners of the modification
referred to above. There can be no assurance that such conditions will
be fulfilled.
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 September 30, 1998, the
Partnership paid the general partners a total of $1,034,510 for these
costs.
The General Partners believe that each of the claims asserted in the
Second Amended Complaint is 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.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
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 September 30,
1998, total working capital reserves amounted to approximately $2,587,000. 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 nine months ended September 30, 1998, cash and cash equivalents
increased $2,277,444 as a result of cash provided by operations and from the
sale of the Westbrook property in excess of capital expenditures and
distributions to partners. The Partnership's primary source of funds is cash
flow from the operation of its properties (principally rents received from
tenants) which amounted to $2,885,769 for the nine months ended September 30,
1998. In addition, the Partnership received proceeds of $2,042,964 from the sale
of Westbrook Mall in August 1998. The Partnership used $1,463,892 for capital
expenditures related to capital and tenant improvements to the properties and
$1,187,397 for distributions to partners for the nine months ended September 30,
1998.
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. Although no additional properties are under contract
for sale, future cash flows will exclude cash flow from the Westbrook property
which amounted to approximately $38,000 in 1998. Capital and tenant improvements
and leasing commissions may in the future exceed the Partnership's cash flow
from operations. In that event, the Partnership would utilize the remaining
working capital reserves, reduce distributions, or sell one or more properties.
Except as discussed above, management is not aware of any other trends, events,
commitments or uncertainties that will have a significant impact on liquidity.
RESULTS OF OPERATIONS
The Partnership experienced an increase in net income for the three and nine
months ended September 30, 1998 as compared to the same periods in the prior
year due primarily to the gain of $730,368 on the sale of the Westbrook property
in August 1998. Increases in rental revenues and slightly lower costs and
expenses during the three months ended September 30, 1998 were partially offset
by lower interest and other income during the current period. For the nine
months ended September 30, 1998, higher rental revenues were offset by higher
costs and expenses and lower interest and other income as compared to the nine
months ended September 30, 1997.
Rental revenues increased during the three and nine months ended September 30,
1998 compared to 1997 at Century Park due to higher occupancy and rental rates.
In addition, an increase in revenues at Southport during the three and nine
months ended September 30, 1998 was due to higher overall rental rates at the
property.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Costs and expenses decreased slightly during the three months ended September
30, 1998 compared to the same period in 1997, primarily due to lower operating
expenses, depreciation expense and partnership management fee as a result of the
Westbrook sale. Operating expenses increased during the nine months ended
September 30,1998 due to higher repair and maintenance costs related to a
waterproofing project at Southport and higher professional fees incurred at 568
Broadway. Administrative expenses increased during the three and nine months
ended September 30, 1998 due to higher legal and accounting fees related to
ongoing litigation and a possible reorganization of the Partnership. Property
management fees increased during the three and nine months ended September 30,
1998 due to higher revenues, as previously discussed.
Interest income decreased during the three and nine months ended September 30,
1998 due to lower average cash balances during the first nine months of 1998.
Other income decreased during the three and nine months ended September 30, 1998
as compared to the same periods in 1997 due to fewer investor 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.
Forward-looking Statements
When used in this quarterly report on Form 10-Q, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Statements looking forward in time are included in
this quarterly report on Form 10-Q pursuant to the "safe harbor" provision on
the Private Securities Litigation Reform Act of 1995. Such statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially, including, but not limited to, those set forth in
"management's discussion and analysis of financial condition and results of
operations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Partnership undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.
Year 2000 Compliance
The Year 2000 compliance issue concerns the inability of computerized
information systems and equipment to accurately calculate, store or use a date
after December 31, 1999, as a result of the year being stored as a two digit
number. This could result in a system failure or miscalculations causing
disruptions of operations. The Partnership and its Manager (NorthStar Presidio
Management Co., LLC) recognize the importance of ensuring that its business
operations are not disrupted as a result of Year 2000 related computer system
and software issues.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The manager is in the process of assessing its internal computer information
systems and is now taking the further steps necessary to remediate these systems
so that they will be Year 2000 compliant. In connection therewith, the manager
is currently in the process of installing a new fully compliant accounting and
reporting system. The Manager is also currently reviewing its other internal
systems and programs, along with those of its unaffiliated third party service
providers, in order to insure compliance.
Further, the Manager and these service providers are currently evaluating and
assessing those computer systems not related to information technology. These
systems, that generally operate in a building include, without limitation,
telecommunication systems, security systems (such as card-access door lock
systems), energy management systems and elevator systems. As a result of the
technology used in this type of equipment, it is possible that this equipment
may not be repairable, and accordingly may require complete replacement. Because
this assessment is ongoing, the total cost of bringing all systems and equipment
into Year 2000 compliance has not been fully quantified. Based upon available
information, the Manager does not believe that these costs will have a material
adverse effect on the Partnership's business, financial condition or results.
However, it is possible that there could be adverse consequences to the
Partnership as a result of Year 2000 issues that are outside the Partnership's
control. The Manager is in the preliminary stages of evaluating these issues and
will be developing contingency plans.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1998
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:
None
<PAGE>
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: November 12, 1998 By: /S/ Allan Rothschild
--------------------
Allan Rothschild
President
(Duly Authorized Officer)
Dated: November12, 1998 By: /S/ Lawrence Schachter
----------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 30, 1998 Form 10-Q of Integrated Resources High
Equity Partners, Series 85 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,628,331
<SECURITIES> 0
<RECEIVABLES> 90,439
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,226,384
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 38,917,076
<TOTAL-LIABILITY-AND-EQUITY> 41,226,384
<SALES> 0
<TOTAL-REVENUES> 7,166,179
<CGS> 0
<TOTAL-COSTS> 2,775,832
<OTHER-EXPENSES> 2,587,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,661,314
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,661,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,661,314
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
