<PAGE>
- --------------------------------------------------------------------------------
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 June 30, 1999
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 - JUNE 30, 1999
-------------------------
INDEX
-----
Page No.
Part I. Financial Information:
Balance Sheets - June 30, 1999 and December 31, 1998 3
Statements of Operations -- Three and Six Months Ended
June 30, 1999 and 1998 4
Statement of Partners' Equity -- Six Months Ended
June 30, 1999 5
Statements of Cash Flows -- Six Months Ended
June 30, 1999 and 1998 6
Notes to Financial Statements 7 - 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 15
Part II. Other Information:
Legal Proceedings, Exhibits and Reports on Form 8-K 16
2
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
ASSETS
<S> <C> <C>
Real estate - net $ 32,134,301 $ 32,518,352
Cash and cash equivalents 8,086,807 6,301,641
Other assets 1,884,776 1,847,273
Receivables 181,833 147,423
------------------- ------------------
$ 42,287,717 $ 40,814,689
==================== ==================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,958,324 $ 1,265,264
Distributions payable 395,799 395,799
Due to affiliates 267,488 362,440
------------------- ------------------
2,621,611 2,023,503
------------------- ------------------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (400,010
units issued and outstanding) 37,681,850 36,850,676
General partners' equity 1,984,256 1,940,510
------------------- ------------------
39,666,106 38,791,186
------------------- ------------------
$ 42,287,717 $ 40,814,689
=================== ==================
</TABLE>
See notes to financial statements
3
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
------ ------ ------ -------
<S> <C> <C> <C> <C>
Rental Revenue $ 2,224,919 $ 2,186,065 $ 5,092,992 $ 4,766,610
------------ ------------- ------------- ------------
Costs and Expenses:
Operating expenses 725,468 1,068,805 1,558,818 1,905,620
Depreciation and amortization 336,096 329,293 672,192 658,586
Partnership management fee 211,409 227,043 422,818 454,086
Administrative expenses 159,067 330,192 862,377 555,942
Property management fee 71,949 64,102 157,453 140,686
------------ ------------ ------------ ------------
1,503,989 2,019,435 3,673,658 3,714,920
------------ ------------ ------------ ------------
Income before interest and other income 720,930 166,630 1,419,334 1,051,690
Interest income 96,610 52,743 157,904 78,944
Other income 6,990 16,250 89,280 19,450
------------ ------------ ------------ ------------
Net income $ 824,530 $ 235,623 $ 1,666,518 $ 1,150,084
============ ============ ============ ============
Net income attributable to:
Limited partners $ 783,304 $ 223,842 $ 1,583,192 $ 1,092,580
General partners 41,226 11,781 83,326 57,504
------------ ------------ ------------ ------------
Net income $ 824,530 $ 235,623 $ 1,666,518 $ 1,150,084
============ ============ ============ ============
Net income per unit of limited
partnership interest (400,010 units $ 1.96 $ 0.56 $ 3.96 $ 2.73
outstanding) ============ ============ ============ ============
</TABLE>
4
See notes to financial statements
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
STATEMENT OF PARTNERS' EQUITY
-----------------------------
<TABLE>
<CAPTION>
General Partners' Limited Partners'
Equity Equity Total
----------------- ----------------- -----
<S> <C> <C> <C>
Balance, January 1, 1999 $ 1,940,510 $ 36,850,676 $ 38,791,186
Net income for the six
months ended June 30, 1999 83,326 1,583,192 1,666,518
Distributions as a return of capital for the six
months ended June 30, 1999 ($1.88 per limited (39,580) (752,018) (791,598)
partnership unit) --------------- -------------- ---------------
Balance, June 30, 1999 $ 1,984,256 $ 37,681,850 $ 39,666,106
=============== =============== ===============
</TABLE>
See notes to financial statements
5
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,666,518 $ 1,150,084
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 672,192 658,586
Straight-line adjustment for stepped
lease rentals 17,038 2,000
Changes in assets and liabilities:
Accounts payable and accrued expenses 693,060 392,426
Receivables (34,410) 105,001
Due to affiliates (94,952) (301,629)
Other assets (164,725) ( 39,986)
------------- ---------------
Net cash provided by operating activities 2,754,721 1,966,482
------------ --------------
Cash Flows From Investing Activities:
Improvements to real estate (177,957) (1,045,670)
------------- --------------
Cash Flows From Financing Activities:
Distributions to partners (791,598) (791,598)
------------- --------------
Increase In Cash And Cash Equivalents 1,785,166 129,214
Cash And Cash Equivalents, Beginning of Year 6,301,641 4,350,887
------------ --------------
Cash And Cash Equivalents, End of Quarter $ 8,086,807 $ 4,480,101
============ ==============
</TABLE>
See notes to financial statement
6
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
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, 1998.
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. Results of operations for the
six months ended June 30, 1999 are not necessarily indicative of the
results to be expected for the entire year.
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.
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.
7
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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. 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 provides the day-to-day management of Presidio and
its direct and indirect subsidiaries and affiliates, including the
Partnership. For the six months ended June 30, 1999 and 1998,
reimbursable expenses incurred by NorthStar Presidio related to the
Partnership amounted to approximately $51,000 and $47,300,
respectively.
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
June 30, 1999 and 1998, Resources Supervisory was entitled to receive
$71,949 and $64,102 respectively, of which $53,370 and $52,535 was paid
to unaffiliated management companies, respectively, for property
management services and the balance was retained by Resources
Supervisory. For the six months ended June 30, 1999 and 1998, Resources
Supervisory was entitled to receive $157,453 and $140,686,
respectively, of which $121,781 and $117,764 was paid to unaffiliated
management companies, respectively, for property management services
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 each of the quarters ended June 30, 1999 and
1998, the Managing General Partner received $37,500. For the six months
ended June 30, 1999 and 1998, the Managing General Partner received
$75,000.
For managing the affairs of the Partnership, the Managing General
Partner is also 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, as
adjusted for the properties sold. For the quarters ended June 30, 1999
and 1998, the Managing General Partner received $211,409 and $227,043,
respectively. For the six months ended June 30, 1999 and 1998, the
Managing General Partner received $422,818 and $454,086, respectively.
8
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
-----------------------------------------------------------
(CONTINUED)
-----------
The General Partners are allocated 5% of the net income of the
Partnership, which amounted to $41,226 and $11,781 for the quarters
ended June 30, 1999 and 1998, respectively. Net income allocated to the
General Partners amounted to $83,326 and $57,504 for the six months
ended June 30, 1999 and 1998, respectively. They are also entitled to
receive 5% of distributions, which amounted to $19,790 and for each of
the quarters ended June 30, 1999 and 1998. Distributions allocated to
the General Partners amounted to $39,580 for the six months ended June
30, 1999 and 1998.
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, Millennium Funding II
Corp.("MFII"), a wholly owned indirect subsidiary of Presidio,
purchased 39,123 units of the Partnership from various limited
partners.
In connection with a tender offer for units of the Partnership made on
March 12, 1998 (the "Offer") by Olympia Investors, L.P. ("Olympia"),
Olympia and Presidio entered into an agreement dated March 6, 1998 (the
"Agreement"). Subsequent to the expiration of the offer, Olympia
announced that it had accepted for payment 31,132 units properly
tendered pursuant to the Offer. Pursuant to the Agreement, MFII
purchased 50% of those units owned by Olympia as a result of the Offer,
or 15,566 units, for $101.81 per unit. Presidio may be deemed to
beneficially own the remaining units owned by Olympia as a consequence
of the Agreement.
Subsequent to the expiration of the tender offer described above, MFII
purchased an additional 18,042 limited partnership units from August
1998 through July 1999. The total number of units purchased by MFII
represents approximately 18.2% of the outstanding limited partnership
units of the Partnership.
9
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
4. REAL ESTATE
-----------
The following table is a summary of the Partnership's real estate as
of:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- ------------------
<S> <C> <C>
Land $ 10,370,965 $ 10,370,965
Building and improvements 36,968,677 36,790,720
---------------- ----------------
47,339,642 47,161,685
Less: Accumulated depreciation (15,205,341) (14,643,333)
----------------- -----------------
$ 32,134,301 $ 32,518,352
================ ================
</TABLE>
5. DISTRIBUTIONS PAYABLE
---------------------
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<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 subsequent quarters.
6. DUE TO AFFILIATES
-----------------
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Partnership management fee $ 211,409 $ 211,409
Property management fee 18,579 113,531
Non-accountable expense reimbursement 37,500 37,500
--------------- ----------------
$ 267,488 $ 362,440
=============== ================
</TABLE>
Such amounts were paid in the subsequent quarters.
10
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
In May 1993, limited partners in High Equity Partners L.P. - Series 86
("HEP-86"), an affiliated partnership, commenced an action (the
"Action") 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 the purchasers of limited partnership interests in
HEP-86. On April 7, 1994 the plaintiffs were granted leave to file an
amended complaint on behalf of a class consisting of all the purchasers
of limited partnership interests in HEP-86, the Partnership, and High
Equity Partners L.P. - Series 88 ("HEP-88"), another affiliated
partnership (collectively, the "HEP Partnerships").
In November, 1995, the original plaintiffs and intervening plaintiffs
filed a consolidated class and derivative action complaint (the
"Consolidated Complaint") alleging various state law class and
derivative claims, including claims for breach of fiduciary duty;
breach of contract; unfair and fraudulent business practices under
California Bus. & Prof. Code Section 17200; negligence; dissolution,
accounting, receivership and removal of general partner; fraud; and
negligent misrepresentation.
In early 1996, the parties submitted a proposed settlement to the Court
(the "Proposed Settlement"), which contemplated a reorganization of the
three HEP Partnerships into a single real estate investment trust
("REIT"), pursuant to which approximately 85% of the shares of the REIT
would have been allocated to investors in the three HEP Partnerships
(assuming each of the HEP Partnerships participated in the
reorganization), and approximately 15% of the shares would have been
allocated to the HEP General Partners.
11
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
In early 1997, the Court declined to grant final approval of the
Proposed Settlement because the Court was not persuaded that the
Proposed Settlement was fair, adequate or reasonable as to the proposed
class.
In July 1997, the plaintiffs filed an amended complaint, which
generally asserts the same claims as the earlier Consolidated Complaint
but contains more detailed factual assertions and eliminates some
claims they had previously asserted. The HEP General Partners
challenged the amended complaint on legal grounds and filed demurrers
and a motion to strike. In October 1997, the Court granted substantial
portions of the HEP General Partners' motions. Thereafter, the HEP
General Partners served answers denying the allegations and asserting
numerous defenses. In February 1998, the Court certified three separate
plaintiff classes consisting of the current owners of record of HEP
Units (but excluding all defendants or entities related to such
defendants), and appointed class counsel and liaison counsel.
In mid-1998, the parties actively engaged in negotiations concerning a
possible settlement of the Action. In September 1998, the parties
reached an agreement in principle, and, during the following months,
negotiated a more formal settlement stipulation (the "Settlement
Stipulation"), which they executed in December 1998. The Settlement
Stipulation was submitted to the Court for preliminary approval in
early January 1999. In February 1999, the Court gave preliminary
approval to the Settlement Stipulation and directed that notice of the
proposed settlement be sent to the previously certified class. The
settlement contemplates (I) amendments to the Partnership Agreement
that would modify the existing fee structure; (II) a tender offer
whereby the General Partners would purchase up to 6.7% of the units
from limited partners; and (III) that the General Partners would use
their best efforts to effect a reorganization of the HEP Partnerships
into separate REIT's or other publicly traded entities. At a hearing
held on April 29, 1999, the Court approved the settlement in its
entirety and directed entry of judgement to that effect. As the first
step in implementing the settlement, the General Partners are currently
soliciting the consent of limited partners to the amendments to the
Partnership Agreements referred to above. The settlement is subject to
a number of conditions. There can be no assurance that such conditions
will be fulfilled.
The General Partners believe that each of the claims asserted in the
Action are meritless and, if for any reason a final settlement pursuant
to the Settlement Stipulation is not consummated, intend to continue to
vigorously defend the Action. At a hearing held on April 29, 1999, the
Court also awarded a total of $2.5 million in attorneys' fees and
reimbursement of expenses to Class and objectors' counsel. Of that
total, $875,000 is to be paid by the General Partners and the balance
by the HEP Partnerships. Accordingly, the Partnership accrued $542,000
at March 31, 1999 related to these costs, which are expected to be paid
in the third quarter of 1999. 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 June 30, 1999, the Partnership paid the General
Partners a total of $1,034,510 for these costs.
12
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
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 June 30, 1999
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 six months ended June 30, 1999, cash and cash equivalents increased
$1,785,166 as a result of cash provided by operations 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 less property operating expenses) which amounted to
$2,754,721 for the six months ended June 30, 1999. The Partnership used $177,957
for capital expenditures related to capital and tenant improvements to the
properties and $791,598 for distributions to partners for the six months ended
June 30, 1999.
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
(sold in 1998) 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 its 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 six
months ended June 30, 1999 as compared to the same periods in the prior year.
These increases were primarily due to higher revenues and lower costs and
expenses during both the three and six months ended June 30, 1999.
Rental revenues increased during the three and six months ended June 30, 1999
compared to the same periods in 1998 at 568 Broadway due to higher overall
rental rates at the property. These increases were partially offset by lower
revenues during the three and six months ended June 30, 1999 due to the sale of
the Westbrook property in late 1998.
13
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Costs and expenses decreased during the three and six months ended June 30, 1999
compared to the same periods in 1998, primarily due to lower operating expenses
and partnership management fees due to the sale of the Westbrook property in
1998, as previously discussed. These decreases were partially offset by an
increase in depreciation expense during both periods due to real estate
improvements in 1998 and an increase in property management fees due to higher
revenues, as previously discussed. Administrative expenses increased for the six
months ended June 30, 1999 due to higher legal fees incurred during the first
quarter of 1999 pursuant to the Settlement Agreement related to the ongoing
litigation and possible reorganization of the Partnership (see Note 7). However,
administrative fees for the three months ended June 30, 1999 decreased as
compared to the same period in the prior year due to lower legal fees incurred
during the second quarter as a result of the potential settlement.
Interest income increased during the three and six months ended June 30, 1999
due to higher cash balances during the current periods as compared to the same
periods in 1998. Other income increased during the six months ended June 30,
1999 as compared to the same period in 1998 due to a greater number of investor
transfers (primarily during the first quarter of 1999) on which the Partnership
earns a transfer fee. However, other income decreased during the three months
ended June 30, 1999 compared to the prior period due to fewer such transfers
during the second quarter.
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.
14
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
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.
The manager has assessed 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 installed a new
fully compliant accounting and reporting system in December 1998. Further, the
Manager anticipates that the internal computer systems will be fully Year 2000
compliant by the end of the third quarter of 1999. The Manager is also currently
reviewing other systems and programs of its unaffiliated third party service
providers, in order to insure compliance. This process is expected to be
completed during the third quarter of 1999.
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 evaluating these issues and will be developing
contingency plans.
15
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
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
16
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
----------------------------------------------------
FORM 10-Q - JUNE 30, 1999
-------------------------
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: August 12, 1999 By: /S/ Allan Rothschild
---------------------------
Allan Rothschild
President
(Duly Authorized Officer)
Dated: August 12, 1999 By: /S/ Lawrence Schachter
---------------------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the June 30, 1999 Form 10-Q Integrated Resources High Equity
Partners, Series 85 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,086,807
<SECURITIES> 0
<RECEIVABLES> 181,833
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,287,717
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,666,106
<TOTAL-LIABILITY-AND-EQUITY> 42,287,717
<SALES> 0
<TOTAL-REVENUES> 5,092,992
<CGS> 0
<TOTAL-COSTS> 1,558,818
<OTHER-EXPENSES> 2,114,840
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,666,518
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,666,518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,666,518
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
