<PAGE>
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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, 1999
------------------
Commission file number 0-14438
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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.)
Cambridge Center, 9th Floor, Cambridge, MA 02142
(Address of principal executive offices)
(617) 234-3000
(Registrant's telephone number, including area code)
411 West Putnam Avenue, Greenwich, CT 06830
(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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<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
INDEX
Page No.
Part I. Financial Information:
Balance Sheets - September 30, 1999 and December 31, 1998 3
Statements of Operations -- Three and Nine Months Ended
September 30, 1999 and 1998 4
Statement of Partners' Equity -- Nine Months Ended
September 30, 1999 5
Statements of Cash Flows -- Nine Months Ended
September 30, 1999 and 1998 6
Notes to Financial Statements 7 - 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 16
Part II. Other Information:
Legal Proceedings, Exhibits and Reports on Form 8-K 17
2
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Real estate - net $32,036,575 $32,518,352
Cash and cash equivalents 8,048,391 6,301,641
Other assets 1,954,291 1,847,273
Receivables 280,480 147,423
----------- -----------
$42,319,737 $40,814,689
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,441,275 $ 1,265,264
Distributions payable -- 395,799
Due to affiliates 51,785 362,440
----------- -----------
1,493,060 2,023,503
----------- -----------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (400,010
units issued and outstanding) 38,784,393 36,850,676
General partners' equity 2,042,284 1,940,510
----------- -----------
40,826,677 38,791,186
----------- -----------
$42,319,737 $40,814,689
=========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rental Revenue $ 2,347,094 $ 2,740,578 $ 7,440,086 $ 7,507,188
----------- ----------- ----------- -----------
Costs and Expenses:
Operating expenses 667,294 870,212 2,226,112 2,775,832
Depreciation and amortization 336,096 312,099 1,008,288 970,685
Partnership management fee (4,049) 221,832 418,769 675,918
Administrative expenses 214,762 173,675 1,077,139 729,617
Property management fee 66,254 70,694 223,707 211,380
----------- ----------- ----------- -----------
1,280,357 1,648,512 4,954,015 5,363,432
----------- ----------- ----------- -----------
Income before gain on sale of
property, interest and other
income 1,066,737 1,092,066 2,486,071 2,143,756
Gain on sale of property -- 389,359 -- 389,359
Interest income 80,654 26,245 238,558 105,189
Other income 13,180 3,560 102,460 23,010
----------- ----------- ----------- -----------
Net income $ 1,160,571 $ 1,511,230 $ 2,827,089 $ 2,661,314
=========== =========== =========== ===========
Net income attributable to:
Limited partners $ 1,102,543 $ 1,435,668 $ 2,685,735 $ 2,528,248
General partners 58,028 75,562 141,354 133,066
----------- ----------- ----------- -----------
Net income $ 1,160,571 $ 1,511,230 $ 2,827,089 $ 2,661,314
=========== =========== =========== ===========
Net income per unit of limited
partnership interest (400,010 units
outstanding) $ 2.76 $ 3.59 $ 6.71 $ 6.32
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
STATEMENT OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
General Limited
Partners' 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 nine
months ended September 30, 1999 141,354 2,685,735 2,827,089
Distributions as a return of capital
for the nine months ended
September 30, 1999 ($1.88 per
limited partnership unit) (39,580) (752,018) (791,598)
------------ ------------ ------------
Balance, September 30, 1999 $ 2,042,284 $ 38,784,393 $ 40,826,677
============ ============ ============
</TABLE>
See notes to financial statements
5
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
------------------------
For the Nine Months Ended
September 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,827,089 $ 2,661,314
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of property -- (389,359)
Depreciation and amortization 1,008,288 970,685
Straight-line adjustment for stepped
lease rentals 25,557 (232,881)
Changes in assets and liabilities:
Accounts payable and accrued expenses 176,011 448,137
Receivables (133,057) 92,129
Due to affiliates (310,655) (296,087)
Other assets (297,851) (368,169)
----------- -----------
Net cash provided by operating activities 3,295,382 2,885,769
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of property -- 2,042,964
Improvements to real estate (361,235) (1,463,892)
----------- -----------
Net cash provided by (used in) investing activities (361,235) 579,072
----------- -----------
Cash Flows From Financing Activities:
Distributions to partners (1,187,397) (1,187,397)
----------- -----------
Increase In Cash And Cash Equivalents 1,746,750 2,277,444
Cash And Cash Equivalents, Beginning of Year 6,301,641 4,350,887
----------- -----------
Cash And Cash Equivalents, End of Quarter $ 8,048,391 $ 6,628,331
=========== ===========
</TABLE>
See notes to financial statement
6
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
1. 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 nine months
ended September 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.
Investments in Joint Ventures
Certain properties were purchased in joint venture ownership with
affiliated partnerships that have the same, or affiliated, general
partners as the Partnership. Thus, the joint ventures are, for practical
purposes, not subject to joint control by such partnerships, but instead
are controlled by the partnerships' general partners, all of which are
under common ownership and control. Therefore, the Partnership's
financial statements present the assets, liabilities, revenues and
expenses of the joint ventures on a pro rata basis in accordance with the
Partnership's percentage of ownership.
7
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 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 nine months ended September
30, 1999 and 1998, reimbursable expenses incurred by NorthStar Presidio
related to the Partnership amounted to approximately $76,500 and $71,000,
respectively.
On October 21, 1999, Presidio and certain of its affiliates entered into a
Services Agreement with AP-PCC III, L.P. (the "Agent") pursuant to which
the Agent was retained to provide asset management and investor relation
services to the Partnership and other entities affiliated with the
Partnership.
As a result of this agreement, the Agent has the duty to direct the day to
day affairs of the Partnership, including, without limitation, reviewing
and analyzing potential sale, financing or restructuring proposals
regarding the Partnership's assets, preparation of all Partnership
reports, maintaining Partnership records and maintaining bank accounts of
the Partnership. The Agent is not permitted, however, without the consent
of Presidio, or as otherwise required under the terms of the Partnership's
Agreement of Limited Partnership (the "Partnership Agreement") to, among
other things, cause the Partnership to sell or acquire an asset or file
for bankruptcy.
In order to facilitate the provision by the Agent of the asset management
services and the investor relation services, effective October 25,1999,
the officers and directors of the General Partner resigned and nominees of
the Agent were elected as the officers and directors of the General
Partner. The Agent is an affiliate of Winthrop Financial Associates, a
Boston based company that provides asset management services, investor
relation services and property management services to over 150 limited
partnerships which own commercial property and other assets. The General
Partner does not believe that this transaction will have a material effect
on the operations of the Partnership.
8
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
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 September 30, 1999 and
1998, Resources Supervisory was entitled to receive $66,254 and $70,694
respectively, of which $47,920 and $48,374 was paid to unaffiliated
management companies, respectively, for property management services and
the balance was retained by Resources Supervisory. For the nine months
ended September 30, 1999 and 1998, Resources Supervisory was entitled to
receive $223,707 and $211,380, respectively, of which $169,701 and
$166,138 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 September 30, 1999 and 1998, the
Managing General Partner received $37,500. For the nine months ended
September 30, 1999 and 1998, the Managing General Partner received
$112,500.
During 1998, for managing the affairs of the Partnership, the Managing
General Partner was 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 three and nine months ended September 30,
1998, the Managing General Partner received $211,832 and $675,918,
respectively. Pursuant to the amendment to the Partnership Agreement,
which became effective on August 20, 1999, the annual partnership
management fee for 1999 has been reduced to $418,769. For the three and
nine months ended September 30, 1999, the Managing General Partner
received ($4,049) and $418,769, respectively. Further, the Partnership
Agreement has been amended (for the year 2000 and beyond) so that the
partnership management fee will be calculated equal to 1.25% of the Gross
Asset Value of the Partnership, defined as the appraised value of all the
assets of the Partnership based on the most recent appraisal.
9
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 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 $58,028 and $75,562 for the quarters ended
September 30, 1999 and 1998, respectively. Net income allocated to the
General Partners amounted to $141,354 and $133,066 for the nine months
ended September 30, 1999 and 1998, respectively. They are also
entitled to receive 5% of distributions, which amounted to $0 and
$19,790 for the quarters ended September 30, 1999 and 1998, respectively.
Distributions allocated to the General Partners amounted to $39,580 and
$59,370 for the nine months ended September 30, 1999 and 1998,
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. 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.
10
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as of:
September 30, 1999 December 31, 1998
------------------ -----------------
Land $ 10,370,965 $ 10,370,965
Building and improvements 37,151,955 36,790,720
------------ ------------
47,522,920 47,161,685
Less: Accumulated depreciation (15,486,345) (14,643,333)
------------ ------------
$ 32,036,575 $ 32,518,352
============ ============
5. DISTRIBUTIONS PAYABLE
September 30, 1999 December 31, 1998
------------------ -----------------
Limited partners $ -- $ 376,009
General partners -- 19,790
------------ ------------
$ -- $ 395,799
============ ============
Such distributions were paid in the subsequent quarters.
6. DUE TO AFFILIATES
September 30, 1999 December 31, 1998
------------------ -----------------
Partnership management fee $ (4,049) $ 211,409
Property management fee 18,334 113,531
Non-accountable expense
reimbursement 37,500 37,500
------------ ------------
$ 51,785 $ 362,440
============ ============
Such amounts were paid in the subsequent quarters.
11
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 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. 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.
12
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. In August
1999, the settlement was consummated following approval of the amendments
to the Partnership Agreement.
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. In connection
with the Settlement Stipulation, the Partnership paid $602,667 during
the nine months ended September 30, 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 September 30, 1999, the Partnership paid the General Partners a
total of $1,034,510 for these costs.
13
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 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 September 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 nine months ended September 30, 1999, cash and cash equivalents
increased $1,746,750 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
$3,295,382 for the nine months ended September 30, 1999. The Partnership used
$361,235 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, 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 a decrease in net income of approximately $351,000
for the three months ended September 30, 1999 as compared to the 1998 period
primarily due to the fact that the Partnership recorded a $389,359 gain on the
sale of the Westbrook property in August 1998. Costs and expenses decreased
approximately $368,000 during the three months ended September 30, 1999 as
compared to the same period in 1998.
Rental revenues decreased $393,484 during the three months ended September 30,
1999 compared to the 1998 period due to a $618,585 decrease at Westbrook (as a
result of the sale of the property including the effect of the straight-line
rent adjustment) partially offset by increases of $146,948 and $35,875 at 568
Broadway and Seattle Tower, respectively, due to higher overall rental rates at
the properties.
14
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Costs and expenses decreased $368,155 during the three months ended September
30, 1999 compared to the 1998 period. The $202,918 decrease in operating
expenses was primarily due to a $104,080 decrease at the Southport property due
to lower repairs and maintenance costs and a $95,481 decrease at the 568
Broadway property due to lower professional fees related to tenant issues. The
$225,881 decrease in partnership management fees was due a $10,423 reduction due
to the sale of the Westbrook property and an amendment to the partnership
agreement (see Note 3) approved in August 1999 which resulted in a $215,458
reduction in management fees for the 1999 period. For the three months ended
September 30, 1999, these decreases were partially offset by a $23,997 increase
in depreciation expense during 1999 due to real estate improvements in 1998 and
a $41,087 increase in administrative expenses in 1999 due to higher legal fees
incurred in 1999 pursuant to the Settlement Agreement related to the ongoing
litigation and possible reorganization of the Partnership (see Note 7).
Interest income increased $54,409 during the three months ended September 30,
1999 due to higher cash balances during the current period as compared to the
1998 period. Other income increased $9,620 during the three months ended
September 30, 1999 as compared to the 1998 period due to a greater number of
investor transfers on which the Partnership earns a transfer fee.
The Partnership experienced an increase in net income of approximately $166,000
for the nine months ended September 30, 1999 as compared to the 1998 period
primarily due to higher rental revenues, interest and other income, and lower
costs and expenses. These items were partially offset by the $389,359 gain
recorded on the sale of the Westbrook property in August 1998
Rental revenues decreased $67,102 during the nine months ended September 30,
1999 compared to the 1998 period primarily due to $364,721 and $106,912
increases in revenues at 568 Broadway and Seattle Tower, respectively, due to
higher overall rental rates at the properties, offset by a $669,439 reduction in
revenues due to the sale of the Westbrook property, as previously discussed.
Costs and expenses decreased $409,417 during the nine months ended September 30,
1999 compared to the 1998 period due to lower operating expenses and partnership
management fees, partially offset by an increase in administrative expenses. The
$549,720 decrease in operating expenses was primarily due to a $160,728 decrease
at Westbrook due to the sale, a $212,287 decrease in repairs and maintenance
costs at Southport, and a $95,481 decrease in professional fees at 568 Broadway.
The $257,149 decrease in partnership management fees was due a $41,691 reduction
due to the sale of the Westbrook property and an amendment to the partnership
agreement (see Note 3) approved in August 1999 which resulted in a $215,458
reduction in fees for the 1999 period. These decreases were partially offset by
an $37,603 increase in depreciation expense during the 1999 period due to real
estate improvements in 1998 and a $347,522 increase in administrative expenses
for the 1999 period due to higher legal fees pursuant to the Settlement
Agreement related to the ongoing litigation and possible reorganization of the
Partnership (see Note 7).
15
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Interest income increased $133,369 during the nine months ended September 30,
1999 due to higher cash balances during the current period as compared to the
same period in 1998. Other income increased $79,450 during the nine months ended
September 30, 1999 as compared to the 1998 period due to a greater number of
investor transfers on which the Partnership earns a transfer fee.
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 programs 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. The Partnership is dependent upon the General Partner and its affiliates
for management and administrative services. This could result in system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
During the third quarter of 1999, the General Partner and its affiliates
completed their assessment of computer systems used in connection with the
management of the Partnership. The General Partner and its affiliates have
completed upgrading those systems where required. The Partnership has to date
not borne, nor is it expected that the Partnership will bear, any significant
costs in connection with the upgrade of those systems requiring remediation.
To date, the General Partner is not aware of any external agent or service
provider with a Year 2000 issue that would materially impact the Partnership's
results of operations, liquidity or capital resources. However, the General
Partner has no means of ensuring that external agents and service providers will
be Year 2000 compliant. The General Partner does not believe that the inability
of external agents or service providers to complete their Year 2000 resolution
process in a timely manner will have a material impact on the financial position
or results of operations of the Partnership. However, the effect of
non-compliance by external agents is not readily determinable.
16
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 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:
(i) Amendment to the Amended and Restated Agreement of Limited
Partnership dated August 20, 1999.
(ii) Guarantee by Presidio Capital Corp. dated August 20, 1999.
(b) Reports on Form 8-K:
None
17
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 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: November 15, 1999 By: /S/ Allan Rothschild
--------------------------------
Allan Rothschild
(Duly Authorized Officer)
Dated: November 15, 1999 By: /S/ Lawrence Schachter
--------------------------------
Lawrence Schachter
(Principal Financial and
Accounting Officer)
18
<PAGE>
APPENDIX A
AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
INTEGRATED RESOURCES HIGH EQUITY PARTNERS,
SERIES 85, A CALIFORNIA LIMITED PARTNERSHIP
The amended and restated agreement of limited partnership (the
"Agreement") of Integrated Resources High Equity Partners, Series 85, A
California Limited Partnership is hereby amended as follows:
1. Paragraph 9.4.1 of the Agreement is amended in its entirety to read as
follows:
9.4.1 Partnership Management Fee. As compensation for
services rendered in managing the affairs of the Partnership,
the Managing General Partner shall be entitled to receive the
Partnership Management Fee, which shall be an amount per annum
equal to 1.25% of the Gross Asset Value of the Partnership as
of the last day of the period in respect of which the
Partnership Management Fee is payable (which amount shall be
prorated for any partial year) (it being understood that,
notwithstanding anything to the contrary in this Paragraph
9.4.1, the Partnership Management Fee payable for calendar
year 1999 shall be $426,867 less than an amount equal to 1.05%
of Invested Assets). The Partnership Management Fee shall be
paid quarterly. For purposes of this Paragraph 9.4.1 the term
"Gross Asset Value" on a particular date means the gross asset
value of all assets owned by the Partnership on that date, as
determined by the most recent appraisal of such assets by an
independent appraiser of national reputation selected by the
General Partners.
2. Paragraph 9.2 of the Agreement is amended in its entirety to read as
follows:
9.2 Limitation on Compensation. If the Partnership is
liquidated prior to December 31, 2008, the General Partners
shall, at the time of the liquidation, and in lieu and
satisfaction of all other obligations the General Partners and
their affiliates might then or thereafter have under or by
reason of Paragraph 9 hereof, pay the Partnership n amount
(the "Fee Give Back Amount") equal to $3,912,950 (the
"Original Fee Give Back Amount"), reduced by 10% of the
Original Fee Give Back Amount for each full calendar year
after 1998, and prorated for any calendar year in which such
liquidation occurs other than on December 31 of that year. If
the Partnership is liquidated on or after December 31, 2008,
neither the General Partners nor their affiliates shall have
any liability or obligation to pay any Fee Give Back Amount.
For purposes of this Paragraph 9.2, the term "liquidation"
means a sale of all or substantially all the property owned by
<PAGE>
the Partnership for cash or property that is distributed to
the Partners, but does not include any transaction in which
the Partnership is reorganized into a separate, publicly
traded real estate investment trust or other entity whose
shares are listed on a national securities exchange or on the
NASDAQ National Market System (a "Reorganization") and, in
addition, does not include any transaction following a
Reorganization, whether by the successor to the Partnership in
the Reorganization or otherwise. For the avoidance of doubt,
it is hereby understood and agreed that, following a
Reorganization, the General Partners and their affiliates
shall have no liability or obligation to pay any Fee Give Back
Amount.
3. Except as otherwise provided above, the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
___________, 1999.
GENERAL PARTNERS:
RESOURCES HIGH EQUITY, INC.
By:___________________________________
PRESIDIO AGP CORP.
By:___________________________________
<PAGE>
EXHIBIT (ii)
GUARANTEE
Dated ____________, 1999
The undersigned, for good and valuable consideration, receipt of which is
hereby acknowledged, agrees as follows:
1. The undersigned hereby unconditionally and irrevocably guarantees
payment when due of all Fee Give Back Liabilities (as defined below) of the
General Partners (as defined below). For purposes of this Guarantee, the Term
(a) "Fee Give Back Liabilities" means all liabilities and obligations of the
General Partners to pay the Fee Give Back Amount (as defined in paragraphs 9.2,
9.1.4 and 9.1.3 of the amended and restated agreement of limited partnership, as
amended (collectively, the "Partnership Agreements"), or as amended in the
future, of Integrated Resources High Equity Partners, Series 85, a California
Limited Partnership, High Equity Partners L.P. - Series 86 and High Equity
partners L.P. - Series 88, respectively, and (b) "General Partners" has the
meaning given it in the respective Partnership Agreements.
2. The undersigned hereby agrees that it will not permit its Net Worth (as
defined below) at any time to be less than the aggregate amount of the Fee Give
Back Liabilities at that time. Notwithstanding the foregoing, however, the
undersigned may, at its option from time to time, substitute one or more
Substitute Guarantors (as defined below) to fulfill the undersigned's
obligations under section 1 and the first sentence of this section 2, as long as
the Net Worth of each Substitute Guarantor at any time it is a Substitute
Guarantor is not less than the aggregate amount of the Fee Give Back Liabilities
that Substitute Guarantor is then guaranteeing as a Substitute Guarantor.
However, Presidio Capital Corp. shall remain fully liable on this Guarantee to
the extent any substitute Guarantor fails or refuses to fulfill its obligations
under this Guarantee. For purposes of this Guarantee, the term (a) "Net Worth"
of a person or entity means, at a particular date, all amounts that would, in
conformity with generally accepted accounting principles in the United States of
America in effect at that time, be included in that person's or entity's net
worth or equity on that person's or entity's balance sheet at that date (without
including as a liability in the calculation of net worth indebtedness that is
subordinate to the Fee Give Back Liabilities), and (b) "Substitute Guarantor"
means any person or entity that executes and delivers a guarantee in the form of
section 1.
3. This Guarantee shall be governed by and construed in accordance with
the law of the State of California applicable to agreements made and to be
performed wholly within the state of California.
PRESIDO CAPITAL CORP.
By:______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,048,391
<SECURITIES> 0
<RECEIVABLES> 280,480
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,319,737
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 40,826,677
<TOTAL-LIABILITY-AND-EQUITY> 42,319,737
<SALES> 0
<TOTAL-REVENUES> 7,440,086
<CGS> 0
<TOTAL-COSTS> 2,226,112
<OTHER-EXPENSES> 2,727,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,827,089
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,827,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,827,089
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
