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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, 2000
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Commission file number 0-14438
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
A CALIFORNIA LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3239107
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CAMBRIDGE CENTER, 9TH FLOOR, CAMBRIDGE, MA 02142
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(Address of principal executive offices)
(617) 234-3000
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(Registrant's telephone number, including area code)
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, 2000
INDEX
Page No.
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Part I. Financial Information:
Balance Sheets - September 30, 2000 and December 31, 1999 3
Statements of Operations -- Three and Nine Months Ended
September 30, 2000 and 1999 4
Statement of Partners' Equity -- Nine Months Ended
September 30, 2000 5
Statements of Cash Flows -- Nine Months Ended
September 30, 2000 and 1999 6
Notes to Financial Statements 7 - 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 17
Part II. Other Information:
Legal Proceedings, Exhibits and Reports on Form 8-K 18
2
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
BALANCE SHEETS
SEPTEMBER 30, 2000 DECEMBER 31, 1999
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ASSETS
Real estate - net $31,605,913 $32,352,714
Cash and cash equivalents 12,062,920 8,521,370
Other assets 3,022,833 3,095,251
Receivables 299,170 209,418
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$46,990,836 $44,178,753
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,022,120 $ 1,224,373
Due to affiliates 259,727 107,255
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1,281,847 1,331,628
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Commitments and contingencies (Note 6)
PARTNERS' EQUITY:
Limited partners' equity (400,010
units issued and outstanding) 43,422,590 40,703,819
General partners' equity 2,286,399 2,143,306
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45,708,989 42,847,125
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$46,990,836 $44,178,753
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ---------------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental Revenue $ 2,444,132 $2,347,094 $7,543,242 $7,440,086
----------- ---------- ---------- ----------
Costs and Expenses:
Operating expenses 919,204 667,294 2,460,950 2,226,112
Depreciation and amortization 365,832 336,096 1,054,998 1,008,288
Partnership management fee 222,226 (4,049) 567,264 418,769
Administrative expenses 186,993 214,762 774,038 1,077,139
Property management fee 52,538 66,254 221,642 223,707
----------- ---------- ---------- ----------
1,746,793 1,280,357 5,078,892 4,954,015
----------- ---------- ---------- ----------
Income before interest and other income 697,339 1,066,737 2,464,350 2,486,071
Interest income 150,495 80,654 368,314 238,558
Other income 19,700 13,180 29,200 102,460
----------- ---------- ---------- ----------
Net income $ 867,534 $1,160,571 $2,861,864 $2,827,089
=========== ========== ========== ==========
Net income attributable to:
Limited partners $ 824,157 $1,102,543 $2,718,771 $2,685,735
General partners 43,377 58,028 143,093 141,354
----------- ---------- ---------- ----------
Net income $ 867,534 $1,160,571 $2,861,864 $2,827,089
=========== ========== ========== ==========
Net income per unit of limited
partnership interest (400,010 units
outstanding) $ 2.06 $ 2.76 $ 6.80 $ 6.71
=========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
STATEMENT OF PARTNERS' EQUITY
GENERAL LIMITED
PARTNERS' PARTNERS'
EQUITY EQUITY TOTAL
---------- ----------- -----------
Balance, January 1, 2000 $2,143,306 $40,703,819 $42,847,125
Net income for the nine
months ended September 30, 2000 143,093 2,718,771 2,861,864
---------- ----------- -----------
Balance, September 30, 2000 $2,286,399 $43,422,590 $45,708,989
========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
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Cash Flows From Operating Activities:
Net income $ 2,861,864 $ 2,827,089
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,054,998 1,008,288
Straight-line adjustment for stepped
lease rentals (12,500) 25,557
Changes in assets and liabilities:
Accounts payable and accrued expenses (202,253) 176,011
Receivables (89,752) (133,057)
Due to affiliates 152,472 (310,655)
Other assets (116,470) (297,851)
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Net cash provided by operating activities 3,648,359 3,295,382
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Cash Flows From Investing Activities:
Improvements to real estate (106,809) (361,235)
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Cash Flows From Financing Activities:
Distributions to partners -- (1,187,397)
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Increase In Cash And Cash Equivalents 3,541,550 1,746,750
Cash And Cash Equivalents, Beginning of Year 8,521,370 6,301,641
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Cash And Cash Equivalents, End of Quarter $12,062,920 $ 8,048,391
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SEE NOTES TO FINANCIAL STATEMENT
6
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
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, 1999.
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 three and
nine months ended September 30, 2000 are not necessarily indicative of the
results to be expected for the entire year.
2. SIGNIFICANT ACCOUNTING POLICIES
Investment in Joint Ventures
Certain properties were purchased in joint ventures with affiliated
partnerships that have the same, or affiliated, general partners as the
Partnership. The Partnership owns an undivided interest and is severally
liable for indebtedness it incurs in connection with its ownership interest
in those properties. 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.
Real Estate
Real Estate is carried at cost, net of adjustments for impairment. Repairs
and maintenance are charged to expense as incurred. Replacement and
betterments are capitalized. 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 prepares estimates of the future undiscounted 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.
7
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Real Estate (continued)
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.
Revenue Recognition
The Securities and Exchange Commission released staff accounting bulletin
No. 101, "Revenue Recognition in Financial Statements" on December 3, 1999.
The Partnership has reviewed its revenue recognition policies and as a
result there will be no material change in the revenue recognized by the
Partnership.
3. RELATED PARTY TRANSACTIONS
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.
8
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS (CONTINUED)
From August 28, 1997 to October 21, 1999, Presidio was party to a
management agreement with NorthStar Presidio Management Company LLC
("NorthStar Presidio"), an affiliate of NorthStar Capital Investment Corp.,
pursuant to which NorthStar Presidio provided the day-to-day management of
Presidio and its direct and indirect subsidiaries and affiliates, including
the Partnership. Effective October 21, 1999, Presidio entered into a
Services Agreement with AP-PCC III, L.P. (the "Agent") pursuant to which
the Agent was retained to provide the asset management and investor
relation services to the Partnership and other entities affiliated with the
Partnership previously provided by NorthStar Presidio. The Partnership does
not pay any fees to the Agent.
The Partnership had 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. Resources Supervisory in turn
sub-contracted with management companies to provide property management
services for specific properties. For the quarter ended September 30, 2000
Resources Supervisory was entitled to receive $52,538 for property
management services, $48,114 of which was paid to Kestrel Management L.P.
("Kestrel"), an affiliate of the General Partners and the Agent, with the
balance being retained by Resources Supervisory. For the quarter ended
September 30, 1999 Resources Supervisory was entitled to receive $66,254
for property management services, $47,920 of which was paid to unaffiliated
management companies with the balance being retained by Resources
Supervisory. For the nine months ended September 30, 2000 Resources
Supervisory was entitled to receive $221,642 for property management
services, $137,022 of which was paid to Kestrel and $78,652 of which was
paid to unaffiliated management companies with the balance being retained
by Resources Supervisory. For the nine months ended September 30, 1999
Resources Supervisory was entitled to receive $223,707 for property
management services, $169,701 of which was paid to unaffiliated management
companies with the balance being retained by Resources Supervisory. As of
October 1, 2000 all property management services for the Partnership were
being performed directly by Kestrel and Resources Supervisory was no longer
performing any property management services.
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, 2000 and 1999, the
Managing General Partner received $37,500. For the nine months ended
September 30, 2000 and 1999, the Managing General Partner received
$112,500.
For managing the affairs of the Partnership, the Managing General Partner
is also entitled to receive an annual partnership management fee. Pursuant
to the amendment to the Partnership Agreement, which became effective on
August 20, 1999, the annual partnership management fee for 1999 was reduced
to $418,769.
9
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Further, the Partnership Agreement was amended (for the year 2000 and
beyond) so that the partnership management fee will be 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. For the
quarters ended September 30, 2000 and 1999 the Managing General Partner
earned partnership management fees of $222,226 and ($4,049), respectively.
The 1999 partnership management fee reflects an adjustment to reduce the
fees as a result of the settlement of the class action suit as discussed in
Note 7. For the nine months ended September 30, 2000 and 1999, the Managing
General Partner earned partnership management fees of $567,264 and
$418,769, respectively.
The General Partners are allocated 5% of the net income of the Partnership,
which amounted to $43,377 and $58,028 for the quarters ended September 30,
2000 and 1999, respectively. Net income allocated to the General Partners
amounted to $143,093 and $141,354 for the nine months ended September 30,
2000 and 1999, respectively. The General Partners are also entitled to
receive 5% of distributions, which amounted to $39,580 for the nine months
ended September 30, 1999.
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., 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, Presidio purchased 50% of those units
owned by Olympia as a result of the Offer, or 15,566 units, for $101.81 per
unit. In addition, Olympia had the right to cause Presidio to purchase its
remaining units for a price based on procedures set forth in the agreement.
Olympia recently exercised this right and Millennium Funding II, LLC , an
affiliate of the General Partners acquired 15,556 units.
Subsequent to the expiration of the tender offer described above,
Millennium Funding II Corp. purchased an additional 18,042 limited
partnership units from August 1998 through July 1999.
Pursuant to the settlement of a class action lawsuit (See Note 7),
Millennium Funding II, LLC made a tender offer to limited partners to
acquire up to 26,936 Units (representing approximately 6.7% of the
outstanding Units) at a price of $114.60 per unit. The offer closed in
January 2000 and all 26,936 Units were acquired in the offer.
10
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS (CONTINUED)
As a result of these purchases as well as the other purchases of units by
affiliates of the General Partners, affiliates of the General Partners own
118,903 units representing approximately 29.725% of the total outstanding
Units.
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as of:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
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Land $10,370,965 $10,370,965
Building and improvement 37,822,888 37,716,078
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48,193,853 48,087,043
Less: Accumulated depreciation (16,587,940) (15,734,329)
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$31,605,913 $32,352,714
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5. DUE TO AFFILIATES
SEPTEMBER 30, 2000 DECEMBER 31, 1999
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Partnership management fee $222,227 $ --
Property management fee -- 32,255
Non-accountable expense reimbursement 37,500 75,000
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$259,727 $107,255
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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, 2000
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES
568 Broadway Joint Venture is currently involved in litigation with a
number of present or former tenants who are in default on their lease
obligations. Several of these tenants have asserted claims or counter
claims seeking monetary damages. The plaintiffs' allegations include but
are not limited to claims for breach of contract, failure to provide
certain services, overcharging of expenses and loss of profits and income.
These suits seek total damages in excess of $20 million plus additional
damages of an indeterminable amount.
a) The Broadway Joint Venture's action for rent against Solo Press was tried
in 1992 and resulted in a judgement in favor of the Broadway Joint Venture
for rent owed. The Partnership believes this will result in dismissal of
the action brought by Solo Press against the Broadway Joint Venture. Since
the facts of the other actions which involve material claims or
counterclaims are substantially similar, the Partnership believes that the
Broadway Joint Venture will prevail in those actions as well.
b) A former retail tenant of 568 Broadway (Galix Shops, Inc.) and a related
corporation which is a retail tenant of a building adjacent to 568 Broadway
filed a lawsuit in the Supreme Court of The State of New York, County of
New York, against the Broadway Joint Venture which owns 568 Broadway. The
action was filed on April 13, 1994. The Plaintiffs allege that by erecting
a sidewalk shed in 1991, 568 Broadway deprived plaintiffs of light, air and
visibility to their customers. The sidewalk shed was erected, as required
by local law, in connection with the inspection and restoration of the
Broadway building facade, which is also required by local law.
Plaintiffs further allege that the erection of the sidewalk shed for a
continuous period of over two years is unreasonable and unjustified and
that such conduct by defendants has deprived plaintiffs of the use and
enjoyment of their property. The suit seeks a judgement requiring removal
of the sidewalk shed (since removed), compensatory damages of $20 million,
and punitive damages of $10 million. The Partnership believes that this
suit is without merit and intends to vigorously defend it.
7. SETTLEMENT OF LAWSUIT
In April 1999, the California Superior Court approved the terms of the
settlement of a class action and derivative litigation involving the
Partnership. Under the terms of the settlement, the General Partners agreed
to take the actions described below subject to first obtaining the consent
of limited partners to amendments to the Agreement of Limited Partnership
of the Partnership summarized below. The settlement became effective in
August 1999 following approval of the amendments.
As amended, the Partnership Agreement (a) provides for a Partnership
Management Fee equal to 1.25% of the Gross Asset Value of the Partnership
for 2000 and thereafter and a fixed 1999 Partnership Management Fee of
$418,769 or $426,867 less than the amount that would have been paid for
1999 under the prior formula and (b) fixes the amount that the General
Partners will be
12
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
NOTES TO FINANCIAL STATEMENTS
7. SETTLEMENT OF LAWSUIT (CONTINUED)
liable to pay to limited partners upon liquidation of the Partnership as
repayment of fees previously received (the "Fee Give-Back Amount"). As of
December 31, 1999, the Fee Give-Back Amount was $8.80 per Unit which amount
will be reduced by approximately $.98 per Unit for each full calendar year
after 1999 in which liquidation does not occur. As amended, the Partnership
Agreement provides that, upon a reorganization of the Partnership into a
real estate investment trust or other public entity, the General Partners
will have no further liability to pay the Fee Give-Back Amount. In
accordance with the terms of the settlement, Presidio Capital Corp., an
affiliate of the General Partners, guaranteed payment of the Fee Give-Back
Amount.
As required by the settlement, an affiliate of the General Partners,
Millennium Funding II, LLC, made a tender offer to limited partners to
acquire up to 26,936 Units (representing approximately 6.7% of the
outstanding Units) at a price of $114.60 per Unit. The offer closed in
January 2000 and all 26,936 Units were acquired in the offer.
The final requirement of the settlement obligated the General Partners to
use their best efforts to reorganize the Partnership into a real estate
investment trust or other entity whose shares were listed on a national
securities exchange or on the NASDAQ National Market System. A Registration
Statement was filed with the Securities and Exchange Commission on February
11, 2000 with respect to the restructuring of the Partnership into a
publicly-traded real estate investment trust. The Registration Statement
has not yet become effective and the consent of a majority of limited
partners will be needed to effect the restructuring.
13
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing
market conditions, competitive and regulatory matters, etc.) detailed
in the disclosures contained in this Form 10-Q and the other filings
with the Securities and Exchange Commission made by the Partnership
from time to time. The discussion of the Partnership's liquidity,
capital resources and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the
effects of any changes to the Partnership's operations. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors,
including those identified herein.
This item should be read in conjunction with the financial statements
and other items contained elsewhere in the report.
Liquidity and Capital Resources
The Partnership is engaged in the business of operating and holding for
investment previously acquired income-producing properties consisting
of office buildings, shopping centers and other commercial properties.
The Partnership holds an interest in five properties. The Partnership
generates rental revenues from the commercial properties and is
responsible for each property's operating expenses as well as its
administrative costs.
The Partnership had $12,062,920 in cash and cash equivalents at
September 30, 2000. Cash and cash equivalents 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.
The Partnership's level of liquidity based upon cash and cash
equivalents increased by $3,541,550 for the nine months ended September
30, 2000 as compared to December 31, 1999. The increase is due to
$3,648,359 of cash provided by operating activities which was partially
offset by $106,089 of cash used in investing activities for capital
expenditures. The Partnership's primary source of funds is cash flow
from the operation of its properties, principally rents received from
the tenants less property operating expenses.
The Partnership expects to continue to utilize a portion of its cash
flow from operations to pay for various capital and tenant improvements
to the properties and leasing commissions. Capital and tenant
improvements and leasing 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.
14
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
As discussed in "Item 1. Financial Statements-Note 7", the Partnership
entered into a settlement agreement relating to a class action lawsuit.
In light of the current implementation of the settlement and the filing
of the Registration Statement pursuant to which the General Partners
are using their best efforts to reorganize the Partnership into a real
estate investment trust, the General Partners have suspended any
distributions until such reorganization is either approved or
disapproved.
Results of Operations
The Partnership experienced a decrease in net income of $293,037 for
the three months ended September 30, 2000 and an increase in net income
of $34,775 for the nine months ended September 30, 2000 as compared to
the same periods in the prior year.
The three-month decrease in net income was due to an increase in costs
and expenses of $466,436, which was partially offset by an increase in
rental revenue of $97,038, interest income of $69,841 and other income
of $6,520. The nine-month increase in net income was due to an increase
in rental revenue of $103,156, and an increase in interest income of
$129,756 which were offset by a decrease in other income of $73,260
along with an increase in costs and expenses of $124,877.
Rental revenues increased during the three and nine months ended
September 30, 2000 compared to the same periods ended September 30,
1999 due to increased rental rates on new leasing activities.
The increase in cost and expenses for the nine months ended September
30, 2000 as compared to the nine months ended September 30, 1999 was
the result of increased operating expenses, depreciation and
amortization expense and partnership management fees. Property
operating expenses increased due to higher real estate taxes as a
result of increased assessed values of the properties. Depreciation and
amortization expense increased due to expenditures for capital and
tenant improvements in the previous year.
Partnership management fee expense during the first three quarters of
2000 increased by $148,495 as compared to the first three quarters of
1999 as a result of an amendment to the Partnership Agreement which
changed the calculation of such fee. (See Item 1. Financial Statements,
Note 3.) These increased expenses were partially offset by a decrease
in administrative expenses. This decrease was primarily attributed to
non-recurring professional fees in connection with the settled class
action litigation during the nine months ended September 30, 1999.
The increase in costs and expenses for the three months ended
September 30, 2000 as compared to the three months ended September 30,
1999 is the result of increased operating expenses, depreciation and
amortization and partnership management fees partially offset by
decrease in administrative expenses and property management fees.
15
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (continued)
Interest income increased during the three months and nine months ended
September 30, 2000 due to higher cash balances during both periods as
compared to the comparable periods in 1999. Other income increased
during the three months ended September 30, 2000 and decreased during
the nine months ended September 30, 2000 as compared to the same
periods in 1999 due to an increase/decrease in investor transfer fees,
respectively.
Inflation is not expected to have a material impact on the
Partnership's operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is not subject to market risk as its cash and cash
equivalents are invested in short term money market mutual funds. The
Partnership has no loans outstanding.
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial data schedule is filed as an Exhibit to this report
(b) Reports on Form 8-K:
No report of Form 8-K was filed during the period.
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INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
FORM 10-Q - SEPTEMBER 30, 2000
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 ___, 2000 By: /s/ MICHAEL L. ASHNER
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Michael L. Ashner
President and Director
(Principal Executive Officer)
Dated: November ___, 2000 By: /s/ CAROLYN B. TIFFANY
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Carolyn B. Tiffany
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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