UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-15724
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
(Exact name of registrant as specified in its charter)
Delaware 13-3294835
(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) (Zip Code)
(203) 862-7000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark 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>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1997 and December 31, 1996
STATEMENTS OF OPERATIONS - For the three months ended
March 31, 1997 and 1996
STATEMENT OF PARTNERS' EQUITY - For the three months ended
March 31, 1997
STATEMENTS OF CASH FLOWS - For the three months ended
March 31, 1997 and 1996
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Investments in mortgage loans (net of an allowance
for loan losses of $19,353,198 and $17,012,938) .. $ 2,770,110 $11,953,520
Cash and cash equivalents ........................... 10,784,098 3,769,118
Real estate - net ................................... 3,719,332 3,730,284
Other assets ........................................ 82,942 87,327
----------- -----------
$17,356,482 $19,540,249
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable ............................... $ 3,554,205 $ 3,570,723
Due to affiliates ................................... 2,188,374 2,123,481
Accounts payable and accrued expenses ............... 144,214 175,366
----------- -----------
Total liabilities ............................ 5,886,793 5,869,570
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (as restated) (330,004 units
issued and outstanding) .......................... 10,896,255 12,987,195
General partners' equity (as restated) .............. 573,434 683,484
----------- -----------
Total partners' equity ....................... 11,469,689 13,670,679
----------- -----------
$17,356,482 $19,540,249
=========== ===========
See notes to fiancial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
For the three months ended
March 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues
Operating income - real estate ............ $ 276,667 $ 382,513
Short-term investment interest ............ 78,156 48,129
Mortgage loans interest income ............ 74,910 --
Other income .............................. 36,032 38,455
----------- -----------
465,765 469,097
----------- -----------
Costs and expenses
Provision for loan losses ................. 2,340,260 --
Operating expenses - real estate .......... 112,017 246,122
Mortgage loan interest expense ............ 84,585 86,076
General and administrative expenses ....... 42,000 72,250
Asset management fees ..................... 41,870 42,065
Mortgage servicing fees ................... 23,023 22,523
Depreciation expense ...................... 23,000 22,000
----------- -----------
2,666,755 491,036
Net loss ....................................... $(2,200,990) $ (21,939)
=========== ===========
Net loss attributable to
Limited partners ............................. $(2,090,940) $ (20,842)
General partners ............................. (110,050) (1,097)
----------- -----------
$(2,200,990) $ (21,939)
=========== ===========
Net loss per unit of limited partnership interest
(330,004 units outstanding) ................... $ (6.34) $ (.06)
=========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1997 ............. $ (3,440,567) $ 17,111,246 $ 13,670,679
Reallocation of partners' equity ..... 4,124,051 (4,124,051) --
------------ ------------ ------------
Balance, January 1, 1997 (as restated) 683,484 12,987,195 13,670,679
Net loss for the three months ended
March 31, 1997 ................... (110,050) (2,090,940) (2,200,990)
------------ ------------ ------------
Balance, March 31, 1997 .............. $ 573,434 $ 10,896,255 $ 11,469,689
============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss ................................................... $ (2,200,990) $ (21,939)
Adjustments to reconcile net loss to net cash
provided by operating activities
Provision for loan losses ............................ 2,340,260 --
Mortgage loan interest accrued ....................... (18,847) --
Depreciation ......................................... 23,000 22,000
Deferred asset management and
mortgage servicing fees, net of
payments made ..................................... 64,893 (22,239)
Changes in assets and liabilities
Other assets ............................................. 4,385 (15,282)
Accounts payable and accrued expenses .................... (31,152) 63,137
------------ ------------
Net cash provided by operating activities ......... 181,549 25,677
------------ ------------
Cash flows from investing activities
Principal payments on mortgage loan payable ................. (16,518) (15,037)
Additions to real estate .................................... (12,048) --
Proceeds from repayment of mortage loans .................... 6,861,997 --
------------ ------------
Net cash provided by (used in) investing activities 6,833,431 (15,037)
------------ ------------
Net increase in cash and cash equivalents ........................ 7,014,980 10,640
Cash and cash equivalents, beginning of period ................... 3,769,118 4,035,754
------------ ------------
Cash and cash equivalents, end of period ......................... $ 10,784,098 $ 4,046,394
============ ============
Supplemental disclosure of cash flow information
Interest paid ............................................... $ 84,585 $ 86,076
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
1 INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussions should be read in conjunction
with the financial statements, related footnotes and discussions
contained in the Resources Accrued Mortgage Investor, L.P. - Series 86
(the "Partnership") annual report on Form 10-K for the year ended
December 31, 1996. The results of operations for the three months ended
March 31, 1997 are not necessarily indicative of the results to be
expected for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in mortgage loans
The Partnership principally invested in nonrecourse, zero coupon junior
mortgage loans on properties owned or acquired by limited partnerships
sponsored by affiliates of the General Partners. These loans generally
contain provisions whereby the Partnership may be entitled to
additional interest represented by participation in the appreciation of
the underlying property.
The Partnership accounts for its investments in mortgage loans under
the following methods:
Investment method
Mortgage loans representing transactions in which the
Partnership is considered to have substantially the same risks
and potential rewards as the borrower are accounted for as
investments in real estate rather than as loans. Although the
transactions are structured as loans, due to the terms of the
zero coupon mortgage, it is not readily determinable at
inception that the borrower will continue to maintain a minimum
investment in the property. Under this method of accounting, the
Partnership will recognize as revenue the lesser of the amount
of interest as contractually provided for in the mortgage loan,
or its pro rata share of the actual cash flow from operations of
the underlying property inclusive of depreciation and interest
expense on any senior indebtedness.
Interest method
Under this method of accounting, the Partnership recognizes
revenue as interest income over the term of the mortgage loans
so as to produce a constant periodic rate of return. Interest
income will not be recognized as revenue during periods where
there are concerns about the ultimate realization of the
interest or loan principal.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly
review of each of the mortgage loans in the Partnership's portfolio. In
performing the review, management considers the estimated net
realizable value of the mortgage loan or collateral as well as other
factors, such as the current occupancy, the amount and status of any
senior debt, the prospects for the property and the economic situation
in the region where the property is located. Because this determination
of net realizable value is based upon projections of future economic
events which are inherently subjective, the amounts ultimately realized
at disposition may differ materially from the carrying value as of
March 31, 1997. Accordingly, the Partnership may provide additional
losses in subsequent periods and such provisions could be material.
A $2,340,260 allowance for loan losses was required for the three
months ended March 31, 1997 to fully reserve for the Stockfield loan
(Note 4). No allowance was required for the three months ended March
31, 1996.
Depreciation
Depreciation is computed using the straight-line method over the useful
life of the property, which is estimated to be 40 years. The original
cost of the property represented the carrying value of the first
mortgage loan at the time of the foreclosure. Repairs and maintenance
are charged to operations as incurred.
Write-down for impairment
The Partnership provides write-downs for impairment based upon a
quarterly review of the real estate in its portfolio, when management
believes that, based upon market analysis and appraisal reports, the
investment in such real estate may not be recoverable.
The initial test to determine if an impairment exists is to compute the
recoverability of the asset based upon anticipated cash flows compared
to the carrying value of the asset. If anticipated cash flows are
insufficient to recover the carrying value of the asset, an impairment
loss should be recognized and the asset written down to its estimated
fair value. The fair value of the asset is the amount by 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.
The allowance is inherently subjective and is based on management's
best estimate of current conditions and assumptions about expected
future conditions. The Partnership may provide additional losses in
subsequent periods and such provisions could be material.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Investment General Partner of the Partnership, RAM Funding, Inc.,
and the Administrative General Partner, Resources Capital Corp. are
wholly-owned subsidiaries of Presidio Capital Corp. ("Presidio"). The
Associate General Partner of the Partnership is Presidio AGP Corp., a
Delaware Corporation, also a wholly owned subsidiary of Presidio. The
General Partners and certain of their affiliates are general partners
in several other limited partnerships which are also affiliated with
Presidio, and which are engaged in businesses that are, or may in the
future, in direct competition with the Partnership. Wexford Management
LLC, a company controlled by certain officers and directors of
Presidio, performs management and administrative services for Presidio
and its direct and indirect subsidiaries as well as the Partnership.
For the three months ended March 31, 1997 and 1996, reimbursable
expenses paid to Wexford amounted to $6,639 and $15,166, respectively.
Wexford Management LLC is engaged to perform similar services for other
similar entities that may be in competition with the Partnership.
The Administrative General Partner is entitled to receive an asset
management fee for services rendered in the administration and
management of the Partnership's operations equal to 1/4 of 1% per annum
of the Net Asset Value of the Partnership, as defined in the Amended
and Restated Agreement of Limited Partnership (the "Limited Partnership
Agreement"). Payment of the asset management fee is deferred until
commencement of the disposition of the Partnership's mortgage loans,
with interest on the amount deferred at 10% per annum, compounded
annually. The Administrative General Partner earned $41,870 and
$42,065, including accrued interest of $38,676 and $39,937 for the
three months ended March 31, 1997 and 1996, respectively.
The Administrative General Partner is also entitled to receive a
mortgage servicing fee at an annual rate of 1/4 of 1% per annum of the
principal balance of the Partnership's mortgage loans outstanding from
time to time. Payment of the mortgage servicing fee is deferred until
disposition of the applicable mortgage loan, with interest on the
amount deferred at 10% per annum, compounded annually. The
Administrative General Partner earned $23,023 and $22,523, including
accrued interest of $13,669 and $12,328 for the three months ended
March 31, 1997 and 1996, respectively.
In May 1997, the Administrative General Partner was paid $58,898 which
represented the mortgage servicing fee accrued for the Tri-State loan.
In June 1996, the Administrative General Partner was paid $86,827 which
represented the mortgage servicing fee previously accrued for the
Research Triangle Loan.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Amounts due to affiliates for asset management and mortgage servicing
fees, consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Asset management fee ................... $1,588,908 $1,547,037
Mortgage servicing fee ................. 599,466 576,444
---------- ----------
$2,188,374 $2,123,481
========== ==========
</TABLE>
The General Partners collectively are allocated 5% of the net income or
loss of the Partnership and are entitled to receive 5% of
distributions. Such amounts are allocated or distributed 4.8% to the
Administrative General Partner, 0.1% to the Investment General Partner,
and 0.1% to the Associate General Partner. For the three months ended
March 31, 1997 and 1996 the Administrative General Partner, Investment
General Partner and Associate General Partner were allocated net losses
of $107,848, $1,101 and $1,101 and $1,053, $22 and $22, respectively.
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES
The Partnership invested in nonrecourse, zero-coupon junior mortgage
loans. Collection of amounts due on the Partnership's junior mortgage
loans is solely dependent upon the sale or refinancing of the
underlying properties at amounts sufficient to satisfy the
Partnership's mortgage loans, after payment of the senior mortgage
notes owned by unaffiliated third parties.
The properties which collateralize the Partnership's mortgage loans
have experienced varying degrees of operating problems. The Century
Park, Clovine, Park Place, Lenox Towers and LAX loans were ultimately
lost when the senior lenders foreclosed on the properties securing the
Partnership's mortgage loans. The Brentwood Place, Berkeley Western,
Big Valley and Boram loans have been restructured to allow the
Partnership a possible equity participation in the future sales or
refinancing of the properties. In February, 1997 the Partnership
received $1,224,861 in full payment of an equity participation
certificate relating to BP Shopping Center. The Research Triangle loan
was exchanged for a participating interest in the cash flows from the
senior loan on the property. This transaction will allow the
Partnership to receive current cash flow on a monthly basis and
possible additional proceeds in the event of a sale or refinancing. The
595 Madison, Tri-State and Bellekirk loans were repaid.
The Partnership has provided for these contingencies, in some
circumstances, by establishing an allowance for loan losses on its
entire investment.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Tri-State loan
The Tri-State loan, in the original principal amount of $1,800,000, was
made to Tri-State Retail Associates, L.P. ("Tri-State"). The
Partnership's security for this loan was subordinate to the first
mortgage held by Trans Ohio Savings Bank, in the original principal
amount of $10,650,000, which was schedule to mature on July 1, 1998.
The mortgage secured three retail warehouses formerly operated as PACE
membership clubs.
There was substantial risk that the Partnership would lose its entire
investment at the time the first mortgage matured. Therefore, the
entire carrying value of the loan, in the amount of $1,963,522, was
reserved during 1993.
In June 1995 the Partnership entered into an agreement to restructure
its loan to Tri-State. The agreement, among other things, set certain
release prices for the three properties securing the loan, allowing
Tri-State to sell one property alone. The agreement also provided that
Tri-State would not incur a prepayment penalty in the event of a
prepayment. In addition, the Partnership waived its right to receive
additional interest (interest that represented a percentage of the
increase in the value of the Tri-State Properties). The restructuring
enabled the Partnership to recoup all of its investment.
In January 1997, the Partnership received the full contractual balance
(including accrued interest) of the Tri-State loan of $5,685,024.
Research Triangle loan
The Complex securing the Research Triangle loan ("RT Loan"), is
operating with positive cash flow and is presently meeting all its debt
service requirements. The RT Loan and the Senior Wrap Mortgages were
due to mature January 1, 1996. The Senior Wrap Mortgages are currently
being negotiated to extend the maturity dates. While negotiations are
in progress, Research Triangle Associates ("RT"), the owner of the
property secured by the loan, continues to make debt service payments.
Currently, leases with IBM account for over 70% of the leased space at
the property and were due to expire in 1997. Since refinancing would be
difficult without a longer lease commitment from IBM, the Partnership
ceased accruing interest during 1993. Due to the uncertainty associated
with the ultimate recoverability of the RT Loan, an additional reserve
for loan losses in the amount of $2,360,000 was established for the
quarter ended March 31, 1995. In 1996 the IBM leases were extended for
periods expiring in 2 to 5 years.
On August 1, 1995 (the "Closing Date"), the Partnership entered into a
Loan Acquisition and Participation Agreement (the "Agreement") with the
owner of the Senior Wrap Mortgages, TEER Associates ("Teer"), whereas
the Partnership conveyed its interest in the RT Loan to Teer in
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Research Triangle loan (continued)
consideration of the grant of a RAM Participation Interest. The RAM
Participation Interest is a twenty (20%) percent undivided interest in
(i) the Wrap Cash Flow, which is all amounts received by Teer on
account of the Senior Wrap Mortgages reduced by the sum of the senior
loan payments and the amount of all reimbursable expenses attributable
to the Senior Wrap Mortgages and (ii) the RAM Cash Flow, which is all
amounts received by Teer under the RT Loan reduced by the amount of
reimbursable expenses attributable to the RT Loan. Reimbursable
expenses are costs and expenses of Teer in connection with the
performance of all obligations under the Agreement, including the
collection and enforcement of the Senior Wrap Mortgages and the RT
Loans, the preservation of the collateral, the filing and prosecution
of a complaint with respect to any of the above matters, etc. The
Partnership granted Teer an option to purchase the RAM Participation
Interest. Teer may exercise the purchase option at any time from the
Closing Date through the third anniversary of the Closing Date. The
option prices are as follows: (i) on or prior to the first anniversary,
an amount equal to $1,750,000 (including cash payments received by the
Partnership on the account of the RAM Participation Interest during the
period following the Closing Date), (ii) on or prior to the second
anniversary, an amount equal to $2,200,000 (including cash payments
made on account of the RAM Participation Interest after the first
anniversary date), (iii) on or prior to the third anniversary, an
amount equal to $2,600,000 (including cash payments made on account of
the RAM Participation Interest after the second anniversary date). TEER
has not exercised its option to acquire the RAM Participation Interest.
As a result of this transaction and an analysis of the value of the
investment, it was determined that an additional allowance for loan
losses was required for the value of the RT Loan in the amount of
$1,260,000. The property securing the RT Loan was appraised in August
1995, and valued at $45,000,000. The Partnership's 20% interest in the
excess of market value over the Senior Wrap Mortgage amounted to
approximately $1,360,000. The carrying value prior to the additional
allowance was approximately $2,620,000, resulting in a $1,260,000
allowance in August 1995. For the three months ended March 31, 1997 and
1996, the Partnership recorded $19,012 and $29,545, respectively, from
the RAM Participation Interest, which amounts are included in other
income in the accompanying statements of operations.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Pike Creek loan
The Pike Creek loan was originally a $975,000 third mortgage loan to
Big Valley Associates, L.P. which bore interest at 13.4% per annum
compounded monthly, and was scheduled to mature on December 31, 1999.
The property securing the Pike Creek loan is currently operating with
positive cash flow and is meeting all debt service requirements.
However, a second mortgage, which required no debt service payments
until maturity, matured at the end of 1995. A first mortgage loan,
which had a principal balance of approximately $12,850,000, matured on
February 15, 1996.
Negotiations were being conducted during early 1996 to refinance or
otherwise restructure the first and second mortgages. Based on an
internal valuation, at that time, the likelihood of obtaining continued
financing would be difficult. Therefore, the Partnership had determined
that interest on this loan should not be accrued.
Due to the uncertainty associated with the ultimate collectability of
the Pike Creek loan, an additional allowance for loan losses in the
amount of $946,000 was established during March 1995, which reduced the
carrying value of the loan to $1,050,832.
In November 1996 this loan was amended and restated (the "Amended
Note"). The Amended Note has a principal balance of $830,000 which is
comprised of $500,000 of the original loan made by the Partnership and
$330,000 of new funds advanced by the Partnership. The $500,000 portion
of the Amended Note bears interest at 7% per annum and the $330,000
portion bears interest at 12% per annum, both compounded annually. The
amendment was necessary in order to facilitate the refinancing of the
first mortgage loan which was in default. Additionally, it allowed for
the satisfaction of the second mortgage loan. The $330,000 advanced to
the Pike Creek borrower was used, in addition to funds provided by the
Pike Creek borrower to satisfy its second mortgage loan payable. Both
portions of the Amended Note will be serviced by a percentage of net
cash flow from the property. Net cash flow is defined as the amount by
which, in any calendar year, rent received by the Pike Creek borrower
exceeds all costs and expenses incurred in connection with the
property, including debt service. In addition, various provisions were
made for the Partnership to receive additional interest from the Pike
Creek borrower upon the sale or refinancing of the property.
Stockfield loan
The property securing the Stockfield loan is 96% occupied by Shell
California Productions, Inc. ("Shell") whose lease expires in August
1999, approximately three years after the first mortgage loan matured
on April 1, 1996 and approximately one year after the Partnership's
loan matures on March 31, 1998. Shell is presently paying rent that
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Stockfield loan (continued)
exceeds market rates for the area. Shell is unlikely to exercise its
renewal option without renegotiating the rental downward to market
rates and may make no decision with respect to renewal before the first
mortgage or the Stockfield loan matures. These factors are likely to
hinder Stockfield Associates Limited Partnership ("Stockfield"), the
owner of the property which secures the Stockfield loan, in its ability
to obtain refinancing. As a result, the Partnership decided in 1993 to
cease accruing interest on the Stockfield loan.
Due to the uncertainty associated with the ultimate collectibility of
the Stockfield loan, an additional allowance for loan losses in the
amount of $2,106,000 was established in March 1995, which reduced the
carrying value of the loan to $2,340,260. Stockfield's first mortgage
matured on April 1, 1996 and, since that time, Stockfield was
attempting to negotiate an extension or restructure the first mortgage.
Stockfield was unable to reach an agreement with the first mortgage
lender and the first mortgage lender has begun foreclosure proceedings.
As a result, during the first quarter of 1997, the Partnership recorded
a provision for loan losses for the entire carrying value of the
Stockfield loan, which was $2,340,260.
Brentwood Place loan
The Brentwood Place loan was made to BP Shopping Center Associates ("BP
Associates") in an original principal amount of $1,900,000 and was
secured by a shopping center in Brentwood, Tennessee. Decreasing rental
rates, combined with several merchant failures, created cash flow
problems which in turn, caused BP Associates to default on their first
mortgage debt service obligations to Northwestern Mutual Life Insurance
Company ("Northwestern") in February 1991. BP Associates continued to
have cash flow problems and its inability to restructure its existing
indebtedness led to it filing for protection under Chapter 11 of the
United States Bankruptcy Code on May 16, 1991. In December 1992, a Plan
of Reorganization was approved by all creditor classes, including the
Partnership, and confirmed by the Bankruptcy Court.
Under the plan, title and control of the property was transferred to
Northwestern which had the right to hold the property or sell it. The
Partnership, and certain other unsecured creditors, received equity
participation certificates of which the Partnership had a majority
interest. The entire carrying value of this loan of $2,081,130 had been
written off during 1990.
In February 1997 the Partnership received $1,224,861 with respect to
equity participation certificate due to the sale of the BP Shopping
Center by Northwestern. In the fourth quarter of 1996, the Partnership
recorded a recovery of prior loan losses to reflect this receipt.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Information with respect to the Partnership's investments in mortgage
loans is as follows:
<TABLE>
<CAPTION>
Date
Interest Compound Loan Maturity Prepayment is
Description Rate Period Date Date Permissable
----------- ---- ------ ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) 14.50% Annual 20-Dec-85 (i) (i)
Berkely, CA
Stockfield Associates (b) (c) 14.50% Annual 1-Apr-86 31-Mar-98 1-Apr-96
Bakersfield, CA
Research Triangle (d) (i) 13.675% Monthly 1-Jan-88 (j) (j)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k) 13.40% Monthly 16-Dec-87 31-Dec-99 1-Jan-97
Wilmington, DE
B.P. Associates (e) 13.40% Monthly 7-Jan-88 (e) (e)
Brentwood, TN
Boram (g) 14.50% Annual 12-Feb-88 (g) (g)
Shreveport, LA
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Interest recognized
Mortgage Mortgage -----------------------
Amount Purchased Placement March 31, 1996 and
Description Advanced Interest Fee 1997 Prior Reserves
----------- -------- -------- --- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) 2,250,000 $94,079 $ 137,483 $ - $ - $ -
Berkely, CA
Stockfield Associates (b) (c) 4,200,000 137,142 254,378 - 89,000 (4,680,520)
Bakersfield, CA
Research Triangle (d) (i) 3,000,000 - 175,953 - 2,068,560 (3,882,257)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k)
Wilmington, DE 1,305,000 - 57,185 18,847 1,077,654 (1,050,832)
B.P. Associates (e)
Brentwood, TN 1,900,000 - 111,437 - 69,693 -
Boram (g)
Shreveport, LA 6,900,000 - 404,692 - 863,769 -
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying value Balance (a)
------------------------- -------------------------
Write-offs, March 31, Dec. 31, March 31, Dec. 31,
Description Net of recoveries 1997 1996 1997 1996
----------- ----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) $ (2,481,562) $ - $ - (i) (i)
Berkely, CA
Stockfield Associates (b) (c) - - 2,340,260 18,689,700 18,035,899
Bakersfield, CA
Research Triangle (d) (i) - 1,362,256 1,362,256 (i) (i)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k) - 1,407,854 1,389,007 857,023 838,175
Wilmington, DE
B.P. Associates (e) (856,269) - 1,224,861 (e) (e)
Brentwood, TN
Boram (g) (8,168,461) - - (g) (g)
Shreveport, LA
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Date
Interest Compound Loan Maturity Prepayment is
Description Rate Period Date Date Permissable
----------- ---- ------ ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Residential
West Palm (c) 13.46% Monthly 16-Jun-88 1-Jul-2000 1-Jul-1997
Los Angeles, CA
Industrial/Commercial
Tri-State (b) (c) (h) 13.46% Monthly 22-Jun-88 30-Jun-2000 1-Jul-1997
Kentucky, Nebraska, Pennsylvania
Southern Inns, (f) 13.46% Monthly 29-Jun-88 (f) (f)
North and South Carolina, Virginia
<CAPTION>
Interest recognized
Mortgage Mortgage -----------------------
Amount Purchased Placement March 31, 1996 and
Description Advanced Interest Fee 1997 Prior Reserves
----------- -------- -------- --- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Residential
West Palm (c) $ 9,200,000 $ - $ 539,589 $ - $ - $ (9,739,589)
Los Angeles, CA
Industrial/Commercial
Tri-State (b) (c) (h) 1,800,000 - 105,572 56,063 3,731,564 -
Kentucky, Nebraska, Pennsylvania
Southern Inns, (f) 4,000,000 - 234,604 - - -
North and South Carolina, Virginia
------------ -------- ---------- ---------- ------------ ------------
$ 34,555,000 $231,221 $2,020,893 $ 74,910 $ 7,900,240 $(19,353,198)
============ ======== ========== ========= ============= ============
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying value Balance (a)
------------------------- -------------------------
Write-offs, March 31, Dec. 31, March 31, Dec. 31,
Description Net of recoveries 1997 1996 1997 1996
----------- ----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Residential
West Palm (c) - - - $29,787,181 $28,826,915
Los Angeles, CA
Industrial/Commercial
Tri-State (b) (c) (h) - - 5,637,136 - 5,631,611
Kentucky, Nebraska, Pennsylvania
Southern Inns, (f) (4,234,604) - - (f) (f)
North and South Carolina, Virginia
------------ ---------- ----------- ----------- -----------
$(15,740,896) $2,770,110 $11,953,520 $49,333,904 $53,332,600
============ ========== =========== =========== ===========
(a) Contractual balance represents the amount to be paid by the borrower if the
loan were liquidated as of December 31, of each year, including principal plus
interest earned to such date. These balances are given for informational
purposes only.
(b) The Partnership may be entitled to additional interest in the appreciation
of property, which additional interest is subordinated to a specified return to
the borrowers.
(c) These loans are accounted for under the investment method.
(d) These loans are accounted for under the interest method.
(e) In December 1992, a Plan of Reorganization was confirmed. The Partnership
received Equity Participation Certificates and in February 1997, the property
was sold and the Partnership received $1,224,861 for its share of the Equity
Participation Certificates.
(f) In April 1993, the Partnership acquired a property, through foreclosure
replacing the original loan. The Partnership recognized income of $235,644 in
1993, as previously mentioned.
(g) In July 1993, the loan was restructured. The Partnership now has a
participating interest in a future sale of the Property, as previously
discussed.
(h) This loan was repaid in January, 1997.
(i) In November 1994, a Plan of Reorganization was confirmed which converted the
Partnership's original investment into a non-interest bearing note for $550,000
and participating interest in the future sale of the property.
(j) During 1995, the Partnership conveyed its interest in this loan in exchange
for a participation interest in the cash flow of the Senior Wrap Mortgage
holder.
(k) During 1996, the Partnership amended and restated this loan. The new loan of
$830,000 consists of two components; $500,000 and $330,000 bearing interest at
7% and 12% per annum, respectively, plus equity participation provisions.
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
A summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, 1997 December 31, 1996
------------------------------------- ------------------------------------
Investment Interest Investment Interest
Method Method Total Method Total Total
----------- ----------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Opening balance $7,977,396 $3,976,124 $11,953,520 $2,340,260 $2,413,088 $ 4,753,348
(Provision for) recovery of
loan losses (2,340,260) - (2,340,260) 1,963,522 1,224,861 3,188,383
Additional funding - - - - 330,000 330,000
Interest recognized 56,063 18,847 74,910 3,673,614 8,175 3,681,789
Loan payments (5,693,199) (1,224,861) (6,918,060) - - -
----------- ----------- ----------- -------- ---------- -----------
Ending balance $ - $2,770,110 $2,770,110 $7,977,396 $3,976,124 $11,953,520
========= ========== ========== ========== ========== ===========
</TABLE>
5 REAL ESTATE
On April 1, 1993 the Partnership acquired title by foreclosure and
assumed ownership responsibilities of a hotel property, the Richmond
Comfort Inn Executive Center, located in Richmond, Virginia, which was
part of the Partnership's collateral for the Southern Inns loan.
The Partnership had originally loaned Southern Inns $4,000,000 secured
by seven properties, one of which was this hotel. The Partnership
acquired title by foreclosure to this property subject to a first
mortgage. The Partnership recorded the land and building acquired by
the foreclosure at an initial cost equal to the existing first
mortgage. The operating income and expenses of the hotel are reflected
in the statements of operations.
A summary of the Partnership's real estate is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Land ................................... $ 444,700 $ 444,700
Building and improvements .............. 3,625,486 3,613,438
----------- -----------
4,070,186 4,058,138
Less: accumulated depreciation ......... (350,854) (327,854)
----------- -----------
$ 3,719,332 $ 3,730,284
=========== ===========
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
5 REAL ESTATE (continued)
The land, building and improvements are pledged to collateralize the
mortgage loan payable.
6 MORTGAGE LOAN PAYABLE
In connection with the foreclosure of the Richmond Comfort Inn, the
Partnership acquired the property subject to a $4,000,000 nonrecourse
promissory note secured by a first mortgage on the hotel property. The
mortgage note has a current balance of $3,554,205 at March 31, 1997.
Interest rates on the loan are adjustable every five years with a
current interest rate of 9.49% effective through April 1, 1997.
Interest is based on a 2% premium over the Federal Home Loan Bank of
Atlanta Five Year Advance Rate. The loan requires monthly payments of
interest and principal. Interest expense for the three months ended
March 31, 1997 amounted to $84,585. The loan is held by the Resolution
Trust Company and the lender is permitted to accelerate the note as of
April 1, 1997, and thereafter with six months notice. The Partnership
has not been notified of an acceleration of this mortgage. The loan
matures on February 1, 2016. A prepayment penalty of 2%, reducing to
1%, exists for the first two years after an interest rate change.
7 PARTNERS' EQUITY
The General Partners hold a 5% equity interest in the Partnership.
However, at the inception of the Partnership, the General Partners'
equity account was credited with only the actual capital contributed in
cash, $1,000. The Partnership's management determined that this
accounting does not appropriately reflect the Limited Partners' and the
General Partners' relative participations in the Partnership's net
assets, since it does not reflect the General Partners' 5% equity
interest in the Partnership. Thus, the Partnership has restated its
financial statements to reallocate $4,124,051 (5% of the gross proceeds
raised at the Partnership's formation) of the partners' equity to the
General Partners' equity account. This reallocation was made as of the
inception of the Partnership and all periods presented in the financial
statements have been restated to reflect the reallocation. The
reallocation has no impact on the Partnership's financial position,
results of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
8 COMMITMENTS AND CONTINGENCIES
Legal proceedings
On or about May 11, 1993, three public real estate partnerships (the
"HEP Partnerships") including High Equity Partners, L.P. - Series 86,
in which the Administrative General Partner is also a General Partner,
were advised of the existence of an action (the "HEP Action") filed in
the Superior Court for the State of California for the County of Los
Angeles, by Mark Erwin, Trustee, Mark Erwin Sales, Inc. Defined Benefit
Plan; Nancy Cooper, Trustee of Nancy Cooper Individual Retirement
Account; and Leonard Drescher, Trustee of Drescher Family Trust Account
individually and purportedly on behalf of a class consisting of all of
the purchasers of limited partnership interests in the HEP Partnerships
(the "Plaintiffs"). The HEP Action names as defendants the
Administrative General Partner and several individuals who are general
partners of the former Associate General Partner, among others.
On November 30, 1995, the original plaintiffs and the intervening
plaintiffs filed a Consolidated Class and Derivative Action Complaint
against the General Partners alleging, among other things, breach of
fiduciary duties, breach of contract, and negligence.
On or about January 31, 1996, the parties to the HEP Action agreed upon
a revised settlement, which would be significantly more favorable to
the Plaintiffs than the previously proposed settlement. The revised
settlement proposal, like the previous proposal, involves the
reorganization of the HEP Partnerships. Upon the effectuation of the
revised settlement, the HEP Action would be dismissed with prejudice.
On July 18, 1996, the Court preliminarily approved the revised
settlement. In August 1996, the Court approved the form and method of
notice regarding the revised settlement which was sent to the HEP
limited partners.
Only approximately 2.5% of the limited partners of the HEP Partnerships
elected to "opt out" of the revised settlement. Despite this, following
the submission of additional briefs, the Court entered an order on
January 14, 1997 rejecting the revised settlement and concluding that
there had not been an adequate showing that the settlement was fair and
reasonable. Thereafter, the Plaintiffs filed a motion seeking to have
the Court reconsider its order. However, the defendants withdrew the
revised settlement and at a hearing on February 24, 1997, the Court
denied the Plaintiffs' motion. Also at the February 24, 1997 hearing,
the Court recused itself from considering a motion to intervene and to
file a new complaint in intervention by one of the objectors to the
revised settlement, granted the request of one of the Plaintiffs' law
firm to withdraw as class counsel and scheduled future hearings on
various matters.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - MARCH 31, 1997
8 COMMITMENTS AND CONTINGENCIES (continued)
Legal proceedings (continued)
In the event that there is no settlement of the remaining claims, the
Administrative General Partner intends to vigorously contest such
claims and have, along with the other defendants, previously filed a
motion to dismiss the HEP Action, which is currently pending before the
Superior Court. It is impossible at this time to predict what the
defense of this lawsuit will cost the Administrative General Partner
and whether such costs could adversely effect the Administrative
General Partners' ability to perform its obligations to the
Partnership.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The General Partners hold a 5% equity interest in the Partnership.
However, at the inception of the Partnership, the General Partners'
equity account was credited with only the actual capital contributed in
cash, $1,000. The Partnership's management determined that this
accounting does not appropriately reflect the Limited Partners' and the
General Partners' relative participations in the Partnership's net
assets, since it does not reflect the General Partners' 5% equity
interest in the Partnership. Thus, the Partnership has restated its
financial statements to reallocate $4,124,051 (5% of the gross proceeds
raised at the Partnership's formation) of the partners' equity to the
General Partners' equity account. This reallocation was made as of the
inception of the Partnership and all periods presented in the financial
statements have been restated to reflect the reallocation. The
reallocation has no impact on the Partnership's financial position,
results of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
The Partnership invested 100% of the net proceeds of its public
offering in zero coupon junior Mortgage Loans secured by properties
owned principally by privately syndicated limited partnerships
originally sponsored by affiliates of the General Partners. The public
offering commenced on January 21, 1986, and the Partnership had its
initial admission of limited partners on March 28, 1986. The offering
terminated on May 1, 1987 at which time the Partnership had accepted
subscriptions for 329,994 Units (exclusive of the ten Units owned by
the initial limited partner) for aggregate gross proceeds of
$82,501,000. This amount includes $2,475,030 of evaluation fees paid in
accordance with the Partnership Agreement and $4,125,000 of mortgage
placement fees. As of August 1988, the Partnership had invested 100% of
the net proceeds in sixteen mortgage loans, one of which was prepaid in
November 1989 and a second of which was prepaid in July 1992. On
December 31, 1991, January 13, 1993, January 13, 1994, April 5, 1994
and July 27, 1995 the senior mortgage lenders on properties securing
five of the Partnership's investments foreclosed on the properties
securing their loans, and the Partnership lost its entire investment in
each of the respective loans and the Partnership lost its entire
investment in each of the respective loans. Also, in December 1992, the
BP loan was converted to equity participation certificates pursuant to
the borrower's bankruptcy plan of reorganization. On April 1, 1993 the
Partnership foreclosed and assumed ownership of the Richmond Comfort
Inn, located in Richmond, Virginia. The Richmond property foreclosure
and acquisition were part of a restructuring agreement associated with
the Southern Inns loan. In July 1993, the Boram loan, through a
settlement agreement, was converted to an equity participation in the
future sale of the property. The first mortgage lender of the Boram
Property was subsequently paid off at a discount and the Partnership
lost any potential recovery from its equity participation interest. In
November 1994, the Berkeley loan was restructured to convert the
Partnership's original investment to a new $550,000 loan and an equity
participation in the future sale of the property. In July 1995, the
senior lender of the Airport Center loan foreclosed and the Partnership
<PAGE>
Liquidity and Capital Resources (continued)
lost its entire investment. In August 1995, the Research Triangle loan
was exchanged for a 20% participation interest in the net wrap cash
flow of the Senior Wrap loan. In November 1996, the Big Valley loan was
amended and restated. The amended note is comprised of $500,000 of the
original loan and $330,000 of new funds advanced to Big Valley. Both
portions of the note will be serviced by a percentage of net cash flow
form the property, payable March 31st of each calendar year. In January
1997, the Partnership received $5,693,199 in full satisfaction of the
Tri-State mortgage. In February 1997, the Partnership received
$1,224,861 in full payment of an equity participation certificate
relating to BP Shopping Center. Because the Partnership's loans are
zero-coupon loans, the Partnership receives no current cash flow from
such investments.
The Partnership uses working capital reserves provided from the
proceeds of its public offering and any undistributed cash from
temporary investments as its primary source of liquidity. As of March
31, 1997, the Partnership's working capital reserves amounted to
approximately $11,000,000. The Partnership may utilize its working
capital reserves in the event the Partnership incurs additional
expenses in taking legal action or lending additional funds to protect
its interest in certain of the mortgage loans in which the underlying
properties are experiencing financial difficulties. The Partnership's
cash flow from the operation of its hotel property is anticipated to be
sufficient to meet such property's capital expenditure needs in 1997.
In May 1997, the Partnership paid the Administrative General Partner
$58,898, which represented the accrued mortgage servicing fee
associated with the Tri-State loan. In February 1996, the Partnership
paid the Administrative General Partner $86,827, which represented the
mortgage servicing fee associated with Research Triangle loan.
The Partnership may use its working capital reserves in the future for
similar payments relating to loans, the collateral for which has been
foreclosed by senior lenders. The Partnership determines on a quarterly
basis whether cash distributions to the partners are warranted. Working
capital reserves will be temporarily invested in short-term money
market instruments and are expected to be sufficient to pay
administrative expenses during the term of the Partnership. The
borrower under the West Palm loan filed for bankruptcy protection under
Chapter 11 of the U.S. Bankruptcy Code, and the first mortgage lender
on the Stockfield loan has begun foreclosure proceedings. If a
foreclosure should occur, it could result in a total loss of the
Partnership's investment. Except, as discussed above, management is not
aware of any other known trends, events, commitments or uncertainties
that will have a significant impact or liquidity.
Real estate market
The real estate market continues to suffer from the effects of the
recent recession which included a substantial decline in the market
values of existing properties. Market values have begun to recover, and
while the pace of new construction has slowed, high vacancy rates
continue to exist in many areas. These factors may continue to reduce
rental rates. As a result of such decline, investors will most likely
not recover a significant portion of their original investment in the
Partnership.
<PAGE>
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly
review of each mortgage in the Partnership's portfolio. In performing
the review, management considers the estimated net realizable value of
the properties or collateral as well as other factors, such as the
current occupancy, the amount and status of senior debt, if any, the
prospects for the property and the economic situation in the region
where the property is located. Because this determination of net
realizable value is based upon projections of future economic events
which are inherently subjective, the amounts ultimately realized at
disposition may differ materially from the carrying value as of March
31, 1997. There was a $2,340,260 provision recorded on the Stockfield
loan for the quarter ended March 31, 1997. Stockfield's first mortgage
matured on April 1, 1996 and, since that time Stockfield was attempting
to negotiate an extension or restructure the first mortgage. Stockfield
was unable to reach an agreement with the first mortgage lender and the
first mortgage lender has begun foreclosure proceedings. As a result,
during the first quarter of 1997, the Partnership recorded a provision
for loan losses for the entire carrying value of the Stockfield loan,
which was $2,340,260. There was no provision recorded for the quarter
ended March 31, 1996.
The allowance is inherently subjective and is based on management's
best estimate of current conditions and assumptions about expected
future conditions. The Partnership may provide additional losses in
subsequent periods and such provisions could be material.
Certain of the properties, as described in the Notes to Financial
Statements - with respect to which the Partnership has made loans are
experiencing varying degrees of operating problems.
Results of operations
The net loss increased for the three months ended March 31, 1997 when
compared with the three months ended March 31, 1996, primarily due to
the provision for loan losses recorded on the Stockfield loan in 1997.
Revenues decreased for the three months ended March 31, 1997 when
compared with the three months ended March 31, 1996, primarily due to a
decrease in operating income, partially offset by increases in mortgage
interest income and short-term investment income. Operating income
decreased due to a decrease in occupancy at the Richmond Comfort Inn.
Mortgage interest income increased due to the interest that was
recorded as a result of the payoff of the Tri-State loan and the
restructuring of the Big Valley loan. Short-term investment interest
increased primarily as a result of an increase in the cash balance, due
to the payoff of the Tri-State loan and the realization of the equity
certificate in BP Shopping Center.
Costs and expenses increased for the three months ended March 31, 1997
compared to March 31, 1996, primarily due to the provision for loan
losses recorded during 1997. The first mortgage on the Stockfield loan
matured on April 1, 1996. Since that time Stockfield was attempting to
negotiate an extension or restructure the first mortgage, but was
<PAGE>
Allowance for loan losses (continued)
unable to reach an agreement with the first mortgage lender. The first
mortgage lender has begun foreclosure proceedings and as a result, the
Partnership recorded a provision for loan losses for the entire
carrying value of the Stockfield loan, which was $2,340,260 at March
31, 1997. In addition, there was a decrease in operating expenses and
general and administrative expenses. Operating expenses decreased
proportionately with the decrease in operating income. General and
administrative expenses decreased as a result of a decrease legal and
payroll costs.
Inflation
Inflation has not had a material impact on the Partnership's operations
or financial position during the last three years and is not expected
to have a material impact in the future.
Legal Proceedings
For a discussion of Legal Proceedings, please see Note 8 ("Commitments
and Contingencies") to the Financial Statements.
<PAGE>
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 8 which
is herein incorporated by reference.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCES ACCRUED MORTGAGE
INVESTORS, L.P. - SERIES 86
By: Resources Capital Corp.
Administrative General Partner
Dated: May 15, 1997 By: /s/ Joseph Jacobs
-----------------
Joseph Jacobs
President
(Duly Authorized Officer)
Dated: May 15, 1997 By: /s/ Jay L. Maymudes
-------------------
Jay L. Maymudes
Vice President, Secretary and
Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the March 31, 1997 Form 10-Q of Resources Accrued Mortgage
Investors, L.P. - Series 86 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,784,098
<SECURITIES> 0
<RECEIVABLES> 16,389
<ALLOWANCES> 0
<INVENTORY> 16,883
<CURRENT-ASSETS> 10,867,040
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,356,482
<CURRENT-LIABILITIES> 144,214
<BONDS> 3,554,205
0
0
<COMMON> 0
<OTHER-SE> 11,469,689
<TOTAL-LIABILITY-AND-EQUITY> 17,356,482
<SALES> 0
<TOTAL-REVENUES> 465,765
<CGS> 0
<TOTAL-COSTS> 154,017
<OTHER-EXPENSES> 2,512,738
<LOSS-PROVISION> 2,340,260
<INTEREST-EXPENSE> 84,585
<INCOME-PRETAX> (2,200,990)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,200,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,200,990)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
