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 September 30, 1998
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, Suite 270, Greenwich, CT 06830
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 862-7444
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by 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 - SEPTEMBER 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1998 and December 31, 1997
STATEMENTS OF OPERATIONS - For the three months ended September 30,
1998 and 1997 and the nine months ended September 30, 1998 and
1997
STATEMENT OF PARTNERS' EQUITY - For the nine months ended September 30,
1998
STATEMENTS OF CASH FLOWS - For the nine months ended September 30, 1998
and 1997
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
September 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Investments in mortgage loans (net of an allowance
for loan losses of $5,000,000) ................ $ -- $ 1,464,415
Cash and cash equivalents ........................ 4,649,122 8,273,293
Real estate - net ................................ 3,951,967 3,899,513
Other assets ..................................... 162,361 116,528
----------- -----------
$ 8,763,450 $13,753,749
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable ............................ $ 3,432,837 $ 3,495,478
Due to affiliates ................................ 1,391,282 1,843,290
Accounts payable and accrued expenses ............ 165,945 138,494
----------- -----------
Total liabilities ......................... 4,990,064 5,477,262
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (330,004 units
issued and outstanding) ....................... 3,584,767 7,862,713
General partners' equity ......................... 188,619 413,774
----------- -----------
Total partners' equity .................... 3,773,386 8,276,487
----------- -----------
$ 8,763,450 $13,753,749
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Mortgage loans interest income ........ $ 1,302,411 $ 18,847 $ 1,341,701 $ 112,604
Operating income - real estate ........ 409,678 453,196 1,131,445 1,287,823
Short-term investment interest ........ 71,832 80,580 288,264 295,327
Other income .......................... 5,000 38,587 22,020 116,128
----------- ----------- ----------- -----------
1,788,921 591,210 2,783,430 1,811,882
----------- ----------- ----------- -----------
Costs and expenses
Operating expenses - real estate ...... 274,142 252,775 744,135 710,588
Mortgage loan interest expense ........ 73,249 75,027 221,127 235,004
General and administrative ............ 46,298 58,183 151,493 148,383
Asset management fees ................. 38,780 36,718 114,114 115,706
Depreciation expense .................. 24,482 23,000 73,142 69,000
Mortgage servicing fees ............... 509 15,437 33,352 56,057
(Recovery of) provision for loan losses (1,050,832) (604,155) (1,050,832) 1,736,105
----------- ----------- ----------- -----------
(593,372) (143,015) 286,531 3,070,843
----------- ----------- ----------- -----------
Net income (loss) .......................... $ 2,382,293 $ 734,225 $ 2,496,899 $(1,258,961)
=========== =========== =========== ===========
Net income (loss) attributable to
Limited partners ...................... $ 2,263,178 $ 697,514 $ 2,372,054 $(1,196,013)
General partners ....................... 119,115 36,711 124,845 (62,948)
----------- ----------- ----------- -----------
$ 2,382,293 $ 734,225 $ 2,496,899 $(1,258,961)
=========== =========== =========== ===========
Net income (loss) per unit of limited
partnership interest (330,004
units outstanding) .................... $ 6.86 $ 2.12 $ 7.19 $ (3.62)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<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, 1998 .............. $ 413,774 $ 7,862,713 $ 8,276,487
Net income for the nine months ended
September 30, 1998 ................ 124,845 2,372,054 2,496,899
Distributions for the nine months ended
September 30, 1998 ($20.15 per
limited partnership unit) ......... (350,000) (6,650,000) (7,000,000)
----------- ----------- -----------
Balance, September 30, 1998 ........... $ 188,619 $ 3,584,767 $ 3,773,386
=========== =========== ===========
</TABLE>
See notes to finanical statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
---------------------------
1998 1997
----------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating activities
Net income (loss) .................................... $ 2,496,899 $(1,258,961)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Provision for loan losses ..................... -- 2,340,260
Mortgage loan interest accrued ................ -- (56,541)
Recovery of loan losses ....................... (1,050,832) (604,155)
Depreciation .................................. 73,142 69,000
Deferred asset management and mortgage
servicing fees, net of payments ........... (452,008) (332,297)
Changes in assets and liabilities
Other assets ...................................... (45,833) 13,891
Accounts payable and accrued expenses ............. 27,451 6,473
----------- -----------
Net cash provided by operating activities . 1,048,819 177,670
----------- -----------
Cash flows from investing activities
Principal payments on mortgage loan payable .......... (62,641) (55,257)
Additions to real estate ............................. (125,596) (161,085)
Proceeds from repayment of mortage loans ............. 2,515,247 8,828,408
----------- -----------
Net cash provided by investing activities . 2,327,010 8,612,066
----------- -----------
Cash flows from financing activities
Distributions to partners ............................ (7,000,000) (4,168,472)
----------- -----------
Net (decrease) increase in cash and cash equivalents ...... (3,624,171) 4,621,264
Cash and cash equivalents, beginning of period ............ 8,273,293 3,769,118
----------- -----------
Cash and cash equivalents, end of period .................. $ 4,649,122 $ 8,390,382
=========== ===========
Supplemental disclosure of cash flow information
Interest paid ........................................ $ 221,127 $ 235,004
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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 Investors, L.P. - Series 86
(the "Partnership") annual report on Form 10-K for the year ended
December 31, 1997. The results of operations for the nine months ended
September 30, 1998 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. Certain loans
contained provisions whereby the Partnership may have been 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
NOTES TO FINANCIAL STATEMENTS
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
September 30, 1998. Accordingly, the Partnership may provide additional
losses in subsequent periods and such provisions could be material.
No allowance was required for the nine months ended September 30, 1998.
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.
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, be in direct competition with the Partnership.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Subject to the rights 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., ("NorthStar") a Maryland corporation.
Effective as of August 28, 1997, Presidio has a management agreement
with NorthStar Presidio Management Company, LLC ("NorthStar Presidio"),
pursuant to which NorthStar Presidio provides the day-to-day management
of Presidio and its direct and indirect subsidiaries and affiliates.
For the nine months ended September 30, 1998 reimbursable expenses due
NorthStar Presidio amounted to $3,000.
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 was 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 $114,114 and
$115,706, including accrued interest of $111,674 and $109,378 for the
nine months ended September 30, 1998 and 1997, 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 $33,352 and $56,057, including
accrued interest of $10,356 and $33,263 for the nine months ended
September 30, 1998 and 1997, respectively.
In August 1998, the Administrative General Partner was paid $174,298
and $43,528, which represented the asset management and mortgage
servicing fees, respectively, which were previously accrued for the Big
Valley Loan.
Also, in July 1998, the Administrative General Partner was paid
$381,648 which represented the mortgage servicing fee accrued for the
West Palm loan.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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:
September 30, December 31,
1998 1997
---------- ----------
Asset management fee . $1,391,282 $1,451,466
Mortgage servicing fee -- 391,824
---------- ----------
$1,391,282 $1,843,290
========== ==========
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
September 30, 1998 and 1997 the Administrative General Partner,
Investment General Partner and Associate General Partner were allocated
net income of $114,351 and $2,382, $2,382 and $35,243, $734 and $734,
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
loans held by unaffiliated third parties.
The properties, which collateralize the Partnership's mortgage loans,
have experienced varying degrees of operating problems. Certain loans
were ultimately lost when the senior lenders foreclosed on the
properties securing the Partnership's mortgage loans. Other loans have
been restructured to allow the Partnership a possible equity
participation in the future sales or refinancings of the properties.
The Partnership has provided for these contingencies, in certain
circumstances, by establishing an allowance for loan losses on its
entire investment in certain mortgages.
Berkeley Western Loan
The entire carryinlg value of this loan of $2,481,562 had been written
off during 1990. The Parntership is unable to determine at the present
time whether any amounts will be received upon the ultimate sale or
disposition of the property.
Big Valley Loan
In August 1998, the property underlying the Big Valley loan was sold.
The Partnership received approximately $3,790,000 of which $1,437,000
was applied towards principal, $1,051,000 towards recovery of loan
losses and the balance of $1,302,000 towards interest.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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 Mortgage Mortgage
Interest Compound Loan Maturity Prepayment is Amount Purchased Placement
Description Rate Period Date Date Permissable Advanced Interest Fee
----------- ---- ------ ---- ---- ----------- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
West Palm (b) (a) 13.46% Monthly 16-Jun-88 1-Jul-2000 1-Jul-97 $ 9,200,000 $ - $ 539,589
----------- ------ ----------
Los Angeles, CA
$ 9,200,000 $ - $ 539,589
=========== ====== ==========
<CAPTION>
Interest recognized
----------------------- Carrying value
---------------------------
September 30, 1997 and Write-offs, Payments September 30 December 31,
Description 1998 Prior Reserves net of recoverie Received 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Residential
West Palm (b) (a) $ - $ - $ (5,000,000) $ (4,739,589) $ - $ - $ -
------ ------ ----------- ------------ ----- ----- ----
Los Angeles, CA
$ - $ - $ (5,000,000) $ (4,739,589) $ - $ - $ -
====== ====== ============ ============ ===== ===== ====
<CAPTION>
Contractual
Balance (a)
---------------------------
September 30 December 31,
Description 1998 1997
----------- ---- ----
<S> <C> <C>
Residential
West Palm (b) (a) $ 5,615,833 $ 5,331,781
---------- -----------
Los Angeles, CA
$ 5,615,833 $ 5,331,781
=========== ===========
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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 Mortgage Mortgage
Interest Compound Loan Maturity Prepayment is Amount Purchased Placement
Description Rate Period Date Date Permissable Advanced Interest Fee
----------- ---- ------ ---- ---- ----------- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
West Palm (b) (a) 13.46% Monthly 16-Jun-88 1-Jul-2000 1-Jul-97 9,200,000 - 539,589
Los Angeles, CA
Office Buildings
Berkley Western (c)
Berkley, CA 14.50% Annual 20-Dec-85 2,250,000 $ 94,079 137,483
$ 11,450,000 $ 94,709 $ 677,072
============ ======== =========
<CAPTION>
Interest recognized
------------------------------
September 30, 1997 and Write-offs, Payments
1998 Prior Reserves net of recoveries Received
---- ----- -------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Residential
West Palm (c) (a) - - (5,000,000) (4,739,589) -
-------- ----------- ------------ ----------- ---------
Los Angeles, CA
Office Buildings
Berkley Western (c) - - - (2,481,562) -
Berkley, CA
-------- ------------ ------------ ----------- ----------
$ - $ - $ (5,000,000) $(7,221,151) $ -
======== =========== ============ =========== ==========
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying value Balance (a)
------------------------------ --------------------------
September 30, December 31, September 30, December 31,
1998 1997 1998 1997
----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Residential
West Palm (c) (a) - - 5,615,466 5,331,781
----------- ----------- --------- -----------
Los Angeles, CA
Office Buildings
Berkley Western (c) - - - -
Berkley, CA
$ - - $5,615,466 $ 5,331,681
=========== =========== ========= ===========
</TABLE>
(a) This loan is accounted for under the investment method.
(b) This loan was restructured during 1997 to reduce the indebtedness to
$5,000,000 with interest accruing at 7% per annum and the maturity date was
extended to February 2017.
(c) 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.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
A summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, 1998 December 31, 1997
------------------------------------------- ------------------------------------------------
Investment Interest Investment Interest
Method Method Total Method Total Total
----- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Opening balance ........... $-- $ 1,464,415 $ 1,464,415 $ 7,977,396 $ 3,976,124 $ 11,953,520
(Provision for) recovery of
loan losses ........... -- 1,050,832 1,050,832 (2,340,260) 604,155 (1,736,105)
Interest recognized ....... -- 1,341,701 1,341,701 56,063 75,408 131,471
Interest repayments ....... -- (1,341,701) (1,341,701) -- -- --
Loan repayments ........... -- (2,515,247) (2,515,247) (5,693,199) (3,191,272) (8,884,471)
----- ------------ ------------ ------------ ------------ ------------
Ending balance ............ $-- $ -- $ -- $ -- $ 1,464,415 $ 1,464,415
===== ============ ============ ============ ============ ============
</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>
September 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Land ................................... $ 444,700 $ 444,700
Building and improvements .............. 4,001,889 3,876,293
----------- -----------
4,446,589 4,320,993
Less: accumulated depreciation ......... (494,622) (421,480)
----------- -----------
$ 3,951,967 $ 3,899,513
=========== ===========
</TABLE>
The land, building and improvements are pledged to collateralize the
mortgage loan payable.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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 $3,432,837 at September 30,
1998. Interest rates on the loan are adjustable every five years, with
a current interest rate of 9.49%, through the next adjustment period.
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 nine months ended
September 30, 1998 amounted to $221,127 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.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
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
sponsored by affiliates of the General Partners.
The Partnership originally invested its net proceeds in sixteen
Mortgage Loans, which aggregated $70,332,103. Presently, the
Partnership holds two mortgage loans outstanding, and owns a hotel
which it acquired through foreclosure. Because the Partnership's loans
are zero-coupon loans, the Partnership receives no guaranteed cash flow
from such investments.
In August 1998, the property underlying the Big Valley loan was sold.
The partnership received approximately $3,790,000 of which $1,437,000
was applied towards principal, $1,051,000 towards recovery of loan
losses and the balance of $1,302,000 towards interest.
The Partnership uses working capital reserves provided from any
undistributed cash from temporary investments and cash flow from the
operation of its hotel as its primary measure of liquidity. As of
September 30, 1998 the Partnership's working capital reserves equaled
approximately $4,483,000. 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 on properties which are
currently experiencing difficulties or to pay fees. The Partnership's
cash flow from the operations of its hotel property is anticipated to
be sufficient to meet such property's capital expenditures in the near
term.
In July 1998, the Partnership paid a cash distribution of $7,000,000
($20.15 per limited partnership unit.) A substantial portion of the
distribution represents the undistributed portion of the proceeds of
the Tri-State, Research Triangle and BP loan repayments (approximately
$4,708,000.) The remainder represents excess working capital reserves.
The Partnership will determine on a quarterly basis whether further
distributions 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 Partnership may use its working capital reserves in the future to
pay deferred fees relating to loans, the collateral for which has been
foreclosed by senior lenders. Except as discussed above, management is
not aware of any other known trends, events, commitments or
uncertainties that will have a significant impact on liquidity.
<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
September 30, 1998.
In August 1998, the property underlying the Big Valley loan was sold.
The Partnership received approximately $3,790,000. The carrying value
of the Big Valley loan at the time of the sale was $1,464,415, which
resulted in recovery of loan losses of $1,051,000 for the quarter ended
September 30, 1998.
There was no provision for loan losses recorded for the quarter ended
September 30, 1998.
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, with respect to which the Partnership has
made loans are experiencing varying degrees of operating problems (see
Note 4 to the Financial Statements).
Results of operations
Net income increased for the nine month period ended September 30, 1998
compared with the same period in the prior year. The increase is
primarily due to the payoff of the Big Valley loan and recovery
of loan losses.
Revenues increased for the nine month period ended September 30, 1998
compared with the same period in the prior year. The increase is
primarily due to a increase in mortgage loans interest income partially
offset by a decrease in operating income, short-term investment
interest and other income. Mortgage loans interest income increased as
a result of the payoff of the Big Valley loan. Operating revenue
decreased due to a decrease in occupancy at the Richmond Comfort Inn.
Short-term investment interest decreased as a result of a decrease in
cash and cash equivalents on which interest is earned. Other income
decreased primarily as a result of the payoff of the Research Triangle
loan in 1997, which eliminated the participation interest income.
Costs and expenses decreased for the nine month period ended September
30, 1998 compared to the same period in the prior year. The decrease
was primarily due to the recovery of loan losses as a result of the
payoff of the Big Valley loan as compared to a net provision for loan
losses recorded in the prior year. Mortgage servicing fees also
decreased as a result of the disposition of mortgage loans.
<PAGE>
Inflation
Inflation has not had a material impact on the Partnership's recent
operations or financial position and is not expected to have a material
impact in the future.
Legal Proceedings
For a discussion of Legal Proceedings, please see Note 7 in the
Partnership's 10-K for the year end December 31, 1997.
Year 2000 Compliance
The Year 2000 compliance issue concerns the inability of computerized
information systems and equipment to accurately calculate, store or use
a date after December 31, 1999, as a result of the year being stored as
a two digit number. This could result in a system failure or
miscalculations causing disruptions of operations. The Partnership and
its Manager (NorthStar Presidio Management Co., LLC) recognize the
importance of ensuring that its business operations are not disrupted
as a result of Year 2000 related computer system and software issues.
The Manager is in the process of assessing its internal computer
information systems and is now taking the further steps necessary to
remediate these systems so that they will be Year 2000 compliant. In
connection therewith, the Manager is currently in the process of
installing a new fully compliant accounting and reporting system. The
Manager is also currently reviewing its other internal systems and
programs, along with those of its unaffiliated third party service
providers, in order to insure compliance.
Further, the Manager and these service providers are currently
evaluating and assessing those computer systems not related to
information technology. These systems, that generally operate in a
building include, without limitation, telecommunication systems,
security systems (such as card-access door lock systems), energy
management systems and elevator systems. As a result of the technology
used in this type of equipment, it is possible that this equipment may
not be repairable, and accordingly may require complete replacement.
Because this assessment is ongoing, the total cost of bringing all
systems and equipment into Year 2000 compliance has not been fully
quantified. Based upon available information, the Manager does not
believe that these costs will have a material adverse effect on the
Partnership's business, financial condition or results. However, it is
possible that there could be adverse consequences to the Partnership as
a result of Year 2000 issues that are outside the Partnership's
control. The Manager is in the preliminary stages of evaluating these
issues and will be developing contingency plans.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
(a) None.
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
Partnership 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
By: /s/Allan B. Rothschild
----------------------
Allan B. Rothschild
President
(Duly Authorized Officer)
By: /s/Lawrence Schachter
---------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
Date: November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the Financial
Statements of the September 30, 1998 Form 10-Q of 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,649,122
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,811,483
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,763,450
<CURRENT-LIABILITIES> 165,945
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,773,386
<TOTAL-LIABILITY-AND-EQUITY> 8,763,450
<SALES> 0
<TOTAL-REVENUES> 2,783,430
<CGS> 0
<TOTAL-COSTS> 1,264,221
<OTHER-EXPENSES> 73,142
<LOSS-PROVISION> (1,050,832)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,496,899
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,496,899
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
