<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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.)
Cambridge Center, 9th Floor, Cambridge, Massachusetts 02142
-----------------------------------------------------------
(Address of principal executive offices)
(617) 234-3000
----------------------------------------------------
(Registrant's telephone number, including area code)
411 West Putnam Avenue, Suite 270, Greenwich, CT 06830
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
================================================================================
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - SEPTEMBER 30, 1999
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1999 and December 31, 1998......................................1
STATEMENTS OF OPERATIONS - For the three months ended September 30, 1999
and 1998 and the nine months ended September 30, 1999 and 1998...........................2
STATEMENT OF PARTNERS' EQUITY - For the nine months ended
September 30, 1999 ......................................................................3
STATEMENTS OF CASH FLOWS - For the nine months ended
September 30, 1999 and 1998 .............................................................4
NOTES TO FINANCIAL STATEMENTS ..............................................................5-12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................................13-15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.........................................................................16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K .........................................................16
SIGNATURES...............................................................................................17
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,656,266 $ 4,639,050
Real estate - net 4,061,199 3,965,378
Other assets 129,981 181,702
Investments in mortgage loans, net - -
----------- -----------
$11,847,446 $ 8,786,130
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable $ 3,350,550 $ 3,410,955
Due to affiliates 460,892 1,352,500
Accounts payable and accrued expenses 191,696 232,169
----------- -----------
Total liabilities 4,003,138 4,995,624
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (330,004 units
issued and outstanding) 7,452,143 3,601,031
General partners' equity 392,165 189,475
----------- -----------
Total partners' equity 7,844,308 3,790,506
----------- -----------
$11,847,446 $ 8,786,130
=========== ===========
</TABLE>
See notes to financial statements.
1
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Mortgage loans interest income $ 1,405,993 $ 1,302,411 $ 1,405,993 $ 1,341,701
Operating income - real estate 413,296 409,678 1,180,681 1,131,445
Short-term investment interest 61,391 71,832 155,333 288,264
Other income - 5,000 140,255 22,020
----------- ----------- ----------- -----------
1,880,680 1,788,921 2,882,262 2,783,430
----------- ----------- ----------- -----------
Costs and expenses
Operating expenses - real estate 288,317 274,142 851,356 744,135
Mortgage loan interest expense 71,842 73,249 216,018 221,127
General and administrative 32,871 46,298 129,726 151,493
Depreciation expense 37,931 24,482 112,922 73,142
Asset management fees - 38,780 - 114,114
Mortgage servicing fees - 509 - 33,352
Recovery of loan losses (2,481,562) (1,050,832) (2,481,562) (1,050,832)
----------- ----------- ----------- -----------
(2,050,601) (593,372) (1,171,540) 286,531
----------- ----------- ----------- -----------
Net income $ 3,931,281 $ 2,382,293 $ 4,053,802 $ 2,496,899
=========== =========== =========== ===========
Net income attributable to
Limited partners $ 3,734,717 $ 2,263,178 $ 3,851,112 $ 2,372,054
General partners 196,564 119,115 202,690 124,845
----------- ----------- ----------- -----------
$ 3,931,281 $ 2,382,293 $ 4,053,802 $ 2,496,899
=========== =========== =========== ===========
Net income per unit of limited
partnership interest (330,004
units outstanding) $ 11.32 $ 6.86 $ 11.67 $ 7.19
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
------ ------ ------
<S> <C> <C> <C>
Balance, January 1, 1999 $ 189,475 $3,601,031 $3,790,506
Net income for the nine months ended
September 30, 1999 202,690 3,851,112 4,053,802
---------- ---------- ----------
Balance, September 30, 1999 $ 392,165 $7,452,143 $7,844,308
========== ========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
September 30,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating activities
Net income $ 4,053,802 $ 2,496,899
Adjustments to reconcile net income to net cash
provided by operating activities
Recovery of loan losses (2,481,562) (1,050,832)
Depreciation 112,922 73,142
Deferred asset management and mortgage
servicing fees, net of payments (891,608) (452,008)
Changes in assets and liabilities
Other assets 51,721 (45,833)
Accounts payable and accrued expenses (40,473) 27,451
----------- -----------
Net cash provided by operating activities 804,802 1,048,819
----------- -----------
Cash flows from investing activities
Principal payments on mortgage loan payable (60,405) (62,641)
Additions to real estate (208,743) (125,596)
Proceeds from repayment of mortage loans 2,481,562 2,515,247
----------- -----------
Net cash provided by investing activities 2,212,414 2,327,010
----------- -----------
Cash flows from financing activities
Distributions to partners - (7,000,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 3,017,216 (3,624,171)
Cash and cash equivalents, beginning of period 4,639,050 8,273,293
----------- -----------
Cash and cash equivalents, end of period $ 7,656,266 $ 4,649,122
=========== ===========
Supplemental disclosure of cash flow information
Interest paid $ 216,018 $ 221,127
=========== ===========
</TABLE>
See notes to financial statements.
4
<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, 1998. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
When used in this quarterly report on Form 10-Q, the words "believes,"
"anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Statements looking forward in time
are included in this quarterly report on Form 10-Q pursuant to the
"safe harbor" provision on the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially, including, but
not limited to, those set forth in "management's discussion and
analysis of financial condition and results of operations." Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Partnership
undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
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.
5
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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 fair 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 fair value
is based upon projections of future economic events, the amounts
ultimately realized at disposition may differ materially from the
carrying value as of September 30, 1999. Accordingly, the Partnership
may provide additional losses in subsequent periods and such provisions
could be material.
Depreciation
Depreciation is computed using the straight-line method over the useful
life of the property, which is estimated to range from 7 to 40 years.
The original cost of the property, which was acquired through
foreclosure, 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
periodic 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
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.,
the Administrative General Partner, Resources Capital Corp. and the
Associate General Partner, Presidio AGP Corp., are wholly-owned
subsidiaries of Presidio Capital Corp. ("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.
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. On August 28, 1997, an
affiliate of NorthStar Capital Partners acquired all of the Class B
shares of Presidio. This acquisition, when aggregated with previous
acquisitions, caused NorthStar Capital Partners to acquire indirect
control of the General Partners. Effective July 31, 1998, Presidio is
indirectly controlled by NorthStar Capital Investment Corp.
("NorthStar"), a Maryland corporation.
6
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Presidio entered into a management agreement with NorthStar Presidio
Management Company, LLC ("NorthStar Presidio"), an affiliate of
NorthStar. Under the terms of the management agreement, 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, 1999 and 1998, reimbursable expenses due to NorthStar
Presidio from the Partnership amounted to $15,809 and $3,000,
respectively.
On October 21, 1999, Presidio entered into a new Services Agreement
with AP-PCC III, L.P. (the "Agent") pursuant to which the Agent was
retained to provide asset management and investor relation services to
the Partnership and other entities affiliated with the Partnership.
As a result of this agreement, the Agent has the duty to direct the day
to day affairs of the Partnership, including, without limitation,
reviewing and analyzing potential sale, financing or restructuring
proposals regarding the Partnership's assets, preparation of all
Partnership reports, maintaining Partnership records and maintaining
bank accounts of the Partnership. The Agent is not permitted, however,
without the consent of Presidio, or as otherwise required under the
terms of the Partnership's Agreement of Limited Partnership (the
"Partnership Agreement") to, among other things, cause the Partnership
to sell or acquire an asset or file for bankruptcy.
In order to facilitate the provision by the Agent of the asset
management services and the investor relation services, effective
October 25,1999, the officers and directors of the General Partner
resigned and nominees of the Agent were elected as the officers and
directors of the General Partner. The Agent is an affiliate of Winthrop
Financial Associates, a Boston based company that provides asset
management services, investor relation services and property management
services to over 150 limited partnerships which own commercial property
and other assets. The General Partner does not believe that this
transaction will have a material effect on the operations of the
Partnership.
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 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, including accrued interest of $111,674 for the nine months
ended September 30, 1998. No asset management fee was earned for the
nine months ended September 30, 1999. In May 1999, the Administrative
General Partner was paid $891,608 representing interest on the deferred
asset management fee.
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, including accrued
interest of $10,356 for the nine months ended September 30, 1998. No
mortgage servicing fee was earned for the nine months ended September
30, 1999.
7
<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:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Asset management fee
(principally deferred interest) $ 460,892 $ 1,352,000
=========== ===========
</TABLE>
There are no amounts outstanding for mortgage servicing fees.
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.
In addition, affiliates of the General Partners hold a 5% special
limited partnership interest in West Palm and hold notes which are
secured by a 35.7% interest in West Palm. To the extent any amounts are
paid to such affiliates on account of the loans secured by the limited
partnership interests, the Partnership is entitled to 50% of such
amounts.
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. The Stockfield,
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, Research Triangle, West Palm, Pike Creek and Boram
loans have been restructured to allow the Partnership a possible equity
participation in the future sales or refinancing of the properties. The
Partnership subsequently lost its equity participation in the Boram
loan, as the senior lender was paid off at a discount. The Brentwood
Place, Research Triangle and Pike Creek participation interests were
paid to the Partnership after the underlying properties securing the
respective loans were sold.
The Partnership has provided for these contingencies, in certain
circumstances, by establishing an allowance for loan losses on its
entire investment in certain mortgages.
West Palm loan
The West Palm loan, in the original principal amount of $9,200,000, was
made to West Palm Associates Limited Partnership ("West Palm"). The
loan is secured by a 582 unit apartment complex located in Los Angeles,
California.
On July 2, 1996, West Palm filed for protection under Chapter 11 of the
United States Bankruptcy Code. Although the bankruptcy protection
enabled West Palm to avoid an imminent foreclosure, there was no
assurance that West Palm will be able to successfully restructure its
debt service obligations on the first mortgage. The Partnership had
reserved the entire carrying value of the West Palm loan in 1993. The
Partnership filed a Proof of Claim for all outstanding principal,
accrued interest, prepayment penalties, additional interest and all
other costs and obligations of West Palm to the Partnership.
In February 1997, a Plan of Reorganization was filed which called for a
restructuring of the Partnership's mortgage, and in September 1997, the
restructuring agreement was executed. The Partnership has reduced its
indebtedness to $5,000,000, with interest accruing at 7% per annum and
extended the maturity date to February 2017. The Partnership is also
entitled to a participation interest in the event of a sale of the
property. The Partnership has fully reserved for this investment and is
unable to determine at the present time whether any amounts will be
received upon the ultimate sale or disposition of the property.
West Palm has approached the General Partner seeking to restructure the
Partnership's loan. After a series of negotiations, the current
proposal provides for the loan to be restructured so that the
Partnership would receive from the proceeds of a sale of West Palm's
property, after satisfaction of all prior loans, certain expenses and
closing costs, an amount equal to the first $1,200,000 of the remaining
sale proceeds, if any, plus 60% of all additional sales proceeds. The
General Partners are evaluating this proposal in light of the fact that
(i) if the first mortgage lender were to foreclose, the Partnership's
interest could be extinguished and (ii) the Partnership's loan does not
mature until 2017 with no required payments prior to such date. The
main benefit to the Partnership of this proposal is that it provides an
incentive to West Palm to seek to dispose of its property currently
which could result in the partnership receiving a return on its loan.
8
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Berkeley Western loan
In February 1997, a Plan of Reorganization was filed which called for a
restructuring of the Partnership's mortgage, and in September 1997, the
restructuring agreement was executed. The Partnership has reduced its
indebtedness to $5,000,000, with interest accruing at 7% per annum and
extended the maturity date to February 2017. The Partnership is also
entitled to a participation interest in the event of a sale of the
property. The Partnership has fully reserved for this investment and is
unable to determine at the present time whether any amounts will be
received upon the ultimate sale or disposition of the property.
On August 20, 1999, the property underlying the Berkeley Western loan
was sold to an unaffiliated third party. The entire carrying value of
this loan of $2,481,562 had been written off during 1990. In September
1993, the first mortgage holder consented to the restructuring of the
first mortgage loan in the amount of $10 million, the approximate value
of the property. In conjunction with the restructuring, the Partnership
received a non-interest bearing note in the amount of $550,000 which
replaced the original loan of $2,250,000 made by the Partnership to
Berkeley Western Associates. Additionally, the Partnership would be
entitled to participate in certain economic benefits (net sale
proceeds, refinancing proceeds and distributable cash flow) upon the
repayment of the restructured note to the first mortgage holder. In
accordance with the Loan Modification Agreement, the Partnership
received $3,887,555 representing repayment of the note and its share of
participation in sale proceeds. Also, approximately $218,000 was held
back in accordance with the sale agreement for unanticipated costs
related to the sale.
9
<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
Berkeley Western (c) 14.50% Annual 20-Dec-85 2,250,000 94,079 137,483
----------- -------- ---------
Berkely, CA
$11,450,000 $ 94,079 $ 677,072
=========== ======== =========
<CAPTION>
Interest recognized Carrying value
-------------------------- Write-offs, -----------------------------
September 30, 1998 and net of Payments September 30, December 31,
Description 1999 Prior Reserves recoveries Received 1999 1998
- ----------- ---- ----- -------- ---------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Residential
West Palm (b) (a) $ - $ - $(5,000,000) $ (4,739,589) $ - $ - $ -
Los Angeles, CA
Office Buildings
Berkeley Western (c) 1,405,993 - - - (3,887,555) - -
----------- -------- ---------- ------------ ----------- --------- -------
Berkely, CA
$ 1,405,993 $ - $(5,000,000) $ (4,739,589) $ (3,887,555) $ - $ -
=========== ======== =========== ============ ============ ========= =======
<CAPTION>
Contractual
Balance (a)
----------------------------
September 30, December 31,
Description 1999 1998
- ----------- ---- ----
Residential
West Palm (b) (a) $ 5,714,917
Los Angeles, CA
Office Buildings
Berkeley Western (c) - -
----------- -----------
Berkely, CA
$ - $ 5,714,917
=========== ===========
</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. On
August 20, 1999, the property underlying this loan was sold.
10
<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, 1999 December 31, 1998
------------------------------------------ --------------------------------------------
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
Recovery of loan losses 2,481,562 - 2,481,562 - 1,129,857 1,129,857
Interest recognized 1,405,993 - 1,405,993 - 1,341,701 1,341,701
Payments received on
mortgage loan (3,887,555) - (3,887,555) - (3,935,973) (3,935,973)
----------- ----------- ----------- ----------- ----------- -----------
Ending balance $ - $ - $ - $ - $ - $ -
=========== =========== =========== =========== =========== ===========
</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:
September 30, December 31,
1999 1998
---- ----
Land $ 444,700 $ 444,700
Building and improvements 4,303,992 4,095,249
----------- -----------
4,748,692 4,539,949
Less: accumulated depreciation (687,493) (574,571)
----------- -----------
$ 4,061,199 $ 3,965,378
=========== ===========
The land, building and improvements are pledged to collateralize the
mortgage loan payable.
11
<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 $3,350,550 at September 30,
1999. Interest rates on the loan are adjustable every five years, with
a current interest rate of 8.5%, through April, 2002. Interest is based
on a 2% premium over the Federal Home Loan Bank of Atlanta Five Year
Advance Rate. The loan presently requires monthly payments of interest
and principal aggregating $31, 526. Interest expense for the nine
months ended September 30, 1999 and 1998 amounted to $216,018 and
$221,127, respectively. The loan is currently held by GMAC Commercial
Mortgage and the lender is permitted to accelerate the note as of April
1, 1997, and thereafter with six months notice. The Partnership has not
received any notice of an acceleration from the lender. 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.
12
<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. As of September 30, 1999,
the Partnership's investments consist of one mortgage loan outstanding,
and 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.
On August 20, 1999, the property underlying the Berkeley Western loan
was sold to an unaffiliated third party. In September 1993, the first
mortgage holder consented to the restructuring of the first mortgage
loan in the amount of $10 million, the approximate value of the
property. In conjunction with the restructuring, the Partnership
received a non-interest bearing note in the amount of $550,000 which
replaced the original loan of $2,250,000 made by the Partnership to
Berkeley Western Associates. Additionally, the Partnership would be
entitled to participate in certain economic benefits (net sale
proceeds, refinancing proceeds and distributable cash flow) upon the
repayment of the restructured note to the first mortgage holder. In
accordance with the Loan Modification Agreement, the Partnership
received $3,887,555 representing repayment of the note and its share of
participation in sale proceeds. Also, approximately $218,000 was held
back in accordance with the sale agreement for unanticipated costs
related to the sale.
The Partnership uses working capital reserves provided from any
undistributed cash invested in temporary investments plus any cash flow
from the operation of its hotel as its primary measure of liquidity. As
of September 30, 1999 the Partnership's working capital reserves
equaled approximately $7,097,000. The Partnership may utilize its
working capital reserves in the event the Partnership incurs additional
expenses with respect to its hotel property, in taking legal action or
lending additional funds to protect its interest in its remaining
mortgage loan 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 represented the undistributed portion of the proceeds of
the Tri-State, Research Triangle and BP loan repayments (approximately
$4,708,000.) The remainder represented excess working capital reserves.
The General Partner anticipates that a distribution from the
Partnership's current cash reserves will be made within the next 90
days due to the receipt of a payment on account of the Berkeley equity
participation. At present, it is not possible to determine the exact
amount of such distribution as resources will be retained for both
anticipated and unanticipated future Partnership needs.
13
<PAGE>
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.
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.
Results of operations
Net income increased for the three and nine month periods ended
September 30, 1999 compared with the same periods in the prior year
primarily due to the proceeds received from the participation in the
sale of the property underlying the Berkeley Western loan.
Revenues increased for the three and nine month periods ended September
30, 1999 compared with the corresponding periods in the prior year. The
increase was due primarily to an increase in mortgage loans interest
income received from the participation in the sale of the property
underlying the Berkeley Western loan, higher operating income at the
Richmond Comfort Inn and an increase in other income for the nine month
period as a result of higher transfer fee income. This was offset by
the decrease in short-term investment income as a result of lower cash
balances available for investment.
Costs and expenses decreased for the three and nine month periods ended
September 30, 1999 compared to the same periods in the prior year. The
decrease was primarily due to the increases in recovery of loan losses
due to the sale of the property underlying the Berkeley Western loan,
decreases in mortgage loan interest expense, no asset management fees
and mortgage servicing fees as a result of the disposition of mortgage
loans and lower general and administrative expenses due to lower legal
expenses. This was partially offset by an increase in operating
expenses at the Richmond Comfort Inn and depreciation on the Richmond
Comfort Inn.
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.
Year 2000 compliance
The Year 2000 compliance issue concerns the inability of
computerized information systems and programs to accurately
calculate, store or use a date after December 31, 1999, as a
result of the year being stored as a two digit number. The
Partnership is dependent upon the General Partner and its
affiliates for management and administrative services. This
could aresult in a system failure or miscalculations causing
disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
During the third quarter of 1999, the General Partner and its
affiliates completed their assessment of computer systems used
in connection with the management of the Partnership. The
General Partner and its affiliates have completed upgrading
those systems where required. The Partnership has to date not
borne, nor is it expected that the Partnership will bear, any
significant costs in connection with the upgrade of those
systems requiring remediation.
14
<PAGE>
To date, the General Partner is not aware of any external agent
or service provider with a Year 2000 issue that would
materially impact the Partnership's results of operations,
liquidity or capital resources. However, the General Partner
has no means of ensuring that external agents and service
providers will be Year 2000 compliant. The General Partner does
not believe that the inability of external agents or servive
providers to complete their Year 2000 resolution process in a
timely manner will have a material impact on the financial position
or results of operations of the Partnership. However, the effect
of non-compliance by external agents is not readily
determinable.
15
<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.
16
<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
/s/ Allan Rothschild
-------------------------------------
Allan Rothschild
Duly Authorized Officer
/s/ Lawrence Schachter
-------------------------------------
Lawrence Schachter
Principal Financial and Accounting
Officer
17
Date: November 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the Financial
Statements of the September 30, 1999 Form 10-Q of Resources Accrued Mortgage
Investors 86 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,656,266
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,786,247
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,847,446
<CURRENT-LIABILITIES> 191,696
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,844,308
<TOTAL-LIABILITY-AND-EQUITY> 11,847,446
<SALES> 0
<TOTAL-REVENUES> 2,882,262
<CGS> 0
<TOTAL-COSTS> (1,284,462)
<OTHER-EXPENSES> 112,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,053,802
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,053,802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,053,802
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
