<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 June 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.)
411 West Putnam Avenue, Suite 270, Greenwich, CT 06830
(Address of principal executive offices)
(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 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 - JUNE 30, 1999
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1999 and December 31, 1998 .......................................... 1
STATEMENTS OF INCOME - For the three months ended June 30, 1999
and 1998 and for the six months ended June 30, 1999 and 1998............................. 2
STATEMENT OF PARTNERS' EQUITY - For the six months ended
June 30, 1999 ........................................................................... 3
STATEMENTS OF CASH FLOWS - For the six months ended
June 30, 1999 and 1998 .................................................................. 4
NOTES TO FINANCIAL STATEMENTS ................................................................. 5-11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..................................................... 12-13
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.......................................................................... 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K .......................................................... 14
SIGNATURES ......................................................................................... 15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
June 30, December 31,
1999 1998
----------- ------------
ASSETS
Real estate - net $ 4,052,633 $ 3,965,378
Cash and cash equivalents 3,772,118 4,639,050
Other assets - net 106,780 181,702
Investments in mortgage loans, net - -
----------- -----------
$ 7,931,531 $ 8,786,130
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable $ 3,366,024 $ 3,410,955
Due to affiliates 460,892 1,352,500
Accounts payable and accrued expenses 191,588 232,169
----------- -----------
Total liabilities 4,018,504 4,995,624
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (330,004 units
issued and outstanding) 3,717,426 3,601,031
General partners' equity 195,601 189,475
----------- -----------
Total partners' equity 3,913,027 3,790,506
----------- -----------
$ 7,931,531 $ 8,786,130
=========== ===========
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 six months ended
June 30, June 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues
Operating income - real estate $ 445,968 $ 385,426 $ 767,385 $ 721,767
Other income 33,495 5,560 140,255 17,020
Short-term investment interest 44,532 109,216 93,942 216,432
Mortgage loans interest income - 19,120 - 39,290
--------- --------- ----------- ---------
523,995 519,322 1,001,582 994,509
--------- --------- ----------- ---------
Costs and expenses
Operating expenses - real estate 322,515 259,691 563,039 469,993
Mortgage loan interest expense 71,850 73,765 144,176 147,878
General and administrative 53,564 45,559 96,855 105,195
Depreciation expense 37,097 24,432 74,991 48,660
Asset management fees - 38,132 - 75,334
Mortgage servicing fees - 16,624 - 32,843
--------- --------- ----------- ---------
485,026 458,203 879,061 879,903
--------- --------- ----------- ---------
Net income $ 38,969 $ 61,119 $ 122,521 $ 114,606
========= ========= =========== =========
Net income attributable to
Limited partners $ 37,021 $ 58,063 $ 116,395 $ 108,876
General partners 1,948 3,056 6,126 5,730
--------- --------- ----------- ---------
$ 38,969 $ 61,119 $ 122,521 $ 114,606
========= ========= =========== =========
Net income per unit of limited
partnership interest (330,004
units outstanding) $ .11 $ .18 $ .35 $ .33
========= ========= =========== =========
</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 six months ended
June 30, 1999 6,126 116,395 122,521
--------- ----------- -----------
Balance, June 30, 1999 $ 195,601 $ 3,717,426 $ 3,913,027
========= =========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended
June 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating activities
Net income $ 122,521 $ 114,606
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
Mortgage loan interest accrued - 27,064
Depreciation 74,991 48,660
Deferred asset management and mortgage
servicing fees, net of payments (891,608) 108,177
Changes in assets and liabilities
Other assets 74,922 3,833
Accounts payable and accrued expenses (40,581) 65,721
----------- -----------
Net cash (used in) provided by operating activities (659,755) 368,061
----------- -----------
Cash flows from investing activities
Principal payments on mortgage loan payable (44,931) (41,310)
Additions to real estate (162,246) (102,071)
----------- -----------
Net cash used in investing activities (207,177) (143,381)
----------- -----------
Net (decrease) increase in cash and cash equivalents (866,932) 224,680
Cash and cash equivalents, beginning of period 4,639,050 8,273,293
----------- -----------
Cash and cash equivalents, end of period $ 3,772,118 $ 8,497,973
=========== ===========
Supplemental disclosure of cash flow information
Interest paid $ 144,176 $ 147,878
=========== ===========
</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 six months ended
June 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. 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.
Allowance for loan losses
An allowance for loan losses is established based upon a periodic
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 which are
inherently subjective, the amounts ultimately realized at disposition
may differ materially from the carrying value as of
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 (continued)
June 30, 1999. The Partnership may provide additional losses in
subsequent years 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.
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 six months ended June
30, 1999 and 1998, reimbursable expenses due to NorthStar Presidio from
the Partnership amounted to $6,209 and $3,000, respectively.
6
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
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 $75,334,
including accrued interest of $73,504 for the six months ended June 30,
1998. No asset management fee was earned for the six months ended June
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 was 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 $32,843, including accrued
interest of $10,536 for the six months ended June 30, 1998. No mortgage
servicing fee was earned for the six months ended June 30, 1999.
Amounts due to affiliates for asset management fees consist of the
following:
June 30, December 31,
1999 1998
----------- ------------
Asset management fee
(principally deferred interest) $ 460,892 $ 1,352,500
=========== ===========
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, .1% to the Investment General Partner,
and .1% to the Associate General Partner.
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.
7
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
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.
Berkeley Western loan
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 certian economic
benefits (net sale proceeds, refinancing proceeds and distributable
cash flow) upon the repayment of the restructured note to the first
mortgage holder.
The property underlying the Berkeley Western loan is currently under a
contract for sale with an unaffiliated third party. This contract of
sale is subject to various conditions, and accordingly, there can be no
assurance that such sale will be consummated.
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)
A summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1999 December 31, 1998
----------------------------------- ---------------------------------------
Investment Interest Investment Interest
Method Method Total Method Method Total
---------- --------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Opening balance $ - $ - $ - $ - $ 1,464,415 $ 1,464,415
Recovery of loan losses - - - - 1,129,857 1,129,857
Interest recognized - - - - 1,341,701 1,341,701
Payments received on
Mortgage loan - - - - (3,935,973) (3,935,973)
--------- -------- --------- -------- ----------- -----------
Ending balance $ - $ - $ - $ - $ - $ -
========= ======== ========= ======== =========== ===========
</TABLE>
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
---------------------- ----------------------
June 30, 1998 and Write-offs, Payments June 30, December 31,
Description 1999 Prior Reserves net of recoveries Received 1999 1998
- ---------------------- -------- ----------- ------------ ----------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Residential
West Palm (b) (a) $ - $ 2,494,763 $ (5,000,000) $ (4,739,589) $ - $ - $ -
Los Angeles, CA
Office Buildings
Berkeley Western (c) - - - (2,481,562) - - -
-------- ----------- ------------ -------------- -------- -------- --------
Berkely, CA
$ - $ 2,494,763 $ (5,000,000) $ (7,221,151) $ - $ - $ -
======== =========== ============ ============ ======== ======== ========
<CAPTION>
Contractual
Balance (a)
---------------------------
June 30, December 31,
Description 1999 1998
- ---------------------- ----------- ------------
<S> <C> <C>
Residential
West Palm (b) (a) $ 5,915,017 $ 5,714,917
Los Angeles, CA
Office Buildings
Berkeley Western (c) - -
----------- -----------
Berkely, CA
$ 5,915,017 $ 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.
See notes to financial statements.
10
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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:
June 30, December 31,
1999 1998
----------- ------------
Land $ 444,700 $ 444,700
Building and improvements 4,257,495 4,095,249
----------- -----------
4,702,195 4,539,949
Less: accumulated depreciation (649,562) (574,571)
----------- -----------
$ 4,052,633 $ 3,965,378
=========== ===========
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 $3,366,024 at June 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 six months
ended June 30, 1999 and 1998 amounted to $144,176 and $147,878,
respectively. The loan is currently held by GMAC Commercial Mortgage
and the lender was 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.
11
<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 June 30, 1999, the
Partnership's investments consists of two mortgage loans 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.
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.
The property underlying the Berkeley Western loan is currently under a
contract for sale with an unaffiliated third party. This contract of
sale is subject to various conditions, and accordingly, there can be no
assurance that such sale will be consummated.
The Partnership uses working capital reserves provided from any
undistributed cash from temporary investments plus any cash flow from
the operation of its hotel as its primary measure of liquidity. As of
June 30, 1999 the Partnership's working capital reserves equaled
approximately $3,187,000. 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 loans on properties which are experiencing difficulties or to
pay fees. 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. 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.
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 decreased for the three months ended June 30, 1999 compared
with the same period in the prior year primarily due to an increase in
revenues more than offset by the increase in costs and expenses. For
the six months ended June 30, 1999, net income increased as compared to
the same period in the prior year principally due to the increase in
revenues while costs and expenses remained constant with the prior year
period.
Revenues increased for the three and six month periods ended June 30,
1999 compared with the corresponding periods in the prior year. The
increase was primarily due to the increase in operational income at the
Richmond Comfort Inn and other income as a result of additional
transfer fee income. This was offset by decreases in short-term
investment income as a result of lower cash balances available for
investment as well as less mortgage loans interest income.
12
<PAGE>
Costs and expenses increased for the three month period ended June 30,
1999 compared to the same period in the prior year and remained
constant for the six months ended June 30, 1999. The increase in the
three month period ended June 30, 1999 was principally due to an
increase in operating expenses at the Richmond Comfort Inn and an
increase in depreciation expense on the Richmond Comfort Inn, partially
offset by a decrease due to no asset management and mortgage servicing
fees being incurred as a result of the disposition of mortgage loans.
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 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
NorthStar Presidio recognize the importance of ensuring that its
business operations are not disrupted as a result of Year 2000 related
computer system and software issues.
NorthStar Presidio is in the process of assessing its internal computer
information systems and is taking the steps necessary to remediate
these systems so that they will be Year 2000 compliant. In connection
therewith, NorthStar Presidio has installed a new fully compliant
accounting and reporting system. NorthStar Presidio is also reviewing
its other internal systems and programs, along with those of its
unaffiliated third party service providers, in order to ensure
compliance.
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, NorthStar Presidio 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.
13
<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.
14
<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
By: /s/ Lawrence R. Schachter
-------------------------------
Lawrence R. Schachter
Senior Vice President and
Chief Financial Officer
Date: August 11, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the Financial
Statements of the June 30, 1999 Form 10-Q of Resources Accrued Mortgage 86 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,772,118
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,878,898
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,931,531
<CURRENT-LIABILITIES> 191,588
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,931,027
<TOTAL-LIABILITY-AND-EQUITY> 7,931,531
<SALES> 0
<TOTAL-REVENUES> 1,001,582
<CGS> 0
<TOTAL-COSTS> 804,070
<OTHER-EXPENSES> 74,991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 122,521
<INCOME-TAX> 0
<INCOME-CONTINUING> 122,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,521
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
