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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 0-15753
HIGH EQUITY PARTNERS L.P. - SERIES 86
(Exact name of registrant as specified in its charter)
DELAWARE 13-3314609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich, CT 06830
(Address of principal executive offices)
(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>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
INDEX
Part I. Financial Information:
Balance Sheets--September 30, 1998 and December 31, 1997
Statements of Operations--Three and Nine Months Ended September 30, 1998
and 1997
Statement of Partners' Equity-- Nine Months Ended September 30, 1998
Statements of Cash Flows-- Nine Months Ended September 30, 1998 and 1997
Notes to Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information:
Legal Proceedings, Other Events and Exhibits
and Reports on Form 8-K
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
BALANCE SHEETS
September 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Real estate - net .......................... $47,462,779 $48,015,174
Cash and cash equivalents .................. 10,451,345 9,828,701
Other assets ............................... 3,844,343 3,827,957
Receivables ................................ 271,831 247,714
----------- -----------
$62,030,298 $61,919,546
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses ...... $ 2,367,324 $ 2,018,260
Distributions payable ...................... 711,801 711,801
Due to affiliates .......................... 385,705 699,043
----------- -----------
3,464,830 3,429,104
----------- -----------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (588,010
units issued and outstanding) ..... 55,636,248 55,564,973
General partners' equity ................... 2,929,220 2,925,469
----------- -----------
58,565,468 58,490,442
----------- -----------
$62,030,298 $61,919,546
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
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>
Rental Revenue ............................. $2,869,077 $2,843,139 $8,444,641 $8,639,433
---------- ---------- ---------- ----------
Costs and Expenses:
Operating expenses ................ 1,026,690 1,237,768 3,124,004 3,496,351
Depreciation and amortization ..... 487,806 524,845 1,463,418 1,534,535
Partnership asset management fee .. 321,358 351,551 964,074 1,054,653
Administrative expenses ........... 195,542 138,974 787,173 599,748
Property management fee ........... 83,884 84,427 249,398 259,316
---------- ---------- ---------- ----------
2,115,280 2,337,565 6,588,067 6,944,603
---------- ---------- ---------- ----------
Income before interest and other income .... 753,797 505,574 1,856,574 1,694,830
Interest income ................... 103,129 93,918 334,150 256,784
Other income ...................... 1,540 38,135 19,705 68,175
---------- ---------- ---------- ----------
Net income ................................. $ 858,466 $ 637,627 $2,210,429 $2,019,789
========== ========== ========== ==========
Net income attributable to:
Limited partners .................. $ 815,543 $ 605,746 $2,099,908 $1,918,800
General partners .................. 42,923 31,881 110,521 100,989
---------- ---------- ---------- ----------
Net income ................................. $ 858,466 $ 637,627 $2,210,429 $2,019,789
========== ========== ========== ==========
Net income per unit of limited
partnership interest (588,010 units
outstanding) ...................... $ 1.39 $ 1.03 $ 3.57 $ 3.26
========== ========== ========== ==========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
STATEMENT OF PARTNERS' EQUITY
General Limited
Partners' Partners'
Equity Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1998 ................. $ 2,925,469 $ 55,564,973 $ 58,490,442
Net income for the nine
months ended September 30, 1998 .......... 110,521 2,099,908 2,210,429
Distributions as return of
capital for the nine months ended
September 30, 1998 ($3.45 per
limited partnership unit) ................ (106,770) (2,028,633) (2,135,403)
------------ ------------ ------------
Balance, September 30, 1998 .............. $ 2,929,220 $ 55,636,248 $ 58,565,468
============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ................................... $ 2,210,429 $ 2,019,789
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....... 1,463,418 1,534,535
Straight line adjustment for stepped
lease rentals .................. (58,365) (123,024)
Changes in asset and liabilities:
Accounts payable and accrued expenses 349,064 (17,831)
Due to affiliates ................... (313,338) (914,630)
Receivables ......................... (24,117) 9,694
Other assets ........................ (200,322) (262,189)
------------ ------------
Net cash provided by operating activities .... 3,426,769 2,246,344
------------ ------------
Cash Flows From Investing Activities:
Improvements to real estate .................. (668,722) (439,879)
------------ ------------
Cash Flows From Financing Activities:
Distributions to partners .................... (2,135,403) (1,451,456)
------------ ------------
Increase in Cash and Cash Equivalents ................. 622,644 355,009
Cash and Cash Equivalents, Beginning of Year .......... 9,828,701 7,409,578
------------ ------------
Cash and Cash Equivalents, End of Quarter ............. $ 10,451,345 $ 7,764,587
============ ============
</TABLE>
See notes to financial statements
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
The accompanying financial statements, notes and discussions should be
read in conjunction with the financial statements, related notes and
discussions contained in the Partnership's annual report on Form l0-K for
the year ended December 3l, 1997.
The financial information contained herein is unaudited; however, in the
opinion of management, all adjustments necessary (consisting only of
normal recurring adjustments) for a fair presentation of such financial
information have been included.
2. SIGNIFICANT ACCOUNTING POLICIES
Impairment of Assets
The Partnership evaluates the recoverability of the net carrying value of
its real estate and related assets at least annually, and more often if
circumstances dictate. If this review indicates that the carrying value of
a property may not be recoverable, the Partnership estimates the future
cash flows expected to result from the use of the property and its
eventual disposition, generally over a five-year holding period. In
performing this review, management takes into account, among other things,
the existing occupancy, the expected leasing prospects of the property and
the economic situation in the region where the property is located.
If the sum of the expected future cash flows, undiscounted, is less than
the carrying amount of the property, the Partnership recognizes an
impairment loss, and reduces the carrying amount of the asset to its
estimated fair value. Fair value is the amount at which the asset could be
bought or sold in a current transaction between willing parties, that is,
other than in a forced or liquidation sale. Management estimates fair
value using discounted cash flows or market comparables, as most
appropriate for each property. Independent certified appraisers are
utilized to assist management, when warranted.
Impairment write-downs recorded by the Partnership do not affect the tax
basis of the assets and are not included in the determination of taxable
income or loss.
Because the expected cash flows used to evaluate the recoverability of the
assets and their fair values are based upon projections of future economic
events, such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates, the amounts ultimately realized
at disposition may differ materially from the net carrying values at the
balance sheet dates. The cash flows and market comparables used in this
process are based on good faith estimates and assumptions developed by
management. Unanticipated events and circumstances may occur and some
assumptions may not materialize; therefore, actual results may vary
materially from the estimates. The Partnership may in
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the future provide additional write-downs, which could be material, if
real estate markets or local economic conditions change.
Certain reclassifications were made to the prior year financial statements
in order to conform them to the current period presentation.
Results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the entire year.
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Investment General Partner of the Partnership, Resources High Equity,
Inc. and the Administrative General Partner of the Partnership, Resources
Capital Corp., are wholly-owned subsidiaries of Presidio Capital Corp.
("Presidio"). Presidio AGP Corp., which is a wholly-owned subsidiary of
Presidio, is the Associate General Partner (together with the Investment
and Administrative General Partners, the "General Partners"). The General
Partners and affiliates of the General Partners are also engaged in
businesses related to the acquisition and operation of real estate.
Presidio is also the parent of other corporations (and affiliated with
other entities) that are or may in the future be engaged in businesses
that may be in competition with the Partnership. Accordingly, conflicts of
interest may arise between the Partnership and such other businesses.
Subject to the right of the limited partners under the Limited Partnership
Agreement, Presidio controls the Partnership through its indirect
ownership of the General Partners. Effective July 31, 1998, Presidio is
indirectly controlled by NorthStar Capital Investment Corp., a Maryland
corporation.
Effective as of November 28, 1997, Presidio has a management agreement
with NorthStar Presidio Management Company LLC ("NorthStar Presidio"), an
affiliate of NorthStar Capital Investment Corp., pursuant to which,
NorthStar Presidio will provide 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 incurred by NorthStar
Presidio amounted to approximately $76,500.
The Partnership has a property management services agreement with
Resources Supervisory Management Corp. ("Resources Supervisory"), an
affiliate of the General Partners, to perform certain functions relating
to the management of the properties of the Partnership. A portion of the
property management fees were paid to unaffiliated management companies
which are engaged for the purpose of performing certain of the management
functions for certain properties. For the quarters ended September 30,
1998 and 1997, Resources Supervisory was entitled to receive $83,884 and
$84,427, respectively, of which $69,537 and $75,395 was paid to
unaffiliated management companies, respectively for on-site management and
the balance was retained by Resources Supervisory.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
For the administration of the Partnership, the Administrative General
Partner is entitled to receive reimbursement of expenses of a maximum of
$200,000 per year . The Administrative General Partner was entitled to
receive $50,000 for each of the quarters ended September 30, 1998 and
1997.
For managing the affairs of the Partnership, the Administrative General
Partner is entitled to receive an annual partnership asset management fee
equal to 1.05% of the amount of original gross proceeds paid or allocable
to the acquisition of property by the Partnership. For the quarters ended
September 30, 1998 and 1997, the Administrative General Partner was
entitled to receive $321,358 and $351,551, respectively.
The General Partners are allocated 5% of the net income of the
Partnership, which amounted to $42,923 and $31,881 for the quarters ended
September 30, 1998 and 1997, respectively. They are also entitled to
receive 5% of distributions, which amounted to $35,590 and $38,686 for the
quarters ended September 30, 1998 and 1997, respectively.
During the liquidation stage of the Partnership, the Investment General
Partner or an affiliate may be entitled to receive certain fees, which are
subordinated to the limited partners receiving their original invested
capital and certain specified minimum returns on their investment. All
fees received by the General Partners are subject to certain limitations
as set forth in the Partnership Agreement.
From July 1996 through March 12, 1998, Millenium Funding III Corp., a
wholly owned indirect subsidiary of Presidio, purchased 45,320 units of
the Partnership from various limited partners. Subsequent to the
expiration of the tender offer described below, Millennium Funding III
Corp. purchased 10,485 limited partnership units in August 1998 through
November 1998. The total of these purchases which represents approximately
9.5% of the outstanding limited partnership units of the Partnership.
In connection with a tender offer for units of the Partnership made March
12, 1998 (the "Offer") by Olympia Investors, L.P., a Delaware limited
partnership controlled by Carl Ichan ("Olympia"), Olympia and Presidio
entered into an agreement, dated March 6, 1998 (the "Agreement"). On July
28, 1998, Olympia announced that it has accepted for payment 33,710 units
properly tendered pursuant to the Offer. As a consequence of the
Agreement, Presidio may be deemed to beneficially own the units owned by
Olympia.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as of:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Land ................................... $ 11,669,652 $ 11,669,652
Buildings and improvements ............. 57,436,806 56,768,084
------------ ------------
69,106,458 68,437,736
Less: Accumulated depreciation ........ (21,643,679) (20,422,562)
------------ ------------
$ 47,462,779 $ 48,015,174
============ ============
</TABLE>
No write-downs for impairment were recorded for the nine months ended September
30, 1998 or 1997.
5. DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
Limited partners ($1.15 per unit) ............ $676,211 $676,211
General partners ............................. 35,590 35,590
-------- --------
$711,801 $711,801
======== ========
</TABLE>
Such distributions were paid in the quarters subsequent to September 30, 1998
and December 31, 1997, respectively.
6. DUE TO AFFILIATES
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Partnership asset management fee ........................ $321,358 $321,358
Reorganization and litigation cost reimbursement (Note 7) -- 234,000
Property management fee ................................. 14,347 93,685
Non-accountable expense reimbursement ................... 50,000 50,000
-------- --------
$385,705 $699,043
======== ========
</TABLE>
Such amounts were paid in the quarters subsequent to September 30, 1998
and December 31, 1997 respectively
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES
On or about May 11, 1993 the Partnership was advised of the existence of
an action (the "California Action") in which a complaint (the "HEP
Complaint") was filed in the Superior Court for the State of California
for the County of Los Angeles (the "Court") on behalf of a purported class
consisting of all of the purchasers of limited partnership interests in
the Partnership. On April 7, 1994 the plaintiffs were granted leave to
file an amended complaint (the "Amended Complaint") on behalf of a class
consisting of all the purchasers of limited partnership interest in the
Partnership, Integrated Resources High Equity Partners, Series 85
("HEP-85") and High Equity Partners L.P. - Series 88 ("HEP-88"), which are
both affiliated partnerships.
On November 30, 1995, after the Court preliminarily approved a settlement
of the California Action but ultimately declined to grant final approval
and after the Court granted motions to intervene, the original and
intervening plaintiffs filed a Consolidated Class and Derivative Action
Complaint (the "Consolidated Complaint") against the managing general
partner of HEP-85 and HEP-88 and the Investment General Partner of the
Partnership; the Administrative General Partner of the Partnership (the
"General Partners"); a subsidiary of the indirect corporate parent of the
General Partners; and the indirect corporate parent of the General
Partners. The Consolidated Complaint alleged various state law class and
derivative claims, including claims for breach of fiduciary duties; breach
of contract; unfair and fraudulent business practices under California
Bus. & Prof. Code Sec. 17200; negligence; dissolution, accounting and
receivership; fraud; and negligent misrepresentation. The Consolidated
Complaint alleged, among other things, that the General Partners caused a
waste of the HEP partnership assets by collecting management fees in lieu
of pursuing a strategy to maximize the value of the investments owned by
the limited partners; that the General Partners breached their duty of
loyalty and due care to the limited partners by expropriating management
fees from the partnerships without trying to run the HEP partnerships for
the purposes for which they are intended; that the General Partners acted
improperly to enrich themselves in their position of control over the HEP
partnerships and that their actions prevented non-affiliated entities from
making and completing tender offers to purchase units in the HEP
partnership; that by refusing to seek the sale of the HEP partnerships'
properties, the General Partners diminished the value of the limited
partners' equity in the HEP partnerships; that the General Partners took a
heavily overvalued partnership asset management fee; and that limited
partnership units were sold and marketed through the use of false and
misleading statements.
The Court entered an order on January 14, 1997 rejecting the settlement
and concluding that there had not been an adequate showing that the
settlement was fair and reasonable. On February 24, 1997, the Court
granted the request of one plaintiffs' law firm to withdraw as class
counsel. Thereafter, in June 1997, the plaintiffs again amended their
complaint (the "Second Amended Complaint"). The Second Amended Complaint
asserts substantially the same claims as the Consolidated Complaint,
except that it no longer contains causes of action for fraud, for
negligent misrepresentation, or for negligence. The defendants served
answers denying the allegations and asserting numerous affirmative
defenses. In February 1998, the Court certified three plaintiff classes
consisting of the current unit holders in each of the three HEP
partnerships. On March 11, 1998, the Court stayed the California Action
temporarily to permit the parties to engage in renewed settlement
discussions. On July 30, 1998, the Court lifted the stay.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In September 1998, the parties in the lawsuit entered into a Memorandum of
Understanding with respect to a settlement of the lawsuit. The Memorandum
of Understanding provides, among other things, for a modification of the
fees payable under the partnership agreement and a release of all claims
against the defendants. The Memorandum of Understanding is subject to a
number of conditions, including the agreement among the parties with
respect to definitive documentation, approval by the court and approval by
the limited partners of the modification referred to above. There can be
no assurance that such conditions will be fulfilled.
The Limited Partnership Agreement provides for indemnification of the
General Partners and their affiliates in certain circumstances. The
Partnership has agreed to reimburse the General Partners for their actual
costs incurred in defending this litigation and the costs of preparing
settlement materials. Through September 30, 1998, the Partnership paid the
General Partners a total of $1,058,511 for these costs.
The General Partners believe that each of the claims asserted in the
Second Amended Complaint is meritless and intend to continue to vigorously
defend the California Action. It is impossible at this time to predict
what the defense of the California Action will cost, the Partnership's
financial exposure as a result of the indemnification agreement discussed
above, and whether the costs of defending could adversely affect the
Managing General Partner's ability to perform its obligations to the
Partnership.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital reserves are temporarily invested in short-term money market
instruments and together with cash flow from operations, are expected to be
sufficient to fund future capital improvements to the Partnership's properties.
As of September 30, 1998, total working capital reserves amounted to
approximately $5,631,000. The Partnership intends to distribute to its partners
less than all of its future cash flow from operations in order to assure
adequate reserves for capital improvements and capitalized lease procurement
costs.
During the nine months ended September 30, 1998, cash and cash equivalents
increased $622,644 as a result of net cash provided by operations in excess of
capital expenditures and distributions to partners. The Partnership's primary
source of funds is cash flow from the operation of its properties (principally
rents received from tenants) which amounted to $3,426,769 for the nine months
ended September 30, 1998. The Partnership used $668,722 for capital expenditures
related to capital and tenant improvements to the properties and $2,135,403 for
distributions to partners during the nine months ended September 30, 1998.
The Partnership expects to continue to utilize a portion of its cash flow from
operations to pay for various capital and tenant improvements to the properties
and leasing commissions. Capital and tenant improvements and leasing commissions
may in the future exceed the Partnership's cash flow from operations. In that
event, the Partnership would utilize the remaining working capital reserves,
reduce distributions, or sell one or more properties. Except as discussed above,
management is not aware of any other trends, events, commitments or
uncertainties that will have a significant impact on liquidity.
RESULTS OF OPERATIONS
The Partnership experienced an increase in net income for the three months and
nine months ended September 30, 1998 compared to the same periods in 1997,
primarily due to lower costs and expenses. Rental revenues increased slightly
for the three months ended September 30, 1998 but decreased for the nine months
then ended. For the three and nine months ended September 30, 1998, interest
income increased, partially offset by a decrease in other income.
Rental revenues increased slightly during the three months ended September 30,
1998 due primarily to higher revenues at Century Park as a result of increases
in occupancy and rental rates, partially offest by lower revenues due to the
sale of the 230 East Ohio property in October 1997. For the nine months ended
September 30, 1998, rental revenues decreased due to the sale of the 230 East
Ohio property.
Costs and expenses decreased during the three and nine months ended September
30, 1998 compared to the same periods in 1997 primarily due to lower operating
expenses, particularly real estate taxes and repairs and maintenance expenses,
due to the sale of the 230 East Ohio property in 1997. In addition, for both the
three and nine month periods in 1998, depreciation expenses and partnership
asset management fees decreased due to the sale of 230 East Ohio, as previously
discussed. These decreases were offset by an increase in administrative expenses
for the three and nine months ended September 30, 1998 due to higher legal and
accounting fees related to ongoing litigation and a possible reorganization of
the Partnership.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest income increased during the three and nine months ended September 30,
1998 as compared to the same periods in 1997 due to higher cash balances. Other
income decreased during both the three and nine month periods ended September
30, 1998 due to fewer investor transfers.
Inflation is not expected to have a material impact on the Partnership's
operations or financial position.
Legal Proceedings
The Partnership is a party to certain litigation. See Note 7 to the financial
statements for a description thereof.
Forward-looking Statements
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 of
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.
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.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
PART II. - OTHER INFORMATION
Item 1 - Legal Proceedings
(a) See Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes to Financial
Statements - Note 7 which is herein incorporated by
reference.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: There were no exhibits filed
(b) Reports on Form 8-K:
None
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - SEPTEMBER 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
High Equity Partners L.P. - Series 86
By: Resources Capital Corp.,
Administrative General Partner
Dated: November 12, 1998 By: /S/ Allan Rothschild
--------------------
Allan Rothschild
President
(Duly Authorized Officer)
Dated: November 12, 1998 By: /S/ Lawrence Schachter
-----------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<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 High Equity Partners
L.P.-Series 86 and is qualified in its entirety by reference to such financial
statemens.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,451,345
<SECURITIES> 0
<RECEIVABLES> 271,831
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,030,298
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 58,565,468
<TOTAL-LIABILITY-AND-EQUITY> 62,030,298
<SALES> 0
<TOTAL-REVENUES> 8,444,641
<CGS> 0
<TOTAL-COSTS> 3,124,004
<OTHER-EXPENSES> 3,464,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,210,429
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,210,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,210,429
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
