<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 March 31, 1999
--------------
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 - MARCH 31, 1999
------------------------------------------------------------------
INDEX
-----
Page No.
--------
Part I. Financial Information:
Balance Sheets--March 31, 1999 and December 31, 1998 3
Statements of Operations--Three Months Ended March 31, 1999
and 1998 4
Statement of Partners' Equity--Three Months Ended March 31, 1999 5
Statements of Cash Flows--Three Months Ended March 31, 1999
and 1998 6
Notes to Financial Statements 7 - 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 15
Part II. Other Information:
Legal Proceedings, Other Events and Exhibits
and Reports on Form 8-K 16
2
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
------------------------------------------------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------------- ------------------
<S> <C> <C>
ASSETS
- ------
Real estate - net $ 46,902,326 $ 47,232,184
Cash and cash equivalents 10,825,635 10,220,165
Other assets 4,128,227 4,141,622
Receivables 351,016 243,240
----------------- ------------------
$ 62,207,204 $ 61,837,211
================= ==================
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Accounts payable and accrued expenses $ 2,508,407 $ 1,902,806
Distributions payable 711,801 711,801
Due to affiliates 386,039 479,206
----------------- ------------------
3,606,247 3,093,813
----------------- ------------------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (588,010
units issued and outstanding) 55,669,962 55,805,281
General partners' equity 2,930,995 2,938,117
----------------- ------------------
58,600,957 58,743,398
----------------- ------------------
$ 62,207,204 $ 61,837,211
================= ==================
</TABLE>
See notes to financial statements
3
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
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STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------------
1999 1998
------------------- ----------------
<S> <C> <C>
Rental Revenue $ 3,024,622 $2,793,235
------------ ----------
Costs and Expenses:
Operating expenses 984,680 941,269
Depreciation and amortization 514,576 487,806
Partnership asset management fee 321,358 321,358
Administrative expenses 719,186 239,955
Property management fee 99,331 82,931
----------- -----------
2,639,131 2,073,319
----------- -----------
Income before interest and other income 385,491 719,916
Interest income 105,669 100,499
Other income 78,200 3,750
----------- ------------
Net income $ 569,360 $ 824,165
=========== ===========
Net income attributable to:
Limited partners $ 540,892 $ 782,957
General partners 28,468 41,208
------------ ------------
Net income $ 569,360 $ 824,165
=========== ===========
Net income per unit of limited
partnership interest (588,010 units
outstanding) $ 0.92 $ 1.33
============ ============
</TABLE>
See notes to financial statements
4
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
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STATEMENT OF PARTNERS' EQUITY
-----------------------------
<TABLE>
<CAPTION>
General Limited
Partners' Partners'
Equity Equity Total
--------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, January 1, 1999 $ 2,938,117 $ 55,805,281 $ 58,743,398
Net income for the three
months ended March 31, 1999 28,468 540,892 569,360
Distributions as return of
capital for the three months ended
March 31, 1999 ($1.15 per
limited partnership unit) (35,590) (676,211) (711,801)
----------------- ----------------- -----------------
Balance, March 31, 1999 $ 2,930,995 $ 55,669,962 $ 58,600,957
================ ================ =================
</TABLE>
See notes to financial statements
5
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
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STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------------------
1999 1998
---------------- ------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 569,360 $ 824,165
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 514,576 487,806
Straight line adjustment for stepped
lease rentals (25,041) (19,455)
Changes in asset and liabilities:
Accounts payable and accrued expenses 605,601 (37,638)
Due to affiliates (93,167) (79,173)
Receivables (107,776) (144,751)
Other assets (24,654) (108,633)
----------------- ------------------
Net cash provided by operating activities 1,438,899 922,321
---------------- ----------------
Cash Flows From Investing Activities:
Improvements to real estate (121,628) (96,082)
----------------- ------------------
Cash Flows From Financing Activities:
Distributions to partners (711,801) (711,801)
----------------- ------------------
Increase in Cash and Cash Equivalents 605,470 114,438
Cash and Cash Equivalents, Beginning of Year 10,220,165 9,828,701
---------------- -----------------
Cash and Cash Equivalents, End of Quarter $ 10,825,635 $ 9,943,139
================ =================
</TABLE>
See notes to financial statements
6
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
------------------------------------------------------------------
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, 1998.
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. Results of operations for the three months
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the entire year.
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 the future provide
additional write-downs, which could be material, if real estate markets or
local economic conditions change
7
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
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.
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 provides the
day-to-day management of Presidio and its direct and indirect subsidiaries
and affiliates, including the Partnership. For the three months ended March
31, 1999, reimbursable expenses incurred by NorthStar Presidio related to
the Partnership amounted to approximately $25,500.
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 March 31, 1999 and 1998, Resources
Supervisory was entitled to receive $99,331 and $82,931, respectively, of
which $84,650 and $68,480 was paid to unaffiliated management companies,
respectively for property management services and the balance was retained
by Resources Supervisory.
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 received $50,000 for
each of the quarters ended March 31, 1999 and 1998.
For managing the affairs of the Partnership, the Administrative General
Partner is also 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 each of
the quarters ended March 31, 1999 and 1998, the Administrative General
Partner received $321,358.
8
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
-----------------------------------------------------------------------
The General Partners are allocated 5% of the net income of the Partnership,
which amounted to $28,468 and $41,208 for the quarters ended March 31, 1999
and 1998, respectively. They are also entitled to receive 5% of
distributions, which amounted to $35,590 for each of the quarters ended
March 31, 1999 and 1998.
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, Millennium Funding III Corp., a
wholly owned indirect subsidiary of Presidio, purchased 45,320 units of the
Partnership from various limited partners.
In connection with a tender offer for units of the Partnership made on
March 12, 1998 (the "Offer") by Olympia Investors, L.P. ("Olympia"),
Olympia and Presidio entered into an agreement dated March 6, 1998 (the
"Agreement"). Subsequent to the expiration of the offer, Olympia announced
that it had accepted for payment 32,750 units properly tendered pursuant to
the Offer. Pursuant to the Agreement, Presidio purchased 50% of those units
owned by Olympia as a result of the Offer, or 16,375 units, for $91.73 per
unit. Presidio may be deemed to beneficially own the remaining units owned
by Olympia as a consequence of the Agreement.
Subsequent to the expiration of the tender offer described above,
Millennium Funding III Corp. purchased an additional 17,471 limited
partnership units from August 1998 through May 1999. The total number of
units purchased by Millennium Funding III Corp. represents approximately
13.5% of the outstanding limited partnership units of the Partnership.
9
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
4. REAL ESTATE
-----------
The following table is a summary of the Partnership's real estate as of:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Land $ 11,669,652 $ 11,669,652
Buildings and improvements 57,912,663 57,791,035
----------------- ---------------
69,582,315 69,460,687
Less: Accumulated depreciation (22,679,989) (22,228,503)
------------------ ---------------
$ 46,902,326 $ 47,232,184
================= ===============
5. DISTRIBUTIONS PAYABLE
---------------------
March 31, 1999 December 31, 1998
-------------- -----------------
Limited partners ($1.15 per unit) $ 676,211 $ 676,211
General partners 35,590 35,590
----------------- --------------
$ 711,801 $ 711,801
================= ==============
Such distributions were paid in the subsequent quarters.
6. DUE TO AFFILIATES
-----------------
March 31, 1999 December 31, 1998
-------------- -----------------
Partnership asset management fee $ 321,358 $ 321,358
Property asset management fee 14,681 107,848
Non-accountable expense reimbursement 50,000 50,000
----------------- ---------------
$ 386,039 $ 479,206
================= ===============
Such amounts were paid in the subsequent quarters.
</TABLE>
10
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
In May 1993, limited partners in the Partnership commenced an action (the
"Action") 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 the purchasers of limited partnership interests in the Partnership. On
April 7, 1994 the plaintiffs were granted leave to file an amended
complaint on behalf of a class consisting of all the purchasers of limited
partnership interests in the Partnership, Integrated Resources High Equity
Partners, Series 85 and High Equity Partners L.P. - Series 88
(collectively, the "HEP Partnerships").
In November 1995, the original plaintiffs and intervening plaintiffs filed
a consolidated class and derivative action complaint (the "Consolidated
Complaint") alleging various state law class and derivative claims,
including claims for breach of fiduciary duty; breach of contract; unfair
and fraudulent business practices under California Bus. & Prof. Code
Section 17200; negligence; dissolution, accounting, receivership and
removal of general partner; fraud; and negligent misrepresentation. The
Consolidated Complaint alleges, among other things, that the general
partners of the HEP Partnerships (collectively, "HEP General Partners")
caused a waste of the HEP Partnerships' assets by collecting management
fees in lieu of pursuing a strategy to maximize the value of the
investments owned by the investors in the HEP Partnerships, that the HEP
General Partners breached their duty of loyalty and due care to the
investors by expropriating management fees from the HEP Partnerships
without trying to run the HEP Partnerships for the purposes for which they
were intended; that the HEP General Partners were acting improperly to
entrench 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 of limited partnership interest
in the HEP Partnerships (collectively, the "HEP Units"); that, by refusing
to seek the sale of the HEP Partnerships' properties, the HEP General
Partners diminished the value of the investors' equity in the HEP
Partnerships; that the HEP General Partners took heavily overvalued asset
management fees; and that HEP Units were sold and marketed through the use
of false and misleading statements.
In early 1996, the parties submitted a proposed settlement to the Court
(the "Proposed Settlement"), which contemplated a reorganization of the
three HEP Partnerships into a single real estate investment trust, pursuant
to which approximately 85% of the shares of the real estate investment
trust would have been allocated to investors in the three HEP Partnerships
(assuming each of the HEP Partnerships participated in the reorganization),
and approximately 15% of the shares would have been allocated to the HEP
General Partners. As a consequence, the Proposed Settlement would, among
other things, have approximately tripled the HEP General Partners' equity
interests in the HEP Partnerships. In late 1996, the California Department
of Corporations informed the Court of the conclusion that the Proposed
Settlement was unfair, and, in early 1997, the Court declined to grant
final approval of the Proposed Settlement because the Court was not
persuaded that the Proposed Settlement was fair, adequate or reasonable as
to the proposed class.
11
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
In July 1997, the plaintiffs filed an amended complaint, which generally
asserts the same claims as the earlier Consolidated Complaint but contains
more detailed factual assertions and eliminates some claims they had
previously asserted. The HEP General Partners challenged the amended
complaint on legal grounds and filed demurrers and a motion to strike. In
October 1997, the Court granted substantial portions of the HEP General
Partners' motions. Thereafter, the HEP General Partners served answers
denying the allegations and asserting numerous defenses.
In February 1998, the Court certified three separate plaintiff classes
consisting of the current owners of record of HEP Units (but excluding all
defendants or entities related to such defendants), and appointed class
counsel and liaison counsel.
In mid-1998, the parties actively engaged in negotiations concerning a
possible settlement of the Action. In September 1998, the parties reached
an agreement in principle, and, during the following months, negotiated a
more formal settlement stipulation (the "Settlement Stipulation"), which
they executed in December 1998. The Settlement Stipulation was submitted to
the Court for preliminary approval in early January 1999. In February 1999,
the Court gave preliminary approval to the Settlement Stipulation and
directed that notice of the proposed settlement be sent to the previously
certified class. The proposed settlement contemplates (I) amendments to the
Partnership Agreement that would modify the existing fee structure; (II) a
tender offer whereby the General Partners would purchase up to 6.7% of the
units from limited partners; and (III) that the General Partners will use
their best efforts to effect a reorganization of the HEP Partnerships into
REIT's or other publicly traded entities. At a hearing held on April 29,
1999, the Court approved the proposed settlement in its entirety and
directed entry of judgement to that effect. The Settlement is subject to a
number of conditions. There can be no assurance that such conditions will
be fulfilled.
The General Partners believe that each of the claims asserted in the Action
are meritless and, if for any reason a final settlement pursuant to the
Settlement Stipulation is not consummated, intend to continue to vigorously
defend the Action. At a hearing held on April 29, 1999, the Court also
awarded a total of $2.5 million in attorneys' fees and reimbursement of
expenses to Class and objectors' counsel. Of that total, $875,000 is to be
paid by the General Partners and the balance by the HEP Partnerships.
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 March 31, 1999, the Partnership paid the
General Partners a total of $1,034,510 for these costs.
12
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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 March 31, 1999, 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 three months ended March 31, 1999, cash and cash equivalents
increased $605,470 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 less property operating expenses)
which amounted to $1,438,899 for the three months ended March 31, 1999. The
Partnership used $121,628 for capital expenditures related to capital and
tenant improvements to the properties and $711,801 for distributions to
partners during the three months ended March 31, 1999.
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. The vacancy at Tri-Columbus is
currently being marketed to a variety of potential tenants. If and when a
replacement tenant is secured, it is likely that capital expenditures will
be required to fund tenant improvements 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 its 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 a decrease in net income for the three months
ended March 31, 1999 compared to the same period in 1998, primarily due to
higher costs and expenses, partially offset by increases in rental revenues
and higher interest and other income in the current period.
Rental revenues increased slightly during the three months ended March 31,
1999 due to higher revenues at Seattle Tower and Sutton Square as a result
of increases in overall rental rates, partially offset by a decrease in
revenues at Tri-Columbus due to the loss of a significant tenant during the
latter part of 1998.
13
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Costs and expenses increased during the three months ended March 31, 1999
compared to the same period in 1998 primarily due to higher operating
expenses, depreciation, administrative expenses, and property management
fees. Operating expenses increased due primarily to higher repairs and
maintenance costs at Seattle Tower. The increases in depreciation were due
to capital additions during 1998. The increase in administrative
expenses for the three months ended March 31, 1999 was due to higher legal
fees related to ongoing litigation and a possible reorganization of the
Partnership and the increase in property management fees was due to higher
revenues, as previously discussed.
Interest income increased during the three months ended March 31, 1999 as
compared to the same period in 1998 due to higher cash balances. Other
income increased during the three months ended March 31, 1999 due to a
greater number of investor transfers, on which the Partnership earns a
transfer fee.
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.
14
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
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 has assessed 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
installed a new fully compliant accounting and reporting system in December
1998. Further, the Manager anticipates that the internal computer systems
will be fully Year 2000 compliant by the end of the third quarter of 1999.
The manager is also currently reviewing other systems and programs of its
unaffiliated third party service providers, in order to insure compliance.
This process is expected to be completed during the third quarter of 1999.
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.
15
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
------------------------------------------------------------------
-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
16
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - MARCH 31, 1999
------------------------------------------------------------------
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: May 12, 1999 By: /s/ Allan Rothschild
---------------------
Allan Rothschild
President
(Duly Authorized Officer)
Dated: May 12, 1999 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 March 31, 1999 Form 10-Q of High Equity Partners L.P.-Series
86 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,825,635
<SECURITIES> 0
<RECEIVABLES> 351,016
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,207,204
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 58,600,957
<TOTAL-LIABILITY-AND-EQUITY> 62,207,204
<SALES> 0
<TOTAL-REVENUES> 3,024,622
<CGS> 0
<TOTAL-COSTS> 984,680
<OTHER-EXPENSES> 1,654,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 569,360
<INCOME-TAX> 0
<INCOME-CONTINUING> 569,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569,360
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
