<PAGE>
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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 June 30, 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
___ ____
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 1999
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INDEX
-----
Page No.
--------
Part I. Financial Information:
Balance Sheets--June 30, 1999 and December 31, 1998 3
Statements of Operations--Three and Six Months Ended
June 30, 1999 and 1998 4
Statement of Partners' Equity-- Six Months Ended June 30, 1999 5
Statements of Cash Flows-- Six Months Ended June 30, 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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BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
Real estate - net $ 46,505,612 $ 47,232,184
Cash and cash equivalents 11,470,092 10,220,165
Other assets 4,143,970 4,141,622
Receivables 377,054 243,240
------------ ------------
$ 62,496,728 $ 61,837,211
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 2,517,838 $ 1,902,806
Distributions payable 711,801 711,801
Due to affiliates 390,225 479,206
------------ ------------
3,619,864 3,093,813
------------ ------------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (588,010
units issued and outstanding) 55,932,074 55,805,281
General partners' equity 2,944,790 2,938,117
------------ ------------
58,876,864 58,743,398
------------ ------------
$ 62,496,728 $ 61,837,211
============ ============
</TABLE>
See notes to financial statements
3
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 1999
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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>
Rental Revenue $2,959,922 $2,782,329 $5,984,544 $ 5,575,564
---------- ---------- ---------- -----------
Costs and Expenses:
Operating expenses 989,734 1,156,045 1,974,412 2,097,314
Depreciation and amortization 514,576 487,806 1,029,152 975,612
Partnership management fee 321,358 321,358 642,716 642,716
Administrative expenses 196,145 351,676 915,331 591,631
Property management fee 103,045 82,583 202,376 165,514
----------- ----------- ----------- ------------
2,124,858 2,399,468 4,763,987 4,472,787
----------- ----------- ----------- ------------
Income before interest and other income 835,064 382,861 1,220,557 1,102,777
Interest income 142,812 130,129 248,481 230,628
Other income 9,830 14,415 88,030 18,165
----------- ------------ ----------- ------------
Net income $ 987,706 $ 527,405 $ 1,557,068 $ 1,351,570
=========== =========== =========== ============
Net income attributable to:
Limited partners $ 938,321 $ 501,035 $ 1,479,215 $ 1,283,992
General partners 49,385 26,370 77,853 67,578
------------ ------------ ------------ ------------
Net income $ 987,706 $ 527,405 $ 1,557,068 $ 1,351,570
=========== =========== ============ ============
Net income per unit of limited
partnership interest (588,010 units
outstanding) $ 1.60 $ 0.85 $ 2.52 $ 2.18
============ ============ ============ ============
</TABLE>
See notes to financial statements
4
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 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 six
months ended June 30, 1999 77,853 1,479,215 1,557,068
Distributions as return of
capital for the six months ended
June 30, 1999 ($2.30 per
limited partnership unit) (71,180) (1,352,422) (1,423,602)
------------ ------------ -------------
Balance, June 30, 1999 $ 2,944,790 $ 55,932,074 $ 58,876,864
============ ============ =============
</TABLE>
See notes to financial statements
5
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 1999
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STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
---------------------------------------
1999 1998
----- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,557,068 $ 1,351,570
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,029,152 975,612
Straight line adjustment for stepped
lease rentals (50,082) (38,910)
Changes in asset and liabilities:
Accounts payable and accrued expenses 615,032 24,995
Due to affiliates (88,981) (315,471)
Receivables (133,814) (63,261)
Other assets (78,446) (109,656)
------------- -------------
Net cash provided by operating activities 2,849,929 1,824,879
------------ ------------
Cash Flows From Investing Activities:
Improvements to real estate (176,400) (404,825)
------------- -------------
Cash Flows From Financing Activities:
Distributions to partners (1,423,602) (1,423,602)
------------- -------------
Increase (Decrease) in Cash and Cash Equivalents 1,249,927 (3,548)
Cash and Cash Equivalents, Beginning of Year 10,220,165 9,828,701
------------ ------------
Cash and Cash Equivalents, End of Quarter $ 11,470,092 $ 9,825,153
============ ============
</TABLE>
See notes to financial statements
6
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 1999
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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 six months
ended June 30, 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 - JUNE 30, 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 six months ended June
30, 1999 and 1998, reimbursable expenses incurred by NorthStar Presidio
related to the Partnership amounted to approximately $51,000.
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 June 30, 1999 and 1998, Resources
Supervisory was entitled to receive $103,045 and $82,583, respectively, of
which $84,178 and $70,369 was paid to unaffiliated management companies,
respectively for property management services and the balance was retained
by Resources Supervisory. For the six months ended June 30, 1999 and 1998,
Resources Supervisory was entitled to receive $202,376 and $165,514,
respectively, of which $168,828 and $138,788 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 June 30, 1999 and 1998. The Administrative
General Partner received $100,000 for each of the six-month periods ended
June 30, 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 June 30, 1999 and 1998, the Administrative General
Partner received $321,358. For each of the six-month periods ended June 30,
1999 and 1998, the Administrative General Partner received $642,716.
8
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 1999
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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 $49,385 and $26,370 for the quarters ended June 30, 1999
and 1998, respectively. Net income allocated to the General Partners
amounted to $77,853 and $67,578 for the six months ended June 30, 1999 and
1998, respectively. They are also entitled to receive 5% of distributions,
which amounted to $35,590 for each of the quarters ended June 30, 1999 and
1998. Distributions allocated to the General Partners amounted to $71,180
for the six months ended June 30, 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.
("MFIII"), 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, MFIII 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, MFIII
purchased an additional 18,769 limited partnership units from August 1998
through July 1999. The total number of units purchased by MFIII represents
approximately 13.7% of the outstanding limited partnership units of the
Partnership.
9
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 1999
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as of:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Land $ 11,669,652 $ 11,669,652
Buildings and improvements 57,967,435 57,791,035
------------- -------------
69,637,087 69,460,687
Less: Accumulated depreciation (23,131,475) (22,228,503)
-------------- -------------
$ 46,505,612 $ 47,232,184
============= =============
5. DISTRIBUTIONS PAYABLE
June 30, 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
June 30, 1999 December 31, 1998
------------- -----------------
Partnership asset management fee $ 321,358 $ 321,358
Property management fee 18,867 107,848
Non-accountable expense reimbursement 50,000 50,000
------------- -------------
$ 390,225 $ 479,206
============= =============
</TABLE>
Such amounts were paid in the subsequent quarters.
10
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 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.
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 ("REIT"),
pursuant to which approximately 85% of the shares of the REIT 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.
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 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 would use their best efforts to effect a reorganization of the
HEP Partnerships into separate REIT's or other publicly traded entities. At a
hearing held on April 29, 1999, the Court approved the settlement in its
entirety and directed entry of judgement to that effect. As the first step in
implementing the settlement, the General Partners are currently soliciting the
consent of limited partners to the amendments to the Partnership Agreements
referred to above. 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. Accordingly, the Partnership
accrued $542,000 at March 31, 1999 related to these costs, which are expected to
be paid in the third quarter of 1999. 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 June 30, 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 June 30, 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 six months ended June 30, 1999, cash and cash equivalents increased
$1,249,927 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
$2,849,929 for the six months ended June 30, 1999. The Partnership used $176,400
for capital expenditures related to capital and tenant improvements to the
properties and $1,423,602 for distributions to partners during the six months
ended June 30, 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 an increase in net income for the three and six
months ended June 30, 1999 as compared to the same periods in 1998, primarily
due to higher rental revenues and interest income. Costs and expenses decreased
during the three months ended June 30, 1999 but overall costs and expenses for
the six month period in 1999 increased as compared to the same period in the
prior year.
Rental revenues increased slightly during the three and six months ended June
30, 1999 due to higher revenues at 568 Broadway and Commerce Plaza 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 decreased during the three months ended June 30, 1999 as
compared to the same period in 1998 primarily due to lower operating and
administrative expenses, partially offset by higher depreciation and property
management fees. However, overall costs and expenses increased during the six
months ended June 30, 1999 compared to the prior period primarily due to higher
administrative expenses. Operating expenses decreased during both periods in
1999 due primarily to lower repairs and maintenance costs at Matthews and lower
professional fees at 568 Broadway related to tenant collection issues.
Depreciation expense increased during both periods in 1999 due to the capital
additions during 1998. Administrative expenses increased for the six months
ended June 30, 1999 due to higher legal fees incurred during the first quarter
of 1999 pursuant to the Settlement Agreement related to the ongoing litigation
and possible reorganization of the Partnership (see Note 7). However,
administrative fees for the three months ended June 30, 1999 decreased as
compared to the same period in the prior year due to lower legal fees incurred
during the second quarter as a result of the potential settlement. The increases
in property management fees during both periods in 1999 were due to higher
revenues, as previously discussed.
Interest income increased during the three and six months ended June 30, 1999 as
compared to the same periods in 1998 due to higher cash balances. Other income
increased during the six months ended June 30, 1999 as compared to the same
period in 1998 due to a greater number of investor transfers (primarily during
the first quarter of 1999) on which the Partnership earns a transfer fee.
However, other income decreased during the three months ended June 30, 1999
compared to the prior period due to fewer such transfers during the second
quarter.
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 - JUNE 30, 1999
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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 evaluating these issues and will be developing
contingency plans.
15
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HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 1999
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-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
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 86 - FORM 10-Q - JUNE 30, 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: August 12, 1999 By: /S/ Allan Rothschild
----------------------------
Allan Rothschild
President
(Duly Authorized Officer)
Dated: August 12, 1999 By: /S/ Lawrence Schachter
----------------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
17
<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 High Equity Partners L.P.-Series
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> 11,470,092
<SECURITIES> 0
<RECEIVABLES> 377,054
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,496,728
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 58,876,864
<TOTAL-LIABILITY-AND-EQUITY> 62,496,728
<SALES> 0
<TOTAL-REVENUES> 5,984,544
<CGS> 0
<TOTAL-COSTS> 1,974,412
<OTHER-EXPENSES> 2,789,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,557,068
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,557,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,557,068
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
