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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
Commission file number 0-15753
HIGH EQUITY PARTNERS L.P. -- SERIES 86
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3314609
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Cambridge Center, 9th Floor, Cambridge, MA 02142
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(Address of principal executive offices)
(617) 234-3000
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(Registrant's telephone number, including area code)
None
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(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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<PAGE>
HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Balance Sheets -- June 30, 2000 and December 31, 1999...... 3
Statements of Operations -- Three and Six Months Ended
June 30, 2000 and 1999.................................. 4
Statement of Partners' Equity -- Six Months Ended
June 30, 2000........................................... 5
Statements of Cash Flows -- Six Months Ended
June 30, 2000 and 1999.................................. 6
Notes to Financial Statements............................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 14
Item 3. Quantitative and Qualitative Disclosures about Market
Risk..................................................... 16
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K .......................... 17
Signatures ........................................................ 18
2
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
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ASSETS
Real estate - net ............................ $46,702,559 $47,277,773
Cash and cash equivalents .................... 14,629,511 12,675,936
Other assets ................................. 3,505,303 3,381,222
Receivables .................................. 176,336 78,570
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$65,013,709 $63,413,501
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LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses ........ $ 1,657,727 $ 1,774,695
Due to affiliates ............................ 262,898 466,528
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1,920,625 2,241,223
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Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (588,010
units issued and outstanding) ........... 59,937,484 58,112,718
General partners' equity ..................... 3,155,600 3,059,560
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63,093,084 61,172,278
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$65,013,709 $63,413,501
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See notes to financial statements.
3
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<TABLE>
HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental Revenue .................................... $2,844,905 $2,959,922 $5,761,070 $5,984,544
---------- ---------- ---------- ----------
Costs and Expenses:
Operating expenses ............................. 872,404 989,734 1,901,258 1,974,412
Depreciation and amortization .................. 479,570 514,576 1,030,995 1,029,152
Partnership management fee ..................... 216,077 321,358 432,154 642,716
Administrative expenses ........................ 331,784 196,145 646,090 915,331
Property management fee ........................ 70,579 103,045 172,710 202,376
---------- ---------- ---------- ----------
1,970,414 2,124,858 4,183,207 4,763,987
---------- ---------- ---------- ----------
Income before interest and other income ........... 874,491 835,064 1,577,863 1,220,557
Interest income ................................ 183,116 142,812 332,893 248,481
Other income ................................... 10,050 9,830 10,050 88,030
---------- ---------- ---------- ----------
Net income ........................................ $1,067,657 $ 987,706 $1,920,806 $1,557,068
========== ========== ========== ==========
Net income attributable to:
Limited partners ............................... $1,014,274 $ 938,321 $1,824,766 $1,479,215
General partners ............................... 53,383 49,385 96,040 77,853
---------- ---------- ---------- ----------
Net income ........................................ $1,067,657 $ 987,706 $1,920,806 $1,557,068
========== ========== ========== ==========
Net income per unit of limited Partnership
interest (588,010 units Outstanding) .......... $ 1.72 $ 1.60 $ 3.10 $ 2.52
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE>
HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
STATEMENT OF PARTNERS' EQUITY
GENERAL LIMITED
PARTNERS' PARTNERS'
EQUITY EQUITY TOTAL
----------- ----------- -----------
Balance, January 1, 2000 .......... $ 3,059,560 $58,112,718 $61,172,278
Net income for the six
months ended June 30, 2000 ..... 96,040 1,824,766 1,920,806
----------- ----------- -----------
Balance, June 30, 2000 ............ $ 3,155,600 $59,937,484 $63,093,084
=========== =========== ===========
See notes to financial statements
5
<PAGE>
HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------
2000 1999
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Cash Flows From Operating Activities:
Net income ................................. $ 1,920,806 $ 1,557,068
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .......... 1,030,995 1,029,152
Straight line adjustment for stepped
lease rentals ........................ 15,861 (50,082)
Changes in asset and liabilities:
Other assets ........................... (289,705) (78,446)
Receivables ............................ (97,766) (133,814)
Accounts payable and accrued expenses .. (116,968) 615,032
Due to affiliates ...................... (203,630) (88,981)
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Net cash provided by operating activities .. 2,259,593 2,849,929
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Cash Flows From Investing Activities:
Improvements to real estate ................ (306,018) (176,400)
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Cash Flows From Financing Activities:
Distributions to partners .................. -- (1,423,602)
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Increase in Cash and Cash Equivalents .......... 1,953,575 1,249,927
Cash and Cash Equivalents, Beginning of Year ... 12,675,936 10,220,165
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Cash and Cash Equivalents, End of Quarter ...... $ 14,629,511 $ 11,470,092
============ ============
See notes to financial statements.
6
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
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, 1999.
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 and six months ended
June 30, 2000 are not necessarily indicative of the results to be expected
for the entire year.
2. SIGNIFICANT ACCOUNTING POLICIES
Investment in Joint Ventures
Certain properties were purchased in joint ventures with affiliated
partnership that have the same or affiliated general partners as the
Partnership. The Partnership owns an undivided interest and is severally
liable for indebtedness it incurs in connection with its ownership interest
in those properties. Therefore, the Partnership's financial statements
present the assets, liabilities, revenues and expenses of the joint venture
on a pro rata basis in accordance with the Partnership's percentage of
ownership.
Real Estate
Real Estate is carried at cost, net of adjustments for impairment. Repairs
and maintenance are charged to expense as incurred. Replacement and
betterments are capitalized. 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.
7
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Real Estate (continued)
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.
3. RELATED PARTY TRANSACTION
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.
From August 28, 1997 to October 21, 1999, Presidio was party to a management
agreement with NorthStar Presidio Management Company LLC ("NorthStar
Presidio"), an affiliate of NorthStar Capital Investment Corp., pursuant to
which NorthStar Presidio provided the day-to-day management of Presidio and
its direct and indirect subsidiaries and affiliates, including the
Partnership. Effective October 21, 1999, Presidio entered into a service
agreement with AP-PCC III, L.P. (the "Agent") pursuant to which the Agent was
retained to provide asset management and investor relation services to the
Partnership and other entities affiliated with the Partnership.
8
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS (CONTINUED)
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 quarter ended June 30, 2000, Resources Supervisory was entitled to
receive $70,579. Due to flat fee agreements with certain properties and
collection of outstanding receivables, $70,579 was paid to unaffiliated
management companies for property management services for the quarter ended
June 30, 2000. For the quarter ended June 30, 1999, Resources Supervisory was
entitled to receive $103,045 of which $84,178 was paid to unaffiliated
management companies for property management services and the balance was
retained by Resources Supervisory.
For the six months ended June 30, 2000, Resources Supervisory was entitled to
receive $172,710. Due to flat fee agreements with certain properties and
collection of outstanding receivables, $165,684 was paid to unaffiliated
management companies for property management services. For the six months
ended June 30, 1999, Resources Supervisory was entitled to receive $202,376,
of which $168,828 was paid to unaffiliated management companies for property
management services.
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, 2000 and 1999. The Administrative General Partner
received $100,000 for each of the six-month periods ended June 30, 2000 and
1999.
For managing the affairs of the Partnership, the Managing General Partner is
also entitled to receive an annual partnership management fee. Pursuant to
the amendment to the Partnership Agreement, which became effective on August
20, 1999, the annual partnership management fee for 1999 was reduced to
$973,293. Further, the Partnership Agreement was amended (for the year 2000
and beyond) so that the partnership management fee will be 1.25% of the Gross
Asset Value of the Partnership, defined As the appraised value of all the
assets of the Partnership based on the most recent appraisal. For the
quarters ended June 30, 2000 and 1999, the Managing General Partner earned
partnership management fees of $216,077 and $321,358, respectively. For the
six-month periods ended June 30, 2000 and 1999, the Managing General Partner
earned partnership management fees of $432,154 and $642,716 respectively.
9
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The General Partners are allocated 5% of the net income of the Partnership
which amounted to $53,383 and $49,385 for the quarters ended June 30, 2000
and 1999, respectively. Net income allocated to the General Partners amounted
to $96,040 and $77,853 for the six months ended June 30, 2000 and 1999
respectively. The General Partners are also entitled to receive 5% of
distributions, which amounted to $35,590 for the quarter ended June 30, 1999.
Distributions allocated to the General Partner amounted to $71,180 for the
six months ended June 30, 1999.
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. In
addition, Olympia has the right to cause Presidio to purchase its remaining
units for a price based on procedures set forth in the agreement. Olympia
recently exercised this right, and it is anticipated that Presidio or its
affiliates will acquire an additional 16,365 units.
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.
Pursuant to the settlement of class action lawsuit (see Note 7), Millennium
Funding III LLC, a wholly owned subsidiary of Presidio completed a tender
offer in January 2000, purchasing approximately 6.7% or 39,596 limited
partnership units for $103.05 per unit or $4,080,368 in total. As a result of
these purchases as well as the other purchases of units by the affiliates of
the General Partners, affiliates of the General Partner own 139,649 units
representing approximately 23.75% of the total outstanding units.
10
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as of:
JUNE 30, DECEMBER 31,
2000 1999
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Land .................................. $ 11,669,652 $ 11,669,652
Buildings and improvements ............ 59,851,302 59,545,284
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71,520,954 71,214,936
Less: Accumulated depreciation ........ (24,818,395) (23,933,163)
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$ 46,702,559 $ 47,277,773
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5 DUE TO AFFILIATES
JUNE 30, DECEMBER 31,
2000 1999
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Partnership management fee ............. $ 212,898 $ 330,577
Property management fee ................ -- 35,951
Non-accountable expense reimbursement .. 50,000 100,000
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$ 262,898 $ 466,528
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Such amounts were paid in the subsequent quarters
6. COMMITMENTS AND CONTINGENCIES
a) 568 Broadway Joint Venture is currently involved in litigation with a
number of present or former tenants who are in default on their lease
obligations. Several of these tenants have asserted claims or counter
claims seeking monetary damages. The plaintiffs' allegations include but
are not limited to claims for breach of contract, failure to provide
certain services, overcharging of expenses and loss of profits and income.
These suits seek total damages of in excess of $20 million plus additional
damages of an indeterminate amount. The Broadway Joint Venture's action
for rent against Solo Press was tried in 1992 and resulted in a judgement
in favor of the Broadway Joint Venture for rent owed. The Partnership
believes this will result in dismissal of the action brought by Solo Press
against the Broadway Joint Venture. Since the facts of the other actions
which involve material claims or counterclaims are substantially similar,
the partnership believes that the Broadway Joint Venture will prevail in
those actions as well.
11
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
b) A former retail tenant of 568 Broadway (Galix Shops, Inc.) and a related
corporation which is a retail tenant of a building adjacent to 568
Broadway filed a lawsuit in the Supreme Court of the State of New York,
County of New York, against the Broadway Joint Venture which owns 568
Broadway. The action was filed on April 13, 1994. The plaintiffs allege
that by erecting a sidewalk shed in 1991, 568 Broadway deprived plaintiffs
of light, air and visibility to their customers. The sidewalk shed was
erected, as required by local law, in connection with the inspection and
restoration of the 568 Broadway building facade, which is also required by
local law. Plaintiffs further alleged that the excavation of the sidewalk
shed for a continuous period of over two years is unreasonable and
unjustified and that such conduct by defendants has deprived plaintiffs of
the use and enjoyment of the property. The suit seeks a judgment requiring
removal of the sidewalk shed (since removed), compensatory damages of $20
million, and punitive damages of $10 million. The Partnership believes
that this suit is meritless and intends to vigorously defend it.
7. SETTLEMENT OF LAWSUIT
In April 1999, the California Superior Court approved the terms of the
settlement of a class action and derivative litigation involving the
Partnership. Under the terms of the settlement, the General Partners agreed
to take the actions described below subject to first obtaining the consent of
limited partners to amendments to the Agreement of Limited Partnership of the
Partnership summarized below. The settlement became effective in August 1999
following approval of the amendments. As amended, the Partnership Agreement
(a) provides for a Partnership Asset Management Fee equal to 1.25% of the
Gross Asset Value of the Partnership and a fixed 1999 Partnership Asset
Management Fee of $973,293 or $312,139 less than the amount that would have
been paid for 1999 under the prior formula and (b) fixes the amount that the
General Partners will be liable to pay to limited partners upon liquidation
of the Partnership as repayment of fees previously received (the "Fee
Give-Back Amount").
As of December 31, 1999, the Fee Give-Back Amount was $4.38 per Unit which
amount will be reduced by approximately $.49 per Unit for each full calendar
year after 1999 in which a liquidation does not occur. As amended, the
Partnership Agreement provides that, upon a reorganization of the Partnership
into a real estate investment trust or other public entity, the General
Partners will have no further liability to pay the Fee Give-Back Amount. In
accordance with the terms of the settlement, Presidio Capital Corp., an
affiliate of the General Partners, guaranteed payment of the Fee Give-Back
Amount.
12
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
STATEMENTS OF OPERATIONS
7. SETTLEMENT OF LAWSUIT (CONTINUED)
As required by the settlement, an affiliate of the General Partners,
Millennium Funding III, LLC, made a tender offer to limited partners to
acquire up to 39,596 Units (representing approximately 6.7% of the
outstanding Units) at a price of $103.05 per Unit. The offer closed in
January 2000 and all 39,596 Units were acquired in the offer.
The final requirement of the settlement obligated the General Partners to
use their best efforts to reorganize the Partnership into a real estate
investment trust or other entity whose shares were listed on a national
securities exchange or on the NASDAQ National Market System. A Registration
Statement was filed with the Securities and Exchange Commission on February
11, 2000 with respect to the restructuring of the Partnership into a
publicly-traded real estate investment trust. The Registration Statement
has not yet become effective and the consent of a majority of limited
partners will be needed to effect the restructuring.
13
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this form 10-Q contain certain forward-looking
statements and involve risks uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's liquidity, capital resources and results of
operations, including forward looking statements pertaining to such matters,
does not take into account the effects of any changes to the Partnership's
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in the report.
Liquidity and Capital Resources
The Partnership had $14,629,511 in cash and cash equivalents at June 30, 2000.
Cash and cash equivalents are temporarily invested in short term instruments and
together with cash flow from operations are expected to be sufficient to fund
future capital improvements to the Partnership's properties.
The Partnership's level of liquidity based upon cash and cash equivalents
increased by $1,953,575 at June 30, 2000 as compared to December 31, 1999. The
increase in cash and cash equivalents at June 30, 2000 is due to $2,259,593 of
cash provided by operating activities which was partially offset by $306,018 of
cash used for capital expenditures. The Partnership primary source of funds is
cash flow from the operation of its properties, principally rents received from
tenants less property operating expenses.
The Partnership expects to continue to utilize a portion of its cash flow from
operations and its reserves to pay for various capital and tenant improvements
to its properties and for leasing commissions. Vacancies at Mathew Festival and
Commonwealth are currently being marketed to a variety of potential tenants. The
Partnership is currently funding operating expenses at these locations from cash
reserves. If and when replacement tenants are 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.
14
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
As discussed in "Item 1. Financial Statements-Note 7", the Partnership entered
into a settlement agreement relating to a class action lawsuit. In light of the
current implementation of the settlement and the filing of the Registration
Statement pursuant to which the General Partners are using their best efforts to
reorganize the Partnership into a real estate investment trust, the General
Partners have suspended any distributions until such reorganization is either
approved or disapproved.
Results of Operations
The Partnership experienced an increase of $79,951 or 8.1% in net income to
$1,067,657 for the three months ended June 30, 2000 from $987,706 for the three
months ended June 30, 1999. The increase in net income is due a decrease in
costs and expenses of $154,444 as well as an increase in interest income of
$40,304 which more than offsets the decrease in rental revenue of 115,017. For
the six months ended June 30, 2000, the Partnership experienced an increase of
$363,738 or 23.4% in net income to $1,920,806 from $1,557,068 for the six months
ended June 30, 1999. The increase is due to the reduction in costs and expenses
of $580,780 as well as an increase in interest income of $84,412 which more than
offset the decrease in rental revenue of $223,474 and a decrease in other income
of $77,980.
Rental revenues for the three months ended June 30, 2000 decreased $115,017 or
3.9% to $2,844,905 from $2,959,922 for the same period in 1999. Rental revenues
decreased primarily due to lower common area maintenance and real estate tax
reimbursement than for the three months ending June 30, 1999.
Rental revenues for the six months ended June 30, 2000 decreased $223,474 or
3.7% to $5,761,070 from $5,984,544 for the six months ended June 30, 1999. The
decrease resulted from lower percentage rental income and lower common area
maintenance and real estate tax reimbursement.
The decrease in costs and expenses of $154,444 for the three months ended June
30, 2000 as compared to 1999 is primarily due to a decrease in partnership
management fees ($105,281), depreciation and amortization ($35,006), operating
expenses ($117,330) and property management fees (32,466). These decreases were
partially offset by an increase in administrative expenses ($135,639).
Partnership management fees decreased due to the amendment to the partnership
agreement that has the fee being calculated on 1.25% of the Gross Asset Value of
the partnership. "Item 1 Financial Statements-Note 3. Operating expenses
decreased primarily due to parking lot maintenance at Melrose Crossing being
down by approximately $40,000 and real estate taxes being down by approximately
$75.000. Administrative expense increased due to legal fees incurred for the
conversion of the partnership to a Real Estate Investment Trust (REIT).
The decrease in costs and expense for the six months ended June 30, 2000 as
compared to 1999, are primarily due to a decrease in administrative expenses of
($269,241), partnership management fees ($210,562), operating expenses ($73,154)
and property management fees ($29,666). These decreases were partially offset by
an increase depreciation and amortization ($1,843).
15
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Administrative expenses decreased due to legal expenses associated with the
conversion of the partnership to a REIT were less than the legal fees associated
with the class action litigation. In addition, partnership asset management fees
decreased for the first six months of 2000 as compared to the first six months
of 1999 as a result of an amendment to the Partnership Agreement which changed
the calculation of such fee. Item 1 Financial Statements Note - 3. Depreciation
and amortization expense increased due to real estate improvements in 1999.
Interest income increased during the three and six months ended June 30, 2000 as
compared to the same period in 1999 due to higher cash balances. Other income
increased during the three months ended June 30, 2000 due to the receipt of more
investor transfer fees. However, other income decreased during the six months
ended June 30, 2000 due to the receipt of fewer investor transfer fees.
Inflation is not expected to have a material impact on the Partnership's
operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is not subject to market risk as its cash and cash equivalents
are invested in short term money market mutual funds. The Partnership has no
loans outstanding.
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial schedule is filed as an exhibit to this report.
(b) Reports on Form 8-K:
No report of Form 8-K was filed during this period.
17
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HIGH EQUITY PARTNERS L.P. -- SERIES 86
FORM 10-Q -- JUNE 30, 2000
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 14, 2000 By: /s/ MICHAEL L. ASHNER
---------------------
Michael L. Ashner
President and Director
(Principal Executive Officer)
Dated: August 14, 2000 By: /s/ CAROLYN B. TIFFANY
----------------------
Carolyn B. Tiffany
Vice President and Treasurer
(Principal Financial and Accounting Officer)
18
