SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _______to _______
Commission file number: 0-16855
HIGH EQUITY PARTNERS L.P. - SERIES 88
(Exact name of registrant as specified in its charter)
DELAWARE 13-3394723
(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) (Zip Code)
Registrant's telephone number, including area code: (203) 862-7000
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest, $250 Per Unit
(Title of class)
Indicate by check mark 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit A to the Prospectus of the registrant dated September 15, 1987, filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, is
incorporated by reference in Part IV of this Form 10-K.
<PAGE>
PART I
Item 1. Business.
High Equity Partners L.P. - Series 88 (the "Partnership") is a
Delaware limited partnership formed as of February 24, 1987. The Partnership is
engaged in the business of operating and holding for investment previously
acquired income-producing properties, consisting of office buildings, shopping
centers and other commercial and industrial properties such as industrial parks
and warehouses. Resources High Equity, Inc., the Partnership's managing general
partner (the "Managing General Partner"), is a Delaware corporation and a
wholly-owned subsidiary of Presidio Capital Corp., a British Virgin Islands
corporation ("Presidio"). Until November 3, 1994, the Managing General Partner
was a wholly-owned subsidiary of Integrated Resources, Inc. ("Integrated"). On
November 3, 1994, Integrated consummated its plan of reorganization under
Chapter 11 of the United States Bankruptcy Code at which time, pursuant to such
plan of reorganization, the newly-formed Presidio purchased substantially all of
Integrated's assets. Presidio AGP Corp., which is a wholly-owned subsidiary of
Presidio, became the associate general partner (the "Associate General Partner")
on February 28, 1995 replacing Third Group Partners which withdrew as of that
date. (The Managing General Partner and the Associate General Partner are
referred to collectively hereinafter as the "General Partners.") Affiliates of
the General Partners are also engaged in businesses related to the acquisition
and operation of real estate.
The Partnership offered 400,000 units (subject to increase to
800,000) of limited partnership interest (the "Units") through Integrated
Resources Marketing, Inc., a wholly-owned subsidiary of Integrated, pursuant to
the Prospectus of the Partnership dated September 15, 1987, as supplemented by
Supplements dated August 19, 1988, April 28, 1989, July 20, 1989 and September
8, 1989 (collectively, the "Prospectus"), filed pursuant to Rules 424(b) and
424(c) under the Securities Act of 1933, as amended. The Prospectus was filed as
part of the Partnership's Registration Statement on Form S-11, Commission File
No. 33-12574 (the "Registration Statement"), pursuant to which the Units were
registered. As of the termination of the offering on September 14, 1989, the
Partnership had accepted subscriptions for 371,766 Units for an aggregate of
$92,941,500 in gross proceeds, resulting in net proceeds from the offering of
$90,153,255 (gross proceeds of $92,941,500 less organization and offering costs
of $2,788,245). All underwriting and sales commissions were paid by Integrated
or its affiliates and not by the Partnership.
In August 1990, the Managing General Partner declared a
special distribution of $16.96 per Unit, representing a return of uninvested
gross proceeds. This return of capital lowered the aggregate gross proceeds to
$86,636,349, resulting in net proceeds from the offering of $83,848,104 (gross
proceeds of $86,636,349 less organization and offering costs of $2,788,245). The
3% organization and offering costs associated with the return of the original
capital were non-refundable.
As of March 15, 1996, the Partnership had invested
substantially all of its total adjusted net proceeds available for investment
after establishing a working capital reserve in the properties described below.
The Partnership's property investments which contributed more
than 15% of the Partnership's total gross revenues were as follows: in 1995, TMR
Warehouses, Sunrise and Livonia Plaza represented approximately 27.3%, 19.6%,
and 18.4%, respectively; TMR Warehouses, Sunrise and Livonia Plaza represented
approximately 27.9%, 20.3% and 19.7%, respectively, in 1994; TMR Warehouses,
Sunrise and Livonia Plaza represented approximately 26%, 24% and 22%,
respectively, in 1993.
The Partnership owned the following properties as of March 15,
1996:
(1) TMR Warehouses. On September 15, 1988, Tri-Columbus
Associates ("Tri- Columbus"), a joint venture comprised of the Partnership, High
Equity Partners L.P. - Series 86 ("HEP-86"), and IR Columbus Corp., a
wholly-owned subsidiary of Integrated ("Columbus Corp."), purchased the fee
simple interest in three warehouses (the "TMR Warehouses") located in Columbus,
Ohio. The Partnership originally purchased a 58.68% interest in Tri-Columbus on
September 15, 1988. On June 29, 1990, the Partnership closed in escrow on the
purchase of an additional 20.66% interest in Tri-Columbus. The Partnership
purchased the additional joint venture interest from Columbus Corp. at
approximately 86% of Columbus Corp.'s original cost, pursuant to a right of
first refusal contained in the joint venture agreement. Due to Integrated's
bankruptcy, the transaction was submitted to the bankruptcy court for review,
the approval of the bankruptcy court was obtained on September 6, 1990 and the
funds were released from escrow. Purchase of this additional 20.66% interest
increased the Partnership's interest in Tri-Columbus from 58.68% to 79.34%. The
remaining 20.66% is held by HEP-86.
The TMR Warehouses are distribution and light manufacturing
facilities located in Orange, Grove City and Hilliard, all suburbs of Columbus,
Ohio and comprise 1,010,500 square feet of space in the aggregate, with
individual square footage of 583,000 square feet, 190,000 square feet and
237,500 square feet, respectively. As of January 1, 1996 and 1995, the Orange
and Grove City buildings were each 100% leased to a single tenant. As of January
1, 1995, the Hilliard property was 100% leased by Eddie Bauer, Inc. but Eddie
Bauer, Inc. vacated the property in the second quarter of 1995. During 1995,
management executed a three-year lease with Micro Electronics Inc. for 175,000
of Hilliard's 237,500 square foot space that had been leased to Eddie Bauer,
Inc., resulting in an overall occupancy rate at Hilliard of 74% as of January 1,
1996.
The TMR Warehouses compete with numerous other warehouses in
the market area which currently have in excess of one million square feet
available.
(2) Melrose Crossing Shopping Center - Phase II. On February
3, 1989, the Partnership purchased the fee simple interest in Phase II of the
Melrose Crossing Shopping Center ("Melrose-Phase II"). Melrose-Phase II, located
in Melrose Park, Illinois, previously consisted of a 24,232 square foot retail
store that had been leased to Highland Appliance, located on a parcel totalling
7.02 acres. Highland Appliance vacated in January 1992.
On December 22, 1992, the Partnership entered into a 20-year
lease with Handy Andy Home Improvement Centers, Inc. ("Handy Andy"), which
operates home improvement stores throughout the country. The lease required the
Partnership to construct a 93,728 square foot building (the "Building") and an
adjacent 23,300 square foot outdoor selling area on Melrose-Phase II.
Construction of the Building required the demolition of the existing retail
store described above.
The Partnership utilized $3,665,698 of net proceeds previously
committed for investment in Melrose-Phase II and other net proceeds of $487,788
originally committed to various properties but not required for their
acquisition (generally relating to contingent purchase prices) previously placed
into working capital reserves to pay approximately $3,780,961 for the cost of
the construction, a 6% acquisition fee payable to the Managing General Partner
or its affiliates and a 1% acquisition expense, and to fund a 2% working capital
reserve. The total gross proceeds utilized were $4,281,944.
During 1993, the Partnership paid to Realty Resources, Inc.,
an affiliate of the Managing General Partner, an acquisition fee of $256,917 in
connection with the utilization of gross proceeds to construct the Building.
The 20-year lease term commenced upon completion of
construction of the Building and acceptance of the premises by Handy Andy on
June 7, 1993 and rental payments began 120 days after the commencement date.
As a result of razing the former 24,232 square foot retail
structure and constructing the Building pursuant to the 20-year lease with Handy
Andy, the Partnership recognized a Loss on Abandonment of $839,202 for the year
ended December 31, 1993. The resultant land and building were adjusted to fair
market value.
Melrose-Phase II lies to the north of Melrose Crossing on
which an 88,000 square foot Venture department store is located as well as
138,355 square feet of retail space which is owned by HEP-86. Melrose-Phase II
is situated in Melrose Park, Illinois, an older working-class neighborhood near
O'Hare Airport at the intersection of Mannheim Road and North Avenue, less than
10 miles from Chicago's Loop. In 1993, several other large retailers such as
Walmart and Target opened stores in the Melrose Park area. The Partnership
believes this will ultimately help Melrose-Phase II as the area continues its
growth as a retail hub.
On October 12, 1995, Handy Andy filed for bankruptcy under
Chapter 11 of the United States Bankruptcy Code. Subsequently in 1996, Handy
Andy has closed its store at Melrose- Phase II and it is expected that the lease
will be rejected by Handy Andy as debtor-in-possession by the end of March 1996.
(3) Sunrise Marketplace. On February 15, 1989, the Partnership
purchased the fee simple interest in Sunrise Marketplace ("Sunrise"). Sunrise is
a shopping center that was completed in July 1989. It contains 176,756 gross
leasable square feet situated on 15.15 acres located at the northeast corner of
Nellis Boulevard and Stewart Avenue, just outside the eastern line of the City
of Las Vegas, in Clark County, Nevada. Sunrise was 91% leased as of January 1,
1996, compared to 77% at January 1, 1995. There are no leases which represent at
least 10% of the square footage of the center scheduled to expire during 1996.
One tenant of Sunrise, House of Fabrics, filed for bankruptcy
on November 2, 1994 but continues to operate its 12,000 square foot space. The
Partnership is awaiting notice from the bankruptcy court of the tenant's
acceptance of the lease. In addition, the 15,100 square foot space vacated by
the McCrory Corporation in 1991 was occupied in September 1995 under a new
10-year lease with America's Best Furniture.
Repair of a structural roof/truss problem was completed in
1994 at a cost of approximately $350,000 which was within the initial cost
estimates. The Partnership's legal action against the roofer, the developer, the
architect and the roof joist manufacturer and distributor continues with
depositions to be taken in the spring of 1996; however, due to the number of
parties involved, the outcome is uncertain and a resolution is not anticipated
in the near future.
In Sunrise's primary trade area there are several competitive
properties. The primary difference between other competitive centers and Sunrise
is the type of anchor tenants. The average effective rental rate for these
centers is similar to that of Sunrise. Sunrise has a mixture of tenants,
including a supermarket, video store, hair salon, insurance agency, travel
agency, clothing stores, pet store and several restaurants. The major tenants
include Smith's Food King, Hollywood Video and House of Fabrics. A renovation
completed in late 1994 positioned Sunrise to compete with competitive properties
in its primary trade market and to maintain existing rental rate levels.
(4) Super Valu Stores. On February 16, 1989, the Partnership
acquired joint venture interests in four supermarkets (the "Properties") owned
by Super Valu Stores ("Super Valu"). A fee simple interest in the Properties was
acquired pursuant to a contract of sale among the seller, the Partnership and
American Real Estate Holdings Limited Partnership ("AREH"). AREH is 99% owned by
American Real Estate Partners L.P., a public partnership originally sponsored by
Integrated. At the closing, AREH and the Partnership assigned their contract
rights with respect to each of the Properties to three joint venture entities
(the "Joint Ventures"), each of which has AREH and the Partnership as a 50%
owner.
The four supermarkets, comprising an aggregate of
approximately 257,700 square feet, are located as follows: 73,000 square feet in
Gwinnett County near Atlanta, Georgia, 60,000 square feet in Indianapolis,
Indiana, 64,700 square feet in Toledo, Ohio and 60,000 square feet in Edina,
Minnesota. The first three locations are leased to Super Valu franchisees and
the fourth to Byerly's Inc., an independent retailer.
The Properties, which were substantially completed in October
1984 (Georgia), December 1988 (Minnesota), February 1983 (Indiana) and May 1988
(Ohio), have been 100% leased since completion.
(5) Livonia Plaza. On June 28, 1989, the Partnership purchased
a fee simple interest in Livonia Plaza, a shopping center that was completed in
December 1989, located in Livonia, Michigan.
Livonia Plaza is a 120,652 square foot neighborhood shopping
center situated on a 12.16 acre site near the intersection of Five Mile Road and
Bainbridge Avenue in Livonia, a western suburb of Detroit. Immediate competition
for the center is a 78,000 square foot shopping center located across the street
and another nearby 75,000 square foot shopping center. Livonia Plaza was 100%
leased as of January 1, 1996 compared to 95% as of January 1, 1995. There are no
leases which represent at least 10% of the square footage of the center
scheduled to expire in 1996.
The Partnership is presently working with Kroger to expand its
store from 43,200 square feet to 62,625 square feet. Assuming receipt of
planning and zoning approval from the city of Livonia by the end of March 1996,
construction could allow for opening of the expanded store in the fall of 1996.
The cost of the expansion will be Kroger's responsibility and it has agreed to
extend its lease for a new 20 year term. This expansion will serve to enhance
the rental rates on the small store space and increase customer flow through the
shopping center.
(6) 568 Broadway. On February 1, 1990, the Partnership was
admitted as a third partner in a joint venture (the "Broadway Joint Venture")
with Integrated Resources High Equity Partners, Series 85, a California limited
partnership ("HEP-85"), and HEP-86 pursuant to an amended and restated joint
venture agreement. The Partnership has a 22.15% interest in the Broadway Joint
Venture. The Broadway Joint Venture holds a fee simple interest in a commercial
office building located at 568-578 Broadway, New York, New York ("568
Broadway").
568 Broadway is located in the SoHo district of Manhattan on
the northeast corner of Broadway and Prince Street. 568 Broadway is a 12-story
plus basement and sub-basement building constructed in 1898. It is situated on a
site of approximately 23,600 square feet, has a rentable square footage of
approximately 299,000 square feet and a floor size of approximately 26,000
square feet. Formerly catering primarily to industrial light manufacturing, the
building has been converted to an office building and is currently leased to art
galleries, photography studios, retail and office tenants. The last
manufacturing tenant vacated in January 1993. The building was 95% leased as of
January 1, 1996 compared to 73% as of January 1, 1995. There are no leases which
represent at least 10% of the square footage of the property scheduled to expire
during 1996.
568 Broadway competes with other buildings in the SoHo area.
Write-downs for Impairment
See Note 4 to the financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of write-downs for impairment.
Competition
The real estate business is highly competitive and, as
discussed more particularly above, the properties acquired by the Partnership
may have active competition from similar properties in the vicinity. In
addition, various limited partnerships have been formed by the General Partners
and/or their affiliates that engage in businesses that may compete with the
Partnership. The Partnership will also experience competition for potential
buyers at such time as it seeks to sell any of its properties.
Employees
Services are performed for the Partnership at the properties
by on-site personnel. Salaries for such on-site personnel are paid by the
Partnership or by unaffiliated management companies that service the
Partnership's properties from monies received by them from the Partnership.
Services are also performed by the Managing General Partner and by Resources
Supervisory Management Corp. ("Resources Supervisory"), each of which is an
affiliate of the Partnership. Resources Supervisory currently provides
supervisory management and leasing services for 568 Broadway, Sunrise and
Livonia Plaza and subcontracts certain management and leasing functions to
unaffiliated third parties. TMR Warehouses, the properties leased by Super Valu
and Melrose-Phase II are currently directly managed by Resources Supervisory.
The Partnership does not have any employees. Wexford
Management LLC ("Wexford") performs accounting, secretarial, transfer and
administrative services for the Partnership. See Item 10, "Directors and
Executive Officers of the Registrant", Item 11, "Executive Compensation", and
Item 13, "Certain Relationships and Related Transactions".
Item 2. Properties.
A description of the Partnership's properties is contained in
Item 1 above (see Schedule III to the financial statements for additional
information with respect to the properties).
Item 3. Legal Proceedings.
The 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 counterclaims
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 judgment 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.
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 alleged 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 erection 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 their property. The suit seeks a judgment
requiring removal of the sidewalk shed, 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.
On or about May 11, 1993, HEP-86 was advised of the existence
of an action (the "B&S Litigation") in which a complaint (the "HEP Complaint")
was filed in the Superior Court for the State of California for the County of
Los Angeles (the "Superior Court") on behalf of a purported class consisting of
all of the purchasers of limited partnership interests in HEP-86.
On April 7, 1994 the plaintiffs were granted leave to file an
amended complaint (the "Amended Complaint"). The Amended Complaint asserted
claims against the Managing General Partner of the Partnership, the general
partners of HEP-85, the general partners of HEP-86 and certain officers of the
Managing General Partner, among others. The Managing General Partner of the
Partnership is also a general partner of HEP-85 and HEP-86.
On July 19, 1995, the Superior Court preliminarily approved a
settlement of the B&S Litigation and approved the form of a notice (the
"Notice") concerning such proposed settlement. In response to the Notice,
approximately 1.1% of the limited partners of HEP-85, HEP-86 and the Partnership
(collectively, the "HEP Partnerships") (representing approximately 4% of
outstanding units) requested exclusion and 15 limited partners filed written
objections to the proposed settlement. The California Department of Corporations
also sent a letter to the Superior Court opposing the settlement. Five objecting
limited partners, represented by two law firms, also made motions to intervene
so they could participate more directly in the action. The motions to intervene
were granted by the Superior Court on September 14, 1995.
In October and November 1995, the attorneys for the
plaintiffs-intervenors conducted extensive discovery. At the same time,
negotiations continued concerning possible revisions to the proposed settlement.
On November 30, 1995, the original plaintiffs and the
intervening plaintiffs filed a Consolidated Class and Derivative Action
Complaint (the "Consolidated Complaint") against the Managing General Partner,
the managing general partner of HEP-85, two of the general partners of HEP-86
and the indirect corporate parent of the general partners, that alleged various
state law class and derivative claims, including claims for breach of fiduciary
duties, breach of contract, unfair and fraudulent business practices under
California Business & Professional Code ss. 17200, negligence, dissolution,
accounting, receivership, removal of general partner, fraud, and negligent
misrepresentation. The Consolidated Complaint alleged, among other things, that
the general partners caused a waste of HEP Partnership assets by collecting
management fees in lieu of pursuing a strategy to maximize the value of the
investments owned by the limited partners; the general partners breached their
duty of loyalty and due care to the limited partners by expropriating management
fees from the HEP Partnerships without trying to run the HEP Partnerships for
the purposes for which they were intended; the general partners acted improperly
to enrich themselves in their position of control over the HEP Partnerships and
their actions have prevented non-affiliated entities from making and completing
tender offers to purchase units of the HEP Partnerships; by refusing to seek the
sale of the HEP Partnerships' properties, the general partners have diminished
the value of the limited partners' equity in the HEP Partnerships; the general
partners have taken a heavily overvalued partnership asset management fee; and
limited partnership units were sold and marketed through the use of false and
misleading statements.
On or about January 31, 1996, the parties to the B&S
Litigation agreed upon a revised settlement, which would be significantly more
favorable to limited partners than the previously proposed settlement. The
revised settlement proposal, like the previous proposal, involves the
reorganization of the HEP Partnerships through an exchange (the "Exchange") in
which limited partners (the "Participating Investors") of the partnerships
participating in the Exchange (the "Participating Partnerships") would receive,
in exchange for partnership units, shares of common stock ("Shares") of a
newly-formed corporation, Millennium Properties Inc. ("Millennium") which
intends to qualify as a real estate investment trust. Such reorganization would
only be effected with respect to a particular HEP Partnership if holders of a
majority of the outstanding units of such HEP Partnership consent to such
reorganization pursuant to a consent solicitation statement (the "Consent
Solicitation Statement") which would be sent to all limited partners after the
settlement is approved by the Superior Court. 84.65% of the Shares would be
allocated to Participating Investors in the aggregate (assuming each of the HEP
Partnerships participate in the Exchange) and 15.35% of the Shares would be
allocated to the general partners in consideration of the general partners'
existing interests in the Participating Partnerships, their relinquishment of
entitlement to receive fees and expense reimbursements, and the payment by the
general partners or an affiliate of certain amounts for legal fees.
As part of the Exchange, Shares issued to Participating
Investors would be accompanied by options granting the Participating Investors
the right to require an affiliate of the general partners to purchase Shares at
a price of $11.50 per Share, exercisable during the three-month period
commencing nine months after the effective date of the Exchange. A maximum of
1.5 million Shares (representing approximately 17.7% of the total Shares issued
to Participating Investors if all partnerships participate) would be required to
be purchased if all partnerships participate in the Exchange. Also as part of
the Exchange, the indirect parent of the General Partners would agree that in
the event that dividends paid with respect to the Shares do not aggregate at
least $1.10 per Share for the first four complete fiscal quarters following the
effective date of the Exchange, it would make a supplemental payment to holders
of such Shares in the amount of such difference. The general partners or an
affiliate would provide an amount, not to exceed $2,232,500 in the aggregate,
for the payment of attorneys' fees and reimbursable expenses of class counsel,
as approved by the Superior Court, and the costs of providing notice to the
class (assuming that all of the HEP Partnerships participate in the Exchange).
In the event that fewer than all of the HEP Partnerships participate in the
Exchange, such amount would be reduced. The general partners would advance to
the HEP Partnerships the amounts necessary to cover such fees and expenses of
the Exchange (but not their litigation costs and expenses, which the general
partners would bear). Upon the effectuation of the Exchange, the B&S Litigation
would be dismissed with prejudice.
On February 8, 1996, at a hearing on preliminary approval of
the revised settlement, the Superior Court determined that in light of renewed
objections to the settlement by the California Department of Corporations, the
Superior Court would appoint a securities litigation expert to evaluate the
settlement. The Superior Court stated that it would rule on the issue of
preliminary approval of the settlement after receiving the expert's report. If
the settlement receives preliminary approval, a revised notice regarding the
proposed settlement would be sent to limited partners, after which the Superior
Court would hold a fairness hearing in order to determine whether the settlement
should be given final approval. If final approval of the settlement is granted
by the Superior Court, the Consent Solicitation Statement concerning the
settlement and the reorganization would be sent to all limited partners. There
would be at least a 60 day solicitation period and a reorganization of the
Partnership cannot be consummated unless a majority of the limited partners of
the Partnership affirmatively voted to approve it.
Item 4. Submission of Matters to a
Vote of Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Registrant's Securities and
Related Security Holder Matters.
Units of the Partnership are not publicly traded. There are
certain restrictions set forth in the Partnership's amended limited partnership
agreement (the "Limited Partnership Agreement") which may limit the ability of a
limited partner to transfer Units. Such restrictions could impair the ability of
a limited partner to liquidate its investment in the event of an emergency or
for any other reason.
In 1987, the Internal Revenue Service adopted certain rules
concerning publicly traded partnerships. The effect of being classified as a
publicly traded partnership would be that income produced by the Partnership
would be classified as portfolio income rather than passive income. In order to
avoid this effect, the Limited Partnership Agreement contains limitations on the
ability of a limited partner to transfer Units in circumstances in which such
transfers could result in the Partnership being classified as a publicly traded
partnership. However, due to the low volume of transfers of Units, it is not
anticipated that this will occur.
As of March 15, 1996, there were 7,782 holders of Units of the
Partnership, owning an aggregate of 371,766 Units (including 10 Units held by
the initial limited partner).
Distributions per Unit of the Partnership for 1994 and 1995
were as follows:
Distributions for the Amount of Distribution
Quarter Ended Per Unit
March 31, 1994 $1.75
June 30, 1994 $1.75
September 30, 1994 $1.75
December 31, 1994 $1.75
March 31, 1995 $1.75
June 30, 1995 $1.75
September 30, 1995 $1.75
December 31, 1995 $1.75
The source of distributions in 1994 and 1995 was cash flow
from operations (capital improvements were funded from working capital reserves
and cash flow in 1994 and from cash flow in 1995). All distributions are in
excess of accumulated undistributed net income and, therefore, represent a
return of capital to investors on a generally accepted accounting principles
basis. There are no material restrictions set forth in the Limited Partnership
Agreement upon the Partnership's present or future ability to make
distributions. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of factors which may
affect the Partnership's ability to pay distributions.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................... $ 7,422,184 $ 7,124,114 $ 6,919,383 $ 6,815,512 $ 7,774,701
Net (Loss) Income .......... $ (7,260,499)(4) $ 2,439,021 $ 797,118(3) $ (6,888,246)(2) $ 1,397,264(1)
Net (Loss) Income
Per Unit ................. $ (18.55)(4) $ 6.23 $ 2.04(3) $ (17.60)(2) $ 3.57(1)
Distributions (5)
Per Unit ................. $ 7.00 $ 7.00 $ 7.00 $ 8.98 $ 11.37
Total Assets ............... $ 56,305,498 $ 66,210,947 $ 66,493,618 $ 68,241,132 $ 78,715,511
</TABLE>
- - ------------
(1) Net income for the year ended December 31, 1991 includes a write-down
for impairment on the Melrose-Phase II property of $1,500,000, or $3.83
per Unit.
(2) Net loss for the year ended December 31, 1992 includes a write-down for
impairment on Sunrise, Livonia Plaza and 568 Broadway of $9,197,100, or
$23.50 per Unit.
(3) Net income for the year ended December 31, 1993 includes a write-down
for impairment on 568 Broadway of $398,700, or $1.02 per Unit. Also
included in net income for 1993 is a Loss on Abandonment of $839,202,
or $2.38 per Unit, in connection with razing the former structure on
the Melrose-Phase II site.
(4) Net loss for the year ended December 31, 1995 includes a write-down for
impairment on 568 Broadway, Sunrise and Melrose-Phase II in the
aggregate amount of $10,042,900 or $25.66 per Unit.
(5) All distributions are in excess of accumulated undistributed net income
and therefore represent a return of capital to investors on a generally
accepted accounting principles basis.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership owns all of, or an interest in, certain
shopping centers, office buildings, warehouses and supermarkets. All properties
were initially acquired for cash.
The Partnership's public offering of Units commenced on
September 15, 1987. As of the termination of the offering in September 1989, the
Partnership had accepted subscriptions for 371,766 Units (including Units held
by the initial limited partner) for aggregate net proceeds of $90,153,255 (gross
proceeds of $92,941,500 less organization and offering costs of $2,788,245). In
August 1990, the Managing General partner declared a special distribution of
$16.96 per Unit, representing a return of uninvested gross proceeds. This return
of capital lowered the net proceeds from the offering to $83,848,104.
The Partnership uses working capital reserves remaining from
the net proceeds of its public offering and any undistributed cash from
operations as its primary source of liquidity. For the year ended December 31,
1995, all capital expenditures and all distributions were funded from cash flow
from operations. As of December 31, 1995, total remaining working capital
reserves amounted to approximately $2,685,000. The Partnership intends to
distribute less than all of its future cash flow from operations in order to
maintain adequate working capital reserves for capital improvements and
capitalized lease procurement costs. Thus, cash distributions may be reduced
even if operations continue at current levels. In addition, if real estate
market conditions deteriorate in areas where the Partnership's properties are
located, there is substantial risk that future cash flow distributions may be
reduced. Working capital reserves are temporarily invested in short-term
instruments and are expected, together with operating cash flow, to be
sufficient to fund anticipated capital improvements to the Partnership's
properties.
During the year ended December 31, 1995, cash and cash
equivalents increased $136,158 as a result of cash flows from operations in
excess of capital expenditures and distributions to partners. The Partnership's
primary source of funds is cash flow from the operation of its properties,
principally rents received from tenants, which amounted to $3,828,533 for the
year ended December 31, 1995. The Partnership used $953,047 for capital
expenditures related to capital and tenant improvements to the properties and
$2,739,328 for distributions to partners for the year ended December 31, 1995.
The following table sets forth for each of the last three
fiscal years, the amount of the Partnership's expenditures at each of its
properties for capital improvements (other than the development of the
Melrose-Phase II property) and capitalized tenant procurement costs:
<TABLE>
<CAPTION>
Capital Improvements and Capitalized Tenant Procurement Costs
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
568 Broadway ................ $ 388,442 $ 446,175 $ 355,250
Sunrise ..................... 606,442 580,255 85,725
Livonia Plaza ............... 245,438 142,323 491,205
Melrose-Phase II ............ 0 4,776 0
TMR Warehouse ............... 57,274 0 118,466
Super Valu .................. 0 0 0
---------- ---------- ----------
TOTALS ...................... $1,297,596 $1,173,529 $1,050,646
========== ========== ==========
</TABLE>
The Partnership does not believe that, in the aggregate, its
1996 expenditures for capital improvements and capitalized tenant procurement
costs will differ materially from the previous three years. However, such
expenditures will depend upon the level of leasing activity and other factors
which cannot be predicted with certainty.
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 the properties and leasing commissions (the amount of
which cannot be predicted with certainty). Capital and tenant improvements and
leasing commissions may in the future exceed the Partnership's current working
capital reserves. In that event, the Partnership would utilize the remaining
working capital reserves, eliminate or 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.
Real Estate Market
The real estate market continues to suffer from the effects of
the substantial decline in the market value of existing properties which
occurred in the early 1990s. Market values have been slow to recover, and while
the pace of new construction has slowed, high vacancy rates continue to exist in
many areas. Technological changes are also occurring which may reduce the office
space needs of many users. These factors may continue to reduce rental rates. As
a result, the Partnership's potential for realizing the full value of its
investment in its properties is at increased risk.
Impairment of Assets
In March 1995, the Financial Accounting Standards Board issued
Statement # 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" ("SFAS #121"). Although the adoption of the
statement is not required until fiscal years beginning after December 15, 1995,
early adoption is encouraged. The Partnership has decided to implement SFAS #121
for the year ended December 31, 1995.
Under SFAS #121 the initial test to determine if an impairment
exists is to compute the recoverability of the asset based on anticipated cash
flows (net realizable value) compared to the net carrying value of the asset. If
anticipated cash flows on an undiscounted basis are insufficient to recover the
net carrying value of the asset, an impairment loss should be recognized, and
the asset written down to its estimated fair value. The fair value of the asset
is the amount by which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a forced or
liquidation sale. The net realizable value of an asset will generally be greater
than its fair value because net realizable value does not discount cash flows to
present value and discounting is usually one of the assumptions used in
determining fair value.
Prior to the adoption of SFAS #121, a write-down for
impairment was established based upon a periodic review of each of the
properties in the Partnerships' portfolio. Real estate property was previously
carried at the lower of depreciated cost or net realizable value. In performing
the review, management considered the estimated net realizable value of the
property based on undiscounted future cash flows taking into consideration,
among other things, the existing occupancy, the expected leasing prospects for
the property and the economic situation in the region where the property is
located. Negative trends in occupancy, leasing prospects and the local economy
have an adverse effect on future undiscounted cash flows (net realizable value).
In certain instances, management retained the services of a certified
independent appraiser to assist in determining the market value of the property.
In these cases, the independent appraisers utilized both the Sales Comparison
and Income Capitalization methods in their determination of fair value.
Upon implementation of SFAS #121 in 1995, management performed
another review of the Partnership's portfolio and determined that certain
estimates and assumptions had changed from its previous review, causing the net
carrying value of certain assets to exceed the undiscounted cash flows. An
impairment was indicated for such properties, so management estimated their fair
value using discounted cash flows or market comparables, as most appropriate for
each property. As a result of this process, additional write-downs to fair value
totaling $10,042,900 were required in 1995.
After implementation of SFAS #121 as described above, certain
of the Partnership's assets have been written down to their estimated fair
values, while others remain at depreciated cost. Thus, the net carrying value of
the Partnership's asset portfolio may differ materially from its fair value.
However, the write-downs for impairment in 1995 and in prior years do not affect
the tax basis of the assets and the write-downs are not included in the
determination of taxable income or loss.
Because the determination of both net realizable value and
fair value is based upon projections of future economic events, such as property
occupancy rates, rental rates, operating cost inflation and market
capitalization rates which are inherently subjective, the amounts ultimately
realized at disposition may differ materially from the carrying values as of
December 31, 1995 and 1994. The cash flows used to determine fair value and net
realizable value are based on good faith estimates and assumptions developed by
management. Inevitably, unanticipated events and circumstances may occur and
some assumptions may not materialize; therefore actual results may vary from
management's estimate and the variances may be material. The Partnership may
provide additional losses in subsequent years if the real estate market or local
economic conditions change and such write-downs could be material.
The following table represents the write-downs for impairment
recorded on the Partnership's properties for the years set forth below.
<TABLE>
<CAPTION>
During the Year Ended December 31,
--------------------------------------------------------------------
Property 1995 1994 1993 1992
- - ---------------- ----------- ----------- ----------- -----------
<C> <C> <C> <C> <C>
568 Broadway $ 1,461,900 $ 0 $ 398,700 $ 4,297,100
Sunrise 5,700,000 0 0 2,800,000
Livonia Plaza 0 0 0 2,100,000
Melrose-Phase II 2,881,000 0 0 0
----------- ----------- ----------- -----------
$10,042,900 $ 0 $ 398,700 $ 9,197,100
=========== =========== =========== ===========
</TABLE>
The details of each write-down are as follows:
568 Broadway
The recession which occurred prior to 1992 had a particularly
devastating effect on the photography studios which depend heavily on
advertising budgets and art galleries as a source of business, resulting in many
tenant failures. Due to the poor market conditions in the SoHo area of New York
City where 568 Broadway is located and the accompanying high vacancies and low
absorption rates which resulted in declining rental rates, management concluded
that the property's estimated net realizable value was below its net carrying
value. The net realizable value was based on sales of comparable buildings which
indicated a value of approximately $65 per square foot. Management, therefore,
recorded a write-down for impairment of $19,400,000 in 1992 of which the
Partnership's share was $4,297,100. Subsequently, management engaged the
services of a certified independent appraiser to perform a written appraisal of
the market value of the property. Based on the results of the appraisal,
management recorded an additional $1,800,000 write-down for impairment in 1993
of which the Partnership's share was $398,700.
Since the date of the above mentioned, significantly greater
capital improvement expenditures than were previously anticipated have been
required in order to render 568 Broadway more competitive in the New York
market. Since the revised estimate of undiscounted cash flows over a 15-year
holding period prepared in connection with the implementation of SFAS #121 in
1995 yielded a result lower than the asset's net carrying value, management
determined than an impairment existed. Management estimated the property's fair
value in order to determine the write-down for impairment. Because the estimate
of fair value using expected cash flows discounted at 13% over 15 years and an
assumed sale at the end of the holding period using a 10% capitalization rate
yielded a result which, in management's opinion, was lower than the property's
value in the marketplace, the property was valued using sales of comparable
buildings which indicated a fair value of $45 per square foot. This fair value
estimate resulted in a $6,600,000 write-down for impairment in 1995, of which
the Partnership's share was $1,461,900.
Sunrise
The occupancy at Sunrise decreased from 96% at acquisition to
84% at December 31, 1992, primarily as the result of the disaffirmance of a
lease for 15,100 square feet by McCrory Corporation following its Chapter 11
bankruptcy filing in 1991. In addition, the average rent per square foot
declined from $10.00 at acquisition to $8.30 at December 31, 1992. Due to the
difficulty in re-leasing the McCrory space and the decline in average rental
rate with uncertain prospects for future improvement, management concluded that
the property's estimated net realizable value was below its net carrying value.
The net realizable value was based on the property's estimated undiscounted
future cash flows over a 5-year period, reflecting expected cash flow from the
lower occupancy and rental rates, and an assumed sale at the end of the holding
period using a 10% capitalization rate. Management, therefore, recorded a
write-down for impairment of $2,800,000 in 1992.
Despite the maintenance of high occupancy rates, actual income
levels at Sunrise have not met and are not expected to meet previously projected
levels due to lower market rental rates since management's impairment review in
1994. In addition, expenses and capital expenditures are both in excess of
previously anticipated amounts. Since the revised estimate of undiscounted cash
flows over a 15-year holding period prepared in connection with the
implementation of SFAS #121 in 1995 yielded a result lower than the asset's net
carrying value, management determined that an impairment existed. Management
estimated the property's fair value, using expected cash flows discounted at 13%
over 15 years and an assumed sale at the end of the holding period using a 10%
capitalization rate, in order to determine the write-down for impairment. This
fair value estimate resulted in a $5,700,000 write-down for impairment in 1995.
Livonia Plaza
While a high occupancy level had been maintained at Livonia
Plaza though 1992, average rent per square foot declined from $12.69 at
acquisition to $9.03 at December 31, 1992, a 30% decrease. As a result,
management concluded that the property's estimated net realizable value was
below its net carrying value. The net realizable value was based on the
property's estimated undiscounted future cash flows over a 5-year period,
reflecting expected cash flow from the lower rental rates, and an assumed sale
at the end of the holding period using a 10% capitalization rate. Management
therefore recorded a write-down for impairment on the property of $2,100,000 in
1992.
Melrose-Phase II
As a result of razing the former 24,232 square foot retail
structure and constructing a 93,728 square foot building at Melrose-Phase II
pursuant to a 20 year lease with Handy Andy, the Partnership recognized a Loss
on Abandonment of $839,202 during 1993 based on the fact that the property's net
realizable value was below its net carrying value upon completion. The resultant
land and building was adjusted to fair market value based on an estimate of fair
value using expected cash flows discounted at 8% over 10 years and an assumed
sale at the end of the holding period using a 9% capitalization rate.
On December 22, 1992, the Partnership entered into a
twenty-year lease with Handy Andy, a major home improvement retailer. Pursuant
to the lease, the Partnership constructed at its expense, for a total cost of
approximately $4,000,000, a 93,728 square foot building and an adjacent 23,300
square foot outdoor selling area on Melrose-Phase II. The lease provides for
annual rental payments of $493,640 per annum (with scheduled adjustments after
the fourth year) through October 2013.
In October 1995, the Partnership was notified that Handy Andy
filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code.
Subsequently in 1996, Handy Andy closed its store and it is expected that the
lease will be rejected by Handy Andy as debtor-in-possession in 1996. Management
determined that an impairment existed due to the reduction in the estimated cash
flows. Management estimated the property's fair value, using expected cash flows
discounted at 13% over 10 years and an assumed sale at the end of the holding
period using a 10% capitalization rate, in order to determine the write-down for
impairment. This fair value estimate resulted in a $2,881,000 write-down for
impairment in 1995.
Results of Operations
1995 vs. 1994
The Partnership experienced a net loss for the year ended
December 31, 1995 compared to net income in the prior year due primarily to the
significant write-downs for impairment recorded during 1995 as previously
discussed.
Rental revenue increased in 1995 as compared to the prior
year. Rental revenues increased at 568 Broadway due to higher occupancy rates in
1995. Revenues at the other properties generally remained constant in 1995 as
compared to 1994.
Costs and expenses increased during 1995 compared to 1994 due
primarily to the write-down for impairment recorded in 1995. The increases in
operating expenses in 1995 related to higher utility costs and the payment of
certain real estate taxes, partially offset by a decrease in repairs and
maintenance. Utility costs increased at 568 Broadway due to the increase in
occupancy during 1995. The Partnership paid real estate taxes in 1995 on behalf
of Handy Andy, a net lease tenant at Melrose-Phase II that filed for bankruptcy
in October 1995. Overall repairs and maintenance costs decreased, most notably
at Sunrise and Livonia Plaza, as certain projects were substantially completed
in 1994. Depreciation and amortization, the partnership asset management fee and
administrative expenses remained relatively constant in 1995 as compared to
1994. Property management fees, however, decreased during 1995 due to an
increase in leasing commissions of certain properties, a factor in computing the
property management fee.
Interest income increased due to higher interest rates and
higher investment balances for 1995 as compared to 1994. Other income, which
consists of investor ownership transfer fees, increased compared to 1994 due to
a greater number of transfers in 1995.
1994 vs. 1993
The Partnership experienced an increase in net income in 1994
as compared to 1993 primarily due to the write-down for impairment and loss on
abandonment recorded in 1993. The increase was due to an increase in revenues
coupled with a decrease in costs and expenses. Rental revenues increased due to
increases in rental income, primarily at TMR Warehouses and Melrose- Phase II,
partially offset by a decrease in rental revenues at Sunrise and Livonia Plaza.
The increase in rental revenues at TMR Warehouses was due to the signing of a
lease for one of the warehouse buildings, which took effect during the second
quarter of 1993. The increase in rental revenues at Melrose-Phase II was due to
the occupancy of the newly constructed building in the third quarter of 1993.
Sunrise and Livonia Plaza experienced decreases in rental revenues due to the
departure of various tenants when their leases expired.
Costs and expenses decreased for 1994 as compared to 1993 due
primarily to the write-down for impairment and loss on abandonment recorded in
1993 as previously discussed. The decrease was also attributable to decreases in
operating expenses and administrative expenses partially offset by an increase
in depreciation and amortization and partnership asset management fee. The
decrease in operating expenses was attributable to decreases in bad debt expense
and real estate taxes, partially offset by increases in insurance and repairs
and maintenance. Real estate taxes decreased due to a real estate tax reduction
at 568 Broadway and Melrose-Phase II. The bad debt expense decrease occurred
primarily at Sunrise and Livonia Plaza due to fewer nonpaying tenants in 1994.
Insurance increased due to increases in insurance rates. The increase in repairs
and maintenance occurred primarily at Sunrise. The decrease in administrative
expenses was mainly due to lower legal and accounting fees partially offset by
an increase in partnership allocated payroll expenses. The increase in
depreciation and amortization was attributable to the completion of the
Melrose-Phase II construction in mid-1993 and the reversal of the write-down for
impairment on the former building. The increase in partnership asset management
fee was attributable to the full utilization of net invested assets allocated to
the Melrose-Phase II construction.
The decrease in interest income was attributable to a lower
average capital reserve invested due to the Melrose-Phase II construction and
the decrease in other income was due to fewer investor ownership transfers for
1994 as compared to 1993.
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 8
to the Partnership's financial statements for a description thereof.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
HIGH EQUITY PARTNERS L.P. - SERIES 88
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
I N D E X
Independent Auditors' report
Financial statements, years ended December 31, 1995,
1994 and 1993
Balance Sheets
Statements of Operations
Statements of Partners' Equity
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of High Equity Partners L.P. - Series 88
We have audited the accompanying balance sheets of High Equity Partners L.P. -
Series 88 (a Delaware limited partnership) as of December 31, 1995 and 1994, and
the related statements of operations, partners' equity and cash flows for each
of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)2.
These financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of High Equity Partners L.P. - Series 88 at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 2, in 1995 the Partnership changed its method of recording
write-downs for impairment of its investments in real estate to conform with
Statement of Financial Accounting Standards No. 121.
DELOITTE & TOUCHE LLP
March 15, 1996
New York, NY
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
REAL ESTATE .................................. $ 50,665,919 $ 61,183,680
CASH AND CASH EQUIVALENTS .................... 3,898,548 3,762,390
OTHER ASSETS ................................. 1,456,301 1,173,480
RECEIVABLES .................................. 284,730 91,397
------------ ------------
TOTAL ASSETS ................................. $ 56,305,498 $ 66,210,947
============ ============
LIABILITIES AND PARTNERS' EQUITY
DISTRIBUTIONS PAYABLE ........................ $ 684,832 $ 684,832
ACCOUNTS PAYABLE AND ACCRUED EXPENSES ........ 695,977 560,264
DUE TO AFFILIATES ............................ 301,590 342,925
------------ ------------
Total liabilities ....................... 1,682,399 1,588,021
============ ============
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners' equity
(371,766 units issued and outstanding) ... 56,222,994 65,722,830
General partners' deficit ................... (1,599,895) (1,099,904)
------------ ------------
Total partners' equity .................. 54,623,099 64,622,926
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY ....... $ 56,305,498 $ 66,210,947
============ ============
</TABLE>
See notes to financial statements
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Rental revenue .................................. $ 7,422,184 $ 7,124,114 $ 6,919,383
------------ ------------ ------------
Costs and Expenses
Operating expenses ........................... 1,819,076 1,696,620 1,991,995
Depreciation and amortization ................ 1,548,105 1,540,661 1,481,242
Partnership asset management fee ............. 880,404 880,404 862,234
Administrative expenses ...................... 441,016 461,130 498,228
Property management fee ...................... 186,235 217,604 216,126
Loss on abandonment .......................... -- -- 839,202
Write-down for impairment .................... 10,042,900 -- 398,700
------------ ------------ ------------
14,917,736 4,796,419 6,287,727
------------ ------------ ------------
(Loss) income before interest and other income .. (7,495,552) 2,327,695 631,656
Interest income .............................. 198,580 90,317 132,879
Other income ................................. 36,473 21,009 32,583
------------ ------------ ------------
Net (loss) income
$ (7,260,499) $ 2,439,021 $ 797,118
============ ============ ============
Net (loss) income attributable to:
Limited partners ............................. $ (6,897,474) $ 2,317,070 $ 757,262
General partners ............................. (363,025) 121,951 39,856
------------ ------------ ------------
Net (loss) income
$ (7,260,499) $ 2,439,021 $ 797,118
============ ============ ============
Net (loss) income per unit of limited partnership
interest (371,766 units outstanding) ......... $ (18.55) $ 6.23 $ 2.04
============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
STATEMENTS OF PARTNERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
General Limited
Partners' Partners'
Deficit Equity Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance, January 1, 1993 .............. $ (987,779) $ 67,853,222 $ 66,865,443
Net income ............................ 39,856 757,262 797,118
Distributions as a return of capital
($7.00 per limited partnership unit) (136,966) (2,602,362) (2,739,328)
------------ ------------ ------------
Balance, December 31, 1993 ............ (1,084,889) 66,008,122 64,923,233
Net income ............................ 121,951 2,317,070 2,439,021
Distributions as a return of capital
($7.00 per limited partnership unit) (136,966) (2,602,362) (2,739,328)
------------ ------------ ------------
Balance, December 31, 1994 ............ (1,099,904) 65,722,830 64,622,926
Net loss .............................. (363,025) (6,897,474) (7,260,499)
Distributions as a return of capital
($7.00 per limited partnership unit) (136,966) (2,602,362) (2,739,328)
------------ ------------ ------------
Balance, December 31, 1995 ............ $ (1,599,895) $ 56,222,994 $ 54,623,099
============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ................................... $ (7,260,499) $ 2,439,021 $ 797,118
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Loss on abandonment .............................. -- -- 839,202
Write-down for impairment ........................ 10,042,900 -- 398,700
Depreciation and amortization .................... 1,548,105 1,540,661 1,481,242
Straight-line adjustment for stepped lease rentals (28,149) (100,959) (72,120)
Changes in assets and liabilities
Accounts payable and accrued expenses ............ 135,713 (311,507) 287,370
Receivables ...................................... (193,333) 195,074 216,526
Due to affiliates ................................ (41,335) 329,143 19,571
Other assets ..................................... (374,869) (61,681) (130,400)
------------ ------------ ------------
Net cash provided by operating activities ........ 3,828,533 4,029,752 3,837,209
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to real estate ......................... (953,047) (1,093,825) (4,801,071)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners ........................... (2,739,328) (2,739,328) (2,927,169)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................... 136,158 196,599 (3,891,031)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ................................. 3,762,390 3,565,791 7,456,822
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ....................................... $ 3,898,548 $ 3,762,390 $ 3,565,791
============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION
High Equity Partners L.P. - Series 88 (the "Partnership"), a limited
partnership, was formed on February 24, 1987 under the Uniform Limited
Partnership Laws of the State of Delaware, for the purpose of investing
in, holding and operating income-producing real estate. The Partnership
will terminate on December 31, 2017 or sooner, in accordance with the
terms of the partnership agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements were prepared on the accrual basis of
accounting and include only those assets, liabilities and results of
operations related to the business of the Partnership. The preparation
of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made to the financial statements
shown for the prior years in order to conform to the current year's
presentation.
Cash and cash equivalents
For purposes of the statements of cash flows, the Partnership considers
all short-term investments which have maturities of three months or
less from the date of issuance to be cash equivalents.
Organization costs
Organization costs were charged against partners' equity upon the
closing of the public offering on October 2, 1989 in accordance with
prevalent industry practice.
Leases
The Partnership accounts for its leases under the operating method.
Under this method, revenue is recognized as rentals become due, except
for stepped leases where the revenue from the lease is averaged over
the life of the lease.
Depreciation
Depreciation is computed using the straight-line method over the useful
life of the property, which is estimated to be 40 years. The cost of
properties represents the initial cost of the properties to the
Partnership plus acquisition and closing costs.
Investments in joint ventures
For properties purchased in joint venture ownership with other
partnerships, the financial statements present the assets, liabilities,
income and expenses of the joint venture on a pro rata basis in
accordance with the Partnership's percentage of ownership.
Impairment of Assets
In March 1995, the Financial Accounting Standards Board issued
Statement #121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of" ("SFAS #121"). Although the
adoption of the statement is not required until fiscal years beginning
after December 15, 1995, early adoption of the statement is encouraged.
The Partnership has decided to implement SFAS #121 for the year ended
December 31, 1995.
Under SFAS #121 the initial test to determine if an impairment exists
is to compute the recoverability of the asset based on anticipated cash
flows (net realizable value) compared to the net carrying value of the
asset. If anticipated cash flows on an undiscounted basis are
insufficient to recover the net carrying value of the asset, an
impairment loss should be recognized, and the asset written down to its
estimated fair value. The fair value of the asset is the amount by
which the asset could be bought or sold in a current transaction
between willing parties, that is, other than in a forced or liquidation
sale. The net realizable value of an asset will generally be greater
than its fair value because net realizable value does not discount cash
flows to present value and discounting is usually one of the
assumptions used in determining fair value.
Prior to the adoption of SFAS #121, a write-down for impairment was
established based upon a periodic review of each of the properties in
the Partnerships' portfolio. Real estate property was previously
carried at the lower of depreciated cost or net realizable value. In
performing the review, management considered the estimated net
realizable value of the property based on future undiscounted cash
flows taking into consideration, among other things, the existing
occupancy, the expected leasing prospects for the property and the
economic situation in the region where the property is located.
Negative trends in occupancy, leasing prospects, and the local economy
have an adverse effect on future undiscounted cash flows (net
realizable value). In certain instances, management retained the
services of a certified independent appraiser to assist in determining
the market value of the property. In these cases, the independent
appraisers utilized both the Sales Comparison and Income Capitalization
methods in their determination of the property's value.
Upon implementation of SFAS #121 in 1995, management performed another
review of its portfolio and determined that certain estimates and
assumptions had changed from its previous review, causing the net
carrying value of certain assets to exceed the undiscounted cash flows.
An impairment was indicated for such properties, so management
estimated their fair values using either discounted cash flows or
market comparables, as most appropriate for each property. As a result
of this process, additional write-downs to fair value totaling
$10,042,900 were required.
After implementation of SFAS #121 as described above, certain of the
Partnership's assets have been written down to their estimated fair
values, while others remain at depreciated cost. Thus, the net carrying
value of the Partnership's asset portfolio may differ materially from
its fair value. However, the write-downs for impairment in 1995 and in
prior years do not affect the tax basis of the assets and the
write-downs are not included in the determination of taxable income or
loss.
Because the determination of both net realizable value and fair value
is based upon projections of future economic vents such as property
occupancy rates, rental rates, operating cost inflation and market
capitalization rates which are inherently subjective, the amounts
ultimately realized at disposition may differ materially from the
carrying values as of December 31, 1995 and 1994. The cash flows used
to determine fair value and net realizable value are based on good
faith estimates and assumptions developed by management. Inevitably,
unanticipated events and circumstances may occur and some assumptions
may not materialize; therefore actual results may vary from our
estimates and the variances may be material. The Partnership may
provide additional losses in subsequent years if the real estate market
or local economic conditions change and such write-downs could be
material.
Income taxes
No provision has been made for federal, state and local income taxes
since they are the personal responsibility of the partners.
Net (loss) income and distributions per unit of
limited partnership interest
Net (loss) income and distributions per unit of limited partnership
interest is calculated based upon the number of units outstanding
(371,766), for each of the years ended December 31, 1995, 1994 and
1993.
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
Resources High Equity, Inc., the Managing General Partner, was, until
November 3, 1994, a wholly-owned subsidiary of Integrated Resources,
Inc. ("Integrated") at which time, pursuant to the consummation of
Integrated's plan of reorganization, substantially all of the assets of
Integrated were sold to Presidio Capital Corp., a British Virgin
Islands corporation, ("Presidio") and the Managing General Partner
became a wholly owned subsidiary of Presidio. Presidio AGP Corp., which
is a wholly-owned subsidiary of Presidio, became the Associate General
Partner on February 28, 1995, replacing Third Group Partners which
withdrew as of that date. 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 that are or
may in the future be engaged in business that may be in competition
with the Partnership. Accordingly, conflicts of interest may arise
between the Partnership and such other businesses. Wexford Management
LLC ("Wexford") has been engaged to perform administrative services to
Presidio and its direct and indirect subsidiaries as well as the
Partnership. Wexford is engaged to perform similar services for other
similar entities that may be in competition with the Partnership.
Realty Resources, Inc. is an affiliate of the Managing General Partner.
For the year ended December 31, 1993 $256,917 was earned by and paid to
Realty Resources, Inc. in connection with the utilization of gross
proceeds to construct the retail building on the Melrose Crossing
Shopping Center - Phase II ("Melrose Phase II") property. For the years
ended December 31, 1995 and 1994, no such fee was earned or paid.
The Partnership has entered into a property management services
agreement with Resources Supervisory Management Corp. ("Resources
Supervisory"), an affiliate of the Managing General Partner, to perform
certain functions relating to the management of the properties of the
Partnership. A portion of the property management fees are paid to
unaffiliated management companies which perform certain management
functions for certain properties. For the years ended December 31,
1995, 1994 and 1993, Resources Supervisory was entitled to receive
$186,235, $217,604, and $216,126, in total, of which $69,405, $78,362,
and $83,973 was paid to unaffiliated management companies,
respectively.
For the administration of the Partnership, the Managing General Partner
is entitled to receive a Partnership Administration Fee of a maximum of
$200,000 per year. For each of the years ended December 31, 1995, 1994
and 1993 the Managing General Partner was entitled to receive $200,000.
For managing the affairs of the Partnership, the Managing General
Partner is entitled to receive a Partnership asset management fee equal
to 1.05% of the amount of original gross proceeds paid or allocable to
the acquisition of property by the Partnership. For the years ended
December 31, 1995, 1994 and 1993 the Managing General Partner earned
$880,404, $880,404, and $862,234, respectively.
The general partners are allocated 5% of the net (losses) income of the
Partnership, which amounted to $(363,025), $121,951, and $39,856, in
1995, 1994 and 1993, respectively. They are also entitled to receive 5%
of distributions, which amounted to $136,966 in each of the years ended
December 31, 1995, 1994 and 1993. During the liquidation stage of the
Partnership, the Managing 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 investments.
4. REAL ESTATE
Management recorded write-downs for impairment totaling $9,197,100 and
$398,700 in 1992 and 1993, respectively. After additional review in
1995, and pursuant to adoption of SFAS #121 as discussed in Note 2,
management determined that an additional write-down of $10,042,900 was
required. The details of write-downs recorded are as follows:
The recession which occurred prior to 1992 had a particularly
devastating effect on the photography studios which depend heavily on
advertising budgets and art galleries as a source of business,
resulting in many tenant failures. Due to the poor market conditions in
the SoHo area of New York City where 568 Broadway is located and the
accompanying high vacancies and low absorption rates which resulted in
declining rental rates, management concluded that the property's
estimated net realizable value was below its net carrying value. The
net realizable value was based on sales of comparable buildings which
indicated a value of approximately $65 per square foot. Management,
therefore, recorded a write-down for impairment of $19,400,000 in 1992
of which the Partnership's share was $4,297,100. Subsequently,
management engaged the services of a certified independent appraiser to
perform a written appraisal of the market value of the property. Based
on the results of the appraisal, management recorded an additional
$1,800,000 write-down for impairment in 1993 of which the Partnership's
share was $398,700.
Since the date of the above mentioned appraisal, significantly greater
capital improvement expenditures than were previously anticipated have
been required in order to render 568 Broadway more competitive in the
New York market. In addition, occupancy levels have remained low. Since
the revised estimate of undiscounted cash flows over a 15 year holding
period prepared in connection with the implementation of SFAS #121 in
1995 yielded a result lower than the asset's net carrying value,
management determined that an impairment existed. Management estimated
the property's fair value in order to determine the write-down for
impairment. Because the estimate of fair value using expected cash
flows discounted at 13% over 15 years and an assumed sale at the end of
the holding period using a 10% capitalization rate yielded a result
which, in management's opinion, was lower than the property's value in
the marketplace, the property was valued using sales of comparable
buildings which indicated a fair value of $45 per square foot. This
fair value estimate resulted in a $6,600,000 write-down for impairment
in 1995 of which the Partnership's share was $1,461,900.
The occupancy at Sunrise decreased from 96% at acquisition to 84% at
December 31, 1992, primarily as the result of the disaffirmance of a
lease for 15,100 square feet by McCrory Corporation following its
Chapter 11 bankruptcy filing in 1991. In addition, the average rent per
square foot declined from $10.00 at acquisition to $8.30 at December
31, 1992. Due to the difficulty in re-leasing the McCrory space and the
decline in average rental rate with uncertain prospects for future
improvement, management concluded that the estimated net realizable
value was below its net carrying value. The net realizable value was
based on the property's estimated undiscounted future cash flows over a
5 year period, reflecting expected cash flow from the lower occupancy
and rental rates, and an assumed sale at the end of the holding period
using a 10% capitalization rate. Management, therefore, recorded a
write-down for impairment of $2,800,000 in 1992.
Despite the maintenance of high occupancy rates, actual income levels
at Sunrise have not met and are not expected to meet previously
projected levels due to lower market rental rates since management's
latest impairment review in 1994. In addition, expenses and capital
expenditures are both in excess of previously anticipated amounts.
Since the revised estimate of undiscounted cash flows over a 15 year
holding period prepared in connection with the implementation of SFAS
#121 in 1995 yielded a result lower than the asset's net carrying
value, management determined that an impairment existed. Management
estimated the property's fair value, using expected cash flows
discounted at 13% over 15 years and an assumed sale at the end of the
holding period using a 10% capitalization rate, in order to determine
the write-down for impairment. This fair value estimate resulted in a
$5,700,000 write-down for impairment in 1995.
While a high occupancy level had been maintained at Livonia Plaza
though 1992, average rent per square foot declined from $12.69 at
acquisition to $9.03 at December 31, 1992, a 30% decrease. As a result,
management concluded that the property's net realizable value was below
the net carrying value. The net realizable value was based on the
property's estimated undiscounted future cash flows over a 5 year
period, reflecting expected cash flow from the lower rental rates, and
an assumed sale at the end of the holding period using a 10%
capitalization rate. Management therefore recorded a write-down for
impairment on the property of $2,100,000 in 1992.
As a result of razing the former 24,232 square foot retail structure
and constructing a 93,728 square foot building on Melrose-Phase II
pursuant to a 20 year lease with Handy Andy, Inc., the Partnership
recognized a Loss on Abandonment of $839,202 during 1993 based on the
fact that the property's net realizable value was below its net
carrying value upon completion. The resultant land and building was
adjusted to fair market value based on an estimate of fair value using
expected cash flows discounted at 8% over 10 years and an assumed sale
at the end of the holding period using a 9% capitalization rate.
On December 22, 1992, the Partnership entered into a twenty-year lease
with Handy Andy Home Improvement Centers, Inc. ("Handy Andy"), a major
home improvement retailer. Pursuant to the lease, the Partnership
constructed at its expense, for a total cost of approximately
$4,000,000, a 93,728 square foot building and an adjacent 23,300 square
foot outdoor selling area on the parcel of land owned by the
Partnership known as Melrose - Phase II. The lease provides for annual
rental payments of $493,640 per annum (with scheduled adjustments after
the fourth year) through October 2013.
In October 1995, the Partnership was notified that Handy Andy filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code.
Subsequently in 1996, Handy Andy closed its stores and it is expected
that the lease will be rejected by Handy Andy as debtor-in-possession
in 1996. Management determined that an impairment existed due to the
reduction in the estimated future cash flows. Management estimated the
property's fair value, using expected cash flows discounted at 13% over
10 years and an assumed sale at the end of the holding period using a
10% capitalization rate, in order to determine the write-down for
impairment. This fair value estimate resulted in a $2,881,000
write-down for impairment in 1995.
The following table is a summary of the Partnership's real estate as
of:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Land ................................... $ 8,040,238 $ 9,743,207
Buildings and improvements ............. 52,933,357 60,320,241
------------ ------------
60,973,595 70,063,448
Less: Accumulated depreciation ......... (10,307,676) (8,879,768)
------------ ------------
$ 50,665,919 $ 61,183,680
============ ============
</TABLE>
The following is a summary of the Partnership's share of anticipated
future receipts under noncancellable leases:
<TABLE>
<CAPTION>
Years Ending December 31,
1996 1997 1998 1999 2000 Thereafter Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
TMR $ 2,103,000 $ 2,103,000 $ 694,000 $ 0 $ 0 $ 0 $ 4,900,000
Sunrise 1,286,000 1,260,000 1,283,000 1,061,000 857,000 4,682,000 10,429,000
Supervalu 852,000 852,000 730,000 544,000 544,000 1,915,000 5,437,000
Livonia 1,182,000 1,105,000 973,000 726,000 543,000 3,665,000 8,194,000
Melrose II 50,000 0 0 0 0 0 50,000
568 Broadway 1,155,000 1,165,000 1,015,000 871,000 835,000 2,968,000 8,009,000
----------- ----------- ----------- ----------- ---------- ---------- ----------
$ 6,628,000 $ 6,485,000 $ 4,695,000 $ 3,202,000 $ 2,779,000 $13,230,000 $37,019,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
5. DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Limited partners ($1.75 per unit) .............. $650,591 $650,591
General partners ............................... 34,241 34,241
-------- --------
$684,832 $684,832
======== ========
</TABLE>
Such distributions were paid in the first quarter of 1996 and 1995,
respectively.
6. DUE TO AFFILIATES
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Partnership asset management fee ............... $220,101 $220,101
Property management fee ........................ 31,489 72,824
Partnership administration fee ................. 50,000 50,000
-------- --------
$301,590 $342,925
======== ========
</TABLE>
Such amounts were paid in the first quarter of 1996 and 1995,
respectively.
7. PARTNERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993, units of limited
partnership interest are at a stated value of $233.04. At each December
31, 1995, 1994, and 1993, a total of 371,766 units of limited
partnership interest, including the initial limited partner, had been
issued for aggregate capital contributions of $86,636,348. In addition,
the general partners contributed a total of $1,000 to the Partnership.
In August 1990, the Managing General Partner declared a special
distribution of $16.96 per unit, representing a return of uninvested
gross proceeds. This amount was a return of capital and lowered the
stated value from $250 per unit to $233.04 per unit.
8. 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.
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 allege that the
erection 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 their property. The
suit seeks a judgement requiring removal of the sidewalk shed,
compensatory damages $20 million and punitive damages of $10 million.
The Partnership believes that this suit is merit less and intends to
vigorously defend it.
c) On or about May 11, 1993 High Equity partners L.P. - Series 86
("HEP-86"), an affiliated partnership, was advised of the existence of
an action (the "B&S Litigation') in which a complaint (the "HEP
Complaint") was filed in the Superior Court for the State of California
for the County of Los Angeles (the "Court") on behalf of a purported
class consisting of all of the purchasers of limited partnership
interests in HEP-86.
On April 7, 1994 the plaintiffs were granted leave to file an amended
complaint (the "Amended Complaint"). The Amended Complaint asserted
claims against the General Partners of the Partnership, the general
partners of HEP-85, the general partner of HEP-86 and certain officers
of the Managing General Partner, among others. The Managing General
Partner of the Partnership is also a general partner of HEP-85 and
HEP-86.
On July 19, 1995, the Court preliminarily approved a settlement of the
B&S Litigation and approved the form of a notice (the "Notice")
concerning such proposed settlement. In response to the Notice,
approximately 1.1% of the limited partners of the three HEP
partnerships (representing approximately 4% of outstanding units)
requested exclusion and 15 limited partners filed written objections to
the settlement. The California Department of Corporations also sent a
letter to the Court opposing the settlement. Five objecting limited
partners, represented by two law firms, also made motions to intervene
so they could participate more directly in the action. The motions to
intervene were granted by the Court on September 14, 1995.
In October and November 1995, the attorneys for the
plaintiffs-intervenors conducted extensive discovery. At the same time,
there were continuing negotiations concerning possible revisions to the
proposed settlement.
On November 30, 1995, the original plaintiffs and the intervening
plaintiffs filed a Consolidated Class and Derivative Action Complaint
("Consolidated Complaint") against the General Partners, the managing
general partner of HEP-85, two of the general partners of HEP-86 and
the indirect corporate parent of the General Partners, alleging various
state law class and derivative claims, including claims for breach of
fiduciary duties; breach of contract; unfair and fraudulent business
practices under California Bus. & Prof. Code Sec. 17200; negligence;
dissolution, accounting, receivership, and removal of general partner;
fraud; and negligent misrepresentation. The Consolidated Complaint
alleges, among other things, that the general partners caused a waste
of HEP Partnership assets by collecting management fees in lieu of
pursuing a strategy to maximize the value of the investments owned by
the limited partners; that the general partners breached their duty of
loyalty and due care to the limited partners by expropriating
management fees from the HEP Partnerships without trying to run the HEP
Partnerships for the purposes for which they are intended; that the
general partners are acting improperly to enrich themselves in their
position of control over the HEP Partnerships and that their actions
prevent non-affiliated entities from making and completing tender
offers to purchase HEP Partnership Units; that by refusing to seek the
sale of the HEP Partnerships' properties, the general partners have
diminished the value of the limited partners' equity in the HEP
Partnerships; that the general partners have taken a heavily overvalued
partnership asset management fee; and that limited partnership units
were sold and marketed through the use of false and misleading
statements.
On or about January, 1996, the parties to the B & S Litigation agreed
upon a revised settlement, which would be significantly more favorable
to limited partners than the previously proposed settlement. The
revised settlement proposal, like the previous proposal, involves the
reorganization of (i) HEP-85, (ii) HEP-86 and, (iii) the Partnership
(collectively, the "HEP Partnerships"), through an exchange (the
"Exchange") in which limited partners (the "Participating Investors")
of the partnerships participating in the Exchange (the "Participating
Partnerships") would receive, in exchange for the partnership units,
shares of common stock ("Shares") of a newly-formed corporation,
Millennium Properties Inc. ("Millennium") which intends to qualify as a
real estate investment trust. Such reorganization would only be
effected with respect to a particular Partnership if holders of a
majority of the outstanding units of that Partnership consent to such
reorganization pursuant to a Consent Solicitation Statement (the
"Consent Solicitation Statement") which would be sent to all limited
partners after the settlement is approved by the Court. In connection
with the Exchange, Participating Investors would receive Shares of
Millennium in exchange for their limited partnership units. 84.65% of
the Shares would be allocated to Participating Investors in the
aggregate (assuming each of the HEP Partnerships participate in the
Exchange) and 15.35% of the Shares would be allocated to the general
partners in consideration of the general partners' existing interests
in the Participating Partnerships, their relinquishment of entitlement
to receive fees and expense reimbursements, and the payment by the
general partners or an affiliate of certain amounts for legal fees.
As part of the Exchange, Shares issued to Participating Investors would
be accompanied by options granting such Investors the right to require
an affiliate of the general partners to purchase Shares at a price of
$11.50 per Share, exercisable during the three month period commencing
nine months after the effective date of the Exchange. A maximum of 1.5
million Shares (representing approximately 17.7% of the total Shares
issued to investors if all partnerships participate) would be required
to be purchased if all partnerships participate in the Exchange. Also
as part of the Exchange, the indirect parent of the General Partners
would agree that in the event that dividends paid with respect to the
Shares do not aggregate at least $1.10 per Share for the first four
complete fiscal quarters following the Effective Date, it would make a
supplemental payment to holders of such Shares in the amount of such
difference. The general partners or an affiliate would also provide an
amount, not to exceed $2,232,500 in the aggregate, for the payment of
attorneys' fees and reimbursable expenses of class counsel, as approved
by the Court, and the costs of providing notice to the class (assuming
that all three Partnerships participate in the Exchange). In the event
that fewer than all of the Partnerships participate in the Exchange,
such amount would be reduced. The general partners would advance to the
Partnerships the amounts necessary to cover such fees and expenses of
the Exchange (but not their litigation costs and expenses, which the
general partners would bear). Upon the effectuation of the Exchange,
the B & S Litigation would be dismissed with prejudice.
On February 8, 1996, at a hearing on preliminary approval of the
revised settlement, the Court determined that in light of renewed
objections to the settlement by the California Department of
Corporations, the Court would appoint a securities litigation expert to
evaluate the settlement. The Court stated that it would rule on the
issue of preliminary approval of the settlement after receiving the
expert's report. If the settlement receives preliminary approval, a
revised notice regarding the proposed settlement would be sent to
limited partners, after which the Court would hold a fairness hearing
in order to determine whether the settlement should be given final
approval. If final approval of the settlement is granted by the Court,
the Consent Solicitation Statement concerning the settlement and the
reorganization would be sent to all limited partners. There would be at
least a 60 day solicitation period and a reorganization of the
Partnership cannot be consummated unless a majority of the limited
partners in the Partnership affirmatively voted to approve it.
9. RECONCILIATION OF NET (LOSS) INCOME AND NET ASSETS PER FINANCIAL
STATEMENTS TO TAX REPORTING
The Partnership files its tax returns on an accrual basis and has
computed depreciation for tax purposes using the accelerated cost
recovery and modified accelerated cost recovery systems, which are not
in accordance with generally accepted accounting principles. The
following is a reconciliation of the net income (loss) income per the
financial statements to net taxable income.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net (loss) income per financial statements $ (7,260,499) $ 2,439,021 $ 797,118
Write-down for impairment ................ 10,042,900 -- 398,700
Loss on abandonment ...................... -- -- 839,202
Tax depreciation in excess of financial
statement depreciation ................... (558,392) (503,792) (474,602)
------------- ------------- -------------
Net taxable income ....................... $ 2,224,009 $ 1,935,229 $ 1,560,418
============= ============= =============
</TABLE>
The differences between the Partnership's assets and liabilities for
tax purposes and financial reporting purposes are as follows:
<TABLE>
<CAPTION>
December 31,
1995
-----------
<S> <C>
Net assets per financial statements $54,623,099
Write-down for impairment 19,638,700
Tax depreciation in excess of financial statement depreciation (2,725,510)
Fair market value step-up in connection with purchase of joint
venture interest not recognized for tax purposes 304,942
Organization costs not charged to partners' equity
for tax purposes 2,788,171
Building and accumulated depreciation, tax basis not charged
to loss on abandonment for tax purposes 2,294,009
-----------
Net assets per tax reporting $76,923,411
===========
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors. The Managing
General Partner manages and controls substantially all of the Partnership's
affairs and has general responsibility and ultimate authority in all matters
affecting its business. The Managing General Partner is also the investment
general partner of HEP-86 and is the managing general partner of HEP-85, both
limited partnerships with investment objectives similar to those of the
Partnership. The Associate General Partner is also a general partner in other
partnerships affiliated with Presidio and whose investment objectives are
similar to those of the Partnership. The Associate General Partner, in its
capacity as such, does not devote any material amount of its business time and
attention to the Partnership's affairs.
Based on a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership pursuant to Rule 16a-3(e) during its most recent
fiscal year and Form 5 and amendments thereto furnished to the Partnership with
respect to its most recent fiscal year, and written representations pursuant to
Item 405(b)(2)(i) of Regulation S-K, none of the General Partners, directors or
officers of the Managing General Partner or beneficial owners of more than 10%
of the Units failed to file on a timely basis reports required by Section 16(a)
of the Securities Exchange Act of 1934 (the "Exchange Act") during the most
recent fiscal or prior fiscal years. No written representations were received
from the partners of the Associate General Partner.
As of March 15, 1996, the names and ages of, as well as the
positions held by, the officers and directors of the Managing General Partner
are as follows:
<TABLE>
<CAPTION>
Has Served as an
Officer and/or
Name Position Age Director Since
- - ----------------- ---------------------- --- -----------------
<S> <C> <C> <C>
Joseph M. Jacobs Director and 43 November 1994
President
Jay L. Maymudes Director, Vice 35 November 1994
President, Secretary
and Treasurer
Robert Holtz Vice President 28 November 1994
Arthur H. Amron Vice President 39 November 1994
and Assistant
Secretary
Frederick Simon Vice President 42 February 1996
</TABLE>
All of the current executive officers and directors were
elected following the consummation of Integrated's plan of reorganization under
which the Managing General Partner became indirectly wholly-owned by Presidio.
Biographies for the executive officers and the directors follow:
Joseph M. Jacobs has been a director and President of Presidio
since its formation in August 1994 and a director, Chief Executive Officer,
President and Treasurer of Resurgence Properties Inc., a company engaged in
diversified real estate activities ("Resurgence"), since its formation in March
1994. Since January 1, 1996, Mr. Jacobs has been a member and the President of
Wexford. From May 1994 to December 1995, Mr. Jacobs was the President of Wexford
Management Corp. From 1982 through May 1994, Mr. Jacobs was employed by, and
since 1988 was the President of, Bear Stearns Real Estate Group, Inc., a firm
engaged in all aspects of real estate, where he was responsible for the
management of all activities, including maintaining worldwide relationships with
institutional and individual real estate investors, lenders, owners and
developers.
Jay L. Maymudes has been the Chief Financial Officer, a Vice
President and Treasurer of Presidio since its formation in August 1994 and the
Chief Financial Officer and a Vice President of Resurgence since July 1994,
Secretary of Resurgence since January 1995 and Assistant Secretary from July
1994 to January 1995. Since January 1, 1996, Mr. Maymudes has been the Chief
Financial Officer and a Senior Vice President of Wexford and was the Chief
Financial Officer and a Vice President of Wexford Management Corp. from July
1994 to December 1995. From December 1988 through June 1994, Mr. Maymudes was
the Secretary and Treasurer, and since February 1990 was a Senior Vice President
of Dusco, Inc., a real estate investment advisor.
Robert Holtz has been a Vice President and Secretary of
Presidio since its formation in August 1994 and a Vice President and Assistant
Secretary of Resurgence since its formation in March 1994. Since January 1,
1996, Mr. Holtz has been a Senior Vice President and member of Wexford and was a
Vice President of Wexford Management Corp. from May 1994 to December 1995. From
1989 through May 1994, Mr. Holtz was employed by, and since 1993 was a Vice
President of, Bear Stearns Real Estate Group, Inc., where he was responsible for
analysis, acquisitions and management of the assets owned by Bear Stearns Real
Estate and its clients.
Arthur H. Amron has been a Vice President of certain
subsidiaries of Presidio since November 1994. Since January 1996, Mr. Amron has
been a Senior Vice President and the general counsel of Wexford. Also, from
November 1994 to December 1995, Mr. Amron was the general counsel and, from
March 1995 to December 1995, a Vice President, of Wexford Management Corp. From
1992 through November 1994, Mr. Amron was an attorney with the law firm of
Schulte, Roth and Zabel.
Frederick Simon was a Senior Vice President of Wexford
Management Corp. from November 1995 to December 1995. Since January 1996, Mr.
Simon has been a Senior Vice President of Wexford. He is also a Vice President
of Resurgence. Prior to joining Wexford, Mr. Simon was Executive Vice President
and a Partner of Greycoat Real Estate Corporation, the U.S. arm of Greycoat PLC,
a London stock exchange real estate investment and development company.
All of the directors will hold office, subject to the bylaws
of the Managing General Partner, until the next annual meeting of stockholders
of the Managing General Partner and until their successors are elected and
qualified.
There are no family relationships between any executive
officer and any other executive officer or director of the Managing General
Partner.
As of March 15, 1996, the names and ages of, as well as the
positions held by, the officers and directors of the Associate General Partner
are as follows:
<TABLE>
<CAPTION>
Has Served as an
Officer and/or
Name Age Position Director Since
- - ---------------------------------- ----- ------------------------------------- ----------------
<S> <C> <C> <C>
Robert Holtz 28 Director and President March 1995
Mark Plaumann 40 Director and Vice President March 1995
Jay L. Maymudes 35 Vice President, Secretary and Treasurer March 1995
Arthur H. Amron 39 Vice President and Assistant Secretary March 1995
See the biographies of the above named officers and directors
in the preceding section, except as noted below.
Mark Plaumann has been a Senior Vice President of Wexford
since January 1996. Mr. Plaumann was a Vice President of Wexford Management
Corp. from February 1995 to December 1995 and was employed by Alvarez & Marsal,
Inc., a workout firm, as Managing Director from February 1990 to January 1995.
Mr. Plaumann was employed by American Healthcare Management, Inc. a hospital
management company, from February 1985 to January 1990 and by Ernst & Young from
January 1973 to February 1985.
Affiliates of the General Partners are also engaged in
business related to the acquisition and operation of real estate.
Many of the above officers, directors and partners of the
Managing General Partner and the Associate General Partner are also officers
and/or directors of the general partners of other public partnerships controlled
by Presidio and various subsidiaries of Presidio.
Item 11. Executive Compensation.
The Partnership is not required to and did not pay
remuneration to the officers and directors of the Managing General Partner or
the partners of the Associate General Partner. Certain officers and directors of
the Managing General Partner receive compensation from the Managing General
Partner and/or its affiliates (but not from the Partnership) for services
performed for various affiliated entities, which may include services performed
for the Partnership; however, the Managing General Partner believes that any
compensation attributable to services performed for the Partnership is
immaterial. See also "Item 13. Certain Relationships and Related Transactions."
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
As of March 15, 1996, no person was known by the Partnership
to be the beneficial owner of more than 5% of the Units other than the trustees
for General Retirement System of the City of Detroit, 510 City-County Building,
Detroit, MI 48226, which owned 20,000 Units representing approximately 5.4% of
the outstanding Units.
No directors, officers or partners of the Managing General
Partner presently own any Units.
As of March 1, 1996, there were 8,766,569 outstanding shares
of common stock of Presidio (the "Class A Shares"). As of that date, neither the
individual directors nor the officers and directors of the Managing General
Partner as a group were known by the Partnership to own more than 1% of the
Class A Shares.
The following table sets forth certain information known to
the Partnership with respect to beneficial ownership of the Class A Shares of
Presidio as of March 1, 1996, by each person who beneficially owns 5% or more of
the Class A Shares, $.01 par value. The holders of Class A Shares are entitled
to elect three out of the five members of Presidio's Board of Directors with the
remaining two directors being elected by holders of the Class B Shares, $.01 par
value, of Presidio.
</TABLE>
<TABLE>
<CAPTION>
Beneficial Ownership
---------------------------------------
Number of Percentage
Name of Beneficial Owner Shares Outstanding
- - ------------------------ ------------- -----------
<S> <C> <C>
Thomas F. Steyer
Fleur A. Fairman 3,169,083(1) 36.1%
John M. Angelo
Michael L. Gordon 1,223,294(2) 14.0%
The TCW Group, Inc. and affiliates 1,151,769(3) 13.1%
Intermarket Corp. 1,000,918(4) 11.4%
</TABLE>
- - -------------
(1) As the managing partners of each of Farallon Capital Partners, L.P.,
Farallon Capital Institutional Partners, L.P., Farallon Capital
Institutional Partners II, L.P. and Tinicum Partners, L.P.
(collectively, the "Farallon Partnerships"), Thomas F. Steyer and Fleur
A. Fairman may each be deemed to own beneficially for purposes of Rule
13d-3 of the Exchange Act the 985,135, 1,104,240, 484,180 and 159,271
shares held, respectively, by each of such Farallon Partnerships. These
shares are included in the listed ownership. By virtue of investment
management agreements between Farallon Capital Management, Inc.
("FCMI") and various managed accounts, FCMI has the authority to
purchase, sell and trade in securities on behalf of such accounts and,
therefore, may be deemed the beneficial owner of the 436,257 shares
held in such accounts. Mr. Steyer and Ms. Fairman are the sole
stockholders of FCMI and its Chairman and President, respectively. The
shares beneficially owned by FCMI are included in the listed ownership.
The other general partners of the Farallon Partnerships are David
Cohen, Joseph Downes, Jason Fish, William Mellin, Meridee Moore and
Eric Ruttenberg and such persons may also be deemed to own beneficially
the shares held by the Farallon Partnerships. Each of such persons also
serves as a managing director of FCMI.
(2) John M. Angelo and Michael L. Gordon, the general partners and
controlling persons of AG Partners, L.P., which is the general partner
of Angelo, Gordon & Co., L.P., may be deemed to have beneficial
ownership under Rule 13d-3 of the Exchange Act of the securities
beneficially owned by Angelo, Gordon & Co., L.P. and its affiliates.
Angelo, Gordon & Co., L.P., a registered investment adviser, serves as
general partner of various limited partnerships and as investment
advisor of third party accounts with power to vote and direct the
disposition of Class A Shares owned by such limited partnerships and
third party accounts.
(3) TCW Special Credits, an affiliate of The TCW Group, Inc. serves as
general partner of various limited partnerships and investment advisor
of various trusts and third party accounts with power to vote and
direct the disposition of Class A Shares owned by such limited
partnerships, trusts and third party accounts. TCW Asset Management
Company, a subsidiary of The TCW Group, Inc., is the managing general
partner of TCW Special Credits. The TCW Group, Inc. may be deemed to be
a beneficial owner of such shares for purposes of the reporting
requirements under Rule 13d-3 of the Exchange Act; however, The TCW
Group, Inc. and its affiliates disclaim beneficial ownership of these
shares.
(4) Intermarket Corp. serves as general partner for certain limited
partnerships and a investment advisor for certain corporations and
foundations. As a result of such relationships, Intermarket Corp. may
be deemed to have the power to vote and the power to dispose of Class A
Shares held by such partnerships, corporations, and foundations.
All of Presidio's Class B Shares are owned by IR Partners.
These 1,200,000 Class B Shares are convertible in the future under certain
circumstances into 1,200,000 Class A Shares, however, such shares are not
convertible at present. IR Partners is a general partnership whose general
partners are Steinhardt Management Company Inc. ("Steinhardt Management"),
certain of its affiliates and accounts managed by it and Roundhill Associates.
Roundhill Associates is a limited partnership whose general partner is Charles
E. Davidson, the Chairman of the Board of Presidio. Joseph M. Jacobs, the Chief
Executive Officer and President of Presidio and the President of Wexford, has a
limited partner's interest in Roundhill Associates. Pursuant to Rule 13d-3 under
the Exchange Act, each of Michael H. Steinhardt, the controlling person of
Steinhardt Management and its affiliates, and Charles E. Davidson may be deemed
to be beneficial owners of such 1,200,000 shares.
The address of Thomas F. Steyer and the other individuals
mentioned in footnote 1 to the table above (other than Fleur A. Fairman) is c/o
Farallon Capital Partners, L.P., One Maritime Plaza, San Francisco, California
94111 and the address of Fleur A. Fairman is c/o Farallon Capital Management,
Inc., 800 Third Avenue, 40th Floor, New York, New York 10022. The address of IR
Partners and Michael Steinhardt and his affiliates is 605 Third Avenue, 33rd
Floor, New York, New York 10158; the address of Charles E. Davidson is c/o
Wexford, 411 West Putnam Avenue, Greenwich, Connecticut 06830. The address of
The TCW Group, Inc. and its affiliates is 865 South Figeroa Street, 18th Floor,
Los Angeles, California 90017. The address of Angelo, Gordon & Co., L.P. and its
affiliates is 245 Park Avenue, 26th Floor, New York, New York 10167. The address
of Intermarket Corp. is 667 Madison Avenue, 7th Floor, New York, New York 10021.
Item 13. Certain Relationships and Related Transactions.
The General Partners and certain affiliated entities have,
during the year ended December 31, 1995, earned or received compensation or
payments for services from the Partnership or subsidiaries of Presidio as
follows:
<TABLE>
<CAPTION>
Compensation
Capacity in from the
Name of Recipient Which Served Partnership
- - ---------------------------- ------------ -------------
<S> <C> <C>
Resources High Equity, Inc. Managing General $1,214,631 (1)
Partner
Presidio AGP Corp. Associate General $ 2,739 (2)
Third Group Partners Partner
Resources Supervisory Affiliated Property $ 116,830 (3)
Management Corp. Manager
</TABLE>
- - ---------------------
(1) Of this amount $134,227 represents the Managing General Partner's share
of distributions of cash from operations, $200,000 represents the
Partnership Administration Fee based on the total number of Units
outstanding and $880,404 represents the Partnership Asset Management
Fee for managing the affairs of the Partnership. All fees payable to
the Managing General Partner for the year ended December 31, 1995 have
been paid. Furthermore, under the Partnership's Limited Partnership
Agreement 4.9% of the net income and net loss of the Partnership is
allocated to the Managing General Partner. Pursuant thereto, for the
year ended December 31, 1995, $108,976 of the Partnership's taxable
income was allocated to the Managing General Partner.
(2) This amount represents the Associate General Partner's share of the
distributions of cash from operations. For the year ended December 31,
1995, $2,224 of the Partnership's taxable income was allocated to the
Associate General Partner pursuant to the Partnership's Limited
Partnership Agreement. The Associate General Partner is entitled to
receive 0.1% of the Partnership's net income or net loss.
(3) This amount was earned pursuant to a management agreement with
Resources Supervisory, a wholly-owned subsidiary of Presidio, for
performance of certain functions relating to the management of the
Partnership's properties and the placement of certain tenants at those
properties. The total fee paid to Resources Supervisory was $186,235 of
which $69,405 was paid to unaffiliated management companies. All
property management fees payable at December 31, 1995 have subsequently
been paid.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a)(1) Financial Statements: See Index to Financial Statements in Item 8.
(a)(2) Financial Statement Schedule:
III. Real Estate and Accumulated Depreciation
(a)(3) Exhibits:
3, 4. (a) Amended and Restated Partnership Agreement ("Partnership
Agreement") of the Partnership, incorporated by reference to Exhibit A
to the Prospectus of the Partnership dated September 15, 1987 included
in the Partnership's Registration Statement on Form S-11 (Reg. No.
3312574).
(b) First Amendment dated as of March 1, 1988 to the Partnership's
Partnership Agreement, incorporated by reference to Exhibit 3, 4 of the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1987.
10. (a) Management Agreement between the Partnership and Resources Property
Management Corp., incorporated by reference to Exhibit 10B to the
Partnership's Registration Statement on Form S-11 (Reg. No. 33-12574).
(b) Acquisition and Disposition Services Agreement among the
Partnership, Realty Resources Inc. and Resources High Equity, Inc.,
incorporated by reference to Exhibit 10(b) of the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1987.
(c) Agreement among Resources High Equity, Inc., Integrated Resources,
Inc. and Third Group Partners, incorporated by reference to Exhibit
10(c) of the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1987.
(d) Amended and Restated Joint Venture Agreement dated February 1, 1990
among the Partnership, Integrated, High Equity Partners, Series 85, a
California Limited Partnership, and High Equity Partners L.P., Series
86, with respect to 568 Broadway, incorporated by reference to Exhibit
10(a) to the Partnership's Current Report on Form 8-K dated February 1,
1990.
(e) First Amendment to Amended and Restated Joint Venture Agreement of
568 Broadway Joint Venture, dated as of February 1, 1990, among the
Partnership, HEP 85 and HEP 86 incorporated by reference to Exhibit
10(h) to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1990.
(f) Form of Termination of Supervisory Management Agreement (separate
agreement entered into with respect to each individual property) and
Form of Supervisory Management, Agreement between the Partnership and
Resources Supervisory (separate agreement entered into with respect to
each individual property), incorporated by reference to Exhibit 10(h)
of the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1991.
(g) Lease Agreement between the Partnership and Handy Andy Home
Improvement Centers, Inc. dated as of December 22, 1992, incorporated
by reference to Exhibit 10(g) of the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1992.
(b) Reports on Form 8-K:
The Partnership filed the following report on Form 8-K during the last
quarter of the fiscal year:
None.
<PAGE>
Financial Statement Schedule Filed Pursuant to
Item 14(a)(2)
HIGH EQUITY PARTNERS L.P. - SERIES 88
ADDITIONAL INFORMATION
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
INDEX
Additional financial information furnished pursuant to the requirements of Form
10-K:
Schedules - December 31, 1995, 1994 and 1993 and years then ended, as
required:
Schedule III - Real estate and accumulated depreciation
- Notes to Schedule III - Real estate and
accumulated depreciation
All other schedules have been omitted because they are
inapplicable, not required, or the information is included in the financial
statements or notes thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 88
By: RESOURCES HIGH EQUITY, INC.,
Managing General Partner
Dated: March 29, 1996 By: /s/ Joseph M. Jacobs
---------------------
Joseph M. Jacobs
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant in their capacities as officers and directors of Resources High
Equity, Inc. and on the dates indicated.
Dated: March 29, 1996 By: /s/ Joseph M. Jacobs
---------------------
Joseph M. Jacobs
President and Director
(Principal Executive Officer)
Dated: March 29, 1996 By: /s/ Jay L. Maymudes
--------------------
Jay L. Maymudes
Vice President, Secretary, Treasurer
and Director
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
====================================================================================================================================
Costs
Capitalized
Subsequent to
Initial Cost Acquisition
-------------------------- -------------------------
Buildings
and Carrying
Description Encumbrances Land Improvements Improvements Costs
- - -------------------------------------------------------------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
RETAIL:
Melrose II Shopping Center Melrose Park IL $ -- $ 1,375,000 $ 4,000,640 $ 4,776 $ --
Sunrise Marketplace Las Vegas NV -- 3,024,968 13,469,031 1,465,343 1,342,536
SuperValue Stores Various -- 1,787,620 6,881,999 -- 708,358
Livonia Plaza Livonia MI -- 1,518,638 9,328,777 952,227 880,080
----------- ----------- ------------ ----------- -----------
-- 7,706,226 33,680,447 2,422,346 2,930,974
----------- ----------- ------------ ----------- -----------
OFFICE:
568 Broadway Office Building New York NY -- 1,429,284 6,093,266 2,700,761 813,953
INDUSTRIAL:
TMR Warehouses Various OH -- 1,355,621 19,694,413 67,724 1,717,279
----------- ----------- ------------ ----------- -----------
$ -- $10,491,131 $ 59,468,126 $ 5,190,831 $ 5,462,206
=========== =========== ============ =========== ===========
Note: The aggregate cost for Federal income tax purposes is $80,612,295 at December 31, 1995.
<PAGE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- Continued
December 31, 1995
====================================================================================================================================
Gross Amounts at Which
Carried at Close Of Period
--------------------------------------------
Reductions
Recorded
Subsequent to
Acquisition Buildings
------------ and
Description Write-downs Land Improvements Total
- - -------------------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
RETAIL:
Melrose II Shopping Center Melrose Park IL $ (2,881,000) $ 638,742 $ 1,860,674 $ 2,499,416
Sunrise Marketplace Las Vegas NV (8,500,000) 1,811,849 8,990,029 10,801,878
SuperValue Stores Various -- 1,935,936 7,442,041 9,377,977
Livonia Plaza Livonia MI (2,100,000) 1,536,441 9,043,281 10,579,722
------------ ------------ ----------- -----------
(13,481,000) 5,922,968 27,336,025 33,258,993
------------ ------------ ----------- -----------
OFFICE:
568 Broadway Office Building New York NY (6,157,700) 651,057 4,228,507 4,879,564
INDUSTRIAL:
TMR Warehouses Various OH -- 1,466,214 21,368,824 22,835,038
------------ ------------ ----------- -----------
$(19,638,700) $8,040,239 $52,933,356 $60,973,595
============ ========== =========== ===========
Note: The aggregate cost for Federal income tax purposes is $80,612,295 at December 31, 1995.
<PAGE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- Continued
December 31, 1995
====================================================================================================================================
Accumulated Date
Description Depreciation Acquired
- - ----------------------------------------------------------- ------------ --------
<S> <C> <C>
RETAIL:
Melrose II Shopping Center Melrose Park IL $ 258,610 1989
Sunrise Marketplace Las Vegas NV 2,280,245 1989
SuperValue Stores Various 1,279,173 1989
Livonia Plaza Livonia MI 1,510,837 1989
-----------
5,328,865
-----------
OFFICE:
568 Broadway Office Building New York NY 1,311,039 1986
INDUSTRIAL:
TMR Warehouses Various OH 3,667,772 1988
-----------
$10,307,676
===========
Note: The aggregate cost for Federal income tax purposes is $80,612,295 at December 31, 1995.
</TABLE>
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
================================================================================
(A) RECONCILIATION OF REAL ESTATE OWNED:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 70,063,448 $ 68,969,623 $ 65,441,389
ADDITIONS DURING THE YEAR
Improvements to Real Estate 953,047 1,093,825 912,030
Construction of Building (2) -- -- 4,000,640
Reversal of Write-down for
Impairment (3) -- -- 1,500,000
OTHER CHANGES
Razing of Building (3) -- -- (2,485,736)
Write-down for Impairment (10,042,900) -- (398,700)
------------ ------------ ------------
BALANCE AT END OF YEAR (1) $ 60,973,595 $ 70,063,448 $ 68,969,623
============ ============ ============
</TABLE>
(1) INCLUDES THE INITIAL COST OF THE PROPERTIES PLUS ACQUISTION AND CLOSING
COSTS.
(2) CONSTRUCTION OF BUILDING AT MELROSE II.
(3) RAZING OF OLD BUILDING AT MELROSE II.
(B) RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 8,879,768 $ 7,435,753 $ 6,244,415
ADDITIONS DURING THE YEAR
Depreciation Expense (1) 1,427,908 1,444,015 1,413,460
OTHER CHANGES
Reversal of Accumulated
Depreciation (2) -- -- (222,122)
------------ ------------ ------------
BALANCE AT END OF YEAR $ 10,307,676 $ 8,879,768 $ 7,435,753
============ ============ ============
</TABLE>
(1) DEPRECIATION IS PROVIDED ON BUILDINGS USING THE STRAIGHT-LINE METHOD OVER
THE USEFUL LIFE OF THE PROPERTY, WHICH IS ESTIMATED TO BE 40 YEARS.
(2) RAZING OF OLD BUILDING AT MELROSE II.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN ITEM 8 TO THE HIGH EQUITY PARTNERS L.P.- SERIES 88 1995
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,898,548
<SECURITIES> 0
<RECEIVABLES> 284,730
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,305,498
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,623,099
<TOTAL-LIABILITY-AND-EQUITY> 56,305,498
<SALES> 0
<TOTAL-REVENUES> 7,422,184
<CGS> 0
<TOTAL-COSTS> 1,819,076
<OTHER-EXPENSES> 13,098,660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,260,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,260,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,260,499)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
