================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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)
(203) 862-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
================================================================================
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
INDEX
Part I. Financial Information:
Balance Sheets--September 30, 1996 and December 31, 1995
Statements of Operations--Three Months Ended September 30,
1996 and l995 and Nine Months Ended September 30, 1996 and 1995
Statement of Partners' Equity--Nine Months Ended
September 30, 1996
Statements of Cash Flows-- Nine Months Ended
September 30, 1996 and 1995
Notes to Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information:
Legal Proceedings, Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
BALANCE SHEETS
September 30, December 31,
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Real estate .................................. $ 49,577,722 $ 50,665,919
Cash and cash equivalents .................... 4,944,679 3,898,548
Other assets ................................. 1,518,815 1,456,301
Receivables .................................. 252,839 284,730
------------ ------------
$ 56,294,055 $ 56,305,498
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses ........ $ 574,170 $ 695,977
Distributions payable ........................ 684,832 684,832
Due to affiliates ............................ 288,860 301,590
------------ ------------
1,547,862 1,682,399
------------ ------------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (371,766
units issued and outstanding) ... 56,339,931 56,222,994
General partners' deficit .................... (1,593,738) (1,599,895)
------------ ------------
54,746,193 54,623,099
------------ ------------
$ 56,294,055 $ 56,305,498
============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Rental Revenue ........................................ $ 1,755,457 $ 1,827,308 $ 5,864,524 $ 5,308,239
------------ ------------ ------------ ------------
Costs and Expenses:
Operating expenses ........................... 419,172 403,185 1,392,085 1,270,702
Depreciation and amortization ................ 425,729 359,300 1,277,187 1,116,400
Partnership asset management fee ............. 220,101 220,101 660,303 660,303
Administrative expenses ...................... 131,848 127,488 363,647 381,286
Property management fee ...................... 48,941 41,779 157,072 136,281
Write-down for impairment .................... -- -- -- 7,161,900
------------ ------------ ------------ ------------
1,245,791 1,151,853 3,850,294 10,726,872
------------ ------------ ------------ ------------
Income (loss) before interest and other income ........ 509,666 675,455 2,014,230 (5,418,633)
Interest income .............................. 48,252 34,356 115,449 137,876
Other income ................................. 22,891 8,050 47,911 26,960
------------ ------------ ------------ ------------
Net income (loss) ..................................... $ 580,809 $ 717,861 $ 2,177,590 $ (5,253,797)
============ ============ ============ ============
Net income (loss) attributable to:
Limited partners ............................. $ 551,769 $ 681,968 $ 2,068,710 $ (4,991,107)
General partners ............................. 29,040 35,893 108,880 (262,690)
------------ ------------ ------------ ------------
Net income (loss) ..................................... $ 580,809 $ 717,861 $ 2,177,590 $ (5,253,797)
============ ============ ============ ============
Net income (loss) per unit of limited part-
nership interest (371,766 units
outstanding) ........................................ $ 1.48 $ 1.83 $ 5.56 $ (13.43)
============ ============ ============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
STATEMENT OF PARTNERS' EQUITY
General Limited
Partners' Partners'
(Deficit) Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1996 ................. $ (1,599,895) $ 56,222,994 $ 54,623,099
Net income for the nine months
ended September 30, 1996 ................ 108,880 2,068,710 2,177,590
Distributions as a return of capital
for the nine months ended September 30,
1996 ($5.25 per limited partnership unit) (102,723) (1,951,773) (2,054,496)
------------ ------------ ------------
Balance, September 30, 1996 .............. $ (1,593,738) $ 56,339,931 $ 54,746,193
============ ============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) .............................. $ 2,177,590 $(5,253,797)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Write-down for impairment ................. -- 7,161,900
Depreciation and amortization ............. 1,277,187 1,116,400
Straight line adjustment for stepped
lease rentals ............................ 28,338 (75,375)
Changes in assets and liabilities:
Accounts payable and accrued expenses ..... (121,807) 191,905
Receivables ............................... 31,891 51,425
Due to affiliates ......................... (12,730) (47,733)
Other assets .............................. (190,016) (244,383)
----------- -----------
Net cash provided by operating activities .... 3,190,453 2,900,342
----------- -----------
Cash Flows From Investing Activities:
Improvements to real estate .................. (89,826) (836,476)
----------- -----------
Cash Flows From Financing Activities:
Distributions to partners .................... (2,054,496) (2,054,496)
----------- -----------
Increase in Cash and Cash Equivalents .......... 1,046,131 9,370
Cash and Cash Equivalents,
Beginning of Year ............................. 3,898,548 3,762,390
----------- -----------
Cash and Cash Equivalents,
End of Quarter ................................ $ 4,944,679 $ 3,771,760
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
l. GENERAL
The accompanying financial statements, notes and discussions should be
read in conjunction with the financial statements, related notes and
discussions contained in the Partnership's annual report on Form l0-K
for the year ended December 3l, l995. The December 31, 1995 year-end
balance sheet data is derived from audited financial statements but
does not include all disclosures required by generally accepted
accounting principles.
The financial information contained herein is unaudited; however, in
the opinion of management, all adjustments necessary for a fair
presentation of such financial information have been included. Other
than the write-down for impairment, all of the aforementioned
adjustments are of a normal recurring nature and there have not been
any non-recurring adjustments included in the results reported for the
current period.
2. SIGNIFICANT ACCOUNTING POLICIES
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 was not required until fiscal years
beginning after December 15, 1995, the Partnership implemented 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.
Upon implementation of SFAS #121, 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 do not affect the tax
basis of the assets and the write-downs are not included in the
determination of taxable income or loss.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 value as of the balance sheet date. 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 periods if the real estate
market or local economic conditions change and such write-downs could
be material.
Certain reclassifications were made to the prior year financial
statements in order to conform them to the current period presentation.
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 the
plan of reorganization, 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. The
general partners and affiliates of the general partners are also
engaged in businesses related to the acquisition and operation of real
estate. Presidio is also the parent of other corporations 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. During the three months ended September 30, 1996,
reimbursable expenses to Wexford by the Partnership amounted to
$22,350. Wexford is engaged to perform similar services for other
similar entities that may be in competition with the Partnership.
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 three months ended September
1996 and 1995, Resources Supervisory was entitled to receive $48,941
and $41,779, respectively, of which $30,183 and $16,688 was paid to
unaffiliated management companies. These fees were paid in the
subsequent quarters.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
For the administration of the Partnership, the Managing General Partner
is entitled to receive reimbursement of expenses of a maximum of
$200,000 per year (exclusive of the administrative expenses paid to
Wexford). For each of the quarters ended September 30, 1996 and 1995,
the Managing General Partner was entitled to receive $50,000 which was
paid in the subsequent quarters.
For managing the affairs of the Partnership, the Managing General
Partner is entitled to receive an annual partnership asset management
fee equal to 1.05% of the amount of original gross proceeds paid or
allocable to the acquisition of property by the Partnership. For each
of the quarters ended September 30, 1996 and 1995, the Managing General
Partner earned $220,101 which was paid in the subsequent quarters.
The general partners are allocated 5% of the net income of the
Partnership, which amounted to $29,040 and $35,893 for the quarters
ended September 30, 1996 and 1995, respectively. They are also entitled
to receive 5% of distributions, which amounted to $34,241 for each of
the quarters ended September 30, 1996 and 1995.
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.
During July 1996 through October 1996, Millenium Funding IV Corp., a
wholly owned indirect subsidiary of Presidio, purchased 1,809 units of
the Partnership from various limited partners. These purchases
represent less than .5% of the outstanding limited partnership units of
the Partnership.
4. REAL ESTATE
Management recorded write-downs for impairment totaling $7,161,900 in
the first quarter of 1995 pursuant to adoption of SFAS #121 as
discussed in Note 2. No write-downs were recorded for the nine months
ended September 30, 1996.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
The following table represents the write-downs for impairment recorded
on the Partnership's properties:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
Property 1996 1995
-------- ---- ----
<S> <C> <C>
568 Broadway ....................... $ -- $1,461,900
Sunrise ............................ -- 5,700,000
---------- ----------
$ -- $7,161,900
========== ==========
</TABLE>
The following table is a summary of the Partnership's real estate as
of:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Land ................................... $ 8,040,238 $ 8,040,238
Buildings and improvements ............. 53,023,183 52,933,357
------------ ------------
61,063,421 60,973,595
Less: Accumulated depreciation ......... (11,485,699) (10,307,676)
------------ ------------
$ 49,577,722 $ 50,665,919
============ ============
</TABLE>
5. DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<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 quarters subsequent to September 30,
1996 and December 31, 1995, respectively.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
6. DUE TO AFFILIATES
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Partnership asset management fee ................. $220,101 $220,101
Property management fee .......................... 18,759 31,489
Non-accountable expense reimbursement ............ 50,000 50,000
-------- --------
$288,860 $301,590
======== ========
</TABLE>
Such amounts were paid in the quarters subsequent to September 30, 1996
and December 31, 1995, respectively.
7. 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 in excess of $20 million
plus additional damages of an indeterminate amount. The 568 Broadway
Joint Venture's action for rent against Solo Press was tried in 1992
and resulted in a judgement in favor of the 568 Broadway Joint Venture
for rent owed. The Partnership believes this will result in dismissal
of the action brought by Solo Press against the 568 Broadway Joint
Venture. Since the facts of the other actions which involve material
claims or counterclaims are substantially similar, the Partnership
believes that the 568 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 of $20 million and punitive damages of $10
million. The Partnership believes that this suit is meritless and
intends to vigorously defend it.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. On May 6, 1996, the expert submitted a report stating
that he was unable to conclude that the revised settlement as proposed
is fair, reasonable and adequate, and recommending that the revised
settlement be restructured so as to allocate Shares to the general
partners based solely on the value of their 5% equity interests in the
Partnerships, that the allocation of Shares be based on independent
appraisals of all of the Partnerships' properties, and that
Participating Investors be provided with dissenters' rights. On May 28,
1996, at a hearing in connection with the expert's report, the Court
ordered the parties to brief certain valuation issues, the requisite
consents required from limited partners to approve the Exchange and the
applicability of exemptions from the California securities law.
Thereafter, in response to the expert's report, the proposed settlement
was further revised to require independent appraisals of all the
Partnerships' properties and to provide Participating Investors with
dissenters' rights, which would entitle Participating Investors who
elected dissenters' rights to receive, as compensation for their Units,
unsecured notes issued by Millennium, the face amount of which would be
based on the independent appraisals.
A hearing on the issues the Court had ordered the parties to brief was
held on July 9, 1996. On July 18, 1996, the Court preliminarily
approved the proposed, revised settlement of the B & S Litigation, and
made a preliminary finding that the proposed, revised settlement is
fair, adequate and reasonable to the class, and that a settlement class
should be conditionally certified. After a hearing on August 19, 1996
the Court approved the form and method of notice to limited partners
regarding the proposed, revised settlement which has been sent to
limited partners.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At a hearing on October 23, 1996, the Court stated that it wished to
consider late-filed briefs from certain objectors which were filed up
to and including the date of the hearing. The Court also invited a
further response from the plaintiffs to such briefs. On November 4,
1996, the Court issued an order seeking comment on the final version of
the settlement from the California Department of Corporations and
additional information from the plaintiffs. The Court requested a
response within 17 days of its order. Upon final approval of the
settlement by the Court, the Consent Solicitation Statement concerning
the Exchange 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 vote to approve it.
8. RESULTS OF OPERATIONS
Results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the entire
year.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership owns outright or an interest in 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 expenses aggregating
$2,788,245).
In August 1990, the Managing General Partner declared a special distribution of
$16.96 per unit, representing a return of uninvested 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 nine months ended September 30, 1996, 100% of
capital expenditures and distributions were funded from cash flow from
operations. As of September 30, 1996, total remaining working capital reserves
amounted to approximately $3,665,000. The Partnership intends to distribute less
than all of its future cash flow from operations 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. The loss of revenues pursuant to Handy Andy's bankruptcy filing
at Melrose II will have an adverse effect on the Partnership's operations and
financial position. 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 nine months ended September 30, 1996, cash and cash equivalents
increased $1,046,131 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 operations of its properties, principally
rents received from tenants, which amounted to $3,190,453 for the nine months
ended September 30, 1996. The Partnership used $89,826 for capital expenditures
related to capital and tenant improvements to the properties and $2,054,496 for
distributions to partners for the nine months ended September 30, 1996.
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 cash flow from operations
which would otherwise be available for distributions. In that event, the
Partnership would utilize the remaining working capital reserves or sell one or
more properties, which would have an adverse effect on future distributions.
Except as discussed above, management is not aware of any other trends, events,
commitments or uncertainties that will have a significant impact on liquidity.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REAL ESTATE MARKET
The real estate market continues to suffer from the effects of the recession
which included a substantial decline in the market value of existing properties.
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 was not
required until fiscal years beginning after December 15, 1995, the Partnership
implemented 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 market 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.
Upon implementation of SFAS #121, certain of the Partnership's assets have been
written down to their estimated fair market values, while others remain at
depreciated cost. Thus, the net carrying value of the Partnership's asset
portfolio may differ materially from its fair market value. However, the
write-downs for impairment 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 the balance sheet date. 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 estimate and the variances may be
material. The Partnership may provide additional losses in subsequent periods if
the real estate market or local economic conditions change and such write-downs
could be material.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management recorded write-downs for impairment totaling $7,161,900 in the first
quarter of 1995 pursuant to adoption of SFAS #121 as discussed above. No
write-downs were recorded for the nine months ended September 30, 1996.
The following table represents the write-downs for impairment recorded on the
Partnership's properties.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
Property 1996 1995
-------- ---- ----
<S> <C> <C>
568 Broadway ....................... $ -- $1,461,900
Sunrise ............................ -- 5,700,000
---------- ----------
$ -- $7,161,900
========== ==========
</TABLE>
RESULTS OF OPERATIONS
The Partnership experienced net income for the nine months ended September 30,
1996 compared to a net loss during the same period in the prior year due
primarily to the significant write-down for impairment recorded in 1995. The
Partnership experienced a decrease in net income for the three months ended
September 30, 1996 compared to the same period in the prior year due primarily
to lower revenues at certain properties in 1996.
Rental revenue increased during the nine months ended September 30, 1996 as
compared to the same periods in the prior year while overall revenue decreased
for the three month period ended September 30, 1996 compared to 1995. Rental
revenues increased at Tri-Columbus, Sunrise, 568 Broadway and Livonia due to
higher occupancy rates in 1996 compared to the first three quarters of 1995.
These increases were partially offset by a decrease in revenues at Melrose II
due to the bankruptcy filing by Handy Andy, the sole tenant at the property, in
March 1996. The Handy Andy bankruptcy resulted in an overall decrease in
revenues for the three months ended September 30, 1996 as compared to the same
period in 1995.
Costs and expenses decreased during the nine months ended September 30, 1996
compared to 1995 due primarily to the write-down for impairment recorded in 1995
while costs and expenses increased slightly for the three months ended September
30, 1996 as compared to the same period in the prior year. Operating expenses
increased for both the nine and three month periods ended September 30, 1996
compared to the same period in 1995 due to higher professional fees, real estate
tax expense, and utility costs, partially offset by lower repair and maintenance
costs at certain properties. Professional fees increased due to the bankruptcy
at Melrose II and the real estate taxes on the property, previously paid by
Handy Andy, the former sole net lease tenant there, became the responsibility of
the Partnership pursuant to the rejection of the lease by Handy Andy as
debtor-in-possession in March of 1996. Utility costs increased at 568 Broadway
during the nine and three months ended September 30, 1996 due to higher
occupancy in 1996 compared to 1995. Overall repairs and maintenance costs
decreased at Sunrise due to the receipt of insurance proceeds in 1996 which
offset previously incurred repair and maintenance costs.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and amortization increased during the nine and three months ended
September 30, 1996 compared to 1995 due to significant capital and tenant
improvement work in 1995. The partnership asset management fee remained
consistent in 1996 compared to 1995. Administrative expenses also remained
relatively consistent during the nine and three months ended September 30, 1996
compared to the same periods in the prior year as lower allocated partnership
payroll costs were offset by higher partnership legal fees in 1996 as compared
to the same periods in 1995. Property management fees increased during the nine
months ended September 30, 1996 due to the increase in revenues at certain
properties as previously discussed. Property management fees increased in the
third quarter of 1996 due to certain adjustments made in the third quarter of
1995 which affected the calculation of the property management fees.
Interest income decreased due to lower interest rates for the nine months ended
September 30, 1996 compared to the same period in the prior year, but higher
cash balances during the third quarter of 1996 offset the decrease in interest
rates. Other income, which consists of investor ownership transfer fees,
increased during the nine and three months ended September 30, 1996 compared to
the same periods in 1995 due to a greater number of ownership transfers during
the second and third quarters of 1996.
Inflation is not expected to have a material impact on the Partnership's
operations or financial position.
Legal Proceedings
The Partnership is a party to certain litigation. See Note 7 to financial
statements for a description thereof.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-SEPTEMBER 30, 1996
PART II. - OTHER INFORMATION
Item 1 - Legal Proceedings
(a) See Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes to
Financial Statements - Note 7 which is herein
incorporated by reference.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: There were no exhibits filed.
(b) Reports on Form 8-K: None
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
High Equity Partners L.P. - Series 88
By: Resources High Equity, Inc.
Managing General Partner
Dated: November 14, 1996 By: /S/ Joseph M. Jacobs
---------------------
Joseph M. Jacobs
President
(Duly Authorized Officer)
Dated: November 14, 1996 By: /S/ Jay L. Maymudes
--------------------
Jay L. Maymudes
Vice President, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 30, 1996 Form 10-Q of High Equity Partners
L.P.-Series 88 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,944,679
<SECURITIES> 0
<RECEIVABLES> 252,839
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,294,055
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,746,193
<TOTAL-LIABILITY-AND-EQUITY> 56,294,055
<SALES> 0
<TOTAL-REVENUES> 5,864,524
<CGS> 0
<TOTAL-COSTS> 1,392,085
<OTHER-EXPENSES> 2,458,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,177,590
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,177,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,177,590
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
