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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 [ ]
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<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
INDEX
Part I. Financial Information:
Balance Sheets--March 31, 1997 and December 31, 1996............................
Statements of Operations--Three Months Ended March 31,
1997 and l996..................................................................
Statement of Partners' Equity--Three Months Ended
March 31, 1997.................................................................
Statements of Cash Flows-- Three Months Ended
March 31, 1997 and 1996........................................................
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-MARCH 31, 1997
BALANCE SHEETS
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
Real estate .......................... $49,185,488 $49,566,804
Cash and cash equivalents ............ 4,719,695 5,353,731
Other assets ......................... 1,344,363 1,372,081
Receivables .......................... 100,558 89,074
----------- -----------
$55,350,104 $56,381,690
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 293,215 $ 508,257
Distributions payable ................ 797,343 684,832
Due to affiliates .................... 297,603 1,152,658
----------- -----------
1,388,161 2,345,747
----------- -----------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (371,766
units issued and outstanding) 51,262,894 51,334,121
General partners' equity ......... 2,699,049 2,701,822
----------- -----------
53,961,943 54,035,943
----------- -----------
$55,350,104 $56,381,690
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Rental Revenue ................................... $2,041,853 $1,987,499
---------- ----------
Costs and Expenses:
Operating expenses .......................... 480,761 464,346
Depreciation and amortization ............... 420,100 425,729
Partnership asset management fee ............ 220,101 220,101
Administrative expenses ..................... 208,767 114,845
Property management fee ..................... 56,255 48,740
---------- ----------
1,385,984 1,273,761
---------- ----------
Income before interest and other income .......... 655,869 713,738
Interest income ............................. 61,874 36,898
Other income ................................ 5,600 7,550
---------- ----------
Net income ....................................... $ 723,343 $ 758,186
========== ==========
Net income attributable to:
Limited partners ............................ $ 687,176 $ 720,277
General partners ............................ 36,167 37,909
---------- ----------
Net income ....................................... $ 723,343 $ 758,186
========== ==========
Net income per unit of limited part-
nership interest (371,766 units outstanding) ... $ 1.85 $ 1.94
========== ==========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
STATEMENT OF PARTNERS' EQUITY
General Limited
Partners' Partners'
Equity Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1997 ............... $ 2,701,822 $ 51,334,121 $ 54,035,943
Net income for the three months
ended March 31, 1997 .................. 36,167 687,176 723,343
Distributions as a return of capital for
the three months ended March 31, 1997
($2.04 per limited partnership unit) .. (38,940) (758,403) (797,343)
------------ ------------ ------------
Balance, March 31, 1997 ................ $ 2,699,049 $ 51,262,894 $ 53,961,943
============ ============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ..................................... $ 723,342 $ 758,186
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ............. 420,100 425,729
Straight line adjustment for stepped
lease rentals ............................ 12,209 9,446
Changes in assets and liabilities:
Accounts payable and accrued expenses ..... (215,042) (387,206)
Receivables ............................... (11,484) 255,134
Due to affiliates ......................... (855,055) (10,067)
Other assets .............................. (22,463) (128,705)
----------- -----------
Net cash provided by operating activities .... 51,607 922,517
----------- -----------
Cash Flows From Investing Activities:
Improvements to real estate .................. (811) (46,288)
----------- -----------
Cash Flows From Financing Activities:
Distributions to partners .................... (684,832) (684,832)
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents (634,036) 191,397
Cash and Cash Equivalents,
Beginning of Year ............................. 5,353,731 3,898,548
----------- -----------
Cash and Cash Equivalents,
End of Quarter ................................ $ 4,719,695 $ 4,089,945
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
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/A
for the year ended December 3l, l996.
The financial information contained herein is unaudited; however, in
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such
financial information have been included.
2. SIGNIFICANT ACCOUNTING POLICIES
Impairment of Assets
The Partnership evaluates the recoverability of the net carrying value
of its real estate and related assets at least annually, and more often
if circumstances dictate. If this review indicates that the carrying
value of a property may not be recoverable, the Partnership estimates
the future cash flows expected to result from the use of the property
and its eventual disposition, generally over a five-year holding
period. In performing this review, management takes into account, among
other things, the existing occupancy, the expected leasing prospects of
the property and the economic situation in the region where the
property is located.
If the sum of the expected future cash flows, undiscounted, is less
than the carrying amount of the property, the Partnership recognizes an
impairment loss, and reduces the carrying amount of the asset to its
estimated fair value. Fair value is the amount at which the asset could
be bought or sold in a current transaction between willing parties,
that is, other than in a forced or liquidation sale. Management
estimates fair value using discounted cash flows or market comparables,
as most appropriate for each property. Independent certified appraisers
are utilized to assist management, when warranted.
Impairment write-downs recorded by the Partnership do not affect the
tax basis of the assets and are not included in the determination of
taxable income or loss.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Because the cash flows used to evaluate the recoverability of the
assets and their fair values are based upon projections of future
economic events, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, the amounts
ultimately realized at disposition may differ materially from the net
carrying values at the balance sheet dates. The cash flows and market
comparables used in this process are based on good faith estimates and
assumptions developed by management. Unanticipated events and
circumstances may occur and some assumptions may not materialize;
therefore, actual results may vary materially from the estimates. The
Partnership may in the future provide provide additional write-downs,
which could be material, if real estate markets or local economic
conditions change.
Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" in February, 1997.
This pronouncement establishes standards for computing and presenting
earnings per share, and is effective for the Partnerhsip's 1997
year-end financial statements. The Partnership's management has
determined that this standard will have no impact on the Partnership's
computation or presentation of net income per unit of limited
partnership interest.
Certain reclassifications were made to the prior year financial
statements in order to conform them to the current period presentation.
Results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire
year.
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
Resources High Equity, Inc., the Managing General Partner, is a
wholly-owned subsidiary of Presidio Capital Corp. ("Presidio").
Presidio AGP Corp., which is a wholly-owned subsidiary of Presidio, is
the Associate General Partner. 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
March 31, 1997, 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 a property management services agreement with
Resources Supervisory Management Corp. ("Resources Supervisory"), an
affiliate of the Managing General Partner, to perform certain functions
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(CONTINUED)
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 March 31, 1997 and 1996,
Resources Supervisory was entitled to receive $56,255 and $48,740,
respectively, of which $27,502 and $27,318 was paid to unaffiliated
management companies.
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 March 31, 1997 and 1996, the
Managing General Partner was entitled to receive $50,000.
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 March 31, 1997 and 1996, the Managing General
Partner earned $220,101.
The general partners are allocated 5% of the net income of the
Partnership, which amounted to $36,167 and $37,909 for the quarters
ended March 31, 1997 and 1996, respectively. They are also entitled to
receive 5% of distributions, which amounted to $38,940 and $34,241 for
the quarters ended March 31, 1997 and 1996, respectively.
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.
From July 1996 through April 1997, Millenium Funding IV Corp., a wholly
owned indirect subsidiary of Presidio, purchased 3,378 units of the
Partnership from various limited partners. These units represent less
than 1% of the outstanding limited partnership units of the
Partnership.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as
of:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Land ................................... $ 8,040,238 $ 8,040,238
Buildings and improvements ............. 53,224,902 53,224,091
------------ ------------
61,265,140 61,264,329
Less: Accumulated depreciation ......... (12,079,652) (11,697,525)
------------ ------------
$ 49,185,488 $ 49,566,804
============ ============
</TABLE>
No write-downs were recorded for the three months ended March 31, 1997
and 1996.
5. DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
Limited partners ($2.04 and $1.75 per unit) ...... $758,403 $650,591
General partners ................................. 38,940 34,241
-------- --------
$797,343 $684,832
======== ========
</TABLE>
Such distributions were paid in the subsequent quarters.
6. DUE TO AFFILIATES
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ----------
<S> <C> <C>
Partnership asset management fee .................... $ 220,101 $ 220,101
Settlement and ligitation cost reimbursement (Note 7) -- 824,511
Property management fee ............................. 27,502 58,046
Non-accountable expense reimbursement ............... 50,000 50,000
---------- ----------
$ 297,603 $1,152,658
========== ==========
</TABLE>
Such amounts were paid in the subsequent quarters.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES
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 "California Action") 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").
On November 30, 1995, after the Court preliminarily approved a
settlement of the California Action but ultimately declined to grant
final approval and after the Court granted motions to intervene by the
original plaintiffs, the original and intervening plaintiffs filed a
Consolidated Class and Derivative Action Complaint ( the "Consolidated
Complaint") against the Administrative and Investment General Partners
of HEP-86, the managing general partner of HEP-85, the managing general
partner of the Partnership and the indirect corporate parent of the
General Partners. The Consolidated Complaint alleges 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 and receivership; 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 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 February 24, 1997, after the Court again approved a settlement of
the California Action but again ultimately declined to grant final
approval, the Court recused itself from considering a motion to
intervene and to file a new complaint in intervention by one of the
objectors to the Revised Settlement, granted the request of one
plaintiffs' law firm to withdraw as class counsel and scheduled future
hearings on various matters.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Limited Partnership Agreement provides for indemnification of the
General Partners and their affiliates in certain circumstances. The
Partnership has agreed to reimburse the General Partners for their
actual costs incurred in defending this litigation and the costs of
preparing settlement materials. Through December 31, 1996, the General
Partners had billed the Partnership a total of $824,511 for these costs
which was paid in February 1997.
The Partnerships and the General Partners believe that each of the
claims asserted in the Consolidated Complaint are meritless and intend
to continue to vigorously defend the California Action. It is
impossible at this time to predict what the defense of the California
Action will cost, the Partnership's financial exposure as a result of
the indemnification agreement discussed above, and whether the costs of
defending could adversely affect the Managing General Partner's ability
to perform its obligations to the Partnership
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital reserves are temporarily invested in short-term instruments and
are expected, together with operating cash flow, to be sufficient to fund
anticipated capital improvements to the Partnership's properties.As of March 31,
1997, total working capital reserves amounted to approximately $2,423,000. The
Partnership intends to distribute to its partners less than all of its future
cash flow from operations in order to assure adequate working capital reserves
for capital improvements and capitalized lease procurement costs.
During the three months ended March 31, 1997, cash and cash equivalents
decreased $634,036 as a result of capital expenditures and distributions to
partners in excess of cash flows from operations. The Partnership's primary
source of funds is cash flow from the operations of its properties, principally
rents received from tenants, which amounted to $51,607 for the three months
ended March 31, 1997. The Partnership used $811 for capital expenditures related
to capital and tenant improvements to the properties and $684,832 for
distributions to partners for the three months ended March 31, 1997.
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. Capital and tenant improvements and
leasing commissions may in the future exceed the Partnership's cash flow from
operations. In that event, the Partnership would utilize the remaining working
capital reserves or sell one or more properties.
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Partnership experienced a slight decrease in net income for the three months
ended March 31, 1997 compared to the same period in 1996 primarily due to higher
costs and expenses which were partially offset by slightly higher revenues at
certain properties in 1997.
Rental revenue increased during the three months ended March 31, 1997 as
compared to the same period in the prior year at Tri-Columbus, 568 Broadway and
Livonia due to higher occupancy rates during the first quarter of 1997 compared
to 1996. 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.
Costs and expenses increased for the three months ended March 31, 1997 compared
to the same period in 1996. Operating expenses increased for the three months
ended March 31, 1997 compared to the same period in 1996 primarily due to higher
repair and maintenance costs at Sunrise as insurance proceeds were received in
1996, offsetting previously incurred costs. Administrative expenses for the
three months ended March 31, 1997 increased compared to the same period in 1996
due to higher legal and accounting fees related to ongoing litigation and the
HEP settlement, as previously discussed. Property management fees increased
during the three months ended March 31, 1997 due to the increase in revenues at
certain properties as previously discussed.
Interest income increased due to higher cash balances during the three months
ended March 31, 1997 as compared to the same period in 1996. Other income, which
consists of investor ownership transfer fees, decreased during the three months
ended March 31, 1997 compared to 1996 due to fewer ownership transfers.
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-MARCH 31, 1997
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:
Current Report on Form 8-K dated January 31, 1997
<PAGE>
HIGH EQUITY PARTNERS L.P.- SERIES 88-FORM 10-Q-MARCH 31, 1997
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: May 20, 1997 By: /S/Joseph M. Jacobs
---------------------
Joseph M. Jacobs
President
(Duly Authorized Officer)
Dated: May 20, 1997 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 March 31, 1997 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,719,695
<SECURITIES> 0
<RECEIVABLES> 100,558
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,350,104
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 53,961,943
<TOTAL-LIABILITY-AND-EQUITY> 55,350,104
<SALES> 0
<TOTAL-REVENUES> 2,041,853
<CGS> 0
<TOTAL-COSTS> 480,761
<OTHER-EXPENSES> 905,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 723,343
<INCOME-TAX> 0
<INCOME-CONTINUING> 723,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 723,343
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
