SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended December 31, 1996
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, 1997, 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.
<PAGE>
The Partnership's property investments which contributed more than 15%
of the Partnership's total gross revenues were as follows: in 1996, TMR
Warehouses, Sunrise, Livonia and 568 Broadway represented approximately 28.7%,
23.6%, 19.3%, and 16.4% of gross revenues, respectively; in 1995, TMR
Warehouses, Sunrise and Livonia Plaza represented approximately 27.3%, 19.6%,
and 18.4%, respectively; in 1994, TMR Warehouses, Sunrise and Livonia Plaza
represented approximately 27.9%, 20.3% and 19.7%, respectively.
The Partnership owned the following properties as of March 15, 1997:
(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, 1997 and 1996, the Orange and Grove City
buildings were each 100% leased to a single tenant. As of January 1, 1997, the
Hilliard property was 100% leased compared to 74% as of January 1, 1996. This
includes a one-year, cancelable lease with The Packaging Group expiring on
September 30, 1997, representing approximately 26% of the building.
Additionally, the Volvo/GM Heavy Truck lease covering 583,000 square feet in
Orange Township expires on December 31, 1997. The Partnership is currently
negotiating an extension of this lease.
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.
<PAGE>
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.
On October 12, 1995, Handy Andy filed for bankruptcy under Chapter 11
of the United States Bankruptcy Code. On March 7, 1996, Handy Andy closed its
store at Melrose-Phase II and rejected its lease. A proof-of-claim has been
filed on behalf of the Partnership, and that is being pursued through the
bankruptcy process. Simultaneously, the Partnership is marketing the space to
retail tenants, and is exploring a possible conversion of the building to a
light industrial or warehouse/distribution use. However, this conversion may
require a change in zoning as well as the approval of Venture, and the
probability obtaining those approvals is unknown.
(3) Sunrise Marketplace. On February 15, 1989, the Partnership
purchased the fee simple interest in Sunrise Marketplace ("Sunrise"), a 176,765
square foot neighborhood shopping center in Las Vegas , Nevada. The center is
situated on 15.15 acres of land at the northeast corner of Nellis Boulevard and
Stewart Avenue. Sunrise was 94% leased as of January 1, 1997 compared to 91% at
January 1, 1996. During 1996 new and renewal leases were completed on 26,140
square feet representing 15% of the center's leasable space. There are no leases
which represent at least 10% of the square footage of the center scheduled to
expire during 1997.
House of Fabrics, as part of a reorganization plan and emergence from
bankruptcy, accepted the lease on their 12,000 square foot location at Sunrise
and Hollywood Entertainment renovated their 15,000 square foot store and renewed
for a ten year term.
The Partnership's legal action regarding the structural roof/truss
problem continues and due to the number of parties involved, the outcome is
uncertain and a resolution is not anticipated in the near future. The
replacement of a judge hindered progress during 1996 and depositions should
occur later this year. No evidence was found to indicate that the truss
manufacturer was liable and a $10,000 settlement was reached. Repairs were
completed in 1994 at a cost of approximately $350,000.
<PAGE>
The renovation of Sunrise in late 1994 positioned the center to compete
with other properties in its primary trade market and new development has been
limited to free standing buildings at strategic locations. Rental rates have
remained stable.
(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. There are no leases which
represent at least 10% of the square footage of the property scheduled to expire
during 1997.
(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, 1997 and January 1, 1996. There are no leases which
represent at least 10% of the square footage of the center scheduled to expire
in 1997.
In October 1996, the Partnership signed an agreement to expand the
Kroger store. The expanded and remodeled store is expected to open in late
summer or early fall, 1997. 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 is expected 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").
<PAGE>
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 100% leased as of
January 1, 1997 compared to 95% as of January 1, 1996. There are no leases which
represent at least 10% of the square footage of the property scheduled to expire
during 1997.
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, Livonia Plaza and Melrose II and
subcontracts certain management and leasing functions to unaffiliated third
parties. TMR Warehouses and the properties leased by Super Valu 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", Item11, "Executive Compensation", and Item 13, "Certain
Relationships and Related Transactions".
<PAGE>
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 "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 B&S Litigation 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
<PAGE>
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.
In January, 1996, the parties to the B&S Litigation agreed upon a
revised settlement (the "Revised Settlement"). The core feature of the Revised
Settlement was the surrender by the general partners of certain fees that they
are entitled to receive, the reorganization of the Partnership, HEP-85 and
HEP-86 (collectively, the "HEP Partnerships") into a publicly traded real estate
investment trust ("REIT"), and the issuance of stock in the REIT to the limited
partners (in exchange for their limited partnership interests) and General
Partners (in exchange for their existing interest in the HEP Partnerships and
the fees being given up). The General Partners believe that the principal
benefits of the Revised Settlement were (1) substantially increased
distributions to limited partners, (2) market liquidity through a NASDAQ listed
security, and (3) the opportunity for growth and diversification that was not
permitted under the Partnership structure. There were also believed to be other
significant tax benefits, corporate governance advantages and other benefits of
the Revised Settlement.
On July 18, 1996, the Court preliminarily approved the Revised
Settlement and made a preliminary finding that the Revised Settlement was fair,
adequate and reasonable to the class. In August 1996, the Court approved the
form and method of notice regarding the Revised Settlement which was sent to
limited partners.
Only approximately 2.5% of the limited partners of the HEP Partnerships
elected to "opt out" of the Revised Settlement. Despite this, following the
submission of additional materials, the Court entered an order on January 14,
1997 rejecting the Revised Settlement and concluding that there had not been an
adequate showing that the settlement was fair and reasonable. Thereafter, the
plaintiffs filed a motion seeking to have the Court reconsider its order.
Subsequently, the defendants withdrew the revised settlement and at a hearing on
February 24, 1997, the Court denied the plaintiffs' motion. Also at the February
24, 1997 hearing, 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>
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 B&S Litigation. It is impossible at this time
to predict what the defense of the B&S Litigation 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.
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.
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, 1997, there were 7,515 holders of Units of the
Partnership, owning an aggregate of 371,766 Units (including 10 Units held by
the initial limited partner).
<PAGE>
Distributions per Unit of the Partnership for 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
Distributions for the Amount of Distribution
Quarter Ended Per Unit
- ------------- --------
<S> <C>
March 31, 1995 ............................................ $ 1.75
June 30, 1995 ............................................. $ 1.75
September 30, 1995 ........................................ $ 1.75
December 31, 1995 ......................................... $ 1.75
March 31, 1996 ............................................ $ 1.75
June 30, 1996 ............................................. $ 1.75
September 30, 1996 ........................................ $ 1.75
December 31, 1996 ......................................... $ 1.75
</TABLE>
The source of distributions and capital improvements in 1995 and 1996
was cash flow from operations. 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 years ended December 31,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ --------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Revenues ........ $ 7,759,188 $ 7,422,184 $ 7,124,114 $ 6,919,383 $ 6,815,512
Net Income (Loss) $ 2,152,172 $ (7,260,499)(3) $ 2,439,021 $ 797,118(2) $ (6,888,246)(1)
Net Income (Loss)
Per Unit ...... $ 5.79 $ (18.55)(3) $ 6.23 $ 2.04(2) $ (17.60)(1)
Distributions (4)
Per Unit ....... $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 8.98
Total Assets .... $ 56,381,690 $ 56,305,498 $ 66,210,947 $ 66,493,618 $ 68,241,132
- ------------
(1) Net loss for the year ended December 31, 1992 includes a write-down for
impairment on Sunrise, Livonia Plaza and 568 Broadway in the aggregate
amount of $9,197,100, or $23.50 per Unit.
(2) 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.
<PAGE>
(3) 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.
(4) 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.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At December 31, 1996, 1995 and 1994, 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. As discussed
in Note 3, the General Partners hold a 5% equity interest in the Partnership.
However, at the inception of the Partnership, the General Partners' equity
account was credited with only the actual capital contributed in cash, $1,000.
Subsequent to the issuance of the 1996 financial statements, the Partnership's
management determined that this accounting does not appropriately reflect the
Limited Partners' and General Partners' relative participations in the
Partnerships's net assets, since it does not reflect the General Partners' 5%
interst in the Partnership. Thus, the Partnershp has restated its financial
statements to reallocate $4,331,074 (5% of the gross proceeds raised at the
Partnership's formation) of the partners' equity to the General Partners' equity
account. This reallocation was made as of the inception of the Partnership and
all periods presented in the financial statements have been restated to reflect
the reallocation. The reallocation has no impact on the Partnership's financial
position, results of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
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, 1996, all
capital expenditures and all distributions were funded from cash flow from
operations. As of December 31, 1996, total remaining working capital reserves
amounted to approximately $3,465,000. 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. In March 1997, the Managing General Partner notified the
limited partners of its intention to increase the annual distribution from $7.00
per unit to $8.15 per unit as a result of improved operating results. 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.
<PAGE>
During the year ended December 31, 1996, cash and cash equivalents
increased $1,455,183 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 $4,485,245 for the year ended
December 31, 1996. The Partnership used $290,734 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, 1996.
<PAGE>
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 and capitalized tenant procurement costs:
<TABLE>
<CAPTION>
Capital Improvements and Capitalized Tenant Procurement Costs
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
568 Broadway ................ $ 132,801 $ 422,783 $ 446,175
Sunrise ..................... 308,903 606,835 580,255
Livonia Plaza ............... 7,818 251,490 142,323
Melrose-Phase II ............ 2,100 0 4,776
TMR Warehouse ............... 15,174 64,969 0
Super Valu .................. 0 0 0
---------- ---------- ----------
TOTALS ...................... $ 466,796 $1,346,077 $1,173,529
========== ========== ==========
</TABLE>
The Partnership has budgeted approximately $665,000 in expenditures for
capital improvements and capitalized tenant procurement costs in 1997 which is
expected to be funded from cash flow from operations. 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 continued risk.
<PAGE>
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.
The Partnership adopted Statement of Financial Accounting Standards No.
121, "Accounting for Impairment of Long-Lived Assets and for Long- Lived Assets
to be Disposed Of" (SFAS #121) in 1995. Under SFAS #121, the Partnership
estimates the future cash flows expected to result from the use of each 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.
Prior to the adoption of SFAS #121, real estate investments were
carried at the lower of depreciated cost or net realizable value. Net realizable
value was calculated by management using undiscounted future cash flows, in some
cases with the assistance of independent certified appraisers.
Impairment write-downs recorded by the Partnership do not affect the
tax basis of the assets and are not included in the determination of taxable
income or loss.
Because the 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 which are inherently subjective, 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 from the
estimates and the variances may be material. The Partnership may provide
additional write-downs, which could be material in subsequent years if real
estate markets or local economic conditions change.
<PAGE>
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 1996 1995 1994 1993 1992
- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
568 Broadway ... $ 0 $ 1,461,900 $ 0 $ 398,700 $ 4,297,100
Sunrise ........ 0 5,700,000 0 0 2,800,000
Livonia Plaza .. 0 0 0 0 2,100,000
Melrose-Phase II 0 2,881,000 0 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 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. Because the estimate of undiscounted cash flows prepared 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
the 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.
<PAGE>
The economic outlook for 568 Broadway has improved markedly since the
last write- down at March 31, 1995. Occupancy has increased from approximately
76% at the time of the write-down to approximately 100% at December 31, 1996, a
24% increase.
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. Because the estimate of undiscounted cash flows prepared 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.
The economic outlook for Sunrise has improved considerably since the
last write- down at March 31, 1995. Occupancy has increased from approximately
80% at the time of the write-down to approximately 94% at December 31, 1996, a
14% increase.
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.
<PAGE>
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.
In October 1995, the Partnership was notified that Handy Andy filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code. Subsequently,
Handy Andy closed its store and the lease was rejected by Handy Andy as
debtor-in-possession in March 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
1996 vs. 1995
The Partnership experienced net income for the year ended December 31,
1996 compared to a net loss in the prior year due primarily to the significant
write-downs for impairment recorded during 1995 as previously discussed.
Rental revenue increased slightly during the year ended December 31,
1996 as compared to the prior year. Rental revenues increased at 568 Broadway
and Sunrise due to higher occupancy rates in 1996 and an increase in common area
maintenance and real estate tax reimbursements in the current year pursuant to
the terms of certain tenants' leases. 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. Revenues at the other properties
generally remained constant in 1996 as compared to 1995.
Costs and expenses decreased during the year ended December 31, 1996
compared to 1995 due primarily to the significant write-downs for impairment
recorded in 1995. Operating expenses decreased slightly in 1996 as decreases in
real estate taxes and repairs and maintenance costs were partially offset by an
increase in professional fees. Real estate taxes decreased significantly at 568
Broadway due to the receipt of refunds related to the 1992-1995 tax years of
which the Partnership's share was $201,200. This decrease was partially offset
by the fact that the real estate taxes at Melrose II, 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 1996. Overall repairs and maintenance costs decreased at
<PAGE>
Sunrise due to the receipt of insurance proceeds in 1996 which offset previously
incurred repair and maintenance expenses. The increase in professional fees at
Melrose II was due to costs associated with the Handy Andy bankruptcy.
Depreciation and amortization and the partnership asset management fee remained
relatively constant in 1996 as compared to 1995. Administrative expenses
increased due to the Partnership's reimbursement of the General Partners'
litigation and settlement costs as previously discussed. The increase in
property management fees during 1996 was due to a decrease in leasing
commissions at certain properties, a factor in computing the property management
fee.
Interest income decreased during 1996 due to decreases in interest
rates in the current year as compared to 1995. For the year ended December 31,
1996, other income, which consists of investor ownership transfer fees,
increased compared to 1995 due to a greater number of transfers during 1996.
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.
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, 1996, 1995 AND 1994
I N D E X
Independent Auditors' report
Financial statements, years ended December 31, 1996, 1995 and 1994
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, 1996 and 1995, and
the related statements of operations, partners' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audit 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 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, 1996 and 1995, and the results of its operations and its cash flows
for the three years in the period ended December 31, 1996 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.
As discussed in Note 7, the accompanying financial statements have been restated
to reflect a reallocation of partners' equity.
DELOITTE & TOUCHE LLP
March 14, 1997
(April 30, 1997 as to Note 7)
New York, NY
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
BALANCE SHEETS
December 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Real estate ................................... $ 49,566,804 $ 50,665,919
Cash and cash equivalents ..................... 5,353,731 3,898,548
Other assets .................................. 1,372,081 1,456,301
Receivables ................................... 89,074 284,730
------------ ------------
TOTAL ASSETS .................................. $ 56,381,690 $ 56,305,498
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable ......................... $ 684,832 $ 684,832
Accounts payable and accrued expenses ......... 508,257 695,977
Due to affiliates ............................. 1,152,658 301,590
------------ ------------
Total liabilities ........................ 2,345,747 1,682,399
------------ ------------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (as restated)
(371,766 units issued and outstanding) 51,334,121 51,891,920
General partners' equity (as restated).. 2,701,822 2,731,179
------------ ------------
Total partners' equity ................. 54,035,943 54,623,099
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY ........ $ 56,381,690 $ 56,305,498
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
-----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Rental Revenue ............................ $ 7,759,188 $ 7,422,184 $ 7,124,114
------------ ------------ ------------
Costs and Expenses:
Operating expenses ............... 1,799,966 1,819,076 1,696,620
Depreciation and amortization .... 1,551,738 1,548,105 1,540,661
Partnership asset management fee . 880,404 880,404 880,404
Administrative expenses .......... 1,354,895 441,016 461,130
Property management fee .......... 246,908 186,235 217,604
Write-down for impairment ........ -- 10,042,900 --
------------ ------------ ------------
5,833,911 14,917,736 4,796,419
------------ ------------ ------------
Income (loss) before interest
and other income ........................ 1,925,277 (7,495,552) 2,327,695
Interest income .................. 175,866 198,580 90,317
Other income ..................... 51,029 36,473 21,009
------------ ------------ ------------
Net income (loss) ......................... $ 2,152,172 $ (7,260,499) $ 2,439,021
============ ============ ============
Net income (loss) attributable to:
Limited partners ................. $ 2,044,563 $ (6,897,474) $ 2,317,070
General partners ................. 107,609 (363,025) 121,951
------------ ------------ ------------
Net income (loss) ......................... $ 2,152,172 $ (7,260,499) $ 2,439,021
============ ============ ============
Net income (loss) per unit of limited part-
nership interest (371,766 units
outstanding) ............................ $ 5.79 $ (18.55) $ 6.23
============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
STATEMENT OF PARTNERS' EQUITY
General Limited
Partners' Partners'
Equity Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1994 (as previously reported) $ (1,084,889) $ 66,008,122 $ 64,923,233
Reallocation of partners' equity ................ 4,331,074 (4,331,074) --
Balance, January 1, 1994 (as restated) .......... 3,246,185 61,677,048 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 (as restated) ........ 3,231,170 61,391,756 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 (as restated) ........ 2,731,179 51,891,920 54,623,099
Net income ...................................... 107,609 2,044,563 2,152,172
Distributions as a return of capital
($7.00 per limited partnership unit) ........... (136,966) (2,602,362) (2,739,328)
------------ ------------ ------------
Balance, December 31, 1996(as restated).......... $ 2,701,822 $ 51,334,121 $ 54,035,943
============ ============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................... $ 2,152,172 $ (7,260,499) $ 2,439,021
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
Write-down for impairment ...................... -- 10,042,900 --
Depreciation and amortization .................. 1,551,738 1,548,105 1,540,661
Straight line adjustment for stepped
lease rentals ................................ 73,951 (28,149) (100,959)
Changes in assets and liabilities:
Accounts payable and accrued expenses .......... (187,720) 135,713 (311,507)
Receivables .................................... 195,656 (193,333) 195,074
Due to affiliates .............................. 851,068 (41,335) 329,143
Other assets ................................... (151,620) (374,869) (61,681)
------------ ------------ ------------
Net cash provided by operating activities ......... 4,485,245 3,828,533 4,029,752
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to real estate ....................... (290,734) (953,047) (1,093,825)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners ......................... (2,739,328) (2,739,328) (2,739,328)
------------ ------------ ------------
Increase In Cash and Cash Equivalents ............... 1,455,183 136,158 196,599
Cash and Cash Equivalents, Beginning of Year ........ 3,898,548 3,762,390 3,565,791
------------ ------------ ------------
Cash and Cash Equivalents, End of Year ............. $ 5,353,731 $ 3,898,548 $ 3,762,390
============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
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 are prepared on the accrual basis of
accounting. 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 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.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 less write-downs, if any.
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
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.
The Partnership adopted Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long- Lived Assets to be Disposed Of" (SFAS
#121) in 1995. Under SFAS #121, the Partnership estimates the
future cash flows expected to result from the use of each
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.
Prior to the adoption of SFAS #121, real estate investments
were carried at the lower of depreciated cost or net
realizable value. Net realizable value was calculated by
management using undiscounted future cash flows, in some cases
with the assistance of independent certified appraisers.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment write-downs recorded by the Partnership do not
affect the tax basis of the assets and are not included in the
determination of taxable income or loss.
Because the 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 which are inherently subjective, 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 from the
estimates and the variances may be material. The Partnership
may provide additional write-downs, which could be material in
subsequent years if real estate markets or local economic
conditions change.
Income Taxes
No provision has been made for federal, state and local income
taxes since they are the personal responsibility of the
partners.
Net income (loss) and distributions per unit of limited
partnership interest
Net income (loss) 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, 1996, 1995 and 1994.
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
(together with the Managing General Partner, the "General
Partners"). 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.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(CONTINUED)
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 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, 1996, 1995 and
1994, Resources Supervisory was entitled to receive $246,908,
$186,235 and $217,604, in total, of which $120,387, $69,405
and $78,362 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 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 each of the years ended December 31,
1996, 1995 and 1994 the Managing General Partner earned
$880,404.
The general partners are allocated 5% of the net income
(losses) of the Partnership, which amounted to $107,609,
$(363,025) and $121,951, in 1996, 1995 and 1994, respectively.
The General Partners are also entitled to receive 5% of
distributions, which amounted to $136,966 in each of the years
ended December 31, 1996, 1995 and 1994.
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 February 28, 1997, Millennium Funding
IV Corp., a wholly owned indirect subsidiary of Presidio,
contracted to purchase 2,272 units of the Partnership from
various limited partners, which represents less than .7% of
the outstanding limited partnership units of the Partnership.
1996 distributions in the amount of $952 were received by
Millennium Funding IV Corp. related to these units.
4. REAL ESTATE
Management recorded write-downs for impairment totaling
$9,197,100, $398,700 and $10,042,900 in 1992, 1993 and 1995,
respectively. No write-downs were required for the year ended
December 31, 1996. The details of write-downs recorded are as
follows:
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
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 were required in order to render 568 Broadway more
competitive in the New York market. In addition, occupancy
levels remained low. Because the estimate of undiscounted cash
flows prepared 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 the 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
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
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 did not meet and were 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 were both in
excess of previously anticipated amounts. Because the estimate
of undiscounted cash flows prepared 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.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
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, Handy Andy closed its stores
and the lease was rejected by Handy Andy as
debtor-in-possession in March 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,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land ................................... $ 8,040,238 $ 8,040,238
Buildings and improvements ............. 53,224,091 52,933,357
------------ ------------
61,264,329 60,973,595
Less: Accumulated depreciation ......... (11,697,525) (10,307,676)
------------ ------------
$ 49,566,804 $ 50,665,919
============ ============
</TABLE>
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
The following is summary of the Partnership's share of
anticipated future receipts under noncancellable leases:
<TABLE>
<CAPTION>
Years Ending December 31,
1997 1998 1999 2000 2001 Thereafter Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
TMR ........ $ 2,103,000 $ 694,000 $ 0 $ 0 $ 0 $ 0 $ 2,797,000
Sunrise .... 1,435,000 1,459,000 1,311,000 1,146,000 989,000 4,889,000 11,229,000
Supervalu .. 852,000 730,000 544,000 544,000 544,000 1,371,000 4,585,000
Livonia .... 1,133,000 1,008,000 709,000 576,000 427,000 3,694,000 7,547,000
Melrose II . 0 0 0 0 0 0 0
568 Broadway 1,204,000 1,076,000 988,000 956,000 830,000 2,694,000 7,748,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 6,727,000 $ 4,967,000 $ 3,552,000 $ 3,222,000 $ 2,790,000 $12,648,000 $33,906,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
5. DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
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 subsequent quarters.
6. DUE TO AFFILIATES
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Partnership asset management fee ..................... $ 220,101 $ 220,101
Settlement and litigation cost reimbursement (Note 8) 824,511 --
Property management fee .............................. 58,046 31,489
Partnership administration fee ....................... 50,000 50,000
---------- ----------
$1,152,658 $ 301,590
========== ==========
</TABLE>
Such amounts were paid in subsequent quarters.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
7. PARTNERS' EQUITY
At each December 31, 1996, 1995, and 1994, 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. As
discussed in Note 3, the General Partners hold a 5% equity
interest in the Partnership. However, at the inception of the
Partnership, the General Partners' equity account was credited
with only the actual capital contributed in cash, $1,000.
Subsequent to the issuance of the 1996 financial statements,
the Partnership's management determined that this accounting
does not appropriately reflect the Limited Partners' and
General Partners' relative participations in the
Partnerships's net assets, since it does not reflect the
General Partners' 5% interst in the Partnership. Thus, the
Partnership has restated its financial statements to
reallocate $4,331,074 (5% of the gross proceeds raised at the
Partnership's formation) of the partners' equity to the
General Partners' equity account. This reallocation was made
as of the inception of the Partnership and all periods
presented in the financial statements have been restated to
reflect the reallocation. The reallocation has no impact on
the Partnership's financial position, results of operations,
cash flows, distributions to partners, or the partners' tax
basis capital accounts.
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.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
b) A former retail tenant of 568 Broadway (Galix Shops, Inc.)
and a related corporation which is a retail tenant of a
building adjacent to 568 Broadway filed a lawsuit in the
Supreme Court of The State of New York, County of New York,
against the Broadway Joint Venture which owns 568 Broadway.
The action was filed on April 13, 1994. The Plaintiffs allege
that by erecting a sidewalk shed in 1991, 568 Broadway
deprived plaintiffs of light, air and visibility to their
customers. The sidewalk shed was erected, as required by local
law, in connection with the inspection and restoration of the
568 Broadway building facade, which is also required by local
law. Plaintiffs further 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").
On November 30, 1995, after the Court preliminarily approved a
settlement of the B&S Litigation 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
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
In January, 1996, the parties to the B&S Litigation agreed
upon a revised settlement (the "Revised Settlement"). The core
feature of the Revised Settlement was the surrender by the
general partners of certain fees that they are entitled to
receive, the reorganization of the Partnership, HEP-85 and
HEP-88 (collectively, the "HEP Partnerships") into a publicly
traded real estate investment trust ("REIT"), and the issuance
of stock in the REIT to the limited partners (in exchange for
their limited partnership interests) and General Partners (in
exchange for their existing interest in the HEP Partnerships
and the fees being given up). The General Partners believe
that the principal benefits of the Revised Settlement were (1)
substantially increased distributions to limited partners, (2)
market liquidity through a NASDAQ listed security, and (3) the
opportunity for growth and diversification that was not
permitted under the Partnership structure. There were also
believed to be other significant tax benefits, corporate
governance advantages and other benefits of the Revised
Settlement.
On July 18, 1996, the Court preliminarily approved the Revised
Settlement and made a preliminary finding that the Revised
Settlement was fair, adequate and reasonable to the class. In
August 1996, the Court approved the form and method of notice
regarding the Revised Settlement which was sent to limited
partners.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Only approximately 2.5% of the limited partners of the HEP
Partnerships elected to "opt out" of the Revised Settlement.
Despite this, following the submission of additional
materials, the Court entered an order on January 14, 1997
rejecting the Revised Settlement and concluding that there had
not been an adequate showing that the settlement was fair and
reasonable. Thereafter, the plaintiffs filed a motion seeking
to have the Court reconsider its order. Subsequently, the
defendants withdrew the revised settlement and at a hearing on
February 24, 1997, the Court denied the plaintiffs' motion.
Also at the February 24, 1997 hearing, 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.
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 B&S
Litigation. It is impossible at this time to predict what the
defense of the B&S Litigation 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>
9. RECONCILIATION OF NET INCOME (LOSS) 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) per the financial
statements to net taxable income.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) per financial statements ....................... $ 2,152,172 $ (7,260,499) $ 2,439,021
Write-down for impairment ........................................ -- 10,042,900 --
Tax depreciation in excess of financial
statement depreciation ........................................... (610,441) (558,392) (503,792)
------------ ------------ ------------
Net taxable income ............................................... $ 1,541,731 $ 2,224,009 $ 1,935,229
============ ============ ============
</TABLE>
The differences between the Partnership's assets and
liabilities for tax purposes and financial reporting purposes
are as follows:
<TABLE>
<CAPTION>
December 31,
1996
------------
<S> <C>
Net assets per financial statements ............................... $ 54,035,943
Write-down for impairment ......................................... 19,638,700
Tax depreciation in excess of financial statement depreciation .... (3,335,951)
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 ...................................... $ 75,725,814
============
</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.
<PAGE>
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, 1997, 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 Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
Joseph M. Jacobs 44 Director and November 1994
President
Jay L. Maymudes 36 Director, Vice November 1994
President, Secretary
and Treasurer
Robert Holtz 29 Vice President November 1994
Arthur H. Amron 40 Vice President November 1994
and Assistant
Secretary
Frederick Simon 42 Vice President 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.
<PAGE>
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.
<PAGE>
As of March 15, 1997, 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 29 Director and President March 1995
Mark Plaumann 41 Director and Vice President March 1995
Jay L. Maymudes 36 Vice President, Secretary and Treasurer March 1995
Arthur H. Amron 40 Vice President and Assistant Secretary March 1995
</TABLE>
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. Mr. Plaumann is also a director of
Wahlco Environmental Systems, Inc. (a NYSE registrant engaged in the sale of air
pollution control and specially engineered products and is majority-owned by
investment funds managed by Wexford) since June 1996 and a director of
Technology Service Group, Inc. (a NASDAQ registrant engaged in the sale of smart
pay phones and is majority-owned by investment funds managed by Wexford) since
March 1997. Mr. Plaumann 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."
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners
and Management
As of March 15, 1997, 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. An affiliate of the Managing General Partner
contracted to purchase 2,272 Units which represents less than .7% of the
outstanding Units.
As of March 1, 1997, there were 8,797,255 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.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth certain information known to
Presidio with respect to beneficial ownership of the Class A Shares as of March
1, 1997 (based on 8,797,255 Class A Shares outstanding on such date) by: (i)
each person who beneficially owns 5% or more of the Class A Shares, (ii) the
executive officers of Presidio, (iii) each of Presidio's directors, and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
Beneficial Ownership
-------------------------------
Number of Percentage
Name of Beneficial Owner Shares Outstanding
- ------------------------ ------ -----------
<S> <C> <C>
Thomas F. Steyer ............... 4,553,560 (1) 51.8%
Fleur A. Fairman
John M. Angelo
Michael L. Gordon .............. 1,231,762 (2) 14.0%
Intermarket Corp. .............. 1,000,918 (3) 11.4%
M. H. Davidson & Co............. 474,205 (4) 5.4%
Michael Steinhardt ............. -- (5) --
Joseph M. Jacobs ............... -- (5) --
Robert Holtz ................... -- --
Jay L. Maymudes ................ -- --
Charles E. Davidson ............ -- (5) --
Martin L. Edelman .............. 4,550 (6) *
Dean J. Takahashi .............. 4,550 (6) *
Paul T. Walker ................. 4,550 (6) *
Directors and executive officers
as a group (7 persons)...... 13,650 *
-----------------------
* Less than 1% of the outstanding Common Stock.
(1) As the managing partners of each of Farallon Capital Partners, L.P.
("FCP"), Farallon Capital Institutional Partners, L.P. ("FCIP"), Farallon
Capital Institutional Partners II, L.P. ("FCIP II") and Tinicum Partners
L.P. ("Tinicum"), (collectively, the "Farallon Partnerships"), may each
be deemed to own beneficially for purposes of Rule 13d-3 of the Exchange
Act the 1,397,318, 1,610,730, 607,980 and 241,671 shares held,
respectively, by each of such Farallon Partnerships. Farallon Capital
Management, LLC ("FCMLLC"), the investment advisor to certain
discretionary accounts which collectively hold 695,861 shares and Enrique
<PAGE>
H. Boilini, David I. Cohen, Joseph F. Downes, Jason M. Fish, Andrew B.
Fremder, William F. Mellin, Stephen L. Millham, Meridee A. Moore and
Thomas F. Steyer, as a managing member of FCMLLC (collectively the
"Managing Members") may be deemed to be the beneficial owner of all of
the shares owned by such discretionary accounts. FCMLLC and each Managing
Member disclaims any beneficial ownership of such shares.
Farallon Partners, LLC ("FPLLC") (the general partner of FCP, FCIP, FCIP
II and Tinicum), and each of Fleur A. Fairman, Mr. Boilini, Mr. Cohen,
Mr. Downes, Mr. Fish, Mr. Fremder, Mr. Mellin, Mr. Millham, Ms. Moore and
Mr. Steyer, each as managing member of FPLLC (collectively, the "Managing
Members"), may be deemed to be the beneficial owner of all of the shares
owned by FCP, FCIP, FCIP II and Tinicum. FPLLC and each Managing Member
disclaims any beneficial ownership of such shares.
(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 Section 13(d) 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 advisor, 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) Intermarket Corp. serves as General Partner for certain limited
partnerships and as investment advisor to 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.
(4) Marvin H. Davidson, Thomas L. Kemper Jr., Stephen M. Dowicz, Scott E.
Davidson and Michael J. Leffell, the general partners, members and
stockholders of certain entities that are general partners or investment
advisors of Davidson Kempner Endowment Partners, L.P., Davidson Kempner
Partners L.P., Davidson Kempner Institutional Partners, L.P., M. H.
Davidson and Co., and Davidson Kempner International Ltd. (collectively,
the "Investment Funds") may be deemed to be the beneficial owners under
Section 13(d) of the Exchange Act of the securities beneficially owned by
the Investment Funds and their affiliates.
In addition, Mr. Kempner owns 800 shares and may be deemed to
beneficially own certain securities held by certain foundations and
trusts. Mr. Kempner disclaims beneficial ownership of such shares.
<PAGE>
(5) Excludes 1,200,000 Class B Shares owned by IR Partners. Such Class B
Shares are convertible in 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, 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 principal of Presidio
Management, the Chairman of the Board of Presidio and a Member of
Wexford. Joseph M. Jacobs, the Chief Executive Officer and President of
Presidio and a Member 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.
(6) Shares held by each Class A Director of Presidio were issued pursuant to
a Memorandum of Understanding Regarding Compensation of Class A Directors
of Presidio. See "Executive Compensation -- Compensation of Directors."
</TABLE>
The address of Thomas F. Steyer and the other individuals
mentioned in footnote 1 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 Angelo,
Gordon & Co., L.P. and its affiliates is 245 Park Avenue, 26th Floor, New York,
New York 10167. The address for Intermarket Corp. is 667 Madison Avenue, New
York, New York 10021. The address for M. H. Davidson & Co. is 885 Third Avenue,
New York, New York 10022.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The General Partners and certain affiliated entities have,
during the year ended December 31, 1996, earned or received compensation or
payments for services or reimbursements 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 $1,327,814 (1)
Partner
Presidio AGP Corp. Associate General $ 2,739 (2)
Partner
Resources Supervisory Affiliated Property $ 126,520 (3)
Management Corp. Manager
Resources Capital Corp. Affiliate $ 711,328 (4)
- ---------------------
(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, $113,183 represents reimbursement of costs in connection
with the B&S Litigation, 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,
1996 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, 1996, $75,545 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,
1996, $1,542 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.
<PAGE>
(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 $246,907 of which $120,387
was paid to unaffiliated management companies. All property management
fees payable at December 31, 1996 have subsequently been paid.
(4) This amount represents reimbursements of actual costs incurred in
defending the B&S Litigation and the cost of preparing settlement
materials.
</TABLE>
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.
<PAGE>
(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, 1996, 1995 AND 1994
INDEX
Additional financial information furnished pursuant to the
requirements of Form 10-K:
Schedules - December 31, 1996, 1995 and 1994 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: May 7, 1997 By: /s/Joseph M. Jacobs
-------------------
Joseph M. Jacobs
President
(Principal Executive Officer)
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.
Dated: May 7, 1997 By: /s/Joseph M. Jacobs
-------------------
Joseph M. Jacobs
President
(Principal Executive Officer)
Dated: May 7, 1997 By: /s/ Jay L. Maymudes
-------------------
Jay L. Maymudes
Vice President, Secretary,
Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
Costs Reductions
Capitalized Recorded
Subsequent to Subsequent to
Initial Cost Acquisition Acquistion
-------------------------- ----------------------------- -------------
Buildings
and
Description Encumbrances Land Improvements Improvements Carrying Costs Write-downs
----------- ------------ ---- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL:
Melrose II Shopping Center . Melrose Park IL $-- $ 1,375,000 $ 4,000,640 $ 6,876 $ -- $ (2,881,000)
Sunrise Marketplace ........ Las Vegas NV -- 3,024,968 13,469,031 1,669,437 1,342,536 (8,500,000)
SuperValu Stores ........... Various -- 1,787,620 6,881,999 -- 708,358 --
Livonia Plaza .............. Livonia MI -- 1,518,638 9,328,777 952,227 880,080 (2,100,000)
--- ------------ ------------ ------------ ------------ ------------
-- 7,706,226 33,680,447 2,628,540 2,930,974 (13,481,000)
--- ------------ ------------ ------------ ------------ ------------
OFFICE:
568 Broadway Office Building New York NY -- 1,429,284 6,093,266 2,772,879 813,953 (6,157,700)
INDUSTRIAL:
TMR Warehouses ............. Various OH -- 1,355,621 19,694,413 80,145 1,717,279 --
--- ------------ ------------ ------------ ------------ ------------
$-- $ 10,491,131 $ 59,468,126 $ 5,481,564 $ 5,462,206 $(19,638,700)
=== ============ ============ ============ ============ ============
<CAPTION>
<PAGE>
Gross Amount at Which
Carried at Close of Period
------------------------------------------------
Buildings
and Accumulated Date
Description Land Improvements Total Depreciation Acquired
----------- ---- ------------ ----- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
RETAIL:
Melrose II Shopping Center . Melrose Park IL $ 638,742 $ 1,862,774 $ 2,501,516 $ 311,801 1989
Sunrise Marketplace ........ Las Vegas NV 1,811,849 9,194,123 11,005,972 2,535,076 1989
SuperValu Stores ........... Various 1,935,936 7,442,041 9,377,977 1,465,224 1989
Livonia Plaza .............. Livonia MI 1,536,441 9,043,281 10,579,722 1,766,486 1989
------------ ----------- ------------- -----------
5,922,968 27,542,219 33,465,187 6,078,587
------------ ----------- ------------- -----------
OFFICE:
568 Broadway Office Building New York NY 651,057 4,300,625 4,951,682 1,416,427 1986
INDUSTRIAL:
TMR Warehouses ............. Various OH 1,466,213 21,381,247 22,847,460 4,202,511 1988
------------ ------------ ------------- -----------
$ 8,040,238 $ 53,224,091 $ 61,264,329 $11,697,525
============ ============ ============= ============
Note: The aggregate cost for Federal income tax purposes is $82,507,256 at
December 31, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
- -------------------------------------------------------------------------------
(A) RECONCILIATION OF REAL ESTATE OWNED:
For the Years Ended December 31,
-----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR ....... $ 60,973,595 $ 70,063,448 $ 68,969,623
ADDITIONS DURING THE YEAR
Improvements to Real Estate 290,734 953,047 1,093,825
OTHER CHANGES
Write-down for impairment . -- (10,042,900) --
------------ ------------ ------------
BALANCE AT END OF YEAR (1) ......... $ 61,264,329 $ 60,973,595 $ 70,063,448
============ ============ ============
(1) INCLUDES THE INITIAL COST OF THE PROPERTIES PLUS ACQUISITION AND CLOSING
COSTS.
</TABLE>
(B) RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR .... $10,307,676 $ 8,879,768 $ 7,435,753
ADDITIONS DURING THE YEAR
Depreciation Expense (1) 1,389,849 1,427,908 1,444,015
----------- ----------- -----------
BALANCE AT END OF YEAR .......... $11,697,525 $10,307,676 $ 8,879,768
=========== =========== ===========
(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.
</TABLE>
<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 1996
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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,353,731
<SECURITIES> 0
<RECEIVABLES> 89,074
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,381,690
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,035,943
<TOTAL-LIABILITY-AND-EQUITY> 56,381,690
<SALES> 0
<TOTAL-REVENUES> 7,759,188
<CGS> 0
<TOTAL-COSTS> 1,799,966
<OTHER-EXPENSES> 4,033,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,152,172
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,152,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,152,172
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
