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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
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.)
Cambridge Center, 9th Floor, Cambridge, MA 02142
(Address of principal executive offices)
(617) 234-3000
(Registrant's telephone number, including area code)
411 West Putnam Avenue, Greenwich, CT 06830
(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
INDEX
Page No.
--------
Part I. Financial Information:
Balance Sheets--September 30, 1999 and December 31, 1998 3
Statements of Operations--Three and Nine Months Ended September 30,
1999 and l998 4
Statement of Partners' Equity--Nine Months Ended
September 30, 1999 5
Statements of Cash Flows-- Nine Months Ended
September 30, 1999 and 1998 6
Notes to Financial Statements 7 - 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 16
Part II. Other Information:
Legal Proceedings, Exhibits and Reports on Form 8-K 17
2
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
BALANCE SHEETS
September 30, 1999 December 31, 1998
------------------ -----------------
ASSETS
Real estate - net $46,249,039 $ 47,293,445
Cash and cash equivalents 5,765,070 6,520,698
Other assets 1,248,148 1,131,282
Receivables 376,811 142,056
----------- -------------
$53,639,068 $ 55,087,481
=========== =============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ - $ 997,899
Accounts payable and accrued expenses 991,272 789,910
Due to affiliates 209,616 343,022
----------- -------------
1,200,888 2,130,831
----------- -------------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (371,766
units issued and outstanding) 49,816,255 50,308,799
General partners' equity 2,621,925 2,647,851
----------- -------------
52,438,180 52,956,650
----------- -------------
$53,639,068 $ 55,087,481
=========== =============
See notes to financial statements
3
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental Revenue $1,731,239 $1,891,873 $5,526,702 $5,940,416
---------- ---------- ---------- ----------
Costs and Expenses:
Operating expenses 450,300 502,001 1,355,720 1,170,799
Depreciation and amortization 390,750 392,683 1,172,250 1,178,049
Partnership management fee 139,605 220,101 579,807 660,303
Administrative expenses 216,664 156,077 1,077,377 842,754
Property management fee 47,352 51,964 152,933 162,733
---------- ---------- ---------- ----------
1,244,671 1,322,826 4,338,087 4,014,638
---------- ---------- ---------- ----------
Income before interest and other income 486,568 569,047 1,188,615 1,925,778
Interest income 61,510 71,481 205,113 240,659
Other income 9,730 2,720 83,600 21,750
---------- ---------- ---------- ----------
Net income $ 557,808 $ 643,248 $1,477,328 $2,188,187
========== ========== ========== ==========
Net income attributable to:
Limited partners $ 529,918 $ 611,086 $1,403,462 $2,078,778
General partners 27,890 32,162 73,866 109,409
---------- ---------- ---------- ----------
Net income $ 557,808 $ 643,248 $1,477,328 $2,188,187
========== ========== ========== ==========
Net income per unit of limited
partnership interest (371,766 units
outstanding) $ 1.43 $ 1.64 $ 3.78 $ 5.59
========== ========== ========== ==========
</TABLE>
See notes to financial statements
4
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
STATEMENT OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
General Limited
Partners' Partners'
Equity Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1999 $ 2,647,851 $ 50,308,799 $ 52,956,650
Net income for the nine months
ended September 30, 1999 73,866 1,403,462 1,477,328
Distributions as a return of capital for
the nine months ended September 30, 1999
($5.10 per limited partnership unit) (99,792) (1,896,006) (1,995,798)
------------ ------------ ------------
Balance, September 30, 1999 $ 2,621,925 $ 49,816,255 $ 52,438,180
============ ============ ============
</TABLE>
See notes to financial statements
5
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
-------------------------
1999 1998
----------- -----------
Cash Flows From Operating Activities:
Net income $ 1,477,328 $ 2,188,187
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,172,250 1,178,049
Straight line adjustment for stepped
lease rentals 30,849 78,309
Changes in assets and liabilities:
Accounts payable and accrued expenses 201,362 153,120
Receivables (234,755) 88,029
Due to affiliates (133,406) (290,517)
Other assets (230,155) (32,871)
----------- -----------
Net cash provided by operating activities 2,283,473 3,362,306
----------- -----------
Cash Flows From Investing Activities:
Improvements to real estate (45,404) (330,704)
----------- -----------
Cash Flows From Financing Activities:
Distributions to partners (2,993,697) (2,993,697)
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents (755,628) 37,905
Cash and Cash Equivalents, Beginning of Year 6,520,698 6,540,252
----------- -----------
Cash and Cash Equivalents, End of Quarter $ 5,765,070 $ 6,578,157
=========== ===========
See notes to financial statements
6
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
The accompanying financial statements, notes and discussions should be read in
conjunction with the financial statements, related notes and discussions
contained in the Partnership's annual report on Form l0-K for the year ended
December 3l, l998.
The financial information contained herein is unaudited; however, in the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such financial information have been
included. Results of operations for the nine months ended September 30, 1999 are
not necessarily indicative of the results to be expected for the entire year.
2. SIGNIFICANT ACCOUNTING POLICIES
Impairment of Assets
The Partnership evaluates the recoverability of the net carrying value of its
real estate and related assets at least annually, and more often if
circumstances dictate. If this review indicates that the carrying value of a
property may not be recoverable, the Partnership estimates the future cash flows
expected to result from the use of the property and its eventual disposition,
generally over a five-year holding period. In performing this review, management
takes into account, among other things, the existing occupancy, the expected
leasing prospects of the property and the economic situation in the region where
the property is located.
If the sum of the expected future cash flows, undiscounted, is less than the
carrying amount of the property, the Partnership recognizes an impairment loss,
and reduces the carrying amount of the asset to its estimated fair value. Fair
value is the amount at which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a forced or
liquidation sale. Management estimates fair value using discounted cash flows or
market comparables, as most appropriate for each property. Independent certified
appraisers are utilized to assist management, when warranted.
Impairment write-downs recorded by the Partnership do not affect the tax basis
of the assets and are not included in the determination of taxable income or
loss.
Because the expected cash flows used to evaluate the recoverability of the
assets and their fair values are based upon projections of future economic
events, such as property occupancy rates, rental rates, operating cost inflation
and market capitalization rates, the amounts ultimately realized at disposition
may differ materially from the net carrying values at the balance sheet dates.
The cash flows and market comparables used in this process are based on good
faith estimates and assumptions developed by management. Unanticipated events
and circumstances may occur and some assumptions may not materialize; therefore,
actual results may vary materially from the estimates. The Partnership may in
the future provide additional write-downs, which could be material, in
subsequent years if real estate markets or local economic conditions change.
Investments in Joint Ventures
Certain properties were purchased in joint venture ownership with affiliated
partnerships that have the same, or affiliated, general partners as the
Partnership. Thus, the joint ventures are, for practical purposes, not subject
to joint control by such partnerships, but instead are controlled by the
partnerships' general partners, all of which are under common ownership and
control. Therefore, the Partnership's financial statements present the assets,
liabilities, revenues and expenses of the joint ventures on a pro rata basis in
accordance with the Partnership's percentage of ownership.
7
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Managing General Partner of the Partnership, Resources High Equity, Inc., 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").
The General Partners and affiliates of the General Partners are also engaged in
businesses related to the acquisition and operation of real estate. Presidio is
also the parent of other corporations (and affiliated with other entities) that
are or may in the future be engaged in businesses that may be in competition
with the Partnership. Accordingly, conflicts of interest may arise between the
Partnership and such other businesses. Subject to the right of the limited
partners under the Limited Partnership Agreement, Presidio controls the
Partnership through its indirect ownership of the General Partners. Effective
July 31, 1998, Presidio is indirectly controlled by NorthStar Capital Investment
Corp., a Maryland corporation. Presidio has a management agreement with
NorthStar Presidio Management Company LLC ("NorthStar Presidio"), an affiliate
of NorthStar Capital Investment Corp., pursuant to which NorthStar Presidio
provides the day-to-day management of Presidio and its direct and indirect
subsidiaries and affiliates, including the Partnership. For the nine months
ended September 30, 1999 and 1998, reimbursable expenses incurred by NorthStar
Presidio related to the Partnership amounted to approximately $76,500 and
$67,000, respectively.
On October 21, 1999, Presidio and certain of its affiliates entered into a
Services Agreement with AP-PCC III, L.P. (the "Agent") pursuant to which the
Agent was retained to provide asset management and investor relation services to
the Partnership and other entities affiliated with the Partnership.
As a result of this agreement, the Agent has the duty to direct the day to day
affairs of the Partnership, including, without limitation, reviewing and
analyzing potential sale, financing or restructuring proposals regarding the
Partnership's assets, preparation of all Partnership reports, maintaining
Partnership records and maintaining bank accounts of the Partnership. The Agent
is not permitted, however, without the consent of Presidio, or as otherwise
required under the terms of the Partnership's Agreement of Limited Partnership
(the "Partnership Agreement") to, among other things, cause the Partnership to
sell or acquire an asset or file for bankruptcy.
In order to facilitate the provision by the Agent of the asset management
services and the investor relation services, effective October 25,1999, the
officers and directors of the General Partner resigned and nominees of the Agent
were elected as the officers and directors of the General Partner. The Agent is
an affiliate of Winthrop Financial Associates, a Boston based company that
provides asset management services, investor relation services and property
management services to over 150 limited partnerships which own commercial
property and other assets. The General Partner does not believe that this
transaction will have a material effect on the operations of the Partnership.
8
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
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 quarters ended
September 30, 1999 and 1998, Resources Supervisory was entitled to receive
$47,352 and $51,964, respectively, of which $27,341 and $27,802 was paid to
unaffiliated management companies, respectively, for property management
services and the balance was retained by Resources Supervisory. For the nine
months ended September 30, 1999 and 1998, Resources Supervisory was entitled to
receive $152,933 and $162,733, respectively, of which $66,675 and $95,160 was
paid to unaffiliated management companies, respectively, for property management
services and the balance was retained by Resources Supervisory.
For the administration of the Partnership, the Managing General Partner is
entitled to receive reimbursement of expenses of a maximum of $200,000 per year.
For each of the quarters ended September 30, 1999 and 1998, the Managing General
Partner received $50,000. For each of the nine-month periods ended September 30,
1999 and 1998, the Managing General Partner received $150,000.
During 1998, for managing the affairs of the Partnership, the Managing General
Partner was entitled to receive an annual partnership asset management fee equal
to 1.05% of the amount of original gross proceeds paid or allocable to the
acquisition of property by the Partnership. For the three and nine months ended
September 30, 1998, the Managing General Partner received $220,101 and $660,303,
respectively. Pursuant to the amendment to the Partnership Agreement which
became effective on August 20, 1999, the annual partnership management fee for
1999 has been reduced to $719,411. For the three and nine months ended September
30, 1999, the Managing General Partner received $139,605 and $579,807,
respectively. Further, the Partnership Agreement has been amended (for the year
2000 and beyond) so that the partnership management fee will be calculated equal
to 1.25% of the Gross Asset Value of the Partnership, defined as the appraised
value of all the assets of the Partnership based on the most recent appraisal.
9
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The General Partners are allocated 5% of the net income of the Partnership,
which amounted to $27,890 and $32,162 for the quarters ended September 30, 1999
and 1998, respectively. Net income allocated to the General Partners amounted to
$73,866 and $109,409 for the nine months ended September 30, 1999 and 1998,
respectively. They are also entitled to receive 5% of distributions, which
amounted to $0 and $49,896 for the quarters ended September 30, 1999 and 1998,
respectively. Distributions allocated to the General Partners amounted to
$99,792 and $149,688 for the nine months ended September 30, 1999 and 1998,
respectively.
During the liquidation stage of the Partnership, the Managing General Partner or
an affiliate may be entitled to receive certain fees, which are subordinated to
the limited partners receiving their original invested capital and certain
specified minimum returns on their investment. All fees received by the General
Partners are subject to certain limitations as set forth in the Partnership
Agreement.
From July 1996 through March 12, 1998, Millennium Funding IV Corp.("MFIV"), a
wholly owned indirect subsidiary of Presidio, purchased 47,270 units of the
Partnership from various limited partners.
In connection with a tender offer for units of the Partnership made on March 12,
1998 (the "Offer") by Olympia Investors, L.P. ("Olympia"), Olympia and Presidio
entered into an agreement dated March 6, 1998 (the "Agreement"). Subsequent to
the expiration of the offer, Olympia announced that it had accepted for payment
14,955 units properly tendered pursuant to the Offer. Pursuant to the Agreement,
MFIV purchased 50% of those units owned by Olympia as a result of the Offer, or
7,478 units, for $132.26 per unit. Presidio may be deemed to beneficially own
the remaining units owned by Olympia as a consequence of the Agreement.
Subsequent to the expiration of the tender offer described above, MFIV purchased
an additional 12,396 limited partnership units from August 1998 through July
1999. The total number of units purchased by MFIV represents approximately 18.1%
of the outstanding limited partnership units of the Partnership.
10
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE
The following table is a summary of the Partnership's real estate as of:
September 30, 1999 December 31, 1998
------------------ -----------------
Land $ 8,040,238 $ 8,040,238
Buildings and improvements 53,848,429 53,803,025
------------ ------------
61,888,667 61,843,263
Less: Accumulated depreciation (15,639,628) (14,549,818)
------------ ------------
$ 46,249,039 $ 47,923,445
============ ============
5. DISTRIBUTIONS PAYABLE
September 30, 1999 December 31, 1998
------------------ -----------------
Limited Partners $ - $ 948,003
General Partners - 49,896
------------ ------------
$ - $ 997,899
============ ============
Such distributions were paid in the subsequent quarters.
6. DUE TO AFFILIATES
September 30, 1999 December 31, 1998
------------------ -----------------
Partnership asset management fee $ 139,605 $ 220,101
Property management fee 20,011 72,921
Non-accountable expense reimbursement 50,000 50,000
------------ ------------
$ 209,616 $ 343,022
============ ============
Such amounts were paid in the subsequent quarters.
11
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES
In May 1993, limited partners in High Equity Partners L.P. - Series 86
("HEP-86"), an affiliated partnership, commenced an action (the "Action") 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 the purchasers of
limited partnership interests in HEP-86. On April 7, 1994 the plaintiffs were
granted leave to file an amended complaint on behalf of a class consisting of
all the purchasers of limited partnership interests in HEP-86, the Partnership,
and Integrated Resources High Equity Partners, Series 85 ("HEP-85"), another
affiliated partnership (collectively, the "HEP Partnerships").
In November 1995, the original plaintiffs and intervening plaintiffs filed a
consolidated class and derivative action complaint (the "Consolidated
Complaint") alleging various state law class and derivative claims, including
claims for breach of fiduciary duty; breach of contract; unfair and fraudulent
business practices under California Bus. & Prof. Code Section 17200; negligence;
dissolution, accounting, receivership and removal of general partner; fraud; and
negligent misrepresentation.
In early 1996, the parties submitted a proposed settlement to the Court (the
"Proposed Settlement"), which contemplated a reorganization of the three HEP
Partnerships into a single real estate investment trust ("REIT"), pursuant to
which approximately 85% of the shares of the REIT would have been allocated to
investors in the three HEP Partnerships (assuming each of the HEP Partnerships
participated in the reorganization), and approximately 15% of the shares would
have been allocated to the HEP General Partners. In early 1997, the Court
declined to grant final approval of the Proposed Settlement because the Court
was not persuaded that the Proposed Settlement was fair, adequate or reasonable
as to the proposed class.
In July 1997, the plaintiffs filed an amended complaint, which generally asserts
the same claims as the earlier Consolidated Complaint but contains more detailed
factual assertions and eliminates some claims they had previously asserted. The
HEP General Partners challenged the amended complaint on legal grounds and filed
demurrers and a motion to strike. In October 1997, the Court granted substantial
portions of the HEP General Partners' motions. Thereafter, the HEP General
Partners served answers denying the allegations and asserting numerous defenses.
12
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In February 1998, the Court certified three separate plaintiff classes
consisting of the current owners of record of HEP Units (but excluding all
defendants or entities related to such defendants), and appointed class counsel
and liaison counsel.
In mid-1998, the parties actively engaged in negotiations concerning a possible
settlement of the Action. In September 1998, the parties reached an agreement in
principle, and, during the following months, negotiated a more formal settlement
stipulation (the "Settlement Stipulation"), which they executed in December
1998. The Settlement Stipulation was submitted to the Court for preliminary
approval in early January 1999. In February 1999, the Court gave preliminary
approval to the Settlement Stipulation and directed that notice of the proposed
settlement be sent to the previously certified class. The settlement
contemplates (I) amendments to the Partnership Agreement that would modify the
existing fee structure; (II) a tender offer whereby the General Partners would
purchase up to 6.7% of the units from limited partners; and (III) that the
General Partners would use their best efforts to effect a reorganization of the
HEP Partnerships into separate REIT's or other publicly traded entities. At a
hearing held on April 29, 1999, the Court approved the settlement in its
entirety and directed entry of judgement to that effect. In August 1999, the
settlement was consummated following approval of the amendments to the
Partnership Agreement.
At a hearing held on April 29, 1999, the Court also awarded a total of
$2.5 million in attorneys' fees and reimbursement of expenses to Class and
objectors' counsel. Of that total, $875,000 is to be paid by the General
Partners and the balance by the HEP Partnerships. In connection with the
Settlement Stipulation, the Partnership paid $602,667 during the nine months
ended September 30, 1999. 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 September 30, 1999, the Partnership paid
the General Partners a total of $1,034,510 for these costs.
13
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital reserves are temporarily invested in short-term instruments and
together with operating cash flow are expected to be sufficient to fund
anticipated capital improvements to the Partnership's properties. As of
September 30, 1999, total working capital reserves amounted to approximately
$1,475,000. The Partnership intends to distribute to its partners less than all
of its future cash flow from operations in order to assure adequate working
capital reserves for capital improvements and capitalized lease procurement
costs.
During the nine months ended September 30, 1999, cash and cash equivalents
decreased $755,628 as a result of capital expenditures and distributions to
partners in excess of cash provided by operations. The Partnership's primary
source of funds is cash flow from the operation of its properties (principally
rents received from tenants less property operating expenses) which amounted to
$2,283,473 for the nine months ended September 30, 1999. The Partnership used
$45,404 for capital expenditures related to capital and tenant improvements to
the properties and $2,993,697 for distributions to partners for the nine months
ended September 30, 1999.
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. Vacancies at Tri-Columbus and Melrose
II are currently being marketed to a variety of potential tenants. The
Partnership is currently funding operating expenses at these locations from cash
reserves. If and when replacement tenants are secured, it is likely that capital
expenditures will be required to fund tenant improvements and leasing
commissions. Capital and tenant improvements and leasing commissions may in the
future exceed the Partnership's cash flow from operations. In that event, the
Partnership would utilize its remaining working capital reserves, reduce
distributions, or sell one or more properties. Except as discussed above,
management is not aware of any other trends, events, commitments, or
uncertainties that will have a significant impact on liquidity.
RESULTS OF OPERATIONS
The Partnership experienced a decrease in net income of approximately $85,000
for the three months ended September 30, 1999 as compared to the 1998 period
primarily due to lower rental revenues, partially offset by lower costs and
expenses.
During the three months ended September 30, 1999, rental revenue decreased
$160,634 as compared to the 1998 period due primarily to the departure of a
tenant at Tri-Columbus and lower common area maintenance charges at Livonia
which resulted in reductions to revenue of $78,625 and $95,786, respectively.
These and other decreases were partially offset by a $83,619 increase in rental
revenue during the three months ended September 30, 1999 at 568 Broadway due to
higher overall rental rates at the property.
14
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Costs and expenses decreased $78,155 during the three months ended September 30,
1999 as compared to the 1998 period, due to lower operating and partnership
management fees, partially offset by higher administrative expenses. Operating
expenses decreased $51,701 during the 1999 period, primarily due to a $22,534
decrease in real estate taxes at Melrose II. The $80,496 decrease in partnership
management fees was due to an amendment to the partnership agreement (see Note
3) approved in August 1999 reducing the fee for 1999. Administrative expenses
increased $60,587 for the three months ended September 30, 1999 due to higher
legal fees pursuant to the Settlement Agreement related to the ongoing
litigation and possible reorganization of the Partnership (see Note 7).
Interest income decreased $9,971 during the three months ended September 30,
1999 due to lower invested cash balances during 1999 as compared to the same
period in 1998. Other income increased $7,010 during the three months ended
September 30, 1999 as compared to the same period in 1998 due to a greater
number of investor transfers on which the Partnership earns a transfer fee.
The Partnership experienced a decrease in net income of approximately $711,000
for the nine months ended September 30, 1999 as compared to the 1999 period,
primarily due to lower rental revenues and higher costs and expenses.
Rental revenue decreased $413,714 during the nine months ended September 30,
1999, due primarily to the departure of significant tenants at Tri-Columbus and
Melrose II during 1998 which resulted in reductions to revenue of $477,123 and
$179,527, respectively. These decreases were partially offset by a $207,542
increase in rental revenue during 1999 at 568 Broadway due to higher overall
rental rates at the property.
Costs and expenses increased $323,449 during the nine months ended September 30,
1999 as compared to the 1998 period due to higher operating and administrative
expenses, partially offset by lower partnership management fees. The $184,921
increase in operating expenses during the nine months ended September 30, 1999
was primarily due to a $290,515 increase in repair and maintenance costs at
Sunrise due to the receipt of insurance proceeds in February 1998, offsetting
previously incurred costs. This increase was partially offset by a $67,602
reduction in real estate taxes at Melrose II during the nine months ended
September 30, 1999. The partnership management fee decreased $80,496 due to an
amendment to the partnership agreement (see Note 3) approved in August 1999
reducing the fee for 1999. Administrative expenses increased $234,623 for the
nine months ended September 30, 1999 due to higher legal fees pursuant to the
Settlement Agreement related to the ongoing litigation and possible
reorganization of the Partnership (see Note 7). The $9,800 decrease in property
management fees during the 1999 period were due to lower revenues, as previously
discussed.
Interest income decreased $35,546 during the nine months ended September 30,
1999, due to lower invested cash balances during 1999 as compared to the same
period in 1998. Other income increased $61,850 during the nine months ended
September 30, 1999 as compared to the 1998 period due to a greater number of
investor transfers on which the Partnership earns a transfer fee.
15
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HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Inflation is not expected to have a material impact on the Partnership's
operations or financial position.
Legal Proceedings
The Partnership is a party to certain litigation. See Note 7 to financial
statements for a description thereof.
Forward-looking Statements
When used in this quarterly report on Form 10-Q, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Statements looking forward in time are included in
this quarterly report on Form 10-Q pursuant to the "safe harbor" provision of
the Private Securities Litigation Reform Act of 1995. Such statements are
subject to certain risks and uncertainties, which could cause actual results to
differ materially, including, but not limited to, those set forth in
"management's discussion and analysis of financial condition and results of
operations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Partnership undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.
Year 2000 Compliance
The Year 2000 compliance issue concerns the inability of computerized
information systems and programs to accurately calculate, store or use a date
after December 31, 1999, as a result of the year being stored as a two digit
number. The Partnership is dependent upon the General Partner and its affiliates
for management and administrative services. This could result in system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
During the third quarter of 1999, the General Partner and its affiliates
completed their assessment of computer systems used in connection with the
management of the Partnership. The General Partner and its affiliates have
completed upgrading those systems where required. The Partnership has to date
not borne, nor is it expected that the Partnership will bear, any significant
costs in connection with the upgrade of those systems requiring remediation.
To date, the General Partner is not aware of any external agent or service
provider with a Year 2000 issue that would materially impact the Partnership's
results of operations, liquidity or capital resources. However, the General
Partner has no means of ensuring that external agents and service providers will
be Year 2000 compliant. The General Partner does not believe that the inability
of external agents or service providers to complete their Year 2000 resolution
process in a timely manner will have a material impact on the financial position
or results of operations of the Partnership. However, the effect of
non-compliance by external agents is not readily determinable.
16
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
PART II. - OTHER INFORMATION
Item 1 - Legal Proceedings
(a) See Management's Discussion and Analysis of Financial Condition and
Results of Operations and Notes to Financial Statements - Note 7
which is herein incorporated by reference.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(i) Amendment to the Amended and Restated Agreement of Limited
Partnership dated August 20, 1999.
(ii) Guarantee by Presidio Capital Corp. dated August 20, 1999.
(b) Reports on Form 8-K:
None
17
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88-FORM 10-Q - SEPTEMBER 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
High Equity Partners L.P. - Series 88
By: Resources High Equity, Inc.
Managing General Partner
Dated: November 15, 1999 By: /s/ Allan Rothschild
-----------------------------
Allan Rothschild
(Duly Authorized Officer)
Dated: November 15, 1999 By: /s/ Lawrence Schachter
-----------------------------
Lawrence Schachter
(Principal Financial and
Accounting Officer)
18
<PAGE>
EXHIBIT (i)
APPENDIX A
AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
HIGH EQUITY PARTNERS L.P. - SERIES 88
The amended and restated agreement of limited partnership (the
"Agreement") of High Equity Partners L.P. - Series 88, a Delaware limited
partnership, is hereby amended as follows:
1. Paragraph 9.4 of the Agreement is amended in its entirety to read as
follows:
9.4 Partnership Asset Management Fee. As compensation
for services rendered in managing the affairs of the
Partnership, the Managing General Partner shall be entitled to
receive the Partnership Asset Management Fee, which shall be
an amount per annum equal to 1.25% of the Gross Asset Value of
the Partnership as of the last day of the period in respect of
which the Partnership Asset Management Fee is payable (which
amount shall be prorated for any partial year) (it being
understood that, notwithstanding anything to the contrary in
this Paragraph 9.4, the Partnership Asset Management Fee
payable for calendar year 1999 shall be $160,993 less than an
amount equal to 1.05% of Invested Assets). The Partnership
Asset Management Fee shall be paid quarterly. For purposes of
this Paragraph 9.4, the term "Gross Asset Value" on a
particular date means the gross asset value of all assets
owned by the Partnership on that date, as determined by the
most recent appraisal of such assets by an independent
appraiser of national reputation selected by the General
Partners.
2. Paragraph 9.1 of the Agreement is amended by adding a new
Paragraph 9.1.3 to read as follows:
9.1.3 If the Partnership is liquidated prior to December
31, 2008, the General Partners shall, at the time of the
liquidation, and in lieu and satisfaction of all other
obligations the General Partners and their affiliates might
then or thereafter have under or by reason of Paragraph 9
hereof, pay the Partnership n amount (the "Fee Give Back
Amount") equal to $1,475,773 (the "Original Fee Give Back
Amount"), reduced by 10% of the Original Fee Give Back Amount
for each full calendar year after 1998, and prorated for any
calendar year in which such liquidation occurs other than on
December 31 of that year. If the Partnership is liquidated on
or after December 31, 2008, neither the General Partners nor
their affiliates shall have any liability or obligation to pay
any Fee Give Back Amount. For purposes of this Paragraph
9.1.3, the term "liquidation" means a sale of all or
substantially all the property owned by the Partnership for
cash or
<PAGE>
property that is distributed to the Partners, but does not
include any transaction in which the Partnership is
reorganized into a separate, publicly traded real estate
investment trust or other entity whose shares are listed on a
national securities exchange or on the NASDAQ National Market
System (a "Reorganization") and, in addition, does not include
any transaction following a Reorganization, whether by the
successor to the Partnership in the Reorganization or
otherwise. For the avoidance of doubt, it is hereby understood
and agreed that, following a Reorganization, the General
Partners and their affiliates shall have no liability or
obligation to pay any Fee Give Back Amount.
3. Except as otherwise provided above, the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
___________, 1999.
GENERAL PARTNERS:
RESOURCES HIGH EQUITY, INC.
By:___________________________________
PRESIDIO AGP CORP.
By:___________________________________
<PAGE>
EXHIBIT (ii)
GUARANTEE
Dated ____________, 1999
The undersigned, for good and valuable consideration, receipt of which is
hereby acknowledged, agrees as follows:
1. The undersigned hereby unconditionally and irrevocably guarantees
payment when due of all Fee Give Back Liabilities (as defined below) of the
General Partners (as defined below). For purposes of this Guarantee, the Term
(a) "Fee Give Back Liabilities" means all liabilities and obligations of the
General Partners to pay the Fee Give Back Amount (as defined in paragraphs 9.2,
9.1.4 and 9.1.3 of the amended and restated agreement of limited partnership, as
amended (collectively, the "Partnership Agreements"), or as amended in the
future, of Integrated Resources High Equity Partners, Series 85, a California
Limited Partnership, High Equity Partners L.P. - Series 86 and High Equity
partners L.P. - Series 88, respectively, and (b) "General Partners" has the
meaning given it in the respective Partnership Agreements.
2. The undersigned hereby agrees that it will not permit its Net Worth (as
defined below) at any time to be less than the aggregate amount of the Fee Give
Back Liabilities at that time. Notwithstanding the foregoing, however, the
undersigned may, at its option from time to time, substitute one or more
Substitute Guarantors (as defined below) to fulfill the undersigned's
obligations under section 1 and the first sentence of this section 2, as long as
the Net Worth of each Substitute Guarantor at any time it is a Substitute
Guarantor is not less than the aggregate amount of the Fee Give Back Liabilities
that Substitute Guarantor is then guaranteeing as a Substitute Guarantor.
However, Presidio Capital Corp. shall remain fully liable on this Guarantee to
the extent any substitute Guarantor fails or refuses to fulfill its obligations
under this Guarantee. For purposes of this Guarantee, the term (a) "Net Worth"
of a person or entity means, at a particular date, all amounts that would, in
conformity with generally accepted accounting principles in the United States of
America in effect at that time, be included in that person's or entity's net
worth or equity on that person's or entity's balance sheet at that date (without
including as a liability in the calculation of net worth indebtedness that is
subordinate to the Fee Give Back Liabilities), and (b) "Substitute Guarantor"
means any person or entity that executes and delivers a guarantee in the form of
section 1.
3. This Guarantee shall be governed by and construed in accordance with
the law of the State of California applicable to agreements made and to be
performed wholly within the state of California.
PRESIDO CAPITAL CORP.
By:_________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 30, 1999 Form 10-Q of High Equity Partners L.P.
Series 88 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,765,070
<SECURITIES> 0
<RECEIVABLES> 376,811
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,639,068
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 52,438,180
<TOTAL-LIABILITY-AND-EQUITY> 53,639,068
<SALES> 0
<TOTAL-REVENUES> 5,526,702
<CGS> 0
<TOTAL-COSTS> 1,355,720
<OTHER-EXPENSES> 2,982,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,477,328
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,477,328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,477,328
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
