-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BxF/75OEbsNMJDU1ZIOEWWA1BQPV2K9d3nEpsTwlDPz8bI5ERsgH6WwBPgKqa6C4 yYPjzVtaJ6RfO55nSI+7Ow== 0000889812-99-002445.txt : 19990816 0000889812-99-002445.hdr.sgml : 19990816 ACCESSION NUMBER: 0000889812-99-002445 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED RESOURCES HIGH EQUITY PARTNERS SERIES 85 CENTRAL INDEX KEY: 0000730067 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133239107 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14438 FILM NUMBER: 99689085 BUSINESS ADDRESS: STREET 1: 411 WEST PUTNAM AVE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2038627000 MAIL ADDRESS: STREET 1: 411 WEST PUTNAM AVENUE CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: HIGH EQUITY PARTNERS SERIES 85 DATE OF NAME CHANGE: 19850626 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCES HIGH EQUITY PARTNERS DATE OF NAME CHANGE: 19850203 10-Q 1 QUARTERLY REPORT - -------------------------------------------------------------------------------- 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 June 30, 1999 Commission file number 0-14438 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 A CALIFORNIA LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) CALIFORNIA 13-3239107 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 411 West Putnam Avenue, Greenwich, CT 06830 (Address of principal executive offices) (203) 862-7444 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- - -------------------------------------------------------------------------------- INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- INDEX ----- Page No. Part I. Financial Information: Balance Sheets - June 30, 1999 and December 31, 1998 3 Statements of Operations -- Three and Six Months Ended June 30, 1999 and 1998 4 Statement of Partners' Equity -- Six Months Ended June 30, 1999 5 Statements of Cash Flows -- Six Months Ended June 30, 1999 and 1998 6 Notes to Financial Statements 7 - 12 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 15 Part II. Other Information: Legal Proceedings, Exhibits and Reports on Form 8-K 16 2 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- BALANCE SHEETS --------------
June 30, 1999 December 31, 1998 ------------- ----------------- ASSETS Real estate - net $ 32,134,301 $ 32,518,352 Cash and cash equivalents 8,086,807 6,301,641 Other assets 1,884,776 1,847,273 Receivables 181,833 147,423 ------------------- ------------------ $ 42,287,717 $ 40,814,689 ==================== ================== LIABILITIES AND PARTNERS' EQUITY Accounts payable and accrued expenses $ 1,958,324 $ 1,265,264 Distributions payable 395,799 395,799 Due to affiliates 267,488 362,440 ------------------- ------------------ 2,621,611 2,023,503 ------------------- ------------------ Commitments and contingencies PARTNERS' EQUITY: Limited partners' equity (400,010 units issued and outstanding) 37,681,850 36,850,676 General partners' equity 1,984,256 1,940,510 ------------------- ------------------ 39,666,106 38,791,186 ------------------- ------------------ $ 42,287,717 $ 40,814,689 =================== ==================
See notes to financial statements 3 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- STATEMENTS OF OPERATIONS ------------------------
For the Three Months Ended For the Six Months Ended June 30, June 30, ---------------------------------- ---------------------------------- 1999 1998 1999 1998 ------ ------ ------ ------- Rental Revenue $ 2,224,919 $ 2,186,065 $ 5,092,992 $ 4,766,610 ------------ ------------- ------------- ------------ Costs and Expenses: Operating expenses 725,468 1,068,805 1,558,818 1,905,620 Depreciation and amortization 336,096 329,293 672,192 658,586 Partnership management fee 211,409 227,043 422,818 454,086 Administrative expenses 159,067 330,192 862,377 555,942 Property management fee 71,949 64,102 157,453 140,686 ------------ ------------ ------------ ------------ 1,503,989 2,019,435 3,673,658 3,714,920 ------------ ------------ ------------ ------------ Income before interest and other income 720,930 166,630 1,419,334 1,051,690 Interest income 96,610 52,743 157,904 78,944 Other income 6,990 16,250 89,280 19,450 ------------ ------------ ------------ ------------ Net income $ 824,530 $ 235,623 $ 1,666,518 $ 1,150,084 ============ ============ ============ ============ Net income attributable to: Limited partners $ 783,304 $ 223,842 $ 1,583,192 $ 1,092,580 General partners 41,226 11,781 83,326 57,504 ------------ ------------ ------------ ------------ Net income $ 824,530 $ 235,623 $ 1,666,518 $ 1,150,084 ============ ============ ============ ============ Net income per unit of limited partnership interest (400,010 units $ 1.96 $ 0.56 $ 3.96 $ 2.73 outstanding) ============ ============ ============ ============
4 See notes to financial statements INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- STATEMENT OF PARTNERS' EQUITY -----------------------------
General Partners' Limited Partners' Equity Equity Total ----------------- ----------------- ----- Balance, January 1, 1999 $ 1,940,510 $ 36,850,676 $ 38,791,186 Net income for the six months ended June 30, 1999 83,326 1,583,192 1,666,518 Distributions as a return of capital for the six months ended June 30, 1999 ($1.88 per limited (39,580) (752,018) (791,598) partnership unit) --------------- -------------- --------------- Balance, June 30, 1999 $ 1,984,256 $ 37,681,850 $ 39,666,106 =============== =============== ===============
See notes to financial statements 5 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- STATEMENTS OF CASH FLOWS ------------------------
For the Six Months Ended June 30, ------------------------------------ 1999 1998 ---- ---- Cash Flows From Operating Activities: Net income $ 1,666,518 $ 1,150,084 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 672,192 658,586 Straight-line adjustment for stepped lease rentals 17,038 2,000 Changes in assets and liabilities: Accounts payable and accrued expenses 693,060 392,426 Receivables (34,410) 105,001 Due to affiliates (94,952) (301,629) Other assets (164,725) ( 39,986) ------------- --------------- Net cash provided by operating activities 2,754,721 1,966,482 ------------ -------------- Cash Flows From Investing Activities: Improvements to real estate (177,957) (1,045,670) ------------- -------------- Cash Flows From Financing Activities: Distributions to partners (791,598) (791,598) ------------- -------------- Increase In Cash And Cash Equivalents 1,785,166 129,214 Cash And Cash Equivalents, Beginning of Year 6,301,641 4,350,887 ------------ -------------- Cash And Cash Equivalents, End of Quarter $ 8,086,807 $ 4,480,101 ============ ==============
See notes to financial statement 6 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- l. GENERAL ------- The accompanying financial statements, notes and discussions should be read in conjunction with the financial statements, related notes and discussions contained in the Partnership's annual report on Form 10-K for the year ended December 31, 1998. 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 six months ended June 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 materially vary from the estimates. The Partnership may in the future provide additional write-downs, which could be material, if real estate markets or local economic conditions change. 7 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 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 six months ended June 30, 1999 and 1998, reimbursable expenses incurred by NorthStar Presidio related to the Partnership amounted to approximately $51,000 and $47,300, respectively. The Partnership has a property management services agreement with Resources Supervisory Management Corp. ("Resources Supervisory"), an affiliate of the General Partners, to perform certain functions relating to the management of the properties of the Partnership. A portion of the property management fees were paid to unaffiliated management companies which are engaged for the purpose of performing the management functions for certain properties. For the quarters ended June 30, 1999 and 1998, Resources Supervisory was entitled to receive $71,949 and $64,102 respectively, of which $53,370 and $52,535 was paid to unaffiliated management companies, respectively, for property management services and the balance was retained by Resources Supervisory. For the six months ended June 30, 1999 and 1998, Resources Supervisory was entitled to receive $157,453 and $140,686, respectively, of which $121,781 and $117,764 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 up to a maximum of $150,000 per year. For each of the quarters ended June 30, 1999 and 1998, the Managing General Partner received $37,500. For the six months ended June 30, 1999 and 1998, the Managing General Partner received $75,000. For managing the affairs of the Partnership, the Managing General Partner is also entitled to receive an annual partnership management fee equal to 1.05% of the amount of original gross proceeds paid or allocable to the acquisition of property by the Partnership, as adjusted for the properties sold. For the quarters ended June 30, 1999 and 1998, the Managing General Partner received $211,409 and $227,043, respectively. For the six months ended June 30, 1999 and 1998, the Managing General Partner received $422,818 and $454,086, respectively. 8 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 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 $41,226 and $11,781 for the quarters ended June 30, 1999 and 1998, respectively. Net income allocated to the General Partners amounted to $83,326 and $57,504 for the six months ended June 30, 1999 and 1998, respectively. They are also entitled to receive 5% of distributions, which amounted to $19,790 and for each of the quarters ended June 30, 1999 and 1998. Distributions allocated to the General Partners amounted to $39,580 for the six months ended June 30, 1999 and 1998. 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 II Corp.("MFII"), a wholly owned indirect subsidiary of Presidio, purchased 39,123 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 31,132 units properly tendered pursuant to the Offer. Pursuant to the Agreement, MFII purchased 50% of those units owned by Olympia as a result of the Offer, or 15,566 units, for $101.81 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, MFII purchased an additional 18,042 limited partnership units from August 1998 through July 1999. The total number of units purchased by MFII represents approximately 18.2% of the outstanding limited partnership units of the Partnership. 9 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- 4. REAL ESTATE ----------- The following table is a summary of the Partnership's real estate as of:
June 30, 1999 December 31, 1998 ------------- ------------------ Land $ 10,370,965 $ 10,370,965 Building and improvements 36,968,677 36,790,720 ---------------- ---------------- 47,339,642 47,161,685 Less: Accumulated depreciation (15,205,341) (14,643,333) ----------------- ----------------- $ 32,134,301 $ 32,518,352 ================ ================
5. DISTRIBUTIONS PAYABLE ---------------------
June 30, 1999 December 31, 1998 ------------- ----------------- Limited partners ($.94 per unit) $ 376,009 $ 376,009 General partners 19,790 19,790 --------------- ---------------- $ 395,799 $ 395,799 =============== ================
Such distributions were paid in the subsequent quarters. 6. DUE TO AFFILIATES -----------------
June 30, 1999 December 31, 1998 ------------- ----------------- Partnership management fee $ 211,409 $ 211,409 Property management fee 18,579 113,531 Non-accountable expense reimbursement 37,500 37,500 --------------- ---------------- $ 267,488 $ 362,440 =============== ================
Such amounts were paid in the subsequent quarters. 10 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 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 High Equity Partners L.P. - Series 88 ("HEP-88"), 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. 11 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) ----------------------------------------- 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. 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. As the first step in implementing the settlement, the General Partners are currently soliciting the consent of limited partners to the amendments to the Partnership Agreements referred to above. The settlement is subject to a number of conditions. There can be no assurance that such conditions will be fulfilled. The General Partners believe that each of the claims asserted in the Action are meritless and, if for any reason a final settlement pursuant to the Settlement Stipulation is not consummated, intend to continue to vigorously defend the Action. 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. Accordingly, the Partnership accrued $542,000 at March 31, 1999 related to these costs, which are expected to be paid in the third quarter of 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 June 30, 1999, the Partnership paid the General Partners a total of $1,034,510 for these costs. 12 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 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 cash flow from operations, are expected to be sufficient to fund future capital improvements to the Partnership's properties. As of June 30, 1999 total working capital reserves amounted to approximately $2,587,000. The Partnership intends to distribute to its partners less than all of its future cash flow from operations in order to assure adequate reserves for capital improvements and capitalized lease procurement costs. During the six months ended June 30, 1999, cash and cash equivalents increased $1,785,166 as a result of cash provided by 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 less property operating expenses) which amounted to $2,754,721 for the six months ended June 30, 1999. The Partnership used $177,957 for capital expenditures related to capital and tenant improvements to the properties and $791,598 for distributions to partners for the six months ended June 30, 1999. The Partnership expects to continue to utilize a portion of its cash flow from operations to pay for various capital and tenant improvements to the properties and leasing commissions. Although no additional properties are under contract for sale, future cash flows will exclude cash flow from the Westbrook property (sold in 1998) which amounted to approximately $38,000 in 1998. 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 an increase in net income for the three and six months ended June 30, 1999 as compared to the same periods in the prior year. These increases were primarily due to higher revenues and lower costs and expenses during both the three and six months ended June 30, 1999. Rental revenues increased during the three and six months ended June 30, 1999 compared to the same periods in 1998 at 568 Broadway due to higher overall rental rates at the property. These increases were partially offset by lower revenues during the three and six months ended June 30, 1999 due to the sale of the Westbrook property in late 1998. 13 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Costs and expenses decreased during the three and six months ended June 30, 1999 compared to the same periods in 1998, primarily due to lower operating expenses and partnership management fees due to the sale of the Westbrook property in 1998, as previously discussed. These decreases were partially offset by an increase in depreciation expense during both periods due to real estate improvements in 1998 and an increase in property management fees due to higher revenues, as previously discussed. Administrative expenses increased for the six months ended June 30, 1999 due to higher legal fees incurred during the first quarter of 1999 pursuant to the Settlement Agreement related to the ongoing litigation and possible reorganization of the Partnership (see Note 7). However, administrative fees for the three months ended June 30, 1999 decreased as compared to the same period in the prior year due to lower legal fees incurred during the second quarter as a result of the potential settlement. Interest income increased during the three and six months ended June 30, 1999 due to higher cash balances during the current periods as compared to the same periods in 1998. Other income increased during the six months ended June 30, 1999 as compared to the same period in 1998 due to a greater number of investor transfers (primarily during the first quarter of 1999) on which the Partnership earns a transfer fee. However, other income decreased during the three months ended June 30, 1999 compared to the prior period due to fewer such transfers during the second quarter. 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 the 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 on 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. 14 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 30, 1999 ------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- YEAR 2000 COMPLIANCE - -------------------- The Year 2000 compliance issue concerns the inability of computerized information systems and equipment 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. This could result in a system failure or miscalculations causing disruptions of operations. The Partnership and its Manager (NorthStar Presidio Management Co., LLC) recognize the importance of ensuring that its business operations are not disrupted as a result of Year 2000 related computer system and software issues. The manager has assessed its internal computer information systems and is now taking the further steps necessary to remediate these systems so that they will be Year 2000 compliant. In connection therewith, the manager installed a new fully compliant accounting and reporting system in December 1998. Further, the Manager anticipates that the internal computer systems will be fully Year 2000 compliant by the end of the third quarter of 1999. The Manager is also currently reviewing other systems and programs of its unaffiliated third party service providers, in order to insure compliance. This process is expected to be completed during the third quarter of 1999. Further, the Manager and these service providers are currently evaluating and assessing those computer systems not related to information technology. These systems, that generally operate in a building include, without limitation, telecommunication systems, security systems (such as card-access door lock systems), energy management systems and elevator systems. As a result of the technology used in this type of equipment, it is possible that this equipment may not be repairable, and accordingly may require complete replacement. Because this assessment is ongoing, the total cost of bringing all systems and equipment into Year 2000 compliance has not been fully quantified. Based upon available information, the Manager does not believe that these costs will have a material adverse effect on the Partnership's business, financial condition or results. However, it is possible that there could be adverse consequences to the Partnership as a result of Year 2000 issues that are outside the Partnership's control. The Manager is evaluating these issues and will be developing contingency plans. 15 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 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: There were no exhibits filed. (b) Reports on Form 8-K: None 16 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 ---------------------------------------------------- FORM 10-Q - JUNE 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. Integrated Resources High Equity Partners, Series 85, A California Limited Partnership By: Resources High Equity, Inc., Managing General Partner Dated: August 12, 1999 By: /S/ Allan Rothschild --------------------------- Allan Rothschild President (Duly Authorized Officer) Dated: August 12, 1999 By: /S/ Lawrence Schachter --------------------------------- Lawrence Schachter Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 The schedule contains summary information extracted from the financial statements of the June 30, 1999 Form 10-Q Integrated Resources High Equity Partners, Series 85 and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1999 JUN-30-1999 8,086,807 0 181,833 0 0 0 0 0 42,287,717 0 0 0 0 0 39,666,106 42,287,717 0 5,092,992 0 1,558,818 2,114,840 0 0 1,666,518 0 1,666,518 0 0 0 1,666,518 0 0
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