-----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, S4H72Nxwk/FVa/sh84knwZA1sS97uNN3N7a2eLMrI6LSrQTa1NrRp/NybAJT3J2K qHRpdaUehj2a2BueSmm+aQ== 0000914317-96-000259.txt : 19960816 0000914317-96-000259.hdr.sgml : 19960816 ACCESSION NUMBER: 0000914317-96-000259 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-14438 FILM NUMBER: 96613429 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 ================================================================================ 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, 1996 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) 862-7000 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] ================================================================================ INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 INDEX Part I. Financial Information: Balance Sheets--June 30, 1996 and December 31, 1995 Statements of Operations--Three Months Ended June 30, 1996 and 1995 and Six Months Ended June 30, 1996 and 1995 Statement of Partners' Equity--Six Months Ended June 30, 1996 Statements of Cash Flows--Six Months Ended June 30, 1996 and 1995 Notes to Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information: Legal Proceedings, Exhibits and Reports on Form 8-K INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 BALANCE SHEETS
June 30, December 31, 1996 1995 ------------ ------------ ASSETS Real estate ................................ $ 32,284,572 $ 32,533,972 Cash and cash equivalents .................. 3,842,512 2,450,943 Other assets ............................... 2,173,519 2,121,920 Receivables ................................ 184,216 202,762 ------------ ------------ $ 38,484,819 $ 37,309,597 ============ ============ LIABILITIES AND PARTNERS' EQUITY Accounts payable and accrued expenses ...... $ 1,282,550 $ 1,016,797 Due to affiliates .......................... 281,533 352,633 Distributions payable ...................... 252,638 252,638 ------------ ------------ 1,816,721 1,622,068 ------------ ------------ Commitments and contingencies PARTNERS' EQUITY: Limited partners' equity (400,010 units issued and outstanding) .......... 39,833,867 38,902,326 General partners' deficit ................ (3,165,769) (3,214,797) ------------ ------------ 36,668,098 35,687,529 ------------ ------------ $ 38,484,819 $ 37,309,597 ============ ============
See notes to financial statements INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended June 30, June 30, ------------------------------- ------------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Rental Revenue ........................................ $ 2,150,499 $ 1,794,930 $ 4,563,889 $ 3,960,234 ------------ ------------ ------------ ------------ Costs and Expenses: Operating expenses ............................... 826,015 878,101 1,683,620 1,727,899 Depreciation and amortization .................... 319,365 220,000 638,730 538,000 Partnership management fee ....................... 227,043 227,043 454,086 454,086 Administrative expenses .......................... 116,282 125,190 247,742 242,217 Property management fee .......................... 61,562 72,914 136,859 130,480 Write-down for impairment ........................ -- -- -- 20,469,050 ------------ ------------ ------------ ------------ 1,550,267 1,523,248 3,161,037 23,561,732 ------------ ------------ ------------ ------------ Income (loss) before interest and other income ................................. 600,232 271,682 1,402,852 (19,601,498) Interest income .................................. 25,897 38,741 53,183 72,263 Other income ..................................... 15,360 11,950 29,810 26,650 ------------ ------------ ------------ ------------ Net income (loss) ..................................... $ 641,489 $ 322,373 $ 1,485,845 $(19,502,585) ============ ============ ============ ============ Net income (loss) attributable to: Limited partners ................................. $ 609,415 $ 306,254 $ 1,411,553 $(18,527,456) General partners ................................. 32,074 16,119 74,292 (975,129) ------------ ------------ ------------ ------------ Net income (loss) ..................................... $ 641,489 $ 322,373 $ 1,485,845 $(19,502,585) ============ ============ ============ ============ Net income (loss) per unit of limited partnership interest (400,010 units outstanding) ..................................... $ 1.52 $ .77 $ 3.53 $ (46.32) ============ ============ ============ ============
See notes to financial statements INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 STATEMENT OF PARTNERS' EQUITY
General Limited Partners' Partners' (Deficit) Equity Total ------------ ------------ ------------ Balance, January 1, 1996 ...................................... $ (3,214,797) $ 38,902,326 $ 35,687,529 Net income for the six months ended June 30, 1996 ................................ 74,292 1,411,553 1,485,845 Distributions as a return of capital for the six months ended June 30, 1996 ($1.20 per limited partnership unit) ...................... (25,264) (480,012) (505,276) ------------ ------------ ------------ Balance, June 30, 1996 ........................................ $ (3,165,769) $ 39,833,867 $ 36,668,098 ============ ============ ============
See notes to financial statements INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 STATEMENTS OF CASH FLOWS
For The Six Months Ended June 30, 1996 1995 ------------ ------------ Cash Flows From Operating Activities: Net income (loss) ......................... $ 1,485,845 $(19,502,585) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Write-down for impairment ........... -- 20,469,050 Depreciation and amortization ....... 638,730 538,000 Straight-line adjustment for stepped lease rentals ....................... (20,884) (15,297) Changes in assets and liabilities: Accounts payable and accrued expenses 265,753 618,715 Receivables ......................... 18,546 141,756 Due to affiliates ................... (71,100) (27,248) Other assets ........................ (130,264) (242,675) ------------ ------------ Net cash provided by operating activities ................ 2,186,626 1,979,716 ------------ ------------ Cash Flows From Investing Activities: Improvements to real estate ............... (289,781) (491,073) ------------ ------------ Cash Flows From Financing Activities: Distributions to partners ................. (505,276) (505,276) ------------ ------------ Increase In Cash And Cash Equivalents .......... 1,391,569 983,367 Cash And Cash Equivalents, Beginning of Year ......................... 2,450,943 2,666,385 ------------ ------------ Cash And Cash Equivalents, End of Quarter ............................ $ 3,842,512 $ 3,649,752 ============ ============
See notes to financial statements INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 NOTES TO FINANCIAL STATEMENTS l. GENERAL The accompanying financial statements, notes and discussions should be read in conjunction with the financial statements, related notes and discussions contained in the Partnership's annual report on Form 10-K for the year ended December 31, 1995. The December 31, 1995 year end balance sheet data presented herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial information contained herein is unaudited; however, in the opinion of management, all adjustments necessary for a fair presentation of such financial information have been included. Other than the write-down for impairment, all of the aforementioned adjustments are of a normal recurring nature and there have not been any non-recurring adjustments included in the results reported for the current period. 2. SIGNIFICANT ACCOUNTING POLICIES Impairment of Assets In March 1995, the Financial Accounting Standards Board issued Statement # 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS # 121"). Although the adoption of the statement was not required until fiscal years beginning after December 15, 1995, the Partnership implemented SFAS #121 for the year ended December 31, 1995. Under SFAS #121 the initial test to determine if an impairment exists is to compute the recoverability of the asset based on anticipated cash flows (net realizable value) compared to the net carrying value of the asset. If anticipated cash flows on an undiscounted basis are insufficient to recover the net carrying value of the asset, an impairment loss should be recognized, and the asset written down to its estimated fair value. The fair value of the asset is the amount by which the asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. The net realizable value of an asset will generally be greater than its fair value because net realizable value does not discount cash flows to present value and discounting is usually one of the assumptions used in determining fair value. The write-downs for impairment do not affect the tax basis of the assets and the write-downs are not included in the determination of taxable income or loss. Because the determination of both net realizable value and fair value is based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying value as of the balance sheet date. The cash flows used to determine fair value and net realizable value are based on good faith estimates and assumptions developed by management. Inevitably, INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) unanticipated events and circumstances may occur and some assumptions may not materialize; therefore actual results may vary from our estimate and the variances may be material. The Partnership may provide additional losses in subsequent periods if the real estate market or local economic conditions change and such write-downs could be material. Certain reclassifications were made to the prior year financial statements in order to conform them to the current period presentation. 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES The Managing General Partner of the Partnership, Resources High Equity, Inc. was, until November 3, 1994, a wholly-owned subsidiary of Integrated Resources, Inc. ("Integrated") at which time, pursuant to the consummation of the plan of reorganization, substantially all of the assets of Integrated were sold to Presidio Capital Corp., a British Virgin Islands corporation ("Presidio") and the Managing General Partner became a wholly owned subsidiary of Presidio. Presidio AGP Corp., which is a wholly-owned subsidiary of Presidio, became the Associate General Partner on February 28, 1995, replacing Z Square G Partners II which withdrew as of that date. The General Partners and affiliates of the General Partners are also engaged in businesses related to the acquisition and operation of real estate. Presidio is also the parent of other corporations that are or may in the future be engaged in businesses that may be in competition with the Partnership. Accordingly, conflicts of interest may arise between the Partnership and such other businesses. Wexford Management LLC ("Wexford") has been engaged to perform administrative services to Presidio and its direct and indirect subsidiaries as well as the Partnership. During the three months ended June 30, 1996, reimbursable expenses to Wexford by the Partnership amounted to $23,650. Wexford is engaged to perform similar services for other similar entities that may be in competition with the Partnership. The Partnership has entered into a property management services agreement with Resources Supervisory Management Corp. ("Resources Supervisory"), an affiliate of the General Partner, 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, 1996 and 1995, Resources Supervisory was entitled to receive $61,562 and $72,912, respectively, of which $44,572 and $52,864 was paid to unaffiliated management companies, respectively. These fees were paid in the quarters subsequent to June 30, 1996 and 1995, respectively. 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 (exclusive of the administrative expenses paid to INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 NOTES TO FINANCIAL STATEMENTS 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) Wexford ). For each of the quarters ended June 30, 1996 and 1995, the Managing General Partner was entitled to receive $37,500 which was paid in the quarters subsequent to June 30, 1996 and 1995, respectively. For managing the affairs of the Partnership, the Managing General Partner is 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. For each of the quarters ended June 30, 1996 and 1995, the Managing General Partner was entitled to receive $227,043 which was paid in the quarters subsequent to June 30, 1996 and 1995, respectively. The general partners are allocated 5% of the net income of the Partnership which amounted to $32,074 and $16,119 for the quarters ended June 30, 1996 and 1995, respectively. They are also entitled to receive 5% of distributions which amounted to $12,632 for each of the quarters ended June 30, 1996 and 1995. During the liquidation stage of the Partnership, the Managing General Partner or an affiliate may be entitled to receive certain fees which are subordinated to the limited partners receiving their original invested capital and certain specified minimum returns on their investment. In July 1996, Millenium Funding II Corp., a wholly owned indirect subsidiary of Presidio, purchased 598 units of the Partnership from various limited partners. These purchases represent less than .2% of the outstanding limited partnership units of the Partnership. 4. REAL ESTATE Management recorded write-downs for impairment totaling $20,469,050 in the first quarter 1995 pursuant to adoption of SFAS #121 as discussed in Note 2. No write-downs were recorded for the six months ended June 30, 1996. The following table represents the write-downs for impairment recorded on the Partnership's properties: Six Months Ended June 30, ------------------------------------------ Property 1996 1995 ------------------ ----------------- ---------------- Seattle Tower $ --- $ 3,550,000 Century Park I --- 1,250,000 568 Broadway --- 2,569,050 Westbrook --- 3,400,000 Loch Raven --- 4,800,000 Southport --- 4,900,000 ----------------- ---------------- $ --- $ 20,469,050 ================= ================ INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 NOTES TO FINANCIAL STATEMENTS 4. REAL ESTATE (CONTINUED) The following table is a summary of the Partnership's real estate as of:
June 30, December 31, 1996 1995 --------------- --------------- Land $ 11,056,966 $ 11,056,966 Building and improvements 34,461,574 34,171,794 ------------ --------------- 45,518,540 45,228,760 Less: Accumulated depreciation (13,233,968) (12,694,788) -------------- --------------- $ 32,284,572 $ 32,533,972 ============== ===============
5. DISTRIBUTIONS PAYABLE
June 30, December 31, 1996 1995 ------------- ------------- Limited partners ($.60 per unit) $ 240,006 $ 240,006 General partners 12,632 12,632 ------------ ------------- $ 252,638 $ 252,638 ============ ==============
Such distributions were paid in the quarters subsequent to June 30, 1996 and December 31, 1995, respectively. 6. DUE TO AFFILIATES
June 30, December 31, 1996 1995 ------------ ------------- Partnership management fee $ 227,043 $ 227,044 Property management fee 16,990 88,089 Non-accountable expense reimbursement 37,500 37,500 ------------ ------------ $ 281,533 $ 352,633 ============ ============
Such amounts were paid in the quarters subsequent to June 30, 1996 and December 31, 1995, respectively. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES a) 568 Broadway Joint Venture is currently involved in litigation with a number of present or former tenants who are in default on their lease obligations. Several of these tenants have asserted claims or counter claims seeking monetary damages. The plaintiffs' allegations include but are not limited to claims for breach of contract, failure to provide certain services, overcharging of expenses and loss of profits and income. These suits seek total damages in excess of $20 million plus additional damages of an indeterminate amount. The 568 Broadway Joint Ventures action for rent against Solo Press was tried in 1992 and resulted in a judgement in favor of the 568 Broadway Joint Venture for rent owed. The Partnership believes this will result in dismissal of the action brought by Solo Press against the 568 Broadway Joint Venture. Since the facts of the other actions which involve material claims or counterclaims are substantially similar, the 568 Partnership believes that the 568 Broadway Joint Venture will prevail in those actions as well. b) A former retail tenant of 568 Broadway (Galix Shops, Inc.) and a related corporation which is a retail tenant of a building adjacent to 568 Broadway filed a lawsuit in the Supreme Court of the state of New York, County of New York, against the Broadway Joint Venture which owns 568 Broadway. The action was filed on April 13, 1994. The plaintiffs allege that by erecting a sidewalk shed in 1991, 568 Broadway deprived plaintiffs of light, air and visibility to their customers. The sidewalk shed was erected, as required by local law, in connection with the inspection and restoration of the 568 Broadway building facade, which is also required by local law. Plaintiffs further allege that the erection of the sidewalk shed for a continuous period of over two years is unreasonable and unjustified and that such conduct by defendants has deprived plaintiffs of the use and enjoyment of property. The suit seeks a judgement requiring removal of the sidewalk shed, compensatory damages of $20 million, and punitive damages of $10 million. The Partnership believes that this suit is meritless and intends to vigorously defend it. c) On or about May 11, 1993 High Equity Partners L.P. - Series 86 ("HEP-86"), an affiliated partnership, was advised of the existence of an action (the "B&S Litigation') in which a complaint (the "HEP Complaint") was filed in the Superior Court for the State of California for the County of Los Angeles (the "Court") on behalf of a purported class consisting of all of the purchasers of limited partnership interests in HEP-86. On April 7, 1994 the plaintiffs were granted leave to file an amended complaint (the "Amended Complaint"). The Amended Complaint asserted claims against the General Partners of the Partnership, the general partners of HEP-86, the managing general partner of HEP-88 and certain officers of the Managing General Partner, among others. The Managing General Partner of the Partnership is also a general partner of HEP-86 and HEP-88. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) On July 19, 1995, the Court preliminarily approved a settlement of the B&S Litigation and approved the form of a notice (the "Notice") concerning such proposed settlement. In response to the Notice, approximately 1.1% of the limited partners of the three HEP partnerships (representing approximately 4% of outstanding units) requested exclusion and 15 limited partners filed written objections to the settlement. The California Department of Corporations also sent a letter to the Court opposing the settlement. Five objecting limited partners, represented by two law firms, also made motions to intervene so they could participate more directly in the action. The motions to intervene were granted by the Court on September 14, 1995. In October and November 1995, the attorneys for the plaintiffs- intervenors conducted extensive discovery. At the same time, there were continuing negotiations concerning possible revisions to the proposed settlement. On November 30, 1995, the original plaintiffs and the intervening plaintiffs filed a Consolidated Class and Derivative Action Complaint ("Consolidated Complaint") against the Managing General Partner, two of the general partners of HEP-86, the managing general partner of HEP-88 and the indirect corporate parent of the General Partners, alleging various state law class and derivative claims, including claims for breach of fiduciary duties; breach of contract; unfair and fraudulent business practices under California Bus. & Prof. Code Section 17200; negligence; dissolution, accounting, receivership, and removal of general partner; fraud; and negligent misrepresentation. The Consolidated Complaint alleges, among other things, that the general partners caused a waste of HEP Partnership assets by collecting management fees in lieu of pursuing a strategy to maximize the value of the investments owned by the limited partners; that the general partners breached their duty of loyalty and due care to the limited partners by expropriating 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 the 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; that the limited partnership units were sold and marketed through the use of false and misleading statements. On or about January 31, 1996, the parties to the B & S Litigation agreed upon a revised settlement, which would be significantly more favorable to limited partners than the previously proposed settlement, The revised settlement proposal, like the previous proposal, involves the reorganization of (i) the Partnership, (ii) HEP-86 and, (iii) HEP-88 (collectively, the "HEP Partnerships"), through an exchange (the "Exchange") in which limited partners (the "Participating Investors") INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) of the partnerships participating in the Exchange (the "Participating Partnerships") would receive, in exchange for the partnership units, shares of common stock ("Shares") of a newly-formed corporation, Millennium Properties Inc. ("Millennium") which intends to qualify as a real estate investment trust. Such reorganization would only be effected with respect to a particular partnership if holders of a majority of the outstanding units of that partnership consent to such reorganization pursuant to a Consent Solicitation Statement (the "Consent Solicitation Statement") which would be sent to all limited partners after the settlement is approved by the Court. In connection with the Exchange, Participating Investors would receive Shares of Millennium in exchange for their limited partnership units. 84.65% of the Shares would be allocated to Participating Investors in the aggregate (assuming each of the Partnerships participate in the Exchange) and 15.35% of the Shares would be allocated to the general partners in consideration of the general partner's existing interests in the Participating Partnerships, their relinquishment of entitlement to receive fees and expense reimbursements, and the payment by the general partners or an affiliate of certain amounts for legal fees. As part of the Exchange, Shares issued to Participating Investors would be accompanied by options granting such Investors the right to require an affiliate of the general partners to purchase Shares at a price of $11.50 per Share, exercisable during the three month period commencing nine months after the effective date of the Exchange. A maximum of 1.5 million Shares (representing approximately 17.7% of the total Shares issued to investors if all partnerships participate) would be required to be purchased if all partnerships participate in the Exchange. Also as part of the Exchange, the indirect parent of the General Partners would agree that in the event that dividends paid with respect to the Shares do not aggregate at least $1.10 per Share for the first four complete fiscal quarters following the Effective Date, it would make a supplemental payment to holders of such Shares in the amount of such difference. The general partners or an affiliate would also provide an amount, not to exceed $2,232,500 in the aggregate, for the payment of attorneys' fees and reimbursable expenses of class counsel, as approved by the Court, and the costs of providing notice to the class (assuming that all three Partnerships participate in the Exchange). In the event that fewer than all of the Partnerships participate in the Exchange, such amount would be reduced. The general partners would advance to the Partnerships the amounts necessary to cover such fees and expenses of the Exchange (but not their litigation costs and expenses, which the general partners would bear). Upon the effectuation of the Exchange, the B & S Litigation would be dismissed with prejudice. On February 8, 1996, at a hearing on preliminary approval of the revised settlement, the Court determined that in light of renewed objections to the settlement by the California Department of Corporations, the Court would appoint a securities litigation expert to evaluate the settlement. The Court stated that it would rule on the issue of preliminary approval of the settlement after receiving the expert's report. On May 6, 1996, the expert submitted a report stating that he was unable to conclude that the revised settlement as proposed INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) is fair, reasonable and adequate, and recommending that the revised settlement be restructured so as to allocate Shares to the general partners based solely on the value of their 5% equity interests in the Partnerships, that the allocation of Shares be based on independent appraisals of all of the Partnerships' properties, and that Participating Investors be provided with dissenters' rights. On May 28, 1996, at a hearing in connection with the expert's report, the Court ordered the parties to brief certain valuation issues, the requisite consents required from limited partners to approve the Exchange and the applicability of exemptions from the California securities law. Thereafter, in response to the expert's report, the proposed settlement was further revised to require independent appraisals of all the Partnerships' properties and to provide Participating Investors with dissenters' rights, which would entitle Participating Investors who elected dissenters' rights to receive, as compensation for their Units, unsecured notes issued by Millennium, the face amount of which would be based on the independent appraisals. A hearing on the issues the Court had ordered the parties to brief was held on July 9, 1996. On July 18, 1996, the Court preliminarily approved the proposed, revised settlement of the B & S Litigation, and made a preliminary finding that the proposed, revised settlement is fair, adequate and reasonable to the class, and that a settlement class should be conditionally certified. The Court also set a hearing for August 19, 1996 to settle the form and method of notice to limited partners regarding the proposed, revised settlement. After a notice regarding the proposed, revised settlement is sent to limited partners, the Court would hold a fairness hearing in order to determine whether the settlement would be given final approval. If final approval of the settlement is granted by the Court, the Consent Solicitation Statement concerning the settlement and the reorganization would be sent to all limited partners. There would be at least a 60 day solicitation period and a reorganization of the Partnership cannot be consummated unless a majority of the limited partners in the Partnership affirmatively voted to approve it. 8. RESULTS OF OPERATIONS Results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the entire year. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Partnership's real estate properties are office buildings and shopping centers, all of which were acquired for cash. The public offering of the Units commenced on February 4, 1985 and was terminated on May 30, 1986. Upon termination, the Partnership had accepted subscriptions for 400,010 Units (including Units held by the initial limited partner) for aggregate net proceeds of $98,502,500 (gross proceeds of $100,002,500 less organization and offering expenses aggregating $1,500,000). 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 six months ended June 30, 1996, 100% of distributions and capital expenditures were funded from cash flows. As of June 30, 1996, the Partnership had total working capital reserves of approximately $2,293,000. The Partnership intends to distribute less than all of its future cash flow from operations to maintain adequate reserves for capital improvements and capitalized lease procurement costs. In addition, if real estate market conditions deteriorate in any areas where the Partnership's properties are located, there is substantial risk that this would have an adverse effect on future cash flow distributions. 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. During the six months ended June 30, 1996, cash and cash equivalents increased $1,391,569 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, which amounted to $2,186,626 for the six months ended June 30, 1996. The Partnership used $289,781 for capital expenditures related to capital and tenant improvements to the properties and $505,276 for distributions to partners for the six months ended June 30, 1996. 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 (the amount of which cannot be predicted with certainty). Capital and tenant improvements and leasing commisssions may in the future exceed the Partnership's cash flow from operations which would otherwise be available for distributions. In that event, the Partnership would utilize the remaining working capital reserves or sell one or more properties, which would have an adverse effect on future distributions. Except as discussed above, management is not aware of any other trends, events, commitments or uncertainties that will have a significant impact on liquidity. REAL ESTATE MARKET The real estate market continues to suffer from the effects of the recession which included a substantial decline in the market value of existing properties. Market values have been slow to recover, and while the pace of new construction has slowed, high vacancy rates continue to exist in many areas. Technological changes are also occurring which may reduce the office space needs of many users. These factors may continue to reduce rental rates. As a result, the INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Partnership's potential for realizing the full value of its investment in its properties is at increased risk. IMPAIRMENT OF ASSETS In March 1995, the Financial Accounting Standards Board issued Statement # 121, "Accounting for The Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS # 121"). Although the adoption of the statement was not required until fiscal years beginning after December 15, 1995, the Partnership implemented SFAS #121 for the year ended December 31, 1995. Under SFAS #121 the initial test to determine if an impairment exists is to compute the recoverability of the asset based on anticipated cash flows (net realizable value) compared to the net carrying value of the asset. If anticipated cash flows on an undiscounted basis are insufficient to recover the net carrying value of the asset, an impairment loss should be recognized, and the asset written down to its estimated fair value. The fair value of the asset is the amount by which the asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. The net realizable value of an asset will generally be greater than its fair value because net realizable value does not discount cash flows to present value and discounting is usually one of the assumptions used in determining fair value. The write-downs for impairment do not affect the tax basis of the assets and the write-downs are not included in the determination of taxable income or loss. Because the determination of both net realizable value and fair value is based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying values as of the balance sheet date. The cash flows used to determine fair value and net realizable value are based on good faith estimates and assumptions developed by management. Inevitably, unanticipated events and circumstances may occur and some assumptions may not materialize; therefore actual results may vary from our estimate and the variances may be material. The Partnership may provide additional losses in subsequent periods if the real estate market or local economic conditions change and such write-downs could be material. Management recorded write-downs for impairment totaling $20,469,050 in the first quarter 1995 pursuant to the adoption of SFAS #121 as discussed above. No write-downs were recorded for the six months ended June 30,1996. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table represents the write-downs for impairment recorded on the Partnership's properties: Six Months Ended June 30, ---------------------------------- Property 1996 1995 -------- ------------- ------------- Seattle Tower $ --- $ 3,550,000 Century Park I --- 1,250,000 568 Broadway --- 2,569,050 Westbrook --- 3,400,000 Loch Raven --- 4,800,000 Southport --- 4,900,000 ------------ ------------- $ --- $ 20,469,050 ============ ============= RESULTS OF OPERATIONS The Partnership experienced net income for the six months ended June 30, 1996 compared to a net loss for the six months ended June 30, 1995 due primarily to the significant write-down for impairment recorded in 1995. The Partnership experienced an increase in net income for the three months ended June 30, 1996 compared to the same period in the prior year due primarily to higher revenues at certain properties in 1996. Rental revenue increased for the six months and three months ended June 30, 1996 compared to the same periods in the prior year. Revenues at Century Park, 568 Broadway, and Seattle Tower increased during both periods in 1996 due to higher occupancy rates as new leases were executed in late 1995 and in 1996. Revenues at Southport increased as higher percentage rent and real estate tax reimbursements were collected from certain tenants during 1996 compared to 1995. Costs and expenses decreased during the six months ended June 30, 1996 compared to the same period in 1995 due primarily to the write-down for impairment recorded in 1995 while costs and expenses increased slightly for the three months ended June 30, 1996 compared to the same period in the prior year. Operating expenses decreased slightly for the six and three months ended June 30, 1996 compared to 1995 due primarily to fewer bad debt write-offs and lower real estate taxes partially offset by higher repair and maintenance costs. Bad debt expenses decreased at Southport and Westbrook during 1996 compared to 1995 and real estate taxes at 568 Broadway were reduced as a result of appeals of current and prior year's assessed values. Repairs and maintenance expenses increased at Century Park due to higher occupancy and at Loch Raven due to costs related to severe weather. Depreciation and amortization increased for both the six and three month periods in 1996 due to significant capital and tenant improvement work in 1995. The partnership management fees and administrative expenses for the six and three months ended June 30, 1996 were relatively consistent with the same periods in the prior year. Property management fees increased during the six months ended June 30, 1996 as compared to the prior period due to the increase in rental revenue at certain properties as previously discussed. However, property INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS management fees were lower for the three months ended June 30, 1996 compared to the same period in the prior year due to certain adjustments recorded in 1995 which affect the computation of the property management fee. Interest income decreased due to lower interest rates for the six months and three months ended June 30, 1996 as compared to the same periods in 1995. Other income, which consists of investor ownership transfer fees, increased during the six and three month periods ended June 30, 1996 compared to the same periods in 1995 due to a greater number of ownership transfers during the second quarter of 1996. Inflation is not expected to have a material impact on the Partnership's operations or financial position. Legal Proceedings The Partnership is a party to certain litigation. See Note 7 to the financial statements for a description thereof. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 Part II. - Other Information Item 1 - Legal Proceedings (a) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Financial Statements - Note 7 which is herein incorporated by reference. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits: There were no exhibits filed. (b) Reports on Form 8-K: There were no reports filed. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - June 30, 1996 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Integrated Resources High Equity Partners, Series 85, A California Limited Partnership By: Resources High Equity, Inc., Managing General Partner Dated: August 14, 1996 By: /S/ Joseph M. Jacobs -------------------- Joseph M. Jacobs President (Duly Authorized Officer) Dated: August 14, 1996 By: /S/ Jay L. Maymudes ------------------- Jay L. Maymudes Vice President, Secretary and Treasurer (Principal Financial and Accounting Officer) EX-27 2
5 The schedule contains summary financial information extracted from the financial statements contained in the Integrated Resources High Equity Partners, Series 85 June 30, 1996 Form 10-Q and is qualified in its entirety by reference to such financial statements 3-MOS DEC-31-1996 JUN-30-1996 3,842,512 0 184,216 0 0 0 0 0 38,484,819 0 0 0 0 0 36,668,098 38,484,819 0 4,563,889 0 1,683,620 1,477,417 0 0 1,485,845 0 1,485,845 0 0 0 1,485,845 0 0
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