-----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, LbHgJo25GyMTXpG8kaEYzwE/6tARkLNXvSKhBIl5qEDrc924l1grLTnab7hWt1LN KsCFx6DV55mX7W/1oteKAA== 0000914317-98-000707.txt : 19981118 0000914317-98-000707.hdr.sgml : 19981118 ACCESSION NUMBER: 0000914317-98-000707 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98750715 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 September 30, 1998 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 - SEPTEMBER 30, 1998 INDEX Part I. Financial Information: Balance Sheets - September 30, 1998 and December 31, 1997 Statements of Operations -- Three and Nine Months Ended September 30, 1998 and 1997 Statement of Partners' Equity -- Nine Months Ended September 30, 1998 Statements of Cash Flows -- Nine Months Ended September 30, 1998 and 1997 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 - SEPTEMBER 30, 1998 BALANCE SHEETS September 30, December 31, 1998 1997 ----------- ----------- ASSETS Real estate - net .................... $32,295,273 $33,033,710 Cash and cash equivalents ............ 6,628,331 4,350,887 Other assets ......................... 2,212,341 2,033,252 Receivables .......................... 90,439 182,568 ----------- ----------- $41,226,384 $39,600,417 =========== =========== LIABILITIES AND PARTNERS' EQUITY Accounts payable and accrued expenses $ 1,631,857 $ 1,183,720 Distributions payable ................ 395,799 395,799 Due to affiliates .................... 281,652 577,739 ----------- ----------- 2,309,308 2,157,258 ----------- ----------- Commitments and contingencies PARTNERS' EQUITY: Limited partners' equity (400,010 units issued and outstanding) 36,970,271 35,570,050 General partners' equity ........ 1,946,805 1,873,109 ----------- ----------- 38,917,076 37,443,159 ----------- ----------- $41,226,384 $39,600,417 =========== ===========
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Rental Revenue ......................... $2,399,569 $2,172,283 $7,166,179 $6,926,885 ---------- ---------- ---------- ---------- Costs and Expenses: Operating expenses ................ 870,212 900,086 2,775,832 2,629,694 Depreciation and amortization ..... 312,099 349,935 970,685 969,805 Partnership management fee ........ 221,832 227,043 675,918 681,129 Administrative expenses ........... 173,675 126,029 729,617 532,387 Property management fee ........... 70,694 64,045 211,380 204,378 ---------- ---------- ---------- ---------- 1,648,512 1,667,138 5,363,432 5,017,393 ---------- ---------- ---------- ---------- Income before gain on sale of property, interest and other income ....... 751,057 505,145 1,802,747 1,909,492 Gain on sale of property .......... 730,368 -- 730,368 -- Interest income ................... 26,245 55,533 105,189 146,628 Other income ...................... 3,560 23,030 23,010 69,660 ---------- ---------- ---------- ---------- Net income ............................. $1,511,230 $ 583,708 $2,661,314 $2,125,780 ========== ========== ========== ========== Net income attributable to: Limited partners .................. $1,435,668 $ 554,523 $2,528,248 $2,019,491 General partners .................. 75,562 29,185 133,066 106,289 ---------- ---------- ---------- ---------- Net income ............................. $1,511,230 $ 583,708 $2,661,314 $2,125,780 ========== ========== ========== ========== Net income per unit of limited partnership interest (400,010 units outstanding) ...................... $ 3.59 $ 1.39 $ 6.32 $ 5.05 ========== ========== ========== ==========
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 STATEMENT OF PARTNERS' EQUITY General Limited Partners' Partners' Equity Equity Total ------------ ------------ ------------ Balance, January 1, 1998 ........................ $ 1,873,109 $ 35,570,050 $ 37,443,159 Net income for the nine months ended September 30, 1998 ............ 133,066 2,528,248 2,661,314 Distributions as a return of capital for the nine months ended September 30, 1998 ($2.82 per limited partnership unit) .................. (59,370) (1,128,027) (1,187,397) ------------ ------------ ------------ Balance, September 30, 1998 ..................... $ 1,946,805 $ 36,970,271 $ 38,917,076 ============ ============ ============
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, ---------------------------- 1998 1997 ----------- ----------- Cash Flows From Operating Activities: Net income .................................. $ 2,661,314 $ 2,125,780 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of property ................ (730,368) -- Depreciation and amortization ........... 970,685 969,805 Straight-line adjustment for stepped lease rentals ......................... (232,881) (46,902) Changes in assets and liabilities: Accounts payable and accrued expenses ... 448,137 478,689 Receivables ............................. 92,129 (133,609) Due to affiliates ....................... (296,087) (883,936) Other assets ............................ (27,160) (183,173) ----------- ----------- Net cash provided by operating activities .. 2,885,769 2,326,654 ----------- ----------- Cash Flows From Investing Activities: Proceeds from sale of property .............. 2,042,964 -- Improvements to real estate ................. (1,463,892) (708,233) ----------- ----------- Net cash provided by (used in) investing activities ............................ 579,072 (708,233) ----------- ----------- Cash Flows From Financing Activities: Distributions to partners ................... (1,187,397) (964,234) ----------- ----------- Increase In Cash And Cash Equivalents ............ 2,277,444 654,187 Cash And Cash Equivalents, Beginning of Year ..... 4,350,887 4,870,517 ----------- ----------- Cash And Cash Equivalents, End of Quarter ........ $ 6,628,331 $ 5,524,704 =========== ===========
See notes to financial statements INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 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, 1997. The financial information contained herein is unaudited; however, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such financial information have been included. 2. SIGNIFICANT ACCOUNTING POLICIES Impairment of Assets The Partnership evaluates the recoverability of the net carrying value of its real estate and related assets at least annually, and more often if circumstances dictate. If this review indicates that the carrying value of the 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. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Certain reclassifications were made to the prior year financial statements in order to conform them to the current period presentation. Results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the entire year. 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. Effective as of November 28, 1997, 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 will provide the day-to-day management of Presidio and its direct and indirect subsidiaries and affiliates. For the nine months ended September 30, 1998, reimbursable expenses incurred by NorthStar Presidio amounted to approximately $71,000. 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 September 30, 1998 and 1997, Resources Supervisory was entitled to receive $70,694 and $64,045 respectively, of which $48,374 and $48,403 was paid to unaffiliated management companies, respectively, for on-site management 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 the quarters ended September 30, 1998 and 1997, the Managing General Partner was entitled to receive $37,500. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 NOTES TO FINANCIAL STATEMENTS 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) 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 the quarters ended September 30, 1998 and 1997, the Managing General Partner was entitled to receive $221,832 and $227,043, respectively The General Partners are allocated 5% of the net income of the Partnership, which amounted to $75,562 and $29,185 for the quarters ended September 30, 1998 and 1997, respectively. They are also entitled to receive 5% of distributions, which amounted to $19,790 and for each of the quarters ended September 30, 1998 and 1997. 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, Millenium Funding II Corp., a wholly owned indirect subsidiary of Presidio, purchased 39,123 units of the Partnership from various limited partners. Subsequent to the expiration of the offer described below, Millennium Funding II Corp. purchased 10,258 limited partnership units in August 1998 through November 1998. The total of these purchases represents approximately 12.3% of the outstanding limited partnership units of the Partnership. In connection with a tender offer for units of the Partnership made March 12, 1998 (the "Offer") by Olympia Investors, L.P., a Delaware limited partnership controlled by Carl Ichan ("Olympia"), Olympia and Presido entered into an agreement dated March 6, 1998 (the "Agreement"). On July 28, 1998, Olympia announced that it had accepted for payment 32,078 units properly tendered pursuant to the Offer. As a consequence of the Agreement, Presidio may be deemed to beneficially own the units owned by Olympia. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 NOTES TO FINANCIAL STATEMENTS 4. REAL ESTATE The following table is a summary of the Partnership's real estate as of:
September 30, December 31, 1998 1997 ------------ ------------ Land ......................... $ 9,632,166 $ 11,056,966 Building and improvements .... 36,910,215 36,784,708 ------------ ------------ 46,542,381 47,841,674 Less: Accumulated depreciation (14,247,108) (14,807,964) ------------ ------------ $ 32,295,273 $ 33,033,710 ============ ============
No write-downs for impairment were recorded for the nine months ended September 30, 1998 or 1997. On August 28, 1998, the Partnership closed on the sale of the Westbrook property, located in Brooklyn Center, Minnesota, to an unrelated party. In connection with the sale, the Partnership received proceeds of $2,042,964 and recognized a gain on the sale of property of $730,368 under generallly accepted accounting principles. 5. DISTRIBUTIONS PAYABLE
September 30, December 31, 1998 1997 --------- --------- Limited partners ($.94 per unit) $ 376,009 $ 376,009 General partners 19,790 19,790 --------- --------- $ 395,799 $ 395,799 ========= =========
Such distributions were paid in the quarters subsequent to September 30, 1998 and December 31, 1997, respectively. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 NOTES TO FINANCIAL STATEMENTS 6. DUE TO AFFILIATES
September 30, December 31, 1998 1997 -------- -------- Partnership management fee ..................... $221,832 $227,044 Reorganization and litigation cost reimbursement (Note 7) ....................................... -- 210,000 Property management fee ........................ 22,320 103,195 Non-accountable expense reimbursement .......... 37,500 37,500 -------- -------- $281,652 $577,739 ======== ========
Such amounts were paid in the quarters subsequent to September 30, 1998 and December 31, 1997, respectively. 7. COMMITMENTS AND CONTINGENCIES On or about May 11, 1993 High Equity Partners L.P. - Series 86 ("HEP-86"), an affiliated partnership, was advised of the existence of an action (the "California Action") in which a complaint (the "HEP Complaint") was filed in the Superior Court for the State of California for the County of Los Angeles (the "Court") on behalf of a purported class consisting of all of the purchasers of limited partnership interests in the Partnership. On April 7, 1994 the plaintiffs were granted leave to file an amended complaint (the "Amended Complaint") on behalf of a class consisting of all the purchasers of limited partnership interest in HEP-86, the Partnership, and High Equity Partners L.P. - Series 88 ("HEP-88"), another affiliated partnership. On November 30, 1995, after the Court preliminarily approved a settlement of the California Action but ultimately declined to grant final approval and after the Court granted motions to intervene, the original and intervening plaintiffs filed a Consolidated Class and Derivative Action Complaint (the "Consolidated Complaint") against the managing general partner of HEP-85 and HEP-88 and the Investment General Partner of HEP-86; the Administrative General Partner of HEP-86 (the "General Partners"); a subsidiary of the indirect corporate parent of the General Partners; and the indirect corporate parent of the General Partners. The Consolidated Complaint alleged various state law class and derivative claims, including claims for breach of fiduciary duties; breach of contract; unfair and fraudulent business practices under California Bus. & Prof. Code Sec. 17200; negligence; dissolution, accounting and receivership; fraud; and negligent misrepresentation. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Consolidated Complaint alleged, among other things, that the General Partners caused a waste of the 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 acted improperly to enrich themselves in their position of control over the HEP partnerships and that their actions prevented non-affiliated entities from making and completing tender offers to purchase units in the HEP partnership; that by refusing to seek the sale of the HEP partnerships' properties, the General Partners diminished the value of the limited partners' equity in the HEP partnerships; that the General Partners took a heavily overvalued partnership asset management fee; and that limited partnership units were sold and marketed through the use of false and misleading statements. The Court entered an order on January 14, 1997 rejecting the settlement and concluding that there had not been an adequate showing that the settlement was fair and reasonable. On February 24, 1997, the Court granted the request of one plaintiffs' law firm to withdraw as class counsel. Thereafter, in June 1997, the plaintiffs again amended their complaint (the "Second Amended Complaint"). The Second Amended Complaint asserts substantially the same claims as the Consolidated Complaint, except that it no longer contains causes of action for fraud, for negligent misrepresentation, or for negligence. The defendants served answers denying the allegations and asserting numerous affirmative defenses. In February 1998, the Court certified three plaintiff classes consisting of the current unit holders in each of the three HEP partnerships. On March 11, 1998, the Court stayed the California Action temporarily to permit the parties to engage in renewed settlement discussions. On July 30, 1998, the Court lifted the stay. In September 1998, the parties in the lawsuit entered into a Memorandum of Understanding with respect to a settlement of the lawsuit. The Memorandum of Understanding provides, among other things, for a modification of the fees payable under the partnership agreement and a release of all claims against the defendants. The Memorandum of Understanding is subject to a number of conditions, including agreement among the parties with respect to definitive documentation, approval by the court and approval by the limited partners of the modification referred to above. There can be no assurance that such conditions will be fulfilled. 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, 1998, the Partnership paid the general partners a total of $1,034,510 for these costs. The General Partners believe that each of the claims asserted in the Second Amended Complaint is meritless and intend to continue to vigorously defend the California Action. It is impossible at this time to predict what the defense of the California Action will cost, the Partnership's financial exposure as a result of the indemnification agreement discussed above, and whether the costs of defending could adversely affect the Managing General Partner's ability to perform its obligations to the Partnership. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 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 September 30, 1998, 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 nine months ended September 30, 1998, cash and cash equivalents increased $2,277,444 as a result of cash provided by operations and from the sale of the Westbrook property 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 $2,885,769 for the nine months ended September 30, 1998. In addition, the Partnership received proceeds of $2,042,964 from the sale of Westbrook Mall in August 1998. The Partnership used $1,463,892 for capital expenditures related to capital and tenant improvements to the properties and $1,187,397 for distributions to partners for the nine months ended September 30, 1998. 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 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 the 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 nine months ended September 30, 1998 as compared to the same periods in the prior year due primarily to the gain of $730,368 on the sale of the Westbrook property in August 1998. Increases in rental revenues and slightly lower costs and expenses during the three months ended September 30, 1998 were partially offset by lower interest and other income during the current period. For the nine months ended September 30, 1998, higher rental revenues were offset by higher costs and expenses and lower interest and other income as compared to the nine months ended September 30, 1997. Rental revenues increased during the three and nine months ended September 30, 1998 compared to 1997 at Century Park due to higher occupancy and rental rates. In addition, an increase in revenues at Southport during the three and nine months ended September 30, 1998 was due to higher overall rental rates at the property. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Costs and expenses decreased slightly during the three months ended September 30, 1998 compared to the same period in 1997, primarily due to lower operating expenses, depreciation expense and partnership management fee as a result of the Westbrook sale. Operating expenses increased during the nine months ended September 30,1998 due to higher repair and maintenance costs related to a waterproofing project at Southport and higher professional fees incurred at 568 Broadway. Administrative expenses increased during the three and nine months ended September 30, 1998 due to higher legal and accounting fees related to ongoing litigation and a possible reorganization of the Partnership. Property management fees increased during the three and nine months ended September 30, 1998 due to higher revenues, as previously discussed. Interest income decreased during the three and nine months ended September 30, 1998 due to lower average cash balances during the first nine months of 1998. Other income decreased during the three and nine months ended September 30, 1998 as compared to the same periods in 1997 due to fewer investor transfers. Inflation is not expected to have a material impact on the Partnership's operations or financial position. Legal Proceedings The Partnership is a party to certain litigation. See Note 7 to 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. 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. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The manager is in the process of assessing 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 is currently in the process of installing a new fully compliant accounting and reporting system. The Manager is also currently reviewing its other internal systems and programs, along with those of its unaffiliated third party service providers, in order to insure compliance. 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 in the preliminary stages of evaluating these issues and will be developing contingency plans. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - SEPTEMBER 30, 1998 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 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: November 12, 1998 By: /S/ Allan Rothschild -------------------- Allan Rothschild President (Duly Authorized Officer) Dated: November12, 1998 By: /S/ Lawrence Schachter ---------------------- Lawrence Schachter Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2
5 The schedule contains summary information extracted from the financial statements of the September 30, 1998 Form 10-Q of Integrated Resources High Equity Partners, Series 85 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1998 SEP-30-1998 6,628,331 0 90,439 0 0 0 0 0 41,226,384 0 0 0 0 0 38,917,076 41,226,384 0 7,166,179 0 2,775,832 2,587,600 0 0 2,661,314 0 2,661,314 0 0 0 2,661,314 0 0
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