-----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, KOZagAq2zOHG2fFyxct/irsHsfaA0sFNr73BkV9dim06cySB2SfRte0hHw6oSOBZ QUfkZnWSfFHkueYd/U/9IA== 0000950110-01-000333.txt : 20010409 0000950110-01-000333.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950110-01-000333 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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-K SEC ACT: SEC FILE NUMBER: 000-14438 FILM NUMBER: 1590150 BUSINESS ADDRESS: STREET 1: CAMBRIDGE CENTER STREET 2: 9TH FLOOR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 617-234-3000 MAIL ADDRESS: STREET 1: CAMBRIDGE CENTER STREET 2: 9TH FLOOR CITY: CAMBRIDGE STATE: MA ZIP: 02142 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-K 1 0001.txt FORM 10-K FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File Number December 31, 2000 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 (IRS Employer incorporation or organization) Identification Number) 5 Cambridge Center, 9th Floor, Cambridge, MA 02142 - -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 234-3000 -------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST Indicate by check mark whether 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- There is no public market for the Limited Partnership Units. Accordingly, information with respect to the aggregate market value of Limited Partnership Units held by non-affiliates of Registrant has not been supplied. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Documents incorporated by reference None 1 PART I ITEM 1. BUSINESS Integrated Resources High Equity Partners, Series 85, a California Limited Partnership (the "Partnership"), was formed as of August 19, 1983. The Partnership is engaged in the business of operating and holding for investment previously acquired income-producing properties consisting of three office buildings and two shopping centers. See "Item 2. Properties" for a description of the Partnership's properties. Resources High Equity, Inc., a Delaware corporation and a wholly owned subsidiary of Presidio Capital Corp., a British Virgin Islands corporation ("Presidio"), is the Partnership's managing general partner (the "Managing General Partner"). Effective July 31, 1998, NorthStar Capital Investment Corp., a Maryland corporation, acquired control of Presidio. Until November 3, 1994, Resources High Equity, Inc. was a wholly owned subsidiary of Integrated Resources, Inc. ("Integrated"). On November 3, 1994 Integrated consummated its plan of reorganization under Chapter 11 of the United States Bankruptcy Code at which time, pursuant to such plan of reorganization, the newly-formed Presidio purchased substantially all of Integrated's assets. Presidio AGP Corp., which is a wholly-owned subsidiary of Presidio, became the associate general partner (the "Associate General Partner") on February 28, 1995 replacing Z Square G Partners II which withdrew as of that date. The Managing General Partner and the Associate General Partner are referred to collectively hereinafter as the "General Partners." Affiliates of the General Partners are also engaged in businesses related to the acquisition and operation of real estate. See "Employees" below. In 1986, the Partnership offered and sold 400,000 units of limited partnership interest (the "Units"). Upon final admission of limited partners, the Partnership had accepted subscriptions for 400,010 Units for an aggregate of $100,002,500 in gross proceeds, resulting in net proceeds from the offering of $98,502,500 (gross proceeds of $100,002,500 less organization and offering costs of $1,500,000). All underwriting and sales commissions were paid by Integrated or its affiliates and not by the Partnership. The Partnership invested all of its net proceeds in real estate. Revenues from the following properties represented 15% or more of the Partnership's gross revenues during each of the last two fiscal years: during 2000 Southport Shopping Center and 568 Broadway represented 35% and 29% of gross revenues, respectively; during 1999 Southport Shopping Center and 568 Broadway represented 34% and 28% of gross revenues, respectively. See "Item 2. Properties" for a description of the Partnership's properties. Settlement of Class Action Lawsuit In April 1999, the California Superior Court approved the terms of the settlement of a class action and derivative litigation involving the Partnership. Under the terms of the settlement, the General Partners agreed to take the actions described below subject to first obtaining the consent of limited partners to amendments to the Agreement of Limited Partnership of the Partnership summarized below. The settlement became effective in August 1999 following approval of the amendments. As amended, the Partnership Agreement (a) provides for a Partnership Management Fee equal to 1.25% of the gross asset value of the Partnership and a fixed 1999 Partnership Management Fee of $418,769 or $426,867 less than the amount that would have been paid for 1999 under the prior formula and (b) fixes the amount that the General Partners will be liable to pay to limited partners upon liquidation of the Partnership as repayment of fees previously received (the "Fee Give-Back Amount"). As of January 31, 2001, the Fee Give-Back Amount was approximately $7.74 per Unit which amount will be reduced by approximately $.98 per Unit for each full calendar year after 2000 in which a liquidation does not occur and pro rated for a liquidation prior to the end of a year. As amended, the Partnership Agreement provides that, upon a reorganization of the Partnership into a real estate investment trust or other public entity, the General Partners will have no further liability to pay the Fee Give-Back Amount. In accordance with the terms of the settlement, Presidio guaranteed payment of the Fee Give-Back Amount. 2 As required by the settlement, an affiliate of the General Partners, Millennium Funding II, LLC, made a tender offer to limited partners to acquire up to 26,936 Units (representing approximately 6.7% of the outstanding Units) at a price of $114.60 per Unit. The offer closed in January 2000 and all 26,936 Units were acquired in the offer. The final requirement of the settlement obligated the General Partners to use their best efforts to reorganize the Partnership into a real estate investment trust or other entity whose shares were listed on a national securities exchange or on the NASDAQ National Market System. A Registration Statement was filed with the Securities and Exchange Commission on February 11, 2000 with respect to the restructuring of the Partnership into a publicly-traded real estate investment trust. On or about February 15, 2001, a Prospectus/Consent Solicitation Statement was mailed to the limited partners of the Partnership seeking their consent to the reorganization of the Partnership into a real estate investment trust. See "Conversion of the Partnership" below. Conversion of the Partnership The consent of limited partners is being sought to approve the conversion of the Partnership into a publicly-traded real estate investment trust called Shelbourne Properties I, Inc. ("Shelbourne"). If the conversion is approved, each limited partner of the Partnership will receive three shares of common stock of Shelbourne for each Unit which they own. The common stock of Shelbourne will be listed on the American Stock Exchange. The consent solicitation period expires on April 16, 2001 and the consent of holders of a majority of the Units is required for the approval of the conversion. The conversion will be accomplished by merging the Partnership into a newly-formed limited partnership called Shelbourne Properties I, LP ("Shelbourne Properties"). Shelbourne Properties will function as the operating partnership through which Shelbourne will conduct all of its business. Shelbourne will be a limited partner of Shelbourne Properties and a wholly-owned subsidiary of Shelbourne will be the general partner of Shelbourne Properties. Shelbourne's primary business objective will be to maximize the value of its common stock. Shelbourne will seek to achieve this objective by making capital improvements to and/or selling properties and by making additional real estate-related investments. Shelbourne may invest in a variety of real estate-related investments, including undervalued assets and value-enhancing situations, in a broad range of property types and geographical locations. Shelbourne may raise additional capital by mortgaging existing properties or by selling equity or debt securities. Shelbourne may acquire its investments for cash or by issuing equity securities, including limited partnership interests in Shelbourne Properties. Shelbourne will have a Board of Directors consisting of nine directors, three of whom will be independent directors. Shelbourne Management LLC ("Shelbourne Management"), an affiliate of the General Partners, will manage the day-to-day affairs of Shelbourne under an advisory agreement. Shelbourne Management intends to retain Kestrel Management L.P. ("Kestrel") to perform property management services for Shelbourne. Kestrel, an affiliate of Shelbourne Management and the General Partners, currently provides similar services for the Partnership. Competition The real estate business is highly competitive and, as discussed more particularly in "Item 2. Properties" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Real Estate Market", the properties acquired by the Partnership may have active competition from similar properties in their vicinity. In addition, various limited partnerships have been formed by the Managing General Partner and/or its affiliates and agents that engage in businesses that may be competitive with the Partnership. The Partnership will also experience competition for potential buyers at such time as it seeks to sell any of its properties. Employees The Partnership does not have any employees. Presidio previously retained Wexford Management LLC ("Wexford") to provide consulting and administrative services to Presidio and its affiliates, including the Managing General Partner and the Partnership. The agreement with Wexford expired on May 3, 1998 at which time Presidio 3 entered into a management agreement with NorthStar Presidio Management Company, LLC ("NorthStar Presidio"). Under the terms of the management agreement, NorthStar Presidio provided the day-to-day management of Presidio and its direct and indirect subsidiaries and affiliates. Presidio determined that it would be more cost effective to retain AP-PCC III, L.P. (the "Agent") to provide asset management and investor services for the Partnership. Accordingly, on October 21, 1999 Presidio entered into a Services Agreement with the Agent pursuant to which the Agent was retained to provide asset management and investor relation services to the Partnership and other entities affiliated with the Partnership. As a result of this agreement, the Agent has the duty to direct the day to day affairs of the Partnership, including, without limitation, reviewing and analyzing potential sale, financing or restructuring proposals regarding the Partnership's assets, preparation of all reports, maintaining records and maintaining bank accounts of the Partnership. The Agent is not permitted, however, without the consent of Presidio, or as otherwise required under the terms of the Limited Partnership Agreement to, among other things, cause the Partnership to sell or acquire an asset or file for bankruptcy protection. In order to facilitate the Agent's provision of the asset management services and the investor relation services, effective October 25, 1999, the officers and directors of the General Partners resigned and nominees of the Agent were elected as the officers and directors of the General Partners. See Item 10, "Directors and Executive Officers of the Partnership". The Agent is an affiliate of Winthrop Financial Associates, a Boston based company that provides asset management services, investor relation services and property management services to over 150 limited partnerships which own commercial property and other assets. The General Partners do not believe this transaction will have a material effect on the operations of Partnership. On-site personnel perform services for the Partnership at the properties. Salaries for such on-site personnel are paid by the management company that services the Partnership's properties. Effective October 2000, Kestrel, an affiliate of the Agent and the General Partners, began providing such services. ITEM 2. PROPERTIES The Partnership owned the following properties as of December 31, 2000 and March 15, 2001: (1) SOUTHPORT SHOPPING CENTER On April 15, 1986, the Partnership purchased the fee simple interest in Southport Shopping Center ("Southport"), a regional shopping center located on the 17th Street Causeway in Fort Lauderdale, Florida near the intercoastal waterway and beach area. The center's three buildings, comprising a total of 143,089 square feet, are situated on a 9.45 acre site. Southport was built in phases from 1968 to 1977 and expanded again and renovated in 1985. The site provides parking for 563 cars. The roof on the West quadrant of the main center building was replaced in 1998 and the center was repainted. Southport is highly visible from S.E. 17th Street, the major east/west artery in the commercially-oriented area. Developments in the area are diversified and include hotels, restaurants, retail centers, office buildings and the 750,000 square foot Broward County Convention Center, which opened in 1991 and is within walking distance. In 1996, the new 75,000 square foot, three-story, mixed-use NorthPort Marketplace opened on county owned land adjacent to the Convention Center. The development has attracted national restaurant/entertainment chains and is not considered competition for Southport's tenants. (2) LOCH RAVEN PLAZA On June 26, 1986, the Partnership purchased the fee simple interest in Loch Raven Plaza ("Loch Raven"), a retail/office complex located in Towson, Maryland. It contains approximately 25,000 square feet of office and storage space and approximately 125,000 square feet of retail space, with parking for approximately 655 vehicles. Towson Marketplace, which competes directly with the Loch Raven for tenants, has been redeveloped and includes Michael's Crafts, Marshall's, Target, Montgomery Ward and TOYS "R" US as tenants. 4 (3) CENTURY PARK I On November 7, 1986, a joint venture (the "Century Park Joint Venture") comprised of the Partnership and High Equity Partners L.P. - Series 86 ("HEP-86"), an affiliated public limited partnership, purchased the fee simple interest in Century Park I ("Century Park I"), an office complex. The Partnership and HEP-86 each have a 50% interest in the Century Park Joint Venture. Century Park I, situated on approximately 8.6 acres, is located in the center of San Diego County in Kearny Mesa, California, directly adjacent to Highway 163 at the northeast corner of Balboa Avenue and Kearny Villa Road. Century Park I is part of an office park consisting of six office buildings and two parking garages, in which Century Park Joint Venture owns three buildings, comprising 200,002 net rentable square feet and one garage with approximately 810 parking spaces. One of the three buildings was completed in the latter half of 1985, and the other two buildings were completed in February 1986. Century Park I competes with other office parks and office buildings in the Kearny Mesa sub-market. New competition in the sub-market includes the redevelopment of the adjacent property into the Cabrillo Technology Center with 141,800 square feet available plus an additional 284,000 square feet planned and redevelopment of the 234 acre former General Dynamics site, now known as New Century Center. Plans for New Century Center call for development of the site with mixed use commercial, industrial, retail and entertainment areas. (4) 568 BROADWAY On December 2, 1986, a joint venture (the "Broadway Joint Venture") comprised of the Partnership and HEP-86 acquired a fee simple interest in 568-578 Broadway ("568 Broadway"), a commercial building in New York City, New York. Until February 1, 1990, the Partnership and HEP-86 each had a 50% interest in the Broadway Joint Venture. On February 1, 1990, the Broadway Joint Venture admitted a third joint venture partner, High Equity Partners L.P. - Series 88 ("HEP-88"), an affiliated public limited partnership, contributed $10,000,000 for a 22.15% interest in the joint venture. The Partnership and HEP-86 each retain a 38.925% interest in the joint venture. 568 Broadway is located in the SoHo district of Manhattan on the northeast corner of Broadway and Prince Street. 568 Broadway is a 12-story plus basement and sub-basement building constructed in 1898. It is situated on a site of approximately 23,600 square feet, has a rentable square footage of approximately 300,000 square feet and a floor size of approximately 26,000 square feet. Formerly catering primarily to industrial light manufacturing, the building has been converted to an office building and is currently being leased to art galleries, photography studios, retail and office tenants. The last manufacturing tenant vacated in January 1993. 568 Broadway competes with several other buildings in the SoHo area. (5) SEATTLE TOWER On December 16, 1986, a joint venture (the "Seattle Landmark Joint Venture") comprised of the Partnership and HEP-86 acquired a fee simple interest in Seattle Tower, a commercial office building located in downtown Seattle ("Seattle Tower"). The Partnership and HEP-86 each have a 50% interest in the Seattle Landmark Joint Venture. Seattle Tower is located at Third Avenue and University Street on the eastern shore of Puget Sound in the financial and retail core of the Seattle central business district. Seattle Tower, built in 1928, is a 27-story commercial building containing approximately 167,000 rentable square feet, including almost 10,000 square feet of retail space and approximately 2,211 square feet of storage space. The building also contains a 55-car garage. Seattle Tower, formerly Northern Life Tower, represented the first appearance in Seattle of a major building in the Art Deco style. It was accepted into the National Register of Historic Places in 1975. There are approximately seventy tenants occupying the building. Leasing efforts are focused on consolidating space to create single floor tenants. In February 2001, the Seattle area was hit with an earthquake. While the extent of the damage to Seattle Tower is still being assessed, it appears, at present, to be minor. It is expected that insurance will cover the costs associated with such damage. 5 The Partnership believes that Seattle Tower's primary direct competition comes from three office buildings of similar size or age in the immediate vicinity of Seattle Tower, which buildings have current occupancy rates which are comparable to Seattle Tower's. Occupancy The following table lists the occupancy rates of the Partnership's properties at the beginning of each of the last 2 years. OCCUPANCY ---------------------------- PROPERTY 1/1/2001 1/1/2000 -------- -------- -------- Southport Shopping Center 95% 98% Loch Raven Plaza 87% 92% Century Park I Office Complex 100% 100% 568 Broadway Office Building 100% 100% Seattle Tower Office Building 95% 98% The following table contains information for each tenant that occupies ten percent or more of the rentable square footage of any of the Partnership's properties.
Principal Square Feet Lease Business of Leased by Expiration Renewal Property Name of Tenant Tenant Tenant Annual Rent Date Options -------- -------------- ----------- ----------- ----------- ---------- ------- Southport Publix Grocery 35,000 $100,129 3/31/05 3-5yr. Shopping Center Supermarket retailer Loch Raven Plaza Greetings & Retailer 42,166 $194,806 1/31/04 4-5yr. Readings Super Fresh Grocery 26,648 $87,000 9/30/05 5-5yr. retailer Century Park San Diego Gas & Utilities 75,969 $962,651 11/30/07 1-5yr. Electric Per-Se Physician's 64,817 $813,334 7/31/05 2-5yr. Technologies billing service CitiFinancial Loan 25,988 $407,222 10/31/02 1-5yr. servicing 568 Broadway Scholastic Publishing 89,000 $1,412,228 4/30/08 1-5yr. Seattle Tower Electric Telephone 23,475 $363,393 8/31/09 None Lightwave switching company
6 Capital Improvements See "Item 7. Management's Discussion and Analysis and Results of Operations." ITEM 3. LEGAL PROCEEDINGS See "Item 1. Business-Settlement of Class Action Lawsuit" for information relating to the settlement of the class action lawsuit in which the Partnership was a defendant. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report through the solicitation of proxies or otherwise. However, the consent of limited partners is presently being solicited to convert the Partnership into a real estate investment trust. See, "Item 1. Business-Conversion of the Partnership." 7 PART II ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS Units of the Partnership are not publicly traded. There are certain restrictions set forth in the Partnership's amended limited partnership agreement (the "Limited Partnership Agreement") that may limit the ability of a limited partner to transfer Units. Such restrictions could impair the ability of a limited partner to liquidate its investment in the event of an emergency or for any other reason. In 1987, the Internal Revenue Service adopted certain rules concerning publicly traded partnerships. The effect of being classified as a publicly traded partnership would be that income produced by the Partnership would be classified as portfolio income rather than passive income. In order to avoid this effect, the Limited Partnership Agreement contains limitations on the ability of a limited partner to transfer Units in circumstances in which such transfers could result in the Partnership being classified as a publicly traded partnership. However, due to the low volume of transfers of Units, it is not anticipated that this will occur. As of January 1, 2001, there were 8,735 holders of Units of the Partnership, owning an aggregate of 400,010 Units. The Partnership distributed $.94 per Unit during the first and second quarters of 1999. Commencing with the third quarter of 1999, distributions were suspended while the requirements of the settlement agreement of the class action and derivative litigation involving the Partnership were completed. The source of distributions for the first two quarters of 1999 was cash flow from operations. There are no material legal restrictions set forth in the Limited Partnership Agreement upon the Partnership's present or future ability to make distributions. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", for a discussion of factors which may affect the Partnership's ability to pay distributions. Over the past few years, many companies have begun making "mini-tenders" (offers to purchase an aggregate of less than 5% of the total outstanding Units) for Units. Pursuant to the rules of the Securities and Exchange Commission, when a tender offer is commenced for Units, the Registrant is required to provide limited partners with a statement setting forth whether it believes limited partners should tender or whether it is remaining neutral with respect to the offer. Unfortunately, the rules of the Securities and Exchange Commission do not require that the bidders in certain tender offers provide the Registrant with a copy of their offer. As a result, the General Partners often do not become aware of such offers until shortly before they are scheduled to expire or even after they have expired. Accordingly, the General Partners do not have sufficient time to advise limited partners of its position on the tender. In this regard, please be advised that pursuant to the discretionary right granted to the General Partners of the Partnership in the Partnership Agreement to reject any transfers of Units, the General Partners will not permit the transfer of any Unit in connection with a tender offer unless: (i) the Registrant is provided with a copy of the bidder's offering materials, including amendments thereto, simultaneously with their distribution to the limited partners; (ii) the offer provides for withdrawal rights at any time prior to the expiration date of the offer and, if payment is not made by the bidder within 60 days of the date of the offer, after such 60 day period; and (iii) the offer must be open for at least 20 business days and, if a material change is made to the offer, for at least 10 business days following such change. 8 ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31, ----------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Total Revenue $10,952,443 $11,388,898 $ 9,798,441 $ 9,297,488 $ 9,139,351 Net Income 3,847,300 4,847,538 2,931,223(1) 2,134,659 2,134,717 Net Income per Unit 9.14 11.51 6.96 5.07 5.07 Distribution Per Unit(2) -- 1.88 3.76 3.57 2.40 Total Assets 47,872,681 44,178,753 40,814,689 39,600,417 39,290,185
(1) Total revenue and net income for the year ended December 31, 1998 includes a $389,359 gain, or $0.92 per unit, from the sale of the Westbrook property. (2) All distributions are in excess of accumulated undistributed net income and therefore represent a return of capital to investors on a generally accepted accounting principles basis. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed in this Form 10-K contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-K and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussion of the Partnership's liquidity, capital resources and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. LIQUIDITY AND CAPITAL RESOURCES The Partnership's real estate properties are three office buildings and two shopping centers, all of which were acquired for cash. The Partnership's public offering of the Units commenced on February 4, 1985. As of May 30, 1986, the date of the final admission of limited partners, the Partnership had accepted subscriptions for 400,010 Units 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 generates rental revenues from its commercial properties and is responsible for each property's operating expenses as well as its own administrative expenses. The Partnership uses working capital reserves and any undistributed cash from operations as its primary source of liquidity. For the year ended December 31, 2000, all capital expenditures were funded from cash flow and working capital reserves. As of December 31, 2000 the Partnership had total working capital reserves of approximately $12,051,688. Working capital reserves are temporarily invested in short-term instruments and, together with operating cash flow, are expected to be sufficient to fund anticipated capital improvements to the Partnership's properties. The Partnership had $13,229,944 of cash and cash equivalents at December 31, 2000, as compared to $8,521,370 at December 31, 1999. During the year ended December 31, 2000, cash and cash equivalents increased $4,708,574 as a result of $4,864,132 of net cash provided by operating activities which was partially offset by $155,558 of improvements to real estate (investing activities). The Partnership's primary source of funds is cash flow from the operation of its properties, principally rents received from tenants. The following table sets forth, for each of the last three fiscal years, the Partnership's expenditures at each of its properties for capital improvements and capitalized tenant procurement costs: CAPITAL IMPROVEMENTS AND CAPITALIZED TENANT PROCUREMENT COSTS 2000 1999 1998 -------- ---------- ---------- Southport $118,287 $ 272,628 $ 502,081 Loch Raven 55,784 95,206 908,324 Century Park I 23,328 173,239 89,729 568 Broadway 151,361 154,616 293,021 Seattle Tower 87,155 355,407 490,322 -------- ---------- ---------- Totals $435,915 $1,051,096 $2,283,477 ======== ========== ========== The Partnership has budgeted expenditures for capital improvements and capitalized tenant procurement costs of $2,505,000 in 2001. These costs are expected to be incurred in the normal course of business and are expected to be funded from cash flow from operations and working capital reserves. However, such expenditures will depend upon the level of leasing activity and other factors which cannot be predicted with certainty. The Partnership expects to continue to utilize a portion of its cash flow from operations to pay for various future capital and tenant improvements to the properties and leasing commissions (the amount of which cannot be predicted with certainty). Capital and tenant improvements may in the future exceed the Partnership's cash flow from 10 operations which would otherwise be available for distributions. Current working capital is thought to be sufficient for any near term needs of the Partnership. In that event, the Partnership would utilize the remaining working capital reserves, eliminate or reduce distributions, or sell one or more properties. Except as discussed above, management is not aware of any other trends, events, commitments or uncertainties that will have a significant impact on liquidity. REAL ESTATE MARKET In the markets in which the Partnership's properties are located, the market values of existing properties continue to recover from the effects of the substantial decline in the real estate market in the early 1990's. However, in select markets, values have been slow to recover, and high vacancy rates continue to exist in some areas. The geographic diversity of the Partnership's properties decreases the risk of a significant partnership devaluation resulting from an isolated market slump in a particular region. The overall economic outlook for the specific markets in which the Partnership's properties are located continues to be stable to improving. The outlook is particularly positive for 568 Broadway as office and retail space in the Midtown South sub-market in which 568 Broadway is located is becoming increasingly popular. Little new office and retail space inventory have been introduced to offset demand in the area, resulting in a favorable operating environment for the property. Rents are thus anticipated to continue to increase at the property for the foreseeable future. Likewise, the outlook for Seattle Tower is positive as extraordinary business development in the Puget Sound region and the demand for space in the central business district of Seattle continue. Nonetheless, due to the age of many of the leases at the building and the functional obsolescence of the building for many potential tenants, much of the space at Seattle Tower is currently leased at below market rental rates. The property thus has the potential for substantially improved operations as current leases expire and the capital needs of the property are addressed. In an effort to maximize rents over the next four years, in excess of $2.5 million is budgeted for capital improvements at Seattle Tower. This capital work will attempt to address the extremely outdated mechanical systems and the lack of technological infrastructure at the property, both of which are currently impeding the property's realization of market rental rates. It is anticipated that these improvements coupled with expected overall growth in the office market in downtown Seattle would position the property for a substantial improvement in operations in the future. The prospects for the Partnership's retail properties are also very good as demand for retail space in the properties' sub-markets is very high and vacancy low. Both Southport and Loch Raven are situated in well-established commercial areas, and are extremely popular in their respective communities. The general economies and demographic trends in both the Baltimore and Fort Lauderdale sub-markets in which the properties operate suggest a sound outlook for the properties. Demand for office and research and development space in the Kearny Mesa office sub-market in which Century Park is located is very strong, contributing to historically high occupancy levels in the area. New supply that is entering the marketplace is, however, expected to slow the growth of rental rates and the market has begun to soften slightly. Nonetheless, overall growth in the real estate market is expected to continue and the property is believed to be well situated and adequately configured to benefit from this anticipated improvement. The extent to which Century Park will realize the benefit of any market appreciation will, however, be subject to the terms of the existing leases at the property, which are not scheduled to expire for several years. Technological changes are also occurring which may reduce the space needs of many tenants and potential tenants and may alter the demand for amenities and power supplies at the Partnership's properties. As a result of these changes and the continued risk for overall market volatility, the Partnership's potential for realizing the full value of its investment in the properties is at continued risk. 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 as required by SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." If there is an indication that the carrying amount of a 11 property may not be recoverable, the Partnership prepares an estimate of the future undiscounted 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 undiscounted cash flow 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 as required by SFAS No. 121. 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 adjustments to reduce the carrying value of the real estate assets 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. Management is not aware of any other current trends, events, or commitments that will have a significant impact on the long-term value of the properties. However, because the cash flows used to evaluate the recoverability of the assets and their fair values are based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying values at the balance sheet dates. The cash flows and market comparables used in this process are based on good faith estimates and assumptions developed by management. Unanticipated events and circumstances may occur and some assumptions may not materialize. Actual results may vary from the estimates and the variances may be material. All of the Partnership's properties have experienced varying degrees of operating difficulties and the Partnership recorded significant impairment adjustments in prior years. Improvements in the real estate market and in property operations resulted in no adjustments for impairment being needed from 1996 through December 31, 2000. 12 The following table represents the historical cost less accumulated depreciation, the December 31, 2000 carrying value and the impairment adjustments recorded to date against the Partnership's properties held as of December 31, 2000:
HISTORICAL COST LESS ACCUMULATED ADJUSTMENT FOR 12/31/00 DEPRECIATION IMPAIRMENT CARRYING VALUE ---------------- -------------- -------------- DESCRIPTION ----------- Southport Shopping Center Fort Lauderdale, Florida $18,857,208 $4,900,000 $13,957,208 Loch Raven Plaza Retail/Office Complex Towson, Maryland 10,463,685 4,800,000 5,663,685 Century Park I Office Complex Kearny Mesa, California (50% owned) 15,875,637 11,700,000 4,175,637 568 Broadway Office Building New York, New York (38.925% owned) 15,652,567 10,821,150 4,831,417 Seattle Tower Office Building Seattle, Washington (50% owned) 8,807,794 6,050,000 2,757,794 ----------- ----------- ----------- TOTAL $69,656,891 $38,271,150 $31,385,741 =========== =========== ===========
APPRAISALS In connection with the proposed conversion of the Partnership into a real estate investment trust, the General Partners obtained appraisals for each of the Partnership's properties. The following table sets forth the June 30, 2000 appraised value of the properties. The adjusted appraised value column reflects a 25% or 30% discount to the appraised values of properties held in joint venture. The appraiser attributed these discounts to the illiquidity of the Partnership's interest in the joint ventures. The appraiser determined the discounts by taking into account the Partnership's lack of control over the properties, the inability of the Partnership to sell its interest without the consent of other venture partners, and the lack of a market in which to sell the joint venture interests. PROPERTY APPRAISED VALUE ADJUSTED APPRAISED VALUE -------- --------------- ------------------------ Southport Shopping Center $21,700,000 $ 21,700,000 Loch Raven Plaza 8,100,000 8,100,000 Century Park I (1) 10,500,000 7,875,000 568 Broadway (2) 19,462,500 13,623,750 Seattle Tower (1) 11,350,000 8,512,500 ----------- ------------ $71,112,500 $ 59,811,250 =========== ============ - --------------- (1) The Partnership has a 50% interest in these properties and the amounts listed in the table represent 50% of the applicable value. The adjusted appraised value represents a 25% discount to the appraised value. (2) The Partnership has a 38.925% interest in this property and the amount listed in the table represents 38.925% of the applicable value. The adjusted appraised value represents a 30% discount to the appraised value. 13 RESULTS OF OPERATIONS 2000 VS. 1999 The Partnership experienced a decrease in net income of 20.63% for the year ended December 31, 2000 to $3,847,300 compared to the prior year net income of $4,847,538. This decrease was due to reductions in rental revenue and other income and an increase in costs and expenses, partially offset by an increase in interest income. Rental revenues decreased during the year ended December 31, 2000 to $10,335,197 from $10,941,322 for the same period in 1999 due to an increase in base rent and escalations of $625,938 which was more than offset by decreases in step lease rental adjustments recorded for accounting purposes (adjustments to account for the recognition of rent on a straight-line basis) of $1,232,063. Costs and expenses increased by 8.6% during the year ended December 31, 2000 to $7,105,143 compared to $6,541,360 for the same period in 1999, primarily due to increases in partnership management fee, operating expenses and depreciation and amortization which more than offset a decrease in administrative expenses. Partnership management fees increased to $926,084 in 2000 from $418,768 in 1999 due to the amendment to the partnership agreement which significantly reduced the amount payable in 1999 and changed the method of calculating such fee in subsequent years. Operating expense increased 6.34% to $3,479,665 as compared to 1999 due to increases in real estate taxes and utilities partially offset by savings in repairs and maintenance. Depreciation and amortization increased $76,163 or 5.7% due to higher depreciation recorded in 2000 on certain capitalized tenant improvements. Administrative expenses for the year ended December 31, 2000 decreased $251,511 or 20.7% compared to 1999 due to lower professional fees associated with the settlement of the litigation and reorganization of the Partnership. Interest income increased by 70% to $568,115 in 2000 due to higher interest rates and higher invested cash balances during the current year compared to 1999. Other income decreased by $64,329 during the year ended December 31, 2000 to $49,131 compared to $113,460 in 1999 due to an decrease in fees from investor servicing primarily related to a decrease in investor transfer. 1999 VS. 1998 The Partnership experienced an increase in net income of 65.4% for the year ended December 31, 1999 to $4,847,538 compared to the prior year net income of $2,931,223 due to higher rental revenues and lower costs and expenses. The increases to net income also reflected higher interest and other income during 1999. Rental revenues increased by 19.1% during the year ended December 31, 1999 to $10,941,322 from $9,189,542 for the same period in 1998 primarily due to step lease rental adjustments recorded for accounting purposes (adjustments to account for the recognition of rent on a straight-line basis) in 1999 of $1,209,354 as well as increases in base rent and escalations. Costs and expenses decreased by 4.7% during the year ended December 31, 1999 to $6,541,360 compared to $6,867,218 for the same period in 1998, primarily due to decreases in partnership management and property management fees and partially offset by an increase in administrative expenses. Administrative expenses for the year ended December 31, 1999 increased $299,193 or 32.7% compared to 1998 due to higher professional fees related to the settlement of the litigation and reorganization of the Partnership. Depreciation and amortization decreased $73,253 or 5.2% due to higher depreciation recorded in 1998 on certain capitalized tenant improvements. Partnership management fees decreased $468,561 or 52.8% in 1999 due to an amendment to the partnership agreement. Interest income increased by 80.3% to $334,116 in 1999 due to higher interest rates and higher invested cash balances during the current year compared to 1998. Other income increased by $79,210 during the year ended December 31, 1999 to $113,460 compared to $34,250 in 1998 due to an increase in fees from investor servicing primarily related to an increase in investor transfers. 14 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The Registrant has no loan payables. As such the Registrant does not have any market risk of interest rate volatility. However, to the extent that interest rates are lowered, interest income on the Registrant's cash reserves will, accordingly, decrease. The Registrant does not believe that it has any risks related to derivative financial instruments. 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85, A CALIFORNIA LIMITED PARTNERSHIP FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 I N D E X
Page Number ------ Independent Auditors' Report.........................................................17 Financial statements, years ended December 31, 2000, 1999 and 1998 Balance Sheets..............................................................18 Statements of Operations....................................................19 Statements of Partners' Equity..............................................20 Statements of Cash Flows....................................................21 Notes to Financial Statements...............................................22
16 INDEPENDENT AUDITORS' REPORT To the Partners of Integrated Resources High Equity Partners, Series 85 We have audited the accompanying balance sheets of Integrated Resources High Equity Partners, Series 85 (a California limited partnership) as of December 31, 2000 and 1999, and the related statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a) 2. These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Integrated Resources High Equity Partners, Series 85 at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP March 16, 2001 Boston, MA 17 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 BALANCE SHEETS DECEMBER 31, --------------------------- 2000 1999 ----------- ----------- ASSETS Real estate, net $31,385,741 $32,352,714 Cash and cash equivalents 13,229,944 8,521,370 Other assets 3,040,423 3,095,251 Receivables, net of allowance of $170,309 and $226,500, respectively 216,573 209,418 ----------- ----------- TOTAL ASSETS $47,872,681 $44,178,753 =========== =========== LIABILITIES AND PARTNERS' EQUITY Accounts payable and accrued expenses $ 781,936 $ 1,224,373 Due to affiliates 396,320 107,255 ----------- ----------- Total liabilities 1,178,256 1,331,628 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 7) PARTNERS' EQUITY: Limited partners' equity (400,010 units issued and outstanding) 44,358,754 40,703,819 General partners' equity 2,335,671 2,143,306 Total partners' equity 46,694,425 42,847,125 ----------- ----------- TOTAL LIABILITIES AND PARTNERS' EQUITY $47,872,681 $44,178,753 =========== =========== SEE NOTES TO FINANCIAL STATEMENTS 18 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 STATEMENTS OF OPERATIONS
For the Year Ended December 31 --------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Rental Revenue $10,335,197 $10,941,322 $ 9,189,542 ----------- ----------- ----------- Costs and Expenses: Operating expenses 3,479,665 3,272,085 3,276,169 Depreciation and amortization 1,419,420 1,343,257 1,416,510 Partnership management fee 926,084 418,768 887,329 Administrative expenses 963,748 1,215,259 916,066 Property management fee 316,226 291,991 371,144 ----------- ----------- ----------- 7,105,143 6,541,360 6,867,218 ----------- ----------- ----------- Income before gain on sale of property, interest and other income 3,230,054 4,399,962 2,322,324 Gain on sale of property -- -- 389,359 Interest income 568,115 334,116 185,290 Other income 49,131 113,460 34,250 ----------- ----------- ----------- Net Income $ 3,847,300 $ 4,847,538 $ 2,931,223 =========== =========== =========== Net income attributable to: Limited partners $ 3,654,935 $ 4,605,161 $ 2,784,662 General partners 192,365 242,377 146,561 ----------- ----------- ----------- Net income $ 3,847,300 $ 4,847,538 $ 2,931,223 =========== =========== =========== Net income per unit of limited partnership interest (400,010 units outstanding) $ 9.14 $ 11.51 $ 6.96 =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS 19 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 STATEMENTS OF PARTNERS' EQUITY
General Limited Partners' Partners' Equity Equity Total ------------ ------------ ------------ BALANCE, DECEMBER 31, 1997 $ 1,873,109 $ 35,570,050 $ 37,443,159 Net Income 146,561 2,784,662 2,931,223 Distributions as a return of capital ($3.76 per limited partnership unit) (79,160) (1,504,036) (1,583,196) ------------ ------------ ------------ BALANCE, DECEMBER 31, 1998 1,940,510 36,850,676 38,791,186 Net Income 242,377 4,605,161 4,847,538 Distributions as a return of capital ($1.88 per limited partnership unit) (39,581) (752,018) (791,599) ------------ ------------ ------------ BALANCE, DECEMBER 31, 1999 2,143,306 40,703,819 42,847,125 Net Income 192,365 3,654,935 3,847,300 ------------ ------------ ------------ BALANCE, DECEMBER 31, 2000 $ 2,335,671 $ 44,358,754 $ 46,694,425 ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 20 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 STATEMENTS OF CASH FLOWS
For the Years Ended December 31, -------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 3,847,300 $ 4,847,538 $ 2,931,223 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of property -- -- (389,359) Depreciation and amortization 1,419,420 1,343,257 1,416,510 Straight line adjustment for stepped lease rentals (18,920) (1,250,983) (41,629) Changes in operating assets and liabilities: Accounts payable and accrued expenses (442,437) (40,891) 81,544 Receivables (7,155) (61,995) 35,145 Due to affiliates 289,065 (255,185) (215,299) Other assets (223,141) (418,340) (243,951) ------------ ------------ ------------ Net cash provided by operating activities 4,864,132 4,163,401 3,574,184 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of real estate -- -- 2,042,964 Improvements to real estate (155,558) (756,274) (2,083,198) ------------ ------------ ------------ Net cash used in investing activities (155,558) (756,274) (40,234) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners -- (1,187,398) (1,583,196) ------------ ------------ ------------ Increase in Cash and Cash Equivalents 4,708,574 2,219,729 1,950,754 Cash and Cash Equivalents, Beginning of Year 8,521,370 6,301,641 4,350,887 ------------ ------------ ------------ Cash and Cash Equivalents, End of Year $ 13,229,944 $ 8,521,370 $ 6,301,641 ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 21 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Integrated Resources High Equity Partners, Series 85, A California Limited Partnership (the "Partnership"), is a limited partnership, organized under the Uniform Limited Partnership Laws of California on August 19, 1983 for the purpose of investing in, holding and operating income-producing real estate. The Partnership will terminate on December 31, 2008 or sooner, in accordance with terms of the Agreement of Limited Partnership. The Partnership currently invests in two shopping center and three office properties, none of which are encumbered by debt. See "Note 9." 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENTS The financial statements are prepared on the accrual basis of accounting. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Partnership considers all short-term investments that have original maturities of three months or less from the date of issuance to be cash equivalents. REVENUE RECOGNITION Base rents are recognized on a straight line basis over the terms of the related leases. Percentage rents charged to retail tenants based on sales volume are recognized when earned pursuant to Staff Accounting Bulletin No 101, "Revenue Recognition in Financial Statements," issued by the Securities and Exchange Commission in December 1999, and the Emerging Issues Task Force's consensus on Issue 98-9, "Accounting for Contingent Rent in Interim Financial Periods, "the Partnership defers recognition of contingent rental income (i.e., percentage/excess rent) in interim periods until the specified target (i.e., breakpoint) that triggers the contingent rental income is achieved. Recoveries from tenants for taxes, insurance and other operating expenses are recognized as revenue in the period the applicable costs are incurred. INVESTMENTS IN JOINT VENTURES Certain properties were purchased in joint venture ownership with affiliated partnerships that have the same, or affiliated, general partners as the Partnership. The Partnership owns an undivided interest and is severally liable for indebtedness it incurs in connection with its ownership interest in those properties. Therefore, the Partnership's financial statements present the assets, liabilities, revenues and expenses of the joint ventures on a pro rata basis in accordance with the Partnership's percentage of ownership. REAL ESTATE Real Estate is carried at cost, net of adjustments for impairment. Repairs and maintenance are charged to expense as incurred. Replacements and betterments are capitalized. 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 there is an indication that the carrying amount of the property may not be recoverable, the Partnership prepares an estimate the future undiscounted 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. 22 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) If the sum of the expected undiscounted future cash flows 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 cash flows used to evaluate the recoverability of the assets and their fair values are based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying values at the balance sheet dates. The cash flows and market comparables used in this process are based on good faith estimates and assumptions developed by management. Unanticipated events and circumstances may occur and some assumptions may not materialize; therefore, actual results may vary from the estimates and the variances may be material. The Partnership may provide additional write-downs, which could be material in subsequent years if real estate markets or local economic conditions change. DEPRECIATION AND AMORTIZATION Depreciation is computed using the straight-line method over the useful life of the property, which is estimated to be 40 years. The cost of properties represents the initial cost of the properties to the Partnership plus acquisition and closing costs less impairment adjustments. Tenant improvements and leasing costs are amortized over the applicable lease term. INCOME TAXES No provision has been made for federal, state, and local income taxes since they are the personal responsibility of the partners. NET INCOME AND DISTRIBUTIONS PER UNIT OF LIMITED PARTNERSHIP INTEREST Net income and distributions per unit of limited partnership interest are calculated based upon the number of limited partnership units outstanding (400,010) for each of the years ended December 31, 2000, 1999, and 1998. No distributions were paid in 2000. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Effective January 1, 2001, the Partnership adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." Because the Partnership does not currently utilize derivatives or engage in hedging activities, this standard did not have a material effect on the Partnership's financial statements. 23 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 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 also a wholly owned subsidiary of Presidio, is the Associate General Partner (together with the Managing General Partner, the "General Partners"). Affiliates of the General Partners are also engaged in businesses related to the acquisition and operation of real estate. Presidio is also the parent of other corporations that are or may in the future be engaged in business that may be in competition with the Partnership. Accordingly, conflicts of interest may arise between the Partnership and such other businesses. Subject to the rights of the Limited Partners under the Limited Partnership Agreement, Presidio controls the Partnership through its indirect ownership of all the shares of the General Partners. Effective July 31, 1998, Presidio is indirectly controlled by NorthStar Capital Investment Corp., a Maryland Corporation. Effective as of August 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 years ended December 31, 2000, 1999 and 1998, reimbursable expenses incurred by NorthStar Presidio amounted to approximately $0, $57,739 and $102,007, respectively. Effective October 21, 1999, Presidio entered into a Services Agreement with AP-PCC III, L.P. (the "Agent") pursuant to which the Agent was retained to provide asset management and investor relation services to Partnership and other entities affiliated with Partnership. As a result of this agreement, the Agent has the duty to direct the day to day affairs of Partnership, including, without limitation, reviewing and analyzing potential sale, financing or restructuring proposals regarding the Partnership's assets, preparation of all reports, maintaining records and maintaining bank accounts of Partnership. The Agent is not permitted, however, without the consent of Presidio, or as otherwise required under the terms of the Limited Partnership Agreement to, among other things, cause Partnership to sell or acquire an asset or file for bankruptcy protection. In order to facilitate the Agent's provision of the asset management services and the investor relation services, effective October 25, 1999, the officers and directors of the General Partners resigned and nominees of the Agent were elected as the officers and directors of the General Partners. The Agent is an affiliate of Winthrop Financial Associates, a Boston based company that provides asset management services, investor relation services and property management services to over 150 limited partnerships which own commercial property and other assets. The General Partners do not believe this transaction will have a material effect on the operations of Partnership. The Partnership had a property management services agreement with Resources Supervisory Management Corp. ("Resources Supervisory"), an affiliate of the Managing General Partner, to perform certain functions relating to the management of the properties of the Partnership. Portions 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. Effective October 2000, Kestrel Management L.P. ("Kestrel"), and affiliate of the Agent began performing all property management services directly for the Partnership. For the years ended December 31, 2000, 1999, and 1998, Resources Supervisory was entitled to receive an aggregate of $221,642, $291,991 and $371,144 respectively, of which $137,022 was received by Kestrel in 2000 and $78,652, $220,011 and $212,371 was paid to unaffiliated management companies, respectively. From October 1, 2000 through December 31, 2000 Kestrel received $94,584. For the administration of the Partnership the Managing General Partner is entitled to receive non-accountable reimbursement of expenses of a maximum of $150,000 per year for each of the years ended December 31, 2000, 1999 and 1998. 24 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) During 1998, for managing the affairs of the Partnership, the Managing General Partner was 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. Pursuant to the amendment to the Partnership Agreement, which became effective on August 20, 1999, the annual partnership management fee for 1999 was reduced to $418,769. Further, the Partnership Agreement has been amended (for the year 2000 and beyond) so that the partnership management fee will be calculated equal to 1.25% of the Gross Asset Value of the Partnership. For the years ended December 31, 2000, 1999, and 1998 the Managing General Partner earned $926,084, $418,769 and $887,329, respectively. The General Partners are allocated 5% of the net income of the Partnership which amounted to $192,365, $242,377 and $146,561 in 2000, 1999 and 1998, respectively. The General Partners are also entitled to receive 5% of distributions which amounted to $39,581, and $79,160 in 1999 and 1998, respectively. No distributions were paid in 2000. 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 returns on their investments. 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., 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 March 12, 1998 (the "Offer") by Olympia Investors, L.P., a Delaware limited partnership controlled by Carl Ichan ("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, Presidio purchased 50% of the 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, Millennium Funding II Corp. purchased 18,042 limited partnership units from August 1998 through July 1999. The total of these purchases and the units purchased from Olympia (as described above) represents approximately 18.2% of the outstanding limited partnership units of the Partnership. As required by the settlement (see Note 7), an affiliate of the General Partners, Millennium Funding II, LLC, made a tender offer to limited partners to acquire up to 26,936 Units (representing approximately 6.7% of the outstanding Units) at a price of $114.60 per Unit. The offer closed in January 2000 and all 26,936 Units were acquired in the offer. As a result of these purchases as well as other purchases of units by affiliates of the General Partner, affiliates of the General Partners own 118,903 units representing 29.725% of the total outstanding units. 25 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 4. REAL ESTATE The Partnership recorded substantial write-downs prior to 1996. No write-downs were required for 1998, 1999 or 2000. The following table summarizes write-downs recorded on the properties held by the Partnership at December 31, 2000: Property -------- Seattle Tower $ 6,050,000 Century Park I 11,700,000 568 Broadway 10,821,150 Loch Raven 4,800,000 Southport 4,900,000 ----------- $38,271,150 =========== The following table is a summary of the Partnership's real estate as of: December 31, ------------------------------- 2000 1999 ------------ ------------- Land $ 10,370,965 $ 10,370,965 Buildings and improvements 37,871,636 37,716,078 ------------ ------------ 48,242,601 48,087,043 Less: Accumulated depreciation (16,856,860) (15,734,329) ------------ ------------ $ 31,385,741 $ 32,352,714 ============ ============ During 2000 and 1999, revenues from the Southport and 568 Broadway properties represented 35%, 29% and 34%, 28% of gross revenues, respectively. No single tenant accounted for more than 10% of the Partnership's rental revenues. The following is a summary of the Partnership's share of anticipated future receipts under noncancellable leases:
2001 2002 2003 2004 2005 Thereafter Total ---------- ---------- ---------- ---------- ---------- ---------- ----------- Total: $7,665,820 $6,528,688 $5,643,500 $4,755,781 $3,590,156 $6,671,274 $34,855,219 ========== ========== ========== ========== ========== ========== ===========
26 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 5. DUE TO AFFILIATES December 31, ------------------------ 2000 1999 ----------- --------- Partnership management fee $358,820 $ -- Property management fee -- 32,255 Non-accountable expense reimbursement 37,500 75,000 ======== ======== $396,320 $107,255 ======== ======== Such amounts were paid in the subsequent quarter. 6. FEDERAL INCOME TAX CONSIDERATIONS Federal income taxes are not provided because the taxable income or loss of the Partnership is required to be reported by the individual partners on their respective tax returns. If the Partnership is converted to a real estate investment trust ("REIT") and qualifies under the provisions of the Internal Revenue Code, the shareholders of the REIT would be required to include their proportionate share of any distribution of taxable income in their tax returns. REITs are required to distribute at least 95% of their ordinary taxable income to their shareholders and meet certain income source and investment restriction requirements. Taxable income differs from net income for financial reporting purposes principally because of differences in the timing of recognition of rental income and depreciation. As a result of these differences, and the impairment of long-lived assets and the initial write off of organization costs for book purposes, the tax basis of the Partnership's net assets exceeds its book value by $24,141,207 and $25,515,665 at December 31, 2000 and 1999, respectively. 7. SETTLEMENT OF LAWSUIT In April 1999, the California Superior Court approved the terms of the settlement of a class action and derivative litigation involving the Partnership. Under the terms of the settlement, the General Partners agreed to take the actions described below subject to first obtaining the consent of limited partners to amendments to the Agreement of Limited Partnership of the Partnership summarized below. The settlement became effective in August 1999 following approval of the amendments. As amended, the Partnership Agreement (a) provides for a Partnership Management Fee equal to 1.25% of the gross asset value of the Partnership and a fixed 1999 Partnership Management Fee of $418,769 or $426,867 less than the amount that would have been paid for 1999 under the prior formula and (b) fixes the amount that the General Partners will be liable to pay to limited partners upon liquidation of the Partnership as repayment of fees previously received (the "Fee Give-Back Amount"). As of December 31, 2000, the Fee Give-Back Amount was approximately $7.82 per Unit which amount will be reduced by approximately $.98 per Unit for each full calendar year after 1999 in which a liquidation does not occur. As amended, the Partnership Agreement provides that, upon a reorganization of the Partnership into a real estate investment trust or other public entity, the General Partners will have no further liability to pay the Fee Give-Back Amount. In accordance with the terms of the settlement, Presidio Capital Corp., an affiliate of the General Partners, guaranteed payment of the Fee Give-Back Amount. As required by the settlement, an affiliate of the General Partners, Millennium Funding II, LLC, made a tender offer to limited partners to acquire up to 26,936 Units (representing approximately 6.7% of the outstanding Units) at a price of $114.60 per Unit. The offer closed in January 2000 and all 26,936 Units were acquired in the offer. 27 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 7. SETTLEMENT OF LAWSUIT (CONTINUED) The final requirement of the settlement obligated the General Partners to use their best efforts to reorganize the Partnership into a real estate investment trust or other entity whose shares were listed on a national securities exchange or on the NASDAQ National Market System. A Registration Statement was filed with the Securities and Exchange Commission on February 11, 2000 with respect to the restructuring of the Partnership into a publicly-traded real estate investment trust. On or about February 15, 2001, a prospectus/consent solicitation statement was mailed to the limited partners of the Partnership seeking their consent to the reorganization of the Partnership into a real estate investment trust. The consent of limited partners is being sought to approve the conversion of the Partnership into a publicly-traded real estate investment trust called Shelbourne Properties I, Inc. ("Shelbourne"). If the conversion is approved, each limited partner of the Partnership will receive three shares of common stock of Shelbourne for each Unit which they own. The common stock of Shelbourne will be listed on the American Stock Exchange. The consent solicitation period expires on April 16, 2001 and the consent of holders of a majority of the Units is required for the approval of the conversion. The conversion will be accomplished by merging the Partnership into a newly-formed limited partnership called Shelbourne Properties I LP ("Shelbourne Properties"). Shelbourne Properties will function as the operating partnership through which Shelbourne will conduct all of its business. Shelbourne will be a limited partner of Shelbourne Properties and a wholly-owned subsidiary of Shelbourne will be the general partner of Shelbourne Properties. Shelbourne' s primary business objective will be to maximize the value of its common stock. Shelbourne will seek to achieve this objective by making capital improvements to and/or selling properties and by making additional real estate-related investments. Shelbourne may invest in a variety of real estate-related investments, including undervalued assets and value-enhancing situations, in a broad range of property types and geographical locations. Shelbourne may raise additional capital by mortgaging existing properties or by selling equity or debt securities. Shelbourne may acquire its investments for cash or by issuing equity securities, including limited partnership interests in Shelbourne Properties. Shelbourne will have a Board of Directors consisting of nine directors, three of whom will be independent directors. Shelbourne Management LLC ("Shelbourne Management"), an affiliate of the General Partner, will manage the day-to-day affairs of Shelbourne under an advisory agreement. Shelbourne Management intends to retain Kestrel Management L.P. ("Kestrel") to perform property management services for Shelbourne. Kestrel, an affiliate of Shelbourne Management and the General Partners, currently provides similar services for the Partnership. 28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 29 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no officers or directors. The Managing General Partner manages and controls substantially all of the Partnership's affairs and has general responsibility and ultimate authority in all matters affecting its business. The names and positions held by the officers and directors of the Managing General Partner are described below.
Position Held with the Has Served as a Director Name Managing General Partner or Officer Since - ---- ------------------------ ------------------------ Michael L. Ashner President and Director 10-99 David G. King, Jr. Vice President 11-97 Peter Braverman Executive Vice President 10-99 Lara K. Sweeney Vice President and Secretary 10-99 Carolyn Tiffany Vice President and Treasurer 10-99
Michael L. Ashner, age 48, has been the Chief Executive Officer of Winthrop Financial Associates, A Limited Partnership ("WFA") since January 15, 1996 and the Chief Executive Officer of the Newkirk Group since November 1997. From June 1994 until January 1996, Mr. Ashner was a Director, President and Co-chairman of National Property Investors, Inc., a real estate investment company ("NPI"). Mr. Ashner was also a Director and executive officer of NPI Property Management Corporation ("NPI Management") from April 1984 until January 1996. In addition, since 1981 Mr. Ashner has been President of Exeter Capital Corporation, a firm which has organized and administered real estate limited partnerships. Mr. Ashner also currently serves as a Director of Interstate Hotel Corporation, Nexthealth Corp., Great Bay Hotel and Casino Inc., Burnham Pacific Properties, Inc. and NBTY, Inc. David G. King, Jr., 38, has been a Vice President and Assistant Treasurer of NorthStar Capital Investment Corp. since November 1997. For more than the previous five years he was a Senior Vice President of Finance at Olympia & York Companies (USA). Peter Braverman, age 49, has been a Vice President of WFA since January 1996. Mr. Braverman has also served as the Executive Vice President of the Newkirk Group since November 1997. From June 1995 until January 1996, Mr. Braverman was a Vice President of NPI and NPI Management. From June 1991 until March 1994, Mr. Braverman was President of the Braverman Group, a firm specializing in management consulting for the real estate and construction industries. From 1988 to 1991, Mr. Braverman was a Vice President and Assistant Secretary of Fischbach Corporation, a publicly traded, international real estate and construction firm. Lara K. Sweeney, age 28, has been a Senior Vice President of WFA since January 1996. Prior to joining WFA, Ms. Sweeney was an officer of NPI and NPI Management in the asset management and investor relations departments. Carolyn Tiffany, age 34, has been employed with WFA since January 1993. From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and Associate in WFA's accounting and asset management departments. Ms. Tiffany was a Vice President in the asset management and investor relations departments of WFA until December 1997, at which time she became the Chief Operating Officer of WFA. Each director and officer of the Managing General Partner will hold office until the next annual meeting of stockholders of the Managing General Partner and until his successor is elected and qualified. One or more of the above persons are also directors or officers of a general partner (or general partner of a general partner) of a number of limited partnerships which either have a class of securities registered pursuant to Section 30 12(g) of the Securities and Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. There are no family relationships among the officers and directors of the Managing General Partner. ITEM 11. EXECUTIVE COMPENSATION The Partnership is not required to and did not pay remuneration to the officers and directors of the Managing General Partner or the Associate General Partner. Certain officers and directors of the Managing General Partner receive compensation from the Managing General Partner and/or its affiliates (but not from the Partnership) for services performed for various affiliated entities, which may include services performed for the Partnership; however, the Managing General Partner believes that any compensation attributable to services performed for the Partnership. See also "Item 13. Certain Relationships and Related Transactions." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners. Except as set forth below, no person or group is known by the Partnership to be the beneficial owner of more than 5% of the outstanding Units at March 1, 2001: Name of Beneficial Owner (1) Number of Units owned % of Class ---------------------------- --------------------- ---------- Millennium Funding II Corp. 73,033 18.26% Millennium Funding II LLC 42,519 10.63% Millennium Funding I LLC 3,351 .84% (1) The principal business address of the listed entities, each of which is an affiliate of the General Partners, is 527 Madison Avenue, New York, New York 10022. (b) Security Ownership of Management. At March 1, 2001 Presidio, the General Partners and their affiliates, officers and directors owned as a group own 118,903 Units representing approximately 29.73% of the total number of Units outstanding. (c) Changes in Control. There exists no arrangement known to the Partnership the operation of which may at a subsequent date result in a change in control of the Partnership. 31 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The General Partners and certain affiliated entities have, during the year ended December 31, 2000, earned or received compensation or payments for services or reimbursements from the Partnership or Presidio subsidiaries as follows:
Compensation from Name of Recipient Capacity in Which Served the Partnership - ----------------- ------------------------ ----------------- Resources High Equity Inc. Managing General Partner $1,076,084(1) Presidio AGP Corp. Associate General Partner --(2) Resources Supervisory Management Corp. Affiliated Property Managers $221,642(3) Kestrel Management, L.P. Affiliated Property Managers $231,606(3)
(1) $150,000 represents payment for non-accountable expenses of the Managing General Partner and $926,084 represents a Partnership Management Fee for managing the affairs of the Partnership. Furthermore, under the Partnership's Limited Partnership Agreement, 5% of the Partnership's net income and net loss is allocated to the General Partners (0.1% to the Associate General Partner and 4.9% to the Managing General Partner). Pursuant thereto, for the year ended December 31, 2000, $121,169 of the Partnership's taxable income was allocated to the Managing General Partner. (2) For the year ended December 31, 2000, $2,473 of the Partnership's taxable income was allocated to the Associate General Partner. (3) This amount was earned pursuant to a management agreement with Resources Supervisory, a wholly owned subsidiary of Presidio, for performance of certain functions relating to the management of the Partnership's properties. The total fee payable to Resources Supervisory was $221,642, of which $78,652 was paid to unaffiliated management companies and $137,022 was paid to Kestrel. As of October 1, 2000 all property management services for the Partnership were being performed directly by Kestrel and Resources Supervisory was no longer performing any property management services. From October 1, 2000 through December 31, 2000, Kestrel received $94,584. As required by the settlement of the class action and derivative litigation involving the Partnership, an affiliate of the General Partners, Millennium Funding II, LLC, made a tender offer to limited partners to acquire up to 26,936 units (representing approximately 6.7% of the outstanding Units) at a price of $114.60 per Unit. The offer closed in January 2000 and all 26,936 Units were acquired in the offer. 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements: see Index to Financial Statements in Item 8. (a)(2) Financial Statement Schedule: III. Real Estate and Accumulated Depreciation (a)(3) Exhibits: 3, 4.(a) Amended and Restated Partnership Agreement ("Partnership Agreement") of the Partnership, incorporated by reference to Exhibit A to the Prospectus of the Partnership dated February 4, 1985, included in the Partnership's Registration Statement on Form S-11 (Reg. No. 2-92319). (b) Amendment dated April 1, 1985 to the Partnership's Partnership Agreement, incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1985. (c) Restatement of Amendment dated December 1, 1986 to the Partnership's Partnership Agreement, incorporated by reference to the Partnership's Current Report on Form 8-K dated December 8, 1986. (d) Amendment dated as of April 1, 1988 to the Partnership's Partnership Agreement, incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1988. (e) Amendment to the Amended and Restated Agreement of Limited Partnership dated August 20, 1999, incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the three months ended September 30, 1999. 10.(a) Agent's Agreement between the Partnership and Resources Property Management Corp., incorporated by reference to Exhibit 10(b) to the Partnership's Registration Statement on Form S-11 (Reg. No. 2-92319). (b) Acquisition and Disposition Services Agreement among the Partnership and Realty Resources Inc., and Resources Acquisitions, Inc., incorporated by reference to Exhibit 10(c) to the Partnership's Registration Statement on Form S-11 (Reg. No. 2-92319). (c) Agreement among Resources High Equity, Inc., Integrated Resources, Inc. and Z Square G Partners II, incorporated by reference to Exhibit 10(d) to the Partnership's Registration Statement on Form S-11 (Reg. No. 2-92319). (d) Lease Agreement dated June 12, 1985, between the Partnership and First Federal Savings and Loan Association of South Carolina for the First Federal Office Building, incorporated by reference to Exhibit 10(g) to the Partnership's Post-Effective Amendment No. 1 to Registration Statement on Form S-11 (Reg. No. 2-92319). (e) Joint Venture Agreement dated November 2, 1986 between the Partnership and High Equity Partners, L.P. - Series 86, A California Limited Partnership, with respect to Century Park I, incorporated by reference to Exhibit 10(b) to the Partnership's Current Report on Form 8-K dated November 7, 1986. (f) Joint Venture Agreement dated October 27, 1986 between the Partnership and High Equity Partners, L.P. - Series 86, with respect to 568 Broadway, incorporated by reference to Exhibit 10(b) to the Partnership's Current Report on Form 8-K dated November 19, 1986. 33 (g) Joint Venture Agreement dated November 24, 1986 between the Partnership and High Equity Partners, L.P. - Series 86, with respect to Seattle Tower, incorporated by reference to Exhibit 10(b) to the Partnership's Current Report on Form 8-K dated December 8, 1986. (h) Amended and Restated Joint Venture Agreement dated February 1, 1990 among the Partnership, High Equity Partners, L.P. Series 86 and High Equity Partners, L.P. - Series 88, with respect to 568 Broadway, incorporated by reference to Exhibit 10(a) to the Partnership's Current Report on Form 8-K dated February 1, 1990. (i) First Amendment to Amended and Restated Joint Venture Agreement of 568 Broadway Joint Venture, dated as of February 1, 1990, among the Partnership, High Equity Partners, L.P. - Series 86 and High Equity Partners, L.P. - Series 88, incorporated by reference to Exhibit 10(p) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. (j) Agreement, dated as of March 23, 1990, among the Partnership, Resources High Equity Inc. and Resources Property Management Corp., with respect to the payment of deferred fees, incorporated by reference to Exhibit 10(q) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. (k) Amending Agreement, dated as of December 31, 1991, to Agreement dated as of March 23, 1990, among the Partnership, Resources High Equity Inc. and Resources Property Management Corp., with respect to the payment of deferred fees, incorporated by reference to Exhibit 10(r) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991 (l) Form of Termination of Supervisory Management Agreement (separate agreement entered into with respect to each individual property) and Form of Supervisory Management Agreement between the Partnership and Resources Supervisory (separate agreement entered into with respect to each property), incorporated by reference to Exhibit 10(s) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991. (m) Amending Agreement, dated as of December 30, 1992, to Agreement dated as of March 23, 1990, among the Partnership, Resources High Equity, Inc. and Resources Property Management Corp., with respect to the payment of deferred fees, incorporated by reference to Exhibit 10(m) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992. (n) Amending Agreement, dated as of December 29, 1993, to Agreement dated as of March 23, 1990, among the Partnership, Resources High Equity, Inc. and Resources Property Management Corp., incorporated by reference with respect to the payment of deferred fees. (p) Guarantee by Presidio Capital Corp. dated August 20, 1999, incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the three months ended September 30, 1999. (b) Reports on Form 8-K: The Partnership filed the following reports on Form 8-K during the last quarter of the fiscal year: None. 34 Financial Statement Schedule Filed Pursuant to Item 14(a)(2) INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85, A CALIFORNIA LIMITED PARTNERSHIP ADDITIONAL INFORMATION YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 INDEX
Page Number ------ Additional financial information furnished pursuant to the requirements of Form 10-K: Schedules - December 31, 2000, 1999 and 1998 and years then ended, as required: Schedule III - Real estate and accumulated depreciation S-1 Notes to Schedule III - Real estate and accumulated depreciation S-2
All other schedules have been omitted because they are inapplicable, not required, or the information is included in the financial statements or notes thereto. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused This report to be signed on its behalf by the undersigned, thereunto duly authorized. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85, A CALIFORNIA LIMITED PARTNERSHIP By: RESOURCES HIGH EQUITY, INC. Managing General Partner Dated: March 30, 2001 By: /s/ MICHAEL L. ASHNER ------------------------- Michael L. Ashner President and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, This report has been signed below by the following persons on behalf of the registrant and in their capacities on the dates indicated. Dated: March 30, 2001 By: /s/ MICHAEL L. ASHNER ------------------------- Michael L. Ashner President and Director (Principal Executive Officer) Dated: March 30, 2001 By: /s/ CAROLYN TIFFANY --------------------- Carolyn Tiffany Vice President and Treasurer (Principal Financial and Accounting Officer) 36 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 A CALIFORNIA LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2000 ================================================================================
Initial Cost ------------------------------- Buildings And Description Encumbrances Land Improvements ----------- ------------ ------------ ------------ RETAIL: The Southport Shopping Center Ft. Lauderdale, FL $ -- $ 6,961,667 $ 13,723,333 The Loch Raven Shopping Center Towson, MD -- 2,469,871 6,860,748 ------------ ------------ ------------ -- 9,431,538 20,584,081 ------------ ------------ ------------ OFFICE: Century Park Office Complex Kearny Mesa, CA -- 3,122,064 12,717,936 568 Broadway Office Building New York, NY -- 2,318,801 9,821,517 Seattle Tower Office Building Seattle, WA -- 2,163,253 5,030,803 ------------ ------------ ------------ -- 7,604,118 27,570,256 ------------ ------------ ------------ $ -- $ 17,035,656 $ 48,154,337 ============ ============ ============ Costs Reductions Capitalized Recorded Subsequent to Subsequent to Acquisition Acquisition ------------------------------ ------------- Description Improvement Carrying Costs Write Downs ----------- ----------- -------------- ------------ RETAIL: The Southport Shopping Center Ft. Lauderdale, FL $ 2,091,409 $ 1,866,962 $ (4,900,000) The Loch Raven Shopping Center Towson, MD 2,909,091 953,837 (4,800,000) ------------ ------------ ------------ 5,000,500 2,820,799 (9,700,000) ------------ ------------ ------------ OFFICE: Century Park Office Complex Kearny Mesa, CA 2,124,576 1,353,130 (11,700,000) 568 Broadway Office Building New York, NY 5,205,812 1,556,212 (10,821,150) Seattle Tower Office Building Seattle, WA 2,653,337 609,392 (6,050,000) ------------ ------------ ------------ 9,983,725 3,518,734 (28,571,150) ------------ ------------ ------------ $ 14,984,227 $ 6,339,533 $(38,271,150) ============ ============ ============ Gross Amount at Which Carried at Close of Period ------------------------------------------------------ Buildings And Description Land Improvements Total ----------- ------------- ------------ ------------ RETAIL: The Southport Shopping Center Ft. Lauderdale, FL $ 5,998,194 $ 13,745,177 $ 19,743,371 The Loch Raven Shopping Center Towson, MD 1,507,227 6,886,320 8,393,547 ------------ ------------ ------------ 7,505,421 20,631,497 28,136,918 ------------ ------------ ------------ OFFICE: Century Park Office Complex Kearny Mesa, CA 1,123,811 6,493,895 7,617,706 568 Broadway Office Building New York, NY 977,120 7,104,072 8,081,192 Seattle Tower Office Building Seattle, WA 764,613 3,642,172 4,406,785 ------------ ------------ ------------ 2,865,544 17,240,139 20,105,683 ------------ ------------ ------------ $ 10,370,965 $ 37,871,636 $ 48,242,601 ============ ============ ============ Accumulated Description Depreciation Date Acquired ----------- ------------ ------------- RETAIL: The Southport Shopping Center Ft. Lauderdale, FL $ 5,786,162 1986 The Loch Raven Shopping Center Towson, MD 2,729,862 1986 ----------- 8,516,024 ----------- OFFICE: Century Park Office Complex Kearny Mesa, CA 3,442,069 1986 568 Broadway Office Building New York, NY 3,249,776 1986 Seattle Tower Office Building Seattle, WA 1,648,991 1986 ----------- 8,340,836 ----------- $16,856,860 ===========
Note: The aggregate cost for Federal income tax purposes is $86,513,751 December 31, 2000. S-1 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 A CALIFORNIA LIMITED PARTNERSHIP NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 ================================================================================ (A) RECONCILIATION OF REAL ESTATE OWNED:
For the Years Ended December 31, ----------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ BALANCE AT BEGINNING OF YEAR $ 48,087,043 $ 47,330,768 $ 48,010,757 ADDITIONS DURING THE YEAR Improvements to Real Estate 155,558 756,275 2,083,198 SUBTRACTIONS DURING THE YEAR Sales - Net -- -- (2,763,187) ------------ ------------ ------------ BALANCE AT END OF YEAR (1) $ 48,242,601 $ 48,087,043 $ 47,330,768 ============ ============ ============
(1) INCLUDES THE INITIAL COST OF THE PROPERTIES PLUS ACQUISITION AND CLOSING COSTS. (B) RECONCILIATION OF ACCUMULATED DEPRECIATION:
For the Years Ended December 31, ----------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ BALANCE AT BEGINNING OF YEAR $ 15,734,329 $ 14,643,333 $ 14,807,964 ADDITIONS DURING THE YEAR Depreciation Expense(1) 1,122,531 1,090,996 1,164,109 SUBTRACTIONS DURING THE YEAR Sales -- -- (1,328,740) ------------ ------------ ------------ BALANCE AT END OF YEAR $ 16,856,860 $ 15,734,329 $ 14,643,333 ============ ============ ============
(1) DEPRECIATION IS PROVIDED ON BUILDINGS USING THE STRAIGHT-LINE METHOD OVER THE USEFUL LIFE OF THE PROPERTY, WHICH IS ESTIMATED TO BE 40 YEARS AN ON TENANT IMPROVEMENTS OVER THE ESTIMATED TERM OF THE RELATED LEASE. S-2 -----END PRIVACY-ENHANCED MESSAGE-----