<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------
For Quarter Ended March 31, 1995
----------------------------------------------------------
Commission file number 0-13563
-----------------------------------------------------
DAMSON/BIRTCHER REALTY INCOME FUND - I
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 13-3264491
- ----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box A-1, Laguna Niguel, California 92677-0100
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 831-8031
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE> 2
DAMSON/BIRTCHER REALTY INCOME FUND-I
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1995
-----------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
March 31, 1995 (Unaudited) and December 31, 1994 . . . 3
Statements of Operations (Unaudited) -
Three Months Ended March 31, 1995 and 1994 . . . . . . 4
Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1995 and 1994 . . . . . . 5
Notes to Financial Statements (Unaudited) . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
DAMSON/BIRTCHER REALTY INCOME FUND-I
BALANCE SHEETS
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Investments in real estate, net:
Land $ 10,016,000 $ 10,016,000
Buildings and improvements 57,924,000 57,851,000
------------ ------------
67,940,000 67,867,000
Less accumulated depreciation (25,868,000) (25,396,000)
------------ ------------
42,072,000 42,471,000
Cash and cash equivalents 578,000 648,000
Accounts receivable (net of allowance for
doubtful accounts of $22,000 in 1995) 63,000 84,000
Accrued rent receivable 449,000 416,000
Prepaid expenses and other assets 654,000 673,000
------------ ------------
$ 43,816,000 $ 44,292,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 895,000 $ 1,044,000
Secured loan payable 3,244,000 3,285,000
------------ ------------
Total liabilities 4,139,000 4,329,000
------------ ------------
Partners' capital:
Limited Partners 40,113,000 40,395,000
General Partner (436,000) (432,000)
------------ ------------
39,677,000 39,963,000
------------ ------------
Commitments and contingencies - -
------------ ------------
$ 43,816,000 $ 44,292,000
============ ============
</TABLE>
Note: The balance sheet at December 31, 1994 has been prepared from the audited
- ----
financial statements as of that date.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF OPERATIONS
(UNAUDITED)
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
- --------
Rental income $ 1,479,000 $ 1,603,000
Interest and other income 11,000 10,000
------------ ------------
Total revenues 1,490,000 1,613,000
------------ ------------
EXPENSES
- --------
Operating expenses 465,000 487,000
Real estate taxes 235,000 231,000
Depreciation and amortization 509,000 559,000
General and administrative 237,000 233,000
Interest 74,000 77,000
------------ ------------
Total expenses $ 1,520,000 1,587,000
------------ ------------
NET INCOME (LOSS) $ (30,000) $ 26,000
============ ============
NET INCOME (LOSS) ALLOWABLE TO:
General Partner $ - $ -
============ ============
Limited Partners $ (30,000) $ 26,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CASH FLOWS
(UNAUDITED)
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (30,000) $ 26,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 509,000 560,000
Changes in:
Accounts receivable 21,000 10,000
Prepaid expenses and other assets (18,000) (40,000)
Accrued rent receivable (33,000) (72,000)
Accounts payable and accrued liabilities (149,000) (77,000)
------------ ------------
Net cash provided by operating activities 300,000 407,000
Cash flows from investing activities:
Investments in real estate (73,000) (110,000)
------------ ------------
Net cash used in investing activities (73,000) (110,000)
Cash flows from financing activities:
Secured loan payable (41,000) (38,000)
Distributions (256,000) (373,000)
------------ ------------
Net cash used in financing activities (297,000) (411,000)
Net decrease in cash and
cash equivalents (70,000) (114,000)
Cash and cash equivalents, beginning of
period 648,000 1,068,000
------------ ------------
Cash and cash equivalents, end of period $ 578,000 $ 954,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
- -----------------------------------------
(1) Accounting Policies
-------------------
The financial statements of Damson/Birtcher Realty Income Fund-I (the
"Partnership") included herein have been prepared by the General
Partner, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements
include all adjustments which are of a normal recurring nature and, in
the opinion of the General Partner, are necessary for a fair
presentation. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted,
pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Partnership's annual report on Form 10-K for the year ended December
31, 1994.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate original reduced rates on
sales commissions for subscriptions in excess of certain specified
amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who
paid commissions at a higher rate. As a result, the Partnership has
no set unit value as all accounting, investor reporting and tax
information is based upon each investor's relative percentage of
Invested Capital. Accordingly, earnings or loss per unit is not
presented in the accompanying financial statements.
Investments in Real Estate
At December 31, 1994, after evaluation of the Cornerstone Shopping
Center, Terracentre and Oakpointe, management estimated a $5,500,000
impairment of value as compared to their respective carrying value.
At December 31, 1992, after evaluation of the Arlington Executive
Plaza and Terracentre, management estimated an aggregate $13,900,000
impairment of value as compared to their respective values.
(2) Transactions with Affiliates
----------------------------
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
6
<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(2) Transactions with Affiliates (Cont'd.)
----------------------------
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the three months ended
March 31, 1995 and 1994, the Partnership incurred approximately
$55,000 and $43,000, respectively, of such expenses.
On November 1, 1993 the General Partner elected to terminate the
Partnership's property management agreement with an unaffiliated third
party. On that date, the General Partner caused the Partnership to
enter into a new property management agreement with Birtcher
Properties, an affiliate of the General Partner. The new contract
encompasses terms at least as favorable to the Partnership as the
terminated contract with the unaffiliated third party, and is
terminable by the Partnership upon 60 days' notice to Birtcher
Properties.
Pursuant to the property management agreement Birtcher Properties
provides property management services with respect to the
Partnership's properties and receives a fee for such services not to
exceed 3% of the gross receipts from the properties under management.
Such fee amounted to approximately $44,000 and $47,000 for the three
months ended March 31, 1995 and 1994, respectively. In addition, an
affiliate of the General Partner received $83,000 and $72,000 for the
three months ended March 31, 1995 and March 31, 1994, respectively, as
reimbursement of costs of on-site property management personnel and
other reimbursable costs.
As previously reported, on June 24, 1993, the Partnership completed
its solicitation of written consents from its Limited Partners. A
majority in interest of the Partnership's Limited Partners approved
each of the proposals contained in the Information Statement dated May
5, 1993. Those proposals have been implemented by the Partnership as
contemplated by the Information Statement as amendments to the
Partnership Agreement, and are reflected in these financial statements
as such.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .75% of the aggregate appraised value of the Partnership's
properties as determined by independent appraisal undertaken in
January of each year. Such fees for the three months ended March 31,
1995 and March 31, 1994, amounted to $76,000 and $88,000,
respectively. In addition, the amended Partnership Agreement provides
for payment to the General Partner of a leasing fee for services
rendered in connection with leasing space in a Partnership property
after the expiration or termination of leases. Fees for leasing
services for the three months ended March 31, 1995 and March 31, 1994,
amounted to $1,000 and $1,000, respectively.
7
<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(3) Commitments and Contingencies
-----------------------------
Litigation
The Partnership is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business. It is the General Partner's belief that the outcome of
these proceedings will not be material to the business or financial
condition of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Liquidity and Capital Resources
-------------------------------
Since completion of its acquisition program in September 1985, the
Partnership has been engaged primarily in the operation of its
properties. The Partnership intends to hold its properties as
long-term investments, although properties may be sold at any time
depending upon the General Partner's judgment of the anticipated
remaining economic benefits of continued ownership. Working capital
is provided principally from the operation of the Partnership's
properties and the working capital reserve established for the
properties.
On July 30, 1993, the Partnership obtained a new loan secured by a
First Deed of Trust on the Certified Distribution Center in Salt Lake
City, Utah. The new loan, in the amount of $3,500,000, carries a
fixed interest rate of 9% per annum over a 13-year fully amortizing
term. The Partnership's first payment of $38,138.82 was paid on
September 1, 1993, with monthly installments due thereafter. Proceeds
from the new loan, along with $500,000 of existing Partnership cash
reserves, were used to retire the Partnership's existing debt of
$4,000,000.
Certain of the Partnership's properties are not fully leased. The
Partnership is actively marketing the vacant space in these
properties, subject to the competitive environment in each of the
market areas. To the extent the Partnership is not successful in
maintaining or increasing occupancy levels at these properties, the
Partnership's future cash flow may be reduced.
Distributions through March 31, 1995, represent cash flow generated
from operations of the Partnership's properties and interest earned on
the temporary investment of working capital net of capital reserve
requirements. Future cash distributions will be made principally to
the extent of cash flow attributable to operations of the
Partnership's properties and interest earned on the investment of
capital reserves, after providing for capital reserves and payment for
capital improvements to the Partnership's properties.
8
<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (Cont'd.)
---------------------
Liquidity and Capital Resources (Cont'd.)
-------------------------------
The Partnership is currently planning a significant renovation of The
Cornerstone Shopping Center. The Partnership has submitted
preliminary design drawings to the City of Tempe, Arizona, and has
received approval. Construction drawings will be prepared within the
next 60 days. The General Partner currently estimates the cost of the
planned capital improvements which include exterior facade
modifications, hardscape and softscape changes and signage upgrades to
be approximately $1,500,000, plus an additional $500,000 for tenant
improvements and leasing commissions. To pay these expenses, the
Partnership may reduce or entirely suspend distributions for two or
more quarters, as early as the second quarter 1995.
In accordance with the terms of the Partnership Agreement each year,
the Partnership secures an independent appraisal of each of the
Partnership's properties as of January 1. In past years, the
independent appraiser has estimated each property's "Investment
Value," utilizing a seven to ten-year cash flow model to estimate
value based upon an income approach.
The amendment to the Partnership Agreement consented to by the Limited
Partners in June 1993 mandates, among other things, that the General
Partner seek a vote of (and provide an analysis and recommendation to)
the Limited Partners no later than December 31, 1996, regarding the
prompt liquidation of the Partnership in the event that properties
with (then) current appraised values constituting at least one-half of
the total (then) current appraised values of all of the Partnership's
properties are not sold or under contract for sale by the end of 1996.
Given this mandate, the General Partner has requested that the
appraiser provide an assessment of value that reflects a shorter
investment holding term. Although the General Partner does not
currently have a specific liquidation plan for the Partnership's
properties, it requested that the appraiser assume that the entire
portfolio would be sold over the next four years.
Using the shorter-term investment methodology that is consistent with
the mandate of the 1993 amendment to the Partnership Agreement, the
appraiser estimated the value of the Partnership's properties at
January 1, 1995 to be $40,505,000.
9
<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (Cont'd.)
---------------------
Results of Operations for the Three Months Ended March 31, 1995
---------------------------------------------------------------
Compared With the Three Months Ended March 31, 1994
---------------------------------------------------
The decrease in rental income for the three months ended March 31,
1995, as compared to the corresponding period in 1994, was
attributable to several factors. At Oakpointe, rental revenue
decreased by $45,000 as a result of the termination of the Illinois
Department of Employment Security lease in March 1994. In addition,
operating expense recoveries decreased by $80,000. At Cornerstone,
Studebaker's terminated its lease in September 1994, resulting in a
$50,000 decrease in income. At Arlington, rental income decreased by
an aggregate of $23,000 as a result of three tenants terminating their
leases upon expiration in late 1994. The aforementioned decreases
were partially offset by an increase in rental income at Washington
Technical Center and Terracentre. At Washington Technical Center,
three new leases were successfully negotiated, encompassing 25,698
square feet and increasing rental income by an aggregate of $54,000.
At Terracentre, rental income increased as a result of three new
leases and the expansion of an existing tenant.
Interest income resulted from the temporary investment of Partnership
working capital. The increase from 1994 to 1995 was attributable to a
higher rate of return on short-term investments.
The decrease in operating expenses for the three months ended March
31, 1995, as compared to the corresponding period in 1994, was
primarily attributable to a decrease in snow removal of $21,000 at
Arlington and $18,000 at Oakpointe. This decrease was partially
offset by an increase in professional services of $15,000 at
Cornerstone and $2,000 at Ladera I.
The increase in real estate taxes for the three months ended March 31,
1995, as compared to the corresponding period in 1994, was primarily
attributable to an increase in property tax accrual at Arlington.
General and administrative expenses for the three months ended
March 31, 1995 and 1994, include charges of $132,000 and $131,000,
respectively, from the General Partner and its affiliates for services
rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included
in general and administrative expenses for the three months ended
March 31, 1995 and 1994, are direct charges of $105,000 and $102,000,
respectively, relating to audit fees, tax preparation fees, legal fees
and professional services, liability insurance expenses, costs
incurred in providing information to the Limited Partners and other
miscellaneous costs.
10
<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (Cont'd.)
-------------
Results of Operations for the Three Months Ended March 31, 1995
---------------------------------------------------------------
Compared With the Three Months Ended March 31, 1994 (Cont'd.)
---------------------------------------------------
The decrease in depreciation and amortization expenses for the three
months ended March 31, 1995, as compared to the corresponding period
in 1994, was attributable to the $5,500,0000 adjustment to the
carrying value of real estate assets during 1994. As part of this
adjustment, the depreciable basis of Cornerstone, Terracentre and
Oakpointe were reduced in December 1994 by $3,150,000, $466,000 and
$704,000, respectively, with the remaining adjustment of $1,180,000
being allocated to land.
11
<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-I
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits:
27 - Financial Data Schedule.
b) Reports on Form 8-K:
None filed in quarter ended March 31, 1995.
12
<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-I
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-I
By: DAMSON/BIRTCHER PARTNERS By: BIRTCHER PARTNERS,
(General Partner) a California general partnership
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Partners
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: May 11, 1995 By: /s/ Robert M. Anderson
--------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund II, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund II, L.P.
Date: May 11, 1995 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management,
Inc.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATIONS OF DAMSON BIRTCHER REALTY INCOME FUND-1 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 578,000
<SECURITIES> 0
<RECEIVABLES> 85,000
<ALLOWANCES> 22,000
<INVENTORY> 0
<CURRENT-ASSETS> 764,000
<PP&E> 67,940,000
<DEPRECIATION> 25,868,000
<TOTAL-ASSETS> 43,816,000
<CURRENT-LIABILITIES> 1,068,000
<BONDS> 3,071,000
<COMMON> 0
0
0
<OTHER-SE> 39,677,000
<TOTAL-LIABILITY-AND-EQUITY> 43,816,000
<SALES> 0
<TOTAL-REVENUES> 1,512,000
<CGS> 0
<TOTAL-COSTS> 1,446,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22,000
<INTEREST-EXPENSE> 74,000
<INCOME-PRETAX> (30,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
