<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTIONS 12(G), 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995
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Commission file number 0-13563
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DAMSON/BIRTCHER REALTY INCOME FUND - I
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 13-3264491
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(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
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(Address of principal executive offices) (Zip Code)
(714) 831-0707
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(Registrant's telephone number, including area code)
N/A
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(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 Sections 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
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DAMSON/BIRTCHER REALTY INCOME FUND-I
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1995
INDEX
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
June 30, 1995 (Unaudited) and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAMSON/BIRTCHER REALTY INCOME FUND-I
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Investment in real estate, net:
Land $10,016,000 $10,016,000
Buildings and improvements 58,014,000 57,851,000
----------- -----------
68,030,000 67,867,000
Less accumulated depreciation (26,327,000) (25,396,000)
----------- -----------
41,703,000 42,471,000
Cash and cash equivalents 851,000 648,000
Accounts receivable (net of allowance for
doubtful accounts of $39,000 in 1995) 49,000 84,000
Accrued rent receivable 462,000 416,000
Prepaid expenses and other assets 618,000 673,000
----------- -----------
$43,683,000 $44,292,000
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 989,000 $ 1,044,000
Secured loan payable 3,203,000 3,285,000
----------- -----------
Total liabilities 4,192,000 4,329,000
Partners' capital:
Limited Partners 39,928,000 40,395,000
General Partner (437,000) (432,000)
----------- -----------
39,491,000 39,963,000
=========== ===========
Commitments and contingencies - -
----------- -----------
$43,683,000 $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 Six Months Ended
June 30, June 30,
------------------------------------ ----------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
- --------
Rental income $ 1,491,000 $ 1,577,000 $ 2,970,000 $ 3,180,000
Interest income 11,000 9,000 21,000 19,000
----------- ----------- ----------- -----------
Total revenues 1,502,000 1,586,000 2,991,000 3,199,000
----------- ----------- ----------- -----------
EXPENSES
- --------
Operating expenses 400,000 447,000 863,000 934,000
Real estate taxes 217,000 231,000 453,000 462,000
Depreciation and
amortization 495,000 556,000 1,005,000 1,116,000
General and
administrative 248,000 244,000 485,000 477,000
Interest 73,000 76,000 146,000 153,000
----------- ----------- ----------- -----------
Total expenses 1,433,000 1,554,000 2,952,000 3,142,000
----------- ----------- ----------- -----------
NET INCOME $ 69,000 $ 32,000 $ 39,000 $ 57,000
=========== =========== =========== ===========
NET INCOME
ALLOCABLE TO:
General Partner $ - $ - $ - $ 1,000
=========== =========== =========== ===========
Limited Partners $ 69,000 $ 32,000 $ 39,000 $ 56,000
=========== =========== =========== ===========
</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>
Six Months Ended June 30,
-------------------------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 39,000 $ 57,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,005,000 1,116,000
Changes in:
Accounts receivable 35,000 -
Accrued rent receivable (46,000) (84,000)
Prepaid expenses and other assets (19,000) (20,000)
Accounts payable and accrued liabilities (55,000) (60,000)
------------ ------------
Net cash provided by operating activities 959,000 1,009,000
Cash flows from investing activities:
Investment in real estate (163,000) (159,000)
------------ ------------
Net cash used in investing activities (163,000) (159,000)
Cash flows from financing activities:
Secured loan payable (82,000) (76,000)
Distributions (511,000) (746,000)
------------ ------------
Net cash used in financing activities (593,000) (822,000)
Net increase in cash and cash equivalents 203,000 28,000
Cash and cash equivalents, beginning of
period 648,000 1,068,000
------------ ------------
Cash and cash equivalents, end of period $ 851,000 $ 1,096,000
============ ============
</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. The financial statements include
all adjustments which are of a normal recurring nature and, in the
opinion of the General Partner, 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.
6
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd)
(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
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
June 30, 1995 and 1994, the Partnership incurred approximately $54,000
and $43,000, respectively, of such expenses. For the six months ended
June 30, 1995 and 1994, such payments were $108,000 and $86,000,
respectively.
An affiliate of the General Partner 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
$38,000 and $37,000 for the three months ended June 30, 1995 and 1994,
respectively, and $76,000 and $84,000 for the six months ended June
30, 1995 and 1994. In addition, an affiliate of the General Partner
received $80,000 and $85,00 for the three months ended June 30, 1995
and 1994, respectively, as reimbursement of costs of on-site property
management personnel and other reimbursable costs. For the six months
ended June 30, 1995 and 1994, such costs were $163,000 and $156,000,
respectively.
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 amounted to approximately $152,000
and $176,000 for the six months ended June 30, 1995 and 1994,
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 six months ended June 30, 1995 and 1994, amounted to
$7,000 and $2,000, 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 Resource
Subsequent to the 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 $500,0000 of existing Partnership cash
reserves, were used to retire the Partnership's existing debt of
$4,000,000.
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 is currently scheduled to begin in
August, 1995. 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.
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)
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.
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 June 30, 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 improvement
reserve requirements and fees paid to the General Partner. Future
cash distributions will be made principally to the extent of cash flow
attributable to operations of the Partnership's properties net of fees
and capital expenses and reserve requirements.
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 June 30, 1995
Compared With the Three Months Ended June 30, 1994 and for the Six
Months Ended June 30, 1995 Compared With the Six Months Ended June 30,
1994
The decrease in rental income for the three months ended June 30,
1995, as compared to the corresponding period in 1994, was primarily
attributable to several factors. At Cornerstone Shopping Center,
revenue decreased by an aggregate of $62,000, which was primarily the
result of four tenants terminating their leases prior to expiration:
Studebaker's lease in September 1994, and Flakey Jakes, Player's
Choice and Glacier Yogurt in 1995. At Oakpointe, operating expense
recoveries and miscellaneous revenue decreased by $47,000 and at
Arlington revenue decreased by an aggregate of $25,000, which was
primarily the result of reduced operating expense recoveries in 1995.
The aforementioned decreases were partially offset by a $49,000
increase in rental income at Washington Technical Center in 1995.
The decrease in rental income for the six months ended June 30, 1995,
as compared to the corresponding period in 1994, was primarily the
result of the following: at Oakpointe, revenue decreased by $150,000,
because of the termination of the Illinois Department of Employment
Security lease in March 1994, and decreased operating expense
recoveries in 1995. At Cornerstone Shopping Center, four tenants
terminated their leases prior to expiration in late 1994 and second
quarter 1995, resulting in a decrease in revenue by an aggregate of
$111,000. At Arlington, three tenants terminated their leases upon
expiration in late 1994, resulting in a $50,000 decrease in revenue in
1995. The aforementioned decreases were partially offset by an
increase in rental income at Washington Technical Center of $103,000,
which was the result of successful negotiations of three new leases
encompassing 25,698 square feet in late 1994.
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 June 30,
1995, as compared to the corresponding period in 1994, was primarily
attributable to the decrease in legal and professional services at
Cornerstone Shopping Center and Terracentre. The decrease in
operating expenses for the six months ended June 30, 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. In addition, legal and professional services associated
with minor tenant disputes were decreased at Cornerstone by $27,000.
10
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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 June 30, 1995
Compared With the Three Months Ended June 30, 1993 and for the Six
Months Ended June 30, 1995 Compared With the Six Months Ended June 30,
1994 (Cont'd)
The decrease in real estate taxes for the three and six months ended
June 30, 1995, as compared to the corresponding periods in 1994, was
primarily attributable to a lower tax assessment at Washington
Technical Center.
The decrease in deprecation and amortization expenses for the three
and six months ended June 30, 1995, as compared to the corresponding
period in 1994, was attributable to the $5,500,000 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.
General and administrative expenses for the six months ended June 30,
1995 and 1994, include $267,000 and $264,000, respectively, of charges
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 six months ended June 30, 1995 and
1994, are direct charges of $218,000 and $213,000, respectively,
relating to audit and tax preparation fees, annual appraisal fees,
legal fees, insurance expense, costs incurred in providing information
to the Limited Partners and other miscellaneous costs.
Interest expenses resulted from interest on the first Deed of Trust on
Certified Distribution Center. The decrease in interest expenses for
the six months ended June 30, 1995, as compared to 1994, was
attributable to the increase in principal payment of the loan which
carries a fixed interest rate of 9% per annum over a 13-year fully
amortized term.
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.
11
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 -- Financial Data Schedule.
b) Reports on Form 8-K:
None filed in quarter ended June 30, 1995.
12
<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-I
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.
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: August 11, 1995 By: /s/ Robert M. Anderson
-------------------------------
Robert M. Anderson
Executive Director
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: August 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 OPERATION OF DAMSON BIRTCHER REALTY INCOME FUND I
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 851,000
<SECURITIES> 0
<RECEIVABLES> 88,000
<ALLOWANCES> 39,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,079,000
<PP&E> 68,030,000
<DEPRECIATION> 26,327,000
<TOTAL-ASSETS> 43,683,000
<CURRENT-LIABILITIES> 1,166,000
<BONDS> 3,203,000
<COMMON> 0
0
0
<OTHER-SE> 39,491,000
<TOTAL-LIABILITY-AND-EQUITY> 43,683,000
<SALES> 0
<TOTAL-REVENUES> 3,030,000
<CGS> 0
<TOTAL-COSTS> 2,806,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 39,000
<INTEREST-EXPENSE> 146,000
<INCOME-PRETAX> 39,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
