<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-13563
DAMSON/BIRTCHER REALTY INCOME FUND-I
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
PENNSYLVANIA 13-3264491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27611 LA PAZ ROAD, LAGUNA NIGUEL, CALIFORNIA 92656
(Address of principal executive offices) (Zip Code)
</TABLE>
(714) 643-7700
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
NONE NONE
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</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
--- ---
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. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's registration statement on Form S-11 (Commission
File No. 2-91065), dated June 22, 1985, as supplemented, filed under the
Securities Act of 1933 are incorporated by reference into PART IV of this
report.
<PAGE> 2
DAMSON/BIRTCHER REALTY INCOME FUND-I
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters . . . . . . . . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 9
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 17
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . 17
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--- Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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<PAGE> 3
DAMSON/BIRTCHER REALTY INCOME FUND-I
PART I
Item 1. Business
Damson/Birtcher Realty Income Fund-I (the "Partnership") is a limited
partnership formed on May 7, 1984, under the laws of the Commonwealth of
Pennsylvania. The General Partner of the Partnership is Damson/Birtcher
Partners, a general partnership consisting of LF Special Fund II, L.P., a
California limited partnership and Birtcher Partners, a California general
partnership. The Partnership is engaged in the business of operating
income-producing office buildings, research and development facilities,
shopping centers and other commercial or industrial properties acquired by the
Partnership in 1984 and 1985. Each of the Partnership's properties was
specified in its prospectus (Commission File No. 2-91065) dated June 22, 1985,
as amended. See Item 2 for a description of the properties acquired by the
Partnership.
The Partnership commenced operations on December 18, 1984. As of September 17,
1985, the Partnership was fully subscribed and had admitted Limited Partners
with total capital contributions of $97,198,000.
The Partnership acquired the properties during the period from December 19,
1984 through September 18, 1985, entirely for cash, free and clear of mortgage
indebtedness. In September 1987, the Partnership borrowed $4,000,000 pursuant
to a loan agreement secured by a First Deed of Trust on the Certified
Distribution Center in Salt Lake City, Utah. The net proceeds were used
primarily for capital improvements and leasing commissions on certain of the
Partnership's properties, the Partnership's working capital reserves and
certain general and administrative expenses. On July 30, 1993, the Partnership
refinanced this loan to obtain a more favorable interest rate. In March 1996,
the Partnership entered into a loan agreement pursuant to which it could have
borrowed up to $1,500,000, evidenced by a note secured by a first deed of trust
and financing statement on the Ladera I Shopping Center in Albuquerque, New
Mexico. Pursuant to that note arrangement, the Partnership borrowed $700,000
to fund a portion of the renovation and tenant improvements at The Cornerstone
and tenant improvements at Oakpointe. The loan was subsequently paid off in
November 1996 utilizing a portion of the sale proceeds from Arlington Executive
Plaza. The Partnership may incur unsecured indebtedness from time to time to
supplement its working capital needs. See Note 6 to Financial Statements in
Item 8.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will
be tax sheltered; (ii) to achieve capital appreciation over a holding period of
at least five years; and (iii) to preserve and protect the Partnership's
capital. An Information Statement, dated May 5, 1993, mandated that the
General Partner shall seek a vote of the Limited Partners no later than
December 31, 1996, regarding prompt liquidation of the Partnership in the event
that properties with appraised values as of January 1993, which constituted at
least one-half of the aggregate appraised values of all Partnership properties
as of that date, are not sold or under contract for sale by the end of 1996.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
instead of for investment as of December 31, 1995. In accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(see Note 2 to the
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<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 1. Business (Cont'd.)
Financial Statements in Item 8), the carrying value of these properties was
evaluated to insure that each property is carried on the Partnership's balance
sheets at the lower of cost or fair value, less selling costs. Accordingly,
the General Partner compared the carrying value of each property to its
appraised value as of January 1, 1996. If the carrying value of a property and
certain related assets was greater than its appraised value, the General
Partner reduced the carrying value of the property by the difference. Using
this methodology, the General Partner determined that The Cornerstone, Ladera I
Shopping Center, Terracentre, Arlington Executive Plaza and Washington
Technical Center, had carrying values greater than their appraised values, and
therefore reduced their carrying values to $9,032,000, $6,234,000, $2,397,000,
$2,740,000, and $2,612,000, respectively. Since adoption of the 1993
Solicitation, the General Partner has considered several preliminary
indications of interest from third parties to acquire some or all of the
Partnership's properties. Apart from the recent sale of Arlington, however,
these transactions never materialized, primarily because the General Partner
rejected as too low the valuations of the Partnership's properties proposed by
the potential purchasers.
During 1996, the Partnership made certain capital improvements to properties
held for sale that resulted in a corresponding increase in the properties'
valuation allowance. At December 31, 1996, the General Partner compared the
carrying value of each property to its appraised value as of January 1, 1997
and determined that The Cornerstone, Ladera-I Shopping Center and Oakpointe had
carrying values greater than their appraised values. As a result, during the
year ended December 31, 1996 their carrying values were adjusted by $1,683,000,
$398,000, and $253,000 to $8,960,000, $5,900,000, and $7,700,000, respectively.
In addition, during 1996, the carrying values of Terracentre and Washington
Technical Center were increased by $190,000 and $246,000 to their estimated
fair values less selling costs of $2,900,000 and $3,020,000, respectively.
The General Partner recently mailed a consent solicitation (the "Consent
Solicitation") dated February 18, 1997 to the Limited Partners, pursuant to
which the Limited Partners consented to dissolve the Partnership and seek to
sell and liquidate the remaining Partnership properties and wind up the
Partnership as soon as practicable, consistent with selling the Partnership's
properties to the best advantage under the circumstances.
The Partnership derives most of its revenue from rental income. Both Certified
Warehouse and Transfer Company, Inc. ("Certified") and FIserv, Inc. ("FIserv",
formerly d.b.a. Citicorp CIR, Inc.) represent significant portions of such
income. Rental income from Certified totaled $1,007,000 in 1996, and $984,000
in 1995 and 1994 or approximately 16%, 17% and 16%, respectively, of the
Partnership's total rental income. Rental income from FIserv totaled $887,000
in 1996, $880,000 in 1995 and $886,000 in 1994, or approximately 14%, 15% and
14%, respectively, of the Partnership's total rental income.
The Partnership's investments in real estate are subject to competition for
tenants from similar types of properties in the vicinities in which they are
located. The Partnership has no investments in real estate located outside the
United States.
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<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 1. Business (Cont'd.)
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 and operating the Partnership's
properties. The General Partner and its affiliates receive compensation in
connection with such activities. See Item 11 and Note 3 to the Financial
Statements in Item 8 for a description of such charges.
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<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/96 12/31/96
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<S> <C> <C> <C> <C> <C>
Washington Technical Center, $ 3,874,000 Four business center buildings 50,973 7 94%
Phase I located on 4.87 acres of land.
Renton, Washington
December 19, 1984
Certified Distribution Center 9,327,000 Two warehouse/distribution buildings 312,260 2 100%
Salt Lake City, Utah located on 12.65 acres of land.
April 2, 1985
Ladera Shopping Center, 8,543,000 A neighborhood retail shopping center 89,544 15 89%
Phase I located on 10.9 acres of land.
Albuquerque, New Mexico
May 10, 1985
The Cornerstone 17,618,000 A seven-building specialty retail 114,441 17 56%
Tempe, Arizona center located on 10.9 acres of land.
July 19, 1985
Terracentre 20,037,000 A 15-story office building located 95,723 15 78%
Denver, Colorado on .41 acres of land.
September 6, 1985
Oakpointe 9,517,000 Office building located on 6.8 acres 96,213 3 100%
Arlington Heights, Illinois of land.
September 18, 1985 ----------- -------
TOTAL $68,916,000 759,154
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</TABLE>
SEE NOTE TO TABLE ON THE FOLLOWING PAGE.
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<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 2. PROPERTIES (Cont'd.)
NOTE TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of the
$4,423,000 of acquisition fees paid to the General Partner.
Also, for certain properties, the purchase price has been
reduced by cash received after acquisition under rental
agreements for non-occupied space.
Item 3. LEGAL PROCEEDINGS
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, financial condition, or results of operations of the Partnership.
NASD Matter. In a matter not directly involving the Partnership or its General
Partner, in 1991, the National Association of Securities Dealers, Inc. (the
"Association") Business Conduct Committee for the Northern District of
California initiated a complaint against a broker-dealer affiliate of LF Special
Fund II, L.P., (a general partner of the General Partner of the Partnership),
alleging violations of the Association's Rules of Fair Practice. Specifically,
the complaint alleged that the affiliate (i) bought and sold limited partnership
units (but not interests in the Partnership) in the secondary market, from or to
unaffiliated parties, subject to mark-ups or mark-downs in excess of the
Association's guidelines and (ii) failed to disclose the amount or existence of
such mark-ups and mark-downs to buyers and sellers of limited partnership units.
Brent Donaldson and Richard Wollack, executive officers of LF Special Fund II,
L.P., were also named as respondents in the complaint in their capacities as
principals of the affiliate. The complaint was settled as of January 3, 1992 on
the following terms: the Association made findings, which were neither admitted
nor denied, of violations by the affiliate and Mr. Donaldson of the
Association's guidelines with respect to mark-ups or mark-downs, and of the
failure of the affiliate (but not Mr. Donaldson) to disclose the amount of such
mark-ups or mark-downs. Both allegations were dismissed as to Mr. Wollack. The
settlement further provided that the affiliate would be censured and fined
$125,000 and that Mr. Donaldson would be censured and fined $7,500.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS
There is no public market for the limited partnership interests and a market is
not expected to develop as such limited partnership interests are not publicly
traded or freely transferable.
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<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS (Cont'd.)
As of February 28, 1997, the number of holders of the Partnership's interests
is as follows:
<TABLE>
<S> <C>
General Partner 1
Limited Partners 9,960
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9,961
=====
</TABLE>
The Partnership makes quarterly cash distributions to its partners out of
distributable cash pursuant to the Partnership's Agreement of Limited
Partnership. Distributable cash is generally paid 99% to the Limited Partners
and 1% to the General Partner.
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 1997 1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C> <C>
First 253,000 0 $253,000 $370,000 $662,000 $487,000
Second 0 253,000 370,000 486,000 0
Third 253,000 253,000 360,000 350,000 0
Fourth 1,753,000 0 369,000 370,000 642,00
</TABLE>
The Limited Partners and the General Partner are entitled to receive quarterly
cash distributions, as available, in the future. During 1995, the General
Partner temporarily suspended distributions for three quarters, commencing with
the last quarter of 1995, to fund a portion of the renovation and tenant
improvements at The Cornerstone and tenant improvements at Oakpointe, and
Washington Technical Center.
In December 1996, the Partnership made a $1,500,000 special distribution to its
limited partners from a portion of the proceeds from the sale of Arlington
Executive Plaza. See Item 7, Liquidity and Capital Resources for further
discussion.
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<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
------------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 6,349,000 $ 5,973,000 $ 6,307,000 $6,525,000 $ 7,403,000
=========== ============ ============ =========== =============
Net Income (Loss):
General Partner $ 4,000 $ (50,000) $ (56,000) $ (2,000) $ (138,000)
Limited Partners 396,000 (4,922,000) (5,535,000) (193,000) (13,654,000)
----------- ------------ ------------ ----------- -------------
$ 400,000 $(4,972,000) $(5,591,000) $ (195,000) $(13,792,000)
=========== ============ ============ =========== =============
Total Distributions:
General Partner $ 5,000 $ 8,000 $ 15,000 $ 19,000 $ 11,000
=========== ============ ============ =========== =============
Limited Partners $ 2,006,000 $ 759,000 $ 1,469,000 $1,868,000 $ 1,129,000
=========== ============ ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Total Assets $36,482,000 $38,493,000 $44,292,000 $51,460,000 $54,144,000
=========== =========== =========== =========== ===========
Secured Loan Payable $ 2,932,000 $ 3,116,000 $ 3,285,000 $ 3,440,000 $ 4,000,000
=========== =========== =========== =========== ===========
</TABLE>
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<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
Since the completion of its acquisition program in September 1985, the
Partnership has been primarily engaged in the operation of its properties. The
Partnership's original objective had been to hold its properties as long-term
investments. However, an Information Statement, dated May 5, 1993, mandated
that the General Partner seek a vote of the Limited Partners no later than
December 31, 1996, regarding prompt liquidation of the Partnership in the event
that properties with appraised values as of January 1993 which constituted at
least one half of the aggregate appraised values of all Partnership properties
as of that date are not sold or under contract for sale by the end of 1996.
Given the mandate of the May 5, 1993 Information Statement, as of December 31,
1995, the General Partner decided to account for the Partnership's properties
as assets held for sale, instead of for investment. In a Consent Solicitation
dated February 18, 1997, the Partnership solicited and recieved the consent of
the Limited Partners to dissolve the Partnership and sell and liquidate all of
its remaining properties as soon as practicable, consistent with selling the
Partnership's properties to the best advantage under the circumstances. The
Partnership's properties were held for sale throughout 1996 and continue to be
held for sale.
Working capital is and will be principally provided from the operation of the
Partnership's properties and the working capital reserve established for the
properties. The Partnership may incur mortgage indebtedness relating to such
properties by borrowing funds primarily to fund capital improvements or to
obtain financing proceeds for distribution to the partners.
Regular distributions for the year ended December 31, 1996, represent net 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. In December 1996, the Partnership made a special distribution of
$1,500,000 representing a portion of net proceeds from the sale of Arlington
Executive Plaza. Future cash distributions will be made to the extent
available from net cash flow generated from operations and sales of the
Partnership's properties and interest earned on the investment of capital
reserves, after providing for capital reserves and payment for capital
improvements and repairs to the Partnership's properties. See Item 5 for a
description of the Partnership's distribution history. The Partnership
believes that the cash generated from its operations will provide the
Partnership the funds necessary to meet all of its ordinary obligations.
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 and distributions may be
reduced.
The Partnership began renovation of The Cornerstone, located in Tempe, Arizona
in August 1995 and those renovations were completed during third quarter of
1996. The cost of these capital improvements, which included the exterior
facade
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<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
modifications, hardscape and softscape changes and signage upgrades, was
approximately $1,527,000. To pay for a portion of these improvements, the
Partnership suspended distributions to its limited partners for the fourth
quarter of 1995 and the first two quarters of 1996. Regular distributions
resumed in the third quarter of 1996.
In June 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 amending the
Partnership Agreement as contemplated by the Information Statement. The
amendments include, among other things, the payment of asset management and
leasing fees to the General Partner and the elimination of the General
Partner's residual interest and deferred leasing fees that were previously
subordinated to return of the Limited Partners' 9% Preferential Return. See
Item 8, Note 3 to the Financial Statements for discussion of fees paid to the
General Partner for the year ended December 31, 1996.
In September 1987, the Partnership borrowed $4,000,000 pursuant to a loan
agreement secured by a First Deed of Trust on the Certified Distribution Center
in Salt Lake City, Utah. The net proceeds were used primarily for capital
improvements and leasing commissions on certain of the Partnership's
properties, the Partnership's working capital reserves and certain general and
administrative expenses. That loan matured on December 1, 1990, however, the
General Partner obtained a loan extension that was to mature December 1, 1993.
On July 20, 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
$38,000 was paid on September 1, 1993, with monthly installments due
thereafter.
In March 1996, the Partnership entered into a loan agreement pursuant to which
it could borrow up to $1,500,000, evidenced by a note secured by a first deed
of trust and financing statement on the Ladera I Shopping Center in
Albuquerque, New Mexico. Pursuant to the note and loan agreement, the
Partnership borrowed $700,000 in March 1996. The Partnership made interest
only payments at the rate of 1% over prime (the loan rate was 9.25%) through
November 1996, when the entire balance was paid off utilizing a portion of the
proceeds from the sale of Arlington Executive Plaza. The net proceeds of the
foregoing loan were used to fund a portion of the renovation and tenant
improvements at The Cornerstone and tenant improvements at Oakpointe.
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<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
January 1, 1997 Property Appraisals and Net Asset Value
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. Prior to the January 1, 1995 appraisals, the
independent appraiser had 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 requested that the appraiser provide an
assessment of value that reflects a shorter investment holding term. Although
the General Partner does not know how long it will take to sell the
Partnership's remaining properties, it requested that the appraiser assume that
the entire portfolio would be sold over four years, in connection with the
January 1995 appraisals, over three years in connection with the January 1996
appraisals and over approximately two years in connection with the January 1997
appraisals.
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 remaining properties at January 1,
1997 to be $37,680,000.
The foregoing appraised value of the Partnership's remaining properties
indicates an estimated net asset value of the Partnership of $35,711,000 or
$3,674 per $10,000 of original investor subscription. (Net asset value
represents the appraised value of the Partnership's properties, cash and all
other assets less secured loans payable and all other liabilities.)
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<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations
Year Ended December 31, 1996
The increase in rental income for the year ended December 31, 1996, when
compared to 1995, was primarily attributable to an increase in rental income at
Oakpointe. A new lease was signed in February 1996 with Symbol Technologies,
Inc. encompassing 22,801 square feet bringing Oakpointe to 100% leased.
The increase in interest and other income for the year ended December 31, 1996,
as compared to 1995 was attributable to an increase in The Cornerstone's other
miscellaneous income. This incease was partially offset by a decrease in
interest income due to a decrease in the average level of working capital
available for investment in 1996. Capital reserves were used to fund a portion
of the renovation and tenant improvements at The Cornerstone and tenant
improvements at Oakpointe.
On November 21, 1996, the Partnership sold Arlington Executive Plaza, an office
complex composed of seven identical 10,428 square foot buildings located on 7.2
acres of land in Arlington Heights, Illinois to an unaffiliated third party.
The sales price was $3,050,000 ($2,929,000 net of commissions and escrow fees)
and the net proceeds of the sale amounted to approximately $2,699,000 after
factoring in all prorations and credits to the buyer. In December 1995, the
General Partner had adjusted the carrying value of the property in accordance
with the guidelines of FAS 121, which resulted in a write-down of $1,250,000
and an adjusted carrying value of $2,740,000. The resulting gain on sale,
after taking into consideration all costs of disposition, amounted to $164,000
as reflected in the Statement of Operations. The General Partner was not paid
a commission or disposition fee as part of this transaction.
The decrease in operating expenses for the year ended December 31, 1996, as
compared to 1995 was primarily attributable to the sale of Arlington Executive
Plaza in November 1996 and reduced legal and professional fees at The
Cornerstone and Terracentre.
The decrease in real estate taxes for the year ended December 31, 1996, when
compared to 1995 primarily relates to: 1) the sale of Arlington Executive Plaza
in November 1996 ($146,000); and, 2) a reduced tax assessment for Oakpointe in
1996 ($157,000).
General and administrative expenses for the year ended December 31, 1996
include charges of $500,000 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 were direct charges of $482,000 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.
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<PAGE> 14
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1996 (Cont'd.)
The decrease in general and administrative expenses for the year ended December
31, 1996 as compared to 1995, was primarily attributable to decreases in
administrative expense reimbursements and leasing fees incurred in 1996. The
aforementioned decreases were partially offset by higher professional fees
incurred by the Partnership.
Interest expense resulted from interest on the first deed of trust on Certified
Distribution Center and the loan agreement secured by Ladera-I Shopping Center.
The increase in interest expense for the year ended December 31, 1996, as
compared to 1995, was a result of the borrowing of $700,000 in March 1996,
pursuant to that new loan arrangement. The Partnership subsequently paid off
the $700,000 note in November 1996.
For the year ended December 31, 1996, the General Partner determined that the
carrying values of The Cornerstone, Ladera-I Shopping Center and Oakpointe were
in excess of their respective appraised values. As a result, their carrying
values were adjusted by $1,683,000, $398,000, and $253,000 to $8,960,000,
$5,900,000, and $7,700,000, respectively. In addition, during 1996, the
carrying values of Terracentre and Washington Technical Center were increased
by $190,000 and $246,000 to their estimated fair values less selling costs of
$2,900,000 and $3,020,000, respectively.
The decrease in depreciation and amortization expenses for the year ended
December 31, 1996 as compared to 1995 was a result of the adoption and
implementation at December 31, 1995 of Statement of Financial Accounting
Standards, No. 121, "Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of," pursuant to which "assets held for sale" are not depreciated.
Year Ended December 31, 1995
The decrease in rental income for the year ended December 31, 1995, as compared
to 1994, was primarily attributable to reduced rental income at The Cornerstone
and Oakpointe. At The Cornerstone, several small tenants terminated their
leases prior to or upon their respective scheduled termination during 1995.
The respective terminations resulted in a decrease in the property's occupancy
rate to 70% and decrease in rental income of $338,000. At Oakpointe, revenue
decreased by $153,000, which was primarily the result of the termination of the
Illinois Department of Employment Security lease in March 1994. Additionally,
common area expense reconciliations at Oakpointe resulted in a $36,000 refund
of tenant overpayment during 1995. The aforementioned decreases were partially
offset by an increase in rental income at Washington Technical Center and
Terracentre office building. At Washington Technical Center, revenue increased
by $108,000 because the Partnership entered into three leases encompassing
25,698 square feet in late 1994, and at Terracentre, revenue increased $103,000
because the Partnership entered into a 9,259 square foot lease.
-13-
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
Interest income resulted from the temporary investment of Partnership working
capital. Interest income was generally comparable to 1994. Other
miscellaneous income decreased at Terracentre and Oakpointe by $38,000 during
1995.
The decrease in operating expenses for the year ended December 31, 1995, as
compared to 1994, was primarily attributable to the overall decrease in legal
and professional services associated with minor tenant disputes and real estate
tax appeals relating to the Partnership's properties ($67,000).
The increase in real estate taxes for the year ended December 31, 1995, as
compared to 1994, was primarily attributable to the increases in taxes at The
Cornerstone and Oakpointe ($51,000). The aforementioned increase was partially
offset by a lower tax assessment at Washington Technical Center, which was the
result of a successful tax appeal during 1995 ($13,000) and a lower tax expense
at Arlington Executive Plaza ($28,000).
General and administrative expenses for the year ended December 31, 1995
include charges of $588,000 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 were direct charges of $417,000 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.
The increase in general and administrative expenses for the year ended December
31, 1995 as compared to 1994, was primarily attributable to the increase in
legal and professional services, administrative wages and leasing fees. The
aforementioned increases were partially offset by lower asset management fees
paid to the General Partner.
Interest expense resulted from interest on the first deed of trust on Certified
Distribution Center. The decrease in interest expense for the year ended
December 31, 1995, as compared to 1994, was attributable to the increase in
principal payment of the loan, which carries a fixed rate of 9% per annum over
a 13-year fully amortized term.
The decrease in depreciation and amortization for the year ended December 31,
1995, as compared to 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 bases of Cornerstone Shopping Center, Terracentre office
building 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.
-14-
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
instead of for investment as of December 31, 1995. Accordingly, the General
Partner compared the carrying value of each property to its appraised value as
of January 1, 1996. If the carrying value of a property and certain related
assets was greater than its appraised value, the General Partner reduced the
carrying value of the property by the difference. Using this methodology, the
General Partner determined that The Cornerstone, Ladera I Shopping Center,
Terracentre, Arlington Executive Plaza, and Washington Technical Center, had
carrying values greater than their appraised values, and therefore reduced
their carrying values by $1,600,000, $560,000, $590,000, $1,250,000, and
$770,000 to $9,032,000, $6,234,000, $2,397,000, $2,740,000, and $2,612,000,
respectively.
Year Ended December 31, 1994
The decrease in rental income for the year ended December 31, 1994, as compared
to 1993, was primarily attributable to reduced rental income at Oakpointe and
Washington Technical Center. At Oakpointe, revenue decreased by $71,000,
primarily as a result of two factors. The FIserv, Inc. lease was successfully
renegotiated in 1993, in exchange for a reduced rental rate. In addition, the
Illinois Department of Employment Security lease encompassing 14,580 square
feet was terminated in March 1994. The tenant vacated the premises, which
resulted in an occupancy decrease to 76%. At Washington Technical Center,
rental income decreased by $139,000. This decrease was a result of the
following factors: Legent Corporation and Boeing Support Services terminated
their leases upon expiration in October 1993 and Jon Marie Portrait terminated
its lease prior to the scheduled expiration date in late 1993. The
aforementioned decreases were partially offset by an increase in rental income
as a result of successful negotiation on three new leases encompassing 25,698
square feet in September and November 1994 at Washington Technical Center.
Interest income resulted from the temporary investment of Partnership working
capital. Interest and other income was generally comparable to 1993.
The increase in operating expenses for the year ended December 31, 1994, as
compared to 1993, was primarily attributable to the increase in legal and
professional services associated with minor tenant disputes and real estate tax
appeals relating to the Partnership's properties ($88,000).
The increase in real estate taxes for the year ended December 31, 1994, as
compared to 1993, was primarily attributable to an increase in real estate
taxes at Oakpointe and Arlington.
-15-
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1994 (Cont'd.)
General and administrative expenses for the year ended December 31, 1994
include charges of $568,000 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 were direct charges of $413,000 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.
The decrease in general and administrative expenses for the year ended December
31, 1994, as compared to 1993, was primarily attributable to a decrease in
legal fees and professional services, postage, mailing expenses and printing
costs associated with the amendment of the Partnership Agreement, which
occurred in 1993.
Interest expense resulted from interest on the first deed of trust on Certified
Distribution Center. The decrease in interest expense for the year ended
December 31, 1994, as compared to 1993, was attributable to the retirement of
the Partnership's previous loan and a reduced loan balance with a lower
interest rate on the take-out financing arrangement.
Provision was made for impairment loss if the General Partner determined that
the carrying amount of the Partnership's investment in a real estate asset may
not have been recoverable. The General Partner obtained third party appraisals
on the Partnership's properties as required by the Partnership Agreement. If
these appraisals indicated that certain of the Partnership's properties had
market values below their then- current carrying values, the General Partner
considered the appraisals and analyzed the current and anticipated market
conditions of the respective properties and determined if an impairment had
occurred. At December 31, 1994, after evaluation of The Cornerstone,
Terracentre and Oakpointe the General Partner estimated a $5,500,000 impairment
of value as compared to its respective carrying value.
-16-
<PAGE> 18
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
F-1
<PAGE> 19
DAMSON/BIRTCHER REALTY INCOME FUND-I
INDEPENDENT AUDITORS' REPORT
To Damson/Birtcher Partners, as General Partner of
Damson/Birtcher Realty Income Fund-I:
We have audited the financial statements of Damson/Birtcher Realty Income
Fund-I, a limited partnership as listed in the accompanying index. In
connection with our audits of the financial statements, we also have audited
the financial statement schedule listed in the accompanying index. 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 financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
As discussed in note 9 to the financial statements, on March 14, 1997 a
majority in interest of the limited partners approved the proposal to dissolve
the Partnership and sell and liquidate all of its remaining properties.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Damson/Birtcher Realty Income
Fund-I as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles. Also in our
opinion, the related 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.
As discussed in note 2 to the financial statements, on December 31, 1995
Damson/Birtcher Realty Income Fund-I adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
KPMG PEAT MARWICK LLP
Orange County, California
March 25, 1997
F-2
<PAGE> 20
DAMSON/BIRTCHER REALTY INCOME FUND-I
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
- ------
Properties held for sale (net of valuation
allowance of $5,418,000 in 1996 and
$4,770,000 in 1995) $34,582,000 $36,996,000
Cash and cash equivalents 711,000 301,000
Accounts receivable (net of allowance for
doubtful accounts of $46,000 in 1996 and
$63,000 in 1995) 80,000 43,000
Accrued rent receivable 439,000 443,000
Prepaid expenses and other assets, net 670,000 710,000
------------ ------------
$36,482,000 $38,493,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 937,000 $ 1,153,000
Secured loan payable 2,932,000 3,116,000
------------ ------------
Total liabilities 3,869,000 4,269,000
------------ ------------
Partners' capital (deficit):
Limited Partners 33,104,000 34,714,000
General Partner (491,000) (490,000)
------------ ------------
32,613,000 34,224,000
Commitments and contingencies
------------ ------------
$36,482,000 $38,493,000
============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE> 21
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995 1994
---------- ------------ ------------
<S> <C> <C> <C>
REVENUES:
Rental income $6,125,000 $ 5,917,000 $ 6,215,000
Interest and other income 60,000 56,000 92,000
Gain on sale of property 164,000 - -
---------- ----------- ------------
Total revenues 6,349,000 5,973,000 6,307,000
---------- ----------- ------------
EXPENSES:
Operating expenses 1,802,000 1,845,000 1,914,000
Real estate taxes 665,000 967,000 959,000
Depreciation and
amortization 233,000 2,069,000 2,241,000
General and administrative 982,000 1,005,000 981,000
Interest 331,000 289,000 303,000
Adjustment to carrying value
of real estate 1,936,000 4,770,000 5,500,000
---------- ----------- ------------
Total expenses 5,949,000 10,945,000 11,898,000
---------- ----------- ------------
NET INCOME (LOSS) $ 400,000 $(4,972,000) $ (5,591,000)
========== =========== ============
NET INCOME (LOSS) ALLOCABLE TO:
General Partner $ 4,000 $ (50,000) $ (56,000)
========== =========== ============
Limited Partners $ 396,000 $(4,922,000) $ (5,535,000)
========== =========== ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 22
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994
-----------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------- ------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1993 $(361,000) $47,399,000 $47,038,000
Net loss (56,000) (5,535,000) (5,591,000)
Distributions (15,000) (1,469,000) (1,484,000)
---------- ------------ ------------
Balance, December 31, 1994 (432,000) 40,395,000 39,963,000
Net loss (50,000) (4,922,000) (4,972,000)
Distributions (8,000) (759,000) (767,000)
---------- ----------- ------------
Balance, December 31, 1995 (490,000) 34,714,000 34,224,000
Net income 4,000 396,000 400,000
Distributions (5,000) (2,006,000) (2,011,000)
---------- ------------ ------------
Balance, December 31, 1996 $(491,000) $33,104,000 $32,613,000
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE> 23
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 400,000 $ (4,972,000) $(5,591,000)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 233,000 2,069,000 2,241,000
Adjustment to carrying value of
real estate 1,936,000 4,770,000 5,500,000
Gain on sale of property (164,000) - -
Changes in:
Accounts receivable (37,000) 41,000 58,000
Accrued rent receivable 4,000 (27,000) (150,000)
Prepaid expenses and other assets (193,000) (213,000) (191,000)
Accounts payable and accrued
liabilities (216,000) 109,000 62,000
----------- ----------- -----------
Net cash provided by operating
activities 1,963,000 1,777,000 1,929,000
----------- ----------- -----------
Cash flows from investing activities:
Investments in real estate (2,287,000) (1,188,000) (710,000)
Proceeds from sale of property 2,929,000 - -
----------- ----------- -----------
Net cash provided by (used in) investing
activities 642,000 (1,188,000) (710,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from secured loan 700,000 - -
Principal payments on secured
loans payable (884,000) (169,000) (155,000)
Distributions (2,011,000) (767,000) (1,484,000)
----------- ----------- -----------
Net cash used in financing
activities (2,195,000) ( 936,000) (1,639,000)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 410,000 (347,000) (420,000)
Cash and cash equivalents,
beginning of year 301,000 648,000 1,068,000
----------- ----------- -----------
Cash and cash equivalents,
end of year $ 711,000 $ 301,000 $ 648,000
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 331,000 $ 289,000 $ 303,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 24
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Operations
Damson/Birtcher Realty Income Fund-I (the "Partnership") is a limited
partnership formed on May 7, 1984, under the laws of the Commonwealth
of Pennsylvania, for the purpose of acquiring and operating
income-producing retail, commercial and industrial properties. The
General Partner of the Partnership is Damson/Birtcher Partners, a
general partnership originally consisting of Equity Properties, Inc.
("EPI"), an indirect, wholly-owned subsidiary of Damson Oil Corporation
and Birtcher Partners, a California general partnership. In December
1992, EPI withdrew as a general partner of the Damson/Birtcher Partners
and LF Special Fund II, L.P. was added as a general partner of the
General Partner. Under the terms of the General Partner's Partnership
Agreement, Birtcher Partners or its affiliates, remains responsible for
the day-to-day management of the Partnership's assets.
In January 1993, the General Partner filed an Information Statement
with the Securities and Exchange Commission seeking consent of the
Limited Partners to amend the Partnership Agreement. On June 24, 1993,
the Partnership completed its solicitation of written consent 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 were implemented by the
Partnership as contemplated by the Information Statement as amendments
to the Partnership Agreement, and have been reflected in these
Financial Statements as such.
The amendment modified the Partnership Agreement to eliminate the
General Partner's 10% subordinated interest in distributions of
Distributable Cash (net cash from operations) and reduce its
subordinated interest in such distributions from 10% to 1%. The
amendment also modified the Partnership Agreement to eliminate the
General Partner's 10% subordinated interest in Sale or Financing
Proceeds (net cash from sale or financing of Partnership property) and
to reduce its subordinated interest in such proceeds from 15% to 1%.
In lieu thereof, the Partnership Agreement now provides for the
Partnership's payment to the General Partner of an annual asset
management fee equal initially to .75% of the aggregate appraised value
of the Partnership's properties. At January 1, 1996 and 1995 the
portfolio was appraised at an aggregate value of approximately
$40,390,000 (unaudited) and $40,505,000 (unaudited), respectively. The
factor used to calculate the annual asset management fee will be
reduced by .10% each year beginning after December 31, 1996 (e.g., from
.75% in 1996 to .65% in 1997).
The amendment modified the Partnership Agreement to eliminate the
subordination provisions with respect to leasing fees payable under
that subsection. The amendment also eliminated the deferred leasing
fees earned by the General Partner or its affiliates (approximately
$448,000 as of December 31, 1992) on or after the effective date of the
amendment. Fees for leasing services rendered by the General Partner
or its affiliates (post amendment) have been payable by the Partnership
on a current basis and have not been subordinated to the Limited
Partners Preferred Return and Adjusted Invested Capital or any other
amount.
F-7
<PAGE> 25
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment modified the Partnership Agreement to eliminate the
subordination provision with respect to future property disposition
fees payable under that section. The amendment authorized payment to
the General Partner and its affiliates of the property disposition fee
as earned. The fee is not subordinated to the Limited Partners
Preferred Return and Adjusted Invested Capital or any other amount.
The disposition fees are to be paid to the General Partner or its
affiliates in an amount equal to 50% of the competitive real estate
brokerage commission that would be charged by unaffiliated
third-parties providing comparable services in the area in which a
property is located, but in no event more than three percent of the
gross sale price of the property, and are to be reduced by the amount
by which any brokerage or similar commissions paid to any unaffiliated
third-parties in connection with the sale of property exceed three
percent of the gross sale price. This amount is not payable, unless
and to the extent that the sale price of the property in question, net
of any other brokerage commissions (but not other costs of sale),
exceeds the appraised value of the property as of January 1, 1993.
The amendment stated that the Partnership is no longer authorized to
pay the General Partner or its affiliates any insurance commissions or
any property financing fees. No such commissions or fees have been
paid or accrued by the Partnership since its inception.
The amendment modified the provisions of the Partnership Agreement
regarding allocations of Partnership income, gain and other tax items
between the General Partner and the Limited Partners primarily to
conform to the changes in the General Partner's interest in
distributions of Distributable Cash and Sale or Financing Proceeds, as
defined, effected by the amendment.
It is not anticipated that the adoption and implementation of the
amendment will have any material adverse effect on future allocations
of income, gain, loss or other tax items to the Limited Partners.
However, if any of the Partnership's properties are sold for a gain, a
special allocation to the General Partner may have the effect of
reducing the amount of Sale or Financing Proceeds otherwise
distributable to the Limited Partners and correspondingly increasing
the amount of such distributions to be retained by the General Partner.
The amount of such distributions to be affected would be approximately
equal to any deficit balance, if any, in the General Partner's capital
account in the Partnership at the time of the allocation.
The Limited Partners have certain priorities in the allocation of cash
distributions by the Partnership. Out of each distribution of net
cash,the Limited Partners generally have certain preferential rights to
receive payments that, together with all previous payments to them,
would provide an overall 9% per annum (cumulative non-compounded)
return (a "9% Preferential Return") on their investment in the
Partnership. Any distributions not equaling this 9% Preferential
Return in any quarter are
F-8
<PAGE> 26
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
to be made up in subsequent periods if and to the extent distributable
cash is available.
Distributable cash from operations is paid out each quarter in the
following manner: 99% to the Limited Partners and 1% to the General
Partner. These payments are made each quarter to the extent that
there is sufficient distributable cash available.
The Partnership began renovation of The Cornerstone, located in Tempe,
Arizona in August 1995 and they were completed during the third quarter
of 1996. The cost of those capital improvements which include exterior
facade modifications, hardscape and softscape changes and signage
upgrades, was approximately $1,527,000, plus an anticipated $1,976,000
(per appraisal) for tenant improvements and leasing commissions that
will be incurred in 1997. To pay for a portion of these improvements
and commissions the Partnership suspended distributions to its Limited
Partners for the fourth quarter of 1995 and the first two quarters of
1996. Regular distributions resumed in the third quarter of 1996.
Sale or financing proceeds are to be distributed, to the extent
available, as follows: (i) to the Limited Partners until all cash
distributions to them amount to a 9% Preferential Return on their
investment cumulatively from the date of their admission to the
Partnership; (ii) then to the Limited Partners in an amount equal to
their investment; and (iii) the remainder, if any, 99% to Limited
Partners and 1% to the General Partner. The unpaid 9% Preferential
Return to the Limited Partners' aggregates $69,874,000 as of December
31, 1996.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
The amendment modified the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction"
(as defined in the amendment) sponsored by the General Partner or any
of its affiliates unless such transaction is approved by a
"supermajority" of at least 80% in interest of the Limited Partners and
the General Partner. The amendment also prohibits the modification of
this restriction on Reorganization Transactions without the approval of
at least 80% in interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other
dispositions to be left to the General Partner's discretion based on
the anticipated remaining economic benefits of continued ownership and
other factors.
F-9
<PAGE> 27
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The General Partner recently mailed a consent solicitation (the
"Consent Solicitation") dated February 18, 1997 to the Limited
Partners, pursuant to which the Limited Partners consented to dissolve
the Partnership and seek to sell and liquidate the remaining
Partnership properties and wind up the Partnership as soon as
practicable, consistent with selling the Partnership's properties to
best advantage under the circumstances.
As of December 31, 1995 the General Partner decided to treat its
properties as held for sale, instead of for investment, for financial
statement purposes. Since adoption of the 1993 amendment, the General
Partner has considered several preliminary indications of interest from
third parties to acquire some or all of the Partnership's properties.
Apart from the sale of Arlington Executive Plaza, these transactions
never materialized, primarily because the General Partner rejected as
too low the valuations of the Partnership's remaining properties as
proposed by the potential purchasers. The Partnership's properties
were held for sale throughout 1996 and continue to be held for sale.
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (see Note 2), the carrying value of these
properties was evaluated to ensure that each property is carried on the
Partnership's balance sheets at the lower of cost or fair value less
selling costs. The General Partner estimated fair value for this
purpose based on appraisals performed as of January 1, 1997 at December
31, 1996 and as of January 1, 1996 at December 31, 1995.
The January 1, 1997 appraisals assume that the properties will be sold
within approximately two years and that the sales will take place on a
property by property basis between willing buyers and willing sellers.
Among the strategies the General Partner will consider to accomplish
the dissolution is a sale of the Partnerships' portfolio in a single
transaction, or a sale of some or all of the Partnership's properties
in a "package" with properties of affiliated partnerships. If the
properties were sold in a "package" such sale would most likely result
in a lower aggregate sales price, but more rapid distribution of
dissolution proceeds to the Limited Partners, as compared to a series
of individual sale transactions. Furthermore, fair value can only be
determined based upon sales to third parties, and sales proceeds could
differ substantially from appraised values.
F-10
<PAGE> 28
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if the General
Partner believes factors are present that may indicate long-lived
assets are impaired, the undiscounted cash flows, before debt service,
related to the assets should be estimated. If these estimated cash
flows are less than the carrying value of the asset, then impairment is
deemed to exist. If impairment exists, the asset should be written
down to the estimated fair value.
Further, assets held for sale, including any unrecoverable accrued rent
receivable or capitalized leasing commissions, should be carried at the
lower of carrying value or fair value less estimated selling costs.
Any adjustment to carrying value is recorded as a valuation allowance
against property held for sale. Each reporting period, the General
Partner will review their estimates of fair value, which may be
decreased or increased up to the original carrying value. Finally,
assets held for sale are no longer depreciated. The General Partner
adopted FAS 121 at December 31, 1995 and the adoption did not have a
material impact on the Partnership's operations or financial position
as prior to December 31, 1995, the Partnership had not had any
properties held for sale.
As noted above, as of December 31, 1995 the General Partner decided to
account for the Partnership's properties as assets held for sale,
instead of for investment. Assuming a 12 month holding period, the
General Partner compared the carrying value of each property to
its appraised value as of January 1, 1996. If the carrying value of a
property and certain related assets was greater than
its appraised value, less selling costs, the General Partner
reduced the carrying value of the property by the difference.
Using this methodology, the General Partner determined that
The Cornerstone, Ladera I Shopping Center, Terracentre,
Arlington Executive Plaza, and Washington Technical Center had
carrying values greater than they had appraised values, and
therefore reduced their carrying values by $1,600,000,
$560,000, $590,000, 1,250,000, and 770,000 to $9,032,000,
$6,234,000, $2,397,000, $2,740,000, and $2,612,000,
respectively.
Utilizing the same methodology, assuming a 12 month holding period, for
the year ended December 31, 1996, the General Partner determined that
The Cornerstone, Ladera-I Shopping Center and Oakpointe had carrying
values greater than their respective appraised values. As a result,
the carrying values were adjusted by $1,683,000, $398,000, and $253,000
to $8,960,000, $5,900,000, and $7,700,000, respectively. In addition,
during 1996, the carrying value of Terracentre and Washington Technical
Center were increased by $190,000 and $246,000 to their estimated fair
values less selling costs $2,900,000 and $3,020,000, respectively.
F-11
<PAGE> 29
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Carrying Value of Real Estate (Cont'd.)
Prior to the adoption of FAS 121, provision was made for impairment
loss if the General Partner determined that the carrying amount of the
Partnership's investment in a real estate asset was not recoverable.
The General Partner obtained third party appraisals on the
Partnership's properties as required by the Partnership Agreement. If
these appraisals indicated that certain of the Partnership's properties
had market values below their then-current carrying values, the General
Partner considered the appraisals and analyzed the current and
anticipated market conditions of the respective properties and
determined if an impairment had occurred.
At December 31, 1994, after evaluation of the Cornerstone Shopping
Center Terracentre, and Oakpointe, the General Partner estimated a
$5,500,000 impairment of value as compared to their respective carrying
values.
Cash and Cash Equivalents
The Partnership invests its excess cash balances in short-term
investments (cash equivalents). These investments are stated at cost,
which approximates market, and consist of money market, certificates of
deposit and other non-equity-type cash investments. Cash equivalents
at December 31, 1996 and 1995, totaled $711,000 and $301,000,
respectively. Cash equivalents are defined as temporary non-equity
investments with original maturities of three months or less, which can
be readily converted into cash and are not subject to changes in market
value.
Depreciation
Through December 31, 1995, depreciation expense was computed using the
straight-line method. Rates used in the determination of depreciation
were based upon the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Income Taxes
Income taxes are not levied at the Partnership level, but rather on the
individual partners; therefore, no provision or liability for Federal
and State income taxes has been reflected in the accompanying financial
statements.
F-12
<PAGE> 30
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd)
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1996 1995
GAAP Basis Tax Basis GAAP Basis Tax Basis
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total Assets $36,482,000 $48,615,000 $38,493,000 $55,330,000
Total Liabilities $ 3,869,000 $ 3,869,000 $ 4,269,000 $ 4,269,000
</TABLE>
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- -----------
<S> <C> <C> <C>
Net income (loss) per Financial Statements
$400,000 $(4,972,000) $(5,591,000)
Adjustment to carrying value of real
estate 1,936,000 4,770,000 5,500,000
Depreciation differences on investments in
real estate (3,046,000) (1,157,000) (888,000)
Loss on sale of property in excess of book
value (2,919,000) - -
Other (63,000) 85,000 (196,000)
----------- ----------- -----------
Taxable income (loss) per Federal tax
return (unaudited) $(3,692,000) $(1,274,000) $(1,175,000)
=========== =========== ===========
</TABLE>
F-13
<PAGE> 31
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Significant Tenants
Rental income from Certified Warehouse and Transfer Company, Inc.,
totaled $1,007,000 in 1996, $984,000 in 1995, and $984,000 in 1994, or
approximately 16%, 17% and 16%, respectively, of the Partnership's
total rental income. Rental income from FISERV, Inc. (formerly d.b.a.
Citicorp CIR, Inc.) totaled $887,000 in 1996, $880,000 in 1995 and
$886,000 in 1994, or approximately 14%, 15% and 14%, respectively, of
the Partnership's total rental income.
Earnings and Distributions 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.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner 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.
(3) 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 years ended December
31, 1996, 1995 and 1994, the Partnership was charged with approximately
$178,000, $226,000 and $191,000, respectively, of such expenses.
F-14
<PAGE> 32
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates (Cont'd.)
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 fees amounted to approximately
$178,000 in 1996, $161,000 in 1995 and $167,000 in 1994. In addition,
the affiliate of the General Partner received $367,000 in 1996,
$321,000 in 1995 and $303,000 in 1994, as reimbursement of costs for
on-site property management personnel and other reimbursable costs.
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 year ended December 31, 1996, 1995 and
1994, amounted to $301,000, $304,000 and $353,000, 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 any lease of such space including renewal options. Fees
for leasing services for the year ended December 31, 1996, 1995 and
1994, amounted to $21,000, $58,000 and $24,000, respectively.
(4) Gain on Disposition of Assets
On November 21, 1996, the Partnership sold Arlington Executive Plaza,
an office complex composed of seven identical 10,428 square foot
buildings located on 7.2 acres of land in Arlington Heights, Illinois
to an unaffiliated third party. The gross sales price was $3,050,000
($2,929,000 net of commissions and escrow fees) and the net proceeds of
the sale, after all prorations and credits to the buyer, amounted to
approximately $2,699,000. In December 1995, the General Partner had
adjusted the carrying value of the property in accordance with the
guidelines of FAS 121, which resulted in a write-down of $1,250,000 and
an adjusted carrying value of $2,740,000. The resulting gain on sale,
after taking into consideration all costs of disposition, amounted to
$164,000 as reflected in the Statement of Operations. The General
Partner was not paid a commission or disposition fee as part of this
transaction.
(5) 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
F-15
<PAGE> 33
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
the General Partner's belief, that the outcome of these proceedings
will not be material to the business, financial condition, or results
of operations of the Partnership. See note 9 for subsequent events.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1996, are properly classified as operating leases
for financial reporting purposes. Future minimum annual rental income
to be received under such leases as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 4,519,000
1998 3,473,000
1999 3,122,000
2000 2,163,000
2001 1,218,000
Thereafter 5,390,000
-----------
$19,885,000
===========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of the
tenant's annual revenue in excess of specified levels; and escalations
in annual rents based upon the Consumer Price Index.
(6) Secured Loan Agreements
In September 1987, the Partnership borrowed $4,000,000 pursuant to a
loan agreement secured by a First Deed of Trust on the Certified
Distribution Center in Salt Lake City, Utah. That loan matured on
October 1, 1990, however, the General Partner obtained a loan extension
that was to mature December 1, 1993. 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 $38,000 was paid on September 1, 1993, with monthly installments due
thereafter. Future principal payments to the lender under the loan as
of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 202,000
1998 221,000
1999 242,000
2000 264,000
2001 289,000
Thereafter 1,714,000
----------
$2,932,000
==========
</TABLE>
F-16
<PAGE> 34
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Secured Loan Agreements (Cont'd.)
The General Partner believes the fair value of this secured loan
approximates the carrying value, based on the interest rate charged for
the loan.
In March 1996, the Partnership entered into a loan agreement pursuant
to which it may borrow up to $1,500,000, evidenced by a note secured by
a first deed of trust and financing statement on the Ladera I Shopping
Center in Albuquerque, New Mexico. Pursuant to the note and loan
agreement, the Partnership borrowed $700,000 in March 1996. The
Partnership made interest only payments at the rate of 1% over prime
(the loan rate was 9.25%) through November 1996, when the entire
balance was paid off utilizing a portion of the proceeds from the sale
of Arlington Executive Plaza. The net proceeds of the foregoing loan
were used to fund a portion of the renovation and tenant improvements
at The Cornerstone and tenant improvements at Oakpointe.
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
--------- -------------
<S> <C> <C>
Real estate taxes $ 498,000 $ 799,000
Accounts payable and other 439,000 354,000
-------- ----------
$ 937,000 $1,153,000
========= ==========
</TABLE>
(8) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 63,000 $ - $ 19,000
Additions charged to expense 21,000 63,000 4,000
Write-offs (38,000) - (23,000)
-------- -------- --------
Balance at end of year $ 46,000 $ 63,000 $ -
======== ======== ========
</TABLE>
(9) Subsequent Events
On February 28, 1997, the Partnership made an aggregate cash
distribution of $253,000 to its Limited Partners.
On March 14, 1997 a majority in interest of the Limited Partners
approved the proposal to dissolve the Partnership and sell and
liquidate all of its remaining properties pursuant to the Consent
Solicitation dated February 18, 1997.
F-17
<PAGE> 35
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
9) Subsequent Events (Cont'd.)
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 filed a purported class action lawsuit in the
Court of Common Pleas of Philadelphia County against Damson/Birtcher
Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher
Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P.,
Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack
and Brent R. Donaldson alleging breach of fiduciary duty and breach of
contract and seeking to enjoin the Consent Solicitation.
F-18
<PAGE> 36
DAMSON/BIRTCHER REALTY INCOME FUND-I
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Initial Cost Costs Capitalized Gross Amount at Which
to Partnership Subsequent Carried at Close of Period
(c) to the Acquisition (b)
----------- ------------ --------------------- ------------------------- -----------------------------------
Description Encumbrances Land Buildings Improvements Carrying Land Buildings and Total
(a) and Costs Improvements (e)
Improvements (c), (b)
----------- ------------ ----- ------------ ------------- -------- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Washington $ - $ 865 $ 3,252 $ 1,180 $ (609) $ 859 $ 3,830 $ 4,689
Technical
Center,
Phase I
Renton, WA
Certified 2,932 1,160 8,751 - - 1,160 8,751 9,911
Distribution
Center
Salt Lake
City, UT
Ladera - 2,107 6,971 330 (968) 2,097 6,343 8,440
Shopping
Center,
Phase I
Albuquerque,
NM
The - 4,620 14,115 3,458 (7,483) 3,597 11,112 14,709
Cornerstone
Tempe, AZ
Terracentre - 1,458 19,939 2,292 (14,600) 491 8,598 9,089
Denver, CO
Oakpointe - 1,249 8,852 2,975 (1,365) 1,119 10,592 11,711
Arlington
Heights, IL
------ ------- ------- ------- -------- ------ ------- -------
TOTAL $2,932 $11,459 $61,880 $10,235 $(25,025) $9,323 $49,226 $58,549
====== ======= ======= ======= ======== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Col. A Col. F Col. H Col. I
----------- ------------ -------- -----------
Description Accumulated Date Depreciable
(a) Depreciation Acquired Life
(e) (f)
----------- ------------ -------- -----------
<S> <C> <C> <C>
Washington $ 1,735 12/19/84 30 years
Technical
Center,
Phase I
Renton, WA
Certified 3,135 04/02/85 30 years
Distribution
Center
Salt Lake
City, UT
Ladera 2,586 05/10/85 30 years
Shopping
Center,
Phase I
Albuquerque,
NM
The 5,833 07/19/85 30 years
Cornerstone
Tempe, AZ
Terracentre 6,289 09/06/85 30 years
Denver, CO
Oakpointe 4,389 09/18/85 30 years
Arlington
Heights, IL
-------
TOTAL $23,967
=======
</TABLE>
NOTE: Column G is not applicable.
See notes to schedule on following page.
F-19
<PAGE> 37
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO SCHEDULE III
(a) For a description of the properties, see "Item 2. Properties."
(b) For the year ended December 31, 1996, the General Partner determined
that the carrying values of The Cornerstone, Ladera-I Shopping Center
and Oakpointe were in excess of their respective appraised values. As
a result, their carrying values were adjusted by $1,683,000, $398,000,
and $253,000 to $8,960,000, $5,900,000, and $7,700,000, respectively.
In addition, during 1996, the carrying values of Terracentre and
Washington Technical Center were increased by $190,000 and $246,000 to
their estimated fair values less selling costs of $2,900,000 and
$3,020,000, respectively.
At December 31, 1995, the General Partner determined that The
Cornerstone, Ladera-I Shopping Center, Terracentre, Arlington Executive
Plaza and Washington Technical Center had carrying values greater than
they had appraised values less selling costs, and therefore provided a
valuation allowance of $4,770,000 against property held for sale.
At December 31, 1994, after evaluation of The Cornerstone, Terracentre,
and Oakpointe, the General Partner estimated a $5,500,000 impairment of
value as compared to their respective carrying values.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $84,454,000 as of December 31,
1996. The difference between the aggregate cost of land, buildings and
improvements for tax reporting purposes as compared to financial
reporting purposes is primarily attributable to: (1) amounts received
under rental agreements for non-occupied space, which were recorded as
income for tax reporting purposes but were recorded as a reduction of
the corresponding property basis for financial reporting purposes, and
(2) the adjustments to the carrying value of the real estate for
financial statement purposes have no effect for tax reporting purposes.
(c) The initial cost to the Partnership includes acquisition fees paid to
the General Partner. The Partnership's cost has also been reduced by
amounts received from sellers after acquisition under rental agreements
for non-occupied space.
(d) Amounts represent funds received from sellers subsequent to acquisition
under rental agreements for non-occupied space and include adjustments
to carrying value of real estate.
F-20
<PAGE> 38
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO SCHEDULE III (Cont'd.)
(e) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year $64,285,000 $ 67,867,000 $72,657,000
Additions during the year:
Improvements 2,287,000 1,188,000 710,000
Reductions during the year:
Disposition of Assets (6,087,000) - -
Adjustment to the carrying
value of real estate (1,936,000) (4,770,000) (5,500,000)
----------- ------------ -----------
Balance at end of year $58,549,000 $ 64,285,000 $67,867,000
=========== ============ ===========
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year $27,289,000 $25,396,000 $23,258,000
Disposition of assets (3,322,000) - -
Depreciation expense - 1,893,000 2,138,000
----------- ----------- -----------
Balance at end of year $23,967,000 $27,289,000 $25,396,000
=========== =========== ===========
</TABLE>
(f) Through December 31, 1995, depreciation expense was computed based upon
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Due to the adoption of FAS 121 on December 31, 1995, properties held
for sale were not depreciated in 1996.
F-21
<PAGE> 39
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership and the General Partner have no directors or executive
officers. The General Partner of the Partnership is Damson/Birtcher Partners,
a California general partnership of which Birtcher Partners, a California
general partnership, and LF Special Fund II, L.P., a California limited
partnership, are the general partners. Under the terms of the Partnership
Agreement, Birtcher Partners is responsible for the day-to-day management of
the Partnership's assets.
The general partner of LF Special Fund II, L.P., is Liquidity Fund Asset
Management, Inc., a California corporation affiliated with Liquidity Financial
Group, L.P. The principals and officers of Liquidity Fund Asset Management,
Inc. are as follows:
Richard G. Wollack, Chairman of the Board
Brent R. Donaldson, President
Deborah M. Richard, Chief Financial Officer
The general partner of Birtcher Partners is Birtcher Investments, a California
general partnership. Birtcher Investments' general partner is Birtcher
Limited, a California limited partnership and its general partner is BREICORP,
a California corporation. The principals and relevant officers of BREICORP are
as follows:
Ronald E. Birtcher, Co-Chairman of the Board
Arthur B. Birtcher, Co-Chairman of the Board
Robert M. Anderson, Executive Director
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the fees, compensation and other expense
reimbursements paid to the General Partner and its affiliates in all capacities
for each year in the three-year period ended December 31, 1996.
-17-
<PAGE> 40
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 5,000 $ 8,000 $ 15,000
Asset management fees 301,000 304,000 353,000
Property management fees 178,000 161,000 167,000
Leasing fees 21,000 58,000 24,000
Property management expense
reimbursements 367,000 321,000 303,000
Other expense reimbursements 178,000 226,000 191,000
---------- ---------- ----------
TOTAL $1,050,000 $1,078,000 $1,053,000
========== ========== ==========
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1997, there was no entity or individual holding more than 5%
of the limited partnership interests of the Registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning transactions to which the Registrant was or is to be
a party in which the General Partner or its affiliates had or are to have a
direct or indirect interest, see Notes 1 and 3 to the Financial Statements in
Item 8, which information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a) 1. and 2. Financial Statements and Financial Statements Schedules:
See accompanying Index to Financial Statements and Schedules to Item 8,
which information is incorporated herein by reference.
-18-
<PAGE> 41
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Cont'd.)
3. Exhibits:
Articles of Incorporation and Bylaws
(a) The Amended and Restated Agreement of Limited
Partnership incorporated by reference to
Exhibit A to the Partnership's prospectus
contained in the Partnership's registration
statement on Form S-11 (Commission File No.
2-91065), dated June 22, 1985, as
supplemented filed under the Securities Act
of 1933.
10. Material Contracts
(a) Revised Property Management Agreement dated April
2, 1985 between Birtcher Properties and the
Registrant for Certified Distribution Center.
Incorporated by reference to Exhibit 19(a)(4) of
the Partnership's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1985.
(SUPERSEDED)
(b) Property Management Agreement dated May 10, 1985,
between Birtcher Properties and the Registrant
for Ladera Shopping Center. Incorporated by
reference to Exhibit 19(a)(6) of the
Partnership's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1985. (SUPERSEDED)
(c) Property Management Agreement dated July 17,
1985, between Birtcher Properties and the
Registrant for The Cornerstone. Incorporated by
reference to Exhibit 19(a)(8) of the
Partnership's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1985.
(SUPERSEDED)
(d) Property Management Agreement dated September 6,
1985, between Birtcher Properties and the
Registrant for Terracentre. Incorporated by
reference to Exhibit 19(a)(10) of the
Partnership's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1985.
(SUPERSEDED)
(e) Property Management Agreement dated September 16,
1985, between Birtcher Properties and the
Registrant for Oakpointe (formerly Lincoln Atrium
Center). Incorporated by reference to Exhibit
19(a)(12) of the Partnership's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1985. (SUPERSEDED)
-19-
<PAGE> 42
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Cont'd.)
(f) Property Management Agreement dated October 24, 1991,
between Glenborough Management Corporation and the
Registrant for Arlington Executive Plaza, Certified
Distribution Center, The Cornerstone, Ladera-I
Shopping Center, Oakpointe, Terracentre and Washington
Technical Center. Incorporated by reference to
Exhibit 1 of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991.
(SUPERSEDED)
(g) Agreement for Partnership administrative services
dated October 24, 1991, between Glenborough Management
Corporation and the Registrant for the services
described therein. Incorporated by reference to
Exhibit 2 of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991.
(SUPERSEDED)
(h) Property Management Agreement, dated October 29, 1993,
between Birtcher Properties and the Registrant for
Arlington Executive Plaza, Certified Distribution
Center, The Cornerstone, Ladera-I Shopping Center,
Oakpointe, Terracentre, and Washington Technical
Center. Incorporated by reference to Exhibit 1 of the
Partnership Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
(27) Financial Data Schedule
b) Reports on Form 8-K:
Report filed on November 29, 1996 regarding the sale of Arlington
Executive Plaza. See Item 8, Note 4 to the Financial Statements herein
incorporated by reference.
-20-
<PAGE> 43
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.
<TABLE>
<S> <C> <C> <C>
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: March 30, 1997 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: March 30, 1997 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management,
Inc.
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
Damson/Birtcher Partners (General Partner of the Registrant) and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Arthur B. Birtcher Co-Chairman of the Board - March 30, 1997
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1997
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1997
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DAMSON BIRTCHER REALTY INCOME
FUND-I.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 711,000
<SECURITIES> 0
<RECEIVABLES> 126,000
<ALLOWANCES> 46,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,900,000
<PP&E> 34,582,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,482,000
<CURRENT-LIABILITIES> 1,139,000
<BONDS> 2,730,000
0
0
<COMMON> 0
<OTHER-SE> 32,613,000
<TOTAL-LIABILITY-AND-EQUITY> 36,482,000
<SALES> 0
<TOTAL-REVENUES> 6,349,000
<CGS> 0
<TOTAL-COSTS> 3,682,000
<OTHER-EXPENSES> 1,936,000
<LOSS-PROVISION> 46,000
<INTEREST-EXPENSE> 331,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 400,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
