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SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Information Statement / / Confidential, for Use of the Commission
/ / Definitive Information Statement Only (as permitted by Rule 14c-5(d)(2))
</TABLE>
DAMSON/BIRTCHER REALTY INCOME FUND-I
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(Name of Registrant As Specified in Charter)
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/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
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DAMSON/BIRTCHER REALTY INCOME FUND-I
27611 La Paz Road
Laguna Niguel, California 92627-0009
INFORMATION STATEMENT
_________________, 1997
INTRODUCTION
This Information Statement is furnished by Damson/Birtcher Partners,
the general partner (the "General Partner") of Damson/Birtcher Realty Income
Fund-I, a Pennsylvania limited partnership (the "Partnership"), in connection
with the Partnership's solicitation of consents from the Partnership's limited
partners (the "Limited Partners") to dissolve the Partnership and sell and
liquidate all of its remaining properties (collectively, the "Dissolution").
If the Dissolution is consented to by a majority in interest of the Limited
Partners as described herein, the Partnership's remaining properties will be
sold and liquidated as soon as is practicable, consistent with obtaining
reasonable value for the properties, and the net proceeds will be distributed
to the Limited Partners. For the reasons discussed below, the General Partner
recommends that the Limited Partners consent to the Dissolution.
This Information Statement, and the enclosed consent form ("Consent"),
are first being mailed to the Limited Partners on or about __________, 1997.
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DESCRIPTION OF DISSOLUTION
BACKGROUND AND REASONS FOR DISSOLUTION
The Partnership was organized in 1984 for the purpose of acquiring,
operating and ultimately selling or disposing of its properties. The
Partnership's original investment objectives contemplated that the properties
would be held for at least five years, with decisions about the timing of
eventual property sales or other dispositions to be left to the General
Partner's discretion based on the anticipated economic benefits of continued
ownership and other factors. Subsequent changes in the federal tax laws,
however, made real estate less attractive to many previously active purchasers,
including REITs and pension funds, and lenders such as savings and loans,
commercial banks and insurance companies. As a result, the amount of capital
investment in real estate began to decline sharply in 1988. Overbuilding in
many markets, the general recessionary economy in the United States throughout
1990 and 1991 and subsequent corporate downsizing further contributed to the
imbalance of supply and demand for commercial and industrial properties. In
addition, rapid expansion of new retail formats such as discounters and
"category-killers" depressed the value of neighborhood retail shopping centers.
The combined effect of these factors resulted in significant reductions in real
estate values in many geographic areas.
Instead of selling the Partnership's properties at what appeared to be
the bottom of the market, in May 1993, the General Partner solicited the
Limited Partners' consent (the "1993 Solicitation") to a series of amendments
to the Partnership's Amended and Restated Partnership Agreement (the
"Partnership Agreement") as part of a comprehensive proposal to prepare the
Partnership's properties for sale based on the General Partner's expectations
regarding possible
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improvements in market conditions. The 1993 Solicitation, which was approved
by the Limited Partners, mandated that the General Partner seek a vote of the
Limited Partners regarding the liquidation of the Partnership in the event that
properties representing at least one-half of the aggregate appraised values of
all Partnership properties as of January 1, 1993 were not sold (or under
contract for sale) by the end of 1996. The General Partner agreed that, in
conjunction with the vote, it would provide an analysis and recommendation
regarding the advisability of liquidating the Partnership.
Since the adoption of the 1993 Solicitation, the Partnership has sold
Arlington Executive Plaza ("Arlington") in Arlington Heights, Illinois, but it
continues to own six other properties shown in the table on page 13. Since
the Partnership will not have satisfied the requirements of the 1993
Solicitation to sell half of its properties by the end of 1996, in accordance
with the 1993 Solicitation mandate, the General Partner is soliciting the
Limited Partners' consent to the Dissolution.
At the time of the 1993 Solicitation, the General Partner believed
that local conditions in the markets in which the Partnership's properties are
located could be expected to improve sufficiently to sell a substantial portion
of the properties in the ensuing three years. Since the 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. The General Partner believes that the low valuations
stemmed primarily from the scarcity of institutional buyers, ongoing
liquidations by the Resolution Trust Corporation of the property portfolios of
failed savings and loans and thrift
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institutions, which contributed to an oversupply of properties in certain
markets, and differing expectations regarding the recovery from generally weak
economic conditions in the markets in which the properties are located. Until
recently, these markets had not recovered significantly from the conditions
that existed at or about the time of the 1993 Solicitation.
The General Partner believes that over the past three years attempts
to liquidate the Partnership's properties would have been likely to achieve no
more than "fire sale" prices, for at least some of the properties. Recently,
however, the Partnership was able to sell Arlington at a price slightly in
excess of its most recent appraised value, and the General Partner believes
that the gradual turnaround in effective rental rates for commercial and
industrial properties in many markets in the recent past is beginning to be
reflected in higher property values for the Partnership's portfolio. Occupancy
and rental rates appear to be stabilizing or improving, as reflected in the
increase in leased space in the Partnership's remaining properties during 1996
as shown in the table on page 13. Moreover, institutional money has begun to
flow back into real estate investments as pension funds and real estate
investment trusts have become more active buyers. In the General Partner's
view, the Dissolution is warranted by the current, more favorable environment
and the mandate of the 1993 Solicitation that the General Partner consider a
liquidation of the Partnership at this time. The General Partner also is
mindful that the Partnership has continued well beyond the period anticipated
by its original investment objectives, and it does not foresee any significant
short-term, inflationary increases in real estate prices generally, or in the
values of the Partnership's properties, in particular, that might justify
postponing the Dissolution.
For the foregoing reasons, the General Partner believes that it is in
the best interests of the Partnership and the Limited Partners to dissolve the
Partnership and seek to sell and liquidate
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the remaining Partnership properties and wind up the Partnership. In the
meantime, the Partnership would continue to operate largely as it has in the
past and to make quarterly distributions to the Limited Partners as cash flow
permits. Attached as Exhibit A to this Information Statement is a schedule
showing the historical distributions to the Limited Partners.
EFFECTS OF THE DISSOLUTION
The Dissolution does not alter the Partnership's original investment
objectives or change the voting or economic rights of the Limited Partners.
Under the Pennsylvania Revised Uniform Limited Partnership Act, a limited
partnership may be dissolved at the time or upon the happening of events
specified in its partnership agreement. The Partnership Agreement provides
that the Partnership shall be dissolved upon the vote or written consent of
Limited Partners who own a majority in interest of the outstanding limited
partner interests ("Interests") in the Partnership. Under the terms of the
Partnership Agreement and applicable law, upon dissolution of the Partnership
the General Partner is to take full account of the Partnership's assets and
liabilities, liquidate the Partnership's remaining assets and apply and
distribute the liquidation proceeds in the order specified in the Partnership
Agreement. See "Liquidation and Winding Up" below. During the winding up
process, the Partnership's legal existence would continue solely for purposes
relating to the liquidation and winding up.
Neither the Partnership Agreement nor Pennsylvania law provides for a
specified period of time for completing the liquidation and winding up of the
Partnership. If the Dissolution is consented to by the requisite number of
Limited Partners, the General Partner would be authorized and directed to carry
out the sale or other disposition of all of the Partnership's properties as
soon as is practicable, consistent with selling the Partnership's properties to
the best
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advantage under the circumstances. In so doing, the General Partner would
continue to have broad discretion to manage the business and affairs of the
Partnership and the winding up process and to determine the timing, terms and
conditions of property sales and other dispositions. Upon the dissolution and
completion of winding up process, the Partnership will file a certificate of
cancellation with the Pennsylvania Department of State and will be terminated.
There are no federal or state regulatory requirements that must be complied
with or approvals that must be obtained in connection with the Dissolution.
Arlington was sold by the Partnership in November 1996 for $3,041,250.
It had been appraised as of January 1, 1996 at a value of $2,860,000. The
Partnership realized approximately $2,699,000 from the sale, of which
approximately $1,500,000 was distributed to the Limited Partners in December
1996, approximately $700,000 was used to retire Partnership indebtedness and
approximately $500,000 was used to replenish capital reserves. The General
Partner did not receive a property disposition fee or other compensation or
distribution in connection with the Arlington sale.
There can be no assurance as to the prices at which the Partnership's
remaining properties can be sold or disposed of, or as to the amount of net
proceeds that will be available for distribution to the Limited Partners. The
aggregate appraised value of the Partnership's remaining properties as of
January 1, 1996 was approximately $37,530,000 as reflected in the table on page
13. The appraisals of the properties are a year old, however, and current
appraised values may differ. (The properties are in the process of being
appraised as part of the usual annual appraisal process. The results of these
appraisals will be reported in the Partnership's annual report, which will be
mailed to you at the end of April 1997.) Further, sales prices may differ from
appraised values because of several factors, including the leasing and
operating status
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of each property and local market conditions. If the Dissolution is consented
to by the Limited Partners, among the strategies the General Partner will
consider to accomplish the Dissolution is a sale of the Partnership's 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. Such
sales would most likely result in a lower aggregate sale price, but more rapid
distribution of Dissolution Proceeds to the Limited Partners, as compared to a
series of individual property sale transactions.
Although there have not been a significant number of comparable sales
within the last twelve months, based on recent offers, input from commercial
real estate brokers in the local markets, and other indications of interest
from third parties, and on the appraised value of the Partnership's remaining
properties, the General Partner anticipates that the properties could be sold
for an aggregate price ranging from approximately $32,000,000 to $39,000,000,
depending upon, among other things, whether the properties are sold quickly as
a portfolio to a single purchaser or if the properties are sold individually or
in groups of assets over a more extended period of months or years. Assuming,
for purposes of illustration, that the remaining properties were sold all at
once for an aggregate price equal to their appraised value as of January 1,
1996, the General Partner believes that approximately $32,200,000 (the
"Dissolution Proceeds") of such amount would be available for distribution
after deducting estimated fees and expenses of the sale and repayment of
related indebtedness, which currently are anticipated to total approximately
$5,300,000 (the "Selling Expenses"). The estimated Dissolution Proceeds do not
take into account any operating expenses or any net income or net loss of the
Partnership for any period prior to the time the remaining properties are sold,
which could affect the amount of Dissolution Proceeds actually available for
distribution to the Limited Partners.
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The Dissolution Proceeds would be distributed to the Limited Partners.
Assuming Dissolution Proceeds of $32,200,000, for each $1,000 invested in the
Partnership, the Limited Partners would receive out of the Dissolution Proceeds
approximately $332 (the "Distribution Per Interest"). This compares favorably
to recent prices at which Interests have traded in the limited secondary market
for the Interests and to prices offered in recent third-party tender offers for
Interests. Certain information regarding these prices is attached as Exhibit B
to this Information Statement. Assuming the Selling Expenses remain fixed, and
without giving effect to any operating expenses or net income or net loss of
the Partnership for any period prior to the sale of the remaining properties,
each such $1,000 investment by the Limited Partners would entitle the Limited
Partner to receive Dissolution Proceeds of approximately $10 more or less than
the Distribution Per Interest for each $1,000,000 increment that actual
Dissolution Proceeds exceed or are less than $32,200,000. See "Interest of the
General Partner in the Dissolution" below.
The foregoing estimates are presented for the Limited Partners'
reference only and should not be relied upon in determining whether to consent
to the Dissolution. The estimates are based on a variety of assumptions
relating to the remaining properties, general business and economic conditions
and other matters, which are subject to significant uncertainties and
contingencies, many of which are beyond the Partnership's control. Such
estimates are inherently imprecise and there can be no assurance that they will
be realized. They also do not give effect to the operating expenses or net
income or net loss of the Partnership for any period prior to the time the
remaining properties are sold, which could affect the amount of Dissolution
Proceeds available for distribution. For these reasons, the actual proceeds to
be received by the Limited Partners are likely to vary materially from the
Distribution Per Unit, and may be substantially less.
8.
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The timing of the Limited Partners' receipt of any Dissolution
Proceeds will depend on when a sale or other disposition of the Partnership's
properties can be completed, which cannot be predicted. As has been true in
the past, the timing and manner (e.g., bulk-sale versus individual property
sales) of any sales of properties will be determined by the General Partner in
its discretion, based on its assessment of the benefits to the Limited Partners
of holding the properties versus an immediate sale, including the availability
of prospective buyers as well as other factors. There is no current agreement
or understanding to sell or dispose of any property, and there can be no
assurance as to when any or all of the remaining Partnership properties can be
sold or disposed of or when any Dissolution Proceeds will actually be
distributed. The General Partner will endeavor to distribute funds as
expeditiously as possible after any sale.
LIQUIDATION AND WINDING UP
Pursuant to the Partnership Agreement, if the Dissolution is consented
to by the requisite number of Limited Partners, the General Partner is to take
full account of the Partnership's assets and liabilities, liquidate the
Partnership's assets and discharge or make adequate provision for the
liabilities of the Partnership in the following order:
(a) First, all Partnership debts and liabilities to persons other
than partners;
(b) Second, all Partnership debts and liabilities to the Limited
Partners;
(c) Third, all such debts and liabilities to the General Partner;
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(d) After all such liabilities have been either discharged or
adequately provided for, to the Partners, in proportion to
their "Adjusted Capital Accounts" (as defined in the
Partnership Agreement), after giving effect to all
contributions and distributions and reallocations for all
periods, including the period during which such distribution
occurs; and
(e) the balance, if any, 99% to the Limited Partners and 1% to the
General Partner.
It is not anticipated that the General Partner will receive any of the
proceeds from the Dissolution. The General Partner is not aware of any
liabilities or obligations of the Partnership, contingent or otherwise, except
as set forth on the Partnership's balance sheet included as part of its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (a copy
of which accompanies this Information Statement and is incorporated herein by
reference) and liabilities and obligations incurred since September 30, 1996 in
the ordinary course of the Partnership's business.
Upon approval of the Dissolution, the General Partner will use its
best efforts to accomplish a sale or other disposition of the Partnership's
remaining properties upon terms and conditions which the General Partner deems
consistent with obtaining fair value for the properties. Although none of the
terms of the sale of the Partnership's remaining properties can be determined
at present, the General Partner currently intends not to sell or dispose of the
remaining properties except for cash or cash equivalents. If necessary or
appropriate, however, the Partnership may extend seller financing in connection
with the sale of one or more properties in the form of secured promissory notes
from the buyers. Market conditions permitting, the General Partner would seek
to complete the liquidation (including the establishment of a
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liquidating trust to distribute the proceeds of any promissory notes received
from buyers) within a reasonable period of time; however, there will be no
specified period of time for completing the winding up process.
CERTAIN CONSIDERATIONS
The General Partner cannot predict when any of the Partnership's
properties can be sold or disposed of, or when the eventual liquidation will
occur, nor can the General Partner estimate the amount of Proceeds that will be
available to distribute to the Limited Partners upon the sale or other
disposition of the Partnership's remaining properties and completion of the
liquidation. Moreover, there can be no assurance that the properties will be
sold or disposed of at a price equal to their appraised value or that the value
of the properties will not increase after they are sold or disposed of by the
Partnership.
In considering whether to approve the Dissolution, the Limited
Partners should bear in mind that the General Partner has broad discretion to
manage the business and affairs of the Partnership. If the Dissolution is not
adopted, the General Partner intends to continue to manage the Partnership and
its properties substantially as they are currently being managed and to
continue to entertain and consider indications of interest from third parties
to acquire all or a portion of the Partnership's properties. There can be no
assurance that the Dissolution will result in greater returns to the Limited
Partners than a continuation of the Partnership and eventual sale or
disposition of its properties at a later time.
The General Partner currently receives an annual asset management fee
from the Partnership equal to 0.75% of the aggregate appraised value of the
Partnership's properties. As
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mandated by the 1993 Solicitation, the fee will be reduced by 10 "basis" points
(e.g., from 0.75% to 0.65%) beginning January 1, 1997 and for each year
thereafter until the liquidation of the remaining properties is completed.
In seeking to sell or dispose of the Partnership's remaining
properties if the Dissolution is approved, the General Partner does not intend
to place any restrictions on indications of interest it may solicit from third
parties in connection with the Dissolution. The Limited Partners are advised
in this regard that, because of the General Partner's long-standing experience
with the Partnership properties, transactions may be structured that provide
that the General Partner or its affiliates agree to continue managing the
Partnership's properties following their sale, to make or retain an investment
interest in the properties, or otherwise to participate or be involved in a
transaction entered into pursuant to the Dissolution.
If the Limited Partners consent to the Dissolution, they also will be
deemed to have consented to any transaction that may be undertaken to
accomplish the liquidation and winding up of the Partnership and will not be
entitled to approve or disapprove of any such transaction, including
transactions which may involve the General Partner's participation or
involvement. However, a "Reorganization Transaction" (as defined in the
Partnership Agreement) sponsored by the General Partner or its affiliates would
continue to require approval of 80% in interest of the Limited Partners. There
is no current agreement or understanding with respect to any Reorganization
Transaction.
Neither Pennsylvania law nor the Partnership Agreement provides the
Limited Partners with any right to dissent from, or seek an independent
appraisal of, the value of the Partnership
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or its assets. Thus, the Limited Partners will be bound to accept the
consideration upon the sale of the Partnership's properties if the Dissolution
is consented to by the Limited Partners.
RECOMMENDATION OF THE GENERAL PARTNER
THE GENERAL PARTNER BELIEVES THAT THE DISSOLUTION IS IN THE BEST INTERESTS OF
THE LIMITED PARTNERS AND RECOMMENDS THAT THE LIMITED PARTNERS VOTE "FOR" AND
CONSENT TO THE DISSOLUTION.
PARTNERSHIP PROPERTIES
The following table sets forth certain information with respect to the
Partnership's remaining properties:
<TABLE>
<CAPTION>
Appraised
Percentage Leased Value
------------------------------ -------------
Gross Leasable September 30, January 1,
Property Area (Sq. Ft.) 1996 1995 1996
- ------------------------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Certified Distribution
Center(1)
Salt Lake City, UT . . . . . 312,260 100% 100% $9,250,000
The Cornerstone
Tempe, AZ . . . . . . . . . . 117,688 56% 58% $9,120,000
Ladera-I Shopping Center(2)
Albuquerque, NM . . . . . . . 89,544 95% 93% $6,260,000
Oakpointe(3)
Arlington Heights, IL . . . . 96,213 100% 76% $7,700,000
Terracentre
Denver, CO . . . . . . . . . 95,723 68% 65% $2,500,000
Washington Technical Center
Seattle, WA . . . . . . . . . 50,973 94% 96% $2,700,000
----------- -------------- -------------- -----------
Total 762,401 88% 85% $37,530,000
=========== ============== ============== ===========
</TABLE>
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(1) This property is leased to a single tenant, whose lease expires in
late 1997. The General Partner is in the process of negotiating a
renewal of the lease, but there can be no assurance as to whether, or
on what terms, it will be renewed.
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(2) Approximately 13,000 square feet (or 14.5% of the gross leasable
space) shown as leased as of September 30, 1996 has been vacant since
April 1995. The lessee has continued to pay rent on this space while
the General Partner seeks to locate a suitable subtenant.
(3) Approximately 11,360 square feet (or 11.8% of the gross leasable
space) of this property has been vacant since March 1995. The lessee
continues to pay the rent under the lease, which expires in May 1998.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
As stated above, if the Dissolution is consented to by the Limited
Partners, the General Partner will seek to sell and liquidate the Partnership's
remaining properties and distribute the proceeds to Limited Partners after
payment of certain expenses and priority items as described above under
"Description of Dissolution - Liquidation and Winding Up." Such sale and
distribution will result in certain federal income tax consequences described
below. Section references below are to the Internal Revenue Code of 1986, as
amended (the "Code").
IN GENERAL
As long as the Partnership is treated as a partnership for federal
income tax purposes, it will not be subject to federal income tax. Rather,
each Limited Partner and the General Partner is required to report on his or
her own federal income tax return its share of the Partnership items of income,
gain, loss, deduction and credit, including amounts realized on the sale of the
Partnership's properties. Accordingly, each Limited Partner may be subject to
tax on its distributive share of Partnership income regardless of whether the
Limited Partner receives any cash distribution. Each Limited Partner's basis
in its Interest is increased by the amount by which the Limited Partner's
distributable share of income exceeds any distributions made or
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deemed to be made (e.g., as a result of the reduction of his or her share of
partnership liability) to it during such year.
LOSS OR GAIN FROM SALE OF PARTNERSHIP PROPERTY
Partnership real property and depreciable property used in the
Partnership's business (which is not held for sale to customers in the ordinary
course of business) and held more than one year is "section 1231 property."
Losses realized by the Partnership from the sale of section 1231 property
generally will constitute "passive activity losses" with respect to a Limited
Partner, other than certain Limited Partners eligible to treat all of their
rental real estate activities as a single activity. Passive activity losses
generally can only offset passive activity income; however, upon completion of
the liquidation of the Partnership if the Dissolution is consented to by the
Limited Partners, the Limited Partner's share of any losses from the
Partnership previously suspended pursuant to the passive activity loss rules
may be used, first, to offset the gain, if any, realized as a result of the
liquidation and, then, to offset certain taxable income from other sources.
If realized, any gain will be "section 1231 gain" except as to
depreciation subject to recapture under section 1245 of the Code and rent
recapture under section 467 of the Code. A Limited Partner's share of any
section 1231 gain from the Partnership in any year will first offset any
current passive activity losses and suspended passive activity losses from the
Partnership and other passive activities of the Limited Partner; any excess
will be combined with any other section 1231 gains or losses (exclusive of
passive activity losses) incurred by the Limited Partner from such Limited
Partner's other investments. Since the Partnership's properties were
originally acquired without the use of mortgage loans or other leverage for
prices that substantially exceeded
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their most recent appraised values, it is anticipated that any section 1231
gain realized from the sale of a single Partnership property will be offset by
losses realized from the sale of other Partnership properties. If the section
1231 gains exceed the section 1231 losses, such net gains will be treated as
long-term capital gains. However, a Limited Partner's net section 1231 gains
will be treated as ordinary income (rather than capital gain) to the extent of
such taxpayer's net section 1231 losses within the preceding five years.
The distribution of cash to a Limited Partner pursuant to the
Dissolution may give rise to taxable loss (or gain), with the amount of taxable
loss (or gain) realized equal to the difference between (i) the amount of cash
received plus such Limited Partner's share of any reduction of Partnership
liabilities and (ii) the tax basis of its Interest.
Loss (or gain) realized on the liquidation will be treated as capital
loss (or gain), and will be long-term if the Limited Partner has held its
Interest for more than one year when the liquidation of the Partnership is
consummated. Capital losses generally are deductible only to the extent of
capital gains plus, in the case of a non-corporate Limited Partner, up to
$3,000 of ordinary income. Capital losses realized upon the liquidation may be
utilized to offset capital gains from other sources and may be carried forward,
subject to applicable limitations.
The foregoing is a summary only, and special considerations may be
applicable to particular types of Limited Partners. Each Limited Partner is
advised to consult its own tax advisor regarding the specific tax consequences
of the Dissolution, under the federal income tax laws, as well applicable
state, local, foreign or other tax laws not discussed herein.
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CONSENT REQUIREMENTS AND WRITTEN CONSENTS
RECORD DATE
The General Partner has fixed 5:00 P.M. Eastern Time on __________,
199__, three days before the date this Information Statement is first being
mailed to the Limited Partners, as the record date (the "Record Date") for
determining the Limited Partners entitled to notice of and to act on the
Dissolution. As of the close of business on the Record Date, the General
Partner anticipates that there will be approximately __________ Limited
Partners of record.
COMPLETION OF CONSENTS; DEADLINE FOR CONSENTING
A form of written consent (the "Consent") accompanies this Information
Statement. Under the terms of the Partnership Agreement, the deadline for
consenting may not be less than 10 nor more than 50 days following the mailing
to the Limited Partners. EACH LIMITED PARTNER IS URGED TO COMPLETE, SIGN, DATE
AND RETURN THE CONSENT BY NOT LATER THAN _____________, 1997 (THE "CONSENT
DEADLINE"), WHICH IS THE DATE 40 DAYS FOLLOWING THE MAILING OF THIS INFORMATION
STATEMENT. A postage-paid, pre-addressed envelope has been provided for the
Limited Partners' convenience in returning Consents. Completed Consents should
be returned as soon as possible to The Herman Group, Inc., 2121 San Jacinto
Street, 26th Floor, Dallas, Texas 75201. Limited Partners may also return
their Consents to the General Partner, c/o The Herman Group, Inc. via
facsimile at 214-991-9393; Attention: Birtcher Partnerships. Consents may be
marked either "FOR," "AGAINST," or "ABSTAIN" with respect to the Dissolution.
If a Limited Partner fails to return a Consent, or returns a Consent marked
"ABSTAIN," it will have the same effect as a disapproval of the Dissolution.
If a Consent is returned signed, but not
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marked "AGAINST" or "ABSTAIN," the Limited Partner will be deemed to have
consented to the Dissolution. THE GENERAL PARTNER RECOMMENDS THAT THE LIMITED
PARTNERS VOTE "FOR" AND CONSENT TO THE DISSOLUTION.
APPROVAL OF DISSOLUTION
The Dissolution will be approved if consented to by the Consent
Deadline by a majority in interest of the Limited Partners as determined based
upon the Partnership's total original "Invested Capital" (as defined in the
Partnership Agreement) of $97,198,135.
REVOCATION OF CONSENTS
A Consent may be revoked by a Limited Partner by delivery to the
General Partner of a subsequent writing revoking the Consent. The writing must
bear a later date than the previously executed Consent and must be signed by
the Limited Partner. To be effective, any such revocation must be received by
The Herman Group, Inc. or the General Partner, as described above, on or before
the Consent Deadline or such earlier date as of which the Dissolution shall
have been consented to by the requisite number of Limited Partners.
EXPENSES OF SOLICITATION
The Partnership will bear all expenses of the solicitation of
Consents, whether or not the Dissolution is approved. After this Information
Statement is mailed to the Limited Partners, Consents may be solicited by means
of the mails, facsimile transmissions, telephone or telegraph by the General
Partner and its general partners, as well as by their respective partners,
regular
18.
<PAGE> 20
employees and affiliates, none of whom will receive any special or additional
compensation for their services. The Partnership has retained The Herman
Group, Inc., an independent solicitation firm, to aid in the solicitation of
Consents. The cost to the Partnership of doing so is currently estimated to be
$162,000.
The General Partner will request brokers, nominees and other
fiduciaries and custodians who hold Interests in their names to furnish this
Information Statement and any accompanying materials to the beneficial owners
of such Interests. The Partnership will reimburse such persons, if requested,
for their reasonable fees and expenses incurred in complying with this request.
IF YOU ARE A LIMITED PARTNER ON THE RECORD DATE, YOU ARE RESPECTFULLY REQUESTED
TO COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING CONSENT IN THE ENCLOSED
ENVELOPE AT YOUR EARLIEST CONVENIENCE, BUT IN ANY EVENT PRIOR TO THE CONSENT
DEADLINE.
INTEREST OF THE GENERAL PARTNER IN THE DISSOLUTION
GENERAL
Under subsection 9.1.9 of the Partnership Agreement, the General
Partner and its affiliates are entitled to a property disposition fee for real
estate brokerage services rendered in connection with the sale or disposition
of the Partnership's properties, including any sales or dispositions during the
liquidation and winding up of the Partnership following the Dissolution. The
fee is to be 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 the
19.
<PAGE> 21
property is located, but in no event more than 3% of the gross sale price of a
property, and is 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 the property exceed 3% of the gross sale price. The fee is not payable,
however, 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.
DISSOLUTION PROCEEDS
Subject to the payment of certain expenses and priority items as
described above under "Description of Dissolution - Liquidation and Winding
Up," the General Partner would be entitled to receive 1% of the net proceeds
available for distribution to the Partners resulting from sales or other
dispositions of the Partnership's remaining properties pursuant to the
Dissolution. However, if the Partnership's properties are sold for an
aggregate price within the anticipated range, the General Partner will not
receive any of the sales proceeds. If the Dissolution were not consented to,
it is unlikely that the General Partner would receive any portion of the
proceeds from future sales of the Partnership's properties in the ordinary
course of its business.
POTENTIAL CONFLICT OF INTEREST
LF Special Fund II, L.P. ("Liquidity Fund II") one of the general
partners of the General Partner, owes a fiduciary duty to the Limited Partners
of the Partnership. The general partner of Liquidity Fund II also owes a
fiduciary duty to the third parties who invested in Liquidity Fund II as its
limited partners. These relationships may create a conflict of interest in
connection
20.
<PAGE> 22
with Liquidity Fund II's evaluation and recommendation of the Dissolution. See
"Management."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
According to information available from the Partnership's transfer
agent and public records, as of the date of this Information Statement, no
person or entity owned beneficially 5% or more of the outstanding Interests.
The Partnership has not issued any options, warrants or other rights to
purchase securities of the Partnership, nor has the General Partner loaned
money to the Partnership.
As a partnership, the Partnership has neither officers nor directors.
Moreover, as of December 31, 1996, neither the General Partner nor its
partners, or the partners, directors or officers of its partners, owned
beneficially any Interests. Although certain family members of the partners of
the General Partner hold Interests, such Interests in the aggregate represent
less than 1% of all Interests outstanding.
MANAGEMENT
The Partnership is a limited partnership and, as such, has no
executive officers or directors. The General Partner of the Partnership is
Damson/Birtcher Partners, a California general partnership, of which Birtcher
Partners, a California general partnership, and Equity Properties, Inc.
("EPI"), a wholly owned subsidiary of Damson Oil Corporation, were the original
general partners.
21.
<PAGE> 23
In December 1989, LF Special Fund II, L.P., an affiliate of Liquidity
Financial Group, L.P., purchased all of EPI's economic interest in the General
Partner and on December 31, 1992 was substituted as a general partner of the
General Partner. Under the terms of the General Partner's Partnership
Agreement, Birtcher Partners remains responsible for the day-to-day management
of the Partnership's assets.
The following sets forth certain biographical information with respect
to the respective general partners and officers of Birtcher Partners and
Liquidity Fund II:
BIRTCHER PARTNERS
Arthur B. Birtcher. Mr. Birtcher, age 57, is a member of the Board of
Directors of Birtcher Enterprises. Since 1961, he has been active in the
management of all Birtcher-affiliated real estate companies (collectively, "The
Birtcher Organization") and has been primarily responsible for the financial
and legal administration of The Birtcher Organization's real estate projects as
well as the organization and administration of its regional offices nationwide.
He is active in the management of a diversified portfolio of real estate across
the United States, with his brother, Ronald E. Birtcher. In 1996, The Birtcher
Organization maintained a network of ten domestic regional offices in eight
states. Often recognized for his many achievements, Mr. Birtcher was named
Developer of the Year by NAIOP in 1989 and was voted Real Estate Man of the
Year in 1985 by the Real Estate and Construction division of the
Anti-Defamation League of B'nai B'rith. His numerous professional and
community affiliations include: Board of Trustees positions with University of
San Diego and Mount St. Mary's College; American Business Conference; U.S.
Papal Foundation; Mission Hospital Regional Medical Center; Policy Advisory
Board of the Center for Real Estate and Urban Economics for the University of
California,
22.
<PAGE> 24
Berkeley; International Business Advisors for the University of San Diego;
Orange County United Way; and, O.P.T.I.M.A. Prevention and Treatment Integrated
Medical Assistance. Mr. Birtcher is also chairman of the board for the South
County Community Clinic and the Mission San Juan Capistrano Restoration Fund; a
member of the National Society of Real Estate Finance; a Land Board and
Construction Board member of the Catholic Diocese of Orange County; a member of
the Equestrian Order of the Knights of the Holy Sepulcher; and, a member of the
Order of the Knights of Malta, where he is designated a steward of St. Peter.
In addition, he is a leader in gang intervention programs that deal with
emergency and long-term prevention in South Orange County. Mr. Birtcher is a
graduate of Claremont Men's College and holds a bachelor of arts degree in
business economics. He also is a general partner of affiliated partnerships
which serve as the general partner of Damson/Birtcher Realty Income Fund-II and
Real Estate Income Partners III, both of which are public partnerships.
Ronald E. Birtcher. Mr. Birtcher, age 65, is a member of the Board of
Directors of Birtcher Enterprises. Since 1967, Mr. Birtcher has been active in
the management of all of the Birtcher real estate companies, and is primarily
responsible for evaluating proposed real estate development projects, which
encompasses architectural design, construction, market research, lease
negotiation and sales. He joined The Birtcher Organization in 1951 to engage
in the real estate development business with his father, Fayette E. Birtcher,
who founded the family business in 1939. He is active in the management of a
diversified portfolio of real estate nationwide, with his brother, Arthur B.
Birtcher. Mr. Birtcher holds a bachelor of arts degree in business
administration from the University of Arizona. His many accolades include:
election to Lambda Alpha, an honorary land economics society; Developer of the
Year awarded by the NAIOP in 1989; the Medal of Honor from the Building
Industry Association (the association's highest award); the Entrepreneur of the
Year awarded in 1991 by the United States-Mexico Foundation;
23.
<PAGE> 25
and, the 1994 Sumigarden Award presented at the annual UCI Real Estate
Conference. Mr. Birtcher's professional affiliations include membership in the
National Association of Industrial and Office Parks; he serves as a board
member for a number of community organizations such as the Wellness Clinic and
Coachella Valley Tomorrow (Palm Springs area economic development council);
and, he is Chairman of the Advisory Board to the University of California,
Irvine, Graduate School of Management in Real Estate. In addition, Mr.
Birtcher has been the director and past president of the YMCA Camping
Association of Orange County, past president and elder of the San Juan
Capistrano Presbyterian Church, and past chairman of the Orange County
Sheriff's Association. Mr. Birtcher is also a general partner of affiliated
partnerships which serve as the general partner of Damson/Birtcher Realty
Income Fund-II and Real Estate Income Partners III, both of which are public
partnerships.
Robert M. Anderson. Mr. Anderson, age 38, is Co-chairman of the Board
of Directors of Birtcher Enterprises and President of Birtcher Property
Services. A member of The Birtcher Organization since 1988, he is responsible
for the operation and management of over six million square feet of real estate
for the Birtcher family and a variety of clients including various public
institutions, private institutions, and private individuals. He oversees all
third-party real estate services activity including asset management, property
management, property acquisitions and property dispositions. Mr. Anderson
heads up the day-to-day management team responsible for the Partnership's
properties. Prior to joining The Birtcher Organization, he worked at the
Irvine Company, a Newport Beach, California based land owner and real estate
developer, where he was responsible for project finance and capital markets
activity. He is also active in a variety of real estate industry groups and
charitable organizations. Mr. Anderson received a bachelor of arts degrees in
Economics and Accounting from Augustana College and holds a masters in
24.
<PAGE> 26
business administration from Harvard Business School. Mr. Anderson is
the son-in-law of Mr. Arthur B. Birtcher.
Michael S. Buzar. Mr. Buzar, age 44, has been involved in the sale,
leasing, management and marketing of commercial real estate since 1978. He
joined The Birtcher Organization as a senior vice president of marketing and
leasing in 1988. In November 1991, he was promoted to Asset Manager,
responsible for all aspects of the performance of the Partnership's portfolio.
Prior to joining The Birtcher Organization, Mr. Buzar served as vice president
of marketing and leasing for the Birtcher/Welsh joint venture from 1985 through
1987. From 1978 to December 1985, he was an industrial specialist in
Minneapolis/St. Paul, Minnesota at Coldwell Banker Commercial Real Estate
Services (now CB Commercial Real Estate Group), a national real estate
brokerage company. Mr. Buzar holds a bachelor of arts degree from the
University of Michigan, and he is a licensed real estate broker in the State of
Minnesota. He maintains various professional affiliations, including
memberships in the International Council of Shopping Centers and the National
Association of Realtors.
LF SPECIAL FUND II, L.P.
Richard G. Wollack. Mr. Wollack, age 51, joined Koll Real Estate
Services (formerly Koll Holding) in 1995 as its Executive Vice President and
Chief Financial Officer and became President of its investment advisory
subsidiary, Koll Investment Management ("Koll") in 1996. Koll is one the
nation's largest property services firms with over 175 million square feet of
assets managed in over 275 U.S. cities. Prior to joining Koll, Mr. Wollack
founded, in 1980, Liquidity Fund, the country's largest purchaser of real
estate limited partnership interests in the secondary market. In 1995, Koll
acquired from Liquidity Fund two lines of business: i) investment
25.
<PAGE> 27
management of traded real estate equity securities, most particularly REITs;
and, ii) the National Real Estate Index (the "Index") research and publishing
company. The Index databases, developed in the course of analyzing property
assets over the last fifteen years, contains in-depth information on over 300
traded real estate securities and 45,000 property transactions and provides the
foundation for the various National Real Estate Index products, published in
cooperation with Ernst & Young. The Index is the nation's only
transaction-based research service (used by over 1,500 firms) and reports
in-depth data and trends on the 65 largest U.S. markets each quarter.
Mr. Wollack has been involved in all phases of the real estate
investment business since 1971, when he was co-founder and president of First
Capital Companies, a large investment manager now based in Chicago. From 1981
to 1986 (when it was sold) he was a principal and co- president of Consolidated
Capital, at the time one of the nation's largest real estate investment firms.
In total, he has been a principal in dozens of real estate entities capitalized
at over $2 billion. He is widely known throughout the real estate and
financial communities, is involved in numerous industry activities and is a
nationally recognized speaker and author. Mr. Wollack holds a bachelor of arts
degree from University of Illinois and a masters of business administration
with distinction from Stanford Graduate School of Business. He is currently a
member of the Board of Advisors of the Institutional Real Estate Index. Mr.
Wollack is also a licensed real estate broker in the State of California and he
maintains his designation as a Principal and Financial Principal with the NASD.
Brent R. Donaldson. Brent R. Donaldson, age 43, is co-founder and
president of the Liquidity Financial Group companies and it predecessors
("LFG"). He has been responsible for the growth and managed the operations of
LFG since inception in 1980. Mr. Donaldson has
26.
<PAGE> 28
pioneered research and trading in otherwise illiquid real estate
securities--originally real estate limited partnerships ("RELPs") and more
recently institutional commingled real estate funds ("CREFs"). He has managed
accounts and conducted research in real estate investment trusts ("REITs") and
participated in the creation and publishing of the National Real Estate Index,
the nation's largest transaction-based real estate index. Most recently, Mr.
Donaldson has established LFG as an advisor to listed REITs or "opportunity
funds" in acquisitions of property portfolios.
In 1980, under Mr. Donaldson's leadership, LFG created the partnership
secondary market, leading that market for 14 years in both assets under
management and annual trading/transaction volume, as well as research coverage
(focusing primarily on SEC registered partnerships which issued approximately
$60 billion). Also under his management, LFG's investment advisor subsidiary
has managed accounts in traded real estate equity securities, such as REITs,
since 1987. Having invested in REITs and analyzed their performance during up
and down markets for both properties and securities has provided perspective on
valuation of equity portfolios in both public and private real estate markets.
This line of LFG's business was recently sold to the Koll Companies in Newport
Beach, California. In 1994, Mr. Donaldson expanded the activities of LFG's
broker/dealer subsidiary conducting research on CREFs (in the context of
valuation consulting) and he initiated the nation's first secondary market for
institutional CREFs. Mr. Donaldson has used the information databases which
LFG compiled over the years in providing investment advisory services to
nationally known investors, managers, and institutions with respect to
valuation and transactions--particularly as related to portfolio acquisitions
and tender offers. He is widely known throughout the real estate and financial
communities, is involved in numerous industry activities and is a nationally
recognized speaker and author. Mr. Donaldson holds a bachelor of arts degree
from University of California, Davis and a masters of business administration
from University of California, Berkeley, Graduate
27.
<PAGE> 29
School of Business. He is currently a member of the Board of Advisors of the
Real Estate Financial Journal and a past member of the National Association of
Securities Dealers ("NASD") Direct Participation Subcommittee on Trading
Standardization and the Securities Industry Association Direct Participation
Committee. Mr. Donaldson also maintains his designation as a General
Securities Principal with the NASD.
In a matter not involving Damson/Birtcher Realty Income Fund-I or
Damson/Birtcher Partners, in 1991, the NASD Business Conduct Committee for the
Northern District of California initiated a complaint against Liquidity Fund
Investment Corporation ("LFIC") alleging violations of the NASD's Rules of Fair
Practice. Specifically, the complaint alleged that LFIC (i) bought and sold
limited partnership units in the secondary market, from or to unaffiliated
parties, subject to mark-ups or mark-downs in excess of the NASD'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 were also named as respondents in the complaint in their
capacities as principals of LFIC. The complaint was settled as of January 3,
1992 on the following terms: the NASD made findings, which were neither
admitted nor denied, of violations by LFIC and Mr. Donaldson of the NASD's
guidelines with respect to mark-ups or mark-downs, and of the failure by LFIC
(but not Mr. Donaldson) to disclose the amount of such mark-ups or mark-downs.
Both allegations were dismissed as to Mr. Wollack. Under the settlement, LFIC
was censured and fined $125,000 and Mr. Donaldson was censured and fined
$7,500.
28.
<PAGE> 30
TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS
The General Partner knows of no termination or change-in-control
arrangement affecting the Partnership, except as contemplated by the
Partnership Agreement. The Partnership Agreement provides generally that the
bankruptcy or dissolution of the General Partner will cause a dissolution of
the Partnership unless there is a remaining general partner that elects to
continue the business of the Partnership. In the event there is no remaining
general partner, the Partnership may nonetheless be continued by vote of a
majority in interest of the Limited Partners. The Partnership Agreement also
permits the General Partner to withdraw from the Partnership subject to certain
conditions. In such event, the withdrawing General Partner is obliged to offer
to resell its interest in the Partnership to the Partnership or, at its
election, to convert its interest to that of a Limited Partner.
ADDITIONAL INFORMATION
This Information Statement is accompanied by copies of the
Partnership's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 and its Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, as filed with the Securities and Exchange Commission. The information in
these reports is incorporated herein by reference. The exhibits to such
reports are not included with this Information Statement, but are available
without charge to any person entitled to receive this Information Statement,
upon written request, from the General Partner, 27611 La Paz Road, P. O.Box
30009, Laguna Niguel, California 92607-0009; Attention: Damson/Birtcher Realty
Income Fund-I. A requested exhibit will be furnished by first-class mail, as
other equally prompt means, within two business days of such request.
29.
<PAGE> 31
DAMSON/BIRTCHER PARTNERS,
a California general partnership
By: Birtcher Partners, a California general
partnership, General Partner of
Damson/Birtcher Partners
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
By:
--------------------------------
Arthur B. Birtcher
Co-chairman, BREICORP.
By:
--------------------------------
Ronald E. Birtcher
Co-chairman, BREICORP.
By:
--------------------------------
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.
By:
----------------------------------------
Richard G. Wollack,
Chairman Liquidating Fund Asset
Management, Inc.
By:
----------------------------------------
Brent R. Donaldson,
President, Liquidity Fund Asset
Management, Inc.
Laguna Niguel, California
__________________, 1997
30.
<PAGE> 32
EXHIBIT A
Distributions to Limited Partners
---------------------------------
Following is a summary of distributions to the Limited Partners for the
periods shown:
<TABLE>
<CAPTION>
Distributions per $1,000 of Original Invested Capital
---------------------------------------------------------------------
From Operations From Sale or Refinancing
---------------------------------- ---------------------------------
<S> <C> <C>
1996
- ----
1st Quarter . . . . . . . . $ 0.00 $ N/A
2nd Quarter . . . . . . . . 0.00 N/A
3rd Quarter . . . . . . . . 2.60 N/A
4th Quarter . . . . . . . . 2.60 15.43
1995
- ----
1st Quarter . . . . . . . . 2.60 N/A
2nd Quarter . . . . . . . . 2.60 N/A
3rd Quarter . . . . . . . . 2.60 N/A
4th Quarter . . . . . . . . 0.00 N/A
1994
- ----
1st Quarter . . . . . . . . 3.80 N/A
2nd Quarter . . . . . . . . 3.80 N/A
3rd Quarter . . . . . . . . 3.80 N/A
4th Quarter . . . . . . . . 3.80 N/A
Since Inception . . . . . . $ 283.13 $ 15.43
</TABLE>
A-1
<PAGE> 33
EXHIBIT B
Recent Secondary Trading and
Tender Offer Prices for
Limited Partner Interests
-------------------------
Following is a summary, based on information available to the General
Partner, of prices at which Interests have been sold and purchased in secondary
transactions (other than pursuant to a tender offer) during the periods shown
and the number of such transactions. The General Partner is aware that this
information is incomplete and that other, unreported transactions have occurred
during the period shown. The prices shown are per $1,000 of original Invested
Capital and do not give effect to any markups, markdowns, discounts or
commissions which may have been paid in connection with the transactions.
1996 SECONDARY TRADING RANGES
<TABLE>
<CAPTION>
NO. OF
INTERESTS
MONTH LOW HIGH TRADED
----- --- ---- ------
<S> <C> <C> <C>
November . . . . . . . . . . . . . . $210.00 $248.40 156
October . . . . . . . . . . . . . . . 105.00 257.58 253
September . . . . . . . . . . . . . . 150.00 223.79 77
August . . . . . . . . . . . . . . . 219.99 230.00 115
July . . . . . . . . . . . . . . . . 190.00 228.77 123
June . . . . . . . . . . . . . . . . 125.00 226.85 105
May . . . . . . . . . . . . . . . . . 100.00 240.00 118
April . . . . . . . . . . . . . . . . 100.00 294.99 322
March . . . . . . . . . . . . . . . . 170.00 238.86 33
February . . . . . . . . . . . . . . 95.00 236.00 369
January . . . . . . . . . . . . . . . 120.00 245.92 115
</TABLE>
The Interests also have been the subject of two recent tender offers by
unaffiliated third parties, in each case for up to 4.9% of the outstanding
Interests. The following table sets forth certain information with respect to
these tender offers:
RECENT TENDER OFFERS
<TABLE>
<CAPTION>
COMMENCEMENT PRICE NO. OF
NAME OF TENDER OFFEROR DATE OF TENDER OFFERED INTERESTS TENDERED
---------------------- -------------- ------- ------------------
<S> <C> <C> <C>
Grape Investors, LLC . . . . . . . July 3, 1996 $170.00 2,995
Equity Resource Fund XVII . . . . . May 10, 1996 $125.00 2,766
</TABLE>
B-1
<PAGE> 34
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995 COMMISSION FILE NUMBER 0-13563
DAMSON/BIRTCHER REALTY INCOME FUND-I
(Exact name of registrant as specified in its charter)
Pennsylvania 13-3264491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27611 La Paz Road, Laguna Niguel, California 92656
(Address of principal executive offices) (Zip Code)
(714) 643-7700
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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> 35
DAMSON/BIRTCHER REALTY INCOME FUND-I
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . 5
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters . . . 5
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 8
Item 8. Financial Statements and Supplementary Data . . . . . F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . 16
PART III
Item 10. Directors and Executive Officers of the Registrant . 16
Item 11. Executive Compensation . . . . . . . . . . . . . . . 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . 17
Item 13. Certain Relationships and Related Transactions . . . 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . 17
--- Signatures . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
-1-
<PAGE> 36
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 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.
The net proceeds of the foregoing loan will be used to fund a portion of the
renovation and tenant improvements at The Cornerstone and tenant improvements
at Oakpointe, with any remainder added to the Partnership's working capital
reserves. Additionally, the Partnership may incur unsecured indebtedness from
time to time to supplement its working capital needs. See Note 5 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, mandates 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
has decided to account for the Partnership's properties as assets held for
sale, instead of for investment. 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.
The Partnership derives most of its revenue from rental income. Both Certified
-2-
<PAGE> 37
DAMSON/BIRTCHER REALTY INCOME FUND-I
PART I
Item 1. Business (Cont'd.)
Warehouse and Transfer Company,Inc. ("Certified") and FIserv, Inc. ("FIserv",
formerly dba Citicorp CIR, Inc.) represent significant portions of such income.
Rental income from Certified totaled $984,000 in 1995, 1994 and 1993, or
approximately 17%, 16% and 15%, respectively, of the Partnership's total rental
income. Rental income from FIserv totaled $880,000 in 1995, $886,000 in 1994
and $916,000 in 1993, or approximately 15%, 14% 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.
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.
-3-
<PAGE> 38
DAMSON/BIRTCHER REALTY INCOME FUND-I
<TABLE>
<CAPTION>
Item 2. PROPERTIES NUMBER OF
NET TENANT PERCENTAGE
RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/95 12/31/95
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Washington Technical Center, $ 3,874,000 Four business center buildings 50,973 5 96%
Phase I located on 4.87 acres of land.
Renton, Washington
December 19, 1984
Arlington Executive Plaza 7,315,000 Seven single-story office buildings 72,977 28 70%
Arlington Heights, Illinois located on 7.2 acres of land.
February 15, 1985
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 18 95%
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 25 70%
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 16 68%
Denver, Colorado on .41 acres of land.
September 6, 1985
Oakpointe 9,517,000 Office building located on 6.8 acres 96,213 2 76%
Arlington Heights, Illinois of land.
September 18, 1985
----------- -------
TOTAL $76,231,000 832,131
=========== =======
</TABLE>
SEE NOTE TO TABLE ON THE FOLLOWING PAGE.
-4-
<PAGE> 39
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
$4,860,000 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.
-5-
<PAGE> 40
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 29, 1996, the number of holders of the Partnership's interests
is as follows:
<TABLE>
<S> <C>
General Partner 1
Limited Partners 10,873
------
10,874
======
</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 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 0 $253,000 $370,000 $662,000 $487,000 $730,000
Second 253,000 370,000 486,000 0 486,000
Third 253,000 360,000 350,000 0 486,000
Fourth 0 369,000 370,000 642,000 487,000
</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 two or more 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.
-6-
<PAGE> 41
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 5,973,000 $ 6,307,000 $6,525,000 $ 7,403,000 $ 7,606,000
=========== =========== ========== ============ ===========
Net Income (Loss):
General Partner $ (50,000) $ (56,000) $ (2,000) $ (138,000) $ 4,000
Limited Partners (4,922,000) (5,535,000) (193,000) (13,654,000) 374,000
----------- ----------- ---------- ------------ -----------
$(4,972,000) $(5,591,000) $ (195,000) $(13,792,000) $ 378,000
=========== =========== ========== ============ ===========
Total Distributions:
General Partner $ 8,000 $ 15,000 $ 19,000 $ 11,000 $ 22,000
=========== =========== ========== ============ ===========
Limited Partners $ 759,000 $ 1,469,000 $1,868,000 $ 1,129,000 $ 2,189,000
=========== =========== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $38,493,000 $44,292,000 $51,460,000 $54,144,000 $69,157,000
=========== =========== =========== =========== ===========
Secured Loan Payable $ 3,116,000 $ 3,285,000 $ 3,440,000 $ 4,000,000 $ 4,000,000
=========== =========== =========== =========== ===========
</TABLE>
-7-
<PAGE> 42
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 objective has been to hold its properties as long-term
investments, although properties may be sold at any time, depending upon the
General Partner's judgment of the anticipated remaining economic benefits of
continued ownership. That notwithstanding, the Information Statement, dated
May 5, 1993, as described below, mandates 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 has decided to account for the
Partnership's properties as assets held for sale, instead of for investment.
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.
Distributions for the year ended December 31, 1995, 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. 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 is scheduled to be completed during first quarter of 1996.
The General Partner currently estimates the cost of the planned capital
improvements which include exterior facade modifications, hardscape and
softscape changes and signage upgrades, to be approximately $1,200,000, plus
$600,000 for tenant improvements and leasing commissions. To pay for a portion
of these improvements and commissions the Partnership has temporarily suspended
distributions to its partners.
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 future 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, 1995.
-8-
<PAGE> 43
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.)
The General Partner elected to terminate the Partnership's Property Management
Agreement with Glenborough Management Corporation ("Glenborough") effective
November 1, 1993. On that date, the General Partner caused the Partnership to
enter a new property management agreement with Birtcher Properties, an
affiliate of the General Partner. Pursuant to the Partnership Management
Agreements, Birtcher Properties will act as the Partnership's exclusive agent
to operate, rent, manage and maintain the Partnership's properties. Birtcher
Properties will perform substantially the same services that Glenborough
performed during the previous two-year period at fees similar to (and not
larger than) the fees it used to pay Glenborough, plus certain costs associated
with property management, as before. The contracts are terminable upon a
minimum of 60 days' written notice by either party. As before, the General
Partner will continue to oversee the day-to-day management of the Partnership.
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 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, until March 3, 1997 the
Partnership is to pay interest only at the rate of 1% over prime (currently, the
loan rate is 9.25%) on the amounts it borrows. Thereafter, the outstanding
balance of all advances made under the note is to be converted to a fully
amortizing loan payable in 24 equal monthly payments of principal plus accrued
interest, commencing April 3, 1997. The Partnership has agreed to repay the
loan from the first sale of the Parthership's property. The net proceeds of
the foregoing loan will be used to fund a portion of the renovation and tenant
improvements at The Cornerstone and tenant improvements at Oakpointe, with any
remainder added to the Partnership's working capital reserves.
January 1, 1996 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 has requested that the appraiser
provide an assessment of value that reflects a shorter investment holding term.
Although the General Partner does not currently have a specific liquidation
plan for the Partnership's properties, it requested that the appraiser assume
that the entire portfolio would be sold over four years, in connection with the
January 1995 appraisals and over three years in connection with the January
1996 appraisals.
-9-
<PAGE> 44
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, 1996 Property Appraisals and Net Asset Value (Cont'd.)
Using the shorter-term investment methodology that is consistent with the
mandate of the 1993 amendment to the Partnership agreement, the appraiser
estimated the value of the Partnership's properties at January 1, 1996 to be
$40,390,000, or $4,155 per $10,000 original investor subscription.
Over the past year, the General Partner has examined several alternative
methods to achieve the Partnership's goal of selling the Partnership's
properties and liquidating the Partnership at the earliest practicable time
consistent with achieving reasonable value for the Limited Partners'
investment. As explained in the Partnership's May 5, 1993 Information
Statement, "achieving reasonable value" has meant for the Partnership to
balance receiving higher sales prices per property than their 1993 values while
at the same time not waiting forever to sell at a theoretical "top of the
market." Alternatives under consideration by the General Partner may include a
property-by-property liquidation or selling all of the properties as a single
portfolio. The General Partner has had preliminary discussions regarding
disposition, in whole or in part, of the Partnership's properties with various
potential purchasers of some or all of the Partnership's portfolio.
In connection with its consideration of these alternatives, the General Partner
has decided to treat its properties as held for sale, instead of for investment,
for financial statement purposes. 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
Financial Statements in Item 8), the carrying value of these properties
was evaluated to ensure that each property was carried on the Partnership's
balance sheet 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, 1996. However, fair value can only be
determined based upon sales to third parties, and sales proceeds could differ
substantially.
Based upon the General Partner's survey of the current marketplace, the General
Partner believes, in fact, that in the relatively short term the Partnership's
properties could generate sales prices that, in the aggregate, could be
materially less than their aggregate appraised values based upon an "Investment
Value" appraisal model. The amount of the possible variance between the
aggregate appraised values and potential sales prices cannot be reliably
estimated at this time, because of the numerous variables that could affect the
sales prices, including but not limited to the time frame in which the
properties must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable properties
are being sold at the time of the Partnership's sales, constantly changing
local market conditions and the state of leasing negotiations and capital
expenditures for the properties at the time of sale.
The foregoing appraised value of the properties indicates an estimated net
asset value of the Partnership of $37,618,000, or $3,870 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.) This equates to a net asset value of
$193 per $500 par value of Partnership Interest. This compares to original
purchase prices aggregating $7,979 and the January 1, 1995 appraised value of
$4,167 per $10,000 of original investor subscription.
-10-
<PAGE> 45
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, 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 the current level of 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
Centre, 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.
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.
-11-
<PAGE> 46
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 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.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
has decided to account for the Partnership's properties as assets held for
sale, instead of for investment. 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
-12-
<PAGE> 47
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.)
at Oakpointe and Arlington.
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
have not 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.
Year Ended December 31, 1993
The decrease in rental income for the year ended December 31, 1993, as compared
to 1992, was primarily attributable to reduced rental income at Oakpointe,
Arlington Executive Plaza, Cornerstone Shopping Center and Washington Technical
Center. At Oakpointe, the FIserv, Inc. lease (encompassing 62,052 square feet)
was successfully renegotiated for an additional six year term in exchange for a
reduced rental rate ($355,000). In addition, Incredible Technologies
terminated its lease upon scheduled expiration in November 1992 ($145,000). At
Arlington Executive Plaza, several tenants terminated their leases prior to or
upon their respective scheduled expirations resulting in a decrease in revenues
of $225,000 for the year ended December 31, 1993, when compared to 1992. At
Cornerstone Shopping Center, early termination of four small leases
encompassing 3,380 square feet, resulted in a lower occupancy rate and decrease
in rental income ($124,000), when compared to 1992. At Washington Technical
Center, Legent Corporation and Boeing Support Services terminated their leases
upon expiration in October 1993 and Jon Marie Portrait terminated its lease
prior to scheduled expiration date resulting in a 40% decrease in the
property's occupancy and a $60,000 decrease in rental income in 1993, when
compared to 1992.
-13-
<PAGE> 48
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, 1993 (Cont'd.)
Interest income resulted from the temporary investment of partnership working
capital. The decrease from 1992 to 1993 was attributable to a decrease in
working capital available for short-term investment. The decrease in working
capital was primarily a result of the $500,000 payment to the Partnership's
lender in July 1993. See Item 7, Capital Resources and Liquidity, for further
discussion.
The increase in operating expenses for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to an increase in parking
cleaning, snow removal, and repairs and maintenance at Oakpointe. In addition,
legal and professional services related to tax appeals and tenant disputes were
generally higher in 1993, when compared to 1992. The aforementioned increases
were partially offset by a decrease in HVAC repairs and maintenance and parking
lot rental expense at Terracentre.
The decrease in real estate taxes for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to successful tax appeals at
Terracentre, Cornerstone and Oakpointe. The aforementioned decreases were
partially offset by higher tax assessments at Arlington Executive Plaza and
Washington Technical Center.
The decrease in depreciation expenses for the year ended December 31, 1993, as
compared to 1992, was a result of the $13,900,000 adjustment to the carrying
value of real estate assets in 1992. As part of this adjustment, in December
1992, the depreciable bases (buildings and improvements) of Terracentre Office
Building and Arlington Executive Plaza were reduced by $10,700,000 and
$2,100,000, respectively, with the remaining adjustment of $1,100,000 allocated
to land.
General and administrative expenses for the year ended December 31, 1993
include charges of $580,000 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 $736,000 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, 1993, as compared to 1992, was primarily attributable to the payment of
asset management fees ($351,000) and leasing fees ($47,000) to the General
Partner and its affiliates pursuant to the amended Partnership Agreement. In
addition, legal and professional services, printing, postage and mailing
expenses increased as a result of the Partnership's solicitation of the Limited
Partners for the Information Statements, dated May 5, 1993.
Interest expenses resulted from interest on the first deed of trust on
Certified Distribution Center. The decrease in interest expenses for the year
ended December 31, 1993, as compared to 1992, was attributable to the
retirement of the Partnership's previous loan and a lower interest rate on the
take-out financing arrangement.
-14-
<PAGE> 49
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, 1993 (Cont'd.)
The General Partner elected to terminate the Partnership's Property Management
Agreement with Glenborough Management Corporation ("Glenborough") effective
November 1, 1993. On that date, the General Partner caused the Partnership to
enter a new property management agreement with Birtcher Properties, an
affiliate of the General Partner. Pursuant to the Property Management
Agreement, Birtcher Properties will act as the Partnership's exclusive agent to
operate, rent, manage and maintain the Partnership's properties. In its
capacity as property manager for the Partnership's properties, Birtcher
Properties will perform substantially the same services that Glenborough
performed during the previous two-year period at fees similar to (and not
larger than) the fees it used to pay Glenborough, plus certain costs associated
with property management, as before. The contract is terminable upon a minimum
of 60 days' written notice by either party. As before, the General Partner
will continue to oversee the day-to-day management of the Partnership.
-15-
<PAGE> 50
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, 1995 and 1994 . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-7
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-17
</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> 51
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.
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, 1995 and 1994 and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1995, 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 28, 1996
F-2
<PAGE> 52
DAMSON/BIRTCHER REALTY INCOME FUND-I
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
----------------------------
<S> <C> <C>
ASSETS
Properties held for sale (net of valuation
allowance of $4,770,000) $36,996,000 $ -
----------- ------------
Investments in real estate, net:
Land - 10,016,000
Buildings and improvements - 57,851,000
----------- ------------
- 67,867,000
Less accumulated depreciation - (25,396,000)
----------- ------------
- 42,471,000
Cash and cash equivalents 301,000 648,000
Accounts receivable (net of allowance for
doubtful accounts of $63,000 in 1995) 43,000 84,000
Accrued rent receivable 443,000 416,000
Prepaid expenses and other assets, net 710,000 673,000
----------- ------------
$38,493,000 $ 44,292,000
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 1,153,000 $ 1,044,000
Secured loan payable 3,116,000 3,285,000
----------- ------------
Total liabilities 4,269,000 4,329,000
----------- ------------
Partners' capital (deficit):
Limited Partners 34,714,000 40,395,000
General Partner (490,000) (432,000)
----------- ------------
34,224,000 39,963,000
Commitments and contingencies - -
----------- ------------
$38,493,000 $ 44,292,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE> 53
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
REVENUES:
Rental income $ 5,917,000 $ 6,215,000 $ 6,434,000
Interest and other income 56,000 92,000 91,000
----------- ----------- -----------
Total revenues 5,973,000 6,307,000 6,525,000
----------- ----------- -----------
EXPENSES:
Operating expenses 1,845,000 1,914,000 1,828,000
Real estate taxes 967,000 959,000 893,000
Depreciation and
amortization 2,069,000 2,241,000 2,326,000
General and administrative 1,005,000 981,000 1,316,000
Interest 289,000 303,000 357,000
Adjustment to carrying value
of real estate 4,770,000 5,500,000 -
----------- ----------- -----------
Total expenses 10,945,000 11,898,000 6,720,000
----------- ----------- -----------
NET LOSS $(4,972,000) $(5,591,000) $ (195,000)
=========== =========== ===========
NET LOSS ALLOCABLE TO:
General Partner $ (50,000) $ (56,000) $ (2,000)
=========== =========== ===========
Limited Partners $(4,922,000) $(5,535,000) $ (193,000)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 54
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
--------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 $(340,000) $49,460,000 $49,120,000
Net loss (2,000) (193,000) (195,000)
Distributions (19,000) (1,868,000) (1,887,000)
--------- ----------- -----------
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
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE> 55
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,972,000) $(5,591,000) $ (195,000)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 2,069,000 2,241,000 2,326,000
Adjustment to carrying value of
real estate 4,770,000 5,500,000 -
Changes in:
Accounts receivable 41,000 58,000 33,000
Due from affiliate - - 21,000
Accrued rent receivable (27,000) (150,000) (179,000)
Prepaid expenses and other assets (213,000) (191,000) (175,000)
Accounts payable and accrued
liabilities 109,000 62,000 (42,000)
----------- ----------- -----------
Net cash provided by operating
activities 1,777,000 1,929,000 1,789,000
----------- ----------- -----------
Cash flows from investing activities:
Investments in real estate (1,188,000) (710,000) (689,000)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on secured
loan payable (169,000) (155,000) (560,000)
Distributions (767,000) (1,484,000) (1,887,000)
----------- ----------- -----------
Net cash used in financing
activities (936,000) (1,639,000) (2,447,000)
----------- ----------- -----------
Net decrease in cash and
cash equivalents (347,000) (420,000) (1,347,000)
Cash and cash equivalents,
beginning of year 648,000 1,068,000 2,415,000
----------- ----------- -----------
Cash and cash equivalents,
end of year $ 301,000 $ 648,000 $ 1,068,000
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 289,000 $ 303,000 $ 357,000
========== =========== ===========
Non-cash transactions:
Repayment of secured loan
payable in 1993 - see Note 5
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 56
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
Statements, dated May 5, 1993. Those proposals have been implemented
by the Partnership as contemplated by the Information Statement as
amendments to the Partnership Agreement, and are reflected in these
Financial Statements as such.
The amendment modifies 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 modifies 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, 1995 and 1994 the
portfolio was appraised at an aggregate value of approximately
$40,505,000 (unaudited) and $47,060,000 (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 modifies the Partnership Agreement to eliminate the
subordination provisions with respect to future 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 future leasing services
rendered by the General Partner or its affiliates will be payable by
the Partnership on a current basis and would not be subordinated to the
Limited Partners Preferred Return and Adjusted Invested Capital or any
other amount.
The amendment modifies the Partnership Agreement to eliminate the
subordination provision with respect to future property disposition
fees payable under that section. The amendment authorizes payment to
the General Partner and its affiliates of the property disposition fee
as earned. The fee would not be subordinated to the Limited Partners
Preferred Return and Adjusted Invested Capital or any other amount.
F-7
<PAGE> 57
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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 states 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 modifies 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 would 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 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 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 is scheduled to be completed during the
first quarter of 1996. The General Partner currently estimates the
cost of the planned capital improvements which include exterior facade
modifications, hardscape and softscape changes and signage upgrades, to
be approximately $1,200,000, plus $600,000 for tenant improvements and
leasing commissions.
F-8
<PAGE> 58
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
To pay for a portion of these improvements and commissions the
Partnership has temporarily suspended distributions to its Limited
Partners.
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, 99% to Limited Partners and
1% to the General Partner.
The unpaid 9% Preferential Return to the Limited Partners' aggregates
$63,109,000 as of December 31, 1995.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
The amendment modifies 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. Although the current market for real estate is
depressed, the General Partner is committed to selling the
Partnership's properties as soon as reasonably practicable. To that
end, the amendment mandates that the General Partner seek a vote of the
Limited Partners no later than December 31, 1996 regarding the 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 value of all Partnership properties as of
that date are not sold or under contract for sale by the end of 1996.
In conjunction with the vote, the General Partner will provide an
analysis and recommendation regarding the advisability of liquidating
the Partnership.
Over the past year, the General Partner has examined several
alternative methods to achieve the Partnership's goal of selling the
Partnership's properties and liquidating the Partnership at the
earliest practicable time consistent with achieving reasonable value
for the Limited Partners' investment. As explained in the
Partnership's May 5, 1993 Information Statement, "achieving reasonable
value" has meant for the Partnership to balance receiving higher sales
prices per property than their 1993 values while at the same time not
waiting forever to sell at a theoretical "top of the market."
Alternatives under consideration by the General Partner may include a
property-by-property liquidation or selling all of the properties as a
single portfolio. The General Partner has had preliminary discussions
regarding disposition, in whole or in part, of the Partnership's
properties with various potential purchasers of some or all of the
Partnership's portfolio.
In connection with its consideration of these alternatives,
F-9
<PAGE> 59
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
the General Partner has decided to treat its properties as held for
sale, instead of for investment, for financial statement purposes.
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 was carried
on the Partnership's balance sheet 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, 1996. However,
fair value can only be determined based upon sales to third parties,
and sales proceeds could differ substantially.
Based upon the General Partner's survey of the current marketplace, the
General Partner believes, in fact, that in the relatively short term
the Partnership's properties could generate sales prices that, in the
aggregate, could be materially less than their aggregate appraised
values based upon an "Investment Value" appraisal model. The amount of
the possible variance between the aggregate appraised values and
potential sales prices cannot be reliably estimated at this time,
because of the numerous variables that could affect the sales prices,
including but not limited to the time frame in which the properties
must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable
properties are being sold at the time of the Partnership's sales,
constantly changing local market conditions and the state of leasing
negotiations and capital expenditures for the properties at the time of
sale.
(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 an average 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
F-10
<PAGE> 60
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.)
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.
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, 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, 1995 and 1994, totaled $301,000 and $609,000,
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.
F-11
<PAGE> 61
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
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> 62
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>
1995 1994
GAAP Basis Tax Basis GAAP Basis Tax Basis
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $38,493,000 $55,330,000 $44,292,000 $59,659,000
Total Liabilities $ 4,269,000 $ 4,269,000 $ 4,329,000 $ 4,329,000
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss per Financial Statements
$(4,972,000) $(5,591,000) $ (195,000)
Adjustment to carrying value of real
estate 4,770,000 5,500,000 -
Depreciation differences on investments in
real estate (1,157,000) (888,000) (883,000)
Other 85,000 (196,000) (113,000)
- -----------------------------------------------------------------------------------------------
Taxable income (loss) per Federal tax
return (unaudited) $(1,274,000) $(1,175,000) $(1,191,000)
===============================================================================================
</TABLE>
Significant Tenants
Rental income from Certified Warehouse and Transfer Company, Inc.,
totaled $984,000 in 1995, 1994 and 1993, or approximately 17%, 16% and
15%, respectively, of the Partnership's total rental income. Rental
income from FIserv, Inc. (formerly dba Citicorp CIR, Inc.) totaled
$880,000 in 1995, $886,000 in 1994 and $916,000 in 1993, or
approximately 15%, 14% 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.
F-13
<PAGE> 63
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Earnings and Distributions Per Unit (Cont'd.)
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.
Reclassifications
Certain reclassifications have been made to conform prior year amounts
to the 1995 presentation.
(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, 1995, 1994 and 1993, the Partnership was charged with approximately
$226,000, $191,000 and $182,000, respectively, of such expenses.
On November 1, 1993, the General Partner elected to terminate the
Partnership's property management agreement with an unaffiliated third
party. On that date, the General Partner entered into a new property
management agreement with Birtcher Properties, an affiliate of the
General Partner. The contract encompasses terms at least as favorable
to the Partnership as the terminated contract with the unaffiliated
third party, and is terminable by the Partnership upon 60 days' notice
to Birtcher Properties. Fees paid to the General Partner's affiliate
for services are not to exceed 3% of the gross receipts from the
properties under management. Such fees amounted to approximately
$161,000 in 1995, $167,000 in 1994 and $32,000 in 1993. In addition,
the affiliate of the General Partner received $321,000 in 1995,
$303,000 in 1994 and $49,000 in 1993, 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, 1995, 1994 and
1993, amounted to $304,000, $353,000 and $351,000, 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
F-14
<PAGE> 64
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates (Cont'd.)
year ended December 31, 1995, 1994 and 1993, amounted to $58,000,
$24,000 and $47,000, respectively.
(4) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business. It is the General Partner's belief, that the outcome of
these proceedings will not be material to the business, financial
condition, or results of operations of the Partnership.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1995, 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, 1995, are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1996 $ 4,905,000
1997 4,427,000
1998 3,189,000
1999 2,776,000
2000 1,829,000
Thereafter 7,568,000
-----------
$24,694,000
===========
</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.
(5) 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, 1995, are as follows:
F-15
<PAGE> 65
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Secured Loan Agreement (Cont'd.)
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1996 $ 185,000
1997 202,000
1998 221,000
1999 242,000
2000 264,000
Thereafter 2,002,000
----------
$3,116,000
==========
</TABLE>
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, until March 3, 1997 the Partnership is to pay interest only
at the rate of 1% over prime (currently, the loan rate is 9.25%) on the
amounts it borrows. Thereafter, the outstanding balance of all
advances made under the note is to be converted to a fully amortizing
loan payable in 24 equal monthly payments of principal plus accrued
interest, commencing April 3, 1997. The Partnership has agreed to
repay the loan from the first sale of the Partnership's property. The
net proceeds of the foregoing loan are to be used to fund a portion of
the renovation and tenant improvements at The Cornerstone and tenant
improvements at Oakpointe, with any remainder added to the
Partnership's working capital reserves.
(6) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
------------------------
<S> <C> <C>
Real estate taxes $ 799,000 $ 759,000
Accounts payable and other 354,000 285,000
---------- ----------
$1,153,000 $1,044,000
========== ==========
</TABLE>
(7) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ - $19,000 $ 26,000
Additions charged to expense 63,000 4,000 17,000
Write-offs - (23,000) (24,000)
------- ------- --------
Balance at end of year $63,000 $ - $ 19,000
======= ======= ========
</TABLE>
F-16
<PAGE> 66
DAMSON/BIRTCHER REALTY INCOME FUND-I
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(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 and Improvements Carrying Land Buildings and Total
(a) Improvements Costs Improvements (e)
(d), (b)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Washington $ - $ 865 $ 3,252 $1,084 $ (855) $ 859 $ 3,488 $ 4,347
Technical
Center, Phase I
Renton, WA
- ----------------------------------------------------------------------------------------------------------------------------------
Arlington - 1,004 6,748 1,960 (3,650) 693 5,369 6,062
Executive Plaza
Arlington
Heights, IL
- ----------------------------------------------------------------------------------------------------------------------------------
Certified 3,116 1,160 8,751 - - 1,160 8,751 9,911
Distribution
Center
Salt Lake City, UT
- ----------------------------------------------------------------------------------------------------------------------------------
Ladera Shopping - 2,107 6,971 312 (570) 2,097 6,723 8,820
Center, Phase I
Albuquerque, NM
- ----------------------------------------------------------------------------------------------------------------------------------
The Cornerstone - 4,620 14,115 1,931 (5,800) 3,597 11,268 14,865
Tempe, AZ
- ----------------------------------------------------------------------------------------------------------------------------------
Terracentre - 1,458 19,939 2,079 (14,790) 491 8,195 8,686
Denver, CO
- ----------------------------------------------------------------------------------------------------------------------------------
Oakpointe - 1,249 8,852 2,605 (1,112) 1,119 10,475 11,594
Arlington
Heights, IL
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL $3,116 $12,463 $68,628 $9,971 $(26,777) $10,016 $54,269 $64,285
==================================================================================================================================
</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
- -------------------------------------------------------------------------------------------------
Arlington 3,322 02/15/85 30 years
Executive Plaza
Arlington
Heights, IL
- -------------------------------------------------------------------------------------------------
Certified 3,135 04/02/85 30 years
Distribution
Center
Salt Lake City, UT
- -------------------------------------------------------------------------------------------------
Ladera Shopping 2,586 05/10/85 30 years
Center, Phase I
Albuquerque, NM
- -------------------------------------------------------------------------------------------------
The Cornerstone 5,833 07/19/85 30 years
Tempe, AZ
- -------------------------------------------------------------------------------------------------
Terracentre 6,289 09/06/85 30 years
Denver, CO
- -------------------------------------------------------------------------------------------------
Oakpointe 4,389 09/18/85 30 years
Arlington
Heights, IL
- -------------------------------------------------------------------------------------------------
TOTAL $27,289
=================================================================================================
</TABLE>
NOTE: Column G is not applicable.
See notes to schedule on following page.
F-17
<PAGE> 67
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO SCHEDULE III
(a) For a description of the properties, see "Item 2. Properties."
(b) 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 $91,943,000 as of December 31,
1995. 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-18
<PAGE> 68
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO SCHEDULE III (Cont'd.)
(e) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1994 1993
=========================================
<S> <C> <C> <C>
Balance at beginning of year $67,867,000 $72,657,000 $71,968,000
Additions during the year:
Improvements 1,188,000 710,000 689,000
Reductions during the year:
Adjustment to the carrying
value of real estate (4,770,000) (5,500,000) -
----------- ----------- -----------
Balance at end of year $64,285,000 $67,867,000 $72,657,000
=========== =========== ===========
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1994 1993
=========================================
<S> <C> <C> <C>
Balance at beginning of year $25,396,000 $23,258,000 $21,045,000
Depreciation expense 1,893,000 2,138,000 2,213,000
----------- ----------- -----------
Balance at end of year $27,289,000 $25,396,000 $23,258,000
=========== =========== ===========
</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>
F-19
<PAGE> 69
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, 1995.
16
<PAGE> 70
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
======================================
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 8,000 $ 15,000 $ 19,000
Asset management fees 304,000 353,000 351,000
Property management fees(1) 161,000 167,000 32,000
Leasing fees 58,000 24,000 47,000
Property management expense
reimbursements(1) 321,000 303,000 49,000
Other expense reimbursements 226,000 191,000 182,000
---------- ---------- --------
TOTAL $1,078,000 $1,053,000 $680,000
========== ========== ========
</TABLE>
- --------------
(1) The General Partner did not provide property management services to the
Partnership's properties through October 31, 1993, and consequently,
the General Partner did not receive any similar compensation during the
first ten months of 1993.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1996, 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.
-17-
<PAGE> 71
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)
-18-
<PAGE> 72
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:
None.
-19-
<PAGE> 73
DAMSON/BIRTCHER REALTY INCOME FUND-I
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-I
<TABLE>
<S> <C>
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, 1996 By: /s/ Robert M. Anderson
----------------------------
Robert M. Anderson
Executive Director
BREICORP
</TABLE>
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, 1996 By: /s/ Brent R. Donaldson
---------------------------------
Brent R. Donaldson
President Liquidity Fund
Asset Management, Inc.
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, 1996
- --------------------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1996
- --------------------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1996
- --------------------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-20-
<PAGE> 74
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
For Quarter Ended September 30, 1996
----------------------------------------------------------
Commission file number 0-13563
------------------------------------------------------
DAMSON/BIRTCHER REALTY INCOME FUND - I
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 13-3264491
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box A-1, Laguna Niguel, California 92677-0100
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 643-7700
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE> 75
DAMSON/BIRTCHER REALTY INCOME FUND-I
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
September 30, 1996 (Unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations (Unaudited) -
Three and Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
<PAGE> 76
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
DAMSON/BIRTCHER REALTY INCOME FUND-I
BALANCE SHEETS
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Properties held for sale (net of valuation $37,033,000 $36,996,000
allowance of $6,640,000 in 1996 and
$4,770,000 in 1995)
Cash and cash equivalents 215,000 301,000
Accounts receivable (net of allowance for
doubtful accounts of $46,000 in 1996 and
$63,000 in 1995) 39,000 43,000
Accrued rent receivable 487,000 443,000
Prepaid expenses and other assets 706,000 710,000
----------- -----------
$38,480,000 $38,493,000
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 932,000 $ 1,153,000
Secured loan(s) payable 3,679,000 3,116,000
----------- -----------
Total liabilities 4,611,000 4,269,000
----------- -----------
Partners' capital (deficit):
Limited Partners 34,363,000 34,714,000
General Partner (494,000) (490,000)
----------- -----------
33,869,000 34,224,000
Commitments and contingencies - -
----------- -----------
$38,480,000 $38,493,000
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been prepared from the
audited financial statements as of that date.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 77
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF OPERATIONS
(UNAUDITED)
------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
- --------
Rental income $1,590,000 $1,442,000 $4,737,000 $4,411,000
Interest income 4,000 12,000 6,000 33,000
---------- ---------- ---------- ----------
Total revenues 1,594,000 1,454,000 4,743,000 4,444,000
---------- ---------- ---------- ----------
EXPENSES
- --------
Operating expenses 429,000 475,000 1,318,000 1,338,000
Real estate taxes 230,000 257,000 568,000 709,000
Depreciation and amortization 56,000 505,000 140,000 1,510,000
General and administrative 230,000 243,000 708,000 728,000
Interest 84,000 72,000 240,000 218,000
Adjustment to carrying value
of real estate 335,000 - 1,870,000 -
---------- ---------- ---------- ----------
Total expenses 1,364,000 1,552,000 4,844,000 4,503,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 230,000 $ ( 98,000) $ (101,000) $ (59,000)
========== ========== ========== ==========
NET INCOME (LOSS) ALLOCABLE TO:
General Partner $ 2,000 $ (1,000) $ (1,000) $ ( 1,000)
========== ========== ========== ==========
Limited Partners $ 228,000 $ (97,000) $ (100,000) $ (58,000)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 78
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CASH FLOWS
(UNAUDITED)
------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (101,000) $ (59,000)
Adjustments to reconcile net loss to
net cash (used in) provided by operating
activities:
Depreciation and amortization 140,000 1,510,000
Adjustment to carrying value of real estate 1,870,000 -
Changes in:
Additions to properties held for sale (1,907,000) -
Accounts receivable 4,000 51,000
Accrued rent receivable (44,000) (26,000)
Prepaid expenses and other assets (135,000) (106,000)
Accounts payable and accrued liabilities (221,000) 95,000
----------- ----------
Net cash (used in) provided by operating
activities (394,000) 1,465,000
Cash flows from investing activities:
Investments in real estate - (514,000)
----------- ----------
Net cash used in investing activities - (514,000)
Cash flows from financing activities:
Proceeds from secured loan 700,000 -
Secured loan payments (137,000) (125,000)
Distributions (255,000) (766,000)
----------- ----------
Net cash provided by (used in) financing
activities 308,000 (891,000)
Net (decrease) increase in cash and cash
equivalents (86,000) 60,000
Cash and cash equivalents, beginning of
period 301,000 648,000
----------- ----------
Cash and cash equivalents, end of period $ 215,000 $ 708,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 79
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
- -----------------------------------------
(1) Accounting Policies
-------------------
The financial statements of Damson/Birtcher Realty Income Fund-I (the
"Partnership") included herein have been prepared by the General
Partner, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements
include all adjustments which are of a normal recurring nature and, in
the opinion of the General Partner, are necessary for a fair
presentation. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted,
pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Partnership's annual report on Form 10-K for the year ended December
31, 1995.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate original reduced rates on
sales commissions for subscriptions in excess of certain specified
amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who
paid commissions at a higher rate. As a result, the Partnership has
no set unit value as all accounting, investor reporting and tax
information is based upon each investor's relative percentage of
Invested Capital. Accordingly, earnings or loss per unit is not
presented in the accompanying financial statements.
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.
6
<PAGE> 80
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(1) Accounting Policies (Cont'd.)
-------------------
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 its 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 an average 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, as of 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 their appraised values, and
accordingly reduced those 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.
For the three and nine months ended September 30, 1996, the
Partnership spent an aggregate of approximately $335,000 and
$1,870,000, respectively, related to tenant/building improvements and
leasing commissions with respect to the aforementioned properties.
Because these expenditures exceeded the estimate of fair value of each
of those properties as of December 31, 1995, the General Partner
adjusted the carrying value of the Partnership's portfolio by an
aggregate of $1,870,000 for the nine months ending September 30, 1996.
(2) Transactions with Affiliates
----------------------------
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the three months ended
September 30, 1996 and 1995, the Partnership incurred approximately
$49,000 and $49,000, respectively, of such expenses. For the nine
months ended September 30, 1996 and 1995, such payments were $147,000
and $157,000 respectively.
7
<PAGE> 81
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
----------------------------------------
(2) 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
$46,000 and $39,000 for the three months ended September 30, 1996 and
1995, respectively, and $135,000 and $116,000 for the nine months
ended September 30, 1996 and 1995. In addition, an affiliate of the
General Partner received $89,000 and $79,000 for the three months
ended September 30, 1996 and 1995, respectively, as reimbursement of
costs of on-site property management personnel and other reimbursable
costs. For the nine months ended September 30, 1996 and 1995, such
payments were $284,000 and $243,000, respectively.
As previously reported, 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 have been implemented by the Partnership as
contemplated by the Information Statement as amendments to the
Partnership Agreement, and are reflected in these financial statements
as such.
The Amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .75% of the aggregate appraised value of the Partnership's
properties as determined by independent appraisal undertaken in
January of each year. Such fees for the three months ended September
30, 1996 and 1995, amounted to $76,000 and $76,000, respectively. For
the nine months there ended, such fees amounted to $227,000 and
$228,000, respectively.
In addition, the Amended Partnership Agreement provides for payment to
the General Partner of a leasing fee for services rendered in
connection with leasing space in a Partnership property after the
expiration or termination of leases. Fees for leasing services for
the three months ended September 30, 1996 and 1995, amounted to $5,000
and $21,000, respectively, and for the nine months there ended they
amounted to $13,000 and $28,000, respectively.
(3) Commitments and Contingencies
-----------------------------
Litigation
The Partnership is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business. It is the General Partner's belief that the outcome of
these proceedings will not be material to the business or financial
condition of the Partnership.
8
<PAGE> 82
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
- ----------------------------------------
(4) Subsequent Events
-----------------
In August 1996, the General Partner entered into a contract to sell
Arlington Executive Plaza for $3,041,250. The property is currently
in escrow and is scheduled to close on or before November 30, 1996.
Proceeds from the sale will be used to retire the existing debt on
Ladera-I Shopping Center (approximately $700,000) with any remainder
being distributed to the Limited Partners.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
-------------------------------
Since completion of its acquisition program in September 1985, the
Partnership has been engaged primarily in the operation of its
properties. The Partnership's objective has been to hold its
properties as long-term investments, although properties may be sold
at any time depending upon the General Partner's judgment of the
anticipated remaining economic benefits of continued ownership.
Working capital is and will be provided principally 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.
On July 30, 1993, the Partnership obtained a loan secured by a First
Deed of Trust on the Certified Distribution Center in Salt Lake City,
Utah. The loan, in the amount of $3,500,000, carries a fixed interest
rate of 9% per annum over a 13-year fully amortizing term. The
Partnership's first payment of $38,138.82 was paid on September 1,
1993, with monthly installments due thereafter. Proceeds from that
loan, along with $500,000 of Partnership cash reserves, were used to
retire the Partnership's then existing debt of $4,000,000.
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, until March 3, 1997 the Partnership is to pay interest
only at the rate of 1% over prime (currently, the loan rate is 9.25%)
on the amounts it borrows. Thereafter, the outstanding balance of all
advances made under the note is to be converted to a fully amortizing
loan payable in 24 equal monthly payments of principal plus accrued
interest, commencing April 3, 1997. The Partnership has agreed to
repay the loan from the first sale of the Partnership's property. The
net proceeds of the foregoing loan are to be used to fund a portion of
the renovation and tenant improvements at The Cornerstone and tenant
improvements at Oakpointe, with any remainder added to the
Partnership's working capital reserves. As of September 30, 1996,
the Partnership had borrowed
9
<PAGE> 83
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
-------------------------------
$700,000 pursuant to the aforementioned loan agreement to fund a
portion of the renovation at the Cornerstone Shopping Center, which
was completed during the second quarter of 1996. There will be
additional costs for tenant improvements as the vacant space in the
center is leased.
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 their
respective market areas. To the extent the Partnership is not
successful in maintaining or increasing occupancy levels at these
properties, the Partnership's future cash flow may be reduced.
Distributions through September 30, 1996 represent cash flow generated
from operations of the Partnership's properties and interest earned on
the temporary investment of working capital net of capital reserve
requirements. Future cash distributions will be made principally to
the extent of cash flow attributable to operations and sales of the
Partnership's properties and interest earned on the investment of
capital reserves, after loan repayments, capital improvements and
providing for future capital reserves.
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 mandated, 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 that 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 currently have a
specific liquidation plan for the Partnership's properties, it
requested that the appraiser assume that the entire portfolio would
be sold over four years, in connection with the January 1995
appraisals and over three years in connection with the January 1996
appraisals.
10
<PAGE> 84
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
-------------------------------
Using the shorter-term investment methodology that is consistent with
the mandate of the 1993 Amendment to the Partnership Agreement, the
appraiser estimated the value of the Partnership's properties at
January 1, 1996 to be $40,390,000, or $4,155 per $10,000 original
investor subscription.
Over the past year, the General Partner has examined several
alternative methods to achieve the Partnership's goal of selling
properties and liquidating the Partnership at the earliest practicable
time consistent with achieving reasonable value for the Limited
Partners' investment. As explained in the Partnership's May 5, 1993
Information Statement, "achieving reasonable value" has meant for
the Partnership to balance receiving higher sales prices per
property than their 1993 values while at the same time not waiting
forever to sell at a theoretical "top of the market." Alternatives
under consideration by the General Partner may include a property-
by-property liquidation or selling all of the properties as a single
portfolio. The General Partner has had preliminary discussions
regarding disposition, in whole or in part, of the Partnership's
properties with various potential purchasers of some or all of the
Partnership's portfolio.
In connection with its consideration of these alternatives, the
General Partner has decided to treat its properties as held for sale,
instead of for investment, for financial statement purposes. 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," the carrying value of these properties was
evaluated to ensure that each property was carried on the
Partnership's Balance Sheet at the lower of cost or fair value less
estimated selling costs. The General Partner estimated fair value for
this purpose based on appraisals performed as of January 1, 1996.
However, fair value can only be determined based upon sales to third
parties and sales proceeds could differ substantially.
Based upon the General Partner's survey of the current marketplace,
the General Partner believes, in fact, that in the relatively short
term the Partnership's properties could generate sales prices that, in
the aggregate, could be materially less than their aggregate appraised
values based upon an "Investment Value" appraisal model. The amount
of the possible variance between the aggregate appraised values and
potential sales prices cannot be reliably estimated at this time,
because of the numerous variables that could affect the sales prices,
including but not limited to the time frame in which the properties
must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable
properties are being sold at the time of the Partnership's sales,
constantly changing local market conditions and the state of leasing
negotiations and capital expenditures for the properties at the time
of sale.
11
<PAGE> 85
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended September 30, 1996
-------------------------------------------------------------------
Compared With the Three Months Ended September 30, 1995 and for the
-------------------------------------------------------------------
Nine Months Ended September 30, 1996 Compared With the Nine Months
------------------------------------------------------------------
Ended September 30, 1995
------------------------
The increases in rental income for the three and nine months ended
September 30, 1996, as compared to the corresponding periods in 1995,
were primarily attributable to the increase's in revenue at Oakpointe,
Terracentre and Arlington Executive Plaza. At Oakpointe, a new lease
was successfully negotiated with Symbol Technologies, Inc,
encompassing 22,801 square feet, for a five year term effective in
February 1996. In addition, a new lease was negotiated at Terracentre
with Ragland Design Group, Inc., in July 1996, encompassing 1,194
square feet for a three year term. At Arlington Executive Plaza, new
leases were successfully negotiated with Dawes Laboratories
encompassing 4,832 square feet in October 1995, Drs. Jessen, Wesley &
Assoc., encompassing 1,620 square feet in November 1995, Tony Stallone
Produce Co., encompassing 741 square feet in February 1996 and
Associates in Psychotherapy encompassing 1,724 square feet in July
1996.
The decrease in interest income from 1995 to 1996 was attributable to
a decrease in the average level of working capital available for short
term investments.
The decrease in real estate taxes for the three months ended September
30, 1996, as compared to the corresponding period in 1995 was
primarily a result of a decrease in real estate taxes at The
Cornerstone.
The decrease in real estate taxes for the nine months ended September
30, 1996, as compared to the corresponding period in 1995, was
primarily a result of successful tax appeals at Arlington Executive
Plaza and Oakpointe.
The decrease in operating expenses for the three months ended
September 30, 1996, as compared to the corresponding period in 1995,
resulted from several factors. At The Cornerstone, legal and
professional fees were reduced by $25,000. At Arlington Executive
Plaza, general building repair and maintenance, electricity and
painting costs decreased ($9,000). In addition, general building
repair and maintenance, electricity and space planning costs
decreased at Terracentre ($12,000) during the period.
The decrease in operating expenses for the nine months ended September
30, 1996, as compared to the corresponding period in 1995, was
primarily attributable to a decrease in utility costs, advertising and
space planning at The Cornerstone ($29,000).
12
<PAGE> 86
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended September 30, 1996
-------------------------------------------------------------------
Compared With the Three Months Ended September 30, 1995 and for the
-------------------------------------------------------------------
Nine Months Ended September 30, 1996 Compared With the Nine Months
------------------------------------------------------------------
Ended September 30, 1995 (Cont'd.)
------------------------
The decreases in depreciation and amortization expenses for the three
and nine months ended September 30, 1996 as compared to the
corresponding periods in 1995 were attributable to the adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," pursuant to which assets held for sale are no longer
depreciated.
For the nine months ended September 30, 1996, the carrying value of
the Partnership's portfolio was reduced by $1,870,000, which is
representative of the amount spent on building improvements, tenant
improvements, leasing commissions and other related assets at The
Cornerstone, Ladera-I Shopping Center, Terracentre, Arlington
Executive Plaza and Washington Technical Center during the period.
General and administrative expenses for the nine months ended
September 30, 1996 and 1995, include charges of $387,000 and $414,000,
respectively, from the General Partner and its affiliates for services
rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included
in general and administrative expenses for the nine months ended
September, 1996 and 1995, are direct charges of $321,000 and $314,000,
respectively, relating to audit fees, tax preparation fees, legal fees
and professional services, liability insurance expenses, costs
incurred in providing information to the Limited Partners and other
miscellaneous costs.
The decreases in general and administrative expenses for the three and
nine months ended September 30, 1996, as compared to the corresponding
periods in 1995, were primarily attributable to a decrease in leasing
fees and appraisal fees. The aforementioned decreases were partially
offset by an increase in professional services.
The increases in interest expenses for the three and nine months ended
September 30, 1996, as compared to the corresponding periods in 1995,
were attributable to a new loan arrangement that commenced in March
1996. Pursuant to that arrangement, the Partnership borrowed $700,000
for which it is paying interest only at 1% over the prime rate
(currently 9.25%) on the outstanding principal. Such interest
amounted to $16,000 and $34,000 for the three and nine months ended
September 30, 1996, respectively.
13
<PAGE> 87
DAMSON/BIRTCHER REALTY INCOME FUND-I
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits:
27 - Financial Data Schedule
b) Reports on Form 8-K:
None filed in quarter ended September 30, 1996.
14
<PAGE> 88
DAMSON/BIRTCHER REALTY INCOME FUND-I
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-I
By: DAMSON/BIRTCHER PARTNERS By: BIRTCHER PARTNERS,
(General Partner) a California general partnership
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Partners
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: November 12, 1996 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: November 12, 1996 By: /s/ Brent R. Donaldson
--------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management,
Inc.
15
<PAGE> 89
- --------------------------------------------------------------------------------
CONSENT CONSENT
DAMSON/BIRTCHER REALTY INCOME FUND-I
THIS CONSENT IS SOLICITED BY AND ON BEHALF OF THE PARTNERSHIP. THE GENERAL
PARTNER RECOMMENDS A VOTE "FOR" THE PROPOSAL.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW. IF NO
INSTRUCTIONS ARE INDICATED, BY YOUR SIGNATURE BELOW YOU WILL BE DEEMED TO HAVE
CONSENTED TO THE PROPOSAL AS RECOMMENDED BY THE GENERAL PARTNER.
A consent to a Proposal also will constitute your consent to all actions
necessary to consummate all transactions with respect to the Proposal
contemplated by the Information Statement.
PLEASE MARK THE APPROPRIATE BOX:
With the General Partner's recommendation to dissolve the Partnership and
seek to sell and liquidate the remaining Partnership properties and wind up
the Partnership at the earliest practical time consistent with achieving
reasonable value for the Limited Partners' investment, I vote:
/ / FOR or / / AGAINST or / / ABSTAIN
- --------------------------------------------------------------------------------
The undersigned acknowledges receipt of the Information Statement dated
_________, 199_ pertaining to the Proposal.
Dated: __________________________, 1997
________________________________________
Signature
________________________________________
Signature (if held jointly)
________________________________________
Title
PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON. WHEN INTERESTS ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING
AS AN ATTORNEY, AS EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN NAME BY
PRESIDENT OR OTHER AUTHORIZED OFFICER.
IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE TO: THE HERMAN GROUP, INC., 2121 SAN JACINTO STREET, 26TH
FLOOR, DALLAS, TEXAS 75201. IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE INVESTOR
RELATIONS DEPARTMENT AT (800) OR (214) 999-9393.
<PAGE> 90
DAMSON/BIRTCHER PARTNERS
27611 LA PAZ ROAD
LAGUNA NIGUEL, CALIFORNIA 92656
TO THE LIMITED PARTNERS OF
DAMSOM/BIRTCHER REALTY INCOME FUND-I
(THE "PARTNERSHIP")
, 1997
-----------
Dear Limited Partner:
We are very pleased to present the enclosed Information Statement to
the limited partners of the Partnership. This Information Statement is, in many
ways, a follow-up to the 1993 Solicitation, in which the Partnership sought and
received the limited partners' consent to a comprehensive proposal to prepare
the Partnership's properties for sale. Pursuant to that proposal the
Partnership began the liquidation process.
Now, the Partnership is seeking the consent of the limited partners to
dissolve the Partnership and sell and liquidate all of its remaining
properties. The proposal to dissolve the Partnership is discussed in more
detail in the Information Statement under "Summary of Proposal" and
"Description of Proposal."
Accompanying the Information Statement is the Partnerships' most recent
Form 10-Q for the quarter ended September 30, 1996.
We urge you to read the enclosed document carefully and to return your
signed consent as quickly as possible to The Herman Group, Inc., 2121 San
Jacinto Street, 26th Floor, Dallas, Texas 75201. For your convenience a
postage-paid return envelope has been included. If you have any questions about
the enclosed material, please call The Herman Group, Inc. at 1 (800) 657-8814.
Very truly yours,
DAMSON/BIRTCHER PARTNERS
By:
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By:
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YOUR VOTE IS IMPORTANT
Please sign and date the enclosed Consent Card and return it
immediately so that your vote can be countered.
