<PAGE> 1
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, 1998 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)
(949) 643-7700
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
<S> <C>
NONE NONE
</TABLE>
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> 2
DAMSON/BIRTCHER REALTY INCOME FUND-I
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 6
Item 3. Legal Proceedings................................................ 7
Item 4. Submission of Matters to a Vote of
Security Holders............................................... 8
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters.................. 8
Item 6. Selected Financial Data.......................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
Item 7a. Quantitative and Qualitative Market Risk Disclosures............. 19
Item 8. Financial Statements and Supplementary Data...................... F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 20
PART III
Item 10. Directors and Executive Officers of the Registrant............... 20
Item 11. Executive Compensation........................................... 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 21
Item 13. Certain Relationships and Related Transactions................... 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................ 21
--- Signatures....................................................... 24
</TABLE>
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<PAGE> 3
DAMSON/BIRTCHER REALTY INCOME FUND-I
PART I
Item 1. Business
Damson/Birtcher Realty Income Fund-I (the "Partnership") is a limited
partnership formed on May 7, 1984, under the laws of the Commonwealth of
Pennsylvania. The General Partner of the Partnership is Damson/Birtcher
Partners, a general partnership consisting of LF Special Fund II, L.P., a
California limited partnership and Birtcher Partners, a California general
partnership. The Partnership is engaged in the business of operating
income-producing office buildings, research and development facilities, shopping
centers and other commercial or industrial properties acquired by the
Partnership in 1984 and 1985. Each of the Partnership's properties was specified
in its prospectus (Commission File No. 2-91065) dated June 22, 1985, as amended.
See Item 2 for a description of the properties acquired by the Partnership.
The Partnership commenced operations on December 18, 1984. As of September 17,
1985, the Partnership was fully subscribed and had admitted Limited Partners
with total capital contributions of $97,198,000.
The Partnership acquired the properties during the period from December 19, 1984
through September 18, 1985, entirely for cash, free and clear of mortgage
indebtedness. In September 1987, the Partnership borrowed $4,000,000 pursuant to
a loan agreement secured by a First Deed of Trust on the Certified Distribution
Center in Salt Lake City, Utah. The net proceeds were used primarily for capital
improvements and leasing commissions on certain of the Partnership's properties,
the Partnership's working capital reserves and certain general and
administrative expenses. The General Partner, upon inquiry, was informed in
February 1992, that the Partnership's lender did not intend to extend the loan
secured by Certified Distribution Center past its maturity date of December 1,
1993. Therefore, on July 30, 1993 the Partnership obtained a new loan secured by
a First Deed of Trust on the property. 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 and a prepayment penalty of approximately $700,000 at current interest
rates. In March 1996, the Partnership entered into a loan agreement pursuant to
which it could have borrowed up to $1,500,000, evidenced by a note secured by a
first deed of trust and financing statement on the Ladera I Shopping Center in
Albuquerque, New Mexico. Pursuant to that note arrangement, the Partnership
borrowed $700,000 to fund a portion of the renovation and tenant improvements at
The Cornerstone and tenant improvements at Oakpointe. The loan was subsequently
paid off in November 1996 utilizing a portion of the sale proceeds from
Arlington Executive Plaza. The Partnership may incur unsecured indebtedness from
time to time to supplement its working capital needs. See Note 6 to Financial
Statements in Item 8.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will be
tax sheltered; (ii) to achieve capital appreciation over a holding period of at
least five years; and (iii) to preserve and protect the Partnership's capital.
An Information Statement, dated May 5, 1993, mandated that the General Partner
shall seek a vote of the Limited Partners no later than December 31, 1996,
regarding prompt liquidation of the Partnership in the event that properties
with appraised values as of January 1993, which constituted at least one-half of
the aggregate appraised values of all Partnership properties as of that date,
are not sold or under contract for sale by the end of 1996.
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<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 1. Business (Cont'd.)
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
instead of for investment as of December 31, 1995. 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 the properties was
evaluated to insure that each property was carried on the Partnership's balance
sheets at the lower of cost or fair value, less estimated selling costs.
Accordingly, the General Partner compared the carrying value of each property to
its appraised value as of January 1, 1996. If the carrying value of a property
and certain related assets was greater than its appraised value less estimated
selling costs, the General Partner reduced the carrying value of the property by
the difference.
On February 18, 1997, the General Partner mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and sell
and liquidate all of its remaining properties as soon as practicable, consistent
with obtaining reasonable value for the Partnership's properties. A majority in
interest of the Limited Partners consented by March 14, 1997. As a result, the
Partnership has adopted the liquidation basis of accounting as of March 31,
1997. The difference between the adoption of the liquidation basis of accounting
as of March 14, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at their anticipated settlement
amounts. The valuation of assets and liabilities necessarily requires many
estimates and assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon dissolution and
costs associated therewith could be higher or lower than the amounts recorded.
Since the approval of the February 18, 1997 Consent Solicitation, the General
Partner has been evaluating possible sales of Partnership properties,
individually and as a portfolio, to liquidate and wind up the Partnership. On
April 30, 1998 the General Partner accepted an offer to purchase all of the
Partnership's properties for $39,140,000 from Abbey Investments, Inc.
("Abbey"), which was subject to certain customary contingencies, including due
diligence review by the purchaser and negotiation of a definitive Purchase and
Sale Agreement. On November 9, 1998, the Partnership and Abbey entered into a
definitive Purchase and Sale Agreement, for a purchase price ranging between
$34,500,000 and $36,000,000, depending upon occupancy rates at closing. Abbey
thereafter requested a material reduction in the purchase price, which the
Partnership did not agree to. Therefore, in late January 1999, the sale to
Abbey was terminated. Since that time, the Partnership has been actively
soliciting buyers for its properties.
In contemplation of the sale transaction, the General Partner reduced the
carrying value of properties in liquidation by $2,600,000 at June 30, 1998.
The Partnership derives most of its revenue from rental income. Both Certified
Warehouse and Transfer Company, Inc. ("Certified") and FIserv, Inc. ("FIserv",
formerly d.b.a. Citicorp CIR, Inc.) represent or have represented significant
portions of such income. Rental income from Certified totaled $0 in 1998,
$872,000 in 1997 and $1,007,000 in 1996 or approximately 0%, 15% and 16%,
respectively, of the Partnership's total rental income. Rental income from
FIserv totaled $937,000 in 1998, $869,000 in 1997 and $887,000 in 1996, or
approximately 16%, 15% and 14%, respectively, of the Partnership's total rental
income.
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<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 1. Business (Cont'd.)
Certified's lease expired on September 20, 1997, at which time it vacated
approximately 61% of its space. It continued to pay rent on its remaining space
through November 1997, at which time it vacated the property entirely. The
General Partner leased 123,074 square feet (39%) to a different tenant for a
three-year term commencing March 1, 1998 for $406,000 per year, which is greater
than Certified had been paying on a per square foot basis.
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.
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<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/98 12/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Washington Technical Center, $ 3,874,000 Four business center buildings 50,973 9 98%
Phase I located on 4.87 acres of land.
Renton, Washington
December 19, 1984
Certified Distribution Center 9,327,000 Two warehouse/distribution buildings 312,260 1 39%
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 16 79%
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 18 75%
Tempe, Arizona center located on 10.9 acres of
July 19, 1985 land.
Terracentre 20,037,000 A 15-story office building located 95,723 16 80%
Denver, Colorado on .41 acres of land.
September 6, 1985
Oakpointe 9,517,000 Office building located on 6.8 acres 96,213 3 100%
Arlington Heights, Illinois of land.
September 18, 1985
----------- --------
TOTAL $68,916,000 759,154
=========== =======
</TABLE>
SEE NOTE TO TABLE ON THE FOLLOWING PAGE.
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<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 2. PROPERTIES (Cont'd.)
NOTE TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of the
$4,423,000 of acquisition fees paid to the General Partner. Also,
for certain properties, the purchase price has been reduced by
cash received after acquisition under rental agreements for
non-occupied space.
Item 3. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 filed a purported class action lawsuit in the
Court of Common Pleas of Philadelphia County against Damson/Birtcher
Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher
Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P.,
Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack
and Brent R. Donaldson alleging breach of fiduciary duty and breach of
contract and seeking to enjoin the Consent Solicitation dated February
18, 1997. On April 18, 1997, the court denied the plaintiff's motion for
a preliminary injunction. On June 10, 1997, the court dismissed the
plaintiff's complaint on the basis of lack of personal jurisdiction and
forum non conveniens.
On June 13, 1997, the Partnership's affiliated partnerships,
Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
III, and their general partner, Birtcher/Liquidity Properties, filed a
complaint for declaratory relief in the Court of Chancery in Delaware
against Bigelow/Diversified Secondary Partnership Fund 1990 L.P. The
complaint seeks a declaration that the vote that the limited partners of
the Damson/Birtcher Realty Income Fund-II and Real Estate Income
Partners III took pursuant to the respective consent solicitations dated
February 18, 1997 was effective to dissolve the respective partnerships
and complied with applicable law, that the actions of the General
Partner in utilizing the consent solicitations to solicit the vote of
the limited partners did not breach any fiduciary or contractual duty to
such limited partners, and an award of costs and fees to the plaintiffs.
The defendant has answered the complaint. The parties have initiated
discovery. No motions are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware
Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF
Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald
Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson
alleging a purported class action on behalf of the limited partners of
Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income
Fund-II and Real Estate Income Partners III alleging breach of fiduciary
duty and incorporating the allegations set forth in the previously
dismissed March 25, 1997 complaint filed in the Court of Chancery of
Philadelphia County. Plaintiff has engaged in preliminary discovery and
the parties have held settlement discussions. No motions are pending at
this time.
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<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 3. LEGAL PROCEEDINGS (Cont'd.)
Rex Garton, et al. v. Damson/Birtcher Partners, et al.
This action was filed on September 25, 1998 in the District Court of
Oklahoma County for the State of Oklahoma against the Partnership's
general partner, Damson/Birtcher Partners, other related defendants and
numerous unrelated defendants. Damson/Birtcher Partners and other
related defendants were brought into the action in late December 1998,
when they were served with the Second Amended Petition. The other
related defendants are Birtcher Partners, Birtcher Properties, The
Birtcher Group, Birtcher American Properties, Arthur B. Birtcher, Ronald
E. Birtcher, LF Special Fund II, L.P., and Liquidity Fund Asset
Management Inc., but The Birtcher Group and Birtcher American Properties
have not been served with process and have not appeared in the action.
The Partnership itself is not named as a defendant. The case is a class
action brought on behalf of investors in the Partnership who purchased
limited partnership interests from May 7, 1984 to September 17, 1985.
The Second Amended Petition alleges breach of contract, intentional and
negligent misrepresentation, breach of fiduciary duties, and violations
of various Oklahoma and federal statutes in connection with the sale of
the limited partnership interests. Plaintiff seeks unspecified
compensatory damages and $10 million in punitive damages.
Damson/Birtcher Partners and the related defendants have removed the
case to the United States District Court for the Western District of
Oklahoma, and have filed a motion to dismiss the case for lack of
personal jurisdiction or, alternatively, to transfer the action to the
United States District Court for the Central District of California, for
the convenience of the parties and witnesses and in the interests of
justice. Plaintiff has moved to remand the case back to the Oklahoma
state court. Both motions are pending. Damson/Birtcher Partners and the
related defendants intend to present a vigorous defense on the merits of
plaintiff's claims, should this be necessary.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS
There is no public market for the limited partnership interests and a
market is not expected to develop as such limited partnership interests
are not publicly traded or freely transferable.
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<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS (Cont'd.)
As of February 28, 1999, the number of holders of the Partnership's interests is
as follows:
<TABLE>
<S> <C>
General Partner 1
Limited Partners 9,032
-----
9,033
=====
</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 from operations 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 1999 1998 1997 1996 1995 1994
- -------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
First $263,000 $253,000 $253,000 $ 0 $253,000 $370,000
Second 0 253,000 0 253,000 370,000
Third 0 253,000 253,000 253,000 360,000
Fourth 253,000 253,000 1,753,000 0 369,000
</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 three quarters, commencing with
the last quarter of 1995, to fund a portion of the renovation and tenant
improvements at The Cornerstone and tenant improvements at Oakpointe and
Washington Technical Center.
In December 1996, the Partnership made a $1,500,000 special distribution to its
limited partners from a portion of the proceeds from the sale of Arlington
Executive Plaza. See Item 7, Liquidity and Capital Resources for further
discussion.
During 1998 the General Partner temporarily suspended distributions for two
quarters, commencing with the second quarter of 1998, to fund tenant and capital
improvements at Cornerstone, Ladera, Terracentre and Certified Warehouse.
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<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------------------------------------
1997 1996 1995 1994
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenues $ 1,489,000 $ 6,349,000 $ 5,973,000 $ 6,307,000
=========== =========== =========== ===========
Net Income (Loss):
General Partner $ 4,000 $ 4,000 $ (50,000) $ (56,000)
Limited Partners 402,000 396,000 (4,922,000) (5,535,000)
----------- ----------- ----------- -----------
$ 406,000 $ 400,000 $(4,972,000) $(5,591,000)
=========== =========== =========== ===========
Total Distributions:
General Partner $ 2,000 $ 5,000 $ 8,000 $ 15,000
=========== =========== =========== ===========
Limited Partners $ 253,000 $ 2,006,000 $ 759,000 $ 1,469,000
=========== =========== =========== ===========
</TABLE>
The following summary of financial data is for the period since the Partnership
adopted the liquidation basis of accounting.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997 THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ---------------------
<S> <C> <C>
Property Operating
Income, net $ 3,337,000 $ 2,308,000
=========== ===========
Distributions to
Partners $ 511,000 $ 767,000
=========== ===========
Net Assets in
Liquidation $30,796,000 $32,026,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Total Assets $36,482,000 $38,493,000 $44,292,000
=========== =========== ===========
Secured Loan Payable $ 2,932,000 $ 3,116,000 $ 3,285,000
=========== =========== ===========
</TABLE>
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<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Capital Resources and Liquidity
Since the completion of its acquisition program in September 1985, the
Partnership has been primarily engaged in the operation of its properties. The
Partnership's original objective had been to hold its properties as long-term
investments. However, an Information Statement, dated May 5, 1993, mandated that
the General Partner seek a vote of the Limited Partners no later than December
31, 1996, regarding prompt liquidation of the Partnership in the event that
properties with appraised values as of January 1993 which constituted at least
one half of the aggregate appraised values of all Partnership properties as of
that date are not sold or under contract for sale by the end of 1996. Given the
mandate of the May 5, 1993 Information Statement, as of December 31, 1995, the
General Partner decided to account for the Partnership's properties as assets
held for sale, instead of for investment. In a Consent Solicitation dated
February 18, 1997, the Partnership solicited and received the consent of the
Limited Partners to dissolve the Partnership and sell and liquidate all of its
remaining properties as soon as practicable, consistent with selling the
Partnership's properties to the best advantage under the circumstances. The
Partnership's properties were held for sale throughout 1997 and 1998 and
continue to be held for sale.
Working capital is and will be principally provided from the operation of the
Partnership's properties and the working capital reserve established for the
properties. The Partnership may incur mortgage indebtedness relating to such
properties by borrowing funds primarily to fund capital improvements or to
obtain financing proceeds for distribution to the partners.
Regular distributions for the year ended December 31, 1998, 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. During 1998, the Partnership spent approximately $941,000 on
tenant and capital improvements for The Cornerstone, Ladera, Terracentre and
Certified Distribution Center. In addition, leasing commissions of approximately
$290,000 were incurred for Certified Distribution Center, The Cornerstone,
Terracentre and Washington Technical Center. These expenditures contributed to
an overall reduction of the Partnership's cash reserves and as a result,
distributions were temporarily suspended for the second and third quarter of
1998. In December 1996, the Partnership made a special distribution of
$1,500,000 representing a portion of net proceeds from the sale of Arlington
Executive Plaza. Future cash distributions will be made to the extent available
from net cash flow generated from operations and sales of the Partnership's
properties and interest earned on the investment of capital reserves, after
providing for capital reserves and payment for capital improvements and repairs
to the Partnership's properties. See Item 5 for a description of the
Partnership's distribution history. The Partnership believes that the cash
generated from its operations will provide the Partnership the funds necessary
to meet all of its ordinary obligations.
Certain of the Partnership's properties are not fully leased. The Partnership is
actively marketing the vacant space in these properties, subject to the
competitive environment in each of the market areas. To the extent the
Partnership is not successful in maintaining or increasing occupancy levels at
these properties, the Partnership's future cash flow and distributions may be
reduced.
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<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
In June 1993, the Partnership completed its solicitation of written consents
from its Limited Partners. A majority in interest of the Partnership's Limited
Partners approved each of the proposals contained in the Information Statement,
dated May 5, 1993. Those proposals have been implemented by amending the
Partnership Agreement as contemplated by the Information Statement. The
amendments include, among other things, the payment of asset management and
leasing fees to the General Partner and the elimination of the General Partner's
residual interest and deferred leasing fees that were previously subordinated to
return of the Limited Partners' 9% Preferential Return. See Item 8, Note 3 to
the Financial Statements for discussion of fees paid to the General Partner for
the years ended December 31, 1998, 1997 and 1996.
On February 18, 1997, the General Partner mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and sell
and liquidate all of its remaining properties as soon as practicable, consistent
with selling the Partnership's properties to the best advantage under the
circumstances. A majority in interest of the Limited Partners consented by March
14, 1997. As a result, the Partnership adopted the liquidation basis of
accounting as of March 31, 1997. The difference between the adoption of the
liquidation basis of accounting as of March 14, 1997 and March 31, 1997 was not
material.
Under the liquidation basis of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at their anticipated settlement
amounts. The valuation of assets and liabilities necessarily requires many
estimates and assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon dissolution and
costs associated therewith could be higher or lower than the amounts recorded.
Since the approval of the February 18, 1997 Consent Solicitation, the General
Partner has been evaluating possible sales of Partnership properties,
individually and as a portfolio, to liquidate and wind up the Partnership. On
April 30, 1998 the General Partner accepted an offer to purchase all of the
Partnership's properties for $39,140,000 from Abbey Investments, Inc. ("Abbey"),
which was subject to certain customary contingencies, including due diligence
review by the purchaser and negotiation of a definitive Purchase and Sale
Agreement. On November 9, 1998, the Partnership and Abbey entered into a
definitive Purchase and Sale Agreement for a purchase price ranging between
$34,500,000 and $36,000,000, depending on occupancy rates at closing. Abbey
thereafter requested a material reduction in the purchase price, which the
Partnership did not agree to. Therefore, in late January 1999, the sale to Abbey
was terminated. Since that time, the Partnership has been actively soliciting
buyers for its properties.
On March 24, 1999, the Partnership signed a Purchase and Sale Agreement and
Joint Escrow Instructions to sell Terracentre for a sale price of $6,450,000.
The purchaser is Halcyon Real Estate, Inc. ("Halcyon"), a local Denver real
estate development company that is not affiliated in any way with the
Partnership, its General Partner or the General Partner's affiliates. Closing
of the transaction is subject to Halcyon's due diligence review and approval of
title conditions, environmental reports, physical and engineering inspections,
and operating documentation including leases, rental agreements and contracts,
personal property inventories, operating expenses, property tax bills and
physical plans and specifications for the property. The purchaser deposited
$250,000 into escrow on March 25, 1999, which sum is fully refundable to the
purchaser until completion of its due diligence investigation. The due
diligence period is approximately 30 days, with closing of the transaction
currently scheduled to take place approximately 15 days thereafter. Halcyon
will not hire the General Partner or any affiliate to perform asset management
or property management services for this property after close of the sale.
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<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
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 and a prepayment penalty of
approximately $700,000 at current interest rates, if fully paid off after July
1, 1998. The Partnership's first payment of $38,000 was paid on September 1,
1993, with monthly installments due thereafter.
In March 1996, the Partnership entered into a loan agreement pursuant to which
it could borrow up to $1,500,000, evidenced by a note secured by a first deed of
trust and financing statement on the Ladera I Shopping Center in Albuquerque,
New Mexico. Pursuant to the note and loan agreement, the Partnership borrowed
$700,000 in March 1996. The Partnership made interest only payments at the rate
of 1% over prime (at the time, the loan rate was 9.25%) through November 1996,
when the entire balance was paid off utilizing a portion of the proceeds from
the sale of Arlington Executive Plaza. The net proceeds of the foregoing loan
were used to fund a portion of the renovation and tenant improvements at The
Cornerstone and tenant improvements at Oakpointe. The Partnership has the
ability to borrow against this credit facility (up to $1,500,000) through April
1, 2002, should its cash requirements necessitate.
Property Appraisals and Net Asset Value
In accordance with the terms of the Partnership Agreement, each year the
Partnership secures an independent appraisal of each of the Partnership's
properties as of January 1. Prior to the January 1, 1995 appraisals, the
independent appraiser had estimated each property's "Investment Value,"
utilizing a seven to ten-year cash flow model to estimate value based upon an
income approach.
The amendment to the Partnership Agreement consented to by the Limited Partners
in June 1993 mandates, among other things, that the General Partner seek a vote
of (and provide an analysis and recommendation to) the Limited Partners no later
than December 31, 1996 regarding the prompt liquidation of the Partnership in
the event that properties with (then) current appraised values (constituting at
least one-half of the total (then) current appraised values) of all of the
Partnership's properties are not sold or under contract for sale by the end of
1996.
Given this mandate, the General Partner requested that the appraiser provide an
assessment of value that reflects a shorter investment holding term. Although
the General Partner does not know how long it will take to sell the
Partnership's remaining properties, it requested that the appraiser assume that
the entire portfolio would be sold over three years, in connection with the
January 1996 appraisals, over two years in connection with the January 1997
appraisals and over one year in connection with the January 1998 appraisals.
The General Partner has been evaluating multiple proposals to acquire the
properties (both individually and in bulk) over the past several months. In lieu
of obtaining appraisals as of January 1, 1999, the General Partner calculated an
estimated selling price net of estimated selling costs by taking an average of
the offer prices, net of estimated selling costs, from those proposals. The
General Partner utilized those averages to estimate fair value. Because
Terracentre is under contract for sale as of March 24, 1999, its selling price
of $6,450,000, (see Footnote 10 to the Financial Statements) was adjusted for
estimated selling costs and then utilized as an estimate of its fair value as of
January 1, 1999.
-13-
<PAGE> 14
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.)
Property Appraisals and Net Asset Value (Cont'd.)
The General Partner estimated the fair value of the Partnership's remaining
properties at January 1, 1999 to be $35,070,000 (including Terracentre) net of
estimated selling costs and disposition fees.
The foregoing estimated fair value net of selling costs of the Partnership's
remaining properties indicates an estimated net asset value in liquidation of
$31,435,000 or $323 per $1,000 of original investor subscription. Net assets in
liquidation represents the estimated selling price of the Partnership's
properties, (net of estimated closing costs and disposition fees), cash and all
other assets less secured loans payable and all other liabilities including
accrued expenses for liquidation.
Other Matters
The Partnership is in the process of liquidating its remaining assets. It is
anticipated that a sale of those assets will occur on or before January 1, 2000.
It is the opinion of the General Partner that the value of those assets is not
subject to any valuation risk as a result of year 2000 issues, other than
general economic climate issues that may arise. Based on current information,
the cost of addressing potential year 2000 problems is not expected to have a
material adverse impact on the Partnership's financial position, results of
operations or cash flows in future periods. As of December 31, 1998, the
investor services system used to track the limited partners' interests,
distributions and tax information has been tested and appears to be free of year
2000 bugs. The Partnership's properties are under review utilizing the Building
Owners and Managers Association ("BOMA") industry standards as a guideline for
necessary corrections and the Partnership's accounting systems are scheduled for
a software upgrade to correct any year 2000 issues in July of 1999. The cost of
the upgrades will be borne by the General Partner and will not be reimbursed by
the Partnership. In addition, the General Partner has made inquiries of its
banks, all of which indicate that any problems have been addressed adequately by
those institutions.
Even if attempts to correct any deficiencies in the Partnership's software are
unsuccessful, the General Partner anticipates that in the short term it could
convert its systems to standard spreadsheet or data base programs at nominal
cost.
-14-
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations
Year Ended December 31, 1998
Because the Partnership adopted the liquidation basis of accounting on March 31,
1997, a comparison of the results of operations is not practical. The Statements
of Net Assets in Liquidation and Statements of Changes of Net Assets in
Liquidation reflect the Partnership in the process of liquidation. Prior
financial statements reflect the Partnership as a going concern. As the
Partnership's assets (properties) are sold, the results of operations will be
generated from a smaller asset base, and are therefore not comparable. The
Partnership's operating results have been reflected on the Statements of Changes
of Net Assets in Liquidation for the year ended December 31, 1998.
For the year ended December 31, 1998, the Partnership generated $3,337,000 of
net operating income from operation of its properties. The increase, when
compared to 1997, was primarily attributable to the following: 1) the collection
of a lease termination fee from Walgreens at Ladera-I ($104,000); 2) an increase
in rental Income and operating expense recoveries at Cornerstone ($419,000); 3)
the recovery of $73,000 in amounts previously written off in 1997 as bad debt
expenses; and 4) the aforementioned increases were partially offset by the
decrease in revenue at Certified Warehouse ($446,000).
In September and November 1997, Certified Warehouse and Transfer Company, Inc.
vacated Certified Distribution Center. Although the General Partner successfully
completed negotiation of a 123,074 square foot lease with Quality Distribution
effective March 1, 1998 at a rate greater than before, the remaining 189,115
square foot vacancy will have a negative affect on future distributions on cash
from operations to the Limited Partners.
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1998, interest income was approximately
$14,000. The decrease in interest income, when compared to 1997, was
attributable to the lower average cash balance that the Partnership maintained
during 1998.
General and administrative expenses for the year ended December 31, 1998,
include charges of $405,000 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 for the year ended December 31, 1998, are direct
charges of $530,000, 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
decrease in general and administrative expenses for the year ended December 31,
1998, as compared to 1997, was primarily attributable to the decreases in asset
management fees, cost of legal and professional services, postage and printing
costs and appraisal fees.
Accrued expenses for liquidation as of December 31, 1998, includes estimates of
costs to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting fees, tax
preparation and filing fees, professional services and the pre-payment penalty
and
-15-
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1998 (Cont'd.)
remaining unamortized loan fees associated with the anticipated early retirement
of the mortgage loan secured by the Certified Warehouse property. The actual
costs could vary significantly from the related provisions due to the
uncertainty related to the length of time required to complete the liquidation
and dissolution and the complexities which may arise in disposing of the
Partnership's remaining assets.
Interest expense resulted from interest on the first deed of trust on Certified
Distribution Center.
For the year ended December 31, 1998, the General Partner determined that the
carrying values of Certified Warehouse, The Cornerstone, Ladera-I Shopping
Center and Oakpointe were in excess of their respective estimated net realizable
values. As a result, their carrying values were adjusted by $1,225,000,
$1,545,000, $652,000 and $1,546,000, to $5,655,000, $8,139,000, $5,404,000 and
$6,312,000, respectively. In addition, during 1998, the carrying value of
Terracentre was increased by $2,368,000 to its estimated net realizable value of
$5,649,000 partially offsetting the aforementioned decreases.
Year Ended December 31, 1997
Because the Partnership adopted the liquidation basis of accounting on March 31,
1997, a comparison of the results of operations is not practical. The Statement
of Net Assets in Liquidation and Statement of Changes of Net Assets in
Liquidation reflect the Partnership in the process of liquidation. Prior
financial statements reflect the Partnership as a going concern. As the
Partnership's assets (properties) are sold, the results of operations will be
generated from a smaller asset base, and are therefore not comparable. The
Partnership's operating results have been reflected in the Statement of Changes
of Net Assets in Liquidation since March 31, 1997 (the date of adoption of the
liquidation basis of accounting), and Statement of Operations for the three
months ended March 31, 1997.
For the year ended December 31, 1997, the Partnership generated $3,209,000 of
net operating income from operation of its properties. The decrease for the year
ended December 31, 1997, when compared to 1996, was primarily the result of the
sale of Arlington Executive Plaza in November 1996 ($377,000), and an increased
property tax assessment at Oakpointe ($234,000) in 1997.
In September and November 1997, Certified Warehouse and Transfer Company, Inc.
vacated Certified Distribution Center. Although the General Partner successfully
completed negotiation of a 123,074 square foot lease with Quality Distribution
effective March 1, 1998 at a rate greater than before, the remaining 189,115
square foot vacancy will have a negative affect on future distributions on cash
from operations to the Limited Partners.
Interest and other income resulted from the temporary investment of Partnership
working capital. For the years ended December 31, 1997 and 1996, interest and
other income was approximately $32,000 and $60,000, respectively.
-16-
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1997 (Cont'd.)
General and administrative expenses for the year ended December 31, 1997,
include charges of $428,000 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 for the year ended December 31, 1997, are direct
charges of $815,000, 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
increase in general and administrative expenses for the year ended December 31,
1997, as compared to 1996, was primarily attributable to the increase in legal
and professional services, printing costs, postage and mailing expenses
associated with the Partnership's solicitation of the Limited Partners for the
Liquidation of the Partnership in March 1997.
Accrued expenses for liquidation, as reflected in the Statement of Net Assets in
Liquidation as of December 31, 1997, are not included in results of operations
for the three month period ended March 31, 1997. The liquidation basis of
accounting was adopted on March 31, 1997, therefore, it was not appropriate to
include such adjustments in the results of operations for prior periods. Accrued
expenses for liquidation as of December 31, 1997, includes estimates of costs to
be incurred in carrying out the dissolution and liquidation of the Partnership.
These costs include estimates of legal fees, accounting fees, tax preparation
and filing fees, professional services, the general partner's liability
insurance and the pre-payment penalty and remaining unamortized loan fees
associated with the anticipated early retirement of the mortgage loan secured by
the Certified Warehouse property. The actual costs could vary significantly from
the related provisions due to the uncertainty related to the length of time
required to complete the liquidation and dissolution and the complexities which
may arise in disposing of the Partnership's remaining assets.
Interest expense resulted from interest on the first deed of trust on Certified
Distribution Center.
Year Ended December 31, 1996
The increase in rental income for the year ended December 31, 1996, when
compared to 1995, was primarily attributable to an increase in rental income at
Oakpointe. A new lease was signed in February 1996 with Symbol Technologies,
Inc. encompassing 22,801 square feet bringing Oakpointe to 100% leased.
The increase in interest and other income for the year ended December 31, 1996,
as compared to 1995 was attributable to an increase in The Cornerstone's other
miscellaneous income. This increase was partially offset by a decrease in
interest income due to a decrease in the average level of working capital
available for investment in 1996. Capital reserves were used to fund a portion
of the renovation and tenant improvements at The Cornerstone and tenant
improvements at Oakpointe.
-17-
<PAGE> 18
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1996 (Cont'd.)
On November 21, 1996, the Partnership sold Arlington Executive Plaza, an office
complex composed of seven identical 10,428 square foot buildings located on 7.2
acres of land in Arlington Heights, Illinois to an unaffiliated third party. The
sales price was $3,050,000 ($2,929,000 net of commissions and escrow fees) and
the net proceeds of the sale amounted to approximately $2,699,000 after
factoring in all prorations and credits to the buyer. In December 1995, the
General Partner had adjusted the carrying value of the property in accordance
with the guidelines of FAS 121, which resulted in a write-down of $1,250,000 and
an adjusted carrying value of $2,740,000. The resulting gain on sale, after
taking into consideration all costs of disposition, amounted to $164,000 as
reflected in the Statement of Operations. The General Partner was not paid a
commission or disposition fee as part of this transaction.
The decrease in operating expenses for the year ended December 31, 1996, as
compared to 1995 was primarily attributable to the sale of Arlington Executive
Plaza in November 1996 and reduced legal and professional fees at The
Cornerstone and Terracentre.
The decrease in real estate taxes for the year ended December 31, 1996, when
compared to 1995 primarily relates to: 1)the sale of Arlington Executive Plaza
in November 1996 ($146,000); and, 2) a reduced tax assessment for Oakpointe in
1996 ($157,000).
General and administrative expenses for the year ended December 31, 1996 include
charges of $500,000 from the General Partner and its affiliates for services
rendered in connection with administering the affairs of the Partnership and
operating the Partnership's properties. Also included in general and
administrative expenses were direct charges of $482,000 relating to audit and
tax preparation fees, annual appraisal fees, legal fees, insurance expense,
costs incurred in providing information to the Limited Partners and other
miscellaneous costs.
The decrease in general and administrative expenses for the year ended December
31, 1996 as compared to 1995, was primarily attributable to decreases in
administrative expense reimbursements and leasing fees incurred in 1996. The
aforementioned decreases were partially offset by higher professional fees
incurred by the Partnership.
Interest expense resulted from interest on the first deed of trust on Certified
Distribution Center and the loan agreement secured by Ladera-I Shopping Center.
The increase in interest expense for the year ended December 31, 1996, as
compared to 1995, was a result of the borrowing of $700,000 in March 1996,
pursuant to that new loan arrangement. The Partnership subsequently paid off the
$700,000 note in November 1996. For the year ended December 31, 1996, the
General Partner determined that the carrying values of The Cornerstone, Ladera-I
Shopping Center and Oakpointe were in excess of their respective appraised
values. As a result, their carrying
-18-
<PAGE> 19
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1996 (Cont'd.)
values were adjusted by $1,683,000, $398,000, and $253,000 to $8,960,000,
$5,900,000, and $7,700,000, respectively. In addition, during 1996, the carrying
values of Terracentre and Washington Technical Center were increased by $190,000
and $246,000 to their estimated fair values less selling costs of $2,900,000 and
$3,020,000, respectively.
The decrease in depreciation and amortization expenses for the year ended
December 31, 1996 as compared to 1995 was a result of the adoption and
implementation at December 31, 1995 of Statement of Financial Accounting
Standards, No. 121, "Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of," pursuant to which "assets held for sale" are not depreciated.
Item 7a. Quantitative and Qualitative Market Risk Disclosures
The Partnership is not exposed to interest rate changes because its only
obligation outstanding at year end carries a fixed interest rate and the
Partnership expects to sell its properties within a short period of time. The
Partnership's interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. To achieve its objectives, the Partnership borrows primarily at
fixed rates. The Partnership does not enter into derivative or interest rate
transactions for speculative purposes.
-19-
<PAGE> 20
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:
Statements of Net Assets in Liquidation as of December 31, 1998
and 1997........................................................................ F-3
Statements of Changes of Net Assets in Liquidation for the Year
Ended December 31, 1998 and for the Nine Months Ended December 31,
1997............................................................................ F-4
Statements of Operations for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................ F-5
Statements of Partners' Capital for the Three Months
Ended March 31, 1997 and for the Year Ended December 31, 1996................... F-6
Statements of Cash Flows for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................ F-7
Notes to Financial Statements................................................... F-8
Schedule:
III - Real Estate in Liquidation as of December 31, 1998........................ F-22
</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> 21
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 net assets in liquidation as of December 31, 1998 and
1997 of Damson/Birtcher Realty Income Fund-I, and the changes of net assets in
liquidation for the year ended December 31, 1998, and the nine months ended
December 31, 1997, and the results of its operations and its cash flows for the
three months ended March 31, 1997 and the year ended December 31, 1996, in
conformity with generally accepted accounting principles applied on the bases of
accounting discussed in note 2. 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 notes 1 and 2 to the financial statements, Damson/Birtcher
Realty Income Fund-I changed its basis of accounting as of March 31, 1997 from
the going-concern basis to the liquidation basis.
KPMG LLP
Orange County, California
March 9, 1999, except as to the
second through the sixth
paragraphs of note 10, which
are as of March 25, 1999
F-2
<PAGE> 22
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS (Liquidation Basis): 1998 1997
----------- -----------
<S> <C> <C>
Properties $34,431,000 $36,090,000
Cash and cash equivalents 351,000 461,000
Accounts receivable 171,000 100,000
Other assets 121,000 99,000
----------- -----------
Total Assets 35,074,000 36,750,000
----------- -----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 896,000 945,000
Secured loan payable 2,509,000 2,730,000
Accrued expenses for liquidation (including
prepayment penalty) 873,000 1,049,000
----------- -----------
Total Liabilities 4,278,000 4,724,000
----------- -----------
Net Assets in Liquidation $30,796,000 $32,026,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE> 23
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED DECEMBER 31,
1998 1997
------------------ -------------------
<S> <C> <C>
Net assets in liquidation at beginning of period $ 32,026,000 $ 32,002,000
------------ ------------
Increase (decrease) during period:
Operating activities:
Property operating income, net 3,337,000 2,308,000
Interest income 14,000 22,000
General and administrative expenses (935,000) (874,000)
Interest expense on mortgage payable (237,000) (190,000)
Leasing commissions (290,000) (134,000)
------------ ------------
1,889,000 1,132,000
------------ ------------
Liquidating activities:
Adjustment to carrying value of properties (2,600,000) --
Distribution to partners (511,000) (767,000)
Provision for liquidation expenses (8,000) (341,000)
------------ ------------
(3,119,000) (1,108,000)
------------ ------------
Net (decrease) increase in assets in liquidation (1,230,000) 24,000
------------ ------------
Net assets in liquidation at end of period $ 30,796,000 $ 32,026,000
============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 24
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
REVENUES:
Rental income $1,479,000 $6,125,000
Interest and other income 10,000 60,000
Gain on sale of property -- 164,000
---------- ----------
Total revenues 1,489,000 6,349,000
---------- ----------
EXPENSES:
Operating expenses 377,000 1,802,000
Real estate taxes 201,000 665,000
Depreciation and
amortization 70,000 233,000
General and administrative 369,000 982,000
Interest 66,000 331,000
Adjustment to carrying value
of real estate -- 1,936,000
---------- ----------
Total expenses 1,083,000 5,949,000
---------- ----------
NET INCOME $ 406,000 $ 400,000
========== ==========
NET INCOME ALLOCABLE TO:
General Partner $ 4,000 $ 4,000
========== ==========
Limited Partners $ 402,000 $ 396,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE> 25
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ (490,000) $ 34,714,000 $ 34,224,000
Net income 4,000 396,000 400,000
Distributions (5,000) (2,006,000) (2,011,000)
------------ ------------ ------------
Balance, December 31, 1996 (491,000) 33,104,000 32,613,000
Net income 4,000 402,000 406,000
Distributions (2,000) (253,000) (255,000)
------------ ------------ ------------
Balance, March 31, 1997 $ (489,000) $ 33,253,000 $ 32,764,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 26
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 406,000 $ 400,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 70,000 233,000
Adjustment to carrying value of
real estate -- 1,936,000
Gain on sale of property -- (164,000)
Changes in:
Accounts receivable (48,000) (37,000)
Accrued rent receivable 6,000 4,000
Prepaid expenses and other assets 112,000 (193,000)
Accounts payable and accrued
liabilities (146,000) (216,000)
----------- -----------
Net cash provided by operating
activities 400,000 1,963,000
----------- -----------
Cash flows from investing activities:
Investments in real estate (34,000) (2,287,000)
Proceeds from sale of property -- 2,929,000
----------- -----------
Net cash provided by (used in)
investing activities (34,000) 642,000
----------- -----------
Cash flows from financing activities:
Proceeds from secured loan -- 700,000
Principal payments on secured
loans payable (49,000) (884,000)
Distributions (255,000) (2,011,000)
----------- -----------
Net cash used in financing
activities (304,000) (2,195,000)
----------- -----------
Net increase in cash and
cash equivalents 62,000 410,000
Cash and cash equivalents,
beginning of period 711,000 301,000
----------- -----------
Cash and cash equivalents,
end of period $ 773,000 $ 711,000
=========== ===========
Supplemental disclosure of cash flow
information - cash paid during the
period for interest $ 66,000 $ 331,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-7
<PAGE> 27
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Operations
Damson/Birtcher Realty Income Fund-I (the "Partnership") is a limited
partnership formed on May 7, 1984, under the laws of the Commonwealth of
Pennsylvania, for the purpose of acquiring and operating income-producing
retail, commercial and industrial properties. The General Partner of the
Partnership is Damson/Birtcher Partners, a general partnership originally
consisting of Equity Properties, Inc. ("EPI"), an indirect, wholly-owned
subsidiary of Damson Oil Corporation and Birtcher Partners, a California
general partnership. In December 1992, EPI withdrew as a general partner
of the Damson/Birtcher Partners and LF Special Fund II, L.P. was added as
a general partner of the General Partner. Under the terms of the General
Partner's Partnership Agreement, Birtcher Partners or its affiliates,
remains responsible for the day-to-day management of the Partnership's
assets.
In January 1993, the General Partner filed an Information Statement with
the Securities and Exchange Commission seeking consent of the Limited
Partners to amend the Partnership Agreement. On June 24, 1993, the
Partnership completed its solicitation of written consent from its
Limited Partners. A majority in interest of the Partnership's Limited
Partners approved each of the proposals contained in the Information
Statement, dated May 5, 1993. Those proposals were implemented by the
Partnership as contemplated by the Information Statement as amendments to
the Partnership Agreement, and have been reflected in these financial
statements as such.
The amendment modified the Partnership Agreement to eliminate the General
Partner's 10% subordinated interest in distributions of Distributable
Cash (net cash from operations) and reduce its subordinated interest in
such distributions from 10% to 1%. The amendment also modified the
Partnership Agreement to eliminate the General Partner's 10% subordinated
interest in Sale or Financing Proceeds (net cash from sale or financing
of Partnership property) and to reduce its subordinated interest in such
proceeds from 15% to 1%. In lieu thereof, the Partnership Agreement
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. The factor used to
calculate the annual asset management fee is reduced by .10% each year
beginning after December 31, 1996 (e.g., from .65% in 1997 to .55% in
1998 and to .45% in 1999).
At January 1, 1998 the portfolio was appraised at an estimated value of
approximately $38,085,000, net of estimated selling costs (unaudited).
The General Partner has been evaluating multiple proposals to acquire the
properties (both individually and in bulk) over the past several months.
In lieu of obtaining appraisals as of January 1, 1999, the General
Partner calculated an estimated selling price net of estimated selling
costs by taking an average of the offer prices, net of estimated selling
costs, from those proposals. The General Partner utilized those averages
to estimate fair value. In addition, because Terracentre is under
contract for sale as of March 24, 1999, its selling price of $6,450,000
was adjusted for estimated selling costs and utilized as an estimate of
its fair value as of January 1, 1999. Accordingly, at January 1, 1999,
the General Partner estimated the fair value, net of estimated selling
costs, of the portfolio to be $35,070,000.
F-8
<PAGE> 28
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment modified the Partnership Agreement to eliminate the
subordination provisions with respect to leasing fees payable under that
subsection. The amendment also eliminated the deferred leasing fees
earned by the General Partner or its affiliates (approximately $448,000
as of December 31, 1992) on or after the effective date of the amendment.
Fees for leasing services rendered by the General Partner or its
affiliates (post amendment) have been payable by the Partnership on a
current basis and have not been subordinated to the Limited Partners
Preferred Return and Adjusted Invested Capital or any other amount.
The amendment modified the Partnership Agreement to eliminate the
subordination provision with respect to future property disposition fees
payable under that section. The amendment authorized payment to the
General Partner and its affiliates of the property disposition fee as
earned. The fee is not subordinated to the Limited Partners Preferred
Return and Adjusted Invested Capital or any other amount.
The disposition fees are to be paid to the General Partner or its
affiliates in an amount equal to 50% of the competitive real estate
brokerage commission that would be charged by unaffiliated third-parties
providing comparable services in the area in which a property is located,
but in no event more than three percent of the gross sale price of the
property, and are to be reduced by the amount by which any brokerage or
similar commissions paid to any unaffiliated third-parties in connection
with the sale of property exceed three percent of the gross sale price.
This amount is not payable, unless and to the extent that the sale price
of the property in question, net of any other brokerage commissions (but
not other costs of sale), exceeds the appraised value of the property as
of January 1, 1993.
The amendment stated that the Partnership is no longer authorized to pay
the General Partner or its affiliates any insurance commissions or any
property financing fees. No such commissions or fees have been paid or
accrued by the Partnership since its inception.
The amendment modified the provisions of the Partnership Agreement
regarding allocations of Partnership income, gain and other tax items
between the General Partner and the Limited Partners primarily to conform
to the changes in the General Partner's interest in distributions of
Distributable Cash and Sale or Financing Proceeds, as defined, effected
by the amendment.
It is not anticipated that the adoption and implementation of the
amendment will have any material adverse effect on future allocations of
income, gain, loss or other tax items to the Limited Partners. However,
if any of the Partnership's properties are sold for a gain, a special
allocation to the General Partner may have the effect of reducing the
amount of Sale or Financing Proceeds otherwise distributable to the
Limited Partners and correspondingly increasing the amount of such
distributions to be retained by the General Partner. The amount of such
distributions to be affected would be approximately equal to any deficit
balance, if any, in the General Partner's capital account in the
Partnership at the time of the allocation.
F-9
<PAGE> 29
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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.
Sale or financing proceeds are to be distributed, to the extent
available, as follows: (i) to the Limited Partners until all cash
distributions to them amount to a 9% Preferential Return on their
investment cumulatively from the date of their admission to the
Partnership; (ii) then to the Limited Partners in an amount equal to
their investment; and (iii) the remainder, if any, 99% to Limited
Partners and 1% to the General Partner.
Although the unpaid 9% Preferential Return to the Limited Partners'
aggregates $85,852,000 as of December 31, 1998, it is anticipated that
the limited partners will not realize this return due to the
Partnership's estimated liquidation value of $30,796,000.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
The amendment modified the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction" (as
defined in the amendment) sponsored by the General Partner or any of its
affiliates unless such transaction is approved by a "supermajority" of at
least 80% in interest of the Limited Partners and the General Partner.
The amendment also prohibits the modification of this restriction on
Reorganization Transactions without the approval of at least 80% in
interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other dispositions
to be left to the General Partner's discretion based on the anticipated
remaining economic benefits of continued ownership and other factors.
On February 18, 1997, the Partnership mailed a Consent Solicitation to
the Limited Partners which sought their consent to dissolve the
Partnership and sell and liquidate all of its remaining properties as
soon as practicable, consistent with obtaining reasonable value for the
Partnership's properties. A majority in interest of the Limited Partners
consented by March 14, 1997. As a result, the Partnership adopted the
liquidation basis of accounting
F-10
<PAGE> 30
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
as of March 31, 1997. The difference between the adoption of the
liquidation basis of accounting as of March 14, 1997 and March 31, 1997
was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
The Partnership adopted the liquidation basis of accounting on March 31,
1997. Comparison of results to prior years, therefore, is not practical.
The Statements of Net Assets in Liquidation and Statements of Changes of
Net Assets in Liquidation reflect the Partnership in the process of
liquidation. Prior financial statements reflect the Partnership as a
going concern.
As of December 31, 1995 the General Partner decided to treat its
properties as held for sale, instead of for investment, for financial
statement purposes given the mandate of the May 5, 1993 Information
Statement. Since adoption of the 1993 amendment, the General Partner has
considered several preliminary indications of interest from third parties
to acquire some or all of the Partnership's properties. Apart from the
sale of Arlington Executive Plaza, these transactions never materialized,
primarily because the General Partner rejected as too low the valuations
of the Partnership's remaining properties as proposed by the potential
purchasers. The Partnership's properties were held for sale throughout
1997 and 1998 and are currently held for sale.
Since the approval of the February 18, 1997 Consent Solicitation, the
General Partner has been evaluating possible sales of Partnership
properties, individually and as a portfolio, to liquidate and wind up the
Partnership. On April 30, 1998 the General Partner accepted an offer to
purchase all of the Partnership's properties for $39,140,000 from Abbey
Investments, Inc. ("Abbey"), which was subject to certain customary
contingencies, including due diligence review by the purchaser and
negotiation of a definitive Purchase and Sale Agreement. On November 9,
1998, the Partnership and Abbey entered into a definitive Purchase and
Sale Agreement, for a purchase price ranging between $34,500,000 and
$36,000,000, depending upon occupancy rates at closing. Abbey thereafter
requested a material reduction in the purchase price, which the
Partnership did not agree to. Therefore, in late January 1999, the sale
to Abbey was terminated. Since that time, the Partnership has been
actively soliciting buyers for its properties.
In accordance with the liquidation basis of accounting adopted on March
31, 1997 (see Note 2), the carrying value of these properties was
evaluated to ensure that each property was carried on the Partnership's
Statements of Net Assets in Liquidation at estimated net realizable
value. The General Partner estimated net realizable value by using an
average of recent offers to acquire the properties, net of estimated
selling costs, in lieu of obtaining appraisals as of January 1, 1999 at
December 31, 1998 and based upon appraisals performed as of January 1,
1998 at December 31, 1997. Because Terracentre is under contract as of
March 24, 1999, its selling price of $6,450,000 was adjusted for
estimated selling costs and utilized as an estimate of its fair value as
of January 1, 1999. Fair value can only be determined based upon sales to
third parties, and sales proceeds could differ substantially from
internal estimates of fair value or appraised values.
F-11
<PAGE> 31
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
Liquidation Basis
The Partnership adopted the liquidation basis of accounting as of March
31, 1997. The liquidation basis of accounting is appropriate when
liquidation appears imminent, the Partnership can no longer be classified
as a going concern and the net realizable values of the Partnership's
assets are reasonably determinable. Under this method of accounting,
assets and liabilities are stated at their estimated net realizable
values and costs of liquidating the Partnership are provided to the
extent reasonably determinable.
For the year ended December 31, 1998, the General Partner determined that
the carrying values of Certified Warehouse, The Cornerstone, Ladera-I
Shopping Center and Oakpointe were in excess of their respective
estimated net realizable values. As a result, their carrying values were
adjusted by $1,225,000, $1,545,000, $652,000 and $1,546,000, to
$5,655,000, $8,139,000, $5,404,000 and $6,312,000, respectively. In
addition, during 1998, the carrying value of Terracentre increased by
$2,368,000 to its estimated net realizable value of $5,649,000 partially
offsetting the aforementioned decreases.
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires, among other items, that a
public business enterprise report a measure of segment profit or loss,
certain specific revenue and expense items, segment assets, information
about the revenues derived from the enterprise's products or services and
major customers. SFAS 131 also requires that the enterprise report
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating
segments. Given that the Partnership is in the process of liquidation,
the Partnership has identified only one operating business segment which
is the business of asset liquidation. The adoption of SFAS 131 did not
have an impact on the Partnership's financial reporting.
F-12
<PAGE> 32
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Segment Reporting (Cont'd.)
Rental income from Certified Warehouse and Transfer Company, Inc.,
totaled $0 in 1998, $872,000 in 1997, and $1,007,000 in 1996, or
approximately 0%, 15% and 16%, respectively, of the Partnership's total
rental income. Rental income from FISERV, Inc. (formerly d.b.a. Citicorp
CIR, Inc.) totaled $888,000 in 1998, $869,000 in 1997 and $887,000 in
1996, or approximately 16%, 15% and 14%, respectively, of the
Partnership's total rental income.
Certified's lease expired on September 20, 1997, at which time it vacated
approximately 61% of its space. It continued to pay rent on its remaining
space through November 1997, at which time it vacated the property
entirely. The General Partner leased 123,074 square feet (39%) to a
different tenant for a three-year term commencing March 1, 1998 for
$406,000 per year, which is greater than Certified had been paying on a
per square foot basis.
Carrying Value of Real Estate (prior to the adoption of the liquidation
basis of accounting)
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
reviews their estimates of fair value, which are decreased or increased
up to the original carrying value. Finally, assets held for sale are no
longer depreciated.
As noted above, as of December 31, 1995 the General Partner decided to
account for the Partnership's properties as assets held for sale, instead
of for investment. Assuming a 12 month holding period, the General
Partner compared the carrying value of each property to its appraised
value as of January 1, 1997 at December 31, 1996. If the carrying value
of a property and certain related assets were greater than its appraised
value, less estimated 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 and Oakpointe had carrying values greater than their respective
appraised values. As a result, the carrying values were adjusted by
$1,683,000, $398,000, and $253,000 to $8,960,000, $5,900,000, and
$7,700,000, respectively. In addition, during 1996, the carrying values
of Terracentre and Washington Technical Center were increased
F-13
<PAGE> 33
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 (prior to the adoption of the liquidation
basis of accounting) (Cont'd.)
by $190,000 and $246,000 to their estimated fair values less estimated
selling costs of $2,900,000 and $3,020,000, respectively.
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, 1998 and 1997, totaled $328,000 and $425,000, 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.
Revenue Recognition
Through March 31, 1997, rental income pertaining to operating lease
agreements which specify scheduled rent increases or free rent periods,
was recognized on a straight-line basis over the period of the related
lease agreement. After March 31, 1997, rental income has been recognized
according to the lease terms.
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.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP")
(liquidation basis of accounting) and for federal income tax reporting
purposes at December 31:
<TABLE>
<CAPTION>
1998 1997
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $35,074,000 $47,531,000 $36,750,000 $48,911,000
Total Liabilities $ 4,278,000 $ 3,405,000 $ 4,383,000 $ 3,675,000
</TABLE>
F-14
<PAGE> 34
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per Financial
Statements (period ending March 31,
1997 for 1997) $ -- $ 406,000 $ 400,000
Change in net assets in liquidation
from operating activities including
adjustments to carrying values of real
estate (nine months ended December
31, 1997 for 1997) (711,000) 1,132,000 --
Adjustment to carrying value of real
estate 2,600,000 -- 1,936,000
Depreciation differences on
investments in real estate (2,771,000) (2,721,000) (3,046,000)
Loss on sale of property in excess of
book value -- -- (2,919,000)
Other 25,000 49,000 (63,000)
- -------------------------------------------------------------------------------------------------------
Taxable income (loss) per Federal tax
return (unaudited) $ (857,000) $(1,134,000) $(3,692,000)
- -------------------------------------------------------------------------------------------------------
</TABLE>
Earnings and Distributions Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate original reduced rates on
sales commissions for subscriptions in excess of certain specified
amounts. A Limited Partner who was charged a reduced sales commission or
no sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who paid
commissions at a higher rate.
As a result, the Partnership has no set unit value as all accounting,
investor reporting and tax information is based upon each investor's
relative percentage of Invested Capital. Accordingly, earnings or loss
per unit is not presented in the accompanying financial statements.
F-15
<PAGE> 35
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
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, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses or changes in net assets during the reporting period. Actual
results could differ from those estimates.
(3) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The General
Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the years ended December 31,
1998, 1997 and 1996, the Partnership was charged with approximately
$152,000, $157,000 and $178,000, respectively, of such expenses.
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 $173,000 in 1998,
$165,000 in 1997 and $178,000 in 1996. In addition, the affiliate of the
General Partner received $312,000 in 1998, $315,000 in 1997 and $367,000
in 1996, 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
for 1996 and .65% for 1997 and .55% for 1998. Such fees for the year
ended December 31, 1998, 1997 and 1996, amounted to $209,000, $245,000
and $301,000, respectively. In addition, the amended Partnership
Agreement provides for payment to the General Partner of a leasing fee
for services rendered in connection with leasing space in a Partnership
property after the expiration or termination of any lease of such space
including renewal options. Fees for leasing services for the year ended
December 31, 1998, 1997 and 1996, amounted to $44,000, $25,000 and
$21,000, respectively.
(4) Gain on Disposition of Assets
On November 21, 1996, the Partnership sold Arlington Executive Plaza, an
office complex composed of seven identical 10,428 square foot buildings
located on 7.2 acres of land in Arlington Heights, Illinois to an
unaffiliated third party. The gross sales price was $3,050,000
($2,929,000 net of commissions and escrow fees) and the net proceeds of
the sale, after all prorations and credits to the buyer, amounted to
approximately $2,699,000. In
F-16
<PAGE> 36
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Gain on Disposition of Assets (Cont'd.)
December 1995, the General Partner had adjusted the carrying value of the
property in accordance with the guidelines of FAS 121, which resulted in
a write-down of $1,250,000 and an adjusted carrying value of $2,740,000.
The resulting gain on sale, after taking into consideration all costs of
disposition, amounted to $164,000 as reflected in the Statement of
Operations. The General Partner was not paid a commission or disposition
fee as part of this transaction.
(5) Commitments and Contingencies
Litigation
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 filed a purported class action lawsuit in the Court
of Common Pleas of Philadelphia County against Damson/Birtcher Partners,
Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Investments,
L.F. Special Fund II, L.P., L.F. Special Fund I, L.P., Arthur Birtcher,
Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R.
Donaldson alleging breach of fiduciary duty and breach of contract and
seeking to enjoin the Consent Solicitation dated February 18, 1997. On
April 18, 1997, the court denied the plaintiff's motion for a preliminary
injunction. On June 10, 1997, the court dismissed the plaintiff's
complaint on the basis of lack of personal jurisdiction and forum non
conveniens.
On June 13, 1997, the Partnership's affiliated partnerships,
Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
III, and their general partner, Birtcher/Liquidity Properties, filed a
complaint for declaratory relief in the Court of Chancery in Delaware
against Bigelow/Diversified Secondary Partnership Fund 1990 L.P. The
complaint seeks a declaration that the vote that the limited partners of
Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III
took pursuant to the respective consent solicitations dated February 18,
1997 was effective to dissolve the respective partnerships and complied
with applicable law, that the actions of the General Partner in utilizing
the consent solicitations to solicit the vote of the limited partners did
not breach any fiduciary or contractual duty to such limited partners,
and an award of costs and fees to the plaintiffs. The defendant has
answered the complaint. The parties have initiated discovery. No motions
are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware Chancery
Court against Damson/Birtcher Partners, Birtcher Investors, Birtcher
Liquidity Properties, Birtcher Investments, BREICORP, LF Special Fund I,
LP, LF Special Fund II. LP, Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging a purported
class action on behalf of the limited partners of Damson/Birtcher Realty
Income Fund-I, Damson/Birtcher Realty
F-17
<PAGE> 37
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Income Fund-II and Real Estate Income Partners III alleging breach of
fiduciary duty and incorporating the allegations set forth in the
previously dismissed March 25, 1997 complaint filed in the Court of
Chancery of Philadelphia County. Plaintiff has engaged in preliminary
discovery and the parties have held settlement discussions.
No motions are pending at this time.
Rex Garton, et al. v. Damson/Birtcher Partners, et al.
This action was filed on September 25, 1998 in the District Court of
Oklahoma County for the State of Oklahoma against the Partnership's
general partner, Damson/Birtcher Partners, other related defendants and
numerous unrelated defendants. Damson/Birtcher Partners and other
related defendants were brought into the action in late December 1998,
when they were served with the Second Amended Petition. The other
related defendants are Birtcher Partners, Birtcher Properties, The
Birtcher Group, Birtcher American Properties, Arthur B. Birtcher, Ronald
E. Birtcher, LF Special Fund II, L.P., and Liquidity Fund Asset
Management Inc., but The Birtcher Group and Birtcher American Properties
have not been served with process and have not appeared in the action.
The Partnership itself is not named as a defendant. The case is a class
action brought on behalf of investors in the Partnership who purchased
limited partnership interests from May 7, 1984 to September 17, 1985.
The Second Amended Petition alleges breach of contract, intentional and
negligent misrepresentation, breach of fiduciary duties, and violations
of various Oklahoma and federal statutes in connection with the sale of
the limited partnership interests. Plaintiff seeks unspecified
compensatory damages and $10 million in punitive damages.
Damson/Birtcher Partners and the related defendants have removed the
case to the United States District Court for the Western District of
Oklahoma, and have filed a motion to dismiss the case for lack of
personal jurisdiction or, alternatively, to transfer the action to the
United States District Court for the Central District of California, for
the convenience of the parties and witnesses and in the interests of
justice. Plaintiff has moved to remand the case back to the Oklahoma
state court. Both motions are pending. Damson/Birtcher Partners and the
related defendants intend to present a vigorous defense on the merits of
plaintiff's claims, should this be necessary.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1998, 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, 1998, are as follows:
F-18
<PAGE> 38
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Commitments and Contingencies (Cont'd.)
Future Minimum Annual Rentals (Cont'd.)
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 4,484,000
2000 3,466,000
2001 1,935,000
2002 1,591,000
2003 1,334,000
Thereafter 3,215,000
-----------
$16,025,000
===========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses; payments
of additional rents in amounts equal to a set percentage of the tenant's
annual revenue in excess of specified levels; and escalations in annual
rents based upon the Consumer Price Index.
(6) Secured Loan Agreements
In September 1987, the Partnership borrowed $4,000,000 pursuant to a loan
agreement secured by a First Deed of Trust on the Certified Distribution
Center in Salt Lake City, Utah. That loan matured on October 1, 1990,
however, the General Partner obtained a loan extension that was to mature
December 1, 1993. On July 30, 1993, the Partnership obtained a new loan
secured by a First Deed of Trust on the Certified Distribution Center in
Salt Lake City, Utah. The new loan, in the amount of $3,500,000, carries
a fixed interest rate of 9% per annum over a 13-year fully amortizing
term and a prepayment penalty of approximately $700,000 at current
interest rates, if fully paid off after July 1, 1998. 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,
1998, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 242,000
2000 264,000
2001 289,000
2002 316,000
2003 346,000
Thereafter 1,052,000
----------
$2,509,000
==========
</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
F-19
<PAGE> 39
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Secured Loan Agreements (Cont'd.)
Albuquerque, New Mexico. The loan agreement calls for interest only
payments at the rate of 1% over prime (currently 8.75%). There are no
current borrowings against this loan arrangement outstanding as of
December 31, 1998. The loan arrangement expires on April 1, 2002.
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Real estate taxes $646,000 $576,000
Accounts payable and other 250,000 369,000
-------- --------
$896,000 $945,000
======== ========
</TABLE>
(8) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1998, includes
estimates of costs to be incurred in carrying out the dissolution and
liquidation of the Partnership. These costs include estimates of legal
fees, accounting fees, tax preparation and filing fees, other
professional services, the general partner's liability insurance and the
prepayment penalty associated with the anticipated early retirement of
the mortgage loan secured by the Certified Warehouse property. The
actual costs could vary significantly from the related provisions due to
the uncertainty related to the length of time required to complete the
liquidation and dissolution and the complexities which may arise in
disposing of the Partnership's remaining assets.
(9) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Balance at beginning of year $ 63,000
Additions charged to expense 21,000
Write-offs (38,000)
--------
Balance at end of year $ 46,000
========
</TABLE>
(10) Subsequent Events
On February 28, 1999, the Partnership made a distribution to its limited
partners of $263,000.
On March 24, 1999, the Partnership signed a Purchase and Sale Agreement
and Joint Escrow Instructions to sell Terracentre for a sale price of
$6,450,000. The purchaser is Halcyon Real Estate, Inc. ("Halcyon"), a
local Denver real estate development company that is not affiliated in
any way with the Partnership or the General Partner, or any of the
General Partner's principals or affiliates. Closing of the transaction
is subject to Halcyon's due diligence review and approval of title
conditions, environmental reports, physical and engineering inspections,
and operating documentation including leases, rental agreements and
contracts, personal property inventories, operating expenses, property
tax bills and physical plans and specifications for the property. The
purchaser deposited $250,000 into escrow on March 25, 1999, which sum is
fully refundable to the purchaser until completion of its due diligence
investigation. The due diligence period is approximately 30 days, with
closing of the transaction currently scheduled to take place
approximately 15 days thereafter. Halcyon will not hire the General
Partner or any affiliate to perform asset management or property
management services for this property after close of the sale.
F-20
<PAGE> 40
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(10) Subsequent Events (Cont'd.)
On March 25, 1999, the Partnership signed a letter of intent with
Praedium Performance Fund IV ("Praedium") to sell all of its properties
except Terracentre to Praedium for $31,700,000. Praedium is a New
York-based investment firm affiliated with CS First Boston. Praedium is
not affiliated in any way with the Partnership or the General Partner,
or any of the General Partner's principals or affiliates.
The Partnership and Praedium expect to sign a definitive Purchase and
Sale Agreement within two weeks, or by approximately April 8, 1999.
Praedium will then have 45 days to complete its due diligence
investigation and 30 days thereafter to complete the purchase. Upon
execution of the definitive Purchase and Sale Agreement, Praedium will
deposit $300,000 into an escrow account, which deposit shall be fully
refundable at any time before the expiration of the due diligence
period.
Praedium will hire Birtcher or an affiliate as asset manager for the
properties, and pay an annual fee equal to .30% of the value of the
assets for asset management services. Also, Praedium will hire Birtcher
or an affiliate as property manager for these assets for a fee that is
approximately the same as the current fees paid to the General Partner
for property management.
The letter of intent is nonbinding. Completion of the transaction is
conditioned upon Praedium completing its due diligence and formal
approval of the transaction by Praedium's "Investment Committee". The
Partnership has agreed that until the earlier of April 8, 1999 or the
execution of a definitive Purchase and Sale Agreement or Praedium
terminates the letter of intent, the Partnership will not offer to sell
or solicit any offer to purchase or negotiate for the sale of the
assets.
F-21
<PAGE> 41
DAMSON/BIRTCHER REALTY INCOME FUND-I
SCHEDULE III
REAL ESTATE IN LIQUIDATION
AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. H
- --------------- ------------ --------------------- ---------------------- ------------------------------ ---------
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH
TO PARTNERSHIP SUBSEQUENT CARRIED AT CLOSE OF PERIOD
(c) TO THE ACQUISITION (b)
--------------------- ---------------------- ------------------------------
CARRYING BUILDINGS
DESCRIPTION BUILDINGS AND COSTS AND TOTAL DATE
(a) ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS (d), (b) LAND IMPROVEMENTS (e) ACQUIRED
- ----------- ------------ -------- ------------- ------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington $ -- $ 865 $ 3,252 $ 1,406 $ (2,253) $ 859 $ 2,413 $ 3,272 12/19/84
Technical
Center, Phase I
Renton, WA
Certified 2,509 1,160 8,751 104 (4,360) 1,160 4,495 5,655 04/02/85
Distribution
Center
Salt Lake
City, UT
Ladera -- 2,107 6,971 481 (4,156) 2,097 3,307 5,404 05/10/85
Shopping
Center, Phase I
Albuquerque, NM
The Cornerstone -- 4,620 14,115 4,182 (14,777) 3,597 4,542 8,139 07/19/85
Tempe, AZ
Terracentre -- 1,458 19,939 2,620 (18,368) 491 5,158 5,649 09/06/85
Denver, CO
Oakpointe -- 1,249 8,852 3,101 (6,890) 1,119 5,193 6,312 09/18/85
Arlington
Heights, IL
----------- -------- -------- -------- -------- -------- -------- --------
TOTAL $ 2,509 $ 11,459 $ 61,880 $ 11,894 $(50,804) $ 9,323 $ 25,108 $ 34,431
=========== ======== ======== ======== ======== ======== ======== ========
</TABLE>
NOTE: Columns F,G and I are not applicable.
See notes to schedule on following page.
F-22
<PAGE> 42
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO SCHEDULE III
(a) For a description of the properties, see "Item 2. Properties."
(b) For the year ended December 31, 1998, the General Partner determined
that the carrying values of Certified Warehouse, The Cornerstone,
Ladera-I Shopping Center and Oakpointe were in excess of their
respective estimated net realizable values. As a result, their carrying
values were adjusted by $1,225,000, $1,545,000, $652,000 and $1,546,000,
to $5,655,000, $8,139,000, $5,404,000 and $6,312,000, respectively. In
addition, during 1998, the carrying value of Terracentre increased by
$2,368,000 to its estimated net realizable value of $5,649,000,
partially offsetting the aforementioned decreases.
Upon adoption of the liquidation basis of accounting on March 31, 1997,
accumulated depreciation was deleted through an adjustment to the cost
of the properties.
For the year ended December 31, 1996, the General Partner determined
that the carrying values of The Cornerstone, Ladera-I Shopping Center
and Oakpointe were in excess of their respective appraised values. As a
result, their carrying values were adjusted by $1,683,000, $398,000, and
$253,000 to $8,960,000, $5,900,000, and $7,700,000, respectively. In
addition, during 1996, the carrying values of Terracentre and Washington
Technical Center were increased by $190,000 and $246,000 to their
estimated fair values less selling costs of $2,900,000 and $3,020,000,
respectively.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $82,627,000 as of December 31, 1998.
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-23
<PAGE> 43
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO SCHEDULE III (Cont'd.)
(e) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Balance at beginning of year $ 36,090,000 $ 58,549,000
Additions during the year:
Improvements 941,000 719,000
Other (*) -- (23,178,000)
Reductions during the year:
Adjustment to the carrying
value of properties in liquidation (2,600,000) --
------------ ------------
Balance at end of year $ 34,431,000 $ 36,090,000
============ ============
</TABLE>
(*) Results from reclassification of deferred rent receivable and leasing
commissions to real estate and deletion of accumulated depreciation upon
the adoption of the liquidation basis of accounting on March 31, 1997.
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Balance at beginning of year $ 23,967,000
Disposition of assets --
Adjustment upon adoption of
liquidation basis of accounting (23,967,000)
------------
Balance at end of year $ --
============
</TABLE>
F-24
<PAGE> 44
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:
0 Richard G. Wollack, Chairman of the Board
0 Brent R. Donaldson, President
0 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:
0 Ronald E. Birtcher, Co-Chairman of the Board
0 Arthur B. Birtcher, Co-Chairman of the Board
0 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, 1998.
20
<PAGE> 45
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 5,000 $ 10,000 $ 5,000
Asset management fees 209,000 245,000 301,000
Property management fees 173,000 165,000 178,000
Leasing fees 44,000 25,000 21,000
Property management expense
reimbursements 312,000 315,000 367,000
Other expense reimbursements 152,000 157,000 178,000
---------- ---------- ----------
TOTAL $ 895,000 $ 917,000 $1,050,000
========== ========== ==========
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 25, 1999, Grape Investors, LLC was the beneficial owner of certain
limited partnership interests, as follows:
<TABLE>
<CAPTION>
Title of Name and address of Amount and nature of
Class beneficial owner beneficial ownership(1) Percent of class(1)
- -------- ------------------------------ ----------------------- -------------------
<S> <C> <C> <C>
Limited Partnership Grape Investors, LLC $7,698,635 7.9%
Interests(2) c/o Arlen Capital Advisors
1650 Hotel Circle Drive North
Suite 200
San Diego, CA 92018
</TABLE>
- ----------------
(1) Based upon original invested capital.
(2) Grape Investors, LLC is beneficial owner of these securities. The
Partnership has not admitted Grape Investors, LLC to the Partnership as a
limited partner.
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.
21
<PAGE> 46
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
Exhibits:
3. 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)
22
<PAGE> 47
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 filed for the year ended December 31, 1998, however, reference has
been incorporated for the Form 8-K filed on February 4, 1999 reporting
that the agreement to sell all of Damson/Birtcher Realty Income Fund-I's
properties to Abbey Investments, Inc. had been terminated.
23
<PAGE> 48
DAMSON/BIRTCHER REALTY INCOME FUND-I
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-I
By: DAMSON/BIRTCHER PARTNERS By: BIRTCHER PARTNERS,
(General Partner) a California general partnership
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Partners
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: March 30, 1999 By: /s/Robert M. Anderson
-----------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund II, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund II, L.P.
Date: March 30, 1999 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, 1999
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1999
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1999
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
24
<PAGE> 49
EXHIBIT INDEX
3. 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)
(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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K DAMSON
BIRTCHER REALTY INCOME FUND I.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 351,000
<SECURITIES> 0
<RECEIVABLES> 171,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 643,000
<PP&E> 34,431,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,074,000
<CURRENT-LIABILITIES> 1,769,000
<BONDS> 2,509,000
0
0
<COMMON> 0
<OTHER-SE> 30,796,000
<TOTAL-LIABILITY-AND-EQUITY> 35,074,000
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Statement of Operation is not presented in liquidation basis of accounting.
</FN>
</TABLE>
