<PAGE> 1
\ SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000
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Commission file number 0-13563
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DAMSON/BIRTCHER REALTY INCOME FUND - I
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(Exact name of registrant as specified in its charter)
Pennsylvania 13-3264491
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box 30009, Laguna Niguel, California 92607-0009
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(Address of principal executive offices) (Zip Code)
(949) 643-7700
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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DAMSON/BIRTCHER REALTY INCOME FUND-I
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Net Assets in Liquidation - September 30, 2000
(Unaudited)and December 31, 1999 (Audited)....................... 3
Statements of Changes of Net Assets in Liquidation -
Three and Nine Months Ended September 30, 2000 and
1999 (Unaudited)................................................. 4
Notes to Financial Statements (Unaudited)........................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 12
Item 3. Quantitative and Qualitative Market Risk Disclosures............. 18
PART II. OTHER INFORMATION................................................ 18
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS (Liquidation Basis):
Properties $ -- $ 5,980,000
Cash and cash equivalents 7,331,000 10,137,000
Cash held in escrow 118,000 512,000
Receivables, net 36,000 18,000
Other assets 33,000 38,000
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Total Assets 7,518,000 16,685,000
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LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 50,000 134,000
Accrued expenses for liquidation 273,000 429,000
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Total Liabilities 323,000 563,000
---------- -----------
Net Assets in Liquidation $7,195,000 $16,122,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
2000 1999 2000 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net assets in liquidation
at beginning of period $ 7,209,000 $ 29,344,000 $ 16,122,000 $ 30,796,000
Increase (decrease) during period:
Operating activities:
Property operating income (loss), net -- 979,000 (144,000) 2,445,000
Interest income 116,000 36,000 260,000 43,000
General and administrative expenses -- (252,000) -- (704,000)
Interest expense on mortgage payable -- (49,000) -- (160,000)
Leasing commissions -- (13,000) -- (78,000)
Other expense, net (13,000) -- (13,000) --
----------- ------------ ------------ ------------
103,000 701,000 103,000 1,546,000
----------- ------------ ------------ ------------
Liquidating activities:
Gain (Loss) on sale of real estate -- (425,000) 151,000 (425,000)
Liquidation expenses (117,000) 316,000 (181,000) 316,000
Adjustment to the carrying
value of real estate -- -- -- (1,717,000)
Distributions to partners -- (344,000) (9,000,000) (924,000)
----------- ------------ ------------ ------------
(117,000) (453,000) (9,030,000) (2,750,000)
----------- ------------ ------------ ------------
Net increase (decrease) in assets
in liquidation (14,000) 248,000 (8,927,000) (1,204,000)
----------- ------------ ------------ ------------
Net assets in liquidation at
end of period $ 7,195,000 $ 29,592,000 $ 7,195,000 $ 29,592,000
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(1) Accounting Policies
The financial statements of Damson/Birtcher Realty Income Fund-I (the
"Partnership") included herein have been prepared by the General Partner,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements include all adjustments
which are of a normal recurring nature and, in the opinion of the General
Partner, are necessary for a fair presentation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Partnership's annual report on Form 10-K for the year ended
December 31, 1999.
Sale of the Properties
The Partnership sold five of its six remaining properties during the year
ended December 31, 1999. The Partnership's sold Terracentre, its last
property, on May 31, 2000 (see Note 5).
Liquidation Basis of Accounting
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 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 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.
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.
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
5
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
Segment Reporting (Cont'd.)
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.
Rental income from FISERV, Inc. (formerly d.b.a. Citicorp CIR, Inc.)
totaled $160,000 for the three months ended September 30, 1999, or
approximately 16% of the Partnership's total rental income. For the nine
months ended September 30 1999, such rental income amounted to $470,000 or
12% of the Partnership's total rental income. Oakpointe Business Center,
which FISERV, Inc. formerly occupied was sold in September 1999.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in units.
All investment interests are calculated on a "percent of Partnership"
basis, in part to accommodate original reduced rates on sales commissions
for subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no sales
commission was credited with proportionately larger Invested Capital and
therefore had a disproportionately greater interest in the capital and
revenues of the Partnership than a Limited Partner who paid commissions at
a higher rate. As a result, the Partnership has no set unit value as all
accounting, investor reporting and tax information is based upon each
investor's relative percentage of Invested Capital. Accordingly, earnings
or loss per unit is not presented in the accompanying financial statements.
(2) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner and
its affiliates perform services on behalf of the Partnership in connection
with administering the affairs of the Partnership. The General Partner and
affiliates are reimbursed for their general and administrative costs
actually incurred and associated with services performed on behalf of the
Partnership. For the three months ended September 30, 2000 and 1999, the
Partnership incurred approximately $9,000 and $26,000, respectively. Such
costs were $71,000 and $112,000 for the nine months there ended.
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 $0 and $37,000 for the
three months ended September 30, 2000 and 1999 and $10,000 and $122,000 for
the nine months there ended. In addition, an affiliate of the General
Partner received $3,000 and $71,000 for the three months ended September
30, 2000 and 1999, respectively, as
6
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates (Cont'd.)
reimbursement of costs of on-site property management personnel and other
reimbursable costs. For the nine months there ended, such reimbursements
were $46,000 and $242,000, respectively.
As previously reported, on June 24, 1993, the Partnership completed its
solicitation of written consents from its Limited Partners. A majority in
interest of the Partnership's Limited Partners approved each of the
proposals contained in the Information Statement dated May 5, 1993. Those
proposals were implemented by the Partnership as contemplated by the
Information Statement as amendments to the Partnership Agreement, and are
reflected in these financial statements as such.
The amended Partnership Agreement provides for the Partnership's payment to
the General Partner of an annual asset management fee equal to .35% for
2000 and .45% for 1999 of the aggregate appraised value of the
Partnership's properties. Appraised value was determined by the General
Partner's estimate of fair value. Such fees for the three months ended
September 30, 2000 and 1999, amounted to $0 and $37,000, respectively. For
the nine months there ended, such fees were $9,000 and $116,000,
respectively. Since the Partnership has sold all of its properties, the
Partnership no longer pays an asset management fee.
The amended Partnership Agreement provides for the Partnership's payment to
the General Partner of a property disposition fee if and to the extent that
the sale price of the property in question, net of any brokerage
commissions (but not other costs of sale), exceeds the appraised value of
the property as of January 1993. For the nine months ended September 30,
2000, a fee of $130,000 was earned and paid on the sale of Terracentre. For
the nine months ended September 20, 1999, a fee of $98,750 was earned and
paid on the sale of Washington Technical Center.
In addition, the amended Partnership Agreement provides for payment to the
General Partner of a leasing fee for services rendered in connection with
leasing space in a Partnership property after the expiration or termination
of leases. Fees for leasing services for the three months ended September
30, 2000 and 1999, amounted to $0 and $2,000, respectively. For the nine
months there ended, such fees were $0 and $20,000, respectively.
(3) 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's Fund 1990 Litigation
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 L.P. filed a purported class action lawsuit in the
Court of Common Pleas of Philadelphia County against Damson/Birtcher
Partners, Birtcher
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Bigelow/Diversified Secondary Partnership's Fund 1990 Litigation (Cont'd.)
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 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.
In March 2000, defendants informed the Court and plaintiff that they would
bring a Motion for Summary Judgment against the named plaintiff based upon
the allegations set forth in plaintiff's complaint. On April 14, 2000,
Bigelow/Diversified Secondary Partnership Fund 1990 filed a First Amended
Class Action and Derivative Complaint against Damson/Birtcher Partners,
Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Partners,
Birtcher Properties, Birtcher Ltd., Birtcher Investments, BREICORP, L.F.
Special Fund II, L.P., L.F. Special Fund I, L.P., Liquidity Fund Asset
Management, Inc., Arthur Birtcher,
8
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Bigelow/Diversified Secondary Partnership's Fund 1990 Litigation (Cont'd.)
Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R.
Donaldson, the Partnership, Damson/Birtcher Realty Income Fund-II and Real
Estate Income Partners III, alleging breach of fiduciary duty, breach of
contract, and a derivative claim for breach of fiduciary duty. Defendants
have answered the First Amended Complaint.
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 were served with process and did not appear 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 removed the case to the
United States District Court for the Western District of Oklahoma, and
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 moved to remand
the case back to the Oklahoma state court. The court denied plaintiff's
motion for removal, and took defendant's motion to dismiss or transfer
under submission pending receipt of additional information the court
ordered plaintiff to provide. On March 29, 2000, the court entered its
order granting defendant's motion to dismiss the case for lack of personal
jurisdiction, and dismissed the case.
Madison Partnership and ISA Partnership Litigation
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and ISA
Partnership Liquidity Investors filed a purported class and derivative
action in the California Superior Court in Orange County, California
against Damson Birtcher Partners, Birtcher/Liquidity Properties, Birtcher
Partners, Birtcher Investors, Birtcher Investments, Birtcher Limited,
Breicorp LP Special Fund II,
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Madison Partnership and ISA Partnership Litigation (Cont'd.)
L.P., Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R.
Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G. Wollack,
Defendants, and Damson/Birtcher Realty Income Fund-I, Damson/Birtcher
Realty Income Fund-II, and Real Estate Income Partners III, Nominal
Defendants. The complaint asserts claims for breach of fiduciary duty and
breach of contract. The gravamen of the complaint is that the General
Partners of these limited partnerships have not undertaken all reasonable
efforts to expedite liquidation of the Partnerships' properties and to
maximize the returns to the Partnerships' limited partners. The complaint
seeks unspecified monetary damages, attorneys' fees and litigation
expenses, and an order for dissolution of the partnerships and appointment
of an independent liquidating trustee. The Partnership moved to stay or
dismiss the case on the grounds that the pending Bigelow class action,
discussed above, raises essentially the same claims. The court granted the
Partnership's motion and ordered a stay of the litigation pending
re-evaluation at a May 23, 2000 status conference. The court lifted the
stay on May 23, 2000. Plaintiffs have initiated document discovery.
Plaintiffs have moved to certify the class and the parties are engaged in
discovery regarding class certification. The motion to certify the class is
currently scheduled to be heard on December 14, 2000.
(4) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of September 30, 2000, include
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 and the general partner's liability insurance. During the three
months ended September 30, 2000, the Partnership incurred $86,000 of such
expenses. At September 30, 2000, the General Partner re-evaluated the
estimated costs to wind up and dissolve the Partnership given the
uncertainty involved with the ongoing litigation. The provision for
liquidation expenses was accordingly increased by an additional $117,000 to
reflect the revised estimates. The increase was primarily the result of
attorney fees incurred to date in association with the litigation.
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. The accrued expenses for
liquidation do not take into consideration the possible outcome of the
ongoing litigation. Such costs are unknown and are not estimable at this
time.
(5) Gain on Sale of Real Estate
On May 31, 2000, the Partnership sold Terracentre, in Denver, Colorado to
Robert E. Collawn ("Collawn"), a Denver real estate developer and operator,
for
10
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
(5) Gain on Sale of Real Estate (Cont'd.)
$6,500,000. The Partnership realized a gain on the sale of $151,000, in
excess of its carrying value, after deducting for closing costs and
prorations totaling approximately $294,000. Collawn is not affiliated in
any way with the Partnership, its General Partner or the General Partner's
affiliates.
The Partnership was represented by a third-party broker in the transaction.
The broker was paid $227,500 from the sale proceeds. The General Partner
earned and was paid a disposition fee of $130,000 in connection with the
transaction. Collawn will not hire the General Partner or any affiliate to
perform asset management or property management services for this property.
(6) Subsequent Event
On October 19, 2000, Grape Investors, LLC ("Grape"), the holder of 7.94% of
the limited partnership interests of the Partnership, settled its portion
of the purported class action lawsuits entitled "Bigelow/Diversified
Secondary Partnerships Fund 1990 Litigation" and "Madison Partnership and
ISA Partnership Litigation". In exchange for a complete settlement and
release from Grape, the Partnership paid Grape its pro rata share of the
proceeds available for distribution from the liquidation of the
Partnership's properties. Grape's final distribution was $576,000, or
approximately $75 per $1,000 of original investment. The General Partner
also paid $1.00 for all of Grape's interest in the Partnership.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Since the completion of its acquisition program in September 1985, the
Partnership has been 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 were 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 on March 14, 1997 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 1999 and five of its six remaining properties were sold by
year-end. The Partnership's remaining property was sold on May 31, 2000.
In November 1998, the Partnership entered into a definitive Purchase and
Sale Agreement with Abbey Investments, Inc. to sell all the Partnership's
properties for a range between $34,500,000 and $36,000,000, depending on
final occupancy rates at the time of closing. However, in January 1999, the
agreement was terminated because Abbey had requested a material reduction
in the purchase price (approximately 11%), which the Partnership did not
agree to.
On April 30, 1999, the Partnership and Praedium Performance Fund IV
("Praedium") executed a Purchase and Sale Agreement to sell all of the
Partnership's properties except Terracentre to Praedium for $31,700,000.
Praedium deposited $243,100 into escrow, pending completion of its due
diligence inspection and review. Praedium's contingency period expired on
June 14, 1999. During and after the contingency period, Praedium, in a
series of negotiations with the Partnership, sought reductions in the
purchase price of each of the properties and declined to include the
Cornerstone, Ladera-I and Certified in its offers. During this time, the
General Partner negotiated with Praedium, and also sought other purchasers
for the properties, both individually and as a group. Finally, in late July
1999, the Partnership declined Praedium's offer to purchase only
Cornerstone, Oakpointe and Washington Tech for a materially reduced
purchase price and terminated its dealings with Praedium.
Sale of the Properties
During the three month period ended September 30, 1999, the Partnership
sold four of its six properties in two separate transactions, and
subsequently sold The Cornerstone on October 15, 1999 and Terracentre on
May 31, 2000, as set forth below:
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
Ladera-I
On September 22, 1999, the Partnership sold Ladera-I shopping center, in
Albuquerque, New Mexico to CA New Mexico, LLC, a wholly-owned subsidiary of
CenterAmerica Trust ("CenterAmerica"), a Houston-based real estate
investment trust that is not affiliated in any way with the Partnership,
its General Partner or any of its principals or affiliates. The sale price
was $4,424,000.
CenterAmerica and the Partnership were each represented by third-party
brokers in the transaction. The brokers were paid an aggregate $186,800
from the sale proceeds. The General Partner was not paid a disposition fee
in connection with the transaction. CenterAmerica did not hire the General
Partner or any affiliate to perform asset management or property management
services for this property.
The Rubin Pachulsky Dew Transaction
On September 23, 1999, the Partnership sold Certified Warehouse and
Distribution Center, in Salt Lake City, Utah, Oakpointe Business Center, in
Arlington Heights, Illinois, and Washington Technical Center, in Renton,
Washington to Rubin Pachulsky Dew Properties, LLC ("Rubin Pachulsky Dew")
for $5,100,000, $5,600,000 and $3,950,000, respectively, or an aggregate
purchase price of $14,650,000. Rubin Pachulsky Dew is a third-party real
estate investment entity that is not affiliated in any way with the
Partnership, its General Partner or any of its principals or affiliates.
Rubin Pachulsky Dew was represented by a third-party broker in the
transaction. The broker was paid $146,500 from the sale proceeds. Since the
sale price of Washington Technical Center exceeded the January 1, 1993
appraised value ($3,400,000), pursuant to the 1993 Amendment of the
Partnership Agreement, the General Partner earned and was paid a property
disposition fee of $98,750 in connection with the sale of that property.
Rubin Pachulsky Dew has hired an affiliate of Birtcher as property manager
for the properties for a fee that is approximately the same as the fee the
Partnership previously paid to the General Partner for property management.
In addition, Rubin Pachulsky Dew has hired an affiliate of Birtcher to
provide certain asset management services for the properties, and will pay
an incentive fee approximately equal to 10% of the profits, if any, after
Rubin Pachulsky Dew has received a 15% cumulative annual return on its
investment. The incentive fee, if earned, is not payable until the last
property is sold or four years from date of purchase, whichever comes
first. The property management agreement is cancelable at any time upon 60
days notice, but the incentive fee will survive termination of the
contract.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
The Rubin Pachulsky Dew Transaction (Cont'd.)
A portion of the proceeds from the sale of the properties to Rubin
Pachulsky Dew continues to be held in escrow. A sum equal to two and
one-half percent of the purchase price was held back as a potential source
of payment for any claims that may arise related to a Partnership breach of
certain representations and warranties related to the sale (expiring on
September 23, 2000) and for any litigation costs that may arise (released
to the Partnership on March 23, 2000). The remaining cash held in escrow
relates to holdbacks for tenant improvements and tax prorations. The cash
held in escrow has been included in the calculation of loss on sale of real
estate.
The Cornerstone
On October 15, 1999, Damson/Birtcher Realty Income Fund-I (the
"Partnership") sold The Cornerstone shopping center, in Tempe, Arizona to
GDA Real Estate Services, LLC ("GDA"), a Denver-based real estate developer
and operator that is not affiliated in any way with the Partnership, its
General Partner or the General Partner's affiliates, for a sale price of
$8,500,000.
GDA was represented by two third-party brokers in the transaction. The
brokers were paid $170,000 from the sale proceeds. The General Partner was
not paid a disposition fee in connection with the transaction. GDA will not
hire the General Partner or any affiliate to perform asset management or
property management services for this property.
Terracentre
On March 24, 1999, the Partnership signed a Purchase and Sale Agreement to
sell Terracentre for $6,450,000 to Halcyon Real Estate, Inc. ("Halcyon"), a
local Denver real estate development company. During its due diligence
period Halcyon asked to extend its contingency period to address zoning and
land-use changes with the city of Denver (it apparently wanted to change
the site from office to residential condominium use). The General Partner
did not accept the request for extension. Halcyon thereupon asked to reduce
the purchase price from $6,450,000 to $4,500,000. The Partnership rejected
this request and terminated its dealings with Halcyon.
On June 18, 1999, the Partnership entered into a Purchase and Sale
Agreement to sell Terracentre to Charles Callaway ("Callaway"), an
unaffiliated Denver real estate developer and operator, for $6,450,000. The
purchaser deposited $200,000 into escrow on June 21, 1999, all but $50,000
of which was refundable pending completion of its due diligence
investigation. Unfortunately, at a Denver city council meeting on August
10, 1999, certain council members discussed condemning Terracentre in order
to expand the adjacent convention center. The Callaway
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
Terracentre (Cont'd.)
transaction was subsequently terminated and the deposit returned. On
November 2, 1999, Denver voters approved a referendum in favor of expanding
the convention center.
On May 31, 2000, the Partnership sold Terracentre, in Denver, Colorado to
Robert E. Collawn ("Collawn"), a Denver real estate developer and operator,
for $6,500,000. Collawn is not affiliated in any way with the Partnership,
its General Partner or the General Partner's affiliates.
The Partnership was represented by a third-party broker in the transaction.
The broker was paid $227,500 from the sale proceeds. The General Partner
earned and was paid a disposition fee of $130,000 in connection with the
transaction. Collawn did not hire the General Partner or any affiliate to
perform asset management or property management services for this property.
The Partnership realized approximately $6,206,000, in cash proceeds from
the sale of Terracentre, after deducting for closing costs and prorations
totaling approximately $294,000.
Other Matters
Regular distributions through the year ended December 31, 1999, represented
net cash flow generated from the operation of the Partnership's properties
and interest earned on the temporary investment of working capital, net of
capital reserve requirements. On December 8, 1999, the Partnership made a
special distribution of $13,300,000, representing a portion of the proceeds
from the sale of five of its six remaining properties. Another special
distribution of $9,000,000 was made on March 1, 2000. This last special
distribution arose out of discussions with the named plaintiffs and their
lawyers in the purported class action lawsuits. It represents the
culmination of further, private discussions with representatives of Grape
Investors, LLC ("Grape"), the holder of the largest investor position in
the Partnership (approximately 7.94% of the limited partnership interests).
Grape Investors agreed that for a period of 24 months, it will not involve
itself in any way or support any effort to seek, or cause anyone else to
seek, the addition of new general partners, the appointment of a receiver,
or the removal of the General Partner. Grape Investors also has agreed to
either abstain or vote against any such action or proposal.
On October 19, 2000, Grape settled its portion of the purported class
action lawsuits entitled "Bigelow/Diversified Secondary Partnerships Fund
1990 Litigation" and "Madison Partnership and ISA Partnership Litigation".
In exchange for a complete settlement and release from Grape, the
Partnership paid Grape its pro rata share of the proceeds available for
distribution from the liquidation of the
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Other Matters (Cont'd.)
Partnership's properties. Grape's final distribution was $576,000, or
approximately $75 per $1,000 of original investment. The General Partner
also paid $1.00 for all of Grape's interest in the Partnership.
As of May 31, 2000, the Partnership has sold all of its operating
properties. Two lawsuits remain pending against the Partnership and its
General Partner and certain of its affiliates that seek, among other
things, unspecified monetary damages. Since these cases are in the
preliminary discovery phase, there is unavoidable uncertainty regarding
their ultimate resolution. The Partnership Agreement mandates that the
General Partner provide for all of the Partnership's liabilities and
obligations, including contingent liabilities, before distributing
liquidation proceeds to its partners. Therefore, the amount and timing of
any distribution of liquidation proceeds will be determined by the General
Partner in light of these and other relevant considerations. Due to these
uncertainties, it is possible that future distributions may be limited to a
liquidating distribution upon Partnership wind down should funds be
available at that time.
Year 2000
As of December 31, 1999, the Partnership's accounting systems and the
investor services system used to track the limited partners' interests,
distributions and tax information were tested and appeared to be free of
year 2000 bugs. The Partnership's remaining property was also reviewed
utilizing the Building Owners and Managers Association ("BOMA") industry
standards as a guideline for necessary corrections and those corrections
were successful. As of September 30, 2000, the Partnership did not
experience any significant issues or problems relating to year 2000. The
cost of the Partnership's accounting systems upgrade was borne by the
General Partner and was not reimbursed by the Partnership.
Results of Operations for the Three Months Ended September 30, 2000
Because the Partnership has been liquidating its assets, a
quarter-to-quarter comparison of the results of operations is not
practical. As the Partnership's assets (properties) were sold, the results
of operations have been generated from a smaller asset base, and therefore
are not comparable. The Partnership completed the sale of five of its six
remaining properties in three separate transactions during 1999 and sold
its last property on May 31, 2000. The Partnership's operating results have
been reflected on the Statements of Changes of Net Assets in Liquidation.
Interest income resulted from the temporary investment of Partnership
working capital. For the three months ended September 30, 2000, interest
income was approximately $116,000. The increase in interest income was
reflective of the increased cash and cash equivalent balances that were
generated from the sale of the properties and are being held in reserve.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended September 30, 2000
(Cont'd.)
Accrued expenses for liquidation as of September 30, 2000, include
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, and other
professional services. During the three months ended September 30, 2000,
the Partnership incurred $86,000 of such expenses. At September 30, 2000,
the General Partner re-evaluated the estimated costs to wind up and
dissolve the Partnership given the uncertainty involved with the ongoing
litigation. The provision for liquidation expenses was accordingly
increased by an additional $117,000 to reflect the revised estimates. The
increase was primarily the result of attorney fees incurred to date in
association with the litigation. The allowance for accrued expenses for
liquidation does not, however, reflect any future costs of the ongoing
litigation due to the uncertainty associated with those matters.
Liquidation expenses incurred for the three months ended September 30,
2000, include charges of $9,000 from the General Partner and its affiliates
for services rendered in connection with administering the affairs of the
Partnership. Also included in liquidation expenses incurred for the three
months ended September 30, 2000, are direct charges of $77,000, relating to
audit fees, tax preparation fees, legal fees and professional services,
costs incurred in providing information to the Limited Partners and other
miscellaneous costs.
Interest expense in 1999 resulted from interest on the first deed of trust
on Certified Distribution Center. That mortgage was retired on September
23, 1999 with the sale of Certified Distribution Center to Rubin Pachulsky
Dew.
Other expense for the three and nine months ended September 30, 2000,
resulted from the write off of several miscellaneous uncollectable tenant
receivables ($7,000) and other minor expenses.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
As of September 30, 2000, the Partnership had cash equivalents of
$7,033,000 invested in interest-bearing certificates of deposit. These
investments are subject to interest rate risk due to changes in interest
rates upon maturity. Declines in interest rates over time would reduce
Partnership interest income.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor its
properties are subject to any material pending legal proceedings, 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 L.P. 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 Income Fund-II and Real Estate Income Partners III
alleging breach of fiduciary duty and
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Bigelow Diversified Secondary Partnership Fund 1990 litigation (Cont'd.)
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.
In March 2000, defendants informed the Court and plaintiff that they would
bring a Motion for Summary Judgment against the named plaintiff based upon
the allegations set forth in plaintiff's complaint. On April 14, 2000,
Bigelow/Diversified Secondary Partnership Fund 1990 filed a First Amended
Class Action and Derivative Complaint against Damson/Birtcher Partners,
Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Partners,
Birtcher Properties, Birtcher Ltd., Birtcher Investments, BREICORP, L.F.
Special Fund II, L.P., L.F. Special Fund I, L.P., Liquidity Fund Asset
Management, Inc., Arthur Birtcher, Ronald Birtcher, Robert Anderson,
Richard G. Wollack and Brent R. Donaldson, the Partnership, Damson/Birtcher
Realty Income Fund-II and Real Estate Income Partners III, alleging breach
of fiduciary duty, breach of contract, and a derivative claim for breach of
fiduciary duty. Defendants have answered the First Amended Complaint.
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 were served with process and did not appear 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 removed the case to the
United States District Court for the Western District of Oklahoma, and
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 moved to remand
the case back to the Oklahoma state court. The court denied plaintiff's
motion for removal, and took defendant's motion to dismiss or transfer
under submission pending receipt of additional information the court
ordered plaintiff to provide. On March 29, 2000, the court entered its
order granting defendant's motion to dismiss the case for lack of personal
jurisdiction, and dismissed the case.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Madison Partnership and ISA Partnership Litigation
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and ISA
Partnership Liquidity Investors filed a purported class and derivative
action in the California Superior Court in Orange County, California
against Damson Birtcher Partners, Birtcher/Liquidity Properties, Birtcher
Partners, Birtcher Investors, Birtcher Investments, Birtcher Limited,
Breicorp LP Special Fund II, L.P., Liquidity Fund Asset Management, Inc.,
Robert M. Anderson, Brent R. Donaldson, Arthur B. Birtcher, Ronald E.
Birtcher, and Richard G. Wollack, Defendants, and Damson/Birtcher Realty
Income Fund-I, Damson/Birtcher Realty Income Fund-II, and Real Estate
Income Partners III, Nominal Defendants. The complaint asserts claims for
breach of fiduciary duty and breach of contract. The gravamen of the
complaint is that the General Partners of these limited partnerships have
not undertaken all reasonable efforts to expedite liquidation of the
Partnerships' properties and to maximize the returns to the Partnerships'
limited partners. The complaint seeks unspecified monetary damages,
attorneys' fees and litigation expenses, and an order for dissolution of
the partnerships and appointment of an independent liquidating trustee. The
Partnership moved to stay or dismiss the case on the grounds that the
pending Bigelow class action, discussed above, raises essentially the same
claims. The court granted the Partnership's motion and ordered a stay of
the litigation pending re-evaluation at a May 23, 2000 status conference.
The court lifted the stay on May 23, 2000. Plaintiffs have initiated
document discovery. Plaintiffs have moved to certify the class and the
parties are engaged in discovery regarding class certification. The motion
to certify the class is currently scheduled to be heard on December 14,
2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None filed during the three months ended September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-I
By: DAMSON/BIRTCHER PARTNERS By: BIRTCHER PARTNERS,
(General Partner) a California general partnership
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Partners
By: BIRTCHER LIMITED,
a California limited
partnership, General Partner of
Birtcher Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: November 13, 2000 By: /s/ Robert M. Anderson
------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund II, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management,
Inc., a California corporation,
General Partner of LF Special
Fund II, L.P.
Date: November 13, 2000 By: /s/ Brent R. Donaldson
--------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset
Management, Inc.
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
