<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 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
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
----
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months and (2) has been subject to such filing requirements
for the past ninety days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's registration statement on Form S-11 (Commission
File No. 2-91065), dated June 22, 1985, as supplemented, filed under the
Securities Act of 1933 are incorporated by reference into PART IV of this
report.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
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ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1. Business............................................... 3
Item 2. Property............................................... 6
Item 3. Legal Proceedings...................................... 7
Item 4. Submission of Matters to a Vote of
Security Holders..................................... 9
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters........ 9
Item 6. Selected Financial Data................................ 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 12
Item 7a. Quantitative and Qualitative Market Risk Disclosures... 22
Item 8. Financial Statements and Supplementary Data............ F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 23
PART III
Item 10. Directors and Executive Officers of the Registrant..... 23
Item 11. Executive Compensation................................. 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management....................................... 24
Item 13. Certain Relationships and Related Transactions......... 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................. 24
--- Signatures............................................. 27
</TABLE>
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DAMSON/BIRTCHER REALTY INCOME FUND-I
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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.
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
carried a fixed interest rate of 9% per annum over a 13 year fully amortizing
term and a prepayment penalty of approximately $384,000. The loan was paid in
full upon the sale of Certified Distribution Center in September 1999. 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. See Note 6 to Financial Statements in Item 8.
The Partnership's objectives in operating the properties were: (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
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.
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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 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 had 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.
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.
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
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DAMSON/BIRTCHER REALTY INCOME FUND-I
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Item 1. Business (Cont'd.)
$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.
The Partnership subsequently sold five of its six remaining properties in three
separate transactions in September and October 1999. See Capital Resources and
Liquidity in Item 7 for further discussion.
The Partnership derived 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.) have represented significant portions of
such income. Rental income from Certified totaled $0 in 1999, $0 in 1998 and
$872,000 in 1997 or approximately 0%, 0% and 15%, respectively, of the
Partnership's total rental income. Rental income from FIserv totaled $736,000 in
1999, $937,000 in 1998 and $869,000 in 1997, or approximately 17%, 16% and 15%,
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 was
greater than Certified had been paying on a per square foot basis. Certified
Distribution Center was sold on September 23, 1999.
The Partnership's remaining investment in real estate is subject to competition
for tenants from similar types of properties in the vicinity in which it is
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
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Item 2. PROPERTY
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
RENTABLE LEASES OCCUPIED
NAME/LOCATION/DATE PURCHASE AREA IN AS OF AS OF
ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/99 12/31/99
- ------------------ ----------- ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Terracentre $20,037,000 A 15-story office building located 95,723 7 36%
Denver, Colorado on .41 acres of land.
September 6, 1985
----------- ------
TOTAL $20,037,000 95,723
=========== ======
</TABLE>
- -------------------
(1) The purchase price does not include an allocable share of the $4,423,000 of
acquisition fees paid to the General Partner. Also, the purchase price has
been reduced by cash received after acquisition under rental agreements for
non-occupied space.
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<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-I
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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 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 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
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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 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 has ordered plaintiff to
provide. On March 27, 2000, the court granted defendant's motion to
dismiss the case for lack of personal jurisdiction.
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
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DAMSON/BIRTCHER REALTY INCOME FUND-I
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Item 3. LEGAL PROCEEDINGS (Cont'd.)
Madison Partnership and ISA Partnership Litigation (Cont'd.)
--------------------------------------------------
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 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 has ordered a stay of the litigation. The court will re-evaluate
the stay at a May 19, 2000 status conference.
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.
As of February 29, 2000, the number of holders of the Partnership's
interests is as follows:
General Partner 1
Limited Partners 8,949
-----
8,950
=====
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.
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<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-I
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Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS (Cont'd.)
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 2000 1999 1998 1997 1996 1995
- -------- ---------- ----------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
First $9,000,000 $ 263,000 $253,000 $253,000 $ 0 $253,000
Second 311,000 0 253,000 0 253,000
Third 341,000 0 253,000 253,000 253,000
Fourth 13,300,000 253,000 253,000 1,753,000 0
</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.
In December 1999, the Partnership made a $13,300,000 special distribution to its
limited partners from a portion of the proceeds from the sales of Certified
Distribution Center, Ladera-I, The Cornerstone, Oakpointe and Washington
Technical Center.
In March 2000, the Partnership made a $9,000,000 special distribution to its
limited partners from a portion of the proceeds from the sales of Certified
Distribution Center, Ladera-I, The Cornerstone, Oakpointe and Washington
Technical Center.
As of December 31, 1999, the Partnership has sold all of its operating
properties except for Terracentre. Due to the uncertainty involved with the
ongoing litigation, it is possible that future distributions may be limited to a
liquidating distribution upon Partnership wind down should funds be available at
that time.
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<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-I
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Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ---------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Total Revenues $1,489,000 $ 6,349,000 $ 5,973,000
========== =========== ===========
Net Income (Loss):
General Partner $ 4,000 $ 4,000 $ (50,000)
Limited Partners 402,000 396,000 (4,922,000)
---------- ----------- -----------
$ 406,000 $ 400,000 $(4,972,000)
========== =========== ===========
Total Distributions:
General Partner $ 2,000 $ 5,000 $ 8,000
========== =========== ===========
Limited Partners $ 253,000 $ 2,006,000 $ 759,000
========== =========== ===========
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Total Assets $36,482,000 $38,493,000
=========== ===========
Secured Loan Payable $ 2,932,000 $ 3,116,000
=========== ===========
</TABLE>
The following summary of financial data is for the period since the Partnership
adopted the liquidation basis of accounting.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Property Operating
Income, net $ 2,364,000 $ 3,337,000 $ 2,308,000
=========== =========== ===========
Distributions to Partners $14,224,000 $ 511,000 $ 767,000
=========== =========== ===========
Net Assets in Liquidation $16,122,000 $30,796,000 $32,026,000
=========== =========== ===========
</TABLE>
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DAMSON/BIRTCHER REALTY INCOME FUND-I
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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. Five of
the Partnership's six remaining properties were sold in 1999. The Partnership's
last remaining property (Terracentre) is under contract for sale as of March 10,
2000.
Working capital is and will be principally provided from the working capital
reserve established by the General Partner.
Regular distributions for the year ended December 31, 1999, represent 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, the holder of the largest investor position
in the Partnership. Grape Investors has 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.
Three 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.
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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.)
- -------------------------------
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. See Item 5 for a description
of the Partnership's distribution history. The Partnership believes that it has
adequate reserves on hand to provide it with the funds necessary to meet all of
its ordinary obligations.
The Partnership's remaining property is not fully leased. The Partnership is
actively marketing the vacant space in this property, subject to the competitive
environment in its market area. To the extent the Partnership is not successful
in maintaining or increasing the occupancy level at this property, or selling
the property, the Partnership's future cash flow and distributions may be
reduced.
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, 1999, 1998 and 1997.
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 had 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
-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.)
- -------------------------------
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.
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.
During the year ended December 31, 1999, the Partnership sold five of its six
properties in four separate transactions, as set forth below:
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 $186,803 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.
-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.)
Capital Resources and Liquidity (Cont'd.)
- -------------------------------
The Rubin Pachulsky Dew Transaction (Cont'd.)
- -----------------------------------
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.
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.
Status of 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
-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.)
Capital Resources and Liquidity (Cont'd.)
- -------------------------------
Status of Terracentre (Cont'd.)
- ---------------------
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
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 March 10, 2000, the Partnership entered into another Purchase and Sale
Agreement to sell Terracentre to Robert E. Collawn ("Collawn"), an unaffiliated
Denver real estate developer and operator, for $6,500,000. The purchaser
deposited $300,000 into escrow on March 10, 2000, all of which is refundable
pending completion of its due diligence investigation (the "contingency
period"). The contingency period expires on April 10, 2000 and escrow is
scheduled to close on or about April 25, 2000. Collawn has fully acknowledged
the existence of the threatened condemnation and is willing to accept the risks
associated therewith.
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 mandated, among other things, that the General Partner seek a vote
of (and provide an analysis and recommendation to) the Limited Partners no later
than December 31, 1996 regarding the prompt liquidation of the Partnership in
the event that properties with (then) current appraised values (constituting at
least one-half of the total (then) current appraised values) of all of the
Partnership's properties were 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 reflected a shorter investment holding term. At that
-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.)
Capital Resources and Liquidity (Cont'd.)
- -------------------------------
time, the General Partner did not know how long it would take to sell the
Partnership's remaining properties, so 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.
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 its various
sale proposals. The General Partner utilized those averages to estimate fair
value.
Since Terracentre is the Partnership's only remaining property and is under
contract for sale at a price of $6,500,000, the General Partner adjusted the
contract price to account for estimated selling costs and used $5,980,000 as its
estimate of fair value as of January 1, 2000.
The foregoing estimated fair value net of selling costs of the Partnership's
remaining property (Terracentre) indicates an estimated net asset value in
liquidation of $16,122,000 or $166 per $1,000 of original investor subscription
as of December 31, 1999. Net assets in liquidation represent the estimated
selling price of the Partnership's remaining property, (net of estimated closing
costs and disposition fees), cash and all other assets less all liabilities
including accrued expenses for liquidation. It does not, however, take into
consideration possible effects of the outstanding litigation which are unknown
and not estimable at this time. The Partnership subsequently distributed
$9,000,000 on March 1, 2000 (see Note 9 in Item 8).
Other Matters
- -------------
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 appear 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. 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 will not be reimbursed by the Partnership.
Results of Operations
- ---------------------
Year Ended December 31, 1999
For the year ended December 31, 1999, the Partnership generated $2,364,000 of
net operating income from its operations as compared to $3,337,000 in 1998. The
decrease was primarily attributable to the sales of Oakpointe business center,
Certified Warehouse, Ladera-I shopping center and Washington Technical Center in
September 1999 and sale of The Cornerstone shopping center in October 1999.
-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, 1999 (Cont'd.)
Interest income resulted from the temporary investment of partnership working
capital. For the year ended December 31, 1999 the Partnership earned $275,000 of
interest income. The increase, as compared to 1998, was directly related to the
investment of proceeds from the sale of properties in 1999.
The net loss on sale of real estate ($538,000) reflects the net gains and
(losses) on the respective sales of Oakpointe business center ($280,000),
Certified Warehouse ($623,000), Washington Technical Center $459,000, Ladera-I
shopping center $20,000 and The Cornerstone shopping center ($114,000).
In June 1999, the General Partner determined that the carrying values of
Ladera-I Shopping Center and Oakpointe were in excess of their respective
estimated net realizable values, net of estimated selling costs. As a result,
their carrying values were adjusted by $1,217,000 and $500,000, to $4,203,000,
and $5,812,000, respectively.
As of December 31, 1999, the General Partner determined that the carrying value
of Terracentre was below its estimated net realizable value, net of estimated
selling costs. Based upon its pending sale, its carrying value was adjusted by
$224,000 to $5,980,000.
Interest expense 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.
General and administrative expenses for the year ended December 31,1999, include
charges of $279,000 from the General Partner and its affiliates for services
rendered in connection with administrating the affairs of the Partnership and
operating the Partnership's properties. Also included in general and
administrative expenses for the year ended December 31, 1999, are direct charges
of $599,000 related to audit fees, tax preparation fees, legal and professional
fees, 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, 1999 as compared to the year ended December 31, 1998, was attributable to a
decrease in asset management fees, administrative wages, liability insurance
costs and appraisal fees. These decreases were partially offset by an increase
in legal and professional services expenses in 1999.
Accrued expenses for liquidation as of December 31, 1999, 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. In September 1999,
a pre-payment penalty of $384,000 associated with the early retirement of a
mortgage loan secured by the Certified Distribution Center was incurred. The
portion previously accrued as an estimate of the pre-payment penalty was
eliminated as a result of the sale of that property. The difference between the
-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, 1999 (Cont'd.)
estimated and actual pre-payment penalty incurred ($316,000) has been reflected
as a decrease in accrued expenses for liquidation. At December 31, 1999, 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 adjusted by an additional
$256,000 to reflect the revised estimates. The allowance for accrued expenses
for liquidation does not, however, reflect any costs of the ongoing litigation
due to the uncertainty associated with those matters.
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
-19-
<PAGE> 20
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.)
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 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
-20-
<PAGE> 21
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.)
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.
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.
-21-
<PAGE> 22
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
Item 7a. Quantitative and Qualitative Market Risk Disclosures
As of December 31, 1999, the Partnership had cash equivalents of $9,580,000
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.
-22-
<PAGE> 23
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Independent Auditors' Report........................................................ F-2
Financial Statements:
Statements of Net Assets in Liquidation as of December 31, 1999 and 1998... F-3
Statements of Changes of Net Assets in Liquidation for the Years Ended
December 31, 1999 and 1998 and for the Nine Months Ended
December 31, 1997.......................................................... F-4
Statement of Operations for the Three Months Ended March 31, 1997.......... F-5
Statement of Partners' Capital for the Three Months
Ended March 31, 1997....................................................... F-6
Statement of Cash Flows for the Three Months Ended March 31, 1997.......... F-7
Notes to Financial Statements.............................................. F-8
Schedule:
III - Real Estate in Liquidation as of December 31, 1999................... F-23
</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> 24
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, 1999 and
1998 of Damson/Birtcher Realty Income Fund-I, and the changes of net assets in
liquidation for the years ended December 31, 1999 and 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, 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 27, 2000
F-2
<PAGE> 25
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS (Liquidation Basis):
Properties $ 5,980,000 $34,431,000
Cash and cash equivalents 10,137,000 351,000
Cash in escrow 512,000 --
Accounts receivable 18,000 171,000
Other assets 38,000 121,000
----------- -----------
Total Assets $16,685,000 $35,074,000
=========== ===========
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities $ 134,000 $ 896,000
Secured loan payable -- 2,509,000
Accrued expenses for liquidation (including
prepayment penalty at December 31, 1998) 429,000 873,000
----------- -----------
Total Liabilities 563,000 4,278,000
----------- -----------
Net Assets in Liquidation $16,122,000 $30,796,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE> 26
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net assets in liquidation at
beginning of period $ 30,796,000 $ 32,026,000 $ 32,002,000
------------ ------------ ------------
Increase (decrease) during period:
Operating activities:
Property operating income, net 2,364,000 3,337,000 2,308,000
Interest income 275,000 14,000 22,000
General and administrative expenses (878,000) (935,000) (874,000)
Interest expense on mortgage payable (160,000) (237,000) (190,000)
Leasing commissions (80,000) (290,000) (134,000)
------------ ------------ ------------
1,521,000 1,889,000 1,132,000
------------ ------------ ------------
Liquidating activities:
Loss from sale of real estate (net) (538,000) -- --
Adjustment to carrying value
of properties (1,493,000) (2,600,000) --
Distribution to partners (14,224,000) (511,000) (767,000)
Decrease in (provision for)
liquidation expenses 60,000 (8,000) (341,000)
------------ ------------ ------------
(16,195,000) (3,119,000) (1,108,000)
------------ ------------ ------------
Net (decrease) increase in assets
in liquidation (14,674,000) (1,230,000) 24,000
------------ ------------ ------------
Net assets in liquidation at end of period $ 16,122,000 $ 30,796,000 $ 32,026,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 27
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<S> <C>
REVENUES:
Rental income $1,479,000
Interest and other income 10,000
Total revenues 1,489,000
EXPENSES:
Operating expenses 377,000
Real estate taxes 201,000
Depreciation and amortization 70,000
General and administrative 369,000
Interest 66,000
----------
Total expenses 1,083,000
NET INCOME $ 406,000
==========
NET INCOME ALLOCABLE TO:
General Partner $ 4,000
==========
Limited Partners $ 402,000
==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE> 28
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ------------ ------------
<S> <C> <C> <C>
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> 29
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 406,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 70,000
Changes in:
Accounts receivable (48,000)
Accrued rent receivable 6,000
Prepaid expenses and other assets 112,000
Accounts payable and accrued liabilities (146,000)
---------
Net cash provided by operating activities 400,000
---------
Cash flows from investing activities-
Investments in real estate (34,000)
---------
Cash flows from financing activities:
Principal payments on secured loans payable (49,000)
Distributions (255,000)
---------
Net cash used in financing activities (304,000)
---------
Net increase in cash and cash equivalents 62,000
Cash and cash equivalents, beginning of period 711,000
---------
Cash and cash equivalents, end of period $ 773,000
=========
Supplemental disclosure of cash flow
information - cash paid during the
period for interest $ 66,000
=========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-7
<PAGE> 30
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).
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
F-8
<PAGE> 31
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(1) Organization and Operations (Cont'd.)
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.
In lieu of obtaining appraisals as of January 1, 1999, the General
Partner calculated the estimated selling price net of estimated selling
costs by taking an average of the offer prices, net of estimated
selling costs, from proposals it had received for the sale of the
properties. The General Partner utilized those averages to estimate
fair value. In addition, because Terracentre was under contract for
sale as of March 24, 1999 (the "Halcyon" transaction), 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. As
F-9
<PAGE> 32
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(1) Organization and Operations (Cont'd.)
of January 1, 2000, the General Partner has estimated the selling price
of the Partnership's only remaining property (Terracentre) at
$6,500,000, based upon the fact that as of March 10, 2000 it is under
contract for sale at that amount. Accordingly, at January 1, 2000, the
General Partner estimated the fair value, net of estimated selling
costs, of the remaining property to be $5,980,000.
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, 1999, it is anticipated that
the limited partners will not realize this return due to the
Partnership's estimated remaining liquidation value of $16,122,000.
Income or loss from operations for financial statement purposes is
allocated 99% to the Limited Partners and 1% to the General Partner.
The amendment modified the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction"
(as defined in the amendment) sponsored by the General Partner or any
of its affiliates unless such transaction is approved by a
"supermajority" of at least 80% in interest of the Limited Partners and
the General Partner. The amendment also prohibits the modification of
this restriction on Reorganization Transactions without the approval of
at least 80% in interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other
dispositions to be left to the General Partner's discretion based on
the anticipated remaining economic benefits of continued ownership and
other factors.
F-10
<PAGE> 33
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(1) Organization and Operations (Cont'd.)
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 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
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. Five of the Partnership's six remaining
properties were sold in 1999. The Partnership's last remaining property
is currently under contract for sale.
(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.
F-11
<PAGE> 34
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(2) Summary of Significant Accounting Policies
Liquidation Basis (Cont'd.)
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.
In June 1999, the General Partner determined that the carrying values
of Ladera-I Shopping Center and Oakpointe were in excess of their
respective estimated net realizable values, net of estimated selling
costs. As a result, their carrying values were adjusted by $1,217,000
and $500,000, to $4,203,000, and $5,812,000, respectively.
As of December 31, 1999, the General Partner determined that the
carrying value of Terracentre was below its estimated net realizable
value, net of estimated selling costs. Based upon its pending sale, its
carrying value was adjusted by $224,000 to $5,980,000.
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.
Rental income from Certified Warehouse and Transfer Company, Inc.,
totaled $0 in 1999, $0 in 1998, and $872,000 in 1997, or approximately
0%, 0% and 15%, respectively, of the Partnership's total rental income.
Rental income from FISERV, Inc. (formerly d.b.a. Citicorp CIR, Inc.)
totaled $736,000 in 1999, $888,000 in 1998 and $869,000 in 1997, or
approximately 17%, 16% and 15%, respectively, of the Partnership's
total rental income.
F-12
<PAGE> 35
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(2) Summary of Significant Accounting Policies (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 was greater than Certified had been paying
on a per square foot basis. Certified Warehouse and Distribution Center
was subsequently sold on September 23, 1999.
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, 1999 and 1998, totaled $10,066,000 and $328,000,
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; however, are subject to interest rate risk.
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.
On the following page 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:
F-13
<PAGE> 36
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ---------------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Total Assets $16,685,000 $28,567,000 $35,074,000 $47,531,000
Total Liabilities $ 563,000 $ 134,000 $ 4,278,000 $ 3,405,000
</TABLE>
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
Net income (loss) per Financial Statements
(period ending March 31, 1997 for 1997) $ -- $ -- $ 406,000
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) 28,000 (711,000) 1,132,000
Adjustment to carrying value of real estate 1,493,000 2,600,000 --
Depreciation differences on investments in
real estate (2,913,000) (2,771,000) (2,721,000)
Loss on sale of property in excess of
book value (6,710,000) -- --
Accrued liquidation costs expensed for
tax purposes (384,000) -- --
Other 81,000 25,000 49,000
----------- ----------- -----------
Taxable income (loss) per Federal tax return
(unaudited) $(8,405,000) $ (857,000) $(1,134,000)
=========== =========== ===========
</TABLE>
F-14
<PAGE> 37
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(2) Summary of Significant Accounting Policies (Cont'd.)
Earnings and Distributions Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate original reduced rates on
sales commissions for subscriptions in excess of certain specified
amounts. A Limited Partner who was charged a reduced sales commission
or no sales commission was credited with proportionately larger
Invested Capital and therefore had a disproportionately greater
interest in the capital and revenues of the Partnership than a Limited
Partner who paid commissions at a higher rate.
As a result, the Partnership has no set unit value as all accounting,
investor reporting and tax information is based upon each investor's
relative percentage of Invested Capital. Accordingly, earnings or loss
per unit is not presented in the accompanying financial statements.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, 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, 1999, 1998 and 1997, the Partnership was charged with approximately
$132,000, $152,000 and $157,000, 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
$131,000 in 1999, $173,000 in 1998 and $165,000 in 1997. In addition,
the affiliate of the General Partner received $270,000 in 1999,
$312,000 in 1998 and $315,000 in 1997, 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
F-15
<PAGE> 38
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(3) Transactions with Affiliates (Cont'd.)
independent appraisal undertaken in January of each year prior to 1997
and .65% for 1997, .55% for 1998 and .45% for 1999. Such fees for the
year ended December 31, 1999, 1998 and 1997, amounted to $125,000,
$209,000 and $245,000, 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, 1999, 1998 and 1997, amounted to $22,000,
$44,000 and $25,000, respectively.
(4) Loss from Sale of Real Estate
During the year ended December 31, 1999, the Partnership sold five of
its six remaining properties in four separate transactions, as set
forth below:
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 sale of Ladera-I shopping center resulted in a gain of
approximately $20,000 upon disposition.
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.
F-16
<PAGE> 39
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(4) Loss from the Sale of Real Estate (Cont'd.)
The Rubin Pachulsky Dew Transaction (Cont'd.)
-----------------------------------
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.
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 sales of Certified Warehouse, Oakpointe Business Center and
Washington Technical Center resulted in net gains or (losses) of
approximately ($623,000), ($280,000) and $459,000, respectively upon
disposition.
The Cornerstone
---------------
On October 15, 1999, 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.
The sale of The Cornerstone shopping center resulted in a loss of
$114,000 upon disposition.
F-17
<PAGE> 40
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(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 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 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.
F-18
<PAGE> 41
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(5) Commitments and Contingencies (Cont'd.)
Litigation (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 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 has ordered plaintiff to
provide. On March 27, 2000, the court granted defendant's motion to
dismiss the case for lack of personal jurisdiction.
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
F-19
<PAGE> 42
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(5) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Madison Partnership and ISA Partnership Litigation (Cont'd.)
--------------------------------------------------
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 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 has ordered a stay of the litigation. The court will re-evaluate
the stay at a May 19, 2000 status conference.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1999, 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, 1999, are as
follows:
Year Ending December 31,
------------------------
2000 $ 302,000
2001 224,000
2002 75,000
2003 78,000
2004 --
Thereafter --
---------
$ 699,000
=========
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, carried a fixed interest rate of 9% per annum
over a 13-year fully amortizing term and a prepayment penalty
F-20
<PAGE> 43
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(6) Secured Loan Agreements (Cont'd.)
feature, 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. The loan was paid in full with the sale of
Certified Distribution Center on September 23, 1999. The resulting
prepayment penalty amounted to $384,000.
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. The loan agreement called
for interest only payments at the rate of 1% over prime. There were no
borrowings against this loan arrangement upon the sale of Ladera-I on
September 22, 1999.
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31,
--------------------------
1999 1998
--------- ---------
Real estate taxes $ 47,000 $ 646,000
Accounts payable and other 87,000 250,000
--------- ---------
$ 134,000 $ 896,000
========= =========
(8) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1999, 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 and the general partner's liability insurance. At
December 31, 1999, 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 adjusted by an additional $256,000 to reflect the revised
estimates.
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.
(9) Subsequent Events
On March 1, 2000, the Partnership made a special distribution of
$9,000,000 to its limited partners.
F-21
<PAGE> 44
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(9) Subsequent Events (Cont'd.)
On March 10, 2000, the Partnership entered into a Purchase and Sale
Agreement to sell Terracentre to Robert E. Collawn ("Collawn"), an
unaffiliated Denver real estate developer and operator, for $6,500,000.
The purchaser deposited $300,000 into escrow on March 10, 2000, all of
which is refundable pending completion of its due diligence
investigation (the "contingency period"). The contingency period
expires on April 10, 2000 and escrow is scheduled to close on or about
April 25, 2000. Collawn fully acknowledges the existence of the
threatened condemnation and is willing to accept the risks associated
therewith.
F-22
<PAGE> 45
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
SCHEDULE III
REAL ESTATE IN LIQUIDATION
AS OF DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A 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
Description Buildings and Costs Buildings and Total Date
(a) Land Improvements Improvements (d), (b) Land Improvements (e) Acquired
- ----------- ------ ------------- ------------ -------- ---- ------------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Terracentre
Denver, CO $1,458 $19,939 $2,727 $(18,144) $491 $5,489 $5,980 09/06/85
------ ------- ------ -------- ---- ------ ------ --------
TOTAL $1,458 $19,939 $2,727 $(18,144) $491 $5,489 $5,980
====== ======= ====== ======== ==== ====== ======
</TABLE>
NOTE: Columns B,F,G and I are not applicable.
See notes to schedule on following page.
F-23
<PAGE> 46
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO SCHEDULE III
- ---------------------
(a) For a description of the property, see "Item 2. Property."
(b) For the year ended December 31, 1999, the General Partner determined
that the carrying value of Terracentre was below its fair value less
estimated selling cost. As a result Terracentre was adjusted upward by
$224,000 to $5,980,000.
For the year ended December 31, 1998, the General Partner determined
that the carrying value of Terracentre was below its fair value less
estimated selling cost. Terracentre was therefore adjusted upward by
$2,368,000 to $5,649,000.
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 value of Terracentre was below its fair value less
estimated selling cost. As a result, it was increased by $190,000 to
$2,900,000.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $24,925,000 as of December 31,
1999. 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-24
<PAGE> 47
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
NOTES TO SCHEDULE III (Cont'd.)
- ---------------------
(e) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Balance at beginning of year $ 34,431,000 $ 36,090,000
Additions during the year:
Improvements 428,000 941,000
Reductions during the year:
Disposition of property (27,386,000) --
Adjustment to the carrying value of
properties in liquidation (1,493,000) (2,600,000)
------------ ------------
Balance at end of year $ 5,980,000 $ 34,431,000
============ ============
</TABLE>
F-25
<PAGE> 48
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:
o Richard G. Wollack, Chairman of the Board
o Brent R. Donaldson, President
o 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:
o Ronald E. Birtcher, Co-Chairman of the Board
o Arthur B. Birtcher, Co-Chairman of the Board
o Robert M. Anderson, Executive Director
Item 11. EXECUTIVE COMPENSATION
The table on the following page 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, 1999.
-23-
<PAGE> 49
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 9,000 $ 5,000 $ 10,000
Asset management fees 125,000 209,000 245,000
Property management fees 131,000 173,000 165,000
Leasing fees 22,000 44,000 25,000
Property management expense
reimbursements 270,000 312,000 315,000
Disposition fees 99,000 -- --
Other expense reimbursements 132,000 152,000 157,000
-------- -------- --------
TOTAL $788,000 $895,000 $917,000
======== ======== ========
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 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 Percent
Class beneficial owner beneficial ownership(1) of Class
-------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Limited Grape Investors, LLC $7,718,134 7.9%
Partnership c/o Arlen Capital Advisors
Interests (2) 1650 Hotel Circle Dr. 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.
-24-
<PAGE> 50
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
3. Exhibits:
Articles of Incorporation and Bylaws
(a) The Amended and Restated Agreement of Limited
Partnership incorporated by reference to Exhibit A to
the Partnership's prospectus contained in the
Partnership's registration statement on Form S-11
(Commission File No. 2-91065), dated June 22, 1985,
as supplemented filed under the Securities Act of
1933.
10. Material Contracts
(a) Revised Property Management Agreement dated April 2,
1985 between Birtcher Properties and the Registrant
for Certified Distribution Center. Incorporated by
reference to Exhibit 19(a)(4) of the Partnership's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1985. (SUPERSEDED)
(b) Property Management Agreement dated May 10, 1985,
between Birtcher Properties and the Registrant for
Ladera Shopping Center. Incorporated by reference to
Exhibit 19(a)(6) of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1985. (SUPERSEDED)
(c) Property Management Agreement dated July 17, 1985,
between Birtcher Properties and the Registrant for
The Cornerstone. Incorporated by reference to Exhibit
19(a)(8) of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1985.
(SUPERSEDED)
(d) Property Management Agreement dated September 6,
1985, between Birtcher Properties and the Registrant
for Terracentre. Incorporated by reference to Exhibit
19(a)(10) of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1985.
(SUPERSEDED)
(e) Property Management Agreement dated September 16,
1985, between Birtcher Properties and the Registrant
for Oakpointe (formerly Lincoln Atrium Center).
Incorporated by reference to Exhibit 19(a)(12) of the
Partnership's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1985. (SUPERSEDED)
-25-
<PAGE> 51
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:
Form 8-K filed on October 15, 1999 reporting the sales of
Certified Distribution Center, Oakpointe Business Center,
Ladera-I shopping center, Washington Technical Center,
incorporated herein by reference.
Form 8-K filed on October 19, 1999 reporting the sale of The
Cornerstone shopping center, incorporated herein by reference.
-26-
<PAGE> 52
DAMSON/BIRTCHER REALTY INCOME FUND-I
------------------------------------
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
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, 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: March 30, 2000 By: /s/ Brent R. Donaldson
-------------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Damson/Birtcher
Partners (General Partner of the Registrant) and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Arthur B. Birtcher Co-Chairman of the Board -- BREICORP March 30, 2000
- --------------------------
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board -- BREICORP March 30, 2000
- --------------------------
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 2000
- -------------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-27-
<PAGE> 53
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,649,000
<SECURITIES> 0
<RECEIVABLES> 18,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,705,000
<PP&E> 5,980,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,685,000
<CURRENT-LIABILITIES> 563,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,122,000
<TOTAL-LIABILITY-AND-EQUITY> 16,685,000
<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-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>STATEMENT OF OPERATION IS NOT PRESENTED IN LIQUIDATION BASIS OF ACCOUNTING
</FN>
</TABLE>
