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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000
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Commission file number 0-13563
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DAMSON/BIRTCHER REALTY INCOME FUND - I
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(Exact name of registrant as specified in its charter)
Pennsylvania 13-3264491
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box 30009, Laguna Niguel, California 92607-0009
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(Address of principal executive offices) (Zip Code)
(949) 643-7700
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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DAMSON/BIRTCHER REALTY INCOME FUND-I
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2000
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Net Assets in Liquidation - March 31, 2000
(Unaudited)and December 31, 1999 (Audited)........................ 3
Statements of Changes of Net Assets in Liquidation -
Three Months Ended March 31, 2000 and 1999 (Unaudited)............ 4
Notes to Financial Statements (Unaudited)......................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 11
Item 3. Quantitative and Qualitative Market Risk Disclosures.............. 16
PART II. OTHER INFORMATION................................................. 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF NET ASSETS IN LIQUIDATION
March 31, December 31,
2000 1999
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(unaudited)
ASSETS (Liquidation Basis):
Properties $5,980,000 $ 5,980,000
Cash and cash equivalents 1,236,000 10,137,000
Cash held in escrow 302,000 512,000
Accounts receivable, net 13,000 18,000
Other assets 35,000 38,000
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Total Assets 7,566,000 16,685,000
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LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 93,000 134,000
Accrued expenses for liquidation 356,000 429,000
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Total Liabilities 449,000 563,000
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Net Assets in Liquidation $7,117,000 $16,122,000
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The accompanying notes are an integral part of these financial statements.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
(UNAUDITED)
Three Months Ended
March 31,
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2000 1999
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Net assets in liquidation at beginning
of period $ 16,122,000 $ 30,796,000
Increase (decrease) during period:
Operating activities:
Property operating income (loss), net (82,000) 667,000
Interest income 102,000 3,000
General and administrative expenses -- (208,000)
Interest expense on mortgage payable -- (56,000)
Leasing commissions -- (11,000)
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20,000 395,000
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Liquidating activities:
Distributions to partners (9,000,000) (265,000)
Liquidation expenses (25,000) --
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(9,025,000) (265,000)
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Net (decrease) increase in assets
in liquidation (9,005,000) 130,000
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Net assets in liquidation at end
of period $ 7,117,000 $ 30,926,000
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The accompanying notes are an integral part of these financial statements.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies
The financial statements of Damson/Birtcher Realty Income Fund-I (the
"Partnership") included herein have been prepared by the General Partner,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements include all adjustments
which are of a normal recurring nature and, in the opinion of the General
Partner, are necessary for a fair presentation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted, pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Partnership's annual report on Form 10-K for the year ended December 31,
1999.
Sale of the Properties
The Partnership sold five of its six remaining properties during the year
ended December 31, 1999. The Partnership's remaining property is under
contract for sale as of March 31, 2000.
Liquidation Basis of Accounting
On February 18, 1997, the Partnership mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and
sell and liquidate all of its remaining properties as soon as practicable,
consistent with selling the Partnership's properties to the best advantage
under the circumstances. A majority in interest of the Limited Partners
consented by March 14, 1997. As a result, the Partnership adopted the
liquidation basis of accounting as of March 31, 1997. The liquidation basis
of accounting is appropriate when liquidation appears imminent, the
Partnership can no longer be classified as a going concern and the net
realizable values of the Partnership's assets are reasonably determinable.
The difference between the adoption of the liquidation basis of accounting
as of March 14, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 requires, among other items, that a public business
enterprise report a measure of segment profit or loss, certain specific
revenue and expense items, segment assets, information about the revenues
derived from the enterprise's products or services and major customers. SFAS
131 also requires
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
Segment Reporting (Cont'd.)
that the enterprise report descriptive information about the way that the
operating segments were determined and the products and services provided by
the operating segments. Given that the Partnership is in the process of
liquidation, the Partnership has identified only one operating business
segment which is the business of asset liquidation. The adoption of SFAS 131
did not have an impact on the Partnership's financial reporting.
Rental income from FISERV, Inc. (formerly d.b.a. Citicorp CIR, Inc.) totaled
$257,000 for the three months ended March 31, 1999, or approximately 20% of
the Partnership's total rental income. Oakpointe Business Center, which
FISERV, Inc. formerly occupied was sold in September 1999.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in units.
All investment interests are calculated on a "percent of Partnership" basis,
in part to accommodate original reduced rates on sales commissions for
subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no sales
commission was credited with proportionately larger Invested Capital and
therefore had a disproportionately greater interest in the capital and
revenues of the Partnership than a Limited Partner who paid commissions at a
higher rate. As a result, the Partnership has no set unit value as all
accounting, investor reporting and tax information is based upon each
investor's relative percentage of Invested Capital. Accordingly, earnings or
loss per unit is not presented in the accompanying financial statements.
(2) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner and
its affiliates perform services on behalf of the Partnership in connection
with administering the affairs of the Partnership. The General Partner and
affiliates are reimbursed for their general and administrative costs
actually incurred and associated with services performed on behalf of the
Partnership. For the three months ended March 31, 2000 and 1999, the
Partnership incurred approximately $13,000 and $33,000, respectively.
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 $6,000 and $42,000 for the
three months ended March 31, 2000 and 1999. In addition, an affiliate of the
General Partner received $23,000 and $86,000 for the three months ended
March 31, 2000 and 1999, respectively, as reimbursement of costs of on-site
property management personnel and other reimbursable costs.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates (Cont'd.)
As previously reported, on June 24, 1993, the Partnership completed its
solicitation of written consents from its Limited Partners. A majority in
interest of the Partnership's Limited Partners approved each of the
proposals contained in the Information Statement dated May 5, 1993. Those
proposals were implemented by the Partnership as contemplated by the
Information Statement as amendments to the Partnership Agreement, and are
reflected in these financial statements as such.
The amended Partnership Agreement provides for the Partnership's payment to
the General Partner of an annual asset management fee equal to .35% for 2000
and .45% for 1999 of the aggregate appraised value of the Partnership's
properties. Appraised value was determined by the General Partner's estimate
of fair value. Such fees for the three months ended March 31, 2000 and 1999,
amounted to $5,000 and $39,000, respectively.
In addition, the amended Partnership Agreement provides for payment to the
General Partner of a leasing fee for services rendered in connection with
leasing space in a Partnership property after the expiration or termination
of leases. Fees for leasing services for the three months ended March 31,
2000 and 1999, amounted to $0 and $1,000, respectively.
(3) Commitments and Contingencies
Litigation
So far as is known to the General Partner, neither the Partnership nor its
properties are subject to any material pending legal proceedings, except for
the following:
Bigelow/Diversified Secondary Partnership's Fund 1990 Litigation
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 L.P. filed a purported class action lawsuit in the
Court of Common Pleas of Philadelphia County against Damson/Birtcher
Partners, Birtcher 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
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Bigelow/Diversified Secondary Partnership's Fund 1990 Litigation (Cont'd.)
February 18, 1997 was effective to dissolve the respective partnerships and
complied with applicable law, that the actions of the General Partner in
utilizing the consent solicitations to solicit the vote of the limited
partners did not breach any fiduciary or contractual duty to such limited
partners, and an award of costs and fees to the plaintiffs. The defendant
has answered the complaint. The parties have initiated discovery. No motions
are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990 informed
the Partnership that it was filing suit in the Delaware Chancery Court
against Damson/Birtcher Partners, Birtcher Investors, Birtcher Liquidity
Properties, Birtcher Investments, BREICORP, LF Special Fund I, LP, LF
Special Fund II. LP, Arthur Birtcher, Ronald Birtcher, Robert Anderson,
Richard G. Wollack and Brent R. Donaldson alleging a purported class action
on behalf of the limited partners of Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III
alleging breach of fiduciary duty and incorporating the allegations set
forth in the previously dismissed March 25, 1997 complaint filed in the
Court of Chancery of Philadelphia County. Plaintiff has engaged in
preliminary discovery and the parties have held settlement discussions.
In March 2000, defendants informed the Court and plaintiff that they would
bring a Motion for Summary Judgment against the named plaintiff based upon
the allegations set forth in plaintiff's complaint. On April 14, 2000,
Bigelow/Diversified Secondary Partnership Fund 1990 filed a First Amended
Class Action and Derivative Complaint against Damson/Birtcher Partners,
Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Partners,
Birtcher Properties, Birtcher Ltd., Birtcher Investments, BREICORP, L.F.
Special Fund II, L.P., L.F. Special Fund I, L.P., Liquidity Fund Asset
Management, Inc., Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard
G. Wollack and Brent R. Donaldson, the Partnership, Damson/Birtcher Realty
Income Fund-II and Real Estate Income Partners III, alleging breach of
fiduciary duty, breach of contract, and a derivative claim for breach of
fiduciary duty. Defendants have not yet responded to the First Amended
Complaint.
Rex Garton, et al. v. Damson/Birtcher Partners, et al.
This action was filed on September 25, 1998 in the District Court of
Oklahoma County for the State of Oklahoma against the Partnership's general
partner, Damson/Birtcher Partners, other related defendants and numerous
unrelated defendants. Damson/Birtcher Partners and other related defendants
were brought into the action in late December 1998, when they were served
with the Second Amended Petition. The other related defendants are Birtcher
Partners, Birtcher Properties, The Birtcher Group, Birtcher American
Properties, Arthur B. Birtcher,
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Rex Garton, et al. v. Damson/Birtcher Partners, et al. (Cont'd.)
Ronald E. Birtcher, LF Special Fund II, L.P., and Liquidity Fund Asset
Management Inc., but The Birtcher Group and Birtcher American Properties
were served with process and did not appear in the action. The Partnership
itself is not named as a defendant. The case is a class action brought on
behalf of investors in the Partnership who purchased limited partnership
interests from May 7, 1984 to September 17, 1985. The Second Amended
Petition alleges breach of contract, intentional and negligent
misrepresentation, breach of fiduciary duties, and violations of various
Oklahoma and federal statutes in connection with the sale of the limited
partnership interests. Plaintiff seeks unspecified compensatory damages and
$10 million in punitive damages.
Damson/Birtcher Partners and the related defendants removed the case to the
United States District Court for the Western District of Oklahoma, and filed
a motion to dismiss the case for lack of personal jurisdiction or,
alternatively, to transfer the action to the United States District Court
for the Central District of California, for the convenience of the parties
and witnesses and in the interests of justice. Plaintiff moved to remand the
case back to the Oklahoma state court. The court denied plaintiff's motion
for removal, and took defendant's motion to dismiss or transfer under
submission pending receipt of additional information the court ordered
plaintiff to provide. On March 29, 2000, the court entered its order
granting defendant's motion to dismiss the case for lack of personal
jurisdiction, and dismissed the case.
Madison Partnership and ISA Partnership Litigation
Partnership Liquidity Investors filed a purported class and derivative
action in the California Superior Court in Orange County, California against
Damson Birtcher Partners, Birtcher/Liquidity Properties, Birtcher Partners,
Birtcher Investors, Birtcher Investments, Birtcher Limited, Breicorp LP
Special Fund II, L.P., Liquidity Fund Asset Management, Inc., Robert M.
Anderson, Brent R. Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and
Richard G. Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners III,
Nominal Defendants. The complaint asserts claims for breach of fiduciary
duty and breach of contract. The gravamen of the complaint is that the
General Partners of these limited partnerships have not undertaken all
reasonable efforts to expedite liquidation of the Partnerships' properties
and to maximize the returns to the Partnerships' limited partners. The
complaint seeks unspecified monetary damages, attorneys' fees and litigation
expenses, and an order for dissolution of the partnerships and appointment
of an independent liquidating trustee. The Partnership moved to stay or
dismiss the case on the grounds that the pending Bigelow class action,
discussed above, raises essentially the same claims. The court granted the
Partnership's motion and ordered a stay of the litigation pending
re-evaluation at a May 19, 2000 status conference. Plaintiffs have filed a
motion to lift the stay, which is set for hearing on May 19, 2000.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(4) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of March 31, 2000, include estimates of
costs to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting fees,
tax preparation and filing fees, other professional services and the general
partner's liability insurance. During the three months ended March 31, 2000,
the Partnership incurred $98,000 of such expenses. At March 31, 2000, the
General Partner re-evaluated the estimated costs to wind up and dissolve the
Partnership given the uncertainty involved with the ongoing litigation. The
provision for liquidation expenses was accordingly increased by an
additional $25,000 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.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Since the completion of its acquisition program in September 1985, the
Partnership has been engaged in the operation of its properties. The
Partnership's original objective had been to hold its properties as
long-term investments. However, an Information Statement, dated May 5, 1993,
mandated that the General Partner seek a vote of the Limited Partners no
later than December 31, 1996, regarding prompt liquidation of the
Partnership in the event that properties with appraised values as of January
1993 which constituted at least one half of the aggregate appraised values
of all Partnership properties as of that date were not sold or under
contract for sale by the end of 1996. Given the mandate of the May 5, 1993
Information Statement, as of December 31, 1995, the General Partner decided
to account for the Partnership's properties as assets held for sale, instead
of for investment. In a Consent Solicitation dated February 18, 1997, the
Partnership solicited and received the consent of the Limited Partners on
March 14, 1997 to dissolve the Partnership and sell and liquidate all of its
remaining properties as soon as practicable, consistent with selling the
Partnership's properties to the best advantage under the circumstances. The
Partnership's properties were held for sale throughout 1999 and five of its
six remaining properties were sold by year-end. The Partnership's remaining
property is under contract for sale as of March 31, 2000.
In November 1998, the Partnership entered into a definitive Purchase and
Sale Agreement with Abbey Investments, Inc. to sell all the Partnership's
properties for a range between $34,500,000 and $36,000,000, depending on
final occupancy rates at the time of closing. However, in January 1999, the
agreement was terminated because Abbey had requested a material reduction in
the purchase price (approximately 11%), which the Partnership did not agree
to.
On April 30, 1999, the Partnership and Praedium Performance Fund IV
("Praedium") executed a Purchase and Sale Agreement to sell all of the
Partnership's properties except Terracentre to Praedium for $31,700,000.
Praedium deposited $243,100 into escrow, pending completion of its due
diligence inspection and review. Praedium's contingency period expired on
June 14, 1999. During and after the contingency period, Praedium, in a
series of negotiations with the Partnership, sought reductions in the
purchase price of each of the properties and declined to include the
Cornerstone, Ladera-I and Certified in its offers. During this time, the
General Partner negotiated with Praedium, and also sought other purchasers
for the properties, both individually and as a group. Finally, in late July
1999, the Partnership declined Praedium's offer to purchase only
Cornerstone, Oakpointe and Washington Tech for a materially reduced purchase
price and terminated its dealings with Praedium.
Sale of the Properties
During the three month period ended September 30, 1999, the Partnership sold
four of its six properties in two separate transactions, and subsequently
sold The Cornerstone in another transaction on October 15, 1999, as set
forth below:
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
Ladera-I
On September 22, 1999, the Partnership sold Ladera-I shopping center, in
Albuquerque, New Mexico to CA New Mexico, LLC, a wholly-owned subsidiary of
CenterAmerica Trust ("CenterAmerica"), a Houston-based real estate
investment trust that is not affiliated in any way with the Partnership, its
General Partner or any of its principals or affiliates. The sale price was
$4,424,000.
CenterAmerica and the Partnership were each represented by third-party
brokers in the transaction. The brokers were paid an aggregate $186,800 from
the sale proceeds. The General Partner was not paid a disposition fee in
connection with the transaction. CenterAmerica did not hire the General
Partner or any affiliate to perform asset management or property management
services for this property.
The Rubin Pachulsky Dew Transaction
On September 23, 1999, the Partnership sold Certified Warehouse and
Distribution Center, in Salt Lake City, Utah, Oakpointe Business Center, in
Arlington Heights, Illinois, and Washington Technical Center, in Renton,
Washington to Rubin Pachulsky Dew Properties, LLC ("Rubin Pachulsky Dew")
for $5,100,000, $5,600,000 and $3,950,000, respectively, or an aggregate
purchase price of $14,650,000. Rubin Pachulsky Dew is a third-party real
estate investment entity that is not affiliated in any way with the
Partnership, its General Partner or any of its principals or affiliates.
Rubin Pachulsky Dew was represented by a third-party broker in the
transaction. The broker was paid $146,500 from the sale proceeds. Since the
sale price of Washington Technical Center exceeded the January 1, 1993
appraised value ($3,400,000), pursuant to the 1993 Amendment of the
Partnership Agreement, the General Partner earned and was paid a property
disposition fee of $98,750 in connection with the sale of that property.
Rubin Pachulsky Dew has hired an affiliate of Birtcher as property manager
for the properties for a fee that is approximately the same as the fee the
Partnership previously paid to the General Partner for property management.
In addition, Rubin Pachulsky Dew has hired an affiliate of Birtcher to
provide certain asset management services for the properties, and will pay
an incentive fee approximately equal to 10% of the profits, if any, after
Rubin Pachulsky Dew has received a 15% cumulative annual return on its
investment. The incentive fee, if earned, is not payable until the last
property is sold or four years from date of purchase, whichever comes first.
The property management agreement is cancelable at any time upon 60 days
notice, but the incentive fee will survive termination of the contract.
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
The Rubin Pachulsky Dew Transaction (Cont'd.)
A portion of the proceeds from the sale of the properties to Rubin Pachulsky
Dew continues to be held in escrow. A sum equal to two and one-half percent
of the purchase price was held back as a potential source of payment for any
claims that may arise related to a Partnership breach of certain
representations and warranties related to the sale (expiring on September
23, 2000) and for any litigation costs that may arise (released to the
Partnership on March 23, 2000). The remaining cash held in escrow relates to
holdbacks for tenant improvements and tax prorations. The cash held in
escrow has been included in the calculation of loss on sale of real estate.
The Cornerstone
On October 15, 1999, Damson/Birtcher Realty Income Fund-I (the
"Partnership") sold The Cornerstone shopping center, in Tempe, Arizona to
GDA Real Estate Services, LLC ("GDA"), a Denver-based real estate developer
and operator that is not affiliated in any way with the Partnership, its
General Partner or the General Partner's affiliates, for a sale price of
$8,500,000.
GDA was represented by two third-party brokers in the transaction. The
brokers were paid $170,000 from the sale proceeds. The General Partner was
not paid a disposition fee in connection with the transaction. GDA will not
hire the General Partner or any affiliate to perform asset management or
property management services for this property.
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 Denver real estate development company. During its due diligence
period Halcyon asked to extend its contingency period to address zoning and
land-use changes with the city of Denver (it apparently wanted to change the
site from office to residential condominium use). The General Partner did
not accept the request for extension. Halcyon thereupon asked to reduce the
purchase price from $6,450,000 to $4,500,000. The Partnership rejected this
request and terminated its dealings with Halcyon.
On June 18, 1999, the Partnership entered into a Purchase and Sale Agreement
to sell Terracentre to Charles Callaway ("Callaway"), an unaffiliated Denver
real estate developer and operator, for $6,450,000. The purchaser deposited
$200,000 into escrow on June 21, 1999, all but $50,000 of which was
refundable pending completion of its due diligence investigation.
Unfortunately, at a Denver city council meeting on August 10, 1999, certain
council members discussed condemning Terracentre in order to expand the
adjacent convention center. The Callaway
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DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
Status of Terracentre (Cont'd.)
transaction was subsequently terminated and the deposit returned. On
November 2, 1999, Denver voters approved a referendum in favor of expanding
the convention center.
On 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 was
refundable pending completion of its due diligence investigation (the
"contingency period"). The contingency period was originally scheduled to
expire on April 10, 2000 and escrow was 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.
On April 11, 2000, the Partnership and Collawn amended the Purchase and Sale
Agreement to extend the contingency period to May 1, 2000 and the closing
date to May 16, 2000. As consideration for the extensions, the Partnership
received a non-refundable payment of $25,000.
On May 1, 2000, Collawn's contingency period expired, and all contingencies
to closing were waived. The Partnership received a nonrefundable payment
from Collawn of $275,000. On the same day, the Partnership and Collawn
amended the Purchase and Sale Agreement to extend the closing date to
May 31, 2000.
Other Matters
On March 1, 2000, the Partnership made a special distribution of $9,000,000
to its limited partners.
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 were reimbursed by the
Partnership.
Results of Operations for the Three Months Ended March 31, 2000
Because the Partnership is in the process of liquidating its remaining
assets, a comparison of the results of operations is not practical. As the
Partnership's
14
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended March 31, 2000 (Cont'd.)
assets (properties) are sold, the results of operations will be generated
from a smaller asset base, and are therefore not comparable. The Partnership
completed the sale of five of its six remaining properties in three separate
transactions during 1999 and its final property is under contract for sale
as of March 31, 2000. The Partnership's operating results have been
reflected on the Statements of Changes of Net Assets in Liquidation.
For the three months ended March 31, 2000, the Partnership incurred an
$82,000 net operating loss from the operation of its remaining property. The
decrease, when compared to the three months ended March 31, 1999, was
primarily attributable to the sale of the Partnership's properties in
September and October 1999. In addition, the Partnership incurred a $29,000
leasing commission related to the wrap up of The Cornerstone during the
three months ended March 31, 2000.
Interest income resulted from the temporary investment of Partnership
working capital. For the three months ended March 31, 2000, interest income
was approximately $102,000. The increase in interest income was reflective
of the increased cash and cash equivalent balances that were generated from
the sale of the properties.
Accrued expenses for liquidation as of March 31, 2000, include estimates of
costs to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting fees,
tax preparation and filing fees, and other professional services. During the
three months ended March 31, 2000, the Partnership incurred $98,000 of such
expenses. At March 31, 2000, the General Partner re-evaluated the estimated
costs to wind up and dissolve the Partnership given the uncertainty involved
with the ongoing litigation. The provision for liquidation expenses was
accordingly increased by an additional $25,000 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.
Liquidation expenses incurred for the three months ended March 31, 2000,
include charges of $13,000 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
accrued expenses for liquidation for the three months ended March 31, 2000,
are direct charges of $85,000, relating to audit fees, tax preparation fees,
legal fees and professional services, costs incurred in providing
information to the Limited Partners and other miscellaneous costs.
Interest expense in 1999 resulted from interest on the first deed of trust
on Certified Distribution Center. That mortgage was retired on September 23,
1999 with the sale of Certified Distribution Center to Rubin Pachulsky Dew.
15
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
As of March 31, 2000, the Partnership had cash equivalents of $1,236,000
invested in interest-bearing certificates of deposit. These investments are
subject to interest rate risk due to changes in interest rates upon
maturity. Declines in interest rates over time would reduce Partnership
interest income.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor its
properties are subject to any material pending legal proceedings, except for
the following:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 L.P. filed a purported class action lawsuit in the
Court of Common Pleas of Philadelphia County against Damson/Birtcher
Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher
Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P., Arthur
Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R.
Donaldson alleging breach of fiduciary duty and breach of contract and
seeking to enjoin the Consent Solicitation dated February 18, 1997. On April
18, 1997, the court denied the plaintiff's motion for a preliminary
injunction. On June 10, 1997, the court dismissed the plaintiff's complaint
on the basis of lack of personal jurisdiction and forum non conveniens.
On June 13, 1997, the Partnership's affiliated partnerships, Damson/Birtcher
Realty Income Fund-II and Real Estate Income Partners III, and their general
partner, Birtcher/Liquidity Properties, filed a complaint for declaratory
relief in the Court of Chancery in Delaware against Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration that
the vote that the limited partners of Damson/Birtcher Realty Income Fund-II
and Real Estate Income Partners III took pursuant to the respective consent
solicitations dated February 18, 1997 was effective to dissolve the
respective partnerships and complied with applicable law, that the actions
of the General Partner in utilizing the consent solicitations to solicit the
vote of the limited partners did not breach any fiduciary or contractual
duty to such limited partners, and an award of costs and fees to the
plaintiffs. The defendant has answered the complaint. The parties have
initiated discovery. No motions are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990 informed
the Partnership that it was filing suit in the Delaware Chancery Court
against Damson/Birtcher Partners, Birtcher Investors, Birtcher Liquidity
Properties, Birtcher Investments, BREICORP, LF Special Fund I, LP, LF
Special Fund II. LP, Arthur Birtcher, Ronald Birtcher, Robert Anderson,
Richard G. Wollack and Brent R. Donaldson alleging a purported class action
on behalf of the limited partners of Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III
alleging breach of fiduciary duty and
16
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Bigelow Diversified Secondary Partnership Fund 1990 litigation (Cont'd.)
incorporating the allegations set forth in the previously dismissed March
25, 1997 complaint filed in the Court of Chancery of Philadelphia County.
Plaintiff has engaged in preliminary discovery and the parties have held
settlement discussions.
In March 2000, defendants informed the Court and plaintiff that they would
bring a Motion for Summary Judgment against the named plaintiff based upon
the allegations set forth in plaintiff's complaint. On April 14, 2000,
Bigelow/Diversified Secondary Partnership Fund 1990 filed a First Amended
Class Action and Derivative Complaint against Damson/Birtcher Partners,
Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Partners,
Birtcher Properties, Birtcher Ltd., Birtcher Investments, BREICORP, L.F.
Special Fund II, L.P., L.F. Special Fund I, L.P., Liquidity Fund Asset
Management, Inc., Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard
G. Wollack and Brent R. Donaldson, the Partnership, Damson/Birtcher Realty
Income Fund-II and Real Estate Income Partners III, alleging breach of
fiduciary duty, breach of contract, and a derivative claim for breach of
fiduciary duty. Defendants have not yet responded to the First Amended
Complaint.
Rex Garton, et al. v. Damson/Birtcher Partners, et al.
This action was filed on September 25, 1998 in the District Court of
Oklahoma County for the State of Oklahoma against the Partnership's general
partner, Damson/Birtcher Partners, other related defendants and numerous
unrelated defendants. Damson/Birtcher Partners and other related defendants
were brought into the action in late December 1998, when they were served
with the Second Amended Petition. The other related defendants are Birtcher
Partners, Birtcher Properties, The Birtcher Group, Birtcher American
Properties, Arthur B. Birtcher, Ronald E. Birtcher, LF Special Fund II,
L.P., and Liquidity Fund Asset Management Inc., but The Birtcher Group and
Birtcher American Properties were served with process and did not appear in
the action. The Partnership itself is not named as a defendant. The case is
a class action brought on behalf of investors in the Partnership who
purchased limited partnership interests from May 7, 1984 to September 17,
1985. The Second Amended Petition alleges breach of contract, intentional
and negligent misrepresentation, breach of fiduciary duties, and violations
of various Oklahoma and federal statutes in connection with the sale of the
limited partnership interests. Plaintiff seeks unspecified compensatory
damages and $10 million in punitive damages.
Damson/Birtcher Partners and the related defendants removed the case to the
United States District Court for the Western District of Oklahoma, and filed
a motion to dismiss the case for lack of personal jurisdiction or,
alternatively, to transfer the action to the United States District Court
for the Central District of California, for the convenience of the parties
and witnesses and in the interests of justice. Plaintiff moved to remand the
case back to the Oklahoma state court. The court denied plaintiff's motion
for removal, and took defendant's motion to dismiss or transfer under
submission pending receipt of additional information the court ordered
plaintiff to provide. On March 29, 2000, the court entered its order
granting defendant's motion to dismiss the case for lack of personal
jurisdiction, and dismissing the case.
17
<PAGE> 18
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Madison Partnership and ISA Partnership Litigation
Partnership Liquidity Investors filed a purported class and derivative
action in the California Superior Court in Orange County, California against
Damson Birtcher Partners, Birtcher/Liquidity Properties, Birtcher Partners,
Birtcher Investors, Birtcher Investments, Birtcher Limited, Breicorp LP
Special Fund II, L.P., Liquidity Fund Asset Management, Inc., Robert M.
Anderson, Brent R. Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and
Richard G. Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners III,
Nominal Defendants. The complaint asserts claims for breach of fiduciary
duty and breach of contract. The gravamen of the complaint is that the
General Partners of these limited partnerships have not undertaken all
reasonable efforts to expedite liquidation of the Partnerships' properties
and to maximize the returns to the Partnerships' limited partners. The
complaint seeks unspecified monetary damages, attorneys' fees and litigation
expenses, and an order for dissolution of the partnerships and appointment
of an independent liquidating trustee. The Partnership moved to stay or
dismiss the case on the grounds that the pending Bigelow class action,
discussed above, raises essentially the same claims. The court granted the
Partnership's motion and ordered a stay of the litigation pending
re-evaluation at a May 19, 2000 status conference. Plaintiffs have filed a
motion to lift the stay, which is set for hearing on May 19, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None filed in the quarter ended March 31, 2000.
18
<PAGE> 19
DAMSON/BIRTCHER REALTY INCOME FUND-I
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-I
By: DAMSON/BIRTCHER PARTNERS By: BIRTCHER PARTNERS,
(General Partner) a California general partnership
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Partners
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: May 15, 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: May 15, 2000 By: /s/ Brent R. Donaldson
----------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management,
Inc.
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
NET ASSETS IN LIQUIDATION OF DAMSON BIRTCHER REALTY INCOME FUND-I AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,538,000
<SECURITIES> 0
<RECEIVABLES> 13,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,586,000
<PP&E> 5,980,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,566,000
<CURRENT-LIABILITIES> 449,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,117,000
<TOTAL-LIABILITY-AND-EQUITY> 7,566,000
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0<F1>
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>STATEMENT OF OPERATIONS IS NOT PRESENTED IN LIQUIDATION BASIS OF ACCOUNTING
</FN>
</TABLE>
