<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1993 COMMISSION FILE NUMBER 0-14633
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 13-3294820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27611 La Paz Road, Laguna Niguel, California 92656
(Address of principal executive offices) (Zip Code)
(714) 831-8031
--------------
(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
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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. 2-99421), dated August 5, 1985, filed under the Securities Act of 1933
are incorporated by reference into PART IV of this report.
<PAGE> 2
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993
INDEX
<TABLE>
<S> <C> <C> <C>
Page
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters . . . . . . . . . . . . . 5
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 6
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 11
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . 11
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 12
--- Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 3
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
PART I
Item 1. Business
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the "Partnership")
was formed on September 13, 1985, under the laws of the State of Delaware. The
General Partner of the Partnership is Birtcher/Liquidity Properties, a general
partnership, consisting of LF Special Fund I, L.P., a California limited
partnership, and Birtcher Investors, a California limited partnership. The
Partnership is engaged in the business of acquiring and operating existing
income-producing office buildings, research and development facilities,
shopping centers and other commercial or industrial properties as specified in
its prospectus (Commission File No. 2-99421) dated September 27, 1985, as
amended. See Item 2 for a description of the properties acquired by the
Partnership.
The Partnership commenced operations on November 14, 1985. The closing for the
final admission of Limited Partners to the Partnership occurred on June 19,
1986. Total limited partners' capital contributions through that date
aggregated $52,588,000.
The Partnership acquired its properties entirely for cash, free and clear of
mortgage indebtedness. However, the Partnership may incur mortgage
indebtedness on its properties, primarily for the purpose of funding capital
improvements to properties or obtaining financing proceeds for distribution to
partners.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will
be tax sheltered; (ii) to achieve capital appreciation over a holding period of
at least five years; and (iii) to preserve and protect the Partnership's
capital.
The Partnership derives most of its revenue from rental income. Both Iomega
Corporation and Delta Dental Corporation represent significant portions of such
income. Rental income from Iomega Corporation totaled $1,196,000 in 1993,
$1,196,000 in 1992 and $1,140,000 in 1991, or approximately 29%, 30% and 28%,
respectively, of the Partnership's total rental income. Rental income from
Delta Dental Corporation totaled $629,000 in 1993, $645,000 in 1992 and
$615,000 in 1991, or approximately 15%, 16% and 15%, respectively, of the
Partnership's total rental income.
The Partnership's investments in real estate are subject to competition for
tenants from similar types of properties in the vicinities in which they are
located. The Partnership has no investments in real estate located outside the
United States.
The Partnership has no employees and, accordingly, the General Partner and its
affiliates perform services on behalf of the Partnership in connection with
administering the affairs of the Partnership and operating the Partnership's
properties. The General Partner and its affiliates receive compensation in
connection with such activities. See Item 11 and Note 4 to the financial
statements in Item 8 for a description of such charges.
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<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 2. PROPERTIES
<TABLE>
<CAPTION>
Number of
Net Tenant Percentage
Approximate Rentable Leases Occupied
Name/Location/ Purchase Area in as of as of
Date Acquired Price(1) Description Sq. Ft. 12/13/93 12/31/93
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Atrium Place $ 2,230,000 A single-story office building 23,970 8 45%
Arlington Heights, Illinois located on 1.74 acres of land.
December 19, 1985
Lakeland Industrial Park, 5,875,000 Nine one-story office/warehouse 209,840 14 84%
Phases I-IV buildings located on 11.27 acres
Milwaukee, Wisconsin of land.
December 19, 1985 and
November 25, 1986
Kennedy Corporate Center, 4,599,000 Three-story office building 39,933 12 97%
Phase I located on 2.8 acres of land.
Palatine, Illinois
January 8, 1986
Iomega/Northpointe Center 7,980,000 Seven industrial/office buildings 210,165 7 100%
Roy, Utah located on 16.6 acres of land.
January 31, 1986
Ladera Shopping Center, 2,889,000 A neighborhood retail shopping 35,094 6 100%
Phase II center located on 3.8 acres of land.
Albuquerque, New Mexico
February 7, 1986
Creekridge Center 11,865,000 Two three-story office buildings 81,835 15 81%
Bloomington, Minnesota located on 5 acres of land.
September 23, 1986
Cooper Village 4,789,000(2) A single-story shopping center 59,978(2) 20 89%
Mesa, Arizona located on 10.88 acres of land.
December 30, 1987 and
December 30, 1988
----------- -------
TOTAL $40,227,000 660,815
=========== =======
</TABLE>
SEE NOTES TO TABLE ON THE FOLLOWING PAGE.
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<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 2. PROPERTIES (Cont'd.)
NOTES TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of
acquisition fees of $2,629,000 paid to the General Partner. Also,
for certain properties, the purchase price has been reduced by
cash received at acquisition under rental agreements for
non-occupied space.
(2) An interest in Cooper Village was acquired by the Partnership
through a general partnership, Cooper Village Partners ("CV
Partners") consisting of the Partnership and Real Estate Income
Partners III, Limited Partnership, an affiliated limited
partnership. At December 31, 1993, the Partnership had a 58%
interest in CV Partners. (See Note 3 to financial statements in
Item 8 for a further discussion of the Partnership's interest in
CV Partners.) The amounts shown herein for approximate purchase
price and net rentable square feet represent 58% of the respective
amounts for CV Partners.
Item 3. LEGAL PROCEEDINGS
The Partnership is not a party to any pending legal proceedings, other than
ordinary routine litigation incidental to its business. It is the General
Partner's belief that the outcome of these proceedings will not be material to
the business or financial condition of the Partnership.
NASD Matter. In a matter not directly involving the Partnership or its General
Partner, in 1991, the National Association of Securities Dealers, Inc. (the
"Association") Business Conduct Committee for the Northern District of
California initiated a complaint against a broker-dealer affiliate of LF
Special Fund I, L.P. (a general partner of the General Partner of the
Partnership), alleging violations of the Association's Rules of Fair Practice.
Specifically, the complaint alleged that the affiliate (1) bought and sold
limited partnership units (but not interests in the Partnership) in the
secondary market, from or to unaffiliated parties, subject to mark-ups or
mark-downs in excess of the Association's guidelines and (ii) failed to
disclose the amount or existence of such mark-ups and mark-downs to buyers and
sellers of limited partnership units. Brent Donaldson and Richard Wollack,
executive officers of LF Special Fund I, L.P., were also named as respondents
in the complaint in their capacities as principals of the affiliate. The
complaint was settled as of January 3, 1992 on the following terms: the
Association made findings, which were neither admitted nor denied, of
violations by the affiliate and Mr. Donaldson of the Association's guidelines
with respect to mark-ups or mark-downs, and of the failure by the affiliate
(but not Mr. Donaldson) to disclose the amount of such mark-ups or mark-downs.
Both allegations were dismissed as to Mr. Wollack. The settlement further
provided that the affiliate would be censured and fined $125,000 and that Mr.
Donaldson would be censured and fined $7,500.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
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 28, 1994, the number of holders of the Partnership's interests
is as follows:
General Partner 1
Limited Partners 7,186
-----
7,187
=====
The Partnership makes quarterly cash distributions to its partners out of
distributable cash pursuant to the Partnership's Agreement of Limited
Partnership. Distributable cash is generally paid 99% to the Limited Partners
and 1% to the General Partner.
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 1989 1990 1991 1992 1993 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $973,000 $842,000 $524,000 $416,000 $420,000 $358,000
Second 765,000 756,000 394,000 372,000 262,000 -
Third 824,000 551,000 394,000 457,000 200,000 -
Fourth 758,000 525,000 394,000 430,000 289,000 -
</TABLE>
The Limited Partners and the General Partner are entitled to receive quarterly
cash distributions, as available, in the future.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Total Revenues $4,181,000 $ 4,043,000 $ 4,173,000 $ 4,578,000 $ 5,407,000
========== =========== =========== =========== ===========
Net Income (Loss):
General Partner $ 5,000 $ (34,000) $ 2,000 $ 10,000 $ 20,000
Limited Partners 541,000 (3,343,000) 204,000 1,040,000 1,949,000
---------- ------------ ----------- ----------- -----------
$ 546,000 $(3,377,000) $ 206,000 $ 1,050,000 $ 1,969,000
========== =========== =========== =========== ===========
Total Distributions:
General Partner $ 12,000 $ 17,000 $ 17,000 $ 27,000 $ 33,000
========== =========== =========== =========== ===========
Limited Partners $1,171,000 $ 1,675,000 $ 1,706,000 $ 2,674,000 $ 3,320,000
========== =========== =========== =========== ===========
</TABLE>
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<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 6. SELECTED FINANCIAL DATA (Cont'd.)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $32,737,000 $33,483,000 $38,516,000 $39,957,000 $41,688,000
=========== =========== =========== =========== ===========
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership completed its acquisition program in December 1988 and is
principally engaged in the operation of its properties. The Partnership
intends to hold its properties as long-term investments, although properties
may be sold at any time, depending upon the General Partner's judgment of the
anticipated remaining economic benefits of continued ownership. That
notwithstanding, the Information Statement, dated May 5, 1993, as described
below, mandates that the General Partner shall seek a vote of the Limited
Partner's 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 January 1993, are not sold or under contract
for sale by the end of 1996. Working capital is and will be principally
provided from the operation of the Partnership's properties and the working
capital reserve established for the properties. The Partnership may incur
mortgage indebtedness relating to such properties by borrowing funds primarily
to fund capital improvements or to obtain financing proceeds for distribution
to the partners.
Distributions for the year ended December 31, 1993, represent net cash flow
from operations of the Partnership's properties and interest earned on the
temporary investment of working capital, reduced by current year capital
reserve requirements. Future cash distributions will be made principally to
the extent of cash flow attributable to the operations of the Partnership's
properties after capital reserve requirements. See Item 5 for a description of
the Partnership's distribution history.
Certain of the Partnership's properties are not fully leased. The Partnership
is actively marketing the vacant space in these properties, subject to the
competitive environment in each of the market areas. To the extent the
Partnership is not successful in maintaining or increasing occupancy levels at
these properties, the Partnership's future cash flow and distributions may be
reduced.
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 have been
implemented by amending the Partnership Agreement as contemplated by the
Information Statement. The amendments include, among other things, the future
payment of asset management and leasing fees to the General Partner and the
elimination of the General Partner's residual interest and deferred leasing
fees that were previously subordinated to return of the Limited Partners' 9%
Preferential Return. See Item 8, Note 4 to the financial statements for
discussion of fees paid to the General Partner for the year ended December 31,
1993.
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<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations
Year Ended December 31, 1993
The increase in rental income for the year ended December 31, 1993, as compared
to 1992, was attributable to several factors. At Kennedy, the expansion of two
existing tenants (encompassing an aggregate 7,406 square feet), resulted in an
increase in occupancy rate and an aggregate increase in rental income of
$106,000. In addition, bad debt charge-offs of $72,000 were recorded in 1992,
as a result of two tenant bankruptcies at Kennedy Corporate Center and Lakeland
Industrial Park. These charge-offs had the effect of lowering 1992 revenue as
compared to 1993. The aforementioned increases were partially offset by a
decrease in rental income at Atrium Place, which resulted from the property's
decrease in aggregate occupancy during 1993. The decreased occupancy
(currently 45%) reduced rental income by $130,000, when compared to 1992.
Interest income resulted from the temporary investment of Partnership working
capital. The decrease for the year ended December 31, 1993, as compared to
1992, was attributable to a reduced level of average working capital and a
lower rate-of-return on short-term investments.
The decrease in operating expenses for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to the decrease in legal and
professional services relating to a tenant dispute and real estate tax appeals
at Creekridge and Kennedy Corporate Center. The aforementioned decreases were
partially offset by an increase in utilities, cleaning and HVAC repairs at
Lakeland Industrial Park.
The decrease in real estate taxes for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to a lower tax assessment at
Atrium and Kennedy Corporate Center. The aforementioned decreases were
partially offset by an increase in real estate tax expense at Creekridge. The
increase was as a result of a $134,000 tax refund in 1992, which had the effect
of lowering 1992 tax expense.
The decreases in depreciation expenses for the year ended December 31, 1993, as
compared to 1992, were a result of a $3,850,000 adjustment to the carrying
value of real estate assets during 1992. As part of this adjustment, the
depreciable bases (buildings and improvements) of Atrium Place, Creekridge and
Kennedy were reduced in December 1992, by $236,000, $2,822,000 and $370,000,
respectively, with the remaining adjustment of $422,000 allocated to land.
General and administrative expenses for the year ended December 31, 1993
included charges of 423,000 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 are direct charges of $414,000 relating to
audit and tax preparation fees, annual appraisal fees, legal fees, insurance,
costs incurred in providing information to the limited partners and other
miscellaneous costs.
The increase in general and administrative expenses for the year ended December
31, 1993, as compared to 1992, was primarily attributable to the payment of
asset management fees ($232,000) to the General Partner and its affiliates
pursuant to the amended Partnership Agreement. In addition, legal and
professional services, printing, postage and mailing expenses increased as a
result of the Partnership's solicitation of the limited partners for the
Information Statement.
The General Partner elected to terminate the Partnership's Property Management
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<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1993 (Cont'd.)
Agreement with Glenborough Management Corporation ("Glenborough") effective
November 1, 1993. On that date, the General Partner caused the Partnership to
enter a new property management agreement with Birtcher Properties, an
affiliate of the General Partner. Pursuant to the Partnership Management
Agreement, Birtcher Properties will act as the Partnership's exclusive agent to
operate, rent, manage and maintain the Partnership's properties. In its
capacity as property manager for the Partnership's properties, Birtcher
Properties will perform substantially the same services that Glenborough
performed during the previous two-year period at fees similar to (and not
larger than) the fees it used to pay Glenborough, plus certain costs associated
with property management, as before. The contract is terminable upon a minimum
of 60 days' written notice by either party. As before, the General Partner
will continue to oversee the day-to-day management of the Partnership.
Year Ended December 31, 1992
The decrease in rental income for the year ended December 31, 1992, as compared
to 1991, was attributable to several factors. At Lakeland, three substantial
tenants downsized and consolidated their operations at another site. The lost
tenancy resulted in a net decrease to rental income of $312,000 for 1992. In
addition, operating expense recoveries declined at Atrium Place by $92,000 due
to the reconciliation of 1991 recoveries, a reduced real estate tax assessment
and lower operating expenses incurred during 1992. The aforementioned
decreases were partially offset by the substantial increase in occupancy from
44%, in September 1991, to the current level of 70% at Creekridge Center in
Bloomington, Minnesota. The increase in occupancy at Creekridge Center
resulted in $216,000 of additional rental income for 1992.
Interest income resulted from the temporary investment of Partnership working
capital. The decrease for 1992 as compared to 1991, was attributable to a
lower rate-of-return on short-term investments.
The decrease in operating expenses for the year ended December 31, 1992, as
compared to 1991, was primarily attributable to an overall decrease in property
management fees and related on-site expenses incurred during 1992. In
addition, maintenance and repair expenses were lower at Iomega and Atrium Place
in 1992. The aforementioned expense reductions were partially offset by
increased legal fees incurred during 1992, as a result of tenant business
failures, rent abatement, rental relief requests and bankruptcies associated
with the national economic downturn.
The decrease in real estate taxes for the year ended December 31, 1992, as
compared to 1991, was attributable to a successful tax appeal at Creekridge,
which resulted in a $134,000 tax refund in 1992. The overall decrease was
partially offset by increased tax assessments for Kennedy Corporate Center,
Iomega and Ladera II Shopping Center during 1992.
General and administrative expenses for the year ended December 31, 1992,
included charges of $224,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included in
general and administrative expenses were direct charges of $298,000 relating to
audit fees, tax preparation fees, legal fees, appraisal fees, business plans,
insurance, costs incurred in providing information to the Limited Partners and
other Item
-8-
<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
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, 1992 (Cont'd.)
miscellaneous costs.
The decrease in general and administrative expenses for the year ended December
31, 1992, as compared to 1991, was primarily attributable to the payment of the
$311,000 of previously deferred property management fees to an affiliate of the
General Partner in 1991.
Investments in real estate reflect an adjustment to the carrying value of real
estate assets of $3,850,000 for the year ended December 31, 1992. In May 1992,
the General Partner obtained appraisals of the Partnership's properties from a
qualified independent appraiser. Based upon these appraisals, management's
intention to hold these real estate assets and current and anticipated market
conditions, management estimated that three of the Partnership's properties,
Atrium Place Office Building ($275,000), Creekridge Center ($3,150,000) and
Kennedy Corporate Center-I ($425,000) have each experienced a permanent
impairment of value as compared to their respective carrying values.
Year Ended December 31, 1991
The decrease in rental income for the year ended December 31, 1991, as compared
to 1990, was primarily attributable to the reduced occupancy at Creekridge. In
June 1990, Delta Dental Corporation was allowed to contract its office space
(originally 42,303 square feet) in exchange for a lease buyout in the amount of
$121,000 and a five-year lease extension of the remaining 26,043 square feet it
occupied. The effect of Delta Dental's contraction was minimal for 1990, as a
result of the lease buyout, however, the effect on 1991 rental income was a
decrease of approximately $237,000. In addition, Springboard Software vacated
upon its lease expiration in December 1990 (7,799 square feet) and First Union
Mortgage (3,152 square feet) closed its Minneapolis office in April 1991. The
impact on rental income amounted to respective reductions of approximately
$106,000 and $41,000 for the year ended December 31, 1991. The aforementioned
decreases at Creekridge were partially offset by scheduled Consumer Price Index
increases at the Iomega/Northpointe Business Center.
Interest income resulted from the temporary investment of Partnership working
capital. The decrease for the year ended December 31, 1991, as compared to
1990, was attributable to reduced working capital reserve levels and a lower
rate-of-return on short-term investments.
The increase in operating expenses for the year ended December 31, 1991, as
compared to 1990, was primarily attributable to higher miscellaneous building
operating expenses during 1991.
The decrease in real estate taxes for the year ended December 31, 1991, as
compared to 1990, was primarily attributable to a $68,000 real estate tax
refund at Creekridge, which occurred during the fourth quarter of 1991. The
overall decrease was partially offset by increases in tax rates at Atrium and
Kennedy.
General and administrative expenses for the year ended December 31, 1991,
included charges of $207,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included in
general and administrative expenses were direct charges of $315,000 relating to
audit fees, tax preparation fees, appraisal fees, insurance, costs incurred in
providing information to the Limited Partners and other miscellaneous costs.
-9-
<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
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, 1991 (Cont'd.)
The increase in general and administrative expenses for the year ended December
31, 1991, as compared to 1990, was primarily attributable to the payment of the
$311,000 of previously deferred property management fees due to an affiliate of
the General Partner. In addition, legal fees and other professional services
were incurred during 1991 in connection with the Partnership's strategic
review.
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<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND SUPPLEMENTAL INFORMATION
<TABLE>
<S> <C>
Page
----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Balance Sheets as of December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1993,
1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1993,
1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Schedules:
XI - Real Estate and Accumulated Depreciation as of
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
</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> 13
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
INDEPENDENT AUDITORS' REPORT
To Birtcher/Liquidity Properties, as General Partner of
Damson/Birtcher Realty Income Fund-II, Limited Partnership:
We have audited the financial statements of Damson/Birtcher Realty Income
Fund-II, 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 as listed in the accompanying index. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Damson/Birtcher Realty Income
Fund-II, Limited Partnership as of December 31, 1993 and 1992, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick
Orange County, California
January 24, 1994, except as to
Note 8, which is as of
February 28, 1994
F-2
<PAGE> 14
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1992
------------------------------------
<S> <C> <C>
ASSETS
- ------
Investments in real estate, net:
Land $ 3,593,000 $ 3,593,000
Buildings and improvements 32,407,000 31,880,000
------------ ------------
36,000,000 35,473,000
Less accumulated depreciation (9,742,000) (8,570,000)
------------ ------------
26,258,000 26,903,000
Investment in Cooper Village Partners 4,922,000 5,095,000
Cash and cash equivalents 1,000,000 1,047,000
Accounts receivable (net of allowance for
doubtful accounts of $23,000 in 1993
and $19,000 in 1992) 50,000 86,000
Deferred rent receivable 200,000 152,000
Prepaid expenses and other assets 307,000 200,000
------------ ------------
$32,737,000 $33,483,000
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 690,000 $ 786,000
Due to affiliates - 13,000
------------ ------------
Total liabilities 690,000 799,000
------------ ------------
Commitments and contingencies - -
Partners' capital:
Limited Partners 32,179,000 32,809,000
General Partner (132,000) (125,000)
------------ ------------
32,047,000 32,684,000
------------ ------------
$32,737,000 $33,483,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
-----------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rental income $4,132,000 $ 3,988,000 $4,094,000
Interest and other income 49,000 55,000 79,000
---------- ------------ ----------
Total revenues 4,181,000 4,043,000 4,173,000
---------- ------------ ----------
EXPENSES:
Operating expenses 1,011,000 1,044,000 1,069,000
Real estate taxes 715,000 814,000 884,000
Depreciation and amortization 1,229,000 1,371,000 1,366,000
General and administrative 837,000 522,000 833,000
Adjustment to carrying value of
real estate - 3,850,000 -
---------- ------------ ----------
Total expenses 3,792,000 7,601,000 4,152,000
---------- ------------ ----------
Income (loss) before equity in earnings
of Cooper Village Partners 389,000 (3,558,000) 21,000
Equity in earnings of
Cooper Village Partners 157,000 181,000 185,000
---------- ------------ ----------
NET INCOME (LOSS) $ 546,000 $(3,377,000) $ 206,000
========== =========== ==========
NET INCOME (LOSS) ALLOCABLE TO:
General Partner $ 5,000 $ (34,000) $ 2,000
========== =========== ==========
Limited Partners $ 541,000 $(3,343,000) $ 204,000
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1990 $ (59,000) $39,329,000 $39,270,000
Net income 2,000 204,000 206,000
Distributions (17,000) (1,706,000) (1,723,000)
---------- ------------ ------------
Balance, December 31, 1991 (74,000) 37,827,000 37,753,000
Net loss (34,000) (3,343,000) (3,377,000)
Distributions (17,000) (1,675,000) (1,692,000)
---------- ------------ ------------
Balance, December 31, 1992 (125,000) 32,809,000 32,684,000
Net income 5,000 541,000 546,000
Distributions (12,000) (1,171,000) (1,183,000)
---------- ------------ ------------
Balance, December 31, 1993 $(132,000) $32,179,000 $32,047,000
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
-----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 546,000 $(3,377,000) $ 206,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,229,000 1,371,000 1,366,000
Equity in earnings of Cooper
Village Partners (157,000) (181,000) (185,000)
Adjustment to carrying value of
real estate - 3,850,000 -
Changes in:
Accounts receivable 36,000 (13,000) (24,000)
Deferred rent receivable (48,000) (76,000) (76,000)
Prepaid expenses and other assets (164,000) (65,000) (143,000)
Accounts payable and accrued
liabilities (96,000) 23,000 82,000
Due to affiliates (13,000) 13,000 (6,000)
----------- ----------- -----------
Net cash provided by operating
activities 1,333,000 1,545,000 1,220,000
----------- ----------- -----------
Cash flows from investing activities:
Investments in real estate (527,000) (171,000) (210,000)
Distributions received from
Cooper Village Partners 330,000 336,000 316,000
----------- ----------- -----------
Net cash provided by (used in)
investing activities (197,000) 165,000 106,000
----------- ----------- ----------
Cash flows from financing activities:
Distributions (1,183,000) (1,692,000) (1,723,000)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (47,000) 18,000 (397,000)
Cash and cash equivalents, beginning
of year 1,047,000 1,029,000 1,426,000
----------- ----------- -----------
Cash and cash equivalents, end of year $1,000,000 $1,047,000 $1,029,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 18
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Operations
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the
"Partnership") is a limited partnership formed on September 13, 1985,
under the laws of the State of Delaware for the purpose of acquiring
and operating income-producing retail, commercial and industrial
properties. The General Partner of the Partnership is
Birtcher/Liquidity Properties, a general partnership consisting of LF
Special Fund I, L.P. ("LF-I"), a California limited partnership and
Birtcher Investors, a California limited partnership. Birtcher
Investors, or its affiliates, provides day-to-day administration,
supervision and management of the Partnership and its properties.
In January 1993, the General Partner filed an information statement
with the Securities and Exchange Commission seeking consent of the
Limited Partners to amend the Partnership Agreement. On June 24, 1993,
the Partnership completed its solicitation of written consent from its
Limited Partners. A majority in interest of the Partnership's Limited
Partners approved each of the proposals contained in the Information
Statements, dated May 5, 1993. Those proposals have been implemented
by the Partnership as contemplated by the Information Statement as
amendments to the Partnership Agreement, and are reflected in these
financial statements as such.
The amendment modifies the Partnership Agreement to eliminate the
General Partner's 10% subordinated interest in distributions of
Distributable Cash (net cash from operations) and to reduce its
subordinated interest in such distributions from 10% currently to 1%.
The amendment also modifies the Partnership Agreement to eliminate the
General Partner's 10% subordinated interest in Sale or Financing
Proceeds (net cash from sale or financing of Partnership property) and
to reduce its subordinated interest in such proceeds from 15% currently
to 1%. In lieu thereof, the Partnership Agreement now provides for the
Partnership's payment to the General Partner of an annual asset
management fee equal initially to .75% of the aggregate appraised value
of the Partnership's properties. The portfolio was appraised at an
aggregate value of approximately $34,965,000 which includes the
Partnership's interest in Cooper Village Partners which was appraised
at $4,060,000 as of January 1, 1993. The factor used to calculate the
annual asset management fee will be reduced by .10% (e.g., from .75% in
1996 to .65% in 1997) each year beginning after December 31, 1996.
The amendment modifies the Partnership Agreement to eliminate the
subordination provisions with respect to future property disposition
fees payable under that section and authorizes payment to the General
Partner and its affiliates of the foregoing property disposition fees
as earned. The fees will not be subordinated to the return to the
Limited Partners Preferred Return and Adjusted Invested Capital or any
other amount. The disposition fees will 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 is to be reduced by the amount by which any
brokerage or similar commissions paid to any unaffiliated third parties
in connection with the sale of the property exceed 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.
F-7
<PAGE> 19
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment states that the Partnership is no longer authorized to
pay the General Partner or its affiliates any insurance commission or
any property financing fees. No such commission or fees have been paid
or accrued by the Partnership since its inception.
The amendment modifies the provisions of the Partnership Agreement
regarding allocations of Partnership income, gain and other tax items
between the General Partner and the Limited Partners primarily to
conform to the changes in the General Partner's interest in
distributions of Distributable Cash and Sale or Financing Proceeds
effected by the amendment. It is not anticipated that the adoption and
implementation of the amendment will have any material adverse effect
on future allocations of income, gain, loss or other tax items to the
Limited Partners. However, if any of the Partnership's properties are
sold for a gain, a special allocation to the General Partner would have
the effect of reducing the amount of Sale or Financing Proceeds
otherwise distributable to the Limited Partners and correspondingly
increasing the amount of such distributions to be retained by the
General Partner. The amount of such distributions to be affected would
be approximately equal to any deficit balance in the General Partner's
capital account in the Partnership at the time of the allocation.
The Limited Partners have certain priorities in the allocation of cash
distributions by the Partnership. Out of each distribution of net
cash, the Limited Partners generally have certain preferential rights
to receive payments that, together with all previous payments to them,
would provide an overall 9% per annum (cumulative non-compounded)
return (a "9% Preferential Return") on their investment in the
Partnership. Any distributions not equaling this 9% Preferential
Return in any quarter are to be made up in subsequent periods if and to
the extent distributable cash is available.
Distributable cash from operations is paid out each quarter in the
following manner: 99% to the Limited Partners and 1% to the General
Partner. These payments are made each quarter to the extent that there
is sufficient distributable cash available.
Sale or financing proceeds are to be distributed, to the extent
available, as follows: (i) to the Limited Partners until all cash
distributions to them amount to a 9% Preferential Return on their
investment cumulatively from the date of their admission to the
Partnership, (ii) then to the Limited Partners in an amount equal to
their investment; and (iii) the remainder, 99% to Limited Partners and
1% to the General Partner.
The unpaid 9% Preferential Return to the limited partners' aggregates
$18,142,000 as of December 31, 1993. Income or loss for financial
statement purposes is allocated 99% to the Limited Partners and 1% to
the General Partner.
The amendment modifies the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction"
(as defined in the Amendment) sponsored by the General Partner or any
of its affiliates unless such transaction is approved by a
"supermajority" of at least 80% in interest of the Limited Partners and
the General Partner. The amendment also prohibits the modification of
this restriction on Reorganization Transactions without the approval of
at least 80% in interest of the Limited Partners.
F-8
<PAGE> 20
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other
dispositions to be left to the General Partner's discretion based on
the anticipated remaining economic benefits of continued ownership and
other factors. Although the current market for real estate is
depressed, the General Partner is committed to selling the
Partnership's properties as soon asreasonably practicable. To that
end, the amendment mandates that the General Partner seek a vote of the
Limited Partners no later than December 31, 1996 regarding the prompt
liquidation of the Partnership in the event that properties with
appraised values as of January 1993 which constituted at least one-
half of the aggregate appraised value of all Partnership properties as
of January 1993 are not sold or under contract for sale by the end of
1996. In conjunction with the vote, the General Partner will provide
an analysis and recommendation regarding the advisability of
liquidating the Partnership.
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
Provision is made for impairment loss if the General Partner determines
that the loss is other than temporary. In 1992, the General Partner
obtained third party appraisals on the Partnership's properties as
required by the Partnership Agreement. These appraisals indicated that
certain of the Partnership's properties had market values below their
then-current net book value. Management estimated that Atrium Place,
Creekridge Center and Kennedy Corporate Center-I each experienced an
impairment to their value, as compared to their respective carrying
values at December 31, 1992. This determination was based upon the
independent appraisals provided in May 1992, and management's
interpretation of then-current and anticipated market conditions for
these respective properties. The aggregate adjustment resulting from
management's estimate amounted to $3,850,000. At December 31, 1993,
the General Partner estimated that no additional adjustment was
required.
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
outstanding at December 31, 1993 and 1992, totaled $926,000 and
$941,000, 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.
Depreciation
Depreciation expense is computed using the straight-line method. Rates
used in the determination of depreciation are based upon the following
estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
F-9
<PAGE> 21
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Depreciation (Cont'd.)
Maintenance and repairs are charged to expense when incurred.
Maintenance and repairs aggregated $138,000, $139,000 and $129,000 for
the years ended December 31, 1993, 1992 and 1991, respectively.
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Rental concessions treated as rental income during the years ended
December 31, 1993, 1992 and 1991 amounted to $48,000, $76,000 and
$76,000, respectively.
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. The tax returns, the qualification of the Partnership as
such for tax purposes, and the amount of the Partnership's income or
loss are subject to examination by Federal and State taxing
authorities. If such examinations result in changes with respect to
the Partnership's qualification or in changes to the Partnership's
income or loss, the tax liability of the Partners could be changed
accordingly.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1993 1992
GAAP Basis Tax Basis GAAP Basis Tax Basis
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $32,737,000 $39,811,000 $33,483,000 $40,558,000
Total
Liabilities $ 690,000 $ 690,000 $ 799,000 $ 799,000
</TABLE>
Following are the differences between the financial statements and tax
return income:
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per
Financial Statements $546,000 $(3,377,000) $206,000
Adjustment to carrying value
of real estate - 3,850,000 -
Depreciation differences on
investments in real estate (328,000) (251,000) (353,000)
Other 89,000 (65,000) 193,000
---------------------------------------------------------------------------
Taxable income per Federal
tax return $307,000 $ 157,000 $ 46,000
---------------------------------------------------------------------------
</TABLE>
F-10
<PAGE> 22
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
(2) Summary of Significant Accounting Policies (Cont'd.)
Significant Customers
Rental income from Iomega Corporation totaled $1,196,000 in 1993,
$1,196,000 in 1992 and $1,140,000 in 1991, or approximately 29%, 30%
and 28%, respectively, of the Partnership's total rental income.
Rental income from Delta Dental Corporation totaled $629,000 in 1993,
$645,000 in 1992, $615,000 in 1991, or approximately 15%, 16% and 15%,
respectively, of the Partnership's total rental income.
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 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.
Investment in Cooper Village
The Partnership uses the equity method of accounting to account for its
investment in Cooper Village Partners inasmuch as control of Cooper
Village Partners is shared jointly between the Partnership and Real
Estate Income Partners III, Limited Partnership. The accounting
policies of Cooper Village Partners are consistent with those of the
Partnership.
Reclassifications
Certain reclassifications have been made to conform prior year amounts
to the 1993 presentation.
(3) Investment in Cooper Village Partners
During 1987 and 1988, Cooper Village Partners ("CV Partners"), a
California general partnership consisting of the Partnership and Real
Estate Income Partners III, Limited Partnership, an affiliated limited
partnership ("Fund III"), acquired Cooper Village. In connection
therewith, the Partnership and Fund-III contributed capital
contributions of $5,937,000 (58%) and $4,300,000 (42%), respectively,
and share in the profits, losses and distributions of CV Partners in
proportion to their respective ownership interests.
F-11
<PAGE> 23
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners (Cont'd.)
Condensed summary financial information for CV Partners is presented
below.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1992
------------------------------------
<S> <C> <C>
Land, Buildings and
Equipment (net) $8,141,000 $8,274,000
Cash and Other Assets 523,000 709,000
---------- ----------
Total Assets $8,664,000 $8,983,000
========== ==========
Accounts Payable and
Accrued Liabilities $ 81,000 $ 101,000
Partners' Capital 8,583,000 8,882,000
---------- ----------
Total Liabilities and
Partners' Capital $8,664,000 $8,983,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
-----------------------------------------------
<S> <C> <C> <C>
Rental and Other Income $ 989,000 $ 915,000 $ 918,000
Operating and Other Expenses (465,000) (361,000) (364,000)
Depreciation and Amortization (252,000) (241,000) (235,000)
--------- ---------- ----------
Net Income $ 272,000 $ 313,000 $ 319,000
========= ========== =========
</TABLE>
F-12
<PAGE> 24
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) 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, 1993, 1992 and 1991, the Partnership was charged with
approximately $150,000, $165,000 and $156,000, respectively, of such
expenses.
An affiliate of the General Partner provided property management
services with respect to the Partnership's properties through October
31, 1991. Subsequent to that date, the Partnership contracted with an
unaffiliated third party to perform these services. On November 1,
1993, the General Partner elected to terminate the Partnership's
property management agreements with this unaffiliated third party. On
that date, the General Partner entered into new property management
agreements with Birtcher Properties, an affiliate of the General
Partner. The new contracts encompass terms at least as favorable to
the Partnership as the terminated contracts with the unaffiliated
third party and are terminable by the Partnership upon 60 days'
written notice to Birtcher Properties. Fees paid to the General
Partner's affiliate for property management services in 1993 and 1991
were not to exceed 6% of the gross receipts from the properties under
management, provided that leasing services were performed, otherwise
not to exceed 3%. Such fees amounted to approximately $29,000 in 1993
and $116,000 in 1991. Additionally in 1991, the Partnership paid
$311,000 of previously deferred leasing fees related to leasing
services that the General Partner had elected to defer from the
inception of the Partnership through 1990. Such fees paid on a
current basis amounted to $41,000, $59,000 and $51,000 for the years
ended December 31, 1993, 1992 and 1991, respectively. Those fees have
been recorded in general and administrative expenses in the
accompanying statements of operations for the years ended December 31,
1993, 1992 and 1991. As reimbursement of costs for on-site property
management personnel and other related costs, an affiliate of the
General Partner received $19,000 in 1993 and $99,000 in 1991.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .75% of the aggregate appraised value of the Partnership's
properties as determined by independent appraisal undertaken in
January of each year. Such fees for the year ended December 31, 1993,
amounted to $232,000. In addition to the aforementioned, the General
Partner was also paid $30,000, related to the Partnership's portion
(58%) of asset management fees for Cooper Village Partners for the
year ended December 31, 1993.
(5) Commitments and Contingencies
Litigation
The Partnership is not a party to any pending legal proceedings other
than ordinary routine litigation incidental to its business. It is
the General Partner's belief that the outcome of these proceedings
will not be material to the business or financial condition of the
Partnership.
F-13
<PAGE> 25
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Commitments and Contingencies (Cont'd.)
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1993, 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, 1993, is as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1994 $2,801,000
1995 2,248,000
1996 1,398,000
1997 997,000
1998 921,000
Thereafter 583,000
----------
$8,948,000
==========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of
the tenant's annual revenue in excess of specified levels; and
escalations in annual rents based upon the Consumer Price Index.
(6) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
--------------------------
<S> <C> <C>
Real estate taxes $465,000 $555,000
Security deposits 147,000 121,000
Accounts payable and other 78,000 110,000
-------- --------
$690,000 $786,000
======== =========
</TABLE>
(7) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $19,000 $ 33,000 $ 10,000
Additions 9,000 72,000 36,000
Writeoffs (5,000) (86,000) (13,000)
------- --------- ---------
Balance at end of year $23,000 $ 19,000 $ 33,000
======= ======== ========
</TABLE>
(8) Subsequent Event
On February 28, 1994, the Partnership made an aggregate cash
distribution of $358,000 to its limited partners.
F-14
<PAGE> 26
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E
------ ------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT GROSS AMOUNT AT WHICH
TO PARTNERSHIP(c) TO THE ACQUISITION CARRIED AT CLOSE OF PERIOD (b)
----------------------- -------------------------- -------------------------------------
BUILDINGS AND CARRYING BUILDINGS AND
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS LAND IMPROVEMENTS TOTAL (d)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Atrium Place
Arlington Heights, IL $ 332 $ 2,040 $ 478 $ (275) $ 292 $ 2,283 $ 2,575
Lakeland Industrial Park
Milwaukee, WI 270 5,973 1,030 (41) 268 6,964 7232
Kennedy Corporate Center
Palatine, IL 641 4.252 568 (524) 574 4,363 4,937
Iomega/Northpointe
Business Center
Roy, UT 672 7,834 92 - 672 7,926 8,598
Ladera Shopping Center,
Phase II
Albuquerque, NM 829 2,241 83 (22) 821 2,310 3,131
Creekridge Center
Bloomington, MN 1,312 11,304 287 (3,376) 966 8,561 9,527
------ ------- ------ -------- ------ ------- -------
TOTAL $4,056 $33,644 $2,538 $(4,238) $3,593 $32,407 $36,000
====== ======= ====== ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
COL. A COL. F COL. H COL. I
------ ------ ------ ------
ACCUMULATED
DEPRECIATION DATE DEPRECIABLE
DESCRIPTION (A) (d) ACQUIRED LIFE (e)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Atrium Place
Arlington Heights, IL $ 911 12/19/85 30 years
Lakeland Industrial Park
Milwaukee, WI 1,884 12/19/85 30 years
and
11/25/86
Kennedy Corporate Center
Palatine, IL 1,521 01/08/86 30 years
Iomega/Northpointe
Business Center
Roy, UT 2,153 01/31/86 30 years
Ladera Shopping Center,
Phase II
Albuquerque, NM 597 02/07/86 30 years
Creekridge Center
Bloomington, MN 2,676 09/23/86 30 years
------
TOTAL $9,742
======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
See notes to table on following page.
F-15
<PAGE> 27
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO SCHEDULE XI
(a) For a description of the properties, see "Item 2. Properties." This
schedule does not include the investment in Cooper Village Partners
which is accounted for under the equity method of accounting.
(b) Investments in real estate reflect the adjustment to the carrying value
of real estate assets of $3,850,000 for the year ended December 31,
1992. In May 1992, the General Partner obtained appraisals of the
Partnership's properties from a qualified independent appraiser. Based
upon these appraisals, management's intention to hold these real estate
assets and current and anticipated market conditions, management has
estimated that three of the Partnership's properties, Atrium Place
Office Building ($275,000), Creekridge Center, ($3,150,000)
and Kennedy Corporate Center-I ($425,000) have each experienced
a permanent impairment of value as compared to their
respective carrying values.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $40,457,000 as of December 31,
1993. The differences between the aggregate cost of land, buildings
and improvements for tax reporting purposes as compared to financial
reporting purposes are 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 adjustment to the carrying value of real estate which was
recorded as a reduction of the corresponding property basis for
financial statement purposes and has no effect for tax reporting
purposes.
(c) The initial cost to the Partnership includes acquisition fees paid to
the General Partner.
(d) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1993 1992 1991
----------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $35,473,000 $ 39,152,000 $38,942,000
Additions during the year:
Improvements 527,000 171,000 210,000
Reductions during the year:
Adjustment to the carrying
value of real estate - (3,850,000) -
----------- ------------ -----------
Balance at end of year $36,000,000 $ 35,473,000 $39,152,000
=========== ============ ===========
</TABLE>
F-16
<PAGE> 28
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO SCHEDULE XI (Cont'd.)
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1993 1992 1991
-----------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $8,570,000 $7,241,000 $5,905,000
Depreciation expense 1,172,000 1,329,000 1,336,000
---------- ---------- ----------
Balance at end of year $9,742,000 $8,570,000 $7,241,000
========== ========== ==========
</TABLE>
(e) Depreciation expense is computed based upon the following estimated
useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
F-17
<PAGE> 29
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
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 Birtcher/Liquidity
Properties, a California general partnership of which Birtcher Investors, a
California limited partnership, and LF Special Fund I, L.P., a California
limited partnership, are the general partners. Under the terms of the
Partnership Agreement, Birtcher Investors is responsible for the day-to-day
management of the Partnership's assets.
The general partner of LF Special Fund I, L.P., is Liquidity Fund Asset
Management, Inc., a California corporation affiliated with Liquidity Financial
Group, L.P. The principals and officers of Liquidity Fund Asset Management,
Inc. are as follows:
Richard G. Wollack, Chairman of the Board
Brent R. Donaldson, President
Deborah M. Richard, Chief Financial Officer
The general partner of Birtcher Investors is Birtcher Investments, a California
general partnership. Birtcher Investments' general partner is Birtcher
Limited, a California limited partnership and its general partner is BREICORP,
a California corporation. The principals and relevant officers of BREICORP are
as follows:
Ronald E. Birtcher, Co-Chairman of the Board
Arthur B. Birtcher, Co-Chairman of the Board
Robert M. Anderson, Executive Director
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the fees, compensation and other expense
reimbursements paid to the General Partner and its affiliates in all capacities
for each fiscal year in the three-year period ended December 31, 1993.
-11-
<PAGE> 30
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1992 1991
---------------------------------------------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 12,000 $ 17,000 $ 17,000
Asset management fees 232,000 - -
Property management fees(1) 29,000 - 116,000
Property management expense
reimbursements(1) 19,000 - 99,000
Other expense reimbursements 150,000 165,000 156,000
Leasing fee(2) 41,000 59,000 51,000
-------- -------- --------
TOTAL $483,000 $241,000 $439,000
======== ======== ========
</TABLE>
______________
(1) The General Partner did not provide property management services to the
Partnership's properties from November 1, 1991 through October 31, 1993
and, consequently, the General Partner did not receive any similar
compensation during the fiscal year ended December 31, 1992.
(2) Additionally in 1991, the Partnership paid $311,000 of previously
deferred property management fees related to leasing services that the
General Partner had elected to defer from the inception of the
Partnership through 1990.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1994, there was no entity or individual holding more than 5%
of the limited partnership interests of the Registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning transactions to which the Registrant was or is to be
a party in which the General Partner or its affiliates had or are to have a
direct or indirect interest, see Notes 1, 3, 4 and 8 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, Schedules and
Supplemental Information to Item 8, which information is incorporated
herein by reference.
-12-
<PAGE> 31
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Cont'd.)
3. Exhibits:
Articles of Incorporation and Bylaws
(a) Agreement of Limited Partnership
incorporated by reference to Exhibit No. 3.1
to the Partnership's registration statement
on Form S-11 (Commission File No. 2-99421),
dated August 5, 1985, as filed under the
Securities Act of 1933.
10. Material Contracts
(a) Form of Property Management Agreement
between Birtcher Properties and the
Registrant incorporated by reference to
Exhibit No. 10.1 of the Partnership's
registration statement on Form S-11
(Commission File No. 2-99421), as filed
September 24, 1985, under the Securities Act
of 1933. (SUPERSEDED)
(b) Letter of Intent regarding Purchase and Sale
of Real Property (Cooper Village, Phase I)
dated September 3, 1987, by and between
Arizona Building and Development, the
Wolfswinkel Group and Birtcher Realty
Corporation incorporated by reference to
Exhibit 19(a) of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1987.
(c) Agreement of Purchase and Sale of Real
Property (Cooper Village, Phase I) dated
November 13, 1987, by and between Broadway
Village Partners and Birtcher Acquisition
Corporation incorporated by reference to
Form 8-K, as filed December 30, 1987.
(d) Agreement of General Partnership, dated
December 15, 1987, by and between
Damson/Birtcher Realty Income Fund-II,
Limited Partnership and Real Estate Income
Partners III, Limited Partnership
incorporated by reference to Form 8-K, as
filed December 30, 1987.
(e) Property Management Agreement dated October
24, 1991,between Glenborough Management
Corporation and the Registrant for Atrium
Place, Creekridge Center, Iomega/Northpointe
Business Center, Kennedy Corporate Center I,
Ladera II Shopping Center and Lakeland
Industrial Park. Incorporated by reference
to Exhibit 1 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1991. (SUPERSEDED)
-13-
<PAGE> 32
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
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 Cooper
Village Partners for Cooper Village Shopping Center.
Incorporated by reference to Exhibit 2 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 3 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
Atrium Place, Creekridge Center, Iomega Business
Center, Kennedy Corporate Center-I, Ladera-II Shopping
Center, and Lakeland Industrial Park. Incorporated by
reference to Exhibit 1 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1993.
(i) Property Management Agreement, dated October 29, 1993,
between Birtcher Properties and Cooper Village
Partners for Cooper Village Shopping Center.
Incorporated by reference to Exhibit 2 of the
Partnership Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
b) Reports on Form 8-K:
Report on Form 8-K, dated July 2, 1993, regarding the approval of a
majority in interest of the Limited Partners of each of the proposals
included in the Information Statement, dated May 5, 1993, is herein
incorporated by reference.
-14-
<PAGE> 33
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher
Investors
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, 1994 By: /s/Robert M. Anderson
---------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund I, L.P.
Date: March 30, 1994 By: /s/ Brent R. Donaldson
----------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management,
Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
Birtcher/Liquidity Properties (General Partner of the Registrant) and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Arthur B. Birtcher Co-Chairman of the Board - March 30, 1994
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1994
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1994
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-15-
