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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
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For Quarter Ended March 31, 1994
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Commission file number 0-14633
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
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Delaware 13-3294820
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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 A-1, Laguna Niguel, California 92677-0100
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(Address of principal executive offices) (Zip Code)
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(714) 831-8031
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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-II, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1994
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INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
March 31, 1994 (Unaudited) and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations (Unaudited) -
Three Months Ended March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
BALANCE SHEETS
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March 31, December 31,
1994 1993
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(Unaudited) (Note)
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ASSETS
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Investments in real estate, net:
Land $ 3,593,000 $ 3,593,000
Buildings and improvements 32,472,000 32,407,000
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36,065,000 36,000,000
Less accumulated depreciation (10,045,000) (9,742,000)
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26,020,000 26,258,000
Investment in Cooper Village Partners 4,884,000 4,922,000
Cash and cash equivalents 1,111,000 1,000,000
Accounts receivable (net of allowance for
doubtful accounts of $23,000 in 1994 and
$23,000 in 1993) 102,000 50,000
Deferred rent receivable 239,000 200,000
Prepaid expenses and other assets 306,000 307,000
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$32,662,000 $32,737,000
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LIABILITIES AND PARTNERS' CAPITAL
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Accounts payable and accrued liabilities $ 669,000 $ 690,000
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Total liabilities 669,000 690,000
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Commitments and contingencies - -
Partners' capital:
Limited Partners 32,126,000 32,179,000
General Partner (133,000) (132,000)
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31,993,000 32,047,000
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$32,662,000 $32,737,000
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Note: The balance sheet at December 31, 1993 has been prepared from the
audited financial statements as of that date.
The accompanying notes are an integral part of these financial statements.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended March 31,
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1994 1993
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REVENUES
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Rental income $1,203,000 $1,011,000
Interest and other income 10,000 9,000
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Total revenues 1,213,000 1,020,000
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EXPENSES
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Operating expenses 272,000 287,000
Real estate taxes 205,000 225,000
Depreciation and amortization 321,000 297,000
General and administrative 156,000 164,000
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Total expenses 954,000 973,000
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Income before equity
in earnings 259,000 47,000
Equity in earnings of Cooper
Village Partners 49,000 48,000
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NET INCOME $ 308,000 $ 95,000
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NET INCOME ALLOCABLE TO:
General Partner $ 3,000 $ 1,000
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Limited Partners $ 305,000 $ 94,000
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The accompanying notes are an integral part of these financial statements.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three Months Ended March 31,
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1994 1993
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Cash flows from operating activities:
Net income $ 308,000 $ 95,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 321,000 297,000
Equity in earnings of Cooper Village Partners (49,000) (48,000)
Changes in:
Accounts receivable (52,000) 44,000
Deferred rent receivable (39,000) (5,000)
Prepaid expenses and other assets (18,000) (1,000)
Accounts payable and accrued liabilities (21,000) 114,000
Due to affiliates - (8,000)
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Net cash provided by operating activities 450,000 488,000
Cash flows from investing activities:
Investments in real estate (65,000) (164,000)
Distributions received from
Cooper Village Partners 87,000 81,000
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Net cash provided (used) in investing
activities 22,000 (83,000)
Cash flows from financing activities:
Distributions (361,000) (424,000)
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Net cash used in financing activities (361,000) (424,000)
Net increase (decrease) in cash and cash
equivalents 111,000 (19,000)
Cash and cash equivalents, beginning of
period 1,000,000 1,047,000
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Cash and cash equivalents, end of period $1,111,000 $1,028,000
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The accompanying notes are an integral part of these financial statements.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
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(1) Accounting Policies
The financial statements of Damson/Birtcher Realty Income Fund-II,
Limited Partnership (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, 1993.
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.
Reclassifications
Certain reclassifications have been made to conform prior year amounts
to the 1994 presentation.
Investments in Real Estate
Investments in real estate reflect an adjustment to the carrying value
of real estate assets of $3,850,000. 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) had each experienced a permanent impairment of value as
compared to their respective carrying values.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
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(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, 1994 and 1993, the Partnership incurred approximately
$31,000 and $36,000, respectively, of such expenses.
The General Partner elected to terminate the Partnership's Property
Management Agreement with Glenborough Management Corporation effective
November 1, 1993. On that date, the General Partner caused the
Partnership to enter 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 Glenborough, and are terminable by the
Partnership upon 60 days' written notice to Birtcher Properties.
Pursuant to the property management agreement, Birtcher Properties
provides property management services with respect to the
Partnership's properties and receives a fee for such services not to
exceed 6% of the gross receipts from the properties under management,
provided that leasing services are performed otherwise not to exceed
3%. Such fee amounted to approximately $40,000 for the three months
ended March 31, 1994. In addition, an affiliate of the General
Partner received $31,000 for the three months ended March 31, 1994, as
reimbursement of costs of on-site property management personnel and
other reimbursable costs.
Leasing fees for the three months ended March 31, 1994 and 1993,
included charges of $1,000 and $18,000, respectively, from the General
Partner and its affiliates for leasing services rendered in connection
with leasing space in a Partnership property after expiration or
termination of any lease of such space including renewal options.
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 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 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 three months ended March 31,
1994, amounted to $58,000.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
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(2) Transactions with Affiliates (Cont'd.)
In addition to the aforementioned, the General Partner was also paid
$21,000, related to the Partnership's portion (58%) of asset
management fees, property management fees, leasing fees, reimbursement
of on-site property management personnel and other reimbursable
expenses for Cooper Village Partners for the three months ended March
31, 1994.
(3) 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Since completion of its acquisition program in December 1988, the
Partnership has been engaged primarily 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. Working capital
is provided principally 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 sale or financing proceeds for distribution
to the Partners.
Distributions through March 31, 1994 represent cash flow generated
from operations of the Partnership's properties and interest earned on
the temporary investment of working capital net of capital improvement
reserve requirements. Future cash distributions will be made
principally to the extent of cash flow attributable to operations of
the Partnership's properties.
Certain of the Partnership's properties are not fully leased. The
Partnership is actively marketing the vacant space in these
properties, subject to the competitive environment in each of the
market areas. To the extent the Partnership is not successful in
maintaining or increasing occupancy levels at these properties, the
Partnership's future cash flow and distributions may be reduced.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
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, 1994
Compared With the Three Months Ended March 31, 1993
The increase in rental income for the three months ended March 31,
1994, as compared to the corresponding period in 1993, was primarily
attributable to several factors. At Lakeland Industrial Park, four
new leases encompassing 58,360 square feet commenced during 1993.
These new leases had the effect of increasing 1994 rental income by an
aggregate of $36,000. At Kennedy Corporate Center, expansion of four
existing tenants in 1993 resulted in an increase in property's
occupancy rate (currently 97% at March 31, 1994) and rental income of
$33,000 for the three months ended March 31, 1994, when compared to
1993. In addition, operating expense recoveries were higher at
Lakeland Industrial Park ($28,000) and Kennedy Corporate Center
($53,000). At Creekridge, Delta Dental's lease was successfully
renegotiated in November 1993, which resulted in an additional 7,000
square feet occupancy for a 64-month term. Also, two new leases
commenced with Informix Software and Title One in May and December
1993, respectively. The expansion of Delta Dental and these two new
leases had the effect of increasing 1994 rental income by an aggregate
of $58,000.
Interest income resulted from the temporary investment of Partnership
working capital and for the three months ended March 31, 1994, as
compared to the corresponding period in 1993, is comparable.
The decrease in operating expenses for the three months ended March
31, 1994, as compared to 1993, was primarily attributable to a
decrease in legal and professional services relating to a tenant
dispute at Lakeland Industrial Park and tax appeals at Creekridge and
Kennedy Corporate Center.
The decrease in real estate taxes for the three months ended March 31,
1994, as compared to the corresponding period in 1993, was primarily
as a result of lower tax assessments at Atrium ($14,000) and Kennedy
Corporate Center ($4,000).
General and administrative expenses for the three months ended March
31, 1994 and 1993 include charges of $89,000 and $54,000,
respectively, from the General Partner and its affiliates for services
rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included
in general and administrative expenses for the three months ended
March 31, 1994 and 1993 are direct charges of $67,000 and $110,000,
respectively, relating to audit fees, tax preparation fees, legal and
professional fees, insurance expenses, costs incurred in providing
information to the Limited Partners and other miscellaneous costs.
The decrease in general and administrative expenses for the three
months ended March 31, 1994, as compared to the corresponding period
in 1993,
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
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, 1994
Compared With the Three Months Ended March 31, 1993 (Cont'd.)
was primarily the result of a decrease in legal and professional
services and leasing fees. The aforementioned decreases were
substantially offset by payment of asset management fees of $58,000 to
the General Partner or its affiliates pursuant to the amended
Partnership Agreement.
PART II. OTHER INFORMATION
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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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None
b) Reports on Form 8-K:
None filed in quarter ended March 31, 1994.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
SIGNATURES
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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-II
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: May 11, 1994 By: /s/ Robert M. Anderson
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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: May 11, 1994 By: /s/ Brent R. Donaldson
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Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
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