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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Sections 12(g), 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarter Ended June 30, 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.)
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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)
(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 Sections 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 JUNE 30, 1994
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
June 30, 1994 (Unaudited) and December 31, 1993 . . . . . . . . . 3
Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 1994 and 1993 . . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1994 and 1993 . . . . . . . . . . . . . 5
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
BALANCE SHEETS
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June 30, December 31,
1994 1993
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(Unaudited) (Note)
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ASSETS
Investment in real estate, net:
Land $ 3,593,000 $ 3,593,000
Buildings and improvements 32,549,000 32,407,000
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36,142,000 36,000,000
Less accumulated depreciation (10,351,000) (9,742,000)
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25,791,000 26,258,000
Investment in Cooper Village Partners 4,881,000 4,922,000
Cash and cash equivalents 1,149,000 1,000,000
Accounts receivable (net of allowance for
doubtful accounts of $34,000 in 1994 and
$23,000 in 1993) 99,000 50,000
Deferred rent receivable 322,000 200,000
Prepaid expenses and other assets 256,000 307,000
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$32,498,000 $32,737,000
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 707,000 $ 690,000
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Total liabilities 707,000 690,000
Commitments and contingencies - -
Partners' capital:
Limited Partners 31,926,000 32,179,000
General Partner (135,000) (132,000)
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31,791,000 32,047,000
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$32,498,000 $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 Six Months Ended
June 30, June 30,
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1994 1993 1994 1993
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REVENUES
Rental income $ 1,118,000 $ 1,024,000 $ 2,321,000 $ 2,034,000
Interest income 10,000 7,000 20,000 17,000
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Total revenues 1,128,000 1,031,000 2,341,000 2,051,000
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EXPENSES
Operating expenses 276,000 241,000 548,000 528,000
Real estate taxes 179,000 226,000 384,000 451,000
Depreciation and amortization 326,000 299,000 648,000 595,000
General and administrative 180,000 319,000 336,000 483,000
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Total expenses 961,000 1,085,000 1,916,000 2,057,000
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Income (Loss) before equity
in earnings 167,000 (54,000) 425,000 (6,000)
Equity in earnings of
Cooper Village Partners 55,000 63,000 104,000 111,000
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NET INCOME $ 222,000 $ 9,000 $ 529,000 $ 105,000
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NET INCOME ALLOCABLE TO:
General Partner $ 2,000 $ - $ 5,000 $ 1,000
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Limited Partners $ 220,000 $ 9,000 $ 524,000 $ 104,000
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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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Six Months Ended June 30,
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1994 1993
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Cash flows from operating activities:
Net income $ 529,000 $ 105,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 648,000 595,000
Equity in earnings of Cooper Village Partners (104,000) (111,000)
Changes in:
Accounts receivable (49,000) 14,000
Deferred rent receivable (122,000) (14,000)
Prepaid expenses and other assets 12,000 (31,000)
Accounts payable and accrued liabilities 17,000 7,000
Due to affiliates - (13,000)
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Net cash provided by operating activities 931,000 552,000
Cash flows from investing activities:
Investment in real estate (142,000) (232,000)
Distributions received from
Cooper Village Partners 145,000 157,000
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Net cash provided (used) by
investing activities 3,000 (75,000)
Cash flows from financing activities:
Distributions (785,000) (690,000)
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Net cash used in financing activities (785,000) (690,000)
Net increase/(decrease) in cash and cash
equivalents 149,000 (213,000)
Cash and cash equivalents, beginning of
period 1,000,000 1,047,000
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Cash and cash equivalents, end of period $1,149,000 $ 834,000
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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
(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, 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 original reduced rates on
sales commissions for subscriptions in excess of certain specified
amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who
paid commissions at a higher rate. As a result, the Partnership has
no set unit value as all accounting, investor reporting and tax
information is based upon each investor's relative percentage of
Invested Capital. Accordingly, earnings or loss per unit is not
presented in the accompanying financial statements.
Reclassifications
Certain reclassifications have been made to conform prior year amounts
to the 1994 presentation.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(1) Accounting Policies (Cont'd)
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.
In May 1994, the General Partner obtained updated appraisals from a
qualified independent appraiser as required by the Partnership
Agreement. The portfolio was appraised at an aggregate value of
$34,968,000, which includes the Partnership's interest in Cooper
Village Partners, which was appraised at $4,118,000 as of January 1,
1994.
(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
June 30, 1994 and 1993, the Partnership incurred approximately $27,000
and $35,000, respectively, of such expenses. For the six months ended
June 30, 1994 and 1993, such payments were $58,000 and $71,000,
respectively.
Leasing fees for the six months ended June 30, 1994 and 1993, included
charges of $7,000 and $21,000, 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.
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 is terminable by the
Partnership upon 60 days' written notice to Birtcher Properties.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd)
(2) Transactions with Affiliates (Cont'd)
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 for the three and six months ended June 30, 1994,
amounted to approximately $38,000 and $78,000, respectively. In
addition, an affiliate of the General Partner received $31,000 and
$62,000 for the three and six months ended June 30, 1994,
respectively, as reimbursement of costs of on-site property management
personnel and other reimbursable expenses.
In addition to the aforementioned, the General Partner was also paid
$27,000, related to the Partnership's portion (58%) of property
management fees, leasing fees, reimbursement of on-site property
management personnel and other reimbursable expenses for Cooper
Village Partners for the six months ended June 30, 1994.
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 amounted to approximately $116,000
and $116,000 for the six months ended June 30, 1994 and 1993,
respectively. In addition to the aforementioned, the General Partner
was also paid $15,000 and $15,000 for the six months ended June 30,
1994 and 1993, respectively, related to the Partnership's portion
(58%) of asset management fees for Cooper Village Partners.
(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.
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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
Liquidity and Capital Resource
Since the completion of its acquisition program in December 1987, 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 reserves 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 June 30, 1994 represent cash flow generated from
operations of the Partnership's properties, net of capital improvement
requirements and fees paid to the General Partner. It is anticipated
that future cash distributions will be made principally to the extent
of cash flow attributable to the operations of the Partnership's
properties, net of capital improvement requirements and fees paid to
the General Partner.
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.
In May 1994, the General Partner obtained appraisals of the
Partnership's properties from a qualified independent appraiser. The
aggregate appraised value of the properties was reported at
$34,968,000, which includes the Partnership's interest in Cooper
Village Partners, which was appraised at $4,118,000 as of January 1,
1994.
Results of Operations for the Three Months Ended June 30, 1994
Compared With the Three Months Ended June 30, 1993 and for the Six
Months Ended June 30, 1994 Compared With the Six Months Ended June 30,
1993.
The increase in rental income for the six months ended June 30, 1994,
as compared to the corresponding period in 1993, were attributable to
several factors. At Lakeland, new leases commenced with Copper and
Brass Sales and Lamina Products in August 1993. These two leases had
the effect of increasing 1994 rental income by an aggregate of $36,000
when compared to 1993. 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, new
leases commenced with Informix in May 1993, Title One in December
1993, Global Access and Independent Pension Consultant in January
1994. The
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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 June 30, 1994
Compared With the Three Months Ended June 30, 1993 and for the Six
Months Ended June 30, 1994 Compared With the Six Months Ended June 30,
1993(Cont'd)
expansion of the Delta Dental lease and these four new leases had the
effect of increasing 1994 rental revenues by an aggregate of $97,000.
At Kennedy Corporate Center, expansion of four existing tenants and
commencement of a new lease with Temp Staff in May 1994, resulted in
an increase in rental income by $53,000 in 1994. In addition to the
aforementioned, operating expense recoveries were higher at Lakeland
Industrial Park ($42,000), and Kennedy Corporate Center ($72,000).
Interest income resulted from the temporary investment of Partnership
working capital. The increase from 1994 to 1993 was attributable to
increased average working capital available for short-term investment.
The increase in operating expenses for the six months ended June 30,
1994, as compared to the corresponding period in 1993, were primarily
as a result of an increase in electricity costs ($13,000) and building
repairs and maintenance ($10,000) at Creekridge.
The decrease in real estate taxes for the six months ended June 30,
1994, as compared to the corresponding period in 1993, were primarily
as a result of lower tax assessments resulting from successful tax
appeals at Atrium ($28,000), Creekridge ($21,000) and Kennedy
Corporate Center ($8,000).
General and administrative expenses for the six months ended June 30,
1994 and 1993, include $181,000 and $208,000, respectively, of charges
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 six months ended June 30, 1994 and
1993, are direct charges of $155,000 and $275,000, respectively,
relating to audit and tax return preparation fees, annual appraisal
fees, legal fees, insurance expense, costs incurred in providing
information to the Limited Partners and other miscellaneous costs.
The decrease in general and administrative expenses for the six months
ended June 30, 1994, as compared to the corresponding period in 1993,
was primarily attributable to the decrease in legal and professional
services, postage and mailing expenses and printing costs associated
with the amendment of Partnership Agreement, which occurred in 1993.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K:
None filed in quarter ended June 30, 1994.
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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
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: August 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: August 11, 1994 By: /s/ Brent R. Donaldson
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Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
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