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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995
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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)
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)
(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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PART I. FINANCIAL INFORMATION
-----------------------------
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1995
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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, 1995 (Unaudited) and December 31, 1994 . . . . 3
Statements of Operations (Unaudited) -
Three Months Ended March 31, 1995 and 1994 . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1995 and 1994 . . . . . . . 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 . . . . . . . . . . . . . . . . . . . 11
</TABLE>
2
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PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
BALANCE SHEETS
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<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
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(Unaudited) (Note)
<S> <C> <C>
ASSETS
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Investments in real estate, net:
Land $ 3,506,000 $ 3,506,000
Buildings and improvements 32,337,000 32,309,000
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35,843,000 35,815,000
Less accumulated depreciation (11,254,000) (10,954,000)
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24,589,000 24,861,000
Investment in Cooper Village Partners 4,784,000 4,817,000
Cash and cash equivalents 1,110,000 1,058,000
Accounts receivable (net of allowance for
doubtful accounts of $23,000 in 1995
and 1994) 35,000 31,000
Accrued rent receivable 526,000 471,000
Prepaid expenses and other assets 218,000 258,000
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$ 31,262,000 $ 31,496,000
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LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 663,000 $ 653,000
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Partners' capital:
Limited Partners 30,746,000 30,987,000
General Partner (147,000) (144,000)
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30,599,000 30,843,000
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Commitments and contingencies -- --
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$ 31,262,000 $ 31,496,000
============= ==============
</TABLE>
Note: The balance sheet at December 31, 1994 has been prepared from the
- ---- audited financial statements as of that date.
The accompanying notes are an integral part of these financial statements.
3
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three Months Ended March 31,
1995 1994
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REVENUES
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Rental income $1,067,000 $1,203,000
Interest and other income 15,000 10,000
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Total revenues 1,082,000 1,213,000
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EXPENSES
- --------
Operating expenses 254,000 272,000
Real estate taxes 184,000 205,000
Depreciation and amortization 321,000 321,000
General and administrative 164,000 156,000
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Total expenses 923,000 954,000
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Income before equity
in earnings 159,000 259,000
Equity in earnings of Cooper
Village Partners 43,000 49,000
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NET INCOME $ 202,000 $ 308,000
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NET INCOME ALLOCABLE TO:
General Partner $ 2,000 $ 3,000
========== ==========
Limited Partners $ 200,000 $ 305,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended March 31,
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1995 1994
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Cash flows from operating activities:
Net income $ 202,000 $ 308,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 321,000 321,000
Equity in earnings of Cooper Village Partners (43,000) (49,000)
Changes in:
Accounts receivable (4,000) (52,000)
Accrued rent receivable (55,000) (39,000)
Prepaid expenses and other assets 20,000 (18,000)
Accounts payable and accrued liabilities 10,000 (21,000)
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Net cash provided by operating activities 451,000 450,000
Cash flows from investing activities:
Investments in real estate (28,000) (65,000)
Distributions received from
Cooper Village Partners 75,000 87,000
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Net cash provided by investing
activities 47,000 22,000
Cash flows from financing activities:
Distributions (446,000) (361,000)
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Net cash used in financing activities (446,000) (361,000)
Net increase in cash and cash
equivalents 52,000 111,000
Cash and cash equivalents, beginning of
period 1,058,000 1,000,000
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Cash and cash equivalents, end of period $ 1,110,000 $ 1,111,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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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, 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, 1994.
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.
Investments in Real Estate
At December 31, 1994, after evaluation of the Atrium Place, management
estimated a $600,000 impairment of value as compared to its respective
carrying value. At December 31, 1992, after evaluation of the Atrium
Place, Creekridge Center and Kennedy Corporate Center, management
estimated an aggregate of $3,850,000 impairment of value as compared
to their respective carrying values.
6
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(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, 1995 and 1994, the Partnership incurred approximately
$44,000 and $31,000, respectively, of such expenses.
On November 1, 1993, the General Partner elected to terminate the
Partnership's property management agreement with an unaffiliated third
party. 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 an unaffiliated third party, 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 $38,000 and $40,000,
respectively, for the three months ended March 31, 1995 and 1994. In
addition, an affiliate of the General Partner received $32,000 and
$31,000 for the three months ended March 31, 1995 and 1994,
respectively, as reimbursement of costs of on-site property management
personnel and other reimbursable expenses.
Leasing fees for the three months ended March 31, 1995 and 1994,
included charges of $1,000 and $1,000, 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 leases.
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.
7
<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(2) Transactions with Affiliates (Cont'd.)
----------------------------
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,
1995 and 1994, amounted to $50,000 and $58,000, respectively.
In addition to the aforementioned, the General Partner was also paid
$20,000 and $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, 1995 and 1994, respectively.
(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.
8
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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.)
---------------------
Liquidity and Capital Resources (Cont'd.)
-------------------------------
Distributions through March 31, 1995 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.
In accordance with the terms of the Partnership Agreement, each year
the Partnership secures an independent appraisal of each of the
Partnership's properties as of January 1. In past years, the
independent appraiser has estimated each property's "Investment
Value," utilizing a seven to ten-year cash flow model to estimate
value based upon an income approach.
The amendment to the Partnership Agreement consented to by the Limited
Partners in June 1993 mandates, among other things, that the General
Partner seek a vote of (and provide an analysis and recommendation to)
the Limited Partners no later than December 31, 1996, regarding the
prompt liquidation of the Partnership in the event that properties
with (then) current appraised values constituting at least one-half of
the total (then) current appraised values of all of the Partnership's
properties are not sold or under contract for sale by the end of 1996.
Given this mandate, the General Partner has requested that the
appraiser provide an assessment of value that reflects a shorter
investment holding term. Although the General Partner does not
currently have a specific liquidation plan for the Partnership's
properties, it requested that the appraiser assume that the entire
portfolio would be sold over the next four years.
Using the shorter-term investment methodology that is consistent with
the mandate of the 1993 amendment to the Partnership Agreement, the
appraiser estimated the value of the Partnership's properties at
January 1, 1995 to be $31,035,000.
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.
9
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS (Cont'd.)
---------------------
Results of Operations for the Three Months Ended March 31, 1995
---------------------------------------------------------------
Compared With the Three Months Ended March 31, 1994
---------------------------------------------------
The decrease in rental income for the three months ended March 31,
1995, as compared to the corresponding period in 1994, was primarily
attributable to reduced operating expense recoveries at Kennedy
Corporate Center ($65,000) and Lakeland ($19,000). In addition,
Iomega Corporation terminated one of its leases at expiration in
November 1994, resulting in a $30,000 decrease in revenue in 1995.
Interest income resulted from the temporary investment of Partnership
working capital. The increase in interest income for the three months
ended March 31, 1995, as compared to the corresponding period in 1994,
was attributable to an increase in the average level of working
capital available for investment and a higher rate-of-return on
short-term investments.
The decrease in operating expenses for the three months ended March
31, 1995, as compared to the corresponding period in 1994, was
primarily attributable to a decrease in roof repair costs at Iomega
($10,000) and legal fees at Lakeland Industrial Park ($3,000).
The decrease in real estate taxes for the three months ended March 31,
1995, as compared to the corresponding period in 1994, was primarily a
result of lower tax assessments at Lakeland Industrial Park ($12,000)
and Creekridge ($10,000).
General and administrative expenses for the three months ended March
31, 1995 and 1994 include charges of $96,000 and $89,000,
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, 1995 and 1994 are direct charges of $68,000 and $67,000,
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 increase in general and administrative expenses for the three
months ended March 31, 1995, as compared to the corresponding period
in 1994, was primarily the result of an increase in legal and
professional services and general and administrative wages in 1995.
10
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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:
27 - Financial Data Schedule.
b) Reports on Form 8-K:
None filed in quarter ended March 31, 1995.
11
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-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, 1995 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: May 11, 1995 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
12
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATION OF DAMSON BIRTCHER REALTY INCOME FUND II AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,110,000
<SECURITIES> 0
<RECEIVABLES> 58,000
<ALLOWANCES> 23,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,217,000
<PP&E> 35,843,000
<DEPRECIATION> 11,254,000
<TOTAL-ASSETS> 31,262,000
<CURRENT-LIABILITIES> 663,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 30,599,000
<TOTAL-LIABILITY-AND-EQUITY> 31,262,000
<SALES> 0
<TOTAL-REVENUES> 1,125,000
<CGS> 0
<TOTAL-COSTS> 923,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 202,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
