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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, 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) 831-0707
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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, 1995
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
June 30, 1995 (Unaudited) and December 31, 1994 . . . . . . . . . . . . . . . . . . 3
Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 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
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
BALANCE SHEETS
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<CAPTION>
June 30, December 31,
1995 1994
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(Unaudited) (Note)
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ASSETS
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Investment in real estate, net:
Land $ 3,506,000 $ 3,506,000
Buildings and improvements 32,405,000 32,309,000
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35,911,000 35,815,000
Less accumulated depreciation (11,554,000) (10,954,000)
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24,357,000 24,861,000
Investment in Cooper Village Partners 4,749,000 4,817,000
Cash and cash equivalents 1,121,000 1,058,000
Accounts receivable (net of allowance for
doubtful accounts of $23,000 in 1994) 105,000 31,000
Accrued rent receivable 523,000 471,000
Prepaid expenses and other assets 178,000 258,000
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$ 31,033,000 $ 31,496,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 699,000 $ 653,000
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Partners' capital:
Limited Partners 30,483,000 30,987,000
General Partner (149,000) (144,000)
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30,334,000 30,843,000
============ ============
Commitments and contingencies - -
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$ 31,033,000 $ 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 Six Months Ended
June 30, June 30,
------------------------------- --------------------------------
1995 1994 1995 1994
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REVENUES
- --------
Rental income $1,097,000 $1,118,000 $2,164,000 $2,321,000
Interest income 14,000 10,000 29,000 20,000
---------- ---------- ---------- ----------
Total revenues 1,111,000 1,128,000 2,193,000 2,341,000
---------- ---------- ---------- ----------
EXPENSES
- --------
Operating expenses 279,000 276,000 533,000 548,000
Real estate taxes 181,000 179,000 365,000 384,000
Depreciation and
amortization 319,000 326,000 640,000 648,000
General and
administrative 171,000 180,000 335,000 336,000
---------- ---------- ---------- ----------
Total expenses 950,000 961,000 1,873,000 1,916,000
---------- ---------- ---------- ----------
Income before
equity in earnings 161,000 167,000 320,000 425,000
Equity in earnings
of Cooper Village
Partners 40,000 55,000 83,000 104,000
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NET INCOME $ 201,000 $ 222,000 $ 403,000 $ 529,000
========== ========== ========== ==========
NET INCOME
ALLOCABLE TO:
General Partner $ 2,000 $ 2,000 $ 4,000 $ 5,000
========== =========== ========== ==========
Limited Partners $ 199,000 $ 220,000 $ 399,000 $ 524,000
========== =========== ========== ==========
</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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<CAPTION>
Six Months Ended June 30,
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1995 1994
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Cash flows from operating activities:
Net income $ 403,000 $ 529,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 640,000 648,000
Equity in earnings of Cooper Village Partners (83,000) (104,000)
Changes in:
Accounts receivable (74,000) (49,000)
Acrrued rent receivable (52,000) (122,000)
Prepaid expenses and other assets 40,000 12,000
Accounts payable and accrued liabilities 46,000 17,000
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Net cash provided by operating activities 920,000 931,000
Cash flows from investing activities:
Investment in real estate (96,000) (142,000)
Distributions received from
Cooper Village Partners 151,000 145,000
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Net cash provided by investing activities 55,000 3,000
Cash flows from financing activities:
Distributions (912,000) (785,000)
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Net cash used in financing activities (912,000) (785,000)
Net increase in cash and cash equivalents 63,000 149,000
Cash and cash equivalents, beginning of
period 1,058,000 1,000,000
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Cash and cash equivalents, end of period $1,121,000 $1,149,000
========== ==========
</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, 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 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.
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
(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, 1995 and 1994, the Partnership incurred approximately $34,000
and $27,000, respectively, of such expenses. For the six months ended
June 30, 1995 and 1994, such payments were $78,000 and $58,000,
respectively.
Leasing fees for the six months ended June 30, 1995 and 1994, included
charges of $14,000 and $7,000, 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.
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 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 $37,000 and $38,000 for the three months ended June 30,
1995 and 1994, respectively, and $74,000 and $78,000 for the six
months ended June 30, 1995 and 1994. In addition, an affiliate of the
General Partner received $32,000 and $31,000 for the three months
ended June 30, 1995 and 1994, respectively, as reimbursement of costs
of on-site property management personnel and other reimbursable
expenses. For the six months ended June 30, 1995 and 1994, such costs
were $64,000 and $62,000, respectively.
In addition to the aforementioned, the General Partner was also paid
$14,000 and $14,000, 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 three months ended June 30, 1995 and
1994, respectively. For the six months ended June 30, 1995 and 1994,
such costs were $25,000 and $27,000, respectively.
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
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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)
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 $100,000
and $116,000 for the six months ended June 30, 1995 and 1994,
respectively. In addition to the aforementioned, the General Partner
was also paid $17,000 and $15,000 for the six months ended June 30,
1995 and 1994, 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.
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 financing proceeds for distribution to the
Partners.
Distributions through June 30, 1995 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.
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)
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 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.
Results of Operations for the Three Months Ended June 30, 1995
Compared With the Three Months Ended June 30, 1994 and for the Six
Months Ended June 30, 1995 Compared With the Six Months Ended June 30,
1994
The decrease in rental income for the three months ended June 30,
1995, as compared to the corresponding period in 1994 was primarily
attributable to the decrease in rental revenue at Iomega ($30,000),
with the termination of one of Iomega Corporation's leases at
expiration in November 1994. This decrease was partially offset by an
increase in miscellaneous revenue at Lakeland Industrial Park.
9
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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, 1995
Compared With the Three Months Ended June 30, 1994 and for the Six
Months Ended June 30, 1995 Compared With the Six Months Ended June 30,
1994 (Cont'd)
The decrease in rental income for the six months ended June 30, 1995,
as compared to the corresponding period in 1994, was primarily
attributable to the decrease in rental income at Iomega ($50,000). In
addition, operating expense recoveries were reduced at Lakeland
Industrial Park ($31,000) and Kennedy Corporate Center ($103,000).
The aforementioned decreases were partially offset by an increase in
miscellaneous revenue at Lakeland Industrial Park.
Interest income resulted from the temporary investment of Partnership
working capital. The increase in interest income for the three and
six months ended June 30, 1995, as compared to the corresponding
periods 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.
Operating expenses for the three months ended June 30, 1995, was
generally comparable to the corresponding period in 1994. The
decrease in operating expenses for the six months ended June 30, 1995,
as compared to the corresponding period in 1994, was primarily
attributable to the decrease in legal fees at Kennedy Corporate Center
($8,000). In addition, snow removal costs decreased at Lakeland
Industrial Park by $8,000 in 1995.
The decrease in real estate taxes for the six months ended June 30,
1995, as compared to the corresponding period in 1994, was primarily
as a result of lower tax assessment at Lakeland Industrial Park
($25,000).
General and administrative expenses for the six months ended June 30,
1995 and 1994, include $192,000 and $181,000, 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, 1995 and
1994, are direct charges of $143,000 and $155,000, 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.
10
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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, 1995
Compared With the Three Months Ended June 30, 1994 and for the Six
Months Ended June 30, 1995 Compared With the Six Months Ended June 30,
1994 (Cont'd)
General and administrative expenses for the six months ended June 30,
1995, were generally comparable to the corresponding period in 1994.
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:
Exhibit 27 -- Financial Data Schedule.
b) Reports on Form 8-K:
None filed in quarter ended June 30, 1995.
11
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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
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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, 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: August 11, 1995 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
12
<TABLE> <S> <C>
<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 FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,121,000
<SECURITIES> 0
<RECEIVABLES> 128,000
<ALLOWANCES> 23,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,265,000
<PP&E> 35,911,000
<DEPRECIATION> 11,554,000
<TOTAL-ASSETS> 31,033,000
<CURRENT-LIABILITIES> 699,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 30,334,000
<TOTAL-LIABILITY-AND-EQUITY> 31,033,000
<SALES> 0
<TOTAL-REVENUES> 2,276,000
<CGS> 0
<TOTAL-COSTS> 1,873,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
