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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 12(g), 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
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Commission file number 0-14633
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DAMSON/BIRTCHER REALTY INCOME FUND - II, LIMITED PARTNERSHIP
- -----------------------------------------------------------------------------
(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 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 SEPTEMBER 30, 1995
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1995 (Unaudited) and
December 31, 1994 ......................................................... 3
Statements of Operations (Unaudited) - Three and Nine Months
Ended September 30, 1995 and 1994 ........................................ 4
Statements of Cash Flows (Unaudited) - Nine Months
Ended September 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
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
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(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Investment in real estate, net:
Land $ 3,506,000 $ 3,506,000
Buildings and improvements 32,647,000 32,309,000
------------ ------------
36,153,000 35,815,000
Less accumulated depreciation (11,847,000) (10,954,000)
------------ ------------
24,306,000 24,861,000
Investment in Cooper Village Partners 4,698,000 4,817,000
Cash and cash equivalents 1,084,000 1,058,000
Accounts receivable (net of allowance for
doubtful accounts of $23,000 in 1994) 115,000 31,000
Accrued rent receivable 538,000 471,000
Prepaid expenses and other assets 202,000 258,000
------------ ------------
$ 30,943,000 $ 31,496,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 807,000 $ 653,000
------------ ------------
Partners' capital:
Limited Partners 30,287,000 30,987,000
General Partners (151,000) (144,000)
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30,136,000 30,843,000
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Commitments and contingencies - -
------------ ------------
$ 30,943,000 $ 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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -----------------------------
1995 1994 1995 1994
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES
- --------
Rental income $1,149,000 $1,134,000 $3,313,000 $3,456,000
Interest income 17,000 11,000 46,000 30,000
---------- ---------- ---------- ----------
Total revenues 1,166,000 1,145,000 3,359,000 3,486,000
---------- ---------- ---------- ----------
EXPENSES
- --------
Operating expenses 288,000 286,000 821,000 835,000
Real estate taxes 154,000 172,000 520,000 556,000
Depreciation and amortization 309,000 321,000 949,000 969,000
General and administrative 180,000 138,000 516,000 473,000
---------- ---------- ---------- ----------
Total expenses 931,000 917,000 2,806,000 2,833,000
---------- ---------- ---------- ----------
Income before equity in earnings 235,000 228,000 553,000 653,000
Equity in earnings of Cooper
Village Partners 36,000 50,000 119,000 154,000
---------- ---------- ---------- ----------
NET INCOME $ 271,000 $ 278,000 $ 672,000 $ 807,000
========== ========== ========== ==========
NET INCOME ALLOCABLE TO:
General Partner $ 3,000 $ 3,000 $ 7,000 $ 8,000
========== ========== ========== ==========
Limited Partners $ 268,000 $ 275,000 $ 665,000 $ 799,000
========== ========== ========== ==========
</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)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 672,000 $ 807,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 949,000 969,000
Equity in earnings of Cooper Village Partners (119,000) (154,000)
Changes in:
Accounts receivable (84,000) (55,000)
Accrued rent receivable (67,000) (203,000)
Prepaid expenses and other assets - 43,000
Accounts payable and accrued liabilities 154,000 22,000
----------- -----------
Net cash provided by operating activities 1,505,000 1,429,000
Cash flows from investing activities:
Investment in real estate (338,000) (226,000)
Distributions received from Cooper
Village Partners 238,000 220,000
----------- -----------
Net cash used in investing activities (100,000) (6,000)
Cash flows from financing activities:
Distributions (1,379,000) (1,194,000)
----------- -----------
Net cash used in financing activities (1,379,000) (1,194,000)
Net increase in cash and cash equivalents 26,000 229,000
Cash and cash equivalents, beginning of period 1,058,000 1,000,000
----------- -----------
Cash and cash equivalents, end of period $ 1,084,000 $ 1,229,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
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,
(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. The 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.
6
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
-------------------
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.
(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
September 30, 1995 and 1994, the Partnership incurred approximately
$31,000 and $27,000, respectively, of such expenses. For the nine
months ended September 30, 1995 and 1994, such amounts were $109,000
and $86,000, respectively.
Leasing fees for the three months ended September 30, 1995 and 1994,
included charges of $38,000 and $22,000, respectively. For the nine
months ended September 30, 1995 and 1994, such fees were $52,000 and
$28,000, 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 fees amounted to
approximately $40,000 and $39,000 for the three months ended September
30, 1995 and 1994, respectively, and $114,000 and $117,000 for the
nine months ended September 30,1995 and 1994. In addition, an
affiliate of the General Partner received $32,000 and $30,000 for the
three months ended September 30, 1995 and 1994, respectively, as
reimbursement of costs of on-site property management personnel and
other reimbursable expenses. For the nine months ended September 30,
1995 and 1994, such costs were $96,000 and $93,000, respectively.
7
<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates (Cont'd.)
----------------------------
In addition to the aforementioned, the General Partner was also paid
$12,000 and $13,000, 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 September 30, 1995
and 1994, respectively. For the nine months ended September 30, 1995
and 1994, such costs were $37,000 and $39,000, 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.
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 September
30, 1995 and 1994, were $50,000 and $58,000, respectively. For the
nine months ended September 30, 1995 and 1994, such fees were $149,000
and $174,000, respectively. In addition to the aforementioned, the
General Partner was also paid $25,000 and $23,000, respectively,
related to the Partnership's portion (58%) of asset management fees
for Cooper Village Partners for the nine months ended September 30,
1995 and 1994.
(3) Commitments and Contingencies
-----------------------------
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 the 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
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.)
-------------------------------
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.
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.
Distributions through September 30, 1995 represent cash flow generated
from operation of the Partnership's properties and interest earned on
the temporary investment of working capital net of capital
requirements and fees paid to the General Partner. Future cash
distributions will be made principally to the extent of cash flow
attributable to the operation of the Partnership's properties net of
fees and capital improvement reserve requirements.
9
<PAGE> 10
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.
Results of Operations for the Three Months Ended September 30, 1995
Compared With the Three Months Ended September 30, 1994 and for the
Nine Months Ended September 30, 1995 Compared With the Nine Months
Ended September 30, 1994
-------------------------------------------------------------------
The increase in rental income for the three months ended September 30,
1995, as compared to the corresponding period in 1994, was primarily
attributable to the increase in occupancy level at Lakeland Industrial
Park, which resulted in a $30,000 increase in revenue. The
aforementioned increase was partially offset by a decrease in revenue
at Iomega and Creekridge.
The decrease in rental income for the nine months ended September 30,
1995, as compared to the corresponding period in 1994, was primarily
attributable to the following factors. At Iomega, rental income was
decreased by $72,000, which was the result of termination of one of
Iomega Corporation's leases at expiration in November 1994. At
Creekridge, Luma Sales and Johnson Design terminated their leases upon
expiration in March 1995 and April 1995, respectively, which resulted
in a $50,000 decrease in revenue in 1995. At Kennedy Corporation
Center, revenue was decreased by $54,000, which was primarily a result
of reduced operating expense recoveries during 1995. The
aforementioned decreases were partially offset by increased revenues
at Lakeland Industrial Park due to an increase in occupancy level
($40,000).
Interest income resulted from the temporary investment of Partnership
working capital. The increase for the three and nine months ended
September 30, 1995, as compared to the corresponding periods in 1994,
was attributable to a higher rate-of-return on short-term investments
achieved during 1995.
Operating expenses for the three months ended September 1995, are
generally comparable to the corresponding period in 1994.
The decrease in operating expenses for the nine months ended September
30, 1995, as compared to the corresponding period in 1994, was
primarily attributable to a decrease in HVAC repairs ($12,000) at
Creekridge.
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 September 30, 1995
Compared With the Three Months Ended September 30, 1994 and for the
Nine Months Ended September 30, 1995 Compared With the Nine Months
Ended September 30, 1994 (Cont'd.)
-------------------------------------------------------------------
The decrease in real estate taxes for the three and nine months ended
September 30, 1995, as compared to the corresponding periods in 1994,
was primarily attributable to successful tax appeals at Atrium and
Lakeland Industrial Park, which resulted in a $25,000 refund for
Atrium and lower tax assessments for Lakeland Industrial Park in 1995.
General and administrative expenses for the nine months ended
September 30, 1995 and 1994, include $310,000 and $287,000,
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 nine months
ended September 30, 1995 and 1994, are direct charges of $206,000 and
$186,000, 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 increase in general and administrative expenses for the nine
months ended September 30, 1995, as compared to the corresponding
period in 1994, was primarily attributable to an increase in leasing
fees paid to the General Partner and its affiliates for leasing
services rendered in connection with leasing space in the
Partnership's properties. In addition, legal and professional
services, appraisal fees and administrative wages were higher during
1995.
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 September 30, 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: November 10, 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: November 10, 1995 By: /s/ Brent R. Donaldson
---------------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset
Management, Inc.
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 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,084,000
<SECURITIES> 0
<RECEIVABLES> 115,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,246,000
<PP&E> 36,153,000
<DEPRECIATION> 11,846,000
<TOTAL-ASSETS> 30,944,000
<CURRENT-LIABILITIES> 807,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 30,137,000
<TOTAL-LIABILITY-AND-EQUITY> 30,944,000
<SALES> 0
<TOTAL-REVENUES> 3,478,000
<CGS> 0
<TOTAL-COSTS> 2,806,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 672,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 672,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
