<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
-----------------------
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-14633
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3294820
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27611 La Paz Road, Laguna Niguel, California 92656
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
</TABLE>
(714) 643,7700
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<Cable>
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
<S> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
---- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's registration statement on Form S-11 (Commission
File No. 2-99421), dated August 5, 1985, filed under the Securities Act of 1933
are incorporated by reference into PART IV of this report.
<PAGE> 2
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters . . . . . . . . . . . . . 7
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 8
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 15
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . 15
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 16
--- Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE> 3
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
PART I
Item 1. Business
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the "Partnership")
was formed on September 13, 1985, under the laws of the State of Delaware. The
General Partner of the Partnership is Birtcher/Liquidity Properties, a general
partnership, consisting of LF Special Fund I, L.P., a California limited
partnership, and Birtcher Investors, a California limited partnership. The
Partnership is engaged in the business of acquiring and operating existing
income-producing office buildings, research and development facilities,
shopping centers and other commercial or industrial properties as specified in
its prospectus (Commission File No. 2-99421) dated September 27, 1985, as
amended. See Item 2 for a description of the properties acquired by the
Partnership.
The Partnership commenced operations on November 14, 1985. The closing for the
final admission of Limited Partners to the Partnership occurred on June 19,
1986. Total limited partners' capital contributions through that date
aggregated $52,588,000.
The Partnership acquired its properties entirely for cash, free and clear of
mortgage indebtedness. However, the Partnership may incur mortgage
indebtedness on its properties, primarily for the purpose of funding capital
improvements to properties or obtaining financing proceeds for distribution to
partners.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will
be tax sheltered; (ii) to achieve capital appreciation over a holding period of
at least five years; and (iii) to preserve and protect the Partnership's
capital. An Information Statement, dated May 5, 1993, mandated that the
General Partner shall seek a vote of the Limited Partners no later than
December 31, 1996, regarding prompt liquidation of the Partnership in the event
that properties with appraised values as of January 1993, which constituted at
least one-half of the aggregate appraised values of all Partnership properties
as of that date, are not sold or under contract for sale by the end of 1996.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
instead of for investment as of December 31, 1995. In accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(see Note 2 to the Financial Statements in Item 8), the carrying value of these
properties was evaluated to insure that each property is carried on the
Partnership's balance sheets at the lower of cost or fair value, less selling
costs. Accordingly, the General Partner compared the carrying value of each
property to its appraised value as of January 1, 1996. If the carrying value
of a property and certain related assets was greater than its appraised value,
less selling costs, the General Partner reduced the carrying value of the
property by the difference. Using this methodology, Atrium Place, Kennedy
Corporate Center, Lakeland Industrial Park and Cooper Village (58% interest),
had carrying values greater than they had appraised values, and therefore
reduced their carrying values to $829,000, $2,625,000, $4,929,000, and
$3,704,000, respectively at December 31, 1995. Since the adoption of the 1993
Solicitation, the General Partner has
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<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 1. Business (Cont'd.)
considered several preliminary indications of interest from third parties to
acquire some or all of the Partnership's properties. Apart from the recent
sale of Atrium Place, however, these transactions never materialized, primarily
because the General Partner rejected as too low the valuations of the
Partnership's properties proposed by the potential purchasers.
During 1996, the Partnership made certain capital improvements to properties
held for sale that resulted in a corresponding increase in the properties'
valuation allowance. At December 31, 1996, the General Partner compared the
carrying value of each property to its appraised value as of January 1, 1997
and determined that Ladera-II Shopping Center and Kennedy Corporate Center had
carrying values greater than their respective appraised values. As a result,
during the year ended December 31, 1996, the carrying values were adjusted by
$185,000 and $343,000 to $2,200,000 and $2,460,000, respectively. In addition,
the carrying value of Atrium Place was reduced in September 1996 by $75,000 in
order to reflect its approximate selling price and the carrying value of
Lakeland Industrial Park was increased by $40,000 to $5,300,000, its estimated
fair value less selling costs.
The General Partner recently mailed a consent solicitation (the "Consent
Solicitation") dated February 18, 1997 to the Limited Partners, pursuant to
which the Limited Partners consented to dissolve the Partnership and gradually
settle and close the Partnership's business and dispose of and convey the
Partnership's property as soon as practicable, consistent with obtaining
reasonable value for the properties.
The Partnership derives most of its revenue from rental income. Both Iomega
Corporation and Delta Dental Corporation represent significant portions of such
income. Rental income from Iomega Corporation totaled $1,210,000 in 1996,
$1,120,000 in 1995 and $1,207,000 in 1994, or approximately 25%, 24% and 26%,
respectively, of the Partnership's total rental income. Rental income from
Delta Dental Corporation totaled $755,000 in 1996, $701,000 in 1995 and
$694,000 in 1994, or approximately 16%, 16% and 15%, respectively, of the
Partnership's total rental income.
The Partnership's investments in real estate are subject to competition for
tenants from similar types of properties in the vicinities in which they are
located. The Partnership has no investments in real estate located outside the
United States.
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 and operating the Partnership's
properties. The General Partner and its affiliates receive compensation in
connection with such activities. See Item 11 and Note 4 to the Financial
Statements in Item 8 for a description of such charges.
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<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
APPROXIMATE RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/96 12/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lakeland Industrial Park, 5,875,000 Nine one-story office/warehouse 209,840 19 100%
Phases I-IV buildings located on 11.27 acres
Milwaukee, Wisconsin of land.
December 19, 1985 and
November 25, 1986
Kennedy Corporate Center, 4,599,000 Three-story office building 39,933 9 96%
Phase I located on 2.8 acres of land.
Palatine, Illinois
January 8, 1986
Iomega/Northpointe Center 7,980,000 Seven industrial/office buildings 210,165 7 100%
Roy, Utah located on 16.6 acres of land.
January 31, 1986
Ladera Shopping Center, 2,889,000 A neighborhood retail shopping 35,094 5 94%
Phase II center located on 3.8 acres of land.
Albuquerque, New Mexico
February 7, 1986
Creekridge Center 11,865,000 Two three-story office buildings 81,835 14 98%
Bloomington, Minnesota located on 5 acres of land.
September 23, 1986
Cooper Village 4,789,000(2) A single-story shopping center 59,978(2) 20 79%
Mesa, Arizona located on 10.88 acres of land.
December 30, 1987 and
December 30, 1988 ----------- -------
TOTAL $37,997,000 636,845
=========== =======
</TABLE>
SEE NOTES TO TABLE ON THE FOLLOWING PAGE.
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<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 2. PROPERTIES (Cont'd.)
NOTES TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of
acquisition fees of $2,484,000 paid to the General Partner.
Also, for certain properties, the purchase price has been
reduced by cash received after acquisition under rental
agreements for non-occupied space.
(2) An interest in Cooper Village was acquired by the Partnership
through a general partnership, Cooper Village Partners ("CV
Partners") consisting of the Partnership and Real Estate
Income Partners III, Limited Partnership, an affiliated
limited partnership. At December 31, 1996, the Partnership
had a 58% interest in CV Partners. (See Note 3 to Financial
Statements in Item 8 for a further discussion of the
Partnership's interest in CV Partners.) The amounts shown
herein for approximate purchase price and net rentable square
feet represent 58% of the respective amounts for CV Partners.
Item 3. LEGAL PROCEEDINGS
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, financial condition, or results of operations of the Partnership.
NASD Matter. In a matter not directly involving the Partnership or its General
Partner, in 1991, the National Association of Securities Dealers, Inc. (the
"Association") Business Conduct Committee for the Northern District of
California initiated a complaint against a broker-dealer affiliate of LF
Special Fund I, L.P. (a general partner of the General Partner of the
Partnership), alleging violations of the Association's Rules of Fair Practice.
Specifically, the complaint alleged that the affiliate (i) bought and sold
limited partnership units (but not interests in the Partnership) in the
secondary market, from or to unaffiliated parties, subject to mark-ups or
mark-downs in excess of the Association's guidelines and (ii) failed to
disclose the amount or existence of such mark-ups and mark-downs to buyers and
sellers of limited partnership units. Brent Donaldson and Richard Wollack,
executive officers of LF Special Fund I, L.P., were also named as respondents
in the complaint in their capacities as principals of the affiliate. The
complaint was settled as of January 3, 1992 on the following terms: the
Association made findings, which were neither admitted nor denied, of
violations by the affiliate and Mr. Donaldson of the Association's guidelines
with respect to mark-ups or mark-downs, and of the failure by the affiliate
(but not Mr. Donaldson) to disclose the amount of such mark-ups or mark-downs.
Both allegations were dismissed as to Mr. Wollack. The settlement further
provided that the affiliate would be censured and fined $125,000 and that Mr.
Donaldson would be censured and fined $7,500.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS
There is no public market for the limited partnership interests and a market is
not expected to develop as such limited partnership interests are not publicly
traded or freely transferable.
As of February 28, 1997, the number of holders of the Partnership's interests
is as follows:
<TABLE>
<S> <C>
General Partner 1
Limited Partners 6,693
-----
6,694
=====
</TABLE>
The Partnership makes quarterly cash distributions to its partners out of
distributable cash pursuant to the Partnership's Agreement of Limited
Partnership. Distributable cash is generally paid 99% to the Limited Partners
and 1% to the General Partner.
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 1997 1996 1995 1994 1993 1992
- -------- -------- ---------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
First $600,000 $ 463,000 $441,000 $358,000 $420,000 $416,000
Second 456,000 462,000 421,000 262,000 372,000
Third 504,000 462,000 405,000 200,000 457,000
Fourth 1,318,000 463,000 465,000 289,000 430,000
</TABLE>
The Limited Partners and the General Partner are entitled to receive quarterly
cash distributions, as available, in the future.
In December 1996, the Partnership made a $720,000 special distribution to its
limited partners from a portion of the proceeds from the sale of Atrium Place.
See Item 7, Liquidity and Capital Resources for further discussion.
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<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Total Revenues $4,859,000 $4,523,000 $ 4,637,000 $ 4,181,000 $ 4,043,000
========== =========== =========== =========== ============
Net Income (Loss):
General Partner $ 19,000 $ (6,000) $ 5,000 $ 5,000 $ (34,000)
Limited Partners $1,897,000 $ (569,000) $ 457,000 $ 541,000 $(3,343,000)
---------- ----------- ----------- ----------- ------------
$1,916,000 $ (575,000) $ 462,000 $ 546,000 $(3,377,000)
========== =========== =========== =========== ============
Total Distributions:
General Partner $ 21,000 $ 18,000 $ 17,000 $ 12,000 $ 17,000
========== =========== =========== =========== ============
Limited Partners $2,741,000 $1,828,000 $ 1,649,000 $ 1,171,000 $1,675,000
========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Assets $28,212,000 $29,134,000 $31,496,000 $32,737,000 $33,483,000
=========== =========== =========== =========== ===========
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership completed its acquisition program in December 1988 and is
principally engaged in the operation of its properties. The Partnership's
original objective had been to hold its properties as long-term investments.
However, an Information Statement, dated May 5, 1993, mandated that the General
Partner seek a vote of the Limited Partners no later than December 31, 1996,
regarding prompt liquidation of the Partnership in the event that properties
with appraised values as of January 1993, which constituted at least one-half
of the aggregate appraised values of all Partnership properties as of that
date, are not sold or under contract for sale by the end of 1996. Given the
mandate of the May 5, 1993 Information Statement, at December 31, 1995, the
General Partner decided to account for the Partnership's properties as assets
held for sale instead of for investment. In a Consent Solicitation dated
February 18, 1997, the Partnership solictied and recieved the consent of the
Limited Partners to dissolve the Partnership and gradually settle and close the
Partnership's business and dispose of and convey the Partnership's property as
soon as practicable, consistent with obtaining reasonable value for the
properties. The Partnership's properties were held for sale throughout 1996
and continue to be held for sale.
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<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
Working capital is and will be principally provided 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 financing proceeds for distribution to the partners.
Regular distributions for the year ended December 31, 1996 represent net cash
flow from operations of the Partnership's properties and interest earned on the
temporary investment of working capital, net of capital reserve requirements.
In December 1996, the Partnership made a special distribution of $720,000
representing 100% of the net proceeds from the sales of Atrium Place. Future
cash distributions will be made principally to the extent of cash flow
attributable to the operations and sales of the Partnership's properties, after
capital reserve requirements. See Item 5 for a description of the
Partnership's distribution history. The Partnership believes that the cash
generated from its operations will provide the Partnership the funds necessary
to meet all of its ordinary obligations.
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 June 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 amending the
Partnership Agreement as contemplated by the Information Statement. The
amendments include, among other things, the payment of asset management and
leasing fees to the General Partner and the elimination of the General
Partner's residual interest and deferred leasing fees that were previously
subordinated to return of the Limited Partners' 9% Preferential Return. See
Item 8, Note 4 to the Financial Statements for discussion of fees paid to
the General Partner for the year ended December 31, 1996.
January 1, 1997 Property Appraisals and Net Asset Value
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. Prior to the January 1, 1995 appraisals, the
independent appraiser had 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
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<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
January 1, 1997 Property Appraisals and Net Asset Value (Cont'd.)
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 requested that the appraiser provide an
assessment of value that reflects a shorter investment holding term. Although
the General Partner does not know how long it will take to sell the
Partnership's properties, it requested that the appraiser assume that the
entire portfolio would be sold over four years, in connection with the January
1995 appraisals, over three years in connection with the January 1996
appraisals and over approximately two years for the January 1997 appraisals.
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 remaining properties at January 1,
1997 to be $29,535,000.
The foregoing appraised value of the Partnership's remaining properties
indicates an estimated net asset value of the Partnership of $31,163,000 or
$5,926 per $10,000 of original investor subscription. (Net asset value
represents the appraised value of the Partnership's properties, cash, and other
assets, less all liabilities.)
Results of Operations
Year Ended December 31, 1996
The increase in rental income for the year ended December 31, 1996, when
compared to 1995, was primarily attributable to: 1) Iomega's absorption of the
one remaining building thereby increasing the occupancy of that property to
100% in August of 1995 ($90,000); 2)the increased occupancy at Creekridge from
91% in 1995 to 98% in 1996 ($166,000); and 3) the increased occupancy at
Lakeland Industrial Park from 96% in 1995 to 100% in 1996 ($74,000).
Interest income resulted from the temporary investment of Partnership working
capital. It was generally comparable to 1995 overall.
On November 21, 1996, the Partnership sold Atrium Place, a single-story 23,970
square foot office building located on 1.74 acres of land in Arlington Heights,
Illinois to an unaffiliated third party. The sales price was $825,000
($784,000 net of closing costs and escrow fees) and the net proceeds of the
sale amounted to approximately $720,000 after all prorations and credits to the
buyer. In December 1995, the General Partner had adjusted the carrying value
of the property in accordance with the guildlines of FAS 121, which resulted in
a write-down of $167,000 and an adjusted carrying value of $829,000. In
September 1996, the General Partner adjusted the carrying value by another
$75,000 to $754,000 upon disposition. The resulting gain on sale, after taking
into consideration all costs of disposition, amounted to $30,000 as reflected
in the Statement of
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<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1996 (Cont'd.)
Operations. The General Partner was not paid a commission or disposition fee
as part of this transaction.
The decrease in operating expenses for the year ended December 31, 1996, as
compared to 1995, was attributable to several factors. At Lakeland Industrial
Park, roof repairs, property management wages, legal fees and marketing and
advertising costs were reduced in 1996. At Kennedy Corporate Center,
landscaping and snow removal costs incurred were lower in 1996 due to mild
winter conditions. Finally, as a result of the increased occupancy level at
Iomega, the tenant absorbed additional operating costs at the site as a result
of its lease arrangement.
The decrease in real estate taxes for the year ended December 31, 1996, as
compared to 1995, was primarily attributable to reductions in the annual tax
assessments for Kennedy Corporate Center and Lakeland Industrial Park and the
overall decrease in tax expenses resulting from the sale of Atrium Place in
November 1996. These decreases were partially offset by an increased tax
assessment for Creekridge.
The decrease in depreciation and amortization expenses for the year ended
December 31, 1996, as compared to 1995, was a result of the adoption and
implementation at December 31, 1995 of Statement of Financial Accounting
Standards, No. 121, "Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of," pursuant to which "assets held for sale" are not depreciated.
General and administrative expenses for the year ended December 31, 1996
included charges of $348,000 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 are direct charges of $336,000 relating to
audit and tax preparation fees, annual appraisal fees, legal fees, insurance,
costs incurred in providing information to the Limited Partners and other
miscellaneous costs.
The decrease in general and administrative expenses for the year ended December
31, 1996, when compared to 1995, was primarily attributable to the decrease in
administrative expense reimbursements and leasing fees. The aforementioned
decrease was partially offset by higher professional fees incurred by the
Partnership.
During 1996, the Partnership made certain capital improvements to properties
held for sale that resulted in a corresponding increase in the properties'
valuation allowance. At December 31, 1996, the General Partner compared the
carrying value of each property to its apprasised value as of January 1, 1997
and determined that Ladera-II Shopping Center and Kennedy Corporate Center had
carrying values greater than their respective appraised values. As a result,
during the year ended December 31, 1996 the carrying values were adjusted by
$185,000 and $343,000 to $2,200,000 and $2,460,000, respectively. In addition,
the carrying value of Atrium Place was reduced in September 1996 by $75,000 in
order to
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<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1996 (Cont'd.)
reflect its approximate selling price and the carrying value of Lakeland
Industrial Park was increased by $40,000 to $5,300,000, its estimated fair
value less selling costs.
The increase in equity in earnings of Cooper Village Partners for the year
ended December 31, 1996, as compared to 1995, was primarily attributable to the
Partnership's portion (58%) of depreciation expenses incurred during 1995 that
were not incurred in 1996. As previously discussed, the Partnership no longer
depreciates its assets due to the adoption of Financial Accounting Standard No.
121. In addition, during 1996, a lease termination settlement in the amount of
$127,000 was collected from The Boston Stores and accordingly, was taken into
income in 1996. Finally, the adjustment to the carrying value of real estate
in 1996 decreased to $412,000 from $1,360,000 in 1995.
Year Ended December 31, 1995
The decrease in rental income for the year ended December 31, 1995, as compared
to 1994, was primarily attributable to the following factors: At Iomega, rental
income decreased by $86,000, which was the result of the termination of a
19,400 square foot lease by Iomega Corporation at expiration in November 1994.
At Creekridge, revenue decreased by $44,000, which was primarily the result of
termination of two leases in March and April 1995. At Kennedy Corporate
Center, revenue decreased by $68,000, 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 ($60,000).
Interest income resulted from the temporary investment of Partnership working
capital. The increase for the year ended December 31, 1995, as compared to
1994, was attributable to a higher rate-of-return on short-term investments
achieved during 1995. In addition, other miscellaneous revenues increased by
$11,000 in 1995.
The decrease in operating expenses for the year ended December 1995, as
compared to 1994, was primarily attributable to a decrease in parking repairs
and maintenance, insurance and utilities at Lakeland Industrial Park.
The increase in real estate taxes for the year ended December 31, 1995, was
primarily attributable to an increase in real estate tax accrual at Kennedy
Corporate Center due to anticipated higher tax assessment ($46,000). The
aforementioned increase was partially offset by a decrease in real estate taxes
at Atrium, which was a result of a $25,000 tax refund in 1995.
General and administrative expenses for the year ended December 31, 1995
included charges of $415,000 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 are direct charges of $273,000 relating to
audit and tax
-12-
<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
preparation fees, annual appraisal fees, legal fees, insurance, costs incurred
in providing information to the Limited Partners and other miscellaneous costs.
The increase in general and administrative expenses for the year ended December
31, 1995, as compared to 1994, was primarily attributable to an increase in
legal and professional services, 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, appraisal fees and
administrative wages were higher during 1995. The aforementioned increases
were partially offset by a decrease in asset management fees.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
instead of for investment as of December 31, 1995. Accordingly, the General
Partner compared the carrying value of each property to its appraised value as
of January 1, 1996. If the carrying value of a property and certain related
assets was greater than its appraised value, less selling costs, the General
Partner reduced the carrying value of the property by the difference. Using
this methodology, the General Partner determined that Atrium Place, Kennedy
Corporate Center, Lakeland Industrial Park and Cooper Village (58% interest)
had carrying values greater than their appraised values, and therefore reduced
their carrying values by $167,000, $500,000, $40,000, and $789,000 to $829,000,
$2,625,000, $4,929,000, and $3,704,000, respectively.
Year Ended December 31, 1994
The increase in rental income for the year ended December 31, 1994, as compared
to 1993, was attributable to several factors. At Creekridge, Delta Dental's
lease was successfully renegotiated in November 1993, which resulted in an
additional 7,000-square foot occupancy for a 64-month term. In addition, three
new leases commenced: Title One in December 1993, and Global Access and
Independent Pension Consultants in January 1994. With the expansion of Delta
Dental's lease and three new leases, 1994 rental income and operating expense
recoveries increased by an aggregate of $138,000. At Kennedy Corporate
Center, expansion of four existing tenants and commencement of a new lease with
M.Z.M., Inc. in May 1994, increased rental income and operating expense
recoveries by $192,000. Also, a tenant lease settlement of $25,000 was
received from Wolowicki upon termination of its lease. At Lakeland, five new
leases commenced: in August 1993 with Copper & Brass Sales, in July 1994 with
Midwest Anodizing Corp., in August 1994 with Midwest Products & Engineering, in
September 1994 with the Courtney Company and in November 1994 with Barefoot
Grass Lawn. These leases encompassed an aggregate of 51,840 square feet and
increased 1994 rental income and operating expenses recoveries by an aggregate
of $74,000.
Interest income resulted from the temporary investment of Partnership working
capital. The increase for the year ended December 31, 1994, as compared to
1993, was attributable to an increase in working capital and a higher rate of
return on short-term investments.
-13-
<PAGE> 14
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1994 (Cont'd.)
The increase in operating expenses for the year ended December 31, 1994, as
compared to 1993, was primarily attributable to an increase in roof replacement
and repairs at Iomega ($15,000), an increase in legal and professional services
relating to a minor tenant dispute and real estate tax appeal ($29,000) at
Atrium, Lakeland and Ladera-II, an increase in building repairs, cleaning costs
and maintenance ($22,000), HVAC repairs and maintenance ($22,000) and
electricity costs ($24,000) at Creekridge.
The decrease in real estate taxes for the year ended December 31, 1994, as
compared to 1993, was primarily attributable to a lower tax assessment at
Lakeland and Creekridge. The aforementioned decreases were partially offset by
a higher tax assessment at Kennedy Corporate Center.
General and administrative expenses for the year ended December 31, 1994
included charges of $372,000 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 are direct charges of $266,000 relating to
audit and tax preparation fees, annual appraisal fees, legal fees, insurance,
costs incurred in providing information to the Limited Partners and other
miscellaneous costs.
The decrease in general and administrative expenses for the year ended December
31, 1994, as compared to 1993, was primarily attributable to a decrease in
legal and professional services, consultant fees, printing, postage and mailing
expenses relating to the Partnership's solicitation of the Limited Partners for
the Information Statement administered in 1993. In addition, the charge for
reimbursement of certain General Partner expenses allocated to the Partnership
decreased in 1994.
Provision was made for impairment loss if the General Partner determined that
the carrying amount of the Partnership's investment in a real estate asset may
not have been recoverable. The General Partner obtained third party appraisals
on the Partnership's properties as required by the Partnership Agreement. If
these appraisals indicated that certain of the Partnership's properties had
market values below their then- current carrying values, the General Partner
considered the appraisals and analyzed the current and anticipated market
conditions of the respective properties and determined if an impairment had
occurred. At December 31, 1994, after evaluation of Atrium Place, the General
Partner estimated a $600,000 impairment of value as compared to its respective
carrying value.
-14-
<PAGE> 15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DAMSON/BIRTCHER REALTY INCOME FUND-II
LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Statements of Changes in Partners' Capital for the Years
Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
F-1
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-II
LIMITED PARTNERSHIP
INDEPENDENT AUDITORS' REPORT
To Birtcher/Liquidity Properties, as General Partner of
Damson/Birtcher Realty Income Fund-II, Limited Partnership:
We have audited the financial statements of Damson/Birtcher Realty Income
Fund-II, Limited Partnership as listed in the accompanying index. In
connection with our audits of the financial statements, we also have audited
the financial statement schedule listed in the accompanying index. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in note 9 to the financial statements, on March 14, 1997 a
majority in interest of the limited partners approved the proposal to dissolve
the Partnership and sell and liquidate all of its remaining properties.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Damson/Birtcher Realty Income
Fund-II, Limited Partnership as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in note 2 to the financial statements, on December 31, 1995
Damson/Birtcher Realty Income Fund-II adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
KPMG PEAT MARWICK LLP
Orange County, California
March 25, 1997
F-2
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
- ------
Properties held for sale (net of valuation
allowance of $1,028,000 in 1996 and
$707,000 in 1995) $ 22,318,000 $ 23,387,000
Investment in Cooper Village Partners 3,630,000 3,892,000
Cash and cash equivalents 1,639,000 1,055,000
Accounts receivable 30,000 29,000
Accrued rent receivable 436,000 527,000
Prepaid expenses and other assets, net 159,000 244,000
------------- -------------
$ 28,212,000 $ 29,134,000
============= =============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 636,000 $ 712,000
------------- -------------
Partners' capital (deficit):
Limited Partners 27,746,000 28,590,000
General Partner (170,000) (168,000)
------------- -------------
27,576,000 28,422,000
Commitments and contingencies
------------- -------------
$ 28,212,000 $ 29,134,000
============= =============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE> 18
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income $4,760,000 $4,430,000 $4,569,000
Interest and other income 69,000 93,000 68,000
Gain on sale of property 30,000 - -
---------- ---------- ----------
Total revenues 4,859,000 4,523,000 4,637,000
---------- ---------- ----------
EXPENSES:
Operating expenses 1,039,000 1,111,000 1,139,000
Real estate taxes 682,000 722,000 705,000
Depreciation and amortization 73,000 1,252,000 1,290,000
General and administrative 684,000 688,000 638,000
Adjustment to carrying value of
real estate 563,000 707,000 600,000
---------- ---------- ----------
Total expenses 3,041,000 4,480,000 4,372,000
---------- ---------- ----------
Income before equity in earnings
(loss) of Cooper Village Partners 1,818,000 43,000 265,000
Equity in earnings (loss) of
Cooper Village Partners 98,000 (618,000) 197,000
---------- ---------- ----------
NET INCOME (LOSS) $1,916,000 $ (575,000) $ 462,000
========== ========== ==========
NET INCOME (LOSS) ALLOCABLE TO:
General Partner $ 19,000 $ (6,000) $ 5,000
========== ========== ==========
Limited Partners $1,897,000 $ (569,000) $ 457,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 19
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994
--------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1993 $(132,000) $32,179,000 $32,047,000
Net income 5,000 457,000 462,000
Distributions (17,000) (1,649,000) (1,666,000)
---------- ------------ ------------
Balance, December 31, 1994 (144,000) 30,987,000 30,843,000
Net loss (6,000) (569,000) (575,000)
Distributions (18,000) (1,828,000) (1,846,000)
---------- ------------ ------------
Balance, December 31, 1995 (168,000) 28,590,000 28,422,000
Net income 19,000 1,897,000 1,916,000
Distributions (21,000) (2,741,000) (2,762,000)
---------- ------------ ------------
Balance, December 31, 1996 $(170,000) $27,746,000 $27,576,000
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE> 20
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,916,000 $ (575,000) $ 462,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 73,000 1,252,000 1,290,000
Equity in (earnings) loss of Cooper
Village Partners (98,000) 618,000 (197,000)
Adjustment to carrying value of
real estate 563,000 707,000 600,000
Gain on sale of property (30,000) - -
Changes in:
Accounts receivable (1,000) 2,000 19,000
Accrued rent receivable 91,000 (56,000) (271,000)
Prepaid expenses and other assets 11,000 (61,000) (29,000)
Accounts payable and accrued
liabilities (76,000) 59,000 (37,000)
----------- ----------- -----------
Net cash provided by operating
activities 2,449,000 1,946,000 1,837,000
----------- ----------- -----------
Cash flows from investing activities:
Investments in real estate (247,000) (410,000) (415,000)
Proceeds from sale of property 784,000 - -
Distributions received from
Cooper Village Partners 360,000 307,000 302,000
----------- ----------- -----------
Net cash provided by (used in)
investing activities 897,000 (103,000) (113,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions (2,762,000) (1,846,000) (1,666,000)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 584,000 (3,000) 58,000
Cash and cash equivalents, beginning
of year 1,055,000 1,058,000 1,000,000
----------- ----------- -----------
Cash and cash equivalents, end of year $1,639,000 $1,055,000 $1,058,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 21
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Operations
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the
"Partnership") is a limited partnership formed on September 13, 1985,
under the laws of the State of Delaware for the purpose of acquiring
and operating income-producing retail, commercial and industrial
properties. The General Partner of the Partnership is
Birtcher/Liquidity Properties, a general partnership consisting of LF
Special Fund I, L.P. ("LF-I"), a California limited partnership and
Birtcher Investors, a California limited partnership. Birtcher
Investors, or its affiliates, provides day-to-day administration,
supervision and management of the Partnership and its properties.
In January 1993, the General Partner filed an Information Statement
with the Securities and Exchange Commission seeking consent of the
Limited Partners to amend the Partnership Agreement. On June 24, 1993,
the Partnership completed its solicitation of written consent from its
Limited Partners. A majority in interest of the Partnership's Limited
Partners approved each of the proposals contained in the Information
Statements, 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 amendment modified the Partnership Agreement to eliminate the
General Partner's 10% subordinated interest in distributions of
Distributable Cash (net cash from operations) and to reduce its
subordinated interest in such distributions from 10% to 1%. The
amendment also modified the Partnership Agreement to eliminate the
General Partner's 10% subordinated interest in Sale or Financing
Proceeds (net cash from sale or financing of Partnership property) and
to reduce its subordinated interest in such proceeds from 15% to 1%.
In lieu thereof, the Partnership Agreement now provides for the
Partnership's payment to the General Partner of an annual asset
management fee equal initially to .75% of the aggregate appraised value
of the Partnership's properties. At January 1, 1996 and 1995 the
portfolio was appraised at an aggregate value of approximately
$30,355,000 (unaudited) and $31,035,000 (unaudited), respectively,
which includes the Partnership's interest in Cooper Village Partners
which was appraised at $3,735,000 (unaudited) and $4,486,000
(unaudited), respectively. The factor used to calculate the annual
asset management fee will be reduced by .10% each year beginning after
December 31, 1996 (e.g., from .75% in 1996 to .65% in 1997).
The amendment modified the Partnership Agreement to eliminate the
subordination provisions with respect to future property disposition
fees payable under that section and authorizes payment to the General
Partner and its affiliates of the foregoing property disposition fees
as earned. The fees will not be subordinated to the return to the
Limited Partners Preferred Return and Adjusted Invested Capital or any
other amount. The disposition fees will be paid to the General Partner
or its affiliates in an amount equal to 50% of the competitive real
estate brokerage commission that would be charged by unaffiliated third
parties providing comparable services in the area in which a property
is located, but in no event more than three percent of the gross sale
price of the property, and is to be reduced by the amount by which any
brokerage or similar commissions paid to any unaffiliated third parties
in connection with the sale of the property exceed three percent of the
gross sale price. This amount is not payable, unless and to the extent
that the sale price of the property in
F-7
<PAGE> 22
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
question, net of any other brokerage commissions (but not other costs of
sale), exceeds the appraised value of the property as of January 1,
1993.
The amendment states that the Partnership is no longer authorized to
pay the General Partner or its affiliates any insurance commission or
any property financing fees. No such commission or fees have been paid
or accrued by the Partnership since its inception.
The amendment modified the provisions of the Partnership Agreement
regarding allocations of Partnership income, gain and other tax items
between the General Partner and the Limited Partners primarily to
conform to the changes in the General Partner's interest in
distributions of Distributable Cash and Sale or Financing Proceeds
effected by the amendment.
It is not anticipated that the adoption and implementation of the
amendment will have any material adverse effect on future allocations
of income, gain, loss or other tax items to the Limited Partners.
However, if any of the Partnership's properties are sold for a gain, a
special allocation to the General Partner would have the effect of
reducing the amount of Sale or Financing Proceeds otherwise
distributable to the Limited Partners and correspondingly increasing
the amount of such distributions to be retained by the General Partner.
The amount of such distributions to be affected would be approximately
equal to any deficit balance in the General Partner's capital account
in the Partnership at the time of the allocation.
The Limited Partners have certain priorities in the allocation of cash
distributions by the Partnership. Out of each distribution of net
cash, the Limited Partners generally have certain preferential rights
to receive payments that, together with all previous payments to them,
would provide an overall 9% per annum (cumulative non-compounded)
return (a "9% Preferential Return") on their investment in the
Partnership. Any distributions not equaling this 9% Preferential
Return in any quarter are to be made up in subsequent periods if and to
the extent distributable cash is available.
Distributable cash from operations is paid out each quarter in the
following manner: 99% to the Limited Partners and 1% to the General
Partner. These payments are made each quarter to the extent that there
is sufficient distributable cash available.
Sale or financing proceeds are to be distributed, to the extent
available, as follows: (i) to the Limited Partners until all cash
distributions to them amount to a 9% Preferential Return on their
investment cumulatively from the date of their admission to the
Partnership, (ii) then to the Limited Partners in an amount equal to
their investment; and (iii) the remainder, 99% to Limited Partners and
1% to the General Partner.
The unpaid 9% Preferential Return to the Limited Partners aggregates
approximately $26,102,000 as of December 31, 1996.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
F-8
<PAGE> 23
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment modified the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction"
(as defined in the amendment) sponsored by the General Partner or any
of its affiliates unless such transaction is approved by a
"supermajority" of at least 80% in interest of the Limited Partners and
the General Partner.
The amendment also prohibits the modification of this restriction on
Reorganization Transactions without the approval of at least 80% in
interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other
dispositions to be left to the General Partner's discretion based on
the anticipated remaining economic benefits of continued ownership and
other factors.
The General Partner recently mailed a consent solicitation (the
"Consent Solicitation") dated February 18, 1997 to the Limited
Partners, pursuant to which the Limited Partners consented to dissolve
the Partnership and and gradually settle and close the Partnership's
business and dispose of and convey the Partnership's property as soon
as practicable, consistent with obtaining reasonable value for the
properties.
As of December 31, 1995 the General Partner decided to treat its
properties as held for sale, instead of for investment, for financial
statement purposes. Since adoption of the 1993 amendment, the General
Partner has considered several preliminary indications of interest from
third parties to acquire some or all of the Partnership's properties.
Apart from the sale of Atrium Place, these transactions never
materialized, primarily because the General Partner rejected as too low
the valuations of the Partnership's remaining properties as proposed by
the potential purchasers. The Partnership's properties were held for
sale throughout 1996 and continue to be held for sale.
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (see Note 2), the carrying value of these
properties was evaluated to ensure that each property is carried on the
Partnership's balance sheets at the lower of cost or fair value less
selling costs. The General Partner estimated fair value for this
purpose based on appraisals performed as of January 1, 1997 at December
31, 1996 and as of January 1, 1996 at December 31, 1995.
The January 1, 1997 appraisals assume that the properties will be sold
within approximately two years and that the sales will take place on a
property by property basis between willing buyers and willing sellers.
Among the strategies the General Partner will consider to accomplish
the dissolution is a sale of the Partnership's portfolio in a single
transaction, or a sale of some or all of the Partnership's properties
in a "package" with properties of affiliated partnerships. If the
properties were sold in a "package" such sale would most likely result
in a lower aggregate sales price, but more rapid distribution of
dissolution proceeds to the Limited Partners, as compared to a series
of individual sale transactions. Furthermore, fair value can only be
determined based upon sales to third parties, and sales proceeds could
differ substantially from appraised values.
F-9
<PAGE> 24
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if the General
Partner believes factors are present that may indicate long-lived
assets are impaired, the undiscounted cash flows, before debt service,
related to the assets should be estimated. If these estimated cash
flows are less than the carrying value of the asset, then impairment is
deemed to exist. If impairment exists, the asset should be written
down to the estimated fair value.
Further, assets held for sale, including any unrecoverable accrued rent
receivable or capitalized leasing commissions, should be carried at the
lower of carrying value or fair value less estimated selling costs.
Any adjustment to carrying value is recorded as a valuation allowance
against property held for sale. Each reporting period, the General
Partner will review their estimates of fair value, which may be
decreased or increased up to the original carrying value. Finally,
assets held for sale are no longer depreciated. The General Partner
adopted FAS 121 at December 31, 1995 and the adoption did not have a
material impact on the Partnership's operations or financial position
as prior to December 31, 1995, the Partnership had not had any
properties held for sale.
As noted above, as of December 31, 1995 the General Partner decided to
account for the Partnership's properties as assets held for sale,
assuming a 12 month holding period, instead of for investment.
Accordingly, the General Partner compared the carrying value of each
property to its appraised value as of January 1, 1996. If the carrying
value of a property and certain related assets was greater than its
appraised value, less selling costs, the General Partner reduced the
carrying value of the property by the difference. Using this
methodology, the General Partner determined that Atrium Place, Kennedy
Corporate Center, Lakeland Industrial Park and Cooper Village (58%
interest) had carrying values greater than they had appraised values,
and therefore reduced their carrying values by $167,000, $500,000,
$40,000, and $789,000 to $829,000, $2,625,000, $4,929,000 and
$3,704,000, respectively.
Utilizing the same methodology, assuming a twelve month holding period,
for the year ended December 31, 1996, the General Partner determined
that Ladera-II Shopping Center and Kennedy Corporate Center had
carrying values greater than their respective appraised values, less
selling costs. As a result, the carrying values were adjusted by
$185,000 and $343,000 to $2,200,000 and $2,460,000, respectively. In
addition, the carrying value of Atrium Place was reduced in September
1996 by $75,000 in order to reflect its approximate selling price and
the carrying value of Lakeland Industrial Park was increased by $40,000
to $5,300,000, its estimated fair value less selling costs.
Prior to the adoption of FAS 121, provision was made for impairment
loss if the General Partner determined that the carrying amount of the
Partnership's investment in a real estate asset was not recoverable.
The General Partner obtained third party appraisals on the
Partnership's properties as required by the Partnership Agreement. If
these appraisals indicated that certain of the Partnership's properties
had market values below their then-current carrying values, the General
Partner considered
F-10
<PAGE> 25
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Carrying Value of Real Estate (Cont'd)
the appraisals and analyzed the current and anticipated market
conditions of the respective properties and determined if an impairment
had occurred.
Prior to the adoption of FAS 121, provision was made for impairment
loss if the General Partner determined that the carrying amount of the
Partnership's investment in a real estate asset was not recoverable.
The General Partner obtained third party appraisals on the
Partnership's properties as required by the Partnership Agreement. If
these appraisals indicated that certain of the Partnership's properties
had market values below their then-current carrying values, the General
Partner considered the appraisals and analyzed the current and
anticipated market conditions of the respective properties and
determined if an impairment had occurred.
At December 31, 1994, after evaluation of the Atrium Place, the General
Partner estimated a $600,000 impairment of value as compared to its
respective carrying value.
Cash and Cash Equivalents
The Partnership invests its excess cash balances in short-term
investments (cash equivalents). These investments are stated at cost,
which approximates market, and consist of money market, certificates of
deposit and other non-equity-type cash investments. Cash equivalents
at December 31, 1996 and 1995, totaled $1,442,000 and $955,000,
respectively. Cash equivalents are defined as temporary non-equity
investments with original maturities of three months or less, which can
be readily converted into cash and are not subject to changes in market
value.
Depreciation
Through December 31, 1995, depreciation expense was computed using the
straight-line method. Rates used in the determination of depreciation
were based upon the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Income Taxes
Income taxes are not levied at the Partnership level, but rather on the
individual partners; therefore, no provision or liability for Federal
and State income taxes has been reflected in the accompanying financial
statements.
F-11
<PAGE> 26
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd)
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1996 1995
GAAP Basis Tax Basis GAAP Basis Tax Basis
(Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Assets $28,212,000 $35,864,000 $29,134,000 $37,705,000
Total
Liabilities $ 636,000 $ 636,000 $ 712,000 $ 712,000
</TABLE>
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Net income (loss) per Financial Statements $1,916,000 $(575,000) $ 462,000
Adjustment to carrying value of real
estate 563,000 707,000 600,000
Equity in loss of Cooper Village due to
adjustment in carrying value 239,000 789,000 -
Depreciation differences on investments in
real estate (1,482,000) (304,000) (259,000)
Loss on sale of property in excess of book
value (1,184,000) - -
Other 70,000 94,000 (137,000)
--------- --------- ---------
Taxable income per Federal tax return
(unaudited) $122,000 $ 711,000 $ 666,000
========= ========= =========
</TABLE>
Significant Tenants
Rental income from Iomega Corporation totaled $1,210,000 in 1996,
$1,120,000 in 1995 and $1,207,000 in 1994, or approximately 25%, 24%
and 26%, respectively, of the Partnership's total rental income.
Rental income from Delta Dental Corporation totaled $755,000 in 1996,
$701,000 in 1995, $694,000 in 1994, or approximately 16%, 16% and 15%,
respectively, of the Partnership's total rental income.
F-12
<PAGE> 27
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Earnings and Distributions 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.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investment in Cooper Village
The Partnership uses the equity method of accounting to account for its
investment in Cooper Village Partners inasmuch as control of Cooper
Village Partners is shared jointly between the Partnership and Real
Estate Income Partners III, Limited Partnership. The accounting
policies of Cooper Village Partners are consistent with those of the
Partnership.
(3) Investment in Cooper Village Partners
During 1987 and 1988, Cooper Village Partners ("CV Partners"), a
California general partnership consisting of the Partnership and Real
Estate Income Partners III, Limited Partnership ("Fund III"), an
affiliated limited partnership, acquired Cooper Village. In connection
therewith, the Partnership and Fund III contributed capital
contributions of $5,937,000 (58%) and $4,300,000 (42%), respectively,
and share in the profits, losses and distributions of CV Partners in
proportion to their respective ownership interests.
F-13
<PAGE> 28
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners (Cont'd.)
Condensed summary financial information for CV Partners is presented
below.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Property held for sale (net of
valuation allowance of $1,772,000
in 1996 and $1,360,000 in 1995) $ 6,011,000 $ 6,386,000
Cash and Other Assets 460,000 533,000
----------- -----------
Total Assets $ 6,471,000 $ 6,919,000
=========== ===========
Accounts Payable and
Accrued Liabilities $ 114,000 $ 111,000
Partners' Capital 6,357,000 6,808,000
----------- ----------
Total Liabilities and
Partners' Capital $ 6,471,000 $ 6,919,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
---------- ----------- ---------
<S> <C> <C> <C>
Rental and Other Income $1,072,000 $1,046,000 $1,023,000
Operating and Other Expenses (483,000) (498,000) (428,000)
Adjustment to Carrying Value
of Real Estate (412,000) (1,360,000) -
Depreciation and Amortization (8,000) (253,000) (256,000)
----------- ----------- -----------
Net Income (Loss) $ 169,000 $(1,065,000) $ 339,000
=========== ============ ===========
</TABLE>
(4) 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 years ended December
31, 1996, 1995 and 1994, the Partnership was charged with
approximately $130,000, $161,000 and $101,000, respectively, of such
expenses.
F-14
<PAGE> 29
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Transactions with Affiliates (Cont'd.)
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 $168,000 in 1996, $158,000 in 1995, and $159,000 in
1994. The General Partner was also paid a leasing fee for services
rendered in connection with leasing space in a partnership property
after the expiration or termination of any lease of such space
including renewal options. Such fees amounted to $19,000, $55,000,
and $40,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. Those fees have been recorded in general and
administrative expenses in the accompanying statements of operations
for the years ended December 31, 1996, 1995, and 1994. As
reimbursement of costs for on-site property management personnel and
other related costs, an affiliate of the General Partner received
$108,000 in 1996, $122,000 in 1995 and $119,000 in 1994. In addition
to the aforementioned, the General Partner was also paid $54,000,
$51,000 and $52,000 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 CV
Partners for the year ended December 31, 1996, 1995 and 1994,
respectively.
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 year ended December 31, 1996,
1995 and 1994, amounted to $199,000, $199,000 and $231,000,
respectively. In addition to the aforementioned, the General Partner
was also paid $28,000, $34,000 and $31,000, related to the
Partnership's portion (58%) of asset management fees for Cooper
Village Partners for the years ended December 31, 1996, 1995 and 1994,
respectively.
(5) Gain on Disposition of Assets
On November 21, 1996, the Partnership sold Atrium Place, a
single-story 23,970 square foot office building located on 1.74 acres
of land in Arlington Heights, Illinois to an unaffiliated third party.
The sales price was $825,000 ($784,000 net of closing costs and escrow
fees) and the net proceeds of the sale amounted to approximately
$720,000 after all prorations and credits to the buyer. In December
1995, the General Partner had adjusted the carrying value of the
property in accordance with the guildlines of FAS 121, which resulted
in a write-down of $167,000 and an adjusted carrying value of
$829,000. In September 1996, the General Partner adjusted the
carrying value by another $75,000 to $754,000 upon disposition. The
resulting gain on sale, after taking into consideration all costs of
disposition, amounted to $30,000 as reflected in the Statement of
Operations. The General Partner was not paid a commission or
disposition fee as part of this transaction.
F-15
<PAGE> 30
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) 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, financial condition, or results
of operations of the Partnership. See note 9 for subsequent events.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1996, are properly classified as operating leases
for financial reporting purposes. Future minimum annual rental income
to be received under such leases as of December 31, 1996, is as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $3,574,000
1998 2,837,000
1999 1,832,000
2000 833,000
2001 95,000
Thereafter -
----------
$9,171,000
==========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of
the tenant's annual revenue in excess of specified levels; and
escalations in annual rents based upon the Consumer Price Index.
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
-------- ---------
<S> <C> <C>
Real estate taxes $352,000 $455,000
Security deposits 161,000 139,000
Accounts payable and other 123,000 118,000
-------- --------
$636,000 $712,000
======== ========
</TABLE>
F-16
<PAGE> 31
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(8) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
--------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ - $ 23,000 $ 23,000
Additions - - 27,000
Writeoffs - (23,000) (27,000)
--------- --------- ---------
Balance at end of year $ - $ - $ 23,000
========= ========= =========
</TABLE>
(9) Subsequent Events
On February 28, 1997, the Partnership made an aggregate cash
distribution of $600,000 to its Limited Partners.
On March 14, 1997, a majority in interest of the Limited Partners
approved the proposal to dissolve the Partnership and sell and
liquidate all of its remaining properties pursuant to the Consent
Solicitation dated February 18, 1997.
On March 25, 1997, a limited partner named Bigelow/Diversified
Secondary Partnership Fund 1990 filed a purported class action lawsuit
in the Court of Common Pleas of Philadelphia County against
Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of
fiduciary duty and breach of contract and seeking to enjoin the
Consent Solicitation.
F-17
<PAGE> 32
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E
------ ------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT GROSS AMOUNT AT WHICH
TO PARTNERSHIP (C) TO THE ACQUISITION CARRIED AT CLOSE OF PERIOD (B)
------------------ -------------------------- ------------------------------------
BUILDINGS AND CARRYING BUILDINGS AND
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS (B) LAND IMPROVEMENTS TOTAL (D)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lakeland Industrial Park
Milwaukee, WI 270 5,973 1,279 (41) 268 7,213 7,481
Kennedy Corporate Center
Palatine, IL 641 4,252 779 (1,367) 574 3,731 4,305
Iomega/Northpointe
Business Center
Roy, UT 672 7,834 491 - 672 8,325 8,997
Ladera Shopping Center,
Phase II
Albuquerque, NM 829 2,241 89 (207) 821 2,131 2,952
Creekridge Center
Bloomington, MN 1,312 11,304 411 (3,376) 966 8,685 9,651
------ ------- ------ -------- ------ ------- -------
TOTAL $3,724 $31,604 $3,049 $(4,991) $3,301 $30,085 $33,386
====== ======= ====== ======== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
COL. F COL. H COL. I
------ ------ ------
ACCUMULATED
DEPRECIATION DATE DEPRECIABLE
DESCRIPTION(A) (D) ACQUIRED LIFE (E)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Lakeland Industrial Park
Milwaukee, WI 2,437 12/19/85 30 years
and
11/25/86
Kennedy Corporate Center
Palatine, IL 1,928 01/08/86 30 years
Iomega/Northpointe
Business Center
Roy, UT 2,684 01/31/86 30 years
Ladera Shopping Center,
Phase II
Albuquerque, NM 753 02/07/86 30 years
Creekridge Center
Bloomington, MN 3,266 09/23/86 30 years
-------
TOTAL $11,068
=======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
See notes to table on following page.
F-18
<PAGE> 33
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO SCHEDULE III
(a) For a description of the properties, see "Item 2. Properties." This
schedule does not include the investment in Cooper Village Partners
which is accounted for under the equity method of accounting.
(b) During the year ended December 31, 1996, the General Partner determined
that Ladera-II Shopping Center and Kennedy Corporate Center had
carrying values greater than their respective appraised values, less
selling costs, and therefore provided an aggregate valuation allowance
of $528,000 against property held for sale. In addition, the carrying
value of Lakeland Industrial Park was increased by $40,000 to
$5,300,000, its estimated fair value less selling costs.
At December 31, 1995, the General Partner determined that Atrium Place,
Kennedy Corporate Center, and Lakeland Industrial Park had carrying
values greater than they had appraised values less selling costs, and
therefore provided a valuation allowance of $707,000 against the
properties held for sale.
At December 31, 1994, after evaluation of the Atrium Place, the General
Partner estimated a $600,000 impairment of value as compared to its
respective carrying value.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $41,531,000 as of December 31,
1996. The differences between the aggregate cost of land, buildings
and improvements for tax reporting purposes as compared to financial
reporting purposes are primarily attributable to: 1) amounts received
under rental agreements for non-occupied space, which were recorded as
income for tax reporting purposes but were recorded as a reduction of
the corresponding property basis for financial reporting purposes, and;
2) the adjustments to the carrying value of real estate for financial
statement purposes have no effect for tax reporting purposes.
(c) The initial cost to the Partnership includes acquisition fees paid to
the General Partner.
(d)
RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $35,518,000 $35,815,000 $36,000,000
Additions during the year:
Improvements 247,000 410,000 415,000
Reductions during the year:
Sale of real estate (1,816,000)
Adjustment to the carrying
value of real estate (563,000) (707,000) (600,000)
------------ ------------ ------------
Balance at end of year $33,386,000 $35,518,000 $35,815,000
============ ============ ============
</TABLE>
F-19
<PAGE> 34
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO SCHEDULE III (Cont'd.)
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Balance at beginning of year $12,131,000 $10,954,000 $ 9,742,000
Accumulated depreciation
on real estate sold (1,063,000) - -
Depreciation expense - 1,177,000 1,212,000
------------ ----------- -----------
Balance at end of year $11,068,000 $12,131,000 $10,954,000
============ =========== ===========
</TABLE>
(e) Through December 31, 1995, depreciation expense was computed based upon
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Due to the adoption of FAS 121 on December 31, 1995, properties held
for sale were not depreciated in 1996.
F-20
<PAGE> 35
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEPENDENT AUDITORS' REPORT
To Damson/Birtcher Realty Income Fund-II, Limited Partnership and
Real Estate Income Partners III, Limited Partnership as
General Partners of Cooper Village Partners:
We have audited the financial statements of Cooper Village Partners, a general
partnership, as listed in the accompanying index. In connection with our
audits of the financial statements, we also have audited the financial
statement schedule listed in the accompanying index. These financial
statements and the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in note 7 to the financial statements, in March 1997 a majority in
interest of the limited partners of the general partners approved the proposal
to dissolve the general partners and sell and liquidate all of their remaining
properties.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cooper Village Partners as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in note 2 to the financial statements, on December 31, 1995 Cooper
Village Partners adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of."
KPMG PEAT MARWICK LLP
Orange County, California
March 25, 1997
F-21
<PAGE> 36
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995
------------- -----------
<S> <C> <C>
ASSETS
- ------
Property held for sale (net of valuation
allowance of $1,772,000 in 1996 and
$1,360,000 in 1995) $ 6,011,000 $ 6,386,000
Cash and cash equivalents 355,000 408,000
Accounts receivable 40,000 45,000
Accrued rent receivable 47,000 57,000
Prepaid expenses and other assets, net 18,000 23,000
------------ ------------
$ 6,471,000 $ 6,919,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 114,000 $ 111,000
------------ ------------
Partners' capital 6,357,000 6,808,000
Commitments and contingencies
------------ ------------
$ 6,471,000 $ 6,919,000
============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-22
<PAGE> 37
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income $1,051,000 $1,025,000 $1,010,000
Interest and other income 21,000 21,000 13,000
---------- ----------- ----------
Total revenues 1,072,000 1,046,000 1,023,000
---------- ----------- ----------
EXPENSES:
Operating expenses 277,000 296,000 284,000
Real estate taxes 148,000 136,000 85,000
Depreciation and amortization 8,000 253,000 256,000
Adjustment to carrying value of
real estate 412,000 1,360,000 -
General and administrative 58,000 66,000 59,000
---------- ----------- ----------
Total expenses 903,000 2,111,000 684,000
---------- ----------- ----------
NET INCOME (LOSS) $ 169,000 $(1,065,000) $ 339,000
========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-23
<PAGE> 38
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994
-----------------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER TOTAL
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III
--------------- -------------- -----------
<S> <C> <C> <C>
Balance, December 31, 1993 $4,922,000 $3,663,000 $ 8,585,000
Net income 197,000 142,000 339,000
Distributions (302,000) (219,000) (521,000)
----------- ----------- ------------
Balance, December 31, 1994 4,817,000 3,586,000 8,403,000
Net loss (618,000) (447,000) (1,065,000)
Distributions (307,000) (223,000) (530,000)
----------- ----------- ------------
Balance, December 31, 1995 3,892,000 2,916,000 6,808,000
Net income 98,000 71,000 169,000
Distributions (360,000) (260,000) (620,000)
----------- ----------- ------------
Balance, December 31, 1996 $3,630,000 $2,727,000 $ 6,357,000
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-24
<PAGE> 39
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 169,000 $(1,065,000) $ 339,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 8,000 253,000 256,000
Adjustment to carrying value of
real estate 412,000 1,360,000 -
Changes in:
Accounts receivable 5,000 (8,000) 2,000
Accrued rent receivable 10,000 4,000 -
Prepaid expenses and other assets (3,000) (10,000) (1,000)
Accounts payable and accrued
liabilities 3,000 26,000 6,000
---------- ----------- -----------
Net cash provided by operating
activities 604,000 560,000 602,000
Cash flows from investing activities:
Investments in real estate (37,000) (22,000) (70,000)
Cash flows from financing activities:
Distributions (620,000) (530,000) (521,000)
---------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (53,000) 8,000 11,000
Cash and cash equivalents,
beginning of year 408,000 400,000 389,000
---------- ----------- -----------
Cash and cash equivalents,
end of year $ 355,000 $ 408,000 $ 400,000
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-25
<PAGE> 40
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(1) Organization
Cooper Village Partners, (the "Partnership") was formed on December 18,
1987 under the laws of the State of California. The General Partners
of the Partnership are Damson Birtcher Realty Income Fund II, Limited
Partnership ("Fund II") and Real Estate Income Partners III, Limited
Partnership ("Fund III"). During 1987 and 1988, The Partnership
acquired Cooper Village Shopping Center in Mesa, Arizona. In
connection with this acquisition, Fund II and Fund III contributed
capital of $5,937,000 (58%) and $4,300,000 (42%), respectively. Fund
II and Fund III share in the profits, losses and distributions of the
Partnership in proportion to their respective ownership interests. The
Partnership maintains its accounting records and prepares its financial
statements in accordance with generally accepted accounting principles.
The General Partner of Funds II and III recently mailed a consent
solicitation (the "Consent Solicitation") dated February 18, 1997 to
the Limited Partners, pursuant to which the Limited Partners consented
to dissolve those partnerships and gradually settle and close their
respective businesses and dispose of and convey their respective
properties as soon as practicable, consistent with obtaining reasonable
value for the properties.
As of December 31, 1995 the General Partners decided to treat their
properties, as well as the Partnership's property, as held for sale,
instead of for investment, for financial statement purposes. Since
1993, the General Partners have considered several preliminary
indications of interest from third parties to acquire the Partnership's
property. The Partnership's sole property was held for sale throughout
1996 and it is currently held for sale.
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for Impairment of Long-Lived Assets to Be Disposed Of" (see
Note 2), the carrying value of the Partnership's property was evaluated
to ensure it is carried on the Partnership's balance sheets at the lower
of cost or fair value less selling costs. The General Partners'
estimated fair value for this purpose was based on an appraisal
performed as of January 1, 1997 at December 31, 1996 and as of January
1, 1996 at December 31, 1995.
The January 1, 1997 appraisal assumes that the property will be sold
within two years and that the sale will take place on an individual
property basis between a willing buyer and a willing seller. Among the
strategies the General Partners will consider to accomplish the
dissolution is a sale of the Partnership's property in a single
transaction, or the sale of the Partnership's property in a "package"
with properties of affiliated partnerships. If the property was sold in
a "package", such sale would most likely result in a lower sale price,
but more rapid distribution of dissolution proceeds to the General
Partners, as compared to an individual property sale transaction.
Furthermore, fair value can only be determined based upon sales to third
parties, and sales proceeds could differ substantially from appraised
values.
F-26
<PAGE> 41
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if management
believes factors are present that may indicate long-lived assets are
impaired, the undiscounted cash flows, before debt service, related to
the assets should be estimated. If these estimated cash flows are less
than the carrying value of the asset, then impairment is deemed to
exist. If impairment exists, the asset should be written down to the
estimated fair value.
Further, assets held for sale, including any unrecoverable accrued rent
receivable or capitalized leasing commissions, should be carried at the
lower of carrying value or fair value less estimated selling costs.
Any adjustment to carrying value is recorded as a valuation allowance
against property held for sale. Each reporting period, the General
Partners will review their estimates of fair value, which may be
decreased or increased up to the original carrying value. Finally,
assets held for sale are no longer depreciated. The General Partners
adopted FAS 121 at December 31, 1995 and the initial adoption did not
have a material impact on the Partnership's operations or financial
position as prior to December 31, 1995 the Partnership had not had any
properties held for sale.
As noted above, as of December 31, 1995 the General Partners decided to
account for the Partnership's property as an asset held for sale,
assuming a 12 month holding period, instead of for investment.
Accordingly, the General Partners compared the carrying value of the
property to its appraised value as of January 1, 1996. The carrying
value of the property and certain related assets was greater than it's
appraised value, less selling costs, and the General Partner reduced the
carrying value of the property by the difference of $1,360,000. At
December 31, 1996, after comparing the carrying value to the January 1,
1997 appraised value, the property's carry value was adjusted by an
additional $412,000.
Prior to the adoption of FAS 121, provision was made for impairment
loss if the General Partners determined that the carrying amount of the
Partnership's investment in a real estate asset was not recoverable.
The General Partners obtained a third party appraisal on the
Partnership's property as required by the Partnership Agreement. If
this appraisal indicated that the Partnership's property had a market
value below its then-current carrying value, the General Partners
considered the appraisal and analyzed the current and anticipated
market conditions of the respective property and determined if an
impairment had occurred.
Cash and Cash Equivalents
The Partnership invests its excess cash balances in short-term
investments ("cash equivalents"). These investments are stated at
cost, which approximates market, and consist of money market accounts,
certificates of deposit and other nonequity-type cash investments.
Cash equivalents at December 31, 1996 and 1995, totaled $301,000 and
$407,000, respectively. Cash equivalents are defined as temporary
non-equity investments with original maturities of three months or
less, which can be readily converted into cash and are not subject to
changes in market value.
F-27
<PAGE> 42
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Depreciation
Through December 31, 1995 depreciation expense was computed using the
straight-line method. Rates used in the determination of depreciation
were based upon the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partners to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes
Income taxes are not levied at the Partnership level, therefore, no
provision or liability for Federal and State income taxes has been
reflected in the accompanying financial statements.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1996 1995
GAAP Basis Tax Basis GAAP Basis Tax Basis
(Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total Assets $ 6,471,000 $ 6,883,000 $ 6,919,000 $ 8,279,000
Total Liabilities $ 114,000 $ 114,000 $ 111,000 $ 111,000
</TABLE>
F-28
<PAGE> 43
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- ---------
<S> <C> <C> <C>
Net income (loss) per Financial Statements $ 169,000 $(1,065,000) $ 339,000
Depreciation differences on investments in
real estate (219,000) 25,000 26,000
Adjustment to carrying value of real
estate 412,000 1,360,000 -
Other 10,000 4,000 (13,000)
--------- ----------- ---------
Taxable income per Federal tax return
(unaudited) $ 372,000 $ 324,000 $ 352,000
========= =========== =========
</TABLE>
(3) Transactions with Affiliates
The Partnership has no employees and, accordingly, Birtcher Properties,
an affiliate of the General Partner of Fund II and Fund III and its
affiliates perform services on behalf of the Partnership in connection
with administering the affairs of the Partnership. Birtcher Properties
and affiliates are reimbursed for their general and administrative
costs actually incurred and associated with services performed on
behalf of the Partnership. For the years ended December 31, 1996, 1995
and 1994, the Partnership was charged with approximately $1,000, $0 and
$0, respectively, of such expenses.
An affiliate of the General Partner of Fund II and Fund III provides
property management services with respect to the Partnership's property
and receives a fee for such services not to exceed 6% of the gross
receipts from the property under management provided that leasing
services were performed, otherwise not to exceed 3%. Such fees
amounted to approximately $54,000 in 1996, $52,000 in 1995 and $52,000
in 1994. In addition, as reimbursement of costs for on-site property
management personnel and other related costs, an affiliate of the
General Partner received $35,000 in 1996, $33,000 in 1995 and $32,000
in 1994, as reimbursement of costs for on-site property management
personnel and other reimbursable costs.
The amended Partnership Agreements for Fund II and Fund III provide for
payments to Birtcher Properties or its affiliates of an annual asset
management fee equal to .75% of the aggregate appraised value of Cooper
Village as determined by independent appraisal undertaken in January of
each year. Such fees for the years ended December 31, 1996, 1995 and
1994, amounted to $48,000, $58,000 and $53,000, respectively. In
addition, the amended Partnership Agreements for Fund II and Fund III
provide for payment to the General Partner or its affiliates of a
leasing fee for services rendered in connection with leasing space in
the Partnership property after the expiration or termination of any
lease of such space including renewal options. Fees for leasing
services for the years ended December 31, 1996, 1995 and 1994, amounted
to $3,000, $2,000 and $5,000, respectively.
F-29
<PAGE> 44
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business. It is the General Partners' belief, that the outcome of
these proceedings will not be material to the business, financial
condition, or results of operations of the Partnership. See note 7 for
subsequent events.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1996, are properly classified as operating leases
for financial reporting purposes. Future minimum annual rental income
to be received under such leases as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 579,000
1998 513,000
1999 440,000
2000 379,000
2001 322,000
Thereafter 1,562,000
----------
$3,795,000
==========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of
the tenant's annual revenue in excess of specified levels; and
escalations in annual rents based upon the Consumer Price Index.
(5) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Real estate taxes $ 74,000 $ 68,000
Accounts payable and other 5,000 8,000
Security deposits 35,000 35,000
-------- --------
$114,000 $111,000
======== ========
</TABLE>
F-30
<PAGE> 45
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ - $ - $ 13,000
Additions charged to expense - - -
Write-offs - - (13,000)
--------- --------- ---------
Balance at end of year $ - $ - $ -
========= ========= =========
</TABLE>
(7) Subsequent Events
On February 28, 1997, the Partnership made an aggregate cash
distribution of $120,000 to its General Partners.
In March 1997, a majority in interest of the Limited Partners of the
General Partners approved a proposal to dissolve the General Partners
and sell and liquidate all of their remaining properties pursuant to the
Consent Solicitation dated February 18, 1997.
On March 25, 1997, a limited partner of the General Partners named
Bigelow/Diversified Secondary Partnership Fund 1990 filed a purported
class action lawsuit in the Court of Common Pleas of Philadelphia
County against Damson/Birtcher Partners, Birtcher Investors,
Birtcher/Liquidity Properties, Birtcher Investments, L.F. Special Fund
II, L.P., L.F. Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher,
Robert Anderson, Richard G. Wollack and Brent R. Donaldson alleging
breach of fiduciary duty and breach of contract and seeking to enjoin
the Consent Solicitation.
F-31
<PAGE> 46
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E
------ ------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT GROSS AMOUNT AT WHICH
TO PARTNERSHIP (C) TO THE ACQUISITION CARRIED AT CLOSE OF PERIOD (B)
--------------------- -------------------------- ------------------------------------
BUILDINGS AND CARRYING BUILDINGS AND
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS (B) LAND IMPROVEMENTS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cooper Village Shopping Center $ 2,756 $ 6,430 $ 752 $ (2,149) $ 2,748 $ 5,041 $ 7,789
------- ------- ------ -------- ------- ------- -------
TOTAL $ 2,756 $ 6,430 $ 752 $ (2,149) $ 2,748 $ 5,041 $ 7,789
======= ======= ====== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
COL. F COL. H COL. I
------ ------ ------
ACCUMULATED DATE DEPRECIABLE
DEPRECIATION ACQUIRED LIFE (D)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cooper Village Shopping Center $ 1,778 12/30/87 and 30 years
12/30/88
-------
TOTAL $ 1,778
=======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
F-32
<PAGE> 47
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO SCHEDULE III
(a) For a description of the property, see "Item 2. Properties."
(b) At December 31, 1995, the General Partner determined that the
Partnership's property had a carrying value greater than its appraised
value less selling cost, and therefore provided a valuation allowance
of 1,360,000 against property held for sale.
At December 31, 1996, the General Partner determined that the
Partnership's property had a carrying value greater than its appraised
value less selling cost, and therefore provided an additional valuation
allowance of $412,000 against property held for sale.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $9,781,000 as of December 31, 1996.
The differences between the aggregate cost of land, buildings and
improvements for tax reporting purposes as compared to costs for
financial reporting purposes are primarily attributable to: 1) amounts
received under rental agreements for non-occupied space, which were
recorded as income for tax reporting purposes but were recorded as a
reduction of the corresponding property basis for financial reporting
purposes, and; 2) the adjustments to the carrying value of real estate
for financial statement purposes no effect for tax reporting purposes.
(c) The initial cost to the Partnership includes acquisition fees paid to
Birtcher Investments and Equity Properties Inc.
(d) Through December 31, 1995, depreciation was computed based upon the
following estimated useful lives:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Buildings 30
Building Improvements 3 to 30
</TABLE>
Due to the adoption of FAS 121 on December 31, 1995, the property held
for sale was not depreciated in 1996.
F-33
<PAGE> 48
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership and the General Partner have no directors or executive
officers. The General Partner of the Partnership is Birtcher/Liquidity
Properties, a California general partnership of which Birtcher Investors, a
California limited partnership, and LF Special Fund I, L.P., a California
limited partnership, are the general partners. Under the terms of the
Partnership Agreement, Birtcher Investors is responsible for the day-to-day
management of the Partnership's assets.
The general partner of LF Special Fund I, L.P., is Liquidity Fund Asset
Management, Inc., a California corporation affiliated with Liquidity Financial
Group, L.P. The principals and officers of Liquidity Fund Asset Management,
Inc. are as follows:
Richard G. Wollack, Chairman of the Board
Brent R. Donaldson, President
Deborah M. Richard, Chief Financial Officer
The general partner of Birtcher Investors is Birtcher Investments, a California
general partnership. Birtcher Investments' general partner is Birtcher
Limited, a California limited partnership and its general partner is BREICORP,
a California corporation. The principals and relevant officers of BREICORP are
as follows:
Ronald E. Birtcher, Co-Chairman of the Board
Arthur B. Birtcher, Co-Chairman of the Board
Robert M. Anderson, Executive Director
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the fees, compensation and other expense
reimbursements paid to the General Partner and its affiliates in all capacities
for each year in the three-year period ended December 31, 1996.
-15-
<PAGE> 49
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 21,000 $ 18,000 $ 17,000
Asset management fees 199,000 199,000 231,000
Property management fees 168,000 158,000 159,000
Property management expense
reimbursements 108,000 122,000 119,000
Other expense reimbursements 130,000 161,000 101,000
Leasing fee 19,000 55,000 40,000
-------- -------- --------
TOTAL $645,000 $713,000 $667,000
======== ======== ========
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1997, there was no entity or individual holding more than 5%
of the limited partnership interests of the Registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning transactions to which the Registrant was or is to be
a party in which the General Partner or its affiliates had or are to have a
direct or indirect interest, see Notes 1, 3, and 4 to the Financial Statements
in Item 8, which information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a) 1. and 2. Financial Statements and Financial Statements Schedules:
See accompanying Index to Financial Statements and Schedules to Item 8,
which information is incorporated herein by reference.
-16-
<PAGE> 50
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
3. Exhibits:
Articles of Incorporation and Bylaws
(a) Agreement of Limited Partnership
incorporated by reference to Exhibit No. 3.1
to the Partnership's registration statement
on Form S-11 (Commission File No. 2-99421),
dated August 5, 1985, as filed under the
Securities Act of 1933.
10. Material Contracts
(a) Form of Property Management Agreement
between Birtcher Properties and the
Registrant incorporated by reference to
Exhibit No. 10.1 of the Partnership's
registration statement on Form S-11
(Commission File No. 2-99421), as filed
September 24, 1985, under the Securities Act
of 1933. (SUPERSEDED)
(b) Letter of Intent regarding Purchase and Sale
of Real Property (Cooper Village, Phase I)
dated September 3, 1987, by and between
Arizona Building and Development, the
Wolfswinkel Group and Birtcher Realty
Corporation incorporated by reference to
Exhibit 19(a) of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1987.
(c) Agreement of Purchase and Sale of Real
Property (Cooper Village, Phase I) dated
November 13, 1987, by and between Broadway
Village Partners and Birtcher Acquisition
Corporation incorporated by reference to
Form 8-K, as filed December 30, 1987.
(d) Agreement of General Partnership, dated
December 15, 1987, by and between
Damson/Birtcher Realty Income Fund-II,
Limited Partnership and Real Estate Income
Partners III, Limited Partnership
incorporated by reference to Form 8-K, as
filed December 30, 1987.
(e) Property Management Agreement dated October
24, 1991, between Glenborough Management
Corporation and the Registrant for Atrium
Place, Creekridge Center, Iomega/Northpointe
Business Center, Kennedy Corporate Center I,
Ladera II Shopping Center and Lakeland
Industrial Park. Incorporated by reference
to Exhibit 1 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1991. (SUPERSEDED)
(f) Property Management Agreement dated October
24, 1991, between Glenborough Management
Corporation and Cooper Village Partners for
Cooper Village Shopping Center.
Incorporated by reference to Exhibit 2 of
the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30,
1991. (SUPERSEDED)
-17-
<PAGE> 51
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
10. Material Contracts (Cont'd.)
(g) Agreement for Partnership Administrative
Services dated October 24, 1991, between
Glenborough Management Corporation and the
Registrant for the services described
therein. Incorporated by reference to
Exhibit 3 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1991. (SUPERSEDED)
(h) Property Management Agreement, dated October
29, 1993, between Birtcher Properties and
the Registrant for Atrium Place, Creekridge
Center, Iomega Business Center, Kennedy
Corporate Center-I, Ladera-II Shopping
Center, and Lakeland Industrial Park.
Incorporated by reference to Exhibit 1 of
the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30,
1991. (SUPERSEDED)
(i) Property Management Agreement, dated October
29, 1993, between Birtcher Properties and
Cooper Village Partners for Cooper Village
Shopping Center. Incorporated by reference
to Exhibit 2 of the Partnership Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1993.
(27) Financial Data Schedule
b) Reports on Form 8-K:
Report filed on November 21, 1996 regarding the sale of Atrium Place.
See Item 8, Note 5 to the Financial Statements, herein incorporated by
reference.
-18-
<PAGE> 52
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.
<TABLE>
<S> <C> <C>
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
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: March 30, 1997 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: March 30, 1997 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
Birtcher/Liquidity Properties (General Partner of the Registrant) and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Arthur B. Birtcher Co-Chairman of the Board - March 30, 1997
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1997
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1997
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DAMSON BIRTCHER REALTY INCOME
FUND II.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,639,000
<SECURITIES> 0
<RECEIVABLES> 30,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,264,000
<PP&E> 22,318,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,212,000
<CURRENT-LIABILITIES> 636,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,576,000
<TOTAL-LIABILITY-AND-EQUITY> 28,212,000
<SALES> 0
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<OTHER-EXPENSES> 563,000
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<INCOME-TAX> 0
<INCOME-CONTINUING> 1,916,000
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,916,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
