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SCHEDULE 14A INFORMATION
CONSENT SOLICITATION PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Consent Solicitation [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
[X] Definitive Consent Solicitation
</TABLE>
DAMSON/BIRTCHER REALTY INCOME FUND-II
- --------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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BIRTCHER/LIQUIDITY PROPERTIES
27611 LA PAZ ROAD
LAGUNA NIGUEL, CALIFORNIA 92656
TO THE LIMITED PARTNERS OF
DAMSON/BIRTCHER REALTY INCOME FUND -- II
(THE "PARTNERSHIP")
February 18, 1997
Dear Limited Partner:
We are very pleased to present the enclosed Consent Solicitation to the
limited partners of the Partnership. This Consent Solicitation is, in many ways,
a follow-up to the 1993 Solicitation, in which the Partnership sought and
received the limited partners' consent to a comprehensive proposal to prepare
the Partnership's properties for sale. Pursuant to that proposal the Partnership
began the liquidation process.
Now, the Partnership is seeking the consent of the limited partners to
dissolve the Partnership and sell and liquidate all of its remaining properties.
The proposal to dissolve the Partnership is discussed in more detail in the
Consent Solicitation under "Summary of Proposal" and "Description of Proposal."
Accompanying the Consent Solicitation is the Partnership's Form 10-K for
the year ended December 31, 1995 and its most recent Form 10-Q for the quarter
ended September 30, 1996.
We urge you to read the enclosed document carefully and to return your
signed consent as quickly as possible to The Herman Group, Inc., 2121 San
Jacinto Street, 26th Floor, Dallas, Texas 75201. For your convenience a
postage-paid return envelope has been included. If you have any questions about
the enclosed material, please call The Herman Group, Inc., at 1 (800) 657-8814.
Very truly yours,
BIRTCHER/LIQUIDITY PROPERTIES
By: /s/ Arthur B. Birtcher
By: /s/ Richard Wollack
YOUR VOTE IS IMPORTANT
Please sign and date the enclosed Consent Card and return it immediately so
that your vote can be counted.
<PAGE> 3
DAMSON/BIRTCHER REALTY INCOME FUND-II
27611 LA PAZ ROAD
LAGUNA NIGUEL, CALIFORNIA 92627-0009
CONSENT SOLICITATION
FEBRUARY 18, 1997
INTRODUCTION
This solicitation of written consents (the "Consent Solicitation") is
furnished by Birtcher/Liquidity Properties, the general partner (the "General
Partner") of Damson/Birtcher Realty Income Fund-II, a Delaware limited
partnership (the "Partnership"), in connection with the Partnership's
solicitation of consents from the Partnership's limited partners (the "Limited
Partners") to dissolve the Partnership and sell and liquidate all of its
remaining properties (collectively, the "Dissolution"). If the Dissolution is
consented to by a majority in interest of the Limited Partners as described
herein, the Partnership's remaining properties will be sold and liquidated as
soon as is practicable, consistent with obtaining reasonable value for the
properties, and the net proceeds will be distributed to the Limited Partners.
For the reasons discussed below, the General Partner recommends that the Limited
Partners consent to the Dissolution.
This Consent Solicitation, and the enclosed consent form (the "Consent"),
are first being mailed to the Limited Partners on or about February 18, 1997.
DESCRIPTION OF DISSOLUTION
BACKGROUND AND REASONS FOR DISSOLUTION
The Partnership was organized in 1985 for the purpose of acquiring,
operating and ultimately selling or disposing of its properties. The
Partnership's original investment objectives contemplated that the properties
would be held for at least five years, with decisions about the timing of
eventual property sales or other dispositions to be left to the General
Partner's discretion based on the anticipated economic benefits of continued
ownership and other factors. Subsequent changes in the federal tax laws,
however, made real estate less attractive to many previously active purchasers,
including REITs and pension funds, and lenders such as savings and loans,
commercial banks and insurance companies. As a result, the amount of capital
investment in real estate began to decline sharply in 1988. Overbuilding in many
markets, the general recessionary economy in the United States throughout 1990
and 1991 and subsequent corporate downsizing further contributed to the
imbalance of supply and demand for commercial and industrial properties. In
addition, rapid expansion of new retail formats such as discounters and
"category-killers" depressed the value of neighborhood retail shopping centers.
The combined effect of these factors resulted in significant reductions in real
estate values in many geographic areas.
Instead of selling the Partnership's properties at what appeared to be the
bottom of the market, in May 1993, the General Partner solicited the Limited
Partners' consent (the "1993 Solicitation") to a series of amendments to the
Partnership's Amended and Restated Partnership Agreement (the "Partnership
Agreement") as part of a comprehensive proposal to prepare the Partnership's
properties for sale based on the General Partner's expectations regarding
possible improvements in market conditions. The 1993 Solicitation, which was
approved by the Limited Partners, mandated that the General Partner seek a vote
of the Limited Partners regarding the liquidation of the Partnership in the
event that properties representing at least one-half of the aggregate appraised
values of all Partnership properties as of January 1, 1993 were not sold (or
under contract for sale) by the end of 1996. The General Partner agreed that, in
conjunction with the vote, it would provide an analysis and recommendation
regarding the advisability of liquidating the Partnership.
Since the adoption of the 1993 Solicitation, the Partnership has sold
Atrium Place in Arlington Heights, Illinois, but it continues to own six other
properties shown in the table on page 6. Since the Partnership has not
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satisfied the requirements of the 1993 Solicitation to sell half of its
properties by the end of 1996, in accordance with the 1993 Solicitation mandate,
the General Partner is soliciting the Limited Partners' consent to the
Dissolution.
At the time of the 1993 Solicitation, the General Partner believed that
local conditions in the markets in which the Partnership's properties are
located could be expected to improve sufficiently to sell a substantial portion
of the properties in the ensuing three years. Since the adoption of the 1993
Solicitation, 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 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. The General Partner believes that the low valuations
stemmed primarily from the scarcity of institutional buyers, ongoing
liquidations by the Resolution Trust Corporation of the property portfolios of
failed savings and loans and thrift institutions, which contributed to an
oversupply of properties in certain markets, and differing expectations
regarding the recovery from generally weak economic conditions in the markets in
which the properties are located. Until recently, these markets had not
recovered significantly from the conditions that existed at or about the time of
the 1993 Solicitation.
The General Partner believes that over the past three years attempts to
liquidate the Partnership's properties would have been likely to achieve no more
than "fire sale" prices, for at least some of the properties. Recently, however,
the Partnership was able to sell Atrium Place at a price approximately equal to
(though less than) its most recent appraised value, and the General Partner
believes that the gradual turnaround in effective rental rates for commercial
and industrial properties in many markets in the recent past is beginning to be
reflected in higher property values for the Partnership's portfolio. Occupancy
and rental rates appear to be stabilizing or improving, as reflected in the
increase in leased space in the Partnership's remaining properties during 1996
as shown in the table on page 6. Moreover, institutional money has begun to flow
back into real estate investments as pension funds and real estate investment
trusts have become more active buyers. In the General Partner's view, the
Dissolution is warranted by the current, more favorable environment and the
mandate of the 1993 Solicitation that the General Partner consider a liquidation
of the Partnership at this time. The General Partner also is mindful that the
Partnership has continued well beyond the period anticipated by its original
investment objectives, and it does not foresee any significant short-term,
inflationary increases in real estate prices generally, or in the values of the
Partnership's properties, in particular, that might justify postponing the
Dissolution.
For the foregoing reasons, the General Partner believes that it is in the
best interests of the Partnership and the Limited Partners to dissolve the
Partnership and seek to sell and liquidate the remaining Partnership properties
and wind up the Partnership. In the meantime, the Partnership would continue to
operate largely as it has in the past and to make quarterly distributions to the
Limited Partners as cash flow permits. Attached as Exhibit A to this Consent
Solicitation is a schedule showing the historical distributions to the Limited
Partners.
EFFECTS OF THE DISSOLUTION
The Dissolution does not alter the Partnership's original investment
objectives or change the voting or economic rights of the Limited Partners.
Under the Delaware Revised Uniform Limited Partnership Act, a limited
partnership may be dissolved at the time or upon the happening of events
specified in its partnership agreement. The Partnership Agreement provides that
the Partnership shall be dissolved upon the vote or written consent of Limited
Partners who own a majority in interest of the outstanding limited partner
interests ("Interests") in the Partnership. Under the terms of the Partnership
Agreement and applicable law, upon dissolution of the Partnership the General
Partner is to take full account of the Partnership's assets and liabilities,
liquidate the Partnership's remaining assets and apply and distribute the
liquidation proceeds in the order specified in the Partnership Agreement. See
"Liquidation and Winding Up" below. During the winding up process, the
Partnership's legal existence would continue solely for purposes relating to the
liquidation and winding up.
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Neither the Partnership Agreement nor Delaware law provides for a specified
period of time for completing the liquidation and winding up of the Partnership.
If the Dissolution is consented to by the requisite number of Limited Partners,
the General Partner would be authorized and directed to 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. In so doing, the General Partner would continue to have broad
discretion to manage the business and affairs of the Partnership and the winding
up process and to determine the timing, terms and conditions of property sales
and other dispositions. Upon the dissolution and completion of the winding up
process, the Partnership will file a certificate of cancellation with the
Delaware Office of the Secretary of State and will be terminated. There are no
federal or state regulatory requirements that must be complied with or approvals
that must be obtained in connection with the Dissolution.
Atrium Place was sold by the Partnership in November 1996 for $816,250. It
had been appraised as of January 1, 1996 at a value of $840,000. The Partnership
realized approximately $720,000 from the sale, all of which was distributed to
the Limited Partners in December 1996. The General Partner did not receive a
property disposition fee or other compensation or distribution in connection
with the sale of Atrium Place.
There can be no assurance as to the prices at which the Partnership's
remaining properties can be sold or disposed of, or as to the amount of net
proceeds that will be available for distribution to the Limited Partners. The
aggregate appraised value of the Partnership's remaining properties as of
January 1, 1996 was approximately $29,515,000 as reflected in the table on page
6. The appraisals of the properties are a year old, however, and current
appraised values may differ. (The properties are in the process of being
appraised as part of the usual annual appraisal process. The results of these
appraisals will be reported in the Partnership's annual report, which will be
mailed to you at the end of April 1997.) Further, sales prices may differ from
appraised values because of several factors, including the leasing and operating
status of each property and local market conditions. If the Dissolution is
consented to by the Limited Partners, 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. Such sales
would most likely result in a lower aggregate sale price, but more rapid
distribution of Dissolution Proceeds to the Limited Partners, as compared to a
series of individual property sale transactions.
Although there have not been a significant number of comparable sales
within the last twelve months, based on recent offers, input from commercial
real estate brokers in the local markets, and other indications of interest from
third parties, and on the appraised value of the Partnership's remaining
properties, the General Partner anticipates that the properties could be sold
for an aggregate price ranging from approximately $25,000,000 to $30,000,000,
depending upon, among other things, whether the properties are sold quickly as a
portfolio to a single purchaser or if the properties are sold individually or in
groups of assets over a more extended period of months or years. Assuming, for
purposes of illustration, that the remaining properties were sold all at once
for an aggregate price equal to their appraised value as of January 1, 1996, the
General Partner believes that approximately $27,900,000 (the "Dissolution
Proceeds") of such amount would be available for distribution after deducting
estimated fees and expenses of the sale which currently are anticipated to total
approximately $1,600,000 (the "Selling Expenses"). The estimated Dissolution
Proceeds do not take into account any operating expenses or any net income or
net loss of the Partnership for any period prior to the time the remaining
properties are sold, which could affect the amount of Dissolution Proceeds
actually available for distribution to the Limited Partners.
The Dissolution Proceeds would be distributed to the Limited Partners.
Assuming Dissolution Proceeds of $27,900,000, for each $1,000 invested in the
Partnership, the Limited Partners would receive out of the Dissolution Proceeds
approximately $531 (the "Distribution Per Interest"). This compares favorably to
recent prices at which Interests have traded in the limited secondary market for
the Interests and to prices offered in recent third-party tender offers for
Interests including the January 24, 1997 tender from Madison Partnership
Liquidity Investors XVI that is currently open. Certain information regarding
these prices is attached as Exhibit B to this Consent Solicitation. Assuming the
Selling Expenses remain fixed, and without giving effect to any operating
expenses or net income or net loss of the Partnership for any period prior to
the sale of the remaining properties, each such $1,000 investment by the Limited
Partners would entitle the Limited Partner to receive Dissolution Proceeds of
approximately $19 more or less than the Distribution Per Interest for each
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$1,000,000 increment that actual Dissolution Proceeds exceed or are less than
$27,900,000. See "Interest of the General Partner in the Dissolution" below.
The foregoing estimates are presented for the Limited Partners' reference
only and should not be relied upon in determining whether to consent to the
Dissolution. The estimates are based on a variety of assumptions relating to the
remaining properties, general business and economic conditions and other
matters, which are subject to significant uncertainties and contingencies, many
of which are beyond the Partnership's control. Such estimates are inherently
imprecise and there can be no assurance that they will be realized. They also do
not give effect to the operating expenses or net income or net loss of the
Partnership for any period prior to the time the remaining properties are sold,
which could affect the amount of Dissolution Proceeds available for
distribution. For these reasons, the actual proceeds to be received by the
Limited Partners may vary materially from the Distribution Per Unit, and
therefore possibly be substantially less.
The timing of the Limited Partners' receipt of any Dissolution Proceeds
will depend on when a sale or other disposition of the Partnership's properties
can be completed, which cannot be predicted. As has been true in the past, the
timing and manner (e.g., bulk-sale versus individual property sales) of any
sales of properties will be determined by the General Partner in its discretion,
based on its assessment of the benefits to the Limited Partners of holding the
properties versus an immediate sale, including the availability of prospective
buyers as well as other factors. There is no current agreement or understanding
to sell or dispose of any property, and there can be no assurance as to when any
or all of the remaining Partnership properties can be sold or disposed of or
when any Dissolution Proceeds will actually be distributed. The General Partner
will endeavor to distribute funds as expeditiously as possible after any sale.
LIQUIDATION AND WINDING UP
Pursuant to the Partnership Agreement, if the Dissolution is consented to
by the requisite number of Limited Partners, the General Partner is to take full
account of the Partnership's assets and liabilities, liquidate the Partnership's
assets and discharge or make adequate provision for the liabilities of the
Partnership in the following order:
(a) First, to creditors, including partners to the extent permitted by
law, in satisfaction of liabilities of the Partnership other than
liabilities for distribution to partners;
(b) Second, to discharge or make adequate provision for all
Partnership liabilities for distributions to partners and former partners;
(c) After all such liabilities have been either discharged or
adequately provided for, to the partners, in proportion to their "Adjusted
Capital Accounts" (as defined in the Partnership Agreement), after giving
effect to all contributions and distributions and reallocations for all
periods, including the period during which such distribution occurs, in an
amount equal to the sum of the partners' Adjusted Capital Account; and
(d) the balance, if any, 99% to the Limited Partners and 1% to the
General Partner.
It is not anticipated that the General Partner will receive any of the
proceeds from the Dissolution. The General Partner is not aware of any
liabilities or obligations of the Partnership, contingent or otherwise, except
as set forth on the Partnership's balance sheet included as part of its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (a copy
of which accompanies this Consent Solicitation and is incorporated herein by
reference) and liabilities and obligations incurred since September 30, 1996 in
the ordinary course of the Partnership's business.
Upon approval of the Dissolution, the General Partner will use its best
efforts to accomplish a sale or other disposition of the Partnership's remaining
properties upon terms and conditions which the General Partner deems consistent
with obtaining fair value for the properties. Although none of the terms of the
sale of the Partnership's remaining properties can be determined at present, the
General Partner currently intends not to sell or dispose of the remaining
properties except for cash or cash equivalents. If necessary or appropriate,
however, the Partnership may extend seller financing in connection with the sale
of one or more properties in
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the form of secured promissory notes from the buyers. Market conditions
permitting, the General Partner would seek to complete the liquidation
(including the establishment of a liquidating trust to distribute the proceeds
of any promissory notes received from buyers) within a reasonable period of
time; however, there will be no specified period of time for completing the
winding up process.
CERTAIN CONSIDERATIONS
The General Partner cannot predict when any of the Partnership's properties
can be sold or disposed of, or when the eventual liquidation will occur, nor can
the General Partner estimate the amount of Proceeds that will be available to
distribute to the Limited Partners upon the sale or other disposition of the
Partnership's remaining properties and completion of the liquidation. Moreover,
there can be no assurance that the properties will be sold or disposed of at a
price equal to their appraised value or that the value of the properties will
not increase after they are sold or disposed of by the Partnership.
In considering whether to approve the Dissolution, the Limited Partners
should bear in mind that the General Partner has broad discretion to manage the
business and affairs of the Partnership. If the Dissolution is not adopted, the
General Partner intends to continue to manage the Partnership and its properties
substantially as they are currently being managed and to continue to entertain
and consider indications of interest from third parties to acquire all or a
portion of the Partnership's properties. There can be no assurance that the
Dissolution will result in greater returns to the Limited Partners than a
continuation of the Partnership and eventual sale or disposition of its
properties at a later time.
For the three years beginning January 1, 1993, the General Partner received
an annual asset management fee from the Partnership equal to 0.75% of the
aggregate appraised value of the Partnership's properties. As mandated by the
1993 Solicitation, the fee was reduced by 10 "basis" points (e.g., from 0.75% to
0.65%) beginning January 1, 1997 and will be reduced 10 "basis" points for each
year thereafter until the liquidation of the remaining properties is completed.
In seeking to sell or dispose of the Partnership's remaining properties if
the Dissolution is approved, the General Partner does not intend to place any
restrictions on indications of interest it may solicit from third parties in
connection with the Dissolution. The Limited Partners are advised in this regard
that, because of the General Partner's long-standing experience with the
Partnership properties, transactions may be structured that provide that the
General Partner or its affiliates agree to continue managing the Partnership's
properties following their sale, to make or retain an investment interest in the
properties, or otherwise to participate or be involved in a transaction entered
into pursuant to the Dissolution.
If the Limited Partners consent to the Dissolution, they also will be
deemed to have consented to any transaction that may be undertaken to accomplish
the liquidation and winding up of the Partnership and will not be entitled to
approve or disapprove of any such transaction, including transactions which may
involve the General Partner's participation or involvement. However, a
"Reorganization Transaction" (as defined in the Partnership Agreement) sponsored
by the General Partner or its affiliates would continue to require approval of
80% in interest of the Limited Partners. There is no current agreement or
understanding with respect to any Reorganization Transaction.
Neither Delaware law nor the Partnership Agreement provides the Limited
Partners with any right to dissent from, or seek an independent appraisal of,
the value of the Partnership or its assets. Thus, the Limited Partners will be
bound to accept the consideration upon the sale of the Partnership's properties
if the Dissolution is consented to by the Limited Partners.
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RECOMMENDATION OF THE GENERAL PARTNER
THE GENERAL PARTNER BELIEVES THAT THE DISSOLUTION IS IN THE BEST INTERESTS
OF THE LIMITED PARTNERS AND RECOMMENDS THAT THE LIMITED PARTNERS VOTE "FOR" AND
CONSENT TO THE DISSOLUTION.
PARTNERSHIP PROPERTIES
The following table sets forth certain information with respect to the
Partnership's remaining properties:
<TABLE>
<CAPTION>
PERCENTAGE
LEASED APPRAISED
------------- VALUE
-----------
GROSS LEASABLE SEPTEMBER 30, JANUARY 1,
PROPERTY AREA (SQ. FT.) 1996 1995 1996
- --------------------------------------------------- -------------- ---- ---- -----------
<S> <C> <C> <C> <C>
Cooper Village Shopping Center(1) Mesa, AZ......... 59,978 80% 95% $ 3,735,000
Creekridge Center
Bloomington, MN.................................... 81,835 98% 87% 6,700,000
Iomega Roy, UT..................................... 210,165 100% 100% 9,000,000
Kennedy Corporate Center-I Palantine, IL........... 39,933 98% 98% 2,680,000
Ladera-II Shopping Center(2) Albuquerque, NM....... 35,094 100% 100% 2,400,000
Lakeland Industrial Park Milwaukee, WI............. 209,840 100% 94% 5,000,000
------- --- --- -----------
Total.................................... 636,845 98% 96% $29,515,000
======= === === ===========
</TABLE>
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(1) Cooper Village Shopping Center's totals represent the Partnership's 58%
interest in square footage and appraised value. The property lost one of its
anchor tenants in April 1995, when The Boston Stores went bankrupt and
vacated its 16,800 square foot space.
(2) Damson/Birtcher Realty Income Fund-I, an affiliated limited partnership,
owns Ladera-I Shopping Center, which is contiguous to Ladera-II Shopping
Center. Walgreens, an anchor tenant of Ladera-I Shopping Center, vacated its
13,000 square foot space in April 1995. The vacant space may impair the
sales value of Ladera-II Shopping Center.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
As stated above, if the Dissolution is consented to by the Limited
Partners, the General Partner will seek to sell and liquidate the Partnership's
remaining properties and distribute the proceeds to Limited Partners after
payment of certain expenses and priority items as described above under
"Description of Dissolution -- Liquidation and Winding Up." Such sale and
distribution will result in certain federal income tax consequences described
below. Section references below are to the Internal Revenue Code of 1986, as
amended (the "Code").
IN GENERAL
As long as the Partnership is treated as a partnership for federal income
tax purposes, it will not be subject to federal income tax. Rather, each Limited
Partner and the General Partner is required to report on his or her own federal
income tax return its share of the Partnership items of income, gain, loss,
deduction and credit, including amounts realized on the sale of the
Partnership's properties. Accordingly, each Limited Partner may be subject to
tax on its distributive share of Partnership income regardless of whether the
Limited Partner receives any cash distribution. Each Limited Partner's basis in
its Interest is increased by the amount
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by which the Limited Partner's distributable share of income exceeds any
distributions made or deemed to be made (e.g., as a result of the reduction of
his or her share of partnership liability) to it during such year.
LOSS OR GAIN FROM SALE OF PARTNERSHIP PROPERTY
Partnership real property and depreciable property used in the
Partnership's business (which is not held for sale to customers in the ordinary
course of business) and held more than one year is "section 1231 property."
Losses realized by the Partnership from the sale of section 1231 property
generally will constitute "passive activity losses" with respect to a Limited
Partner, other than certain Limited Partners eligible to treat all of their
rental real estate activities as a single activity. Passive activity losses
generally can only offset passive activity income; however, upon completion of
the liquidation of the Partnership if the Dissolution is consented to by the
Limited Partners, the Limited Partner's share of any losses from the Partnership
previously suspended pursuant to the passive activity loss rules may be used,
first, to offset the gain, if any, realized as a result of the liquidation and,
then, to offset certain taxable income from other sources.
If realized, any gain will be "section 1231 gain" except as to depreciation
subject to recapture under section 1245 of the Code and rent recapture under
section 467 of the Code. A Limited Partner's share of any section 1231 gain from
the Partnership in any year will first offset any current passive activity
losses and suspended passive activity losses from the Partnership and other
passive activities of the Limited Partner; any excess will be combined with any
other section 1231 gains or losses (exclusive of passive activity losses)
incurred by the Limited Partner from such Limited Partner's other investments.
Since the Partnership's properties were originally acquired without the use of
mortgage loans or other leverage for prices that substantially exceeded their
most recent appraised values, it is anticipated that any section 1231 gain
realized from the sale of a single Partnership property will be offset by losses
realized from the sale of other Partnership properties. If the section 1231
gains exceed the section 1231 losses, such net gains will be treated as
long-term capital gains. However, a Limited Partner's net section 1231 gains
will be treated as ordinary income (rather than capital gain) to the extent of
such taxpayer's net section 1231 losses within the preceding five years.
The distribution of cash to a Limited Partner pursuant to the Dissolution
may give rise to taxable loss (or gain), with the amount of taxable loss (or
gain) realized equal to the difference between (i) the amount of cash received
plus such Limited Partner's share of any reduction of Partnership liabilities
and (ii) the tax basis of its Interest.
Loss (or gain) realized on the liquidation will be treated as capital loss
(or gain), and will be long-term if the Limited Partner has held its Interest
for more than one year when the liquidation of the Partnership is consummated.
Capital losses generally are deductible only to the extent of capital gains
plus, in the case of a non-corporate Limited Partner, up to $3,000 of ordinary
income. Capital losses realized upon the liquidation may be utilized to offset
capital gains from other sources and may be carried forward, subject to
applicable limitations.
The foregoing is a summary only, and special considerations may be
applicable to particular types of Limited Partners. Each Limited Partner is
advised to consult its own tax advisor regarding the specific tax consequences
of the Dissolution, under the federal income tax laws, as well applicable state,
local, foreign or other tax laws not discussed herein.
CONSENT REQUIREMENTS AND WRITTEN CONSENTS
RECORD DATE
The General Partner has fixed 5:00 P.M. Eastern Time on February 15, 1997,
three days before the date this Consent Solicitation is first being mailed to
the Limited Partners, as the record date (the "Record Date") for determining the
Limited Partners entitled to notice of and to act on the Dissolution. As of the
close of business on the Record Date, the General Partner anticipates that there
will be approximately 6,693 Limited Partners of record.
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COMPLETION OF CONSENTS; DEADLINE FOR CONSENTING
A form of written consent (the "Consent") accompanies this Consent
Solicitation. Under the terms of the Partnership Agreement, the deadline for
consenting may not be less than 10 nor more than 50 days following the mailing
to the Limited Partners. EACH LIMITED PARTNER IS URGED TO COMPLETE, SIGN, DATE
AND RETURN THE CONSENT BY NOT LATER THAN APRIL 7, 1997 (THE "CONSENT DEADLINE"),
WHICH IS THE DATE 50 DAYS FOLLOWING THE MAILING OF THIS CONSENT SOLICITATION.
This date may be extended from time to time by the General Partner in its
discretion until not later than December 31, 1997, subject to applicable
requirements to update this Consent Solicitation.
A postage-paid, pre-addressed envelope has been provided for the Limited
Partners' convenience in returning Consents. Completed Consents should be
returned as soon as possible to The Herman Group, Inc., 2121 San Jacinto Street,
26th Floor, Dallas, Texas 75201. Limited Partners may also return their Consents
to the General Partner, c/o The Herman Group, Inc. via facsimile at
214-999-9323; Attention: Birtcher Partnerships. Consents may be marked either
"FOR," "AGAINST," or "ABSTAIN" with respect to the Dissolution. If a Limited
Partner fails to return a Consent, or returns a Consent marked "ABSTAIN," it
will have the same effect as a disapproval of the Dissolution. If a Consent is
returned signed, but not marked "AGAINST" or "ABSTAIN," the Limited Partner will
be deemed to have consented to the Dissolution. THE GENERAL PARTNER RECOMMENDS
THAT THE LIMITED PARTNERS VOTE "FOR" AND CONSENT TO THE DISSOLUTION.
APPROVAL OF DISSOLUTION
The Dissolution will be approved if consented to by the Consent Deadline by
a majority in interest of the Limited Partners as determined based upon the
Partnership's total original "Invested Capital" (as defined in the Partnership
Agreement) of $52,587,847.
REVOCATION OF CONSENTS
A Consent may be revoked by a Limited Partner by delivery to the General
Partner of a subsequent writing revoking the Consent. The writing must bear a
later date than the previously executed Consent and must be signed by the
Limited Partner. To be effective, any such revocation must be received by The
Herman Group, Inc. or the General Partner, as described above, on or before the
Consent Deadline or such earlier date as of which the Dissolution shall have
been consented to by the requisite number of Limited Partners.
EXPENSES OF SOLICITATION
The Partnership will bear all expenses of the solicitation of Consents,
whether or not the Dissolution is approved. After this Consent Solicitation is
mailed to the Limited Partners, Consents may be solicited by means of the mails,
facsimile transmissions, telephone or telegraph by the General Partner and its
general partners, as well as by their respective partners, regular employees and
affiliates, none of whom will receive any special or additional compensation for
their services. The Partnership has retained The Herman Group, Inc., an
independent solicitation firm, to aid in the solicitation of Consents. The cost
to the Partnership of doing so is currently estimated to be $112,000.
The General Partner will request brokers, nominees and other fiduciaries
and custodians who hold Interests in their names to furnish this Consent
Solicitation and any accompanying materials to the beneficial owners of such
Interests. The Partnership will reimburse such persons, if requested, for their
reasonable fees and expenses incurred in complying with this request.
IF YOU ARE A LIMITED PARTNER ON THE RECORD DATE, YOU ARE RESPECTFULLY
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING CONSENT IN THE
ENCLOSED ENVELOPE AT YOUR EARLIEST CONVENIENCE, BUT IN ANY EVENT PRIOR TO THE
CONSENT DEADLINE.
8
<PAGE> 11
INTEREST OF THE GENERAL PARTNER IN THE DISSOLUTION
GENERAL
Under subsection 9.1.8 of the Partnership Agreement, the General Partner
and its affiliates are entitled to a property disposition fee for real estate
brokerage services rendered in connection with the sale or disposition of the
Partnership's properties, including any sales or dispositions during the
liquidation and winding up of the Partnership following the Dissolution. The fee
is to be 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 the property is located, but in no event more than 3% of the
gross sale price of a 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 3% of the gross sale price. The
fee is not payable, however, unless and to the extent that the sale price of the
property in 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.
DISSOLUTION PROCEEDS
Subject to the payment of certain expenses and priority items as described
above under "Description of Dissolution -- Liquidation and Winding Up," the
General Partner would be entitled to receive 1% of the net proceeds available
for distribution to the Partners resulting from sales or other dispositions of
the Partnership's remaining properties pursuant to the Dissolution. However, if
the Partnership's properties are sold for an aggregate price within the
anticipated range, the General Partner will not receive any of the sales
proceeds. If the Dissolution were not consented to, it is unlikely that the
General Partner would receive any portion of the proceeds from future sales of
the Partnership's properties in the ordinary course of its business.
POTENTIAL CONFLICT OF INTEREST
LF Special Fund I, L.P. ("Liquidity Fund I"), one of the general partners
of the General Partner, owes a fiduciary duty to the Limited Partners of the
Partnership. The general partner of Liquidity Fund I also owes a fiduciary duty
to the third parties who invested in Liquidity Fund I as its limited partners.
These relationships may create a conflict of interest in connection with
Liquidity Fund I's evaluation and recommendation of the Dissolution. See
"Management."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
According to information available from the Partnership's transfer agent
and public records, as of the date of this Consent Solicitation, no person or
entity owned beneficially 5% or more of the outstanding Interests. The
Partnership has not issued any options, warrants or other rights to purchase
securities of the Partnership, nor has the General Partner loaned money to the
Partnership.
As a partnership, the Partnership has neither officers nor directors.
Moreover, as of December 31, 1996, neither the General Partner nor its partners,
or the partners, directors or officers of its partners, owned beneficially any
Interests. Although certain family members of the partners of the General
Partner hold Interests, such Interests in the aggregate represent less than 1%
of all Interests outstanding.
MANAGEMENT
The Partnership is a limited partnership and, as such, has no executive
officers or directors. The General Partner of the Partnership is
Birtcher/Liquidity Properties, a California general partnership, of which
Birtcher Investors, a California limited partnership, and Equity Properties,
Inc. ("Equity"), a wholly owned subsidiary of Damson Oil Corporation, were the
original general partners.
In December 1989, LF Special Fund I, L.P., an affiliate of Liquidity
Financial Group, L.P., purchased all of Equity's economic interest in the
General Partner and on December 31, 1992 was substituted as a general
9
<PAGE> 12
partner of the General Partner. Under the terms of the General Partner's
partnership agreement, Birtcher Investors remains responsible for the day-to-day
management of the Partnership's assets.
The following sets forth certain biographical information with respect to
the respective general partners and officers of Birtcher Investors and Liquidity
Fund I:
BIRTCHER PARTNERS
ARTHUR B. BIRTCHER. Mr. Birtcher, age 57, is a member of the Board of
Directors of Birtcher Enterprises. Since 1961, he has been active in the
management of all Birtcher-affiliated real estate companies (collectively, "The
Birtcher Organization") and has been primarily responsible for the financial and
legal administration of The Birtcher Organization's real estate projects as well
as the organization and administration of its regional offices nationwide. He is
active in the management of a diversified portfolio of real estate across the
United States, with his brother, Ronald E. Birtcher. In 1996, The Birtcher
Organization maintained a network of ten domestic regional offices in eight
states. Often recognized for his many achievements, Mr. Birtcher was named
Developer of the Year by NAIOP in 1989 and was voted Real Estate Man of the Year
in 1985 by the Real Estate and Construction division of the Anti-Defamation
League of B'nai B'rith. His numerous professional and community affiliations
include: Board of Trustees positions with University of San Diego and Mount St.
Mary's College; American Business Conference; U.S. Papal Foundation; Mission
Hospital Regional Medical Center; Policy Advisory Board of the Center for Real
Estate and Urban Economics for the University of California, Berkeley;
International Business Advisors for the University of San Diego; Orange County
United Way; and, O.P.T.I.M.A. Prevention and Treatment Integrated Medical
Assistance. Mr. Birtcher is also chairman of the board for the South County
Community Clinic and the Mission San Juan Capistrano Restoration Fund; a member
of the National Society of Real Estate Finance; a Land Board and Construction
Board member of the Catholic Diocese of Orange County; a member of the
Equestrian Order of the Knights of the Holy Sepulcher; and, a member of the
Order of the Knights of Malta, where he is designated a steward of St. Peter. In
addition, he is a leader in gang intervention programs that deal with emergency
and long-term prevention in South Orange County. Mr. Birtcher is a graduate of
Claremont Men's College and holds a bachelor of arts degree in business
economics. He also is a general partner of affiliated partnerships which serve
as the general partner of Damson/Birtcher Realty Income Fund-I and Real Estate
Income Partners III, both of which are public partnerships.
RONALD E. BIRTCHER. Mr. Birtcher, age 65, is a member of the Board of
Directors of Birtcher Enterprises. Since 1967, Mr. Birtcher has been active in
the management of all of the Birtcher real estate companies, and is primarily
responsible for evaluating proposed real estate development projects, which
encompasses architectural design, construction, market research, lease
negotiation and sales. He joined The Birtcher Organization in 1951 to engage in
the real estate development business with his father, Fayette E. Birtcher, who
founded the family business in 1939. He is active in the management of a
diversified portfolio of real estate nationwide, with his brother, Arthur B.
Birtcher. Mr. Birtcher holds a bachelor of arts degree in business
administration from the University of Arizona. His many accolades include:
election to Lambda Alpha, an honorary land economics society; Developer of the
Year awarded by the NAIOP in 1989; the Medal of Honor from the Building Industry
Association (the association's highest award); the Entrepreneur of the Year
awarded in 1991 by the United States-Mexico Foundation; and, the 1994 Sumigarden
Award presented at the annual UCI Real Estate Conference. Mr. Birtcher's
professional affiliations include membership in the National Association of
Industrial and Office Parks; he serves as a board member for a number of
community organizations such as the Wellness Clinic and Coachella Valley
Tomorrow (Palm Springs area economic development council); and, he is Chairman
of the Advisory Board to the University of California, Irvine, Graduate School
of Management in Real Estate. In addition, Mr. Birtcher has been the director
and past president of the YMCA Camping Association of Orange County, past
president and elder of the San Juan Capistrano Presbyterian Church, and past
chairman of the Orange County Sheriff's Association. Mr. Birtcher is also a
general partner of affiliated partnerships which serve as the general partner of
Damson/Birtcher Realty Income Fund-I and Real Estate Income Partners III, both
of which are public partnerships.
ROBERT M. ANDERSON. Mr. Anderson, age 38, is Co-chairman of the Board of
Directors of Birtcher Enterprises and President of Birtcher Property Services. A
member of The Birtcher Organization since 1988,
10
<PAGE> 13
he is responsible for the operation and management of over six million square
feet of real estate for the Birtcher family and a variety of clients including
various public institutions, private institutions, and private individuals. He
oversees all third-party real estate services activity including asset
management, property management, property acquisitions and property
dispositions. Mr. Anderson heads up the day-to-day management team responsible
for the Partnership's properties. Prior to joining The Birtcher Organization, he
worked at the Irvine Company, a Newport Beach, California based land owner and
real estate developer, where he was responsible for project finance and capital
markets activity. He is also active in a variety of real estate industry groups
and charitable organizations. Mr. Anderson received a bachelor of arts degrees
in Economics and Accounting from Augustana College and holds a masters in
business administration from Harvard Business School. Mr. Anderson is the
son-in-law of Mr. Arthur B. Birtcher.
MICHAEL S. BUZAR. Mr. Buzar, age 44, has been involved in the sale,
leasing, management and marketing of commercial real estate since 1978. He
joined The Birtcher Organization as a senior vice president of marketing and
leasing in 1988. In November 1991, he was promoted to Asset Manager, responsible
for all aspects of the performance of the Partnership's portfolio. Prior to
joining The Birtcher Organization, Mr. Buzar served as vice president of
marketing and leasing for the Birtcher/Welsh joint venture from 1985 through
1987. From 1978 to December 1985, he was an industrial specialist in Minneapolis
/St. Paul, Minnesota at Coldwell Banker Commercial Real Estate Services (now CB
Commercial Real Estate Group), a national real estate brokerage company. Mr.
Buzar holds a bachelor of arts degree from the University of Michigan, and he is
a licensed real estate broker in the State of Minnesota. He maintains various
professional affiliations, including memberships in the International Council of
Shopping Centers and the National Association of Realtors.
LF SPECIAL FUND I, L.P.
RICHARD G. WOLLACK. Mr. Wollack, age 51, joined Koll Real Estate Services
(formerly Koll Holding) in 1995 as its Executive Vice President and Chief
Financial Officer and became President of its investment advisory subsidiary,
Koll Investment Management ("Koll") in 1996. Koll is one the nation's largest
property services firms with over 175 million square feet of assets managed in
over 275 U.S. cities. Prior to joining Koll, Mr. Wollack founded, in 1980,
Liquidity Fund, the country's largest purchaser of real estate limited
partnership interests in the secondary market. In 1995, Koll acquired from
Liquidity Fund two lines of business: i) investment management of traded real
estate equity securities, most particularly REITs; and, ii) the National Real
Estate Index (the "Index") research and publishing company. The Index databases,
developed in the course of analyzing property assets over the last fifteen
years, contains in-depth information on over 300 traded real estate securities
and 45,000 property transactions and provides the foundation for the various
National Real Estate Index products, published in cooperation with Ernst &
Young. The Index is the nation's only transaction-based research service (used
by over 1,500 firms) and reports in-depth data and trends on the 65 largest U.S.
markets each quarter.
Mr. Wollack has been involved in all phases of the real estate investment
business since 1971, when he was co-founder and president of First Capital
Companies, a large investment manager now based in Chicago. From 1981 to 1986
(when it was sold) he was a principal and co-president of Consolidated Capital,
at the time one of the nation's largest real estate investment firms. In total,
he has been a principal in dozens of real estate entities capitalized at over $2
billion. He is widely known throughout the real estate and financial
communities, is involved in numerous industry activities and is a nationally
recognized speaker and author. Mr. Wollack holds a bachelor of arts degree from
University of Illinois and a masters of business administration with distinction
from Stanford Graduate School of Business. He is currently a member of the Board
of Advisors of the Institutional Real Estate Index. Mr. Wollack is also a
licensed real estate broker in the State of California and he maintains his
designation as a Principal and Financial Principal with the NASD.
BRENT R. DONALDSON. Brent R. Donaldson, age 43, is co-founder and
president of the Liquidity Financial Group companies and its predecessors
("LFG"). He has been responsible for the growth and managed the operations of
LFG since inception in 1980. Mr. Donaldson has pioneered research and trading in
otherwise illiquid real estate securities -- originally real estate limited
partnerships ("RELPs") and more
11
<PAGE> 14
recently institutional commingled real estate funds ("CREFs"). He has managed
accounts and conducted research in real estate investment trusts ("REITs") and
participated in the creation and publishing of the National Real Estate Index,
the nation's largest transaction-based real estate index. Most recently, Mr.
Donaldson has established LFG as an advisor to listed REITs or "opportunity
funds" in acquisitions of property portfolios.
In 1980, under Mr. Donaldson's leadership, LFG created the partnership
secondary market, leading that market for 14 years in both assets under
management and annual trading/transaction volume, as well as research coverage
(focusing primarily on SEC registered partnerships which issued approximately
$60 billion). Also under his management, LFG's investment advisor subsidiary has
managed accounts in traded real estate equity securities, such as REITs, since
1987. Having invested in REITs and analyzed their performance during up and down
markets for both properties and securities has provided perspective on valuation
of equity portfolios in both public and private real estate markets. This line
of LFG's business was recently sold to the Koll Companies in Newport Beach,
California. In 1994, Mr. Donaldson expanded the activities of LFG's
broker/dealer subsidiary conducting research on CREFs (in the context of
valuation consulting) and he initiated the nation's first secondary market for
institutional CREFs. Mr. Donaldson has used the information databases which LFG
compiled over the years in providing investment advisory services to nationally
known investors, managers, and institutions with respect to valuation and
transactions -- particularly as related to portfolio acquisitions and tender
offers. He is widely known throughout the real estate and financial communities,
is involved in numerous industry activities and is a nationally recognized
speaker and author. Mr. Donaldson holds a bachelor of arts degree from
University of California, Davis and a masters of business administration from
University of California, Berkeley, Graduate School of Business. He is currently
a member of the Board of Advisors of the Real Estate Financial Journal and a
past member of the National Association of Securities Dealers ("NASD") Direct
Participation Subcommittee on Trading Standardization and the Securities
Industry Association Direct Participation Committee. Mr. Donaldson also
maintains his designation as a General Securities Principal with the NASD.
In a matter not involving Damson/Birtcher Realty Income Fund-II or
Birtcher/Liquidity Properties, in 1991, the NASD Business Conduct Committee for
the Northern District of California initiated a complaint against Liquidity Fund
Investment Corporation ("LFIC") alleging violations of the NASD's Rules of Fair
Practice. Specifically, the complaint alleged that LFIC (i) bought and sold
limited partnership units in the secondary market, from or to unaffiliated
parties, subject to mark-ups or mark-downs in excess of the NASD'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 were also named as respondents in the complaint in their
capacities as principals of LFIC. The complaint was settled as of January 3,
1992 on the following terms: the NASD made findings, which were neither admitted
nor denied, of violations by LFIC and Mr. Donaldson of the NASD's guidelines
with respect to mark-ups or mark-downs, and of the failure by LFIC (but not Mr.
Donaldson) to disclose the amount of such mark-ups or mark-downs. Both
allegations were dismissed as to Mr. Wollack. Under the settlement, LFIC was
censured and fined $125,000 and Mr. Donaldson was censured and fined $7,500.
TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS
The General Partner knows of no termination or change-in-control
arrangement affecting the Partnership, except as contemplated by the Partnership
Agreement. The Partnership Agreement provides generally that the bankruptcy or
dissolution of the General Partner will cause a dissolution of the Partnership
unless there is a remaining general partner that elects to continue the business
of the Partnership. In the event there is no remaining general partner, the
Partnership may nonetheless be continued by vote of a majority in interest of
the Limited Partners. The Partnership Agreement also permits the General Partner
to withdraw from the Partnership subject to certain conditions. In such event,
the withdrawing General Partner is obliged to offer to resell its interest in
the Partnership to the Partnership or, at its election, to convert its interest
to that of a Limited Partner.
12
<PAGE> 15
ADDITIONAL INFORMATION
This Consent Solicitation is accompanied by copies of the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, as filed
with the Securities and Exchange Commission. The information in these reports is
incorporated herein by reference. The exhibits to such reports are not included
with this Consent Solicitation, but are available without charge to any person
entitled to receive this Consent Solicitation, upon written request, from the
General Partner, 27611 La Paz Road, P.O. Box 30009, Laguna Niguel, California
92607-0009; Attention: Damson/Birtcher Realty Income Fund-II. A requested
exhibit will be furnished by first-class mail, as other equally prompt means,
within two business days of such request.
BIRTCHER/LIQUIDITY PROPERTIES,
a California general partnership
By: Birtcher Investors, a California limited
partnership,
General Partner of Birtcher/Liquidity Properties
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
By: /s/ Arthur B. Birtcher
-------------------------------------
Arthur B. Birtcher
Co-chairman, BREICORP.
By: /s/ Ronald E. Birtcher
-------------------------------------
Ronald E. Birtcher
Co-chairman, BREICORP.
By: /s/ Robert M. Anderson
-------------------------------------
Robert M. Anderson
Executive Director, BREICORP
13
<PAGE> 16
By: LF SPECIAL FUND I, L.P.,
a California limited partnership
General Partner of
Birtcher/Liquidity Properties
By: LIQUIDITY FUND ASSET MANAGEMENT, INC.,
a California corporation
General Partner of LF Special Fund I, L.P.
By: /s/ Richard G. Wollack
----------------------------------------------------------------------------
Richard G. Wollack,
Chairman, Liquidity Fund Asset
Management, Inc.
By: /s/ Brent R. Donaldson
----------------------------------------------------------------------------
Brent R. Donaldson,
President, Liquidity Fund Asset
Management, Inc.
Laguna Niguel, California
February 18, 1997
14
<PAGE> 17
EXHIBIT A
DISTRIBUTIONS TO LIMITED PARTNERS
Following is a summary of distributions to the Limited Partners for the
periods shown:
<TABLE>
<CAPTION>
DISTRIBUTIONS PER $1,000 OF ORIGINAL
INVESTED CAPITAL
---------------------------------------
FROM OPERATIONS FROM PROPERTY SALES
--------------- -------------------
<S> <C> <C>
1996
1st Quarter................................................. $ 8.80 N/A
2nd Quarter................................................. 8.70 N/A
3rd Quarter................................................. 9.61 N/A
4th Quarter................................................. 11.41 $ 13.71
1995
1st Quarter................................................. 8.40 N/A
2nd Quarter................................................. 8.80 N/A
3rd Quarter................................................. 8.80 N/A
4th Quarter................................................. 8.80 N/A
1994
1st Quarter................................................. 6.79 N/A
2nd Quarter................................................. 8.00 N/A
3rd Quarter................................................. 7.70 N/A
4th Quarter................................................. 8.90 N/A
Since Inception in 1984..................................... $459.45 $ 13.71
</TABLE>
A-1
<PAGE> 18
EXHIBIT B
RECENT SECONDARY TRADING AND
TENDER OFFER PRICES FOR
LIMITED PARTNER INTERESTS
Following is a summary, based on information available to the General
Partner, of prices at which Interests have been sold and purchased in secondary
transactions (other than pursuant to a tender offer) during the periods shown
and the number of such transactions. The General Partner is aware that this
information is incomplete and that other, unreported transactions have occurred
during the period shown. The prices shown are per $1,000 of original Invested
Capital and do not give effect to any markups, markdowns, discounts or
commissions which may have been paid in connection with the transactions.
1996 SECONDARY TRADING RANGES
<TABLE>
<CAPTION>
NO. OF
INTERESTS
MONTH LOW HIGH TRADED
- --------------------------------------------------------------- ------- ------- ---------
<S> <C> <C> <C>
November....................................................... $360.00 $440.00 165
October........................................................ 360.00 415.00 15
September...................................................... 185.00 425.00 127
August......................................................... 307.50 400.00 54
July........................................................... 200.00 200.00 38
June........................................................... 182.50 381.41 16
May............................................................ 360.00 360.73 13
April.......................................................... 350.00 391.25 100
March.......................................................... 350.00 369.80 2
February....................................................... 170.00 365.00 62
January........................................................ 200.00 380.00 9
</TABLE>
The Interests also have been the subject of two recent tender offers by
unaffiliated third parties, in each case for up to 4.9% of the outstanding
Interests. The following table sets forth certain information with respect to
these tender offers:
<TABLE>
<CAPTION>
RECENT TENDER OFFERS
-----------------------------
COMMENCEMENT PRICE NO. OF
NAME OF TENDER OFFEROR DATE OF TENDER OFFERED INTERESTS TENDERED
- -------------------------------------------- ----------------- -------- ------------------
<S> <C> <C> <C>
Madison Partnership Liquidity
Investors XVI............................. January 24, 1997 $ 305.00 open
Grape Investors, LLC........................ June 24, 1996 $ 170.00 1,198
Equity Resource Fund XVII................... October 6, 1995 $ 210.00 1,130
</TABLE>
B-1
<PAGE> 19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1995 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
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
27611 LA PAZ ROAD, LAGUNA NIGUEL, 92656
CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(714) 643-7700
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
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> 20
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business................................................................ 2
Item 2. Properties.............................................................. 3
Item 3. Legal Proceedings....................................................... 3
Item 4. Submission of Matters to a Vote of Security Holders..................... 4
PART II
Item 5. Market for the Registrant's Limited Partnership Interests and Related
Security Holder Matters............................................... 4
Item 6. Selected Financial Data................................................. 4
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 5
Item 8. Financial Statements and Supplementary Data............................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 37
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 37
Item 11. Executive Compensation.................................................. 37
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 37
Item 13. Certain Relationships and Related Transactions.......................... 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 38
-- Signatures.............................................................. 40
</TABLE>
1
<PAGE> 21
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, mandates 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 has decided to account for the Partnership's properties as assets held
for sale, 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, 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.
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 $1,120,000 in 1995,
$1,207,000 in 1994 and $1,209,000 in 1993, or approximately 24%, 26% and 29%,
respectively, of the Partnership's total rental income. Rental income from Delta
Dental Corporation totaled $701,000 in 1995, $694,000 in 1994 and $643,000 in
1993, or approximately 16%, 15% and 16%, 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.
2
<PAGE> 22
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
APPROXIMATE RENTABLE LEASES OCCUPIED
NAME/LOCATION/DATE PURCHASE AREA IN AS OF AS OF
ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/95 12/31/95
- -------------------------- ----------- ---------------------------------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Atrium Place.............. $2,230,000 A single-story office building located 23,970 9 57%
Arlington Heights, on 1.74 acres of land.
Illinois
December 19, 1985
Lakeland Industrial 5,875,000 Nine one-story office/warehouse 209,840 16 96%
Park,..................... buildings located on 11.27 acres of
Phases I-IV land.
Milwaukee, Wisconsin
December 19, 1985 and
November 25, 1986
Kennedy Corporate 4,599,000 Three-story office building located on 39,933 9 85%
Center,................... 2.8 acres of land.
Phase I
Palatine, Illinois
January 8, 1986
Iomega/Northpointe 7,980,000 Seven industrial/office buildings 210,165 7 100%
Center.................... located on 16.6 acres of land.
Roy, Utah
January 31, 1986
Ladera Shopping Center,... 2,889,000 A neighborhood retail shopping center 35,094 6 100%
Phase II located on 3.8 acres of land.
Albuquerque, New Mexico
February 7, 1986
Creekridge Center......... 11,865,000 Two three-story office buildings located 81,835 14 91%
Bloomington, Minnesota on 5 acres of land.
September 23, 1986
Cooper Village............ 4,789,000 (2) A single-story shopping center located 59,978 (2) 22 96%
Mesa, Arizona on 10.88 acres of land.
December 30, 1987 and
December 30, 1988
----------- -------
TOTAL..................... $40,227,000 660,815
=========== =======
</TABLE>
- ---------------
(1) The purchase price does not include an allocable share of acquisition fees
of $2,629,000 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, 1995, 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 (1) 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
3
<PAGE> 23
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.
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 29, 1996, the number of holders of the Partnership's
interests is as follows:
<TABLE>
<S> <C>
General Partner............................................ 1
Limited Partners........................................... 7,026
-----
7,027
=====
</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>
CALENDER
QUARTERS 1996 1995 1994 1993 1992 1991
---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First................. $463,000 $441,000 $358,000 $420,000 $416,000 $524,000
Second................ 462,000 421,000 262,000 372,000 394,000
Third................. 462,000 405,000 200,000 457,000 394,000
Fourth................ 463,000 465,000 289,000 430,000 394,000
</TABLE>
The Limited Partners and the General Partner are entitled to receive
quarterly cash distributions, as available, in the future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenues.................. $ 4,523,000 $ 4,637,000 $ 4,181,000 $ 4,043,000 $ 4,173,000
=========== =========== =========== =========== ===========
Net Income (Loss):
General Partner............... $ (6,000) $ 5,000 $ 5,000 $ (34,000) $ 2,000
Limited Partners.............. (569,000) 457,000 541,000 (3,343,000) 204,000
----------- ----------- ----------- ----------- -----------
$ (575,000) $ 462,000 $ 546,000 $(3,377,000) $ 206,000
=========== =========== =========== =========== ===========
Total Distributions:
General Partner............... $ 18,000 $ 17,000 $ 12,000 $ 17,000 $ 17,000
=========== =========== =========== =========== ===========
Limited Partners.............. $ 1,828,000 $ 1,649,000 $ 1,171,000 $ 1,675,000 $ 1,706,000
=========== =========== =========== =========== ===========
Total Assets.......... $29,134,000 $31,496,000 $32,737,000 $33,483,000 $38,516,000
=========== =========== =========== =========== ===========
</TABLE>
4
<PAGE> 24
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
objective has been to hold its properties as long-term investments, although
properties may be sold at any time, depending upon the General Partner's
judgment of the anticipated remaining economic benefits of continued ownership.
That notwithstanding, the Information Statement, dated May 5, 1993, as described
below, mandates 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 has decided to account for the Partnership's
properties as assets held for sale instead of for investment. 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.
Distributions for the year ended December 31, 1995, represent net cash flow
from operations of the Partnership's properties and interest earned on the
temporary investment of working capital, reduced by current year capital reserve
requirements. 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 future 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, 1995.
The General Partner elected to terminate the Partnership's Property
Management Agreement with Glenborough Management Corporation ("Glenborough")
effective November 1, 1993. On that date, the General Partner caused the
Partnership to enter a new property management agreement with Birtcher
Properties, an affiliate of the General Partner. Pursuant to the Partnership
Management Agreements, Birtcher Properties will act as the Partnership's
exclusive agent to operate, rent, manage and maintain the Partnership's
properties. Birtcher Properties will perform substantially the same services
that Glenborough performed during the previous two-year period at fees similar
to (and not larger than) the fees it used to pay Glenborough, plus certain costs
associated with property management, as before. The contracts are terminable
upon a minimum of 60 days' written notice by either party. As before, the
General Partner will continue to oversee the day-to-day management of the
Partnership.
JANUARY 1, 1996 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
5
<PAGE> 25
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 event that properties with (then) current appraised values
constituting at least one-half of the total (then) current appraised values of
all of the Partnership's properties are not sold or under contract for sale by
the end of 1996.
Given this mandate, the General Partner has requested that the appraiser
provide an assessment of value that reflects a shorter investment holding term.
Although the General Partner does not currently have a specific liquidation plan
for the Partnership's properties, it requested that the appraiser assume that
the entire portfolio would be sold over four years, in connection with the
January 1995 appraisals and over three years in connection with the January 1996
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 properties at January 1, 1996 to be
$30,355,000, or $5,772 per $10,000 original investor subscription.
Over the past year, the General Partner has examined several alternative
methods to achieve the Partnership's goal of selling the Partnership's
properties and liquidating the Partnership at the earliest practicable time
consistent with achieving reasonable value for the Limited Partners' investment.
As explained in the Partnership's May 5, 1993 Information Statement, "achieving
reasonable value" has meant for the Partnership to balance receiving higher
sales prices per property than their 1993 values while at the same time not
waiting forever to sell at a theoretical "top of the market." Alternatives under
consideration by the General Partner may include a property-by-property
liquidation or selling all of the properties as a single portfolio. The General
Partner has had preliminary discussions regarding disposition, in whole or in
part, of the Partnership's properties with various potential purchasers of some
or all of the Partnership's portfolio.
In connection with its consideration of these alternatives, the General
Partner has decided to treat its properties as held for sale, instead of for
investment, for financial statement purposes. 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 ensure that each property was carried on the Partnership's balance
sheet 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, 1996. However, fair value can only be determined based upon sales to
third parties, and sales proceeds could differ substantially.
Based upon the General Partner's survey of the current marketplace, the
General Partner believes, in fact, that in the relatively short term the
Partnership's properties could generate sales prices that, in the aggregate,
could be materially less than their aggregate appraised values based upon an
"Investment Value" appraisal model. The amount of the possible variance between
the aggregate appraised values and potential sales prices cannot be reliably
estimated at this time, because of the numerous variables that could affect the
sales prices, including but not limited to the time frame in which the
properties must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable properties are
being sold at the time of the Partnership's sales, constantly changing local
market conditions and the state of leasing negotiations and capital expenditures
for the properties at the time of sale.
The foregoing appraised value of the properties indicates an estimated net
asset value of the Partnership of $31,498,000, or $5,990 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.) This
equates to a net asset value of $299 per $500 par value of Partnership Interest.
This compares to original purchase prices aggregating $7,716 and the January 1,
1995 appraised value of $5,902 per $10,000 of original investor subscription.
6
<PAGE> 26
RESULTS OF OPERATIONS
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 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 has decided to account for the Partnership's properties as assets held
for sale, 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 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
7
<PAGE> 27
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.
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.
YEAR ENDED DECEMBER 31, 1993
The increase in rental income for the year ended December 31, 1993, as
compared to 1992, was attributable to several factors. At Kennedy, the expansion
of two existing tenants (encompassing an aggregate 7,406 square feet), resulted
in an increase in occupancy rate and an aggregate increase in rental income of
$106,000. In addition, bad debt charge-offs of $72,000 were recorded in 1992, as
a result of two tenant bankruptcies at Kennedy Corporate Center and Lakeland
Industrial Park. These charge-offs had the effect of lowering 1992 revenue as
compared to 1993. The aforementioned increases were partially offset by a
decrease in rental income at Atrium Place, which resulted from the property's
decrease in aggregate occupancy during 1993. The decreased occupancy (45% at
December 31, 1993) reduced rental income by $130,000, when compared to 1992.
Interest income resulted from the temporary investment of Partnership
working capital. The decrease for the year ended December 31, 1993, as compared
to 1992, was attributable to a reduced level of average working capital and a
lower rate of return on short-term investments.
8
<PAGE> 28
The decrease in operating expenses for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to the decrease in legal and
professional services relating to a tenant dispute and real estate tax appeals
at Creekridge and Kennedy Corporate Center. The aforementioned decreases were
partially offset by an increase in utilities, cleaning and HVAC repairs at
Lakeland Industrial Park.
The decrease in real estate taxes for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to a lower tax assessment at Atrium
and Kennedy Corporate Center. The aforementioned decreases were partially offset
by an increase in real estate tax expense at Creekridge. The increase was a
result of a $134,000 tax refund in 1992, which had the effect of lowering 1992
tax expense.
The decreases in depreciation expenses for the year ended December 31,
1993, as compared to 1992, were a result of a $3,850,000 adjustment to the
carrying value of real estate assets during 1992. As part of this adjustment,
the depreciable bases (buildings and improvements) of Atrium Place, Creekridge
and Kennedy were reduced in December 1992, by $236,000, $2,822,000 and $370,000,
respectively, with the remaining adjustment of $422,000 allocated to land.
General and administrative expenses for the year ended December 31, 1993
included charges of $423,000 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 $414,000 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 increase in general and administrative expenses for the year ended
December 31, 1993, as compared to 1992, was primarily attributable to the
payment of asset management fees ($232,000) to the General Partner and its
affiliates pursuant to the amended Partnership Agreement. In addition, legal and
professional services, printing, postage and mailing expenses increased as a
result of the Partnership's solicitation of the Limited Partners for the
Information Statement.
The General Partner elected to terminate the Partnership's Property
Management Agreement with Glenborough Management Corporation ("Glenborough")
effective November 1, 1993. On that date, the General Partner caused the
Partnership to enter a new property management agreement with Birtcher
Properties, an affiliate of the General Partner. Pursuant to the Partnership
Management Agreement, Birtcher Properties will act as the Partnership's
exclusive agent to operate, rent, manage and maintain the Partnership's
properties. In its capacity as property manager for the Partnership's
properties, Birtcher Properties will perform substantially the same services
that Glenborough performed during the previous two-year period at fees similar
to (and not larger than) the fees it used to pay Glenborough, plus certain costs
associated with property management, as before. The contract is terminable upon
a minimum of 60 days' written notice by either party. As before, the General
Partner will continue to oversee the day-to-day management of the Partnership.
9
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
Independent Auditors' Report.......................................................... 11
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994..................................... 12
Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993....... 13
Statements of Changes in Partners' Capital for the Years Ended December 31, 1995,
1994 and 1993.................................................................... 14
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993....... 15
Notes to Financial Statements....................................................... 16
Schedule:
III -- Real Estate and Accumulated Depreciation as of December 31, 1995............. 24
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
<TABLE>
<S> <C>
COOPER VILLAGE PARTNERS (A GENERAL PARTNERSHIP)
Independent Auditors' Report.......................................................... 26
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994..................................... 27
Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993....... 28
Statements of Changes in Partners' Capital for the Years Ended December 31, 1995,
1994 and 1993.................................................................... 29
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993....... 30
Notes to Financial Statements....................................................... 31
Schedule:
III -- Real Estate and Accumulated Depreciation as of December 31, 1995............. 36
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
10
<PAGE> 30
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.
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, 1995 and 1994, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995, 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 28, 1996
11
<PAGE> 31
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Properties held for sale (net of valuation allowance of
$707,000)...................................................... $23,387,000 $ --
----------- ------------
Investments in real estate, net:
Land........................................................... -- 3,506,000
Buildings and improvements..................................... -- 32,309,000
----------- ------------
-- 35,815,000
Less accumulated depreciation............................... -- (10,954,000)
----------- ------------
-- 24,861,000
Investment in Cooper Village Partners............................ 3,892,000 4,817,000
Cash and cash equivalents........................................ 1,055,000 1,058,000
Accounts receivable (net of allowance for doubtful accounts of
$23,000 in 1994)............................................... 29,000 31,000
Accrued rent receivable.......................................... 527,000 471,000
Prepaid expenses and other assets, net........................... 244,000 258,000
----------- ------------
$29,134,000 $ 31,496,000
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities......................... $ 712,000 $ 653,000
----------- ------------
Partners' capital (deficit):
Limited Partners............................................... 28,590,000 30,987,000
General Partner................................................ (168,000) (144,000)
----------- ------------
28,422,000 30,843,000
Commitments and contingencies.................................... -- --
----------- ------------
$29,134,000 $ 31,496,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
12
<PAGE> 32
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income........................................ $4,430,000 $4,569,000 $4,132,000
Interest and other income............................ 93,000 68,000 49,000
---------- ---------- ----------
Total revenues............................... 4,523,000 4,637,000 4,181,000
---------- ---------- ----------
EXPENSES:
Operating expenses................................... 1,111,000 1,139,000 1,011,000
Real estate taxes.................................... 722,000 705,000 715,000
Depreciation and amortization........................ 1,252,000 1,290,000 1,229,000
General and administrative........................... 688,000 638,000 837,000
Adjustment to carrying value of real estate.......... 707,000 600,000 --
---------- ---------- ----------
Total expenses............................... 4,480,000 4,372,000 3,792,000
---------- ---------- ----------
Income before equity in earnings (loss) of Cooper
Village Partners..................................... 43,000 265,000 389,000
Equity in earnings (loss) of Cooper Village Partners... (618,000) 197,000 157,000
---------- ---------- ----------
NET INCOME (LOSS)...................................... $ (575,000) $ 462,000 $ 546,000
========== ========== ==========
NET INCOME (LOSS) ALLOCABLE TO:
General Partner...................................... $ (6,000) $ 5,000 $ 5,000
========== ========== ==========
Limited Partners..................................... $ (569,000) $ 457,000 $ 541,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
13
<PAGE> 33
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
-----------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1992........................... $(125,000) $32,809,000 $32,684,000
Net income......................................... 5,000 541,000 546,000
Distributions...................................... (12,000) (1,171,000) (1,183,000)
--------- ----------- -----------
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)
Distribution....................................... (18,000) (1,828,000) (1,846,000)
--------- ----------- -----------
Balance, December 31, 1995........................... $(168,000) $28,590,000 $28,422,000
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
14
<PAGE> 34
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (575,000) $ 462,000 $ 546,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 1,252,000 1,290,000 1,229,000
Equity in (earnings) loss of Cooper Village
Partners....................................... 618,000 (197,000) (157,000)
Adjustment to carrying value of real estate....... 707,000 600,000 --
Changes in:
Accounts receivable............................... 2,000 19,000 36,000
Accrued rent receivable........................... (56,000) (271,000) (48,000)
Prepaid expenses and other assets................. (61,000) (29,000) (164,000)
Accounts payable and accrued liabilities.......... 59,000 (37,000) (96,000)
Due to affiliates................................. -- -- (13,000)
----------- ----------- -----------
Net cash provided by operating activities........... 1,946,000 1,837,000 1,333,000
----------- ----------- -----------
Cash flows from investing activities:
Investments in real estate........................ (410,000) (415,000) (527,000)
Distributions received from Cooper Village
Partners....................................... 307,000 302,000 330,000
----------- ----------- -----------
Net cash used in investing activities............... (103,000) (113,000) (197,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions..................................... (1,846,000) (1,666,000) (1,183,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (3,000) 58,000 (47,000)
Cash and cash equivalents, beginning of year........ 1,058,000 1,000,000 1,047,000
----------- ----------- -----------
Cash and cash equivalents, end of year.............. $ 1,055,000 $ 1,058,000 $ 1,000,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
15
<PAGE> 35
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 modifies 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 modifies 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,
1995 and 1994 the portfolio was appraised at an aggregate value of approximately
$31,035,000 (unaudited) and $34,968,000 (unaudited), respectively, which
includes the Partnership's interest in Cooper Village Partners which was
appraised at $4,486,000 (unaudited) and $4,118,000 (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 modifies 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 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 modifies 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
16
<PAGE> 36
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $24,110,000 as of December 31, 1995.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
The amendment modifies 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. Although the current market
for real estate is depressed, the General Partner is committed to selling the
Partnership's properties as soon as reasonably practicable. To that end, the
amendment mandates that the General Partner seek a vote of the Limited Partners
no later than December 31, 1996 regarding the 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 value of all
Partnership properties as of that date are not sold or under contract for sale
by the end of 1996. In conjunction with the vote, the General Partner will
provide an analysis and recommendation regarding the advisability of liquidating
the Partnership.
17
<PAGE> 37
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Over the past year, the General Partner has examined several alternative
methods to achieve the Partnership's goal of selling the Partnership's
properties and liquidating the Partnership at the earliest practicable time
consistent with achieving reasonable value for the Limited Partners' investment.
As explained in the Partnership's May 5, 1993 Information Statement, "achieving
reasonable value" has meant for the Partnership to balance receiving higher
sales prices per property than their 1993 values while at the same time not
waiting forever to sell at a theoretical "top of the market." Alternatives under
consideration by the General Partner may include a property-by-property
liquidation or selling all of the properties as a single portfolio. The General
Partner has had preliminary discussions regarding disposition, in whole or in
part, of the Partnership's properties with various potential purchasers of some
or all of the Partnership's portfolio.
In connection with its consideration of these alternatives, the General
Partner has decided to treat its properties as held for sale instead of for
investment for financial statement purposes. 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
was carried on the Partnership's balance sheet 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, 1996. However, fair value
can only be determined based upon sales to third parties, and sales proceeds
could differ substantially.
Based upon the General Partner's survey of the current marketplace, the
General Partner believes, in fact, that in the relatively short term the
Partnership's properties could generate sales prices that, in the aggregate,
could be materially less than their aggregate appraised values based upon an
"Investment Value" appraisal model. The amount of the possible variance between
the aggregate appraised values and potential sales prices cannot be reliably
estimated at this time, because of the numerous variables that could affect the
sales prices, including but not limited to the time frame in which the
properties must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable properties are
being sold at the time of the Partnership's sales, constantly changing local
market conditions and the state of leasing negotiations and capital expenditures
for the properties at the time of sale.
(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.
18
<PAGE> 38
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 an
average 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.
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, 1995 and
1994, totaled $955,000 and $973,000, 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.
19
<PAGE> 39
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
1995 1994
--------------------------- ---------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Total Assets.................. $29,134,000 $37,705,000 $31,496,000 $38,570,000
Total Liabilities............. $ 712,000 $ 712,000 $ 653,000 $ 653,000
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) per Financial Statements...... $(575,000) $ 462,000 $ 546,000
Adjustment to carrying value of real estate..... 707,000 600,000 --
Equity in loss of Cooper Village due to
adjustment in carrying value.................. 789,000 -- --
Depreciation differences on investments in real
estate........................................ (304,000) (259,000) (328,000)
Other........................................... 94,000 (137,000) 89,000
---------
Taxable income per Federal tax return
(unaudited)................................... $ 711,000 $ 666,000 $ 307,000
=========
</TABLE>
Significant Tenants
Rental income from Iomega Corporation totaled $1,120,000 in 1995,
$1,207,000 in 1994 and $1,209,000 in 1993, or approximately 24%, 26% and 29%,
respectively, of the Partnership's total rental income. Rental
income from Delta Dental Corporation totaled $701,000 in 1995, $694,000 in 1994,
$643,000 in 1993, or approximately 16%, 15% and 16%, respectively, of the
Partnership's total rental income.
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.
20
<PAGE> 40
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Condensed summary financial information for CV Partners is presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Property held for sale (net of valuation allowance of
$1,360,000)............................................... $6,386,000 $ --
Land, Buildings and Equipment (net)......................... -- 7,967,000
Cash and Other Assets....................................... 533,000 521,000
---------- ----------
Total Assets...................................... $6,919,000 $8,488,000
========== ==========
Accounts Payable and Accrued Liabilities.................... $ 111,000 $ 85,000
Partners' Capital........................................... 6,808,000 8,403,000
---------- ----------
Total Liabilities and Partners' Capital........... $6,919,000 $8,488,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Rental and Other Income....................... $ 1,046,000 $1,023,000 $ 989,000
Operating and Other Expenses.................. (498,000) (428,000) (466,000)
Adjustment to Carrying Value of Real Estate... (1,360,000) -- --
Depreciation and Amortization................. (253,000) (256,000) (252,000)
----------- ---------- ---------
Net Income (Loss)............................. $(1,065,000) $ 339,000 $ 271,000
=========== ========== =========
</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, 1995, 1994 and 1993, the Partnership was charged with
approximately $161,000, $101,000 and $150,000, respectively, of such expenses.
On November 1, 1993, the General Partner elected to terminate the
Partnership's property management agreement with an unaffiliated third party. On
that date, the General Partner entered into new property management agreements
with Birtcher Properties, an affiliate of the General Partner. The contracts
encompass terms at least as favorable to the Partnership as the terminated
contracts with the unaffiliated third
21
<PAGE> 41
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
party and are terminable by the Partnership upon 60 days' written notice to
Birtcher Properties. Fees paid to the General Partner's affiliate for property
management services are 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 $158,000 in
1995, $159,000 in 1994, and $29,000 in 1993. 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 $55,000, $40,000, and
$41,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
Those fees have been recorded in general and administrative expenses in the
accompanying statements of operations for the years ended December 31, 1995,
1994, and 1993. As reimbursement of costs for on-site property management
personnel and other related costs, an affiliate of the General Partner received
$122,000 in 1995, $119,000 in 1994 and $19,000 in 1993. In addition to the
aforementioned, the General Partner was also paid $51,000, $52,000 and $10,000
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, 1995, 1994
and 1993, 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, 1995, 1994 and 1993, amounted to $199,000, $231,000 and
$232,000, respectively. In addition to the aforementioned, the General Partner
was also paid $34,000, $31,000 and $30,000, related to the Partnership's portion
(58%) of asset management fees for Cooper Village Partners for the years ended
December 31, 1995, 1994 and 1993, respectively.
(5) 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.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed as
of December 31, 1995, 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, 1995, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------
<S> <C>
1996.......................................... $ 3,560,000
1997.......................................... 3,239,000
1998.......................................... 2,464,000
1999.......................................... 1,499,000
2000.......................................... 558,000
Thereafter.................................... 543,000
-----------
$11,863,000
===========
</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.
22
<PAGE> 42
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Real estate taxes.............................................. $455,000 $428,000
Security deposits.............................................. 139,000 135,000
Accounts payable and other..................................... 118,000 90,000
-------- --------
$712,000 $653,000
======== ========
</TABLE>
(7) ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Balance at beginning of year........................ $ 23,000 $ 23,000 $19,000
Additions........................................... -- 27,000 9,000
Writeoffs........................................... (23,000) (27,000) (5,000)
-------- -------- -------
Balance at end of year.............................. $ -- $ 23,000 $23,000
======== ======== =======
</TABLE>
(8) SUBSEQUENT EVENT
On February 28, 1996, the Partnership made an aggregate cash distribution
of $463,000 to its Limited Partners.
23
<PAGE> 43
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. C COL. E
--------------------- COL. D --------------------------------
-----------------------
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH
TO PARTNERSHIP(C) SUBSEQUENT CARRIED AT CLOSE OF PERIOD(B)
--------------------- TO THE ACQUISITION -------------------------------- COL. F
COL. A BUILDINGS ----------------------- BUILDINGS ---------------
------------- AND CARRYING AND TOTAL ACCUMULATED
DESCRIPTION(A) LAND IMPROVEMENTS IMPROVEMENTS COSTS(B) LAND IMPROVEMENTS (D) DEPRECIATION(D)
- ------------------------- ------ ------------ ------------ -------- ------ ------------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atrium Place
Arlington Heights, IL.... $ 332 $ 2,040 $ 562 $ (1,042) $ 205 $ 1,687 $ 1,892 $ 1,063
Lakeland Industrial
Park
Milwaukee, WI............ 270 5,973 1,204 (81) 268 7,098 7,366 2,437
Kennedy Corporate
Center
Palatine, IL............. 641 4,252 684 (1,024) 574 3,979 4,553 1,928
Iomega/Northpointe
Business Center
Roy, UT.................. 672 7,834 491 -- 672 8,325 8,997 2,684
Ladera Shopping Center,
Phase II
Albuquerque, NM.......... 829 2,241 83 (22) 821 2,310 3,131 753
Creekridge Center
Bloomington, MN.......... 1,312 11,304 339 (3,376) 966 8,613 9,579 3,266
------ ------- ------ ------- ------ ------- ------- -------
TOTAL.................... $4,056 $ 33,644 $3,363 $ (5,545) $3,506 $ 32,012 $35,518 $12,131
====== ======= ====== ======= ====== ======= ======= =======
<CAPTION>
COL. H COL. I
COL. A -------- -----------
------------- DATE DEPRECIABLE
DESCRIPTION(A) ACQUIRED LIFE(E)
- ------------------------- -------- -----------
<S> <C> <C>
Atrium Place
Arlington Heights, IL.... 12/19/85 30 years
Lakeland Industrial
Park
Milwaukee, WI............ 12/19/85 30 years
and
11/25/86
Kennedy Corporate
Center
Palatine, IL............. 01/08/86 30 years
Iomega/Northpointe
Business Center
Roy, UT.................. 01/31/86 30 years
Ladera Shopping Center,
Phase II
Albuquerque, NM.......... 02/07/86 30 years
Creekridge Center
Bloomington, MN.......... 09/23/86 30 years
TOTAL....................
</TABLE>
- ---------------
NOTE: Columns B and G are either none or are not applicable.
See notes to table on following page.
24
<PAGE> 44
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) 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 $41,282,000 as of December 31, 1995. 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,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year................ $35,815,000 $36,000,000 $35,473,000
Additions during the year:
Improvements........................... 410,000 415,000 527,000
Reductions during the year:
Adjustment to the carrying value of
real estate.......................... (707,000) (600,000) --
----------- ----------- -----------
Balance at end of year...................... $35,518,000 $35,815,000 $36,000,000
=========== =========== ===========
</TABLE>
Reconciliation of Accumulated Depreciation
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Balance at beginning of year................. $10,954,000 $ 9,742,000 $8,570,000
Depreciation expense......................... 1,177,000 1,212,000 1,172,000
----------- ----------- ----------
Balance at end of year....................... $12,131,000 $10,954,000 $9,742,000
=========== =========== ==========
</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>
25
<PAGE> 45
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.
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, 1995 and 1994 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995, 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 28, 1996
26
<PAGE> 46
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
---------- -----------
<S> <C> <C>
ASSETS
Property held for sale (net of valuation allowance of
$1,360,000)...................................................... $6,386,000 $ --
---------- -----------
Investments in real estate, net:
Land............................................................. -- 2,748,000
Buildings and improvements....................................... -- 6,754,000
---------- -----------
-- 9,502,000
Less accumulated depreciation.................................... -- (1,535,000)
---------- -----------
-- 7,967,000
Cash and cash equivalents.......................................... 408,000 400,000
Accounts receivable................................................ 45,000 37,000
Accrued rent receivable............................................ 57,000 61,000
Prepaid expenses and other assets, net............................. 23,000 23,000
---------- -----------
$6,919,000 $ 8,488,000
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities........................... $ 111,000 $ 85,000
---------- -----------
Partners' capital.................................................. 6,808,000 8,403,000
---------- -----------
Commitments and contingencies...................................... -- --
---------- -----------
$6,919,000 $ 8,488,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
27
<PAGE> 47
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ---------- --------
<S> <C> <C> <C>
REVENUES:
Rental income........................................ $ 1,025,000 $1,010,000 $971,000
Interest and other income............................ 21,000 13,000 18,000
----------- ---------- --------
Total revenues............................... 1,046,000 1,023,000 989,000
----------- ---------- --------
EXPENSES:
Operating expenses................................... 296,000 284,000 316,000
Real estate taxes.................................... 136,000 85,000 86,000
Depreciation and amortization........................ 253,000 256,000 252,000
Adjustment to carrying value of real estate.......... 1,360,000 -- --
General and administrative........................... 66,000 59,000 64,000
----------- ---------- --------
Total expenses............................... 2,111,000 684,000 718,000
----------- ---------- --------
NET INCOME (LOSS)...................................... $(1,065,000) $ 339,000 $271,000
=========== ========== ========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
28
<PAGE> 48
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III TOTAL
--------------- ------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1992........................ $ 5,095,000 $ 3,787,000 $ 8,882,000
Net income...................................... 157,000 114,000 271,000
Distributions................................... (330,000) (238,000) (568,000)
---------- ---------- -----------
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)
Distribution................................. (307,000) (223,000) (530,000)
---------- ---------- -----------
Balance, December 31, 1995........................ $ 3,892,000 $ 2,916,000 $ 6,808,000
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
29
<PAGE> 49
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(1,065,000) $ 339,000 $ 271,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization..................... 253,000 256,000 252,000
Adjustment to carrying value of real estate....... 1,360,000 -- --
Changes in:
Accounts receivable.................................. (8,000) 2,000 67,000
Accrued rent receivable.............................. 4,000 -- 4,000
Prepaid expenses and other assets.................... (10,000) (1,000) (8,000)
Accounts payable and accrued liabilities............. 26,000 6,000 (22,000)
----------- --------- ---------
Net cash provided by operating activities.............. 560,000 602,000 564,000
Cash flows from investing activities:
Investments in real estate........................... (22,000) (70,000) (105,000)
Cash flows from financing activities:
Distributions........................................ (530,000) (521,000) (568,000)
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 8,000 11,000 (109,000)
Cash and cash equivalents, beginning of year........... 400,000 389,000 498,000
----------- --------- ---------
Cash and cash equivalents, end of year................. $ 408,000 $ 400,000 $ 389,000
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
30
<PAGE> 50
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.
Over the past year, the General Partners have examined several alternative
methods to achieve their goal of selling their properties and ultimately
liquidating at the earliest practicable time consistent with achieving
reasonable value for their Limited Partners' investment. As explained in the
General Partners' May 5, 1993 Information Statements, "achieving reasonable
value" has meant for the Partnership to balance receiving higher sales prices
per property than their 1993 values while at the same time not waiting forever
to sell at a theoretical "top of the market." Alternatives under consideration
by the General Partners may include a property-by-property liquidation or
selling all of the properties as a single portfolio. The General Partners have
had preliminary discussions regarding disposition, in whole or in part, of their
properties with various potential purchasers of some or all of the Partnership's
portfolio.
In connection with their consideration of these alternatives, and 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 General Partners have decided to treat their properties,
as well as the Partnership's property, as held for sale, instead of for
investment, for financial statement purposes. Accordingly, the carrying value of
the Partnership's property was evaluated to ensure it was carried on the
Partnership's balance sheet 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, 1996. However, fair value can only be
determined based upon sales to third parties, and sales proceeds could differ
substantially.
Based upon the General Partners' survey of the current marketplace, the
General Partners believe, in fact, that in the relatively short term the
Partnership's property could generate a sales price that could be materially
less than its appraised value based upon an "Investment Value" appraisal model.
The amount of the possible variance between the appraised value and potential
sales price cannot be reliably estimated at this time, because of the numerous
variables that could affect the sales price, including but not limited to the
time frame in which the property must be sold, method of sale, prevailing
capitalization rates at which comparable properties are being sold at the time
of the Partnership's sale, constantly changing local market conditions and the
state of leasing negotiations and capital expenditures for the property at the
time of sale.
(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.
31
<PAGE> 51
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 an
average 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.
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, 1995 and 1994,
totaled $407,000 and $392,000, 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.
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
32
<PAGE> 52
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
1995 1994
-------------------------- --------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Total Assets...................... $6,919,000 $ 8,279,000 $8,488,000 $ 8,488,000
Total Liabilities................. $ 111,000 $ 111,000 $ 85,000 $ 85,000
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1995 1994 1993
----------- -------- --------
<S> <C> <C> <C>
Net income (loss) per Financial Statements....... $(1,065,000) $339,000 $272,000
Depreciation differences on investments in real
estate......................................... 25,000 26,000 23,000
Adjustment to carrying value of real estate...... 1,360,000 -- --
Other............................................ 4,000 (13,000) (13,000)
----------- -------- --------
Taxable income per Federal tax return
(unaudited).................................... $ 324,000 $352,000 $282,000
=========== ======== ========
</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, 1995, 1994 and 1993, the Partnership was charged with
approximately $0, $0 and $1,000, respectively, of such expenses.
On November 1, 1993, the Partnership elected to terminate the Partnership's
property management agreement with an unaffiliated third party. On that date,
the Partnership entered into a new property management agreement with Birtcher
Properties. The contract encompasses terms at least as favorable to the
Partnership as the terminated contract with the unaffiliated third party, and is
terminable by the Partnership upon 60 days' notice to Birtcher Properties. Fees
paid to Birtcher Properties for services were not to exceed 6% of the gross
receipts from the properties under management provided that leasing services
were performed, otherwise not to exceed 3%. Such fees amounted to approximately
$52,000 in 1995, $52,000 in 1994 and $10,000 in 1993. In addition, Birtcher
Properties received $33,000 in 1995, $32,000 in 1994 and $5,000 in 1993, 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, 1995, 1994 and 1993, amounted to $58,000,
$53,000 and $53,000, respectively. In addition, the amended Partnership
Agreements for Fund II and Fund III provide for payment to Birtcher Properties
or its affiliates of a leasing fee for services rendered in connection with
leasing space in the
33
<PAGE> 53
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 1995, 1994 and 1993, amounted to $2,000, $5,000 and $1,000,
respectively.
(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.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed as
of December 31, 1995, 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, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1996........................................... $ 693,000
1997........................................... 552,000
1998........................................... 437,000
1999........................................... 367,000
2000........................................... 325,000
Thereafter..................................... 1,830,000
----------
$4,204,000
==========
</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,
--------------------
1995 1994
-------- -------
<S> <C> <C>
Real estate taxes............................................... $ 68,000 $43,000
Accounts payable and other...................................... 8,000 8,000
Security deposits............................................... 35,000 34,000
-------- -------
$111,000 $85,000
======== =======
</TABLE>
34
<PAGE> 54
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year....................... $ -- $ 13,000 $ 30,000
Additions charged to expense....................... -- -- --
Write-offs......................................... -- (13,000) (17,000)
-------- -------- --------
Balance at end of year............................. $ -- $ -- $ 13,000
======== ======== ========
</TABLE>
(7) SUBSEQUENT EVENTS
On March 8, 1996, the Partnership made an aggregate cash distribution of
$140,000 to its General Partners.
35
<PAGE> 55
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. C COL. E
--------------------- COL. D ------------------------------
-----------------------
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH
TO PARTNERSHIP(C) SUBSEQUENT CARRIED AT CLOSE OF PERIOD(B)
--------------------- TO THE ACQUISITION ------------------------------ COL. F COL. H
COL. A BUILDINGS ----------------------- BUILDINGS ------------ ------------
- -------------------- AND CARRYING AND ACCUMULATED DATE
DESCRIPTION(A) LAND IMPROVEMENTS IMPROVEMENTS COSTS(B) LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED
- -------------------- ------ ------------ ------------ -------- ------ ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cooper Village 12/30/87 and
Shopping Center... $2,756 $6,430 $715 $(1,737) $2,748 $5,416 $8,164 $1,778 12/30/88
------ ------ ---- ------- ------ ------ ------ ------
TOTAL............... $2,756 $6,430 $715 $(1,737) $2,748 $5,416 $8,164 $1,778
====== ====== ==== ======= ====== ====== ====== ======
<CAPTION>
COL. I
COL. A -----------
- -------------------- DEPRECIABLE
DESCRIPTION(A) LIFE(D)
- -------------------- -----------
<S> <C>
Cooper Village
Shopping Center... 30 years
TOTAL...............
</TABLE>
- ---------------
NOTE: Columns B and G are either none or are not applicable.
(a) For a description of the property, see "Item 2. Properties."
(b) At December 31, 1995, the General Partner determined that the Partnership
property had a carrying value greater than its appraised value less selling
costs and therefore provided a valuation allowance of $1,360,000 against the
property held for sale.
(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>
36
<PAGE> 56
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, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
General Partner's 1% share of distributable cash... $ 18,000 $ 17,000 $ 12,000
Asset management fees.............................. 199,000 231,000 232,000
Property management fees(1)........................ 158,000 159,000 29,000
Property management expense reimbursements(1)...... 122,000 119,000 19,000
Other expense reimbursements....................... 161,000 101,000 150,000
Leasing fee........................................ 55,000 40,000 41,000
-------- -------- --------
TOTAL.................................... $713,000 $667,000 $483,000
======== ======== ========
</TABLE>
- ---------------
(1) The General Partner did not provide property management services to the
Partnership's properties from November 1, 1991 through October 31, 1993 and,
consequently, the General Partner did not receive any similar compensation
during the first ten months of 1993.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1996, there was no entity or individual holding more than
5% of the limited partnership interests of the Registrant.
37
<PAGE> 57
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.
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)
(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)
38
<PAGE> 58
(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:
None.
39
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
By: BIRTCHER/LIQUIDITY PROPERTIES By: BIRTCHER INVESTORS,
(General Partner) a California limited partnership
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher
Partners
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, 1996 By: /s/ ROBERT M. ANDERSON
----------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund II, 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, 1996 By: /s/ BRENT R. DONALDSON
---------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset
Management, Inc.
40
<PAGE> 60
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
- ------------------------------------------ ------------------------------- ---------------
<C> <S> <C>
/s/ ARTHUR B. BIRTCHER Co-Chairman of the Board -- March 30, 1996
- ------------------------------------------ BREICORP
Arthur B. Birtcher
/s/ RONALD E. BIRTCHER Co-Chairman of the Board -- March 30, 1996
- ------------------------------------------ BREICORP
Ronald E. Birtcher
/s/ RICHARD G. WOLLACK Chairman of Liquidity Fund March 30, 1996
- ------------------------------------------ Asset Management, Inc.
Richard G. Wollack
</TABLE>
41
<PAGE> 61
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 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
(STATE OF OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
27611 LA PAZ ROAD, P.O. BOX A-1
LAGUNA NIGUEL, CALIFORNIA 92677-0100
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(714) 643-7700
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 62
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
Balance Sheets --
September 30, 1996 (Unaudited) and December 31, 1995...................... 3
Statements of Operations (Unaudited) --
Three and Nine Months Ended September 30, 1996 and 1995................... 4
Statements of Cash Flows (Unaudited) --
Nine Months Ended September 30, 1996 and 1995............................. 5
Notes to Financial Statements (Unaudited)................................. 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 9
PART II.
OTHER INFORMATION......................................................... 11
</TABLE>
2
<PAGE> 63
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
SEPTEMBER 30, 31,
1996 1995
------------- -----------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Properties held for sale (net of valuation allowance of $932,000
in 1996 and $707,000 in 1995)................................... $ 23,351,000 $23,387,000
Investment in Cooper Village Partners............................. 3,874,000 3,892,000
Cash and cash equivalents......................................... 1,563,000 1,055,000
Accounts receivable............................................... 117,000 29,000
Accrued rent receivable........................................... 473,000 527,000
Prepaid expenses and other assets................................. 200,000 244,000
----------- -----------
$ 29,578,000 $29,134,000
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities.......................... $ 751,000 $ 712,000
----------- -----------
Partners' capital(deficit):
Limited Partners................................................ 28,991,000 28,590,000
General Partner................................................. (164,000) (168,000)
----------- -----------
28,827,000 28,422,000
Commitments and contingencies..................................... -- --
----------- -----------
$ 29,578,000 $29,134,000
=========== ===========
</TABLE>
- ---------------
NOTE: The balance sheet at December 31, 1995 has been prepared from the audited
financial statements as of that date.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 64
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Rental income............................. $1,198,000 $1,149,000 $3,601,000 $3,313,000
Interest income........................... 17,000 17,000 44,000 46,000
---------- ---------- ----------
Total revenues.................. 1,215,000 1,166,000 3,645,000 3,359,000
---------- ---------- ----------
EXPENSES
Operating expenses........................ 259,000 288,000 774,000 821,000
Real estate taxes......................... 175,000 154,000 555,000 520,000
Depreciation and amortization............. 18,000 309,000 51,000 949,000
General and administrative................ 165,000 180,000 481,000 516,000
Adjustment to carrying value of real
estate.................................. 157,000 -- 225,000 --
---------- ---------- ----------
Total Expenses.................. 774,000 931,000 2,086,000 2,806,000
---------- ---------- ----------
Income before equity in earnings.......... 441,000 235,000 1,559,000 553,000
Equity in earnings of Cooper Village
Partners................................ 65,000 36,000 283,000 119,000
---------- ---------- ----------
NET INCOME................................ $ 506,000 $ 271,000 $1,842,000 $ 672,000
========== ========== ==========
NET INCOME ALLOCABLE TO:
General Partner......................... $ 5,000 $ 3,000 $ 18,000 $ 7,000
========== ========== ==========
Limited Partners........................ $ 501,000 $ 268,000 $1,824,000 $ 665,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 65
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 1,842,000 $ 672,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 51,000 949,000
Equity in earnings of Cooper Village Partners................... (283,000) (119,000)
Adjustment to carrying value of real estate..................... 225,000 --
Changes in:
Additions to properties held for sale........................... (189,000) --
Accounts receivable............................................. (88,000) (84,000)
Accrued rent receivable......................................... 54,000 (67,000)
Prepaid expenses and other assets............................... (7,000) --
Accounts payable and accrued liabilities........................ 39,000 154,000
----------- -----------
Net cash provided by operating activities......................... 1,644,000 1,505,000
Cash flows from investing activities:
Investments in real estate...................................... -- (338,000)
Distributions received from Cooper Village Partners............. 302,000 238,000
----------- -----------
Net cash provided by (used in) investing activities............... 302,000 (100,000)
Cash flows from financing activities:
Distributions................................................... (1,438,000) (1,379,000)
----------- -----------
Net cash used in financing activities............................. (1,438,000) (1,379,000)
Net increase in cash and cash equivalents......................... 508,000 26,000
Cash and cash equivalents, beginning of period.................... 1,055,000 1,058,000
----------- -----------
Cash and cash equivalents, end of period.......................... $ 1,563,000 $ 1,084,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 66
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) ACCOUNTING POLICIES
The financial statements of Damson/Birtcher Realty Income Fund-II, Limited
Partnership (the "Partnership") included herein have been prepared by the
General Partner, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements include all
adjustments which are of a normal recurring nature and, in the opinion of the
General Partner, are necessary for a fair presentation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Partnership's annual
report on Form 10-K for the year ended December 31, 1995.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in units.
All investment interests are calculated on a "percent of Partnership" basis, in
part to accommodate reduced rates on sales commissions for subscriptions in
excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no sales
commission was credited with proportionately larger Invested Capital and
therefore had a disproportionately greater interest in the capital and revenues
of the Partnership than a Limited Partner who paid commissions at a higher rate.
As a result, the Partnership has no set unit value as all accounting, investor
reporting and tax information is based upon each investor's relative percentage
of Invested Capital. Accordingly, earnings or loss per unit is not presented in
the accompanying financial statements.
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 its 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 an
average 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, as of December 31, 1995, the General Partner determined
that Atrium Place,
6
<PAGE> 67
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Kennedy Corporate Center, Lakeland Industrial Park and Cooper Village (58%
interest) had carrying values greater than their appraised values, and
accordingly reduced those 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.
For the three and nine months ended September 30, 1996, the Partnership
spent approximately $82,000 and $150,000, respectively, related to
tenant/building improvements and leasing commissions at Kennedy Corporate Center
I and Lakeland Industrial Park. Atrium Place is under contract for sale (see
Note 4, "Subsequent Events"). Based on its anticipated gross sales price of
$816,250, the General Partner reduced its estimated carrying value by $75,000 to
$754,000. Because these expenditures, and the carrying value of Atrium Place,
exceeded the estimates of fair value, the General Partner adjusted the carrying
value of the Partnership's portfolio by an aggregate of $225,000 for the nine
months ending September 30, 1996.
(2) TRANSACTIONS WITH AFFILIATES
The Partnership has no employees and, accordingly, the General Partner and
its affiliates perform services on behalf of the Partnership in connection with
administering the affairs of the Partnership. The General Partner and affiliates
are reimbursed for their general and administrative costs actually incurred and
associated with services performed on behalf of the Partnership. For the three
months ended September 30, 1996 and 1995 the Partnership incurred approximately
$42,000 and $31,000, respectively, of such expenses. For the nine months ended
September 30, 1996 and 1995, such payments were $105,000 and $109,000,
respectively.
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 $43,000 and $40,000, respectively, for
the three months ended September 30, 1996 and 1995, and $126,000 and $114,000
for the nine months ended September 30, 1996 and 1995 respectively. In addition,
an affiliate of the General Partner received $27,000 and $32,000 for the three
months ended September 30, 1996 and 1995, respectively, as reimbursement of
costs of on-site property management personnel and other reimbursable expenses.
For the nine months ended September 30, 1996 and 1995, such expenses were
$83,000 and $96,000, respectively.
Leasing fees for the three months ended September 30, 1996 and 1995,
included charges of $6,000 and $38,000, respectively, from the General Partner
and its affiliates for leasing services rendered in connection with leasing
space in a Partnership property after expiration or termination of leases. For
the nine months ended September 30, 1996 and 1995, such fees amounted to $16,000
and $52,000, respectively.
As previously reported 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 Statement dated May 5, 1993. Those proposals have
been implemented by the Partnership as contemplated by the Information Statement
as amendments to the Partnership Agreement, and are reflected in these financial
statements as such.
The Amended Partnership Agreement provides for the Partnership's payment to
the General Partner of an annual asset management fee equal to .75% of the
aggregate appraised value of the Partnership's properties as determined by
independent appraisal undertaken in January of each year. Such fees for the
three months ended September 30, 1996 and 1995, amounted to $50,000 and $50,000,
respectively. For the nine months ended September 30 1996 and 1995, such fees
were $150,000 and $149,000, respectively.
In addition to the aforementioned, the General Partner was also paid
$18,000 and $20,000, related to the Partnership's portion (58%) of asset
management fees, property management fees, leasing fees, reimburse-
7
<PAGE> 68
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
ment of on-site property management personnel and other reimbursable expenses
for Cooper Village Partners for the three months ended September 30, 1996 and
1995, respectively. For the nine months ended September 30, 1996 and 1995, such
costs were $60,000 and $63,000, respectively.
(3) COMMITMENTS AND CONTINGENCIES
Litigation
The Partnership is not a party to any pending legal proceedings other than
ordinary routine litigation incidental to its business. It is the General
Partner's belief that the outcome of these proceedings will not be material to
the business or financial condition of the Partnership.
(4) SUBSEQUENT EVENTS
In August 1996, the General Partner entered into a contract to sell Atrium
Place for $816,250. The property is currently in escrow and is scheduled to
close on or before November 30, 1996.
8
<PAGE> 69
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Since completion of its acquisition program in December 1988, the
Partnership has been engaged primarily in the operation of its properties. The
Partnership's objective has been to hold its properties as long-term
investments, although properties may be sold at any time depending upon the
General Partner's judgment of the anticipated remaining economic benefits of
continued ownership. Working capital is and will be provided principally from
the operation of the Partnership's properties and the working capital reserve
established for the properties. The Partnership may incur mortgage indebtedness
relating to such properties by borrowing funds primarily to fund capital
improvements or to obtain sale or financing proceeds for distribution to the
Partners.
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.
Distributions through September 30, 1996 represent cash flow generated from
operations of the Partnership's properties and interest earned on the temporary
investment of working capital net of capital improvement reserve requirements.
Future cash distributions will be made principally to the extent of cash flow
attributable to operations and sales of the Partnership's properties and
interest earned on the investment of capital reserves, after providing for
future capital requirements for the Partnership's properties.
In accordance with the terms of the Partnership Agreement, each year the
Partnership secures an independent appraisal of each of the Partnership's
properties as of January 1. 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 mandated, among other things, that the General Partner
seek a vote of (and provide an analysis and recommendation to) the Limited
Partners no later than December 31, 1996 regarding the prompt liquidation of the
Partnership in the event that properties with (then) current appraised values
constituting at least one-half of the total (then) current appraised values of
all of the Partnership's properties are not sold or under contract for sale by
the end of 1996.
Given that 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 currently have a specific liquidation plan
for the Partnership's properties, it requested that the appraiser assume that
the entire portfolio would be sold over four years, in connection with the
January 1995 appraisals and over three years in connection with the January 1996
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 properties at January 1, 1996 to be
$30,355,000, or $5,772 per $10,000 original investor subscription.
Over the past year, the General Partner has examined several alternative
methods to achieve the Partnership's goal of selling properties and liquidating
the Partnership at the earliest practicable time consistent with achieving
reasonable value for the Limited Partners' investment. As explained in the
Partnership's May 5, 1993 Information Statement, "achieving reasonable value"
has meant for the Partnership to balance receiving higher sales prices per
property than their 1993 values while at the same time not waiting forever to
sell at a theoretical "top of the market." Alternatives under consideration by
the General Partner may include a property-by-property liquidation or selling
all the properties as a single portfolio. The General Partner has had
preliminary discussions regarding disposition, in whole or in part, of the
Partnership's properties with various potential purchasers of some or all of the
Partnership's portfolio.
In connection with its consideration of these alternatives, the General
Partner has decided to treat its properties as held for sale, instead of for
investment, for financial statement purposes. In accordance with
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Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
the carrying value of these properties was evaluated to ensure that each
property was carried on the Partnership's Balance Sheet at the lower of cost or
fair value less estimated selling costs. The General Partner estimated fair
value for this purpose based on appraisals performed as of January 1, 1996.
However, fair value can only be determined based upon sales to third parties and
sales proceeds could differ substantially.
Based upon the General Partner's survey of the current marketplace, the
General Partner believes, in fact, that in the relatively short term the
Partnership's properties could generate sales prices that, in the aggregate,
could be materially less than their aggregate appraised values based upon an
"Investment Value" appraisal model. The amount of the possible variance between
the aggregate appraised values and potential sales prices cannot be reliably
estimated at this time, because of the numerous variables that could affect the
sales prices, including but not limited to the time frame in which the
properties must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable properties are
being sold at the time of the Partnership's sales, constantly changing local
market conditions and the state of leasing negotiations and capital expenditures
for the properties at the time of sale.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTH ENDED SEPTEMBER 30, 1995.
The increases in revenue for the three and nine months ended September 30,
1996, as compared to the corresponding periods in 1995, were attributable to
several factors. At Iomega, Iomega Corporation increased its occupancy to 100%
of the site's buildings effective August 1, 1995, resulting in an increase in
revenue of approximately $22,000 and $80,000, respectively, for the three and
nine month periods ended September 30, 1996. At Creekridge, occupancy increased
to 98% as a result of the successful negotiation of new leases with California
Growers Corp. in August 1995, Premier Resorts, Inc. in December 1995, Rada
Advertising in April 1996 and Hilleman House and CFC Funding in September 1996.
Creekridge's revenue increased approximately $49,000 and $141,000, for the three
and nine months ended September 30, 1996, respectively, as compared to the same
periods in 1995.
Interest income resulted from the temporary investment of Partnership
working capital. For the three and nine months ended September 30, 1996 interest
income was generally comparable to the same periods in 1995.
The increase in real estate taxes for the three months ended September 30,
1996, as compared to the corresponding period in 1995, was primarily
attributable to a tax refund received in 1995 for Atrium Place. The tax refund
was accounted for as reduction of real estate tax expense in 1995.
The increase in real estate taxes for the nine months ended September 30,
1996, as compared to the corresponding period in 1995, was primarily
attributable to an increased tax assessment at Creekridge.
The decreases in operating expenses for the three and nine months ended
September 30, 1996, as compared to the corresponding periods in 1995, were
attributable to several factors. At Creekridge, legal fees were lower ($10,000)
and at Kennedy Corporate Center, cleaning costs, HVAC repairs, painting costs
and utilities were lower ($12,000) as compared to 1995. In addition, on-site
expenses decreased at Lakeland Business Park ($6,000).
For the nine months ended September 30, 1996, the carrying value of the
Partnership's portfolio was reduced by $150,000, which is representative of the
amount spent on building improvements, tenant improvements, leasing commissions
and other related assets at Lakeland Industrial Park and Kennedy Corporate
Center.
The decreases in depreciation and amortization expenses for the three and
nine months ended September 30, 1996 as compared to the corresponding periods in
1995, were attributable to the adoption of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
10
<PAGE> 71
Assets and for Long-Lived Assets to Be Disposed Of," pursuant to which "assets
held for sale" are no longer depreciated.
The increases in equity in earnings of Cooper Village Partners for the
three and nine months ended September 30, 1996, as compared to the corresponding
periods in 1995, were primarily attributable to the Partnership's portion (58%)
of depreciation expenses incurred during 1995, amounting to $35,000 and
$106,000, respectively. As previously discussed, the Partnership no longer
depreciates its assets due to the adoption of Financial Accounting Standard No.
121. In addition, during the nine months ended September 30, 1996, a lease
termination settlement in the amount of $127,000 was collected from The Boston
Stores which was taken into income at the end of the first quarter.
General and administrative expenses for the nine months ended September 30,
1996 and 1995 include charges of $270,000 and $310,000, respectively, from the
General Partner and its affiliates for services rendered in connection with
administering the affairs of the Partnership and operating the Partnership's
properties. Also included in general and administrative expenses for the nine
months ended September 30, 1996 and 1995 are direct charges of $211,000 and
$206,000, respectively, relating to audit fees, tax preparation fees, legal and
professional fees, insurance expenses, costs incurred in providing information
to the Limited Partners and other miscellaneous costs.
The decrease in general and administrative expenses for the three months
ended September 30, 1996, as compared to the corresponding period in 1995, was
primarily attributable to a decrease in aggregate leasing fees and other
professional fees, which was partially offset by an increase in legal fees
during the period.
The decrease in general and administrative expenses for the nine months
ended September 30, 1996, as compared to the corresponding period in 1995, was
primarily attributable to a decrease in aggregate leasing fees.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor its
properties are subject to any material pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 -- Financial Data Schedule
(b) Reports on Form 8-K:
None filed in quarter ended September 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
<TABLE>
<S> <C>
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner) By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher
Investors
By: BIRTCHER LIMITED,
a California limited
partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: November 12, 1996 By: /s/ ROBERT M. ANDERSON
-----------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management,
Inc.,
a California corporation, General
Partner of LF Special Fund I, L.P.
Date: November 12, 1996 By: /s/ BRENT R. DONALDSON
-----------------------
Brent R. Donaldson
President
Liquidity Fund Asset
Management, Inc.
</TABLE>
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<PAGE> 73
CONSENT CONSENT
REAL ESTATE INCOME PARTNERS II, LIMITED PARTNERSHIP
THIS CONSENT is solicited by and on behalf of the Partnership. The General
Partner recommends a vote "FOR" the Proposal.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, IF NO
INSTRUCTIONS ARE INDICATED, BY YOUR SIGNATURE BELOW YOU WILL BE DEEMED TO HAVE
CONSENTED TO THE PROPOSAL AS RECOMMENDED BY THE GENERAL PARTNER.
A consent to a Proposal also will constitute your consent to all actions
necessary to consummate all transactions with respect to the Proposal
contemplated by the Consent Solicitation.
PLEASE MARK THE APPROPRIATE BOX:
With the General Partner's recommendation 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, I vote:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned acknowledges receipt of the Consent Solicitation dated February
18, 1997 pertaining to the Proposal.
Dated , 1997
--------------------
--------------------------------
Signature
--------------------------------
Signature (if held jointly)
--------------------------------
Title
Please sign exactly as name appears
hereon. When interests are held by
joint tenants, both should sign. When
signing as an attorney, an executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign as such by
President or other authorized officer.
If a Partnership, please sign in
partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN
THIS CONSENT PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE TO: The Herman Group,
Inc. 2121 San Jacinto Street, 26th
Floor, Dallas Texas 75201. If you
have any questions, please call the
Investor Relations Department at
(800) 657-8814 or (214) 999-9593.
