<PAGE> 1
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Information Statement / / Confidential, for Use of the Commission
/ / Definitive Information Statement Only (as permitted by Rule 14c-5(d)(2))
</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:
----------------------------------------------------------------------
<PAGE> 2
DAMSON/BIRTCHER REALTY INCOME FUND-II
27611 La Paz Road
Laguna Niguel, California 92627-0009
INFORMATION STATEMENT
, 1997
INTRODUCTION
This Information Statement 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 Information Statement, and the enclosed consent form ("Consent"),
are first being mailed to the Limited Partners on or about __________, 1997.
1.
<PAGE> 3
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
2.
<PAGE> 4
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 13. Since the Partnership has not
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
3.
<PAGE> 5
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 13. 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
4.
<PAGE> 6
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 Information Statement 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.
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
5.
<PAGE> 7
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 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
__. 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
6.
<PAGE> 8
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
7.
<PAGE> 9
secondary market for the Interests and to prices offered in recent third-party
tender offers for Interests. Certain information regarding these prices is
attached as Exhibit B to this Information Statement. 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
$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 are likely to vary materially from the Distribution Per Unit,
and may 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
8.
<PAGE> 10
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
9.
<PAGE> 11
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 Information Statement 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 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.
10.
<PAGE> 12
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.
The General Partner currently receives 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 will be
reduced by 10 "basis" points (e.g., from 0.75% to 0.65%) beginning January 1,
1997 and for each year thereafter until the liquidation of the remaining
properties is completed.
11.
<PAGE> 13
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.
12.
<PAGE> 14
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>
Appraised
Percentage Leased 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>
(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.
13.
<PAGE> 15
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 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.
14.
<PAGE> 16
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
15.
<PAGE> 17
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.
16.
<PAGE> 18
CONSENT REQUIREMENTS AND WRITTEN CONSENTS
RECORD DATE
The General Partner has fixed 5:00 P.M. Eastern Time on __________,
199__, three days before the date this Information Statement 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 __________ Limited Partners of
record.
COMPLETION OF CONSENTS; DEADLINE FOR CONSENTING
A form of written consent (the "Consent") accompanies this Information
Statement. 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 _____________, 1997 (THE "CONSENT
DEADLINE"), WHICH IS THE DATE 40 DAYS FOLLOWING THE MAILING OF THIS INFORMATION
STATEMENT. 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
214-991-9393; 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
17.
<PAGE> 19
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 Information Statement 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
18.
<PAGE> 20
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
Information Statement 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.
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
19.
<PAGE> 21
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
20.
<PAGE> 22
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 Information Statement, 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.
21.
<PAGE> 23
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 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,
22.
<PAGE> 24
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;
23.
<PAGE> 25
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, 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
24.
<PAGE> 26
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
25.
<PAGE> 27
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 it predecessors
("LFG"). He has been responsible for the growth and managed the operations of
LFG since inception in 1980. Mr. Donaldson has
26.
<PAGE> 28
pioneered research and trading in otherwise illiquid real estate
securities--originally real estate limited partnerships ("RELPs") and more
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
27.
<PAGE> 29
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.
28.
<PAGE> 30
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.
ADDITIONAL INFORMATION
This Information Statement 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 Information Statement, but are available without
charge to any person entitled to receive this Information Statement, 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.
29.
<PAGE> 31
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 partner-
ship, General Partner of Birtcher Investments
By: BREICORP, a California corporation,
formerly known as Birtcher Real Estate
Inc., General Partner of Birtcher Limited
By:______________________________
Arthur B. Birtcher
Co-chairman, BREICORP.
By:______________________________
Ronald E. Birtcher
Co-chairman, BREICORP.
By:______________________________
Robert M. Anderson
Executive Director, BREICORP
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:_______________________________________
Richard G. Wollack,
Chairman, Liquidity Fund Asset
Management, Inc.
By:_______________________________________
Brent R. Donaldson,
President, Liquidity Fund Asset
Management, Inc.
Laguna Niguel, California
, 1997
30.
<PAGE> 32
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
--------------- -------------------
<C> <C> <C>
1996
1st Quarter..................... $ 8.82 N/A
2nd Quarter..................... 8.72 N/A
3rd Quarter..................... 9.62 N/A
4th Quarter..................... 11.43 $ 13.73
1995
1st Quarter..................... 8.42 N/A
2nd Quarter..................... 8.82 N/A
3rd Quarter..................... 8.82 N/A
4th Quarter..................... 8.82 N/A
1994
1st Quarter..................... 6.81 N/A
2nd Quarter..................... 8.02 N/A
3rd Quarter..................... 7.72 N/A
4th Quarter..................... 8.92 N/A
Since Inception in 1984......... $ 460.16 $ 13.73
</TABLE>
A-1
<PAGE> 33
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>
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> 34
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)
Delaware 13-3294820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27611 La Paz Road, Laguna Niguel, California 92656
(Address of principal executive offices) (Zip Code)
(714) 643,7700
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE
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> 35
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995
INDEX
Page
----
PART I
Item 1. Business................................................ 2
Item 2. Properties.............................................. 4
Item 3. Legal Proceedings....................................... 5
Item 4. Submission of Matters to a Vote of
Security Holders...................................... 5
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters......... 6
Item 6. Selected Financial Data................................. 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 7
Item 8. Financial Statements and Supplementary Data............. F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 14
PART III
Item 10. Directors and Executive Officers of the Registrant...... 14
Item 11. Executive Compensation.................................. 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 15
Item 13. Certain Relationships and Related Transactions.......... 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................... 15
--- Signatures.............................................. 18
-1-
<PAGE> 36
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
PART I
Item 1. Business
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the "Partnership")
was formed on September 13, 1985, under the laws of the State of Delaware. The
General Partner of the Partnership is Birtcher/Liquidity Properties, a general
partnership, consisting of LF Special Fund I, L.P., a California limited
partnership, and Birtcher Investors, a California limited partnership. The
Partnership is engaged in the business of acquiring and operating existing
income-producing office buildings, research and development facilities, shopping
centers and other commercial or industrial properties as specified in its
prospectus (Commission File No. 2-99421) dated September 27, 1985, as amended.
See Item 2 for a description of the properties acquired by the Partnership.
The Partnership commenced operations on November 14, 1985. The closing for the
final admission of Limited Partners to the Partnership occurred on June 19,
1986. Total limited partners' capital contributions through that date aggregated
$52,588,000.
The Partnership acquired its properties entirely for cash, free and clear of
mortgage indebtedness. However, the Partnership may incur mortgage indebtedness
on its properties, primarily for the purpose of funding capital improvements to
properties or obtaining financing proceeds for distribution to partners.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will be
tax sheltered; (ii) to achieve capital appreciation over a holding period of at
least five years; and (iii) to preserve and protect the Partnership's capital.
An Information Statement, dated May 5, 1993, 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.
-2-
<PAGE> 37
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
PART I
Item 1. Business (Cont'd.)
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.
-3-
<PAGE> 38
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
APPROXIMATE RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/95 12/31/95
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Atrium Place $ 2,230,000 A single-story office building 23,970 9 57%
Arlington Heights, Illinois located on 1.74 acres of land.
December 19, 1985
Lakeland Industrial Park, 5,875,000 Nine one-story office/warehouse 209,840 16 96%
Phases I-IV buildings located on 11.27 acres
Milwaukee, Wisconsin of land.
December 19, 1985 and
November 25, 1986
Kennedy Corporate Center, 4,599,000 Three-story office building 39,933 9 85%
Phase I located on 2.8 acres of land.
Palatine, Illinois
January 8, 1986
Iomega/Northpointe Center 7,980,000 Seven industrial/office buildings 210,165 7 100%
Roy, Utah located on 16.6 acres of land.
January 31, 1986
Ladera Shopping Center, 2,889,000 A neighborhood retail shopping 35,094 6 100%
Phase II center located on 3.8 acres of land.
Albuquerque, New Mexico
February 7, 1986
Creekridge Center 11,865,000 Two three-story office buildings 81,835 14 91%
Bloomington, Minnesota located on 5 acres of land.
September 23, 1986
Cooper Village 4,789,000(2) A single-story shopping center 59,978(2) 22 96%
Mesa, Arizona located on 10.88 acres of land.
December 30, 1987 and
December 30, 1988
----------- -------
TOTAL $40,227,000 660,815
=========== =======
</TABLE>
SEE NOTES TO TABLE ON THE FOLLOWING PAGE.
-4-
<PAGE> 39
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 2. PROPERTIES (Cont'd.)
NOTES TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of
acquisition fees of $2,629,000 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 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.
-5-
<PAGE> 40
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER MATTERS
There is no public market for the limited partnership interests and a market is
not expected to develop as such limited partnership interests are not publicly
traded or freely transferable.
As of February 29, 1996, the number of holders of the Partnership's interests is
as follows:
<TABLE>
<CAPTION>
<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>
CALENDAR
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
========== ========== =========== =========== ===========
</TABLE>
-6-
<PAGE> 41
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 6. SELECTED FINANCIAL DATA (Cont'd.)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $29,134,000 $31,496,000 $32,737,000 $33,483,000 $38,516,000
=========== =========== =========== =========== ===========
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership completed its acquisition program in December 1988 and is
principally engaged in the operation of its properties. The Partnership's
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
-7-
<PAGE> 42
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
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 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.
-8-
<PAGE> 43
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
January 1, 1996 Property Appraisals and Net Asset Value (Cont'd.)
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.
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.
-9-
<PAGE> 44
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
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 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
-10-
<PAGE> 45
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Year Ended December 31, 1994 (Cont'd.)
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
-11-
<PAGE> 46
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Year Ended December 31, 1993 (Cont'd.)
$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.
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
-12-
<PAGE> 47
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Year Ended December 31, 1993 (Cont'd.)
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.
-13-
<PAGE> 48
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DAMSON/BIRTCHER REALTY INCOME FUND-II
LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-7
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-18
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-21
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . F-22
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . F-23
Statements of Changes in Partners' Capital for the Years
Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . F-24
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . F-25
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-26
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-33
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
F-1
<PAGE> 49
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
INDEPENDENT AUDITORS' REPORT
To Birtcher/Liquidity Properties, as General Partner of
Damson/Birtcher Realty Income Fund-II, Limited Partnership:
We have audited the financial statements of Damson/Birtcher Realty Income
Fund-II, Limited Partnership as listed in the accompanying index. In
connection with our audits of the financial statements, we also have audited
the financial statement schedule listed in the accompanying index. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
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
F-2
<PAGE> 50
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.
F-3
<PAGE> 51
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.
F-4
<PAGE> 52
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.
F-5
<PAGE> 53
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.
F-6
<PAGE> 54
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.
F-7
<PAGE> 55
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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
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.
F-8
<PAGE> 56
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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.
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
F-9
<PAGE> 57
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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.
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.
F-10
<PAGE> 58
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
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.
F-11
<PAGE> 59
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
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
F-12
<PAGE> 60
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Earnings and Distributions Per Unit (Cont'd.)
revenues of the Partnership than a Limited Partner who paid commissions
at a higher rate. As a result, the Partnership has no set unit value
as all accounting, investor reporting and tax information is based upon
each investor's relative percentage of Invested Capital. Accordingly,
earnings or loss per unit is not presented in the accompanying
financial statements.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investment in Cooper Village
The Partnership uses the equity method of accounting to account for its
investment in Cooper Village Partners inasmuch as control of Cooper
Village Partners is shared jointly between the Partnership and Real
Estate Income Partners III, Limited Partnership. The accounting
policies of Cooper Village Partners are consistent with those of the
Partnership.
(3) Investment in Cooper Village Partners
During 1987 and 1988, Cooper Village Partners ("CV Partners"), a
California general partnership consisting of the Partnership and Real
Estate Income Partners III, Limited Partnership ("Fund III"), an
affiliated limited partnership, acquired Cooper Village. In connection
therewith, the Partnership and Fund III contributed capital
contributions of $5,937,000 (58%) and $4,300,000 (42%), respectively,
and share in the profits, losses and distributions of CV Partners in
proportion to their respective ownership interests.
F-13
<PAGE> 61
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners (Cont'd.)
Condensed summary financial information for CV Partners is presented
below.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
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>
F-14
<PAGE> 62
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(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 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.
F-15
<PAGE> 63
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(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.
(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>
F-16
<PAGE> 64
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(8) Subsequent Event
On February 28, 1996, the Partnership made an aggregate cash
distribution of $463,000 to its Limited Partners.
F-17
<PAGE> 65
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. A COL. C COL. D COL. E
------ ------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT GROSS AMOUNT AT WHICH
TO PARTNERSHIP (c) TO THE ACQUISITION CARRIED AT CLOSE OF PERIOD (b)
---------------------- ----------------------- ---------------------------------
BUILDINGS AND CARRYING BUILDINGS AND
DESCRIPTION (a) LAND IMPROVEMENTS IMPROVEMENTS COSTS (b) LAND IMPROVEMENTS TOTAL (d)
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Atrium Place
Arlington Heights, IL $ 332 $ 2,040 $ 562 $ (1,042) $ 205 $ 1,687 $ 1,892
Lakeland Industrial Park
Milwaukee, WI 270 5,973 1,204 (81) 268 7,098 7,366
Kennedy Corporate Center
Palatine, IL 641 4,252 684 (1,024) 574 3,979 4,553
Iomega/Northpointe
Business Center
Roy, UT 672 7,834 491 - 672 8,325 8,997
Ladera Shopping Center,
Phase II
Albuquerque, NM 829 2,241 83 (22) 821 2,310 3,131
Creekridge Center
Bloomington, MN 1,312 11,304 339 (3,376) 966 8,613 9,579
------ ------- ------ -------- ------ ------- -------
TOTAL $4,056 $33,644 $3,363 $(5,545) $3,506 $32,012 $35,518
====== ======= ====== ======== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
COL. A COL. F COL. H COL. I
------ ------ ------ ------
ACCUMULATED
DEPRECIATION DATE DEPRECIABLE
DESCRIPTION (a) (d) ACQUIRED LIFE (e)
=====================================================================
<S> <C> <C> <C>
Atrium Place
Arlington Heights, IL $1,063 12/19/85 30 years
Lakeland Industrial Park
Milwaukee, WI 2,437 12/19/85 30 years
and
11/25/86
Kennedy Corporate Center
Palatine, IL 1,928 01/08/86 30 years
Iomega/Northpointe
Business Center
Roy, UT 2,684 01/31/86 30 years
Ladera Shopping Center,
Phase II
Albuquerque, NM 753 02/07/86 30 years
Creekridge Center
Bloomington, MN 3,266 09/23/86 30 years
-------
TOTAL $12,131
=======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
See notes to table on following page.
F-18
<PAGE> 66
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>
F-19
<PAGE> 67
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO SCHEDULE III (Cont'd.)
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>
F-20
<PAGE> 68
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEPENDENT AUDITORS' REPORT
To Damson/Birtcher Realty Income Fund-II, Limited Partnership and
Real Estate Income Partners III, Limited Partnership as
General Partners of Cooper Village Partners:
We have audited the financial statements of Cooper Village Partners, a general
partnership, as listed in the accompanying index. In connection with our
audits of the financial statements, we also have audited the financial
statement schedule listed in the accompanying index. These financial
statements and the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
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
F-21
<PAGE> 69
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.
F-22
<PAGE> 70
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.
F-23
<PAGE> 71
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 TOTAL
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III
--------------------------------------------
<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.
F-24
<PAGE> 72
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.
F-25
<PAGE> 73
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.
F-26
<PAGE> 74
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if management
believes factors are present that may indicate long-lived assets are
impaired, the undiscounted cash flows, before debt service, related to
the assets should be estimated. If these estimated cash flows are less
than the carrying value of the asset, then impairment is deemed to
exist. If impairment exists, the asset should be written down to the
estimated fair value.
Further, assets held for sale, including any unrecoverable accrued rent
receivable or capitalized leasing commissions, should be carried at the
lower of carrying value or fair value less estimated selling costs.
Any adjustment to carrying value is recorded as a valuation allowance
against property held for sale. Each reporting period, the General
Partners will review their estimates of fair value, which may be
decreased or increased up to the original carrying value. Finally,
assets held for sale are no longer depreciated. The General Partners
adopted FAS 121 at December 31, 1995 and the initial adoption did not
have a material impact on the Partnership's operations or financial
position as prior to December 31, 1995 the Partnership had not had any
properties held for sale.
As noted above, as of December 31, 1995 the General Partners decided to
account for the Partnership's property as an asset held for sale,
assuming 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.
F-27
<PAGE> 75
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate (Cont'd.)
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>
F-28
<PAGE> 76
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partners to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes
Income taxes are not levied at the Partnership level, therefore, no
provision or liability for Federal and State income taxes has been
reflected in the accompanying financial statements.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
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>
F-29
<PAGE> 77
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(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 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.
F-30
<PAGE> 78
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business. It is the General Partners' belief, that the outcome of these
proceedings will not be material to the business, financial condition,
or results of operations of the Partnership.
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>
(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>
F-31
<PAGE> 79
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(7) Subsequent Events
On March 8, 1996, the Partnership made an aggregate cash distribution
of $140,000 to its General Partners.
F-32
<PAGE> 80
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E
------ ------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT GROSS AMOUNT AT WHICH
TO PARTNERSHIP (c) TO THE ACQUISITION CARRIED AT CLOSE OF PERIOD (b)
---------------------- ------------------------- ---------------------------------
BUILDINGS AND CARRYING BUILDINGS AND
DESCRIPTION (a) LAND IMPROVEMENTS IMPROVEMENTS COSTS(b) LAND IMPROVEMENTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cooper Village Shopping Center $ 2,756 $ 6,430 $ 715 $ (1,737) $ 2,748 $ 5,416 $ 8,164
------- ------- ----- --------- -------- ------- -------
TOTAL $ 2,756 $ 6,430 $ 715 $ (1,737) $ 2,748 $ 5,416 $ 8,164
======= ======= ===== ========= ======== ======= =======
<CAPTION>
COL. A COL. F COL. H COL. I
------ ------ ------ ------
ACCUMULATED DATE DEPRECIABLE
DESCRIPTION (a) DEPRECIATION ACQUIRED LIFE (d)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Cooper Village Shopping Center $ 1,778 12/30/87 and 30 years
12/30/88
-------
TOTAL $ 1,778
=======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
F-33
<PAGE> 81
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO SCHEDULE III
(a) For a description of the property, see "Item 2. Properties."
(b) At December 31, 1995, the General Partner determined that the
Partnership 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>
F-34
<PAGE> 82
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership and the General Partner have no directors or executive officers.
The General Partner of the Partnership is Birtcher/Liquidity Properties, a
California general partnership of which Birtcher Investors, a California limited
partnership, and LF Special Fund I, L.P., a California limited partnership, are
the general partners. Under the terms of the Partnership Agreement, Birtcher
Investors is responsible for the day-to-day management of the Partnership's
assets.
The general partner of LF Special Fund I, L.P., is Liquidity Fund Asset
Management, Inc., a California corporation affiliated with Liquidity Financial
Group, L.P. The principals and officers of Liquidity Fund Asset Management, Inc.
are as follows:
- Richard G. Wollack, Chairman of the Board
- Brent R. Donaldson, President
- Deborah M. Richard, Chief Financial Officer
The general partner of Birtcher Investors is Birtcher Investments, a California
general partnership. Birtcher Investments' general partner is Birtcher Limited,
a California limited partnership and its general partner is BREICORP, a
California corporation. The principals and relevant officers of BREICORP are as
follows:
- Ronald E. Birtcher, Co-Chairman of the Board
- Arthur B. Birtcher, Co-Chairman of the Board
- Robert M. Anderson, Executive Director
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the fees, compensation and other expense
reimbursements paid to the General Partner and its affiliates in all capacities
for each year in the three-year period ended December 31, 1995.
-14-
<PAGE> 83
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
<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.
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.
-15-
<PAGE> 84
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
3. Exhibits:
Articles of Incorporation and Bylaws
(a) Agreement of Limited Partnership incorporated by
reference to Exhibit No. 3.1 to the Partnership's
registration statement on Form S-11 (Commission File
No. 2-99421), dated August 5, 1985, as filed under the
Securities Act of 1933.
10. Material Contracts
(a) Form of Property Management Agreement between Birtcher
Properties and the Registrant incorporated by
reference to Exhibit No. 10.1 of the Partnership's
registration statement on Form S-11 (Commission File
No. 2-99421), as filed September 24, 1985, under the
Securities Act of 1933. (SUPERSEDED)
(b) Letter of Intent regarding Purchase and Sale of Real
Property (Cooper Village, Phase I) dated September 3,
1987, by and between Arizona Building and Development,
the Wolfswinkel Group and Birtcher Realty Corporation
incorporated by reference to Exhibit 19(a) of the
Partnership's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1987.
(c) Agreement of Purchase and Sale of Real Property
(Cooper Village, Phase I) dated November 13, 1987, by
and between Broadway Village Partners and Birtcher
Acquisition Corporation incorporated by reference to
Form 8-K, as filed December 30, 1987.
(d) Agreement of General Partnership, dated December 15,
1987, by and between Damson/Birtcher Realty Income
Fund-II, Limited Partnership and Real Estate Income
Partners III, Limited Partnership incorporated by
reference to Form 8-K, as filed December 30, 1987.
(e) Property Management Agreement dated October 24,
1991,between Glenborough Management Corporation and
the Registrant for Atrium Place, Creekridge Center,
Iomega/Northpointe Business Center, Kennedy Corporate
Center I, Ladera II Shopping Center and Lakeland
Industrial Park. Incorporated by reference to Exhibit
1 of the Partnership's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991. (SUPERSEDED)
(f) Property Management Agreement dated October 24, 1991,
between Glenborough Management Corporation and Cooper
Village Partners for Cooper Village Shopping Center.
Incorporated by reference to Exhibit 2 of the
Partnership's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991. (SUPERSEDED)
(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)
-16-
<PAGE> 85
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.) 1993.
(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) Ren Form 8-K:
None.
-17-
<PAGE> 86
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Investors
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: March 30, 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: March 30, 1996 By: /s/ Brent R. Donaldson
----------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Birtcher/Liquidity
Properties (General Partner of the Registrant) and in the capacities and on the
dates indicated.
Signature Capacity Date
--------- -------- ----
/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
-18-
<PAGE> 87
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------------
For Quarter Ended 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)
Delaware 13-3294820
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box A-1, Laguna Niguel, California 92677-0100
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(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> 88
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
<PAGE> 89
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
BALANCE SHEETS
----------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 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> 90
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> 91
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> 92
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.
6
<PAGE> 93
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(1) Accounting Policies (Cont'd.)
-------------------
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, 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.
7
<PAGE> 94
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(2) Transactions with Affiliates (Cont'd.)
----------------------------
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 6% of the gross receipts from the
properties under management provided that leasing services are
performed, otherwise not to exceed 3%. Such fees amounted to
approximately $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,
reimbursement 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.
8
<PAGE> 95
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(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.
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.
9
<PAGE> 96
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
-------------------------------
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.
10
<PAGE> 97
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
-------------------------------
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," 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.
11
<PAGE> 98
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended September 30, 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. (Cont'd.)
-------------------------
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 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.
12
<PAGE> 99
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended September 30, 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. (Cont'd.)
-------------------------
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.
13
<PAGE> 100
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits:
27 - Financial Data Schedule
b) Reports on Form 8-K:
None filed in quarter ended September 30, 1996.
14
<PAGE> 101
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAMSON / BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Investors
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: 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.
15
<PAGE> 102
- --------------------------------------------------------------------------------
CONSENT CONSENT
DAMSON/BIRTCHER REALTY INCOME FUND-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 Information Statement.
PLEASE MARK THE APPROPRIATE BOX:
With the General Partner's recommendation to dissolve the Partnership and
seek to sell and liquidate the remaining Partnership properties and wind up
the Partnership at the earliest practical time consistent with achieving
reasonable value for the Limited Partners' investment, I vote:
/ / FOR or / / AGAINST or / / ABSTAIN
- --------------------------------------------------------------------------------
The undersigned acknowledges receipt of the Information Statement dated
_________, 199_ 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, AS EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN NAME 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) ____ ______ OR (214) 999-9393.
<PAGE> 103
BIRTCHER/LIQUIDITY PROPERTIES
27611 LA PAZ ROAD
LAGUNA NIGUEL, CALIFORNIA 92656
TO THE LIMITED PARTNERS OF
DAMSOM/BIRTCHER REALTY INCOME FUND-II
(THE "PARTNERSHIP")
, 1997
-----------
Dear Limited Partner:
We are very pleased to present the enclosed Information Statement to
the limited partners of the Partnership. This Information Statement 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 Information Statement under "Summary of Proposal" and
"Description of Proposal."
Accompanying the Information Statement is the Partnerships' 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:
----------------------------
By:
----------------------------
YOUR VOTE IS IMPORTANT
Please sign and date the enclosed Consent Card and return it
immediately so that your vote can be countered.
