<PAGE> 1
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
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, 1998 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)
(949) 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> 2
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 5
Item 3. Legal Proceedings................................................ 6
Item 4. Submission of Matters to a Vote of
Security Holders............................................... 7
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters.................. 7
Item 6. Selected Financial Data.......................................... 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 9
Item 7a. Quantitative and Qualitative Market Risk Disclosures............. 15
Item 8. Financial Statements and Supplementary Data..................... F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 16
PART III
Item 10. Directors and Executive Officers of the Registrant............... 16
Item 11. Executive Compensation........................................... 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 17
Item 13. Certain Relationships and Related Transactions................... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................ 17
--- Signatures....................................................... 19
</TABLE>
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<PAGE> 3
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
PART I
Item 1. Business
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the "Partnership")
was formed on September 13, 1985, under the laws of the State of Delaware. The
General Partner of the Partnership is Birtcher/Liquidity Properties, a general
partnership, consisting of LF Special Fund I, L.P., a California limited
partnership, and Birtcher Investors, a California limited partnership. The
Partnership is engaged in the business of acquiring and operating existing
income-producing office buildings, research and development facilities, shopping
centers and other commercial or industrial properties as specified in its
prospectus (Commission File No. 2-99421) dated September 27, 1985, as amended.
See Item 2 for a description of the properties acquired by the Partnership.
The Partnership commenced operations on November 14, 1985. The closing for the
final admission of Limited Partners to the Partnership occurred on June 19,
1986. Total limited partners' capital contributions through that date aggregated
$52,588,000.
The Partnership acquired its properties entirely for cash, free and clear of
mortgage indebtedness. However, the Partnership may incur mortgage indebtedness
on its properties, primarily for the purpose of funding capital improvements to
properties or obtaining financing proceeds for distribution to partners.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will be
tax sheltered; (ii) to achieve capital appreciation over a holding period of at
least five years; and (iii) to preserve and protect the Partnership's capital.
An Information Statement, dated May 5, 1993, mandated that the General Partner
shall seek a vote of the Limited Partners no later than December 31, 1996,
regarding prompt liquidation of the Partnership in the event that properties
with appraised values as of January 1993, which constituted at least one-half of
the aggregate appraised values of all Partnership properties as of that date,
are not sold or under contract for sale by the end of 1996.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
instead of for investment as of December 31, 1995. In accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (see Note 2 to
the Financial Statements in Item 8), the carrying value of the properties was
evaluated to insure that each property was carried on the Partnership's balance
sheets at the lower of cost or fair value, less estimated selling costs.
Accordingly, the General Partner compared the carrying value of each property to
its appraised value as of January 1, 1996. If the carrying value of a property
and certain related assets was greater than its appraised value, less estimated
selling costs, the General Partner reduced the carrying value of the property by
the difference.
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<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 1. Business (Cont'd.)
On February 18, 1997, the General Partner mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and sell
and liquidate all of its remaining properties as soon as practicable, consistent
with obtaining reasonable value for the Partnership's properties. A majority in
interest of the Limited Partners consented by March 13, 1997. As a result, the
Partnership adopted the liquidation basis of accounting as of March 31, 1997.
The difference between the adoption of the liquidation basis of accounting as of
March 13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at their anticipated settlement
amounts. The valuation of assets and liabilities necessarily requires many
estimates and assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon dissolution and
costs associated therewith could be higher or lower than the amounts recorded.
Since the approval of the February 18, 1997 Consent Solicitation, the General
Partner has been evaluating possible sales of Partnership properties,
individually and as a portfolio, to liquidate and wind up the Partnership. On
April 30, 1998 the General Partner accepted an offer to purchase all of the
Partnership's properties for $33,680,000 from Abbey Investments, Inc.
("Abbey"), which was subject to certain customary contingencies, including due
diligence review by the purchaser and negotiation of a definitive Purchase and
Sale Agreement. On November 9, 1998, the Partnership and Abbey entered into a
definitive Purchase and Sale Agreement, for a purchase price ranging between
$32,250,000 and $33,000,000, depending upon occupancy rates at closing. Abbey
thereafter requested a material reduction in the purchase price, which the
Partnership did not agree to. Therefore, in late January 1999, the sale to
Abbey was terminated. Since that time, the Partnership has been actively
soliciting buyers for its properties.
The Partnership derives most of its revenue from rental income. Both Iomega
Corporation and Delta Dental Corporation represent significant portions of such
income. Rental income from Iomega Corporation totaled $1,260,000 in 1998,
$1,216,000 in 1997 and $1,210,000 in 1996, or approximately 23%, 25% and 25%,
respectively, of the Partnership's total rental income. Rental income from Delta
Dental Corporation totaled $888,000 in 1998, $860,000 in 1997 and $755,000 in
1996, or approximately 17%, 18% and 16%, respectively, of the Partnership's
total rental income.
The Partnership's investments in real estate are subject to competition for
tenants from similar types of properties in the vicinities in which they are
located. The Partnership has no investments in real estate located outside the
United States.
The Partnership has no employees and, accordingly, the General Partner and its
affiliates perform services on behalf of the Partnership in connection with
administering the affairs of the Partnership and operating the Partnership's
properties. The General Partner and its affiliates receive compensation in
connection with such activities. See Item 11 and Note 4 to the Financial
Statements in Item 8 for a description of such charges.
-4-
<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
APPROXIMATE RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/98 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lakeland Industrial Park, 5,875,000 Nine one-story office/warehouse 209,840 16 92%
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 94%
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 16 93%
Bloomington, Minnesota located on 5 acres of land.
September 23, 1986
Cooper Village 4,789,000(2) A single-story shopping center 9,978(2) 22 99%
Mesa, Arizona located on 10.88 acres of land.
December 30, 1987 and
December 30, 1988
----------- -------
TOTAL $37,997,000 636,845
=========== =======
</TABLE>
SEE NOTES TO TABLE ON THE FOLLOWING PAGE.
-5-
<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 2. PROPERTIES (Cont'd.)
NOTES TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of
acquisition fees of $2,484,000 paid to the General Partner. Also,
for certain properties, the purchase price has been reduced by
cash received after acquisition under rental agreements for
non-occupied space.
(2) An interest in Cooper Village was acquired by the Partnership
through a general partnership, Cooper Village Partners ("CV
Partners") consisting of the Partnership and Real Estate Income
Partners III, Limited Partnership, an affiliated limited
partnership. At December 31, 1998, 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
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 filed a purported class action lawsuit in the
Court of Common Pleas of Philadelphia County against Damson/Birtcher
Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher
Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P.,
Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack
and Brent R. Donaldson alleging breach of fiduciary duty and breach of
contract and seeking to enjoin the Consent Solicitation dated February
18, 1997. On April 18, 1997, the court denied the plaintiff's motion for
a preliminary injunction. On June 10, 1997, the court dismissed the
plaintiff's complaint on the basis of lack of personal jurisdiction and
forum non conveniens.
On June 13, 1997, the Partnership, its affiliated partnership, Real
Estate Income Partners III, and their general partner,
Birtcher/Liquidity Properties, filed a complaint for declaratory relief
in the Court of Chancery in Delaware against Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration
that the vote that the limited partners of the Partnership and Real
Estate Income Partners III took pursuant to the respective consent
solicitations dated February 18, 1997 was effective to dissolve the
respective partnerships and complied with applicable law, that the
actions of the General Partner in utilizing the consent solicitations to
solicit the vote of the limited partners did not breach any fiduciary or
contractual duty to such limited partners, and an award of costs and
fees to the plaintiffs. The defendant has answered the complaint. The
parties have initiated discovery. No motions are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware
Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
Birtcher Liquidity Properties,
-6-
<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 3. LEGAL PROCEEDINGS (Cont'd.)
Birtcher Investments, BREICORP, LF Special Fund I, LP, LF Special Fund
II. LP, Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G.
Wollack and Brent R. Donaldson alleging a purported class action on
behalf of the limited partners of Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
III alleging breach of fiduciary duty and incorporating the allegations
set forth in the previously dismissed March 25, 1997 complaint filed in
the Court of Chancery of Philadelphia County. Plaintiff has engaged in
preliminary discovery and the parties have held settlement discussions.
No motions are pending at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS
There is no public market for the limited partnership interests and a
market is not expected to develop as such limited partnership interests
are not publicly traded or freely transferable.
As of February 28, 1999, the number of holders of the Partnership's
interests is as follows:
<TABLE>
<S> <C>
General Partner 1
Limited Partners 5,880
-----
5,881
=====
</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 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $426,000 $704,000 $600,000 $ 463,000 $441,000 $358,000
Second 716,000 610,000 456,000 462,000 421,000
Third 652,000 562,000 504,000 462,000 405,000
Fourth 652,000 610,000 1,318,000 463,000 465,000
</TABLE>
The Limited Partners and the General Partner are entitled to receive
quarterly cash distributions, as available, in the future.
In December 1996, the Partnership made a $720,000 special distribution
to its limited partners from a portion of the proceeds from the sale of
Atrium Place. See Item 7, Liquidity and Capital Resources for further
discussion.
-7-
<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD ENDED YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------
1997 1996 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues $ 1,177,000 $ 4,859,000 $ 4,523,000 $ 4,637,000
=========== =========== ============ ============
Net Income (Loss):
General Partner $ 6,000 $ 19,000 $ (6,000) $ 5,000
Limited Partners 559,000 1,897,000 (569,000) 457,000
----------- ----------- ------------ ------------
$ 565,000 $ 1,916,000 $ (575,000) $ 462,000
=========== =========== ============ ============
Total Distributions:
General Partner $ 5,000 $ 21,000 $ 18,000 $ 17,000
=========== =========== ============ ============
Limited Partners $ 600,000 $ 2,741,000 $ 1,828,000 $ 1,649,000
=========== =========== ============ ============
</TABLE>
The following summary of financial data is for the period since the Partnership
adopted the liquidation basis of accounting.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997 THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ---------------------
<S> <C> <C>
Property Operating
Income, net $ 3,350,000 $ 2,304,000
=========== ===========
Distributions to
Partners $ 2,752,000 $ 1,782,000
=========== ===========
Net Assets in
Liquidation $27,752,000 $27,394,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Total Assets $28,212,000 $29,134,000 $31,496,000
=========== =========== ===========
</TABLE>
-8-
<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Capital Resources and Liquidity
Since the completion of its acquisition program in December 1988, the
Partnership has been primarily engaged in the operation of its properties. The
Partnership's original objective had been to hold its properties as long-term
investments. However, an Information Statement, dated May 5, 1993, mandated that
the General Partner seek a vote of the Limited Partners no later than December
31, 1996, regarding prompt liquidation of the Partnership in the event that
properties with appraised values as of January 1993, which constituted at least
one-half of the aggregate appraised values of all Partnership properties as of
that date, are not sold or under contract for sale by the end of 1996. Given the
mandate of the May 5, 1993 Information Statement, at December 31, 1995, the
General Partner decided to account for the Partnership's properties as assets
held for sale instead of for investment. In a Consent Solicitation dated
February 18, 1997, the Partnership solicited and received the consent of the
Limited Partners to dissolve the Partnership and gradually settle and close the
Partnership's business and dispose of and convey the Partnership's property as
soon as practicable, consistent with obtaining reasonable value for the
properties. The Partnership's properties were held for sale throughout 1997 and
1998 and continue to be held for sale.
Working capital is and will be principally provided from the operation of the
Partnership's properties and the working capital reserve established for the
properties. The Partnership may incur mortgage indebtedness relating to such
properties by borrowing funds primarily to fund capital improvements or to
obtain financing proceeds for distribution to the partners.
Regular distributions for the year ended December 31, 1998 represent net cash
flow from operations of the Partnership's properties and interest earned on the
temporary investment of working capital, net of capital reserve requirements.
Future cash distributions will be made principally to the extent of cash flow
attributable to the operations and sales of the Partnership's properties, after
capital reserve requirements. See Item 5 for a description of the Partnership's
distribution history. The Partnership believes that the cash generated from its
operations will provide the Partnership the funds necessary to meet all of its
ordinary obligations.
Certain of the Partnership's properties are not fully leased. The Partnership is
actively marketing the vacant space in these properties, subject to the
competitive environment in each of the market areas. To the extent the
Partnership is not successful in maintaining or increasing occupancy levels at
these properties, the Partnership's future cash flow and distributions may be
reduced.
In June 1993, the Partnership completed its solicitation of written consents
from its Limited Partners. A majority in interest of the Partnership's Limited
Partners approved each of the proposals contained in the Information Statement
dated May 5, 1993. Those proposals have been implemented by amending the
Partnership Agreement as contemplated by the Information Statement. The
amendments include, among other things, the payment of asset management and
leasing fees to the General Partner and the elimination of the General Partner's
residual interest and deferred leasing fees
-9-
<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
that were previously subordinated to return of the Limited Partners' 9%
Preferential Return. See Item 8, Note 4 to the Financial Statements for
discussion of fees paid to the General Partner for the years ended December 31,
1998, 1997 and 1996.
On February 18, 1997, the General Partner mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and sell
and liquidate all of its remaining properties as soon as practicable, consistent
with selling the Partnership's properties to the best advantage under the
circumstances. A majority in interest of the Limited Partners consented by March
13, 1997. As a result, the Partnership adopted the liquidation basis of
accounting as of March 31, 1997. The difference between the adoption of the
liquidation basis of accounting as of March 13, 1997 and March 31, 1997 was not
material.
Under the liquidation basis of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at their anticipated settlement
amounts. The valuation of assets and liabilities necessarily requires many
estimates and assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon dissolution and
costs associated therewith could be higher or lower than the amounts recorded.
Since the approval of the February 18, 1997 Consent Solicitation, the General
Partner has been evaluating possible sales of Partnership properties,
individually and as a portfolio, to liquidate and wind up the Partnership. On
April 30, 1998 the General Partner accepted an offer to purchase all of the
Partnership's properties for $33,680,000 from Abbey Investments, Inc. ("Abbey"),
which was subject to certain customary contingencies, including due diligence
review by the purchaser and negotiation of a definitive Purchase and Sale
Agreement. On November 9, 1998, the Partnership and Abbey entered into a
definitive Purchase and Sale Agreement, for a purchase price ranging between
$32,250,000 and $33,000,000 depending on occupancy rates at closing. Abbey
thereafter requested a material reduction in the purchase price, which the
Partnership did not agree to. Therefore, in late January 1999, the sale to Abbey
was terminated. Since that time, the Partnership has been actively soliciting
buyers for its properties.
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
-10-
<PAGE> 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
Property Appraisals and Net Asset Value (Cont'd.)
not sold or under contract for sale by the end of 1996.
Given this mandate, the General Partner requested that the appraiser provide an
assessment of value that reflects a shorter investment holding term. Although
the General Partner does not know how long it will take to sell the
Partnership's remaining properties, it requested that the appraiser assume that
the entire portfolio would be sold over four years, in connection with the
January 1995 appraisals, over three years in connection with the January 1996
appraisals, over approximately two years for the January 1997 appraisals and
over one year for the 1998 appraisals.
The General Partner has been evaluating multiple proposals to acquire the
properties (both individually and in bulk) over the past several months. In lieu
of obtaining appraisals as of January 1, 1999, the General Partner calculated an
estimated selling price net of estimated selling costs by taking an average of
the offer prices, net of estimated selling costs, from those proposals. The
General Partner utilized those averages to estimate fair value. The General
Partner estimated the fair value of the Partnership's remaining properties at
January 1, 1999 to be $29,428,000, net of estimated selling costs and
disposition fees.
The foregoing estimated fair value net of selling costs of the Partnership's
remaining properties indicates an estimated net asset value in liquidation of
$30,218,000 or $575 per $1,000 of original investor subscription. Net assets in
liquidation represents the estimated selling price of the Partnership's
properties, (net of estimated closing costs and disposition fees), cash and all
other assets less other liabilities including accrued expenses for liquidation.
Other Matters
The Partnership is in the process of liquidating its remaining assets. It is
anticipated that a sale of those assets will occur on or before January 1, 2000.
It is the opinion of the General Partner that the value of those assets is not
subject to any valuation risk as a result of year 2000 issues, other than
general economic climate issues that may arise. Based on current information,
the cost of addressing potential year 2000 problems is not expected to have a
material adverse impact on the Partnership's financial position, results of
operations or cash flows in future periods. As of December 31, 1998, the
investor services system used to track the limited partners' interests,
distributions and tax information has been tested and appears to be free of year
2000 bugs. The Partnership's properties are under review utilizing the Building
Owners and Managers Association ("BOMA") industry standards as a guideline for
necessary corrections and the Partnership's accounting systems are scheduled for
a software upgrade to correct any year 2000 issues in July of 1999. The cost of
the upgrades will be borne by the General Partner and will not be reimbursed by
the Partnership. In addition, the General Partner has made inquiries of its
banks, all of which indicate that any problems have been addressed adequately by
those institutions.
-11-
<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Other Matters (Cont'd.)
Even if attempts to correct any deficiencies in the Partnership's software are
unsuccessful, the General Partner anticipates that in the short term it could
convert its systems to standard spreadsheet or data base programs at nominal
cost.
Results of Operations
Year Ended December 31, 1998
Because the Partnership adopted the liquidation basis of accounting on March 31,
1997, a comparison of the results of operations is not practical. The Statements
of Net Assets in Liquidation and Statements of Changes of Net Assets in
Liquidation reflect the Partnership in the process of liquidation. Prior
financial statements reflect the Partnership as a going concern. As the
Partnership's assets (properties) are sold, the results of operations will be
generated from a smaller asset base and are therefore not comparable. The
Partnership's operating results have been reflected on the Statements of Changes
of Net Assets in Liquidation since March 31, 1997 (the date of adoption of the
liquidation basis of accounting) and the Statement of Operations for the three
months ended March 31, 1997.
For the year ended December 31, 1998, the Partnership generated $3,350,000 of
net operating income from operation of its properties. The increase in net
operating income for year ended December 31, 1998, when compared to 1997, was
primarily attributable to the following: 1) an increase in rental income at
Lakeland due to higher occupancy ($47,000) and an early lease termination fee of
$27,000 at Lakeland; 2) an increase in operating expense recoveries at Kennedy
($53,000); 3) an increase in the rental rate at Iomega ($36,000); and 4) an
increase in rental income at Creekridge due to a higher occupancy level
($141,000).
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1998, interest income was approximately
$75,000.
General and administrative expenses for the year ended December 31, 1998 include
charges of $311,000 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 for the year ended December 31, 1998 are direct charges
of $354,000 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 year ended December 31, 1998, as compared to
1997, was primarily attributable to decreases in asset management fees, cost of
legal and professional services, postage and printing costs, insurance and
appraisal fees incurred in 1998.
For the year ended December 31, 1998, the General Partner determined that the
carrying values of Kennedy Corporate Center and Ladera-II Shopping Center were
in excess of their respective estimated net realizable values. As a result,
their carrying values were adjusted by $470,000 and $731,000, to $2,175,000 and
$1,586,000, respectively. The carrying value of real estate in the Partnership's
investment in Cooper Village Partners was also adjusted as the General Partners
of Cooper Village Partners determined that the carrying value of real estate was
in excess of its estimated net realizable value. The Partnership's portion (58%)
of the adjustment was $328,000. In addition, during 1998, the carrying value of
Iomega was increased by $1,529,000 to its estimated net realizable value of
$7,895,000, offsetting the aforementioned decreases.
-12-
<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1998 (Cont'd.)
Accrued expenses for liquidation as of December 31, 1998, includes estimates of
costs to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting fees, tax
preparation and filing fees, and professional services. The actual costs could
vary significantly from the related provisions due to the uncertainty related to
the length of time required to complete the liquidation and dissolution and the
complexities which may arise in disposing of the Partnership's remaining assets.
Year Ended December 31, 1997
Because the Partnership adopted the liquidation basis of accounting on March 31,
1997, a comparison of the results of operations is not practical. The Statement
of Net Assets in Liquidation and Statement of Changes of Net Assets in
Liquidation reflect the Partnership in the process of liquidation. Prior
financial statements reflect the Partnership as a going concern. As the
Partnership's assets (properties) are sold, the results of operations will be
generated from a smaller asset base and are therefore not comparable. The
Partnership's operating results have been reflected in the Statement of Changes
of Net Assets in Liquidation since March 31, 1997 (the date of adoption of the
liquidation basis of accounting) and the Statement of Operations for the three
months ended March 31, 1997.
For the year ended December 31, 1997, the Partnership generated $3,019,000 of
net operating income from operation of its properties. The decrease in net
operating income for year ended December 31, 1997, when compared to 1996, was
primarily the result of the sale of Atrium Place in November 1996.
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1997, interest income was approximately
$72,000.
General and administrative expenses for the year ended December 31, 1997 include
charges of $318,000 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 for the year ended December 31, 1997 are direct charges
of $517,000 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 increase in general and
administrative expenses for the year ended December 31, 1997, as compared to
1996, was primarily attributable to the increase in legal and professional
services, printing costs, postage and mailing expenses associated with the
Partnership's solicitation of the Limited Partners consent for the Liquidation
of the Partnership in March 1997.
Accrued expenses for liquidation, as reflected in the Statement of Net Assets in
Liquidation as of December 31, 1997, are not included in results of operations
for the three month period ended March 31, 1997. The liquidation basis of
accounting was adopted on March 31, 1997 therefore, it was not appropriate to
include such adjustments in the results of operations for prior periods. Accrued
expenses for
-13-
<PAGE> 14
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1997 (Cont'd.)
liquidation as of December 31, 1997, includes estimates of costs to be incurred
in carrying out the dissolution and liquidation of the Partnership. These costs
include estimates of legal fees, accounting fees, tax preparation and filing
fees, professional services and the general partner's liability insurance. The
actual costs could vary significantly from the related provisions due to the
uncertainty related to the length of time required to complete the liquidation
and dissolution and the complexities which may arise in disposing of the
Partnership's remaining assets.
Year Ended December 31, 1996
The increase in rental income for the year ended December 31, 1996, when
compared to 1995, was primarily attributable to: 1) Iomega's absorption of the
one remaining building thereby increasing the occupancy of that property to 100%
in August of 1995 ($90,000); 2)the increased occupancy at Creekridge from 91% in
1995 to 98% in 1996 ($166,000); and 3) the increased occupancy at Lakeland
Industrial Park from 96% in 1995 to 100% in 1996 ($74,000).
Interest income resulted from the temporary investment of Partnership working
capital. It was generally comparable to 1995 overall.
On November 21, 1996, the Partnership sold Atrium Place, a single-story 23,970
square foot office building located on 1.74 acres of land in Arlington Heights,
Illinois to an unaffiliated third party. The sales price was $825,000 ($784,000
net of closing costs and escrow fees) and the net proceeds of the sale amounted
to approximately $720,000 after all prorations and credits to the buyer. In
December 1995, the General Partner had adjusted the carrying value of the
property in accordance with the guidelines of FAS 121, which resulted in a
write-down of $167,000 and an adjusted carrying value of $829,000. In September
1996, the General Partner adjusted the carrying value by another $75,000 to
$754,000 upon disposition. The resulting gain on sale, after taking into
consideration all costs of disposition, amounted to $30,000 as reflected in the
Statement of Operations. The General Partner was not paid a commission or
disposition fee as part of this transaction.
The decrease in operating expenses for the year ended December 31, 1996, as
compared to 1995, was attributable to several factors. At Lakeland Industrial
Park, roof repairs, property management wages, legal fees and marketing and
advertising costs were reduced in 1996. At Kennedy Corporate Center, landscaping
and snow removal costs incurred were lower in 1996 due to mild winter
conditions. Finally, as a result of the increased occupancy level at Iomega, the
tenant absorbed additional operating costs at the site as a result of its lease
arrangement.
The decrease in real estate taxes for the year ended December 31, 1996, as
compared to 1995, was primarily attributable to reductions in the annual tax
assessments for Kennedy Corporate Center and Lakeland Industrial Park and the
overall decrease in tax expenses resulting from the sale of Atrium Place in
November 1996. These decreases were partially offset by an increased tax
assessment for Creekridge.
-14-
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1996 (Cont'd.)
The decrease in depreciation and amortization expenses for the year ended
December 31, 1996, as compared to 1995, was a result of the adoption and
implementation at December 31, 1995 of Statement of Financial Accounting
Standards, No. 121, "Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of," pursuant to which "assets held for sale" are not depreciated.
General and administrative expenses for the year ended December 31, 1996
included charges of $348,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the partnership's properties. Also included in general
and administrative expenses are direct charges of $336,000 relating to audit and
tax preparation fees, annual appraisal fees, legal fees, insurance, costs
incurred in providing information to the Limited Partners and other
miscellaneous costs.
The decrease in general and administrative expenses for the year ended December
31, 1996, when compared to 1995, was primarily attributable to the decrease in
administrative expense reimbursements and leasing fees. The aforementioned
decrease was partially offset by higher professional fees incurred by the
Partnership.
During 1996, the Partnership made certain capital improvements to properties
held for sale that resulted in a corresponding increase in the properties'
valuation allowance. At December 31, 1996, the General Partner compared the
carrying value of each property to its appraised value as of January 1, 1997
and determined that Ladera-II Shopping Center and Kennedy Corporate Center had
carrying values greater than their respective appraised values. As a result,
during the year ended December 31, 1996 the carrying values were adjusted by
$185,000 and $343,000 to $2,200,000 and $2,460,000, respectively. In addition,
the carrying value of Atrium Place was reduced in September 1996 by $75,000 in
order to reflect its approximate selling price and the carrying value of
Lakeland Industrial Park was increased by $40,000 to $5,300,000, its estimated
fair value less selling costs.
The increase in equity in earnings of Cooper Village Partners for the year ended
December 31, 1996, as compared to 1995, was primarily attributable to the
Partnership's portion (58%) of depreciation expenses incurred during 1995 that
were not incurred in 1996. As previously discussed, the Partnership no longer
depreciates its assets due to the adoption of Financial Accounting Standard No.
121. In addition, during 1996, a lease termination settlement in the amount of
$127,000 was collected from The Boston Stores and accordingly, was taken into
income in 1996. Finally, the adjustment to the carrying value of real estate in
1996 decreased to $412,000 from $1,360,000 in 1995.
Item 7a. Quantitative and Qualitative Market Risk Disclosures
Not applicable because the Partnership does not have any financial instruments
subject to market risk.
-15-
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................... F-3
Financial Statements:
Statements of Net Assets in Liquidation as of December 31, 1998 and
1997............................................................................... F-4
Statements of Changes of Net Assets in Liquidation for the Year Ended
December 31, 1998 and for the Nine Months Ended December 31, 1997.................. F-5
Statements of Operations for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................... F-6
Statements of Partners' Capital for the Three Months Ended
March 31, 1997 and the Year Ended December 31, 1996................................ F-7
Statements of Cash Flows for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................... F-8
Notes to Financial Statements..........................................................F-9
Schedule:
III - Real Estate in Liquidation as of December 31, 1998........................... F-21
</TABLE>
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................... F-24
Financial Statements:
Statements of Net Assets in Liquidation as of December 31, 1998 and
1997............................................................................... F-25
Statements of Changes of Net Assets in Liquidation for the Year Ended
December 31, 1998 and for the Nine Months Ended December 31, 1997.................. F-26
Statements of Operations for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................... F-27
</TABLE>
F-1
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE (CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Statements of Partners' Capital for the Three Months
Ended March 31, 1997 and for the Year Ended December 31, 1996...................... F-28
Statements of Cash Flows for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................... F-29
Notes to Financial Statements...................................................... F-30
Schedule:
III - Real Estate in Liquidation as of December 31, 1998........................... F-36
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
F-2
<PAGE> 18
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 net assets in liquidation as of December 31, 1998 and
1997 of Damson/Birtcher Realty Income Fund-II, and the changes of net assets in
liquidation for the year ended December 31, 1998 and for the nine months ended
December 31, 1997 and the results of its operations and its cash flows for the
three months ended March 31, 1997 and the year ended December 31, 1996, in
conformity with generally accepted accounting principles applied on the bases of
accounting discussed in note 2. 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 notes 1 and 2 to the financial statements, Damson/Birtcher
Realty Income Fund-II changed its basis of accounting as of March 31, 1997 from
the going-concern basis to the liquidation basis.
KPMG LLP
Orange County, California
March 9, 1999, except as to the second
through the fifth paragraphs of note 9,
which are as of March 25, 1999
F-3
<PAGE> 19
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS (Liquidation Basis): 1998 1997
----------- -----------
<S> <C> <C>
Properties $23,587,000 $23,102,000
Investment in Cooper Village Partners 3,375,000 3,640,000
Cash and cash equivalents 1,564,000 1,455,000
Accounts receivable 20,000 121,000
Other assets 20,000 25,000
----------- -----------
Total Assets 28,566,000 28,343,000
----------- -----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 685,000 667,000
Accrued expenses for liquidation 129,000 282,000
----------- -----------
Total Liabilities 814,000 949,000
----------- -----------
Net Assets in Liquidation $27,752,000 $27,394,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 20
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED DECEMBER 31,
1998 1997
------------------ -------------------
<S> <C> <C>
Net assets in liquidation at beginning
of period $ 27,394,000 $ 27,255,000
------------ ------------
Increase (decrease) during period:
Operating activities:
Property operating income, net 3,350,000 2,304,000
Interest income 75,000 52,000
General and administrative expenses (665,000) (591,000)
Leasing commissions (49,000) (47,000)
Equity in earnings of Cooper Village
Partners excluding $328,000 adjustment to
carrying value of investment in Cooper Village
Partners for 1998 348,000 203,000
------------ ------------
3,059,000 1,921,000
------------ ------------
Liquidating activities:
Distribution to partners (2,752,000) (1,782,000)
Adjustment to the carrying value of
properties 328,000 --
Adjustment to carrying value of
investment in Cooper Village Partners (328,000) --
Change in provision for liquidation
expenses 51,000 --
------------ ------------
(2,701,000) (1,782,000)
------------ ------------
Net increase in assets in liquidation 358,000 139,000
------------ ------------
Net assets in liquidation at end of period $ 27,752,000 $ 27,394,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 21
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
REVENUES:
Rental income $1,157,000 $4,760,000
Interest and other income 20,000 69,000
Gain on sale of property -- 30,000
---------- ----------
Total revenues 1,177,000 4,859,000
---------- ----------
EXPENSES:
Operating expenses 255,000 1,039,000
Real estate taxes 187,000 682,000
Depreciation and amortization 17,000 73,000
General and administrative 244,000 684,000
Adjustment to carrying value of
real estate -- 563,000
---------- ----------
Total expenses 703,000 3,041,000
---------- ----------
Income before equity in earnings
of Cooper Village Partners 474,000 1,818,000
Equity in earnings of
Cooper Village Partners 91,000 98,000
---------- ----------
NET INCOME $ 565,000 $1,916,000
========== ==========
NET INCOME ALLOCABLE TO:
General Partner $ 6,000 $ 19,000
========== ==========
Limited Partners $ 559,000 $1,897,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 22
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ (168,000) $ 28,590,000 $ 28,422,000
Net income 19,000 1,897,000 1,916,000
Distributions (21,000) (2,741,000) (2,762,000)
------------ ------------ ------------
Balance, December 31, 1996 (170,000) 27,746,000 27,576,000
Net income 6,000 559,000 565,000
Distributions (5,000) (600,000) (605,000)
------------ ------------ ------------
Balance, March 31, 1997 $ (169,000) $ 27,705,000 $ 27,536,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-7
<PAGE> 23
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 565,000 $ 1,916,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 17,000 73,000
Equity in (earnings) loss of Cooper
Village Partners (91,000) (98,000)
Adjustment to carrying value of
real estate -- 563,000
Gain on sale of property -- (30,000)
Changes in:
Accounts receivable (14,000) (1,000)
Accrued rent receivable 42,000 91,000
Prepaid expenses and other assets (26,000) 11,000
Accounts payable and accrued
liabilities 68,000 (76,000)
----------- -----------
Net cash provided by operating
activities 561,000 2,449,000
----------- -----------
Cash flows from investing activities:
Investments in real estate (61,000) (247,000)
Proceeds from sale of property -- 784,000
Distributions received from
Cooper Village Partners 70,000 360,000
----------- -----------
Net cash provided by
investing activities 9,000 897,000
----------- -----------
Cash flows from financing activities -
Distributions (605,000) (2,762,000)
----------- -----------
Net increase (decrease) in cash and
cash equivalents (35,000) 584,000
Cash and cash equivalents, beginning
of period 1,639,000 1,055,000
----------- -----------
Cash and cash equivalents, end
of period $ 1,604,000 $ 1,639,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-8
<PAGE> 24
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Operations
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the
"Partnership") is a limited partnership formed on September 13, 1985,
under the laws of the State of Delaware for the purpose of acquiring and
operating income-producing retail, commercial and industrial properties.
The General Partner of the Partnership is Birtcher/Liquidity Properties,
a general partnership consisting of LF Special Fund I, L.P. ("LF-I"), a
California limited partnership and Birtcher Investors, a California
limited partnership. Birtcher Investors, or its affiliates, provides
day-to-day administration, supervision and management of the Partnership
and its properties.
In January 1993, the General Partner filed an Information Statement with
the Securities and Exchange Commission seeking consent of the Limited
Partners to amend the Partnership Agreement. On June 24, 1993, the
Partnership completed its solicitation of written consent from its
Limited Partners. A majority in interest of the Partnership's Limited
Partners approved each of the proposals contained in the Information
Statements, dated May 5, 1993. Those proposals have been implemented by
the Partnership as contemplated by the Information Statement as
amendments to the Partnership Agreement, and are reflected in these
financial statements as such.
The amendment modified the Partnership Agreement to eliminate the General
Partner's 10% subordinated interest in distributions of Distributable
Cash (net cash from operations) and to reduce its subordinated interest
in such distributions from 10% to 1%. The amendment also modified the
Partnership Agreement to eliminate the General Partner's 10% subordinated
interest in Sale or Financing Proceeds (net cash from sale or financing
of Partnership property) and to reduce its subordinated interest in such
proceeds from 15% to 1%. In lieu thereof, the Partnership Agreement now
provides for the Partnership's payment to the General Partner of an
annual asset management fee equal initially to .75% of the aggregate
appraised value of the Partnership's properties. The factor used to
calculate the annual asset management fee is reduced by .10% each year
beginning after December 31, 1996 (e.g., from .65% in 1997 to .55% in
1998 and to .45% in 1999).
At January 1, 1998 the portfolio was appraised at an estimated value of
approximately $32,713,000 net of estimated selling costs, (unaudited),
which included the Partnership's interest in Cooper Village Partners
which was appraised at $3,683,000 (unaudited). The General Partner has
been evaluating multiple proposals to acquire the properties (both
individually and in bulk) over the past several months. In lieu of
obtaining appraisals as of January 1, 1999, the General Partner
calculated an estimated selling price net of estimated selling costs by
taking an average of the offer prices, net of estimated selling costs,
from those proposals. The General Partner utilized those averages to
estimate fair value. From those valuations, at January 1, 1999, the
General Partner estimated the fair value, net of estimated selling costs,
of the portfolio to be $29,428,000 (inclusive of the Partnership's
interest in Cooper Village Partners).
The amendment modified the Partnership Agreement to eliminate the
subordination provisions with respect to future property disposition fees
payable under that section and authorizes payment to the General Partner
and its affiliates of the foregoing property disposition fees as earned.
The fees will not be subordinated to the return to the Limited Partners
Preferred Return and Adjusted Invested Capital or any other amount. The
disposition fees will be paid to the General Partner or its affiliates in
an amount equal to 50% of the competitive real estate brokerage
commission that would be charged by unaffiliated third parties providing
comparable services in the area in which a property is located, but in no
event more than three percent of the gross sale price of the property,
and is to be reduced by the amount
F-9
<PAGE> 25
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
by which any brokerage or similar commissions paid to any unaffiliated
third parties in connection with the sale of the property exceed three
percent of the gross sale price. This amount is not payable, unless and
to the extent that the sale price of the property in question, net of any
other brokerage commissions (but not other costs of sale), exceeds the
appraised value of the property as of January 1, 1993.
The amendment states that the Partnership is no longer authorized to pay
the General Partner or its affiliates any insurance commission or any
property financing fees. No such commission or fees have been paid or
accrued by the Partnership since its inception.
The amendment modified the provisions of the Partnership Agreement
regarding allocations of Partnership income, gain and other tax items
between the General Partner and the Limited Partners primarily to conform
to the changes in the General Partner's interest in distributions of
Distributable Cash and Sale or Financing Proceeds effected by the
amendment.
It is not anticipated that the adoption and implementation of the
amendment will have any material adverse effect on future allocations of
income, gain, loss or other tax items to the Limited Partners. However,
if any of the Partnership's properties are sold for a gain, a special
allocation to the General Partner would have the effect of reducing the
amount of Sale or Financing Proceeds otherwise distributable to the
Limited Partners and correspondingly increasing the amount of such
distributions to be retained by the General Partner. The amount of such
distributions to be affected would be approximately equal to any deficit
balance in the General Partner's capital account in the Partnership at
the time of the allocation.
The Limited Partners have certain priorities in the allocation of cash
distributions by the Partnership. Out of each distribution of net cash,
the Limited Partners generally have certain preferential rights to
receive payments that, together with all previous payments to them, would
provide an overall 9% per annum (cumulative non-compounded) return (a "9%
Preferential Return") on their investment in the Partnership. Any
distributions not equaling this 9% Preferential Return in any quarter are
to be made up in subsequent periods if and to the extent distributable
cash is available.
Distributable cash from operations is paid out each quarter in the
following manner: 99% to the Limited Partners and 1% to the General
Partner. These payments are made each quarter to the extent that there is
sufficient distributable cash available.
Sale or financing proceeds are to be distributed, to the extent
available, as follows: (i) to the Limited Partners until all cash
distributions to them amount to a 9% Preferential Return on their
investment cumulatively from the date of their admission to the
Partnership, (ii) then to the Limited Partners in an amount equal to
their investment; and (iii) the remainder, 99% to Limited Partners and 1%
to the General Partner.
Although the unpaid 9% Preferential Return to the Limited Partners
aggregates approximately $31,626,000 as of December 31, 1998, it is
anticipated that the limited partners will not realize this return due to
the Partnership's estimated liquidation value of $27,752,000. See
Information Statement dated February 18, 1997 for further discussion.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
F-10
<PAGE> 26
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment modified the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction" (as
defined in the amendment) sponsored by the General Partner or any of its
affiliates unless such transaction is approved by a "supermajority" of at
least 80% in interest of the Limited Partners and the General Partner.
The amendment also prohibits the modification of this restriction on
Reorganization Transactions without the approval of at least 80% in
interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other dispositions
to be left to the General Partner's discretion based on the anticipated
remaining economic benefits of continued ownership and other factors.
On February 18, 1997, the Partnership mailed a Consent Solicitation to
the Limited Partners which sought their consent to dissolve the
Partnership and sell and liquidate all of its remaining properties as
soon as practicable, consistent with obtaining reasonable value for the
Partnership's properties. A majority in interest of the Limited Partners
consented by March 13, 1997. As a result, the Partnership adopted the
liquidation basis of accounting as of March 31, 1997. The difference
between the adoption of the liquidation basis of accounting as of March
13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
The Partnership adopted the liquidation basis of accounting on March 31,
1997. Comparison of results to prior years, therefore, is not practical.
The Statements of Net Assets in Liquidation and Statements of Changes of
Net Assets in Liquidation reflect the Partnership in the process of
liquidation. Prior financial statements reflect the Partnership as a
going concern.
As of December 31, 1995 the General Partner decided to treat its
properties as held for sale, instead of for investment, for financial
statement purposes. Since adoption of the 1993 amendment, the General
Partner has considered several preliminary indications of interest from
third parties to acquire some or all of the Partnership's properties.
Apart from the sale of Atrium Place, these transactions never
materialized, primarily because the General Partner rejected as too low
the valuations of the Partnership's remaining properties as proposed by
the potential purchasers. The Partnership's properties were held for sale
throughout 1997 and 1998 and continue to be held for sale currently.
Since the approval of the February 18, 1997 Consent Solicitation, the
General Partner has been evaluating possible sales of Partnership
properties, individually and as a portfolio, to liquidate and wind up the
Partnership. On April 30, 1998 the General Partner accepted an offer to
purchase all of the Partnership's properties for $33,680,000 from Abbey
Investments, Inc. ("Abbey"), which was subject to certain customary
contingencies, including due diligence review by the purchaser and
negotiation of a definitive Purchase and Sale Agreement. On November 9,
1998, the Partnership and Abbey entered into a definitive Purchase and
Sale Agreement, for a purchase price ranging between $32,250,000 and
$33,000,000, depending upon occupancy rates at closing. Abbey thereafter
requested a material reduction in the purchase price, which the
Partnership did not agree to. Therefore, in late January 1999, the sale
to Abbey was terminated. Since that time, the Partnership has been
actively soliciting buyers for its properties.
F-11
<PAGE> 27
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
In accordance with the liquidation basis of accounting adopted on March
31, 1997 (see Note 2), the carrying value of these properties was
evaluated to ensure that each property was carried on the Partnership's
Statements of Net Assets in Liquidation at estimated net realizable
value. The General Partner estimated net realizable value by using an
average of recent offers to acquire the properties, net of estimated
selling costs in lieu of obtaining appraisals as of January 1, 1999 at
December 31, 1998, and based upon appraisals performed as of January 1,
1998 at December 31, 1997. Fair value can only be determined based upon
sales to third parties, and sales proceeds could differ substantially
from internal estimates of fair value or appraised values.
(2) Summary of Significant Accounting Policies
Liquidation Basis
The Partnership adopted the liquidation basis of accounting as of March
31, 1997. The liquidation basis of accounting is appropriate when
liquidation appears imminent, the Partnership can no longer be classified
as a going concern and the net realizable values of the Partnership's
assets are reasonably determinable. Under this method of accounting,
assets and liabilities are stated at their estimated net realizable
values and costs of liquidating the Partnership are provided to the
extent reasonably determinable.
For the year ended December 31, 1998, the General Partner determined that
the carrying values of Kennedy Corporate Center and Ladera-II Shopping
Center were in excess of their respective estimated net realizable
values. As a result, their carrying values were adjusted by $470,000 and
$731,000, to $2,175,000 and $1,586,000, respectively. In addition, during
1998, the carrying value of Iomega was increased by $1,529,000 to its
estimated net realizable value of $7,895,000, offsetting the
aforementioned decreases.
Carrying Value of Real Estate (prior to the adoption of the liquidation
basis of accounting)
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
F-12
<PAGE> 28
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Carrying Value of Real Estate (prior to the adoption of the liquidation
basis of accounting) (Cont'd.)
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
reviews its estimates of fair value, which are decreased or increased up
to the original carrying value. Finally, assets held for sale are no
longer depreciated.
As noted above, as of December 31, 1995 the General Partner decided to
account for the Partnership's properties as assets held for sale,
assuming a 12 month holding period, instead of for investment.
Accordingly, the Assuming a 12 month holding period, the General Partner
compared the carrying value of each property to its appraised value as of
January 1, 1997 at December 31, 1996. If the carrying value of a property
and certain related assets were greater than its appraised value, less
estimated selling costs, the General Partner reduced the carrying value
of the property by the difference. Assuming a twelve month holding
period, for the year ended December 31, 1996, the General Partner
determined that Ladera-II Shopping Center and Kennedy Corporate Center
had carrying values greater than their respective appraised values, less
selling costs. As a result, the carrying values were adjusted by $185,000
and $343,000 to $2,200,000 and $2,460,000, respectively. In addition, the
carrying value of Atrium Place was reduced in September 1996 by $75,000
in order to reflect its approximate selling price and the carrying value
of Lakeland Industrial Park was increased by $40,000 to $5,300,000, its
estimated fair value less selling costs.
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires, among other items, that a
public business enterprise report a measure of segment profit or loss,
certain specific revenue and expense items, segment assets, information
about the revenues derived from the enterprise's products or services and
major customers. SFAS 131 also requires that the enterprise report
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating
segments. Given that the Partnership is in the process of liquidation,
the Partnership has identified only one operating business segment which
is the business of asset liquidation. The adoption of SFAS 131 did not
have an impact on the Partnership's financial reporting.
Rental income from Iomega Corporation totaled $1,260,000 in 1998,
$1,216,000 in 1997 and $1,210,000 in 1996, or approximately 23%, 25% and
25%, respectively, of the Partnership's total rental income. Rental
income from Delta Dental Corporation totaled $888,000 in 1998, $860,000
in 1997 and
F-13
<PAGE> 29
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Segment Reporting (Cont'd.)
$755,000 in 1996, or approximately 17%, 18% and 16%, respectively, of the
Partnership's total rental income.
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, 1998 and 1997, totaled $1,325,000 and $1,403,000,
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.
Revenue Recognition
Through March 31, 1997, rental income pertaining to operating lease
agreements which specify scheduled rent increases or free rent periods,
was recognized on a straight-line basis over the period of the related
lease agreement. After March 31, 1997, rental income has been recognized
according to the lease terms.
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.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP")
(liquidation basis of accounting) and for federal income tax reporting
purposes at December 31:
<TABLE>
<CAPTION>
1998 1997
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $28,566,000 $35,717,000 $28,343,000 $35,416,000
----------- ----------- ----------- -----------
Total
Liabilities $ 814,000 $ 685,000 $ 949,000 $ 667,000
----------- ----------- ----------- -----------
</TABLE>
F-14
<PAGE> 30
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 differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per Financial Statements
(period ending March 31, 1997 for 1997) $ -- $ 565,000 $ 1,916,000
Change in net assets in liquidation
from operating activities including
adjustments to carrying values of
real estate (nine months ended December
31, 1997 for 1997) 3,059,000 1,921,000 --
Adjustment to carrying value of real
estate (328,000) -- 563,000
Adjustment in carrying value of Cooper
Village 328,000 -- 239,000
Depreciation differences on
investments in real estate (1,429,000) (1,406,000) (1,482,000)
Loss on sale of property in excess of
book value -- -- (1,184,000)
Other (65,000) 55,000 70,000
- -----------------------------------------------------------------------------------------------------------------
Taxable income per Federal tax return
(unaudited) $ 1,565,000 $ 1,135,000 $ 122,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings and Distributions Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate reduced rates on sales
commissions for subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no sales
commission was credited with proportionately larger Invested Capital and
therefore had a disproportionately greater interest in the capital and
revenues of the Partnership than a Limited Partner who paid commissions
at a higher rate. As a result, the Partnership has no set unit value as
all accounting, investor reporting and tax information is based upon each
investor's relative percentage of Invested Capital. Accordingly, earnings
or loss per unit is not presented in the accompanying financial
statements.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the
F-15
<PAGE> 31
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Estimations (Cont'd.)
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses or
changes in net assets 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.
Condensed summary financial information for CV Partners is presented
below.
Condensed Statements of Net Assets in Liquidation:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Property $ 5,632,000 $ 6,102,000
Cash and Other Assets 387,000 401,000
Liabilities (134,000) (144,000)
----------- -----------
Net assets in liquidation $ 5,885,000 $ 6,359,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Changes
Of Net Assets in Liquidation: YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Net Assets in Liquidation
at beginning of period $ 6,359,000 $ 6,384,000
Increase (decrease) during period:
Operating Activities 580,000 345,000
Liquidating Activities (1,054,000) (370,000)
----------- -----------
Net decrease in Assets in
Liquidation (474,000) (25,000)
----------- -----------
Net Assets in Liquidation at
end of period $ 5,885,000 $ 6,359,000
=========== ===========
</TABLE>
F-16
<PAGE> 32
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners (Cont'd.)
<TABLE>
<CAPTION>
Condensed Statements FOR THE FOR THE
Of Operations: THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Rental and Other Income $ 242,000 $ 1,072,000
Operating and Other Expenses (84,000) (483,000)
Adjustment to Carrying Value
of Real Estate -- (412,000)
Depreciation and Amortization (2,000) (8,000)
----------- -----------
Net Income $ 156,000 $ 169,000
=========== ===========
</TABLE>
The carrying value of real estate in the Partnership's investment in
Cooper Village Partners was adjusted as the General Partners of Cooper
Village Partners determined that the carrying value of real estate was
in excess of its estimated net realizable value. The Partnership's
portion (58%) of the adjustment was $328,000.
(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,
1998, 1997 and 1996 the Partnership was charged with approximately
$115,000, $114,000 and $130,000, respectively, of such expenses.
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 $181,000 in 1998, $159,000 in 1997 and $168,000 in 1996.
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 $36,000, $35,000 and $19,000 for the
years ended December 31, 1998, 1997, and 1996, respectively. As
reimbursement of costs for on-site property management personnel and
other related costs, an affiliate of the General Partner received
$114,000 in 1998, $109,000 in 1997 and $108,000 in 1996. In addition to
the aforementioned, the General Partner was also paid $55,000, $51,000
and $54,000 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, 1998, 1997 and 1996, respectively.
The amended Partnership Agreement provides for the Partnership's payment
to the General Partner of an annual asset management fee equal to .55%
(65% in 1997) 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, 1998, 1997 and
1996, amounted to $160,000, $170,000 and $199,000, respectively. In
addition to the aforementioned, the General Partner was also paid
$20,000, $23,000 and $28,000, related to the Partnership's portion (58%)
of asset management fees
F-17
<PAGE> 33
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Transactions with Affiliates (Cont'd.)
for Cooper Village Partners for the years ended December 31, 1998, 1997
and 1996, respectively.
(5) Gain on Disposition of Assets
On November 21, 1996, the Partnership sold Atrium Place, a single-story
23,970 square foot office building located on 1.74 acres of land in
Arlington Heights, Illinois to an unaffiliated third party. The sales
price was $825,000 ($784,000 net of closing costs and escrow fees) and
the net proceeds of the sale amounted to approximately $720,000 after
all prorations and credits to the buyer. In December 1995, the General
Partner had adjusted the carrying value of the property in accordance
with the guidelines of FAS 121, which resulted in a write-down of
$167,000 and an adjusted carrying value of $829,000. In September 1996,
the General Partner adjusted the carrying value by another $75,000 to
$754,000 upon disposition. The resulting gain on sale, after taking into
consideration all costs of disposition, amounted to $30,000 as reflected
in the Statement of Operations. The General Partner was not paid a
commission or disposition fee as part of this transaction.
(6) Commitments and Contingencies
Litigation
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 filed a purported class action lawsuit in the
Court of Common Pleas of Philadelphia County against Damson/Birtcher
Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher
Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P.,
Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack
and Brent R. Donaldson alleging breach of fiduciary duty and breach of
contract and seeking to enjoin the Consent Solicitation dated February
18, 1997. On April 18, 1997, the court denied the plaintiff's motion for
a preliminary injunction. On June 10, 1997, the court dismissed the
plaintiff's complaint on the basis of lack of personal jurisdiction and
forum non conveniens.
On June 13, 1997, the Partnership, its affiliated partnership, Real
Estate Income Partners III, and their general partner,
Birtcher/Liquidity Properties, filed a complaint for declaratory relief
in the Court of Chancery in Delaware against Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration
that the vote that the limited partners of the Partnership and Real
Estate Income Partners III took pursuant to the respective consent
solicitations dated February 18, 1997 were effective to dissolve the
respective partnerships and complied with applicable law, that the
actions of the General Partner in utilizing the consent solicitations to
solicit the vote of the limited partners did not breach any fiduciary or
contractual duty to such limited partners, and an award of costs and
fees to the plaintiffs. The defendant has answered the complaint. The
parties have initiated discovery. No motions are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware
Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
Birtcher
F-18
<PAGE> 34
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Liquidity Properties, Birtcher Investments, BREICORP, LF Special Fund I,
LP, LF Special Fund II. LP, Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging a purported
class action on behalf of the limited partners of Damson/Birtcher Realty
Income Fund-I, Damson/Birtcher Realty Income Fund-II and Real Estate
Income Partners III alleging breach of fiduciary duty and incorporating
the allegations set forth in the previously dismissed March 25, 1997
complaint filed in the Court of Chancery of Philadelphia County.
Plaintiff has engaged in preliminary discovery and the parties have held
settlement discussions. No motions are pending at this time.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1998, 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, 1998, is as follows:
Year Ending December 31,
------------------------
1999 $3,461,000
2000 2,471,000
2001 1,247,000
2002 671,000
2003 79,000
Thereafter -
----------
$7,929,000
==========
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses; payments
of additional rents in amounts equal to a set percentage of the tenant's
annual revenue in excess of specified levels; and escalations in annual
rents based upon the Consumer Price Index.
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Real estate taxes $ 362,000 $ 354,000
Security deposits 145,000 157,000
Accounts payable and other 178,000 156,000
----------- -----------
$ 685,000 $ 667,000
=========== ===========
</TABLE>
F-19
<PAGE> 35
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(8) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1998, includes
estimates of costs to be incurred in carrying out the dissolution and
liquidation of the Partnership. These costs include estimates of legal
fees, accounting fees, tax preparation and filing fees, and other
professional services.
(9) Subsequent Events
On February 28, 1999, the Partnership made an aggregate cash
distribution of $426,000 to its Limited Partners.
On March 25, 1999, the Partnership signed a letter of intent with
Praedium Performance Fund IV ("Praedium") to sell all of its properties
except its interest in Cooper Village to Praedium for $29,000,000.
Praedium is a New York-based investment firm affiliated with CS First
Boston. Praedium is not affiliated in any way with the Partnership or
the General Partner, or any of the General Partner's principals or
affiliates.
The Partnership and Praedium expect to sign a definitive Purchase and
Sale Agreement within two weeks, or by approximately April 8, 1999.
Praedium will then have 45 days to complete its due diligence
investigation and 30 days thereafter to complete the purchase. Upon
execution of the definitive Purchase and Sale Agreement, Praedium will
deposit $265,000 into an escrow account, which deposit shall be fully
refundable at any time before the expiration of the due diligence
period.
Praedium will hire Birtcher or an affiliate as asset manager for the
properties, and pay an annual fee equal to .30% of the value of the
assets for asset management services. Also, Praedium will hire Birtcher
or an affiliate as property manager for these assets for a fee that is
approximately the same as the current fees paid to the General Partner
for property management.
The letter of intent is nonbinding. Completion of the transaction is
conditioned upon Praedium completing its due diligence and formal
approval of the transaction by Praedium's "Investment Committee". The
Partnership has agreed that until the earlier of April 8, 1999 or the
execution of a definitive Purchase and Sale Agreement or Praedium
terminates the letter of intent, the Partnership will not offer to sell
or solicit any offer to purchase or negotiate for the sale of the
assets.
F-20
<PAGE> 36
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
SCHEDULE III
REAL ESTATE IN LIQUIDATION
AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E COL. H
------ ------ ------ ------ ------
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 DATE
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS (B) LAND IMPROVEMENTS TOTAL (D) ACQUIRED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lakeland Industrial Park
Milwaukee, WI 270 5,973 1,299 (2,409) 268 4,865 5,133 12/19/85
and
11/25/86
Kennedy Corporate Center
Palatine, IL 641 4,252 948 (3,666) 574 1,601 2,175 01/08/86
Iomega/Northpointe
Business Center
Roy, UT 672 7,834 491 (1,102) 672 7,223 7,895 01/31/86
Ladera Shopping Center,
Phase II
Albuquerque, NM 829 2,241 206 (1,690) 821 765 1,586 02/07/86
Creekridge Center
Bloomington, MN 1,312 11,304 500 (6,318) 966 5,832 6,798 09/23/86
-------- -------- -------- -------- -------- -------- --------
TOTAL $ 3,724 $ 31,604 $ 3,444 $(15,185) $ 3,301 $ 20,286 $ 23,587
======== ======== ======== ======== ======== ======== ========
</TABLE>
NOTE: Columns B, F, G and I are either none or are not applicable.
See notes to table on following page.
F-21
<PAGE> 37
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) Upon adoption of the liquidation basis of accounting on March 31, 1997,
accumulated depreciation was deleted through an adjustment to the cost
of the properties.
For the year ended December 31, 1998, the General Partner determined
that the carrying values of Kennedy Corporate Center and Ladera-II
Shopping Center were in excess of their respective estimated net
realizable values. As a result, their carrying values were adjusted by
$470,000 and $731,000, to $2,175,000 and $1,586,000, respectively. In
addition, during 1998, the carrying value of Iomega was increased by
$1,529,000 to its estimated net realizable value of $7,895,000,
offsetting the aforementioned decreases.
At December 31, 1996, the General Partner determined that Ladera-II
Shopping Center and Kennedy Corporate Center had carrying values greater
than their respective appraised values, less selling costs, and
therefore provided an aggregate valuation allowance of $528,000 against
property held for sale. In addition, the carrying value of Lakeland
Industrial Park was increased by $40,000 to $5,300,000, its estimated
fair value less selling costs.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $38,384,000 as of December 31, 1998.
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.
F-22
<PAGE> 38
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO SCHEDULE III (CONT'D.)
(d) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------------------
<S> <C> <C>
Balance at beginning of year $ 23,102,000 $ 33,386,000
Additions during the year:
Improvements 157,000 238,000
Other (*) -- (10,522,000)
Reductions during the year:
Adjustment to the carrying
value of properties 328,000 --
------------ ------------
Balance at end of year $ 23,587,000 $ 23,102,000
============ ============
</TABLE>
(*) Results from reclassification of deferred rent receivable and leasing
commissions to real estate and deletion of accumulated depreciation upon the
adoption of the liquidation basis of accounting on March 31, 1997.
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Balance at beginning of year $ 11,068,000
Accumulated depreciation
on real estate sold --
Adjustment upon adoption of liquidation
basis of accounting (11,068,000)
------------
Balance at end of year $ --
============
</TABLE>
F-23
<PAGE> 39
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 net assets in liquidation as of December 31, 1998 and
1997 of Cooper Village Partners, and the changes of net assets in liquidation
for the year ended December 31, 1998 and the nine months ended December 31, 1997
and the results of its operations and its cash flows for the three months ended
March 31, 1997 and the year ended December 31, 1996, in conformity with
generally accepted accounting principles applied on the bases of accounting as
discussed in note 2. 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 notes 1 and 2 to the financial statements, the Partnership
changed its basis of accounting as of March 31, 1997 from the going-concern
basis to the liquidation basis.
KPMG LLP
Orange County, California
March 9, 1999
F-24
<PAGE> 40
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS (Liquidation Basis): 1998 1997
------------ ------------
<S> <C> <C>
Property $5,632,000 $6,102,000
Cash and cash equivalents 301,000 324,000
Accounts receivable 81,000 71,000
Other assets 5,000 6,000
---------- ----------
Total Assets 6,019,000 6,503,000
---------- ----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 125,000 135,000
Accrued expenses for liquidation 9,000 9,000
---------- ----------
Total Liabilities 134,000 144,000
---------- ----------
Net Assets in Liquidation $5,885,000 $6,359,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-25
<PAGE> 41
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED DECEMBER 31,
1998 1997
------------------ -------------------
<S> <C> <C>
Net assets in liquidation at beginning
of period $ 6,359,000 $ 6,384,000
----------- -----------
Increase (decrease) during period:
Operating activities:
Property operating income, net 650,000 381,000
Interest income 16,000 16,000
General and administrative expenses (47,000) (39,000)
Leasing commissions (39,000) (13,000)
----------- -----------
580,000 345,000
----------- -----------
Liquidating activities:
Adjustment to carrying value of
property in liquidation (564,000) --
Distributions to partners (490,000) (370,000)
----------- -----------
(1,054,000) (370,000)
----------- -----------
Net decrease in assets in liquidation (474,000) (25,000)
----------- -----------
Net assets in liquidation at end of period $ 5,885,000 $ 6,359,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 42
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
REVENUES:
Rental income $ 238,000 $1,051,000
Interest and other income 4,000 21,000
---------- ----------
Total revenues 242,000 1,072,000
---------- ----------
EXPENSES:
Operating expenses 72,000 277,000
Real estate taxes -- 148,000
Depreciation and amortization 2,000 8,000
Adjustment to carrying
value of real estate -- 412,000
General and administrative 12,000 58,000
---------- ----------
Total expenses 86,000 903,000
---------- ----------
NET INCOME $ 156,000 $ 169,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-27
<PAGE> 43
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III TOTAL
-----------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 3,892,000 $ 2,916,000 $ 6,808,000
Net income 98,000 71,000 169,000
Distributions (360,000) (260,000) (620,000)
----------- ----------- -----------
Balance, December 31, 1996 3,630,000 2,727,000 6,357,000
Net income 90,000 66,000 156,000
Distributions (70,000) (50,000) (120,000)
----------- ----------- -----------
Balance, March 31, 1997 $ 3,650,000 $ 2,743,000 $ 6,393,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-28
<PAGE> 44
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 156,000 $ 169,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,000 8,000
Adjustment to carrying value of
real estate -- 412,000
Changes in:
Accounts receivable (24,000) 5,000
Accrued rent receivable 2,000 10,000
Prepaid expenses and other assets 1,000 (3,000)
Accounts payable and accrued
liabilities 17,000 3,000
--------- ---------
Net cash provided by operating
activities 154,000 604,000
Cash flows from investing activities -
investments in real estate (22,000) (37,000)
Cash flows from financing activities -
distributions (120,000) (620,000)
--------- ---------
Net increase (decrease) in cash and
cash equivalents 12,000 (53,000)
Cash and cash equivalents,
beginning of period 355,000 408,000
--------- ---------
Cash and cash equivalents,
end of period $ 367,000 $ 355,000
========= =========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-29
<PAGE> 45
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.
On February 18, 1997, the General Partners mailed a Consent Solicitation
to the Limited Partners of Funds II and III which sought their consent
to dissolve those Partnerships and sell and liquidate all of their
remaining properties (including the Partnership's property) as soon as
practicable, consistent with obtaining reasonable value for the
Partnership's property. A majority in interest of the Limited Partners
of Funds II and III consented by March 13, 1997. As a result, the
General Partners, as well as the Partnership, have adopted the
liquidation basis of accounting as of March 31, 1997. The difference
between the adoption of the liquidation basis of accounting as of March
13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
The Partnership adopted the liquidation basis of accounting on March 31,
1997. Comparison of results to prior years, therefore, is not practical.
The Statements of Net Assets in Liquidation and Statements of Changes of
Net Assets in Liquidation reflect the Partnership in the process of
liquidation. Prior financial statements reflect the Partnership as a
going concern.
As of December 31, 1995, the General Partners decided to treat their
properties, as well as the Partnership's property, as held for sale,
instead of for investment, for financial statement purposes. Since 1993,
the General Partners have considered several preliminary indications of
interest from third parties to acquire the Partnership's property. The
Partnership's sole property was held for sale throughout 1997 and 1998
and it is currently held for sale.
In accordance with the liquidation basis of accounting (see Note 2), the
carrying value of the Partnership's property was evaluated to ensure it
is carried on the Partnership's Statements of Net Assets in Liquidation
at net realizable value. The General Partners estimated net realizable
value for this purpose by using an average of recent offers to acquire
Cooper Village Shopping Center net of estimated selling costs, in lieu
of obtaining appraisals at December 31, 1998 and appraisals performed as
of January 1, 1998 at December 31, 1997. Fair value can only be
determined based upon sales to third parties, and sales proceeds could
differ substantially from internal estimates of fair value or appraised
values.
F-30
<PAGE> 46
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
Liquidation Basis
The Partnership adopted the liquidation basis of accounting as of March
31, 1997. The liquidation basis of accounting is appropriate when
liquidation appears imminent, the Partnership can no longer be classified
as a going concern and the net realizable values of the Partnership's
assets are reasonably determinable. Under this method of accounting,
assets and liabilities are stated at their estimated net realizable
values and costs of liquidating the Partnership are provided to the
extent reasonably determinable.
For the year ended December 31, 1998, the General Partners determined
that the carrying value of Cooper Village Shopping Center was in excess
of its estimated net realizable value. As a result, the carrying value
was adjusted by $564,000 to $5,633,000.
Carrying Value of Real Estate (prior to adoption of the liquidation
basis of accounting)
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
review their estimate of fair value, which is decreased or increased up
to the original carrying value. Finally, assets held for sale are no
longer depreciated.
As noted above, as of December 31, 1995 the General Partners decided to
account for the Partnership's property as an asset held for sale,
assuming a 12 month holding period, instead of for investment.
Accordingly, the General Partners compared the carrying value of the
property to its appraised value as of January 1, 1997 at December 31,
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
$412,000 at December 31, 1996.
F-31
<PAGE> 47
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Carrying Value of Real Estate (prior to adoption of the liquidation basis
of accounting) (Cont'd.)
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires, among other items, that a
public business enterprise report a measure of segment profit or loss,
certain specific revenue and expense items, segment assets, information
about the revenues derived from the enterprise's products or services and
major customers. SFAS 131 also requires that the enterprise report
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating
segments. Given that the Partnership is in the process of liquidation,
the Partnership has identified only one operating business segment which
is the business of asset liquidation. The adoption of SFAS 131 did not
have an impact on the Partnership's financial reporting.
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, 1998 and 1997, totaled $297,000 and $289,000,
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.
Revenue Recognition
Through March 31, 1997, 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. After March 31, 1997, rental income has been recognized
according to the lease terms.
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, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses or changes in net assets during the reporting period. Actual
results could differ from those estimates.
F-32
<PAGE> 48
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
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")
(liquidation basis of accounting) and for federal income tax reporting
purposes at December 31:
<TABLE>
<CAPTION>
1998 1997
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $6,019,000 $6,508,000 $6,503,000 $6,507,000
Total Liabilities $ 134,000 $ 135,000 $ 144,000 $ 135,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per Financial Statements
(period ended March 31, 1997 for 1997) $ -- $ 156,000 $ 169,000
Change in net assets in liquidation
from operating activities including
adjustment to carrying value of real
estate (nine months ended December
31, 1997 for 1997) 16,000 345,000 --
Depreciation differences on
investments in real estate (221,000) (221,000) (219,000)
Adjustment to carrying value of
property in liquidation 564,000 -- 412,000
Other (72,000) 7,000 10,000
- ----------------------------------------------------------------------------------------------------
Taxable income per Federal tax return
(unaudited) $ 287,000 $ 287,000 $ 372,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
(3) Transactions with Affiliates
The Partnership has no employees and, accordingly, Birtcher Properties,
an affiliate of the General Partner of Fund II and Fund III and its
affiliates perform services on behalf of the Partnership in connection
with administering the affairs of the Partnership. Birtcher Properties
and affiliates are reimbursed for their general and administrative costs
actually incurred and
F-33
<PAGE> 49
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates (Cont'd.)
associated with services performed on behalf of the Partnership. For the
years ended December 31, 1998, 1997 and 1996, the Partnership was charged
with approximately $1,000, $1,000 and $1,000, respectively, of such
expenses.
An affiliate of the General Partner of Fund II and Fund III provides
property management services with respect to the Partnership's property
and receives a fee for such services not to exceed 6% of the gross
receipts from the property under management provided that leasing
services were performed, otherwise not to exceed 3%. Such fees amounted
to approximately $53,000 in 1998, $47,000 in 1997, and $54,000 in 1996.
In addition, as reimbursement of costs for on-site property management
personnel and other related costs, an affiliate of the General Partner
received $37,000 in 1998, $37,000 in 1997 and $35,000 in 1996, 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 .55% (.65% in 1997 and .75% in 1996) 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, 1998, 1997 and 1996, amounted to $35,000, $39,000 and
$48,000, respectively. In addition, the amended Partnership Agreements
for Fund II and Fund III provide for payment to the General Partner or
its affiliates of a leasing fee for services rendered in connection with
leasing space in the Partnership property after the expiration or
termination of any lease of such space including renewal options. Fees
for leasing services for the years ended December 31, 1998, 1997 and
1996, amounted to $4,000, $6,000 and $3,000, respectively.
(4) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal proceedings
other than ordinary routine litigation incidental to its business. It is
the General Partners' belief, that the outcome of these proceedings will
not be material to the business, financial condition, or results of
operations of the Partnership.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed as
of December 31, 1998, 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, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 730,000
2000 577,000
2001 420,000
2002 329,000
2003 276,000
Thereafter 1,016,000
----------
$3,348,000
==========
</TABLE>
F-34
<PAGE> 50
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Commitments and Contingencies (Cont'd.)
Future Minimum Annual Rentals (Cont'd.)
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,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Real estate taxes $ 73,000 $ 70,000
Accounts payable and other 7,000 29,000
Security deposits 45,000 36,000
-------- --------
$125,000 $135,000
======== ========
</TABLE>
(6) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1998, includes
estimates of costs to be incurred in carrying out the dissolution and
liquidation of the Partnership. These costs include estimates of legal
fees, accounting fees, tax preparation and filing fees, other
professional services and the general partner's liability insurance.
(7) Subsequent Event
On February 28, 1999, the Partnership made an aggregate cash distribution
of $140,000 to its General Partners.
F-35
<PAGE> 51
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
SCHEDULE III
REAL ESTATE IN LIQUIDATION
AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E COL. H
------ ------ ------ ------ ------
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 DATE
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS (B) LAND IMPROVEMENTS TOTAL ACQUIRED
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cooper Village Shopping Center $ 2,756 $ 6,430 $ 880 $(4,433) $ 2,748 $ 2,884 $ 5,632 12/30/87
------- ------- ------- ------- ------- ------- ------- --------
and
12/30/88
TOTAL $ 2,756 $ 6,430 $ 880 $(4,433) $ 2,748 $ 2,884 $ 5,632
======= ======= ======= ======= ======= ======= =======
</TABLE>
NOTE: Columns B, F, G and I are either none or are not applicable.
F-36
<PAGE> 52
COOPER VILLAGE PARTNERS
(a General Partnership)
-----------------------
NOTES TO SCHEDULE III
(a) For a description of the property, see "Item 2. Properties."
(b) Upon adoption of the liquidation basis of accounting on March 31,
1997, accumulated depreciation was deleted through an adjustment
to the cost of the property.
At December 31, 1996, the General Partner determined that the
Partnership's property had a carrying value greater than its
appraised value less selling cost, and therefore provided a
valuation allowance of $412,000 against property held for sale.
For the year ended December 31, 1998, the General Partners
determined that the carrying value of Cooper Village Shopping
Center was in excess of its estimated net realizable value. As a
result, the carrying value was adjusted by $564,000 to
$5,632,000.
The aggregate cost of land, buildings and improvements for
Federal income tax purposes (unaudited) was $7,823,000 as of
December 31, 1998. The differences between the aggregate cost of
land, buildings and improvements for tax reporting purposes as
compared to costs for financial reporting purposes are primarily
attributable to: 1) amounts received under rental agreements for
non-occupied space, which were recorded as income for tax
reporting purposes but were recorded as a reduction of the
corresponding property basis for financial reporting purposes,
and; 2) the adjustments to the carrying value of real estate for
financial statement purposes no effect for tax reporting
purposes.
(c) The initial cost to the Partnership includes acquisition fees
paid to Birtcher Investments and Equity Properties Inc.
F-37
<PAGE> 53
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:
0 Richard G. Wollack, Chairman of the Board
0 Brent R. Donaldson, President
0 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:
0 Ronald E. Birtcher, Co-Chairman of the Board
0 Arthur B. Birtcher, Co-Chairman of the Board
0 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, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 28,000 $ 24,000 $ 21,000
Asset management fees 160,000 170,000 199,000
Property management fees 181,000 159,000 168,000
Property management expense
reimbursements 114,000 109,000 108,000
Other expense reimbursements 115,000 114,000 130,000
Leasing fee 36,000 35,000 19,000
-------- -------- --------
TOTAL $634,000 $611,000 $645,000
======== ======== ========
</TABLE>
-16-
<PAGE> 54
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 25, 1999, Grape Investors, LLC was the beneficial owner of certain
limited partnership interests, as follows:
<TABLE>
<CAPTION>
Title of Name and address of Amount and nature of
Class beneficial owner beneficial ownership(1) Percent of class(1)
- -------- ------------------------------ ----------------------- -------------------
<S> <C> <C> <C>
Limited Partnership Grape Investors, LLC $3,109,190 5.9%
Interests(2) c/o Arlen Capital Advisors
1650 Hotel Circle Drive North
Suite 200
San Diego, CA 92018
</TABLE>
- ---------------
(1) Based upon original invested capital.
(2) Grape Investors, LLC is beneficial owner of these securities. The
Partnership has not admitted Grape Investors, LLC to the Partnership as a
limited partner.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning transactions to which the Registrant was or is to be
a party in which the General Partner or its affiliates had or are to have a
direct or indirect interest, see Notes 1, 3, and 4 to the Financial Statements
in Item 8, which information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) 1. and 2. Financial Statements and Financial Statements Schedules:
See accompanying Index to Financial Statements and Schedules to Item 8,
which information is incorporated herein by reference.
3. Exhibits:
Articles of Incorporation and Bylaws
(a) Agreement of Limited Partnership incorporated by
reference to Exhibit No. 3.1 to the Partnership's
registration statement on Form S-11 (Commission
File No. 2-99421), dated August 5, 1985, as filed
under the Securities Act of 1933.
10. Material Contracts
(a) Form of Property Management Agreement between
Birtcher Properties and the Registrant
incorporated by reference to Exhibit No. 10.1 of
the Partnership's registration statement on Form
S-11 (Commission File No. 2-99421), as filed
September 24, 1985, under the Securities Act of
1933. (SUPERSEDED)
(b) Letter of Intent regarding Purchase and Sale of
Real Property (Cooper Village, Phase I) dated
September 3, 1987, by and between Arizona Building
and Development, the Wolfswinkel Group and
Birtcher Realty Corporation incorporated by
reference to Exhibit 19(a) of the Partnership's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1987.
(c) Agreement of Purchase and Sale of Real Property
(Cooper Village, Phase I) dated November 13, 1987,
by and between Broadway Village Partners and
Birtcher Acquisition Corporation incorporated by
reference to Form 8-K, as filed December 30,
1987.
-17-
<PAGE> 55
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
(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)
(h) Property Management Agreement, dated October 29,
1993, between Birtcher Properties and the
Registrant for Atrium Place, Creekridge Center,
Iomega Business Center, Kennedy Corporate
Center-I, Ladera-II Shopping Center, and Lakeland
Industrial Park. Incorporated by reference to
Exhibit 1 of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1991. (SUPERSEDED)
(I) Property Management Agreement, dated October 29,
1993, between Birtcher Properties and Cooper
Village Partners for Cooper Village Shopping
Center. Incorporated by reference to Exhibit 2 of
the Partnership Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993.
(27) Financial Data Schedule
b) Reports on Form 8-K:
None filed for the year ended December 31, 1998, however, reference has
been incorporated for the Form 8-K filed on February 4, 1999 reporting
that the agreement to sell all of Damson/Birtcher Realty Income Fund-II's
properties to Abbey Investments, Inc. had been terminated.
-18-
<PAGE> 56
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-II,
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, 1999 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, 1999 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Birtcher/Liquidity
Properties (General Partner of the Registrant) and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Arthur B. Birtcher Co-Chairman of the Board - March 30, 1999
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1999
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1999
Richard G. Wollack Asset Management, Inc.
</TABLE>
-19-
<PAGE> 57
EXHIBIT INDEX
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)
(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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K DAMSON
BIRTCHER REALTY INCOME FUND II.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,564,000
<SECURITIES> 0
<RECEIVABLES> 20,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,604,000
<PP&E> 23,587,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,566,000
<CURRENT-LIABILITIES> 814,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,752,000
<TOTAL-LIABILITY-AND-EQUITY> 28,566,000
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Statement of Operation is not presented in liquidation basis of accounting.
</FN>
</TABLE>
