<PAGE> 1
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999
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Commission file number 0-14633
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 13-3294820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box 30009, Laguna Niguel, California 92607-0009
(Address of principal executive offices) (Zip Code)
(949) 643-7700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1999
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Net Assets in Liquidation - June 30, 1999
(Unaudited) and December 31, 1998 (Audited)................... 3
Statements of Changes of Net Assets in Liquidation -
Three and Six Months Ended June 30, 1999 and
1998 (Unaudited).............................................. 4
Notes to Financial Statements (Unaudited)..................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 12
Item 3. Quantitative and Qualitative Market Risk Disclosures.......... 17
PART II. OTHER INFORMATION............................................. 17
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
STATEMENTS OF NET ASSETS IN LIQUIDATION
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<CAPTION>
June 30, December 31,
1999 1998
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<S> <C> <C>
ASSETS (Liquidation Basis): (unaudited)
Properties $23,786,000 $23,587,000
Investment in Cooper Village Partners 3,401,000 3,375,000
Cash and cash equivalents 1,614,000 1,564,000
Accounts receivable, net 72,000 20,000
Other assets 3,000 20,000
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Total Assets 28,876,000 28,566,000
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LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 618,000 685,000
Accrued expenses for liquidation 129,000 129,000
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Total Liabilities 747,000 814,000
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Net Assets in Liquidation $28,129,000 $27,752,000
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net assets in liquidation
at beginning of period $ 27,900,000 $ 27,474,000 $ 27,752,000 $ 27,394,000
Increase (decrease) during period:
Operating activities:
Property operating income, net 749,000 879,000 1,472,000 1,715,000
Equity in earnings of Cooper
Village Partners 90,000 93,000 199,000 182,000
Interest income 16,000 18,000 31,000 40,000
Leasing commissions -- (33,000) (102,000) (33,000)
General and administrative
expenses (153,000) (214,000) (319,000) (370,000)
------------ ------------ ------------ ------------
702,000 743,000 1,281,000 1,534,000
------------ ------------ ------------ ------------
Liquidating activities:
Distributions to partners (473,000) (723,000) (904,000) (1,434,000)
------------ ------------ ------------ ------------
Net increase in assets
in liquidation 229,000 20,000 377,000 100,000
------------ ------------ ------------ ------------
Net assets in liquidation at
end of period $ 28,129,000 $ 27,494,000 $ 28,129,000 $ 27,494,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(1) Accounting Policies
The financial statements of Damson/Birtcher Realty Income Fund-II,
Limited Partnership (the "Partnership") included herein have been
prepared by the General Partner, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. These
financial statements include all adjustments which are of a normal
recurring nature and, in the opinion of the General Partner, are
necessary for a fair presentation. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements should
be read in conjunction with the financial statements and notes thereto
included in the Partnership's annual report on Form 10-K for the year
ended December 31, 1998.
Liquidation Basis of Accounting
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 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 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. 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.
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.
5
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
Segment Reporting (Cont'd.)
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 $325,000 and $314,000 for
the three months ended June 30, 1999 and 1998, respectively, or
approximately 27% and 24%, respectively, of the Partnership's total
rental income and $649,000 and $626,000 or 28% and 24%, respectively,
for the six months there ended. Rental income from Delta Dental
Corporation totaled $0 and $223,000 for the three months ended June 30,
1999 and 1998, respectively, or approximately 0% and 17%, respectively,
of the Partnership's total rental income and $149,000 and $444,000 or
6% and 17%, respectively, for the six months there ended.
Sale of the Properties
In November 1998, the Partnership entered into a definitive Purchase
and Sale Agreement with Abbey Investments, Inc. to sell all the
Partnership's properties for a range between $32,250,000 and
$33,000,000, depending on final occupancy rates at the time of closing.
However, in January 1999, the agreement was terminated because Abbey
had requested a material reduction in the purchase price, which the
Partnership did not agree to.
On April 30, 1999, the Partnership and Praedium Performance Fund IV
("Praedium") executed a Purchase and Sale Agreement to sell all of the
Partnership's properties except its interest in Cooper Village shopping
center to Praedium for $29,000,000. Praedium deposited $222,400 into
escrow, pending completion of its due diligence inspection and review.
Praedium's contingency period expired on June 14, 1999. During and
after the contingency period, Praedium, in a series of negotiations
with the Partnership, sought reductions in the purchase price of each
of the properties and declined to include Iomega and Ladera-II in its
offers. During this time, the General Partner negotiated with Praedium,
and also sought other purchasers for the properties, both individually
and as a group. Finally, in late July 1999, the Partnership declined
Praedium's offer to purchase only Creekridge Center, Kennedy Corporate
Center-I and Lakeland Industrial Park for a materially reduced purchase
price and terminated its dealings with Praedium.
Immediately thereafter, on July 29, 1999, the Partnership entered into
a Purchase and Sale Agreement and Joint Escrow Instructions to sell
Creekridge Center, Kennedy Corporate Center-I and Lakeland Industrial
Park to Rubin Pachulsky Dew Properties, LLC ("Rubin Pachulsky Dew") for
an aggregate purchase price of $16,100,000. Rubin Pachulsky Dew
deposited $391,727 into escrow, which deposit is nonrefundable except
in the event of the Partnership's breach of the sale agreement. Rubin
Pachulsky Dew is a third-party real estate investment entity that is
not affiliated in any way with the Partnership, its General Partner or
any of its principals or affiliates.
Except for a few technical exceptions, such as the Partnership's breach
of the sale agreement or title issues that cannot be corrected or
insured against by the Partnership to Rubin Pachulsky Dew's
satisfaction, the purchase is not subject to any conditions.
6
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
Sale of the Properties (Cont'd.)
It is currently scheduled to close on September 14, 1999, and both
buyer and seller have agreed to use their best efforts to close the
transaction sooner.
Rubin Pachulsky Dew will hire Birtcher or an affiliate as property
manager for the properties for a fee that is approximately the same as
the current fee paid to the General Partner for property management. In
addition, Rubin Pachulsky Dew will hire Birtcher or an affiliate to
provide certain asset management services for the properties, and pay
an incentive fee approximately equal to 10% of the profits, if any,
after Rubin Pachulsky Dew has received a 15% return on its investment.
The incentive fee, if earned, is not payable until the last property is
sold or four years from date of purchase, whichever comes first. The
property management agreement is cancelable at any time upon 60 days
notice, but the incentive fee will survive termination of the contract.
Iomega
On July 28, 1999, the Partnership entered into a letter of intent to
sell Iomega Business Center to ANA Development, L.C. ("ANA"), for a
purchase price of $8,085,000. ANA is a local real estate developer that
is not affiliated in any way with the Partnership or the General
Partner, or any of the General Partner's principals or affiliates. ANA
has 45 days, until September 11, 1999, to complete its due diligence
review, with closing scheduled for 30 days later.
Ladera-II
On August 9, 1999, the Partnership signed a Purchase and Sale Agreement
and Joint Escrow Instructions to sell Ladera-II shopping center to CA
New Mexico, LLC, a wholly-owned subsidiary of CenterAmerica Trust
("CenterAmerica"), a Houston-based real estate investment trust that is
not affiliated in any way with the Partnership, its General Partner or
the General Partner's affiliates. The purchase price is $1,176,000.
CenterAmerica deposited $21,000 into escrow on August 10, 1999, which
sum is fully refundable pending completion of its due diligence. The
due diligence contingency period is scheduled to end on September 7,
1999, with closing to occur on September 22, 1999.
CenterAmerica is represented by a third party broker in the
transaction. The broker will be paid an amount not to exceed $47,040
from the sale proceeds. CenterAmerica will not hire the General Partner
or any affiliate to perform asset management or property management
services for this property after close of the sale.
Cooper Village
On May 28, 1999, the Partnership signed a Purchase and Sale Agreement
and Joint Escrow Instructions to sell its 58% in Cooper Village
Shopping Center (co-owned with an affiliated partnership) to Old Vine
Corporation ("Old
7
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
Sale of the Properties (Cont'd.)
Cooper Village (Cont'd.)
Vine") for a sale price of $3,845,400. Old Vine is a local shopping
center operator that is not affiliated in any way with the Partnership
or the General Partner, or any of the General Partner's principals or
affiliates. On July 15, 1999, the purchase price was reduced to
$3,581,500, primarily because an existing tenant that occupied 8,447
square feet unexpectedly broke its lease and vacated its space.
Old Vine has completed its due diligence review. During this review an
environmental issue with regard to the dry cleaning space at the center
was discovered. Laboratory analysis indicated that one of the soil
samples contained concentrations of tetrachloroethane above the
laboratory reporting limit. The Partnership has ordered additional
borings and soil sample assessments, to determine the necessity and
cost of remediation. The Partnership expects to receive the results of
the additional tests within three weeks, together with a recommendation
regarding applicable regulatory requirements and an estimate of the
cost of any remediation that might be necessary. Old Vine has indicated
its continued interest in purchasing the property pending the results
of the additional laboratory tests, and has not asked escrow to refund
its deposit. If Old Vine purchases the property, it intends to hire
Birtcher or one of is affiliates to perform certain onsite property
management services (not accounting or asset management), pursuant to a
contract that will be cancelable at any time upon 30 days notice.
Adjustment to Carrying Value of Real Estate
During the three months ended June 30, 1999, the General Partner
determined that the carrying values of Ladera-II Shopping Center and
Iomega were in excess of their respective estimated net realizable
values, less estimated selling costs. As a result, their carrying
values were adjusted by $525,000 and $294,000, to $1,118,000, and
$7,600,000, respectively. In addition, the carrying value of Creekridge
was increased by $819,000 to its estimated net realizable value less
estimated selling costs of $7,721,000 which had the effect of
offsetting the aforementioned decreases.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate reduced rates on sales
commissions for subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who paid
commissions at a higher rate. As a result, the Partnership has no set
unit value as all accounting, investor reporting and tax information is
based upon each investor's relative percentage of Invested Capital.
Accordingly, earnings or loss per unit is not presented in the
accompanying financial statements.
8
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the three months ended June
30, 1999 and 1998 the Partnership incurred approximately $42,000 and
$43,000, respectively, of such expenses. For the six months there
ended, these expenses amounted to $68,000 and $69,000, respectively.
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 6% of the gross receipts from the
properties under management provided that leasing services are
performed, otherwise not to exceed 3%. Such fees amounted to
approximately $43,000 and $42,000, respectively, for the three months
ended June 30, 1999 and 1998 and $79,000 and $89,000 for the six months
there ended. In addition, an affiliate of the General Partner received
$29,000 and $34,000 for the three months ended June 30, 1999 and 1998,
respectively, as reimbursement of costs of on-site property management
personnel and other reimbursable expenses. These payments amounted to
$61,000 and $58,000 for the six months there ended.
Leasing fees for the three months ended June 30, 1999 and 1998,
included charges of $7,000 and $23,000, respectively, from the General
Partner and its affiliates for leasing services rendered in connection
with leasing space in a Partnership property after expiration or
termination of leases. For the six months there ended, such fees were
$58,000 and $26,000, respectively.
As previously reported, on June 24, 1993, the Partnership completed its
solicitation of written consents from its Limited Partners. A majority
in interest of the Partnership's Limited Partners approved each of the
proposals contained in the Information Statement dated May 5, 1993.
Those proposals were implemented by the Partnership as contemplated by
the Information Statement as amendments to the Partnership Agreement,
and are reflected in these financial statements as such.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .45% for 1999 and .55% for 1998 of the aggregate appraised value of
the Partnership's properties as determined by independent appraisal in
January of 1998 and by the General Partner's estimate of fair value for
1999. Such fees for the three months ended June 30, 1999 and 1998,
amounted to $29,000 and $40,000, and for the six months there ended,
they amounted to $59,000 and $80,000, respectively.
In addition to the aforementioned, the General Partner was also paid
$19,000 and $21,000, related to the Partnership's portion (58%) of
asset management fees, property management fees, leasing fees,
reimbursement of on-site property management personnel and other
reimbursable expenses for Cooper Village Partners for the three months
ended June 30, 1999 and 1998, respectively. For the six months there
ended, these payments amounted to $39,000 and $40,000, respectively.
9
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(3) 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:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
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 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.
10
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Madison Partnership and ISA Partnership Litigation
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and
ISA Partnership Liquidity Investors filed a purported class and
derivative action in the California Superior Court in Orange County,
California against Damson Birtcher Partners, Birtcher/Liquidity
Properties, Birtcher Partners, Birtcher Investors, Birtcher
Investments, Birtcher Limited, Breicorp LP Special Fund II, L.P.,
Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R.
Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G.
Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners
III, Nominal Defendants. The complaint asserts claims for breach of
fiduciary duty and breach of contract. The gravamen of the complaint is
that the General Partners of these limited partnerships have not
undertaken all reasonable efforts to expedite liquidation of the
Partnerships' properties and to maximize the returns to the
Partnerships' limited partners. The complaint seeks unspecified
monetary damages, attorneys' fees and litigation expenses, and an order
for dissolution of the Partnerships and appointment of an independent
liquidating trustee. The Partnership has moved to dismiss the case on
the grounds that the pending Bigelow class action, discussed above,
raises essentially the same claims. If the case is not dismissed, the
Partnership intends to present a vigorous defense.
(4) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of June 30, 1999, 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. 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.
11
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
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, were 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 1998 and continue to be held for sale.
In November 1998, the Partnership entered into a definitive Purchase
and Sale Agreement with Abbey Investments, Inc. to sell all the
Partnership's properties for a range between $32,250,000 and
$33,000,000, depending on final occupancy rates at the time of closing.
However, in January 1999, the agreement was terminated because Abbey
had requested a material reduction in the purchase price, which the
Partnership did not agree to.
On April 30, 1999, the Partnership and Praedium Performance Fund IV
("Praedium") executed a Purchase and Sale Agreement to sell all of the
Partnership's properties except its interest in Cooper Village shopping
center to Praedium for $29,000,000. Praedium deposited $222,400 into
escrow, pending completion of its due diligence inspection and review.
Praedium's contingency period expired on June 14, 1999. During and
after the contingency period, Praedium, in a series of negotiations
with the Partnership, sought reductions in the purchase price of each
of the properties and declined to include Iomega and Ladera-II in its
offers. During this time, the General Partner negotiated with Praedium,
and also sought other purchasers for the properties, both individually
and as a group. Finally, in late July 1999, the Partnership declined
Praedium's offer to purchase only Creekridge Center, Kennedy Corporate
Center-I and Lakeland Industrial Park for a materially reduced purchase
price and terminated its dealings with Praedium.
Immediately thereafter, on July 29, 1999, the Partnership entered into
a Purchase and Sale Agreement and Joint Escrow Instructions to sell
Creekridge Center, Kennedy Corporate Center-I and Lakeland Industrial
Park to Rubin Pachulsky Dew Properties, LLC ("Rubin Pachulsky Dew") for
an aggregate purchase price of $16,100,000. Rubin Pachulsky Dew
deposited $391,727 into escrow, which deposit is nonrefundable except
in the event of the Partnership's breach of the sale agreement. Rubin
Pachulsky Dew is a third-party real estate investment entity that is
not affiliated in any way with the Partnership, its General Partner or
any of its principals or affiliates.
Except for a few technical exceptions, such as the Partnership's breach
of the sale agreement or title issues that cannot be corrected or
insured against by the Partnership to Rubin Pachulsky Dew's
satisfaction, the purchase is not subject to any conditions.
12
<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
It is currently scheduled to close on September 14, 1999, and both
buyer and seller have agreed to use their best efforts to close the
transaction sooner.
Rubin Pachulsky Dew will hire Birtcher or an affiliate as property
manager for the properties for a fee that is approximately the same as
the current fee paid to the General Partner for property management. In
addition, Rubin Pachulsky Dew will hire Birtcher or an affiliate to
provide certain asset management services for the properties, and pay
an incentive fee approximately equal to 10% of the profits, if any,
after Rubin Pachulsky Dew has received a 15% return on its investment.
The incentive fee, if earned, is not payable until the last property is
sold or four years from date of purchase, whichever comes first. The
property management agreement is cancelable at any time upon 60 days
notice, but the incentive fee will survive termination of the contract.
The status of the disposition of each of the properties not part of the
Rubin Pachulsky Dew transaction is summarized below:
Iomega
On July 28, 1999, the Partnership entered into a letter of intent
to sell Iomega Business Center to ANA Development, L.C. ("ANA"),
for a purchase price of $8,085,000. ANA is a local real estate
developer that is not affiliated in any way with the Partnership
or the General Partner, or any of the General Partner's
principals or affiliates. ANA has 45 days, until September 11,
1999, to complete its due diligence review, with closing
scheduled for 30 days later. It is not anticipated that ANA will
hire the General Partner or any affiliate to perform asset
management or property management services for this property
after close of the sale.
Ladera-II
On August 9, 1999, the Partnership signed a Purchase and Sale
Agreement and Joint Escrow Instructions to sell Ladera-II
shopping center to CA New Mexico, LLC, a wholly-owned subsidiary
of CenterAmerica Trust ("CenterAmerica"), a Houston-based real
estate investment trust that is not affiliated in any way with
the Partnership, its General Partner or the General Partner's
affiliates. The purchase price is $1,176,000. CenterAmerica
deposited $21,000 into escrow on August 10, 1999, which sum is
fully refundable pending completion of its due diligence. The due
diligence contingency period is scheduled to end on September 7,
1999, with closing to occur on September 22, 1999.
CenterAmerica is represented by a third party broker in the
transaction. The broker will be paid an amount not to exceed
$47,040 from the sale proceeds. CenterAmerica will not hire the
General Partner or any affiliate to perform asset management or
property management services for this property after close of the
sale.
Cooper Village
On May 28, 1999, the Partnership signed a Purchase and Sale
Agreement and Joint Escrow Instructions to sell its 58% in Cooper
Village Shopping Center (co-owned with an affiliated partnership)
to Old Vine Corporation ("Old Vine") for a sale price of
$3,845,400. Old Vine is a local shopping center
13
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Cooper Village (Cont'd.)
operator that is not affiliated in any way with the Partnership
or the General Partner, or any of the General Partner's
principals or affiliates. On July 15, 1999, the purchase price
was reduced to $3,581,500, primarily because an existing tenant
that occupied 8,447 square feet unexpectedly broke its lease and
vacated its space.
Old Vine has completed its due diligence review. During this
review an environmental issue with regard to the dry cleaning
space at the center was discovered. Laboratory analysis indicated
that one of the soil samples contained concentrations of
tetrachloroethane above the laboratory reporting limit. The
Partnership has ordered additional borings and soil sample
assessments, to determine the necessity and cost of remediation.
The Partnership expects to receive the results of the additional
tests within three weeks, together with a recommendation
regarding applicable regulatory requirements and an estimate of
the cost of any remediation that might be necessary. Old Vine has
indicated its continued interest in purchasing the property
pending the results of the additional laboratory tests, and has
not asked escrow to refund its deposit. If Old Vine purchases the
property, it intends to hire Birtcher or one of is affiliates to
perform certain onsite property management services (not
accounting or asset management), pursuant to a contract that will
be cancelable at any time upon 30 days notice.
Although there can be no assurance that the proposed sales of the
properties will be completed, if the sales are completed at the stated
prices, the limited partners will receive total aggregate sale proceeds
of approximately $530 per $1,000 (including Iomega at $8,085,000)
originally invested in the Partnership.
Except for the item discussed below, the General Partner's estimate of
sales proceeds does not take into account the expenditure of
Partnership cash reserves, operating expenses or net income or loss of
the Partnership for any period prior to the time the remaining
properties are sold, which could affect the amount of sales proceeds
available for distribution. Therefore, the actual proceeds to be
received by the limited partners may vary materially, up or down, from
the estimate.
As previously reported, the Partnership has entered into a lease for
the 42,203 square foot space at Creekridge Center that was vacated by
Delta Dental. Pursuant to this lease, the Partnership granted the
tenant an allowance of up to approximately $805,000 for tenant
improvements, pending agreement regarding the design for building out
the space. The General Partner included this amount in its calculation
of aggregate sale proceeds.
Regular distributions through June 30, 1999 represent cash flow
generated from operations of the Partnership's properties and interest
earned on the temporary investment of working capital net of capital
improvement reserve requirements. Future cash distributions will be
made principally to the extent of cash flow attributable to operations
and sales of the Partnership's properties and interest earned on the
investment of capital reserve, after providing for capital reserve and
payment for capital improvements to the Partnership's properties.
Other Matters
The Partnership is in the process of liquidating its remaining assets.
14
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Other Matters (Cont'd.)
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 June 30, 1999, 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 undergoing a
software upgrade to correct any year 2000 issues to be completed in
August 1999. The cost of the upgrades are being 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.
Even if attempts to correct any deficiencies in the Partnership's
software are unsuccessful, the General Partner anticipates that in the
short run it could convert its systems to standard spreadsheet or data
base programs at nominal cost.
Results of Operations for the Three Months Ended June 30, 1999
Because the Partnership is in the process of liquidating its remaining
assets, a comparison of the results of operations is not practical. 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.
For the three months ended June 30, 1999, the Partnership generated
$749,000 of net operating income from operation of its properties
(exclusive of Cooper Village Partners). The decrease in net operating
income for the three months ended June 30, 1999, as compared to the
same period in 1998, was primarily due to the decrease in revenue at
Creekridge of $138,000 that resulted from Delta Dental's lease
expiration on February 28, 1999.
Interest income resulted from the temporary investment of Partnership
working capital. For the three months ended June 30, 1999, interest
income was approximately $16,000.
General and administrative expenses for the three months ended June 30,
1999 include charges of $79,000 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 three
months ended June 30,
15
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended June 30, 1999
(Cont'd.)
1999 are direct charges of $74,000 relating to audit fees, tax
preparation fees, legal and professional fees, costs incurred in
providing information to the Limited Partners and other miscellaneous
costs.
The decrease in general and administrative expenses for the three
months ended June 30, 1999, as compared to the corresponding period in
1998, was primarily attributable to decreases in the General Partner's
liability insurance, asset management fees, consulting and appraisal
fees during 1999. The aforementioned decreases were partially offset by
an increase in legal fees incurred.
During the three months ended June 30, 1999, the General Partner
determined that the carrying values of Ladera-II Shopping Center and
Iomega were in excess of their respective estimated net realizable
values, less estimated selling costs. As a result, their carrying
values were adjusted by $525,000 and $294,000, to $1,118,000, and
$7,600,000, respectively. In addition, the carrying value of Creekridge
was increased by $819,000 to its estimated net realizable value less
estimated selling costs of $7,721,000 which had the effect of
offsetting the aforementioned decreases.
Accrued expenses for liquidation as of June 30, 1999, 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. 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.
16
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
Not applicable because the Partnership does not have any financial
instruments subject to market risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
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 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.
17
<PAGE> 18
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Madison Partnership and ISA Partnership Litigation
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and
ISA Partnership Liquidity Investors filed a purported class and
derivative action in the California Superior Court in Orange County,
California against Damson Birtcher Partners, Birtcher/Liquidity
Properties, Birtcher Partners, Birtcher Investors, Birtcher
Investments, Birtcher Limited, Breicorp LP Special Fund II, L.P.,
Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R.
Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G.
Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners
III, Nominal Defendants. The complaint asserts claims for breach of
fiduciary duty and breach of contract. The gravamen of the complaint is
that the General Partners of these limited partnerships have not
undertaken all reasonable efforts to expedite liquidation of the
Partnerships' properties and to maximize the returns to the
Partnerships' limited partners. The complaint seeks unspecified
monetary damages, attorneys' fees and litigation expenses, and an order
for dissolution of the Partnerships and appointment of an independent
liquidating trustee. The Partnership has moved to dismiss the case on
the grounds that the pending Bigelow class action, discussed above,
raises essentially the same claims. If the case is not dismissed, the
Partnership intends to present a vigorous defense.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
27 - Financial Data Schedule - previously filed.
b) Reports on Form 8-K:
None filed in quarter ended June 30, 1999.
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DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
DAMSON/BIRTCHER REALTY INCOME FUND-II
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Investors
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: August 24, 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: August 24, 1999 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
19
