<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE
ACT OF 1934
----------------------------------
For the fiscal year ended December 31, 1995 COMMISSION FILE NUMBER 0-16027
-------
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 13-3341425
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27611 La Paz Road, Laguna Niguel, California 92656
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(714) 643-7700
--------------
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
NONE NONE
---- ----
Securities registered pursuant to Section 12(g) of the Act:
NONE
----
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (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 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. 33-2132), dated December 13, 1985, filed under the Securities Act of
1933 are incorporated by reference into PART IV of this report.
<PAGE> 2
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters . . . . . . . . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 7
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 14
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--- Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-1-
<PAGE> 3
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
PART I
Item 1. Business
Real Estate Income Partners III, Limited Partnership (the "Partnership") was
formed on December 9, 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. 33-2132) dated April 7, 1986, as amended.
See Item 2 for a description of the properties acquired by the Partnership.
The Partnership commenced operations on June 30, 1986. The closing for the
final admission of Limited Partners to the Partnership occurred on September
30, 1987. Total limited partners' capital contributions through that date
aggregated $63,534,000, including reinvestments from prior affiliated limited
partnerships.
The Partnership owns all of its properties free and clear of indebtedness.
However, the Partnership may incur mortgage indebtedness on its properties,
primarily for the purpose of funding capital improvements to properties or
obtaining financing proceeds for distribution to partners.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will
be tax sheltered; (ii) to achieve capital appreciation over a holding period of
at least five years; and (iii) to preserve and protect the Partnership's
capital. An Information Statement, dated May 5, 1993, mandates that the
General Partner shall seek a vote of the Limited Partners no later than
December 31, 1996, regarding prompt liquidation of the Partnership in the event
that properties with appraised values as of January 1993, which constituted at
least one-half of the aggregate appraised values of all Partnership properties
as of that date, are not sold or under contract for sale by the end of 1996.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
has decided to account for the Partnership's properties as assets held for
sale, instead of for investment. Accordingly, the General Partner compared the
carrying value of each property to its appraised value as of January 1, 1996.
If the carrying value of a property and certain related assets was greater than
its appraised value, less selling costs, the General Partner reduced the
carrying value of the property by the difference. Using this methodology, the
General Partner determined that Creek Edge Business Center, Flaircentre,
NorthTech and Cooper Village (42% interest), had carrying values greater than
their appraised values, and therefore reduced their carrying values to
$3,802,000, $2,155,000, $13,933,000, and $2,682,000, respectively.
The Partnership derives most of its revenue from rental income. International
Business Machines, Corporation ("IBM") and Penril, Inc. ("Penril") represent a
significant portion of such income. Rental income from IBM totaled $0 in 1995,
$22,000 in 1994 and $639,000 in 1993, or approximately 0%, .5% and 13%,
respectively, of the Partnership's total rental income. Rental income from
Penril totaled $1,054,000 in 1995, $1,107,000 in 1994 and $1,070,000 in 1993,
or approximately 21%, 25% and 22%, respectively, of the Partnership's total
rental income. See Item 7 for further discussion concerning the current status
of these tenants.
The Partnership's investments in real estate are subject to competition for
tenants from similar types of properties in the vicinities in which they are
located. The Partnership has no investments in real estate located outside the
United States.
-2-
<PAGE> 4
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
PART I (Cont'd.)
Item 1. Business (Cont'd.)
The Partnership has no employees and, accordingly, the General Partner and its
affiliates perform services on behalf of the Partnership in connection with
administering the affairs of the Partnership and operating the Partnership's
properties. The General Partner and its affiliates receive compensation in
connection with such activities. See Item 11 and Note 4 to the Financial
Statements in Item 8 for a description of such charges.
-3-
<PAGE> 5
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
Item 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
APPROXIMATE RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/95 12/31/95
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Creek Edge Business Center $ 4,874,000 Combination office and warehouse 76,297 1 79%
Eden Prairie, Minnesota building located on 5.73 acres
July 1, 1986 of land.
The Forum 5,940,000 A three-story office building 73,166 16 94%
Wauwatosa, Wisconsin located on 3.7 acres of land.
August 28, 1986
Flaircentre 5,369,000 Eleven single-story office 40,965 3 79%
El Monte, California buildings located on 3.7 acres
November 14, 1986 of land.
NorthTech 21,808,000 Three two-story research and 163,387 4 100%
Gaithersburg, Maryland development buildings located on
December 30, 1986 10.2 acres of land.
Martinazzi Square 6,508,000 Four single-story shopping center 50,836 23 96%
Tualatin, Oregon buildings located on 5.83 acres
December 23, 1987 of land.
Cooper Village 3,769,000(2) A single-story shopping center 43,433(2) 21 96%
Mesa, Arizona located on 10.88 acres of land.
December 30, 1987 and
December 30, 1988
----------- -------
TOTAL $48,268,000 448,084
=========== =======
</TABLE>
SEE NOTES TO TABLE ON THE FOLLOWING PAGE.
-4-
<PAGE> 6
REAL ESTATE INCOME PARTNERS III,
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 $3,176,000 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 Damson/Birtcher
Realty Income Fund-II, Limited Partnership, an affiliated
limited partnership. At December 31, 1995, the Partnership had
a 42% 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 42% of the respective amounts for CV Partners.
Item 3. LEGAL PROCEEDINGS
The Partnership is not a party to any pending legal proceedings, other than
ordinary routine litigation incidental to its business. It is the General
Partner's belief, that the outcome of these proceedings will not be material to
the business, financial condition or results of operations of the Partnership.
NASD Matter. In a matter not directly involving the Partnership or its General
Partner, in 1991, the National Association of Securities Dealers, Inc. (the
"Association") Business Conduct Committee for the Northern District of
California initiated a complaint against a broker-dealer affiliate of LF
Special Fund I, L.P. (a general partner of the General Partner of the
Partnership), alleging violations of the Association's Rules of Fair Practice.
Specifically, the complaint alleged that the affiliate (1) bought and sold
limited partnership units (but not interests in the Partnership) in the
secondary market, from or to unaffiliated parties, subject to mark-ups or
mark-downs in excess of the Association's guidelines and (ii) failed to
disclose the amount or existence of such mark-ups and mark-downs to buyers and
sellers of limited partnership units. Brent Donaldson and Richard Wollack,
executive officers of LF Special Fund I, L.P., were also named as respondents
in the complaint in their capacities as principals of the affiliate. The
complaint was settled as of January 3, 1992 on the following terms: the
Association made findings, which were neither admitted nor denied, of
violations by the affiliate and Mr. Donaldson of the Association's guidelines
with respect to mark-ups or mark-downs, and of the failure by the affiliate
(but not Mr. Donaldson) to disclose the amount of such mark-ups or mark-downs.
Both allegations were dismissed as to Mr. Wollack. The settlement further
provided that the affiliate would be censured and fined $125,000 and that Mr.
Donaldson would be censured and fined $7,500.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-5-
<PAGE> 7
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER MATTERS
There is no public market for the limited partnership interests and a market is
not expected to develop as such limited partnership interests are not publicly
traded or freely transferable.
As of February 29, 1996, the number of holders of the Partnership's interests
is as follows:
<TABLE>
<S> <C>
General Partner 1
Limited Partners 7,498
-----
7,499
=====
</TABLE>
The Partnership makes cash distributions to its partners out of distributable
cash pursuant to the Partnership's Agreement of Limited Partnership.
Distributable cash is generally paid 99% to the Limited Partners and 1% to the
General Partner.
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 1996 1995 1994 1993 1992 1991
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
First $631,000 $408,000 $388,000 $618,000 $478,000 $478,000
Second 446,000 478,000 688,000 541,000 318,000
Third 490,000 433,000 318,000 580,000 319,000
Fourth 694,000 440,000 414,000 490,000 478,000
</TABLE>
The Limited Partners and the General Partner are entitled to receive quarterly
cash distributions, as available, in the future.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $5,191,000 $ 4,576,000 $ 5,011,000 $ 5,077,000 $ 5,080,000
=========== ============ =========== ============ ===========
Net Income (Loss):
General Partner $ (7,000) $ (15,000) $ 5,000 $ (48,000) $ 9,000
Limited Partners (646,000) (1,516,000) 473,000 (4,730,000) 906,000
----------- ------------ ----------- ------------ -----------
$ (653,000) $(1,531,000) $ 478,000 $(4,778,000) $ 915,000
=========== ============ =========== ============ ===========
Total Distributions:
General Partner $ 21,000 $ 18,000 $ 21,000 $ 21,000 $ 16,000
=========== ============ =========== ============ ===========
Limited Partners $2,038,000 $ 1,739,000 $ 2,038,000 $ 2,089,000 $ 1,593,000
=========== ============ =========== ============ ===========
</TABLE>
-6-
<PAGE> 8
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
Item 6. SELECTED FINANCIAL DATA (Cont'd.)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $34,850,000 $37,505,000 $40,825,000 $42,470,000 $49,663,000
=========== =========== =========== =========== ===========
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership completed its acquisition program in December 1988 and is
principally engaged in the operation of its properties. The Partnership's
objective has been to hold its properties as long-term investments, although
properties may be sold at any time, depending upon the General Partner's
judgment of the anticipated remaining economic benefits of continued ownership.
That notwithstanding, the Information Statement, dated May 5, 1993, as
described below, mandates that the General Partner shall seek a vote of the
Limited Partners no later than December 31, 1996, regarding prompt liquidation
of the Partnership in the event that properties with appraised values as of
January 1993, which constituted at least one-half of the aggregate appraised
values of all Partnership properties as of that date are not sold or under
contract for sale by the end of 1996. Given the mandate of the May 5, 1993
Information Statement, the General Partner has decided to account for the
Partnership's properties as assets held for sale instead of for investment.
Working capital is and will be principally provided from the operation of the
Partnership's properties and the working capital reserve established for the
properties. The Partnership may incur mortgage indebtedness relating to such
properties by borrowing funds primarily to fund capital improvements or to
obtain financing proceeds for distribution to the partners.
Distributions for the year ended December 31, 1995, represent net cash flow
from operations of the Partnership's properties and interest earned on the
temporary investment of working capital, 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.
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 have been
implemented by amending the Partnership Agreement as contemplated by the
Information Statement. The amendments include, among other things, the future
payment of asset management and leasing fees to the General Partner and the
elimination of the General Partner's residual interest and deferred leasing
fees that were previously subordinated to return of the Limited Partners' 9%
Preferential Return. See Item 8, Note 4 to the Financial Statements for
discussion of fees paid to the General Partner for the year ended December 31,
1995.
-7-
<PAGE> 9
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
The General Partner elected to terminate the Partnership's Property Management
Agreement with Glenborough Management Corporation ("Glenborough") effective
November 1, 1993. On that date, the General Partner caused the Partnership to
enter a new property management agreement with Birtcher Properties, an
affiliate of the General Partner. Pursuant to the Partnership Management
Agreements, Birtcher Properties will act as the Partnership's exclusive agent
to operate, rent, manage and maintain the Partnership's properties. Birtcher
Properties will perform substantially the same services that Glenborough
performed during the previous two-year period at fees similar to (and not
larger than) the fees it used to pay Glenborough, plus certain costs associated
with property management, as before. The contracts are terminable upon a
minimum of 60 days' written notice by either party. As before, the General
Partner will continue to oversee the day-to-day management of the Partnership.
January 1, 1996 Property Appraisals and Net Asset Value
In accordance with the terms of the Partnership Agreement, each year the
Partnership secures an independent appraisal of each of the Partnership's
properties as of January 1. Prior to the January 1, 1995 appraisals, the
independent appraiser had estimated each property's "Investment Value,"
utilizing a seven to ten-year cash flow model to estimate value based
upon an income approach.
The amendment to the Partnership Agreement consented to by the Limited Partners
in June 1993 mandates, among other things, that the General Partner seek a vote
of (and provide an analysis and recommendation to) the Limited Partners no
later than December 31, 1996 regarding the prompt liquidation of the
Partnership in the event that properties with (then) current appraised values
constituting at least one-half of the total (then) current appraised values of
all of the Partnership's properties are not sold or under contract for sale by
the end of 1996.
Given this mandate, the General Partner has requested that the appraiser
provide an assessment of value that reflects a shorter investment holding term.
Although the General Partner does not currently have a specific liquidation
plan for the Partnership's properties, it requested that the appraiser assume
that the entire portfolio would be sold over four years, in connection with the
January 1995 appraisals and over three years in connection with the January
1996 appraisals.
Using the shorter-term investment methodology that is consistent with the
mandate of the 1993 amendment to the Partnership Agreement, the appraiser
estimated the value of the Partnership's properties at January 1, 1996 to be
$33,857,000 or $5,329 per $10,000 original investor subscription.
Over the past year, the General Partner has examined several alternative
methods to achieve the Partnership's goal of selling the Partnership's
properties and liquidating the Partnership at the earliest practicable time
consistent with achieving reasonable value for the Limited Partners'
investment. As explained in the Partnership's May 5, 1993 Information
Statement, "achieving reasonable value" has meant for the Partnership to
balance receiving higher sales prices per property than their 1993 values while
at the same time not waiting forever to sell at a theoretical "top of the
market." Alternatives under consideration by the General Partner may include a
property-by-property liquidation or selling all of the properties as a single
portfolio. The General Partner has had preliminary discussions regarding
disposition, in whole or in part, of the Partnership's properties with various
potential purchasers of some or all of the Partnership's portfolio.
In connection with its consideration of these alternatives, the General
Partner has decided to treat its properties as held for sale instead of for
investment for financial statement purposes. In accordance with Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (see Note 2 to
the Financial Statements in Item 8), the carrying value of these properties was
evaluated to ensure that each property was carried on the Partnership's balance
sheet at the lower of cost or fair value less selling costs. The General
Partner estimated fair value for this purpose based on appraisals performed as
of January 1, 1996. However, fair value can only be determined based upon
sales to third parties, and sales proceeds could differ substantially.
Based upon the General Partner's survey of the current marketplace, the General
-8-
<PAGE> 10
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
January 1, 1996 Property Appraisals and Net Asset Value (Cont'd.)
Partner believes, in fact, that in the relatively short term the Partnership's
properties could generate sales prices that, in the aggregate, could be
materially less than their aggregate appraised values based upon an "Investment
Value" appraisal model. The amount of the possible variance between the
aggregate appraised values and potential sales prices cannot be reliably
estimated at this time, because of the numerous variables that could affect the
sales prices, including but not limited to the time frame in which the
properties must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable properties
are being sold at the time of the Partnership's sales, constantly changing
local market conditions and the state of leasing negotiations and capital
expenditures for the properties at the time of sale.
The foregoing appraised value of the properties indicates an estimated net
asset value of the Partnership of $35,886,000 or $5,648 per $10,000 of original
investor subscription. (Net asset value represents the appraised value of the
Partnership's properties, cash, and other assets, less all liabilities.) This
equates to a net asset value of $282 per $500 par value of Partnership
Interest. This compares to original purchase prices aggregating $7,550 and the
January 1, 1995 appraised value of $5,556 per $10,000 of original investor
subscription.
Results of Operations
Year Ended December 31, 1995
The increase in rental income for the year ended December 31, 1995, as compared
to 1994, was primarily attributable to the increase in revenues at NorthTech,
which was the result of successful negotiations of two new leases. In October
1994, a five-year lease commenced with Citizens Bank and in January 1995, a
five-year lease commenced with International Data Products. The commencement
of these leases had the effect of increasing occupancy to a level of 100% and
revenue by approximately $705,000 in 1995. The aforementioned increase was
partially offset by a decrease in revenues at Creek Edge Business Center of
approximately $74,000. The aforementioned decrease was a result of the
termination of the Computerware Data lease on expiration in August 1995 and the
termination of the Solutronix Corporation lease prior to its expiration in
July 1995.
Interest income resulted from the temporary investment of Partnership working
capital. The increase for the year ended December 31, 1995, as compared to
1994, was primarily attributable to a higher rate of return on short-term
investments.
-9-
<PAGE> 11
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
The aforementioned increase was offset by a decrease in other miscellaneous
revenue at NorthTech.
The decrease in operating expenses for the year ended December 31, 1995, as
compared to 1994, was primarily attributable to the decrease in advertising and
marketing expenses and repairs and maintenance costs at Martinazzi Square. The
aforementioned decrease was partially offset by an increase in cleaning and
janitorial costs at NorthTech.
The decrease in real estate taxes for the year ended December 31, 1995, as
compared to the corresponding period in 1994, was primarily attributable to a
lower building assessment at NorthTech. In addition, a successful tax appeal
resulted in a $40,000 tax refund during the third quarter of 1995.
General and administrative expenses for the year ended December 31, 1995,
include charges of $415,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included in
general and administrative expenses were direct charges of $303,000 relating to
audit fees, legal fees, appraisal fees, insurance expense, costs incurred in
providing information to the Limited Partners and other miscellaneous costs.
Although general and administrative expenses for the year ended December 31,
1995, were generally comparable to 1994, there were several significant
offsetting fluctuations that composed the aggregate 1995 general and
administrative expenses. During 1995, General Partnership liability insurance,
leasing fees and legal fees decreased. The aforementioned decreases were
partially offset by increased asset management fees and general and
administrative wages.
In February 1996, the General Partner entered into a contract to sell
Flaircentre for $2,300,000. The property is currently in escrow, and closing
of the sale is subject to the buyer obtaining financing, a conditional use
permit, planning commission approval, and other minor contingencies. Escrow is
currently scheduled to close on or before May 29, 1996.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
has decided to account for the Partnership's properties as assets held for
sale, instead of for investment. Accordingly, the General Partner compared the
carrying value of each property to its appraised value as of January 1, 1996.
If the carrying value of a property and certain related assets was greater than
its appraised value, less selling costs, the General Partner reduced the
carrying value of the property by the difference. Using this methodology, the
General Partner determined that Creek Edge Business Center, Flaircentre,
Northtech and Cooper Village (42% interest) had carrying values greater than
their appraised values, and therefore reduced their carrying values by $50,000,
$600,000, $350,000, and $571,000 to $3,802,000, $2,155,000, $13,933,000, and
$2,682,000 respectively.
Year Ended December 31, 1994
The decrease in rental income for the year ended December 31, 1994 as compared
to 1993, was primarily attributable to several factors. At NorthTech revenue
decreased by $577,000, which was primarily a result of scheduled termination of
the IBM leases in August 1993 and March 1994. The aforementioned decrease was
-10-
<PAGE> 12
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1994 (Cont'd.)
partially offset by an increase due to commencement of Citizens Savings Bank
lease encompassing 11,361 square feet in October 1994. In addition, at the
Forum, operating expense recoveries increased by $42,000.
Interest income resulted from the temporary investment of Partnership working
capital. The increase for the year ended December 31, 1994 as compared to
1993, was attributable to an increase in the average level of working capital
and a higher rate of return on short-term investments.
The increase in operating expenses for the year ended December 31, 1994, as
compared to 1993, was primarily attributable to an increase in grounds
maintenance, insurance, security, and general building repairs at Flaircentre
($37,000). At Martinazzi Square, advertising and marketing costs, building and
landscape repairs increased ($59,000). In addition, at Northtech legal fees
increased ($10,000) and at The Forum electricity costs were higher in 1994
($13,000).
The decrease in real estate taxes for the year ended December 31, 1994, as
compared to 1993, was primarily attributable to successful tax appeals, which
lowered the tax assessment at Creek Edge ($23,000), The Forum ($49,000) and
Martinazzi Square ($22,000).
General and administrative expenses for the year ended December 31, 1994,
include charges of $399,000 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 were direct charges of $325,000 relating to
audit fees, legal fees, appraisals fees, insurance expense, costs incurred in
providing information to the Limited Partners and other miscellaneous costs.
The decrease in general and administrative expenses for the year ended December
31, 1994, as compared to 1993, was primarily attributable to a decrease in
professional fees, consultants fees, postage and mailing and printing and
reproduction which was associated with the amendment of the Partnership
Agreement in 1993.
Provision was made for impairment loss if the General Partner determined that
the carrying amount of the Partnership's investment in a real estate asset may
not been recoverable. The General Partner obtained third party appraisals on
the Partnership's properties as required by the Partnership Agreement. If these
appraisals indicated that certain of the Partnership's properties had market
values below their then-current carrying values, the General Partner considered
the appraisals and analyzed the current and anticipated market conditions of the
respective properties and determined if an impairment had occurred. At
December 31, 1994, after evaluation of Flaircentre, the General Partner
estimated a $1,900,000 impairment of value as compared to its respective
carrying value.
Year Ended December 31, 1993
The decrease in rental income for the year ended December 31, 1993 as compared
to 1992, was primarily attributable to several factors. During 1993, at The
Forum, a new lease commenced on March 1, 1993, with BancBoston Mortgage
Company, encompassing 5,406 square feet that increased rental revenue by
$65,000. In addition, operating expense recoveries increased by an aggregate
$36,000. At NorthTech, the new lease with Penril, Inc. in August 1992,
increased rental
-11-
<PAGE> 13
REAL ESTATE INCOME PARTNERS III,
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, 1993 (Cont'd.)
income by $124,000. In addition, operating expense recoveries increased by
$93,000. The aforementioned increases were partially offset by the reduction
of rental revenue resulting from the termination of the IBM lease at expiration
on August 1993 ($280,000) and the termination of the IBM lease in February 1992
($134,000). At Martinazzi Square, three new leases encompassing 4,876 square
feet commenced in 1993, resulting in an aggregate increased revenue of
$32,000.
Interest income resulted from the temporary investment of Partnership working
capital. The decrease for the year ended December 1993, as compared to 1992,
was attributable to a decrease in the average level of working capital and a
lower rate-of-return on short-term investments.
The increase in operating expenses for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to the increase in electricity
charges and space planning expenses at NorthTech.
The decrease in real estate taxes for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to the lower tax assessment at
Creek Edge and The Forum. The aforementioned decreases were partially offset
by an increase in real estate taxes at Flaircentre.
The decrease in depreciation expense for the year ended December 31, 1993, as
compared to 1992, was a result of the $5,700,000 adjustment to the carrying
value of real estate assets during 1992. As part of this adjustment, the
depreciable bases (buildings and improvements) of The Forum, Martinazzi Square
and NorthTech Business Park were reduced in December 1992, by $993,000,
$112,000 and $3,690,000, respectively, with the remaining adjustment of
$905,000 being allocated to land.
General and administrative expenses for the year ended December 31, 1993
include charges of $400,000 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 were direct charges of $491,000 relating to
audit fees, legal fees, appraisal fees, insurance expense, costs incurred in
providing information to the limited partners and other miscellaneous costs.
The increase in general and administrative expenses for the year ended December
31, 1993, as compared to 1992, was primarily attributable to the payment of
asset management fees ($235,000) and leasing fees ($12,000) to the General
Partner and its affiliates pursuant to the amended Partnership Agreement. In
addition, legal and professional services, printing, postage and mailing
expenses increased as a result of the Partnership's solicitation of the limited
partners for the Information Statement, dated May 5, 1993.
The General Partner elected to terminate the Partnership's Property Management
agreement with Glenborough Management Corporation ("Glenborough") effective
November 1, 1993. On that date, the General Partner caused the Partnership to
enter a new property management agreement with Birtcher Properties, an
affiliate of the General Partner. Pursuant to the Property Management
Agreements, Birtcher Properties will act as the Partnership's exclusive agent
to operate, rent, manage and maintain the Partnership's properties. In its
capacity as property manager for the Partnership's properties, Birtcher
Properties will perform substantially the same services that Glenborough
performed during the previous two-year period
-12-
<PAGE> 14
REAL ESTATE INCOME PARTNERS III,
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, 1993 (Cont'd.)
at fees similar to (and not larger than) the fees it used to pay Glenborough,
plus certain costs associated with property management, as before. The
contract is terminable upon a minimum of 60 days' written notice by either
party. As before, the General Partner will continue to oversee the day-to-day
management of the Partnership.
-13-
<PAGE> 15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
</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>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Statements of Changes in Partners' Capital for the Years
Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
</TABLE>
Information required by other schedules called for under Regulations S-X is
either not applicable or is included in the Financial Statements.
F-1
<PAGE> 16
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
INDEPENDENT AUDITORS' REPORT
To Birtcher/Liquidity Properties, as General Partner of
Real Estate Income Partners III, Limited Partnership:
We have audited the financial statements of Real Estate Income Partners III,
Limited Partnership as listed in the accompanying index. In connection with
our audits of the financial statements, we also have audited the financial
statement schedule listed in the accompanying index. These financial
statements and the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Real Estate Income Partners
III, Limited Partnership, as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in note 2 to the financial statements, on December 31, 1995,
Real Estate Income Partners III adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
KPMG PEAT MARWICK LLP
Orange County, California
March 28, 1996
F-2
<PAGE> 17
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
------------------------------------
<S> <C> <C>
ASSETS
- ------
Properties held for sale (net of valuation
allowance of $1,000,000) $ 29,457,000 $ -
------------ ------------
Investments in real estate, net:
Land - 7,014,000
Buildings and improvements - 36,275,000
------------- -------------
- 43,289,000
Less accumulated depreciation - (11,955,000)
------------- -------------
- 31,334,000
Investment in Cooper Village Partners 2,916,000 3,586,000
Cash and cash equivalents 980,000 1,085,000
Accounts receivable (net of allowance for
doubtful accounts of $14,000 in 1995) 71,000 49,000
Accrued rent receivable 799,000 765,000
Prepaid expenses and other assets, net 627,000 686,000
------------- -------------
$ 34,850,000 $ 37,505,000
============= =============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 448,000 $ 391,000
------------- -------------
Partners' capital (deficit):
Limited Partners 34,607,000 37,291,000
General Partner (205,000) (177,000)
------------- -------------
34,402,000 37,114,000
Commitments and contingencies - -
------------- -------------
$ 34,850,000 $ 37,505,000
============= =============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE> 18
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rental income $ 5,119,000 $ 4,485,000 $ 4,933,000
Interest and other income 72,000 91,000 78,000
------------ ------------ -----------
Total revenues 5,191,000 4,576,000 5,011,000
------------ ------------ -----------
EXPENSES:
Operating expenses 1,277,000 1,281,000 1,167,000
Real estate taxes 676,000 754,000 858,000
Depreciation and amortization 1,726,000 1,590,000 1,731,000
General and administrative 718,000 724,000 891,000
Adjustment to carrying value
of real estate 1,000,000 1,900,000 -
------------ ------------ -----------
Total expenses 5,397,000 6,249,000 4,647,000
------------ ------------ -----------
Income (loss) before equity in
earnings (loss) of Cooper Village
Partners (206,000) (1,673,000) 364,000
Equity in earnings (loss) of
Cooper Village Partners (447,000) 142,000 114,000
------------ ------------ -----------
NET INCOME (LOSS) $ (653,000) $(1,531,000) $ 478,000
============ ============ ===========
NET INCOME (LOSS) ALLOCABLE TO:
General Partner $ (7,000) $ (15,000) $ 5,000
============ ============ ===========
Limited Partners $ (646,000) $(1,516,000) $ 473,000
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 19
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
------------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 $(128,000) $42,111,000 $41,983,000
Net income 5,000 473,000 478,000
Distributions (21,000) (2,038,000) (2,059,000)
---------- ------------ ------------
Balance, December 31, 1993 (144,000) 40,546,000 40,402,000
Net loss (15,000) (1,516,000) (1,531,000)
Distributions (18,000) (1,739,000) (1,757,000)
---------- ----------- ------------
Balance, December 31, 1994 (177,000) 37,291,000 37,114,000
Net loss (7,000) (646,000) (653,000)
Distributions (21,000) (2,038,000) (2,059,000)
---------- ------------ ------------
Balance, December 31, 1995 $(205,000) $34,607,000 $34,402,000
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE> 20
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (653,000) $ (1,531,000) $ 478,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,726,000 1,590,000 1,731,000
Equity in (earnings) loss of Cooper
Village Partners 447,000 (142,000) (114,000)
Adjustment to carrying value
of real estate 1,000,000 1,900,000 -
Changes in:
Accounts receivable (22,000) (2,000) (41,000)
Due from affiliate - - 12,000
Accrued rent receivable (34,000) 116,000 (6,000)
Prepaid expenses and other assets (124,000) (59,000) (193,000)
Accounts payable and accrued
liabilities 57,000 (32,000) (64,000)
----------- ----------- -----------
Net cash provided by operating
activities 2,397,000 1,840,000 1,803,000
----------- ----------- -----------
Cash flows from investing activities:
Investments in real estate (666,000) (273,000) (315,000)
Distributions received from
Cooper Village Partners 223,000 219,000 238,000
----------- ----------- -----------
Net cash used in investing
activities (443,000) (54,000) (77,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions (2,059,000) (1,757,000) (2,059,000)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (105,000) 29,000 (333,000)
Cash and cash equivalents,
beginning of year 1,085,000 1,056,000 1,389,000
----------- ----------- -----------
Cash and cash equivalents,
end of year $ 980,000 $1,085,000 $1,056,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 21
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Operations
Real Estate Income Partners III, Limited Partnership (the
"Partnership") was formed on December 9, 1985, under the laws of the
State of Delaware, for the purpose of acquiring and operating specified
income-producing retail, commercial and industrial properties. The
Partnership acquired its properties for cash. 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.
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 Statement,
dated May 5, 1993. Those proposals have been implemented by the
Partnership as contemplated by the Information Statement as amendments
to the Partnership Agreement, and are reflected in these Financial
Statements as such.
The amendment modifies the Partnership Agreement to eliminate the
General Partner's 1% subordinated interest in distributions of
Distributable Cash (net cash from operations) and reduce its
subordinated interest in such distributions from 10% to 1%. The
amendment also modifies the Partnership Agreement to eliminate the
General Partner's 1% subordinated interest in Sale or Financing
Proceeds (net cash from sale or financing of Partnership property) and
to reduce its subordinated interest in such proceeds from 15% to 1%.
In lieu thereof, the Partnership Agreement now provides for the
Partnership's payment to the General Partner of an annual asset
management fee equal initially to .75% of the aggregate appraised value
of the Partnership's properties. At January 1, 1995 and 1994 the
portfolio was appraised at an aggregate value of approximately
$35,300,000 (unaudited) and $34,292,000 (unaudited), respectively,
which includes the Partnership's interest in Cooper Village Partners
which was appraised at $3,250,000 (unaudited) and $2,982,000
(unaudited), respectively. The factor used to calculate the annual
asset management fee will be reduced by .10% each year beginning after
December 31, 1996 (e.g., from .75% in 1996 to .65% in 1997).
The amendment modifies the Partnership Agreement to eliminate the
subordination provisions with respect to future leasing fees. Such
fees for future leasing services rendered by the General Partner or its
affiliates will be payable by the Partnership on a current basis and
will not be subordinated to the Limited Partners Preferred Return and
Adjusted Invested Capital or any other amount. The amendment
eliminates the deferred leasing fees earned by the General Partner or
its affiliates (approximately $490,000 as of December 31, 1992) on and
after the effective date of the amendment.
The amendment modifies the Partnership Agreement to eliminate
subordination provisions with respect to future property disposition
fees payable under that section. The amendment authorizes payment to
the General Partner and its affiliates of the property disposition fees
as earned. The fees will not be subordinated to the Limited Partners
Preferred Return and Adjusted Invested Capital or any other amount.
The disposition fees are to be paid to the General Partner and its
affiliate
F-7
<PAGE> 22
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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 are to be reduced by the amount by which any
brokerage or similar commissions paid to any unaffiliated third-parties
in connection with the sale of the property exceed three percent of the
gross sale price. This amount is not payable, unless and to the extent
that the sale price of the property in question, net of any other
brokerage commissions (but not other costs of sale), exceeds the
appraised value of the property as of January 1, 1993.
The amendment states that the Partnership is no longer authorized to
pay the General Partner or its affiliates any insurance commissions or
any property financing fees. No such commissions or fees have been
paid or accrued by the Partnership since its inception.
The amendment modifies the provisions of the Partnership Agreement
regarding allocations of Partnership income, gain and other tax items
between the General Partner and the Limited Partners primarily to
conform to the changes in the General Partner's interest in
distributions of Distributable Cash and Sale or Financing Proceeds as
defined, 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.
The Limited Partners have certain priorities in the allocation of cash
distributions by the Partnership. Out of each distribution of net
cash, the Limited Partners generally have certain preferential rights
to receive payments that, together with all previous payments to them,
would provide an overall 9% per annum (cumulative non-compounded)
return (a "9% Preferential Return") on their investment in the
Partnership. Any distributions not equaling this 9% Preferential
Return in any quarter are to be made up in subsequent periods if and to
the extent distributable cash is available.
Distributable cash from operations is paid out each quarter in the
following manner: 99% to the Limited Partners and 1% to the General
Partner. These payments are made each quarter to the extent that there
is sufficient distributable cash available.
Sale or financing proceeds are to be distributed, to the extent
available, as follows: (i) to the Limited Partners until all cash
distributions to them amount to a 9% Preferential Return on their
investment cumulatively from the date of their admission to the
Partnership; (ii) then to the Limited Partners in an amount equal to
their investment; and (iii) the remainder, 99% to Limited Partners and
1% to the General Partner.
The unpaid 9% Preferential Return to the Limited Partners aggregates
$28,818,000 as of December 31, 1995.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
F-8
<PAGE> 23
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment modifies the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction"
(as defined in the amendment) sponsored by the General Partner or any
of its affiliates unless such transaction is approved by a
"supermajority" of at least 80% in interest of the Limited Partners and
the General Partner. The amendment also prohibits the modification of
this restriction on Reorganization Transactions without the approval of
at least 80% in interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other
dispositions to be left to the General Partner's discretion based on
the anticipated remaining economic benefits of continued ownership and
other factors. Although the current market for real estate is
depressed, the General Partner is committed to selling the
Partnership's properties as soon as reasonably practicable. To that
end, the amendment mandates that the General Partner seek a vote of the
Limited Partners no later than December 31, 1996 regarding the prompt
liquidation of the Partnership in the event that properties with
appraised values as of January 1993 which constituted at least one-half
of the aggregate appraised values of all Partnership properties as of
that date are not sold or under contract for sale by the end of 1996.
In conjunction with the vote, the General Partner will provide an
analysis and recommendation regarding the advisability of liquidating
the Partnership.
Over the past year, the General Partner has examined several
alternative methods to achieve the Partnership's goal of selling the
Partnership's properties and liquidating the Partnership at the
earliest practicable time consistent with achieving reasonable value
for the Limited Partners' investment. As explained in the
Partnership's May 5, 1993 Information Statement, "achieving reasonable
value" has meant for the Partnership to balance receiving higher sales
prices per property than their 1993 values while at the same time not
waiting forever to sell at a theoretical "top of the market."
Alternatives under consideration by the General Partner may include a
property-by-property liquidation or selling all of the properties as a
single portfolio. The General Partner has had preliminary discussions
regarding disposition, in whole or in part, of the Partnership's
properties with various potential purchasers of some or all of the
Partnership's portfolio.
In connection with its consideration of these alternatives, the
General Partner has decided to treat its properties as held for sale
instead of for investment for financial statement purposes. In
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (see Note 2), the carrying value of these
properties was evaluated to ensure that each property was carried on
the Partnership's balance sheet at the lower of cost or fair value
less selling costs. The General Partner estimated fair value for this
purpose based on appraisals performed as of January 1, 1996. However,
fair value can only be determined based upon sales to third parties,
and sales proceeds could differ substantially.
Based upon the General Partner's survey of the current marketplace, the
General Partner believes, in fact, that in the relatively short term
the Partnership's properties could generate sales prices that, in the
F-9
<PAGE> 24
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
aggregate, could be materially less than their aggregate appraised
values based upon an "Investment Value" appraisal model. The amount of
the possible variance between the aggregate appraised values and
potential sales prices cannot be reliably estimated at this time,
because of the numerous variables that could affect the sales prices,
including but not limited to the time frame in which the properties
must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable
properties are being sold at the time of the Partnership's sales,
constantly changing local market conditions and the state of leasing
negotiations and capital expenditures for the properties at the time of
sale.
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if the General
Partner believes factors are present that may indicate long-lived
assets are impaired, the undiscounted cash flows, before debt service,
related to the assets should be estimated. If these estimated cash
flows are less than the carrying value of the asset, then impairment is
deemed to exist. If impairment exists, the asset should be written
down to the estimated fair value.
Further, assets held for sale, including any unrecoverable accrued rent
receivable or capitalized leasing commissions, should be carried at the
lower of carrying value or fair value less estimated selling costs. Any
adjustment to carrying value is recorded as a valuation allowance
against property held for sale. Each reporting period, the General
Partner will review their estimates of fair value, which may be
decreased or increased up to the original carrying value. Finally,
assets held for sale are no longer depreciated. The General Partner
adopted FAS 121 at December 31, 1995 and the adoption did not have a
material impact on the Partnership's operations or financial position
as prior to December 31, 1995 the Partnership had not had any
properties held for sale.
As noted above, as of December 31, 1995, the General Partner decided to
account for the Partnership's properties as assets held for sale,
assuming an average 12 month holding period, instead of for investment.
Accordingly, the General Partner compared the carrying value for each
property to its appraised value as of January 1, 1996. If the carrying
value of the property and certain related assets was greater than its
appraised value, less selling costs, the General Partner reduced the
carrying value of the property by the difference. Using this
methodology, the General Partner determined that Creek Edge Business
Center, Flaircentre, and NorthTech had carrying values greater than
they had appraised values, and therefore reduced their carrying values
by $50,000, $600,000, and $350,000 to $3,802,000, $2,155,000 and
$13,933,000, respectively.
Prior to the adoption of FAS 121, provision was made for impairment
loss if the General Partner determined that the carrying amount of the
Partnership's investment in a real estate asset was not recoverable.
The General Partner obtained third party appraisals on the
Partnership's properties as required by the Partnership Agreement. If
these appraisals indicated that certain of the Partnership's properties
had market values below their then-current carrying values, the General
Partner, considered
F-10
<PAGE> 25
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
the appraisals and analyzed the current and anticipated market
conditions of the respective properties and determined if an impairment
had occurred.
At December 31, 1994, after evaluation of the Flaircentre, the General
Partner estimated a $1,900,000 impairment of value as compared to its
respective carrying value.
Cash and Cash Equivalents
The Partnership invests its excess cash balances in short-term
investments (cash equivalents). These investments are stated at cost,
which approximates market, and consist of money market, certificates of
deposit and other non-equity-type cash investments. Cash equivalents
at December 31, 1995 and 1994, totaled $899,000 and $930,000,
respectively.
Cash equivalents are defined as temporary non-equity investments with
original maturities of three months or less, which can be readily
converted into cash and are not subject to changes in market value.
Depreciation
Through December 31, 1995, depreciation expense was computed using the
straight-line method. Rates used in the determination of depreciation
were based upon the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Income Taxes
Income taxes are not levied at the Partnership level, but rather on the
individual partners; therefore, no provision or liability for Federal
and State income taxes has been reflected in the accompanying financial
statements.
F-11
<PAGE> 26
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1995 1994
GAAP Basis Tax Basis GAAP Basis Tax Basis
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $34,850,000 $44,456,000 $37,505,000 $46,939,000
Total Liabilities $ 448,000 $ 448,000 $ 391,000 $ 391,000
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per financial Statements $ (653,000) $(1,531,000) $ 478,000
Adjustment to carrying value of real estate 1,000,000 1,900,000 -
Adjustment to carrying value
of Cooper Village 571,000 - -
Depreciation differences on
investments in real estate (91,000) (163,000) (110,000)
Other 95,000 173,000 101,000
- -----------------------------------------------------------------------------------------------------------
Taxable income per Federal tax return
(unaudited) $ 922,000 $ 379,000 $ 469,000
===========================================================================================================
</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.
F-12
<PAGE> 27
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Significant Customers
Rental income from International Business Machines, Inc., totaled $0 in
1995, $22,000 in 1994, $639,000 in 1993, or approximately 0%, .5% and
13%, respectively, of the Partnership's total rental income. In
addition, rental income from Penril, Inc., totaled $1,054,000 in 1995
and $1,107,000 in 1994 and $1,070,000 in 1993; or approximately 20%,
25%, 22% of total rental income for 1995, 1994, and 1993, respectively.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investment in Cooper Village Partners
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
Damson/Birtcher Realty Income Fund-II, Limited Partnership. The
accounting policies of Cooper Village Partners are consistent with
those of the Partnership.
F-13
<PAGE> 28
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners
During 1987 and 1988, Cooper Village Partners ("CV Partners"), a
California general partnership consisting solely of the Partnership and
Damson/Birtcher Realty Income Fund-II, Limited Partnership ("Fund II"),
an affiliated limited partnership, acquired Cooper Village. In
connection therewith, the Partnership and Fund-II contributed capital
of $4,300,000 (42%) and $5,937,000 (58%), respectively, and share in
the profits, losses and distributions of CV Partners in proportion to
their respective ownership interests. Condensed summary financial
information for CV Partners is presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
------------------------------------
<S> <C> <C>
Property held for sale (net of
valuation allowance of
$1,360,000) $6,386,000 $ -
Land, Buildings and
Equipment (net) - 7,967,000
Cash and Other Assets 533,000 521,000
---------- ----------
Total Assets $6,919,000 $8,488,000
========== ==========
Accounts Payable and
Accrued Liabilities $ 111,000 $ 85,000
Partners' Capital 6,808,000 8,403,000
---------- ----------
Total Liabilities and
Partners' Capital $6,919,000 $8,488,000
========== ==========
</TABLE>
F-14
<PAGE> 29
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners (Cont'd.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
Rental and Other Income $ 1,046,000 $1,023,000 $ 989,000
Operating and Other Expenses (498,000) (428,000) (466,000)
Adjustment to Carrying Value
of Real Estate (1,360,000) - -
Depreciation and Amortization (253,000) (256,000) (252,000)
------------ ----------- ----------
Net Income (Loss) $(1,065,000) $ 339,000 $ 271,000
============ =========== ==========
</TABLE>
(4) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the years ended December
31, 1995, 1994 and 1993, the Partnership was charged with
approximately $151,000, $130,000 and $153,000, respectively, of such
expenses. On November 1, 1993, the General Partner elected to
terminate the Partnership's property management agreements with an
unaffiliated third party. On that date, the General Partner entered
into new property management agreements with Birtcher Properties, an
affiliate of the General Partner. The contract encompasses terms at
least as favorable to the Partnership as the terminated contracts with
the unaffiliated third party and is terminable by the Partnership upon
60 days' notice to Birtcher Properties. Fees paid to the General
Partner's affiliate for property management services are not to exceed
6% of the gross receipts from the properties under management, provided
that leasing services are performed, otherwise not to exceed 3%. Such
fees amounted to approximately $193,000, $173,000 and $28,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. In
addition, an affiliate of the General Partner received $100,000,
$90,000 and $15,000, respectively, for the years ended December 31,
1995, 1994 and 1993, as reimbursement of costs for on-site property
management personnel and other reimbursable costs. In addition to
the aforementioned, an affiliate of the General Partner was also paid
$37,000, $38,000 and $7,000, related to the Partnership's portion
(42%) of property management fees, leasing fees, reimbursement of
on-site property management personnel and other reimbursable expenses
for Cooper Village Partners for the years ended December 31, 1995, 1994
and 1993, respectively.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .75% of the aggregate appraised value of the Partnership's
properties as determined by independent appraisal undertaken in
January of each year. Such fees for the year ended December 31, 1995,
1994 and 1993, amounted to $240,000, $235,000 and $235,000,
respectively. In addition, the amended Partnership Agreement provides
for payment to the General Partner of 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. Fees
for leasing services for the year ended December 31, 1995, 1994 and
1993, amounted to $24,000, $34,000 and $12,000 respectively. In
addition, to the aforementioned, the General Partner was also paid
$24,000, $22,000 and $22,000, related to the Partnership's portion
(42%) of asset management fees for Cooper Village Partners for the
F-15
<PAGE> 30
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Transactions with Affiliates (Cont'd.)
years ended December 31, 1995, 1994 and 1993, respectively.
(5) Commitments and Contingencies
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1995, are properly classified as operating leases
for financial reporting purposes.
Future minimum annual rental income to be received under such leases
as of December 31, 1995, is as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1996 $ 3,614,000
1997 2,835,000
1998 2,691,000
1999 2,096,000
2000 478,000
Thereafter 1,070,000
-----------
$12,784,000
===========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of
the tenant's annual revenue in excess of specified levels; and
escalations in annual rents based upon the Consumer Price Index.
Litigation
The Partnership is not a party to any pending legal proceedings other
than ordinary routine litigation incidental to its business. It is the
General Partner's belief that, the outcome of these proceedings will
not be material to the business, financial condition, or results of
operations of the Partnership.
(6) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
------------------------
<S> <C> <C>
Real estate taxes $163,000 $156,000
Security deposits 201,000 161,000
Accounts payable and other 84,000 74,000
-------- --------
$448,000 $391,000
======== ========
</TABLE>
F-16
<PAGE> 31
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(7) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ - $40,000 $34,000
Additions charged to expense 30,000 - 40,000
Write-offs (16,000) (40,000) (34,000)
-------- --------- ---------
Balance at end of year $14,000 $ - $ 40,000
======== ========= =========
</TABLE>
(8) Subsequent Events
On February 28, 1996, the Partnership made an aggregate cash
distribution of $631,000 to its Limited Partners.
In February 1996, the General Partner entered into a contract to sell
Flaircentre for $2,300,000. The property is currently in escrow, and
closing of the sale is subject to the buyer obtaining financing, a
conditional use permit, planning commission approval, and other minor
contingencies. Escrow is currently scheduled to close on or before May
29, 1996.
F-17
<PAGE> 32
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E COL. F COL. H COL. I
------ ------ ------ ------ ------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT GROSS AMOUNT AT WHICH
TO PARTNERSHIP (C) TO THE ACQUISITION CARRIED AT CLOSE OF PERIOD (B)
------------------ ------------------ ------------------------------
ACCUMULATED
BUILDINGS AND CARRYING BUILDINGS AND DEPRECIATION DATE DEPRECIABLE
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS (B),(D) LAND IMPROVEMENTS TOTAL (E) (E) ACQUIRED LIFE (F)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Creek Edge
Business Center,
Eden Prairie, MN $ 746 $ 4,435 $ 588 $ (50) $ 746 $ 4,973 $ 5,719 $1,917 07/01/86 30 years
The Forum
Wauwatosa, WI 1,109 5,209 1,584 (1,392) 827 5,683 6,510 2,431 08/28/86 30 years
Flaircentre
El Monte, CA 1,551 4,172 357 (2,500) 941 2,639 3,580 1,425 11/14/86 30 years
NorthTech
Gaithersburg, MD 3,285 19,851 1,664 (4,650) 2,684 17,466 20,150 6,217 12/30/86 30 years
Martinazzi Square
Tualatin, OR 1,732 5,199 215 (150) 1,708 5,288 6,996 1,508 12/23/87 30 years
------ ------- ------ -------- ------ ------- ------- -------
TOTAL $8,423 $38,866 $4,408 $(8,742) $6,906 $36,049 $42,955 $13,498
====== ======= ====== ======== ====== ======= ======= =======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
See notes to table on following page.
F-18
<PAGE> 33
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO SCHEDULE III
(a) For a description of the properties, see "Item 2. Properties." This
schedule does not include the investment in Cooper Village Partners
which is accounted for under the equity method of accounting.
(b) At December 31, 1995, the General Partner determined that Creek Edge
Business Center, Flaircentre and NorthTech had carrying values greater
than they had appraised values less selling costs, and therefore
provided a valuation allowance of $1,000,000 against the properties
held for sale.
At December 31, 1994, after evaluation of the Flaircentre, the General
Partner estimated a $1,900,000 impairment of value as compared to its
respective carrying value.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $50,743,000 as of December 31,
1995. 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
the General Partner.
(d) Amounts represent funds received from the sellers subsequent to
acquisition under rental agreements for non-occupied space and include
adjustments to carrying value of real estate.
(e) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $43,289,000 $44,916,000 $44,601,000
Additions during the year:
Improvements 666,000 273,000 315,000
Reductions during the year:
Adjustment to the carrying
value of real estate (1,000,000) (1,900,000) -
------------ ------------ -----------
Balance at end of year $42,955,000 $43,289,000 $44,916,000
============ ============ ===========
</TABLE>
F-19
<PAGE> 34
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO SCHEDULE III (Cont'd.)
(e) (Cont'd)
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $11,955,000 $10,494,000 $ 8,944,000
Depreciation expense 1,543,000 1,461,000 1,550,000
----------- ----------- -----------
Balance at end of year $13,498,000 $11,955,000 $10,494,000
=========== =========== ===========
</TABLE>
(f) Through December 31, 1995, depreciation expense was computed based upon
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
F-20
<PAGE> 35
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
----------------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
To Damson/Birtcher Realty Income Fund-II, Limited Partnership and
Real Estate Income Partners III, Limited Partnership as
General Partners of Cooper Village Partners:
We have audited the financial statements of Cooper Village Partners, a general
partnership, as listed in the accompanying index. In connection with our
audits of the financial statements, we also have audited the financial
statement schedule listed in the accompanying index. These financial
statements and the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cooper Village Partners as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in note 2 to the financial statements, on December 31, 1995,
Cooper Village Partners adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
KPMG PEAT MARWICK LLP
Orange County, California
March 28, 1996
F-21
<PAGE> 36
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
------------------------------------
<S> <C> <C>
ASSETS
- ------
Property held for sale (net of valuation
allowance of $1,360,000) $ 6,386,000 $ -
----------- -----------
Investments in real estate, net:
Land - 2,748,000
Buildings and improvements - 6,754,000
----------- -----------
- 9,502,000
Less accumulated depreciation - (1,535,000)
----------- -----------
- 7,967,000
Cash and cash equivalents 408,000 400,000
Accounts receivable 45,000 37,000
Accrued rent receivable 57,000 61,000
Prepaid expenses and other assets, net 23,000 23,000
----------- -----------
$ 6,919,000 $ 8,488,000
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 111,000 $ 85,000
----------- -----------
Partners' capital 6,808,000 8,403,000
----------- -----------
Commitments and contingencies - -
----------- -----------
$ 6,919,000 $ 8,488,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-22
<PAGE> 37
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rental income $1,025,000 $1,010,000 $ 971,000
Interest and other income 21,000 13,000 18,000
----------- ---------- ----------
Total revenues 1,046,000 1,023,000 989,000
----------- ---------- ----------
EXPENSES:
Operating expenses 296,000 284,000 316,000
Real estate taxes 136,000 85,000 86,000
Depreciation and amortization 253,000 256,000 252,000
Adjustment to carrying value of
real estate 1,360,000 - -
General and administrative 66,000 59,000 64,000
------------ ---------- ----------
Total expenses 2,111,000 684,000 718,000
------------ ---------- ----------
NET INCOME (LOSS) $(1,065,000) $ 339,000 $ 271,000
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-23
<PAGE> 38
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
GENERAL GENERAL
PARTNER PARTNER TOTAL
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III
-----------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 $5,095,000 $3,787,000 $8,882,000
Net income 157,000 114,000 271,000
Distributions (330,000) (238,000) (568,000)
----------- ------------ ------------
Balance, December 31, 1993 4,922,000 3,663,000 8,585,000
Net income 197,000 142,000 339,000
Distributions (302,000) (219,000) (521,000)
----------- ------------ ------------
Balance, December 31, 1994 4,817,000 3,586,000 8,403,000
Net loss (618,000) (447,000) (1,065,000)
Distribution (307,000) (223,000) (530,000)
----------- ------------ ------------
Balance, December 31, 1995 $3,892,000 $ 2,916,000 $6,808,000
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-24
<PAGE> 39
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,065,000) $ 339,000 $ 271,000
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 253,000 256,000 252,000
Adjustment to carrying value of
real estate 1,360,000 - -
Changes in:
Accounts receivable (8,000) 2,000 67,000
Accrued rent receivable 4,000 - 4,000
Prepaid expenses and other assets (10,000) (1,000) (8,000)
Accounts payable and accrued
liabilities 26,000 6,000 (22,000)
------------- ----------- ------------
Net cash provided by operating
activities 560,000 602,000 564,000
Cash flows from investing activities:
Investments in real estate (22,000) (70,000) (105,000)
Cash flows from financing activities:
Distributions (530,000) (521,000) (568,000)
------------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents 8,000 11,000 (109,000)
Cash and cash equivalents,
beginning of year 400,000 389,000 498,000
------------- ----------- ------------
Cash and cash equivalents,
end of year $ 408,000 $ 400,000 $ 389,000
============= =========== ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-25
<PAGE> 40
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS
(1) Organization
Cooper Village Partners, (the "Partnership") was formed on December 18,
1987 under the laws of the State of California. The General Partners
of the Partnership are Damson Birtcher Realty Income Fund II, Limited
Partnership ("Fund II") and Real Estate Income Partners III, Limited
Partnership ("Fund III"). During 1987 and 1988, The Partnership
acquired Cooper Village Shopping Center in Mesa, Arizona. In
connection with this acquisition, Fund II and Fund III contributed
capital of $5,937,000 (58%) and $4,300,000 (42%), respectively. Fund
II and Fund III share in the profits, losses and distributions of the
Partnership in proportion to their respective ownership interests. The
Partnership maintains its accounting records and prepares its financial
statements in accordance with generally accepted accounting principles.
Over the past year, the General Partners have examined several
alternative methods to achieve their goal of selling their properties
and ultimately liquidating at the earliest practicable time consistent
with achieving reasonable value for their Limited Partners' investment.
As explained in the General Partners' May 5, 1993 Information
Statements, "achieving reasonable value" has meant for the Partnership
to balance receiving higher sales prices per property than their 1993
values while at the same time not waiting forever to sell at a
theoretical "top of the market." Alternatives under consideration by
the General Partners may include a property-by-property liquidation or
selling all of the properties as a single portfolio. The General
Partners have had preliminary discussions regarding disposition, in
whole or in part, of their properties with various potential purchasers
of some or all of the Partnership's portfolio.
In connection with their consideration of these alternatives, the
General Partners have decided to treat their properties, as well as the
Partnership's property, as held for sale, instead of for investment,
for financial statement purposes. In accordance with Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (see
Note 2), the carrying value of the Partnership's property was
evaluated to ensure it was carried on the Partnership's balance sheet
at the lower of cost or fair value less selling costs. The General
Partners estimated fair value for this purpose was based on an
appraisal performed as of January 1, 1996. However, fair value can only
be determined based upon sales to third parties, and sales proceeds
could differ substantially.
Based upon the General Partners' survey of the current marketplace, the
General Partners believe, in fact, that in the relatively short term
the Partnership's property could generate a sales price that could be
materially less than its appraised value based upon an "Investment
Value" appraisal model. The amount of the possible variance between
the appraised value and potential sales price cannot be reliably
estimated at this time, because of the numerous variables that could
affect the sales price, including but not limited to the time frame in
which the property must be sold, method of sale, prevailing
capitalization rates at which comparable properties are being sold at
the time of the Partnership's sale, constantly changing local market
conditions and the state of leasing negotiations and capital
expenditures for the property at the time of sale.
F-26
<PAGE> 41
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if the General
Partners believe factors are present that may indicate long-lived
assets are impaired, the undiscounted cash flows, before debt service,
related to the assets should be estimated. If these estimated cash
flows are less than the carrying value of the asset, then impairment is
deemed to exist. If impairment exists, the asset should be written
down to the estimated fair value.
Further, assets held for sale, including any unrecoverable accrued rent
receivable or capitalized leasing commissions, should be carried at the
lower of carrying value or fair value less estimated selling costs. Any
adjustment to carrying value is recorded as a valuation allowance
against property held for sale. Each reporting period, the General
Partners will review their estimate of fair value, which may be
decreased or increased up to the original carrying value. Finally,
assets held for sale are no longer depreciated. The General Partners
adopted FAS 121 at December 31, 1995 and the adoption did not have a
material impact on the Partnership's operations or financial position
as prior to December 31, 1995 the Partnership had not had any property
held for sale.
As of December 31, 1995 the General Partners decided to account for the
Partnership's property as an asset held for sale, assuming an average
12 month holding period, instead of for investment. Accordingly, the
General Partners compared the carrying value of the property to its
appraised value as of January 1, 1996. The carrying value of the
property and certain related assets was greater than its appraised
value, less selling costs, and the General Partners reduced the
carrying value of the property by the difference of $1,360,000.
Prior to the adoption of FAS 121, provision was made for impairment
loss if the General Partners determined that the carrying amount of the
Partnership's investment in a real estate asset was not recoverable.
The General Partners obtained a third party appraisal on the
Partnership's property as required by the Partnership Agreement. If
this appraisal indicated that the Partnership's property had a market
value below its then-current carrying value, the General Partners
considered the appraisal and analyzed the current and anticipated
market conditions of the respective property and determined if an
impairment had occurred.
Cash and Cash Equivalents
The Partnership invests its excess cash balances in short-term
investments ("cash equivalents"). These investments are stated at
cost, which approximates market, and consist of money market accounts,
certificates of deposit and other non-equity-type cash investments.
Cash equivalents at December 31, 1995 and 1994, totaled $407,000 and
$392,000, respectively. Cash equivalents are defined as temporary
non-equity investments with original maturities of three months or
less, which can be readily converted into cash and are not subject to
changes in market value.
Depreciation
Through December 31, 1995, depreciation expense was computed using the
straight-line method. Rates
F-27
<PAGE> 42
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS
2) Summary of Significant Accounting Policies (Cont'd.)
Depreciation (Cont'd.)
used in the determination of depreciation were based upon the following
estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partners to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes
Income taxes are not levied at the Partnership level, therefore, no
provision or liability for Federal and State income taxes has been
reflected in the accompanying financial statements.
F-28
<PAGE> 43
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS
2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1995 1994
GAAP Basis Tax Basis GAAP Basis Tax Basis
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $ 6,919,000 $ 8,279,000 $ 8,488,000 $ 8,488,000
Total Liabilities $ 111,000 $ 111,000 $ 85,000 $ 85,000
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per Financial Statements $(1,065,000) $ 339,000 $ 271,000
Depreciation differences on investments in
real estate $ 25,000 26,000 23,000
Adjustment to carrying value of real
estate $ 1,360,000 - -
Other 4,000 (13,000) (12,000)
- -------------------------------------------------------------------------------------------------------------
Taxable income per Federal tax return
(unaudited) $ 324,000 $ 352,000 $ 282,000
=============================================================================================================
</TABLE>
F-29
<PAGE> 44
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates
The Partnership has no employees and, accordingly, Birtcher Properties,
an affiliate of the General Partner of Fund II and Fund III and its
affiliates perform services on behalf of the Partnership in connection
with administering the affairs of the Partnership. Birtcher Properties
and affiliates are reimbursed for their general and administrative
costs actually incurred and associated with services performed on
behalf of the Partnership. For the years ended December 31, 1995, 1994
and 1993, the Partnership was charged with approximately $0, $0 and
$1,000, respectively, of such expenses.
On November 1, 1993, the Partnership elected to terminate the
Partnership's property management agreement with an unaffiliated third
party. On that date, the Partnership entered into a new property
management agreement with Birtcher Properties. The contract
encompasses terms at least as favorable to the Partnership as the
terminated contract with the unaffiliated third party, and is
terminable by the Partnership upon 60 days' notice to Birtcher
Properties. Fees paid to Birtcher Properties for services were not to
exceed 6% of the gross receipts from the properties under management
provided that leasing services were performed, otherwise not to exceed
3%. Such fees amounted to approximately $52,000 in 1995, $52,000 in
1994 and $10,000 in 1993. In addition, Birtcher Properties received
$33,000 in 1995, $32,000 in 1994 and $5,000 in 1993, as reimbursement
of costs for on-site property management personnel and other
reimbursable costs.
The amended Partnership Agreements for Fund II and Fund III provide for
payments to Birtcher Properties or its affiliates of an annual asset
management fee equal to .75% of the aggregate appraised value of Cooper
Village as determined by independent appraisal undertaken in January of
each year. Such fees for the years ended December 31, 1995, 1994 and
1993, amounted to $58,000, $53,000 and $53,000, respectively. In
addition, the amended Partnership Agreements for Fund II and Fund III
provide for payment to Birtcher Properties or its affiliates of a
leasing fee for services rendered in connection with leasing space in
the Partnership property after the expiration or termination of any
lease of such space including renewal options. Fees for leasing
services for the years ended December 31, 1995, 1994 and 1993, amounted
to $2,000, $5,000 and $1,000, respectively.
F-30
<PAGE> 45
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business. It is the General Partners' belief, that the outcome of
these proceedings will not be material to the business, financial
condition, or results of operations of the Partnership.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1995, are properly classified as operating leases
for financial reporting purposes. Future minimum annual rental income
to be received under such leases as of December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1996 $ 693,000
1997 552,000
1998 437,000
1999 367,000
2000 325,000
Thereafter 1,830,000
----------
$4,204,000
==========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of
the tenant's annual revenue in excess of specified levels; and
escalations in annual rents based upon the Consumer Price Index.
(5) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
--------------------------
<S> <C> <C>
Real estate taxes $68,000 $43,000
Accounts payable and other 8,000 8,000
Security deposits 35,000 34,000
-------- -------
$111,000 $85,000
======== =======
</TABLE>
(6) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ - $13,000 $ 30,000
Additions charged to expense - - -
Write-offs - (13,000) (17,000)
-------- -------- ---------
Balance at end of year $ - $ - $ 13,000
======== ======== =========
</TABLE>
F-31
<PAGE> 46
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(7) Subsequent Events
On March 8, 1996, the Partnership made an aggregate cash distribution
of $140,000 to its General Partners.
F-32
<PAGE> 47
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E COL. F COL. H COL. I
------ ------ ------ ------ ------ ------ ------
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 ACCUMULATED DATE DEPRECIABLE
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS (b) LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED LIFE (F)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cooper Village
Shopping Center $2,756 $ 6,430 $715 $(1,737) $2,748 $ 5,416 $8,164 $1,778 12/30/87 and 30 years
12/30/88
------ ------- ---- -------- ------ ------- ------ ------
TOTAL $2,756 $ 6,430 $715 $(1,737) $2,748 $ 5,416 $8,164 $1,778
====== ======= ==== ======== ====== ======= ====== ======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
F-33
<PAGE> 48
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO SCHEDULE III
(a) For a description of the property, see "Item 2. Properties."
(b) At December 31, 1995, the General Partner determined that the
Partnership property had a carrying value greater than its appraised
value and therefore provided a valuation allowance of $1,360,000
against the property held for sale.
(c) The initial cost to the Partnership includes acquisition fees paid to
Birtcher Investments and Equity Properties Inc.
(d) Through December 31, 1995, depreciation was computed based upon the
following estimated useful lives.
<TABLE>
<CAPTION>
Years
------
<S> <C>
Buildings 30
Building Improvements 3 to 30
</TABLE>
F-34
<PAGE> 49
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
PART III
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership and the General Partner have no directors or executive
officers. The General Partner of the Partnership is Birtcher/Liquidity
Properties, a California general partnership of which Birtcher Investors, a
California limited partnership, and LF Special Fund I, L.P., a California
limited partnership, are the general partners. Under the terms of the
Partnership Agreement, Birtcher Investors is responsible for the day-to-day
management of the Partnership's assets.
The general partner of LF Special Fund I, L.P., is Liquidity Fund Asset
Management, Inc., a California corporation affiliated with Liquidity Financial
Group, L.P. The principals and officers of Liquidity Fund Asset Management,
Inc. are as follows:
- Richard G. Wollack, Chairman of the Board
- Brent R. Donaldson, President
- Deborah M. Richard, Financial Officer
The general partner of Birtcher Investors is Birtcher Investments, a California
general partnership. Birtcher Investments' general partner is Birtcher
Limited, a California limited partnership and its general partner is BREICORP,
a California corporation. The principals and relevant officers of BREICORP are
as follows:
- Ronald E. Birtcher, Co-Chairman of the Board
- Arthur B. Birtcher, Co-Chairman of the Board
- Robert M. Anderson, Executive Director
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the fees, compensation and other expense
reimbursements paid to the General Partner and its affiliates in all capacities
for each year in the three-year period ended December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993
------------------------------------------------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 21,000 $ 18,000 $ 21,000
Asset management fees 240,000 235,000 235,000
Property management fees(1) 193,000 173,000 28,000
Leasing fees 24,000 34,000 12,000
Property management expense
reimbursements(1) 100,000 90,000 15,000
Other expense reimbursements 151,000 130,000 153,000
-------- -------- --------
TOTAL $729,000 $680,000 $464,000
======== ======== ========
</TABLE>
- --------------------
(1) The General Partner did not provide property management services to the
Partnership's properties from November 1, 1991 through October 31, 1993 and,
consequently, the General Partner did not receive any similar compensation
during the first ten months of 1993.
-14-
<PAGE> 50
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1995, there was no entity or individual holding more than 5%
of the Limited Partnership interests of the Registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning transactions to which the Registrant was or is to be
a party in which the General Partner or its affiliates had or are to have a
direct or indirect interest, see Notes 1, 3 and 4 to the Financial Statements
in Item 8, which information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a) 1. and 2. Financial Statements and Financial Statements Schedules:
See accompanying Index to Financial Statements and Schedules to Item 8,
which information is incorporated herein by reference.
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. 33-2132), dated December 13, 1985, filed under the
Securities Act of 1933.
10. Material Contracts
(a) 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.
(b) 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.
(c) Agreement of Purchase and Sale of Real Property
(Martinazzi Square), dated December 22, 1987, by and
between Hayden-Woodbury Tualatin and Birtcher
Acquisition Corporation incorporated by reference to
Form 8-K, as filed December 23, 1987.
(d) Property Management Agreement dated October 24, 1991,
between Glenborough Management Corporation and the
Registrant for Creek Edge Business Center, Flaircentre
Office Park, The Forum, Martinazzi Square Shopping
Center and NorthTech. Incorporated by reference to
Exhibit 1 of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 20, 1991.
(SUPERSEDED)
-15-
<PAGE> 51
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Cont'd.)
10. Material Contracts (Cont'd.)
(e) 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)
(f) 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)
(g) Property Management Agreement, dated October 29, 1993,
between Birtcher Properties and the Registrant for
Creek Edge Business Center, Flaircentre, The Forum,
Martinazzi Square Shopping Center and NorthTech.
Incorporated by reference to Exhibit 1 of the
Partnership's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
(h) 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's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
27. Financial Data Schedule
99. Additional Exhibits
(a) Registrant's prospectus (Commission File No. 33-2132),
dated April 7, 1986, as supplemented November 5, 1986,
filed pursuant to Rule 424(c) under the Securities Act
of 1933 is incorporated herein by reference.
b) Reports on Form 8-K:
None.
-16-
<PAGE> 52
REAL ESTATE INCOME PARTNERS III,
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.
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
<TABLE>
<S> <C>
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher
Investors
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: March 30, 1996 By: /s/Robert M. Anderson
-------------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General Partner of LF
Special Fund I, L.P.
Date: March 30, 1996 By: /s/ Brent R. Donaldson
-----------------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
Birtcher/Liquidity Properties (General Partner of the Registrant) and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Arthur B. Birtcher Co-Chairman of the Board - March 30, 1996
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1996
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1996
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K REAL
ESTATE INCOME PARTNERS III.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 980,000
<SECURITIES> 0
<RECEIVABLES> 85,000
<ALLOWANCES> 14,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,678,000
<PP&E> 29,457,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,850,000
<CURRENT-LIABILITIES> 448,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,402,000
<TOTAL-LIABILITY-AND-EQUITY> 34,850,000
<SALES> 0
<TOTAL-REVENUES> 5,221,000
<CGS> 0
<TOTAL-COSTS> 4,397,000
<OTHER-EXPENSES> 1,447,000
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (653,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (653,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
