<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------
For Quarter Ended September 30, 1997
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Commission file number 0-16027
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3341425
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box A-1, Laguna Niguel, California 92677-0100
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(Address of principal executive offices) (Zip Code)
(714) 643-7700
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
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INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Net Assets in Liquidation -
September 30, 1997 (Unaudited)...................................... 3
Statement of Changes of Net Assets in Liquidation -
Three Months Ended September 30, 1997 (Unaudited)................... 4
Balance Sheet - December 31, 1996................................... 5
Statements of Operations (Unaudited) -
Three Months Ended March 31, 1997 and Three and Nine
Months Ended September 30, 1996..................................... 6
Statement of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1996................................ 7
Notes to Financial Statements (Unaudited)........................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................13
PART II. OTHER INFORMATION...................................................16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
SEPTEMBER 30, 1997
(UNAUDITED)
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ASSETS (Liquidation Basis):
- ---------------------------
Properties held for sale $14,326,000
Investment in Cooper Village Partners 2,735,000
Cash and cash equivalents 1,788,000
Accounts receivable 16,000
Other assets 19,000
-----------
Total Assets 18,884,000
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LIABILITIES (Liquidation Basis):
- --------------------------------
Accounts payable and accrued liabilities 439,000
Accrued expenses for liquidation 318,000
-----------
Total Liabilities 757,000
-----------
Net Assets in Liquidation $18,127,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENT OF CHANGES OF NET ASSETS IN LIQUIDATION
FOR THE PERIOD FROM JULY 1, 1997 TO SEPTEMBER 30, 1997
(UNAUDITED)
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Net assets in liquidation at June 30, 1997 $ 18,124,000
Increase (decrease) during period:
Operating activities:
Property operating income, net 413,000
Cooper Village equity income 35,000
Interest income 22,000
General and administrative expenses (214,000)
Leasing commissions (8,000)
------------
248,000
------------
Liquidating activities:
Distribution to partners (245,000)
------------
(245,000)
Net increase in assets in liquidation 3,000
------------
Net assets in liquidation at September 30, 1997 $ 18,127,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1996
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ASSETS
Properties held for sale (net of valuation
allowance of $2,135,000) $ 26,654,000
Investment in Cooper Village Partners 2,727,000
Cash and cash equivalents 807,000
Accounts receivable (net of allowance for
doubtful accounts of $8,000) 42,000
Accrued rent receivable 799,000
Prepaid expenses and other assets 582,000
------------
$ 31,611,000
============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 574,000
------------
Partners' capital (deficit):
Limited Partners 31,254,000
General Partner (217,000)
------------
31,037,000
Commitments and contingencies
------------
$ 31,611,000
============
</TABLE>
Note: The balance sheet at December 31, 1996 has been prepared from the audited
financial statements as of that date.
The accompanying notes are an integral part of these financial statements.
5
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three Months Three Months Nine Months
Ended Ended Ended
3/31/97 9/30/96 9/30/96
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES
Rental income $ 270,000 $ 1,228,000 $ 3,623,000
Interest income 61,000 12,000 41,000
Loss on sale of property (109,000) -- (13,000)
----------- ----------- -----------
Total revenues 222,000 1,240,000 3,651,000
----------- ----------- -----------
EXPENSES
Operating expenses 227,000 315,000 900,000
Real estate taxes 124,000 151,000 451,000
Amortization 247,000 32,000 98,000
General and administrative 321,000 201,000 570,000
Adjustment to carrying value
of real estate -- 416,000 610,000
----------- ----------- -----------
Total expenses 919,000 1,115,000 2,629,000
----------- ----------- -----------
(Loss) Income before equity in
earnings (697,000) 125,000 1,022,000
Equity in earnings of Cooper
Village Partners 66,000 47,000 205,000
----------- ----------- -----------
NET (LOSS) INCOME $ (631,000) $ 172,000 $ 1,227,000
=========== =========== ===========
NET (LOSS) INCOME ALLOCABLE TO:
General Partner $ (6,000) $ 2,000 $ 12,000
=========== =========== ===========
Limited Partners $ (625,000) $ 170,000 $ 1,215,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Nine Months
Ended
9/30/96
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Cash flows from operating activities:
Net income $ 1,227,000
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Amortization 98,000
Equity in earnings of Cooper Village
Partners (205,000)
Adjustment to carrying value of real estate 610,000
Loss on sale of property 13,000
Changes in:
Accounts receivable 45,000
Prepaid expenses and other assets (98,000)
Accrued rent receivable --
Accounts payable and accrued liabilities 27,000
-----------
Net cash provided by operating activities 1,717,000
Cash flows from investing activities:
Investments in real estate (530,000)
Proceeds from sale of property 2,153,000
Distributions received from
Cooper Village Partners 218,000
-----------
Net cash provided by investing activities 1,841,000
Cash flows from financing activities:
Distributions (3,678,000)
-----------
Net cash used in financing activities (3,678,000)
Net decrease in cash and cash
equivalents (120,000)
Cash and cash equivalents, beginning of
period 980,000
-----------
Cash and cash equivalents, end of period $ 860,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(1) Accounting Policies
The financial statements of Real Estate Income Partners III, Limited
Partnership (the "Partnership") included herein have been prepared by
the General Partner, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements include all adjustments which are of a normal recurring
nature and, in the opinion of the General Partner, are necessary for a
fair presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted, pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Partnership's annual report on Form 10-K for the year ended
December 31, 1996.
Liquidation Basis of Accounting
On February 18, 1997, the Partnership mailed a Consent Solicitation to
the Limited Partners which sought their consent to dissolve the
Partnership and sell and liquidate all of its remaining properties as
soon as practicable, consistent with selling the Partnership's
properties to the best advantage under the circumstances. A majority in
interest of the Limited Partners consented by March 13, 1997. As a
result, the Partnership has adopted the liquidation basis of accounting
as of March 31, 1997. The difference between the adoption of the
liquidation basis of accounting as of March 13, 1997 and March 31, 1997
was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
The Partnership adopted the liquidation basis of accounting on March
31, 1997. Comparison of results to prior years, therefore, is not
practical. The Statement of Net Assets in Liquidation and Statement of
Changes of Net Assets in Liquidation reflect the Partnership in the
process of liquidation. Prior financial statements reflect the
Partnership as a going concern.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate reduced rates on sales
commissions for subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who paid
commissions at a
8
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
higher rate. As a result, the Partnership has no set unit value as all
accounting, investor reporting and tax information is based upon each
investor's relative percentage of Invested Capital. Accordingly,
earnings or loss per unit is not presented in the accompanying
financial statements.
Carrying Value of Real Estate (Prior to the Adoption of Liquidation
Basis of Accounting)
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if the General
Partner believes factors are present that may indicate long-lived
assets are impaired, the undiscounted 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, were carried at the
lower of carrying value or fair value less estimated selling costs. Any
adjustment to carrying value was recorded as a valuation allowance
against property held for sale. Each reporting period, the General
Partner reviewed its estimates of fair value, which were decreased or
increased up to the original carrying value. Finally, assets held for
sale are no longer depreciated. The General Partner adopted FAS 121 at
December 31, 1995 and the adoption did not have a material impact on
the Partnership's operations or financial position, as prior to
December 31, 1995, the Partnership had not had any properties held for
sale.
As noted above, as of December 31, 1995, the General Partner decided to
account for the Partnership's properties as assets held for sale,
assuming an average 12 month holding period, instead of for investment.
Accordingly, the General Partner compared the carrying value of each
property to its appraised value as of January 1, 1996. If the carrying
value of 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.
Utilizing the same methodology, assuming a 12 month holding period, for
the year ended December 31, 1996, the General Partner determined that
Creek Edge, Northtech and Martinazzi Square had carrying values greater
than their respective appraised values (or in the case of Northtech,
its sales price). As a result, the carrying value was adjusted by
$548,000, $1,068,000 and $119,000, respectively to $4,160,000,
$12,968,000 and $5,500,000, respectively, as of December 31, 1996.
9
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the three months ended
September 30, 1997 and 1996, the Partnership incurred approximately
$34,000 and $39,000, respectively, of such expenses. For the nine
months ended September 30, 1997 and 1996, such fees were $104,000 and
$106,000, respectively.
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 6% of the gross receipts from the
properties under management provided leasing services are performed,
otherwise not to exceed 3%. Such fees amounted to approximately $24,000
and $47,000, respectively, for the three months ended September 30,
1997 and 1996. For the nine months ended September 30, 1997 and 1996,
such fees were $78,000 and $140,000, respectively. In addition, an
affiliate of the General Partner received $18,000 and $11,000 for the
three months ended September 30, 1997 and 1996, respectively, as
reimbursement of costs of on-site property management personnel and
other reimbursable costs. For the nine months ended September 30, 1997
and 1996, such costs were $45,000 and $43,000, respectively.
As previously reported, on June 24, 1993, the Partnership completed its
solicitation of written consents from its Limited Partners. A majority
in interest of the Partnership's Limited Partners approved each of the
proposals contained in the Information Statement dated May 5, 1993.
Those proposals were implemented by the Partnership as contemplated by
the Information Statement as amendments to the Partnership Agreement,
and are reflected in these financial statements as such.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .65% for 1997 and .75% for 1996 of the aggregate appraised value of
the Partnership's properties as determined by independent appraisal
undertaken in January of each year. Such fees for the three months
ended September 30, 1997 and 1996, amounted to $25,000 and $54,000,
respectively. For the nine months ended September 30, 1997 and 1996,
such fees were $78,000 and $170,000, 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 leases. Fees for leasing services for the three months
ended September 30, 1997 and 1996, amounted to $9,000 and $17,000,
respectively. For the nine months ended September 30, 1997 and 1996,
such fees were $21,000 and $43,000, respectively.
10
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates (Cont'd.)
In addition to the aforementioned, the General Partner was also paid
$14,000 and $13,000 related to the Partnership's portion (42%) of asset
management fees, property management fees, leasing fees and
reimbursement of on-site personnel and other reimbursable expenses for
Cooper Village Partners for the three months ended September 30, 1997
and 1996, respectively. For the nine months ended September 30, 1997
and 1996, such fees and reimbursements amounted to $41,000 and $44,000,
respectively.
On January 24, 1997 the Partnership sold Northtech for a sale price of
$13,600,000. The Partnership realized approximately $13,079,000 from
the sale, after accounting for closing costs and prorations of
approximately $521,000. The purchaser of Northtech has for three years
had a preexisting relationship with an affiliate of Birtcher Investors,
pursuant to which the purchaser had contracted with Birtcher to locate,
acquire and manage real property for the purchaser's account. No broker
was paid a commission as part of the transaction. Since the sale price
exceeded the January 1, 1993 appraised value ($12,900,000), pursuant to
the 1993 amendment of the Partnership Agreement, the General Partner
earned and was paid a property disposition fee of approximately
$340,000 in connection with the sale. The purchaser paid a net
investment advisory fee of approximately $52,000 to the affiliate of
Birtcher Investors and has retained Birtcher Property Services to
manage the property.
(3) Commitments and Contingencies
Litigation
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings.
On March 25, 1997, a limited partner named Bigelow/Diversified
Secondary Partnership Fund 1990 filed a purported class action lawsuit
in the Court of Common Pleas of Philadelphia County against
Damson/Birtcher Partners, Birtcher Investors, Birtcher Liquidity
Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of
fiduciary duty and breach of contract and seeking to enjoin the Consent
Solicitation dated February 18, 1997. On April 18, 1997, the court
denied the plaintiff's motion for a preliminary injunction. On June 10,
1997, the court dismissed the plaintiff's complaint on the basis of
lack of personal jurisdiction and forum non conveniens.
--------------------
On June 13, 1997, the Partnership, its affiliated partnership,
Damson/Birtcher Realty Income Fund-II, and their general partner,
Birtcher/Liquidity Properties, filed a complaint for declaratory relief
in the Court of Chancery in Delaware against Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration
that the vote that the limited partners of the Partnership and
Damson/Birtcher Realty Income Fund-II took pursuant to the
11
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
respective consent solicitations dated February 18, 1997 were effective
to dissolve the respective partnerships and complied with applicable
law, that the actions of the General Partner in utilizing the consent
solicitations to solicit the vote of the limited partners did not
breach any fiduciary or contractual duty to such limited partners, and
an award of costs and fees to the plaintiffs. The parties have
initiated discovery. The defendant has answered the complaint. No
motions are pending at this time.
(4) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of September 30, 1997, include
estimates of costs to be incurred in carrying out the dissolution and
liquidation of the Partnership. These costs include estimates of legal
fees, accounting fees, tax preparation and filing fees, professional
services and the general partner's liability insurance. The actual
costs could vary significantly from the related provisions due to the
uncertainty related to the length of time required to complete the
liquidation and dissolution and the complexities which may arise in
disposing of the Partnership's remaining assets.
(5) Subsequent Events
On October 1, 1997, the Partnership sold Martinazzi Square Shopping
Center for $6,100,000. The Partnership realized approximately
$5,824,000 after accounting for brokerage commissions, closing costs
and prorations of $276,000. Since the sale price exceeded the January
1, 1993 appraised value ($5,400,000), pursuant to the 1993 amendment of
the Partnership agreement the General Partner earned, and was paid, a
property disposition fee of $152,000 in connection with the sale.
The Partnership distributed the net proceeds of $5,600,000 from the
sale of Martinazzi Square Shopping Center to the Limited Partners on
October 15, 1997.
12
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Partnership completed its acquisition program in December 1988 and
is principally engaged in the operation of its properties. The
Partnership's original objective had been to hold its properties as
long-term investments. However, an Information Statement, dated May 5,
1993, mandated that the General Partner seek a vote of the Limited
Partners no later than December 31, 1996, regarding prompt liquidation
of the Partnership in the event that properties with appraised values
as of January 1993, which constituted at least one-half of the
aggregate appraised values of all Partnership properties as of that
date were not sold or under contract for sale by the end of 1996. Given
the mandate of the May 5, 1993 Information Statement, at December 31,
1995, the General Partner decided to account for the Partnership's
properties as assets held for sale instead of for investment. In a
Consent Solicitation dated February 18, 1997, the Partnership solicited
and received the consent of the Limited Partners as of March 13, 1997,
to dissolve the Partnership and gradually settle and close the
Partnership's business and dispose of and convey the Partnership's
property as soon as practicable, consistent with obtaining reasonable
value for the properties. The Partnership's properties were held for
sale throughout 1996 and are currently held for sale.
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.
Regular distributions through September 30, 1997 represent cash flow
generated from operations of the Partnership's properties and interest
earned on the Partnership's working capital, net of capital reserve
requirements. As described in more detail below, in June 1996, the
Partnership made a special distribution of $2,159,000 representing 100%
of the proceeds from the sale of Flaircentre; on February 28, 1997, the
Partnership made a special distribution of approximately $11,700,000
representing net proceeds from the sale of Northtech after $1,000,000
held back for Partnership reserves and payment of $340,000 disposition
fees to the General Partner; and on October 15, 1997, the Partnership
made a special distribution of approximately $5,600,000, representing
substantially all of the net proceeds from the sale of Martinazzi
Square Shopping Center. Future cash distributions will be made
principally to the extent of cash flow attributable to operations and
sales of the Partnership's properties and interest earned on the
investment by capital reserves, after payment for capital improvements
to the Partnership's properties and providing for capital reserves.
On January 24, 1997 the Partnership sold Northtech for a sale price of
$13,600,000. The Partnership realized approximately $13,079,000 from
the sale, after accounting for closing costs and prorations of
approximately $521,000. The purchaser of Northtech has for three years
had a preexisting
13
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
relationship with an affiliate of Birtcher Investors, pursuant to which
the purchaser had contracted with Birtcher to locate, acquire and
manage real property for the purchaser's account. No broker was paid a
commission as part of the transaction. Since the sale price exceeded
the January 1, 1993 appraised value ($12,900,000), pursuant to the 1993
amendment of the Partnership Agreement, the General Partner earned and
was paid a property disposition fee of approximately $340,000 in
connection with the sale. The purchaser paid a net investment advisory
fee of approximately $52,000 to the affiliate of Birtcher Investors and
has retained Birtcher Property Services to manage the property.
The Partnership distributed proceeds of the sale of Northtech to the
Limited Partners on February 28, 1997, together with the Partnership's
normal quarterly distribution. After paying the property disposition
fee and holding back approximately $1,000,000 to replenish and increase
the Partnership's reserves, the Partnership distributed approximately
$11,700,000 to the Limited Partners.
On October 1, 1997, the Partnership sold Martinazzi Square for
$6,100,000. The Partnership realized approximately $5,824,000 after
accounting for brokerage commissions, closing costs and prorations of
$276,000. Since the sale price exceeded the January 1, 1993 appraised
value ($5,400,000), pursuant to the 1993 amendment of the Partnership
agreement the General Partner earned, and was paid, a property
disposition fee of $152,000 in connection with the sale. The
Partnership distributed the net proceeds of $5,600,000 from the sale of
Martinazzi Square Shopping Center to the Limited Partners on October
15, 1997.
The sales of Flaircentre, Northtech, and Martinazzi Square have reduced
the Partnership's real estate assets to Creek Edge, The Forum, plus its
42% interest in Cooper Village Shopping Center. Since Northtech had
generated over two-thirds of the cash flow that funded the
Partnership's regular operations and distributions for the year ended
December 31, 1996, and Martinazzi Square generated approximately
$145,000 per quarter in net operating income, or approximately 31% of
the cash flow that funded the Partnership's regular operations and
distributions since the sale of NorthTech in January 1997, future
distributions to the Limited Partners of cash from operations will be
significantly reduced.
14
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended September 30, 1997
Because the Partnership adopted the liquidation basis of accounting on
March 31, 1997, a comparison of the results of operations is not
practical. As the Partnership's assets (properties) are sold, the
results of operations will be generated from a smaller asset base, and
are therefore not comparable. The Partnership's operating results have
been reflected on the Statement of Changes of Net Assets in Liquidation
since March 31, 1997 (the date of adoption of the liquidation basis of
accounting).
For the three months ended September 30, 1997, the Partnership
generated $413,000 of net operating income from operation of its
properties (exclusive of Cooper Village Partners), which was lower than
that of prior periods. The decrease in net operating income for the
three months ended September 30, 1997, as compared with the
corresponding period in 1996, was primarily attributable to the sale of
Northtech in January 1997.
Interest income resulted from the temporary investment of Partnership
working capital. For the three months ended September 30, 1997,
interest income was approximately $22,000.
General and administrative expenses for the three months ended
September 30, 1997, included charges of $68,000 from the General
Partner and its affiliates for services rendered in connection with
administering the affairs of the Partnership and operating the
Partnership's properties. Also included in general and administrative
expenses for the three months ended September 30, 1997, are direct
charges of $146,000 relating to audit fees, tax preparation fees, legal
and professional fees, insurance expenses, costs incurred in providing
information to the Limited Partners and other miscellaneous costs.
Accrued expenses for liquidation, as reflected in the Statement of Net
Assets in Liquidation as of September 30, 1997, are not included in
results of operations for the three month period ended March 31, 1997.
The liquidation basis of accounting was adopted on March 31, 1997
therefore, it was not appropriate to include such adjustments in the
results of operations for prior periods.
15
<PAGE> 16
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings.
On March 25, 1997, a limited partner named Bigelow/Diversified
Secondary Partnership Fund 1990 filed a purported class action lawsuit
in the Court of Common Pleas of Philadelphia County against
Damson/Birtcher Partners, Birtcher Investors, Birtcher Liquidity
Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of
fiduciary duty and breach of contract and seeking to enjoin the Consent
Solicitation dated February 18, 1997. On April 18, 1997, the court
denied the plaintiff's motion for a preliminary injunction. On June 10,
1997, the court dismissed the plaintiff's complaint on the basis of
lack of personal jurisdiction and forum non conveniens.
--------------------
On June 13, 1997, the Partnership, its affiliated partnership,
Damson/Birtcher Realty Income Fund-II, and their general partner,
Birtcher/Liquidity Properties, filed a complaint for declaratory relief
in the Court of Chancery in Delaware against Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration
that the vote that the limited partners of the Partnership and
Damson/Birtcher Realty Income Fund-II took pursuant to the respective
consent solicitations dated February 18, 1997 were effective to
dissolve the respective partnerships and complied with applicable law,
that the actions of the General Partner in utilizing the consent
solicitations to solicit the vote of the limited partners did not
breach any fiduciary or contractual duty to such limited partners, and
an award of costs and fees to the plaintiffs. The parties have
initiated discovery. The defendant has answered the complaint. No
motions are pending at this time.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None filed in the period ended September 30, 1997
16
<PAGE> 17
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REAL ESTATE INCOME PARTNERS III
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Investors
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: November 13, 1997 By: /s/Robert M. Anderson
-------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund I, L.P.
Date: November 13, 1997 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
17
<PAGE> 18
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
NET ASSETS IN LIQUIDATION OF REAL ESTATE INCOME PARTNERS FUND III AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,788,000
<SECURITIES> 0
<RECEIVABLES> 16,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,823,000
<PP&E> 14,326,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,884,000
<CURRENT-LIABILITIES> 757,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,127,000
<TOTAL-LIABILITY-AND-EQUITY> 18,884,000
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>STATEMENT OF OPERATION IS NOT PRESENTED IN LIQUIDATION BASIS OF ACCOUNTING.
</FN>
</TABLE>
