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SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Information Statement / / Confidential, for Use of the Commission
/ / Definitive Information Statement Only (as permitted by Rule 14c-5(d)(2))
</TABLE>
REAL ESTATE INCOME PARTNERS III
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(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Real Estate Income Partners III
27611 La Paz Road
Laguna Niguel, California 92627-0009
INFORMATION STATEMENT
_________, 1997
INTRODUCTION
This Information Statement is furnished by Birtcher/Liquidity
Properties, the general partner (the "General Partner") of Real Estate Income
Partners III, a Delaware limited partnership (the "Partnership"), in connection
with the Partnership's solicitation of consents from the Partnership's limited
partners (the "Limited Partners") to dissolve the Partnership and sell and
liquidate all of its remaining properties (collectively, the "Dissolution"). If
the Dissolution is consented to by a majority in interest of the Limited
Partners as described herein, the Partnership's remaining properties will be
sold and liquidated as soon as is practicable, consistent with obtaining
reasonable value for the properties, and the net proceeds will be distributed to
the Limited Partners. For the reasons discussed below, the General Partner
recommends that the Limited Partners consent to the Dissolution.
This Information Statement, and the enclosed consent form ("Consent"),
are first being mailed to the Limited Partners on or about __________, 1997.
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DESCRIPTION OF DISSOLUTION
BACKGROUND AND REASONS FOR DISSOLUTION
The Partnership was organized in 1986 for the purpose of acquiring,
operating and ultimately selling or disposing of its properties. The
Partnership's original investment objectives contemplated that the properties
would be held for at least five years, with decisions about the timing of
eventual property sales or other dispositions to be left to the General
Partner's discretion based on the anticipated economic benefits of continued
ownership and other factors. Subsequent changes in the federal tax laws,
however, made real estate less attractive to many previously active purchasers,
including REITs and pension funds, and lenders such as savings and loans,
commercial banks and insurance companies. As a result, the amount of capital
investment in real estate began to decline sharply in 1988. Overbuilding in many
markets, the general recessionary economy in the United States throughout 1990
and 1991 and subsequent corporate downsizing further contributed to the
imbalance of supply and demand for commercial and industrial properties. In
addition, rapid expansion of new retail formats such as discounters and
"category-killers" depressed the value of neighborhood retail shopping centers.
The combined effect of these factors resulted in significant reductions in real
estate values in many geographic areas.
Instead of selling the Partnership's properties at what appeared to be
the bottom of the market, in May 1993, the General Partner solicited the Limited
Partners' consent (the "1993 Solicitation") to a series of amendments to the
Partnership's Amended and Restated Partnership Agreement (the "Partnership
Agreement") as part of a comprehensive proposal to prepare the Partnership's
properties for sale based on the General Partner's expectations regarding
possible
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improvements in market conditions. The 1993 Solicitation, which was approved by
the Limited Partners, mandated that the General Partner seek a vote of the
Limited Partners regarding the liquidation of the Partnership in the event that
properties representing at least one-half of the aggregate appraised values of
all Partnership properties as of January 1, 1993 were not sold (or under
contract for sale) by the end of 1996. The General Partner agreed that, in
conjunction with the vote, it would provide an analysis and recommendation
regarding the advisability of liquidating the Partnership.
Since the adoption of the 1993 Solicitation, the Partnership has sold
Flaircentre in El Monte, California and NorthTech in Gaithersburg, Maryland.
These two transactions fulfill the mandate of the 1993 Solicitation. The
Partnership continues to own three other properties and its interest in the
joint venture that owns Cooper Village, as shown in the table on Page 14.
At the time of the 1993 Solicitation, the General Partner believed that
local conditions in the markets in which the Partnership's properties are
located could be expected to improve sufficiently to sell a substantial portion
of the properties in the ensuing three years. Since the adoption of the 1993
Solicitation, the General Partner has considered several preliminary indications
of interest from third parties to acquire some or all of the Partnership's
properties. Apart from the recent sales of Flaircentre and NorthTech, however,
these transactions never materialized, primarily because the General Partner
rejected as too low the valuations of the Partnership's properties proposed by
the potential purchasers. The General Partner believes that the low valuations
stemmed primarily from the scarcity of institutional buyers, ongoing
liquidations by the Resolution Trust Corporation of the property portfolios of
failed savings and loans and thrift institutions, which contributed to an
oversupply of properties
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in certain markets, and differing expectations regarding the recovery from
generally weak economic conditions in the markets in which the properties are
located.
Currently, occupancy and rental rates appear to be stabilizing or
improving. Moreover, institutional money has begun to flow back into real estate
investments as pension funds and real estate investment trusts have become more
active buyers. In the General Partner's view, the Dissolution is warranted by
the current, more favorable environment and the mandate of the 1993 Solicitation
that the General Partner consider a liquidation of the Partnership at this time.
The General Partner also is mindful that the Partnership has continued well
beyond the period anticipated by its original investment objectives, and it does
not foresee any significant short-term, inflationary increases in real estate
prices generally, or in the values of the Partnership's properties, in
particular, that might justify postponing the Dissolution.
For the foregoing reasons, the General Partner believes that it is in
the best interests of the Partnership and the Limited Partners to dissolve the
Partnership and seek to sell and liquidate the remaining Partnership properties
and wind up the Partnership. In the meantime, the Partnership would continue to
operate largely as it has in the past and to make quarterly distributions to the
Limited Partners as cash flow permits. Attached as Exhibit A to this Information
Statement is a schedule showing the historical distributions to the Limited
Partners.
EFFECTS OF THE DISSOLUTION
The Dissolution does not alter the Partnership's original investment
objectives or change the voting or economic rights of the Limited Partners.
Under the Delaware Revised Uniform Limited Partnership Act, a limited
partnership may be dissolved at the time or upon the
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happening of events specified in its partnership agreement. The Partnership
Agreement provides that the Partnership shall be dissolved upon the vote or
written consent of Limited Partners who own a majority in interest of the
outstanding limited partner interests ("Interests") in the Partnership. Under
the terms of the Partnership Agreement and applicable law, upon dissolution of
the Partnership the General Partner is to take full account of the Partnership's
assets and liabilities, liquidate the Partnership's remaining assets and apply
and distribute the liquidation proceeds in the order specified in the
Partnership Agreement. See "Liquidation and Winding Up" below. During the
winding up process, the Partnership's legal existence would continue solely for
purposes relating to the liquidation and winding up.
Neither the Partnership Agreement nor Delaware law provides for a
specified period of time for completing the liquidation and winding up of the
Partnership. If the Dissolution is consented to by the requisite number of
Limited Partners, the General Partner would be authorized and directed to
gradually settle and close the Partnership's business and dispose of and convey
the Partnership's property as soon as practicable, consistent with obtaining
reasonable value for the properties. In so doing, the General Partner would
continue to have broad discretion to manage the business and affairs of the
Partnership and the winding up process and to determine the timing, terms and
conditions of property sales and other dispositions. Upon the dissolution and
completion of winding up process, the Partnership will file a certificate of
cancellation with the Delaware Office of the Secretary of State and will be
terminated. There are no federal or state regulatory requirements that must be
complied with or approvals that must be obtained in connection with the
Dissolution.
On June 4, 1996, the Partnership sold Flaircentre for $2,300,000.
It had been appraised as of January 1, 1996 at a value of $2,200,000. The
Partnership realized
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approximately $2,159,000 from the sale, all of which was distributed to the
limited partners in June 1996. The General Partner did not receive a property
disposition fee or other compensation or distribution in connection with the
sale of Flaircentre.
On January 24, 1997, the Partnership sold NorthTech for $13,600,000.
It had been appraised as of January 1, 1996 at a value of $14,700,000.
Since the last appraisal, a tenant that occupies approximately 50% of the
property had sold off a portion of its business and restructured the balance,
defaulted on its lease and announced its intention to vacate the property at the
expiration of its lease term in 1999 unless its lease payments were reduced
substantially. The likelihood that in the near future the owner of NorthTech
will be faced with reduced revenues and demands for capital and tenant
improvements, and the uncertain financial status of the incumbent tenant,
reduced the market value of the property.
The Partnership realized approximately $13,079,000 from the sale of
NorthTech, 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 will be paid a commission as
part of the transaction. Since the sale price exceeds the January 1, 1993
appraised value ($12,900,000), pursuant to the 1993 Solicitation the General
Partner has earned and will be paid a Property Disposition Fee of approximately
$340,000 in connection with the sale. The purchaser paid a net investment
advisory fee of $52,350 to the affiliate of Birtcher Investors and has retained
Birtcher Property Services to manage the property.
The Partnership will distribute 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 General Partner currently estimates that the
Partnership will distribute approximately $11,700,000 to the limited partners,
or approximately $184 per $1,000 investment.
The large reserve fund is prudent because after the sale of Flaircentre
and NorthTech, the Partnership's asset base is effectively half its former
size. The Partnership's remaining assets will generate less cash flow,
necessitating a larger reserve fund to cover potential emergencies or demands
for capital expenditures. Future distributions to limited partners of net cash
from operations will also be reduced.
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There can be no assurance as to the prices at which the Partnership's
remaining properties can be sold or disposed of, or as to the amount of net
proceeds that will be available for distribution to the Limited Partners. The
aggregate appraised value of the Partnership's remaining properties as of
January 1, 1996 was approximately $16,995,000 as reflected in the table on page
14. The appraisals of the properties are a year old, however, and current
appraised values may differ. (The properties are in the process of being
appraised as part of the usual annual appraisal process. The results of these
appraisals will be reported in the Partnership's annual report, which will be
mailed to you at the end of April 1997.) Further, sales prices may differ from
appraised values because of several factors, including the leasing and operating
status of each property and local market conditions. If the Dissolution is
consented to by the Limited Partners, among the strategies the General Partner
will consider to accomplish the Dissolution is a sale of the Partnership's
portfolio in a single transaction, or a sale of some or all of the Partnership's
properties in a "package" with properties of affiliated partnerships. Such sales
would most likely result in a lower aggregate sale price, but more rapid
distribution of Dissolution Proceeds to the Limited Partners, as compared to a
series of individual property sale transactions.
Although there have not been a significant number of comparable sales
within the last twelve months, based on recent offers, input from commercial
real estate brokers in the local markets, and other indications of interest from
third parties, and on the appraised value of the Partnership's remaining
properties, the General Partner anticipates that the properties could be sold
for an aggregate price ranging from approximately $14,300,000 to $17,250,000,
depending upon, among other things, whether the properties are sold quickly as a
portfolio to a single purchaser or if the properties are sold individually or in
groups of assets over a more extended period of months or years. Assuming, for
purposes of illustration, that the remaining properties
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were sold all at once for an aggregate price equal to their appraised value as
of January 1, 1996, the General Partner believes that approximately $16,060,000
(the "Dissolution Proceeds") of such amount would be available for distribution
after deducting estimated fees and expenses of the sale, which currently are
anticipated to total approximately $935,000 (the "Selling Expenses"). The
estimated Dissolution Proceeds do not take into account any operating expenses
or any net income or net loss of the Partnership for any period prior to the
time the remaining properties are sold, which could affect the amount of
Dissolution Proceeds actually available for distribution to the Limited
Partners.
The Dissolution Proceeds would be distributed to the Limited Partners.
Assuming Dissolution Proceeds of $16,060,000, for each $1,000 invested in the
Partnership, the Limited Partners would receive out of the Dissolution Proceeds
approximately $250 (the "Distribution Per Interest"). When added together with
the proceed that will be distributed from the sale of NorthTech, this compares
favorably to recent prices at which Interests have traded in the limited
secondary market for the Interests and to prices offered in recent third-party
tender offers for Interests. Certain information regarding these prices is
attached as Exhibit B to this Information Statement. Assuming the Selling
Expenses remain fixed, and without giving effect to any operating expenses or
net income or net loss of the Partnership for any period prior to the sale of
the remaining properties, each such $1,000 investment by the Limited Partners
would entitle the Limited Partner to receive Dissolution Proceeds of
approximately $16 more or less than the Distribution Per Interest for each
$1,000,000 increment that actual Dissolution Proceeds exceed or are less than
$16,060,000. See "Interest of the General Partner in the Dissolution" below.
The foregoing estimates are presented for the Limited Partners'
reference only and should not be relied upon in determining whether to consent
to the Dissolution. The estimates are based
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on a variety of assumptions relating to the remaining properties, general
business and economic conditions and other matters, which are subject to
significant uncertainties and contingencies, many of which are beyond the
Partnership's control. Such estimates are inherently imprecise and there can be
no assurance that they will be realized. They also do not give effect to the
operating expenses or net income or net loss of the Partnership for any period
prior to the time the remaining properties are sold, which could affect the
amount of Dissolution Proceeds available for distribution. For these reasons,
the actual proceeds to be received by the Limited Partners are likely to vary
materially from the Distribution Per Unit, and may be substantially less.
The timing of the Limited Partners' receipt of any Dissolution Proceeds
will depend on when a sale or other disposition of the Partnership's properties
can be completed, which cannot be predicted. As has been true in the past, the
timing and manner (e.g., bulk-sale versus individual property sales) of any
sales of properties will be determined by the General Partner in its discretion,
based on its assessment of the benefits to the Limited Partners of holding the
properties versus an immediate sale, including the availability of prospective
buyers as well as other factors. There is no current agreement or understanding
to sell or dispose of any property, and there can be no assurance as to when any
or all of the remaining Partnership properties can be sold or disposed of or
when any Dissolution Proceeds will actually be distributed. The General Partner
will endeavor to distribute funds as expeditiously as possible after any sale.
LIQUIDATION AND WINDING UP
Pursuant to the Partnership Agreement, if the Dissolution is consented
to by the requisite number of Limited Partners, the General Partner is to take
full account of the Partnership's assets
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and liabilities, liquidate the Partnership's assets and discharge or make
adequate provision for the liabilities of the Partnership in the following
order:
(a) First, to creditors, including partners to the extent
permitted by law, in satisfaction of liabilities of the
Partnership other than liabilities for distribution to
partners;
(b) Second, to discharge or make adequate provision for all
Partnership liabilities for distributions to partners and
former partners; and
(c) After all such liabilities have been either discharged or
adequately provided for, to the partners, in proportion to
their "Adjusted Capital Accounts" (as defined in the
Partnership Agreement), after giving effect to all
contributions and distributions and reallocations for all
periods, including the period during which such distribution
occurs.
It is not anticipated that the General Partner will receive any of the
proceeds from the Dissolution. The General Partner is not aware of any
liabilities or obligations of the Partnership, contingent or otherwise, except
as set forth on the Partnership's balance sheet included as part of its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (a copy
of which accompanies this Information Statement and is incorporated herein by
reference) and liabilities and obligations incurred since September 30, 1996 in
the ordinary course of the Partnership's business.
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Upon approval of the Dissolution, the General Partner will use its best
efforts to accomplish a sale or other disposition of the Partnership's remaining
properties upon terms and conditions which the General Partner deems consistent
with obtaining fair value for the properties. Although none of the terms of the
sale of the Partnership's remaining properties can be determined at present, the
General Partner currently intends not to sell or dispose of the remaining
properties except for cash or cash equivalents. If necessary or appropriate,
however, the Partnership may extend seller financing in connection with the sale
of one or more properties in the form of secured promissory notes from the
buyers. Market conditions permitting, the General Partner would seek to complete
the liquidation (including the establishment of a liquidating trust to
distribute the proceeds of any promissory notes received from buyers) within a
reasonable period of time; however, there will be no specified period of time
for completing the winding up process.
CERTAIN CONSIDERATIONS
The General Partner cannot predict when any of the Partnership's
properties can be sold or disposed of, or when the eventual liquidation will
occur, nor can the General Partner estimate the amount of Proceeds that will be
available to distribute to the Limited Partners upon the sale or other
disposition of the Partnership's remaining properties and completion of the
liquidation. Moreover, there can be no assurance that the properties will be
sold or disposed of at a price equal to their appraised value or that the value
of the properties will not increase after they are sold or disposed of by the
Partnership.
In considering whether to approve the Dissolution, the Limited Partners
should bear in mind that the General Partner has broad discretion to manage the
business and affairs of the
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Partnership. If the Dissolution is not adopted, the General Partner intends to
continue to manage the Partnership and its properties substantially as they are
currently being managed and to continue to entertain and consider indications of
interest from third parties to acquire all or a portion of the Partnership's
properties. There can be no assurance that the Dissolution will result in
greater returns to the Limited Partners than a continuation of the Partnership
and eventual sale or disposition of its properties at a later time.
The General Partner currently receives an annual asset management fee
from the Partnership equal to 0.75% of the aggregate appraised value of the
Partnership's properties. As mandated by the 1993 Solicitation, the fee will be
reduced by 10 "basis" points (e.g., from 0.75% to 0.65%) beginning January 1,
1997 and for each year thereafter until the liquidation of the remaining
properties is completed.
In seeking to sell or dispose of the Partnership's remaining properties
if the Dissolution is approved, the General Partner does not intend to place any
restrictions on indications of interest it may solicit from third parties in
connection with the Dissolution. The Limited Partners are advised in this regard
that, because of the General Partner's long-standing experience with the
Partnership properties, transactions may be structured that provide that the
General Partner or its affiliates agree to continue managing the Partnership's
properties following their sale, to make or retain an investment interest in the
properties, or otherwise to participate or be involved in a transaction entered
into pursuant to the Dissolution.
If the Limited Partners consent to the Dissolution, they also will be
deemed to have consented to any transaction that may be undertaken to accomplish
the liquidation and winding up of the Partnership and will not be entitled to
approve or disapprove of any such transaction,
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including transactions which may involve the General Partner's participation or
involvement. However, a "Reorganization Transaction" (as defined in the
Partnership Agreement) sponsored by the General Partner or its affiliates would
continue to require approval of 80% in interest of the Limited Partners. There
is no current agreement or understanding with respect to any Reorganization
Transaction.
Neither Delaware law nor the Partnership Agreement provides the Limited
Partners with any right to dissent from, or seek an independent appraisal of,
the value of the Partnership or its assets. Thus, the Limited Partners will be
bound to accept the consideration upon the sale of the Partnership's properties
if the Dissolution is consented to by the Limited Partners.
RECOMMENDATION OF THE GENERAL PARTNER
THE GENERAL PARTNER BELIEVES THAT THE DISSOLUTION IS IN THE BEST INTERESTS OF
THE LIMITED PARTNERS AND RECOMMENDS THAT THE LIMITED PARTNERS VOTE "FOR" AND
CONSENT TO THE DISSOLUTION.
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PARTNERSHIP PROPERTIES
The following table sets forth certain information with respect to the
Partnership's remaining properties:
<TABLE>
<CAPTION>
Appraised
Gross Leasable Percentage Leased Value
Property Area (Sq. Ft.) 9/30/96 9/30/95 1/1/96
- ------------------------- --------------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Cooper Village Shopping 80% 95% $2,705,000
Center (1) 43,433
Mesa, AZ
Creek Edge 76,297 100% 79% 3,800,000
Eden Prairie, MN
The Forum 73,166 88% 95% 4,760,000
Wauwatosa, WI
Martinazzi Square 50,836 96% 96% 5,730,000
--------- ----- ----- ----------
Tualatin, OR
Total 243,702 92% 90% $16,995,00
========= ===== ===== ==========
</TABLE>
Note 1: Cooper Village Shopping Center's totals represent the Partnership's 42%
interest in square footage and appraised value. The property lost one of its
anchor tenants in April 1995, when The Boston Stores went bankrupt and vacated
its 16,800 square foot space.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
As stated above, if the Dissolution is consented to by the Limited
Partners, the General Partner will seek to sell and liquidate the Partnership's
remaining properties and distribute the proceeds to Limited Partners after
payment of certain expenses and priority items as described above under
"Description of Dissolution - Liquidation and Winding Up." Such sale and
distribution will result in certain federal income tax consequences described
below. Section references below are to the Internal Revenue Code of 1986, as
amended (the "Code").
IN GENERAL
As long as the Partnership is treated as a partnership for federal
income tax purposes, it will not be subject to federal income tax. Rather, each
Limited Partner and the General Partner is required to report on his or her own
federal income tax return its share of the Partnership items of income, gain,
loss, deduction and credit, including amounts realized on the sale of the
Partnership's properties. Accordingly, each Limited Partner may be subject to
tax on its distributive share of Partnership income regardless of whether the
Limited Partner receives any cash distribution. Each Limited Partner's basis in
its Interest is increased by the amount by
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which the Limited Partner's distributable share of income exceeds any
distributions made or deemed to be made (e.g., as a result of the reduction of
his or her share of partnership liability) to it during such year.
LOSS OR GAIN FROM SALE OF PARTNERSHIP PROPERTY
Partnership real property and depreciable property used in the
Partnership's business (which is not held for sale to customers in the ordinary
course of business) and held more than one year is "section 1231 property."
Losses realized by the Partnership from the sale of section 1231 property
generally will constitute "passive activity losses" with respect to a Limited
Partner, other than certain Limited Partners eligible to treat all of their
rental real estate activities as a single activity. Passive activity losses
generally can only offset passive activity income; however, upon completion of
the liquidation of the Partnership if the Dissolution is consented to by the
Limited Partners, the Limited Partner's share of any losses from the Partnership
previously suspended pursuant to the passive activity loss rules may be used,
first, to offset the gain, if any, realized as a result of the liquidation and,
then, to offset certain taxable income from other sources.
If realized, any gain will be "section 1231 gain" except as to
depreciation subject to recapture under section 1245 of the Code and rent
recapture under section 467 of the Code. A Limited Partner's share of any
section 1231 gain from the Partnership in any year will first offset any current
passive activity losses and suspended passive activity losses from the
Partnership and other passive activities of the Limited Partner; any excess will
be combined with any other section 1231 gains or losses (exclusive of passive
activity losses) incurred by the Limited Partner from such Limited Partner's
other investments. Since the Partnership's properties were originally
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acquired without the use of mortgage loans or other leverage for prices that
substantially exceeded their most recent appraised values, it is anticipated
that any section 1231 gain realized from the sale of a single Partnership
property will be offset by losses realized from the sale of other Partnership
properties. If the section 1231 gains exceed the section 1231 losses, such net
gains will be treated as long-term capital gains. However, a Limited Partner's
net section 1231 gains will be treated as ordinary income (rather than capital
gain) to the extent of such taxpayer's net section 1231 losses within the
preceding five years.
The distribution of cash to a Limited Partner pursuant to the
Dissolution may give rise to taxable loss (or gain), with the amount of taxable
loss (or gain) realized equal to the difference between (i) the amount of cash
received plus such Limited Partner's share of any reduction of Partnership
liabilities and (ii) the tax basis of its Interest.
Loss (or gain) realized on the liquidation will be treated as capital
loss (or gain), and will be long-term if the Limited Partner has held its
Interest for more than one year when the liquidation of the Partnership is
consummated. Capital losses generally are deductible only to the extent of
capital gains plus, in the case of a non-corporate Limited Partner, up to $3,000
of ordinary income. Capital losses realized upon the liquidation may be utilized
to offset capital gains from other sources and may be carried forward, subject
to applicable limitations.
The foregoing is a summary only, and special considerations may be
applicable to particular types of Limited Partners. Each Limited Partner is
advised to consult its own tax advisor regarding the specific tax consequences
of the Dissolution, under the federal income tax laws, as well applicable state,
local, foreign or other tax laws not discussed herein.
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CONSENT REQUIREMENTS AND WRITTEN CONSENTS
RECORD DATE
The General Partner has fixed 5:00 P.M. Eastern Time on __________,
199__, three days before the date this Information Statement is first being
mailed to the Limited Partners, as the record date (the "Record Date") for
determining the Limited Partners entitled to notice of and to act on the
Dissolution. As of the close of business on the Record Date, the General Partner
anticipates that there will be approximately __________ Limited Partners of
record.
COMPLETION OF CONSENTS; DEADLINE FOR CONSENTING
A form of written consent (the "Consent") accompanies this Information
Statement. Under the terms of the Partnership Agreement, the deadline for
consenting may not be less than 10 nor more than 50 days following the mailing
to the Limited Partners. EACH LIMITED PARTNER IS URGED TO COMPLETE, SIGN, DATE
AND RETURN THE CONSENT BY NOT LATER THAN _____________, 1997 (THE "CONSENT
DEADLINE"), WHICH IS THE DATE 40 DAYS FOLLOWING THE MAILING OF THIS INFORMATION
STATEMENT. A postage-paid, pre-addressed envelope has been provided for the
Limited Partners' convenience in returning Consents. Completed Consents should
be returned as soon as possible to The Herman Group, Inc., 2121 San Jacinto
Street, 26th Floor, Dallas, Texas 75201. Limited Partners may also return their
Consents to the General Partner, c/o The Herman Group, Inc. via facsimile at
214-991-9393; Attention: Birtcher Partnerships. Consents may be marked either
"FOR," "AGAINST," or "ABSTAIN" with respect to the Dissolution. If a Limited
Partner fails to return a Consent, or returns a Consent marked "ABSTAIN," it
will have the same effect as a disapproval of the Dissolution. If a Consent is
returned signed, but not
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marked "AGAINST" or "ABSTAIN," the Limited Partner will be deemed to have
consented to the Dissolution. THE GENERAL PARTNER RECOMMENDS THAT THE LIMITED
PARTNERS VOTE "FOR" AND CONSENT TO THE DISSOLUTION.
APPROVAL OF DISSOLUTION
The Dissolution will be approved if consented to by the Consent
Deadline by a majority in interest of the Limited Partners as determined based
upon the Partnership's total original "Invested Capital" (as defined in the
Partnership Agreement) of $63,533,914.
REVOCATION OF CONSENTS
A Consent may be revoked by a Limited Partner by delivery to the
General Partner of a subsequent writing revoking the Consent. The writing must
bear a later date than the previously executed Consent and must be signed by the
Limited Partner. To be effective, any such revocation must be received by The
Herman Group, Inc. or the General Partner, as described above, on or before the
Consent Deadline or such earlier date as of which the Dissolution shall have
been consented to by the requisite number of Limited Partners.
EXPENSES OF SOLICITATION
The Partnership will bear all expenses of the solicitation of Consents,
whether or not the Dissolution is approved. After this Information Statement is
mailed to the Limited Partners, Consents may be solicited by means of the mails,
facsimile transmissions, telephone or telegraph by the General Partner and its
general partners, as well as by their respective partners, regular
18.
<PAGE> 20
employees and affiliates, none of whom will receive any special or additional
compensation for their services. The Partnership has retained The Herman Group,
Inc., an independent solicitation firm, to aid in the solicitation of Consents.
The cost to the Partnership of doing so is currently estimated to be $124,000.
The General Partner will request brokers, nominees and other
fiduciaries and custodians who hold Interests in their names to furnish this
Information Statement and any accompanying materials to the beneficial owners of
such Interests. The Partnership will reimburse such persons, if requested, for
their reasonable fees and expenses incurred in complying with this request.
IF YOU ARE A LIMITED PARTNER ON THE RECORD DATE, YOU ARE RESPECTFULLY REQUESTED
TO COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING CONSENT IN THE ENCLOSED
ENVELOPE AT YOUR EARLIEST CONVENIENCE, BUT IN ANY EVENT PRIOR TO THE CONSENT
DEADLINE.
INTEREST OF THE GENERAL PARTNER IN THE DISSOLUTION
GENERAL
Under subsection 9.1.8 of the Partnership Agreement, the General
Partner and its affiliates are entitled to a property disposition fee for real
estate brokerage services rendered in connection with the sale or disposition of
the Partnership's properties, including any sales or dispositions during the
liquidation and winding up of the Partnership following the Dissolution. The fee
is to be equal to 50% of the competitive real estate brokerage commission that
would be charged by unaffiliated third parties providing comparable services in
the area in which the
19.
<PAGE> 21
property is located, but in no event more than 3% of the gross sale price of a
property, and is to be reduced by the amount by which any brokerage or similar
commissions paid to any unaffiliated third parties in connection with the sale
of the property exceed 3% of the gross sale price. The fee is not payable,
however, unless and to the extent that the sale price of the property in
question, net of any other brokerage commissions (but not other costs of sale),
exceeds the appraised value of the property as of January 1, 1993.
DISSOLUTION PROCEEDS
Subject to the payment of certain expenses and priority items as
described above under "Description of Dissolution - Liquidation and Winding Up,"
the General Partner would be entitled to receive 1% of the net proceeds
available for distribution to the Partners resulting from sales or other
dispositions of the Partnership's remaining properties pursuant to the
Dissolution. However, if the Partnership's properties are sold for an aggregate
price within the anticipated range, the General Partner will not receive any of
the sales proceeds. If the Dissolution were not consented to, it is unlikely
that the General Partner would receive any portion of the proceeds from future
sales of the Partnership's properties in the ordinary course of its business.
POTENTIAL CONFLICT OF INTEREST
LF Special Fund I, L.P. ("Liquidity Fund I") one of the general
partners of the General Partner, owes a fiduciary duty to the Limited Partners
of the Partnership. The general partner of Liquidity Fund I also owes a
fiduciary duty to the third parties who invested in Liquidity Fund I as its
limited partners. These relationships may create a conflict of interest in
connection
20.
<PAGE> 22
with Liquidity Fund I's evaluation and recommendation of the Dissolution. See
"Management."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
According to information available from the Partnership's transfer
agent and public records, as of the date of this Information Statement, no
person or entity owned beneficially 5% or more of the outstanding Interests. The
Partnership has not issued any options, warrants or other rights to purchase
securities of the Partnership, nor has the General Partner loaned money to the
Partnership.
As a partnership, the Partnership has neither officers nor directors.
Moreover, as of December 31, 1996, neither the General Partner nor its partners,
or the partners, directors or officers of its partners, owned beneficially any
Interests. Although certain family members of the partners of the General
Partner hold Interests, such Interests in the aggregate represent less than 1%
of all Interests outstanding.
MANAGEMENT
The Partnership is a limited partnership and, as such, has no executive
officers or directors. The General Partner of the Partnership is
Birtcher/Liquidity Properties, a California general partnership, of which
Birtcher Investors, a California limited partnership, and Equity Properties,
Inc. ("Equity"), a wholly owned subsidiary of Damson Oil Corporation, were the
original general partners.
21.
<PAGE> 23
In December 1989, LF Special Fund I, L.P., an affiliate of Liquidity
Financial Group, L.P., purchased all of Equity's economic interest in the
General Partner and on December 31, 1992 was substituted as a general partner of
the General Partner. Under the terms of the General Partner's partnership
agreement, Birtcher Investors remains responsible for the day-to-day management
of the Partnership's assets.
The following sets forth certain biographical information with respect
to the respective general partners and officers of Birtcher Investors and
Liquidity Fund I:
BIRTCHER PARTNERS
Arthur B. Birtcher. Mr. Birtcher, age 57, is a member of the Board of
Directors of Birtcher Enterprises. Since 1961, he has been active in the
management of all Birtcher-affiliated real estate companies (collectively, "The
Birtcher Organization") and has been primarily responsible for the financial and
legal administration of The Birtcher Organization's real estate projects as well
as the organization and administration of its regional offices nationwide. He is
active in the management of a diversified portfolio of real estate across the
United States, with his brother, Ronald E. Birtcher. In 1996, The Birtcher
Organization maintained a network of ten domestic regional offices in eight
states. Often recognized for his many achievements, Mr. Birtcher was named
Developer of the Year by NAIOP in 1989 and was voted Real Estate Man of the Year
in 1985 by the Real Estate and Construction division of the Anti-Defamation
League of B'nai B'rith. His numerous professional and community affiliations
include: Board of Trustees positions with University of San Diego and Mount St.
Mary's College; American Business Conference; U.S. Papal Foundation; Mission
Hospital Regional Medical Center; Policy Advisory Board of the Center for Real
Estate and Urban Economics for the University of California,
22.
<PAGE> 24
Berkeley; International Business Advisors for the University of San Diego;
Orange County United Way; and, O.P.T.I.M.A. Prevention and Treatment Integrated
Medical Assistance. Mr. Birtcher is also chairman of the board for the South
County Community Clinic and the Mission San Juan Capistrano Restoration Fund; a
member of the National Society of Real Estate Finance; a Land Board and
Construction Board member of the Catholic Diocese of Orange County; a member of
the Equestrian Order of the Knights of the Holy Sepulcher; and, a member of the
Order of the Knights of Malta, where he is designated a steward of St. Peter. In
addition, he is a leader in gang intervention programs that deal with emergency
and long-term prevention in South Orange County. Mr. Birtcher is a graduate of
Claremont Men's College and holds a bachelor of arts degree in business
economics. He also is a general partner of affiliated partnerships which serve
as the general partner of Damson/Birtcher Realty Income Fund-I and
Damson/Birtcher Realty Income Fund-II, both of which are public partnerships.
Ronald E. Birtcher. Mr. Birtcher, age 65, is a member of the Board of
Directors of Birtcher Enterprises. Since 1967, Mr. Birtcher has been active in
the management of all of the Birtcher real estate companies, and is primarily
responsible for evaluating proposed real estate development projects, which
encompasses architectural design, construction, market research, lease
negotiation and sales. He joined The Birtcher Organization in 1951 to engage in
the real estate development business with his father, Fayette E. Birtcher, who
founded the family business in 1939. He is active in the management of a
diversified portfolio of real estate nationwide, with his brother, Arthur B.
Birtcher. Mr. Birtcher holds a bachelor of arts degree in business
administration from the University of Arizona. His many accolades include:
election to Lambda Alpha, an honorary land economics society; Developer of the
Year awarded by the NAIOP in 1989; the Medal of Honor from the Building Industry
Association (the association's highest award); the Entrepreneur of the Year
awarded in 1991 by the United States-Mexico Foundation;
23.
<PAGE> 25
and, the 1994 Sumigarden Award presented at the annual UCI Real Estate
Conference. Mr. Birtcher's professional affiliations include membership in the
National Association of Industrial and Office Parks; he serves as a board member
for a number of community organizations such as the Wellness Clinic and
Coachella Valley Tomorrow (Palm Springs area economic development council); and,
he is Chairman of the Advisory Board to the University of California, Irvine,
Graduate School of Management in Real Estate. In addition, Mr. Birtcher has been
the director and past president of the YMCA Camping Association of Orange
County, past president and elder of the San Juan Capistrano Presbyterian Church,
and past chairman of the Orange County Sheriff's Association. Mr. Birtcher is
also a general partner of affiliated partnerships which serve as the general
partner of Damson/Birtcher Realty Income Fund-I and Damson/Birtcher Realty
Income Fund-II, both of which are public partnerships.
Robert M. Anderson. Mr. Anderson, age 38, is Co-chairman of the Board
of Directors of Birtcher Enterprises and President of Birtcher Property
Services. A member of The Birtcher Organization since 1988, he is responsible
for the operation and management of over six million square feet of real estate
for the Birtcher family and a variety of clients including various public
institutions, private institutions, and private individuals. He oversees all
third-party real estate services activity including asset management, property
management, property acquisitions and property dispositions. Mr. Anderson heads
up the day-to-day management team responsible for the Partnership's properties.
Prior to joining The Birtcher Organization, he worked at the Irvine Company, a
Newport Beach, California based land owner and real estate developer, where he
was responsible for project finance and capital markets activity. He is also
active in a variety of real estate industry groups and charitable organizations.
Mr. Anderson received a bachelor of arts degrees in Economics and Accounting
from Augustana College and holds a masters in
24.
<PAGE> 26
business administration from Harvard Business School. Mr. Anderson is the
son-in-law of Mr. Arthur B. Birtcher.
Michael S. Buzar. Mr. Buzar, age 44, has been involved in the sale,
leasing, management and marketing of commercial real estate since 1978. He
joined The Birtcher Organization as a senior vice president of marketing and
leasing in 1988. In November 1991, he was promoted to Asset Manager, responsible
for all aspects of the performance of the Partnership's portfolio. Prior to
joining The Birtcher Organization, Mr. Buzar served as vice president of
marketing and leasing for the Birtcher/Welsh joint venture from 1985 through
1987. From 1978 to December 1985, he was an industrial specialist in
Minneapolis/St. Paul, Minnesota at Coldwell Banker Commercial Real Estate
Services (now CB Commercial Real Estate Group), a national real estate brokerage
company. Mr. Buzar holds a bachelor of arts degree from the University of
Michigan, and he is a licensed real estate broker in the State of Minnesota. He
maintains various professional affiliations, including memberships in the
International Council of Shopping Centers and the National Association of
Realtors.
LF SPECIAL FUND I, L.P.
Richard G. Wollack. Mr. Wollack, age 51, joined Koll Real Estate
Services (formerly Koll Holding) in 1995 as its Executive Vice President and
Chief Financial Officer and became President of its investment advisory
subsidiary, Koll Investment Management ("Koll") in 1996. Koll is one the
nation's largest property services firms with over 175 million square feet of
assets managed in over 275 U.S. cities. Prior to joining Koll, Mr. Wollack
founded, in 1980, Liquidity Fund, the country's largest purchaser of real estate
limited partnership interests in the secondary market. In 1995, Koll acquired
from Liquidity Fund two lines of business: i) investment
25.
<PAGE> 27
management of traded real estate equity securities, most particularly REITs;
and, ii) the National Real Estate Index (the "Index") research and publishing
company. The Index databases, developed in the course of analyzing property
assets over the last fifteen years, contains in-depth information on over 300
traded real estate securities and 45,000 property transactions and provides the
foundation for the various National Real Estate Index products, published in
cooperation with Ernst & Young. The Index is the nation's only transaction-based
research service (used by over 1,500 firms) and reports in-depth data and trends
on the 65 largest U.S.
markets each quarter.
Mr. Wollack has been involved in all phases of the real estate
investment business since 1971, when he was co-founder and president of First
Capital Companies, a large investment manager now based in Chicago. From 1981 to
1986 (when it was sold) he was a principal and co-president of Consolidated
Capital, at the time one of the nation's largest real estate investment firms.
In total, he has been a principal in dozens of real estate entities capitalized
at over $2 billion. He is widely known throughout the real estate and financial
communities, is involved in numerous industry activities and is a nationally
recognized speaker and author. Mr. Wollack holds a bachelor of arts degree from
University of Illinois and a masters of business administration with distinction
from Stanford Graduate School of Business. He is currently a member of the Board
of Advisors of the Institutional Real Estate Index. Mr. Wollack is also a
licensed real estate broker in the State of California and he maintains his
designation as a Principal and Financial Principal with the NASD.
Brent R. Donaldson. Brent R. Donaldson, age 43, is co-founder and
president of the Liquidity Financial Group companies and it predecessors
("LFG"). He has been responsible for the growth and managed the operations of
LFG since inception in 1980. Mr. Donaldson has
26.
<PAGE> 28
pioneered research and trading in otherwise illiquid real estate
securities--originally real estate limited partnerships ("RELPs") and more
recently institutional commingled real estate funds ("CREFs"). He has managed
accounts and conducted research in real estate investment trusts ("REITs") and
participated in the creation and publishing of the National Real Estate Index,
the nation's largest transaction-based real estate index. Most recently, Mr.
Donaldson has established LFG as an advisor to listed REITs or "opportunity
funds" in acquisitions of property portfolios.
In 1980, under Mr. Donaldson's leadership, LFG created the partnership
secondary market, leading that market for 14 years in both assets under
management and annual trading/transaction volume, as well as research coverage
(focusing primarily on SEC registered partnerships which issued approximately
$60 billion). Also under his management, LFG's investment advisor subsidiary has
managed accounts in traded real estate equity securities, such as REITs, since
1987. Having invested in REITs and analyzed their performance during up and down
markets for both properties and securities has provided perspective on valuation
of equity portfolios in both public and private real estate markets. This line
of LFG's business was recently sold to the Koll Companies in Newport Beach,
California. In 1994, Mr. Donaldson expanded the activities of LFG's
broker/dealer subsidiary conducting research on CREFs (in the context of
valuation consulting) and he initiated the nation's first secondary market for
institutional CREFs. Mr. Donaldson has used the information databases which LFG
compiled over the years in providing investment advisory services to nationally
known investors, managers, and institutions with respect to valuation and
transactions--particularly as related to portfolio acquisitions and tender
offers. He is widely known throughout the real estate and financial communities,
is involved in numerous industry activities and is a nationally recognized
speaker and author. Mr. Donaldson holds a bachelor of arts degree from
University of California, Davis and a masters of business administration from
University of California, Berkeley, Graduate
27.
<PAGE> 29
School of Business. He is currently a member of the Board of Advisors of the
Real Estate Financial Journal and a past member of the National Association of
Securities Dealers ("NASD") Direct Participation Subcommittee on Trading
Standardization and the Securities Industry Association Direct Participation
Committee. Mr. Donaldson also maintains his designation as a General Securities
Principal with the NASD.
In a matter not involving Real Estate Income Partners III or
Birtcher/Liquidity Properties, in 1991, the NASD Business Conduct Committee for
the Northern District of California initiated a complaint against Liquidity Fund
Investment Corporation ("LFIC") alleging violations of the NASD's Rules of Fair
Practice. Specifically, the complaint alleged that LFIC (i) bought and sold
limited partnership units in the secondary market, from or to unaffiliated
parties, subject to mark-ups or mark-downs in excess of the NASD's guidelines
and (ii) failed to disclose the amount or existence of such mark-ups and
mark-downs to buyers and sellers of limited partnership units. Brent Donaldson
and Richard Wollack were also named as respondents in the complaint in their
capacities as principals of LFIC. The complaint was settled as of January 3,
1992 on the following terms: the NASD made findings, which were neither admitted
nor denied, of violations by LFIC and Mr. Donaldson of the NASD's guidelines
with respect to mark-ups or mark-downs, and of the failure by LFIC (but not Mr.
Donaldson) to disclose the amount of such mark-ups or mark-downs. Both
allegations were dismissed as to Mr. Wollack. Under the settlement, LFIC was
censured and fined $125,000 and Mr. Donaldson was censured and fined $7,500.
TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS
The General Partner knows of no termination or change-in-control
arrangement affecting the Partnership, except as contemplated by the Partnership
Agreement. The Partnership
28.
<PAGE> 30
Agreement provides generally that the bankruptcy or dissolution of the General
Partner will cause a dissolution of the Partnership unless there is a remaining
general partner that elects to continue the business of the Partnership. In the
event there is no remaining general partner, the Partnership may nonetheless be
continued by vote of a majority in interest of the Limited Partners. The
Partnership Agreement also permits the General Partner to withdraw from the
Partnership subject to certain conditions. In such event, the withdrawing
General Partner is obliged to offer to resell its interest in the Partnership to
the Partnership or, at its election, to convert its interest to that of a
Limited Partner.
ADDITIONAL INFORMATION
This Information Statement is accompanied by copies of the
Partnership's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 and its Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, as filed with the Securities and Exchange Commission. The information in
these reports is incorporated herein by reference. The exhibits to such reports
are not included with this Information Statement, but are available without
charge to any person entitled to receive this Information Statement, upon
written request, from the General Partner, 27611 La Paz Road, P.O. Box 30009,
Laguna Niguel, California 92607-0009; Attention: Real Estate Income Partners
III. A requested exhibit will be furnished by first-class mail, as other equally
prompt means, within two business days of such request.
29.
<PAGE> 31
BIRTCHER/LIQUIDITY PROPERTIES,
a California general partnership
By: Birtcher Investors, a California limited partnership,
General Partner of Birtcher/Liquidity Properties
By: Birtcher Investments, a California general
partnership, General Partner of Birtcher Investors
By: Birtcher Limited, a California limited partner-
ship, General Partner of Birtcher Investments
By: BREICORP, a California corporation,
formerly known as Birtcher Real Estate
Inc., General Partner of Birtcher Limited
By:______________________________
Arthur B. Birtcher
Co-chairman, BREICORP.
By:______________________________
Ronald E. Birtcher
Co-chairman, BREICORP.
By:______________________________
Robert M. Anderson
Executive Director, BREICORP
By: LF SPECIAL FUND I, L.P.,
a California limited partnership
General Partner of
Birtcher/Liquidity Properties
By: LIQUIDITY FUND ASSET MANAGEMENT,
INC., a California corporation
General Partner of LF Special Fund I, L.P.
By:_______________________________________
Richard G. Wollack,
Chairman, Liquidity Fund Asset
Management, Inc.
By:_______________________________________
Brent R. Donaldson,
President, Liquidity Fund Asset
Management, Inc.
Laguna Niguel, California
__________________ , 1997
30.
<PAGE> 32
EXHIBIT A
Distributions to Limited Partners
Following is a summary of distributions to the Limited Partners for the
periods shown:
<TABLE>
<CAPTION>
Distributions per $1,000 of Original Invested Capital
-----------------------------------------------------
From Operations From Property Sales
--------------------- --------------------------
1996
- ----
<S> <C> <C>
1st Quarter $ 9.92 N/A
2nd Quarter 9.73 $33.99
3rd Quarter 4.01 N/A
4th Quarter 5.01 N/A
1995
- ----
1st Quarter 6.42 N/A
2nd Quarter 7.02 N/A
3rd Quarter 7.72 N/A
4th Quarter 10.93 N/A
1994
- ----
1st Quarter 6.12 N/A
2nd Quarter 7.52 N/A
3rd Quarter 6.82 N/A
4th Quarter 6.92 N/A
Since Inception in 1984 $374.54 $33.99
</TABLE>
A-1
<PAGE> 33
EXHIBIT B
Recent Secondary Trading and
Tender Offer Prices for
Limited Partner Interests
Following is a summary, based on information available to the General
Partner, of prices at which Interests have been sold and purchased in secondary
transactions (other than pursuant to a tender offer) during the periods shown
and the number of such transactions. The General Partner is aware that this
information is incomplete and that other, unreported transactions have occurred
during the period shown. The prices shown are per $1,000 of original Invested
Capital and do not give effect to any markups, markdowns, discounts or
commissions which may have been paid in connection with the transactions.
1996 SECONDARY TRADING RANGES
<TABLE>
<CAPTION>
NO. OF
INTERESTS
MONTH/YEAR LOW HIGH TRADED
---------- --- ---- ---------
<S> <C> <C> <C>
November, 1996........................... 380.00 435.00 7
October, 1996............................ 190.00 411.00 2
September, 1996.......................... 360.00 391.09 215
August, 1996............................. 357.52 405.00 49
July, 1996............................... 336.10 375.00 10
June, 1996............................... 360.00 360.00 5
May, 1996................................ 348.00 355.00 5
April, 1996.............................. 167.50 380.00 173
March, 1996.............................. 348.38 376.30 115
February, 1996........................... 330.00 381.60 44
January, 1996............................ 333.00 358.32 516
</TABLE>
The Interests also have been the subject of two recent tender offers by
unaffiliated third parties, in each case for up to 4.9% of the outstanding
Interests. The following table sets forth certain information with respect to
these tender offers:
<TABLE>
<CAPTION>
RECENT TENDER OFFERS
COMMENCEMENT PRICE NO. OF
NAME OF TENDER OFFEROR DATE OF TENDER OFFERED INTERESTS TENDERED
---------------------- -------------------- ------- ------------------
<S> <C> <C> <C>
Grape Investors, LLC.................... June 26, 1996 $270 2,213
Equity Resource Fund XVII............... October 24, 1995 $205 1,603
</TABLE>
B-1
<PAGE> 34
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE
ACT OF 1934
----------------------------------
For the fiscal year ended December 31, 1995 COMMISSION FILE NUMBER 0-16027
-------
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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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. The aforementioned increase was offset by a decrease in other
miscellaneous revenue at NorthTech.
-9-
<PAGE> 44
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 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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
----------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Carrying Value of Real Estate (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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
----------------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
To Damson/Birtcher Realty Income Fund-II, Limited Partnership and
Real Estate Income Partners III, Limited Partnership as
General Partners of Cooper Village Partners:
We have audited the financial statements of Cooper Village Partners, a general
partnership, as listed in the accompanying index. In connection with our
audits of the financial statements, we also have audited the financial
statement schedule listed in the accompanying index. These financial
statements and the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cooper Village Partners as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in note 2 to the financial statements, on December 31, 1995,
Cooper Village Partners adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
KPMG PEAT MARWICK LLP
Orange County, California
March 28, 1996
F-21
<PAGE> 69
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
------------------------------------
<S> <C> <C>
ASSETS
- ------
Property held for sale (net of valuation
allowance of $1,360,000) $ 6,386,000 $ -
----------- -----------
Investments in real estate, net:
Land - 2,748,000
Buildings and improvements - 6,754,000
----------- -----------
- 9,502,000
Less accumulated depreciation - (1,535,000)
----------- -----------
- 7,967,000
Cash and cash equivalents 408,000 400,000
Accounts receivable 45,000 37,000
Accrued rent receivable 57,000 61,000
Prepaid expenses and other assets, net 23,000 23,000
----------- -----------
$ 6,919,000 $ 8,488,000
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 111,000 $ 85,000
----------- -----------
Partners' capital 6,808,000 8,403,000
----------- -----------
Commitments and contingencies - -
----------- -----------
$ 6,919,000 $ 8,488,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-22
<PAGE> 70
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rental income $1,025,000 $1,010,000 $ 971,000
Interest and other income 21,000 13,000 18,000
----------- ---------- ----------
Total revenues 1,046,000 1,023,000 989,000
----------- ---------- ----------
EXPENSES:
Operating expenses 296,000 284,000 316,000
Real estate taxes 136,000 85,000 86,000
Depreciation and amortization 253,000 256,000 252,000
Adjustment to carrying value of
real estate 1,360,000 - -
General and administrative 66,000 59,000 64,000
------------ ---------- ----------
Total expenses 2,111,000 684,000 718,000
------------ ---------- ----------
NET INCOME (LOSS) $(1,065,000) $ 339,000 $ 271,000
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-23
<PAGE> 71
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
GENERAL GENERAL
PARTNER PARTNER TOTAL
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III
-----------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 $5,095,000 $3,787,000 $8,882,000
Net income 157,000 114,000 271,000
Distributions (330,000) (238,000) (568,000)
----------- ------------ -----------
Balance, December 31, 1993 4,922,000 3,663,000 8,585,000
Net income 197,000 142,000 339,000
Distributions (302,000) (219,000) (521,000)
----------- ------------ -----------
Balance, December 31, 1994 4,817,000 3,586,000 8,403,000
Net loss (618,000) (447,000) (1,065,000)
Distribution (307,000) (223,000) (530,000)
----------- ------------ -----------
Balance, December 31, 1995 $3,892,000 $ 2,916,000 $6,808,000
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-24
<PAGE> 72
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,065,000) $ 339,000 $ 271,000
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 253,000 256,000 252,000
Adjustment to carrying value of
real estate 1,360,000 - -
Changes in:
Accounts receivable (8,000) 2,000 67,000
Accrued rent receivable 4,000 - 4,000
Prepaid expenses and other assets (10,000) (1,000) (8,000)
Accounts payable and accrued
liabilities 26,000 6,000 (22,000)
------------ ----------- ------------
Net cash provided by operating
activities 560,000 602,000 564,000
Cash flows from investing activities:
Investments in real estate (22,000) (70,000) (105,000)
Cash flows from financing activities:
Distributions (530,000) (521,000) (568,000)
------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents 8,000 11,000 (109,000)
Cash and cash equivalents,
beginning of year 400,000 389,000 498,000
------------ ----------- ------------
Cash and cash equivalents,
end of year $ 408,000 $ 400,000 $ 389,000
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-25
<PAGE> 73
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS
(1) Organization
Cooper Village Partners, (the "Partnership") was formed on December 18,
1987 under the laws of the State of California. The General Partners
of the Partnership are Damson Birtcher Realty Income Fund II, Limited
Partnership ("Fund II") and Real Estate Income Partners III, Limited
Partnership ("Fund III"). During 1987 and 1988, The Partnership
acquired Cooper Village Shopping Center in Mesa, Arizona. In
connection with this acquisition, Fund II and Fund III contributed
capital of $5,937,000 (58%) and $4,300,000 (42%), respectively. Fund
II and Fund III share in the profits, losses and distributions of the
Partnership in proportion to their respective ownership interests. The
Partnership maintains its accounting records and prepares its financial
statements in accordance with generally accepted accounting principles.
Over the past year, the General Partners have examined several
alternative methods to achieve their goal of selling their properties
and ultimately liquidating at the earliest practicable time consistent
with achieving reasonable value for their Limited Partners' investment.
As explained in the General Partners' May 5, 1993 Information
Statements, "achieving reasonable value" has meant for the Partnership
to balance receiving higher sales prices per property than their 1993
values while at the same time not waiting forever to sell at a
theoretical "top of the market." Alternatives under consideration by
the General Partners may include a property-by-property liquidation or
selling all of the properties as a single portfolio. The General
Partners have had preliminary discussions regarding disposition, in
whole or in part, of their properties with various potential purchasers
of some or all of the Partnership's portfolio.
In connection with their consideration of these alternatives, 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> 74
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(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> 75
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
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> 76
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1995 1994
GAAP Basis Tax Basis GAAP Basis Tax Basis
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $ 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> 77
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates
The Partnership has no employees and, accordingly, Birtcher Properties,
an affiliate of the General Partner of Fund II and Fund III and its
affiliates perform services on behalf of the Partnership in connection
with administering the affairs of the Partnership. Birtcher Properties
and affiliates are reimbursed for their general and administrative
costs actually incurred and associated with services performed on
behalf of the Partnership. For the years ended December 31, 1995, 1994
and 1993, the Partnership was charged with approximately $0, $0 and
$1,000, respectively, of such expenses.
On November 1, 1993, the Partnership elected to terminate the
Partnership's property management agreement with an unaffiliated third
party. On that date, the Partnership entered into a new property
management agreement with Birtcher Properties. The contract
encompasses terms at least as favorable to the Partnership as the
terminated contract with the unaffiliated third party, and is
terminable by the Partnership upon 60 days' notice to Birtcher
Properties. Fees paid to Birtcher Properties for services were not to
exceed 6% of the gross receipts from the properties under management
provided that leasing services were performed, otherwise not to exceed
3%. Such fees amounted to approximately $52,000 in 1995, $52,000 in
1994 and $10,000 in 1993. In addition, Birtcher Properties received
$33,000 in 1995, $32,000 in 1994 and $5,000 in 1993, as reimbursement
of costs for on-site property management personnel and other
reimbursable costs.
The amended Partnership Agreements for Fund II and Fund III provide for
payments to Birtcher Properties or its affiliates of an annual asset
management fee equal to .75% of the aggregate appraised value of Cooper
Village as determined by independent appraisal undertaken in January of
each year. Such fees for the years ended December 31, 1995, 1994 and
1993, amounted to $58,000, $53,000 and $53,000, respectively. In
addition, the amended Partnership Agreements for Fund II and Fund III
provide for payment to Birtcher Properties or its affiliates of a
leasing fee for services rendered in connection with leasing space in
the Partnership property after the expiration or termination of any
lease of such space including renewal options. Fees for leasing
services for the years ended December 31, 1995, 1994 and 1993, amounted
to $2,000, $5,000 and $1,000, respectively.
F-30
<PAGE> 78
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business. It is the General Partners' belief, that the outcome of
these proceedings will not be material to the business, financial
condition, or results of operations of the Partnership.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1995, are properly classified as operating leases
for financial reporting purposes. Future minimum annual rental income
to be received under such leases as of December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1996 $ 693,000
1997 552,000
1998 437,000
1999 367,000
2000 325,000
Thereafter 1,830,000
----------
$4,204,000
==========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of
the tenant's annual revenue in excess of specified levels; and
escalations in annual rents based upon the Consumer Price Index.
(5) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
--------------------------
<S> <C> <C>
Real estate taxes $68,000 $43,000
Accounts payable and other 8,000 8,000
Security deposits 35,000 34,000
-------- -------
$111,000 $85,000
======== =======
</TABLE>
(6) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ - $13,000 $ 30,000
Additions charged to expense - - -
Write-offs - (13,000) (17,000)
-------- -------- ---------
Balance at end of year $ - $ - $ 13,000
======== ======== =========
</TABLE>
F-31
<PAGE> 79
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(7) Subsequent Events
On March 8, 1996, the Partnership made an aggregate cash distribution
of $140,000 to its General Partners.
F-32
<PAGE> 80
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E 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> 81
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO SCHEDULE III
(a) For a description of the property, see "Item 2. Properties."
(b) At December 31, 1995, the General Partner determined that the
Partnership property had a carrying value greater than its appraised
value and therefore provided a valuation allowance of $1,360,000
against the property held for sale.
(c) The initial cost to the Partnership includes acquisition fees paid to
Birtcher Investments and Equity Properties Inc.
(d) Through December 31, 1995, depreciation was computed based upon the
following estimated useful lives.
<TABLE>
<CAPTION>
Years
------
<S> <C>
Buildings 30
Building Improvements 3 to 30
</TABLE>
F-34
<PAGE> 82
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> 83
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> 84
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> 85
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-
<PAGE> 86
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------------
For Quarter Ended September 30, 1996
----------------------------------------------------------
Commission file number 0-16027
-----------------------------------------------------
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 No.)
27611 La Paz Road, P.O. Box A-1, Laguna Niguel, California 92677-0100
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 643-7700
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE> 87
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
September 30, 1996 (Unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . . . 3
Statements of Operations (Unaudited) -
Three and Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 4
Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
<PAGE> 88
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
BALANCE SHEETS
----------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Properties held for sale (net of valuation
allowance of $1,010,000 in 1996 and
$1,000,000 in 1995) $27,210,000 $29,457,000
Investment in Cooper Village Partners 2,903,000 2,916,000
Cash and cash equivalents 860,000 980,000
Accounts receivable (net of allowance for
doubtful accounts of $13,000 in 1996 and
$14,000 in 1995) 26,000 71,000
Accrued rent receivable 799,000 799,000
Prepaid expenses and other assets 628,000 627,000
----------- -----------
$32,426,000 $34,850,000
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 475,000 $ 448,000
----------- -----------
Partners' capital (deficit):
Limited Partners 32,159,000 34,607,000
General Partner (208,000) (205,000)
----------- -----------
31,951,00 34,402,000
Commitments and contingencies - -
----------- -----------
$32,426,000 $34,850,000
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been prepared from the
audited financial statements as of that date.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 89
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
----------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
- --------
Rental income $1,228,000 $1,304,000 $3,623,000 $3,869,000
Interest income 12,000 20,000 41,000 49,000
Gain/(loss) on disposition
of assets - - (13,000) -
---------- ---------- ---------- ----------
Total revenues 1,240,000 1,324,000 3,651,000 3,918,000
---------- ---------- ---------- ----------
EXPENSES
- --------
Operating expenses 315,000 316,000 900,000 933,000
Real estate taxes 151,000 138,000 451,000 500,000
Depreciation and amortization 32,000 437,000 98,000 1,234,000
General and administrative 201,000 170,000 570,000 558,000
Adjustment to carrying value
of real estate 416,000 - 610,000 -
---------- ---------- ---------- ----------
Total Expenses 1,115,000 1,061,000 2,629,000 3,225,000
---------- ---------- ---------- ----------
Income before equity
in earnings 125,000 263,000 1,022,000 693,000
Equity in earnings of Cooper
Village Partners 47,000 26,000 205,000 86,000
---------- ---------- ---------- ----------
NET INCOME $ 172,000 $ 289,000 $1,227,000 $ 779,000
========== ========== ========== ==========
NET INCOME ALLOCABLE TO:
General Partner $ 2,000 $ 3,000 $ 12,000 $ 8,000
========== ========== ========== ==========
Limited Partners $ 170,000 $ 286,000 $1,215,000 $ 771,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 90
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
----------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,227,000 $ 779,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 98,000 1,234,000
Equity in earnings of Cooper Village
Partners (205,000) (86,000)
Adjustment to carrying value of real estate 610,000 -
Loss on disposition of assets 13,000 -
Changes in:
Additions to properties held for sale (530,000) -
Accounts receivable 45,000 (30,000)
Accrued rent receivable - (51,000)
Prepaid expenses and other assets (98,000) (44,000)
Accounts payable and accrued liabilities 27,000 84,000
----------- ----------
Net cash provided by operating activities 1,187,000 1,886,000
Cash flows from investing activities:
Investment in real estate 2,153,000 (234,000)
Distributions received from
Cooper Village Partners 218,000 172,000
----------- -----------
Net cash provided by(used in)investing
activities 2,371,000 (62,000)
Cash flows from financing activities:
Distributions (3,678,000) (1,358,000)
----------- -----------
Net cash used in financing activities (3,678,000) (1,358,000)
Net (decrease) increase in cash and
cash equivalents (120,000) 466,000
Cash and cash equivalents, beginning of
period 980,000 1,085,000
----------- -----------
Cash and cash equivalents, end of period $ 860,000 $ 1,551,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 91
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, 1995.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate reduced rates on sales
commissions for subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who
paid commissions at a higher rate. As a result, the Partnership has
no set unit value as all accounting, investor reporting and tax
information is based upon each investor's relative percentage of
Invested Capital. Accordingly, earnings or loss per unit is not
presented in the accompanying financial statements.
Carrying Value of Real Estate
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if the
General Partner believes factors are present that may indicate
long-lived assets are impaired, the undiscounted cash flows, before
debt service, related to the assets should be estimated. If these
estimated cash flows are less than the carrying value of the asset,
then impairment is deemed to exist. If impairment exists, the asset
should be written down to the estimated fair value.
6
<PAGE> 92
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(1) Accounting Policies (Cont'd.)
-------------------
Carrying Value of Real Estate (Cont'd.)
Further, assets held for sale, including any unrecoverable accrued
rent receivable or capitalized leasing commissions, should be carried
at the lower of carrying value or fair value less estimated selling
costs. Any adjustment to carrying value is recorded as a valuation
allowance against property held for sale. Each reporting period, the
General Partner will review its estimates of fair value, which may be
decreased or increased up to the original carrying value. Finally,
assets held for sale are no longer depreciated. The General Partner
adopted FAS 121 at December 31, 1995 and the adoption did not have a
material impact on the Partnership's operations or financial position,
as prior to December 31, 1995, the Partnership had not had any
properties held for sale.
As noted above, as of December 31, 1995, the General Partner decided
to account for the Partnership's properties as assets held for sale,
assuming an average 12 month holding period, instead of for
investment. Accordingly, the General Partner compared the carrying
value of each property to its appraised value as of January 1, 1996.
If the carrying value of 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, as of December 31, 1995, the General Partner
determined that Creek Edge Business Center, Flaircentre and NorthTech
had carrying values greater than their appraised values, and therefore
reduced those carrying values by $50,000, $600,000 and $350,000 to
$3,802,000, $2,155,000 and $13,934,000, respectively.
For the three and nine months ended September 30, 1996, the
Partnership spent approximately $416,000 and $610,000, respectively,
related to tenant/building improvements and leasing commissions at
Creek Edge Business Center. Because these expenditures exceeded the
estimate of fair value of that property as of December 31, 1995, the
General Partner adjusted the carrying value of the Partnership's
portfolio by $610,000 for the nine months ended September 30, 1996.
(2) Transactions with Affiliates
----------------------------
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the three months ended
September 30, 1996 and 1995, the Partnership incurred approximately
$39,000 and $39,000, respectively, of such expenses. For the nine
months ended September 30, 1996 and 1995, such payments were $106,000
and $122,000 respectively.
7
<PAGE> 93
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(2) Transactions with Affiliates Cont'd.
----------------------------
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 6% of the gross receipts from the
properties under management provided leasing services are performed,
otherwise not to exceed 3%. Such fees amounted to approximately
$47,000 and $49,000, respectively, for the three months ended
September 30, 1996 and 1995, respectively, and $140,000 and $142,000
for the nine months ended September 30, 1996 and 1995, respectively.
In addition, an affiliate of the General Partner received $10,000 and
$26,000 for the three months ended September 30, 1996 and 1995,
respectively, as reimbursement of costs of on-site property management
personnel and other reimbursable costs. For the nine months ended
September 30, 1996 and 1995, such payments were $43,000 and $78,000,
respectively.
As previously reported, on June 24, 1993, the Partnership completed
its solicitation of written consent from its Limited Partners. A
majority in interest of the Partnership's Limited Partners approved
each of the proposals contained in the Information Statement dated May
5, 1993. Those proposals have been implemented by the Partnership as
contemplated by the Information Statement as amendments to the
Partnership Agreement, and are reflected in these financial statements
as such.
The Amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .75% of the aggregate appraised value of the Partnership's
properties as determined by independent appraisal undertaken in
January of each year. Such fees amounted to $54,000 and $60,000 for
the three months ended September 30, 1996 and 1995, respecively, and
for the nine months ended September 30, 1996 and 1995, $170,000 and
$180,000, 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,
1996 and 1995 amounted to $17,000 and $0, respectively. For the nine
months ended September 30, 1996 and 1995, such fees amounted to
$43,000 and $23,000, respectively.
In addition to the aforementioned, the General Partner was also paid
$13,000 and $15,000 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, 1996
and 1995, respectively. For the nine months ended September 30, 1996
and 1995, such cost were $44,000 and $45,000 respectively.
8
<PAGE> 94
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
- -----------------------------------------
(3) Loss on Disposition of Assets
-----------------------------
On June 4, 1996, the Partnership sold Flaircentre, an office complex
composed of 11 one-story buildings in El Monte, California to an
unaffiliated third party. The sales price was $2,300,000 and the net
proceeds of the sale amounted to approximately $2,153,000. In
December 1995, the General Partner had adjusted the carrying value of
the property in accordance with the guidelines of FAS 121, which
resulted in a write-down of $600,000 and an adjusted carrying value
of $2,155,000. The resulting loss on sale, after taking into
consideration all costs of the disposition, amounted to $13,000 as
reflected on the Statement of Operations. The General Partner was not
paid a commission or disposition fee as part of this transaction.
(4) Commitments and Contingencies
-----------------------------
The Partnership is not a party to any pending legal proceedings other
than ordinary routine litigation incidental to its business. It is
the General Partner's belief that the outcome of these proceedings
will not be material to the business or financial condition of the
Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
-------------------------------
Since completion of its acquisition program in December 1988, the
Partnership has been engaged primarily in the operation of its
properties. The Partnership's objective has been to hold its
properties as long-term investments, although properties may be sold
at any time depending upon the General Partner's judgment of the
anticipated remaining economic benefits of continued ownership.
Working capital is and will be provided principally from the operation
of the Partnership's properties. The Partnership may incur mortgage
indebtedness relating to such properties by borrowing funds primarily
to fund capital improvements or to obtain sale or financing proceeds
for distribution to the Partners.
Certain of the Partnership's properties are not fully leased. The
Partnership is actively marketing the vacant space in these
properties, subject to the competitive environment in each of the
market areas. To the extent the Partnership is not successful in
maintaining or increasing occupancy levels at these properties, the
Partnership's future cash flow and distributions may be reduced.
Quarterly distributions through September 30, 1996 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. In June 1996, the Partnership made a special
distribution
9
<PAGE> 95
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.)
-------------------------------
of substantially all of the net proceeds from the sale of Flaircentre.
Future cash distributions will be made principally to the extent of:
cash flow attributable to operations; sales of the Partnership's
properties; and, interest earned on the investment of capital
reserves, net of future capital improvements to the Partnership's
properties and an allowance for future capital reserves.
In accordance with the terms of the Partnership Agreement, each year
the Partnership secures an independent appraisal of each of the
Partnership's properties as of January 1. Prior to the January 1,
1995 appraisals, the independent appraiser had estimated each
property's "Investment Value," utilizing a seven to ten-year cash flow
model to estimate value based upon an income approach.
The Amendment to the Partnership Agreement consented to by the Limited
Partners in June 1993 mandated, among other things, that the General
Partner seek a vote of (and provide an analysis and recommendation to)
the Limited Partners no later than December 31, 1996 regarding the
prompt liquidation of the Partnership in the event that properties
with (then) current appraised values constituting at least one-half of
the total (then) current appraised values of all of the Partnership's
properties are not sold or under contract for sale by the end of 1996.
Given that mandate, the General Partner requested that the appraiser
provide an assessment of value that reflects a shorter investment
holding term. Although the General Partner does not currently have a
specific liquidation plan for the Partnership's properties, it
requested that the appraiser assume that the entire portfolio would be
sold over four years, in connection with the January 1995 appraisals
and over three years in connection with the January 1996 appraisals.
Using the shorter-term investment methodology that is consistent with
the mandate of the 1993 Amendment to the Partnership Agreement, the
appraiser estimated the value of the Partnership's properties at
January 1, 1996 to be approximately $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
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
10
<PAGE> 96
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.)
-------------------------------
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," the carrying value of these properties was
evaluated to ensure that each property was carried on the
Partnership's Balance Sheet at the lower of cost or fair value less
estimated selling costs. The General Partner estimated fair value for
this purpose based on appraisals performed as of January 1, 1996.
However, fair value can only be determined based upon sales to third
parties, and sales proceeds could differ substantially.
Based upon the General Partner's survey of the current marketplace,
the General Partner believes, in fact, that in the relatively short
term the Partnership's properties could generate sales prices that, in
the aggregate, could be materially less than their aggregate appraised
values based upon an "Investment Value" appraisal model. The amount
of the possible variance between the aggregate appraised values and
potential sales prices cannot be reliably estimated at this time,
because of the numerous variables that could affect the sales prices,
including but not limited to the time frame in which the properties
must be sold, method of sale (property-by-property or single
transaction), prevailing capitalization rates at which comparable
properties are being sold at the time of the Partnership's sales,
constantly changing local market conditions and the state of leasing
negotiations and capital expenditures for the properties at the time
of sale.
On June 4, 1996, the Partnership sold Flaircentre, a complex composed
of 11, one-story office buildings located on 3.7 acres of land in El
Monte, California, to The Evangelical Formosan Church, a California
corporation. The sale price was $2,300,000. Net proceeds of the sale
to the Partnership, after payment of commissions and closing costs,
were approximately $2,153,000. The General Partner was not paid a
commission or disposition fee as part of this transaction.
11
<PAGE> 97
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, 1996
-------------------------------------------------------------------
Compared With the Three Months Ended September 30, 1995 and for the
-------------------------------------------------------------------
Nine Months Ended September 30, 1996 Compared With the Nine Months
------------------------------------------------------------------
Ended September 30, 1995.
-------------------------
The decreases in revenue for the three and nine months ended September
30, 1996, as compared to the corresponding periods in 1995, were
primarily attributable to the loss of rental revenue associated with
the sale of Flaircentre on June 4, 1996. The aforementioned decreases
were partially offset by increased revenue at NorthTech ($72,000),
which resulted from the commencement of International Data Product's
lease effective March 1, 1996.
Interest income resulted from the temporary investment of Partnership
working capital. The decreases for the three and nine months ended
September 30, 1996, as compared to the corresponding periods in 1995,
were attributable to the decreases in the average level of working
capital available for investment during 1996.
On June 4, 1996, the Partnership sold Flaircentre, a complex composed
of 11, one-story office buildings located on 3.7 acres of land in El
Monte, California, to The Evangelical Formosan Church, a California
corporation. The sale price was $2,300,000. Net proceeds of the sale
to the Partnership, after payment of commissions and closing costs,
were approximately $2,153,000. The General Partner was not paid a
commission or disposition fee as part of this transaction.
The decrease in operating expenses for the nine months ended September
30, 1996, as compared to the corresponding period in 1995, was
primarily attributable to the sale of Flaircentre in June 1996.
The increase in real estate taxes for the three months ended
September 30, 1996, as compared to the same period in 1995, was
primarily attributable to a $40,000 refund which was the result of a
successful tax appeal during the third quarter of 1995. That refund
was accounted for as a reduction of 1995 real estate tax expenses.
The decrease in real estate taxes for the nine months ended September
30, 1996, as compared to the corresponding period in 1995, was
primarily attributable to the decrease in real estate taxes at
Flaircentre that resulted from the sale of the property in June 1996.
In addition, at NorthTech, a successful real estate tax appeal
resulted in a $44,000 refund during the second quarter of 1996, which
was offset against the quarter's aggregate real estate tax expenses.
12
<PAGE> 98
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, 1996
-------------------------------------------------------------------
Compared With the Three Months Ended September 30, 1995 and the Nine
--------------------------------------------------------------------
Months Ended September 30, 1996 Compared With the Nine Months Ended
-------------------------------------------------------------------
September 30, 1995. (Cont'd.)
-------------------
The decreases in depreciation and amortization expenses for the three
and nine months ended September 30, 1996, as compared to the
corresponding periods in 1995, were attributable to the adoption of
Statement of Financial Accounting Standards, No. 121, "Accounting for
the Impairment of Long-Lived Assets or Long-Lived Assets to Be
Disposed Of," pursuant to which "assets held for sale" are no longer
depreciated.
For the nine months ended September 30, 1996, the carrying value of
the Partnership's portfolio was reduced by $610,000, which is
representative of the amount spent on tenant improvements, leasing
commissions and other related assets at Creek Edge Business Center.
The increases in equity in earnings of Cooper Village Partners for the
three and nine months ended September 30, 1996, as compared to the
corresponding periods in 1995, were primarily attributable to the
Partnership's portion (42%) of depreciation expenses incurred during
1995, of $25,000 and $77,000, respectively. As previously discussed,
the Partnership no longer depreciates its assets due to the adoption
of Financial Accounting Standard No. 121. In addition, during the
nine months ended September 30, 1996, a lease termination settlement
in the amount of $127,000 was collected from The Boston Stores which
was taken into income at the end of the first quarter.
General and administrative expenses for the nine months ended
September 30, 1996 and 1995, included charges of $319,000 and
$326,000, respectively, from the General Partner and its affiliates
for services rendered in connection with administering the affairs of
the Partnership and operating the Partnership's properties. Also
included in general and administrative expenses for the nine months
ended September 30, 1996 and 1995, are direct charges of $251,000 and
$232,000, respectively, relating to audit fees, tax preparation fees,
legal and professional fees, insurance expenses, costs incurred in
providing information to the Limited Partners and other miscellaneous
costs.
The increases in general and administrative expenses for the three and
nine month periods ended September 30, 1996, as compared to the
corresponding periods in 1995, were primarily attributable to the
increases in leasing fees and professional services in 1996.
13
<PAGE> 99
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits:
27 - Financial Data Schedule
b) Reports on Form 8-K:
None filed in quarter ended September 30, 1996
14
<PAGE> 100
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,
LIMITED PARTNERSHIP
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Investors
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: November 12, 1996 By: /s/ Robert M. Anderson
-------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund I, L.P.
Date: November 12, 1996 By: /s/ Brent R. Donaldson
----------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management,
Inc.
15
<PAGE> 101
- --------------------------------------------------------------------------------
CONSENT CONSENT
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
THIS CONSENT IS SOLICITED BY AND ON BEHALF OF THE PARTNERSHIP. THE GENERAL
PARTNER RECOMMENDS A VOTE "FOR" THE PROPOSAL.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW. IF NO
INSTRUCTIONS ARE INDICATED, BY YOUR SIGNATURE BELOW YOU WILL BE DEEMED TO HAVE
CONSENTED TO THE PROPOSAL AS RECOMMENDED BY THE GENERAL PARTNER.
A consent to a Proposal also will constitute your consent to all actions
necessary to consummate all transactions with respect to the Proposal
contemplated by the Information Statement.
PLEASE MARK THE APPROPRIATE BOX:
With the General Partner's recommendation to dissolve the Partnership and
seek to sell and liquidate the remaining Partnership properties and wind up
the Partnership at the earliest practical time consistent with achieving
reasonable value for the Limited Partners' investment, I vote:
/ / FOR or / / AGAINST or / / ABSTAIN
- --------------------------------------------------------------------------------
The undersigned acknowledges receipt of the Information Statement dated
_________, 199_ pertaining to the Proposal.
Dated: __________________________, 1997
________________________________________
Signature
________________________________________
Signature (if held jointly)
________________________________________
Title
PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON. WHEN INTERESTS ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING
AS AN ATTORNEY, AS EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN NAME BY
PRESIDENT OR OTHER AUTHORIZED OFFICER.
IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE TO: THE HERMAN GROUP, INC., 2121 SAN JACINTO STREET, 26TH
FLOOR, DALLAS, TEXAS 75201. IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE INVESTOR
RELATIONS DEPARTMENT AT (800) OR (214) 999-9393.
<PAGE> 102
BIRTCHER/LIQUIDITY PROPERTIES
27611 LA PAZ ROAD
LAGUNA NIGUEL, CALIFORNIA 92656
TO THE LIMITED PARTNERS OF
REAL ESTATE INCOME PARTNERS III
(THE "PARTNERSHIP")
, 1997
-----------
Dear Limited Partner:
We are very pleased to present the enclosed Information Statement to
the limited partners of the Partnership. This Information Statement is, in many
ways, a follow-up to the 1993 Solicitation, in which the Partnership sought and
received the limited partners' consent to a comprehensive proposal to prepare
the Partnership's properties for sale. Pursuant to that proposal the
Partnership began the liquidation process.
Now, the Partnership is seeking the consent of the limited partners to
dissolve the Partnership and sell and liquidate all of its remaining
properties. The proposal to dissolve the Partnership is discussed in more
detail in the Information Statement under "Summary of Proposal" and
"Description of Proposal."
Accompanying the Information Statement is the Partnerships' most recent
Form 10-Q for the quarter ended September 30, 1996.
We urge you to read the enclosed document carefully and to return your
signed consent as quickly as possible to The Herman Group, Inc., 2121 San
Jacinto Street, 26th Floor, Dallas, Texas 75201. For your convenience a
postage-paid return envelope has been included. If you have any questions about
the enclosed material, please call The Herman Group, Inc. at 1 (800) 657-8814.
Very truly yours,
BIRTCHER/LIQUIDITY PROPERTIES
By:
----------------------------
By:
----------------------------
YOUR VOTE IS IMPORTANT
Please sign and date the enclosed Consent Card and return it
immediately so that your vote can be countered.
