<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
--------------------------
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 Number)
27611 La Paz Road, Laguna Niguel, California 92656
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(714) 643-7700
--------------
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's registration statement on Form S-11 (Commission
File No. 33-2132), dated December 13, 1985, filed under the Securities Act of
1933 are incorporated by reference into PART IV of this report.
<PAGE> 2
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------------
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C> <C>
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 5
Item 3. Legal Proceedings................................................ 6
Item 4. Submission of Matters to a Vote of
Security Holders............................................... 6
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters.................. 7
Item 6. Selected Financial Data.......................................... 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 8
Item 8. Financial Statements and Supplementary Data...................... F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 16
PART III
Item 10. Directors and Executive Officers of the
Registrant..................................................... 16
Item 11. Executive Compensation........................................... 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 17
Item 13. Certain Relationships and Related Transactions................... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................ 17
--- Signatures....................................................... 20
</TABLE>
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<PAGE> 3
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
-------------------------------------
PART I
Item 1. Business
Real Estate Income Partners III, Limited Partnership (the "Partnership") was
formed on December 9, 1985, under the laws of the State of Delaware. The General
Partner of the Partnership is Birtcher/Liquidity Properties, a general
partnership consisting of LF Special Fund I, L.P., a California limited
partnership, and Birtcher Investors, a California limited partnership. The
Partnership is engaged in the business of acquiring and operating existing
income-producing office buildings, research and development facilities, shopping
centers and other commercial or industrial properties as specified in its
prospectus (Commission File No. 33-2132) dated April 7, 1986, as amended. See
Item 2 for a description of the properties acquired by the Partnership.
The Partnership commenced operations on June 30, 1986. The closing for the final
admission of Limited Partners to the Partnership occurred on September 30, 1987.
Total limited partners' capital contributions through that date aggregated
$63,534,000, including reinvestments from prior affiliated limited partnerships.
The Partnership owns all of its properties free and clear of indebtedness.
However, the Partnership may incur mortgage indebtedness on its properties,
primarily for the purpose of funding capital improvements to properties or
obtaining financing proceeds for distribution to partners.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will be
tax sheltered; (ii) to achieve capital appreciation over a holding period of at
least five years; and (iii) to preserve and protect the Partnership's capital.
An Information Statement, dated May 5, 1993, mandated that the General Partner
shall seek a vote of the Limited Partners no later than December 31, 1996,
regarding prompt liquidation of the Partnership in the event that properties
with appraised values as of January 1993, which constituted at least one-half of
the aggregate appraised values of all Partnership properties as of that date,
are not sold or under contract for sale by the end of 1996.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
instead of for investment as of December 31, 1995. In accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (see Note 2 to
the Financial Statements in Item 8), the carrying value of these properties was
evaluated to insure that each property is carried on the Partnership's balance
sheets at the lower of cost or fair value, less selling costs. Accordingly, the
General Partner compared the carrying value of each property to its appraised
value as of January 1, 1996. If the carrying value of a property and certain
related assets was greater than its appraised value, less 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 as
of December 31, 1995. Since the adoption of the 1993 Solicitation, the General
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<PAGE> 4
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 1. Business (Cont'd.)
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.
During 1996, the Partnership made certain capital improvements to properties
held for sale that resulted in a corresponding increase in the properties'
valuation allowance. At December 31, 1996, the General Partner compared the
carrying value of each property to its appraised value as of January 1, 1997 and
determined that Creek Edge, Northtech and Martinazzi Square had carrying values
greater than their respective appraised values. As a result, during the year
ended December 31, 1996, the carrying values were adjusted by $548,000,
$1,068,000 and $119,000, to $4,160,000, $12,968,000 and $5,500,000,
respectively, as of December 31, 1996.
The General Partner recently mailed a consent solicitation (the "Consent
Solicitation") dated February 18, 1997 to the Limited Partners, pursuant to
which the Limited Partners consented to dissolve the Partnership and and
gradually settle and close the Partnership's business and dispose of and convey
the Partnership's property as soon as practicable, consistent with obtaining
reasonable value for the properties.
The Partnership derives most of its revenue from rental income. Penril, Inc.
("Penril") represents a significant portion of such income. Rental income from
Penril totaled $1,319,000 in 1996, $1,054,000 in 1995 and $1,107,000 in 1994, or
approximately 27%, 21% and 25%, 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.
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.
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<PAGE> 5
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
APPROXIMATE RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/96 12/31/96
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Creek Edge Business Center $ 4,874,000 Combination office and warehouse 76,297 1 100%
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 13 88%
Wauwatosa, Wisconsin located on 3.7 acres of land.
August 28, 1986
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 21 97%
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) 20 79%
Mesa, Arizona located on 10.88 acres of land.
December 30, 1987 and
December 30, 1988 ----------- -------
TOTAL $42,899,000 407,119
=========== =======
</TABLE>
SEE NOTES TO TABLE ON THE FOLLOWING PAGE.
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<PAGE> 6
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 2. PROPERTIES (Cont'd.)
NOTES TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of
acquisition fees of $2,823,000 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, 1996, 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 (i) 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.
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<PAGE> 7
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER MATTERS
There is no public market for the limited partnership interests and a market is
not expected to develop as such limited partnership interests are not publicly
traded or freely transferable.
As of February 28, 1997, the number of holders of the Partnership's interests is
as follows:
General Partner 1
Limited Partners 7,069
-----
7,070
=====
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 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $11,944,000 $ 631,000 $408,000 $388,000 $618,000 $478,000
Second 2,777,000 446,000 478,000 688,000 541,000
Third 255,000 490,000 433,000 318,000 580,000
Fourth 318,000 694,000 440,000 414,000 490,000
</TABLE>
The Limited Partners and the General Partner are entitled to receive quarterly
cash distributions, as available, in the future.
In June 1996, the Partnership made a $2,159,000 special distribution to its
limited partners from a portion of the proceeds from the sale of Flaircentre.
See Item 7, Liquidity and Capital Resources, for further discussion.
In February 1997, the Partnership made a $11,708,000 special distribution to its
limited partners from a portion of the proceeds from the sale of Northtech. See
Item 8, Note 9 to the financial statements, for further discussion.
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<PAGE> 8
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 6. SELECTED FINANCIAL DATA
- ------- -----------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $4,956,000 $5,191,000 $ 4,576,000 $ 5,011,000 $ 5,077,000
========== ========== =========== =========== ===========
Net Income (Loss):
General Partner $ 6,000 $ (7,000) $ (15,000) $ 5,000 $ (48,000)
Limited Partners 628,000 (646,000) (1,516,000) 473,000 (4,730,000)
---------- ---------- ----------- ----------- -----------
$ 634,000 $ (653,000) $(1,531,000) $ 478,000 $(4,778,000)
========= ========== =========== =========== ===========
Total Distributions:
General Partner $ 18,000 $ 21,000 $ 18,000 $ 21,000 $ 21,000
========== ========== =========== =========== ===========
Limited Partners $3,981,000 $2,038,000 $ 1,739,000 $ 2,038,000 $ 2,089,000
========== ========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $31,611,000 $34,850,000 $37,505,000 $40,825,000 $42,470,000
=========== =========== =========== =========== ===========
</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
original objective had been to hold its properties as long-term investments.
However, an Information Statement, dated May 5, 1993, mandated that the General
Partner seek a vote of the Limited Partners no later than December 31, 1996,
regarding prompt liquidation of the Partnership in the event that properties
with appraised values as of January 1993, which constituted at least one-half of
the aggregate appraised values of all Partnership properties as of that date are
not sold or under contract for sale by the end of 1996. Given the mandate of the
May 5, 1993 Information Statement, at December 31, 1995, the General Partner
decided to account for the Partnership's properties as assets held for sale
instead of for investment. In a Consent Solicitation dated February 18, 1997,
the Partnership solicited and received the consent of the Limited Partners to
dissolve the Partnership and gradually settle and close the Partnership's
business and dispose of and convey the Partnership's property as soon as
practicable, consistent with obtaining reasonable value for the properties. The
Partnership's properties were held for sale throughout 1996 and are currently
held for sale.
-8-
<PAGE> 9
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
Working capital is and will be principally provided from the operation of the
Partnership's properties and the working capital reserve established for the
properties. The Partnership may incur mortgage indebtedness relating to such
properties by borrowing funds primarily to fund capital improvements or to
obtain financing proceeds for distribution to the partners.
Regular distributions for the year ended December 31, 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. In
June 1996, the Partnership made a special distribution of $2,159,000
representing 100% of the proceeds from the sale of Flaircentre. 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 January 24, 1997 the Partnership sold Northtech for a sales price of
$13,600,000. The Partnership realized approximately $13,079,000 from the sale,
after accounting for closing costs and prorations of approximately $521,000. The
purchaser of Northtech has for three years had a preexisting relationship with
an affiliate of Birtcher Investors, pursuant to which the purchaser had
contracted with Birtcher to locate, acquire and manage real property for the
purchaser's account. No broker was paid a commission as part of the transaction.
Since the sale price exceeded the January 1, 1993 appraised value ($12,900,000),
pursuant to the 1993 Amendment of the Partnership Agreement, the General Partner
earned and was paid a property disposition fee of approximately $340,000 in
connection with the sale. The purchaser paid a net investment advisory fee of
approximately $52,000 to the affiliate of Birtcher Investors and has retained
Birtcher Property Services to manage the property.
The Partnership distributed proceeds of the sale of Northtech to the Limited
Partners on February 28, 1997, together with the Partnership's normal quarterly
distribution. After paying the property disposition fee and holding back
approximately $1,000,000 to replenish and increase the Partnership's reserves,
the Partnership distributed approximately $11,700,000 to the Limited Partners.
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<PAGE> 10
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
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. Since Northtech generated approximately 68% of the cash flow that
funded the Partnership's regular operations and distributions for the year ended
December 31 1996, future distributions to Limited Partners of net cash from
operations are expected to be significantly reduced.
In June 1993, the Partnership completed its solicitation of written consents
from its Limited Partners. A majority in interest of the Partnership's Limited
Partners approved each of the proposals contained in the Information Statement,
dated May 5, 1993. Those proposals have been implemented by amending the
Partnership Agreement as contemplated by the Information Statement. The
amendments include, among other things, the payment of asset management and
leasing fees to the General Partner and the elimination of the General Partner's
residual interest and deferred leasing fees 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, 1996.
January 1, 1997 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 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 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 know how long it will take to sell 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, over three years in connection with the January 1996 appraisals and
over approximately two years in connection with the January 1997 appraisals.
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<PAGE> 11
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
---------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
January 1, 1997 Property Appraisals and Net Asset Value (Cont'd.)
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, 1997 to be
$30,293,000.
The foregoing appraised value of the properties indicates an estimated net asset
value of the Partnership of $31,948,000 or $5,028 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.)
Results of Operations
Year Ended December 31, 1996
The decrease in rental income for the year ended December 31, 1996, as compared
to 1995, was primarily attributable to the loss of rental income associated with
the sale of Flaircentre on June 4, 1996. The aforementioned decrease was
partially offset by an increase in revenue at Northtech with the commencement of
a new lease in March 1996 that brought the project to 100% occupancy.
Interest income resulted from the temporary investment of Partnership working
capital. The decrease for the year ended December 31, 1996, as compared to 1995,
was primarily attributable to a corresponding decrease in the average level of
working capital available for investment during the year.
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 $2,159,000. 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
$2,166,000 upon disposition. 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.
The decrease in operating expenses for the year ended December 31, 1996, as
compared to 1995, was primarily attributable to the overall reduction in
expenses resulting from the sale of Flaircentre in June 1996.
The decrease in real estate taxes for the year ended December 31, 1996, as
compared to 1995, was primarily attributable to the sale of Flaircentre. In
addition, taxes were reduced in 1996 due to a successful tax appeal for
Northtech that resulted in a $40,000 refund.
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<PAGE> 12
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1996 (Cont'd.)
The decrease in depreciation and amortization expenses for the year ended
December 31, 1996, as compared to 1995, was attributable to the adoption at
December 31, 1995, of Statement of Financial Accounting Standards, No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," pursuant
to which "assets held for sale" are not depreciated.
During 1996, the Partnership made certain capital improvements to properties
held for sale that resulted in a corresponding increase in the properties'
valuation allowance. At December 31, 1996, the General Partner compared the
carrying value of each property to its appraised value as of January 1, 1997
(or in the case of Northtech, its sales price) and determined that Creek Edge,
Northtech and Martinazzi Square had carrying values greater than their
respective appraised values. As a result, during the year ended December 31,
1996 the carrying values were adjusted by $548,000, $1,068,000 and $119,000,
respectively to $4,160,000, $12,968,000 and $5,500,000, respectively.
General and administrative expenses for the year ended December 31, 1996,
include charges of $402,000 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 $366,000 relating to audit
fees, legal fees, appraisals fees, insurance expense, costs incurred in
providing information to the Limited Partners and other miscellaneous costs.
The increase in general and administrative expenses for the year ended December
31, 1996, as compared to 1995, was primarily attributable to the increases in
leasing fees, legal fees and professional services associated with the increased
leasing activity. These increases were partially offset by lower asset
management fees and administrative expense reimbursements charged by affiliates
of the General Partner.
The increase in equity in earnings of Cooper Village Partners for the year ended
December 31, 1996, as compared to 1995, was primarily attributable to the
Partnership's portion (42%) of depreciation expenses incurred during 1995 that
were not incurred in 1996. As previously discussed, the Partnership no longer
depreciates its assets due to the adoption of Financial Accounting Standard No.
121. In addition, during 1996, a lease termination settlement in the amount of
$127,000 was collected from The Boston Stores and accordingly, was taken into
income in 1996. Finally, the adjustment to the carrying value of real estate in
1996 decreased to $412,000 from $1,360,000 in 1995.
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,
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<PAGE> 13
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
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.
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.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
-13-
<PAGE> 14
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
instead of for investment as of December 31, 1995. 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
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.
-14-
<PAGE> 15
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.)
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 have 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.
-15-
<PAGE> 16
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, 1996 and 1995................................. F-3
Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994................................................................... F-4
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1996, 1995 and 1994................................................ F-5
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994................................................................... F-6
Notes to Financial Statements................................................... F-7
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1996............................................................... F-19
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the Financial Statements.
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report........................................................... F-22
Financial Statements:
Balance Sheets as of December 31, 1996 and 1995................................. F-23
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994................................................ F-24
Statements of Changes in Partners' Capital for the Years
Ended December 31, 1996, 1995 and 1994.......................................... F-25
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994................................................ F-26
Notes to Financial Statements................................................... F-27
Schedule:
III - Real Estate and Accumulated Depreciation as of
December 31, 1996............................................................... F-34
</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> 17
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.
As discussed in note 9 to the financial statements, on March 13, 1997 a majority
in interest of the limited partners approved the proposal to dissolve the
Partnership and sell and liquidate all of its remaining properties.
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, 1996 and 1995, and the results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, 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 25, 1997
F-2
<PAGE> 18
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
------------------------------------
ASSETS
- ------
<S> <C> <C> <C>
Properties held for sale (net of valuation
allowance of $2,135,000 in 1996 and
$1,000,000 in 1995) $26,654,000 $29,457,000
Investment in Cooper Village Partners 2,727,000 2,916,000
Cash and cash equivalents 807,000 980,000
Accounts receivable (net of allowance for
doubtful accounts of $8,000 in 1996
and $14,000 in 1995) 42,000 71,000
Accrued rent receivable 799,000 799,000
Prepaid expenses and other assets, net 582,000 627,000
------------ -----------
$31,611,000 $34,850,000
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable and accrued liabilities $ 574,000 $ 448,000
------------ -----------
Partners' capital (deficit):
Limited Partners 31,254,000 34,607,000
General Partner (217,000) (205,000)
------------ ------------
31,037,000 34,402,000
Commitments and contingencies
------------ -----------
$31,611,000 $34,850,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE> 19
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
REVENUES:
<S> <C> <C> <C>
Rental income $ 4,910,000 $ 5,119,000 $ 4,485,000
Interest and other income 59,000 72,000 91,000
Loss on sale of property (13,000) - -
------------ ------------ -----------
Total revenues 4,956,000 5,191,000 4,576,000
------------ ------------ -----------
EXPENSES:
Operating expenses 1,182,000 1,277,000 1,281,000
Real estate taxes 576,000 676,000 754,000
Depreciation and amortization 132,000 1,726,000 1,590,000
General and administrative 768,000 718,000 724,000
Adjustment to carrying value
of real estate 1,735,000 1,000,000 1,900,000
----------- ------------ -----------
Total expenses 4,393,000 5,397,000 6,249,000
----------- ------------ -----------
Income (loss) before equity in
earnings (loss) of Cooper Village
Partners 563,000 (206,000) (1,673,000)
Equity in earnings (loss) of
Cooper Village Partners 71,000 (447,000) 142,000
----------- ------------ -----------
NET INCOME (LOSS) $ 634,000 $ (653,000) $(1,531,000)
========== ============ ===========
NET INCOME (LOSS) ALLOCABLE TO:
General Partner $ 6,000 $ (7,000) $ (15,000)
=========== ============ ============
Limited Partners $ 628,000 $ (646,000) $(1,516,000)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 20
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994
---------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------------------------------------------------
<S> <C> <C> <C>
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
Net income 6,000 628,000 634,000
Distributions (18,000) (3,981,000) (3,999,000)
---------- ------------ -----------
Balance, December 31, 1996 $(217,000) $31,254,000 $31,037,000
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE> 21
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 634,000 $ (653,000) $ (1,531,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 132,000 1,726,000 1,590,000
Equity in (earnings) loss of Cooper
Village Partners (71,000) 447,000 (142,000)
Adjustment to carrying value
of real estate 1,735,000 1,000,000 1,900,000
Loss of sale of property 13,000 - -
Changes in:
Accounts receivable 29,000 (22,000) (2,000)
Accrued rent receivable - (34,000) 116,000
Prepaid expenses and other assets (93,000) (124,000) (59,000)
Accounts payable and accrued
liabilities 126,000 57,000 (32,000)
----------- ----------- -----------
Net cash provided by operating
activities 2,505,000 2,397,000 1,840,000
----------- ----------- ----------
Cash flows from investing activities:
Investments in real estate (1,098,000) (666,000) (273,000)
Proceeds from sale of property 2,159,000 - -
Distributions received from
Cooper Village Partners 260,000 223,000 219,000
----------- ----------- ----------
Net cash provided by (used in)
investing activities 1,321,000 (443,000) (54,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions (3,999,000) (2,059,000) (1,757,000)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (173,000) (105,000) 29,000
Cash and cash equivalents,
beginning of year 980,000 1,085,000 1,056,000
----------- ----------- ----------
Cash and cash equivalents,
end of year $ 807,000 $ 980,000 $1,085,000
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 22
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 modified 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 modified 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, 1996 and
1995 the portfolio was appraised at an aggregate value of approximately
$33,895,000 (unaudited) and $35,300,000 (unaudited), respectively, which
includes the Partnership's interest in Cooper Village Partners which was
appraised at $2,705,000 (unaudited) and $3,250,000 (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 modified 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 eliminated 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.
F-7
<PAGE> 23
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment modified the Partnership Agreement to eliminate
subordination provisions with respect to future property disposition fees
payable under that section. The amendment authorized 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
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 modified the provisions of the Partnership Agreement
regarding allocations of Partnership income, gain and other tax items
between the General Partner and the Limited Partners primarily to conform
to the changes in the General Partner's interest in distributions of
Distributable Cash and Sale or Financing Proceeds 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.
F-8
<PAGE> 24
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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
$30,571,000 as of December 31, 1996.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
The amendment modified the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction" (as
defined in the amendment) sponsored by the General Partner or any of its
affiliates unless such transaction is approved by a "supermajority" of at
least 80% in interest of the Limited Partners and the General Partner.
The amendment also prohibits the modification of this restriction on
Reorganization Transactions without the approval of at least 80% in
interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other dispositions
to be left to the General Partner's discretion based on the anticipated
remaining economic benefits of continued ownership and other factors.
The General Partner recently mailed a consent solicitation (the "Consent
Solicitation") dated February 18, 1997 to the Limited Partners, pursuant
to which the Limited Partners consented to dissolve the Partnership and
and gradually settle and close the Partnership's business and dispose of
and convey the Partnership's property as soon as practicable, consistent
with obtaining reasonable value for the properties.
As of December 31, 1995 the General Partner decided to treat its
properties as held for sale, instead of for investment, for financial
statement purposes. Since adoption of the 1993 amendment, the General
Partner has considered several preliminary indications of interest from
third parties to acquire some or all of the Partnership's properties.
Apart from the sales of Flaircentre and Northtech, these transactions
never materialized, primarily because the General Partner rejected as too
low the valuations of the Partnership's remaining properties as proposed
by the potential purchasers. The Partnership's properties were held for
sale throughout 1996 and continue to be held for sale.
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
F-9
<PAGE> 25
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
properties was evaluated to ensure that each property is carried on the
Partnership's balance sheets 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, 1997 at December 31, 1996
and as of January 1, 1996 at December 31, 1995.
The January 1, 1997 appraisals assume that the properties will be sold
within approximately two years and that the sales will take place on a
property by property basis between willing buyers and willing sellers.
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. If the properties
were sold in a "package" such sale would most likely result in a lower
aggregate sales price, but more rapid distribution of dissolution
proceeds to the Limited Partners, as compared to a series of individual
sale transactions. Furthermore, fair value can only be determined based
upon sales to third parties, and sales proceeds could differ
substantially from appraised values.
(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.
F-10
<PAGE> 26
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
As noted above, as of December 31, 1995, the General Partner decided to
account for the Partnership's properties as assets held for sale,
assuming a 12 month holding period, instead of for investment.
Accordingly, the 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 at December 31, 1995.
Utilizing the same methodology, assuming a 12 month holding period, for
the year ended December 31, 1996, the General Partner determined that
Creek Edge, Northtech and Martinazzi Square had carrying values greater
than their respective appraised values (or in the case of Northtech,
its sale price). As a result, the carrying value was adjusted by
$548,000, $1,068,000 and $119,000, respectively to $4,160,000,
$12,968,000 and $5,500,000, respectively, as of December 31, 1996.
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
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, 1996 and 1995, totaled $619,000 and $899,000, 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.
F-11
<PAGE> 27
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
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> <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-12
<PAGE> 28
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>
1996 1995
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(UNAUDITED) (UNAUDITED)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $31,611,000 $41,344,000 $34,850,000 $44,456,000
Total
Liabilities $ 574,000 $ 574,000 $ 448,000 $ 448,000
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per
financial Statements $ 634,000 $ (653,000) $(1,531,000)
Adjustment to carrying value
of real estate 1,735,000 1,000,000 1,900,000
Adjustment to carrying value
of Cooper Village 173,000 571,000 -
Depreciation differences on
investments in real estate (1,560,000) (91,000) (163,000)
Loss on sale of property in
excess of book value (2,179,000) - -
Other (18,000) 95,000 173,000
- --------------------------------------------------------------------------------------------------
Taxable income per Federal tax
return (unaudited) $(1,215,000) $ 922,000 $ 379,000
==================================================================================================
</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.
F-13
<PAGE> 29
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Earnings and Distributions Per Unit (Cont'd.)
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.
Significant Customers
Rental income from Penril, Inc., totaled $1,319,000 in 1996 and
$1,054,000 in 1995 and $1,107,000 in 1994; or approximately 27%, 20%, 25%
of total rental income for 1996, 1995, and 1994, 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 account
ing policies of Cooper Village Partners are consistent with those of the
Partnership.
F-14
<PAGE> 30
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,
------------------------------------
1996 1995
------------------------------------
<S> <C> <C>
Property held for sale (net of
valuation allowance of $1,772,000
in 1996 and $1,360,000 in 1995) $6,011,000 $6,386,000
Cash and Other Assets 460,000 533,000
---------- ----------
Total Assets $6,471,000 $6,919,000
========== ==========
Accounts Payable and
Accrued Liabilities $ 114,000 $ 111,000
Partners' Capital 6,357,000 6,808,000
---------- ----------
Total Liabilities and
Partners' Capital $6,471,000 $6,919,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Rental and Other Income $1,072,000 $ 1,046,000 $1,023,000
Operating and Other Expenses (483,000) (498,000) (428,000)
Adjustment to Carrying Value
of Real Estate (412,000) (1,360,000) -
Depreciation and Amortization (8,000) (253,000) (256,000)
----------- ------------ ----------
Net Income (Loss) $ 169,000 $(1,065,000) $ 339,000
=========== ============ =========
</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
F-15
<PAGE> 31
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Transactions with Affiliates (Cont'd.)
Partnership. For the years ended December 31, 1996, 1995 and 1994, the
Partnership was charged with approximately $131,000, $151,000 and
$130,000, respectively, of such expenses. An affiliate of the General
Partner provides property management services with respect to the
Partnership's properties and receives a fee for such services not to
exceed 6% of the gross receipts from the properties under management,
provided that leasing services are performed, otherwise not to exceed
3%. Such fees amounted to approximately $187,000, $193,000 and $173,000
for the years ended December 31, 1996, 1995 and 1994, respectively. In
addition, an affiliate of the General Partner received $56,000, $100,000
and $90,000, respectively, for the years ended December 31, 1996, 1995
and 1994, 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
$39,000, $37,000 and $38,000, 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, 1996, 1995 and 1994,
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, 1996, 1995 and 1994, amounted
to $224,000, $240,000 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, 1996, 1995 and 1994, amounted to $47,000,
$24,000 and $34,000 respectively. In addition, to the aforementioned,
the General Partner was also paid $20,000, $24,000 and $22,000, related
to the Partnership's portion (42%) of asset management fees for Cooper
Village Partners for the years ended December 31, 1996, 1995 and 1994,
respectively.
(5) Loss on Disposition of Assets
On June 4, 1996, the Partnership sold Flaircentre, an office complex
composed of eleven 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 $2,159,000. 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 $2,166,000
upon disposition. 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.
F-16
<PAGE> 32
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Commitments and Contingencies
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1996, 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, 1996, is as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C> <C>
1997 $ 3,846,000
1987 3,481,000
1999 2,995,000
2000 1,534,000
2001 1,002,000
Thereafter 972,000
-----------
$13,830,000
===========
</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. See note 9 for subsequent events.
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Real estate taxes $145,000 $163,000
Security deposits 205,000 201,000
Accounts payable and other 224,000 84,000
-------- --------
$574,000 $448,000
======== ========
</TABLE>
F-17
<PAGE> 33
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(8) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $14,000 $ - $40,000
Additions charged to expense - 30,000 -
Write-offs (6,000) (16,000) (40,000)
-------- --------- ---------
Balance at end of year $ 8,000 $ 14,000 $ -
======== ========= =========
</TABLE>
(9) Subsequent Events
On February 28, 1997, the Partnership made an aggregate regular cash
distribution of $236,000 to its Limited Partners.
On January 24, 1997, the General Partner sold Northtech, a complex of
three two-story research and development buildings located on 10.2 acres
of land in Gaithersburg, Maryland. The sales price was $13,600,000 and
the net proceeds from the sale amounted to approximately $13,079,000. The
purchaser of Northtech has a preexisting relationship with an affiliate
of the General Partner, pursuant to which it contracts with Birtcher to
locate and manage rental property for its investment purposes. No broker
was paid a commission as part of the transaction. Since the sales price
exceeded the January 1, 1993 appraised value ($12,900,000), pursuant to
the 1993 Amendment of the Partnership Agreement, the General Partner
earned and was paid a disposition fee of $340,000 by the Partnership in
connection with the sale. The purchaser paid an investment advisory fee
of approximately $52,000 to an affiliate of the General Partner and has
retained Birtcher Properties to manage the property on an ongoing basis.
On February 28, 1997, the Partnership made a special distribution of
approximately $11,708,000 to its limited partners in connection with the
sale of Northtech.
On March 13, 1997, a majority in interest of the Limited Partners
approved the proposal to dissolve the Partnership and sell and liquidate
all of its remaining properties pursuant to the Consent Solicitation
dated February 18, 1997.
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 filed a purported class action lawsuit in the Court
of Common Pleas of Philadelphia County against Damson/Birtcher Partners,
Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Investments,
L.F. Special Fund II, L.P., L.F. Special Fund I, L.P., Arthur Birtcher,
Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R.
Donaldson alleging breach of fiduciary duty and breach of contract and
seeking to enjoin the Consent Solicitation.
F-18
<PAGE> 34
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
-----------------------------------
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E
------ ------ ------ ------
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
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS (B),(D) LAND IMPROVEMENTS TOTAL (E)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Creek Edge Business Center,
Eden Prairie, MN $ 746 $ 4,435 $1,293 $ (598) $ 746 $ 5,130 $ 5,876
The Forum
Wauwatosa, WI 1,109 5,209 1,837 (1,392) 827 5,936 6,763
Northtech
Gaithersburg, MD 3,285 19,851 1,767 (5,718) 2,684 16,501 19,185
Martinazzi Square
Tualatin, OR 1,732 5,199 241 (269) 1,708 5,195 6,903
------ ------- ------ -------- ------ ------- ------
TOTAL $6,872 $34,694 $5,138 $(7,977) $5,965 $32,762 $38,727
====== ======= ====== ======== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
COL. F COL. H COL. I
------ ------ ------
ACCUMULATED
DEPRECIATION DATE DEPRECIABLE
DESCRIPTION (A) (E) ACQUIRED LIFE (F)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Creek Edge Business Center,
Eden Prairie, MN $1,917 07/01/86 30 years
The Forum
Wauwatosa, WI 2,431 08/28/86 30 years
Northtech
Gaithersburg, MD 6,217 12/30/86 30 years
Martinazzi Square
Tualatin, OR 1,508 12/23/87 30 years
-------
TOTAL $12,073
=======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
See notes to table on following page.
F-19
<PAGE> 35
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) During the year ended December 31, 1996, the General Partner determined
that Creek Edge, Northtech and Martinazzi Square had carrying values
greater than their respective appraised values (or in the case of
Northtech, its sales price), less selling costs. As a result, the
carrying value was adjusted by $548,000, $1,068,000 and $119,000,
respectively to $4,160,000, $12,968,000 and $5,500,000, respectively, as
of December 31, 1996.
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.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $46,731,000 as of December 31, 1996.
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 have 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,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $42,955,000 $43,289,000 $44,916,000
Additions during the year:
Improvements 1,098,000 666,000 273,000
Reductions during the year:
Sale of real estate (3,591,000) - -
Adjustment to the carrying
value of real estate (1,735,000) (1,000,000) (1,900,000)
------------ ------------ ------------
Balance at end of year $38,727,000 $42,955,000 $43,289,000
============ ============ ============
</TABLE>
F-20
<PAGE> 36
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO SCHEDULE III (Cont'd.)
(e) (Cont'd)
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $13,498,000 $11,955,000 $10,494,000
Accumulated depreciation on
real estate sold (1,425,000) - -
Depreciation expense - 1,543,000 1,461,000
------------ ----------- -----------
Balance at end of year $12,073,000 $13,498,000 $11,955,000
============ =========== ===========
</TABLE>
(f) Through December 31, 1995, depreciation expense was computed based upon
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Due to the adoption of FAS 121 on December 31, 1995, properties held for
sale were not depreciated in 1996.
F-21
<PAGE> 37
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.
As discussed in note 7 to the financial statements, in March 1997 a majority in
interest of the limited partners of the general partners approved the proposal
to dissolve the general partners and sell and liquidate all of their remaining
properties.
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, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996, 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 25, 1997
F-22
<PAGE> 38
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
------------------------------------
<S> <C> <C>
ASSETS
Property held for sale (net of valuation
allowance of $1,772,000 in 1996 and
$1,360,000 in 1995) $6,011,000 $6,386,000
Cash and cash equivalents 355,000 408,000
Accounts receivable 40,000 45,000
Accrued rent receivable 47,000 57,000
Prepaid expenses and other assets, net 18,000 23,000
---------- ----------
$6,471,000 $6,919,000
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 114,000 $ 111,000
---------- ----------
Partners' capital 6,357,000 6,808,000
Commitments and contingencies
---------- ----------
$6,471,000 $6,919,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-23
<PAGE> 39
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rental income $1,051,000 $ 1,025,000 $1,010,000
Interest and other income 21,000 21,000 13,000
---------- ----------- ----------
Total revenues 1,072,000 1,046,000 1,023,000
---------- ----------- ----------
EXPENSES:
Operating expenses 277,000 296,000 284,000
Real estate taxes 148,000 136,000 85,000
Depreciation and amortization 8,000 253,000 256,000
Adjustment to carrying value of
real estate 412,000 1,360,000 -
General and administrative 58,000 66,000 59,000
---------- ----------- ----------
Total expenses 903,000 2,111,000 684,000
---------- ----------- ----------
NET INCOME (LOSS) $ 169,000 $(1,065,000) $ 339,000
========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-24
<PAGE> 40
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994
----------------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER TOTAL
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III
----------------------------------------------------------
<S> <C> <C> <C>
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)
Distributions (307,000) (223,000) (530,000)
----------- ----------- ------------
Balance, December 31, 1995 3,892,000 2,916,000 6,808,000
Net income 98,000 71,000 169,000
Distributions (360,000) (260,000) (620,000)
----------- ----------- ------------
Balance, December 31, 1996 $3,630,000 $2,727,000 $ 6,357,000
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-25
<PAGE> 41
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 169,000 $(1,065,000) $ 339,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 8,000 253,000 256,000
Adjustment to carrying value of
real estate 412,000 1,360,000 -
Changes in:
Accounts receivable 5,000 (8,000) 2,000
Accrued rent receivable 10,000 4,000 -
Prepaid expenses and other assets (3,000) (10,000) (1,000)
Accounts payable and accrued
liabilities 3,000 26,000 6,000
---------- ----------- --------
Net cash provided by operating
activities 604,000 560,000 602,000
Cash flows from investing activities:
Investments in real estate (37,000) (22,000) (70,000)
Cash flows from financing activities:
Distributions (620,000) (530,000) (521,000)
---------- ----------- ----------
Net increase (decrease) in cash and
cash equivalents (53,000) 8,000 11,000
Cash and cash equivalents,
beginning of year 408,000 400,000 389,000
---------- ----------- ---------
Cash and cash equivalents,
end of year $ 355,000 $ 408,000 $ 400,000
========== =========== =========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-26
<PAGE> 42
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.
The General Partner of Funds II and III recently mailed a consent
solicitation (the "Consent Solicitation") dated February 18, 1997 to the
Limited Partners, pursuant to which the Limited Partners consented to
dissolve those partnerships and gradually settle and close their
respective businesses and dispose of and convey their respective
properties as soon as practicable, consistent with obtaining reasonable
value for the properties.
As of December 31, 1995, the General Partners decided to treat their
properties, as well as the Partnership's property, as held for sale,
instead of for investment, for financial statement purposes. Since 1993,
the General Partners have considered several preliminary indications of
interest from third parties to acquire the Partnership's property. The
Partnership's sole property was held for sale throughout 1996 and it is
currently held for sale.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets to be Disposed of"
(see Note 2), the carrying value of the Partnership's property was
evaluated to ensure it is carried on the Partnership's balance sheets 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, 1997 at December 31, 1996 and as of January 1, 1996 at
December 31, 1995.
The January 1, 1997 appraisal assumes that the property will be sold
within two years and that the sale will take place on an individual
property basis between a willing buyer and a willing seller. Among the
strategies the General Partners will consider to accomplish the
dissolution is a sale of the Partnership's property in a single
transaction, or the sale of the property in a "package" with properties
of affiliated partnerships. If the property was sold in a "package," such
sale would most likely result in a lower aggregate sale price, but more
rapid distribution of dissolution proceeds to the General Partners, as
compared to an individual property sale transaction. Furthermore, fair
value can only be determined based upon sales to third parties, and sales
proceeds could differ substantially from appraised values.
F-27
<PAGE> 43
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, and including 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. At December 31, 1996, utilizing
the same methodology, the General Partner further reduced the carrying
value of the property by $412,000.
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.
F-28
<PAGE> 44
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
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, 1996 and 1995, totaled $301,000 and $407,000,
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> <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-29
<PAGE> 45
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>
1996 1995
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(UNAUDITED) (UNAUDITED)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $6,471,000 $6,883,000 $6,919,000 $8,279,000
Total
Liabilities $ 114,000 $ 114,000 $ 111,000 $ 111,000
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per
Financial Statements $ 169,000 $(1,065,000) $ 339,000
Depreciation differences on
investments in real estate (219,000) 25,000 26,000
Adjustment to carrying value
of real estate 412,000 1,360,000 -
Other 10,000 4,000 (13,000)
- --------------------------------------------------------------------------------------------------
Taxable income per Federal tax
return (unaudited) $ 372,000 $ 324,000 $ 352,000
==================================================================================================
</TABLE>
F-30
<PAGE> 46
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, 1996, 1995 and 1994, the
Partnership was charged with approximately $1,000, $0 and $0,
respectively, of such expenses.
Birtcher Properties provides property management services with respect to
the Partnership's property and receives a fee for such services not to
exceed 6% of the gross receipts from the property under management
provided that leasing services were performed, otherwise not to exceed
3%. Such fees amounted to approximately $54,000 in 1996, $52,000 in 1995
and $52,000 in 1994. In addition, the affiliate received $35,000 in 1996,
$33,000 in 1995 and $32,000 in 1994, 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, 1996, 1995 and
1994, amounted to $48,000, $58,000 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, 1996, 1995 and 1994, amounted to $3,000, $2,000
and $5,000, respectively.
(4) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal proceedings
other than ordinary routine litigation incidental to its business. It is
the General Partners' belief, that the outcome of these proceedings will
not be material to the business, financial condition, or results of
operations of the Partnership. See note 7 for subsequent events.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed as
of December 31, 1996, 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, 1996, are as follows:
F-31
<PAGE> 47
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Commitments and Contingencies (Cont'd.)
Future Minimum Annual Rentals (Cont'd.)
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C> <C>
1997 $579,000
1998 513,000
1999 440,000
2000 379,000
2001 322,000
Thereafter 1,562,000
----------
$3,795,000
</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,
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
Real estate taxes $ 74,000 $ 68,000
Accounts payable and other 5,000 8,000
Security deposits 35,000 35,000
-------- --------
$114,000 $111,000
======== ========
</TABLE>
(6) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ - $ - $ 13,000
Additions charged to expense - - -
Write-offs - - (13,000)
-------- -------- ---------
Balance at end of year $ - $ - $ -
======== ======== ========
</TABLE>
(7) Subsequent Events
On February 28, 1997, the Partnership made an aggregate cash distribution
of $120,000 to its General Partners.
F-32
<PAGE> 48
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(7) Subsequent Events (Cont'd.)
In March 1997, a majority in interest of the Limited Partners of the
General Partners approved a proposal to dissolve the General Partners and
sell and liquidate all of their remaining properties pursuant to the
Consent Solicitation dated February 18, 1997.
On March 25, 1997, a limited partner of the General Partners named
Bigelow/Diversified Secondary Partnership Fund 1990 filed a purported
class action lawsuit in the Court of Common Pleas of Philadelphia County
against Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert Anderson,
Richard G. Wollack and Brent R. Donaldson alleging breach of fiduciary
duty and breach of contract and seeking to enjoin the Consent
Solicitation.
F-33
<PAGE> 49
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
--------------------------------------
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E
------ ------ ------ ------
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
DESCRIPTION (A) LAND IMPROVEMENTS IMPROVEMENTS COSTS (B) LAND IMPROVEMENTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cooper Village Shopping Center $ 2,756 $ 6,430 $ 752 $ (2,149) $ 2,748 $ 5,041 $ 7,789
------- ------- ------ ---------- -------- ------- -------
TOTAL $ 2,756 $ 6,430 $ 752 $ (2,149) $ 2,748 $ 5,041 $ 7,789
======= ======= ====== ========== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
COL. A COL. F COL. H COL. I
------ ------ ------ ------
ACCUMULATED DATE DEPRECIABLE
DESCRIPTION (A) DEPRECIATION ACQUIRED LIFE (D)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Cooper Village Shopping Center $ 1,778 12/30/87 and 30 years
12/30/88
-------
TOTAL $ 1,778
=======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
- ----
F-34
<PAGE> 50
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 1996, the General Partner determined that the Partnership
property had a carrying value greater than its appraised value and
therefore provided an additional valuation allowance of $412,000 against
the property held for sale.
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.
The aggregate cost of land, buildings and improvements for Federal income
tax purposes (unaudited) was $9,781,000 as of December 31, 1996. The
differences between the aggregate cost of land, buildings and
improvements for tax reporting purposes as compared to costs for
financial reporting purposes are primarily attributable to: 1) amounts
received under rental agreements for non-occupied space, which were
recorded as income for tax reporting purposes but were recorded as a
reduction of the corresponding property basis for financial reporting
purposes, and; 2) the adjustments to the carrying value of real estate
for financial statement purposes no effect for tax reporting purposes.
(c) The initial cost to the Partnership includes acquisition fees paid to
Birtcher Investments and Equity Properties Inc.
(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>
Due to the adoption of FAS 121 on December 31, 1995, the property held
for sale was not depreciated in 1996.
F-35
<PAGE> 51
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
-16-
<PAGE> 52
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
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, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 18,000 $ 21,000 $ 18,000
Asset management fees 224,000 240,000 235,000
Property management fees 187,000 193,000 173,000
Leasing fees 47,000 24,000 34,000
Property management expense
reimbursements 56,000 100,000 90,000
Other expense reimbursements 131,000 151,000 130,000
-------- -------- --------
TOTAL $663,000 $729,000 $680,000
======== ======== ========
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1997, 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.
-17-
<PAGE> 53
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
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)
(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.
-18-
<PAGE> 54
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.)
(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:
On June 7, 1996 the Partnership filed Form 8-K to report the sale of
Flaircenter. That report is incorporated herein by reference.
-19-
<PAGE> 55
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
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, 1997 By: /s/Robert M. Anderson
---------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General Partner
of LF Special Fund I, L.P.
Date: March 30, 1997 By: /s/Brent R. Donaldson
----------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Birtcher/Liquidity
Properties (General Partner of the Registrant) and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Arthur B. Birtcher Co-Chairman of the Board - March 30, 1997
- ----------------------
Arthur B. Birtcher BREICORP
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1997
- ----------------------
Ronald E. Birtcher BREICORP
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1997
- ---------------------
Richard G. Wollack Asset Management, Inc.
</TABLE>
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) 10-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) REAL ESTATE INCOME
PARTNERS III
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 807,000
<SECURITIES> 0
<RECEIVABLES> 50,000
<ALLOWANCES> 8,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,230,000
<PP&E> 26,654,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,611,000
<CURRENT-LIABILITIES> 574,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 31,037,000
<TOTAL-LIABILITY-AND-EQUITY> 31,611,000
<SALES> 0
<TOTAL-REVENUES> 5,027,000
<CGS> 0
<TOTAL-COSTS> 2,658,000
<OTHER-EXPENSES> 1,735,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 634,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 634,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
