<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, 1997 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, 1997
INDEX
<TABLE>
<CAPTION>
Page
PART I
<S> <C>
Item 1. Business........................................... 3
Item 2. Properties......................................... 6
Item 3. Legal Proceedings.................................. 7
Item 4. Submission of Matters to a Vote of
Security Holders................................. 8
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters.... 8
Item 6. Selected Financial Data............................ 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 10
Item 8. Financial Statements and Supplementary Data........ F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 20
PART III
Item 10. Directors and Executive Officers of the
Registrant....................................... 20
Item 11. Executive Compensation............................. 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................... 21
Item 13. Certain Relationships and Related Transactions..... 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................. 21
--- Signatures......................................... 24
</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 the 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 estimated 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 estimated
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
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<PAGE> 4
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
Item 1. Business (Cont'd.)
Solicitation, the General Partner has considered several preliminary indications
of interest from third parties to acquire some or all of the Partnership's
properties. Apart from the recent sales of Flaircentre, Northtech and Martinazzi
Square, 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 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.
On February 18, 1997, the General Partner mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and sell
and liquidate all of its remaining properties as soon as practicable, consistent
with obtaining reasonable value for the Partnership's properties. A majority in
interest of the Limited Partners consented by March 13, 1997. As a result, the
Partnership adopted the liquidation basis of accounting as of March 31, 1997.
The difference between the adoption of the liquidation basis of accounting as of
March 13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at their anticipated settlement
amounts. The valuation of assets and liabilities necessarily requires many
estimates and assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon dissolution and
costs associated therewith could be higher or lower than the amounts recorded.
Since the approval of the February 18, 1997 Consent Solicitation, the General
Partner has been evaluating possible sales of Partnership properties,
individually and as a portfolio, to liquidate and wind up the Partnership.
Recently, the General Partner has solicited several offers from prospective
purchasers to acquire all of the Partnership's remaining properties in a single
transaction. The General Partner is evaluating these offers, and expects to
either accept an offer or counter one or more of the offers soon. The offers are
substantially similar in price, and value the Partnership's remaining properties
on a collective basis at the high end of the range that the General Partner
previously discussed in the February 18, 1997 Consent Solicitation. To help
evaluate those offers, the General Partner is also evaluating local market
conditions and potential sales of the properties on an individual basis. There
can be no assurance as to when or at what price properties will be sold. If an
agreement can be reached to sell the properties in a single transaction, the
General Partner expects to complete such a transaction in 1998.
-4-
<PAGE> 5
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
Item 1. Business (Cont'd.)
The Partnership derives most of its revenue from rental income. Penril, Inc.
("Penril") represented a significant portion of such income until Northtech was
sold in January 1997. Rental income from Penril totaled $1,319,000 in 1996 and
$1,054,000 in 1995, or approximately 27% and 21%, respectively, of the
Partnership's total rental income. See Item 7 for further discussion concerning
the current status of this tenant.
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> 6
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. 12/31/97 12/31/97
- --------------------------------------------------------------------------------------------------------------------------
<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 11 84%
Wauwatosa, Wisconsin located on 3.7 acres of land.
August 28, 1986
Cooper Village 3,769,000(2) A single-story shopping center 43,433(2) 18 80%
Mesa, Arizona located on 10.88 acres of land.
December 30, 1987 and
December 30, 1988
TOTAL $14,583,000 192,896
=========== =======
</TABLE>
SEE NOTES TO TABLE ON THE FOLLOWING PAGE.
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<PAGE> 7
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 $991,000 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, 1997, 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
So far as is known to the General Partner, neither the Partnership nor its
properties are subject to any material pending legal proceedings, however:
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 filed a purported class action lawsuit in the Court of
Common Pleas of Philadelphia County against Damson/Birtcher Partners, Birtcher
Investors, Birtcher Liquidity Properties, Birtcher Investments, L.F. Special
Fund II, L.P., L.F. Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher,
Robert Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of
fiduciary duty and breach of contract and seeking to enjoin the Consent
Solicitation dated February 18, 1997. On April 18, 1997, the court denied the
plaintiff's motion for a preliminary injunction. On June 10, 1997, the court
dismissed the plaintiff's complaint on the basis of lack of personal
jurisdiction and forum non conveniens.
On June 13, 1997, the Partnership, its affiliated partnership, Damson/Birtcher
Realty Income Fund-II, and their general partner, Birtcher/Liquidity Properties,
filed a complaint for declaratory relief in the Court of Chancery in Delaware
against Bigelow/Diversified Secondary Partnership Fund 1990 L.P. The complaint
seeks a declaration that the vote that the limited partners of the Partnership
and Damson/Birtcher Realty Income Fund-II took pursuant to the respective
consent solicitations dated February 18, 1997 was effective to dissolve the
respective partnerships and complied with applicable law, that the actions of
the General Partner in utilizing the consent solicitations to solicit the vote
of the limited partners did not breach any fiduciary or contractual duty to such
limited partners, and an award of costs and fees to the plaintiffs. The parties
have initiated discovery. The defendant has answered the complaint. No motions
are pending at this time.
-7-
<PAGE> 8
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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, 1998, the number of holders of the Partnership's interests is
as follows:
<TABLE>
<S> <C>
General Partner 1
Limited Partners 6,585
-----
6,586
=====
</TABLE>
The Partnership makes cash distributions to its partners out of distributable
cash pursuant to the Partnership's Agreement of Limited Partnership.
Distributable cash is generally paid 99% to the Limited Partners and 1% to the
General Partner.
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $ 242,000 $11,944,000 $ 631,000 $ 408,000 $ 388,000 $ 618,000
Second 242,000 2,777,000 446,000 478,000 688,000
Third 242,000 255,000 490,000 433,000 318,000
Fourth 5,847,000 318,000 694,000 440,000 414,000
</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.
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<PAGE> 9
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER MATTERS (CONT'D.)
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 7, Liquidity and Capital Resources, for further discussion.
In October 1997, the Partnership made a $5,605,000 special distribution to its
limited partners from the proceeds of the sale of Martinazzi Square. See Item 7,
Liquidity and Capital Resources, for further discussion.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PERIOD ENDED ------------------------------------------------------------------------
MARCH 31,
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 222,000 $ 4,956,000 $ 5,191,000 $ 4,576,000 $ 5,011,000
============ ============ ============ ============ ============
Net Income (Loss):
General Partner $ (6,000) $ 6,000 $ (7,000) $ (15,000) $ 5,000
Limited Partners (625,000) 628,000 (646,000) (1,516,000) 473,000
------------ ------------ ------------ ------------ ------------
$ (631,000) $ 634,000 $ (653,000) $ (1,531,000) $ 478,000
============ ============ ============ ============ ============
Total Distributions:
General Partner $ 2,000 $ 18,000 $ 21,000 $ 18,000 $ 21,000
============ ============ ============ ============ ============
Limited Partners $ 11,944,000 $ 3,981,000 $ 2,038,000 $ 1,739,000 $ 2,038,000
============ ============ ============ ============ ============
</TABLE>
The following summary of financial data is for the period since the Partnership
adopted the liquidation basis of accounting.
<TABLE>
PERIOD FROM
APRIL 1, 1997 THROUGH
DECEMBER 31, 1997
-----------------
<S> <C>
Property Operating
Income, net $ 1,099,000
===========
Distributions to
Partners $ 6,339,000
===========
Net Assets in
Liquidation
at 12/31/97 $12,716,000
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $31,611,000 $34,850,000 $37,505,000 $40,825,000
=========== =========== =========== ===========
</TABLE>
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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
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 1997 and are
currently held for sale.
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, 1997, 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.
The Partnership made special distributions of $5,605,000 in October 1997 (sale
of Martinazzi Square), $11,708,000 in February 1997 (sale of Northtech) and
$2,159,000 in June 1996 (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.
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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.)
On October 1, 1997, the Partnership sold Martinazzi Square for $6,100,000. The
Partnership realized approximately $5,824,000 after accounting for brokerage
commissions, closing costs and prorations of $276,000. Since the sale price
exceeded the January 1, 1993 appraised value ($5,400,000), pursuant to the 1993
amendment of the Partnership agreement the General Partner earned, and was paid,
a property disposition fee of $153,000 in connection with the sale. The
Partnership distributed the net proceeds of approximately $5,605,000 from the
sale of Martinazzi Square Shopping Center to the Limited Partners on October 15,
1997.
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.
The large reserve fund is prudent because after the sale of Flaircentre and
Northtech, the Partnership's asset base was 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.
The sales of Flaircentre, Northtech, and Martinazzi Square have reduced the
Partnership's real estate assets to Creek Edge, The Forum, plus its 42% interest
in Cooper Village Shopping Center. Since Northtech had generated over two-thirds
of the cash flow that funded the Partnership's regular operations and
distributions for the year ended December 31, 1996, and Martinazzi Square
generated approximately $145,000 per quarter in net operating income, or
approximately 31% of the cash flow that funded the Partnership's regular
operations and distributions since the sale of NorthTech in January 1997, future
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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.)
Capital Resources and Liquidity (Cont'd.)
distributions to the Limited Partners of cash from operations will 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 years ended December 31, 1997, 1996 and 1995.
On February 18, 1997, the General Partner mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and sell
and liquidate all of its remaining properties as soon as practicable, consistent
with selling the Partnership's properties to the best advantage under the
circumstances. A majority in interest of the Limited Partners consented by March
13, 1997. As a result, the Partnership has adopted the liquidation basis of
accounting as of March 31, 1997. The difference between the adoption of the
liquidation basis of accounting as of March 13, 1997 and March 31, 1997 was not
material.
Under the liquidation basis of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at their anticipated settlement
amounts. The valuation of assets and liabilities necessarily requires many
estimates and assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon dissolution and
costs associated therewith could be higher or lower than the amounts recorded.
Since the approval of the February 18, 1997 Consent Solicitation, the General
Partner has been evaluating possible sales of Partnership properties,
individually and as a portfolio, to liquidate and wind up the Partnership.
Recently, the General Partner has solicited several offers from prospective
purchasers to acquire all of the Partnership's remaining properties in a single
transaction. The General Partner is evaluating these offers, and expects to
either accept an offer or counter one or more of the offers soon. The offers are
substantially similar in price, and value the Partnership's remaining properties
on a collective basis at the high end of the range that the General Partner
previously discussed in the February 18, 1997 Consent Solicitation. To help
evaluate these offers, the General Partner is also evaluating local market
conditions and potential sales of the properties on an individual basis. There
can be no assurance as to when or at what price properties will be sold. If an
agreement can be reached to sell the properties in a single transaction, the
General Partner expects to complete such a transaction in 1998.
-12-
<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.)
Capital Resources and Liquidity (Cont'd.)
January 1, 1998 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 and
over the next year for the 1998 appraisals.
Using the shorter-term investment methodology that is consistent with the
mandate of the 1993 amendment to the Partnership Agreement and the liquidation
of the Partnership, the appraiser estimated the value of the Partnership's
properties at January 1, 1998 to be $12,252,000, net of estimated selling costs.
The foregoing appraised value of the Partnership's remaining properties
indicates an estimated value of net assets in liquidation of $13,415,000 or
$2,111 per $10,000 of original investor subscription. (Net assets in liquidation
represent the appraised value of the Partnership's properties, cash, and other
assets, less all liabilities including accrued expenses for liquidation).
Other Matters
The General Partner and its affiliates are currently working to resolve the
potential impact of the year 2000 on the processing of date-sensitive
information by the Partnership's computerized information systems. The year 2000
problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Any of the Partnership's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
or system failures. Based
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<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.)
Capital Resources and Liquidity (Cont'd.)
Other Matters (Cont'd.)
on preliminary information, the cost of addressing potential problems is not
currently expected to have a material adverse impact on the Partnership's
financial position, results of operations or cash flows in future periods.
However, the inability of the General Partner and its affiliates or their
suppliers or distributors and other vendors to resolve such processing issues in
a timely manner could have a material adverse impact on the Partnership.
Accordingly, the General Partner and its affiliates plan to devote the necessary
resources to resolve all significant year 2000 issues in a timely manner.
Results of Operations
Year Ended December 31, 1997
Because the Partnership adopted the liquidation basis of accounting on March 31,
1997, a comparison of the results of operations is not practical. The Statement
of Net Assets in Liquidation and Statement of Changes of Net Assets in
Liquidation reflect the Partnership in the process of liquidation. Prior
financial statements reflect the Partnership as a going concern. As the
Partnership's assets (properties) are sold, the results of operations will be
generated from a smaller asset base and are therefore not comparable. The
Partnership's operating results have been reflected on the Statement of Changes
of Net Assets in Liquidation since March 31, 1997 (the date of adoption of the
liquidation basis of accounting) and Statement of Operations for the three
months ended March 31, 1997.
For the year ended December 31, 1997, the Partnership generated $1,018,000 of
net operating income from operation of its properties (exclusive of Cooper
Village Partners), which was lower than 1996. The decrease in net operating
income was primarily attributable to the sale of Northtech in January 1997 and
the sale of Martinazzi Square in October 1997, and the sale of Flaircentre in
June 1996.
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1997, interest income was approximately
$150,000. The increase is due to the temporary investment of proceeds from the
sale of Northtech.
General and administrative expenses for the year ended December 31, 1997,
included charges of $248,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included in general
and administrative expenses for the year ended December 31, 1997, are direct
charges of $661,000 relating to audit fees, tax preparation fees, legal and
professional fees, insurance expenses, costs incurred in providing information
to the Limited Partners and other miscellaneous costs. The increase in general
and administrative expenses for the year ended December 31, 1997, as compared to
-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, 1997 (Cont'd.)
1996, was primarily attributable to the increase in legal and professional
services, printing costs, postage and mailing expenses associated with the
Partnership's solicitation of the Limited Partners consent for the liquidation
of the Partnership in February 1997.
Accrued expenses for liquidation, as reflected in the Statement of Net Assets in
Liquidation as of December 31, 1997, are not included in results of operations
for the three month period ended March 31, 1997. The liquidation basis of
accounting was adopted on March 31, 1997 therefore, it was not appropriate to
include such adjustments in the results of operations for prior periods. Accrued
expenses for liquidation as of December 31, 1997, includes estimates of costs to
be incurred in carrying out the dissolution and liquidation of the Partnership.
These costs include estimates of legal fees, accounting fees, tax preparation
and filing fees, professional services and the general partner's liability
insurance. The actual costs could vary significantly from the related provisions
due to the uncertainty related to the length of time required to complete the
liquidation and dissolution and the complexities which may arise in disposing of
the Partnership's remaining assets.
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.
-15-
<PAGE> 16
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 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.
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 apprasised 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
-16-
<PAGE> 17
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.)
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,
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.
-17-
<PAGE> 18
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.)
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,
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.
-18-
<PAGE> 19
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont.)
Recent Accounting Pronouncements.
- ---------------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130 requires all items that are
necessary to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS 130 does not
require a specific format for that financial statement, but requires that an
enterprise display an amount representing total comprehensive income for the
period covered by that financial statement. SFAS 130 requires an enterprise to
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS 130 will not have
an impact on the Partnership's financial reporting.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but
retains the requirement to report information about major customers. It amends
FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to
remove the special disclosure requirements for previously unconsolidated
subsidiaries. SFAS 131 requires, among other items, that a public business
enterprise report a measure of segment profit or loss, certain specific revenue
and expense items, segment assets, information about the revenues derived from
the enterprise's products or services and major customers. SFAS 131 also
requires that the enterprise report description information about the way that
the operating segments were determined and the products and services provided
by the operating segments. SFAS 131 is effective for financial statements for
periods beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. SFAS 131 need not
be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial
year of application is to be reported in financial statements for interim
periods in the second year of application. The adoption of SFAS 131 will not
have a material impact on the Partnership's financial reporting.
19
<PAGE> 20
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-3
Financial Statements:
Statement of Net Assets in Liquidation as of December 31, 1997.............. F-4
Statement of Changes of Net Assets in Liquidation for the Nine Months
Ended December 31, 1997..................................................... F-5
Balance Sheet as of December 31, 1996....................................... F-6
Statements of Operations for the Three Months Ended March 31, 1997
and the Years Ended December 31, 1996 and 1995.............................. F-7
Statements of Changes in Partners' Capital for the Three Months Ended
March 31, 1997 and the Years Ended December 31, 1996 and 1995............... F-8
Statements of Cash Flows for the Three Months Ended March 31, 1997
and the Years Ended December 31, 1996 and 1995.............................. F-9
Notes to Financial Statements............................................... F-10
Schedule:
III - Real Estate in Liquidation and Accumulated Depreciation as of
December 31, 1997........................................................... F-24
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-27
Financial Statements:
Statement of Net Assets in Liquidation as of December 31, 1997.......... F-28
Statement of Changes of Net Assets in Liquidation for the Nine Months
Ended December 31, 1997................................................. F-29
Balance Sheet as of December 31, 1996................................... F-30
Statements of Operations for the Three Months Ended March 31, 1997
and the Years Ended December 31, 1996 and 1995.......................... F-31
</TABLE>
F-1
<PAGE> 21
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE (CONTINUED)
<TABLE>
<S> <C>
Statements of Changes in Partners' Capital for the Three Months Ended
March 31, 1997 and the Years Ended December 31, 1996 and 1995................ F-32
Statements of Cash Flows for the Three Months Ended March 31, 1997
and the Years Ended December 31, 1996 and 1995............................... F-33
Notes to Financial Statements................................................ F-34
Schedule:
III - Real Estate in Liquidation and Accumulated Depreciation as of
December 31, 1997............................................................ F-41
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
F-2
<PAGE> 22
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
INDEPENDENT AUDITORS' REPORT
To Birtcher/Liquidity Properties, as General Partner of Real Estate Income
Partners III, Limited Partnership:
We have audited the financial statements of Real Estate Income Partners III,
Limited Partnership as listed in the accompanying index. In connection with our
audits of the financial statements, we also have audited the financial statement
schedule listed in the accompanying index. These financial statements and the
financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets in liquidation as of December 31, 1997 and
financial position as of December 31, 1996 of Real Estate Income Partners III,
Limited Partnership, and the changes of net assets in liquidation for the nine
months ended December 31, 1997 and the results of its operations and its cash
flows for the three months ended March 31, 1997 and each of the years in the
two-year period ended December 31, 1996, in conformity with generally accepted
accounting principles applied on the bases of accounting as discussed in note 2.
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 notes 1 and 2 to the financial statements, Real Estate Income
Partners III has changed its basis of accounting as of March 31, 1997 from the
going-concern basis to the liquidation basis.
KPMG PEAT MARWICK LLP
Orange County, California
March 6, 1998
F-3
<PAGE> 23
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
DECEMBER 31, 1997
<TABLE>
ASSETS (Liquidation Basis):
<S> <C>
Properties $ 8,820,000
Investment in Cooper Village Partners 2,733,000
Cash and cash equivalents 1,774,000
Accounts receivable 33,000
Other assets 11,000
-----------
Total Assets 13,371,000
-----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 337,000
Accrued expenses for liquidation 318,000
-----------
Total Liabilities 655,000
-----------
Net Assets in Liquidation $12,716,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 24
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
STATEMENT OF CHANGES OF NET ASSETS IN LIQUIDATION
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net assets in liquidation at March 31, 1997 $ 18,142,000
Increase (decrease) during period:
Operating activities:
Property operating income, net 1,099,000
Equity in earnings of Cooper Village Partners 146,000
Interest income 88,000
Gain from sale of assets 203,000
General and administrative expenses (588,000)
Leasing commissions (35,000)
------------
913,000
Liquidating activities - distribution to partners (6,339,000)
------------
Net decrease in assets in liquidation (5,426,000)
------------
Net assets in liquidation at December 31, 1997 $ 12,716,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 25
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Properties held for sale (net of valuation
allowance of $2,135,000) $ 26,654,000
Investment in Cooper Village Partners 2,727,000
Cash and cash equivalents 807,000
Accounts receivable (net of allowance for
doubtful accounts of $8,000) 42,000
Accrued rent receivable 799,000
Prepaid expenses and other assets, net 582,000
------------
$ 31,611,000
============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 574,000
------------
Partners' capital (deficit):
Limited Partners 31,254,000
General Partner (217,000)
------------
31,037,000
Commitments and contingencies
------------
$ 31,611,000
============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 26
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED FOR THE YEARS
MARCH 31, ENDED DECEMBER 31,
----------- ------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income $ 270,000 $ 4,910,000 $ 5,119,000
Interest and other income 61,000 59,000 72,000
Loss on sale of property (109,000) (13,000) --
----------- ----------- -----------
Total revenues 222,000 4,956,000 5,191,000
----------- ----------- -----------
EXPENSES:
Operating expenses 227,000 1,182,000 1,277,000
Real estate taxes 124,000 576,000 676,000
Depreciation and amortization 247,000 132,000 1,726,000
General and administrative 321,000 768,000 718,000
Adjustment to carrying value
of real estate -- 1,735,000 1,000,000
----------- ----------- -----------
Total expenses 919,000 4,393,000 5,397,000
----------- ----------- -----------
Income (loss) before equity in
earnings (loss) of Cooper Village
Partners (697,000) 563,000 (206,000)
Equity in earnings (loss) of
Cooper Village Partners 66,000 71,000 (447,000)
----------- ----------- -----------
NET INCOME (LOSS) $ (631,000) $ 634,000 $ (653,000)
=========== =========== ===========
NET INCOME (LOSS) ALLOCABLE TO:
General Partner $ (6,000) $ 6,000 $ (7,000)
=========== =========== ===========
Limited Partners $ (625,000) $ 628,000 $ (646,000)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-7
<PAGE> 27
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEARS ENDED DECEMBER 31,
1996 AND 1995
----------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------------------------------------------------
<S> <C> <C> <C>
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
Net loss (6,000) (625,000) (631,000)
Distributions (2,000) (11,944,000) (11,946,000)
------------ ------------ ------------
Balance, March 31, 1997 $ (225,000) $ 18,685,000 $ 18,460,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-8
<PAGE> 28
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FOR THE YEARS
MARCH 31, ENDED DECEMBER 31,
------------ --------------------------------
1997 1996 1995
------------ --------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (631,000) $ 634,000 $ (653,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 247,000 132,000 1,726,000
Equity in (earnings) loss of Cooper
Village Partners (66,000) (71,000) 447,000
Adjustment to carrying value
of real estate -- 1,735,000 1,000,000
Loss of sale of property 109,000 13,000 --
Changes in:
Accounts receivable 24,000 29,000 (22,000)
Accrued rent receivable 575,000 -- (34,000)
Prepaid expenses and other assets 106,000 (93,000) (124,000)
Accounts payable and accrued
liabilities (218,000) 126,000 57,000
------------ ------------ ------------
Net cash provided by operating
activities 146,000 2,505,000 2,397,000
------------ ------------ ------------
Cash flows from investing activities:
Investments in real estate (114,000) (1,098,000) (666,000)
Proceeds from sale of property 12,860,000 2,159,000 --
Distributions received from
Cooper Village Partners 51,000 260,000 223,000
------------ ------------ ------------
Net cash provided by (used in)
investing activities 12,797,000 1,321,000 (443,000)
------------ ------------ ------------
Cash flows from financing activities -
distributions (11,946,000) (3,999,000) (2,059,000)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 997,000 (173,000) (105,000)
Cash and cash equivalents,
beginning of period 807,000 980,000 1,085,000
------------ ------------ ------------
Cash and cash equivalents,
end of period $ 1,804,000 $ 807,000 $ 980,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-9
<PAGE> 29
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, 1998 and 1997 the
portfolio was appraised at an aggregate value of approximately
$12,252,000 and $33,895,000 (unaudited), respectively, which includes
the Partnership's interest in Cooper Village Partners which was
appraised at $2,667,000 (unaudited) and $2,705,000 (unaudited),
respectively. The factor used to calculate the annual asset management
fee is reduced by .10% each year beginning after December 31, 1996
(e.g., from .75% in 1996 to .65% in 1997 and .55% in 1998).
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-10
<PAGE> 30
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-11
<PAGE> 31
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.
Although the unpaid 9% Preferential Return to the Limited Partners
aggregates $18,014,000 as of December 31, 1997, it is anticipated that
the limited partners will not realize this return due to a comparable
liquidation value of $12,716,000.
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.
On February 18, 1997, the General Partner mailed a Consent Solicitation
to the Limited Partners which sought their consent to dissolve the
Partnership and sell and liquidate all of its remaining properties as
soon as practicable, consistent with obtaining reasonable value for the
Partnership's properties. A majority in interest of the Limited
Partners consented by March 13, 1997. As a result, the Partnership has
adopted the liquidation basis of accounting as of March 31, 1997. The
difference between the adoption of the liquidation basis of accounting
as of March 13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
F-12
<PAGE> 32
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
1) Organization and Operations (Cont'd.)
The Partnership adopted the liquidation basis of accounting on March
31, 1997. Comparison of results to prior years, therefore, is not
practical. The Statement of Net Assets in Liquidation and Statement of
Changes of Net Assets in Liquidation reflect the Partnership in the
process of liquidation. Prior financial statements reflect the
Partnership as a going concern.
Since the approval of the February 18, 1997 Consent Solicitation, the
General Partner has been evaluating possible sales of Partnership
properties, individually and as a portfolio, to liquidate and wind up
the Partnership. Recently, the General Partner has solicited several
offers from prospective purchasers to acquire all of the Partnership's
remaining properties in a single transaction. The General Partner is
evaluating these offers, and expects to either accept an offer or
counter one or more of the offers soon. The offers are substantially
similar in price, and value the Partnership's remaining properties on a
collective basis at the high end of the range that the General Partner
previously discussed in the February 18, 1997 Consent Solicitation. To
help evaluate these offers, the General Partner is also evaluating
local market conditions and potential sales of the properties on an
individual basis. There can be no assurance as to when or at what price
properties will be sold. If an agreement can be reached to sell the
properties in a single transaction, the General Partner expects to
complete such a transaction in 1998.
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, Northtech and Martinazzi Square,
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 1997
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" and the liquidation basis of accounting
adopted on March 31, 1997 (see Note 2), the carrying value of these
properties was evaluated to ensure that each property is carried on the
Partnership's balance sheet at the lower of cost or fair value less
estimated selling costs and estimated net realizable value,
respectively. The General Partner estimated fair value for this purpose
based on appraisals performed as of January 1, 1998 at December 31,
1997 and as of January 1, 1997 at December 31, 1996.
The January 1, 1998 appraisals assume that the properties will be sold
within the next year 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
Liquidation Basis
The Partnership adopted the liquidation basis of accounting as of March
31, 1997. The liquidation basis of accounting is appropriate when
liquidation appears imminent, the Partnership can no longer be
classified as a going concern and the net realizable values of the
Partnership's assets are
F-13
<PAGE> 33
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Liquidation Basis (Cont'd.)
reasonably determinable. Under this method of accounting, assets and
liabilities are stated at their estimated net realizable values and
costs of liquidating the Partnership are provided to the extent
reasonably determinable.
Carrying Value of Real Estate (prior to the adoption of the liquidation
basis of accounting)
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," ("FAS 121"). This Statement requires that if the General
Partner believes factors are present that may indicate long-lived
assets are impaired, the undiscounted cash flows, before debt service,
related to the assets should be estimated. If these estimated cash
flows are less than the carrying value of the asset, then impairment is
deemed to exist. If impairment exists, the asset should be written down
to the estimated fair value.
Further, assets held for sale, including any unrecoverable accrued rent
receivable or capitalized leasing commissions, 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 reviews its estimates of fair value, which are decreased or
increased up to the original carrying value. Finally, assets held for
sale are no longer depreciated. The adoption of FAS 121 did not have a
material impact on the Partnership's operations or financial position
as the General Partner adopted FAS 121 at December 31, 1995 and prior
to December 31, 1995 the Partnership did not have any properties held
for sale.
As noted above, as of December 31, 1995, the General Partner decided to
account for the Partnership's properties as assets held for sale,
assuming 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 were greater than its
appraised value, less estimated 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
F-14
<PAGE> 34
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Carrying Value of Real Estate (prior to the adoption of the liquidation
basis of accounting) (Cont'd.)
respective appraised values (or in the case of Northtech, its sales
price). As a result, the carrying value was adjusted by $548,000,
$1,068,000 and $119,000, respectively to $4,160,000, $12,968,000 and
$5,500,000, respectively, as of December 31, 1996.
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, 1997 and 1996, totaled $1,701,000 and $619,000,
respectively.
Cash equivalents are defined as temporary non-equity investments with
original maturities of three months or less, which can be readily
converted into cash and are not subject to changes in market value.
Depreciation
Through December 31, 1995, depreciation expense was computed using the
straight-line method. Rates used in the determination of depreciation
were based upon the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Revenue Recognition
Through March 31, 1997, rental income pertaining to operating lease
agreements which specify scheduled rent increases or free rent periods,
was recognized on a straight-line basis over the period of the related
lease agreement. After March 31, 1997, rental income has been
recognized according to the lease terms.
F-15
<PAGE> 35
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
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.
Following are the Partnership's assets and liabilities as
determined in accordance with generally accepted accounting
principles ("GAAP") (liquidation basis of accounting and going
conern basis) and for federal income tax reporting purposes at
December 31:
<TABLE>
<CAPTION>
1997 1996
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (GOING CONERN) (UNAUDITED)
- ------------------ ------------------- ------------------ ----------------------- ------------
<S> <C> <C> <C> <C>
Total Assets $13,371,000 $21,775,000 $31,611,000 $41,344,000
Total
Liabilities $ 655,000 $ 337,000 $ 574,000 $ 574,000
</TABLE>
F-16
<PAGE> 36
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) per
Financial Statements (period
ending March 31, 1997 for 1997) $ (631,000) $ 634,000 $ (653,000)
Change in net assets in
liquidation from operating
activities for the nine months
ended December 31, 1997 913,000 -- --
Adjustment to carrying value
of real estate -- 1,735,000 1,000,000
Adjustment to carrying value
of Cooper Village -- 173,000 571,000
Depreciation differences on
investments in real estate (704,000) (1,560,000) (91,000)
Net loss on sale of properties
in excess of book value (3,266,000) (2,179,000) --
Deferred rent adjustment 576,000 -- --
Other (138,000) (18,000) 95,000
- --------------------------------- ----------- ----------- -----------
Taxable income (loss) per
Federal tax return (unaudited) $(3,250,000) $(1,215,000) $ 922,000
================================= =========== =========== ===========
</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-17
<PAGE> 37
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; or approximately 27% and 20% of total rental
income for 1996, and 1995, respectively. Penril, Inc. represented
a significant portion of rental income until Northtech was sold in
January 1997.
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, the disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses or changes in net
assets during the reporting period. Actual results could differ
from those estimates.
Investment in Cooper Village Partners
The Partnership uses the equity method of accounting to account
for its investment in Cooper Village Partners inasmuch as control
of Cooper Village Partners is shared jointly between the
Partnership and Damson/Birtcher Realty Income Fund-II, Limited
Partnership. The accounting policies of Cooper Village Partners
are consistent with those of the Partnership.
(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 on the next page.
F-18
<PAGE> 38
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners (Cont'd.)
Condensed summary financial information for CV Partners is
presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-----------
<S> <C>
Condensed Statement of Net Assets in Liquidation:
Property $ 6,102,000
Cash and Other Assets 401,000
Liabilities (144,000)
-----------
Net assets in liquidation $ 6,359,000
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996
----------
<S> <C>
Condensed Balance Sheet:
Property held for sale (net of
valuation allowance of $1,772,000) $6,011,000
Cash and Other Assets 460,000
----------
Total Assets $6,471,000
==========
Accounts Payable and
Accrued Liabilities $ 114,000
Partners' Capital 6,357,000
----------
Total Liabilities and
Partners' Capital $6,471,000
==========
</TABLE>
<TABLE>
NINE MONTHS
Condensed Statement of Changes ENDED DECEMBER 31,
Of Net Assets in Liquidation: 1997
-----------
<S> <C>
Net Assets in Liquidation
at March 31, 1997 $ 6,384,000
Increase (decrease) during period:
Operating Activities 345,000
Liquidating Activities (370,000)
-----------
Net decrease in Assets in
Liquidation (25,000)
-----------
Net Assets in Liquidation at
December 31, 1997 $ 6,359,000
===========
</TABLE>
F-19
<PAGE> 39
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners (Cont'd.)
Condensed Statement of Operations:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Rental and Other Income $ 242,000 $ 1,072,000 $ 1,046,000
Operating and Other Expenses (84,000) (483,000) (498,000)
Adjustment to Carrying Value
of Real Estate -- (412,000) (1,360,000)
Depreciation and Amortization (2,000) (8,000) (253,000)
----------- ----------- -----------
Net Income (Loss) $ 156,000 $ 169,000 $(1,065,000)
=========== =========== ===========
</TABLE>
(4) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General
Partner and its affiliates perform services on behalf of the
Partnership in connection with administering the affairs of the
Partnership. The General Partner and affiliates are reimbursed
for their general and administrative costs actually incurred and
associated with services performed on behalf of the Partnership.
For the years ended December 31, 1997, 1996 and 1995, the
Partnership was charged with approximately $131,000, $131,000 and
$151,000, 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 $93,000, $187,000 and $193,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. In addition, an
affiliate of the General Partner received $53,000, $56,000 and
$100,000, respectively, for the years ended December 31, 1997,
1996 and 1995, as reimbursement of costs for on-site property
management personnel and other reimbursable costs. In addition to
the aforementioned, an affiliate of the General Partner was also
paid $37,000, $39,000 and $37,000, 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, 1997, 1996 and 1995, respectively.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee
equal to .65% (.75% in 1996 and 1995) 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, 1997, 1996 and 1995,
amounted to $93,000, $224,000 and $240,000, respectively. In
addition, the
F-20
<PAGE> 40
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Transactions with Affiliates (Cont'd.)
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, 1997, 1996 and 1995, amounted to
$24,000, $47,000 and $24,000 respectively. In addition, to the
aforementioned, the General Partner was also paid $17,000,
$20,000 and $24,000, related to the Partnership's portion (42%)
of asset management fees for Cooper Village Partners for the
years ended December 31, 1997, 1996 and 1995, respectively.
(5) Gains and Losses 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.
On January 24, 1997 the Partnership sold Northtech for a sale
price of $13,600,000. The Partnership realized approximately
$13,079,000 from the sale, after accounting for closing costs and
prorations of approximately $521,000. The purchaser of Northtech
has for three years had a preexisting relationship with an
affiliate of Birtcher Investors, pursuant to which the purchaser
had contracted with Birtcher to locate, acquire and manage real
property for the purchaser's account. No broker was paid a
commission as part of the transaction. Since the sale price
exceeded the January 1, 1993 appraised value ($12,900,000),
pursuant to the 1993 amendment of the Partnership Agreement, the
General Partner earned and was paid a property disposition fee of
approximately $340,000 in connection with the sale. The purchaser
paid a net investment advisory fee of approximately $52,000 to
the affiliate of Birtcher Investors and has retained Birtcher
Property Services to manage the property.
On October 1, 1997, the Partnership sold Martinazzi Square
Shopping Center for $6,100,000. The Partnership realized
approximately $5,824,000 after accounting for brokerage
commissions, closing costs and prorations of $276,000. Since the
sale price exceeded the January 1, 1993 appraised value
($5,400,000), pursuant to the 1993 amendment of the Partnership
agreement the General Partner earned, and was paid, a property
disposition fee of $153,000 in connection with the sale.
F-21
<PAGE> 41
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, 1997, are properly classified as
operating leases for financial reporting purposes, however:
Future minimum annual rental income to be received under such
leases as of December 31, 1997, is as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 $ 1,462,000
1989 1,251,000
2000 1,207,000
2001 1,053,000
2002 444,000
Thereafter --
-----------
$ 5,417,000
===========
</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
So far as is known to the General Partner, neither the Partnership
nor its properties are subject to any material pending legal
proceedings, however:
On March 25, 1997, a limited partner named Bigelow/Diversified
Secondary Partnership Fund 1990 filed a purported class action
lawsuit in the Court of Common Pleas of Philadelphia County
against Damson/Birtcher Partners, Birtcher Investors, Birtcher
Liquidity Properties, Birtcher Investments, L.F. Special Fund II,
L.P., L.F. Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher,
Robert Anderson, Richard G. Wollack and Brent R. Donaldson
alleging breach of fiduciary duty and breach of contract and
seeking to enjoin the Consent Solicitation dated February 18,
1997. On April 18, 1997, the court denied the plaintiff's motion
for a preliminary injunction. On June 10, 1997, the court
dismissed the plaintiff's complaint on the basis of lack of
personal jurisdiction and forum non conveniens.
On June 13, 1997, the Partnership, its affiliated partnership,
Damson/Birtcher Realty Income Fund-II, and their general partner,
Birtcher/Liquidity Properties, filed a complaint for declaratory
relief in the Court of Chancery in Delaware against
Bigelow/Diversified Secondary Partnership Fund 1990 L.P. The
complaint seeks a declaration that the vote that the limited
partners of the Partnership and Damson/Birtcher Realty Income
Fund-II took pursuant to the
F-22
<PAGE> 42
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
respective consent solicitations dated February 18, 1997 were
effective to dissolve the respective partnerships and complied
with applicable law, that the actions of the General Partner in
utilizing the consent solicitations to solicit the vote of the
limited partners did not breach any fiduciary or contractual duty
to such limited partners, and an award of costs and fees to the
plaintiffs. The defendant has answered the complaint. No motions
are pending at this time.
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
Real estate taxes $140,000 $145,000
Security deposits 34,000 205,000
Accounts payable and other 163,000 224,000
-------- --------
$337,000 $574,000
======== ========
</TABLE>
(8) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1997, includes
estimates of costs to be incurred in carrying out the dissolution
and liquidation of the Partnership. These costs include estimates
of legal fees, accounting fees, tax preparation and filing fees,
other professional services and the general partner's liability
insurance.
(9) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995
----------------------------
<S> <C> <C>
Balance at beginning of year $ 14,000 $ --
Additions -- 30,000
Writeoffs (6,000) (16,000)
-------- --------
Balance at end of year $ 8,000 $ 14,000
======== ========
</TABLE>
6(9) Subsequent Events
On February 28, 1998, the Partnership made an aggregate regular
cash distribution of $242,000 to its Limited Partners.
F-23
<PAGE> 43
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE IN LIQUIDATION AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(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 $ 1,333 $ (2,317) $ 746 $ 3,451 $ 4,197
The Forum
Wauwatosa, WI 1,109 5,209 2,018 (3,713) 827 3,796 4,623
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 1,855 $ 9,644 $ 3,351 $ (6,030) $ 1,573 $ 7,247 $ 8,820
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
COL. A COL. F COL. H COL. I
------ ------ ------ ------
ACCUMULATED
DEPRECIATION DATE DEPRECIABLE
DESCRIPTION (a) (e) ACQUIRED LIFE (f)
- ---------------------------- ---------- ---------- ----------
Creek Edge Business Center,
<S> <C> <C> <C>
Eden Prairie, MN -- 07/01/86 30 years
The Forum
Wauwatosa, WI -- 08/28/86 30 years
----------
TOTAL --
==========
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
See notes to table on following page.
F-24
<PAGE> 44
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) Upon adoption of the liquidation basis of accounting on March 31,
1997, accumulated depreciation was deleted through an adjustment
to the cost of the properties.
At December 31, 1996, the General Partner determined that Creek
Edge had a carrying value greater than its respective appraised
value. As a result, the carrying value was adjusted by $548,000
to $4,160,000 as of December 31, 1996.
At December 31, 1995, the General Partner determined that Creek
Edge Business Center had a carrying value greater than its
appraised value less selling costs, and therefore provided a
valuation allowance of $50,000 against the property held for
sale.
The aggregate cost of land, buildings and improvements for
Federal income tax purposes (unaudited) was $14,877,000 as of
December 31, 1997. 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.
F-25
<PAGE> 45
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
(e) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------------------------------
<S> <C> <C>
Balance at beginning of year $ 38,727,000 $ 42,955,000
Additions during the year:
Improvements 256,000 1,098,000
Other (*) (4,042,000)
Reductions during the year:
Sale of real estate (26,121,000) (3,591,000)
Adjustment to the carrying
value of real estate -- (1,735,000)
------------ ------------
Balance at end of year $ 8,820,000 $ 38,727,000
============ ============
</TABLE>
(*) Results from reclassification of deferred rent receivable and leasing
commissions to real estate and deletion of accumulated depreciation upon the
adoption of the liquidation basis of accounting on March 31, 1997.
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Balance at beginning of year $ 12,073,000 $ 13,498,000
Accumulated depreciation on
real estate sold (7,725,000) (1,425,000)
Adjustment upon adoption of liquidation
basis of accounting (4,348,000) --
------------ ------------
Balance at end of year $ -- $ 12,073,000
============ ============
</TABLE>
(f) Through December 31, 1995, depreciation expense was computed based
upon the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Due to the adoption of FAS 121 on December 31, 1995 and the
Liquidation basis of accounting on March 13 1997, properties held
for sale were not depreciated in 1996 or 1997.
F-26
<PAGE> 46
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEPENDENT AUDITORS' REPORT
To Damson/Birtcher Realty Income Fund-II, Limited Partnership and
Real Estate Income Partners III, Limited Partnership as
General Partners of Cooper Village Partners:
We have audited the financial statements of Cooper Village Partners, a general
partnership, as listed in the accompanying index. In connection with our audits
of the financial statements, we also have audited the financial statement
schedule listed in the accompanying index. These financial statements and the
financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets in liquidation as of December 31, 1997 and
financial position as of December 31, 1996 of Cooper Village Partners, and the
changes of net assets in liquidation for the nine months ended December 31, 1997
and the results of its operations and its cash flows for the three months ended
March 31, 1997 and each of the years in the two-year period ended December 31,
1996, in conformity with generally accepted accounting principles applied on the
bases of accounting as discussed in note 2. 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 notes 1 and 2 to the financial statements, the Partnership has
changed its basis of accounting as of March 31, 1997 from the going-concern
basis to the liquidation basis.
KPMG PEAT MARWICK LLP
Orange County, California
March 6, 1998
F-27
<PAGE> 47
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENT OF NET ASSETS IN LIQUIDATION
DECEMBER 31, 1997
<TABLE>
ASSETS (Liquidation Basis):
<S> <C>
Property $6,102,000
Cash and cash equivalents 324,000
Accounts receivable 71,000
Other assets 6,000
----------
Total Assets 6,503,000
----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 135,000
Accrued expenses for liquidation 9,000
----------
Total Liabilities 144,000
----------
Net Assets in Liquidation $6,359,000
==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-28
<PAGE> 48
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENT OF CHANGES OF NET ASSETS IN LIQUIDATION
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net assets in liquidation at March 31, 1997 $ 6,384,000
Increase (decrease) during period:
Operating activities:
Property operating income, net 381,000
Interest income 16,000
General and administrative expenses (39,000)
Leasing commissions (13,000)
-----------
345,000
Liquidating activities - distribution to partners (370,000)
-----------
Net decrease in assets in liquidation (25,000)
-----------
Net assets in liquidation at December 31, 1997 $ 6,359,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 49
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
----------
<S> <C>
ASSETS
Property held for sale (net of valuation
allowance of $1,772,000) $6,011,000
Cash and cash equivalents 355,000
Accounts receivable 40,000
Accrued rent receivable 47,000
Prepaid expenses and other assets, net 18,000
----------
$6,471,000
==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 114,000
----------
Partners' capital 6,357,000
Commitments and contingencies
----------
$6,471,000
==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-30
<PAGE> 50
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED FOR THE YEARS
MARCH 31, ENDED DECEMBER 31,
----------- -----------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income $ 238,000 $ 1,051,000 $ 1,025,000
Interest and other income 4,000 21,000 21,000
----------- ----------- -----------
Total revenues 242,000 1,072,000 1,046,000
----------- ----------- -----------
EXPENSES:
Operating expenses 72,000 277,000 296,000
Real estate taxes -- 148,000 136,000
Depreciation and amortization 2,000 8,000 253,000
Adjustment to carrying value of
real estate -- 412,000 1,360,000
General and administrative 12,000 58,000 66,000
----------- ----------- -----------
Total expenses 86,000 903,000 2,111,000
----------- ----------- -----------
NET INCOME (LOSS) $ 156,000 $ 169,000 $(1,065,000)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-31
<PAGE> 51
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
THE YEARS ENDED DECEMBER 31,
1996 AND 1995
-------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III TOTAL
-------------------------------------------------
<S> <C> <C> <C>
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
Net income 90,000 66,000 156,000
Distributions (70,000) (50,000) (120,000)
----------- ----------- -----------
Balance, March 31, 1997 $ 3,650,000 $ 2,743,000 $ 6,393,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-32
<PAGE> 52
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED FOR THE YEARS
MARCH 31, ENDED DECEMBER 31,
----------- ------------------------------
1997 1996 1995
----------- ------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 156,000 $ 169,000 $(1,065,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,000 8,000 253,000
Adjustment to carrying value of
real estate -- 412,000 1,360,000
Changes in:
Accounts receivable (24,000) 5,000 (8,000)
Accrued rent receivable 2,000 10,000 4,000
Prepaid expenses and other assets 1,000 (3,000) (10,000)
Accounts payable and accrued
liabilities 17,000 3,000 26,000
----------- ----------- -----------
Net cash provided by operating
activities 154,000 604,000 560,000
Cash flows from investing activities -
investments in real estate (22,000) (37,000) (22,000)
Cash flows from financing activities -
distributions (120,000) (620,000) (530,000)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 12,000 (53,000) 8,000
Cash and cash equivalents,
beginning of period 355,000 408,000 400,000
----------- ----------- -----------
Cash and cash equivalents,
end of period $ 367,000 $ 355,000 $ 408,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-33
<PAGE> 53
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.
On February 18, 1997, the General Partners mailed a Consent
Solicitation to the Limited Partners of Funds II and III which
sought their consent to dissolve those Partnerships and sell and
liquidate all of their remaining properties (including the
Partnership's property) as soon as practicable, consistent with
obtaining reasonable value for the Partnership's property. A
majority in interest of the Limited Partners of Funds II and III
consented by March 13, 1997. As a result, the General Partner, as
well as the Partnership, have adopted the liquidation basis of
accounting as of March 31, 1997. The difference between the
adoption of the liquidation basis of accounting as of March 13,
1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at
their estimated net realizable values and liabilities are stated
at their anticipated settlement amounts. The valuation of assets
and liabilities necessarily requires many estimates and
assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon
dissolution and costs associated therewith could be higher or
lower than the amounts recorded.
The Partnership adopted the liquidation basis of accounting on
March 31, 1997. Comparison of results to prior years, therefore,
is not practical. The Statement of Net Assets in Liquidation and
Statement of Changes of Net Assets in Liquidation reflect the
Partnership in the process of liquidation. Prior financial
statements reflect the Partnership as a going concern.
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 1997 and it is currently held
for sale.
In connection with their consideration of these alternatives, and
in accordance with Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets
F-34
<PAGE> 54
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization (Cont'd.)
to Be Disposed Of" and the liquidation basis of accounting (see
Note 2), the carrying value of the Partnership's property was
evaluated to ensure it is carried on the Partnership's balance
sheet at the lower of cost or fair value less estimated selling
costs and estimated net realizable value, respectively. The
General Partners' estimated fair value for this purpose was based
on an appraisal performed as of January 1, 1998 at December 31,
1997 and as of January 1, 1997 at December 31, 1996.
The January 1, 1998 appraisal assumes that the property will be
sold within approximately the next year 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
Partnership's 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 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.
(2) Summary of Significant Accounting Policies
Liquidation Basis
The Partnership adopted the liquidation basis of accounting as of
March 31, 1997. The liquidation basis of accounting is appropriate
when liquidation appears imminent, the Partnership can no longer
be classified as a going concern and the net realizable values of
the Partnership's assets are reasonably determinable. Under this
method of accounting, assets and liabilities are stated at their
estimated net realizable values and costs of liquidating the
Partnership are provided to the extent reasonably determinable.
Carrying Value of Real Estate (prior to the adoption of the
liquidation basis of accounting)
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," ("FAS 121"). This Statement requires that if
management 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
F-35
<PAGE> 55
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Carrying Value of Real Estate (prior to the adoption of the
liquidation basis of accounting) (Cont'd.)
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 review their estimate of fair value, which is decreased
or increased up to the original carrying value. Finally, assets
held for sale are no longer depreciated. The initial adoption of
FAS 121 did not have a material impact on the Partnership's
operations or financial position as the General Partners adopted
FAS 121 at December 31, 1995 and prior to December 31, 1995 the
Partnership did not have any property held for sale.
As noted above, as of December 31, 1995 the General Partners
decided to account for the Partnership's property as an asset held
for sale, assuming a 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 it's appraised value, less selling
costs, and the General Partner reduced the carrying value of the
property by the difference of $1,360,000. At December 31, 1996,
after comparing the carrying value to the January 1, 1997
appraised value, the property's carry value was adjusted by an
additional $412,000.
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 nonequity-type cash
investments. Cash equivalents at December 31, 1997 and 1996,
totaled $289,000 and $301,000, respectively. Cash equivalents are
defined as temporary non-equity investments with original
maturities of three months or less, which can be readily converted
into cash and are not subject to changes in market value.
Depreciation
Through December 31, 1995 depreciation expense was computed using
the straight-line method. Rates used in the determination of
depreciation were based upon the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
F-36
<PAGE> 56
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Revenue Recognition
Through March 31, 1997, 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. After March 31, 1997,
rental income has been recognized according to the lease terms.
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, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses or
changes in net assets 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.
Following are the Partnership's assets and liabilities as
determined in accordance with generally accepted accounting
principles ("GAAP") (liquidation basis of accounting and going
concern basis) and for federal income tax reporting purposes at
December 31:
<TABLE>
<CAPTION>
1997 1996
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (GOING CONCERN) (UNAUDITED)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $ 6,502,000 $ 6,507,000 $ 6,471,000 $ 6,883,000
Total
Liabilities $ 144,000 $ 135,000 $ 114,000 $ 114,000
</TABLE>
F-37
<PAGE> 57
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 differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per
Financial Statements (period
ended March 31, 1997 for 1997) $ 156,000 $ 169,000 $(1,065,000)
Change in net assets in
liquidation from operating
activities for the nine months
ended December 31, 1997 345,000 -- --
Depreciation differences on
investments in real estate (221,000) (219,000) 25,000
Adjustment to carrying value
of real estate -- 412,000 1,360,000
Other 7,000 10,000 4,000
- --------------------------------------------------------------------------------------
Taxable income per Federal tax
return (unaudited) $ 287,000 $ 372,000 $ 324,000
======================================================================================
</TABLE>
(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, 1997, 1996 and 1995, the
Partnership was charged with approximately $1,000, $1,000 and $0,
respectively, of such expenses.
An affiliate of the General Partner of Fund II and Fund III
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 $47,000 in 1997,
$54,000 in 1996 and $52,000 in 1995. In addition, as reimbursement
of costs for on-site property management personnel and other
related costs, an affiliate of the General Partner received
$37,000 in 1997, $35,000 in 1996 and $33,000 in 1995, as
reimbursement of costs for on-site property management personnel
and other reimbursable costs.
F-38
<PAGE> 58
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates (Cont'd.)
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 .65% (75% in 1996) 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, 1997, 1996 and 1995,
amounted to $39,000, $48,000 and $58,000, respectively. In
addition, the amended Partnership Agreements for Fund II and Fund
III provide for payment to the General Partner 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, 1997,
1996 and 1995, amounted to $6,000, $3,000 and $2,000,
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.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been
executed as of December 31, 1997, 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, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 $ 679,000
1999 641,000
2000 533,000
2001 386,000
2002 315,000
Thereafter 1,559,000
----------
$4,113,000
==========
</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.
F-39
<PAGE> 59
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Real estate taxes $ 70,000 $ 74,000
Accounts payable and other 29,000 5,000
Security deposits 36,000 35,000
---------- ----------
$ 135,000 $ 114,000
========== ==========
</TABLE>
(6) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1997, includes
estimates of costs to be incurred in carrying out the dissolution
and liquidation of the Partnership. These costs include estimates
of legal fees, accounting fees, tax preparation and filing fees,
other professional services and the general partner's liability
insurance.
(7) Subsequent Events
On March 5, 1998, the Partnership made an aggregate cash
distribution of $140,000 to its General Partners.
F-40
<PAGE> 60
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
SCHEDULE III
REAL ESTATE IN LIQUIDATION AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D
------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT
TO PARTNERSHIP(c) TO THE ACQUISITION
----------------------------- -----------------------------
BUILDINGS AND CARRYING
DESCRIPTION(a) LAND IMPROVEMENTS IMPROVEMENTS COSTS(b)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cooper Village Shopping Center $ 2,756 $ 6,430 $ 785 $ (3,869)
------------ ------------ ------------ ------------
TOTAL $ 2,756 $ 6,430 $ 785 $ (3,869)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
COL. A COL. E COL. F COL. H COL. I
------ ------ ------ ------ ------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD(b)
----------------------------------------------
BUILDINGS AND ACCUMULATED DATE DEPRECIABLE
DESCRIPTION (A) LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED LIFE (D)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cooper Village Shopping Center $ 2,748 $ 3,354 $ 6,102 -- 12/30/87 and 30 years
12/30/88
------------ ------------ ------------ ------------
TOTAL $ 2,748 $ 3,354 $ 6,102 --
============ ============ ============ ============
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
F-41
<PAGE> 61
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO SCHEDULE III
(a) For a description of the property, see "Item 2. Properties."
(b) Upon adoption of the liquidation basis of accounting on March 31,
1997, accumulated depreciation was deleted through an adjustment
to the cost of the property.
At December 31, 1995, the General Partner determined that the
Partnership's property had a carrying value greater than its
appraised value less selling cost, and therefore provided a
valuation allowance of $1,360,000 against property held for sale.
At December 31, 1996, the General Partner determined that the
Partnership's property had a carrying value greater than its
appraised value less selling cost, and therefore provided an
additional valuation allowance of $412,000 against property held
for sale.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $9,814,000 as of December 31,
1997. 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 and the
liquidation basis of accounting on March 31, 1997, the property
held for sale was not depreciated in 1996 or 1997.
F-42
<PAGE> 62
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:
o Richard G. Wollack, Chairman of the Board
o Brent R. Donaldson, President
o 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:
o Ronald E. Birtcher, Co-Chairman of the Board
o Arthur B. Birtcher, Co-Chairman of the Board
o Robert M. Anderson, Executive Director
-20-
<PAGE> 63
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, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 10,000 $ 18,000 $ 21,000
Asset management fees 93,000 224,000 240,000
Property management fees 93,000 187,000 193,000
Leasing fees 24,000 47,000 24,000
Property management expense
reimbursements 53,000 56,000 100,000
Other expense reimbursements 131,000 131,000 151,000
-------- -------- --------
TOTAL $404,000 $663,000 $729,000
======== ======== ========
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1998, 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.
-21-
<PAGE> 64
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.
-22-
<PAGE> 65
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 January 24 and October 8, 1997 the Partnership filed Form 8-K
to report the sales of NorthTech and Martinazzi Square,
respectively. Those reports are incorporated herein by reference.
-23-
<PAGE> 66
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, 1998 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, 1998 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, 1998
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1998
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1998
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-24-
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,774,000
<SECURITIES> 0
<RECEIVABLES> 33,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,818,000
<PP&E> 8,820,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,371,000
<CURRENT-LIABILITIES> 655,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,716,000
<TOTAL-LIABILITY-AND-EQUITY> 13,371,000
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>STATEMENT OF OPERATIONS IS NOT PRESENTED IN LIQUIDATION BASIS OF ACCOUNTING.
</FN>
</TABLE>
