<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, 1998 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)
(949) 643-7700
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
<S> <C>
NONE NONE
</TABLE>
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.
-1-
<PAGE> 2
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 5
Item 3. Legal Proceedings................................................ 6
Item 4. Submission of Matters to a Vote of Security Holders.............. 7
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters.................. 7
Item 6. Selected Financial Data.......................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 10
Item 7a. Quantitative and Qualitative Market Risk Disclosures............. 18
Item 8. Financial Statements and Supplementary Data...................... F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 19
PART III
Item 10. Directors and Executive Officers of the Registrant............... 19
Item 11. Executive Compensation........................................... 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 20
Item 13. Certain Relationships and Related Transactions................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 20
--- Signatures....................................................... 23
</TABLE>
-2-
<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 reinvestment 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 was 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.
-3-
<PAGE> 4
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 1. Business (Cont'd.)
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. On
April 30, 1998 the General Partner accepted an offer to purchase all of the
Partnership's properties for $12,560,000 from Abbey Investments, Inc. ("Abbey"),
which was subject to certain customary contingencies, including due diligence
review by the purchaser and negotiation of a definitive Purchase and Sale
Agreement. On November 9, 1998, the Partnership and Abbey entered into a
definitive Purchase and Sale Agreement, for an adjusted purchase price of
$12,300,000. Abbey thereafter requested a material reduction in the purchase
price, which the Partnership did not agree to. Therefore, in late January 1999,
the sale to Abbey was terminated. Since that time, the Partnership has been
actively soliciting buyers for its properties.
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 or
approximately 27% of the Partnership's total rental income.
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.
-4-
<PAGE> 5
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
NET TENANT PERCENTAGE
APPROXIMATE RENTABLE LEASES OCCUPIED
PURCHASE AREA IN AS OF AS OF
NAME/LOCATION/DATE ACQUIRED PRICE(1) DESCRIPTION SQ. FT. 12/31/98 12/31/98
- ------------------------------------------------------------------------------------------------------------------------
<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 15 79%
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) 22 99%
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.
-5-
<PAGE> 6
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 2. PROPERTIES (Cont'd.)
NOTES TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of
acquisition fees of $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, 1998, 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, except for the
following:
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.
-6-
<PAGE> 7
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 3. LEGAL PROCEEDINGS (Cont'd.)
In September 1998, Bigelow/Diversified Secondary Partnership 1990 informed the
Partnership that it was filing suit in the Delaware Chancery Court against
Damson/Birtcher Partners, Birtcher Investors, Birtcher Liquidity Properties,
Birtcher Investments, BREICORP, LF Special Fund I, LP, LF Special Fund II. LP,
Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent
R. Donaldson alleging a purported class action on behalf of the limited partners
of Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income Fund-II
and Real Estate Income Partners III alleging breach of fiduciary duty and
incorporating the allegations set forth in the previously dismissed March 25,
1997 complaint filed in the Court of Chancery of Philadelphia County. Plaintiff
has engaged in preliminary discovery and the parties have held settlement
discussions. No motions are pending at this time.
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, 1999, the number of holders of the Partnership's interests is
as follows:
<TABLE>
<CAPTION>
<S> <C>
General Partner 1
Limited Partners 6,493
-----
6,494
=====
</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:
-7-
<PAGE> 8
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS (Cont'd.)
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $153,000 242,000 $11,944,000 $ 631,000 $408,000 $388,000
Second 752,000 242,000 2,777,000 446,000 478,000
Third 185,000 242,000 255,000 490,000 433,000
Fourth 197,000 5,847,000 318,000 694,000 440,000
</TABLE>
The Limited Partners and the General Partner are entitled to receive quarterly
cash distributions, as available, in the future.
In June 1996, the Partnership made a $2,159,000 special distribution to its
limited partners from a portion of the proceeds from the sale of Flaircentre.
See Item 7, Liquidity and Capital Resources, for further discussion.
In February 1997, the Partnership made a $11,708,000 special distribution to its
limited partners from a portion of the proceeds from the sale of Northtech. See
Item 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.
-8-
<PAGE> 9
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD ENDED YEARS ENDED DECEMBER 31,
MARCH 31, ----------------------------------------------------
1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenues $ 222,000 $ 4,956,000 $ 5,191,000 $ 4,576,000
============ ============ ============ ============
Net Income (Loss):
General Partner $ (6,000) $ 6,000 $ (7,000) $ (15,000)
Limited Partners (625,000) 628,000 (646,000) (1,516,000)
------------ ------------ ------------ ------------
$ (631,000) $ 634,000 $ (653,000) $ (1,531,000)
============ ============ ============ ============
Total Distributions:
General Partner $ 2,000 $ 18,000 $ 21,000 $ 18,000
============ ============ ============ ============
Limited Partners $ 11,944,000 $ 3,981,000 $ 2,038,000 $ 1,739,000
============ ============ ============ ============
</TABLE>
The following summary of financial data is for the period since the Partnership
adopted the liquidation basis of accounting.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997 THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ---------------------
<S> <C> <C>
Property Operating
Income, net $ 1,006,000 $ 1,099,000
=========== ===========
Distributions to
Partners $ 1,384,000 $ 6,339,000
=========== ===========
Net Assets in
Liquidation $12,217,000 $12,716,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Total Assets $31,611,000 $34,850,000 $37,505,000
=========== =========== ===========
</TABLE>
-9-
<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
Since the completion of its acquisition program in December 1988, the
Partnership has been primarily 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 1997 and
1998 and continue to be 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, 1998, 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.
On October 1, 1997, the Partnership sold Martinazzi Square for $6,100,000. The
Partnership realized approximately $5,824,000 after accounting for brokerage
-10-
<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.)
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
distributions to the Limited Partners of cash from operations will be
significantly reduced.
-11-
<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.)
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, 1998, 1997 and 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 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. On
April 30, 1998 the General Partner accepted an offer to purchase all of the
Partnership's properties for $12,560,000 from Abbey Investments, Inc. ("Abbey"),
which was subject to certain customary contingencies, including due diligence
review by the purchaser and negotiation of a definitive Purchase and Sale
Agreement. On November 9, 1998, the Partnership and Abbey entered into a
definitive Purchase and Sale Agreement, for an adjusted purchase price of
$12,300,000. Abbey thereafter requested a material reduction in the purchase
price, which the Partnership did not agree to. Therefore, in late January 1999,
the sale to Abbey was terminated. Since that time, the Partnership has been
actively soliciting buyers for its properties.
-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.)
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 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 remaining 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, over approximately two years for the January 1997 appraisals and
over one year for the 1998 appraisals.
The General Partner has been evaluating multiple proposals to acquire the
properties (both individually and in bulk) over the past several months. In lieu
of obtaining appraisals as of January 1, 1999, the General Partner calculated an
estimated selling price net of estimated selling costs by taking an average of
the offer prices, net of estimated selling costs, from those proposals. The
General Partner utilized those averages to estimate fair value. The General
Partner estimated the fair value of the Partnership's remaining properties at
January 1, 1999 to be $12,111,000, net of estimated selling costs and
disposition fees.
The foregoing estimated fair value net of selling costs of the Partnership's
remaining properties indicates an estimated net asset value in liquidation of
$12,605,000 or $198 per $1,000 of original investor subscription. Net assets in
liquidation represents the estimated selling price of the Partnership's
properties, (net of estimated closing costs and disposition fees), cash and all
other assets less other liabilities including accrued expenses for liquidation.
Other Matters
The Partnership is in the process of liquidating its remaining assets. It is
anticipated that a sale of those assets will occur on or before January 1, 2000.
It is the opinion of the General Partner that the value of those assets is not
subject to any valuation risk as a result of year 2000 issues, other than
general economic
-13-
<PAGE> 14
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Other Matters (Cont'd.)
climate issues that may arise. Based on current information, the cost of
addressing potential year 2000 problems is not expected to have a material
adverse impact on the Partnership's financial position, results of operations or
cash flows in future periods. As of December 31, 1998, the investor services
system used to track the limited partners' interests, distributions and tax
information has been tested and appears to be free of year 2000 bugs. The
Partnership's properties are under review utilizing the Building Owners and
Managers Association industry ("BOMA") standards as a guideline for necessary
corrections and the Partnership's accounting systems are scheduled for a
software upgrade to correct any of its year 2000 issues in July of 1999. The
cost of the upgrades will be borne by the General Partner and will not be
reimbursed by the Partnership. In addition, the General Partner has made
inquiries of its banks, all of which indicate that any problems have been
addressed adequately by those institutions.
Even if attempts to correct any deficiencies in the Partnership's software are
unsuccessful, the General Partner anticipates that in the short term it could
convert its systems to standard spreadsheet or data base programs at nominal
cost.
Results of Operations
Year Ended December 31, 1998
Because the Partnership adopted the liquidation basis of accounting on March 31,
1997, a comparison of the results of operations is not practical. The Statements
of Net Assets in Liquidation and Statements 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 Statements 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, 1998, the Partnership generated $1,006,000 of
net operating income from operation of its properties (exclusive of Cooper
Village Partners), which was slightly lower than 1997. The decrease in operating
income for the year ended December 31, 1998, when compared to 1997 was primarily
attributable to the following: 1) the sale of Northtech in January 1997 which
caused a decrease in 1998 rental revenue of $108,000, offset by a $584,000 write
off of deferred rent in 1997 related to the sale; 2) the sale of Martinazzi
Square in October 1997 that caused a decrease in rental revenue of $479,000; the
decrease in operating expenses of $617,000 related to the sale of Northtech;
and 4) the write off of $178,000 at The Forum related to the early termination
of a lease arrangement.
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1998, interest income was approximately
-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, 1998 (Cont'd.)
$65,000. The decrease, when compared to 1997, was due to the lower average cash
balance on hand during 1998.
General and administrative expenses for the year ended December 31, 1998,
included charges of $158,000 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, 1998, are direct
charges of $328,000 relating to audit fees, tax preparation fees, cost of legal
and professional fees, insurance expenses, costs incurred in providing
information to the Limited Partners and other miscellaneous costs. The decrease
in general and administrative expenses for the year ended December 31, 1998, as
compared to 1997, was primarily attributable to decreases in wage
reimbursements, asset management fees, legal and professional services,
insurance and appraisal fees incurred in 1998.
During 1998, the carrying value of Creek Edge was increased by $236,000 to its
estimated net realizable value of $4,432,000. In addition, the carrying value of
real estate in the Partnership's investment in Cooper Village Partners was also
adjusted as the General Partners of Cooper Village Partners determined that the
carrying value of real estate was in excess of its net realizable value. The
Partnership's portion (42%) of the adjustment was $236,000.
Accrued expenses for liquidation as of December 31, 1998, 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 and professional services. 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, 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 in 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.
-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, 1997 (Cont'd.)
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 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.
-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.)
Interest income resulted from the temporary investment of Partnership working
capital. The decrease for the year ended December 31, 1996, as compared to 1995,
was primarily attributable to a corresponding decrease in the average level of
working capital available for investment during the year.
On June 4, 1996, the Partnership sold Flaircentre, an office complex composed of
11 one-story buildings in El Monte, California to an unaffiliated third party.
The sales price was $2,300,000 and the net proceeds of the sale amounted to
approximately $2,159,000. In December 1995, the General Partner had adjusted the
carrying value of the property in accordance with the guidelines of FAS 121,
which resulted in a write-down of $600,000 and an adjusted carrying value of
$2,166,000 upon disposition. The resulting loss on sale, after taking into
consideration all costs of the disposition, amounted to $13,000 as reflected on
the Statement of Operations. The General Partner was not paid a commission or
disposition fee as part of this transaction.
The decrease in operating expenses for the year ended December 31, 1996, as
compared to 1995, was primarily attributable to the overall reduction in
expenses resulting from the sale of Flaircentre in June 1996.
The decrease in real estate taxes for the year ended December 31, 1996, as
compared to 1995, was primarily attributable to the sale of Flaircentre. In
addition, taxes were reduced in 1996 due to a successful tax appeal for
Northtech that resulted in a $40,000 refund.
The decrease in depreciation and amortization expenses for the year ended
December 31, 1996, as compared to 1995, was attributable to the adoption at
December 31, 1995, of Statement of Financial Accounting Standards, No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," pursuant
to which "assets held for sale" are not depreciated.
During 1996, the Partnership made certain capital improvements to properties
held for sale that resulted in a corresponding increase in the properties'
valuation allowance. At December 31, 1996, the General Partner compared the
carrying value of each property to its appraised value as of January 1, 1997 (or
in the case of Northtech, its sales price) and determined that Creek Edge,
Northtech and Martinazzi Square had carrying values greater than their
respective appraised values. As a result, during the year ended December 31,
1996, the carrying values were adjusted by $548,000, $1,068,000 and $119,000,
respectively to $4,160,000, $12,968,000 and $5,500,000, respectively.
General and administrative expenses for the year ended December 31, 1996,
include charges of $402,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included in general
and administrative expenses were direct charges of $366,000 relating to audit
fees,
-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, 1996 (Cont'd.)
legal fees, appraisals fees, insurance expense, costs incurred in providing
information to the Limited Partners and other miscellaneous costs.
The increase in general and administrative expenses for the year ended December
31, 1996, as compared to 1995, was primarily attributable to the increases in
leasing fees, legal fees and professional services associated with the increased
leasing activity. These increases were partially offset by lower asset
management fees and administrative expense reimbursements charged by affiliates
of the General Partner.
The increase in equity in earnings of Cooper Village Partners for the year ended
December 31, 1996, as compared to 1995, was primarily attributable to the
Partnership's portion (42%) of depreciation expenses incurred during 1995 that
were not incurred in 1996. As previously discussed, the Partnership no longer
depreciates its assets due to the adoption of Financial Accounting Standard No.
121. In addition, during 1996, a lease termination settlement in the amount of
$127,000 was collected from The Boston Stores and accordingly, was taken into
income in 1996. Finally, the adjustment to the carrying value of real estate in
1996 decreased to $412,000 from $1,360,000 in 1995.
Item 7a. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
Not applicable because the Partnership does not have any financial instruments
subject to market risk.
-18-
<PAGE> 19
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:
Statements of Net Assets in Liquidation as of December 31, 1998
and 1997........................................................................ F-4
Statements of Changes of Net Assets in Liquidation for the Year
Ended December 31, 1998 and for the Nine Months Ended
December 31, 1997............................................................... F-5
Statements of Operations for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................ F-6
Statements of Partners' Capital for the Three Months Ended
March 31, 1997 and the Year Ended December 31, 1996............................. F-7
Statements of Cash Flows for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................ F-8
Notes to Financial Statements................................................... F-9
Schedule:
III - Real Estate in Liquidation as of December 31, 1998........................ F-23
</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-26
Financial Statements:
Statements of Net Assets in Liquidation as of December 31, 1998
and 1997........................................................................ F-27
Statements of Changes of Net Assets in Liquidation for the Year
Ended December 31, 1998 and for the Nine Months Ended
December 31, 1997............................................................... F-28
Statements of Operations for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................ F-29
</TABLE>
F-1
<PAGE> 20
COOPER VILLAGE PARTNERS
(a General Partnership)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE (CONTINUED)
<TABLE>
<S> <C>
Statements of Partners' Capital for the Three Months Ended
March 31, 1997 and the Year Ended December 31, 1996............................. F-30
Statements of Cash Flows for the Three Months Ended March 31, 1997
and the Year Ended December 31, 1996............................................ F-31
Notes to Financial Statements................................................... F-32
Schedule:
III - Real Estate in Liquidation as of December 31, 1998........................ F-38
</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> 21
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, 1998 and
1997 of Real Estate Income Partners III, Limited Partnership, and the changes of
net assets in liquidation for the year ended December 31, 1998 and 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 the year 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 changed its basis of accounting as of March 31, 1997 from the
going-concern basis to the liquidation basis.
KPMG LLP
Orange County, California
March 9, 1999, except as to the
second through the fifth paragraphs
of note 10, which are as of
March 25, 1999
F-3
<PAGE> 22
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS (Liquidation Basis): 1998 1997
----------- -----------
<S> <C> <C>
Properties $ 9,180,000 $ 8,820,000
Investment in Cooper Village Partners 2,543,000 2,733,000
Cash and cash equivalents 906,000 1,774,000
Accounts receivable 3,000 33,000
Other assets 8,000 11,000
----------- -----------
Total Assets 12,640,000 13,371,000
----------- -----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 292,000 337,000
Accrued expenses for liquidation 131,000 318,000
----------- -----------
Total Liabilities 423,000 655,000
----------- -----------
Net Assets in Liquidation $12,217,000 $12,716,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 23
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED DECEMBER 31,
1998 1997
------------------ -------------------
<S> <C> <C>
Net assets in liquidation at beginning
of period $ 12,716,000 $ 18,142,000
------------ ------------
Increase (decrease) during period:
Operating activities:
Property operating income, net 1,006,000 1,099,000
Interest income 65,000 88,000
Gain from sale of assets -- 203,000
General and administrative expenses (486,000) (588,000)
Leasing commissions (17,000) (35,000)
Equity in earnings of Cooper Village Partners
excluding $236,000 adjustment to carrying
value of investment in 1998 252,000 146,000
------------ ------------
820,000 913,000
Liquidating activities:
Distributions to partners (1,384,000) (6,339,000)
Adjustment to the carrying value of
property 236,000 --
Adjustment to carrying value of
investment in Cooper Village Partners (236,000) --
Change in provision for
liquidation expenses 65,000 --
------------ ------------
(1,319,000) (6,339,000)
------------ ------------
Net decrease in assets in liquidation (499,000) (5,426,000)
------------ ------------
Net assets in liquidation at end of period $ 12,217,000 $ 12,716,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 24
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
REVENUES:
Rental income $ 270,000 $ 4,910,000
Interest and other income 61,000 59,000
Loss on sale of property (109,000) (13,000)
----------- -----------
Total revenues 222,000 4,956,000
----------- -----------
EXPENSES:
Operating expenses 227,000 1,182,000
Real estate taxes 124,000 576,000
Depreciation and amortization 247,000 132,000
General and administrative 321,000 768,000
Adjustment to carrying value
of real estate -- 1,735,000
----------- -----------
Total expenses 919,000 4,393,000
----------- -----------
Income (loss) before equity in
earnings of Cooper Village
Partners (697,000) 563,000
Equity in earnings of Cooper
Village Partners 66,000 71,000
----------- -----------
NET INCOME $ (631,000) $ 634,000
=========== ===========
NET INCOME ALLOCABLE TO:
General Partner $ (6,000) $ 6,000
=========== ===========
Limited Partners $ (625,000) $ 628,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 25
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------------------------------------------------
<S> <C> <C> <C>
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-7
<PAGE> 26
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
-------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (631,000) $ 634,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 247,000 132,000
Equity in earnings of Cooper
Village Partners (66,000) (71,000)
Adjustment to carrying value
of real estate -- 1,735,000
Loss of sale of property 109,000 13,000
Changes in:
Accounts receivable 24,000 29,000
Accrued rent receivable 575,000 --
Prepaid expenses and other assets 106,000 (93,000)
Accounts payable and accrued
liabilities (218,000) 126,000
------------ ------------
Net cash provided by operating
activities 146,000 2,505,000
------------ ------------
Cash flows from investing activities:
Investments in real estate (114,000) (1,098,000)
Proceeds from sale of property 12,860,000 2,159,000
Distributions received from
Cooper Village Partners 51,000 260,000
------------ ------------
Net cash provided by
investing activities 12,797,000 1,321,000
------------ ------------
Cash flows from financing activities -
distributions (11,946,000) (3,999,000)
------------ ------------
Net increase (decrease) in cash
and cash equivalents 997,000 (173,000)
Cash and cash equivalents,
beginning of period 807,000 980,000
------------ ------------
Cash and cash equivalents,
end of period $ 1,804,000 $ 807,000
============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-8
<PAGE> 27
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. The factor used to
calculate the annual asset management fee is reduced by .10% each year
beginning after December 31, 1996 (e.g., from .65% in 1997 to .55% in
1998 and to .45% in 1999).
At January 1, 1998 the portfolio was appraised at an estimated value of
approximately $12,252,000 net of estimated selling costs (unaudited),
which included the Partnership's interest in Cooper Village Partners
which was appraised at $2,667,000 (unaudited). The General Partner has
been evaluating multiple proposals to acquire the properties (both
individually and in bulk) over the past several months. In lieu of
obtaining appraisals as of January 1, 1999, the General Partner
calculated an estimated selling price net of estimated selling costs by
taking an average of the offer prices, net of estimated selling costs,
from those proposals. The General Partner utilized those averages to
estimate fair value. From those valuations, at January 1, 1999, the
General Partner estimated the fair value, net of estimated selling costs,
of the portfolio to be $12,111,000 (inclusive of the Partnership's
interest in Cooper Village Partners).
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-9
<PAGE> 28
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-10
<PAGE> 29
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 $22,356,000 as of December 31, 1998, it is anticipated that
the limited partners will not realize this return due to the
Partnership's estimated liquidation value of $12,217,000.
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 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-11
<PAGE> 30
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 Statements of Net Assets in Liquidation and Statements 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 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 1997 and 1998 and continue to be
held for sale.
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. On April 30, 1998 the General Partner accepted an offer to
purchase all of the Partnership's properties for $12,560,000 from Abbey
Investments, Inc. ("Abbey"), which was subject to certain customary
contingencies, including due diligence review by the purchaser and
negotiation of a definitive Purchase and Sale Agreement. On November 9,
1998, the Partnership and Abbey entered into a definitive Purchase and
Sale Agreement, for an adjusted purchase price of $12,300,000. Abbey
thereafter requested a material reduction in the purchase price, which
the Partnership did not agree to. Therefore, in late January 1999, the
sale to Abbey was terminated. Since that time, the Partnership has been
actively soliciting buyers for its properties.
In accordance with 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
Statements of Net Assets in Liquidation at estimated net realizable
value. The General Partner estimated net realizable value by using an
average of recent offers to acquire the properties, net of estimated
selling costs, in lieu of obtaining appraisals at December 31, 1998 and
based upon appraisals as of January 1, 1998 at December 31, 1997. Fair
value can only be determined based upon sales to third parties, and sales
proceeds could differ substantially from internal estimates of fair value
or 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.
F-12
<PAGE> 31
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.)
For the year ended December 31, 1998, the General Partner determined that
the carrying value of Creek Edge was below its estimated net realizable
value. As a result, its carrying value was adjusted by $236,000, to
$4,432,000. In addition, the carrying value of real estate in the
Partnership's investment in Cooper Village Partners was also adjusted as
the General Partners of Cooper Village Partners determined that the
carrying value of real estate was in excess of its net realizable value.
The Partnership's portion (42%) of the adjustment was $236,000.
Carrying Value of Real Estate (prior to 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.
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, 1997 at December 31,
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, Northtech and Martinazzi Square had carrying values greater
than their respective appraised values (or in the case of Northtech, its
sales price). As a result, the carrying value was adjusted by $548,000,
$1,068,000 and $119,000, respectively to $4,160,000, $12,968,000 and
$5,500,000, respectively, as of December 31, 1996.
F-13
<PAGE> 32
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). 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
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating
segments. Given that the Partnership is in the process of liquidation,
the Partnership has identified only one operating business segment which
is the business of asset liquidation. The adoption of SFAS 131 did not
have an impact on the Partnership's financial reporting.
Rental income from Penril, Inc., totaled $1,319,000 in 1996 or
approximately 27% of total rental income for 1996. Penril, Inc.
represented a significant portion of rental income until Northtech was
sold in January 1997.
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, 1998 and 1997, totaled $702,000 and $1,701,000,
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.
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.
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 for federal income tax reporting
purposes at December 31:
F-14
<PAGE> 33
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.)
<TABLE>
<CAPTION>
1998 1997
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $ 12,640,000 $ 21,140,000 $ 13,371,000 $ 21,775,000
Total Liabilities
$ 423,000 $ 292,000 $ 655,000 $ 337,000
</TABLE>
Following are the differences between Financial Statement and tax return income:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per Financial
Statements (period ending March 31,
1997 for 1997) $ -- $ (631,000) $ 634,000
Change in net assets in liquidation
from operating activities including
adjustment to carrying value of properties
(nine months ended December 31, 1997 for 1997) 820,000 913,000 --
Adjustment to carrying value of
properties in liquidation (236,000) -- 1,735,000
Adjustment to carrying value of
Cooper Village 236,000 -- 173,000
Depreciation differences on
investments in real estate (557,000) (704,000) (1,560,000)
Net loss on sale of properties in
excess of book value -- (3,266,000) (2,179,000)
Deferred rent adjustment -- 576,000 --
Other (26,000) (138,000) (18,000)
- --------------------------------------------------------------------------------------------------
Taxable income (loss) per Federal tax
return (unaudited) $ 237,000 $(3,250,000) $(1,215,000)
- --------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE> 34
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
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate reduced rates on sales
commissions for subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no sales
commission was credited with proportionately larger Invested Capital and
therefore had a disproportionately greater interest in the capital and
revenues of the Partnership than a Limited Partner who paid commissions
at a higher rate. As a result, the Partnership has no set unit value as
all accounting, investor reporting and tax information is based upon each
investor's relative percentage of Invested Capital. Accordingly, earnings
or loss per unit is not presented in the accompanying Financial
Statements.
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.
F-16
<PAGE> 35
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.
Condensed Statements of Net Assets in Liquidation:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Property $ 5,632,000 $ 6,102,000
Cash and Other Assets 387,000 401,000
Liabilities (134,000) (144,000)
----------- -----------
Net assets in liquidation $ 5,885,000 $ 6,359,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Changes
Of Net Assets in Liquidation: YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED DECEMBER 31,
1998 1997
----------- -----------------
<S> <C> <C>
Net Assets in Liquidation
at beginning of period $ 6,359,000 $ 6,384,000
Increase (decrease) during period:
Operating Activities 580,000 345,000
Liquidating Activities (1,054,000) (370,000)
----------- -----------
Net decrease in Assets in
Liquidation (474,000) (25,000)
----------- -----------
Net Assets in Liquidation at
end of period $ 5,885,000 $ 6,359,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements FOR THE FOR THE
Of Operations: THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Rental and Other Income $ 242,000 $ 1,072,000
Operating and Other Expenses (84,000) (483,000)
Adjustment to Carrying Value
of Real Estate -- (412,000)
Depreciation and Amortization (2,000) (8,000)
----------- -----------
Net Income $ 156,000 $ 169,000
=========== ===========
</TABLE>
The carrying value of real estate in the Partnership's investment in
Cooper Village Partners was adjusted as the General Partners of Cooper
Village Partners determined that the carrying value of real estate was
in excess of its estimated net realizable value. The Partnership's
portion (42%) of the adjustment was $236,000.
F-17
<PAGE> 36
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(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,
1998, 1997 and 1996, the Partnership was charged with approximately
$88,000, $131,000 and $131,000, 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 $55,000,
$93,000 and $187,000 for the years ended December 31, 1998, 1997 and
1996, respectively. In addition, an affiliate of the General Partner
received $39,000, $53,000 and $56,000, respectively, for the years ended
December 31, 1998, 1997 and 1996, 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
$40,000, $37,000 and $39,000, 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, 1998, 1997 and 1996,
respectively.
The amended Partnership Agreement provides for the Partnership's payment
to the General Partner of an annual asset management fee equal to .55%
(65% in 1997) 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, 1998, 1997 and
1996, amounted to $53,000, $93,000 and $224,000, respectively. In
addition, the amended Partnership Agreement provides for payment to the
General Partner of a leasing fee for services rendered in connection
with leasing space in a Partnership property after the expiration or
termination of any lease of such space. Fees for leasing services for
the year ended December 31, 1998, 1997 and 1996, amounted to $17,000,
$24,000 and $47,000 respectively. In addition, to the aforementioned,
the General Partner was also paid $15,000, $17,000 and $20,000, related
to the Partnership's portion (42%) of asset management fees for Cooper
Village Partners for the years ended December 31, 1998, 1997 and 1996,
respectively.
(5) Gains and Losses on Disposition of Assets
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-18
<PAGE> 37
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Gains and Losses on Disposition of Assets (Cont'd.)
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 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.
(6) Commitments and Contingencies
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1998, 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, 1998, is as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $1,531,000
2000 1,495,000
2001 1,158,000
2002 524,000
2003 78,000
Thereafter 37,000
----------
$4,823,000
==========
</TABLE>
F-19
<PAGE> 38
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Commitments and Contingencies (Cont'd.)
Future Minimum Annual Rentals (Cont'd.)
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,
except for the following:
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 filed a purported class action lawsuit in the Court
of Common Pleas of Philadelphia County against Damson/Birtcher Partners,
Birtcher Investors, Birtcher Liquidity Properties, Birtcher Investments,
L.F. Special Fund II, L.P., L.F. Special Fund I, L.P., Arthur Birtcher,
Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R.
Donaldson alleging breach of fiduciary duty and breach of contract and
seeking to enjoin the Consent Solicitation dated February 18, 1997. On
April 18, 1997, the court denied the plaintiff's motion for a preliminary
injunction. On June 10, 1997, the court dismissed the plaintiff's
complaint on the basis of lack of personal jurisdiction and forum non
conveniens.
On June 13, 1997, the Partnership, its affiliated partnership,
Damson/Birtcher Realty Income Fund-II, and their general partner,
Birtcher/Liquidity Properties, filed a complaint for declaratory relief
in the Court of Chancery in Delaware against Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration
that the vote that the limited partners of the Partnership and
Damson/Birtcher Realty Income Fund-II took pursuant to the respective
consent solicitations dated February 18, 1997 were effective to dissolve
the respective partnerships and complied with applicable law, that the
actions of the General Partner in utilizing the consent solicitations to
solicit the vote of the limited partners did not breach any fiduciary or
contractual duty to such limited partners, and an award of costs and fees
to the plaintiffs. The defendant has answered the complaint. No motions
are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware Chancery
Court against Damson/Birtcher Partners, Birtcher Investors, Birtcher
Liquidity Properties, Birtcher Investments, BREICORP, LF Special Fund I,
LP, LF Special Fund II. LP, Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging a purported
class action on behalf of the limited partners of Damson/Birtcher Realty
Income Fund-I, Damson/Birtcher Realty Income Fund-II and Real Estate
Income Partners III alleging breach of fiduciary duty and incorporating
the allegations set forth in the previously dismissed March 25, 1997
complaint filed in the Court of Chancery of Philadelphia County.
Plaintiff has engaged in preliminary discovery and the parties have held
settlement discussions. No motions are pending at this time.
F-20
<PAGE> 39
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Real estate taxes $143,000 $140,000
Security deposits 31,000 34,000
Accounts payable and other 118,000 163,000
-------- --------
$292,000 $337,000
======== ========
</TABLE>
(8) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1998, 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 and other
professional services.
(9) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Balance at beginning of year $ 14,000
Additions --
Writeoffs (6,000)
--------
Balance at end of year $ 8,000
========
</TABLE>
(10) Subsequent Events
On February 28, 1999, the Partnership made an aggregate regular cash
distribution of $153,000 to its Limited Partners.
On March 25, 1999, the Partnership signed a letter of intent with
Praedium Performance Fund IV ("Praedium") to sell The Forum to Praedium
for $4,500,000. Praedium is a New York-based investment firm affiliated
with CS First Boston. Praedium is not affiliated in any way with the
Partnership or the General Partner, or any of the General Partner's
principals or affiliates.
The Partnership and Praedium expect to sign a definitive Purchase and
Sale Agreement within two weeks, or by approximately April 8, 1999.
Praedium will then have 45 days to complete its due diligence
investigation and 30 days thereafter to complete the purchase. Upon
execution of the definitive Purchase and Sale Agreement, Praedium will
deposit $35,000 into an escrow account, which deposit shall be fully
refundable at any time before the expiration of the due diligence
period.
F-21
<PAGE> 40
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(10) Subsequent Events (Cont'd.)
Praedium will hire Birtcher or an affiliate as asset manager for The
Forum, and pay an annual fee equal to .30% of the value of The Forum for
asset management services. Also, Praedium will hire Birtcher or an
affiliate as property manager for The Forum for a fee that is
approximately the same as the current fee paid to the General Partner
for property management.
The letter of intent is nonbinding. Completion of the transaction is
conditioned upon Praedium completing its due diligence and formal
approval of the transaction by Praedium's "Investment Committee". The
Partnership has agreed that until the earlier of April 8, 1999 or the
execution of a definitive Purchase and Sale Agreement or Praedium
terminates the letter of intent, the Partnership will not offer to sell
or solicit any offer to purchase or negotiate for the sale of The Forum.
F-22
<PAGE> 41
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE IN LIQUIDATION
AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E COL. H
------ ------ ------ ------ ------
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 DATE
DESCRIPTION (a) LAND IMPROVEMENTS IMPROVEMENTS COSTS (b),(d) LAND IMPROVEMENTS TOTAL (e) ACQUIRED
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Creek Edge Business Center,
Eden Prairie, MN $ 746 $ 4,435 $ 1,332 $(2,081) $ 746 $ 3,686 $ 4,432 07/01/86
The Forum
Wauwatosa, WI 1,109 5,209 2,143 (3,713) 827 3,921 4,748 08/28/86
------- ------- ------- ------- ------- ------- ------- --------
TOTAL $ 1,855 $ 9,644 $ 3,475 $(5,794) $ 1,573 $ 7,607 $ 9,180
======= ======= ======= ======= ======= ======= =======
</TABLE>
NOTE: Columns B, F, G and I are either none or are not applicable.
See notes to table on following page.
F-23
<PAGE> 42
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.
For the year ended December 31, 1998, the General Partner determined
that the carrying value of Creek Edge was below its estimated net
realizable value. As a result, its carrying value was adjusted by
$236,000, to $4,432,000.
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.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $14,831,000 as of December 31, 1998.
The differences between the aggregate cost of land, buildings and
improvements for tax reporting purposes as compared to costs for
financial reporting purposes are primarily attributable to: 1) amounts
received under rental agreements for non-occupied space, which were
recorded as income for tax reporting purposes but were recorded as a
reduction of the corresponding property basis for financial reporting
purposes, and; 2) the adjustments to the carrying value of real estate
for financial statement purposes have no effect for tax reporting
purposes.
(c) The initial cost to the Partnership includes acquisition fees paid to
the General Partner.
(d) Amounts represent funds received from the sellers subsequent to
acquisition under rental agreements for non-occupied space and include
adjustments to carrying value of real estate.
(e) RECONCILIATION OF REAL ESTATE
F-24
<PAGE> 43
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-------------------------------
<S> <C> <C>
Balance at beginning of year $ 8,820,000 $ 38,727,000
Additions during the year:
Improvements 124,000 256,000
Other (*) -- (4,042,000)
Adjustment to the carrying value
of properties 236,000 --
Reductions during the year:
Sale of real estate -- (26,121,000)
------------ ------------
Balance at end of year $ 9,180,000 $ 8,820,000
============ ============
</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
------------
<S> <C>
Balance at beginning of year $ 12,073,000
Accumulated depreciation on
real estate sold (7,725,000)
Adjustment upon adoption of liquidation
basis of accounting (4,348,000)
------------
Balance at end of year $ --
============
</TABLE>
F-25
<PAGE> 44
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, 1998 and
1997 of Cooper Village Partners, and the changes of net assets in liquidation
for the year ended December 31, 1998 and 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 the year 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
changed its basis of accounting as of March 31, 1997 from the going-concern
basis to the liquidation basis.
KPMG LLP
Orange County, California
March 9, 1999
F-26
<PAGE> 45
COOPER VILLAGE PARTNERS
(a General Partnership)
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS (Liquidation Basis): 1998 1997
---------- ----------
<S> <C> <C>
Property $5,632,000 $6,102,000
Cash and cash equivalents 301,000 324,000
Accounts receivable 81,000 71,000
Other assets 5,000 6,000
---------- ----------
Total Assets 6,019,000 6,503,000
---------- ----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 125,000 135,000
Accrued expenses for liquidation 9,000 9,000
---------- ----------
Total Liabilities 134,000 144,000
---------- ----------
Net Assets in Liquidation $5,885,000 $6,359,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-27
<PAGE> 46
COOPER VILLAGE PARTNERS
(a General Partnership)
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED DECEMBER 31,
1998 1997
------------------ -------------------
<S> <C> <C>
Net assets in liquidation at beginning
of period $ 6,359,000 $ 6,384,000
----------- -----------
Increase (decrease) during period:
Operating activities:
Property operating income, net 650,000 381,000
Interest income 16,000 16,000
General and administrative expenses (47,000) (39,000)
Leasing commissions (39,000) (13,000)
----------- -----------
580,000 345,000
----------- -----------
Liquidating activities:
Adjustment to carrying value of
property in liquidation (564,000) --
Distributions to partners (490,000) (370,000)
----------- -----------
(1,054,000) (370,000)
----------- -----------
Net decrease in assets in liquidation (474,000) (25,000)
----------- -----------
Net assets in liquidation at end of period $ 5,885,000 $ 6,359,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 47
COOPER VILLAGE PARTNERS
(a General Partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
REVENUES:
Rental income $ 238,000 $ 1,051,000
Interest and other income 4,000 21,000
------------ ------------
Total revenues 242,000 1,072,000
------------ ------------
EXPENSES:
Operating expenses 72,000 277,000
Real estate taxes -- 148,000
Depreciation and amortization 2,000 8,000
Adjustment to carrying
value of real estate -- 412,000
General and administrative 12,000 58,000
------------ ------------
Total expenses 86,000 903,000
------------ ------------
NET INCOME $ 156,000 $ 169,000
============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-29
<PAGE> 48
COOPER VILLAGE PARTNERS
(a General Partnership)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III TOTAL
--------------------------------------------------
<S> <C> <C> <C>
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-30
<PAGE> 49
COOPER VILLAGE PARTNERS
(a General Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
1997 1996
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 156,000 $ 169,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,000 8,000
Adjustment to carrying value of
real estate -- 412,000
Changes in:
Accounts receivable (24,000) 5,000
Accrued rent receivable 2,000 10,000
Prepaid expenses and other assets 1,000 (3,000)
Accounts payable and accrued
liabilities 17,000 3,000
--------- ---------
Net cash provided by operating
activities 154,000 604,000
Cash flows from investing activities -
investments in real estate (22,000) (37,000)
Cash flows from financing activities -
distributions (120,000) (620,000)
--------- ---------
Net increase (decrease) in cash and
cash equivalents 12,000 (53,000)
Cash and cash equivalents,
beginning of period 355,000 408,000
--------- ---------
Cash and cash equivalents,
end of period $ 367,000 $ 355,000
========= =========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-31
<PAGE> 50
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 Partners, as
well as 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.
The Partnership adopted the liquidation basis of accounting on March 31,
1997. Comparison of results to prior years, therefore, is not practical.
The Statements of Net Assets in Liquidation and Statements 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 1997 and 1998
and it is currently held for sale.
In accordance with 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 Statements of Net Assets in Liquidation
at net realizable value. The General Partners estimated net realizable
value for this purpose by using an average of recent offers to acquire
Cooper Village Shopping Center net of estimated selling costs, in lieu of
obtaining appraisals at December 31, 1998 and appraisals performed as of
January 1, 1998 at December 31, 1997. Fair value can only be determined
based upon sales to third parties, and sales proceeds could differ
substantially from internal estimates of fair value or appraised values.
F-32
<PAGE> 51
COOPER VILLAGE PARTNERS
(a General Partnership)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(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.
For the year ended December 31, 1998, the General Partners determined
that the carrying value of Cooper Village Shopping Center was in excess
of its estimated net realizable value. As a result, the carrying value
was adjusted by $564,000 to $5,633,000.
Carrying Value of Real Estate (prior to 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 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.
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, 1997 at December 31,
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
$412,000 at December 31, 1996.
F-33
<PAGE> 52
COOPER VILLAGE PARTNERS
(a General Partnership)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). 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
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating
segments. Given that the Partnership is in the process of liquidation,
the Partnership has identified only one operating business segment which
is the business of asset liquidation. The adoption of SFAS 131 did not
have an impact on the Partnership's financial reporting.
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, 1998 and 1997, totaled $297,000 and $289,000,
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.
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.
F-34
<PAGE> 53
COOPER VILLAGE PARTNERS
(a General 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, 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 for federal income tax reporting
purposes at December 31:
<TABLE>
<CAPTION>
1998 1997
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $6,019,000 $6,508,000 $6,503,000 $6,507,000
Total Liabilities $ 134,000 $ 135,000 $ 144,000 $ 135,000
</TABLE>
Following are the differences between Financial Statement and tax return
income:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per Financial Statements
(period ended March 31, 1997 for 1997) $ -- $ 156,000 $ 169,000
Change in net assets in liquidation from
operating activities including
adjustment to carrying value of real
estate (nine months ended December 31, 1997
for 1997) 16,000 345,000 --
Depreciation differences on
investments in real estate (221,000) (221,000) (219,000)
Adjustment to carrying value of
property in liquidation 564,000 -- 412,000
Other 72,000 7,000 10,000
- ------------------------------------------------------------------------------------------
Taxable income per Federal tax return
(unaudited) $ 287,000 $ 287,000 $ 372,000
- ------------------------------------------------------------------------------------------
</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
F-35
<PAGE> 54
COOPER VILLAGE PARTNERS
(a General Partnership)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates (Cont'd.)
actually incurred and associated with services performed on behalf of the
Partnership. For the years ended December 31, 1998, 1997 and 1996, the
Partnership was charged with approximately $1,000, $1,000 and $1,000,
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 $53,000 in 1998, $47,000 in 1997, and $54,000 in 1996.
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 1998, $37,000 in 1997 and $35,000 in 1996, as
reimbursement of costs for on-site property management personnel and
other reimbursable costs.
The amended Partnership Agreements for Fund II and Fund III provide for
payments to Birtcher Properties or its affiliates of an annual asset
management fee equal to .55% (.65% in 1997 and .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, 1998, 1997 and 1996, amounted to $35,000, $39,000 and
$48,000, 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, 1998, 1997 and
1996, amounted to $4,000, $6,000 and $3,000, 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, 1998, 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, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 730,000
2000 577,000
2001 420,000
2002 329,000
2003 276,000
Thereafter 1,016,000
----------
$3,348,000
==========
</TABLE>
F-36
<PAGE> 55
COOPER VILLAGE PARTNERS
(a General Partnership)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Commitments and Contingencies (Cont'd.)
Future Minimum Annual Rentals (Cont'd.)
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses; payments
of additional rents in amounts equal to a set percentage of the tenant's
annual revenue in excess of specified levels; and escalations in annual
rents based upon the Consumer Price Index.
(5) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Real estate taxes $ 73,000 $ 70,000
Accounts payable and other 7,000 29,000
Security deposits 45,000 36,000
-------- --------
$125,000 $135,000
======== ========
</TABLE>
(6) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1998, 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 Event
On February 28, 1999, the Partnership made an aggregate cash distribution
of $140,000 to its General Partners.
F-37
<PAGE> 56
COOPER VILLAGE PARTNERS
(a General Partnership)
SCHEDULE III
REAL ESTATE IN LIQUIDATION
AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E COL. H
------ ------ ------ ------ ------
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 DATE
DESCRIPTION (a) LAND IMPROVEMENTS IMPROVEMENTS COSTS (b) LAND IMPROVEMENTS TOTAL ACQUIRED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cooper Village Shopping Center $ 2,756 $ 6,430 $ 880 $(4,433) $ 2,748 $ 2,885 $ 5,632 12/30/87
and
12/30/88
------- ------- ------- ------- ------- ------- -------
TOTAL $ 2,756 $ 6,430 $ 880 $(4,433) $ 2,748 $ 2,885 $ 5,632
======= ======= ======= ======= ======= ======= =======
</TABLE>
NOTE: Columns B, F, G and I are either none or are not applicable.
F-38
<PAGE> 57
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, 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.
For the year ended December 31, 1998, the General Partners determined
that the carrying value of Cooper Village Shopping Center was in excess
of its estimated net realizable value. As a result, the carrying value
was adjusted by $564,000 to $5,632,000.
The aggregate cost of land, buildings and improvements for Federal income
tax purposes (unaudited) was $7,823,000 as of December 31, 1998. 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.
F-39
<PAGE> 58
COOPER VILLAGE PARTNERS
(a General Partnership)
PART III
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership and the General Partner have no directors or executive officers.
The General Partner of the Partnership is Birtcher/Liquidity Properties, a
California general partnership of which Birtcher Investors, a California limited
partnership, and LF Special Fund I, L.P., a California limited partnership, are
the general partners. Under the terms of the Partnership Agreement, Birtcher
Investors is responsible for the day-to-day management of the Partnership's
assets.
The general partner of LF Special Fund I, L.P., is Liquidity Fund Asset
Management, Inc., a California corporation affiliated with Liquidity Financial
Group, L.P. The principals and officers of Liquidity Fund Asset Management, Inc.
are as follows:
- Richard G. Wollack, Chairman of the Board
- Brent R. Donaldson, President
- Deborah M. Richard, Financial Officer
The general partner of Birtcher Investors is Birtcher Investments, a California
general partnership. Birtcher Investments' general partner is Birtcher Limited,
a California limited partnership and its general partner is BREICORP, a
California corporation. The principals and relevant officers of BREICORP are as
follows:
- Ronald E. Birtcher, Co-Chairman of the Board
- Arthur B. Birtcher, Co-Chairman of the Board
- Robert M. Anderson, Executive Director
19
<PAGE> 59
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, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 8,000 $ 10,000 $ 18,000
Asset management fees 53,000 93,000 224,000
Property management fees 55,000 93,000 187,000
Leasing fees 17,000 24,000 47,000
Property management expense
reimbursements 39,000 53,000 56,000
Other expense reimbursements 88,000 131,000 131,000
-------- -------- --------
TOTAL $260,000 $404,000 $663,000
======== ======== ========
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1999 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.
Exhibits:
3. 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.
20
<PAGE> 60
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.
21
<PAGE> 61
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:
None filed for the year ended December 31, 1998, however, reference has
been incorporated for the Form 8-K filed on February 4, 1999 reporting
that the agreement to sell all of Real Estate Income Partners III's
properties to Abbey Investments, Inc. had been terminated.
22
<PAGE> 62
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, 1999 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, 1999 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, 1999
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1999
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1999
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
23
<PAGE> 63
EXHIBIT INDEX
3. Articles of Incorporation and Bylaws
(a) Agreement of Limited Partnership incorporated by reference
to Exhibit No. 3.1 to the Partnership's registration
statement on Form S-11 (Commission File No. 33-2132), dated
December 13, 1985, filed under the Securities Act of 1933.
10. Material Contracts
(a) Agreement of Purchase and Sale of Real Property (Cooper
Village, Phase I) dated November 13, 1987, by and between
Broadway Village Partners and Birtcher Acquisition
Corporation incorporated by reference to Form 8-K, as filed
December 30, 1987.
(b) Agreement of General Partnership, dated December 15, 1987,
by and between Damson/Birtcher Realty Income Fund-II,
Limited Partnership and Real Estate Income Partners III,
Limited Partnership, incorporated by reference to Form 8-K,
as filed December 30, 1987.
(c) Agreement of Purchase and Sale of Real Property (Martinazzi
Square), dated December 22, 1987, by and between
Hayden-Woodbury Tualatin and Birtcher Acquisition
Corporation incorporated by reference to Form 8-K, as filed
December 23, 1987.
(d) Property Management Agreement dated October 24, 1991,
between Glenborough Management Corporation and the
Registrant for Creek Edge Business Center, Flaircentre
Office Park, The Forum, Martinazzi Square Shopping Center
and Northtech. Incorporated by reference to Exhibit 1 of
the Partnership's Quarterly Report on Form 10-Q for the
quarter ended September 20, 1991. (SUPERSEDED)
(e) Property Management Agreement dated October 24, 1991,
between Glenborough Management Corporation and Cooper
Village Partners for Cooper Village Shopping Center.
Incorporated by reference to Exhibit 2 of the Partnership's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991. (SUPERSEDED)
(f) Agreement for Partnership Administrative Services dated
October 24, 1991, between Glenborough Management
Corporation and the Registrant for the services described
therein. Incorporated by reference to Exhibit 3 of the
Partnership's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991. (SUPERSEDED)
(g) Property Management Agreement, dated October 29, 1993,
between Birtcher Properties and the Registrant for Creek
Edge Business Center, Flaircentre, The Forum, Martinazzi
Square Shopping Center and Northtech. Incorporated by
reference to Exhibit 1 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
(h) Property Management Agreement, dated October 29, 1993,
between Birtcher Properties and Cooper Village Partners for
Cooper Village Shopping Center. Incorporated by reference
to Exhibit 2 of the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
27. Financial Data Schedule
99. Additional Exhibits
(a) Registrant's prospectus (Commission File No. 33-2132),
dated April 7, 1986, as supplemented November 5, 1986,
filed pursuant to Rule 424(c) under the Securities Act of
1933 is incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K REAL
ESTATE INCOME PARTNERS III.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 906,000
<SECURITIES> 0
<RECEIVABLES> 3,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 917,000
<PP&E> 9,180,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,640,000
<CURRENT-LIABILITIES> 423,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,217,000
<TOTAL-LIABILITY-AND-EQUITY> 12,640,000
<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 Operation is not presented in liquidation basis of accounting.
</FN>
</TABLE>
