<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
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Commission file number 0-16027
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 13-3341425
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box 30009, Laguna Niguel, California 92607-0009
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(Address of principal executive offices) (Zip Code)
(949) 643-7700
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
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REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 2000
INDEX
<TABLE>
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Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Net Assets in Liquidation - June 30, 2000
(Unaudited) and December 31, 1999 (Audited)...................... 3
Statements of Changes of Net Assets in Liquidation -
Three and Six Months Ended June 30, 2000 and 1999 (Unaudited)... 4
Notes to Financial Statements (Unaudited)........................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 10
Item 3. Quantitative and Qualitative Market Risk Disclosures............. 14
PART II. OTHER INFORMATION................................................ 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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(unaudited)
<S> <C> <C>
ASSETS (Liquidation Basis):
---------------------------
Cash and cash equivalents $5,412,000 $7,081,000
Cash in escrow 82,000 149,000
Accounts receivable, net 15,000 16,000
Other assets 12,000 12,000
---------- ----------
Total Assets 5,521,000 7,258,000
---------- ----------
LIABILITIES (Liquidation Basis):
--------------------------------
Accounts payable and accrued liabilities 29,000 69,000
Accrued expenses for liquidation 205,000 315,000
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Total Liabilities 234,000 384,000
---------- ----------
Net Assets in Liquidation $5,287,000 $6,874,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net assets in liquidation
at beginning of period $ 5,194,000 $ 12,263,000 $ 6,873,000 $ 12,217,000
Increase (decrease) during period:
Operating activities:
Property operating income, net -- 274,000 -- 491,000
Equity in earnings of Cooper
Village Partners -- 65,000 -- 144,000
Interest income 87,000 7,000 182,000 14,000
Leasing commissions -- (10,000) -- (19,000)
General and administrative
expenses -- (123,000) -- (217,000)
----------- ------------ ----------- ------------
87,000 213,000 182,000 413,000
----------- ------------ ----------- ------------
Liquidating activities:
Liquidation expenses 6,000 -- (16,000) --
------------
Distributions to partners -- (251,000) (1,752,000) (405,000)
----------- ------------ ----------- ------------
6,000 (251,000) (1,768,000) (405,000)
----------- ------------ ----------- ------------
Net increase (decrease) in assets
in liquidation 93,000 (38,000) (1,586,000) 8,000
----------- ------------ ----------- ------------
Net assets in liquidation at
end of period $ 5,287,000 $ 12,225,000 $ 5,287,000 $ 12,225,000
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(1) Accounting Policies
The financial statements of Real Estate Income Partners III, Limited
Partnership (the "Partnership") included herein have been prepared by
the General Partner, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements include all adjustments which are of a normal recurring
nature and, in the opinion of the General Partner, are necessary for a
fair presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted, pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Partnership's annual report on Form 10-K for the year ended
December 31, 1999.
Sale of the Properties
During the year ended December 31, 1999, the Partnership sold its three
remaining properties (including its 42% interest in Cooper Village
Shopping Center) in three separate transactions.
Liquidation Basis of Accounting
On February 18, 1997, the Partnership mailed a Consent Solicitation to
the Limited Partners which sought their consent to dissolve the
Partnership and sell and liquidate all of its remaining properties as
soon as practicable, consistent with selling the Partnership's
properties to the best advantage under the circumstances. A majority in
interest of the Limited Partners consented by March 13, 1997. As a
result, the Partnership 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. 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.
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
5
<PAGE> 6
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
Segment Reporting (Cont'd.)
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.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate reduced rates on sales
commissions for subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who paid
commissions at a higher rate. As a result, the Partnership has no set
unit value as all accounting, investor reporting and tax information is
based upon each investor's relative percentage of Invested Capital.
Accordingly, earnings or loss per unit is not presented in the
accompanying financial statements.
(2) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the three months ended June
30, 2000 and 1999, the Partnership incurred approximately $1,000 and
$28,000, respectively, of such expenses. Such costs were $5,000 and
$46,000 for the six months there ended.
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 6% of the gross receipts from the
properties under management provided leasing services are performed,
otherwise not to exceed 3%. Such fees amounted to approximately $0 and
$14,000, respectively, for the three months ended June 30, 2000 and
1999 and $0 and $29,000 for the six months there ended. In addition, an
affiliate of the General Partner received $0 and $11,000 for the three
months ended June 30, 2000, as reimbursement of costs of on-site
property management personnel and other reimbursable costs. For the six
months there ended, such reimbursements were $0 and $21,000,
respectively.
As previously reported, on June 24, 1993, the Partnership completed its
solicitation of written consents from its Limited Partners. A majority
in interest of the Partnership's Limited Partners approved each of the
proposals contained in the
6
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates (Cont'd.)
Information Statement dated May 5, 1993. Those proposals were
implemented by the Partnership as contemplated by the Information
Statement as amendments to the Partnership Agreement, and are reflected
in these financial statements as such.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .45% for 1999 of the aggregate appraised value of the Partnership's
properties which was determined by the General Partner's estimate of
fair value in January 1999. Such fees for the three months ended June
30, 2000 and 1999, amounted to $0 and $11,000, respectively. For the
six months there ended, such fees were $0 and $22,000, respectively. In
addition, the amended Partnership Agreement provides for payment to the
General Partner of a leasing fee for services rendered in connection
with leasing space in a Partnership property after the expiration or
termination of leases. Fees for leasing services for the three months
ended June 30, 2000 and 1999, amounted to $0 and $6,000, respectively.
For the six months there ended, these fees amounted to $1,000 and
$6,000, respectively. Since the Partnership has sold all of its
properties, the Partnership no longer pays asset management or leasing
fees.
In addition to the aforementioned, the General Partner was also paid
$14,000 and $28,000, related to the Partnership's portion (42%) of
asset management fees, property management fees, leasing fees and
reimbursement of on-site personnel and other reimbursable expenses for
Cooper Village Partners for the three and six months ended June 30,
1999. Cooper Village Shopping Center was sold in September 1999.
(3) Commitments and Contingencies
Litigation
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
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 and 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
7
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies
Litigation (Cont'd.)
Bigelow Diversified Secondary Partnership Fund 1990 litigation
(Cont'd.)
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 and 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 also seeks an award of
costs and fees to the plaintiffs. The defendant has answered the
complaint. The parties have initiated discovery. 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
the Partnership, Damson/Birtcher Realty Income Fund-I and
Damson/Birtcher Realty Income Fund-II 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.
In March 2000, defendants informed the Court and plaintiff that they
would bring a Motion for Summary Judgment against the named plaintiff
based upon the allegations set forth in plaintiff's complaint. On April
14, 2000, Bigelow/Diversified Secondary Partnership Fund 1990 filed a
First Amended Class Action and Derivative Complaint against
Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Partners, Birtcher Properties, Birtcher Ltd.,
Birtcher Investments, BREICORP, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Liquidity Fund Asset Management, Inc., Arthur
Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and
Brent R. Donaldson, the Partnership, Damson/Birtcher Realty Income
Fund-I and Damson/Birtcher Realty Income Fund-II, alleging breach of
fiduciary duty, breach of contract, and a derivative claim for breach
of fiduciary duty. Defendants have answered the First Amended
Complaint.
Madison Partnership and ISA Partnership Litigation
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and
ISA Partnership Liquidity Investors filed a purported class and
derivative action in the California Superior Court in Orange County,
California (Case No. 807644) against Damson Birtcher Partners,
Birtcher/Liquidity Properties, Birtcher Partners, Birtcher Investors,
Birtcher Investments, Birtcher Limited, Breicorp LP Special Fund II, L.
P., Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R.
Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G.
Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income
8
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies
Litigation (Cont'd.)
Madison Partnership and ISA Partnership Litigation (Cont'd.)
Partners III, Nominal Defendants. The complaint asserts claims for
breach of fiduciary duty and breach of contract. The gravamen of the
complaint is that the General Partners of these limited partnerships
have not undertaken all reasonable efforts to expedite liquidation of
the properties and to maximize the returns to the partnerships' limited
partners. The complaint seeks unspecified monetary damages, attorneys'
fees and litigation expenses, and an order for dissolution of the
partnerships and appointment of an independent liquidating trustee. The
Partnership moved to stay or dismiss the case on the grounds that the
pending Bigelow class action, discussed above, raises essentially the
same claims. The court granted the Partnership's motion and ordered a
stay of the litigation pending re-evaluation at a May 23, 2000 status
conference. The court lifted the stay on May 23, 2000. Plaintiffs have
initiated document discovery. A status conference is currently
scheduled for September 8, 2000.
(4) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of June 30, 2000, include estimates
of costs to be incurred in carrying out the dissolution and liquidation
of the Partnership. These costs include estimates of legal fees,
accounting fees, tax preparation and filing fees, other professional
services and the general partner's liability insurance. During the
three months ended June 30, 2000, the Partnership incurred $52,000 of
such expenses. At June 30, 2000, the General Partner re-evaluated the
estimated costs to wind up and dissolve the Partnership given the
uncertainty involved with the ongoing litigation. The provision for
liquidation expenses was accordingly reduced by $6,000 to reflect the
revised estimates.
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. The accrued
expenses for liquidation do not take into consideration the possible
outcome of the ongoing litigation. Such costs are unknown and are not
estimable at this time.
9
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
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 were not sold or under contract for sale by
the end of 1996. Given the mandate of the May 5, 1993 Information
Statement, at December 31, 1995, the General Partner decided to account
for the Partnership's properties as assets held for sale instead of for
investment. In a Consent Solicitation dated February 18, 1997, the
Partnership solicited and received the consent of the Limited Partners
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. All of the Partnership's properties were sold
as of December 31, 1999.
In November 1998, the Partnership entered into a Purchase and Sale
Agreement with Abbey Investments, Inc. to sell all of the Partnership's
remaining properties for $12,300,000. However, in January 1999, the
agreement was terminated because Abbey had requested a material
reduction in the purchase price (approximately 11%), which the
Partnership did not agree to.
On April 30, 1999, the Partnership and Praedium Performance Fund IV
("Praedium") executed a Purchase and Sale Agreement to sell all of the
Partnership's properties except its interest in Cooper Village to
Praedium for $9,350,000. Praedium deposited $34,500 into escrow,
pending completion of its due diligence inspection and review.
Praedium's contingency period expired on June 14, 1999. During and
after the contingency period, Praedium, in a series of negotiations
with the Partnership, sought reductions in the purchase price of the
properties. During this time, the General Partner negotiated with
Praedium, and also sought other purchasers for the properties, both
individually and as a group. Finally, in late July 1999, the
Partnership declined Praedium's offer to purchase the properties for a
materially reduced purchase price and terminated its dealings with
Praedium.
Sale of the Properties
During the last half of 1999, the Partnership sold its three remaining
properties (including its 42% interest in Cooper Village Shopping
Center) in three separate transactions, as set forth below:
Cooper Village
On September 21, 1999, the Partnership sold its 42% interest in Cooper
Village Shopping Center (co-owned with an affiliated partnership), in
Mesa, Arizona to Old Vine Corporation ("Old Vine"), a local shopping
center operator that is not affiliated in any way with the Partnership,
its General Partner or any of its principals or affiliates. The sale
price for the Partnership's 42% interest was $2,593,500.
10
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd.)
Cooper Village (Cont'd.)
The buyer was represented by a third-party broker in the transaction.
The Partnership's allocation of the broker commission paid was $33,000
from the sale proceeds. The General Partner was not paid any property
disposition fee in connection with the sale. Old Vine has hired an
affiliate of Birtcher to perform certain onsite property management
services (not accounting or asset management), pursuant to a contract
that is cancelable at any time upon 30 days notice.
The proceeds from the sale of Cooper Village Shopping Center were
distributed to the Partnership and its affiliated partnership during
the fourth quarter of 1999.
The Forum
On September 23, 1999, the Partnership sold The Forum, in Wauwatosa,
Wisconsin to Rubin Pachulsky Dew Properties, LLC ("Rubin Pachulsky
Dew") for $5,350,000. Rubin Pachulsky Dew is a third-party real estate
investment entity that is not affiliated in any way with the
Partnership, its General Partner or any of its principals or
affiliates.
Rubin Pachulsky Dew was represented by a third-party broker in the
transaction. The broker was paid $53,500 from the sale proceeds. Since
the sale price of The Forum exceeded the January 1, 1993 appraised
value ($4,440,000), pursuant to the 1993 Amendment of the Partnership
Agreement, the General Partner earned and was paid a property
disposition fee of $133,750 in connection with the sale.
Rubin Pachulsky Dew has hired an affiliate of Birtcher as property
manager for The Forum for a fee that is approximately the same as the
fee that the Partnership previously paid to the General Partner for
property management. In addition, Rubin Pachulsky Dew has hired an
affiliate of Birtcher to provide certain asset management services for
The Forum, and will pay an incentive fee approximately equal to 10% of
the profits, if any, after Rubin Pachulsky Dew has received a 15%
cumulative annual, return on its investment. The incentive fee, if
earned, is not payable until the property is sold or four years from
date of purchase, whichever comes first. The property management
agreement is cancelable at any time upon 60 days notice, but the
incentive fee will survive termination of the contract.
A portion of the proceeds from the sale of The Forum to Rubin Pachulsky
Dew was held in escrow. A sum equal to two and one-half percent of the
purchase price was held back as a potential source of payment for any
claims that may arise related to a Partnership breach of certain
representations and warranties related to the sale (expiring on
September 23, 2000) and for any litigation costs that may arise
(released to the Partnership on March 23, 2000). The remaining cash
held in escrow relates to holdbacks for tax prorations.
11
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd.)
Creek Edge Business Center
On December 15, 1999, the Partnership sold Creek Edge Business Center
to Investcorp Properties Limited, a Deleware Corporation ("Buyer"), for
a sale price of $5,300,000. Affiliates of the Buyer have had a
pre-existing relationship with affiliates of Birtcher Investors for
more than 20 years. In fact, an affiliate of the Buyer initially sold
Creek Edge to the Partnership, and subsequently contracted with the
General Partner to perform property management services at Creek Edge
on behalf of the Partnership.
An affiliate of Buyer acted as buyer's broker in the transaction, and
was paid a brokerage commission of $159,000 at closing. In addition,
the General Partner earned and was paid a disposition fee of $132,500
in connection with the transaction. Buyer did not hire the General
Partner or any of its affiliates to perform asset management or
property management services for this property after close of the sale.
Other Matters
Regular distributions through the year ended December 31, 1999,
represented net cash flow from operations of the Partnership's
properties and interest earned on the temporary investment of working
capital, net of capital reserve requirements. In December 1999, the
Partnership made two special distributions of $1,102,000 on December
8th and $5,096,000 on December 31st representing a portion of the sales
proceeds from the sales of The Forum Office Park, Creek Edge Business
Park and the Partnership's 42% interest in Cooper Village. In March
2000, the Partnership made another special distribution of $1,750,000
from a portion of the remaining sales proceeds it has been holding in
reserve. This last special distribution arose out of discussions with
the named plaintiffs and their lawyers in the purported class action
lawsuits. It represents the culmination of further, private discussions
with representatives of Grape Investors, the holder of the largest
investor position in the Partnership. Grape Investors has agreed that
for a period of 24 months, it will not involve itself in any way or
support any effort to seek, or cause anyone else to seek, the addition
of new general partners, the appointment of a receiver, or the removal
of the General Partner. Grape Investors also has agreed to either
abstain or vote against any such action or proposal.
As of December 31, 1999, the Partnership had sold all of its operating
properties. Two lawsuits remain pending against the Partnership and its
General Partner and certain of its affiliates that seek, among other
things, unspecified monetary damages. Since these cases are in the
preliminary discovery phase, there is unavoidable uncertainty regarding
their ultimate resolution. The Partnership Agreement mandates that the
General Partner provide for all of the Partnership's liabilities and
obligations, including contingent liabilities, before distributing
liquidation proceeds to its partners. Therefore, the amount and timing
of any distribution of liquidation proceeds will be determined by the
General Partner in light of these and other relevant
12
<PAGE> 13
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Other Matters (Cont'.d)
considerations. Due to these uncertainties, it is possible that future
distributions may be limited to a liquidating distribution upon
Partnership wind down should funds be available at that time.
Year 2000
As of December 31, 1999, the Partnership's accounting systems and the
investor services system used to track the limited partners' interests,
distributions and tax information were tested and appeared to be free
of year 2000 bugs. As of June 30, 2000, the Partnership did not
experience any significant issues or problems relating to year 2000.
The cost of the Partnership's accounting systems upgrade was borne by
the General Partner and was not reimbursed by the Partnership.
Results of Operations for the Three Months Ended June 30, 2000
Because the Partnership has been liquidating its assets, a
quarter-to-quarter comparison of the results of operations is not
practical. As the Partnership's assets (properties) were sold, the
results of operations have been generated from a smaller asset base,
and therefore are not comparable. During the last half of 1999, the
Partnership sold its three remaining properties (including its 58%
interest in Cooper Village Shopping Center) in three separate
transactions. The Partnership's operating results have been reflected
on the Statements of Changes of Net Assets in Liquidation.
For the three months ended June 30, 2000, interest income was
approximately $87,000. The increase in interest income was reflective
of the temporary investment of cash and cash equivalent balances that
were generated from the sale of the properties.
Accrued expenses for liquidation as of June 30, 2000, include estimates
of costs to be incurred in carrying out the dissolution and liquidation
of the Partnership. These costs include estimates of legal fees,
accounting fees, tax preparation and filing fees, and other
professional services. During the three months ended June 30, 2000, the
Partnership incurred $52,000 of such expenses. At June 30, 2000, the
General Partner re-evaluated the estimated costs to wind up and
dissolve the Partnership given the uncertainty involved with the
ongoing litigation. The provision for liquidation expenses was
accordingly reduced by $6,000 to reflect the revised estimates. The
allowance for accrued expenses for liquidation does not, however,
reflect any costs of the ongoing litigation due to the uncertainty
associated with those matters.
Liquidation expenses incurred for the three months ended June 30, 2000,
included charges of $1,000 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 liquidation expenses incurred for the three months ended
June 30, 2000, are direct charges of $57,000 relating to audit fees,
tax preparation fees, legal and professional fees, costs incurred in
providing information to the Limited Partners and other miscellaneous
costs.
13
<PAGE> 14
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
As of June 30, 2000, the Partnership had cash equivalents of $5,158,000
invested in interest-bearing certificates of deposit. These investments
are subject to interest rate risk due to changes in interest rates upon
maturity. Declines in interest rates over time would reduce Partnership
interest income.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Bigelow Diversified Secondary Partnership Fund 1990 Litigation
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 and 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 and 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
also seeks an award of costs and fees to the plaintiffs. The defendant
has answered the complaint. The parties have initiated discovery. 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
the Partnership, Damson/Birtcher Realty Income Fund-I and
Damson/Birtcher Realty Income
14
<PAGE> 15
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Bigelow Diversified Secondary Partnership Fund 1990 Litigation
(Cont'd.)
Fund-II 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.
In March 2000, defendants informed the Court and plaintiff that they
would bring a Motion for Summary Judgment against the named plaintiff
based upon the allegations set forth in plaintiff's complaint. On April
14, 2000, Bigelow/Diversified Secondary Partnership Fund 1990 filed a
First Amended Class Action and Derivative Complaint against
Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Partners, Birtcher Properties, Birtcher Ltd.,
Birtcher Investments, BREICORP, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Liquidity Fund Asset Management, Inc., Arthur
Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and
Brent R. Donaldson, the Partnership, Damson/Birtcher Realty Income
Fund-I and Damson/Birtcher Realty Income Fund-II, alleging breach of
fiduciary duty, breach of contract, and a derivative claim for breach
of fiduciary duty. Defendants have answered the First Amended
Complaint.
Madison Partnership and ISA Partnership Litigation
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and
ISA Partnership Liquidity Investors filed a purported class and
derivative action in the California Superior Court in Orange County,
California (Case No. 807644) against Damson Birtcher Partners,
Birtcher/Liquidity Properties, Birtcher Partners, Birtcher Investors,
Birtcher Investments, Birtcher Limited, Breicorp LP Special Fund II, L.
P., Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R.
Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G.
Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners
III, Nominal Defendants. The complaint asserts claims for breach of
fiduciary duty and breach of contract. The gravamen of the complaint is
that the General Partners of these limited partnerships have not
undertaken all reasonable efforts to expedite liquidation of the
properties and to maximize the returns to the partnerships' limited
partners. The complaint seeks unspecified monetary damages, attorneys'
fees and litigation expenses, and an order for dissolution of the
partnerships and appointment of an independent liquidating trustee. The
Partnership moved to stay or dismiss the case on the grounds that the
pending Bigelow class action, discussed above, raises essentially the
same claims. The court granted the Partnership's motion and ordered a
stay of the litigation pending re-evaluation at a May 23, 2000 status
conference. The court lifted the stay on May 23, 2000. Plaintiffs have
initiated document discovery. A status conference is currently
scheduled for September 8, 2000.
15
<PAGE> 16
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None filed in the quarter ended June 30, 2000.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
REAL ESTATE INCOME PARTNERS III
By: BIRTCHER/LIQUIDITY PROPERTIES By: BIRTCHER INVESTORS,
(General Partner) a California limited partnership
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: August 11, 2000 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: August 11, 2000 By: /s/ Brent R. Donaldson
------------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
17
<PAGE> 18
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
