<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 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 SEPTEMBER 30, 2000
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Net Assets in Liquidation - September 30, 2000
(Unaudited) and December 31, 1999 (Audited)................... 3
Statements of Changes of Net Assets in Liquidation -
Three and Nine Months Ended September 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................ 11
Item 3. Quantitative and Qualitative Market Risk Disclosures......... 15
PART II. OTHER INFORMATION............................................ 16
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS (Liquidation Basis):
Cash and cash equivalents $5,506,000 $7,081,000
Cash in escrow -- 149,000
Receivables, net 43,000 16,000
Other assets 12,000 12,000
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Total Assets 5,561,000 7,258,000
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LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 41,000 69,000
Accrued expenses for liquidation 186,000 315,000
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Total Liabilities 227,000 384,000
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Net Assets in Liquidation $5,334,000 $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 Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net assets in liquidation
at beginning of period $ 5,287,000 $ 12,225,000 $ 6,873,000 $ 12,217,000
Increase (decrease) during period:
Operating activities:
Property operating income, net -- 308,000 -- 799,000
Equity in earnings of Cooper
Village Partners -- 47,000 -- 191,000
Interest income 80,000 17,000 263,000 31,000
Leasing commissions -- (10,000) -- (30,000)
General and administrative
expenses -- (133,000) -- (349,000)
----------- ------------ ----------- ------------
80,000 229,000 263,000 642,000
----------- ------------ ----------- ------------
Liquidating activities:
Gain on sale of real estate -- 197,000 -- 197,000
Gain from sale of Partnership's
Interest in Cooper Village
Shopping Center -- 190,000 -- 190,000
Liquidation expenses (33,000) -- (50,000) --
Distributions to partners -- (251,000) (1,752,000) (656,000)
----------- ------------ ----------- ------------
(33,000) 136,000 (1,802,000) (269,000)
----------- ------------ ----------- ------------
Net increase (decrease) in assets
in liquidation 47,000 365,000 (1,539,000) 373,000
----------- ------------ ----------- ------------
Net assets in liquidation at
end of period $ 5,334,000 $ 12,590,000 $ 5,334,000 $ 12,590,000
=========== ============ =========== ============
</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
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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 September 30, 2000 and 1999, the
Partnership incurred approximately $6,000 and $12,000, respectively, of
such expenses. Such costs were $10,000 and $59,000 for the nine 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 $18,000, respectively, for
the three months ended September 30, 2000 and 1999 and $0 and $47,000 for
the nine months there ended. In addition, an affiliate of the General
Partner received $0 and $10,000 for the three months ended September 30,
2000, as reimbursement of costs of on-site property management personnel
and other reimbursable costs. For the nine months there ended, such
reimbursements were $0 and $31,000, 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 September 30, 2000 and 1999,
amounted to $0 and $11,000, respectively. For the nine months there ended,
such fees were $0 and $32,000, respectively. In addition, the amended
Partnership Agreement provides for payment to the General Partner of a
leasing fee for services rendered in connection with leasing space in a
Partnership property after the expiration or termination of leases. Fees
for leasing services for the three months ended September 30, 2000 and
1999, amounted to $0 and $6,000, respectively. For the nine months there
ended, these fees amounted to $1,000 and $12,000, respectively. Since the
Partnership has sold all of its properties, the Partnership no longer pays
asset management or leasing fees.
The amended Partnership Agreement provides for the Partnership's payment to
the General Partner of a property disposition fee if and to the extent that
the sale price of the property in question, net of any brokerage
commissions (but not other costs of sale), exceeds the appraised value of
the property as of January 1993. For the nine months ended September 30,
1999, a fee of $133,750 was earned and paid on the sale of The Forum.
In addition to the aforementioned, the General Partner was also paid
$14,000 and $42,000, 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 nine months ended September 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,
7
<PAGE> 8
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.)
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 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.
8
<PAGE> 9
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
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. Plaintiffs have moved to certify the
class and the parties are engaged in discovery regarding class
certification. The motion to certify the class is currently scheduled to be
heard on December 14, 2000.
(4) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of September 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 September 30, 2000, the Partnership incurred $52,000 of such
expenses. At September 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 increased by $33,000 to reflect the
revised estimates. The increase was primarily the result of attorney fees
incurred to date in association with the litigation.
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
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(5) Subsequent Event
On October 19, 2000, Grape Investors, LLC ("Grape"), the holder of 4.533%
of the limited partnership interests of the Partnership, settled its
portion of the purported class action lawsuits entitled
"Bigelow/Diversified Secondary Partnerships Fund 1990 Litigation" and
"Madison Partnership and ISA Partnership Litigation". In exchange for a
complete settlement and release from Grape, the Partnership paid Grape its
pro rata share of the proceeds available for distribution from the
liquidation of the Partnership's properties. Grape's final distribution was
$243,000, or approximately $84 per $1,000 of original investment. The
General Partner also paid $1.00 for all of Grape's interest in the
Partnership.
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
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.
11
<PAGE> 12
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). At September 30, 2000, there was no remaining cash held in escrow
related to holdbacks.
12
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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 $1,752,000 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, LLC ("Grape"), the
holder of the largest investor position in the Partnership (approximately
4.533% of the limited partnership interests). 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.
On October 19, 2000, Grape settled its portion of the purported class
action lawsuits entitled "Bigelow/Diversified Secondary Partnerships Fund
1990 Litigation" and "Madison Partnership and ISA Partnership Litigation".
In exchange for a complete settlement and release from Grape, the
Partnership paid Grape its pro rata share of the proceeds available for
distribution from the liquidation of the Partnership's properties. Grape's
final distribution was $243,000, or approximately $84 per $1,000 of
original investment. The General Partner also paid $1.00 for all of Grape's
interest in the Partnership.
13
<PAGE> 14
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)
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 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 September 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 September 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 September 30, 2000, interest income was
approximately $80,000. 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 September 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 September 30, 2000,
the Partnership incurred $52,000 of such expenses. At September 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
increased by $33,000 to reflect the revised
14
<PAGE> 15
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended September 30, 2000
(Cont'd.)
estimates. The increase was primarily the result of attorney fees incurred
to date in association with the litigation. The allowance for accrued
expenses for liquidation does not, however, reflect any future costs of the
ongoing litigation due to the uncertainty associated with those matters.
Liquidation expenses incurred for the three months ended September 30,
2000, included charges of $6,000 from the General Partner and its
affiliates for services rendered in connection with administering the
affairs of the Partnership. Also included in liquidation expenses incurred
for the three months ended September 30, 2000, are direct charges of
$46,000 relating to audit fees, tax preparation fees, legal and
professional fees, costs incurred in providing information to the Limited
Partners and other miscellaneous costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
As of September 30, 2000, the Partnership had cash equivalents of
$5,210,000 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.
15
<PAGE> 16
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
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 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.
16
<PAGE> 17
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Bigelow Diversified Secondary Partnership Fund 1990 Litigation (Cont'd.)
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. Plaintiffs have moved to certify the
class and the parties are engaged in discovery regarding class
certification. The motion to certify the class is currently scheduled to be
heard on December 14, 2000.
17
<PAGE> 18
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 September 30, 2000.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REAL ESTATE INCOME PARTNERS III
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher
Investors
By: BIRTCHER LIMITED,
a California limited
partnership, General Partner of
Birtcher Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: November 13, 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: November 13, 2000 By: /s/ Brent R. Donaldson
--------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset
Management, Inc.
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
