<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 0-16027
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
(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 Number)
27611 La Paz Road, Laguna Niguel, California 92656
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(Address of principal executive offices) (Zip Code)
(949) 643-7700
--------------
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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.
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REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I
Item 1. Business.................................................. 3
Item 3. Legal Proceedings......................................... 4
Item 4. Submission of Matters to a Vote of
Security Holders........................................ 6
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters........... 6
Item 6. Selected Financial Data................................... 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 9
Item 7a. Quantitative and Qualitative Market Risk Disclosures...... 17
Item 8. Financial Statements and Supplementary Data............... F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 18
PART III
Item 10. Directors and Executive Officers of the
Registrant.............................................. 18
Item 11. Executive Compensation.................................... 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................... 19
Item 13. Certain Relationships and Related Transactions............ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..................................... 19
--- Signatures................................................ 22
</TABLE>
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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.
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's objectives in operating the properties were: (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
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, 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.
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.
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<PAGE> 4
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 1. Business (Cont'd.)
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.
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.
The Partnership subsequently sold its three remaining properties (including its
42% interest in Cooper Village Shopping Center) in three separate transactions
during September and December 1999. See Capital Resources and Liquidity in Item
7 for further discussion.
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.
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:
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
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<PAGE> 5
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 3. LEGAL PROCEEDINGS (Cont'd.)
Bigelow - Diversified Secondary Partnership Fund 1990 litigation (Cont'd.)
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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. No
motions are pending at this time.
Madison Partnership Liquidity Investors XVI LLC et al 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.
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<PAGE> 6
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 3. LEGAL PROCEEDINGS (Cont'd.)
Madison Partnership Liquidity Investors XVI LLC et al litigation (Cont'd.)
- ----------------------------------------------------------------
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 has ordered a stay of the litigation. The court will
re-evaluate the stay at a May 19, 2000 status conference.
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 29, 2000, the number of holders of the Partnership's interests is
as follows:
General Partner 1
Limited Partners 6,235
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6,236
=====
The Partnership makes cash distributions to its partners out of distributable
cash pursuant to the Partnership's Agreement of Limited Partnership.
Distributable cash is generally paid 99% to the Limited Partners and 1% to the
General Partner.
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 2000 1999 1998 1997 1996 1995
- -------- ---------- ---------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
First $1,750,000 $ 153,000 $ 242,000 $11,944,000 $ 631,000 $408,000
Second 248,000 752,000 242,000 2,777,000 446,000
Third 248,000 185,000 242,000 255,000 490,000
Fourth 6,198,000 197,000 5,847,000 318,000 694,000
</TABLE>
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<PAGE> 7
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS (Cont'd.)
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.
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 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.
As of December 31, 1999, the Partnership has sold all of its operating
properties. Due to the uncertainty involved with the ongoing litigation, it is
possible that future distributions may be limited to a liquidating distribution
upon Partnership wind down should funds be available at that time.
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<PAGE> 8
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
------------ ----------- -----------
<S> <C> <C> <C>
Total Revenues $ 222,000 $ 4,956,000 $ 5,191,000
============ =========== ===========
Net Income (Loss):
General Partner $ (6,000) $ 6,000 $ (7,000)
Limited Partners (625,000) 628,000 (646,000)
------------ ----------- -----------
$ (631,000) $ 634,000 $ (653,000)
============ =========== ===========
Total Distributions:
General Partner $ 2,000 $ 18,000 $ 21,000
============ =========== ===========
Limited Partners $ 11,944,000 $ 3,981,000 $ 2,038,000
============ =========== ===========
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
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<S> <C> <C>
Total Assets $31,611,000 $34,850,000
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</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 YEAR ENDED APRIL 1, 1997 THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Property Operating
Income, net $ 929,000 $ 1,006,000 $ 1,099,000
========== =========== ===========
Distributions to
Partners $6,854,000 $ 1,384,000 $ 6,339,000
========== =========== ===========
Net Assets in
Liquidation $6,874,000 $12,217,000 $12,716,000
========== =========== ===========
</TABLE>
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<PAGE> 9
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
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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 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 the remaining three properties (including the Partnership's
interest in Cooper Village) were sold in 1999.
Working capital is and will be principally provided from the working capital
reserve established by the General Partner.
Regular distributions for the year ended December 31, 1999, represent net cash
flow from operations of the Partnership's properties and interest earned on the
temporary investment of working capital, net of capital reserve requirements. In
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.
The Partnership also 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).
Two lawsuits remain pending against the Partnership and its General Partner and
certain of its affiliates that seek, among other things, unspecified monetary
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<PAGE> 10
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
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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.
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, 1999, 1998 and 1997.
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 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 had 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.
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<PAGE> 11
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
- -------------------------------
On 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.
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.
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
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<PAGE> 12
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
- -------------------------------
The Forum (Cont'd.)
- ---------
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. The cash
held in escrow has been included in the gain on sale of real estate.
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.
The Partnership realized approximately $5,090,000 in distributable cash proceeds
from the sale of Creek Edge after deducting for closing costs, commissions
(excluding the General Partner's disposition fee) and prorations totaling
approximately $210,000.
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<PAGE> 13
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
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 were 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. At that
time, the General Partner did not know how long it would take to sell the
Partnership's remaining properties, so 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.
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.
As of December 31, 1999, the Partnership has sold all of its properties,
therefore the estimated net asset value in liquidation equates to $6,874,000 or
$108 per $1,000 of original investor subscription. Net assets in liquidation
represent cash and all other assets less other liabilities including accrued
expenses for liquidation. It does not, however, take into consideration any
costs associated with the current litigation as such costs are unknown and not
estimable. The Partnership subsequently distributed $1,750,000 on March 1, 2000
(see Note 9 in Item 8).
Other Matters
- -------------
As of December 31, 1999, the Partnership's accounting systems and the investor
services system used to track the limited partners' interests, distributions and
-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.)
Capital Resources and Liquidity (Cont'd.)
- -------------------------------
Other Matters (Cont'd.)
- -------------
tax information were tested and appear to be free of year 2000 bugs. 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 will not be reimbursed by the Partnership.
Results of Operations
- ---------------------
Year Ended December 31, 1999
Because the Partnership is in the process of liquidating its remaining assets, a
comparison of the results of operations is not practical. 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 completed
the sale of its three remaining properties (including a 42% interest in Cooper
Village shopping center) in three separate transactions during the year ended
December 31, 1999. The Partnership's operating results have been reflected on
the Statements of Changes of Net Assets in Liquidation.
For the year ended December 31, 1999 the Partnership generated $929,000 of net
operating income from operation of its properties as compared to $1,006,000 in
1998. The decrease was primarily attributable to the sales of The Forum office
park in September 1999 and Creek Edge Business Park in December 1999.
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1999 the Partnership earned $110,000 of
interest income. The increase when compared to 1998, was directly related to the
temporary investment of proceeds from the sale of properties in late 1999.
The gain on sale of real estate ($749,000) reflects the gains incurred on the
sale of The Forum ($197,000) and Creek Edge Business Park ($552,000).
The decrease in equity in earnings of Cooper Village Partners for the year ended
December 31, 1999, as compared to 1998, was primarily attributable to the sale
of Cooper Village Shopping Center that occurred on September 21, 1999 for a
sales price of $6,175,000. The Partnership's portion of the gain on the sale of
the property was $190,000.
General and administrative expenses for the year ended December 31, 1999 include
charges of $118,000 from the General Partner and its affiliates for services
rendered in connection with administrating the affairs of the Partnership and
operating the Partnership's properties. Also included in general and
administrative expense for the year ended December 31, 1999, are direct charges
of $342,000 related to audit fees, tax preparation fees, legal and professional
fees, 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, 1999 as compared to 1998 was attributable to a decrease in asset management
-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, 1999 (Cont'd.)
fees, administrative wages and the cost of liability insurance coverage. These
decreases were partially offset by an increase in fees for legal and
professional services incurred during 1999.
Accrued expenses for liquidation as of December 31, 1999, 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. At December 31,
1999, 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 adjusted by
an additional $184,000 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.
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 for the year ended December 31, 1998.
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
$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
-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, 1998 (Cont'd.)
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, cost of 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.
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.
-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, 1997 (Cont'd.)
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.
Item 7a. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
As of December 31, 1999, the Partnership had cash equivalents of $6,878,000
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.
-17-
<PAGE> 18
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, 1999
and 1998 ....................................................................... F-4
Statements of Changes of Net Assets in Liquidation for the Year Ended
December 31, 1999 and 1998 and for the Nine Months Ended
December 31, 1997 .............................................................. F-5
Statement of Operations for the Three Months Ended March 31, 1997 .............. F-6
Statement of Partners' Capital for the Three Months Ended
March 31, 1997 ................................................................. F-7
Statement of Cash Flows for the Three Months Ended March 31, 1997 .............. F-8
Notes to Financial Statements .................................................. F-9
</TABLE>
Information required by 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-24
Financial Statements:
Statements of Net Assets in Liquidation as of December 31, 1999
and 1998 ....................................................................... F-25
Statements of Changes of Net Assets in Liquidation for the Year Ended
December 31, 1999 and 1998 and for the Nine Months Ended
December 31, 1997 .............................................................. F-26
Statement of Operations for the Three Months Ended March 31, 1997 .............. F-27
</TABLE>
F-1
<PAGE> 19
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE (CONTINUED)
------------------------------------------
<TABLE>
<S> <C>
Statement of Partners' Capital for the Three Months Ended
March 31, 1997 ................................................................. F-28
Statement of Cash Flows for the Three Months Ended March 31, 1997 .............. F-29
Notes to Financial Statements................................................... F-30
</TABLE>
Information required by schedules called for under Regulation S-X is either not
applicable or is included in the financial statements.
F-2
<PAGE> 20
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. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements 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, 1999 and
1998 of Real Estate Income Partners III, Limited Partnership, and the changes of
net assets in liquidation for the years ended December 31, 1999 and 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 in conformity with
generally accepted accounting principles applied on the bases of accounting as
discussed in note 2.
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 24, 2000
F-3
<PAGE> 21
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS (Liquidation Basis): 1999 1998
- --------------------------- ------------ ------------
<S> <C> <C>
Properties $ -- $ 9,180,000
Investment in Cooper Village Partners -- 2,543,000
Cash and cash equivalents 7,081,000 906,000
Cash in escrow 149,000 --
Accounts receivable 16,000 3,000
Other assets 12,000 8,000
---------- -----------
Total Assets 7,258,000 12,640,000
---------- -----------
LIABILITIES (Liquidation Basis):
- --------------------------------
Accounts payable and accrued liabilities 69,000 292,000
Accrued expenses for liquidation 315,000 131,000
---------- -----------
Total Liabilities 384,000 423,000
---------- -----------
Net Assets in Liquidation $6,874,000 $12,217,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 22
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net assets in liquidation at
beginning of period $ 12,217,000 $ 12,716,000 $ 18,142,000
------------ ------------ ------------
Increase (decrease) during period:
Operating activities:
Property operating income, net 929,000 1,006,000 1,099,000
Interest income 110,000 65,000 88,000
General and administrative expenses (460,000) (486,000) (588,000)
Leasing commissions (27,000) (17,000) (35,000)
Equity in earnings of Cooper
Village Partners excluding
$190,000 gain from sale of
Partnership's interest in Cooper
Village Shopping Center for 1999 and
$236,000 adjustment to carrying
value of investment in 1998 204,000 252,000 146,000
------------ ------------ ------------
756,000 820,000 710,000
Liquidating activities:
Distributions to partners (6,854,000) (1,384,000) (6,339,000)
Gain from sales of real estate 749,000 -- 203,000
Gain from sale of Partnership's
interest in Cooper Village
Shopping Center 190,000 -- --
Adjustment to the carrying value
of property -- 236,000 --
Adjustment to carrying value of
investment in Cooper Village
Partners -- (236,000) --
(Provision for) decrease in
liquidation expenses (184,000) 65,000 --
------------ ------------ ------------
(6,099,000) (1,319,000) (6,136,000)
------------ ------------ ------------
Net decrease in assets in liquidation (5,343,000) (499,000) (5,426,000)
------------ ------------ ------------
Net assets in liquidation at
end of period $ 6,874,000 $ 12,217,000 $ 12,716,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 23
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<S> <C>
REVENUES:
Rental income $ 270,000
Interest and other income 61,000
Loss on sale of property (109,000)
---------
Total revenues 222,000
---------
EXPENSES:
Operating expenses 227,000
Real estate taxes 124,000
Depreciation and amortization 247,000
General and administrative 321,000
---------
Total expenses 919,000
---------
Loss before equity in
earnings of Cooper Village
Partners (697,000)
Equity in earnings of
Cooper Village Partners 66,000
---------
NET LOSS $(631,000)
=========
NET LOSS ALLOCABLE TO:
General Partner $ (6,000)
=========
Limited Partners $(625,000)
=========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 24
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ------------ ------------
<S> <C> <C> <C>
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> 25
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (631,000)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 247,000
Equity in earnings of Cooper
Village Partners (66,000)
Loss of sale of property 109,000
Changes in:
Accounts receivable 24,000
Accrued rent receivable 575,000
Prepaid expenses and other assets 106,000
Accounts payable and accrued
liabilities (218,000)
------------
Net cash provided by operating
activities 146,000
------------
Cash flows from investing activities:
Investments in real estate (114,000)
Proceeds from sale of property 12,860,000
Distributions received from
Cooper Village Partners 51,000
------------
Net cash provided by
investing activities 12,797,000
------------
Cash flows from financing activities -
distributions (11,946,000)
------------
Net increase (decrease) in cash
and cash equivalents 997,000
Cash and cash equivalents,
beginning of period 807,000
------------
Cash and cash equivalents,
end of period $ 1,804,000
============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-8
<PAGE> 26
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.
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).
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.
The amendment modified the Partnership Agreement to eliminate
subordination
F-9
<PAGE> 27
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(1) Organization and Operations (Cont'd.)
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> 28
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 $21,226,000 as of December 31, 1999, it is anticipated that
the limited partners will not realize this return due to the
Partnership's estimated liquidation value of $6,874,000.
Income or loss from operations 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> 29
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 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.
During 1999 the three remaining properties were sold (including the
Partnership's 42% interest in Cooper Village) in three separate
transactions.
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 was carried on the Partnership's
Statements of Net Assets in Liquidation at the 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.
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.
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
F-12
<PAGE> 30
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.)
$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.
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, certificates of
deposit and other non-equity-type cash investments. Cash equivalents at
December 31, 1999 and 1998, totaled $7,027,000 and $702,000,
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;
however, are subject to interest rate risk.
Revenue Recognition
Through March 31, 1997, rental income pertaining to operating lease
agreements which specify scheduled rent increases or free rent periods,
was recognized on a straight-line basis over the period of the related
lease agreement. After March 31, 1997, rental income has been
recognized according to the lease terms.
F-13
<PAGE> 31
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes
Income taxes are not levied at the Partnership level, but rather on the
individual partners; therefore, no provision or liability for Federal
and State income taxes has been reflected in the accompanying financial
statements.
On the following page 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>
1999 1998
---------------------------- -----------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Total Assets $7,258,000 $15,790,000 $12,640,000 $21,140,000
Total Liabilities
$ 384,000 $ 69,000 $ 423,000 $ 292,000
</TABLE>
F-14
<PAGE> 32
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- -----------
<S> <C> <C> <C>
Net loss per Financial Statements (period
ending March 31, 1997 for 1997) $ -- $ -- $ (631,000)
Change in net assets in liquidation from
operating activities including adjustment
to carrying value of properties (nine
months ended December 31, 1997 for 1997) 756,000 820,000 710,000
Adjustment to carrying value of properties in
liquidation -- (236,000) --
Adjustment to carrying value of Cooper Village -- 236,000 --
Depreciation differences on investments in
real estate (631,000) (557,000) (704,000)
Net gain on sale of properties in excess of
book value 338,000 -- (3,266,000)
Deferred rent adjustment -- -- 576,000
Other 19,000 (26,000) 65,000
----------- --------- -----------
Taxable income (loss) per Federal tax return
(unaudited) $ 482,000 $ 237,000 $(3,250,000)
=========== ========= ===========
</TABLE>
F-15
<PAGE> 33
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 used the equity method of accounting to account for its
investment in Cooper Village Partners inasmuch as control of Cooper
Village Partners was shared jointly between the Partnership and
Damson/Birtcher Realty Income Fund-II, Limited Partnership. The
accounting policies of Cooper Village Partners were consistent with
those of the Partnership.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 balances
to conform to the 1999 presentation.
(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 Shopping
Center. 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
F-16
<PAGE> 34
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(3) Investment in Cooper Village Partners (Cont'd.)
respective ownership interests. Cooper Village Shopping Center was sold
on September 21, 1999 (see Note 5) and CV Partners' assets were
distributed to the Partnership and Fund II as of December 31, 1999.
Condensed summary financial information for CV Partners is presented
below.
Condensed Statements of Net Assets in Liquidation:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
---------- -----------
<S> <C> <C>
Property $ -- $ 5,632,000
Cash and Other Assets -- 387,000
Liabilities -- (134,000)
---------- -----------
Net assets in liquidation $ -- $ 5,885,000
========== ===========
</TABLE>
Condensed Statements of Changes Of Net Assets in Liquidation:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Assets in Liquidation
at beginning of period $ 5,885,000 $ 6,359,000 $ 6,384,000
Increase (decrease) during
period:
Operating Activities 510,000 580,000 345,000
Liquidating Activities (6,395,000) (1,054,000) (370,000)
----------- ----------- -----------
Net decrease in Assets in
Liquidation (5,885,000) (474,000) (25,000)
----------- ----------- -----------
Net Assets in Liquidation at
end of period $ -- $ 5,885,000 $ 6,359,000
=========== =========== ===========
</TABLE>
Condensed Statement Of Operations:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH 31,
1997
---------------
<S> <C>
Rental and Other Income $ 242,000
Operating and Other Expenses (84,000)
Depreciation and Amortization (2,000)
---------
Net Income $ 156,000
=========
</TABLE>
For the year ended December 31, 1998, 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> 35
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, 1999, 1998 and 1997, the Partnership was charged with approximately
$69,000, $88,000 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 $49,000, $55,000 and $93,000 for the years ended December
31, 1999, 1998 and 1997, respectively. In addition, an affiliate of the
General Partner received $32,000, $39,000 and $53,000, respectively,
for the years ended December 31, 1999, 1998 and 1997, 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 $34,000, $40,000 and $37,000, related
to the Partnership's portion (42%) of property management fees, leasing
fees, reimbursement of on-site property management personnel and other
reimbursable expenses for Cooper Village Partners for the years ended
December 31, 1999, 1998 and 1997, respectively.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .45% (.55% in 1998 and .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, 1999, 1998 and 1997, amounted to $37,000, $53,000
and $93,000, 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, 1999,
1998 and 1997, amounted to $12,000, $17,000 and $24,000 respectively.
In addition, to the aforementioned, the General Partner was also paid
$8,000, $15,000 and $17,000, related to the Partnership's portion (42%)
of asset management fees for Cooper Village Partners for the years
ended December 31, 1999, 1998 and 1997, respectively.
(5) Gain from Sales of Real Estate
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 and during the year
ended December 31, 1997, the Partnership sold Martinazzi Square
Shopping Center and NorthTech in two separate transactions, as set
forth below:
F-18
<PAGE> 36
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(5) Gain from Sales of Real Estate (Cont'd.)
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.
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 sale of Cooper Village shopping center resulted in a gain of
$190,000 (representing the Partnership's 42% interest), which is
reflected on the Statement of Changes of Net Assets in Liquidation. The
Partnership's portion of the final distribution from CV Partners was
$2,811,000.
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
F-19
<PAGE> 37
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(5) Gain from Sales of Real Estate (Cont'd.)
The Forum (Cont'd.)
---------
incentive fee will survive termination of the contract.
A portion of the proceeds from the sale of The Forum to Rubin Pachulsky
Dew continues to be 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. The cash held
in escrow has been included in the gain from sales of real estate.
The sale of The Forum resulted in a gain of $197,000, which is
reflected on the Statement of Changes of Net Assets in Liquidation.
Creek Edge
----------
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.
The sale of Creek Edge resulted in a gain of $552,000, which is
reflected on the Statement of Changes of Net Assets in Liquidation.
Martinazzi Square Shopping Center
---------------------------------
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-20
<PAGE> 38
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(5) Gain from Sales of Real Estate (Cont'd.)
NorthTech
---------
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.
(6) 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 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
F-21
<PAGE> 39
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(6) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Bigelow - Diversified Secondary Partnership Fund 1990 litigation
----------------------------------------------------------------
(Cont'd.)
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. No motions are pending at this time.
Madison Partnership Liquidity Investors XVI LLC et al 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 has ordered
a stay of the litigation. The court will re-evaluate the stay at a May
19, 2000 status conference.
F-22
<PAGE> 40
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,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Real estate taxes $ -- $143,000
Security deposits -- 31,000
Accounts payable and other 69,000 118,000
-------- --------
$ 69,000 $292,000
======== ========
</TABLE>
(8) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1999, 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. At December 31, 1999, 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 adjusted by an
additional $184,000 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.
(9) Subsequent Event
On March 1, 2000, the Partnership made an aggregate special cash
distribution of $1,750,000 to its Limited Partners.
F-23
<PAGE> 41
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, 1999 and
1998 of Cooper Village Partners, and the changes of net assets in liquidation
for the year ended December 31, 1999 and 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 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 24, 2000
F-24
<PAGE> 42
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS (Liquidation Basis): 1999 1998
- --------------------------- ----------- ------------
<S> <C> <C>
Property $ -- $5,632,000
Cash and cash equivalents -- 301,000
Accounts receivable -- 81,000
Other assets -- 5,000
----------- ----------
Total Assets -- 6,019,000
----------- ----------
LIABILITIES (Liquidation Basis):
- --------------------------------
Accounts payable and accrued liabilities -- 125,000
Accrued expenses for liquidation -- 9,000
----------- ----------
Total Liabilities -- 134,000
----------- ----------
Net Assets in Liquidation $ -- $5,885,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-25
<PAGE> 43
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net assets in liquidation at
beginning of period $ 5,885,000 $ 6,359,000 $ 6,384,000
----------- ----------- -----------
Increase (decrease) during period:
Operating activities:
Property operating income, net 491,000 650,000 381,000
Interest income 66,000 16,000 16,000
General and administrative expenses (41,000) (47,000) (39,000)
Leasing commissions (6,000) (39,000) (13,000)
----------- ----------- -----------
510,000 580,000 345,000
----------- ----------- -----------
Liquidating activities:
Adjustment to carrying value of
property in liquidation -- (564,000) --
Gain from sale of real estate 453,000 -- --
Decrease in liquidation accrual 9,000 -- --
Distributions to partners (6,857,000) (490,000) (370,000)
----------- ----------- -----------
(6,395,000) (1,054,000) (370,000)
----------- ----------- -----------
Net decrease in assets in liquidation (5,885,000) (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-26
<PAGE> 44
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<S> <C>
REVENUES:
Rental income $238,000
Interest and other income 4,000
--------
Total revenues 242,000
--------
EXPENSES:
Operating expenses 72,000
Depreciation and amortization 2,000
General and administrative 12,000
--------
Total expenses 86,000
--------
NET INCOME $156,000
========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-27
<PAGE> 45
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENT OF PARTNERS' CAPITAL
------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
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-28
<PAGE> 46
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 156,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,000
Changes in:
Accounts receivable (24,000)
Accrued rent receivable 2,000
Prepaid expenses and other assets 1,000
Accounts payable and accrued
liabilities 17,000
---------
Net cash provided by operating
activities 154,000
Cash flows from investing activities -
investments in real estate (22,000)
Cash flows from financing activities -
distributions (120,000)
---------
Net increase in cash and
cash equivalents 12,000
Cash and cash equivalents,
beginning of period 355,000
Cash and cash equivalents,
end of period $ 367,000
=========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-29
<PAGE> 47
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, have adopted the
liquidation basis of accounting as of March 31, 1997. The difference
between the adoption of the liquidation basis of accounting as of March
13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
The Partnership adopted the liquidation basis of accounting on March
31, 1997. Comparison of results to prior years, therefore, is not
practical. The 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 was sold on September 21, 1999. See Note 5 for a
description of the transaction.
In accordance with the liquidation basis of accounting (see Note 2),
the carrying value of the Partnership's property was evaluated to
ensure it was 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 the offers it
had received to acquire Cooper Village Shopping Center net of estimated
selling costs, in lieu of obtaining appraisals at December 31, 1998.
F-30
<PAGE> 48
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 $5,632,000.
Cooper Village Shopping Center was sold on September 21, 1999 (see Note
5) and the Partnership's assets were distributed to Fund II and Fund
III upon dissolution of the Partnership prior to December 31, 1999.
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 non-equity cash investments. Cash
equivalents at December 31, 1998 totaled $297,000. 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.
F-31
<PAGE> 49
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(2) Summary of Significant Accounting Policies (Cont'd.)
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partners to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses or changes in net assets during the reporting
period. Actual results could differ from those estimates.
Income Taxes
Income taxes are not levied at the Partnership level, therefore, no
provision or liability for Federal and State income taxes has been
reflected in the accompanying financial statements.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP")
(liquidation basis of accounting) and for federal income tax reporting
purposes at December 31:
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ----------------------------------
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
Total Liabilities $ -- $ -- $ 134,000 $ 135,000
</TABLE>
F-32
<PAGE> 50
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Net income per Financial Statements (period
ended March 31, 1997 for 1997) $ -- $ -- $ 156,000
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) 510,000 16,000 345,000
Depreciation differences on investments in real
estate (212,000) (221,000) (221,000)
Adjustment to carrying value of property in
liquidation -- 564,000 --
Loss on sale of property in excess of book value (1,339,000) -- --
Other 6,000 (72,000) 7,000
----------- --------- ---------
Taxable income per Federal tax return
(unaudited) $(1,035,000) $ 287,000 $ 287,000
=========== ========= =========
</TABLE>
(3) Transactions with Affiliates
The Partnership has no employees and, accordingly, Birtcher Properties,
an affiliate of the General Partner of Fund II and Fund III and its
affiliates perform services on behalf of the Partnership in connection
with administering the affairs of the Partnership. Birtcher Properties
and affiliates are reimbursed for their general and administrative
costs actually incurred and associated with services performed on
behalf of the Partnership. For the years ended December 31, 1999, 1998
and 1997, 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 $43,000 in 1999, $53,000 in 1998, and $47,000 in 1997.
In addition, as reimbursement of costs for on-site property management
personnel and other related costs, an affiliate of the General Partner
received $34,000 in 1999, $37,000 in 1998 and $37,000 in 1997, 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
F-33
<PAGE> 51
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
- -----------------------------
(3) Transactions with Affiliates (Cont'd.)
management fee equal to .45% (.55% in 1998 and .65% in 1997) 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, 1999, 1998 and 1997, amounted to $18,000,
$35,000 and $39,000, 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, 1999, 1998 and 1997, amounted
to $2,000, $4,000 and $6,000, respectively.
(4) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Real estate taxes $ -- $ 73,000
Accounts payable and other -- 7,000
Security deposits -- 45,000
-------- --------
$ -- $125,000
======== ========
</TABLE>
(5) Gain from Sale of Real Estate
On September 21, 1999, the Partnership sold Cooper Village shopping
center, 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 was $6,175,000.
The buyer was represented by a third-party broker in the transaction.
The Partnership paid a broker commission of $79,000 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 sale of Cooper Village shopping center resulted in a gain of
$453,000, which is reflected on the Statement of Changes of Net Assets
in Liquidation.
F-34
<PAGE> 52
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
PART III
--------
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership and the General Partner have no directors or executive
officers. The General Partner of the Partnership is Birtcher/Liquidity
Properties, a California general partnership of which Birtcher
Investors, a California limited partnership, and LF Special Fund I,
L.P., a California limited partnership, are the general partners. Under
the terms of the Partnership Agreement, Birtcher Investors is
responsible for the day-to-day management of the Partnership's assets.
The general partner of LF Special Fund I, L.P., is Liquidity Fund Asset
Management, Inc., a California corporation affiliated with Liquidity
Financial Group, L.P. The principals and officers of Liquidity Fund
Asset Management, Inc. are as follows:
o Richard G. Wollack, Chairman of the Board
o Brent R. Donaldson, President
o Deborah M. Richard, Financial Officer
The general partner of Birtcher Investors is Birtcher Investments, a
California general partnership. Birtcher Investments' general partner
is Birtcher Limited, a California limited partnership and its general
partner is BREICORP, a California corporation. The principals and
relevant officers of BREICORP are as follows:
o Ronald E. Birtcher, Co-Chairman of the Board
o Arthur B. Birtcher, Co-Chairman of the Board
o Robert M. Anderson, Executive Director
-18-
<PAGE> 53
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, 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 7,000 $ 8,000 $ 10,000
Asset management fees 37,000 53,000 93,000
Property management fees 49,000 55,000 93,000
Disposition fees 266,000 -- 493,000
Leasing fees 12,000 17,000 24,000
Property management expense
reimbursements 31,000 39,000 53,000
Other expense reimbursements 69,000 88,000 131,000
-------- -------- --------
TOTAL $471,000 $260,000 $897,000
======== ======== ========
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 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.
3. Exhibits:
Articles of Incorporation and Bylaws
(a) Agreement of Limited Partnership incorporated by
reference to Exhibit No. 3.1 to the Partnership's
registration statement on Form S-11 (Commission File
No. 33-2132), dated December 13, 1985, filed under the
Securities Act of 1933.
-19-
<PAGE> 54
REAL ESTATE INCOME PARTNERS III,
LIMITED PARTNERSHIP
--------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
10. Material Contracts
(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.
-20-
<PAGE> 55
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:
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.
Reference has been incorporated for the Form 8-K filed on October 15,
1999 reporting the sales of The Forum Business Park to Rubin Pachulsky
Dew Properties, LLC, on September 23, 1999 and the sale of Cooper
Village Shopping Center (co-owned with an affiliated partnership),to
Old Vine Corporation ("Old Vine") on September 21, 1999.
Reference has also been incorporated for the Form 8-K filed on December
15, 1999 reporting the sale of Creek Edge Business Center to Investcorp
Properties Limited.
-21-
<PAGE> 56
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.
<TABLE>
<S> <C> <C>
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, 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: March 30, 2000 By: /s/ Brent R. Donaldson
-----------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
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, 2000
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 2000
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 2000
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-22-
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,230,000
<SECURITIES> 0
<RECEIVABLES> 16,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,258,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,258,000
<CURRENT-LIABILITIES> 384,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,874,000
<TOTAL-LIABILITY-AND-EQUITY> 7,258,000
<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-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>STATEMENT OF OPERATION IS NOT PRESENTED IN LIQUIDATION BASIS OF ACCOUNTING
</FN>
</TABLE>
