Item 1. Business (Cont'd.)
Financial Statements in Item 8), the carrying value of these properties was evaluated to insure that each property is carried on the Partnership's balance sheets at the lower of cost or fair value, less 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, the General Partner reduced the carrying value of the property by the difference. Using this methodology, the General Partner determined that The Cornerstone, Ladera I Shopping Center, Terracentre, Arlington Executive Plaza and Washington Technical Center, had carrying values greater than their appraised values, and therefore reduced their carrying values to $9,032,000, $6,234,000, $2,397,000, $2,740,000, and $2,612,000, respectively. Since adoption of the 1993 Solicitation, the General Partner has considered several preliminary indications of interest from third parties to acquire some or all of the Partnership's properties. Apart from the recent sale of Arlington, however, these transactions never materialized, primarily because the General Partner rejected as too low the valuations of the Partnership's properties proposed by the potential purchasers.
During 1996, the Partnership made certain capital improvements to properties held for sale that resulted in a corresponding increase in the properties' valuation allowance. At December 31, 1996, the General Partner compared the carrying value of each property to its appraised value as of January 1, 1997 and determined that The Cornerstone, Ladera-I Shopping Center and Oakpointe had carrying values greater than their appraised values. As a result, during the year ended December 31, 1996 their carrying values were adjusted by $1,683,000, $398,000, and $253,000 to $8,960,000, $5,900,000, and $7,700,000, respectively. In addition, during 1996, the carrying values of Terracentre and Washington Technical Center were increased by $190,000 and $246,000 to their estimated fair values less selling costs of $2,900,000 and $3,020,000, respectively.
The General Partner recently mailed a consent solicitation (the "Consent Solicitation") dated February 18, 1997 to the Limited Partners, pursuant to which the Limited Partners consented to dissolve the Partnership and seek to sell and liquidate the remaining Partnership properties and wind up the Partnership as soon as practicable, consistent with selling the Partnership's properties to the best advantage under the circumstances.
The Partnership derives most of its revenue from rental income. Both Certified Warehouse and Transfer Company, Inc. ("Certified") and FIserv, Inc. ("FIserv", formerly d.b.a. Citicorp CIR, Inc.) represent significant portions of such income. Rental income from Certified totaled $1,007,000 in 1996, and $984,000 in 1995 and 1994 or approximately 16%, 17% and 16%, respectively, of the Partnership's total rental income. Rental income from FIserv totaled $887,000 in 1996, $880,000 in 1995 and $886,000 in 1994, or approximately 14%, 15% and 14%, respectively, of the Partnership's total rental income.
The Partnership's investments in real estate are subject to competition for tenants from similar types of properties in the vicinities in which they are located. The Partnership has no investments in real estate located outside the United States.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 1. Business (Cont'd.)
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 3 to the Financial Statements in Item 8 for a description of such charges.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 2.
Item 2. PROPERTIES
SEE NOTE TO TABLE ON THE FOLLOWING PAGE.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 2. PROPERTIES (Cont'd.)
NOTE TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of the $4,423,000 of acquisition fees paid to the General Partner. Also, for certain properties, the purchase price has been reduced by cash received after acquisition under rental agreements for non-occupied space.
Item 3.
Item 3. LEGAL PROCEEDINGS
The Partnership is not a party to any material pending legal proceedings, other than ordinary routine litigation incidental to its business. It is the General Partner's belief that the outcome of these proceedings will not be material to the business, financial condition, or results of operations of the Partnership.
NASD Matter. In a matter not directly involving the Partnership or its General Partner, in 1991, the National Association of Securities Dealers, Inc. (the "Association") Business Conduct Committee for the Northern District of California initiated a complaint against a broker-dealer affiliate of LF Special Fund II, L.P., (a general partner of the General Partner of the Partnership), alleging violations of the Association's Rules of Fair Practice. Specifically, the complaint alleged that the affiliate (i) bought and sold limited partnership units (but not interests in the Partnership) in the secondary market, from or to unaffiliated parties, subject to mark-ups or mark-downs in excess of the Association's guidelines and (ii) failed to disclose the amount or existence of such mark-ups and mark-downs to buyers and sellers of limited partnership units. Brent Donaldson and Richard Wollack, executive officers of LF Special Fund II, L.P., were also named as respondents in the complaint in their capacities as principals of the affiliate. The complaint was settled as of January 3, 1992 on the following terms: the Association made findings, which were neither admitted nor denied, of violations by the affiliate and Mr. Donaldson of the Association's guidelines with respect to mark-ups or mark-downs, and of the failure of the affiliate (but not Mr. Donaldson) to disclose the amount of such mark-ups or mark-downs. Both allegations were dismissed as to Mr. Wollack. The settlement further provided that the affiliate would be censured and fined $125,000 and that Mr. Donaldson would be censured and fined $7,500.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5.
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.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS (Cont'd.)
As of February 28, 1997, the number of holders of the Partnership's interests is as follows:
The Partnership makes quarterly 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:
The Limited Partners and the General Partner are entitled to receive quarterly cash distributions, as available, in the future. During 1995, the General Partner temporarily suspended distributions for three quarters, commencing with the last quarter of 1995, to fund a portion of the renovation and tenant improvements at The Cornerstone and tenant improvements at Oakpointe, and Washington Technical Center.
In December 1996, the Partnership made a $1,500,000 special distribution to its limited partners from a portion of the proceeds from the sale of Arlington Executive Plaza. See Item 7, Liquidity and Capital Resources for further discussion.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 6.
Item 6. SELECTED FINANCIAL DATA
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Since the completion of its acquisition program in September 1985, 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, as of 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 recieved the consent of the Limited Partners to dissolve the Partnership and sell and liquidate all of its remaining properties as soon as practicable, consistent with selling the Partnership's properties to the best advantage under the circumstances. The Partnership's properties were held for sale throughout 1996 and continue to be held for sale.
Working capital is and will be principally provided from the operation of the Partnership's properties and the working capital reserve established for the properties. The Partnership may incur mortgage indebtedness relating to such properties by borrowing funds primarily to fund capital improvements or to obtain financing proceeds for distribution to the partners.
Regular distributions for the year ended December 31, 1996, represent net cash flow generated from operations of the Partnership's properties and interest earned on the temporary investment of working capital, net of capital reserve requirements. In December 1996, the Partnership made a special distribution of $1,500,000 representing a portion of net proceeds from the sale of Arlington Executive Plaza. Future cash distributions will be made to the extent available from net cash flow generated from operations and sales of the Partnership's properties and interest earned on the investment of capital reserves, after providing for capital reserves and payment for capital improvements and repairs to the Partnership's properties. See Item 5 for a description of the Partnership's distribution history. The Partnership believes that the cash generated from its operations will provide the Partnership the funds necessary to meet all of its ordinary obligations.
Certain of the Partnership's properties are not fully leased. The Partnership is actively marketing the vacant space in these properties, subject to the competitive environment in each of the market areas. To the extent the Partnership is not successful in maintaining or increasing occupancy levels at these properties, the Partnership's future cash flow and distributions may be reduced.
The Partnership began renovation of The Cornerstone, located in Tempe, Arizona in August 1995 and those renovations were completed during third quarter of 1996. The cost of these capital improvements, which included the exterior facade
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
modifications, hardscape and softscape changes and signage upgrades, was approximately $1,527,000. To pay for a portion of these improvements, the Partnership suspended distributions to its limited partners for the fourth quarter of 1995 and the first two quarters of 1996. Regular distributions resumed in the third quarter of 1996.
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 3 to the Financial Statements for discussion of fees paid to the General Partner for the year ended December 31, 1996.
In September 1987, the Partnership borrowed $4,000,000 pursuant to a loan agreement secured by a First Deed of Trust on the Certified Distribution Center in Salt Lake City, Utah. The net proceeds were used primarily for capital improvements and leasing commissions on certain of the Partnership's properties, the Partnership's working capital reserves and certain general and administrative expenses. That loan matured on December 1, 1990, however, the General Partner obtained a loan extension that was to mature December 1, 1993. On July 20, 1993, the Partnership obtained a new loan secured by a First Deed of Trust on the Certified Distribution Center in Salt Lake City, Utah. The new loan, in the amount of $3,500,000, carries a fixed interest rate of 9% per annum over a 13-year fully amortizing term. The Partnership's first payment of $38,000 was paid on September 1, 1993, with monthly installments due thereafter.
In March 1996, the Partnership entered into a loan agreement pursuant to which it could borrow up to $1,500,000, evidenced by a note secured by a first deed of trust and financing statement on the Ladera I Shopping Center in Albuquerque, New Mexico. Pursuant to the note and loan agreement, the Partnership borrowed $700,000 in March 1996. The Partnership made interest only payments at the rate of 1% over prime (the loan rate was 9.25%) through November 1996, when the entire balance was paid off utilizing a portion of the proceeds from the sale of Arlington Executive Plaza. The net proceeds of the foregoing loan were used to fund a portion of the renovation and tenant improvements at The Cornerstone and tenant improvements at Oakpointe.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
January 1, 1997 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 mandates, among other things, that the General Partner seek a vote of (and provide an analysis and recommendation to) the Limited Partners no later than December 31, 1996 regarding the prompt liquidation of the Partnership in the event that properties with (then) current appraised values (constituting at least one-half of the total (then) current appraised values) of all of the Partnership's properties are not sold or under contract for sale by the end of 1996.
Given this mandate, the General Partner requested that the appraiser provide an assessment of value that reflects a shorter investment holding term. Although the General Partner does not know how long it will take to sell the Partnership's remaining properties, it requested that the appraiser assume that the entire portfolio would be sold over four years, in connection with the January 1995 appraisals, over three years in connection with the January 1996 appraisals and over approximately two years in connection with the January 1997 appraisals.
Using the shorter-term investment methodology that is consistent with the mandate of the 1993 amendment to the Partnership agreement, the appraiser estimated the value of the Partnership's remaining properties at January 1, 1997 to be $37,680,000.
The foregoing appraised value of the Partnership's remaining properties indicates an estimated net asset value of the Partnership of $35,711,000 or $3,674 per $10,000 of original investor subscription. (Net asset value represents the appraised value of the Partnership's properties, cash and all other assets less secured loans payable and all other liabilities.)
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.)
Results of Operations
Year Ended December 31, 1996
The increase in rental income for the year ended December 31, 1996, when compared to 1995, was primarily attributable to an increase in rental income at Oakpointe. A new lease was signed in February 1996 with Symbol Technologies, Inc. encompassing 22,801 square feet bringing Oakpointe to 100% leased.
The increase in interest and other income for the year ended December 31, 1996, as compared to 1995 was attributable to an increase in The Cornerstone's other miscellaneous income. This incease was partially offset by a decrease in interest income due to a decrease in the average level of working capital available for investment in 1996. Capital reserves were used to fund a portion of the renovation and tenant improvements at The Cornerstone and tenant improvements at Oakpointe.
On November 21, 1996, the Partnership sold Arlington Executive Plaza, an office complex composed of seven identical 10,428 square foot buildings located on 7.2 acres of land in Arlington Heights, Illinois to an unaffiliated third party. The sales price was $3,050,000 ($2,929,000 net of commissions and escrow fees) and the net proceeds of the sale amounted to approximately $2,699,000 after factoring in all prorations and credits to the buyer. In December 1995, the General Partner had adjusted the carrying value of the property in accordance with the guidelines of FAS 121, which resulted in a write-down of $1,250,000 and an adjusted carrying value of $2,740,000. The resulting gain on sale, after taking into consideration all costs of disposition, amounted to $164,000 as reflected in the Statement of Operations. The General Partner was not paid a commission or disposition fee as part of this transaction.
The decrease in operating expenses for the year ended December 31, 1996, as compared to 1995 was primarily attributable to the sale of Arlington Executive Plaza in November 1996 and reduced legal and professional fees at The Cornerstone and Terracentre.
The decrease in real estate taxes for the year ended December 31, 1996, when compared to 1995 primarily relates to: 1) the sale of Arlington Executive Plaza in November 1996 ($146,000); and, 2) a reduced tax assessment for Oakpointe in 1996 ($157,000).
General and administrative expenses for the year ended December 31, 1996 include charges of $500,000 from the General Partner and its affiliates for services rendered in connection with administering the affairs of the Partnership and operating the Partnership's properties. Also included in general and administrative expenses were direct charges of $482,000 relating to audit and tax preparation fees, annual appraisal fees, legal fees, insurance expense, costs incurred in providing information to the Limited Partners and other miscellaneous costs.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1996 (Cont'd.)
The decrease in general and administrative expenses for the year ended December 31, 1996 as compared to 1995, was primarily attributable to decreases in administrative expense reimbursements and leasing fees incurred in 1996. The aforementioned decreases were partially offset by higher professional fees incurred by the Partnership.
Interest expense resulted from interest on the first deed of trust on Certified Distribution Center and the loan agreement secured by Ladera-I Shopping Center. The increase in interest expense for the year ended December 31, 1996, as compared to 1995, was a result of the borrowing of $700,000 in March 1996, pursuant to that new loan arrangement. The Partnership subsequently paid off the $700,000 note in November 1996.
For the year ended December 31, 1996, the General Partner determined that the carrying values of The Cornerstone, Ladera-I Shopping Center and Oakpointe were in excess of their respective appraised values. As a result, their carrying values were adjusted by $1,683,000, $398,000, and $253,000 to $8,960,000, $5,900,000, and $7,700,000, respectively. In addition, during 1996, the carrying values of Terracentre and Washington Technical Center were increased by $190,000 and $246,000 to their estimated fair values less selling costs of $2,900,000 and $3,020,000, respectively.
The decrease in depreciation and amortization expenses for the year ended December 31, 1996 as compared to 1995 was a result of the adoption and implementation at December 31, 1995 of Statement of Financial Accounting Standards, No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," pursuant to which "assets held for sale" are not depreciated.
Year Ended December 31, 1995
The decrease in rental income for the year ended December 31, 1995, as compared to 1994, was primarily attributable to reduced rental income at The Cornerstone and Oakpointe. At The Cornerstone, several small tenants terminated their leases prior to or upon their respective scheduled termination during 1995. The respective terminations resulted in a decrease in the property's occupancy rate to 70% and decrease in rental income of $338,000. At Oakpointe, revenue decreased by $153,000, which was primarily the result of the termination of the Illinois Department of Employment Security lease in March 1994. Additionally, common area expense reconciliations at Oakpointe resulted in a $36,000 refund of tenant overpayment during 1995. The aforementioned decreases were partially offset by an increase in rental income at Washington Technical Center and Terracentre office building. At Washington Technical Center, revenue increased by $108,000 because the Partnership entered into three leases encompassing 25,698 square feet in late 1994, and at Terracentre, revenue increased $103,000 because the Partnership entered into a 9,259 square foot lease.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
Interest income resulted from the temporary investment of Partnership working capital. Interest income was generally comparable to 1994. Other miscellaneous income decreased at Terracentre and Oakpointe by $38,000 during 1995.
The decrease in operating expenses for the year ended December 31, 1995, as compared to 1994, was primarily attributable to the overall decrease in legal and professional services associated with minor tenant disputes and real estate tax appeals relating to the Partnership's properties ($67,000).
The increase in real estate taxes for the year ended December 31, 1995, as compared to 1994, was primarily attributable to the increases in taxes at The Cornerstone and Oakpointe ($51,000). The aforementioned increase was partially offset by a lower tax assessment at Washington Technical Center, which was the result of a successful tax appeal during 1995 ($13,000) and a lower tax expense at Arlington Executive Plaza ($28,000).
General and administrative expenses for the year ended December 31, 1995 include charges of $588,000 from the General Partner and its affiliates for services rendered in connection with administering the affairs of the Partnership and operating the Partnership's properties. Also included in general and administrative expenses were direct charges of $417,000 relating to audit and tax preparation fees, annual appraisal fees, legal fees, insurance expense, costs incurred in providing information to the Limited Partners and other miscellaneous costs.
The increase in general and administrative expenses for the year ended December 31, 1995 as compared to 1994, was primarily attributable to the increase in legal and professional services, administrative wages and leasing fees. The aforementioned increases were partially offset by lower asset management fees paid to the General Partner.
Interest expense resulted from interest on the first deed of trust on Certified Distribution Center. The decrease in interest expense for the year ended December 31, 1995, as compared to 1994, was attributable to the increase in principal payment of the loan, which carries a fixed rate of 9% per annum over a 13-year fully amortized term.
The decrease in depreciation and amortization for the year ended December 31, 1995, as compared to 1994, was attributable to the $5,500,000 adjustment to the carrying value of real estate assets during 1994. As part of this adjustment, the depreciable bases of Cornerstone Shopping Center, Terracentre office building and Oakpointe were reduced in December 1994 by $3,150,000, $466,000 and $704,000, respectively, with the remaining adjustment of $1,180,000 being allocated to land.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1995 (Cont'd.)
Given the mandate of the May 5, 1993 Information Statement, the General Partner decided to account for the Partnership's properties as assets held for sale, instead of for investment as of December 31, 1995. Accordingly, the General Partner compared the carrying value of each property to its appraised value as of January 1, 1996. If the carrying value of a property and certain related assets was greater than its appraised value, the General Partner reduced the carrying value of the property by the difference. Using this methodology, the General Partner determined that The Cornerstone, Ladera I Shopping Center, Terracentre, Arlington Executive Plaza, and Washington Technical Center, had carrying values greater than their appraised values, and therefore reduced their carrying values by $1,600,000, $560,000, $590,000, $1,250,000, and $770,000 to $9,032,000, $6,234,000, $2,397,000, $2,740,000, and $2,612,000, respectively.
Year Ended December 31, 1994
The decrease in rental income for the year ended December 31, 1994, as compared to 1993, was primarily attributable to reduced rental income at Oakpointe and Washington Technical Center. At Oakpointe, revenue decreased by $71,000, primarily as a result of two factors. The FIserv, Inc. lease was successfully renegotiated in 1993, in exchange for a reduced rental rate. In addition, the Illinois Department of Employment Security lease encompassing 14,580 square feet was terminated in March 1994. The tenant vacated the premises, which resulted in an occupancy decrease to 76%. At Washington Technical Center, rental income decreased by $139,000. This decrease was a result of the following factors: Legent Corporation and Boeing Support Services terminated their leases upon expiration in October 1993 and Jon Marie Portrait terminated its lease prior to the scheduled expiration date in late 1993. The aforementioned decreases were partially offset by an increase in rental income as a result of successful negotiation on three new leases encompassing 25,698 square feet in September and November 1994 at Washington Technical Center.
Interest income resulted from the temporary investment of Partnership working capital. Interest and other income was generally comparable to 1993.
The increase in operating expenses for the year ended December 31, 1994, as compared to 1993, was primarily attributable to the increase in legal and professional services associated with minor tenant disputes and real estate tax appeals relating to the Partnership's properties ($88,000).
The increase in real estate taxes for the year ended December 31, 1994, as compared to 1993, was primarily attributable to an increase in real estate taxes at Oakpointe and Arlington.
DAMSON/BIRTCHER REALTY INCOME FUND-I
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, 1994 (Cont'd.)
General and administrative expenses for the year ended December 31, 1994 include charges of $568,000 from the General Partner and its affiliates for services rendered in connection with administering the affairs of the Partnership and operating the Partnership's properties. Also included in general and administrative expenses were direct charges of $413,000 relating to audit and tax preparation fees, annual appraisal fees, legal fees, insurance expense, 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, 1994, as compared to 1993, was primarily attributable to a decrease in legal fees and professional services, postage, mailing expenses and printing costs associated with the amendment of the Partnership Agreement, which occurred in 1993.
Interest expense resulted from interest on the first deed of trust on Certified Distribution Center. The decrease in interest expense for the year ended December 31, 1994, as compared to 1993, was attributable to the retirement of the Partnership's previous loan and a reduced loan balance with a lower interest rate on the take-out financing arrangement.
Provision was made for impairment loss if the General Partner determined that the carrying amount of the Partnership's investment in a real estate asset may not have been recoverable. The General Partner obtained third party appraisals on the Partnership's properties as required by the Partnership Agreement. If these appraisals indicated that certain of the Partnership's properties had market values below their then- current carrying values, the General Partner considered the appraisals and analyzed the current and anticipated market conditions of the respective properties and determined if an impairment had occurred. At December 31, 1994, after evaluation of The Cornerstone, Terracentre and Oakpointe the General Partner estimated a $5,500,000 impairment of value as compared to its respective carrying value.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Information required by other schedules called for under Regulation S-X is either not applicable or is included in the financial statements.
DAMSON/BIRTCHER REALTY INCOME FUND-I
INDEPENDENT AUDITORS' REPORT
To Damson/Birtcher Partners, as General Partner of Damson/Birtcher Realty Income Fund-I:
We have audited the financial statements of Damson/Birtcher Realty Income Fund-I, a limited partnership as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule listed in the accompanying index. These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 9 to the financial statements, on March 14, 1997 a majority in interest of the limited partners approved the proposal to dissolve the Partnership and sell and liquidate all of its remaining properties.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Damson/Birtcher Realty Income Fund-I as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. 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 note 2 to the financial statements, on December 31, 1995 Damson/Birtcher Realty Income Fund-I adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
KPMG PEAT MARWICK LLP
Orange County, California March 25, 1997
DAMSON/BIRTCHER REALTY INCOME FUND-I
BALANCE SHEETS
The accompanying notes are an integral part of these Financial Statements.
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these Financial Statements.
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
The accompanying notes are an integral part of these Financial Statements.
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these Financial Statements.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Operations
Damson/Birtcher Realty Income Fund-I (the "Partnership") is a limited partnership formed on May 7, 1984, under the laws of the Commonwealth of Pennsylvania, for the purpose of acquiring and operating income-producing retail, commercial and industrial properties. The General Partner of the Partnership is Damson/Birtcher Partners, a general partnership originally consisting of Equity Properties, Inc. ("EPI"), an indirect, wholly-owned subsidiary of Damson Oil Corporation and Birtcher Partners, a California general partnership. In December 1992, EPI withdrew as a general partner of the Damson/Birtcher Partners and LF Special Fund II, L.P. was added as a general partner of the General Partner. Under the terms of the General Partner's Partnership Agreement, Birtcher Partners or its affiliates, remains responsible for the day-to-day management of the Partnership's assets.
In January 1993, 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 were implemented by the Partnership as contemplated by the Information Statement as amendments to the Partnership Agreement, and have been reflected in these Financial Statements as such.
The amendment modified the Partnership Agreement to eliminate the General Partner's 10% 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 10% subordinated interest in Sale or Financing Proceeds (net cash from sale or financing of Partnership property) and to reduce its subordinated interest in such proceeds from 15% to 1%. In lieu thereof, the Partnership Agreement now provides for the Partnership's payment to the General Partner of an annual asset management fee equal initially to .75% of the aggregate appraised value of the Partnership's properties. At January 1, 1996 and 1995 the portfolio was appraised at an aggregate value of approximately $40,390,000 (unaudited) and $40,505,000 (unaudited), respectively. The factor used to calculate the annual asset management fee will be reduced by .10% each year beginning after December 31, 1996 (e.g., from .75% in 1996 to .65% in 1997).
The amendment modified the Partnership Agreement to eliminate the subordination provisions with respect to leasing fees payable under that subsection. The amendment also eliminated the deferred leasing fees earned by the General Partner or its affiliates (approximately $448,000 as of December 31, 1992) on or after the effective date of the amendment. Fees for leasing services rendered by the General Partner or its affiliates (post amendment) have been payable by the Partnership on a current basis and have not been subordinated to the Limited Partners Preferred Return and Adjusted Invested Capital or any other amount.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment modified the Partnership Agreement to eliminate the subordination provision 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 fee as earned. The fee is not 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 or its affiliates 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 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 stated 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. However, if any of the Partnership's properties are sold for a gain, a special allocation to the General Partner may have the effect of reducing the amount of Sale or Financing Proceeds otherwise distributable to the Limited Partners and correspondingly increasing the amount of such distributions to be retained by the General Partner. The amount of such distributions to be affected would be approximately equal to any deficit balance, if any, in the General Partner's capital account in the Partnership at the time of the allocation.
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
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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.
The Partnership began renovation of The Cornerstone, located in Tempe, Arizona in August 1995 and they were completed during the third quarter of 1996. The cost of those capital improvements which include exterior facade modifications, hardscape and softscape changes and signage upgrades, was approximately $1,527,000, plus an anticipated $1,976,000 (per appraisal) for tenant improvements and leasing commissions that will be incurred in 1997. To pay for a portion of these improvements and commissions the Partnership suspended distributions to its Limited Partners for the fourth quarter of 1995 and the first two quarters of 1996. Regular distributions resumed in the third quarter of 1996.
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, if any, 99% to Limited Partners and 1% to the General Partner. The unpaid 9% Preferential Return to the Limited Partners' aggregates $69,874,000 as of December 31, 1996.
Income or loss for financial statement purposes is allocated 99% to the Limited Partners and 1% to the General Partner.
The amendment modified the Partnership Agreement so as to restrict the Partnership from entering into a future "Reorganization Transaction" (as defined in the amendment) sponsored by the General Partner or any of its affiliates unless such transaction is approved by a "supermajority" of at least 80% in interest of the Limited Partners and the General Partner. The amendment also prohibits the modification of this restriction on Reorganization Transactions without the approval of at least 80% in interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it would hold its properties for a period of at least five years, with decisions about the actual timing of property sales or other dispositions to be left to the General Partner's discretion based on the anticipated remaining economic benefits of continued ownership and other factors.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The General Partner recently mailed a consent solicitation (the "Consent Solicitation") dated February 18, 1997 to the Limited Partners, pursuant to which the Limited Partners consented to dissolve the Partnership and seek to sell and liquidate the remaining Partnership properties and wind up the Partnership as soon as practicable, consistent with selling the Partnership's properties to best advantage under the circumstances.
As of December 31, 1995 the General Partner decided to treat its properties as held for sale, instead of for investment, for financial statement purposes. Since adoption of the 1993 amendment, the General Partner has considered several preliminary indications of interest from third parties to acquire some or all of the Partnership's properties. Apart from the sale of Arlington Executive Plaza, these transactions never materialized, primarily because the General Partner rejected as too low the valuations of the Partnership's remaining properties as proposed by the potential purchasers. The Partnership's properties were held for sale throughout 1996 and continue to be held for sale.
In accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (see Note 2), the carrying value of these properties was evaluated to ensure that each property is carried on the Partnership's balance sheets at the lower of cost or fair value less selling costs. The General Partner estimated fair value for this purpose based on appraisals performed as of January 1, 1997 at December 31, 1996 and as of January 1, 1996 at December 31, 1995.
The January 1, 1997 appraisals assume that the properties will be sold within approximately two years and that the sales will take place on a property by property basis between willing buyers and willing sellers. Among the strategies the General Partner will consider to accomplish the dissolution is a sale of the Partnerships' portfolio in a single transaction, or a sale of some or all of the Partnership's properties in a "package" with properties of affiliated partnerships. If the properties were sold in a "package" such sale would most likely result in a lower aggregate sales price, but more rapid distribution of dissolution proceeds to the Limited Partners, as compared to a series of individual sale transactions. Furthermore, fair value can only be determined based upon sales to third parties, and sales proceeds could differ substantially from appraised values.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("FAS 121"). This Statement requires that if the General Partner believes factors are present that may indicate long-lived assets are impaired, the undiscounted cash flows, before debt service, related to the assets should be estimated. If these estimated cash flows are less than the carrying value of the asset, then impairment is deemed to exist. If impairment exists, the asset should be written down to the estimated fair value.
Further, assets held for sale, including any unrecoverable accrued rent receivable or capitalized leasing commissions, should be carried at the lower of carrying value or fair value less estimated selling costs. Any adjustment to carrying value is recorded as a valuation allowance against property held for sale. Each reporting period, the General Partner will review their estimates of fair value, which may be decreased or increased up to the original carrying value. Finally, assets held for sale are no longer depreciated. The General Partner adopted FAS 121 at December 31, 1995 and the adoption did not have a material impact on the Partnership's operations or financial position as prior to December 31, 1995, the Partnership had not had any properties held for sale.
As noted above, as of December 31, 1995 the General Partner decided to account for the Partnership's properties as assets held for sale, instead of for investment. Assuming a 12 month holding period, the General Partner compared the carrying value of each property to its appraised value as of January 1, 1996. If the carrying value of a property and certain related assets was greater than its appraised value, less selling costs, the General Partner reduced the carrying value of the property by the difference. Using this methodology, the General Partner determined that The Cornerstone, Ladera I Shopping Center, Terracentre, Arlington Executive Plaza, and Washington Technical Center had carrying values greater than they had appraised values, and therefore reduced their carrying values by $1,600,000, $560,000, $590,000, 1,250,000, and 770,000 to $9,032,000, $6,234,000, $2,397,000, $2,740,000, and $2,612,000, respectively.
Utilizing the same methodology, assuming a 12 month holding period, for the year ended December 31, 1996, the General Partner determined that The Cornerstone, Ladera-I Shopping Center and Oakpointe had carrying values greater than their respective appraised values. As a result, the carrying values were adjusted by $1,683,000, $398,000, and $253,000 to $8,960,000, $5,900,000, and $7,700,000, respectively. In addition, during 1996, the carrying value of Terracentre and Washington Technical Center were increased by $190,000 and $246,000 to their estimated fair values less selling costs $2,900,000 and $3,020,000, respectively.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Carrying Value of Real Estate (Cont'd.)
Prior to the adoption of FAS 121, provision was made for impairment loss if the General Partner determined that the carrying amount of the Partnership's investment in a real estate asset was not recoverable. The General Partner obtained third party appraisals on the Partnership's properties as required by the Partnership Agreement. If these appraisals indicated that certain of the Partnership's properties had market values below their then-current carrying values, the General Partner considered the appraisals and analyzed the current and anticipated market conditions of the respective properties and determined if an impairment had occurred.
At December 31, 1994, after evaluation of the Cornerstone Shopping Center Terracentre, and Oakpointe, the General Partner estimated a $5,500,000 impairment of value as compared to their respective carrying values.
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, 1996 and 1995, totaled $711,000 and $301,000, respectively. Cash equivalents are defined as temporary non-equity investments with original maturities of three months or less, which can be readily converted into cash and are not subject to changes in market value.
Depreciation
Through December 31, 1995, depreciation expense was computed using the straight-line method. Rates used in the determination of depreciation were based upon the following estimated useful lives:
Revenue Recognition
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.
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.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd)
Following are the Partnership's assets and liabilities as determined in accordance with generally accepted accounting principles ("GAAP") and for federal income tax reporting purposes at December 31:
Following are the differences between Financial Statement and tax return income:
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Significant Tenants
Rental income from Certified Warehouse and Transfer Company, Inc., totaled $1,007,000 in 1996, $984,000 in 1995, and $984,000 in 1994, or approximately 16%, 17% and 16%, respectively, of the Partnership's total rental income. Rental income from FISERV, Inc. (formerly d.b.a. Citicorp CIR, Inc.) totaled $887,000 in 1996, $880,000 in 1995 and $886,000 in 1994, or approximately 14%, 15% and 14%, respectively, of the Partnership's total rental income.
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 original 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(3) 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, 1996, 1995 and 1994, the Partnership was charged with approximately $178,000, $226,000 and $191,000, respectively, of such expenses.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates (Cont'd.)
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 3% of the gross receipts from the properties under management. Such fees amounted to approximately $178,000 in 1996, $161,000 in 1995 and $167,000 in 1994. In addition, the affiliate of the General Partner received $367,000 in 1996, $321,000 in 1995 and $303,000 in 1994, as reimbursement of costs for on-site property management personnel and other reimbursable costs.
The amended Partnership Agreement provides for the Partnership's payment to the General Partner of an annual asset management fee equal to .75% 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, 1996, 1995 and 1994, amounted to $301,000, $304,000 and $353,000, 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 including renewal options. Fees for leasing services for the year ended December 31, 1996, 1995 and 1994, amounted to $21,000, $58,000 and $24,000, respectively.
(4) Gain on Disposition of Assets
On November 21, 1996, the Partnership sold Arlington Executive Plaza, an office complex composed of seven identical 10,428 square foot buildings located on 7.2 acres of land in Arlington Heights, Illinois to an unaffiliated third party. The gross sales price was $3,050,000 ($2,929,000 net of commissions and escrow fees) and the net proceeds of the sale, after all prorations and credits to the buyer, amounted to approximately $2,699,000. In December 1995, the General Partner had adjusted the carrying value of the property in accordance with the guidelines of FAS 121, which resulted in a write-down of $1,250,000 and an adjusted carrying value of $2,740,000. The resulting gain on sale, after taking into consideration all costs of disposition, amounted to $164,000 as reflected in the Statement of Operations. The General Partner was not paid a commission or disposition fee as part of this transaction.
(5) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal proceedings other than ordinary routine litigation incidental to its business. It is
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
the General Partner's belief, that the outcome of these proceedings will not be material to the business, financial condition, or results of operations of the Partnership. See note 9 for subsequent events.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed as of December 31, 1996, are properly classified as operating leases for financial reporting purposes. Future minimum annual rental income to be received under such leases as of December 31, 1996, are as follows:
Certain of these leases also provide for, among other things: tenant reimbursements to the Partnership of certain operating expenses; payments of additional rents in amounts equal to a set percentage of the tenant's annual revenue in excess of specified levels; and escalations in annual rents based upon the Consumer Price Index.
(6) Secured Loan Agreements
In September 1987, the Partnership borrowed $4,000,000 pursuant to a loan agreement secured by a First Deed of Trust on the Certified Distribution Center in Salt Lake City, Utah. That loan matured on October 1, 1990, however, the General Partner obtained a loan extension that was to mature December 1, 1993. On July 30, 1993, the Partnership obtained a new loan secured by a First Deed of Trust on the Certified Distribution Center in Salt Lake City, Utah. The new loan, in the amount of $3,500,000, carries a fixed interest rate of 9% per annum over a 13-year fully amortizing term. The Partnership's first payment of $38,000 was paid on September 1, 1993, with monthly installments due thereafter. Future principal payments to the lender under the loan as of December 31, 1996, are as follows:
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Secured Loan Agreements (Cont'd.)
The General Partner believes the fair value of this secured loan approximates the carrying value, based on the interest rate charged for the loan.
In March 1996, the Partnership entered into a loan agreement pursuant to which it may borrow up to $1,500,000, evidenced by a note secured by a first deed of trust and financing statement on the Ladera I Shopping Center in Albuquerque, New Mexico. Pursuant to the note and loan agreement, the Partnership borrowed $700,000 in March 1996. The Partnership made interest only payments at the rate of 1% over prime (the loan rate was 9.25%) through November 1996, when the entire balance was paid off utilizing a portion of the proceeds from the sale of Arlington Executive Plaza. The net proceeds of the foregoing loan were used to fund a portion of the renovation and tenant improvements at The Cornerstone and tenant improvements at Oakpointe.
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
(8) Allowance for Doubtful Accounts
(9) Subsequent Events
On February 28, 1997, the Partnership made an aggregate cash distribution of $253,000 to its Limited Partners.
On March 14, 1997 a majority in interest of the Limited Partners approved the proposal to dissolve the Partnership and sell and liquidate all of its remaining properties pursuant to the Consent Solicitation dated February 18, 1997.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
9) Subsequent Events (Cont'd.)
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.
DAMSON/BIRTCHER REALTY INCOME FUND-I SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1996 (AMOUNTS IN THOUSANDS)
NOTE: Column G is not applicable.
See notes to schedule on following page.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO SCHEDULE III
(a) For a description of the properties, see "Item 2. Properties."
(b) For the year ended December 31, 1996, the General Partner determined that the carrying values of The Cornerstone, Ladera-I Shopping Center and Oakpointe were in excess of their respective appraised values. As a result, their carrying values were adjusted by $1,683,000, $398,000, and $253,000 to $8,960,000, $5,900,000, and $7,700,000, respectively. In addition, during 1996, the carrying values of Terracentre and Washington Technical Center were increased by $190,000 and $246,000 to their estimated fair values less selling costs of $2,900,000 and $3,020,000, respectively.
At December 31, 1995, the General Partner determined that The Cornerstone, Ladera-I Shopping Center, Terracentre, Arlington Executive Plaza and Washington Technical Center had carrying values greater than they had appraised values less selling costs, and therefore provided a valuation allowance of $4,770,000 against property held for sale.
At December 31, 1994, after evaluation of The Cornerstone, Terracentre, and Oakpointe, the General Partner estimated a $5,500,000 impairment of value as compared to their respective carrying values.
The aggregate cost of land, buildings and improvements for Federal income tax purposes (unaudited) was $84,454,000 as of December 31, 1996. The difference between the aggregate cost of land, buildings and improvements for tax reporting purposes as compared to financial reporting purposes is primarily attributable to: (1) amounts received under rental agreements for non-occupied space, which were recorded as income for tax reporting purposes but were recorded as a reduction of the corresponding property basis for financial reporting purposes, and (2) the adjustments to the carrying value of the real estate for financial statement purposes have no effect for tax reporting purposes.
(c) The initial cost to the Partnership includes acquisition fees paid to the General Partner. The Partnership's cost has also been reduced by amounts received from sellers after acquisition under rental agreements for non-occupied space.
(d) Amounts represent funds received from sellers subsequent to acquisition under rental agreements for non-occupied space and include adjustments to carrying value of real estate.
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO SCHEDULE III (Cont'd.)
(e) RECONCILIATION OF REAL ESTATE
RECONCILIATION OF ACCUMULATED DEPRECIATION
(f) Through December 31, 1995, depreciation expense was computed based upon the following estimated useful lives:
Due to the adoption of FAS 121 on December 31, 1995, properties held for sale were not depreciated in 1996.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.
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 Damson/Birtcher Partners, a California general partnership of which Birtcher Partners, a California general partnership, and LF Special Fund II, L.P., a California limited partnership, are the general partners. Under the terms of the Partnership Agreement, Birtcher Partners is responsible for the day-to-day management of the Partnership's assets.
The general partner of LF Special Fund II, L.P., is Liquidity Fund Asset Management, Inc., a California corporation affiliated with Liquidity Financial Group, L.P. The principals and officers of Liquidity Fund Asset Management, Inc. are as follows:
Richard G. Wollack, Chairman of the Board Brent R. Donaldson, President Deborah M. Richard, Chief Financial Officer
The general partner of Birtcher Partners is Birtcher Investments, a California general partnership. Birtcher Investments' general partner is Birtcher Limited, a California limited partnership and its general partner is BREICORP, a California corporation. The principals and relevant officers of BREICORP are as follows:
Ronald E. Birtcher, Co-Chairman of the Board Arthur B. Birtcher, Co-Chairman of the Board Robert M. Anderson, Executive Director
Item 11.
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, 1996.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1997, there was no entity or individual holding more than 5% of the limited partnership interests of the Registrant.
Item 13.
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 and 3 to the Financial Statements in Item 8, which information is incorporated herein by reference.
PART IV
Item 14.
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.
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (Cont'd.)
3. Exhibits:
Articles of Incorporation and Bylaws
(a) The Amended and Restated Agreement of Limited Partnership incorporated by reference to Exhibit A to the Partnership's prospectus contained in the Partnership's registration statement on Form S-11 (Commission File No. 2-91065), dated June 22, 1985, as supplemented filed under the Securities Act of 1933.
10. Material Contracts
(a) Revised Property Management Agreement dated April 2, 1985 between Birtcher Properties and the Registrant for Certified Distribution Center. Incorporated by reference to Exhibit 19(a)(4) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1985. (SUPERSEDED)
(b) Property Management Agreement dated May 10, 1985, between Birtcher Properties and the Registrant for Ladera Shopping Center. Incorporated by reference to Exhibit 19(a)(6) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1985. (SUPERSEDED)
(c) Property Management Agreement dated July 17, 1985, between Birtcher Properties and the Registrant for The Cornerstone. Incorporated by reference to Exhibit 19(a)(8) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1985. (SUPERSEDED)
(d) Property Management Agreement dated September 6, 1985, between Birtcher Properties and the Registrant for Terracentre. Incorporated by reference to Exhibit 19(a)(10) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1985. (SUPERSEDED)
(e) Property Management Agreement dated September 16, 1985, between Birtcher Properties and the Registrant for Oakpointe (formerly Lincoln Atrium Center). Incorporated by reference to Exhibit 19(a)(12) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1985. (SUPERSEDED)
DAMSON/BIRTCHER REALTY INCOME FUND-I
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (Cont'd.)
(f) Property Management Agreement dated October 24, 1991, between Glenborough Management Corporation and the Registrant for Arlington Executive Plaza, Certified Distribution Center, The Cornerstone, Ladera-I Shopping Center, Oakpointe, Terracentre and Washington Technical Center. Incorporated by reference to Exhibit 1 of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (SUPERSEDED)
(g) 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 2 of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (SUPERSEDED)
(h) Property Management Agreement, dated October 29, 1993, between Birtcher Properties and the Registrant for Arlington Executive Plaza, Certified Distribution Center, The Cornerstone, Ladera-I Shopping Center, Oakpointe, Terracentre, and Washington Technical Center. Incorporated by reference to Exhibit 1 of the Partnership Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.
(27) Financial Data Schedule
b) Reports on Form 8-K:
Report filed on November 29, 1996 regarding the sale of Arlington Executive Plaza. See Item 8, Note 4 to the Financial Statements herein incorporated by reference.
DAMSON/BIRTCHER REALTY INCOME FUND-I
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Damson/Birtcher Partners (General Partner of the Registrant) and in the capacities and on the dates indicated.