FORM 10-KSB--Annual or Transitional Report
Under Section 13 or 15(d)
(As last amended by 34-31905, eff. 4/26/93)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the transition period.........to.........
Commission file number 0-13530
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
(Name of small business issuer in its charter)
Delaware 62-1181565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $2,955,837
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1995. Market value information for the
Registrant's partnership interests is not available. Should a trading market
develop for these interests, it is management's belief that such trading would
not exceed $25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Registrant dated November 16, 1983 (included
in Registration Statement, No. 2-84436 of Registrant) are incorporated by
reference into Parts I and III.
PART I
Item 1. Description of Business
Davidson Diversified Real Estate I, L.P. (the "Registrant" or "Partnership")
is a Delaware limited partnership organized in January 1983. The general
partners of the Registrant are Davidson Diversified Properties, Inc., a
Tennessee corporation ("Managing General Partner"); Diversified Equities,
Limited, a Tennessee limited partnership ("Associate General Partner"); and
David W. Talley ("Individual General Partner") (collectively, the "General
Partners").
The offering of the Registrant's limited partnership units ("Units")
commenced on November 16, 1983, and terminated on September 14, 1984. The
Registrant received gross proceeds from the offering of $15,008,000 and net
proceeds of $13,507,200.
The Registrant's primary business is to acquire, own, operate and ultimately
dispose of existing income-producing residential real properties. Industry
segment information is not relevant. The Registrant does not engage in any
foreign operations nor derive any income from foreign sources.
All of the net proceeds of the offering were invested in the Registrant's six
properties, four of which have since been sold or foreclosed upon. See "Item 2.
Description of Properties," below for a description of the Registrant's
remaining properties.
The Registrant receives income from its properties and is responsible for
operating expenses, capital improvements and debt service payments under
mortgage obligations secured by the properties. The Registrant financed its
properties primarily through non-recourse debt. Therefore, in the event of
default, the lender can generally only look to the subject property for recovery
of amounts due.
Both the income and expenses of operating the properties owned by the
Registrant are subject to factors outside of the Registrant's control, such as
over-supply of similar properties resulting from over-building, increases in
unemployment or population shifts, reduced availability of permanent mortgage
funds, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential
properties because such properties are susceptible to the impact of economic and
other conditions outside of the control of the Registrant.
At this time, it appears that the investment objective of capital growth will
not be attained. In addition, unless there is significant improvement in the
performance of the Registrant's properties and the markets in which such
properties are located, investors may not receive a return of a portion of their
initial capital contributions.
For the year ended December 31, 1995, the Registrant's properties accounted
for, in the aggregate, in excess of 99% of the Registrant's gross revenues.
Each of the properties was acquired prior to December 31, 1984.
Competition
The real estate business is highly competitive. The Registrant's properties
are subject to competition from similar properties in the vicinity in which each
property is located. The Partnership is not a significant factor in its
industry. In addition, various limited partnerships have been formed by the
General Partners and/or their affiliates to engage in business which may be
competitive with the Registrant.
Employees
The Registrant has no employees. Management and administrative services are
performed by Davidson Diversified Properties, Inc., the Managing General
Partner, and by Insignia Management Group, L.P., an affiliate of Insignia
Financial Group, Inc. ("Insignia"), an affiliate of the Managing General
Partner. See "Item 12. Certain Relationships and Related Transactions" for an
enumeration of the affiliates and the compensation and reimbursement received
from the Registrant during 1994 and 1995.
Item 2. Description of Properties
The following table sets forth the Registrant's investments in properties:
Date of
Property Purchase Type of Ownership Use
Versailles on the Lake 04/05/84 Fee ownership subject Apartment
to first and second 156 units
mortgages.
Ashley Woods Apts. 07/31/84 Fee ownership subject Apartment
to first mortgage. 352 units
Schedule of Properties:
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Useful Federal
Property Value Depreciation Life Method Tax Basis
<S> <C> <C> <C> <C> <C>
Versailles on the
Lake $ 4,238,654 $1,980,204 5-25 yrs S/L $1,406,005
Ashley Woods 8,137,625 3,598,921 5-25 yrs S/L 3,254,714
$12,376,279 $5,579,125 $4,660,719
<FN>
See Note A of the financial statements included in "Item 7" for a description
of the Registrant's depreciation policy.
</TABLE>
Schedule of Mortgages:
<TABLE>
<CAPTION>
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1995 Rate Amortized Date Maturity
<S> <C> <C> <C> <C> <C>
Ashley Woods
1st mortgage $6,011,015 10.0% 20 yrs 07/01/00 $5,822,947
Versailles on the Lake
1st mortgage 2,674,487 7.6% 21.42 yrs 11/15/02 2,071,366
2nd mortgage 88,446 7.6% (1) 11/15/02 88,446
8,773,948
Less unamortized
discounts (151,379)
Total $8,622,569
<FN>
(1) Interest only payments.
</TABLE>
Schedule of Rental Rates and Occupancy:
Average Annual Average
Rental Rates Occupancy
Property 1995 1994 1995 1994
Ashley Woods(1) $5,961/unit $5,899/unit 94% 88%
Versailles on the Lake 5,509/unit 5,328/unit 94% 94%
(1) The Managing General Partner attributes the increase in occupancy at
Ashley Woods Apartments to increased levels of concessions and other
leasing incentives along with the rehabilitation of the property's
exterior, which has enhanced its ability to compete in the Cincinnati
market.
As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the Registrant are subject to
competition from other residential apartment complexes in the area. The
Managing General Partner believes that all of the properties are adequately
insured. The multi-family residential properties' lease terms are for one year
or less. No residential tenant leases 10% or more of the available space.
Schedule of Real Estate Taxes and Rates:
1995 1995
Taxes Rate
Ashley Woods $138,219 4.38%
Versailles on the Lake 89,100 9.06%
Item 3. Legal Proceedings
The Registrant is unaware of any pending or outstanding litigation that is
not of a routine nature. The General Partner of the Registrant believes that
all such pending or outstanding litigation will be resolved without a material
adverse effect upon the business, financial condition or operations of the
Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended December 31, 1995, no
matters were submitted to a vote of Unit holders through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
There is no established market for the Units and it is not anticipated that
any will exist in the foreseeable future. As of January 1996, there were
approximately 1,142 holders of record owning an aggregate of 751.59 Units.
Distributions to partners for the year ended December 31, 1995, were
$153,975. There were no distributions to partners for the year ended December
31, 1994.
Pursuant to the terms of the Partnership Agreement, there are restrictions on
the ability of the Limited Partners to transfer their Units. In all cases, the
General Partners must consent to any transfer.
The Revenue Act of 1987 contained provisions which have an adverse impact on
investors in "publicly traded partnerships." Accordingly, the General Partners
have established a policy of imposing limited restrictions on the
transferability of the Units in secondary market transactions. Implementation
of this policy should prevent a public trading market from developing and may
impact the ability of an investor to liquidate his investment quickly. It is
expected that such policy will remain in effect until such time, if ever, as
further clarification of the Revenue Act of 1987 may permit the Registrant to
lessen the scope of the restrictions.
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Registrant's Partnership
Agreement.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
The Partnership realized net income of $22,665 for the year ended December
31, 1995, compared to a net loss of $128,025 for the year ended December 31,
1994. The increase in net income for 1995 is attributable to increased revenues
for the year. Rental income increased due to rent increases at both investment
properties, combined with an increase in occupancy from 88% in 1994, to 94% in
1995, at Ashley Woods Apartments. The Managing General Partner attributes the
increase in occupancy at Ashley Woods to increased levels of concessions and
other leasing incentives along with the rehabilitation of the property's
exterior, which has enhanced its ability to compete in the Cincinnati market.
Other income increased due to an increase in lease cancellation fees at both
properties totalling approximately $22,000 and an increase in cleaning and
damage fees at Ashley Woods totalling approximately $13,000.
Overall expenses increased slightly for the year ended December 31, 1995,
compared to the year ended December 31, 1994. Maintenance expense increased
during 1995, compared to 1994, due to an increase in interior building repairs,
swimming pool repairs and parking lot paving and striping at Ashley Woods.
Depreciation expense increased in 1995 as a result of the major exterior
rehabilitation at Ashley Woods that was completed in June 1994 in combination
with other property improvements and replacements at both properties in 1995.
The loss on disposal of property of $31,151 in 1994 represents the write-off of
old roofs that were replaced.
The Managing General Partner continues to monitor the rental market
environment in each location of its apartment properties to assess the
feasibility of increasing rents and maintaining or increasing occupancy levels
to protect the Partnership from increases in expenses. The Managing General
Partner expects to be able, at a minimum, to continue protecting the Partnership
from the burden of inflation-related increases in expenses by increasing rents
and maintaining a high overall occupancy level. However, rental concessions and
rental reductions needed to offset softening market conditions could affect the
ability to sustain this plan.
Liquidity
At December 31, 1995, the Partnership had unrestricted cash of $867,531
compared to unrestricted cash of $809,719 at December 31, 1994. Net cash
provided by operating activities increased primarily as a result of the revenue
increases noted above. Net cash used in investing activities decreased due to
fewer property improvements and replacements at both of the Partnership's
investment properties. Net cash used in financing activities increased due to
the distribution to partners of $153,975 made during the first quarter of 1995.
The Partnership has no material capital programs scheduled to be performed
in 1996, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or are funded from the
restricted escrows.
The sufficiency of existing liquid assets to meet future liquidity and
capital expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets as well as future maturing mortgage obligations and related
refinancing expenses. Such assets are currently thought to be sufficient for
any near-term needs of the partnership. The Partnership made a distribution to
partners of $153,975 during the first quarter of 1995. Future cash
distributions will depend on the levels of net cash generated from operations,
refinancings, and property sales.
Item 7. Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheet December 31, 1995
Consolidated Statements of Operations - Years ended December 31, 1995
and 1994
Consolidated Statements of Changes in Partners Deficit - Years ended
December 31, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1995
and 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Davidson Diversified Real Estate I, L.P.
We have audited the accompanying consolidated balance sheet of Davidson
Diversified Real Estate I, L.P. (A Limited Partnership) as of December 31, 1995,
and the related consolidated statements of operations, changes in partners
deficit and cash flows for each of the two years in the period ended
December 31, 1995. 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 the
Partnership s 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 consolidated financial position of Davidson
Diversified Real Estate I, L.P. (A Limited Partnership) as of December 31, 1995,
and the consolidated results of its operations and its cash flows for each of
the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Greenville, South Carolina
February 6, 1996
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1995
<S> <C> <C>
Assets
Cash:
Unrestricted $ 867,531
Restricted-tenant security deposits 87,377
Accounts receivable 13,596
Escrows for taxes and insurance 156,152
Restricted escrows 294,022
Other assets 245,623
Investment properties (Notes A, C and F):
Land $ 1,071,881
Buildings and related personal property 11,304,398
12,376,279
Less accumulated depreciation (5,579,125) 6,797,154
$8,461,455
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 46,378
Tenant security deposits 86,153
Accrued taxes 231,774
Other liabilities 183,099
Due to affiliates (Note B) 320,830
Mortgage notes payable (Note C) 8,622,569
Partners' Deficit
General partners $ (73,186)
Limited partners (751.59 units
issued and outstanding) (956,162) (1,029,348)
$8,461,455
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
Revenues:
Rental income $2,731,155 $2,564,748
Other income 224,682 190,984
Total revenues 2,955,837 2,755,732
Expenses:
Operating 678,757 680,311
General and administrative 119,118 104,792
Property management fees 146,668 134,486
Maintenance 397,570 365,943
Depreciation 486,768 444,473
Interest 877,711 884,902
Property taxes 226,580 237,699
Total expenses 2,933,172 2,852,606
Loss on disposal of property -- (31,151)
Net income (loss) (Note D) $ 22,665 $ (128,025)
Net income (loss) allocated to general partners (5%) $ 1,133 $ (6,401)
Net income (loss) allocated to limited partners (95%) 21,532 (121,624)
$ 22,665 $ (128,025)
Net income (loss) per limited partnership unit:
(based on 751.59 and 751.84 limited partnership
units outstanding during the periods,
respectively) $ 28.65 $ (161.77)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 751.84 $ 1,000 $15,008,000 $15,009,000
Partners' deficit at
December 31, 1993 751.84 $(60,219) $ (709,794) $ (770,013)
Net loss for the year ended
December 31, 1994 -- (6,401) (121,624) (128,025)
Partners' deficit at
December 31, 1994 751.84 (66,620) (831,418) (898,038)
Distributions to partners -- (7,699) (146,276) (153,975)
Abandonment of limited
partnership units (Note A) (.25) -- -- --
Net income for the year ended
December 31, 1995 -- 1,133 21,532 22,665
Partners' deficit at
December 31, 1995 751.59 $(73,186) $ (956,162) $(1,029,348)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 22,665 $(128,025)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 486,768 444,473
Amortization of discounts and loan fees 62,467 61,647
Loss on disposal of property -- 31,151
Change in accounts:
Restricted cash (908) (14,377)
Accounts receivable 1,678 (10,053)
Escrows for taxes and insurance (14,480) (5,588)
Other assets 1,332 (4,427)
Accounts payable (15,709) 40,564
Tenant security deposit liabilities (933) 14,994
Accrued taxes (9,885) 5,574
Other liabilities 68,371 (15,054)
Net cash provided by operating
activities 601,366 420,879
Cash flows from investing activities:
Property improvements and replacements (229,848) (672,531)
Deposits to restricted escrows (75,143) (49,048)
Receipts from restricted escrows 11,899 203,946
Net cash used in investing activities (293,092) (517,633)
Cash flows from financing activities:
Payments on mortgage notes payable (96,487) (88,757)
Distributions to partners (153,975) --
Net cash used in financing activities (250,462) (88,757)
Net increase (decrease) in cash 57,812 (185,511)
Cash at beginning of year 809,719 995,230
Cash at end of year $ 867,531 $ 809,719
Supplemental disclosure of cash flow information:
Cash paid for interest $ 815,524 $ 823,254
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
Notes to Consolidated Financial Statements
December 31, 1995
Note A Organization and Significant Accounting Policies
Organization
Davidson Diversified Real Estate I, L.P. (the "Partnership") is a Delaware
limited partnership organized on January 14, 1983, to acquire and operate
residential real estate properties.
Principles of Consolidation
The financial statements include all the accounts of the Partnership and a 99.9%
owned partnership. All significant inter-partnership balances have been
eliminated.
Allocations to Partners
Net earnings (loss) of the Partnership and taxable income (loss) are allocated
95% to the limited partners and 5% to the general partners. Distributions of
available cash (cash flow) are allocated among the limited partners and the
general partners in accordance with the agreement of limited partnership.
Allocation of net income for tax purposes, arising from the occurrence of a sale
or refinancing shall be allocated as follows:
First, an amount equal to the aggregate deficit in the capital accounts of
the General and Limited Partners having deficits in their capital accounts
shall be allocated to each such partner in the same ratio as the deficit such
partner s capital account bears to the aggregate of all such partners
deficits.
Second, to the Limited Partners in an amount equal to the cash distributed to
them from a sale or refinancing.
Third, the remainder, if any, five percent (5%) to the General Partners and
ninety-five percent (95%) to the Limited Partners.
Distributions of cash from sales or refinancings shall be distributed in the
following order of priority:
First, to the Limited Partners, an amount which when added to all prior
distributions of cash from sales or refinancings shall equal their original
invested capital, plus an amount which, when added to all prior distributions
to the Limited Partners (excluding distributions which are deducted in the
calculation of adjusted invested capital), will equal 8% per annum cumulative
noncompounded on their adjusted invested capital, commencing the last day of
the calendar quarter in which each Limited Partner is admitted to the
Partnership through the date of payment.
Note A - Organization and Significant Accounting Policies (continued)
Second, to an affiliate of the general partners, an amount equal to its
subordinated real estate commission, which fee is equal to the lesser of (i)
3% of the gross sales price of a property or (ii) one-half of the competitive
commission, as defined, but may only be paid after the Limited Partners have
received their priority distributions as discussed in the previous paragraph.
Third, 85% of the remaining cash from sales or refinancings to the Limited
Partners and 15% of the remaining cash from sales or refinancings to the
General Partners.
Abandoned Units
During 1995, the number of limited partnership units decreased by .25 due to
limited partners abandoning their units. In abandoning his or her partnership
units, a limited partner relinquishes all right, title and interest in the
Partnership as of the date of abandonment.
Depreciation
Depreciation is provided by the straight-line method over the estimated lives of
the investment properties and related personal property. For Federal income tax
purposes, the accelerated cost recovery method is used (1) for real property
over 18 years for additions after March 15, 1984, and before May 9, 1985, and 19
years for additions after May 8, 1985, and before January 1, 1987, and (2) for
personal property over 5 years for additions prior to January 1, 1987. As a
result of the Tax Reform Act of 1986, for additions after December 31, 1986, the
modified accelerated cost recovery method is used for depreciation of (1) real
property additions over 27 1/2 years, and (2) personal property additions over 7
years.
Investment Properties
During 1995, the Partnership adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amount. The impairment
loss is measured by comparing the fair value of the asset to its carrying
amount. The adoption of FASB No. 121 did not have a material effect on the
Partnership's financial statements.
Cash
The Partnership considers only unrestricted cash to be cash. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Note A - Organization and Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was $30,318 and $39,384 for the years
ended December 31, 1995 and 1994, respectively.
Restricted Escrows
1) Reserve Account
A general Reserve Account of $156,000 was established in 1992 from the REMIC
refinancing proceeds for the refinanced property to cover necessary repairs and
replacements of existing improvements, debt service, out-of-pocket expenses
incurred for ordinary and necessary administrative tasks, and payment of real
property taxes and insurance premiums. The Partnership was required to deposit
net operating income (as defined in the mortgage note) from the refinanced
property to the reserve account until the reserve account equalled $1,000 per
apartment unit or $156,000 in total. At December 31, 1995, this reserve
totalled $156,919.
2) Replacement Reserve
A replacement reserve account has been established with the mortgagee for Ashley
Woods, and these funds will be used, as needed, to make necessary repairs and
replacements. At December 31, 1995, this reserve totalled $137,103.
Present Value Discounts
Periodically, the Partnership incurs debt at below market rates for similar
debt. Present value discounts are recorded on the basis of prevailing market
rates and are amortized using the interest method over the life of the related
debt. The amortization expense is included in interest expense.
Loan Costs
Loan costs are being amortized on a straight-line basis over the life of the
respective loans. The amortization expense is included in interest expense.
Note A - Organization and Significant Accounting Policies (continued)
Leases
The Partnership generally leases apartment units for twelve-month terms or less.
Restricted Cash
The Partnership requires security deposits from all apartment lessees for the
duration of the lease. Deposits are refunded when the tenant vacates the
apartment if there has been no damage to the unit.
Fair Value
In 1995, the Partnership implemented Statement of Financial Accounting Standards
No. 107, "Disclosure about Fair Value of Financial Instruments," which requires
disclosure of fair value information about financial instruments for which it is
practicable to estimate that value. The Partnership estimates the fair value of
its fixed rate mortgages by discounted cash flow analysis, based on estimated
borrowing rates currently available to the Partnership. The carrying amounts of
variable-rate mortgages approximate fair value due to frequent re-pricing.
Reclassifications
Certain reclassifications have been made to the 1994 balances to conform to the
1995 presentation.
Note B Due to Affiliates
The Partnership is liable to a company affiliated with the Managing General
Partner through common ownership for real estate commissions in the amounts of
$124,500 for Revere Village and $196,330 for Essex which were sold in previous
years. Payment of the commissions will not be made to the affiliated company
until after payment to the limited partners of their original invested capital,
plus 8% per annum cumulative non-compounded on their adjusted invested capital
commencing on the last day of the calendar quarter in which each limited partner
was admitted to the Partnership through the date of payment.
Note C Mortgage Notes Payable
The principal terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1995 Interest Rate Date Maturity
<S> <C> <C> <C> <C> <C>
Ashley Woods $6,011,015 $52,870 10.0% 07/01/00 $5,822,947
Versailles on the Lake
1st mortgage 2,674,487 22,571 7.6% 11/15/02 2,071,366
2nd mortgage 88,446 560 7.6% 11/15/02 88,446
8,773,948 $76,001
Less unamortized
discounts (151,379)
Totals $8,622,569
</TABLE>
The above non-recourse mortgages are secured by the related property and
improvements of the Partnership and by pledge of revenues from the apartment
properties. Certain of the notes require prepayment penalties if repaid prior
to maturity and prohibit resale of the properties subject to existing
indebtedness.
The Partnership exercised an interest rate buy-down option for Versailles on the
Lake reducing the stated rate from 8.76% to 7.60% during the REMIC refinancing
discussed in Note A above. The fee for the interest rate reduction was $205,201
and is being amortized as a loan discount using the interest method over the
life of the loans. The discount fee is reflected as a reduction of the mortgage
notes payable and increases the effective rate of the debt to 8.76%.
The estimated fair values of the Partnership's aggregate debt is approximately
$9,077,000. This value represents a general approximation of possible value and
is not necessarily indicative of the amounts the Partnership may pay in actual
market transactions.
Note C Mortgage Notes Payable (continued)
Scheduled principal payments of mortgage notes payable subsequent to December
31, 1995, are as follows:
Years Ending December 31,
1996 $ 104,876
1997 114,037
1998 124,014
1999 134,882
2000 5,943,047
Thereafter 2,353,092
$8,773,948
Note D Income Taxes
The Partnership received a ruling from the Internal Revenue Service that it is
to be classified as a partnership for Federal income tax purposes. Accordingly,
no provision for income taxes is made in the financial statements of the
Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
Differences between the net income (loss) as reported and Federal taxable income
(loss) result primarily from (1) amortization of present value discounts, (2)
depreciation over different methods and lives and on differing cost bases of
apartment properties, and (3) change in rental income received in advance. The
following is a reconciliation of reported net income (loss) and Federal taxable
income (loss):
1995 1994
Net income (loss) as reported $ 22,665 $(128,025)
Add (deduct)
Depreciation differences (66,649) (72,653)
Unearned income 76,413 (11,397)
Miscellaneous (11,104) 37,545
Federal taxable income (loss) $ 21,325 $(174,530)
Federal taxable income (loss)
per limited partnership unit $ 26.95 $ (220.53)
Note D - Income Taxes (continued)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities at December 31, 1995:
Net deficit as reported $(1,029,348)
Differences in basis of assets and liabilities:
Buildings and Land 136,576
Accumulated depreciation (2,273,010)
Basis difference in lower tier partnership 374,636
Other 136,986
Net deficit - Federal tax basis $(2,654,160)
Note E Transactions with Affiliated Parties
Affiliates of Insignia Financial Group, Inc. ("Insignia") own controlling
ownership interest in the Partnership s Managing General Partner. As a result,
affiliates of Insignia provide property management and asset management services
to the Partnership.
The following payments were made to Insignia and its affiliates in 1995 and
1994:
1995 1994
Property management fees $146,668 $134,486
Data processing services 3,135 2,325
Marketing services 2,289 4,236
Reimbursement for services of affiliates 82,703 68,481
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Managing General Partner. An affiliate of the
Managing General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the current year's master policy. The current agent assumed
the financial obligations to the affiliate of the Managing General Partner, who
receives payments on these obligations from the agent. The amount of the
partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations is not
significant.
Note F - Investment Properties and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
<S> <C> <C> <C> <C>
Versailles on the Lake
Apartments
Fort Wayne, Indiana $2,762,933 $ 191,447 $3,847,517 $ 199,690
Ashley Woods Apartments
Cincinnati, Ohio 6,011,015 880,434 5,814,753 1,442,438
Totals $8,773,948 $1,071,881 $9,662,270 $1,642,128
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1995
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Versailles on the Lake
Apartments
Fort Wayne, Indiana $ 191,447 $4,047,207 $4,047,207 $1,980,204 1970 04/84 5-25
Ashley Woods
Cincinnati, Ohio 880,434 7,257,191 8,137,625 3,598,921 1971 07/84 5-25
Totals $1,071,881 $11,304,398 $12,376,279 $5,579,125
<FN>
The depreciable lives included above are for the buildings and related personal
property. The depreciable lives for related personal property are for 5 to 15
years.
</TABLE>
Note F - Investment Properties and Accumulated Depreciation (continued)
Reconciliation of Investment Properties and Accumulated Depreciation :
Year Ended December 31,
1995 1994
Investment Properties
Balance at beginning of year $11,074,550 $10,495,536
Property improvements 229,848 672,531
Disposal of property -- (93,517)
Balance at end of year $11,304,398 $11,074,550
Accumulated Depreciation
Balance at beginning of year $5,092,357 $ 4,710,250
Depreciation expense 486,768 444,473
Disposal of property -- (62,366)
Balance at end of year $5,579,125 $ 5,092,357
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1995 and 1994, is $12,512,854 and $12,283,006, respectively.
The accumulated depreciation taken for Federal income tax purposes at December
31, 1995 and 1994, is $7,852,135 and $7,298,718, respectively.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The names of the directors and executive officers of Davidson Diversified
Properties, Inc., the Partnership's Managing General Partner, their ages and
the nature of all positions with Davidson Diversified Properties, Inc.
presently held by them are as follows:
Name Age Position
Carroll D. Vinson 55 President
Robert D. Long, Jr. 28 Controller and Principal
Accounting Officer
William H. Jarrard, Jr. 49 Vice President
John K. Lines 36 Secretary
Kelley M. Buechler 38 Assistant Secretary
Carroll D. Vinson has been President of Metropolitan Asset Enhancement, L.P.,
and subsidiaries since August of 1994. Prior to that, during 1993 to August
1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm)
and engaged in various other investment and consulting activities. Briefly,
in early 1993, Mr. Vinson served as President and Chief Executive Officer of
Angeles Corporation, a real estate investment firm. From 1991 to 1993,
Mr. Vinson was employed by Insignia in various capacities including Managing
Director-President during 1991. From 1986 to 1990, Mr. Vinson was
President and a Director of U.S. Shelter Corporation, a real estate services
company, which sold substantially all of its assets to Insignia in December
1990.
Robert D. Long, Jr. is Controller and Principal Accounting Officer. Prior to
joining Metropolitan Asset Enhancement, L.P., and subsidiaries, he was an
auditor for the State of Tennessee and was associated with the accounting firm
of Harshman Lewis and Associates. He is a graduate of The University of
Memphis.
William H. Jarrard, Jr. is Managing Director - Partnership Administration of
Insignia. During the five years prior to joining Insignia in 1991, he served in
a similar capacity for U.S. Shelter. He was previously associated with the
accounting firm, Ernst & Whinney, for eleven years. Mr. Jarrard is a graduate
of the University of South Carolina and a certified public accountant.
John K. Lines has been General Counsel and Secretary of Insignia since June
1994. From May 1993 until June 1994, Mr. Lines was the Assistant General
Counsel and Vice President of Oewen Financial Corporation in West Palm Beach,
Florida. From October 1991 until April 1993, Mr. Lines was a Senior Attorney
with Banc One Corporation in Columbus, Ohio. From May 1984 until October
1991, Mr. Lines was employed as an Associate Attorney with Squire Sanders &
Dempsey in Columbus, Ohio.
Kelley M. Buechler is Assistant Secretary of Insignia. During the five years
prior to joining Insignia in 1991, she served in a similar capacity for U.S.
Shelter. Ms. Buechler is a graduate of the University of North Carolina.
Item 10. Executive Compensation
The Registrant was not required to and did not pay remuneration to officers
and/or directors of the Managing General Partner during 1995 or 1994. See "Item
12." below and Note E of the Notes to the Consolidated Financial Statements for
a discussion of compensation and reimbursements paid to the General Partners
and certain affiliates.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of February 1996, no Unit holder was known by the Registrant to be the
beneficial owner of more than 5% of the Units of the Registrant.
As of February 1996, no director or officer of the Managing General Partner
owns, nor do the directors or officers as a whole own more than 1% of the
Registrant's Units. No such director or officer had any right to acquire
beneficial ownership of additional Units of the Registrant.
Item 12. Certain Relationships and Related Transactions
Davidson Diversified Properties, Inc., the Managing General Partner of
the Registrant, is owned by MAE GP Corporation, an affiliate of Insignia.
The majority of general partner and limited partner interests in
Diversified Equities, Ltd., the Associate General Partner, are owned by MAE
Investments, Inc. and Insignia Jacques-Miller, L.P., respectively, both of
whom are affiliates of Insignia. Effective January 1, 1992, management and
administrative services were assumed by affiliates of Insignia. Amounts for
management services paid to these affiliates in 1995 and 1994 were $146,668
and $134,486, respectively. Reimbursements for administrative services were
paid to affiliates of Insignia during 1995 and 1994 in the amounts of $82,703
and $68,481, respectively.
The Partnership Agreement provides for the Managing General Partner to
receive a fee for managing the affairs of the Registrant. The fee is 5% of
adjusted cash from operations, as defined in the Partnership Agreement. The fee
is payable only after the Registrant has distributed, to all limited
partners, adjusted cash from operations in any year equal to 8% of their
adjusted invested capital as defined in the Partnership Agreement. Because
the likelihood of payment of the fee is remote, the fee has not been accrued.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits: see Exhibit Index contained herein.
(b) No Reports on Form 8-K were filed during the fourth quarter of
1995.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
By: Davidson Diversified Properties, Inc.,
as Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
Date: March 13, 1996
In accordance with the Exchange Act, this report has been signed below by
the following person on behalf of the Registrant and in the capacities and on
the date indicated.
/s/Carroll D. Vinson President March 13, 1996
Carroll D. Vinson
/s/Robert D. Long, Jr. Controller and Principal March 13, 1996
Robert D. Long, Jr. Accounting Officer
EXHIBIT INDEX
Exhibit
3A Partnership Agreement dated January 14, 1983 is incorporated by
reference to Exhibit A to the Prospectus of the Registrant dated
November 16, 1983 as filed with the Commission pursuant to Rule 424(b)
under the Act.
3B Amendment No. 1 dated January 1, 1986 to the Partnership Agreement
is incorporated by reference to Exhibit 3B to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985.
4 Certificate of Limited Partnership dated December 2, 1982 is
incorporated by reference to Exhibit 4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
4A Certificate of Amendment of Certificate of Limited Partnership dated
March, 1983 is incorporated by reference to Exhibit 4A to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987.
4B Restated Certificate of Limited Partnership dated June 8, 1983
is incorporated by reference to Exhibit 4B to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
4C Amended and Restated Certificate of Limited Partnership dated January
1, 1986 is incorporated by reference to Exhibit 4C to the Registrant's
Annual Report on form 10-K for the fiscal year ended December 31, 1987.
10A Agent's Agreement dated November 1, 1983 between the Registrant and
Harvey Freeman & Sons, Inc. is incorporated by reference to Exhibit
10B to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1983.
10B Agreement Among Agents dated November 1, 1983 by and among Harvey
Freeman & Sons, Inc., Harvey Freeman & Sons, Inc. of Arkansas,
Harvey Freeman & Sons, Inc. of Florida, Harvey Freeman & Sons, Inc.
of Georgia, Harvey Freeman & Sons, Inc. of Indiana, Harvey Freeman &
Sons, Inc. of Kentucky, Harvey Freeman & Sons, Inc. of Mississippi,
Harvey Freeman & Sons, Inc. of North Carolina, Harvey Freeman and Sons,
Inc. of Ohio and Harvey Freeman & Sons, Inc. of South Carolina is
incorporated by reference to Exhibit 10C to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1983.
10C Acquisition and Disposition Services Agreement dated October 3,
1983 between the Registrant and Criswell Freeman Company is
incorporated by reference to Exhibit 10D to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1983.
10D Contract for Sale of Real Estate for Versailles on the Lake dated
March 16, 1984 between Versailles on the Lake Associates, an
Illinois limited partnership and Tennessee Trust Company, Trustee,
is incorporated by reference to Exhibit 10(b) to the Registrant's
Current Report on Form 8-K dated April 4, 1984.
10E Assignment of Contract for Sale dated April 2, 1984 between
Tennessee Trust Company, Trustee, and the Registrant (relating to
Versailles on the Lake Apartments) is incorporated by reference
to Exhibit 10L to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1984.
10F Note dated November 19, 1984 executed by the Registrant
payable to American Fletcher National Bank and Trust Company
relating to Versailles on the Lake Apartments is incorporated by
reference to Exhibit 10W to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1985.
10G Real Estate Mortgage, Assignment of Rents and Security Agreement
dated November 19, 1984 executed by the Registrant payable to American
Fletcher National Bank and Trust Company relating to Versailles on
the Lake is incorporated by reference to Exhibit 10EE to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.
10H Memorandum of Understanding among SEC Realty Corp., Tennessee
Properties, L.P., Freeman Mortgage Corporation, J. Richard
Freeman, W. Criswell Freeman and Jacques-Miller Properties, Inc.
is incorporated by reference to Exhibit 10BB to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988.
10I Partnership Administration and Consultation Agreement among
Freeman Properties, Inc., Freeman Diversified Properties, Inc.,
Residual Equities Limited and Jacques-Miller Properties, Inc. is
incorporated by reference to Exhibit 10CC to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988.
10J Partnership Agreement of Ashley Woods Associates dated May 16, 1990
owned 99.9% by the Registrant relating to refinancing of Ashley Woods
Apartments is incorporated by reference to Exhibit 10EE to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10K Multifamily Note with Addendum dated June 14, 1990 executed by
Ashley Woods Associates payable to PW Funding Inc. relating to
Ashley Woods Apartments is incorporated by reference to Exhibit
10FF to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991.
10L Multifamily Open-end Mortgage with Rider dated June 14, 1990 executed
by Ashley Woods Associates in favor of PW Funding Inc. relating to
Ashley Woods Apartments is incorporated by reference to Exhibit
10GG to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991.
10M Termination Agreement, dated December 31, 1991 among Jacques-Miller,
Inc.,Jacques-Miller Property Management, Davidson Diversified
Properties, Inc., and Supar, Inc. is incorporated by reference to
Exhibit 10HH to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
10N Assignment of Limited Partnership Interest of Freeman Equities,
Limited, dated December 31, 1991 between Davidson Diversified
Properties, Inc and Insignia Jacques-Miller, L.P. is incorporated by
reference to Exhibit 10II to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991.
10O Assignment of General Partner Interests of Freeman Equities, Limited,
dated December 31, 1991 between Davidson Diversified Properties, Inc.
and MAE GP Corporation is incorporated by reference to Exhibit 10JJ
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10P Stock certificate, dated December 31, 1991 showing ownership of
1,000 shares of Davidson Diversified Properties, Inc. by MAE GP
Corporation is incorporated by reference to Exhibit 10KK to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10Q Contracts related to refinancing of debt:
(a) First Deed of Trust and Security Agreement dated October 28,
1992 between Davidson Diversified Real Estate I, Limited
Partnership and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing Versailles on the Lake is
incorporated by reference to Exhibit 10Q (a) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1992.
(b) Second Deed of Trust and Security Agreement dated October 28, 1992
between Davidson Diversified Real Estate I, Limited Partnership
and First Commonwealth Realty Credit Corporation, a Virginia
Corporation, securing Versailles on the Lake is incorporated
by reference to Exhibit 10Q (b) to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1992.
(c) First Assignment of Leases and Rents dated October 28, 1992
between Davidson Diversified Real Estate I, Limited
Partnership and First Commonwealth Realty Credit Corporation,
a Virginia Corporation, securing Versailles on the Lake is
incorporated by reference to Exhibit 10Q (c) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1992.
(d) Second Assignment of Leases and Rents dated October 28, 1992
between Davidson Diversified Real Estate, I Limited Partnership
and First Commonwealth Realty Credit Corporation, a Virginia
Corporation, securing Versailles on the Lake is incorporated
by reference to Exhibit 10Q (d) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1992.
(e) First Deed of Trust Note dated October 28, 1992 between
Davidson Diversified Real Estate I Limited Partnership and First
Commonwealth Realty Credit Corporation, relating to Versailles
on the Lake is incorporated by reference to Exhibit 10Q (e) to
the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1992.
(f) Second Deed of Trust Note dated October 28, 1992 between
Davidson Diversified Real Estate I, Limited Partnership and First
Commonwealth Realty Credit Corporation relating to Versailles
on the Lake is incorporated by reference to Exhibit 10Q (f) to
the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1992.
16 Letter from the Registrant's former independent accountant regarding
its concurrence with the statements made by the Registrant is
incorporated by reference to the exhibit filed with Form 8-K dated
September 30, 1992.
22 Subsidiaries - the Registrant has no subsidiaries.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Properties Real Estate I's Year-End 1995 10-KSB and is qualified in
its entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000721673
<NAME> DAVIDSON DIVERSIFIED PROEPRTIES REAL ESTATE I
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 867,531
<SECURITIES> 0
<RECEIVABLES> 13,596
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,376,279
<DEPRECIATION> 5,579,125
<TOTAL-ASSETS> 8,461,455
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,622,569
0
0
<COMMON> 0
<OTHER-SE> (1,029,348)
<TOTAL-LIABILITY-AND-EQUITY> 8,461,455
<SALES> 0
<TOTAL-REVENUES> 2,955,837
<CGS> 0
<TOTAL-COSTS> 2,933,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 877,711
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,665
<EPS-PRIMARY> 28.65
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
