FORM 10-QSB.--QUARTERLY OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the transition period from.........to.........
Commission file number 0-13530
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 62-1181565
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 459
Restricted-tenant security deposits 94
Accounts receivable 4
Escrows for taxes and insurance 118
Restricted escrows 287
Other assets 192
Investment properties:
Land $ 1,072
Buildings and related personal property 11,847
12,919
Less accumulated depreciation (6,530) 6,389
$ 7,543
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 22
Tenant security deposits 94
Accrued taxes 230
Other liabilities 115
Due to affiliates 321
Mortgage notes payable 8,467
Partners' Deficit
General partners' $ (106)
Limited partners' (751.84 units
issued and 751.59 units outstanding) (1,600) (1,706)
$ 7,543
See Accompanying Notes to Consolidated Financial Statements
b) DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 713 $ 701 $ 2,114 $ 2,091
Other income 61 62 161 168
Total revenues 774 763 2,275 2,259
Expenses:
Operating 243 224 705 669
General and administrative 27 27 83 90
Maintenance 104 126 260 305
Depreciation 143 136 419 393
Interest 215 218 646 654
Property taxes 63 59 186 172
Total expenses 795 790 2,299 2,283
Net loss $ (21) $ (27) $ (24) $ (24)
Net loss allocated
to general partners (5%) $ (1) $ (1) $ (1) $ (1)
Net loss allocated
to limited partners (95%) (20) (26) (23) (23)
$ (21) $ (27) $ (24) $ (24)
Net loss per limited
partnership unit $(26.61) $(34.59) $ (30.60) $(30.60)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
c) DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners' Partners' Total
<S> <C> <C> <C> <C>
Original capital contributions 751.84 $ 1 $ 15,008 $ 15,009
Partners' deficit at
December 31, 1996 751.59 $ (95) $ (1,386) $ (1,481)
Distributions to partners -- (10) (191) (201)
Net loss for the nine months
ended September 30, 1997 -- (1) (23) (24)
Partners' deficit at
September 30, 1997 751.59 $ (106) $ (1,600) $ (1,706)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
d) DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (24) $ (24)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 419 393
Amortization of discounts and loan costs 48 47
Change in accounts:
Restricted cash (3) (7)
Accounts receivable 7 (2)
Escrows for taxes and insurance 19 35
Other assets (22) (14)
Accounts payable (23) (17)
Tenant security deposit liabilities 3 8
Accrued taxes (11) (11)
Other liabilities (22) (10)
Net cash provided by operating activities 391 398
Cash flows from investing activities:
Property improvements and replacements (225) (182)
Deposits to restricted escrows (58) (59)
Receipts from restricted escrows -- 93
Net cash used in investing activities (283) (148)
Cash flows from financing activities:
Payments on mortgage notes payable (85) (78)
Distributions to partners (201) (403)
Net cash used in financing activities (286) (481)
Net decrease in unrestricted cash and cash equivalents (178) (231)
Unrestricted cash and cash equivalents at beginning
of period 637 868
Unrestricted cash and cash equivalents at end of period $ 459 $ 637
Supplemental disclosure of cash flow information:
Cash paid for interest $ 599 $ 606
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
e) DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Davidson
Diversified Real Estate I, L.P. (the "Partnership") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Davidson Diversified Properties, Inc.
(the "Managing General Partner"), all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-KSB for the year ended December 31, 1996.
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
$125,000 for Revere Village and $196,000 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 - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for property management services based on a percentage of revenue and
for reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. The following amounts were paid to affiliates of the Managing
General Partner during each of the nine months ended September 30, 1997 and 1996
(in thousands):
1997 1996
Property management fees (included in
operating expenses) $113 $113
Reimbursement for services of affiliates
(included in general and administrative
expenses) 54 59
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
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.
On September 26, 1997, an affiliate of the Managing General Partner purchased
Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992 - M1. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Versailles on the Lake Apartments owned by the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the nine months ended September 30, 1997 and 1996:
Average
Occupancy
1997 1996
Ashley Woods Apartments
Cincinnati, Ohio 89% 93%
Versailles on the Lake Apartments
Fort Wayne, Indiana 96% 94%
The Managing General Partner attributes the decrease in occupancy at Ashley
Woods to the closing of several businesses in the area as well as to the decline
in quality in the local economy.
The Partnership's net losses for the three and nine month periods ended
September 30, 1997, were approximately $21,000 and $24,000, respectively,
compared to net losses of approximately $27,000 and $24,000, respectively, for
the same periods of 1996. Net loss for the three and nine month periods ended
September 30 remained relatively stable for 1997 as compared to 1996. Rental
income increased slightly despite Ashley Woods' decreased occupancy, due to
improved occupancy at Versailles and rental rate increases at both properties.
Maintenance expense decreased due to deck repairs at Ashley Woods and interior
building repairs at Versailles in the prior year. Included in maintenance
expense for the period ended September 30, 1997, is approximately $39,000 of
major repairs and maintenance comprised of major landscaping, parking lot
repairs, and window coverings. For the nine months ended September 30, 1996,
maintenance expense included approximately $94,000 of major repairs and
maintenance comprised of interior and exterior building repairs, window
coverings and major landscaping. Offsetting the decrease in maintenance expense
were increases in operating and depreciation expense. Operating expense
increased due to increases in special promotions and the manager's salary at
Ashley Woods. Depreciation expense increased as a result of approximately
$225,000 of property improvements completed in the nine months ended September
30, 1997 in addition to approximately $318,000 of property improvements
completed in 1996.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Managing General Partner will be able to sustain
such a plan.
At September 30, 1997, the Partnership held unrestricted cash and cash
equivalents of approximately $459,000 compared to approximately $637,000 at
September 30, 1996. Net cash provided by operations decreased primarily as a
result of an increase in Ashley Woods' monthly tax and insurance escrow deposits
required by the mortgage holder. Net cash used in investing activities
increased due to decreased receipts from restricted escrows and increased
property improvements. Net cash used in financing activities decreased due to
lower distributions to the partners during 1997 compared to 1996.
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 and other operating needs of the Partnership. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The mortgage indebtedness of $8,467,000, net of discount, is amortized over
varying periods. Of this amount, $5,947,000, which matures in 2000, relates to
Ashley Woods and $2,520,000, which matures in 2002, relates to Versailles on the
Lake. At the time of maturity, the properties will either be sold or
refinanced. Distributions to partners of $201,000 and $403,000 were made during
the nine months ending September 30, 1997 and 1996, respectively. Future cash
distributions will depend on the levels of net cash generated from operations,
property refinancings, property sales and the availability of cash reserves.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1997.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DAVIDSON DIVERSIFIED REAL ESTATE I
By: Davidson Diversified Properties, Inc.
Its Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: November 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Davidson Diversified
Real Estate I, L.P. 1997 Third Quarter 10-QSB and is qualified in its entirety
by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000721673
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 459
<SECURITIES> 0
<RECEIVABLES> 4
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,919
<DEPRECIATION> 6,530
<TOTAL-ASSETS> 7,543
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,467
0
0
<COMMON> 0
<OTHER-SE> (1,706)
<TOTAL-LIABILITY-AND-EQUITY> 7,543
<SALES> 0
<TOTAL-REVENUES> 2,275
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 646
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24)
<EPS-PRIMARY> (30.60)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
