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 March 31, 2000
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, 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___
<PAGE>
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)
March 31, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 836
Receivables and deposits 90
Restricted escrows 138
Other assets 206
Investment properties:
Land $ 1,072
Buildings and related personal property 13,377
14,449
Less accumulated depreciation (8,054) 6,395
$ 7,665
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 30
Tenant security deposit liabilities 71
Accrued property taxes 241
Other liabilities 123
Due to affiliate 321
Mortgage notes payable 10,179
Partners' Deficit
General partners $ (125)
Limited partners (751.59 units issued and
outstanding) (3,175) (3,300)
$ 7,665
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
b)
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2000 1999
Revenues:
Rental income $ 787 $ 698
Other income 60 62
Total revenues 847 760
Expenses:
Operating 368 336
General and administrative 33 35
Depreciation 177 151
Interest 204 206
Property taxes 67 66
Total expenses 849 794
Net loss $ (2) $ (34)
Net loss allocated to general partners (5%) $ -- $ (2)
Net loss allocated to limited partners (95%) (2) (32)
$ (2) $ (34)
Net loss per limited partnership unit $(2.66) $(42.58)
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
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, 1999 751.59 $ (125) $(3,173) $(3,298)
Net loss for the three months
ended March 31, 2000 -- -- (2) (2)
Partners' deficit at
March 31, 2000 751.59 $ (125) $(3,175) $(3,300)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
d)
Davidson Diversified Real Estate I, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (2) $ (34)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 177 151
Amortization of discounts and loan costs 14 14
Change in accounts:
Receivables and deposits 112 18
Other assets (37) (36)
Accounts payable (30) 54
Tenant security deposit liabilities 3 1
Accrued property taxes (18) (20)
Other liabilities 31 (5)
Net cash provided by operating activities 250 143
Cash flows used in investing activities:
Property improvements and replacements (124) (83)
Net receipts from restricted escrows 65 244
Net cash (used in) provided by investing
activities (59) 161
Cash flows used in financing activities:
Payments on mortgage notes payable (36) (41)
Net increase in cash and cash equivalents 155 263
Cash and cash equivalents at beginning of period 681 338
Cash and cash equivalents at end of period $ 836 $ 601
Supplemental disclosure of cash flow information:
Cash paid for interest $ 143 $ 193
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
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" or "Registrant") 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 month period ended March 31, 2000, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 1999.
Principles of Consolidation
The consolidated financial statements include the Partnership's 100% membership
interest in Ashley Woods L.L.C. As a result, the Partnership consolidates its
interest in Ashley Woods, whereby all accounts of Ashley Woods are included in
the consolidated financial statements of the Partnership with inter-entity
accounts being eliminated.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
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. Affiliates of the Managing General Partner provide
property management services to the Partnership. 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 payments were paid to
affiliates of the Managing General Partner during each of the three month
periods ended March 31, 2000 and 1999:
<PAGE>
2000 1999
(in thousands)
Property management fees (included in operating
expenses) $ 43 $ 39
Reimbursement for services of affiliates (included
in general and administrative expenses) 16 22
During the three months ended March 31, 2000 and 1999, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from both
of the Registrant's properties as compensation for providing property management
services. The Registrant paid to such affiliates approximately $43,000 and
$39,000 for the three month periods ended March 31, 2000 and 1999, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $16,000 and
$22,000 for the three month periods ended March 31, 2000 and 1999, respectively.
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. The total amount of $321,000 is included on the consolidated balance
sheet as "Due to affiliate". Payment of the commissions will not be made to the
affiliated company until each limited partner has received distributions equal
to 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.
AIMCO and its affiliates currently own 270.15 limited partnership units in the
Partnership representing 35.944% of the outstanding units. A number of these
units were acquired pursuant to tender offers made by AIMCO or its affiliates.
It is possible that AIMCO or its affiliates will make one or more additional
offers to acquire additional limited partnership interests in the Partnership
for cash or in exchange for units in the operating partnership of AIMCO. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. As a result of its
ownership of 35.944% of the outstanding units, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
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 which is owned by the Partnership.
Note D - Segment Reporting
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of two apartment complexes,
one located in Cincinnati, Ohio, and the other located in Fort Wayne, Indiana.
The Partnership rents apartment units to tenants for terms that are typically
twelve months or less.
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those of the Partnership as described in the Partnership's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1999.
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the three months ended March 31, 2000 and 1999 is shown
in the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
<TABLE>
<CAPTION>
2000 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 787 $ -- $ 787
Other income 58 2 60
Interest expense 204 -- 204
Depreciation 177 -- 177
General and administrative expense -- 33 33
Segment profit (loss) 29 (31) (2)
Total assets 7,496 169 7,665
Capital expenditures for investment
properties 124 -- 124
</TABLE>
<TABLE>
<CAPTION>
1999 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 698 $ -- $ 698
Other income 59 3 62
Interest expense 206 -- 206
Depreciation 151 -- 151
General and administrative expense -- 35 35
Segment loss (2) (32) (34)
Total assets 7,898 322 8,220
Capital expenditures for investment
properties 83 -- 83
</TABLE>
Note E - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the Managing General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed and
filed a Stipulation of Settlement, settling claims, subject to final court
approval, on behalf of the Partnership and all limited partners who own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, at which time the Court set a final approval hearing for December 10,
1999. Prior to the December 10, 1999 hearing the Court received various
objections to the settlement, including a challenge to the Court's preliminary
approval based upon the alleged lack of authority of class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Managing General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. The
Managing General Partner does not anticipate that costs associated with this
case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and other filings with the Securities
and Exchange Commission made by the Registrant from time to time. The discussion
of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 2000 and 1999:
Average Occupancy
2000 1999
Ashley Woods Apartments
Cincinnati, Ohio 93% 93%
Versailles on the Lake Apartments
Fort Wayne, Indiana 97% 82%
The Managing General Partner attributes the increase in occupancy at Versailles
on the Lake to increased marketing and advertising efforts to attract new
tenants.
Results of Operations
The Partnership realized a net loss of approximately $2,000 for the three months
ended March 31, 2000 compared to a net loss of approximately $34,000 for the
three months ended March 31, 1999. The decrease in net loss for the three months
ended March 31, 2000 is primarily due to an increase in total revenues which was
partially offset by an increase in total expenses. Total revenues increased
primarily due to an increase in rental income. Rental income increased primarily
due to increased occupancy at Versailles on the Lake Apartments and increased
average annual rental rates at both of the Partnership's properties.
Total expenses increased due primarily to increased operating expense and
depreciation expense. Operating expense increased primarily due to an increase
in contract repairs at Ashley Woods. Depreciation expense increased due to
property improvements and replacements completed during the past twelve months
that are now being depreciated.
General and administrative expense remained relatively constant for the
comparable periods. Included in general and administrative expenses at both
March 31, 2000 and 1999, are reimbursements to the Managing General Partner
allowed under the Partnership Agreement associated with its management of the
Partnership. Costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of both 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.
Liquidity and Capital Resources
At March 31, 2000, the Partnership had cash and cash equivalents of
approximately $836,000 compared to approximately $601,000 at March 31, 1999. The
increase in cash and cash equivalents of approximately $155,000 since the
Partnership's year ended December 31, 1999 is due to approximately $250,000 of
cash provided by operating activities which was partially offset by
approximately $59,000 of cash used in investing activities and approximately
$36,000 of cash used in financing activities. Cash used in investing activities
consisted of property improvements and replacements partially offset by net
receipts from escrow accounts maintained by the mortgage lenders. Cash used in
financing activities consisted of payments of principal made on the mortgages
encumbering the Registrant's properties.
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 properties to adequately maintain the physical
assets and other operating needs of the Registrant and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements planned
for each of the Registrant's properties are detailed below:
Ashley Woods
During the three months ended March 31, 2000, the Partnership completed
approximately $96,000 of capital improvements at the property, consisting
primarily of fencing, cabinets, structural improvements, carpet replacement, and
appliances. These improvements were funded from the Partnership's reserves. The
Partnership evaluated the capital improvement needs of the property for the
year. The amount budgeted is approximately $177,000, consisting primarily of
electrical upgrades, air conditioning unit replacement, appliances, carpet
replacements, and structural improvements. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Versailles on the Lake
During the three months ended March 31, 2000, the Partnership completed
approximately $28,000 of capital improvements at the property, consisting
primarily of carpet and vinyl replacement and appliances. These improvements
were funded from the Partnership's operating cash flow. The Partnership
evaluated the capital improvement needs of the property for the year. The amount
budgeted is approximately $163,000, consisting primarily of appliances, carpet
replacements, exterior painting, parking lot improvements, and structural
improvements. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
The capital expenditures will be incurred only if cash is available from
operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $10,179,000, net of discount, is amortized over
periods ranging from 21 to 30 years with balloon payments due in 2002 and 2004.
The Managing General Partner will attempt to refinance such indebtedness and/or
sell the properties prior to such maturity dates. If the properties cannot be
refinanced or sold for a sufficient amount, the Registrant will risk losing such
properties through foreclosure.
No cash distributions were made during the three months ended March 31, 2000 or
1999. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves and the timing of debt
maturities, refinancings, and/or property sales. The Partnership's distribution
policy is reviewed on a semi-annual basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations after
required capital improvements to permit distributions to its partners during the
remainder of 2000 or subsequent periods.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part 1 - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). The plaintiffs seek monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
Managing General Partner filed a motion seeking dismissal of the action. In lieu
of responding to the motion, the plaintiffs have filed an amended complaint. The
Managing General Partner filed demurrers to the amended complaint which were
heard February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement, settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the Superior Court of the State of California, County of San Mateo, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of class plaintiffs' counsel to enter the
settlement. On December 14, 1999, the Managing General Partner and its
affiliates terminated the proposed settlement. Certain plaintiffs have filed a
motion to disqualify some of the plaintiffs' counsel in the action. The Managing
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
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 March 31, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements 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.
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from DAVIDSON
DIVERSIFIED REAL ESTATE I, L.P. 2000 First 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 836
<SECURITIES> 0
<RECEIVABLES> 90
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 14,449
<DEPRECIATION> (8,054)
<TOTAL-ASSETS> 7,665
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 10,179
0
0
<COMMON> 0
<OTHER-SE> (3,300)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 847
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 849
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2)
<EPS-BASIC> (2.66)<F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
