FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-14483
DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
Delaware 62-1207077
(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 (803) 239-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 II LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1995
<S> <C> <C>
Assets
Cash:
Unrestricted $ 856,656
Restricted--tenant security deposits 195,425
Accounts receivable 95,470
Escrow for taxes 516,682
Restricted escrows 627,047
Other assets 540,965
Investment properties:
Land $ 2,878,470
Buildings and related personal property 39,728,755
42,607,225
Less accumulated depreciation (17,039,301) 25,567,924
$28,400,169
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 160,435
Tenant security deposits 195,860
Accrued taxes 668,860
Other liabilities 325,237
Mortgage notes payable 27,042,219
Partners' Capital (Deficit)
General partners $ (435,828)
Limited partners (1,224.25 units
issued and outstanding) 443,386 7,558
$28,400,169
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
b) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Rental income $2,022,298 $1,943,941 $6,026,068 $5,712,968
Other income 157,783 189,299 471,733 508,857
Total revenues 2,180,081 2,133,240 6,497,801 6,221,825
Expenses:
Operating 679,128 620,500 1,962,230 1,803,522
General and administrative 42,727 50,585 148,152 166,993
Property management fees 114,108 109,558 340,099 326,592
Maintenance 111,252 283,938 533,681 764,952
Depreciation 446,708 404,777 1,310,315 1,194,018
Interest 632,256 654,056 1,890,628 1,938,179
Property taxes 177,738 175,585 507,695 520,786
Tenant reimbursements (135,444) (110,195) (371,967) (334,079)
Total expenses 2,068,473 2,188,804 6,320,833 6,380,963
Casualty loss -- -- (11,977) --
Income (loss) before
extraordinary loss 111,608 (55,564) 164,991 (159,138)
Extraordinary loss on
retirement of debt -- -- (32,181) --
Net income (loss) $ 111,608 $ (55,564) $ 132,810 $ (159,138)
Net income (loss) allocated
to general partners (2%) $ 2,232 $ (1,112) $ 2,656 $ (3,183)
Net income (loss) allocated
to limited partners (98%) 109,376 (54,452) 130,154 (155,955)
$ 111,608 $ (55,564) $ 132,810 $ (159,138)
Per limited partnership unit:
Net income (loss) before
extraordinary loss $ 89.34 $ (44.48) $ 132.07 $ (127.39)
Extraordinary loss -- -- (25.76) --
Net income (loss) per limited
partnership unit $ 89.34 $ (44.48) $ 106.31 $ (127.39)
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
c) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 1,224.25 $ 1,000 $24,485,000 $24,486,000
Partners' capital (deficit)
at December 31, 1994 1,224.25 $(438,447) $ 315,056 $ (123,391)
Distributions -- (37) (1,824) (1,861)
Net income for the nine months
ended September 30, 1995 -- 2,656 130,154 132,810
Partners' capital (deficit)
at September 30, 1995 1,224.25 $(435,828) $ 443,386 $ 7,558
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
d) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 132,810 $ (159,138)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation 1,310,315 1,194,018
Amortization of loan costs, discounts
and lease concessions 190,717 227,279
Casualty loss 11,977 --
Extraordinary loss on retirement of debt 32,181 --
Change in accounts:
Restricted cash 2,921 7,794
Accounts receivable 46,495 (58)
Escrow deposits for taxes (231,516) (131,821)
Other assets (690) (54,362)
Accounts payable (268,895) (128,562)
Tenant security deposit liabilities (9,779) (5,576)
Accrued taxes 176,309 100,465
Other liabilities (13,447) 11,804
Net cash provided by
operating activities 1,379,398 1,061,843
Cash flows from investing activities:
Property improvements and replacements (1,132,193) (966,319)
Deposits to restricted escrow (104,027) (141,712)
Receipts from restricted escrow 73,782 156,273
Insurance proceeds from property damage 142,205 --
Net cash used in investing activities (1,020,033) (951,758)
Cash flows from financing activities:
Principal payments on notes payable (318,789) (454,325)
Repayment of mortgage notes payable (1,765,589) --
Proceeds from long-term borrowings 1,820,000 --
Loan costs (30,682) --
Distributions (1,861) --
Net cash used in financing activities (296,921) (454,325)
Net increase (decrease) in cash 62,244 (344,240)
Cash at beginning of period 794,412 1,049,860
Cash at end of period $ 856,656 $ 705,620
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,720,177 $1,725,887
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
e) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements 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 the Managing General Partner, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine month
period ended September 30, 1995, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1995. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the fiscal year ended
December 31, 1994.
Certain reclassifications have been made to the 1994 information to conform
to the 1995 presentation.
Note B - 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 services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. Balances and other transactions with
Insignia Financial Group, Inc. and affiliates in 1995 and 1994 are as follows:
Nine Months Ended
September 30,
1995 1994
Property management fees $340,099 $326,592
Data processing services 2,700 3,400
Marketing services 6,851 4,817
Construction service fees 17,838 17,709
Reimbursement for services from affiliates 103,312 115,334
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of four apartment complexes
and one commercial property. The following table sets forth the average
occupancy of the properties for the nine months ended September 30, 1995 and
1994:
Average
Occupancy
1995 1994
Big Walnut Apartments
Columbus, Ohio 97% 97%
Lafontenay Apartments
Louisville, Kentucky 95% 95%
The Trails Apartments
Nashville, Tennessee 98% 97%
Greensprings Manor Apartments
Indianapolis, Indiana 91% 88%
Outlet's Ltd. Mall
Murfreesboro, Tennessee 89% 93%
The Managing General Partner attributes the increase in occupancy at
Greensprings Manor to outstanding customer service and the improved appearance
of the property. The occupancy at Outlet's Mall decreased as a result of the
termination of the London Fog lease.
The Partnership reported net income of $132,810 for the nine months ended
September 30, 1995, compared to a net loss of $159,138 for the same period of
1994. The Partnership reported net income for the three months ended September
30, 1995, of $111,608 compared to a net loss of $55,564 for the same period in
1994. The increase in net income in 1995 is primarily attributable to an
increase in rental income due to rate increases combined with a decrease in
maintenance and general and administrative expense. Maintenance expense has
decreased due to a decrease in required repairs to the properties in 1995 as
these repairs were performed in 1994. General and administrative expense
decreased for the three and nine months ended September 30, 1995, due to a
reduction of the reimbursements for administrative expenses.
Offsetting the changes noted above was an increase in operating and
depreciation expense combined with a decrease in other income for the three and
nine months ended September 30, 1995. Operating expense increased due to the
increased advertising at The Trails and Outlet's Mall in an attempt to maintain
and improve occupancy. Also, repairs and maintenance payroll and common area
maintenance charges increased due to efforts to improve the appearance of
Outlet's Mall. Depreciation expense increased due to the capital improvements
made at Outlet's Mall. Other income decreased due to the reduction in forfeited
deposits at Big Walnut Apartments.
On January 19, 1995, the Partnership refinanced the mortgage encumbering
Outlet's Ltd. Mall. The total indebtedness refinanced was $1,765,589, of which
$337,494 related to the first mortgage and $1,428,095 related to the second
mortgage. The refinancing replaced the existing indebtedness which carried a
stated interest rate from 8.5% to 10.75% with maturity dates ranging from April
1995 to October 1995. The new mortgage indebtedness of $1,820,000 carries a
stated interest rate of 10.125% and is amortized over 180 months with a balloon
payment due on January 15, 2000. As a result of the refinancing, the
Partnership recognized an extraordinary loss of $32,181 during the nine months
ended September 30, 1995.
During the first nine months of 1995, the Partnership recorded two
casualties. Big Walnut incurred storm damage which resulted in a casualty gain
of $2,358, net of insurance proceeds. The Trails continued to experience
problems with the pool due to freeze damage and recorded a casualty loss of
$14,335, net of insurance proceeds.
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.
As of September 30, 1995, the Partnership had cash balances of $856,656 as
compared to $705,620 at September 30, 1994. Net cash provided by operating
activities increased as a result of net income reported for the first nine
months of 1995 versus a net loss reported for the same period of 1994. Also
contributing to the increase in cash provided by operating activities was a
decrease in accounts receivable due to the receipt of insurance proceeds related
to the loss at Lafontenay Apartments. Net cash used in investing activities
increased in 1995 due to property improvements at Outlet's Mall in an attempt to
modernize the mall. Offsetting the change noted was an increase in insurance
proceeds from damaged property. Net cash used in financing activities decreased
in 1995 as a result of the debt refinancing for Outlet's Mall in January 1995,
as mentioned above.
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 Managing General Partner is exploring the feasibility of selling or
refinancing Outlet's Mall which could result in a return of capital. The
mortgage indebtedness of $27,042,219, net of discount, is amortized over
varying periods. The mortgage notes require balloon payments ranging from June
1997 to December 2009 at which time the individual properties will be sold or
refinanced. No distributions were made in 1994. During the first nine months of
1995, $1,861 of distributions were paid on behalf of the limited partners to
the State of Indiana relating to the operations of Greensprings Manor
Apartments. Future cash distributions will depend on the levels of net cash
generated from operations, refinancing, property sales and the availability of
the 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, 1995.
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 II
By: Davidson Diversified Properties, Inc.
Managing General Partner
By:/s/ Carroll D. Vinson
Carroll D. Vinson
President
By:/s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Controller and Principal
Accounting Officer
Date: November 8, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate II 1995 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB.
</LEGEND>
<CIK> 0000750258
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 856,656
<SECURITIES> 0
<RECEIVABLES> 95,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 42,607,225
<DEPRECIATION> 17,039,301
<TOTAL-ASSETS> 28,400,169
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 27,042,219
<COMMON> 0
0
0
<OTHER-SE> 7,558
<TOTAL-LIABILITY-AND-EQUITY> 28,400,169
<SALES> 0
<TOTAL-REVENUES> 6,497,801
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,320,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (32,181)
<CHANGES> 0
<NET-INCOME> 132,810
<EPS-PRIMARY> 106.31
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
