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 March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
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 (IRS 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
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 II, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 871
Restricted--tenant security deposits 184
Accounts receivable 39
Escrows for taxes and insurance 364
Restricted escrows 921
Other assets 451
Investment properties
Land $ 2,878
Buildings and related personal property 40,057
42,935
Less accumulated depreciation (17,935) 25,000
$ 27,830
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 102
Tenant security deposits 185
Accrued taxes 544
Other liabilities 529
Mortgage notes payable 26,883
Partners' (Deficit) Capital
General partners $ (444)
Limited partners (1,224.25 units issued
and outstanding) 31 (413)
$ 27,830
See Accompanying Notes to Consolidated Financial Statements
b) DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1996 1995
Revenues:
Rental income $ 2,162 $ 2,114
Other income 194 167
Total revenues 2,356 2,281
Expenses:
Operating 746 722
General and administrative 82 46
Maintenance 221 211
Depreciation 473 422
Interest 617 651
Property taxes 189 154
Bad debt 40 --
Total expenses 2,368 2,206
(Loss) income before loss on disposal of
property and extraordinary loss (12) 75
Loss on disposal property (64) --
(Loss) income before extraordinary item (76) 75
Extraordinary loss on retirement of -- (32)
Net (loss) income $ (76) $ 43
Net (loss) income allocated to general
partners (2%) (2) 1
Net (loss) income allocated to limited
partners (98%) (74) 42
Net (loss) income $ (76) $ 43
Per limited partnership unit:
Net (loss) income before extraordinary
item $ (60.45) $ 60.04
Extraordinary loss -- (25.62)
Net (loss) income $ (60.45) $ 34.42
See Accompanying Notes to Consolidated Financial Statements
c) DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Unit Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 1,224.25 $ 1 $24,485 $24,486
Partners' (deficit) capital at
December 31, 1995 1,224.25 $ (442) $ 105 $ (337)
Net loss for the three months
ended March 31, 1996 -- (2) (74) (76)
Partners' (deficit) capital at
March 31, 1996 1,224.25 $ (444) $ 31 $ (413)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (76) $ 43
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation 473 422
Bad debt 40 --
Amortization of discounts, loan costs
and intangibles 65 72
Extraordinary loss on retirement of debt -- 32
Loss on disposal of property 64 --
Change in accounts:
Restricted cash -- (4)
Accounts receivable (4) 36
Escrows for taxes and insurance (18) (11)
Other assets 14 11
Accounts payable (68) (158)
Tenant security deposit liabilities -- (1)
Accrued taxes 35 12
Other liabilities (1) (18)
Net cash provided by operating activities 524 436
Cash flows from investing activities:
Insurance proceeds 227 --
Property improvements and replacements (202) (338)
Deposits to restricted escrows (281) (27)
Withdrawals from restricted escrows 3 28
Net cash used in investing activities (253) (337)
Cash flows from financing activities:
Payments on mortgage notes payable (114) (104)
Repayment of mortgage notes payable -- (1,765)
Proceeds from long-term borrowings -- 1,820
Loan costs -- (31)
Distributions -- (2)
Net cash used in financing activities (114) (82)
Net increase in cash 157 17
Cash at beginning of period 714 795
Cash at end of period $ 871 $ 812
Supplemental disclosure of cash flow information:
Cash paid for interest $ 554 $ 579
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.
NOTES TO CONSOLIDATED 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 three month period ended March 31,
1996, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Davidson Diversified Real
Estate II, L.P.'s (the "Partnership") annual report on Form 10-KSB for the year
ended December 31, 1995.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 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. The following were paid to the
Managing General Partner and affiliates for the three months ended March 31,
1996 and 1995.
Three Months Ended
March 31,
(in thousands)
1996 1995
Property management fees $104 $113
Reimbursement for services of affiliates 50 37
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 OPERATION
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 three months ended March 31, 1996 and 1995:
Average Occupancy
1996 1995
Big Walnut Apartments 95% 95%
Columbus, Ohio
Lafontenay Apartments 94% 95%
Louisville, Kentucky
The Trails Apartments 94% 98%
Nashville, Tennessee
Greensprings Manor Apartments 93% 87%
Indianapolis, Indiana
Outlet's Ltd. Mall 84% 91%
Murfreesboro, Tennessee
Occupancy at The Trails Apartments decreased due to move outs relating to job
transfers out of the Nashville area and due to tenants buying homes due to
attractive interest rates. The Managing General Partner attributes the
increase in occupancy at Greensprings Manor Apartments to successful marketing
efforts on efficiency apartments. Outlet's Mall also had a decrease in
occupancy primarily due to the move out of Leslie Fay, a tenant that occupied
6,250 square feet or 6% of the total space.
The Partnership's net loss for the first three months of 1996 was $76,000 versus
net income of $43,000 for the same period in 1995. Revenue increased slightly
but was offset by increases in general and administrative and depreciation
expenses. Other income increased due to an increase in lease cancellation fees
and cleaning and damage fees at Greensprings Manor Apartments. The property
experienced greater turnover compared to the prior year, which in turn increased
cleaning and lease cancellation fees. General and administrative expense
increased primarily due to an increase in partnership administration cost
reimbursements. Depreciation expense increased due to additional purchases of
depreciable fixed assets. Bad debt expense relates to reserves that were set up
due to tenants at Greensprings Manor Apartments that had been evicted, yet still
had outstanding accounts receivable balances. On January 8, 1996, a fire at The
Trails Apartments destroyed four apartment units. The write-off of these units,
which were not yet fully depreciated, resulted in a $64,000 loss on disposal of
property. At March 31, 1996, reconstruction of these units had not began.
On January 19, 1995, the Partnership refinanced the mortgage encumbering
Outlet's Ltd. Mall. The total indebtedness refinanced was $1,766,000 of which
$337,000 related to the first mortgage and $1,428,000 related to the second
mortgage. The refinancing replaced the existing indebtedness which carried
stated interest rates 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 $32,000, as a result of the
write-off of an unamortized mortgage discount and unamortized loan costs.
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.
The Partnership had unrestricted cash of $871,000 at March 31, 1996, versus
unrestricted cash of $812,000 of March 31, 1995. Net cash provided by operating
activities increased as a result of a lesser decrease in account payable. Net
cash used in investing activities was less for the three months ended March 31,
1996, versus the three months ended March 31, 1995. This decrease is due to
decreased property improvements and replacements. In addition, insurance
proceeds of $227,000 were received for the four destroyed apartment units at The
Trails Apartments. The proceeds were deposited in a restricted escrow account
in which funds can be drawn as expenses for the reconstruction of these units
begins.
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 $26,883,000 (net of discount), with stated interest
rates of 7.6% to 10.125%, has maturity dates ranging from June 1997 to November
2002. Included in the outstanding indebtedness is a first mortgage, secured by
the LaFontenay Apartments, which matures June 1, 1997, with a principal balance
due at maturity of $6,728,000. The Managing General Partner intends to
refinance this indebtedness in order to obtain a more favorable interest rate.
The Managing General Partner is exploring the feasibility of selling Outlet's
Mall. If the Managing General Partner is not successful in selling this
property, then the Managing General Partner also intends to refinance the first
mortgage secured by the property in order to obtain a more favorable interest
rate. There are no guarantees that a sale or refinance will be successful.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is unaware of any pending or outstanding litigation that is not
of a routine nature. The Managing 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None filed during the three months ended
March 31, 1996.
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.
Vice President/CAO
Date: May 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate II Limited Partnership's 1996 First Quarter 10-QSB and
is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000750258
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 871
<SECURITIES> 0
<RECEIVABLES> 39
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,379
<PP&E> 42,935
<DEPRECIATION> 17,935
<TOTAL-ASSETS> 27,830
<CURRENT-LIABILITIES> 831
<BONDS> 26,883
0
0
<COMMON> 0
<OTHER-SE> (413)
<TOTAL-LIABILITY-AND-EQUITY> 27,830
<SALES> 0
<TOTAL-REVENUES> 2,356
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 617
<INCOME-PRETAX> (76)
<INCOME-TAX> 0
<INCOME-CONTINUING> (76)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76)
<EPS-PRIMARY> (.061)
<EPS-DILUTED> 0
</TABLE>
