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 June 30, 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 0-14483
Davidson Diversified Real Estate II, L.P.
(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.)
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 II, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 1,095
Receivables and deposits, net of $182
for doubtful accounts 328
Restricted escrows 431
Other assets 372
Investment properties:
Land $ 2,603
Buildings and related personal property 38,471
41,074
Less accumulated depreciation (22,386) 18,688
$ 20,914
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 394
Tenant security deposit liabilities 136
Accrued property taxes 477
Other liabilities 604
Due to Managing General Partner 953
Mortgage notes payable 23,799
Partners' Deficit
General partners $ (544)
Limited partners (1,224.25 units issued and
outstanding) (4,905) (5,449)
$ 20,914
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
b)
Davidson Diversified Real Estate II, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues: (Restated) (Restated)
<S> <C> <C> <C> <C>
Rental income $ 1,672 $ 1,895 $ 3,451 $ 3,828
Other income 139 149 251 285
Total revenues 1,811 2,044 3,702 4,113
Expenses:
Operating 916 953 1,959 1,843
General and administrative 74 75 136 163
Depreciation 486 438 960 864
Interest 545 502 1,080 1,024
Property taxes 67 159 204 315
Total expenses 2,088 2,127 4,339 4,209
Loss from continuing operations (277) (83) (637) (96)
Loss from discontinued operation -- (17) -- (66)
Net loss $ (277) $ (100) $ (637) $ (162)
Net loss allocated to general
partners (2%) $ (6) $ (2) $ (13) $ (3)
Net loss allocated to limited
partners (98%) (271) (98) (624) (159)
$ (277) $ (100) $ (637) $ (162)
Per limited partnership unit:
Loss from continuing operations $(221.36) $ (66.16) $(509.70) $ (76.79)
Loss from discontinued operation -- (13.89) -- (53.09)
Net loss $(221.36) $ (80.05) $(509.70) $(129.88)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
c)
Davidson Diversified Real Estate II, 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 1,224.25 $ 1 $24,485 $24,486
Partners' deficit at
December 31, 1999 1,224.25 $ (531) $(4,281) $(4,812)
Net loss for the six months
ended June 30, 2000 -- (13) (624) (637)
Partners' deficit at
June 30, 2000 1,224.25 $ (544) $(4,905) $(5,449)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
d)
Davidson Diversified Real Estate II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (637) $ (162)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 960 1,033
Amortization of discounts, loan costs and leasing
commissions 110 121
Loss on disposal of property 19 --
Change in accounts:
Receivables and deposits 252 169
Other assets (45) (54)
Accounts payable -- 2
Tenant security deposit liabilities (31) (1)
Accrued property taxes (122) (192)
Other liabilities (63) 94
Net cash provided by operating activities 443 1,010
Cash flows used in investing activities:
Property improvements and replacements (910) (473)
Net withdrawals from restricted escrows 81 70
Net cash used in investing activities (829) (403)
Cash flows from financing activities:
Advances from Managing General Partner 451 --
Payments on mortgage notes payable (368) (392)
Net cash provided by (used in) financing activities 83 (392)
Net (decrease) increase in cash and cash equivalents (303) 215
Cash and cash equivalents at beginning of period 1,398 971
Cash and cash equivalents at end of period $ 1,095 $ 1,186
Supplemental disclosure of cash flow information:
Cash paid for interest $ 925 $ 992
Supplemental disclosures of non-cash activity:
At December 31, 1999, there were approximately $91,000 of property
improvements and replacements in accounts payable.
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
e)
Davidson Diversified Real Estate II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Davidson
Diversified Real Estate II, 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 and six month periods ended June 30,
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 fiscal year ended December
31, 1999.
Principles of Consolidation:
The Registrant's financial statements include all the accounts of the
Partnership and its four 99.9% owned partnerships. The managing general partner
of the consolidated partnerships is Davidson Diversified Properties, Inc.
Davidson Diversified Properties, Inc. may be removed as the general partner of
the consolidated partnerships by the Registrant; therefore, the consolidated
partnerships are controlled and consolidated by the Registrant. All significant
interpartnership balances have been eliminated.
Reclassifications:
Certain reclassifications have been made to the 1999 balances to conform to the
2000 presentation.
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. The Partnership Agreement provides for (i) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership. The following amounts were
paid or accrued to the Managing General Partner and its affiliates during the
six months ended June 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in
operating expenses) $189 $207
Reimbursement for services of affiliates
(included in general and administrative
expenses and investment properties) 91 114
Due to affiliates (included in other
liabilities) 243 226
Due to Managing General Partner 953 --
Interest on General Partner loan 42 --
During the six months ended June 30, 2000 and 1999, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's residential properties for providing property management services.
The Registrant paid to such affiliates approximately $189,000 and $207,000 for
the six months ended June 30, 2000 and 1999, respectively.
An affiliate of the Managing General Partner was entitled to receive
reimbursement of accountable administrative expenses amounting to approximately
$91,000 and $114,000 for the six months ended June 30, 2000 and 1999,
respectively. A portion of both the current fees and the prior year fees were
not able to be paid due to the Partnership's cash flow. Accordingly, as of June
30, 2000, a liability of approximately $243,000 exists and is reflected in other
liabilities.
As of June 30, 2000 the Managing General Partner has loaned the Partnership
approximately $953,000 to cover operational expenses required at Greensprings
Manor Apartments. This loan was made in accordance with the terms of the
Partnership Agreement. Interest is charged at the prime rate plus 1%. Interest
expense was approximately $42,000 for the six months ended June 30, 2000 and is
included in interest expense.
AIMCO and its affiliates currently own 469.75 limited partnership units in the
Partnership representing 38.370% 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. 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.
<PAGE>
Note D - Discontinued Operations
Shoppes at River Rock was the only commercial property owned by the Partnership
and represented one segment of the Partnership's operations. Due to the sale of
the property on December 30, 1999, the results of the commercial segment have
been shown as loss from discontinued operation for the three and six month
periods ended June 30, 2000 and 1999 and accordingly, the statements of
operations have been restated to reflect this presentation. Revenues of this
property were approximately $166,000 and $429,000 for the three and six months
ended June 30, 1999 and loss from operations was approximately $17,000 and
$66,000 for the three and six months ended June 30, 1999.
Note E - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership had two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of four apartment complexes, one each located in Ohio, Kentucky, Tennessee, and
Indiana. The Partnership rents apartment units to tenants for terms that are
typically twelve months or less. The commercial property segment consisted of a
shopping center located in Tennessee, which was sold on December 30, 1999. As a
result of the sale of the commercial property during 1999, the commercial
segment is shown as discontinued operation.
Measurement of segment profit and loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the three and six month periods ended June 30, 2000 and
1999 is shown in the tables below. The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment (in thousands).
Three months ended June 30, 2000 Residential Other Totals
Rental income $ 1,672 $ -- $ 1,672
Other income 125 14 139
Interest expense 540 5 545
Depreciation 486 -- 486
General and administrative expense -- 74 74
Segment loss (212) (65) (277)
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30,1999 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,895 $ -- $ -- $ 1,895
Other income 145 -- 4 149
Interest expense (income) 511 -- (9) 502
Depreciation 438 -- -- 438
General and administrative
expense -- -- 75 75
Loss from discontinued
operations -- (17) -- (17)
Segment loss (21) (17) (62) (100)
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 2000 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 3,451 $ -- $ 3,451
Other income 231 20 251
Interest expense 1,070 10 1,080
Depreciation 960 -- 960
General and administrative expense -- 136 136
Segment loss (511) (126) (637)
Total assets 20,467 447 20,914
Capital expenditures for investment
properties 819 -- 819
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,1999 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 3,828 $ -- $ -- $ 3,828
Other income 277 -- 8 285
Interest expense 1,024 -- -- 1,024
Depreciation 864 -- -- 864
General and administrative
expense -- -- 163 163
Loss from discontinued
operations -- (66) -- (66)
Segment profit (loss) 59 (66) (155) (162)
Total assets 20,858 3,381 576 24,815
Capital expenditures for
investment properties 462 11 -- 473
</TABLE>
<PAGE>
Note F - 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, its 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. 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 owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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 four apartment complexes. The
following table sets forth the average occupancy of the properties for the six
months ended June 30, 2000 and 1999:
Average Occupancy
2000 1999
Big Walnut Apartments
Columbus, Ohio 91% 91%
LaFontenay I & II Apartments
Louisville, Kentucky (1) 94% 91%
The Trails Apartments
Nashville, Tennessee 96% 94%
Greensprings Manor Apartments
Indianapolis, Indiana (2) 56% 94%
(1) The Managing General Partner attributes the increase in occupancy at
LaFontenay I & II Apartments to management's intensified marketing efforts
as well as capital improvements to enhance the exterior of the property.
(2) The Managing General Partner attributes the decrease in occupancy at
Greensprings Manor Apartments to construction at the property. The
property is currently undergoing a major renovation project to enhance the
appearance of the property to attract additional tenants.
Results of Operations
The Registrant's net loss for the three and six months ended June 30, 2000 was
approximately $277,000 and $637,000, respectively, as compared to a net loss for
the three and six months ended June 30, 1999 of approximately $100,000 and
$162,000, respectively. The increase in net loss for the three and six months
ended June 30, 2000 was due to a decrease in total revenues, and for the six
months ended June 30, 2000 an increase in total expenses partially offset by a
decrease in loss from discontinued operation. Shoppes at River Rock was the only
commercial property owned by the Partnership and represented one segment of the
Partnership's operations. Due to the sale of the property on December 30, 1999,
the results of the commercial segment have been shown as loss from discontinued
operation for the three and six month periods ended June 30, 2000 and 1999 and
accordingly, the statements of operations have been restated to reflect this
presentation.
Total revenues decreased primarily due to a decrease in rental and other income.
Rental income decreased primarily due to a decrease in occupancy at Greensprings
Manor Apartments as discussed above. This decrease in rental income was
partially offset by an increase in occupancy at two of the Partnership's
investment properties, and an increase in average rental rates at all four of
the properties. Other income decreased due to a decrease in utility and late
charges at Greensprings Manor Apartments.
Total expenses decreased for the three months ended June 30, 2000 and increased
for the six months ended June 30, 2000. The decrease for the three months was
primarily due to a decrease in property tax expense. The increase for the six
month periods was due to an increase in operating, interest, and depreciation
expenses which was partially offset by a decrease in property tax and general
and administrative expenses. Operating expenses increased due to an increase in
security patrol expense at Greensprings Manor Apartments, primarily during the
first quarter of 2000. Depreciation expense increased due to an increase in
capital improvements during the previous twelve months. Interest expense
increased as a result of interest being accrued on the General Partner loan
during the six month period ended June 30, 2000. Property tax expense decreased
due to a decrease in the assessment value of Greensprings Manor Apartments and a
tax refund at LaFontenay I & II Apartments. General and administrative expense
decreased as a result of a decrease in legal fees resulting from the settlement
of outstanding litigation in 1999.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of the investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. 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 June 30, 2000, the Partnership had cash and cash equivalents of approximately
$1,095,000 as compared to approximately $1,186,000 at June 30, 1999. Cash and
cash equivalents decreased approximately $303,000 for the six months ended June
30, 2000 from the Partnership's year end, primarily due to approximately
$829,000 of cash used in investing activities which was partially offset by
approximately $443,000 of cash provided by operating activities and
approximately $83,000 of cash provided by financing activities. Cash used in
investing activities consisted of property improvements and replacements,
partially offset by net withdrawals from escrow accounts maintained by the
mortgage lender. Cash provided by financing activities consisted of advances
from the Managing General Partner, which was partially offset by payments of
principal made on the mortgages encumbering the Partnership's properties. The
Partnership invests its working capital reserves in money market accounts.
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 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.
Big Walnut Apartments: The property has budgeted, but is not limited to, capital
improvements of approximately $662,000 during the current year which consists of
floor covering and appliance replacements, roof replacements, swimming pool
improvements and other property enhancements. The Partnership has completed
approximately $588,000 in budgeted and unbudgeted capital expenditures at Big
Walnut Apartments as of June 30, 2000 consisting primarily of roof replacements,
parking lot and swimming pool improvements, electrical upgrades, building
improvements, and floor covering replacements. These improvements were funded
primarily from property operations.
LaFontenay I & II Apartments: The property has budgeted, but is not limited to,
capital improvements of approximately $117,000 during the current year which
consists of floor covering and appliance replacement, air conditioning and
heating replacements. The Partnership has completed approximately $115,000 in
budgeted and unbudgeted capital expenditures at LaFontenay I & II Apartments as
of June 30, 2000, consisting primarily of plumbing improvements, appliance and
floor covering replacements, and heating and air conditioning unit replacements.
These improvements were funded primarily from property operations.
The Trails: The property has budgeted, but is not limited to, capital
improvements of approximately $86,000 during the current year which consists of
floor covering and appliance replacements, and air conditioning upgrades. The
Partnership has completed approximately $63,000 in capital expenditures at The
Trails Apartments as of June 30, 2000, consisting primarily of swimming pool
improvements, major landscaping, and appliance and floor covering replacements.
These improvements were funded primarily from property operations.
Greensprings Manor: The property has budgeted, but is not limited to, capital
improvements of approximately $190,000 during the current year which consists of
floor covering and appliance replacements, cabinet replacements, and heating and
air conditioning improvements. The Partnership has completed approximately
$53,000 in capital expenditures at Greensprings Manor Apartments as of June 30,
2000, consisting primarily of floor covering replacements and appliances. These
improvements were funded primarily from property operations. .
The additional 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 $23,799,000, net of discount, is amortized over
periods with required balloon payments ranging from November 15, 2002 to
December 1, 2009. The Managing General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity dates. If the
property cannot be refinanced or sold for a sufficient amount, the Registrant
will risk losing such property through foreclosure.
No cash distributions were made during the six months ended June 30, 2000 or
1999. The Registrant's distribution policy is reviewed on a semi-annual basis.
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, refinancing and/or property sales. There can be no assurance,
however, that the Registrant will generate sufficient funds from operations
after planned capital expenditures to permit distributions to its partners in
2000 or subsequent periods. In addition, the Partnership may be restricted from
making distributions if the amount in the reserve accounts for Big Walnut and
Greensprings Manor Apartments is below $400 per unit or $333,000 in total. As of
June 30, 2000, the account balances were approximately $130,000 for Big Walnut
Apartments and $254,000 for Greensprings Manor Apartments.
<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, its 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. 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 owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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 June 30, 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 II, 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:
