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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from.........to.........
Commission file number 0-14530
DAVIDSON INCOME REAL ESTATE, L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 62-1242144
(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 (864) 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 INCOME REAL ESTATE, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Cash and cash equivalents:
Unrestricted $ 1,085
Restricted--tenant security deposits 111
Accounts receivable 9
Escrows for taxes 274
Restricted escrows 211
Other assets 350
Investment properties:
Land $ 4,120
Buildings and related personal property 19,661
23,781
Less accumulated depreciation (9,036) 14,745
Investment in Joint Venture 272
$17,057
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 44
Tenant security deposits 111
Accrued taxes 346
Other liabilities 192
Mortgage notes payable 12,136
Partners' Capital (Deficit)
General partners $ (642)
Limited partners (26,776 units
issued and outstanding) 4,870 4,228
<FN> $17,057
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
b) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months
September 30, September
1996 1995 1996 1996
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,132 $ 1,072 $ 3,373 $ 3,165
Other income 65 69 188 179
Total revenues 1,197 1,141 3,561 3,344
Expenses:
Operating 370 349 1,131 1,060
General and administrative 45 58 157 173
Maintenance 179 144 443 379
Depreciation 214 197 631 582
Interest 260 287 829 860
Property taxes 144 104 370 317
Total expenses 1,212 1,139 3,561 3,371
Equity in income of
joint venture 25 7 59 38
Net income $ 10 $ 9 $ 59 $ 11
Net income allocated
to general partners (3%) $ -- $ -- $ 2 $ --
Net income allocated
to limited partners (97%) 10 9 57 11
$ 10 $ 9 $ 59 $ 11
Net income per limited
partnership unit $ .35 $ .34 $ 2.13 $ .41
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
c) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (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 26,776 $ 1 $ 26,776 $ 26,777
Partners' capital (deficit)
at December 31, 1995 26,776 $ (633) $ 5,182 $ 4,549
Distributions paid to partners (11) (369) (380)
Net income for the nine months
ended September 30, 1996 2 57 59
Partners' capital (deficit)
at September 30, 1996 26,776 $ (642) $ 4,870 $ 4,228
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net income $ 59 $ 11
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 631 582
Amortization of discounts and loan costs 57 61
Equity in income of joint venture (59) (38)
Change in accounts:
Restricted cash (8) (15)
Accounts receivable 1 5
Escrows for taxes 7 69
Accounts payable (159) (66)
Tenant security deposit liabilities 9 13
Accrued taxes 51 (30)
Other liabilities 55 (38)
Net cash provided by operating activities 644 554
Cash flows from investing activities:
Property improvements and replacements (324) (216)
Deposits to restricted escrows (7) (12)
Receipts from restricted escrows 55 27
Distributions from joint venture 112 175
Net cash used in investing activities (164) (26)
Cash flows from financing activities:
Proceeds from interim refinancing 4,100 --
Repayment of mortgage notes payable (3,812) --
Payments on mortgage notes payable (101) (104)
Distributions paid to partners (380) (300)
Loan costs (78) --
Net cash used in financing activities (271) (404)
Net increase in cash and cash equivalents 209 124
Cash and cash equivalents at beginning of period 876 1,147
Cash and cash equivalents at end of period $ 1,085 $ 1,271
Supplemental disclosure of cash flow information:
Cash paid for interest $ 744 $ 834
See Accompanying Notes to Consolidated Financial Statements
e) DAVIDSON INCOME REAL ESTATE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Davidson Income Real Estate,
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, 1996, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Partnership's 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. Property management fees paid to
affiliates of Insignia Financial Group, Inc. during the nine months ended
September 30, 1996 and 1995, are included in operating expenses on the
Consolidated Statement of Operations and are reflected in the following table.
The managing general partner and its affiliates received reimbursements and fees
as reflected in the following table:
Nine Months Ended
September 30,
1996 1995
(in thousands)
Property management fees $175 $165
Reimbursement for services of affiliates 100 107
Included in "reimbursements for services of affiliates" for 1996 and 1995, are
$4,000 and $1,000 respectively in reimbursements for construction oversight
costs.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES - continued
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.
NOTE C - MORTGAGE
Lakeside Apartments' mortgage indebtedness of approximately $3,812,000 matured
July 1, 1996. The principal and accrued interest of approximately $3,846,000
was refinanced through a temporary bridge loan on July 1, 1996. The Partnership
negotiated the temporary bridge loan in the amount of approximately $4,100,000
with Lehman Brothers Holding, Inc. The initial agreement required that the loan
mature September 1, 1996, with a possible extension to October 1, 1996. A
subsequent amendment has extended the maturity date to November 15, 1996. At
its sole discretion, Lehman Brothers may grant a one-time extension of the
amended maturity date to December 31, 1996, if permanent refinancing has not
been obtained. The loan has a floating interest rate with a rate of 7.94% at
September 30, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of four apartment complexes.
The following table sets forth the average occupancy of the properties for the
nine months ended September 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Northsprings Apartments
Atlanta, Georgia 97% 96%
Lakeside Apartments
Charlotte, North Carolina 96% 97%
Bexley House Apartments
Columbus, Ohio 97% 90%
Covington Pointe Apartments
Dallas, Texas 95% 89%
The increase in occupancy at Bexley House is attributed to property improvements
and an increase in services provided to the tenants. The increase in occupancy
at Covington Pointe stems primarily from additional advertising.
The Partnership's net income for the nine months ended September 30, 1996, was
approximately $59,000, with the three months ended September 30, 1996, having
net income of approximately $10,000. The Partnership reported net income of
approximately $11,000 and $9,000 for the corresponding periods in 1995. The
increase in net income is primarily attributable to increased rental income as a
result of monthly rental rate increases at all the Partnership's investment
properties and increases in occupancy at Bexley House, Covington Pointe and
Northsprings Apartments. Also, general and administrative expense decreased due
to a decrease in reimbursements to affiliates. Partially offsetting the
increase in net income was an increase in maintenance expense and property tax
expense. Maintenance expense increased at Covington Pointe for exterior and
interior building repairs and parking lot repairs needed to effectively compete
in a market saturated with newly constructed complexes. Northsprings and
Lakeside incurred additional maintenance expense in 1996 due to interior
painting, water devise repairs, and landscaping to remain competitive in their
respective markets. Property tax expense increased reflecting payment by
Northsprings of a 1995 bill previously under appeal.
The Partnership owns 17.5% of Sterling Crest Joint Venture. Equity in the
income of the joint venture increased as a result of an increase in the net
income of Sterling Crest Joint Venture's investment property, Brighton Crest.
The increase in net income was due to an increase in rental rates and an
increase in corporate unit income partially offset by an increase in operating
expense. The increase in corporate unit income stemmed from additional rents to
patrons of the Olympic games. Operating expense increased due to higher
utilities and corporate unit expense related to the additional rents.
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
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.
The Partnership had unrestricted cash of $1,085,000 at September 30, 1996,
versus $1,271,000 at September 30, 1995. Net cash provided by operating
activities increased as a result of the increase in net income as discussed
above. Other liabilities increased due to an increase in prepaid rents due to
timing differences and an increase in accrued interest as a result of the
refinancing at Lakeside. Offsetting the increase in cash provided by operations
was an increase in cash used for accounts payable due to the timing of payments
to vendors. Net cash used in investing activities increased primarily as a
result of an increase in property improvements and replacements and a decrease
in distributions from the joint venture. Offsetting these changes, net receipts
from restricted escrows increased in 1996 due to property improvements and
replacements at North Springs. Net cash used in financing activities decreased
due to the temporary refinancing of Lakeside Apartments which resulted in net
proceeds received. Partially offsetting this decrease was an increase in
distributions to partners and in loan costs incurred via the refinancing
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 property 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 $12,136,000, net of discount, is amortized over varying periods
with required balloon payments ranging from November 1996 to October 2003, at
which time the properties will either be refinanced or sold. Lakeside
Apartments' mortgage indebtedness of approximately $3,812,000 matured July 1,
1996. The principal and accrued interest of approximately $3,846,000 was
refinanced through a temporary bridge loan on July 1, 1996. The Partnership
negotiated the temporary bridge loan in the amount of approximately $4,100,000
with Lehman Brothers Holding Inc. The initial agreement required that the loan
mature September 1, 1996, with a possible extension to October 1, 1996. A
subsequent amendment has extended the maturity date to November 15, 1996. At
its sole discretion, the lender may grant a one-time extension of the amended
maturity date to December 31, 1996, if permanent refinancing has not been
obtained. The loan has a floating interest rate with a rate of 7.94% at
September 30, 1996. Future cash distributions will depend on the levels of net
cash generated from operations, capital expenditure requirements, property sales
and the availability of cash reserves. Distributions to partners during 1995,
and the nine months ended September 30, 1996, were $300,000 and $380,000,
respectively.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
Exhibit 10QQ, contracts related to refinancing debt:
(a) Multifamily Note dated July 1, 1996, between Davidson
Income Real Estate, L.P., a Delaware limited partnership and
Lehman Brothers Holdings, Inc. d/b/a Lehman Capital, a
Division of Lehman Brothers Holdings, Inc.
(b) Rider To Multifamily Note dated July 1, 1996, between
Davidson Income Real Estate, L.P., a Delaware limited
partnership and Lehman Brothers Holdings, Inc. d/b/a Lehman
Capital, a Division of Lehman Brothers Holdings, Inc.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 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 INCOME REAL ESTATE, L.P.
By: DAVIDSON DIVERSIFIED PROPERTIES, INC.,
as Managing General Partner
By:/s/ Carroll D. Vinson
Carroll D. Vinson
President
By:/s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Date: November 7, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Income Real Estate L.P. 1996 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000768598
<NAME> DAVIDSON INCOME REAL ESTATE L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,085
<SECURITIES> 0
<RECEIVABLES> 9
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,781
<DEPRECIATION> 9,036
<TOTAL-ASSETS> 17,057
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 12,136
0
0
<COMMON> 0
<OTHER-SE> 4,228
<TOTAL-LIABILITY-AND-EQUITY> 17,057
<SALES> 0
<TOTAL-REVENUES> 3,561
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 829
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
</FN>
</TABLE>
