FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
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 June 30, 1997
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
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 of 1934 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 INCOME REAL ESTATE, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 712
Restricted--tenant security deposits 95
Accounts receivable 7
Escrows for taxes 248
Restricted escrows 435
Other assets 383
Investment properties:
Land $ 4,120
Buildings and related personal property 19,929
24,049
Less accumulated depreciation (9,694) 14,355
Investment in Joint Venture 285
$16,520
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 22
Tenant security deposits 95
Accrued taxes 232
Other liabilities 107
Mortgage notes payable 12,062
Partners' Capital (Deficit)
General partners $ (650)
Limited partners (26,776 units
issued and outstanding) 4,652 4,002
$16,520
See Accompanying Notes to Consolidated Financial Statements
b) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues:
Rental income $ 1,110 $ 1,114 $ 2,226 $ 2,241
Interest income 11 11 21 22
Other income 42 51 93 100
Total revenues 1,163 1,176 2,340 2,363
Expenses:
Operating 374 380 739 761
General and administrative 30 55 81 112
Maintenance 162 137 315 264
Depreciation 221 211 439 417
Interest 259 284 512 569
Property taxes 95 113 214 225
Total expenses 1,141 1,180 2,300 2,348
Equity in income of
joint venture 7 20 28 34
Net income $ 29 $ 16 $ 68 $ 49
Net income allocated
to general partners (3%) $ 1 $ -- $ 2 $ 1
Net income allocated
to limited partners (97%) 28 16 66 48
$ 29 $ 16 $ 68 $ 49
Net income per limited
partnership unit $ 1.05 $ .59 $ 2.46 $ 1.78
See Accompanying Notes to Consolidated Financial Statements
c) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 26,776 $ 1 $ 26,776 $ 26,777
Partners' capital (deficit)
at December 31, 1996 26,776 $ (645) 4,756 4,111
Distributions paid to partners -- (7) (170) (177)
Net income for the six months
ended June 30, 1997 -- 2 66 68
Partners' capital (deficit)
at June 30, 1997 26,776 $ (650) $ 4,652 $ 4,002
See Accompanying Notes to Consolidated Financial Statements
d) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Net income $ 68 $ 49
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 439 417
Amortization of discounts and loan costs 44 41
Equity in income of joint venture (28) (34)
Change in accounts:
Restricted cash 6 (12)
Accounts receivable 13 --
Escrows for taxes 24 98
Other assets (41) (44)
Accounts payable (41) (157)
Tenant security deposit liabilities (6) 11
Accrued taxes (65) (68)
Other liabilities 9 8
Net cash provided by operating activities 422 309
Cash flows from investing activities:
Property improvements and replacements (136) (246)
Deposits to restricted escrows (36) (5)
Receipts from restricted escrows 11 47
Distributions from joint venture 35 7
Net cash used in investing activities (126) (197)
Cash flows from financing activities:
Payments on mortgage notes payable (61) (72)
Distributions paid to partners (177) (280)
Additional loan costs (1) (16)
Net cash used in financing activities (239) (368)
Net increase (decrease) in cash and cash equivalents 57 (256)
Cash and cash equivalents at beginning of period 655 876
Cash and cash equivalents at end of period $ 712 $ 620
Supplemental disclosure of cash flow information:
Cash paid for interest $ 468 $ 494
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 six month periods ended June 30, 1997, are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
1997. 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, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 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 amounts were paid to the
Managing General Partner and affiliates in 1997 and 1996 (in thousands):
Six Months Ended
June 30,
1997 1996
Property management fees (included in operating expenses) $115 $116
Reimbursement for services of affiliates (included in general
and administrative expenses) 44 67
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.
The following table sets forth the average occupancy of the properties for the
six months ended June 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Northsprings Apartments
Atlanta, Georgia 89% 97%
Lakeside Apartments
Charlotte, North Carolina 91% 97%
Bexley House Apartments
Columbus, Ohio 95% 96%
Covington Pointe Apartments
Dallas, Texas 93% 96%
The Managing General Partner attributes the decrease in occupancy at
Northsprings, Lakeside and Covington Pointe to increased building in the
respective markets. With more apartment complexes in the areas, competition has
been stronger and large concessions are being offered by competing apartment
complexes. First time home purchases have also contributed to the decrease in
occupancy at Covington Pointe.
Results of Operations
The Partnership realized net income of approximately $68,000 for the six months
ended June 30, 1997 compared to approximately $49,000 for the six months ended
June 30, 1996. The Partnership's net income for the three months ended June 30,
1997 was approximately $29,000 compared to net income of approximately $16,000
for the three months ended June 30, 1996. The increase in net income is
primarily attributable to the decrease in interest expense. This decrease is a
result of the refinancing of Lakeside at a lower interest rate in November of
1996. In addition, general and administrative expenses decreased due to
decreased professional fees and expense reimbursements for the three and six
month periods ended June 30, 1997 compared to the three and six month periods
ended June 30, 1996. Offsetting these decreases was an increase in maintenance
expense due to parking lot repairs, interior painting and balcony restoration at
Lakeside Apartments. Included in maintenance expense for the six months ended
June 30, 1997 is approximately $97,000 of major repairs and maintenance
comprised primarily of the parking lot repairs and balcony restoration at
Lakeside Apartments. For the six months ended June 30, 1996, approximately
$50,000 of major repairs and maintenance comprised primarily of interior and
exterior repairs is included in maintenance expense.
The Partnership owns 17.5% of Sterling Crest Joint Venture. Equity in the
income of the joint venture decreased as a result of a decrease in the net
income of Sterling Crest Joint Venture's investment property, Brighton Crest.
The decrease in net income at Brighton Crest was primarily due to a decrease in
occupancy which was mitigated by increased rental rates at Brighton Crest.
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.
Liquidity and Capital Resources
At June 30, 1997 the Partnership held cash and cash equivalents of
approximately $712,000 compared to approximately $620,000 at June 30, 1996. Net
cash provided by operating activities increased primarily due to the decrease in
cash used in accounts payable due to the timing of payments to vendors. Net
cash used in investing activities decreased due primarily to a decrease in
property improvements and replacements at the investment properties. Net cash
used in financing activities decreased primarily as a result of decreased
distributions paid to partners.
The Partnership has no material capital programs scheduled to be performed in
1997, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or is received from the
capital reserve 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 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 $12,062,000 net of discount, is amortized over varying
periods with required balloon payments ranging from November 2002, to November
2003, at which time the properties will either be refinanced or sold.
Distributions paid to partners during the six months ended June 30, 1997 and
1996, were approximately $177,000 and $280,000, respectively. Future cash
distributions will depend on the levels of net cash generated from operations,
property sales, and the availability of cash reserves.
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.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1997.
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.
Vice President/CAO
Date: August 6, 1997
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Income Real Estate, L.P. 1997 Second 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 712
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,049
<DEPRECIATION> (9,694)
<TOTAL-ASSETS> 16,520
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 12,062
0
0
<COMMON> 0
<OTHER-SE> 4,002
<TOTAL-LIABILITY-AND-EQUITY> 16,520
<SALES> 0
<TOTAL-REVENUES> 2,340
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 512
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<NET-INCOME> 68
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<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
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