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 September 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)
(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 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)
September 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 759
Restricted--tenant security deposits 94
Accounts receivable 13
Escrows for taxes 297
Restricted escrows 358
Other assets 378
Investment properties:
Land $ 4,120
Buildings and related personal property 20,043
24,163
Less accumulated depreciation (9,919) 14,244
Investment in Joint Venture 261
$16,404
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 68
Tenant security deposit liabilities 95
Accrued taxes 297
Other liabilities 106
Mortgage notes payable 12,037
Partners' Capital (Deficit)
General partners $ (656)
Limited partners (26,776 units
issued and outstanding) 4,457 3,801
$16,404
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Rental income $ 1,136 $ 1,132 $ 3,362 $ 3,373
Other income 53 66 167 188
Total revenues 1,189 1,198 3,529 3,561
Expenses:
Operating 419 370 1,158 1,131
General and administrative 43 45 124 157
Maintenance 244 179 559 443
Depreciation 225 214 664 631
Interest 253 260 765 829
Property taxes 120 145 334 370
Total expenses 1,304 1,213 3,604 3,561
Equity in income of
joint venture 13 25 41 59
Net (loss) income $ (102) $ 10 $ (34) $ 59
Net (loss) income allocated
to general partners (3%) $ (3) $ -- $ (1) $ 2
Net (loss) income allocated
to limited partners (97%) (99) 10 (33) 57
$ (102) $ 10 $ (34) $ 59
Net (loss) income per limited
partnership unit $ (3.70) $ .35 $ (1.24) $ 2.13
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 -- (10) (266) (276)
Net loss for the nine months
ended September 30, 1997 -- (1) (33) (34)
Partners' capital (deficit)
at September 30, 1997 26,776 $ (656) $ 4,457 $ 3,801
See Accompanying Notes to Consolidated Financial Statements
d) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net (loss) income $ (34) $ 59
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation 664 631
Amortization of discounts and loan costs 64 57
Equity in income of joint venture (41) (59)
Change in accounts:
Restricted cash 7 (8)
Accounts receivable 7 1
Escrows for taxes (25) 7
Other assets (48) --
Accounts payable 5 (159)
Tenant security deposit liabilities (6) 9
Accrued taxes -- 51
Other liabilities 8 55
Net cash provided by operating activities 601 644
Cash flows from investing activities:
Property improvements and replacements (250) (324)
Deposits to restricted escrows (52) (7)
Receipts from restricted escrows 104 55
Distributions from joint venture 71 112
Net cash used in investing activities (127) (164)
Cash flows from financing activities:
Proceeds from interim refinancing -- 4,100
Repayment of mortgage notes payable -- (3,812)
Payments on mortgage notes payable (92) (101)
Distributions paid to partners (276) (380)
Additional loan costs (2) (78)
Net cash used in financing activities (370) (271)
Net increase in cash and cash equivalents 104 209
Cash and cash equivalents at beginning of period 655 876
Cash and cash equivalents at end of period $ 759 $ 1,085
Supplemental disclosure of cash flow information:
Cash paid for interest $ 701 $ 744
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, 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):
Nine Months Ended
September 30,
1997 1996
Property management fees (included in operating expenses) $173 $175
Reimbursement for services of affiliates
(included in general and administrative expenses) (1) 83 99
(1) Included in "Reimbursement for services of affiliates" for the nine months
ended September 30, 1997 and 1996 is approximately $15,500 and $4,200,
respectively, in reimbursements for construction oversight costs.
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
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.
On September 26, 1997, an affiliate of the Managing General Partner purchased
Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992-M1. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Bexley House Apartments owned by the Partnership.
NOTE C - MORTGAGE
The mortgage indebtedness, secured by Lakeside Apartments, 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 extended the maturity date
to November 15, 1996. On November 13, 1996, the Partnership successfully
refinanced Lakeside Apartments. The new mortgage note requires monthly interest
only payments at a stated interest rate of 7.33% and has a balloon payment due
November 1, 2003.
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, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Northsprings Apartments
Atlanta, Georgia 91% 97%
Lakeside Apartments
Charlotte, North Carolina 93% 96%
Bexley House Apartments
Columbus, Ohio 94% 97%
Covington Pointe Apartments
Dallas, Texas 93% 95%
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. The decrease in occupancy at Bexley House is
attributable to the lack of a property manager for a few months. As of
September 30, 1997, the position has been filled and occupancy is expected to
improve by year end.
The Partnership realized a net loss of approximately $34,000 for the nine months
ended September 30, 1997 compared to net income of approximately $59,000 for the
nine months ended September 30, 1996. The Partnership's net loss for the three
months ended September 30, 1997 was approximately $102,000 compared to net
income of approximately $10,000 for the three months ended September 30, 1996.
The decrease in net income for the three and nine month periods is primarily
attributable to the increase in maintenance expense. This increase is due to
parking lot repairs, exterior and interior painting, gutter repairs, and balcony
restoration at Lakeside Apartments. In addition, operating expenses increased
as a result of extensive marketing campaigns at Northspring and Lakeside
Apartments to increase occupancy in competitive markets. Offsetting these
increases were decreases in interest expense and general and administrative
expenses. The decrease in interest expense is a result of the refinancing of
Lakeside at a lower interest rate in November 1996. General and administrative
expenses decreased due to decreased professional fees and expense reimbursements
for the three and nine month periods ended September 30, 1997 compared to the
three and nine month periods ended September 30, 1996. Included in maintenance
expense for the nine months ended September 30, 1997 is approximately $217,000
of major repairs and maintenance comprised primarily of the parking lot repairs,
gutter repairs and balcony restoration at Lakeside Apartments. For the nine
months ended September 30, 1996, approximately $113,000 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.
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.
At September 30, 1997 the Partnership held cash and cash equivalents of
approximately $759,000 compared to approximately $1,085,000 at September 30,
1996. Net cash provided by operating activities decreased primarily due to the
decrease in net income as discussed above. Net cash used in investing
activities decreased primarily due to a decrease in property improvements and
replacements at the investment properties. Net cash used in financing
activities increased primarily as a result of the absence of proceeds from any
mortgage refinancings in 1997 partially offset by a decrease in 1997
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 $12,037,000 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 nine months ended September 30, 1997
and 1996, were approximately $276,000 and $380,000, 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 3. 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 September 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: November 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Income Real Estate, L.P. 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 759
<SECURITIES> 0
<RECEIVABLES> 13
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,163
<DEPRECIATION> (9,919)
<TOTAL-ASSETS> 16,404
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 12,037
0
0
<COMMON> 0
<OTHER-SE> 3,801
<TOTAL-LIABILITY-AND-EQUITY> 16,404
<SALES> 0
<TOTAL-REVENUES> 3,529
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 765
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<NET-INCOME> (34)
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<FN>
<F1>Registrant has an unclassified balance sheet.
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