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, 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, 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)
March 31, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 713
Restricted--tenant security deposits 100
Accounts receivable 11
Escrows for taxes 130
Restricted escrows 415
Other assets 367
Investment properties:
Land $ 4,120
Buildings and related personal property 19,860
23,980
Less accumulated depreciation (9,473) 14,507
Investment in Joint Venture 277
$ 16,520
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 31
Tenant security deposits 100
Accrued taxes 160
Other liabilities 94
Mortgage notes payable 12,087
Partners' Capital (Deficit)
General partners $ (647)
Limited partners (26,776 units
issued and outstanding) 4,695 4,048
$ 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
March 31,
1997 1996
Revenues:
Rental income $ 1,116 $ 1,127
Interest income 10 11
Other income 51 49
Total revenues 1,177 1,187
Expenses:
Operating 365 381
General and administrative 51 57
Maintenance 153 127
Depreciation 218 206
Interest 253 285
Property taxes 119 112
Total expenses 1,159 1,168
Equity in income of joint venture 21 14
Net income $ 39 $ 33
Net income allocated to general partners (3%) $ 1 $ 1
Net income allocated to limited partners (97%) 38 32
$ 39 $ 33
Net income per limited partnership unit $ 1.41 $ 1.19
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 (3) (99) (102)
Net income for the three months
ended March 31, 1997 1 38 39
Partners' capital (deficit)
at March 31, 1997 26,776 $ (647) $ 4,695 $ 4,048
See Accompanying Notes to Consolidated Financial Statements
d) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Net income $ 39 $ 33
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 218 206
Amortization of discounts and loan costs 19 21
Equity in income of joint venture (21) (14)
Change in accounts:
Restricted cash 1 (7)
Accounts receivable 9 (2)
Escrows for taxes 142 156
Other assets (1) (3)
Accounts payable (33) (120)
Tenant security deposit liabilities (1) 7
Accrued taxes (136) (138)
Other liabilities (5) (37)
Net cash provided by operating activities 231 102
Cash flows from investing activities:
Property improvements and replacements (66) (112)
Deposits to restricted escrows (19) (3)
Receipts from restricted escrows 11 8
Distributions from joint venture 35 7
Net cash used in investing activities (39) (100)
Cash flows from financing activities:
Loan costs paid (2) --
Payments on mortgage notes payable (30) (37)
Distributions paid (102) (140)
Net cash used in financing activities (134) (177)
Net increase (decrease) in cash and cash equivalents 58 (175)
Cash and cash equivalents at beginning of period 655 876
Cash and cash equivalents at end of period $ 713 $ 701
Supplemental disclosure of cash flow information:
Cash paid for interest $ 229 $ 264
See Accompanying Notes to Consolidated Financial Statements
e) DAVIDSON INCOME REAL ESTATE, L.P.
NOTES TO 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 month period ended March 31, 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. Property management fees paid to
affiliates of Insignia Financial Group, Inc. during the three months ended March
31, 1997 and 1996, 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:
Three Months Ended
March 31,
1997 1996
(in thousands)
Property management fees $ 57 $ 58
Reimbursement for services of affiliates 30 33
Included in "reimbursements for services of affiliates" for 1997 and 1996, are
approximately $1,000 and $3,000, respectively, in reimbursements for
construction oversight costs.
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
three months ended March 31, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Northsprings Apartments
Atlanta, Georgia 89% 97%
Lakeside Apartments
Charlotte, North Carolina 91% 98%
Bexley House Apartments
Columbus, Ohio 97% 96%
Covington Pointe Apartments
Dallas, Texas 92% 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's net income for the three months ended March 31, 1997, was
approximately $39,000 compared to approximately $33,000 for the corresponding
period in 1996. The increase in net income is primarily attributable to an
increase in equity in income of joint venture which is discussed below. Also
contributing to the increase in net income was a decrease in interest expense.
Interest expense decreased as a result of the refinancing of Lakeside at a lower
interest rate. Offsetting the decrease in interest expense was an increase in
maintenance expense. Maintenance expense increased due to major parking lot
repairs and interior painting at Lakeside Apartments. Included in maintenance
expense for the three months ended March 31, 1997 is approximately $49,000 of
major repairs and maintenance comprised primarily of the parking lot repairs at
Lakeside Apartments.
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 at Brighton Crest was primarily due to a decrease in
landscaping due to the completion of a major landscaping project in the first
quarter of 1996.
As part of the ongoing business plan of the Partnership, the Corporate 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 Corporate 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 Corporate General Partner will be able to sustain
such a plan.
Liquidity and Capital Resources
At March 31, 1997, the Partnership had unrestricted cash of approximately
$713,000 compared to approximately $701,000 at March 31, 1996. Net cash
provided by operating activities increased primarily due to a decrease in cash
used in accounts payable and other liabilities due to the timing of payments to
vendors. Also contributing to the increase in net cash provided by operating
activities is an increase in accounts receivable and an increase in restricted
cash. Net cash used in investing activities decreased primarily due to a
decrease in property improvements and replacements at the investment properties.
An increase in distributions from the joint venture also contributed to the
decrease in net cash used in investing activities. Finally, net cash used in
financing activities decreased as a result of a decrease in 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 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 approximately $12,087,000 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 three months ended March 31, 1997, and
1996, were approximately $102,000 and $140,000, 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 March 31, 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: May 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Income Real Estate, L.P. 1997 First 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 713
<SECURITIES> 0
<RECEIVABLES> 11
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,980
<DEPRECIATION> (9,473)
<TOTAL-ASSETS> 16,520
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 12,087
0
0
<COMMON> 0
<OTHER-SE> 4,048
<TOTAL-LIABILITY-AND-EQUITY> 16,520
<SALES> 0
<TOTAL-REVENUES> 1,177
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-PRIMARY> 1.41<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
