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
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
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)
(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 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)
June 30, 1998
Assets
Cash and cash equivalents $ 793
Receivables and deposits 396
Restricted escrows 277
Other assets 290
Investment properties:
Land $ 4,120
Buildings and related personal property 20,417
24,537
Less accumulated depreciation (10,593) 13,944
Investment in Joint Venture 221
$ 15,921
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 72
Tenant security deposit liabilities 84
Accrued property taxes 224
Other liabilities 109
Mortgage notes payable 11,957
Partners' Capital (Deficit)
General partners' $ (667)
Limited partners' (26,776 units
issued and outstanding) 4,142 3,475
$ 15,921
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,
1998 1997 1998 1997
Revenues:
Rental income $ 1,088 $ 1,092 $ 2,191 $ 2,194
Other income 52 77 100 138
Total revenues 1,140 1,169 2,291 2,332
Expenses:
Operating 537 512 1,014 1,022
General and administrative 62 36 116 81
Depreciation 222 221 444 439
Interest 251 259 502 512
Property taxes 113 119 224 238
Total expenses 1,185 1,147 2,300 2,292
Equity in income
of joint venture 15 7 27 28
Net income (loss) $ (30) $ 29 $ 18 $ 68
Net income (loss) allocated
to general partners (3%) $ (1) $ 1 $ -- $ 2
Net income (loss) allocated
to limited partners (97%) (29) 28 18 66
$ (30) $ 29 $ 18 $ 68
Net income (loss) per limited
partnership unit $ (1.09) $ 1.05 $ .65 $ 2.46
Distributions per limited
partnership unit $ 3.62 $ 2.65 $ 7.24 $ 6.35
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)
<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, 1997 26,776 $ (661) $ 4,318 $ 3,657
Distributions paid to partners -- (6) (194) (200)
Net income for the six months
ended June 30, 1998 -- -- 18 18
Partners' capital (deficit)
at June 30, 1998 26,776 $ (667) $ 4,142 $ 3,475
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
d) DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income $ 18 $ 68
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 444 439
Amortization of discounts and loan costs 39 44
Equity in income of joint venture (27) (28)
Change in accounts:
Receivables and deposits 47 43
Other assets 16 (41)
Accounts payable (49) (41)
Tenant security deposit liabilities (9) (6)
Accrued property taxes (48) (65)
Other liabilities (6) 9
Net cash provided by operating activities 425 422
Cash flows from investing activities:
Property improvements and replacements (250) (136)
Net withdrawals from (deposits to) restricted escrows 38 (25)
Distributions from joint venture 70 35
Net cash (used in) investing activities (142) (126)
Cash flows from financing activities:
Payments on mortgage notes payable (66) (61)
Distributions to partners (200) (177)
Loan costs -- (1)
Net cash (used in) financing activities (266) (239)
Net increase in cash and cash equivalents 17 57
Cash and cash equivalents at beginning of period 776 655
Cash and cash equivalents at end of period $ 793 $ 712
Supplemental disclosure of cash flow information:
Cash paid for interest $ 463 $ 468
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, 1998, are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
1998. 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, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 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 certain 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 its affiliates during the six month periods ended
June 30, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in operating expenses) $114 $115
Reimbursement for services of affiliates (included in
general and administrative expense) 61 44
In addition, $6,000 and $13,000 of construction oversight cost reimbursements
were paid to the Managing General Partner and its affiliates during the six
months ended June 30, 1998 and 1997, respectively. These amounts are included
in operating expense.
For the period of January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an 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 master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner, which received payment 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 was 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.
Prior to February 25, 1998, the Managing General Partner was a wholly-owned
subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE
GP was merged into Insignia Properties Trust ("IPT"), which is an affiliate of
Insignia Financial Group, Inc. ("Insignia"). Thus the Managing General Partner
is now a wholly-owned subsidiary of IPT.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
September or October of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Managing General Partner of the
Partnership.
NOTE C - DISTRIBUTIONS
The Partnership distributed cash from operations of approximately $194,000 and
$6,000 to the limited partners and General Partner, respectively, during the six
months ended June 30, 1998. During the six months ended June 30, 1997, the
Partnership distributed cash from operations of approximately $170,000 and
$7,000 to the limited partners and General Partner, respectively.
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, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Northsprings Apartments (1)
Atlanta, Georgia 95% 89%
Lakeside Apartments
Charlotte, North Carolina 92% 91%
Bexley House Apartments (2)
Columbus, Ohio 93% 95%
Covington Pointe Apartments (3)
Dallas, Texas 82% 93%
(1)The increase in occupancy at Northsprings Apartments is attributed to a
stronger market in the Atlanta area, and improvements made recently to
enhance the appearance of the property.
(2)Bexley House Apartments occupancy is based upon an elderly clientele;
occupancy fluctuates depending upon the general health of its tenants and
their relocation to assisted living facilities.
(3)Occupancy decreased at Covington Pointe Apartments as a result of direct
competition of newer complexes in the Dallas area.
Results of Operations
The Partnership realized a net loss of approximately $30,000 and net income of
approximately $18,000 for the three and six month periods ended June 30, 1998,
respectively. During the three and six month periods ended June 30, 1997, the
Partnership realized net income of approximately $29,000 and $68,000,
respectively. The decrease in net income for the six month period ended June 30,
1998 is primarily attributable to an increase in general and administrative
expense due to increases in general partner reimbursements and other partnership
administrative costs. Also contributing to the decrease in net income for the
six month period was a decrease in other income due to tax refunds that were
received on behalf of Northsprings Apartments and Covington Pointe Apartments
during the same period in 1997. In addition, there was an increase in operating
expense for the three month period ended June 30, 1998 attributable to increases
in utilities, salaries, and administrative expenses at several of the
Partnership's investment properties during the corresponding period of 1997.
The increases in operating expense were partially offset by an overall decrease
in maintenance expense for the six month period ended June 30, 1998 due to
parking lot and building repair projects at a number of the Partnership's
investment properties in 1997.
The Partnership owns a 17.5% interest in Sterling Crest Joint Venture. Equity in
the income of the joint venture increased for the three month period ended June
30, 1998 as a result of an increase in the income of the Joint Ventures
investment property, Brighton Crest. The increase in net income at Brighton
Crest for the three month period ended June 30, 1998 is primarily attributable
to an increase in rental income resulting from increased occupancy and an
increase in rental rates. Net income for the six month period ended June 30,
1998 remained consistent with that of the same period in 1997 as the increase in
rental income was offset by increases in maintenance salaries and exterior
painting costs during the first quarter of 1998.
Included in operating expense for the six month period ended June 30, 1998 are
approximately $22,000 of major repairs and maintenance comprised primarily of
landscaping, parking lot repairs, and construction oversight reimbursements.
For the six months ended June 30, 1997 approximately $97,000 of major repairs
and maintenance, mainly comprised of parking lot repairs and balcony restoration
at Lakeside Apartments, were included in operating expense.
Liquidity and Capital Resources
At June 30, 1998, the Partnership held cash and cash equivalents of
approximately $793,000 compared to approximately $712,000 at June 30, 1997. The
net increase in cash and cash equivalents was approximately $17,000 for the six
month period ended June 30, 1998. Cash and cash equivalents had a net increase
of approximately $57,000 for the six month period ended June 30, 1997. Net cash
provided by operating activities remained relatively stable. Net cash used in
investing activities increased due to an increase in cash used for property
improvements and replacements partially offset by a net increase in cash
received from escrow withdrawals and from increased distributions from the joint
venture. Net cash used in financing activities increased as a result of
increased distributions paid to partners during the six months ended June 30,
1998 compared to the corresponding period in 1997.
The Partnership has no material capital programs scheduled to be performed in
1998, although certain routine capital expenditures and maintenance expenses
have been budgeted.
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 approximately $11,957,000, 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 the partners during the six months
ended June 30, 1998 and 1997 were approximately $200,000 and $177,000,
respectively. Future cash distributions will depend on the levels of net cash
generated from operations, property sales, and the availability of cash
reserves. The Managing General Partner expects to make another distribution in
the third quarter of 1998.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed no
later than December 31, 1998, which is prior to any anticipated impact on its
operating systems. The Managing General Partner believes that with modifications
to existing software and conversions to new software, the Year 2000 Issue will
not pose significant operational problems for its computer systems. However, if
such modifications and conversions are not made, or are not completed timely,
the Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
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 Nuances, 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, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The complaint 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 by Insignia and its affiliates of
interests in certain general partner entities, past tender offers by Insignia
affiliates as well as a recently announced agreement between Insignia and
Apartment Investment and Management Company. The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
The Corporate General Partner believes the action to be without merit, and
intends to vigorously defend it. On June 24, 1998, the Managing General Partner
filed a motion seeking dismissal of the action.
The Managing General Partner is unaware of any other pending or outstanding
litigation that is not of a routine nature. The Managing General Partner
believes that all such other matters will be resolved without a material adverse
effect upon the Partnership's financial condition, results of operations, or
liquidity.
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, 1998.
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 and Director
By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President and
Chief Accounting Officer
Date: August 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Davidson Diversified Real Estate, L.P. 1998 Second Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000768598
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 793
<SECURITIES> 0
<RECEIVABLES> 396
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,537
<DEPRECIATION> (10,593)
<TOTAL-ASSETS> 15,921
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,957
0
0
<COMMON> 0
<OTHER-SE> 3,475
<TOTAL-LIABILITY-AND-EQUITY> 15,921
<SALES> 0
<TOTAL-REVENUES> 2,291
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18
<EPS-PRIMARY> .65<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
