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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
DAVIDSON INCOME REAL ESTATE, L.P.,
A DELAWARE LIMITED PARTNERSHIP
(Name of Subject Company)
DAVIDSON INCOME REAL ESTATE, L.P.,
A DELAWARE LIMITED PARTNERSHIP
(Name of Person(s) Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class of Securities)
N/A
(Cusip Number of Class of Securities)
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CARROLL D. VINSON
PRESIDENT
DAVIDSON DIVERSIFIED PROPERTIES, INC.
ONE INSIGNIA FINANCIAL PLAZA
GREENVILLE, SOUTH CAROLINA 29602
(864) 239-2747
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications on Behalf of
the person(s) filing statement)
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Davidson Income Real Estate,
L.P., a Delaware limited partnership (the "Partnership"), and the address of
the principal executive offices of the Partnership is One Insignia Financial
Plaza, Greenville, South Carolina 29602. The title of the class of equity
securities to which this statement relates is the units of limited partnership
interest ("Units") of the Partnership.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to an offer by Cooper River Properties,
L.L.C., a Delaware limited liability company (the "Purchaser"), to purchase up
to 9,000 of the outstanding Units at a purchase price of $375 per Unit, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in an Offer to Purchase dated August 27, 1998 (the "Offer
to Purchase") and related Assignment of Partnership Interest (which
collectively constitute the "Offer"). A Tender Offer Statement on Schedule
14D-1 with respect to the Offer has been filed by the Purchaser, Insignia
Properties, L.P., a Delaware limited partnership ("IPLP"), Insignia Properties
Trust, a Maryland real estate investment trust ("IPT") and Insignia Financial
Group, Inc., a Delaware corporation ("Insignia") (collectively, the "Bidders").
The address of the Purchaser's principal executive offices is One
Insignia Financial Plaza, Greenville, South Carolina 29602.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Partnership, which is the
person filing this statement, are set forth in Item 1 above.
(b)(1) The Partnership's managing general partner is Davidson
Diversified Properties, Inc., a Tennessee corporation (the "Managing General
Partner") and an affiliate of the Purchaser. The other general partners of the
Partnership, David W. Talley and James T. Gunn, are prohibited by the Limited
Partnership Agreement from participating in the activities of the Partnership.
The Managing General Partner of the Partnership is a direct,
wholly-owned subsidiary of IPT. The Purchaser is a recently formed,
wholly-owned subsidiary of IPLP, which is the operating partnership of IPT. IPT
is the sole general partner of IPLP (owning approximately 66% of the total
equity interests in IPLP), and Insignia is the sole limited partner of IPLP
(owning approximately 34% of the total equity interests in IPLP). Insignia and
its affiliates also own approximately 68% of the outstanding common shares of
IPT.
For more than the past three years, Insignia Residential Group, L.P.
("IRG"), which is an affiliate of Insignia and the Purchaser, has provided
property management services to the Partnership, and Insignia (directly or
through affiliates) has performed asset management, partnership administration
and investor relations services for the Partnership.
By reason of the relationships described in the three preceding
paragraphs, the Managing General Partner has conflicts of interest in
considering the Offer.
Under the Limited Partnership Agreement, the Managing General
Partner and the other general partners each holds an interest in the
Partnership and is entitled to participate in certain cash distributions made
by the Partnership to its partners. The Managing General Partner and
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the other general partners in the aggregate received from the Partnership in
respect of their interests in the Partnership cash distributions of $9,000 to
date in 1998, $14,000 in 1997, $14,000 in 1996 and $18,000 in 1995. The
Partnership paid IRG property management fees for property management services
in the amounts of approximately $233,000, $233,000 and $222,000 for the years
ended December 31, 1997, 1996 and 1995, respectively, and has paid IRG property
management fees equal to $114,000 during the first six months of 1998. The
Partnership reimbursed the Managing General Partner and its affiliates
(including Insignia) for expenses incurred in connection with asset management
and partnership administration services performed by them for the Partnership
for the years ended December 31, 1997, 1996 and 1995 in the amounts of
$124,000, $153,000 and $185,000, respectively, and has reimbursed them for such
services in the amount of $61,000 through June 30, 1998. The reimbursement
amounts for the years ended December 31, 1997, 1996 and 1995, and for the six
months ended June 30, 1998, include $19,000, $10,000, $14,000 and $6,000,
respectively, which amounts were paid to an affiliate of the Managing General
Partner for costs incurred in connection with construction oversight services.
For the period January 1, 1996 through December 31, 1996, the Partnership
insured its properties under a master policy through an agency and insurer
unaffiliated with the Managing General Partner, and through an agency
affiliated with the Managing General Partner for the period January 1, 1997
through August 31, 1997. 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. That agent assumed the financial obligations to the
affiliate of the Managing General Partner who received payments on these
obligations from the agent. Insignia and the Managing General Partner believe
that the aggregate financial benefit derived by Insignia and its affiliates
from such arrangement was immaterial.
As described above, the Purchaser and the Managing General Partner
are affiliates of and controlled by IPT, which is controlled by Insignia. The
Managing General Partner has conflicts of interest with respect to the Offer,
including conflicts resulting from its affiliation with IPT and the Purchaser.
The Managing General Partner also would have conflicts of interest (i) as a
result of the fact that a sale or liquidation of the Partnership's assets would
result in a decrease or elimination of the fees paid to the Managing General
Partner and/or its affiliates and (ii) as a consequence of the Purchaser's
ownership of Units, because the Purchaser (which is an affiliate of the
Managing General Partner) may have incentives to seek to maximize the value of
its ownership of Units, which in turn may result in a conflict for the Managing
General Partner in attempting to reconcile the interests of the Purchaser
(which is an affiliate of the Managing General Partner) with the interests of
the other Limited Partners. In addition, the Purchaser (which is an affiliate
of the Managing General Partner) is making the Offer with a view to making a
profit. Accordingly, there is a conflict between the desire of the Purchaser
(which is an affiliate of the Managing General Partner) to purchase Units at a
low price and the desire of the Limited Partners to sell their Units at a high
price.
As described in the Offer to Purchase, the Purchaser (which is an
affiliate of the Managing General Partner) expects to pay for the Units it
purchases pursuant to the Offer with funds provided by IPLP as capital
contributions. IPLP in turn intends to use its cash on hand and, if necessary,
borrowings from its credit facility with a commercial bank and financial
institution to make such contributions. See Section 12 of the Offer to
Purchase. It is possible, however, that in connection with its future financing
activities, IPT or IPLP may cause or request the Purchaser (which is an
affiliate of the Managing General Partner) to pledge the Units as collateral
for loans, or otherwise agree to terms which provide IPT, IPLP and the
Purchaser with incentives to generate substantial near-term cash flow from the
Purchaser's investment in the Units. This could be the case, for example, if a
loan has a "balloon" maturity after a relatively short time or bears a high or
increasing interest rate. In such a situation, the
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Managing General Partner may experience a conflict of interest in seeking to
reconcile the best interests of the Partnership with the need of its affiliates
for cash flow from the Partnership's activities.
If the Purchaser is successful in acquiring a significant number of
Units pursuant to the Offer, the Purchaser (which is an affiliate of the
Managing General Partner) will have the right to vote those Units and thereby
significantly influence all voting decisions with respect to the Partnership,
including decisions concerning liquidation, amendments to the Limited
Partnership Agreement, removal and replacement of the Managing General Partner
and the other non- managing general partners and mergers, consolidations and
other extraordinary transactions. This means that (i) non-tendering Limited
Partners could be prevented from taking action they desire but that IPT (which
is an affiliate of the Managing General Partner) opposes and (ii) IPT (which is
an affiliate of the Managing General Partner) may be able to take action
desired by IPT but opposed by the non-tendering Limited Partners.
Under the Limited Partnership Agreement, Limited Partners holding a
majority of the Units are entitled to take action with respect to a variety of
matters, including removal of the Managing General Partner or the other
non-managing general partners and in certain circumstances election of a new or
successor managing general partner or non-managing general partners, the sale
of all or substantially all of the assets of the Partnership, dissolution of
the Partnership and most types of amendments to the Limited Partnership
Agreement. In general, IPLP and the Purchaser (which are affiliates of the
Managing General Partner) will vote the Units owned by them in whatever manner
they deem to be in the best interests of IPT, which, because of their
relationship with the Managing General Partner, also may be in the best
interest of the Managing General Partner, but may not be in the best interest
of other Limited Partners.
To the best knowledge of the Managing General Partner, except as
described in this Schedule 14D-9, there are no other material agreements,
arrangements, understandings or any actual or potential conflicts of interest
between the Partnership, the Managing General Partner and their affiliates and
the Bidders, their executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Because of the existing and potential future conflicts of interest
described in Item 3 above, the Partnership and the Managing General Partner are
remaining neutral and making no recommendation as to whether Limited Partners
should tender their Units in response to the Offer.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Neither the Partnership nor any person acting on its behalf has
employed, retained or compensated, or intends to employ, retain or compensate,
any person or class of person to make solicitations or recommendation to
Limited Partners on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTEREST WITH RESPECT TO SECURITIES.
(a) Except as described in Schedule I attached hereto, no
transactions in the Units have been effected during the past 60 days by the
Partnership or the Managing General Partner or, to the knowledge of the
Managing General Partner, by any of its current or former executive officers,
directors or affiliates.
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(b) To the knowledge of the Partnership, neither the Managing
General Partner nor any of its current or former executive officers, directors
or affiliates intends to tender pursuant to the Offer any Units beneficially
owned by them.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Litigation. On March 24, 1998, certain persons claiming to own
limited partner interests in certain limited partnerships (including the
Partnership) whose general partners (the "General Partners") are affiliates of
Insignia (the "Partnerships") filed a purported class and derivative action in
California Superior Court in the County of San Mateo (the "San Mateo
Complaint") against Insignia, the General Partners (including the Managing
General Partner), certain persons and entities who purportedly formerly
controlled the General Partners, and additional entities affiliated with and
individuals who are officers, directors and/or principals of several of the
defendants. The San Mateo Complaint contains allegations that, among other
things, (i) the defendants breached their fiduciary duties to the plaintiffs by
selling or agreeing to sell their "fiduciary positions" as stockholders,
officers and directors of the General Partners for a profit and retaining said
profit rather than distributing it to the plaintiffs; (ii) the defendants
breached their fiduciary duties by mismanaging the Partnerships and
misappropriating the assets of the Partnerships by (a) manipulating the
operations of the Partnerships to depress the trading price of limited
partnership units (the "Units") of the Partnerships; (b) coercing and
fraudulently inducing unitholders to sell Units to certain of the defendants at
depressed prices; and (c) using the voting control obtained by purchasing Units
at depressed prices to entrench certain of the defendants' positions of control
over the Partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by (a) selling assets of the Partnerships such as mailing
lists of unitholders; and (b) causing the General Partners to enter into
exclusive arrangements with their affiliates to sell goods and services to the
General Partners, the unitholders and tenants of Partnership properties. The
San Mateo Complaint also alleges that the foregoing allegations constitute
violations of various California securities, corporate and partnership
statutes, as well as conversion and common law fraud. The San Mateo Complaint
seeks unspecified compensatory and punitive damages, an injunction blocking the
sale of control of the General Partners to AIMCO and a court order directing
the defendants to discharge their fiduciary duties to the plaintiffs. On June
24, 1998, the Managing General Partner filed a motion seeking dismissal of the
action. IPT and Insignia believe that the allegations contained in the San
Mateo Complaint are without merit and intend to vigorously contest the
plaintiffs' action.
On July 30, 1998, certain entities claiming to own limited
partnership interests in certain limited partnerships (including the
Partnership) whose general partners are affiliates of Insignia, IPT and the
Purchaser (the "Affiliated General Partners") filed a complaint in the Superior
Court of the State of California, County of Los Angeles (the "Los Angeles
Complaint") against Insignia, the Subject Partnerships (defined below), the
Affiliated General Partners (including the Managing General Partner) and
additional entities affiliated with several of the defendants. The action
involves 44 real estate limited partnerships (each named as a defendant) in
which the plaintiffs allegedly own interests and which Insignia affiliates
allegedly manage or control (the "Subject Partnerships"). Plaintiffs allege
that they have requested from, but have been denied by each of the Subject
Partnerships, lists of their respective limited partners for the purpose of
making tender offers to purchase up to 4.9% of the units of limited partnership
interest in each of the Subject Partnerships. The Los Angeles Complaint also
alleges that certain of the defendants made tender offers to purchase units of
limited partnership interest in many of the
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Subject Partnerships, with the alleged result that plaintiffs have been
deprived of the benefits they would have realized from ownership of the
additional units. The plaintiffs assert eleven causes of action, including
breach of contract, unfair business practices, and violations of the
partnership statutes of the states in which the Subject Partnerships are
organized. Plaintiffs seek compensatory, punitive and treble damages. Insignia
was only recently served with the Los Angeles Complaint and has not yet
responded to it. Insignia believes the claims to be without merit and intends
to defend the action vigorously.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a) Form of cover letter to Limited Partners of the Partnership
dated August 27, 1998.
(b) None.
(c) None.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete
and correct.
Dated: August 27, 1998
Davidson Income Real Estate, L.P.,
a Delaware limited partnership
By: Davidson Diversified Properties, Inc.,
its Managing General Partner
By: /s/ Carroll D. Vinson
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Carroll D. Vinson
President
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SCHEDULE I
TRANSACTIONS IN THE UNITS
EFFECTED BY IPLP IN THE PAST 60 DAYS
NUMBER OF PRICE
DATE UNITS PURCHASED PER UNIT
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8/17/98 5.00 $315.00
8/17/98 2.00 315.00
8/17/98 2.00 296.76
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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(a) Form of cover letter to Limited Partners from the
Partnership dated August 27, 1998.
(b) None.
(c) None.
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Exhibit (a)
Davidson Income Real Estate, L.P.
August 27, 1998
Dear Limited Partner:
Enclosed is the Schedule 14D-9 which was filed by Davidson Income
Real Estate, L.P. (the "Partnership") with the Securities and Exchange
Commission in connection with an offer (the "Offer") by Cooper River
Properties, L.L.C., a Delaware limited liability company (the "Purchaser"),
Insignia Properties, L.P., a Delaware limited partnership ("IPLP"), Insignia
Properties Trust, a Maryland real estate investment trust ("IPT"), and Insignia
Financial Group, Inc., a Delaware corporation ("Insignia," and together with
IPLP, IPT and the Purchaser, the "Bidders"), to purchase units of limited
partnership interest ("Units") in the Partnership.
The Partnership's managing general partner is Davidson Diversified
Properties, Inc. (the "Managing General Partner"), which is an affiliate of the
Bidders. Due to the affiliation between the Managing General Partner of the
Partnership and the Bidders, the Managing General Partner is subject to certain
conflicts of interest in connection with the response to the Offer.
AS A RESULT OF THE EXISTING AND POTENTIAL CONFLICTS OF INTEREST,
NEITHER THE PARTNERSHIP NOR THE MANAGING GENERAL PARTNER EXPRESSES ANY OPINION
AS TO THE OFFER AND EACH IS REMAINING NEUTRAL AND MAKING NO RECOMMENDATION AS
TO WHETHER LIMITED PARTNERS SHOULD TENDER THEIR UNITS IN RESPONSE TO THE OFFER.
Limited Partners are advised to carefully read the enclosed Schedule
14D-9.
Davidson Income Real Estate, L.P.
