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 March 31, 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)
March 31, 1998
Assets
Cash and cash equivalents $ 783
Receivables and deposits 326
Restricted escrows 269
Other assets 306
Investment properties:
Land $ 4,120
Buildings and related personal property 20,326
24,446
Less accumulated depreciation (10,371) 14,075
Investment in Joint Venture 206
$ 15,965
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 41
Tenant security deposit liabilities 87
Accrued property taxes 154
Other liabilities 94
Mortgage notes payable 11,984
Partners' Capital (Deficit)
General partners' $ (663)
Limited partners' (26,776 units
issued and outstanding) 4,268 3,605
$ 15,965
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,
1998 1997
Revenues:
Rental income $ 1,103 $ 1,102
Other income 48 61
Total revenues 1,151 1,163
Expenses:
Operating 477 510
General and administrative 54 45
Depreciation 222 218
Interest 251 253
Property taxes 111 119
Total expenses 1,115 1,145
Income before equity in income of joint venture 36 18
Equity in income of joint venture 12 21
Net income $ 48 $ 39
Net income allocated to
general partners (3%) $ 1 $ 1
Net income allocated to
limited partners (97%) 47 38
$ 48 $ 39
Net income per limited partnership unit $ 1.74 $ 1.41
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 -- (3) (97) (100)
Net income for the three months
ended March 31, 1998 -- 1 47 48
Partners' capital (deficit)
at March 31, 1998 26,776 $ (663) $ 4,268 $ 3,605
<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)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 48 $ 39
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 222 218
Amortization of discounts and loan costs 20 19
Equity in income of joint venture (12) (21)
Change in accounts:
Receivables and deposits 117 152
Other assets 13 (4)
Accounts payable (80) (32)
Tenant security deposit liabilities (6) (1)
Accrued property taxes (118) (137)
Other liabilities (21) (4)
Net cash provided by operating activities 183 229
Cash flows from investing activities:
Property improvements and replacements (159) (67)
Net withdrawals from (deposits to) restricted escrows 46 (5)
Distributions from joint venture 70 35
Net cash (used in) investing activities (43) (37)
Cash flows from financing activities:
Payments on mortgage notes payable (33) (30)
Distributions to partners (100) (102)
Loan costs -- (2)
Net cash (used in) financing activities (133) (134)
Net increase in cash and cash equivalents 7 58
Cash and cash equivalents at beginning of period 776 655
Cash and cash equivalents at end of period $ 783 $ 713
Supplemental disclosure of cash flow information:
Cash paid for interest $ 232 $ 229
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
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 month period ended March 31, 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 three month periods ended
March 31, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in operating expenses) $ 59 $ 57
Reimbursement for services of affiliates (included in
general and administrative and operating expenses) (1) 33 30
(1)Included in "Reimbursements for services of affiliates" for 1998 and 1997,
are approximately $4,000 and $1,000, respectively, in reimbursements for
construction oversight costs.
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
the third quarter 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.
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, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Northsprings Apartments (1)
Atlanta, Georgia 96% 89%
Lakeside Apartments
Charlotte, North Carolina 91% 91%
Bexley House Apartments (2)
Columbus, Ohio 92% 97%
Covington Pointe Apartments (3)
Dallas, Texas 84% 92%
(1)The increase in occupancy at Northsprings Apartments is attributed to a
stronger market in the Atlanta area, and improvements made recently to
enchance 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's net income for the three months ended March 31, 1998, was
approximately $48,000 compared to approximately $39,000 for the corresponding
period in 1997. The increase in net income is primarily attributable to a
decrease in operating expenses partially offset by an increase in general and
administrative expenses and decreases in other income and equity in income of
joint venture (see discussion below).
The decrease in operating expenses is due to a decrease in maintenance related
expenses at Lakeside Apartments resulting from decreases in improvement projects
to enhance the appearance of the property. Specifically, parking lot repairs,
yard and grounds and interior painting costs decreased in the period ended March
31, 1998, as compared to the same period in 1997. Also contributing to the
decrease in operating expenses was a decrease in rental expenses at Covington
Pointe Apartments due to a reduction in referral fees paid to outside sources
and a reduction in advertising costs. Partially offsetting the decrease in
operating expenses was an increase in general and administrative expense related
to higher fees associated with taxes and licenses. Other income decreased for
the three month period ended March 31, 1998, compared to the same period in 1997
as a result of a reduction in interest income due to lower cash balances held by
the Partnership.
Included in operating expenses for the three month period ended March 31, 1998,
is approximately $10,000 of major repairs and maintenance comprised primarily of
major landscaping and parking lot repairs at Lakeside Apartments.
The Partnership owns a 17.5% interest in 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 Ventures' investment property, Brighton Crest.
The decrease in net income at Brighton Crest was primarily due to increases in
exterior painting projects and maintenance salaries.
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
expenses. 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 March 31, 1998, the Partnership held cash and cash equivalents of
approximately $783,000, compared to approximately $713,000 at March 31, 1997.
The net increase in cash and cash equivalents was approximately $7,000 for the
three month period ended March 31, 1998. Cash and cash equivalents had a net
increase of approximately $58,000 for the three month period ended March 31,
1997. Net cash provided by operating activities decreased primarily as a result
of smaller decreases in receivables and deposits and an increase in cash
payments for accounts payable and other liabilities due to the timing of
payments. Partially offsetting the decreases to cash from operations was a
decrease in cash paid for property taxes due to the timing of payments. Net
cash used in investing activities increased due to an increase in cash used for
property improvements and replacements partially offset by increases in cash
received from escrow withdrawals and from distributions from the joint venture.
Net cash used in financing activities remained consistent for the three months
ended March 31, 1998 and 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 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 $11,984,000 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 three months ended March 31, 1998
and 1997 were approximately $100,000 and $102,000, respectively. The Managing
General Partner anticipates a further cash distribution in the second quarter of
1998. Future cash distributions will depend on the levels of net cash generated
from operations, property sales, and the availability of cash reserves.
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 not
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 NUANES, 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 Managing 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 to acquire limited partnership units, the management of partnerships
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 Managing General Partner was only recently served with the
complaint which it believes to be without merit, and intends to vigorously
defend 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 March 31, 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
By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President and
Chief Accounting Officer
Date: May 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Davidson Income Real Estate, L.P. 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 783
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,446
<DEPRECIATION> (10,371)
<TOTAL-ASSETS> 15,965
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,984
0
0
<COMMON> 0
<OTHER-SE> 3,605
<TOTAL-LIABILITY-AND-EQUITY> 15,965
<SALES> 0
<TOTAL-REVENUES> 1,151
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48
<EPS-PRIMARY> 1.74<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
