March 30, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: Davidson Income Real Estate, L.P.
Form 10-KSB
File No. 0-14530
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
Managing General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
<PAGE>
FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from _________to _________
Commission file number 0-14530
DAVIDSON INCOME REAL ESTATE, L.P.
(Name of small business issuer in its charter)
Delaware 62-1242144
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Partnership's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $4,932,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Description of Business
Davidson Income Real Estate, L.P. (the "Partnership" or "Registrant") is a
Delaware limited partnership organized in April 1985. The general partners of
the Partnership are Davidson Diversified Properties, Inc., a Tennessee
corporation ("Managing General Partner"), David W. Talley and James T. Gunn
(collectively, "Individual General Partners") (collectively, the "General
Partners"). The Registrant is engaged in the business of operating and holding
real estate properties for investment. The Managing General Partner is a
subsidiary of Apartment Investment and Management Company ("AIMCO"). The
Partnership Agreement provides that the Partnership is to terminate on December
31, 2010, unless terminated prior to such date.
The offering of the Partnership's limited partnership units ("Units") commenced
on July 26, 1985, and terminated on May 30, 1986. The Registrant received gross
proceeds from the offering of $26,776,000 and net proceeds of $25,700,160. All
of the net proceeds of the offering were invested in the Partnership's four
residential properties and in a 17.5% joint venture interest which owns one
residential property. See "Item 2. Description of Properties" for a description
of the Partnership's properties.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
changes in the supply and demand for similar properties resulting from various
market conditions, increases/decreases in unemployment or population shifts,
changes in the availability of permanent mortgage financing, changes in zoning
laws, or changes in patterns or needs of users. In addition, there are risks
inherent in owning and operating residential properties because such properties
are susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
The Registrant has no employees. Management and administrative services are
provided by the Managing General Partner and by agents retained by the Managing
General Partner. An affiliate of the Managing General Partner has been providing
such property management services.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Partnership's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Managing General
Partner, in such market area could have a material effect on the rental market
for the apartments at the Partnership's properties and the rents that may be
charged for such apartments. While the Managing General Partner and its
affiliates own and/or control a significant number of apartment units in the
United States, such units represent an insignificant percentage of total
apartment units in the United States and competition for the apartments is
local.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
Transfer of Control
Prior to February 25, 1998 the Managing General Partner was a wholly-owned
subsidiary of MAE GP Corporation ("MAE GP"), which was wholly owned by
Metropolitan Asset Enhancement, L.P. Effective February 25, 1998, MAE GP was
merged into Insignia Properties Trust ("IPT"), thus the Managing General Partner
became a wholly-owned subsidiary of IPT.
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation (the "Insignia Merger"). As a result, AIMCO ultimately acquired 100%
ownership interest in the Managing General Partner. The Managing General Partner
does not believe that this transaction has had or will have a material effect on
the affairs and operations of the Partnership.
Item 2. Description of Properties:
The following table sets forth the Partnership's investments in properties:
<TABLE>
<CAPTION>
Date of
Property Purchase Type of Ownership Use
<S> <C> <C> <C>
Northsprings Apartments 11/13/85 Fee ownership subject to Apartment
Atlanta, Georgia first and second 120 units
mortgages (1)
Lakeside Apartments 05/20/86 Fee ownership subject to Apartment
Charlotte, North Carolina first mortgage 216 units
Bexley House Apartments 09/30/86 Fee ownership subject to Apartment
Columbus, Ohio first and second 64 units
mortgages (1)
Covington Pointe Apartments 03/10/87 Fee ownership subject to Apartment
Dallas, Texas first and second 180 units
mortgages (1)
Brighton Crest Apartments Phase I Registrant has a 17.5% Apartment
Marietta, Georgia 06/30/87 interest in the joint 320 units
venture which has fee
Phase II ownership subject to
12/15/87 first and second
mortgages
</TABLE>
(1) Property is held by a limited partnership in which the Partnership owns a
100% interest.
Schedule of Properties:
Set forth below for each of the Partnership's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation, and
Federal tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Northsprings $ 4,953 $ 2,550 5-25 yrs S/L $ 3,410
Lakeside 6,806 3,315 5-25 yrs S/L 4,539
Bexley House 3,930 1,913 5-25 yrs S/L 2,629
Covington Pointe 10,079 4,245 5-25 yrs S/L 6,697
$25,768 $12,023 $17,275
</TABLE>
See "Note A" to the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation policy
and "Note L - Change in Accounting Principle".
Schedule of Property Indebtedness:
The following table sets forth certain information relating to the loans
encumbering the Partnership's properties.
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date Maturity (2)
(in thousands) (in thousands)
Northsprings
<S> <C> <C> <C> <C> <C> <C>
1st mortgage $ 1,832 7.83% 28.67 yrs 10/15/03 $ 1,701
2nd mortgage 61 7.83% (1) 10/15/03 61
Lakeside
1st mortgage 4,100 7.33% (1) 11/01/03 4,100
Bexley House
1st mortgage 1,204 7.60% 21.40 yrs 11/15/02 1,052
2nd mortgage 45 7.60% (1) 11/15/02 45
Covington Pointe
1st mortgage 4,489 7.83% 28.67 yrs 10/15/03 4,169
2nd mortgage 150 7.83% (1) 10/15/03 150
Total 11,881 $11,278
Less unamortized
discounts (101)
Total $11,780
</TABLE>
(1) Payments consist of interest only.
(2) See "Note D" of the consolidated financial statements in "Item 7.
Financial Statements" for information with respect to the Partnership's
ability to repay these loans and other specific details about the loans.
Schedule of Rental Rate and Occupancy:
Average annual rental rates and occupancy for 1999 and 1998 for each property:
Average Annual Average
Rental Rates Occupancy
(per Unit)
Property 1999 1998 1999 1998
Northsprings $10,175 $ 9,823 97% 96%
Lakeside 6,804 6,550 93% 94%
Bexley House 12,102 11,784 94% 91%
Covington Pointe 9,682 9,547 93% 83%
The Managing General Partner attributes the increase in occupancy at Covington
Pointe Apartments and Bexley House to an increase in advertising and marketing
efforts.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes in the area. The Managing
General Partner believes that all of the properties are adequately insured. Each
property is an apartment complex which leases units for terms of one year or
less. No tenant leases 10% or more of the available rental space. All of the
properties are in good physical condition, subject to normal depreciation and
deterioration as is typical for assets of this type and age.
Schedule of Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for each property were:
1999 1999
Billing Rate
(in thousands)
Northsprings $ 89 3.95%
Lakeside 78 1.32%
Bexley House 99 8.17%
Covington Pointe 196 2.58%
Capital Improvements:
Northsprings Apartments
The Partnership completed approximately $103,000 in capital expenditures at
Northsprings Apartments as of December 31, 1999, consisting primarily of carpet
and vinyl replacement, plumbing and pool upgrades, and other structural
improvements. These improvements were funded from operating cash flow and
Partnership reserves. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year. The minimum amount to
be budgeted is expected to be $300 per unit or $36,000. Additional improvements
may be considered and will depend on the physical condition of the property as
well as replacement reserves and anticipated cash flow generated by the
property.
Lakeside Apartments
The Partnership completed approximately $284,000 in capital expenditures at
Lakeside Apartments as of December 31, 1999, consisting primarily of major
landscaping, plumbing replacements, roof replacement, carpet and vinyl
replacement, parking lot upgrades, pool upgrades, and appliances. These
improvements were funded from operating cash flow and Partnership reserves. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year. The minimum amount to be budgeted is expected to
be $300 per unit or $64,800. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
Bexley House Apartments
The Partnership completed approximately $106,000 in capital expenditures at
Bexley House Apartments as of December 31, 1999, consisting primarily of parking
lot upgrades, carpet and vinyl replacement, air conditioning unit replacement,
exterior painting, and cabinet replacement. These improvements were funded from
operating cash flow and Partnership reserves. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $19,200.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
Covington Pointe Apartments
The Partnership completed approximately $595,000 in capital expenditures at
Covington Pointe Apartments as of December 31, 1999, consisting primarily of
exterior painting, parking lot upgrades, roof replacement, perimeter fencing,
structural upgrades, carpet and vinyl replacement, air conditioning unit
replacement, major landscaping, and pool upgrades. These improvements were
funded from operating cash flow and Partnership reserves. The Partnership is
currently evaluating the capital improvement needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $54,000. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Item 3. 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 action 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia 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 and the Insignia Merger (see
"Item 7. Financial Statements, Note B - Transfer of Control"). The plaintiffs
seek monetary damages and equitable relief, including judicial dissolution of
the Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999. Pending the
ruling on such demurrers, settlement negotiations commenced. On November 2,
1999, the parties executed and filed a Stipulation of Settlement, settling
claims, subject to final court approval, on behalf of the Partnership and all
limited partners who own units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Superior Court of the
State of California, County of San Mateo, at which time the Court set a final
approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing
the Court received various objections to the settlement, including a challenge
to the Court's preliminary approval based upon the alleged lack of authority of
class plaintiffs' counsel to enter the settlement. On December 14, 1999, the
Managing General Partner and its affiliates terminated the proposed settlement.
Certain plaintiffs have filed a motion to disqualify some of the plaintiffs'
counsel in the action. The Managing General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1999, no matters were submitted to a vote
of Unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Partnership Equity and Related Partner Matters
As of December 31, 1999, there are 1,928 holders of record owning an aggregate
of 26,776 units. Affiliates of the Managing General Partner owned 9,710.50 Units
or 36.266% as of December 31, 1999. No public trading has developed for the
Units, and it is not anticipated that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999 (see "Item 6. Management's Discussion and
Analysis or Plan of Operation" for further details):
Distributions
Per Limited
Aggregate Partnership Unit
(in thousands)
01/01/98 - 12/31/98 $ 400 (1) $14.49
01/01/99 - 12/31/99 $ 655 (1)(2) $23.72
(1) Distributions were made from cash from operations.
(2) Of this amount, $380,000 was accrued at December 31, 1999 and paid in
January 2000.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. The Partnership's distribution
policy is reviewed on a quarterly basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations after
required capital expenditures to permit any distributions to its partners in
2000 or subsequent periods. See "Item 2. Description of Properties - Capital
Improvements" for information relating to anticipated capital expenditures at
the properties. In addition, the Partnership may be restricted from making
distributions if the amount in the reserve account for each property maintained
by the mortgage lender is less than $400 per apartment unit at Northsprings,
Covington Pointe, and Bexley House for a total of $145,600. As of December 31,
1999 the reserve accounts were not fully funded for all of these properties;
however, the minimum balance was attained subsequent to December 31, 1999.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 9,710.50
limited partnership units in the Partnership representing approximately 36.266%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the Managing General Partner
because of their affiliation with the Managing General Partner.
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Partnership's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Partnership's net income as reported in the consolidated financial
statements for the year ended December 31, 1999, was approximately $463,000
compared to net income of approximately $36,000 for the year ending December 31,
1998. The increase in net income is primarily attributable to an increase in
total revenues and, to a lesser extent, a decrease in total expenses. Total
revenues increased due to increased rental income and other income. Rental
income increased primarily due to the increase in average rental rates at all of
the Partnership's investment properties, and increases in occupancy at
Northsprings, Bexley House, and Covington Pointe which more than offset the
decrease in occupancy at Lakeside and the increase in concession costs at all
the Partnership's properties. Other income increased primarily due to an
increase in tenant charges at Covington Pointe.
Total expenses decreased due to a decrease in operating expenses which was
partially offset by an increase in depreciation expense. Operating expenses
decreased mainly due to lower insurance and maintenance costs at all the
Partnership's properties. Insurance expense decreased due to lower premiums as a
result of a change in insurance carriers late in 1998. Maintenance costs
decreased primarily due to interior and exterior building improvements completed
at the properties in 1998. Depreciation expense increased due to the increase in
capital expenditures throughout 1999.
Included in general and administrative expenses at both December 31, 1999 and
1998 are management reimbursements to the Managing General Partner allowed under
the Partnership Agreement. In addition, costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to increase net income by approximately $257,000 ($9.31 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
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 December 31, 1999, the Partnership had cash and cash equivalents of
approximately $1,675,000 compared to approximately $920,000 at December 31,
1998. The net increase in cash and cash equivalents for the year ended December
31, 1999 was approximately $755,000 from the prior year. The increase in cash
and cash equivalents is due to approximately $1,670,000 of cash provided by
operating activities, which was partially offset by approximately $496,000 of
cash used in investing activities and approximately $419,000 of cash used in
financing activities. Cash used in investing activities consisted primarily of
property improvements and replacements which were partially offset by net
withdrawals from escrow accounts maintained by the mortgage lender and
distributions received from the joint venture. Cash used in financing activities
consisted of distributions to the partners and principal payments on the
mortgages encumbering the Partnership's properties. The Partnership invests its
working capital reserves in money market 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 and to comply with Federal,
state, and local legal and regulatory requirements. The Partnership is currently
evaluating the capital improvement needs of each of its properties for the
upcoming year. The minimum amount to be budgeted for the Partnership is expected
to be $300 per unit or $174,000. Additional improvements may be considered and
will depend on the physical condition of the property as well as replacement
reserves and anticipated cash flow generated by the property.
The additional capital expenditures for the year 2000 at the Partnership's
properties will be incurred only if cash is available from operations or from
Partnership reserves. To the extent that such budgeted capital improvements are
completed, the Partnership's distributable cash flow, if any, may be adversely
affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $11,780,000, net of discounts, is amortized over
varying periods with balloon payments of approximately $1,097,000 due November
2002 and approximately $10,181,000 due by November 2003. The Managing General
Partner will attempt to refinance and/or sell the properties prior to such
maturity dates. If the properties cannot be refinanced or sold for a sufficient
amount, the Partnership will risk losing such properties through foreclosure.
The Partnership distributed cash from operations of approximately $275,000
(approximately $267,000 to the limited partners or $9.97 per limited partnership
unit) during the year ended December 31, 1999. At December 31, 1999, the
Partnership declared a distribution of cash from operations of approximately
$380,000 (approximately $368,000 to the limited partners or $13.75 per limited
partnership unit). This distribution was paid in January 2000. During the year
ended December 31, 1998, the Partnership distributed cash from operations of
approximately $400,000 (approximately $388,000 to the limited partners or $14.49
per limited partnership unit). Future cash distributions will depend on the
levels of net cash generated from operations, the availability of cash reserves,
and the timing of debt maturities, refinancing, and/or property sales. The
Partnership's distribution policy is reviewed on a quarterly basis. There can be
no assurance, however, that the Partnership will generate sufficient funds from
operations after required capital expenditures to permit distributions to its
partners in the year 2000 or subsequent periods. In addition, the Partnership
may be restricted from making distributions if the amount in the reserve account
for each property maintained by the mortgage lender is less than $400 per
apartment unit at Northsprings, Covington Pointe, and Bexley House for a total
of $145,600. As of December 31, 1999 the reserve accounts were not fully funded
for all of these properties; however, the minimum balance was attained
subsequent to December 31, 1999.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 9,710.50
limited partnership units in the Partnership representing approximately 36.266%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the Managing General Partner
because of their affiliation with the Managing General Partner.
Year 2000 Compliance
General Description
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership is
dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the Managing Agent's
computer programs or hardware that had date-sensitive software or embedded chips
might have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
<PAGE>
Item 7. Financial Statements
DAVIDSON INCOME REAL ESTATE, L.P.
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999 and 1998
Consolidated Statements of Changes in Partners' (Deficit) Capital - Years ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners
Davidson Income Real Estate, L.P.
We have audited the accompanying consolidated balance sheet of Davidson Income
Real Estate, L.P. as of December 31, 1999, and the related consolidated
statements of operations, changes in partners' (deficit) capital and cash flows
for each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Davidson Income
Real Estate, L.P. at December 31, 1999, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note L to the consolidated financial statements, the Partnership
changed its method of accounting to capitalize the cost of exterior painting and
major landscaping effective January 1, 1999.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 2000
<PAGE>
DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 1,675
Receivables and deposits 360
Restricted escrows 157
Other assets 245
Investment properties (Note G):
Land $ 4,120
Buildings and related personal property 21,648
25,768
Less accumulated depreciation (12,023) 13,745
Investment in joint venture (Note C) 110
$ 16,292
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 386
Tenant security deposit liabilities 84
Accrued property taxes 401
Distribution payable 380
Other liabilities 160
Mortgage notes payable (Notes D and G) 11,780
Partners' (Deficit) Capital
General partners $ (678)
Limited partners (26,776 units issued and
outstanding) 3,779 3,101
$ 16,292
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Revenues:
<S> <C> <C>
Rental income $ 4,691 $ 4,427
Other income 241 210
Total revenues 4,932 4,637
Expenses:
Operating 1,903 2,107
General and administrative 233 226
Depreciation 968 906
Interest 992 1,002
Property taxes 461 443
Total expenses 4,557 4,684
Equity in income of joint venture 88 83
Net income (Note E) $ 463 $ 36
Net income allocated to general partners (3%) $ 14 $ 1
Net income allocated to limited partners (97%) 449 35
$ 463 $ 36
Net income per limited partnership unit $ 16.77 $ 1.31
Distributions per limited partnership unit $ 23.72 $ 14.49
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(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' (deficit) capital at
December 31, 1997 26,776 $ (661) $ 4,318 $ 3,657
Distribution to partners -- (12) (388) (400)
Net income for the year ended
December 31, 1998 -- 1 35 36
Partners' (deficit) capital at
December 31, 1998 26,776 (672) 3,965 3,293
Distributions to partners -- (20) (635) (655)
Net income for the year ended
December 31, 1999 -- 14 449 463
Partners' (deficit) capital at
December 31, 1999 26,776 $ (678) $ 3,779 $ 3,101
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLDIATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $ 463 $ 36
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 968 906
Amortization of discounts and loan costs 81 78
Equity in income of joint venture (88) (83)
Change in accounts:
Receivables and deposits 128 (45)
Other assets (41) 16
Accounts payable 92 (70)
Tenant security deposit liabilities 2 (11)
Accrued property taxes 30 99
Other liabilities 35 10
Net cash provided by operating activities 1,670 936
Cash flows from investing activities:
Property improvements and replacements (845) (393)
Net withdrawals from restricted escrows 155 3
Distributions from joint venture 194 131
Net cash used in investing activities (496) (259)
Cash flows from financing activities:
Payments on mortgage notes payable (144) (133)
Distributions to partners (275) (400)
Net cash used in financing activities (419) (533)
Net increase in cash and cash equivalents 755 144
Cash and cash equivalents at beginning of year 920 776
Cash and cash equivalents at end of year $ 1,675 $ 920
Supplemental disclosure of cash flow information:
Cash paid for interest $ 913 $ 924
Supplemental disclosure of non-cash activity:
Distribution payable $ 380 $ --
Property improvements and replacements included in
accounts payable $ 243 $ --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
DAVIDSON INCOME REAL ESTATE, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization
Davidson Income Real Estate, L.P. (the "Partnership" or "Registrant") is a
Delaware limited partnership organized in April 1985 to acquire and operate
residential real estate properties. The general partners of the Registrant are
Davidson Diversified Properties, Inc., a Tennessee corporation ("Managing
General Partner"), David W. Talley and James T. Gunn (collectively, "Individual
General Partners") (collectively, the "General Partners"). The Partnership owns
and operates four apartment properties located in the Mid-West, South and
Southeast and owns a joint venture interest in an entity which owns one
residential property. The Managing General Partner is a subsidiary of Apartment
Investment and Management Company ("AIMCO") (See "Note B - Transfer of
Control"). The directors and officers of the Managing General Partner also serve
as executive officers of AIMCO. The Partnership Agreement provides that the
Partnership is to terminate on December 31, 2010, unless terminated prior to
such date.
Principles of Consolidation
The consolidated financial statements of the Partnership include its 100%
ownership interests in the following partnerships: Bexley House, L.P. and
Davidson IRE Associates, L.P. All significant interpartnership balances have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Allocations to Partners
Net income (loss) of the Partnership and taxable income (loss) are allocated 97%
to the limited partners and 3% to the General Partners, except for such amounts
which are allocated prior to the Partnership meeting the minimum close
requirements as defined in the Partnership Agreement. Distributions of available
cash from operations are allocated 97% to the limited partners and 3% to the
General Partners. Cash from sales or refinancing are allocated 97% to limited
partners and 3% to General Partners until the limited partners have received an
amount of cumulative distributions from sales or refinancings that equal their
original invested capital plus an amount which, when added to the prior
distributions to limited partners, will equal 12% per annum cumulative and
noncompounded on adjusted invested capital, as defined in the Partnership
Agreement. Thereafter, upon payment to an affiliate of the General Partners
certain real estate commissions and incentive fees as described in the
Partnership Agreement, remaining cash from sales or refinancings are allocated
97% to the limited partners and 3% to General Partners. In connection with the
liquidation of the Partnership, cash from sales or refinancings and any
remaining working capital reserves shall be allocated among, and distributed to,
the partners in proportion to, and to the extent of, their positive capital
account balances.
<PAGE>
Restricted Escrows
Capital Improvement Reserve - At the time of the refinancing of Lakeside
Apartments' mortgage note payable, approximately $198,000 of the proceeds
were designated for a "capital improvement reserve" for certain capital
improvements. At December 31, 1999, approximately $69,000 remained in
escrow for future capital improvements of which any excess funds will be
returned for property operations once all designated improvements are
completed.
Reserve Account - A general reserve account was established with the
refinancing and financing proceeds of Northsprings, Bexley House, and
Covington Pointe. These funds were established to cover necessary repairs
and replacements of existing improvements, debt services, out-of-pocket
expenses incurred for ordinary and necessary administrative tasks, and
payments of real property taxes and insurance premiums. The Partnership
was required to deposit net operating income (as defined in the mortgage
notes) from the properties to the respective reserve accounts until the
reserve accounts equal the minimum balance of $400 per apartment unit and
a maximum balance of $1,000 per apartment unit for Northsprings, Covington
Pointe, and Bexley House. The minimum balance of $400 per apartment unit
was not attained at December 31, 1999, as the balance was approximately
$88,000; however, the minimum balance was attained subsequent to December
31, 1999.
Escrows for Taxes - These escrows are held by the mortgage lender for Bexley
House, Covington Pointe, and Northsprings. The funds, which total approximately
$261,000, are included in receivables and deposits. These escrows are held by
the Partnership for Lakeside and total $85,000 which is included in cash and
cash equivalents.
Investment Properties
Investment properties, which consist of four apartment complexes, are stated at
cost. Acquisition fees are capitalized as a cost of real estate. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", the Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No adjustments for
impairment of value were recorded in the years ended December 31, 1999 and 1998.
Depreciation
Depreciation is provided by the straight-line method over the estimated lives of
the investment properties and related personal property. For Federal income tax
purposes, the accelerated cost recovery method is used (1) for real property
over 18 years for additions after March 15, 1984, and before May 9, 1985, and 19
years for additions after May 8, 1985, and before January 1, 1987, and (2) for
personal property over 5 years for additions prior to January 1, 1987. As a
result of the Tax Reform Act of 1986, for additions after December 31, 1986, the
modified accelerated cost recovery method is used for depreciation of (1) real
property additions over 27 1/2 years, and (2) personal property additions over 5
years.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the costs of exterior painting and major landscaping ("Note L").
Cash and Cash Equivalents
Includes cash on hand, in banks and money market accounts. At certain times, the
amount of cash deposited at a bank may exceed the limit on insured deposits.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables and deposits. The security
deposits are refunded when the tenant vacates, provided the tenant has not
damaged its space and is current on rental payments.
Loan Costs
Loan costs of approximately $499,000 less accumulated amortization of
approximately $300,000 are included in other assets and are being amortized on a
straight-line basis over the life of the respective loans.
Leases
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its residential leases. In
addition, the Managing General Partner's policy is to offer rental concessions
during particularly slow months or in response to heavy competition from other
similar complexes in the area. Concessions are charged against rental income as
incurred.
Joint Venture
The Partnership accounts for its investment in the Sterling Crest Joint Venture
using the equity method of accounting (see "Note C" for further discussion).
Segment Reporting
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" established standards for the way that public business enterprises
report information about operating segments in annual financial statements and
required that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
See "Note J" for required disclosure.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $128,000 and $135,000
for the years ended December 31, 1999 and 1998, respectively.
Fair Value of Financial Statements
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", as amended
by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments whether or not recognized in the balance sheet, for
which it is practicable to estimate fair value. Fair value is defined in the
SFAS as the amount at which the instruments could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The Partnership believes that the carrying amount of its financial instruments
(except for long term debt) approximates their fair value due to the short term
maturity of these instruments. The fair value of the Partnership's long term
debt, after discounting the scheduled loan payments to maturity based on
borrowing rates currently available to the Partnership, approximates its
carrying amount.
Note B - Transfer of Control
Prior to February 25, 1998 the Managing General Parter was a wholly-owned
subsidiary of MAE GP Corporation ("MAE GP"), which was wholly owned by
Metropolitan Asset Enhancement, L.P. Effective February 25, 1998, MAE GP was
merged into Insignia Properties Trust ("IPT"), thus the Managing General Partner
became a wholly-owned subsidiary of IPT.
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation (the "Insignia Merger"). As a result, AIMCO ultimately acquired 100%
ownership interest in the Managing General Partner. The Managing General Partner
does not believe that this transaction has had or will have a material effect on
the affairs and operations of the Partnership.
Note C - Investment in Joint Venture
The Partnership owns a 17.5% interest in the Sterling Crest Joint Venture with
Davidson Growth Plus, L.P., an affiliate of the Managing General Partner, which
owns the remaining 82.5% of the joint venture. In connection with the joint
venture's purchase of Phase I of Brighton Crest Apartments on June 30, 1987, the
Partnership invested approximately $2,727,000 in the joint venture. The joint
venture purchased Phase II of Brighton Crest Apartments on December 15, 1987.
Summary balance sheet information for the year ended December 31, 1999 of the
Sterling Crest Joint Venture is as follows (in thousands):
Total assets $ 7,665
Total liabilities (6,041)
Total venture's equity $ 1,624
Summary statement of operations information for the year ended December 31, 1999
and 1998 of the Sterling Crest Joint Venture is as follows (in thousands):
1999 1998
Total revenues $ 2,585 $ 2,500
Total expenses (2,084) (2,064)
$ 501 $ 436
In 1999 and 1998, the Partnership received distributions of approximately
$194,000 and $131,000, respectively, from the joint venture. In 1999 and 1998,
the Partnership recognized equity in the income of the joint venture of
approximately $88,000 and $83,000, respectively.
<PAGE>
Note D - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1999 Interest Rate Date Maturity
(in thousands) (in thousands)
Northsprings
<S> <C> <C> <C> <C> <C>
1st mortgage $ 1,832 $ 14 7.83% 10/15/03 $ 1,701
2nd mortgage 61 (a) 7.83% 10/15/03 61
Lakeside 4,100 25 7.33% 11/01/03 4,100
Bexley House
1st mortgage 1,204 12 7.60% 11/15/02 1,052
2nd mortgage 45 (a) 7.60% 11/15/02 45
Covington Pointe
1st mortgage 4,489 35 7.83% 10/15/03 4,169
2nd mortgage 150 1 7.83% 10/15/03 150
11,881 $11,278
Less unamortized
discounts (101)
Total $11,780
</TABLE>
(a) Monthly payment is less than $1,000.
The mortgage notes payable are non-recourse and are secured by pledge of the
respective apartment properties and by pledge of revenues from the respective
apartment properties. Certain of the notes require prepayment penalties if
repaid prior to maturity and prohibit resale of the properties subject to
existing indebtedness.
The Partnership exercised interest rate buy-down options reducing the stated
rate from 8.76% to 7.60% for Bexley House and 8.13% to 7.83% for Northsprings
and Covington Pointe. The fees for the interest rate reductions were
approximately $243,000 and are being amortized as loan discounts using the
effective interest method over the lives of the loans. The discount fees are
reflected as a reduction of the mortgage notes payable and increase the
effective rate of the debt to 8.76% for Bexley House and 8.13% for Northsprings
and Covington Pointe.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999 are as follows (in thousands):
2000 $ 156
2001 168
2002 1,275
2003 10,282
$11,881
Note E - Income Taxes
The Partnership received a ruling from the Internal Revenue Service that it is
to be classified as a partnership for Federal income tax purposes. Accordingly,
no provision for income taxes is made in the consolidated financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
The following is a reconciliation of reported net income and Federal taxable
income (in thousands, except per unit data):
1999 1998
Net income as reported $ 463 $ 36
Add (deduct)
Depreciation differences (143) 28
Equity in joint venture (6) (11)
Prepaid rents (27) 4
Miscellaneous 7 6
Federal taxable income $ 294 $ 63
Federal taxable income per
limited partnership unit $10.65 $ 2.29
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities as of December 31, 1999 (in
thousands):
Net assets as reported $ 3,101
Land and buildings 3,169
Accumulated depreciation 361
Syndication 3,809
Other 1,300
Net assets - Federal tax basis $11,740
Note F - 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 property management services and for reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership. The following
transactions with the Managing General Partner and/or its affiliates were
incurred during each of the years ended December 31, 1999 and 1998:
<PAGE>
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $ 251 $ 235
Reimbursement for services of affiliates
(included in general and administrative expense,
operating expense and investment properties) 110 133
During the years ended December 31, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $251,000 and
$235,000 for the years ended December 31, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $110,000 and
$133,000 for the years ended December 31, 1999 and 1998, respectively.
On September 25, 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.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 9,710.50
limited partnership units in the Partnership representing approximately 36.266%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the Managing General Partner
because of their affiliation with the Managing General Partner.
<PAGE>
Note G - Investment Properties and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
To Partnership
(in thousands)
Net Cost
Buildings Capitalized
and Related (Written Down)
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Northsprings $ 1,893 $ 736 $ 4,196 $ 21
Lakeside 4,100 1,259 5,791 (244)
Bexley House 1,249 647 3,067 216
Covington Pointe 4,639 1,935 7,041 1,103
Totals $11,881 $ 4,577 $20,095 $ 1,096
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which
Carried
At December 31, 1999
(in thousands)
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Northsprings $ 597 $ 4,356 $ 4,953 $ 2,550 1969 11/85 5-25
Lakeside 1,046 5,760 6,806 3,315 1980 05/86 5-25
Bexley House 542 3,388 3,930 1,913 1972 09/86 5-25
Covington Pointe 1,935 8,144 10,079 4,245 1982 03/87 5-25
Totals $ 4,120 $21,648 $25,768 $12,023
</TABLE>
<PAGE>
Reconciliation of "Investment Properties and Accumulated Depreciation"
Years Ended December 31,
1999 1998
(in thousands)
Real Estate
Balance at beginning of year $24,680 $24,287
Property Improvements 1,088 393
Balance at end of year $25,768 $24,680
Accumulated Depreciation
Balance at beginning of year $11,055 $10,149
Additions charged to expense 968 906
Balance at end of year $12,023 $11,055
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $28,937,000 and $27,867,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $11,662,000 and $10,553,000,
respectively.
Note H - Commitments and Contingencies
The Partnership Agreement provides for payment of a fee to the Managing General
Partner for managing the affairs of the Partnership. The fee is 2% of adjusted
cash from operations, as defined in the partnership agreement. The fee is
payable only after the Partnership has distributed, to all limited partners,
adjusted cash from operations in any year equal to 10% of their adjusted
invested capital as defined in the partnership agreement. No fees were payable
for the years ended December 31, 1999 and 1998.
Note I - Distributions
The Partnership distributed cash from operations of approximately $275,000
(approximately $267,000 to the limited partners or $9.97 per limited partnership
unit) during the year ended December 31, 1999. As of December 31, 1999, the
Partnership declared a distribution of cash from operations of approximately
$380,000 (approximately $368,000 to the limited partners or $13.75 per limited
partnership unit). This distribution was paid in January 2000. During the year
ended December 31, 1998, the Partnership distributed cash from operations of
approximately $400,000 (approximately $388,000 to the limited partners or $14.49
per limited partnership unit).
Note J - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of four apartment complexes,
one each in Georgia, North Carolina, Ohio, and Texas. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies.
Factors management used to identify the Partnership's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
are managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the years 1999 and 1998 is shown in the tables below (in
thousands). The "Other" Column includes Partnership administration related items
and income and expense not allocated to the reportable segment.
1999 Residential Other Totals
Rental income $ 4,691 $ -- $ 4,691
Other income 217 24 241
Interest expense 992 -- 992
Depreciation 968 -- 968
General and administrative expense -- 233 233
Equity in income of joint venture -- 88 88
Segment income (loss) 584 (121) 463
Total assets 15,214 1,078 16,292
Capital expenditures for investment
properties 1,088 -- 1,088
1998 Residential Other Totals
Rental income $ 4,427 $ -- $ 4,427
Other income 187 23 210
Interest expense 1,002 -- 1,002
Depreciation 906 -- 906
General and administrative expense -- 226 226
Equity in income of joint venture -- 83 83
Segment income (loss) 156 (120) 36
Total assets 14,949 874 15,823
Capital expenditures for investment
properties 393 -- 393
<PAGE>
Note K - 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 action 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia 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 and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the Managing General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed and
filed a Stipulation of Settlement, settling claims, subject to final court
approval, on behalf of the Partnership and all limited partners who own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, at which time the Court set a final approval hearing for December 10,
1999. Prior to the December 10, 1999 hearing the Court received various
objections to the settlement, including a challenge to the Court's preliminary
approval based upon the alleged lack of authority of class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Managing General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. The
Managing General Partner does not anticipate that costs associated with this
case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note L - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to increase net income by approximately $257,000 ($9.31 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The Partnership does not have any directors or officers. The names of the
director and executive officers of Davidson Diversified Properties, Inc. (the
"Managing General Partner"), their ages and the nature of all positions
presently held by them are set forth below. There are no family relationships
between or among any officers and directors.
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the Managing
General Partner and AIMCO since October 1998, as a result of the acquisition of
Insignia Financial Group, Inc. From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997, retaining that title until October 1998. From 1988
to June 1994, Ms. Long was Senior Vice President and Controller for The First
Savings Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Form 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years except as follows:
AIMCO Properties, L.P. and its joint filers failed to timely file a Form 3 with
respect to its acquisition of Units and AIMCO and its joint filers failed to
timely file a Form 4 with respect to its acquisition of Units.
Item 10. Executive Compensation
No remuneration was paid by the Partnership to any officer or director of the
Managing General Partner during the year ended December 31, 1999.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owners of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 1999.
Percentage
Entity Number of Units of Total
Insignia Properites LP (1) 570.00 2.129%
(an affiliate of AIMCO)
AIMCO Properties LP (2) 5,310.50 19.833%
(an affiliate of AIMCO)
Cooper River Properties (1) 3,830.00 14.304%
(an affiliate of AIMCO)
Hospital Corporation of America 3,000.00 11.204%
201 West Main Street
Louisville, KY 40202
(1) Entity is indirectly ultimately owned by AIMCO. Its business address is 55
Beattie Place, Greenville, SC 29602.
(2) Entity is indirectly ultimately controlled by AIMCO. Its business address
is 2000 South Colorado Boulevard, Denver, CO 80222.
As of December 31, 1999, no director or officer of the Managing General Partner
owns, nor do the directors or officers as a whole, own more than 1% of the
Registrant's Units. No such director or officer had any right to acquire
beneficial ownership of additional Units of the Registrant.
Item 12. Certain Relationships and Related Transactions
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 property management services and for reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership. The following
transactions with the Managing General Partner and/or its affiliates were
incurred during each of the years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees $ 251 $ 235
Reimbursement for services of affiliates 110 133
During the years ended December 31, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $251,000 and
$235,000 for the years ended December 31, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $110,000 and
$133,000 for the years ended December 31, 1999 and 1998, respectively.
On September 25, 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.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 9,710.50
limited partnership units in the Partnership representing approximately 36.266%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the Managing General Partner
because of their affiliation with the Managing General Partner.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed in the fourth quarter of calendar year 1999:
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
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.,
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
dates indicated.
/s/Patrick J. Foye Executive Vice President Date:
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date:
Martha L. Long and Controller
<PAGE>
DAVIDSON INCOME REAL ESTATE, LP
EXHIBIT INDEX
Exhibit
2 Agreement and Plan of Merger, dated as of October 1, 1998, by and
between AIMCO and IPT, incorporated by reference to Exhibit 2.1 of
IPT's Current Report on Form 8-Kdated October 1, 1998.
3 Agreement of Limited Partnership is incorporated by reference to
Exhibit A to the Prospectus of the Registrant dated July 26, 1985 as
filed with the Commission pursuant to Rule 424(b) under the Act.
3A Amendment to Partnership Agreement dated October 1, 1985 is
incorporated by reference to Exhibit 3A to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
4 Certificate of Limited Partnership dated April 29, 1985 is
incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-11 dated May 7, 1985.
4A Certificate of Amendment to Certificate of Limited Partnership dated
July 16, 1985 is incorporated by reference to Exhibit 4B in Amendment
No. 1 to Registration Statement No. 2-97539, dated July 24, 1985.
10A Agent's Agreement dated July 1, 1985 between the Registrant and Harvey
Freeman & Sons, Inc. is incorporated by reference to Exhibit 10B in
Amendment No. 1 to Registration Statement No. 2-97539, dated July 24,
1985.
10B Agreement among Agents dated July 1, 1985 by and among Harvey Freeman
& Sons, Inc., Harvey Freeman & Sons, Inc. of Arkansas, Harvey Freeman
& Sons, Inc. of Florida, Harvey Freeman & Sons, Inc. of Georgia,
Harvey Freeman & Sons, Inc. of Indiana, Harvey Freeman & Sons, Inc. of
Kentucky, Harvey Freeman & Sons, Inc. of Mississippi, Harvey Freeman &
Sons, Inc. of North Carolina, Harvey Freeman & Sons, Inc. of Ohio, and
Harvey Freeman & Sons, Inc. of South Carolina, is incorporated by
reference to Exhibit 10C in Amendment No. 1 to Registration Statement
No. 2-97539, dated July 24, 1985.
10C Acquisition and Disposition Services Agreement dated July 1, 1985
between the Registrant and Criswell Freeman Company is incorporated by
reference to Exhibit 10D in Amendment No. 1 to Registration Statement
No. 2-97539 dated July 24, 1985.
10D Contract for Sale of Real Estate for Northsprings Apartments dated
October 19, 1985 between James B. Miller, Karina Miller, Dahlis Winn,
Christine Abrams, and William Lichirie, as Tenants in Common and
Tennessee Trust Company is incorporated by reference to Exhibit 10(a)
to the Registrant's Current Report on Form 8-K dated November 13,
1985.
<PAGE>
10E Assignment of Contract for Sale of Real Estate of Northsprings
Apartments dated November 12, 1985 between Tennessee Trust Company and
the Registrant is incorporated by reference to Exhibit 10(b) to the
Registrant's Current Report on Form 8-K dated November 13, 1985.
10F Promissory Note dated February 14, 1969 executed by Mt. Pleasant
Plaza, Inc., a Georgia corporation payable to The Fulton National Bank
of Atlanta, a corporation having its principal place of business in
Fulton County, Georgia, is incorporated by reference to Exhibit 10G to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.
10G Agreement dated December 24, 1969 between Massachusetts Mutual Life
Insurance Company, a Massachusetts corporation and Mt. Pleasant Plaza,
Inc., a corporation of the State of Georgia, is incorporated by
reference to Exhibit 10H to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1985.
10H Purchase Agreement for Lakeside Apartments dated April 4, 1986 between
Lakeside Apartments Venture, a North Carolina general partnership and
Tennessee Trust Company, a Tennessee corporation, is incorporated by
reference to Exhibit 10(a) to the Registrant's Current Report on Form
8-K dated May 20, 1986.
10I Assignment of Agreement dated May 16, 1986 between Tennessee Trust
Company, a Tennessee corporation, and the Registrant is incorporated
by reference to Exhibit 10(b) to the Registrant's Current Report on
Form 8-K dated May 20, 1986.
10J Deed of Trust Note dated June 13, 1989 executed by the Registrant
payable to John Hancock Variable Life Insurance Company relating to
Lakeside Apartments.
10K Deed of Trust and Security Agreement dated April 28, 1980 between
Lakeside Properties, Ltd., a North Carolina limited partnership,
Gibson L. Smith, Jr., Trustee and Continental Illinois National bank
and Trust Company of Chicago is incorporated by reference to Exhibit
10(d) to the Registrant's Current Report on Form 8-K dated May 20,
1986.
10L Contract for Sale of Real Estate for The Bexley House dated July 16,
1986 between Bexley House, Limited, an Ohio limited partnership and
Tennessee Trust Company is incorporated by reference to Exhibit 10(a)
to the Registrant's Current Report on Form 8-K dated September 30,
1986.
10M Reinstatement and Amendment of Contract for Sale of Real Estate for
The Bexley House dated September 4, 1986 between Bexley House,
Limited, an Ohio limited partnership and Tennessee Trust Company, a
Tennessee corporation, is incorporated by reference to Exhibit 10(b)
to the Registrant's Current Report on Form 8-K dated September 30,
1986.
<PAGE>
10N Amendment to Reinstated and Amended for Sale of Real Estate for The
Bexley House dated September 19, 1986 between Bexley House, Limited,
an Ohio limited partnership and Tennessee Trust Company, a Tennessee
corporation, is incorporated by reference to Exhibit 10(c) to the
Registrant's Current Report on Form 8-K dated September 30, 1986.
10O Assignment of Contract for Sale of Real Estate dated September 30,
1986 between Tennessee Trust Company and the Registrant is
incorporated by reference to Exhibit 10(d) to the Registrant's Current
Report on Form 8-K dated September 30, 1986.
10P Limited Warranty Deed dated September 28, 1986 between Bexley House,
Ltd., an Ohio limited partnership and the Registrant is incorporated
by reference to Exhibit 10(e) to the Registrant's Current Report on
Form 8-K dated September 30, 1986.
10Q Contract for Sale of Real Estate for Covington Pointe Apartments dated
January 20, 1987 between F.G.M.C. Investment Corp., a Texas
corporation Tennessee Trust Company, a Tennessee corporation, is
incorporated by reference to Exhibit 10(a) to the Registrant's Current
Report on Form 8-K dated March 10, 1987.
10R Amendment to Contract for Purchase of Real Estate for Covington Pointe
Apartments dated January 23, 1987 between F.G.M.C. Investment Corp., a
Texas corporation Tennessee Trust Company, a Tennessee corporation, is
incorporated by reference to Exhibit 10(b) to the Registrant's Current
Report on Form 8-K dated March 10, 1987.
10S Assignment of Contract for Purchase of Real Estate for Covington
Pointe Apartments dated March 2, 1987 between Tennessee Trust Company
and the Registrant is incorporated by reference to Exhibit 10(c) to
the Registrant's Current Report on Form 8-K dated March 10, 1987.
10T Contract for Purchase of Real Estate for Phase I of Sterling Crest
Apartments dated March 10, 1987 between Sterling Crest Development
Partners, Ltd., a Georgia limited partnership, and Tennessee Trust
Company, a Tennessee corporation, is incorporated by reference to
Exhibit 10(d) to the Registrant's Current Report on Form 8-K dated
March 10, 1987.
10U Mortgage Note dated March 23, 1987 executed by the Registrant payable
to BANCOhio National Bank relating to The Bexley House is incorporated
by reference to Exhibit a(1) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1987.
10V Open-End Mortgage, Assignment of Rents and Security Agreement dated
March 23, 1987 executed by the Registrant in favor of BANCOhio
National Bank relating to The Bexley House is incorporated by
reference to Exhibit a(2) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1987.
<PAGE>
10W Mortgage Note dated March 23, 1987 executed by the Registrant payable
to BANCOhio National Bank relating to The Bexley House is incorporated
by reference to Exhibit a(3) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1987.
10X Open-End Mortgage, Assignment of Rents and Security Agreement dated
March 23, 1987 executed by the Registrant in favor of BANCOhio
National Bank relating to The Bexley House is incorporated by
reference to Exhibit a(4) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1987.
10Y Sterling Crest Joint Venture Agreement dated June 29, 1987 between the
Registrant and Freeman Georgia Ventures, Inc. is incorporated by
reference to Exhibit 10(b) to the Registrant's Current Report on Form
8-K dated June 30, 1987.
10Z Assignment of Contract for Purchase of Real Estate for Phase I of
Sterling Crest Apartments dated June 29, 1987 is incorporated by
reference to Exhibit 10(c) to the Registrant's Current Report on Form
8-K dated June 30, 1987.
10AA Warranty Deed dated June 30, 1987 between Sterling Crest Development
Partners, Ltd. and Sterling Crest Joint Venture, is incorporated by
reference to Exhibit 10(d) to the Registrant's Current Report on Form
8-K dated June 30, 1987.
10BB Sub-Management Agreement dated June 30, 1987 between Harvey Freeman &
Sons, Inc. and Sterling Property Management Company, is incorporated
by reference to Exhibit 10(k) to the Registrant's Current Report on
Form 8-K dated June 30, 1987.
10CC Property Management Agreement dated June 30, 1987 between Sterling
Crest Joint Venture and Harvey Freeman & Sons, Inc., is incorporated
by reference to Exhibit 10(l) to the Registrant's Current Report on
Form 8-K dated June 30, 1987.
10DD Contract for Purchase of Real Estate for Phase II of Sterling Crest
Apartments dated March 10, 1987 between Sterling Crest Development
Partners, Ltd. and Tennessee Trust Company is incorporated by
reference to Exhibit 10(a) to the Registrant's Report on Form 8 dated
December 29, 1987.
10EE Tri-Party Agreement dated May 22, 1987 among North Carolina Federal
Savings & Loan Association, Sterling Crest Development Partners, Ltd.
and Tennessee Trust Company relating to Sterling Crest Apartments, is
incorporated by reference to Exhibit 10(b) to the Registrant's Report
on Form 8 dated December 29, 1987.
10FF Assignment of Contract for Purchase of Real Estate and Tri-Party
Agreement dated November 4, 1987 between Tennessee Trust Company and
Sterling Crest Joint Venture relating to Sterling Crest Apartments, is
incorporated by reference to Exhibit 10(c) to the Registrant's Report
on Form 8 dated December 29, 1987.
<PAGE>
10GG Amended and Restated Sterling Crest Joint Venture Joint Venture
Agreement dated June 29, 1987 among the Registrant, Freeman Georgia
Ventures, Inc., and Freeman Growth Plus, L.P., is incorporated by
reference to Exhibit 10(d) to the Registrant's Report on Form 8 dated
December 29, 1987.
10HH Memorandum of Understanding among SEC Realty Corp., Tennessee
Properties, L.P., Freeman Mortgage Corporation, J. Richard Freeman, W.
Criswell Freeman, and Jacques-Miller Properties, Inc. is incorporated
by reference to Exhibit 10MM to the Registrant's Annual Report of Form
10-K for the fiscal year ended December 31, 1988.
10II Partnership Administration and Consultation Agreement among Freeman
Properties, Inc., Freeman Diversified Properties, Inc., residual
Equities Limited, and Jacques-Miller Properties, Inc. is incorporated
by reference to Exhibit 10NN to the Registrant's Annual Report of Form
10-K for the fiscal year ended December 31, 1988.
10JJ Termination Agreement, dated December 31, 1991 among Jacques-Miller,
Inc., Jacques-Miller Property Management, Davidson Diversified
Properites, Inc., and Supar, Inc.
10KK Assignment of Limited Partnership Interest of Freeman Equities,
Limited, dated December 31, 1991 between Davidson Diversified
Properties, Inc. and Insignia Jacques-Miller, L.P.
10LL Assignment of General Partner Interests of Freeman Equities, Limited,
dated December 31, 1991 between Davidson Diversified Properties, Inc.
and MAE GP Corporation.
10MM Stock certificate, dated December 31, 1991 showing ownership of 1,000
shares of Davidson Diversified Properties, Inc. by MAE GP Corporation.
10NN Contracts related to refinancing of debt:
(a) First Deeds of Trust and Security Agreements dated October 28, 1992
between Bexley House, L.P. and First Commonwealth Realty Credit
Corporation, a Virginia Corporation, securing Bexley House is
incorporated by reference to Exhibit 10NN (a) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1992.
(b) Second Deeds of Trust and Security Agreements dated October 28, 1992
between Bexley House, L.P. and First Commonwealth Realty Credit
Corporation, a Virginia Corporation, securing Bexley House is
incorporated by reference to Exhibit 10NN (b) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1992.
(c) First Assignments of Leases and Rents dated October 28, 1992 between
Bexley House, L.P. and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing Bexley House is incorporated by
reference to Exhibit 10NN (c) to the Partnership's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1992.
(d) Second Assignments of Leases and Rents dated October 28, 1992 between
Bexley House, L.P. and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing Bexley House is incorporated by
reference to Exhibit 10NN (d) to the Partnership's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1992.
(e) First Deeds of Trust Notes dated October 28, 1992 between Bexley
House, L.P. and First Commonwealth Realty Credit Corporation relating
to Bexley House is incorporated by reference to Exhibit 10NN (e) to
the Partnership's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1992.
(f) Second Deeds of Trust Notes dated October 28, 1992 between Bexley
House, L.P. and First Commonwealth Realty Credit Corporation relating
to Bexley House is incorporated by reference to Exhibit 10NN (f) to
the Partnership's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1992.
10OO Contracts related to refinancing of debt:
(a) First Deeds of Trust and Security Agreements dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Northsprings Apartments is
incorporated by reference to Exhibit 10OO (a) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.
(b) Second Deeds of Trust and Security Agreements dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Northsprings Apartments is
incorporated by reference to Exhibit 10OO (b) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.
(c) First Assignments of Leases and Rents dated September 30, 1993 between
Davidson IRE Associates, L.P. and Lexington Mortgage Company, a
Virginia Corporation, securing Northsprings Apartments is incorporated
by reference to Exhibit 10OO (c) to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1993.
(d) Second Assignments of Leases and Rents dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Northsprings Apartments is
incorporated by reference to Exhibit 10OO (d) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.
<PAGE>
(e) First Deeds of Trust Notes dated September 30, 1993 between Davidson
IRE Associates, L.P. and Lexington Mortgage Company, relating to
Northsprings Apartments is incorporated by reference to Exhibit 10OO
(e) to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1993.
(f) Second Deeds of Trust Notes dated September 30, 1993 between Davidson
IRE Associates, L.P. and Lexington Mortgage Company, relating to
Northsprings Apartments is incorporated by reference to Exhibit 10OO
(f) to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1993.
10PP Contracts related to refinancing of debt:
(a) First Deeds of Trust and Security Agreements dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Covington Pointe Apartments is
incorporated by reference to Exhibit 10PP (a) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.
(b) Second Deeds of Trust and Security Agreements dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Covington Pointe Apartments is
incorporated by reference to Exhibit 10PP (b) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.
(c) First Assignments of Leases and Rents dated September 30, 1993 between
Davidson IRE Associates, L.P. and Lexington Mortgage Company, a
Virginia Corporation, securing Covington Pointe Apartments is
incorporated by reference to Exhibit 10PP (c) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.
(d) Second Assignments of Leases and Rents dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Covington Pointe Apartments is
incorporated by reference to Exhibit 10PP (d) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.
(e) First Deeds of Trust Notes dated September 30, 1993 between Davidson
IRE Associates, L.P. and Lexington Mortgage Company, relating to
Covington Pointe Apartments is incorporated by reference to Exhibit
10PP (e) to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1993.
<PAGE>
(f) Second Deeds of Trust Notes dated September 30, 1993 between Davidson
IRE Associates, L.P. and Lexington Mortgage Company, relating to
Covington Pointe Apartments is incorporated by reference to Exhibit
10PP (f) to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1993.
(g) Multifamily Note dated November 1, 1996, between Davidson Income Real
Estate, L.P. and Lehman Brothers Holdings, Inc. d/b/a Lehman Capital,
a Division of Lehman Brothers Holdings, Inc.
10QQ Contracts related to refinancing of debt:
(a) Multifamily Note dated July 1, 1996, between Davidson Income Real
Estate, L.P., a Delaware limited partnership and Lehman Brothers
Holdings, Inc. d/b/a Lehman Capital, a Division of Lehman Brothers
Holdings, Inc.
(b) Rider to Multifamily Note dated July 1, 1996, between Davidson Income
Real Estate, L.P., a Delaware limited partnership and Lehman Brothers
Holdings, Inc. d/b/a Lehman Capital, A Division of Lehman Brothers
Holdings, Inc.
16 Letter from the Registrant's former independent accountant regarding
its concurrence with the statements made by the Registrant is
incorporated by reference to the exhibit filed with Form 8-K dated
September 30, 1992.
18 Independent Accountants' Preferability Letter for Change in Accounting
Principle.
27 Financial Data Schedule.
99A Agreement of Limited Partnership for Davidson IRE GP Limited
Partnership between Davidson Diversified Properties, Inc. and Davidson
Income Real Estate, L.P. entered into on September 15, 1993 is
incorporated by reference to Exhibit 99A to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1993.
99B Agreement of Limited Partnership for Davidson IRE Associates, L.P.
between Davidson IRE GP Limited Partnership and Davidson Income Real
Estate, L.P. is incorporated by reference to Exhibit 99B to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1993.
99C Agreement of Limited Partnership for Bexley House L.P. between
Davidson Income GP Limited Partnership and Davidson Income Real
Estate, L.P. entered into on October 13, 1993 is incorporated by
reference to Exhibit 99C to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1992.
<PAGE>
Exhibit 18
February 7, 2000
Mr. Patrick J. Foye
Executive Vice President
Davidson Diversified Properties, Inc.
Managing General Partner of Davidson Income Real Estate, L.P.
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note L of Notes to the Consolidated Financial Statements of Davidson Income Real
Estate, L.P. included in its Form 10-KSB for the year ended December 31, 1999
describes a change in the method of accounting to capitalize exterior painting
and major landscaping, which would have been expensed under the old policy. You
have advised us that you believe that the change is to a preferable method in
your circumstances because it provides a better matching of expenses with the
related benefit of the expenditures and is consistent with policies currently
being used by your industry and conforms to the policies of the Managing General
Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Income Real Estate, L.P. 1999 Fourth Quarter 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000768598
<NAME> Davidson Income Real Estate, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,675
<SECURITIES> 0
<RECEIVABLES> 360
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 25,768
<DEPRECIATION> 12,023
<TOTAL-ASSETS> 16,292
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 11,780
0
0
<COMMON> 0
<OTHER-SE> 3,101
<TOTAL-LIABILITY-AND-EQUITY> 16,292
<SALES> 0
<TOTAL-REVENUES> 4,932
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,557
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 992
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 463
<EPS-BASIC> 16.77 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
