FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14530
DAVIDSON INCOME REAL ESTATE, L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 62-1242144
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 705
Receivables and deposits 197
Restricted escrows 195
Other assets 246
Investment in joint venture 91
Investment properties:
Land $ 4,120
Buildings and related personal property 22,008
26,128
Less accumulated depreciation (12,785) 13,343
$ 14,777
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 124
Tenant security deposit liabilities 76
Accrued property taxes 275
Other liabilities 190
Mortgage notes payable 11,683
Partners' (Deficit) Capital
General partners $ (698)
Limited partners (26,776 units issued and
outstanding) 3,127 2,429
$ 14,777
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
b)
DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 1,198 $ 1,169 $ 3,604 $ 3,518
Other income 61 60 186 175
Total revenues 1,259 1,229 3,790 3,693
Expenses:
Operating 523 494 1,433 1,428
General and administrative 87 77 191 175
Depreciation 264 233 762 688
Interest 244 248 736 745
Property taxes 98 121 289 338
Total expenses 1,216 1,173 3,411 3,374
Income before equity in income
of joint venture 43 56 379 319
Equity in income of joint venture 24 12 64 68
Net income $ 67 $ 68 $ 443 $ 387
Net income allocated to
general partners (3%) $ 2 $ 2 $ 13 $ 12
Net income allocated to
limited partners (97%) 65 66 430 375
$ 67 $ 68 $ 443 $ 387
Net income per limited
partnership unit $ 2.43 $ 2.47 $ 16.06 $ 14.01
Distributions per limited
partnership unit $ -- $ 5.43 $ 40.41 $ 9.97
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
c)
DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 26,776 $ 1 $26,776 $26,777
Partners' (deficit) capital at
December 31, 1999 26,776 $ (678) $ 3,779 $ 3,101
Distributions paid to partners -- (33) (1,082) (1,115)
Net income for the nine months
ended September 30, 2000 -- 13 430 443
Partners' (deficit) capital
at September 30, 2000 26,776 $ (698) $ 3,127 $ 2,429
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
d)
DAVIDSON INCOME REAL ESTATE, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 443 $ 387
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 762 688
Amortization of discounts and loan costs 58 59
Equity in income of joint venture (64) (68)
Change in accounts:
Receivables and deposits 163 79
Other assets (40) (48)
Accounts payable (19) 128
Tenant security deposit liabilities (8) 6
Accrued property taxes (126) (28)
Other liabilities 30 --
Net cash provided by operating activities 1,199 1,203
Cash flows from investing activities:
Property improvements and replacements (603) (649)
Net (deposits to) withdrawals from restricted escrows (38) 105
Distributions from joint venture 83 177
Net cash used in investing activities (558) (367)
Cash flows from financing activities:
Payments on mortgage notes payable (116) (107)
Distributions to partners (1,495) (275)
Net cash used in financing activities (1,611) (382)
Net (decrease) increase in cash and cash equivalents (970) 454
Cash and cash equivalents at beginning of period 1,675 920
Cash and cash equivalents at end of period $ 705 $ 1,374
Supplemental disclosure of cash flow information:
Cash paid for interest $ 677 $ 686
At December 31, 1999, approximately $243,000 of property improvements and
replacements were included in accounts payable.
Distributions to partners of approximately $380,000 were accrued at December 31,
1999 and paid in January 2000.
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
e)
DAVIDSON INCOME REAL ESTATE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Davidson Income
Real Estate, L.P. (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Davidson Diversified Properties, Inc.
(the "Managing General Partner"), all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended September
30, 2000 and 1999, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2000. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999.
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.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO 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 - 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 (i) payments to
affiliates for services and (ii) 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 the nine
months ended September 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $191 $187
Reimbursement for services of affiliates (included in
general and administrative and operating expenses and
investment properties) 113 82
During the nine months ended September 30, 2000 and 1999, 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
$191,000 and $187,000 for the nine months ended September 30, 2000 and 1999,
respectively.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $113,000 and
$82,000 for the nine months ended September 30, 2000 and 1999, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 10,849 limited partnership
units in the Partnership representing approximately 40.52% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. 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. In this regard, on July 24, 2000, an affiliate of AIMCO
commenced a tender offer to purchase any and all of the remaining partnership
interests for a purchase price of $409.00 per limited partnership unit. When the
tender offer expired on September 28, 2000, the affiliate had acquired 915.5
limited partnership units. Under the Partnership Agreement, unitholders holding
a majority of the Units are entitled to take action with respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the Managing General Partner. As
a result of its ownership of 40.52% of the outstanding units, AIMCO is in a
position to significantly influence all voting decisions with respect to the
Partnership. 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.
Note D - Investment in Joint Venture
The Partnership owns a 17.5% interest in the Sterling Crest Joint Venture with
Davidson Growth Plus, L.P., an affiliated partnership of which Davidson
Diversified Properties, Inc., is also 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 September 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 nine months ended September 30, 2000,
of the Sterling Crest Joint Venture is as follows (in thousands):
Total assets $ 7,570
Total liabilities (6,098)
Total venture's equity $ 1,472
Summary statements of operations information for the nine months ended September
30, 2000 and 1999 of the Sterling Crest Joint Venture is as follows (in
thousands):
2000 1999
Total revenues $ 1,928 $ 1,939
Total expenses (1,560) (1,544)
$ 368 $ 395
The Partnership received distributions of approximately $83,000 and $177,000
from the joint venture during the nine months ended September 30, 2000 and 1999,
respectively. For the nine months ended September 30, 2000 and 1999, the
Partnership recognized equity in the income of the joint venture of
approximately $64,000 and $68,000, respectively.
The Partnership received distributions of approximately $98,000 from the joint
venture during the three months ended September 30, 1999. No distributions were
received from the joint venture during the three months ended September 30,
2000. For the three months ended September 30, 2000 and 1999, the Partnership
recognized equity in the income of the joint venture of approximately $24,000
and $12,000, respectively.
Note E - Distributions
The Partnership paid a cash distribution from operations, which was declared and
accrued at December 31, 1999, of approximately $380,000 of which approximately
$369,000 ($13.78 per limited partnership unit) was paid to the limited partners.
During the nine months ended September 30, 2000, the Partnership declared and
paid distributions of approximately $1,115,000 (approximately $1,082,000 to the
limited partners or $40.41 per limited partnership unit) from operations.
Subsequent to September 30, 2000, a cash distribution was declared and paid from
operations of approximately $254,000 of which approximately 247,000 ($9.22 per
limited partnership unit) was paid to the limited partners.
During the nine months ended September 30, 1999, the Partnership distributed
approximately $275,000 of which approximately $267,000 (approximately $9.97 per
limited partnership unit) was paid to the limited partners from operations.
Note F - Segment Information
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 of the Partnership as described in the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1999.
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 three and nine month periods ended September 30,
2000 and 1999, is shown in the following tables below (in thousands). The
"Other" column includes Partnership administration related items and income and
expense not allocated to the reportable segment.
Three Months Ended September 30, 2000 Residential Other Totals
Rental income $ 1,198 $ -- $ 1,198
Other income 59 2 61
Interest expense 244 -- 244
Depreciation 264 -- 264
General and administrative expense -- 87 87
Equity in income of joint venture -- 24 24
Segment profit (loss) 128 (61) 67
Nine Months Ended September 30, 2000 Residential Other Totals
Rental income $ 3,604 $ -- $ 3,604
Other income 172 14 186
Interest expense 736 -- 736
Depreciation 762 -- 762
General and administrative expense -- 191 191
Equity in income of joint venture -- 64 64
Segment profit (loss) 556 (113) 443
Total assets 14,573 204 14,777
Capital expenditures for investment
properties 360 -- 360
Three Months Ended September 30, 1999 Residential Other Totals
Rental income $ 1,169 $ -- $ 1,169
Other income 57 3 60
Interest expense 248 -- 248
Depreciation 233 -- 233
General and administrative expense -- 77 77
Equity in income of joint venture -- 12 12
Segment profit (loss) 130 (62) 68
Nine Months Ended September 30, 1999 Residential Other Totals
Rental income $ 3,518 $ -- $ 3,518
Other income 159 16 175
Interest expense 745 -- 745
Depreciation 688 -- 688
General and administrative expense -- 175 175
Equity in income of joint venture -- 68 68
Segment profit (loss) 478 (91) 387
Total assets 15,252 699 15,951
Capital expenditures for investment
Properties 649 -- 649
Note G - 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, its 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. 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 owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court is considering applications for lead
counsel and has currently scheduled a hearing on the matter for November 20,
2000. 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership 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 Partnership's business and
results of operations. 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.
The Partnership's investment properties consist of four apartment complexes. The
following table sets forth the average occupancy of the properties for the nine
months ended September 30, 2000 and 1999:
Average Occupancy
Property 2000 1999
Northsprings Apartments 96% 96%
Atlanta, Georgia
Lakeside Apartments 92% 94%
Charlotte, North Carolina
Bexley House Apartments 95% 92%
Columbus, Ohio
Covington Pointe Apartments 91% 93%
Dallas, Texas
The Managing General Partner attributes the increase in occupancy at Bexley
House to increased marketing efforts.
Results of Operations
The Partnership's net income for the nine months ended September 30, 2000, was
approximately $443,000 compared to approximately $387,000 for the corresponding
period in 1999. The Partnership's net income for the three month period ended
September 30, 2000 was approximately $67,000 compared to approximately $68,000
for the corresponding period in 1999. The increase in net income for the nine
month period ended September 30, 2000 is primarily attributable to an increase
in total revenues partially offset by an increase in total expenses and a
decrease in the equity in income of the joint venture. The decrease in net
income for the three month period ending September 30, 2000 is primarily
attributable to an increase in total expense partially offset by an increase in
total revenues and the equity in income of the joint venture. Total revenues for
both the three and nine month periods increased as a result of increases in
rental and other income. Rental income increased primarily as a result of an
increase in average rental rates at all the Partnership's investment properties
and increased occupancy at Bexley House Apartments, which more than offset the
decrease in occupancy at Lakeside Apartments and Covington Pointe Apartments.
Other income increased primarily due to an increase in interest income due to
higher average cash balances in interest bearing accounts.
The increase in total expenses for the nine month period ended September 30,
2000 is primarily attributable to increases in depreciation and general and
administrative expenses partially offset by a decrease in property tax expense.
Total expenses increased for the three month period ended September 30, 2000
primarily due to increased operating, depreciation, and general and
administrative expenses partially offset by a decrease in property tax expense.
Operating expenses increased for the three month period primarily due to an
increase in property manager salaries at Northsprings Apartments, employee
apartment costs and commissions and bonuses at Covington Pointe Apartments, and
periodical advertising at Bexley House Apartments and Northsprings Apartments.
Property tax expense decreased for both the three and nine month periods
primarily due to the timing of the receipt of the Covington Pointe Apartments
tax bills which affected the accrual at September 30, 2000 and 1999.
Depreciation expense for both the three and nine month periods increased due to
an increase in depreciable assets over the past year.
General and administrative expenses increased for both the three and nine month
periods due to an increase in the cost of services included in the management
reimbursements to the Managing General Partner as allowed under the Partnership
Agreement partially offset by a decrease in legal fees associated with the
settlement of the Everest Lawsuit settled during 1999. In addition, costs
associated with the quarterly and annual communications with the investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included in general and administrative expense.
Partially offsetting the decrease in overall net income for the three months
ended September 30, 2000, was an increase in equity in income of the joint
venture property from approximately $12,000 at September 30, 1999, to
approximately $24,000 at September 30, 2000. The Partnership owns a 17.5%
interest in Sterling Crest Joint Venture (the "Joint Venture"). Equity in income
from the joint venture increased primarily due to an increase in the average
rental rates at the investment property and a decrease in maintenance and
repairs expense.
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 September 30, 2000, the Partnership had cash and cash equivalents of
approximately $705,000 compared to approximately $1,374,000 at September 30,
1999. The decrease in cash and cash equivalents for the nine months ended
September 30, 2000 from the Partnership's year ended December 31, 1999, was
approximately $970,000. This decrease is due to approximately $1,611,000 of cash
used in financing activities and approximately $558,000 of cash used by
investing activities partially offset by approximately $1,199,000 of cash
provided by operating activities. Cash used in financing activities consisted of
distributions paid to the partners and, to a lesser extent, payments of
principal made on the mortgages encumbering the Partnership's investment
properties. Cash used in investing activities consisted of property improvements
and replacements and, to a lesser extent, net deposits to restricted escrows
maintained by the mortgage lenders partially offset by distributions received
from the Partnership's joint venture. 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 investment 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. Capital
improvements planned for the Partnership's properties are detailed below.
Northsprings Apartments
Approximately $53,000 is budgeted for capital improvements for the year 2000 at
Northsprings Apartments consisting primarily of carpet and vinyl replacement,
wall covering replacement, and appliance replacements. During the nine months
ended September 30, 2000, the Partnership completed approximately $55,000 of
budgeted and unbudgeted capital improvements at Northsprings Apartments,
consisting primarily of sewer replacements, appliance and floor covering
replacements, and water heater and air conditioning replacements. These
improvements were funded from operating cash flow.
Lakeside Apartments
Approximately $60,000 is budgeted for capital improvements for the year 2000 at
Lakeside Apartments consisting primarily of floor covering replacement, major
landscaping, wall covering replacement, air conditioning unit replacements,
appliance replacements, and other structural improvements. During the nine
months ended September 30, 2000, the Partnership completed approximately
$128,000 of budgeted and unbudgeted capital improvements at Lakeside Apartments,
consisting primarily of appliance replacements, carpet and vinyl replacements,
and structural and building upgrades. These improvements were funded from
replacement reserves and operating cash flow.
Bexley House Apartments
Approximately $52,000 is budgeted for capital improvements for the year 2000 at
Bexley House Apartments consisting primarily of carpet and vinyl replacement,
heating upgrades, and light fixture and plumbing replacements. During the nine
months ended September 30, 2000, the Partnership completed approximately $51,000
of budgeted and unbudgeted capital improvements at Bexley House Apartments,
consisting primarily of heating system replacements, appliance and floor
covering replacement, air conditioning replacements, electrical improvements,
and cabinet replacements. These improvements were funded from operating cash
flow.
Covington Pointe Apartments
Approximately $154,000 is budgeted for capital improvements for the year 2000 at
Covington Pointe Apartments consisting primarily of carpet and vinyl
replacement, interior decoration, air conditioning unit replacements, plumbing
replacement, and appliance replacements. During the nine months ended September
30, 2000, the Partnership completed approximately $126,000 of capital
improvements at Covington Pointe Apartments, consisting primarily of air
conditioning replacements, carpet and vinyl replacement, appliance replacement
and plumbing fixture replacements. These improvements were funded primarily from
operating cash flow.
The additional capital expenditures 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 $11,683,000, 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 October and November 2003. The Managing
General Partner will attempt to refinance such indebtedness and/or sell the
properties prior to such maturity dates. If the properties cannot be refinanced
or sold for a sufficient amount, the Partnership may risk losing such properties
through foreclosure.
The Partnership paid a cash distribution from operations, which was declared and
accrued at December 31, 1999, of approximately $380,000 of which approximately
$369,000 ($13.78 per limited partnership unit) was paid to the limited partners.
During the nine months ended September 30, 2000, the Partnership declared and
paid distributions of approximately $1,115,000 (approximately $1,082,000 to the
limited partners or $40.41 per limited partnership unit) from operations.
Subsequent to September 30, 2000, a cash distribution was declared and paid from
operations of approximately $254,000 of which approximately 247,000 ($9.22 per
limited partnership unit) was paid to the limited partners. During the nine
months ended September 30, 1999, the Partnership distributed approximately
$275,000 of which approximately $267,000 (approximately $9.97 per limited
partnership unit) was paid to the limited partners from operations. The
Partnership's distribution policy is reviewed on a quarterly basis. 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. Distributions may be restricted by the
requirement to deposit net operating income (as defined in the mortgage note)
into a reserve account until the reserve account is funded for each respective
property as follows: a minimum of $400 and a maximum of $1,000 per apartment
unit at Bexley House Apartments for a total of approximately $26,000 to $64,000;
a minimum of $200 and a maximum of $400 per apartment unit at Northsprings
Apartments and Covington Pointe Apartments for a total of approximately $60,000
to $120,000. The reserve account at September 30, 2000 was approximately
$188,000. There can be no assurance, however, that the Partnership will generate
sufficient funds from operations after required capital improvements to permit
further distributions to its partners during the remainder of 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
Apartments, Covington Pointe Apartments, and Bexley House Apartments for a total
of $145,600. At September 30, 2000, the minimum balance was attained.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. 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 owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court is considering applications for lead
counsel and has currently scheduled a hearing on the matter for November 20,
2000. The Managing General Partner does not anticipate that costs associated
with this case will be material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAVIDSON INCOME REAL ESTATE, L.P.
By: DAVIDSON DIVERSIFIED PROPERTIES, INC.
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:
