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 June 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)
June 30, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 658
Receivables and deposits 200
Restricted escrows 235
Other assets 229
Investment in joint venture 67
Investment properties:
Land $ 4,120
Buildings and related personal property 21,840
25,960
Less accumulated depreciation (12,521) 13,439
$ 14,828
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 115
Tenant security deposit liabilities 81
Accrued property taxes 246
Other liabilities 141
Mortgage notes payable 11,714
Distribution payable 169
Partners' (Deficit) Capital
General partners $ (700)
Limited partners (26,776 units issued and
outstanding) 3,062 2,362
$ 14,828
</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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 1,199 $ 1,194 $ 2,406 $ 2,349
Other income 72 51 125 115
Total revenues 1,271 1,245 2,531 2,464
Expenses:
Operating 448 453 910 934
General and administrative 67 41 104 98
Depreciation 243 220 498 455
Interest 246 248 492 497
Property taxes 96 109 191 217
Total expenses 1,100 1,071 2,195 2,201
Income before equity in income
of joint venture 171 174 336 263
Equity in income of joint venture 24 17 40 56
Net income $ 195 $ 191 $ 376 $ 319
Net income allocated to
general partners (3%) $ 6 $ 6 $ 11 $ 10
Net income allocated to
limited partners (97%) 189 185 365 309
$ 195 $ 191 $ 376 $ 319
Net income per limited
partnership unit $ 7.06 $ 6.91 $ 13.63 $ 11.54
Distributions per limited
partnership unit $ 40.41 $ 4.52 $ 40.41 $ 4.52
</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 six months
ended June 30, 2000 -- 11 365 376
Partners' (deficit) capital
at June 30, 2000 26,776 $ (700) $ 3,062 $ 2,362
</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>
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 376 $ 319
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 498 455
Amortization of discounts and loan costs 40 39
Equity in income of joint venture (40) (56)
Change in accounts:
Receivables and deposits 160 153
Other assets (13) (44)
Accounts payable (28) 16
Tenant security deposit liabilities (3) 7
Accrued property taxes (155) (148)
Other liabilities (19) (21)
Net cash provided by operating activities 816 720
Cash flows from investing activities:
Property improvements and replacements (435) (239)
Net (deposits to) withdrawals from restricted escrows (78) 52
Distributions from joint venture 83 79
Net cash used in investing activities (430) (108)
Cash flows from financing activities:
Payments on mortgage notes payable (77) (71)
Distributions to partners (1,326) (125)
Net cash used in financing activities (1,403) (196)
Net (decrease) increase in cash and cash equivalents (1,017) 416
Cash and cash equivalents at beginning of period 1,675 920
Cash and cash equivalents at end of period $ 658 $ 1,336
Supplemental disclosure of cash flow information:
Cash paid for interest $ 451 $ 458
</TABLE>
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.
Distributions to partners of approximately $169,000 were accrued at June 30,
2000 and were paid in July 2000.
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 six month periods ended June 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 six
months ended June 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $127 $124
Reimbursement for services of affiliates (included in
general and administrative and operating expenses) 50 43
<PAGE>
During the six months ended June 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 $127,000 and
$124,000 for the six months ended June 30, 2000 and 1999, respectively.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $50,000 and
$43,000 for the six months ended June 30, 2000 and 1999, 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.
AIMCO and its affiliates currently own 9,930.50 limited partnership units in the
Partnership representing approximately 37.09% 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. 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.
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 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 six months ended June 30, 2000, of the
Sterling Crest Joint Venture is as follows (in thousands):
Total assets $ 7,497
Total liabilities (6,131)
Total venture's equity $ 1,366
Summary statements of operations information for the six months ended June 30,
2000 and 1999 of the Sterling Crest Joint Venture is as follows (in thousands):
2000 1999
Total revenues $ 1,255 $ 1,305
Total expenses (1,027) (1,000)
$ 228 $ 305
<PAGE>
The Partnership received distributions of approximately $83,000 and $79,000 from
the joint venture during the six months ended June 30, 2000 and 1999,
respectively. For the six months ended June 30, 2000 and 1999, the Partnership
recognized equity in the income of the joint venture of approximately $40,000
and $56,000, respectively.
The Partnership received distributions of approximately $50,000 and $79,000 from
the joint venture during the three months ended June 30, 2000 and 1999,
respectively. For the three months ended June 30, 2000 and 1999, the Partnership
recognized equity in the income of the joint venture of approximately $24,000
and $17,000, 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.
In May 2000, the Partnership declared and paid a distribution of approximately
$840,000 (approximately $815,000 to the limited partners or $30.44 per limited
partnership unit) from operations. In June 2000, the Partnership declared a
distribution of approximately $275,000 (approximately $267,000 to the limited
partners or $9.97 per limited partnership unit) from operations. Approximately
$106,000 of this distribution was paid to affiliates of the Managing General
Partner. The remaining $169,000 was paid subsequent to June 30, 2000.
During the six months ended June 30,1999, the Partnership distributed
approximately $125,000 of which approximately $121,000 (approximately $4.52 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 six month periods ended June 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.
<PAGE>
Three Months Ended June 30, 2000 Residential Other Totals
Rental income $ 1,199 $ -- $ 1,199
Other income 68 4 72
Interest expense 246 -- 246
Depreciation 243 -- 243
General and administrative expense -- 67 67
Equity in income of joint venture -- 24 24
Segment profit (loss) 234 (39) 195
Six Months Ended June 30, 2000 Residential Other Totals
Rental income $ 2,406 $ -- $ 2,406
Other income 113 12 125
Interest expense 492 -- 492
Depreciation 498 -- 498
General and administrative expense -- 104 104
Equity in income of joint venture -- 40 40
Segment profit (loss) 428 (52) 376
Total assets 14,452 376 14,828
Capital expenditures for investment
properties 192 -- 192
Three Months Ended June 30, 1999 Residential Other Totals
Rental income $ 1,194 $ -- $ 1,194
Other income 45 6 51
Interest expense 248 -- 248
Depreciation 220 -- 220
General and administrative expense -- 41 41
Equity in income of joint venture -- 17 17
Segment profit (loss) 209 (18) 191
<PAGE>
Six Months Ended June 30, 1999 Residential Other Totals
Rental income $ 2,349 $ -- $ 2,349
Other income 102 13 115
Interest expense 497 -- 497
Depreciation 455 -- 455
General and administrative expense -- 98 98
Equity in income of joint venture -- 56 56
Segment profit (loss) 348 (29) 319
Total assets 14,933 879 15,812
Capital expenditures for investment
properties 239 -- 239
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 will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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 six
months ended June 30, 2000 and 1999:
Average Occupancy
Property 2000 1999
Northsprings Apartments 96% 97%
Atlanta, Georgia
Lakeside Apartments 92% 94%
Charlotte, North Carolina
Bexley House Apartments 95% 91%
Columbus, Ohio
Covington Pointe Apartments 90% 93%
Dallas, Texas
The Managing General Partner attributes the increase in occupancy at Bexley
House to increased marketing efforts. The decrease in occupancy at Covington
Pointe was due to a change in demographics in the area.
Results of Operations
The Partnership's net income for the six months ended June 30, 2000, was
approximately $376,000 compared to approximately $319,000 for the corresponding
period in 1999. The Partnership's net income for the three month period ended
June 30, 2000 was approximately $195,000 compared to approximately $191,000 for
the corresponding period in 1999. The increase in net income for the six month
period ended June 30, 2000 is primarily attributable to an increase in total
revenues and a decrease in total expenses partially offset by a decrease in the
equity in income of the joint venture. The increase in net income for the three
month period ending June 30, 2000 is primarily attributable to an increase in
total revenues and the equity in income of the joint venture partially offset by
increased total expenses. Total revenues for both the three and six 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 all of the
other properties. Other income increased for both the three and six month
periods primarily due to an increase in interest income due to higher average
cash balances in interest bearing accounts and an increase in late charges and
cable television income at Covington Point Apartments and ancillary telephone
income at Bexley House, Northsprings, and Lakeside Apartments. This was
partially offset by a decrease in lease cancellation fees primarily at Covington
Pointe Apartments.
<PAGE>
The decrease in total expenses for the six month period ended June 30, 2000 is
primarily attributable to decreases in operating and property tax expenses
partially offset by increases in depreciation and general and administrative
expenses. Total expenses increased for the three month period ended June 30,
2000 primarily due to increased depreciation and general and administrative
expenses. Operating expenses decreased primarily due to decreased maintenance
expense at all properties, with the exception of Covington Pointe, and decreased
salary expense at Northsprings, in addition to decreased referral fees at all
the properties. Partially offsetting these decreases are increased salary
expenses at Covington Pointe and increased sewer expenses at Northsprings.
Property tax expenses decreased primarily for both the three and six month
periods due to a decrease at Covington Pointe Apartments due to the timing of
the receipt of the tax bill which affected the amount of the property tax
accrual. Depreciation expense for both the three and six month periods increased
due to an increase in depreciable assets over the past year.
General and administrative expenses increased for both the three and six month
periods due to an increase in professional fees and an increase in general
partner reimbursements partially offset by a decrease in legal fees associated
with the settlement of the Everest Lawsuit settled during 1999. Included in
general and administrative expenses for the six months ended June 30, 2000 and
1999, are management reimbursements to the Managing General Partner allowed
under the Partnership Agreement. 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.
Partially offsetting the increase in overall net income for the six months ended
June 30, 2000, was a decrease in equity in income of the joint venture property
from approximately $56,000 at June 30, 1999, to approximately $40,000 at June
30, 2000. The Partnership owns a 17.5% interest in Sterling Crest Joint Venture
(the "Joint Venture"). Equity in income from the joint venture decreased
primarily due to reduced rental revenue and increased operating expenses of the
joint venture property. Rental revenues decreased due to reduced occupancy and
increased concession costs at Brighton Crest. Operating expenses increased due
to increased advertising and utility costs.
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 June 30, 2000, the Partnership had cash and cash equivalents of approximately
$658,000 compared to approximately $1,336,000 at June 30, 1999. The decrease in
cash and cash equivalents for the six months ended June 30, 2000 from the
Partnership's year ended December 31, 1999, was approximately $1,017,000. This
decrease is due to approximately $1,403,000 of cash used in financing activities
and approximately $430,000 of cash used by investing activities partially offset
by approximately $816,000 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
primarily 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.
<PAGE>
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 six months
ended June 30, 2000, the Partnership completed approximately $27,000 of capital
improvements at Northsprings Apartments, consisting primarily of sewer
replacements, appliance and floor covering replacements, plumbing upgrades, and
interior decorating. 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 six months
ended June 30, 2000, the Partnership completed approximately $86,000 of budgeted
and unbudgeted capital improvements at Lakeside Apartments, consisting primarily
of sewer replacements, carpet and vinyl replacements, office equipment, and
structural and building upgrades. These improvements were funded from
replacement reserves and operating cash flow.
Bexley House Apartments
Approximately $38,000 is budgeted for capital improvements for the year 2000 at
Bexley House Apartments consisting primarily of carpet and vinyl replacement,
heating upgrades, and appliance replacements. During the six months ended June
30, 2000, the Partnership completed approximately $41,000 of budgeted and
unbudgeted capital improvements at Bexley House, consisting primarily of heating
system replacements, appliance and floor covering replacement, air conditioning
replacements, and cabinet replacements. These improvements were funded from
operating cash flow.
Covington Pointe Apartments
Approximately $97,000 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, and
appliance replacements. During the six months ended June 30, 2000, the
Partnership completed approximately $38,000 of budgeted capital improvements at
Covington Pointe Apartments, consisting primarily of pool upgrades, 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 $11,714,000, 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.
In May 2000, the Partnership declared and paid a distribution of approximately
$840,000 (approximately $815,000 to the limited partners or $30.44 per limited
partnership unit) from operations. In June 2000, the Partnership declared a
distribution of approximately $275,000 (approximately $267,000 to the limited
partners or $9.97 per limited partnership unit) from operations. Approximately
$106,000 of this distribution was paid to affiliates of the Managing General
Partner. The remaining $169,000 was paid subsequent to June 30, 2000. During the
six months ended June 30,1999, the Partnership distributed approximately
$125,000 of which approximately $121,000 (approximately $4.52 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. 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.
<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 will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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 June 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:
