FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-15676
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 62-1242599
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (803) 239-1000
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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1995
<S> <C> <C>
Assets
Cash:
Unrestricted $ 432,551
Restricted-tenant security deposits 109,251
Accounts receivable 191,019
Escrows for taxes 247,180
Restricted escrows 262,846
Other assets 459,217
Investment properties:
Land $ 2,821,084
Buildings and related personal property 30,177,931
32,999,015
Less accumulated depreciation (12,074,809) 20,924,206
$22,626,270
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 149,772
Tenant security deposits 112,880
Accrued interest 864,497
Accrued taxes 440,957
Other liabilities 108,723
Mortgage notes payable 23,206,163
Partners' Deficit
General partners $ (45,134)
Limited partners (1,011.5 units
issued and outstanding) (2,211,588) (2,256,722)
$22,626,270
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
b) DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,263,364 $1,228,860 $3,640,368 $3,658,431
Other income 110,654 102,948 362,690 312,366
Total revenues 1,374,018 1,331,808 4,003,058 3,970,797
Expenses:
Operating 283,729 283,343 975,291 932,998
General and administrative 43,163 25,984 107,561 70,992
Property management fees 66,962 66,308 192,952 197,787
Maintenance 174,896 203,709 529,822 451,305
Depreciation 317,287 317,153 945,094 919,942
Interest 536,446 536,605 1,610,602 1,610,919
Property taxes 126,063 108,287 302,692 299,729
Total expenses 1,548,546 1,541,389 4,664,014 4,483,672
Casualty gain (Note B) 18,282 -- 18,282 --
Adjustment to casualty
gain (Note B) -- -- (69,396) --
Loss on disposal of property (30,401) -- (30,401) (26,601)
Net loss $ (186,647) $ (209,581) $ (742,471) $ (539,476)
Net loss allocated to general
partners (2%) $ (3,733) $ (4,192) $ (14,849) $ (10,790)
Net loss allocated to limited
partners (98%) (182,914) (205,389) (727,622) (528,686)
$ (186,647) $ (209,581) $ (742,471) $ (539,476)
Net loss per limited
partnership unit $ (180.83) $ (202.75) $ (719.35) $ (521.90)
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
c) DAVIDSON DIVERSIFIED REAL ESTATE III L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 1,013 $ 1,000 $20,240,000 $20,241,000
Partners' deficit at
December 31, 1994 1,011.5 $(30,285) $(1,483,966) $(1,514,251)
Net loss for the nine months
ended September 30, 1995 -- (14,849) (727,622) (742,471)
Partners' deficit at
September 30, 1995 1,011.5 $(45,134) $(2,211,588) $(2,256,722)
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
d) DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (742,471) $ (539,476)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 945,094 919,942
Adjustment to casualty gain 69,396 --
Amortization of discounts and loan costs 36,826 31,933
Casualty gain (18,282) --
Loss on disposal of property 30,401 26,601
Change in accounts:
Restricted cash (3,306) 10,770
Accounts receivable 253,504 1,146
Escrows for taxes (144,525) (251,185)
Other assets (5,134) (4,271)
Accounts payable 68,033 29,220
Accrued property taxes 177,345 190,138
Tenant security deposit liabilities 5,256 (3,397)
Accrued interest 36,703 36,703
Other liabilities (84,383) (82)
Net cash provided by operating
activities 624,457 448,042
Cash flows from investing activities:
Property improvements and replacements (571,146) (345,871)
Deposits to restricted escrows (142,315) (84,288)
Receipts from restricted escrows 82,993 159,164
Net cash used in investing activities (630,468) (270,995)
Cash flows from financing activities:
Payments on mortgage notes payable (69,396) (64,186)
Loan costs (153,000) (55,715)
Net cash used in financing activities (222,396) (119,901)
Net (decrease) increase in cash (228,407) 57,146
Cash at beginning of period 660,958 542,047
Cash at end of period $ 432,551 $ 599,193
Supplemental disclosure of cash flow information:
Cash paid for interest $1,537,073 $1,542,282
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
e) DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements 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 the 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, 1995, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995. 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 year
ended December 31, 1994.
Certain reclassifications have been made to the 1994 information to conform
to the 1995 presentation.
Note B - Clubhouse Damage
In November of 1994, the clubhouse at Plainview Apartments sustained
extensive damage due to an electrical fire. The insurance proceeds to be
received after December 31, 1994, were originally estimated at $500,000. The
destroyed clubhouse had a net book value of $262,720 resulting in a casualty
gain of $237,280. A receivable for the estimated proceeds, along with the
retirement of the clubhouse's net book value and $202,280 of the corresponding
casualty gain was recognized at December 31, 1994. The remaining $35,000 of the
$237,280 casualty gain was deferred at December 31, 1994, due to related
expenses to be incurred in 1995 that are not reimbursable by insurance. During
the nine months ended September 30, 1995, the Partnership recognized $18,282 of
this deferred gain and also reduced its estimate of the casualty gain by $69,396
due to negotiations with the insurance carrier which modified the scope of the
clubhouse replacement and reduced the insurance proceeds to be received.
Note C Transactions with Affiliated Parties
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling
ownership interest in the Partnership's Managing General Partner. 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 for services and
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following payments were made to affiliates of Insignia in the nine months
ended September 30, 1995 and 1994:
Nine Months Ended
September 30,
1995 1994
Property management fees $192,952 $197,787
Data processing services 1,400 1,725
Marketing services 3,044 1,471
Reimbursement for services of affiliates 60,757 61,470
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Managing General Partner. An affiliate of
the Managing General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the Managing General
Partner who receives payment on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the
affiliate of the Managing General Partner by virtue of the agent's obligations
is not significant.
Note D - Mortgage Notes Payable
The $14,500,000 first mortgage encumbering Plainview Apartments matured June
30, 1995. A fifteen year extension was granted by the existing lender on
November 7, 1995. The extension agreement also applies the stated interest rate
to accrued interest as well as principal.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of two apartment complexes.
The following table sets forth the average occupancy of these properties for the
nine months ended September 30, 1995 and 1994:
Average
Occupancy
1995 1994
Salem Courthouse
Indianapolis, Indiana 93% 93%
Plainview Apartments
Louisville, Kentucky 89% 94%
The Managing General Partner attributes the decrease in occupancy at
Plainview Apartments to an increase in the number of tenants purchasing homes
and the clubhouse fire.
The Partnership incurred a net loss of $742,471 for the nine months ended
September 30, 1995, compared to a net loss of $539,476 for the corresponding
period of 1994. The Partnership incurred a net loss of $186,647 and $209,581
for the three months ended September 30, 1995, and 1994, respectively. Other
income increased for the nine months ended September 30, 1995, as a result of
increased cleaning and damage fees at Plainview Apartments, increased late
charges at Salem Courthouse and increased lease cancellation fees at both
properties.
General and administrative expenses increased for the three and nine months
ended September 30, 1995, compared to the corresponding period of 1994, due to
increased appraisal fees and legal fees related to the debt restructuring of
Plainview Apartments. Maintenance expenses increased for the nine months ended
September 30, 1995, compared to the nine months ended September 30, 1994, due to
extensive drywall, gutter and cabinet repairs incurred at Plainview Apartments.
Maintenance expense decreased for the three months ended September 30, 1995, as
compared to the three months ended September 30, 1994, due to approximately
$27,000 in painting at Plainview Apartments in 1994. Property taxes increased
for the three months ended September 30, 1995, compared to the three months
ended September 30, 1994, as a result of a property reassessment at Plainview
Apartments.
The adjustment to casualty gain recognized during the nine months ended
September 30, 1995, resulted from negotiations with the insurance carrier that
modified the scope of the clubhouse replacement and reduced the insurance
proceeds to be received. The casualty gain for the three and nine months ended
September 30, 1995, relates to the recognition of a portion of the deferred gain
(See Note B of the Notes to Consolidated Financial Statements). The loss on
disposal of property at September 30, 1995, relates to roof replacements at
Plainview Apartments.
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.
The Partnership held unrestricted cash of $432,551 at September 30, 1995,
compared to unrestricted cash of $599,193 at September 30, 1994. The increase
in net cash provided by operating activities for the nine months ended September
30, 1995, was due primarily to accounts receivable collections. Net cash used
in investing activities increased for the nine months ended September 30, 1995,
as a result of increased property improvements and replacements in conjunction
with increased net deposits to restricted escrows. Net cash used in financing
activities increased for the nine months ended September 30, 1995, due to loan
costs related to the debt restructuring at Plainview Apartments.
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 various properties to adequately maintain the
physical assets as well as meet future maturing mortgage obligations and related
refinancing expenses. Such assets are currently thought to be sufficient for
any near-term needs of the Partnership. The mortgage indebtedness of
$23,206,163, net of discount, requires balloon payments at dates ranging from
June 20, 1995, to October 15, 2003, by which time the General Partner intends to
sell or refinance the individual properties. A fifteen year extension for the
$14,500,000 of principal debt encumbering Plainview Apartments which matured
June 20, 1995, was granted by the existing lender on November 7, 1995. The
extension agreement also applies the stated interest rate to accrued interest as
well as principal. The $266,008 of second mortgage debt, net of discount,
secured by Salem Courthouse Apartments requires interest-only payments and
matures October 15, 2003. The first mortgage of $8,440,155, net of discount,
secured by Salem Courthouse is amortized over 28.67 years and also matures
October 15, 2003. No cash distributions were made during 1994 or the first nine
months of 1995. Future cash distributions will depend on the levels of net cash
generated from operations, refinancings, property sales and the availability of
partnership cash reserves.
Salem Courthouse Apartments and Plainview Apartments are both owned by lower
tier partnerships known as Salem Courthouse, L.P. and Plainview Apartments,
L.P., respectively, in which the Partnership is the 99.99% limited partner. The
Partnership has retained substantially all control and economic benefits of the
properties.
PART II - OTHER INFORMATION
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, 1995.
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 DIVERSIFIED REAL ESTATE III, L.P.
By: Davidson Diversified Properties, Inc.
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Controller and Principal
Accounting Officer
Date: November 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate III L.P. 1995 Third Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB.
</LEGEND>
<CIK> 0000773679
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE III L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 432,551
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,702,064
<PP&E> 32,999,015
<DEPRECIATION> 12,074,809
<TOTAL-ASSETS> 22,626,270
<CURRENT-LIABILITIES> 1,676,830
<BONDS> 23,206,163
<COMMON> 0
0
0
<OTHER-SE> (2,256,722)
<TOTAL-LIABILITY-AND-EQUITY> 22,626,270
<SALES> 0
<TOTAL-REVENUES> 4,733,410
<CGS> 0
<TOTAL-COSTS> 1,610,602
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (742,471)
<EPS-PRIMARY> (719.35)
<EPS-DILUTED> 0
</TABLE>
