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, 1996
[ ] 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 LIMITED PARTNERSHIP
(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 (864) 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 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
September 30, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 600
Restricted-tenant security deposits 121
Accounts receivable 150
Escrows for taxes 264
Restricted escrows 401
Other assets 464
Investment properties:
Land $ 2,821
Buildings and related personal
property 30,581
33,402
Less accumulated depreciation (13,403) 19,999
$21,999
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 216
Tenant security deposits 121
Accrued interest 89
Accrued taxes 443
Other liabilities 492
Mortgage notes payable 23,958
Partners' Deficit
General partner $ (66)
Limited partners (1,011.5 units
issued and outstanding) (3,254) (3,320)
$21,999
See Accompanying Notes to Consolidated Financial Statements
b) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,314 $ 1,263 $ 3,857 $ 3,640
Other income 96 111 316 363
Casualty gain (Note B) -- 18 10 18
Total revenues 1,410 1,392 4,183 4,021
Expenses:
Operating 397 350 1,222 1,168
General and administrative 39 43 125 107
Maintenance 301 175 664 530
Depreciation 340 317 1,007 945
Interest 545 537 1,638 1,611
Property taxes 106 126 310 303
Adjustment to casualty
gain (Note B) -- -- -- 69
Total expenses 1,728 1,548 4,966 4,733
Loss on disposal of
property (26) (30) (26) (30)
Net loss $ (344) $ (186) $ (809) $ (742)
Net loss allocated to general
partner (2%) $ (7) $ (4) $ (16) $ (15)
Net loss allocated to limited
partners (98%) (337) (182) (793) (727)
$ (344) $ (186) $ (809) $ (742)
Net loss per limited
partnership unit $(333.29) $(180.83) $(783.98) $(719.35)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
c) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 1,013 $ 1 $20,240 $20,241
Partners'deficit at
December 31, 1995 1,011.5 $ (50) $(2,461) $(2,511)
Net loss for the nine months
ended September 30, 1996 -- (16) (793) (809)
Partners' deficit at
September 30, 1996 1,011.5 $ (66) $(3,254) $(3,320)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net loss $ (809) $ (742)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 1,007 945
Adjustment to casualty gain -- 69
Amortization of discounts and loan costs 48 37
Casualty gain (10) (18)
Loss on disposal of property 26 30
Change in accounts:
Restricted cash (11) (3)
Accounts receivable (121) 253
Escrows for taxes (191) (145)
Other assets (11) (5)
Accounts payable 140 68
Accrued property taxes 180 177
Tenant security deposit liabilities 11 5
Accrued interest -- 37
Other liabilities 354 (84)
Net cash provided by
operating activities 613 624
Cash flows from investing activities:
Property improvements and replacements (261) (571)
Deposits to restricted escrows (229) (142)
Receipts from restricted escrows 11 83
Net cash used in
investing activities (479) (630)
Cash flows from financing activities:
Payments on mortgage notes payable (75) (69)
Loan costs paid -- (153)
Net cash used in financing
activities (75) (222)
Net increase (decrease) in cash and
cash equivalents 59 (228)
Cash and cash equivalents at beginning of period 541 661
Cash and cash equivalents at end of period $ 600 $ 433
Supplemental disclosure of cash flow information:
Cash paid for interest $1,590 $1,537
See Accompanying Notes to Consolidated Financial Statements
e) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
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 Davidson Diversified Properties, Inc.
("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, 1996,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Davidson Diversified
Real Estate III Limited Partnership ("Partnership") annual report on Form 10-KSB
for the year ended December 31, 1995.
NOTE B - DAMAGES
In November 1994, the clubhouse at Plainview Apartments sustained extensive
damage due to an electrical fire. The insurance proceeds to be received
subsequent to December 31, 1994, were originally estimated at $500,000. The
destroyed clubhouse had a net book value of $263,000 resulting in a casualty
gain of $237,000. A receivable for the estimated proceeds, along with the
retirement of the clubhouse's net book value and $202,000 of the corresponding
casualty gain was recognized at December 31, 1994. The remaining $35,000 of the
$237,000 casualty gain was deferred at December 31, 1994, due to related
expenses expected to be incurred during the coming year that were not
reimbursable by insurance. During the nine months ended September 30, 1995, the
Partnership reduced its estimate of the casualty gain by $69,000 due to
negotiations with the insurance carrier which modified the scope of the
clubhouse replacement and reduced the insurance proceeds to be received. During
the nine months ended September 30, 1996, the Partnership recognized $10,000 of
the deferred gain. As of September 30, 1996, all insurance proceeds had been
received.
In May 1996, Plainview Apartments sustained hail damage to many of the roofs
on the property. Insurance proceeds received in connection with this casualty
were approximately $220,000 and are deposited in an escrow held by the mortgage
company. Payments are being made from the escrow as the work is completed. The
insurance proceeds received approximate the estimated cost of the roof repairs.
In September 1996, Plainview Apartments incurred damage to eight apartment
units as the result of a fire at the property. Insurance proceeds to be
received related to the fire approximate $123,000 and have been recorded as a
receivable in the accompanying financial statements. Total insurance proceeds
to be received approximate the estimated cost of repairs.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling
ownership interest in the 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 to affiliates for services and as
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following payments were made to affiliates of Insignia during the nine
months ended September 30, 1996 and 1995:
Nine Months Ended
September 30,
1996 1995
(in thousands)
Property management fees $ 206 $ 193
Reimbursement for services of affiliates 99 92
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.
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, 1996 and 1995:
Average
Occupancy
1996 1995
Salem Courthouse
Indianapolis, Indiana 94% 93%
Plainview Apartments
Louisville, Kentucky 94% 89%
The Managing General Partner attributes the increase in occupancy at
Plainview Apartments to the rebuilt amenities at the clubhouse including an
indoor pool and sauna.
The Partnership realized a net loss of $809,000 for the nine months ended
September 30, 1996, compared to a net loss of $742,000 for the corresponding
period of 1995. The Partnership realized net losses of $344,000 and $186,000 for
the three months ended September 30, 1996 and 1995, respectively. The increase
in net loss for the nine months ended September 30, 1996, resulted primarily
from a decrease in other income combined with an increase in maintenance,
depreciation and general and administrative expenses. The increase in net loss
for the three months ended September 30, 1996, was due primarily to an increase
in operating and maintenance expenses. Other income decreased for the three and
nine months ended September 30, 1996, as a result of decreased lease
cancellation fees and cleaning and damage fees at Plainview Apartments.
General and administrative expenses increased for the nine months ended
September 30, 1996, compared to the corresponding period of 1995, due to
increased expense reimbursements to affiliates of the Managing General Partner
resulting from higher administrative costs. Maintenance expenses increased for
the three and nine months ended September 30, 1996, due to increases in exterior
painting and parking lot repairs at Plainview, contract landscaping and swimming
pool repairs at Salem Courthouse, and various miscellaneous repairs at both
properties.
The adjustment to casualty gain for the nine months ended September 30, 1995,
resulted from negotiations with the insurance carrier that modified the scope of
the clubhouse replacement and adjusted the insurance proceeds to be received.
The casualty gain for the nine months ended September 30, 1996 and 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 for the three and
nine months ended September 30, 1996 and 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 $600,000 at September 30, 1996,
compared to unrestricted cash of $433,000 at September 30, 1995. Net cash
provided by operating activities decreased from $624,000 for the nine months
ended September 30, 1995, to $613,000 for the corresponding period of 1996.
Cash used in investing activities decreased due to fewer property improvements
and replacements in 1996 compared to 1995. Cash used in financing activities
decreased due to no loan costs being paid in 1996.
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
approximately $24,000,000, net of discount, requires balloon payments on dates
ranging from October 15, 2003, to November 15, 2010, by which time the Managing
General Partner intends to sell or refinance the individual properties. The
principal debt of approximately $15,300,000 encumbering Plainview Apartments
requires interest-only payments and matures November 15, 2010. Approximately
$270,000 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 $8,350,000, net of discount, secured by Salem Courthouse is
amortized over approximately 29 years, maturing on October 15, 2003. No cash
distributions were made during the first nine months of 1995 or 1996. 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, 1996.
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
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.
Vice President/CAO
Date: November 7, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate III Limited Partnership 1996 Third Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000773679
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 600
<SECURITIES> 0
<RECEIVABLES> 150
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 33,402
<DEPRECIATION> 13,403
<TOTAL-ASSETS> 21,999
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 23,958
0
0
<COMMON> 0
<OTHER-SE> (3,320)
<TOTAL-LIABILITY-AND-EQUITY> 21,999
<SALES> 0
<TOTAL-REVENUES> 4,183
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,638
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (809)
<EPS-PRIMARY> (783.98)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
