SECTION 13 OR 15(d)
(As last amended by 34-31905, eff. 4/26/93))
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the
FORM 10-KSB--Annual or Transitional Report Under
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period.........to.........
Commission file number 0-15676
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
(Name of small business issuer in its charter)
Delaware 62-1242599
(State or other jurisdiction of (I.R.S. 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
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $5,351,697
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1995. Market value information for the
Registrant's partnership interests is not available. Should a trading market
develop for these interests, it is management's belief that such trading would
not exceed $25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Registrant dated October 28, 1985 (included
in Registration Statement, No. 2-99257, of Registrant) are incorporated by
reference into Parts I and III.
PART I
Item 1. Description of Business
Davidson Diversified Real Estate III, L.P. (the "Registrant" or
"Partnership") is a Delaware limited partnership organized in July 1985. The
general partners of the Registrant are Davidson Diversified Properties, Inc., a
Tennessee corporation ("Managing General Partner"); Freeman Equities, Limited, a
Tennessee limited partnership ("Associate General Partner"); and David W.
Talley and James T. Gunn (collectively, "Individual General Partners")
(collectively, the "General Partners").
The offering of the Registrant's limited partnership units ("Units")
commenced on October 28, 1985, and terminated on October 24, 1986. The
Registrant received gross proceeds from the offering of $20,240,000 and net
proceeds of $17,912,400.
The Registrant's primary business is to operate and hold for investment
existing income-producing residential real properties. Industry segment
information is not relevant. The Registrant does not engage in any foreign
operations nor derive any income from foreign sources.
All of the net proceeds of the offering were invested in the Registrant's
six properties, four of which have since been sold or foreclosed upon. See
"Item 2. Description of Properties," below for a description of the Registrant's
remaining properties.
The Registrant receives income from its properties and is responsible for
operating expenses, capital improvements and debt service payments under
mortgage obligations secured by the properties. The Registrant financed its
properties primarily through non-recourse debt. Therefore, in the event of
default, the lender can generally look only to the subject property for recovery
of amounts due.
Both the income and expenses of operating the properties owned by the
Registrant are subject to factors outside of the Registrant's control, such as
over-supply of similar properties resulting from over-building, increases in
unemployment or population shifts, reduced availability of permanent mortgage
funds, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential
properties because such properties are susceptible to the impact of economic and
other conditions outside of the control of the Registrant.
At this time, it appears that the Partnership's investment objective of
capital growth will not be attained. In addition, unless there is significant
improvement in the performance of the Registrant's properties and the markets in
which such properties are located, investors may not receive a return of a
portion of their initial capital contributions.
For the year ended December 31, 1995, the Registrant's properties accounted
for, in the aggregate, in excess of 99% of the Registrant's gross revenues.
Competition
The real estate business is highly competitive. The Registrant's properties
are subject to competition from similar properties in the vicinity in which each
property is located. In addition, various limited partnerships have been formed
by the General Partners and/or their affiliates to engage in business which may
be competitive with the Registrant.
Employees
The Registrant has no employees. Management and administrative services are
performed by Davidson Diversified Properties, Inc., the Managing General
Partner, and affiliates of Insignia Financial Group, Inc. ("Insignia").
Effective January 1, 1992, affiliates of Insignia began providing property
management and asset management services to the Registrant. See "Item 12.
Certain Relationships and Related Transactions" for an enumeration of the
affiliates and the compensation and reimbursement received from the Registrant
during 1995 and 1994.
Item 2. Description of Properties:
The following table sets forth the Registrant's investments in properties:
<TABLE>
<CAPTION>
Date of
Property Purchase Type of Ownership Use
<S> <C> <C> <C>
Plainview Apartments 05/06/86 Fee ownership subject Apartment
Louisville, Kentucky to wraparound mortgage 480 units
Salem Courthouse Apartments 11/30/85 Fee ownership subject Apartment
Indianapolis, Indiana to first and second 388 units
mortgages
</TABLE>
Schedule of Properties:
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Useful Federal
Property Value Depreciation Life Method Tax Basis
<S> <C> <C> <C> <C> <C>
Plainview $20,499,135 $ 7,403,221 5-25 years S/L $ 9,565,563
Salem Courthouse 12,683,530 5,009,216 5-25 years S/L 5,124,990
Totals $33,182,665 $12,412,437 $14,690,553
</TABLE>
See "Note A" of the consolidated financial statements included in "Item 7"
for a description of the partnership's depreciation policy.
Schedule of Mortgages:
<TABLE>
<CAPTION>
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1995 Rate Amortized Date Maturity
<S> <C> <C> <C> <C> <C>
Plainview
1st mortgage $15,336,015 9.33% (1) 11/15/10 $15,336,015
Salem Courthouse
1st mortgage 8,562,554 7.83% 28.67 yrs 10/15/03 7,513,400
2nd mortgage 270,810 7.83% (1) 10/15/03 270,810
24,169,379
Less unamortized
discounts (147,663)
Total $24,021,716 $23,120,225
<FN>
(1) Interest only payments
</TABLE>
The discount is reflected as a reduction of the mortgage notes payable and
increases the effective rate of the debt to 8.13% for Salem Courthouse.
Schedule of Rental Rates and Occupancy:
<TABLE>
<CAPTION>
Average Annual Average
Rental Rates Occupancy
Property 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Plainview $6,450/unit $6,306/unit 89% 94%
Salem Courthouse 5,895/unit 5,656/unit 93% 92%
</TABLE>
The decrease in occupancy at Plainview Apartments is attributable to an
increase in the number of tenants purchasing homes and a clubhouse fire in late
1994.
As noted under "Item 1. Description of Business," the real estate industry
is highly competitive. All of the properties of the partnership are subject to
competition from other residential apartment complexes in the area. The General
Partner believes that all of the properties are adequately insured. The multi-
family residential properties' lease terms are for one year or less. No
residential tenant leases 10% or more of the available space.
Real estate taxes and rates in 1995 for each property were:
1995 1995
Taxes Rate
Plainview $147,191 1.1%
Salem Courthouse 250,447 9.5%
Item 3. Legal Proceedings
The Registrant is unaware of any pending or outstanding litigation that is
not of a routine nature. The Managing General Partner of the Registrant
believes that all such pending or outstanding litigation will be resolved
without a material adverse effect upon the business, financial condition, or
operations of the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
The Unit holders of the Registrant did not vote on any matter during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
There is no established market for the Units and it is not anticipated that
any will occur in the foreseeable future. During the year ended December 31,
1994, the number of Partnership units decreased by 1.50 units due to limited
partners abandoning their units. In abandoning his or her partnership units, a
limited partner relinquishes all right, title and interest in the Partnership as
of the date of abandonment. As of January 1996, there were 1,391 holders of
record owning an aggregate of 1,011.5 Units.
There were no distributions of cash from operations for the two most recent
fiscal years. The Registrant does not anticipate making distributions during
1996.
Pursuant to the terms of the Partnership Agreement, there are restrictions
on the ability of the Limited Partners to transfer their Units. In all cases,
the General Partners must consent to any transfer.
The Revenue Act of 1987 contained provisions which have an adverse impact on
investors in " publicly traded partnerships." Accordingly, the General Partners
have established a policy of imposing limited restrictions on the
transferability of the Units in secondary market transactions. Implementation
of this policy should prevent a public trading market from developing and may
impact the ability of an investor to liquidate his investment quickly. It is
expected that such policy will remain in effect until such time, if ever, as
further clarification of the Revenue Act of 1987 may permit the Registrant to
lessen the scope of the restrictions.
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Registrant's Partnership Agreement.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
The Partnership realized a net loss of $996,838 for the year ended December
31, 1995, compared to a net loss of $572,784 for the year ended December 31,
1994. The net loss increased due to the non-recurring casualty gain recognized
in 1994 relating to the Plainview Apartments clubhouse fire (See "Note G" to the
Consolidated Financial Statements in "Item 7") as well as increased total
expenses at the properties. Total revenues remained stable at $5,351,697 for
the year ended December 31, 1995, compared to $5,315,132 for the year ended
December 31, 1994.
Operating expenses, maintenance, depreciation, interest expense, and general
and administrative expenses increased slightly for the year ended December 31,
1995, compared to the year ended December 31, 1994. General and administrative
expenses increased for the year ended December 31, 1995, due to increased legal
fees. Maintenance expenses increased $78,970 or 12.6% for the year ended
December 31, 1995, compared to the corresponding period of 1994 due to
extensive interior repairs at Plainview Apartments including painting, drywall
repairs, and replacements of cabinet and countertops. Also during 1995,
Plainview Apartments performed gutter replacements and repairs and exterior
painting.
The adjustment to casualty gain recognized during the year ended December
31, 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 year ended December 31, 1995, related to
the recognition of a portion of the deferred gain (See "Note G" to the
Consolidated Financial Statements in "Item 7"). The casualty gain for the year
ended December 31, 1994, related to the clubhouse fire at Plainview Apartments.
The loss on disposal of property at December 31, 1995, relates to roofs
written off as they were replaced at Plainview Apartments.
The Managing General Partner continues to monitor the rental market
environment in each location of the Partnership's apartment properties to
assess the feasibility of increasing rents, to maintain or increase occupancy
levels and to protect the Partnership from increases in expenses. The General
Partner expects to be able, at a minimum, to continue protecting the Partnership
from the burden of inflation-related increases in expenses by increasing rents
and maintaining a high overall occupancy level. However, rental concessions and
rental reductions needed to offset softening market conditions could affect the
ability to sustain this plan.
Liquidity and Capital Resources
On November 15, 1995, the Partnership refinanced the mortgage encumbering
Plainview Apartments. The total indebtedness refinanced was $15,336,015, of
which $14,500,000 represented principal and $836,015 represented accrued
interest. The refinancing replaced the aforementioned indebtedness which
carried a stated interest rate of 9.33% and a maturity date of June 20, 1995.
The new mortgage indebtedness carries the original stated interest rate and
requires interest-only payments through the maturity date of November 15, 2010.
Loan costs paid in 1995 for the refinancing totaled $215,909.
To facilitate the refinancing of Plainview Apartments during 1995, the
property was placed into a lower tier partnership known as Plainview Apartments,
L.P. in 1994 in which Davidson Diversified Real Estate III is the 99.99% limited
partner. Davidson Diversified Real Estate III retained substantially all
economic benefits of the property.
The Partnership held unrestricted cash of $540,534 at December 31, 1995,
compared to unrestricted cash of $660,958 at December 31, 1994. The decrease in
net cash provided by operating activities for the year ended December 31, 1995,
was due to increased expenses discussed above. Net cash used in investing
activities decreased for the year ended December 31, 1995, as a result of
reduced net property improvements excluding the Plainview improvements paid for
by insurance proceeds. Net cash used in financing activities increased for the
year ended December 31, 1995, due to the payment of loan costs associated with
the debt refinancing 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 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
$24,021,716, net of discount, is amortized over varying periods as previously
discussed in "Item 2. Description of Properties." The mortgage notes require
balloon payments at dates ranging from October 15, 2003, to November 15, 2010,
by which time the General Partner intends to sell or refinance the individual
properties. Future cash distributions will depend on the levels of net cash
generated from operations, refinancings, property sales and the availability of
these funds.
Item 7. Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheet - December 31, 1995
Consolidated Statements of Operations - Years ended December 31, 1995
and 1994
Consolidated Statements of Changes in Partners Deficit - Years ended
December 31, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1995
and 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Davidson Diversified Real Estate III, L.P.
We have audited the accompanying consolidated balance sheet of Davidson
Diversified Real Estate III, L.P. (A Limited Partnership) as of December 31,
1995, and the related consolidated statements of operations, changes in
partners deficit and cash flows for each of the two years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Partnership s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership s management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Davidson
Diversified Real Estate III, L.P. (A Limited Partnership) as of December 31,
1995, and the consolidated results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 26, 1996
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED BALANCE SHEET
December 31, 1995
Assets
Cash:
Unrestricted $ 540,534
Restricted-tenant security deposits 110,276
Accounts receivable 29,146
Escrows for taxes 73,009
Restricted escrows 182,879
Other assets (Note C) 490,430
Investment properties (Notes B and F):
Land $ 2,821,084
Buildings and related personal property 30,361,581
33,182,665
Less accumulated depreciation (12,412,437) 20,770,228
$22,196,502
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 75,819
Tenant security deposits 110,478
Accrued interest 89,024
Accrued taxes 262,969
Other liabilities 147,585
Mortgage notes payable (Note B) 24,021,716
Partners' Deficit
General partners $ (50,222)
Limited partners (1,011.5 units
issued and outstanding) (2,460,867) (2,511,089)
$22,196,502
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1995 1994
Revenues:
Rental income $4,882,880 $4,872,870
Other income 468,817 442,262
Total revenues 5,351,697 5,315,132
Expenses:
Operating 1,327,469 1,264,292
General and administrative 158,203 128,500
Property management fees 261,237 266,233
Maintenance 704,136 625,166
Depreciation 1,282,722 1,226,510
Interest 2,162,730 2,149,067
Property taxes 395,505 403,827
Total expenses 6,292,002 6,063,595
Casualty event (Note G) (26,132) 202,280
Loss on disposal of property (30,401) (26,601)
Net loss $ (996,838) $ (572,784)
Net loss allocated to general partners (2%) $ (19,937) $ (11,456)
Net loss allocated to limited partners (98%) (976,901) (561,328)
$ (996,838) $ (572,784)
Net loss per limited partnership unit $ (965.79) $ (554.95)
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<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, 1993 1,013 $(18,829) $ (922,638) $ (941,467)
Abandoned units (1.5) -- -- --
Net loss for the year ended
December 31, 1994 -- (11,456) (561,328) (572,784)
Partners' deficit at
December 31, 1994 1,011.5 (30,285) (1,483,966) (1,514,251)
Net loss for the year ended
December 31, 1995 -- (19,937) (976,901) (996,838)
Partners' deficit at
December 31, 1995 1,011.5 $(50,222) $(2,460,867) $(2,511,089)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (996,838) $ (572,784)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,282,722 1,226,510
Amortization of discounts and loan costs 50,987 44,601
Casualty event 26,132 (202,280)
Loss on disposal of property 30,401 26,601
Change in accounts:
Restricted cash (4,331) 3,472
Accounts receivable 2,614 9,807
Escrows for taxes 29,646 (59,197)
Other assets 15,989 (2,440)
Accounts payable (5,920) 27,061
Accrued property taxes (643) 12,968
Tenant security deposit liabilities 2,854 (1,793)
Accrued interest 97,245 48,938
Other liabilities (38,380) 65,149
Net cash provided by operating activities 492,478 626,613
Cash flows from investing activities:
Property improvements and replacements (754,796) (452,833)
Deposits to restricted escrows (144,235) (86,287)
Receipts from restricted escrows 164,880 173,563
Insurance proceeds from property damage 430,604 --
Net cash used in investing activities (303,547) (365,557)
Cash flows from financing activities:
Payments on mortgage notes payable (93,446) (86,429)
Loan costs (215,909) (55,716)
Net cash used in financing activities (309,355) (142,145)
Net (decrease) increase in cash (120,424) 118,911
Cash at beginning of period 660,958 542,047
Cash at end of period $ 540,534 $ 660,958
Supplemental disclosure of cash flow information:
Cash paid for interest $2,014,499 $2,055,528
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Property Damage
The changes in accounts receivable and other liabilities were adjusted by
$500,000 and $35,000, respectively, at December 31, 1994, for non-cash amounts
in connection with the clubhouse fire at Plainview Apartments as discussed in
"Note G".
Interest Reclassification
As a result of the refinancing of the Plainview Apartments mortgage on
November 7, 1995, $836,015 of accrued interest was reclassified to mortgage
principal for the year ended December 31, 1995, as discussed in "Note C".
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
Notes to Consolidated Financial Statements
December 31, 1995
Note A Organization and Significant Accounting Policies
Organization
Davidson Diversified Real Estate III, L.P. (the "Partnership") is a Delaware
limited partnership organized in July 1985, to acquire and operate residential
and commercial real estate properties.
Principles of Consolidation
The financial statements include all the accounts of the Partnership and the
99.99% owned partnerships. All significant interpartnership balances have been
eliminated.
To facilitate the refinancings of Salem Courthouse and Plainview Apartments in
1993 and 1994, respectively, the properties were placed into lower tier
partnerships known as Salem Courthouse, L.P. and Plainview, L.P., respectively.
Davidson Diversified Real Estate III is the 99.99% limited partner in both lower
tier partnerships and retained substantially all economic benefits of the
properties.
Allocations to Partners
Net income (other than that arising from the occurrence of a sale or
disposition) and net loss shall be allocated 2% to the General Partners and 98%
to the Limited Partners.
Net income arising from the occurrence of a sale or disposition shall be
allocated as follows:
First, to each Partner having a negative balance in his capital account,
an amount of such net income (limited to such negative balance) in the
same ratio as the negative balance in such Partner s capital account bears
to the aggregate of the negative balances in all Partners capital
accounts;
Second, the remainder of such net income, if any, shall be allocated 2% to
the General Partners and 98% to the Limited Partners until the capital
account balance of each Limited Partner shall equal an amount equal to the
excess, if any, of (A) the sum of such Limited Partner s original invested
capital, as defined, plus an amount equal to an 8% per annum cumulative
noncompounded return on such Limited Partner s adjusted invested capital
(commencing on the last day of the calendar quarter in which such Limited
Partner s contribution of original invested capital is received by the
Partnership), over (B) distributions previously made to such Limited
Partner in payment of such amounts.
Third, the remainder of such net income, if any, shall be allocated 15% to
the General Partners and 85% to the Limited Partners.
Note A - Organization and Significant Accounting Policies (continued)
Present Value Discounts
Periodically, the Partnership incurs debt at below market rates for similar
debt. Present value discounts are recorded on the basis of prevailing market
rates and are amortized using the interest method over the life of the related
debt. The amortization expense is included in interest expense.
Investment Properties
Prior to 1995, investment properties were carried at the lower of cost or
estimated fair value, which was determined using the net operating income of the
investment property capitalized at a rate deemed reasonable for the type of
property. During 1995 the Partnership adopted FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The impairment loss is measured by comparing the
fair value of the asset to its carrying amount. The effect of adoption was not
material.
Depreciation
Depreciation is calculated using the straight-line method over an estimated life
of 25 years for buildings and improvements and 5 to 15 years for furniture and
fixtures. For Federal income tax purposes, the accelerated cost recovery method
is used (1) for real property over 18 years for additions after March 15, 1984,
and before May 9, 1985, and 19 years for additions after May 8, 1985, and before
January 1, 1987, and (2) for personal property over 5 years for additions prior
to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions
after December 31, 1986, the modified accelerated cost recovery method is used
for depreciation of (1) real property additions over 27 1/2 years, and (2)
personal property additions over 7 years.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was $70,807 and $58,144 for the years
ended December 31, 1995 and 1994, respectively.
Cash
The Partnership considers only unrestricted cash to be cash. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Note A - Organization and Significant Accounting Policies (continued)
Restricted Escrows
1) Capital Improvement Reserves
At the time of the 1993 refinancing of the Salem Courthouse mortgage note
payable, $176,400 of the proceeds were designated for a "Capital Improvement
Reserve" for certain capital improvements. At December 31, 1995, the remaining
reserve balance was $4,300. The capital improvements are anticipated to be
completed in calendar year 1996 and any excess funds will be released for
property operations.
2) Reserve Account
In addition to the Capital Improvement Reserve, a general operating reserve
account of $114,400 was established with the refinancing proceeds for the
refinanced property. These funds were established to cover necessary repairs
and replacements of investment property, debt service, out-of-pocket expenses
incurred for ordinary and necessary administrative tasks, and payment of real
property taxes and insurance premiums. The Partnership was required to deposit
net operating income (as defined in the mortgage
note) from the refinanced property to the reserve account until the reserve
account equalled $400 per apartment unit or $155,200 in total. At December 31,
1995, the balance in the reserve account was $156,998.
3) Project Improvement Account
Plainview Apartments has a project improvement account which holds insurance
proceeds received after the 1994 clubhouse fire. The funds are used to cover
repairs and improvements to the clubhouse. At December 31, 1995, the balance in
the project improvement account was $21,581.
Loan Costs
Loan costs, included in other assets, are amortized on a straight-line basis
over the life of the respective loans. The amortization expense is included in
interest expense.
Leases
The Partnership generally leases apartment units for twelve-month terms or less.
Restricted Cash - Tenant Security Deposits
The Partnership requires security deposits from all apartment lessees for the
duration of the lease. Deposits are refunded when the tenant vacates the
apartment if there has been no damage to the unit.
Note A - Organization and Significant Accounting Policies (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made to the 1994 balances to conform to the
1995 presentation.
Fair Value
In 1995, the Partnership implemented Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments," which requires
disclosure of fair value information about financial instruments for which it is
practicable to estimate that value. The Partnership estimates the fair value of
its fixed rate mortgages by discounted cash flow analysis, based on estimated
borrowing rates currently available to the Partnership. The carrying amounts of
variable-rate mortgages approximate fair value due to frequent re-pricing. See
Note B.
Note B - Mortgage Notes Payable
The principal terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1995 Interest Rate Date Maturity
<S> <C> <C> <C> <C> <C>
Plainview Apartments $15,336,015 $119,239(1) 9.33% 11/15/10 $15,336,015
Salem Courthouse
Apartments
1st mortgage 8,562,554 63,992 7.83% 10/15/03 7,513,400
2nd mortgage 270,810 1,767(1) 7.83% 10/15/03 270,810
24,169,379
Less unamortized
discounts (147,663)
Totals $24,021,716 $23,120,225
<FN>
(1) Interest only payments.
</TABLE>
The discount is reflected as a reduction of the mortgage notes payable and
increases the effective rate of the debt to 8.13% for Salem Courthouse.
Note B - Mortgage Notes Payable (continued)
Scheduled principal payments of mortgage notes payable subsequent to December 31
are as follows:
Years Ending December 31,
1996 $ 101,031
1997 109,232
1998 118,098
1999 127,684
2000 138,049
Thereafter 23,575,285
$24,169,379
Mortgages are collateralized by the related property and improvements of the
Partnership.
The carrying value of the Partnership's aggregate mortgages approximates their
estimated fair value.
Note C - Refinancing
On November 15, 1995, the Partnership refinanced the mortgage encumbering
Plainview Apartments. The total indebtedness refinanced was $15,336,015, of
which $14,500,000 represented principal and $836,015 represented accrued
interest. The refinancing replaced the aforementioned indebtedness which
carried a stated interest rate of 9.33% and a maturity date of June 20, 1995.
The new mortgage indebtedness carries the original stated interest rate and
requires interest-only payments through the maturity date of November 15, 2010.
Total loan costs incurred in 1995 for the refinancing totaled $215,909 and are
included in other assets.
Note D - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
is classified as a partnership for Federal income tax purposes. Accordingly, no
provision for income taxes is made in the consolidated financial statements of
the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
Differences between the net loss as reported and Federal taxable loss result
primarily from (1) amortization of present value discounts, (2) depreciation
over different methods and lives and on differing cost bases of investment
properties, (3) change in
Note D - Income Taxes (continued)
rental income received in advance, (4) casualty gain on property damages, and
(5) gain on disposition of property. The following is a reconciliation of
reported net loss and Federal taxable loss:
1995 1994
Net loss as reported $ (996,838) $(572,784)
Add (deduct)
Depreciation differences (73,015) (123,708)
Unearned income (90,708) 71,590
Amortization (3,675) (4,509)
Gain on disposition of property 30,401 26,601
Casualty event 26,132 (196,916)
Other 18,754 (5,484)
Federal taxable loss $(1,088,949) $(805,210)
Federal taxable loss per
limited partnership unit $ (1,055.04) $ (780.13)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities:
Net deficit as reported $(2,511,089)
Land and buildings 703,219
Accumulated depreciation (6,782,894)
Syndication 1,620,800
Distribution fees 1,051,251
Other (43,651)
Net deficit - Federal tax basis $(5,962,364)
Note E - 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 as
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following payments were made to affiliates of Insignia in 1995 and 1994:
1995 1994
Property management fees $261,237 $266,233
Marketing services 3,070 2,370
Data processing services 2,100 1,471
Reimbursement for services of affiliates 83,782 80,665
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 F - Investment Properties and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
<S> <C> <C> <C> <C>
Salem Courthouse
Indianapolis, Indiana $ 8,833,364 $ 774,321 $11,198,562 $ 710,647
Plainview Apartments
Louisville, Kentucky 15,336,015 2,046,763 16,583,688 1,868,684
Totals $24,169,379 $2,821,084 $27,782,250 $2,579,331
</TABLE>
<TABLE>
Gross Amount At Which Carried
At December 31, 1995
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C>
Salem Courthouse
Indianapolis, $ 774,321 $11,909,209 $12,683,530 $(5,009,216) 1978 11/85 5-25
Plainview Apartments Phase I 1973 05/86
Louisville, Kentucky 2,046,763 18,452,372 20,499,135 (7,403,221) Phase II 1978 05/86 5-25
Totals $2,821,084 $30,361,581 $33,182,665 $(12,412,437)
</TABLE>
Note F - Investment Properties and Accumulated Depreciation (continued)
Reconciliation of Investment Properties and Accumulated Depreciation :
Years Ended December 31,
1995 1994
Investment Properties
Balance at beginning of year $32,503,872 $32,508,041
Property improvements 754,796 452,833
Disposition of apartment property (76,003) (57,002)
Removal for casualty loss -- (400,000)
Balance at End of Year $33,182,665 $32,503,872
Accumulated Depreciation
Balance at beginning of year $11,175,317 $10,116,488
Additions charged to expense 1,282,722 1,226,510
Disposition of apartment property (45,602) (30,401)
Removal for casualty loss -- (137,280)
Balance at end of year $12,412,437 $11,175,317
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1995 and 1994, is $33,885,884 and $33,579,532. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1995 and
1994, is $19,195,331 and $17,839,594.
Note G - Casualty Event
In November 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 were not reimbursable by insurance. During the year ended
December 31, 1995, the Partnership recognized $25,423 of this deferred gain as
only $9,577 of expenses were incurred. In 1995 the Partnership also reduced its
estimate of the casualty gain by $51,555 due to negotiations with the insurance
carrier which modified the scope of the clubhouse replacement and reduced the
insurance proceeds to be received. The Partnership received approximately
$432,000 of the insurance proceeds during 1995.
Note H - Abandoned Limited Partnership Units
In 1994, the number of Limited Partnership Units decreased by 1.5 units due to
limited partners abandoning their units. In abandoning his or her Limited
Partnership Unit, a limited partner relinquishes all right, title, and interest
in the Partnership as of the date of abandonment. The loss per limited
partnership unit in the accompanying statements of operations is calculated
based on the number of units outstanding at the end of the year.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The name of the directors and executive officers of Davidson Diversified
Properties, Inc., ("DDPI") the Partnership's Managing General Partner as of
December 31, 1995, their ages and the nature of all positions with DDPI
presently held by them are as follows:
Name Age Position
Carroll D. Vinson 55 President
Robert D. Long, Jr. 28 Controller and Principal
Accounting Officer
William H. Jarrard, Jr. 49 Vice President
John K. Lines 36 Secretary
Kelley M. Buechler 38 Assistant Secretary
Carroll D. Vinson has been President of Metropolitan Asset Enhancement, L.P.,
and subsidiaries since August of 1994. Prior to that, during 1993 to August
1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm) and
engaged in various other investment and consulting activities. Briefly, in
early 1993, Mr. Vinson served as President and Chief Executive Officer of
Angeles Corporation, a real estate investment firm. From 1991 to 1993, Mr.
Vinson was employed by Insignia in various capacities including Managing
Director-President during 1991. From 1986 to 1990, Mr. Vinson was President and
a Director of U.S. Shelter Corporation, a real estate services company, which
sold substantially all of its assets to Insignia in December 1990.
Robert D. Long, Jr. is Controller and Principal Accounting Officer. Prior to
joining Metropolitan Asset Enhancement, L.P., and subsidiaries, he was an
auditor for the State of Tennessee and was associated with the accounting firm
of Harshman Lewis and Associates. He is a graduate of the University of
Memphis.
William H. Jarrard, Jr. is Managing Director - Partnership Administration of
Insignia. During the five years prior to joining Insignia in 1991, he served in
a similar capacity for U.S. Shelter.
John K. Lines has been General Counsel of Insignia since June 1994 and General
Counsel and Secretary since July 1994. From May 1993 until June 1994, Mr. Lines
was the Assistant General Counsel and Vice President of Ocwen Financial
Corporation in West Palm Beach, Florida. From October 1991 until April 1993,
Mr. Lines was a Senior Attorney with Banc One Corporation in Columbus, Ohio.
From May 1984 until October 1991, Mr. Lines was employed as an Associate
Attorney with Squire Sanders & Dempsey in Columbus, Ohio.
Kelley M. Buechler is Assistant Secretary of Insignia. During the five years
prior to joining Insignia in 1991, she served in a similar capacity for U.S.
Shelter. Ms. Buechler is a graduate of the University of North Carolina.
Item 10. Executive Compensation
The Registrant was not required to and did not pay remuneration to officers
and/or directors of the Managing General Partner during 1995 or 1994. See "Item
12". below and "Note E" of the Notes to the Consolidated Financial Statements
for a discussion of compensation and reimbursements paid to the General Partners
and certain affiliates.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of February 1996, no security holder was known by Registrant to be the
beneficial owner of more than 5% of the Units of Registrant.
As of February 1996, no director or officer of the Managing General Partner
owns, nor do the directors or officers as a whole own more than 1% of the
Registrant's Units. No such director or officer had any right to acquire
beneficial ownership of additional Units of the Registrant.
Item 12. Certain Relationships and Related Transactions
Davidson Diversified Properties, Inc., the Managing General Partner of the
Registrant, is owned by MAE GP Corporation, which is wholly owned by
Metropolitan Asset Enhancement, L.P., an affiliate of Insignia.
Effective December 31, 1991, the majority of general partner and limited
partner interests in Freeman Equities, Ltd., the Associate General Partner, were
acquired by MAE Investments, Inc. and Insignia Jacques-Miller, L.P.,
respectively, both of whom are affiliates of Insignia.
Effective January 1, 1992, services for partnership administration, asset
management, and investor relations were assumed by affiliates of Insignia. The
management fees paid to Insignia affiliates in 1995 and 1994 were $261,237 and
$266,233, respectively. Reimbursements for administrative services paid to
Insignia affiliates in 1995 and 1994 were $83,782 and $80,665, respectively.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits: see Exhibit Index contained herein.
(b) No Reports on Form 8-K were filed during the fourth quarter of
1995.
SIGNATURES
In accordance with Section 13 or 15(d) 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.,
as Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
Date: March 25, 1996
In accordance with the Exchange Act, this report has been signed below by
the following person on behalf of the Registrant and in the capacities and on
the date indicated.
/s/Carroll D. Vinson President March 25, 1996
Carroll D. Vinson
/s/Robert D. Long, Jr. Controller and Principal March 25, 1996
Robert D. Long, Jr. Accounting Officer
EXHIBIT INDEX
Exhibit No.
3 Partnership Agreement dated July 8, 1985 and amended as of October
9, 1985 is incorporated by reference to Exhibit A to the
Prospectus of the Registrant dated October 28, 1985 as filed with
the Commission pursuant to Rule 424(b) under the Act.
3A Second Amendment dated April 1, 1986 to the Partnership Agreement
dated July 8, 1985 as amended October 9, 1985 is incorporated by
reference to Exhibit 3A to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1986.
4 Certificate of Limited Partnership dated June 28, 1985 is
incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-11 (Registration No. 2-99257).
10A Property Management Agreement dated July 26, 1985 between the
Registrant and Harvey Freeman & Sons, Inc., is incorporated by
reference to Exhibit 10B to Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (Registration No. 2-99257).
10B Agreement Among Agents dated November 1, 1983 by and among Harvey
Freeman & Sons, Inc., Harvey Freeman & Sons, Inc. of Arkansas,
Harvey Freeman & Sons, Inc. of Florida, Harvey Freeman & Sons,
Inc. of Georgia, Harvey Freeman & Sons, Inc. of Indiana, Harvey
Freeman & Sons, Inc. of Kentucky, Harvey Freeman & Sons, Inc. of
Mississippi, Harvey Freeman & Sons, Inc. of North Carolina, Harvey
Freeman and Sons, Inc. of Ohio and Harvey Freeman & Sons, Inc. of
South Carolina is incorporated by reference to Exhibit 10C to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1983.
10C Acquisition and Disposition Services Agreement dated October 28,
1985 between the Registrant and Criswell Freeman Company is
incorporated by reference to Exhibit 10D to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1985.
10D Contract for Sale of Real Estate for Salem Courthouse Apartments
dated September 25, 1985 between Salem-Oxford Associates, an
Indiana limited partnership and Tennessee Trust Company, Trustee,
is incorporated by reference to Exhibit 10(a) to the Registrant's
Current Report on Form 8-K dated December 2, 1985.
10E First Amendment to Contract for Sale of Real Estate dated October
29, 1985 between Salem Courthouse Associates, an Indiana limited
partnership and Tennessee Trust Company is incorporated by
reference to Exhibit 10(b) to the Registrant's Current Report on
Form 8-K dated December 2, 1985.
10F Assignment of Contract for Sale of Real Estate dated November 20,
1985 between Tennessee Trust Company, Trustee and the Registrant
is incorporated by reference to Exhibit 19(c) to the Registrant's
Current Report on Form 8-K dated December 2, 1985.
10G Mortgage Note dated December 2, 1985 payable to BAncOhio National
Bank executed by the Registrant is incorporated by reference to
Exhibit 10H to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985.
10H Real Estate Mortgage and Security Agreement dated December 2, 1985
to BAncOhio National Bank executed by the Registrant is
incorporated by reference to Exhibit 10I to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1985.
10I Promissory Note dated December 2, 1985 payable to Freeman Mortgage
Corporation executed by the Registrant is incorporated by
reference to Exhibit 10J to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1985.
10J Note executed by the Registrant payable to Phoenix Mutual Life
Insurance Company dated March 28, 1986 relating to Salem
Courthouse Apartments, is incorporated by reference to Exhibit 10J
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1986.
10K Mortgage and Security Agreement executed by the Registrant to
Phoenix Mutual Life Insurance Company dated March 28, 1986
relating to Salem Courthouse Apartments, is incorporated by
reference to Exhibit 10K to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1986.
10L Contract for Sale of Real Estate for Plainview Apartments dated
November 11, 1985 between NTS-Plainview Partners, a Kentucky
limited partnership and Tennessee Trust Company, a Tennessee
corporation, is incorporated by reference to Exhibit 10(a) to the
Registrant's Current Report on Form 8-K dated May 6, 1986.
10M Assignment of Contract for Sale of Real Estate dated May 2, 1986
between Tennessee Trust Company, a Tennessee corporation and the
Registrant is incorporated by reference to Exhibit 10(b) to the
Registrant's Current Report on Form 8-K dated May 6, 1986.
10N Amendment and Reinstatement of Contract for Sale of Real Estate
dated April 15, 1986 between NTS-Plainview Partners and Tennessee
Trust company is incorporated by reference to Exhibit 10(c) to the
Registrant's Current Report on Form 8-K dated May 6, 1986.
10O Mortgage Note dated May 6, 1986 executed by the Registrant payable
to NTS-Plainview partners, a Kentucky limited partnership, is
incorporated by reference to Exhibit 10(f) to the Registrant's
Current Report on Form 8-K dated May 6, 1986.
10P Mortgage and Security Agreement dated May 6, 1986 executed by the
Registrant to NTS-Plainview Partners, a Kentucky limited
partnership, is incorporated by reference to Exhibit 10(g) to the
Registrant's Current Report on Form 8-K dated May 6, 1986.
10Q Agreement for Purchase and Sale of Woodbridge Apartments dated
April 4, 1986 between Regal Oaks Associates, an Illinois general
partnership and Tennessee Trust Company, a Tennessee corporation,
is incorporated by reference to Exhibit 10(a) to the Registrant's
Current Report on Form 8-K dated May 30, 1986.
10R Assignment of Agreement dated May 30, 1986 between Tennessee Trust
Company, a Tennessee corporation and the Registrant is
incorporated by reference to Exhibit 10(b) to the Registrant's
Current Report on Form 8-K dated May 30, 1986.
10S Memorandum of Understanding amount SEC Realty Corp., Tennessee
Properties, L.P., Freeman Mortgage Corporation, J. Richard
Freeman, W. Criswell Freeman and Jacques-Miller Properties, Inc.
is incorporated by reference to Exhibit 10II to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988.
10T Partnership Administration and Consultation Agreement among
Freeman Properties, Inc., Freeman Diversified Properties, Inc.,
Residual Equities Limited and Jacques-Miller Properties, Inc. is
incorporated by reference to Exhibit 10JJ to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988.
10U Termination Agreement, dated December 31, 1991 among Jacques-
Miller, Inc., Jacques-Miller Property Management, Davidson
Diversified Properties, Inc., and Supar, Inc. is incorporated by
reference to Exhibit 10KK to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
10V Assignment of Limited Partnership Interest of Freeman Equities,
Limited, dated December 31, 1991 between Davidson Diversified
Properties, Inc. and Insignia Jacques-Miller, L.P. is incorporated
by reference to Exhibit 10LL to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
10W Assignment of General Partner Interests of Freeman Equities,
Limited, dated December 31, 1991 between Davidson Diversified
Properties, Inc. and MAE GP Corporation is incorporated by
reference to Exhibit 10MM to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
10X Stock certificate, dated December 31, 1991 showing ownership of
1,000 shares of Davidson Diversified Properties, Inc. by MAE GP
Corporation is incorporated by reference to Exhibit 10NN to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10Y Notice of Trustee's Sale of Real Estate in the Matter of
Foreclosure of the Deed of Trust of Davidson Diversified Real
Estate III, L.P. (regarding Woodbridge Apartments).
10Z Contracts related to refinancing of debt:
(a) First Mortgage and Security Agreement dated September
30, 1993 between Salem Courthouse, L.P. and Lexington
Mortgage Company, a Virginia Corporation, securing Salem
Courthouse.
(b) Seconds Mortgage and Security Agreement dated September
30, 1993 between Salem Courthouse, L.P. and Lexington
Mortgage Company, a Virginia Corporation, securing Salem
Courthouse.
(c) First Assignments of Leases and Rents dated September 30,
1993 between Salem Courthouse, L.P. and Lexington Mortgage
Company, a Virginia Corporation, securing Salem Courthouse.
(d) Second Assignments of Leases and Rents dated September 30,
1993 between Salem Courthouse, L.P. and Lexington Mortgage
Company, a Virginia Corporation, securing Salem Courthouse.
(e) First Mortgage Note dated September 30, 1993 between Salem
Courthouse, L.P. and Lexington Mortgage Company, relating to
Salem Courthouse.
(f) Second Mortgage Note dated September 30, 1993 between Salem
Courthouse, L.P. and Lexington Mortgage Company, relating to
Salem Courthouse.
10AA Amended, Restated and Substituted Mortgage Note dated November 15,
1995, executed by Plainview Apartments, L.P. payable to NTS-
Plainview Associates.
10BB Assignment of Leases, Rents, and Profits dated November 15, 1995,
executed by Plainview Apartments, L.P. to Nationwide Life
Insurance Co. and West Coast Life Insurance Co.
16 Letter from the Registrant's former independent accountant
regarding its concurrence with the statements made by the
Registrant is incorporated by reference to the exhibit filed with
Form 8-K dated September 30, 1992.
22 Subsidiaries.
27 Financial Data Schedule
99A Agreement of Limited Partnership for Davidson III GP Limited
Partnership between Davidson Diversified Properties, Inc. and
Davidson Diversified Real Estate III.
99B Agreement of Limited Partnership for Salem Courthouse L.P. between
Davidson III GP Limited Partnership and Davidson Diversified Real
Estate III, L.P. entered into on September 15, 1993.
AMENDED, RESTATED AND SUBSTITUTED MORTGAGE NOTE
$14,500,000.00 Louisville, Kentucky
November 15, 1995
FOR VALUE RECEIVED, THE UNDERSIGNED PLAINVIEW APARTMENTS, L.P., a South
Carolina limited partnership (the "Maker") promises to pay to the order of NTS-
Plainview Associates, a Kentucky limited partnership, its successors and assigns
(the "Holder") the principal sum of FOURTEEN MILLION FIVE HUNDRED THOUSAND and
NO/100 DOLLARS ($14,500,000.00), together with interest on the principal balance
of this Mortgage Note (the "Note"), from time to time remaining unpaid, from the
date of disbursement by Holder hereof at the applicable interest rate
hereinafter set forth, together with all other sums due hereunder or under the
terms of the Mortgage (as hereinafter defined) in lawful money of the United
States of America which shall be legal tender in payment of all debts at the
time of such payment. Both principal and interest and all other sums due
hereunder shall be payable at the office of Banker Financial Group, 642 South
Fourth Avenue, Louisville, Kentucky 40202, or at such other place either within
or without the Commonwealth of Kentucky, as Holder hereof may from time to time
designate. Said principal and interest shall be paid over a term, at the times,
and in the manner set forth below, to wit:
Deferred Interest:
In addition to the face principal amount hereof, this Note further
evidences the obligation of the Maker to pay the Holder the "Deferred Interest,"
and accrued and unpaid interest thereon, under and as defined in the Prior Note
(as hereinafter defined), in the aggregate amount of Eight Hundred Thirty-Six
Thousand One Hundred Fifty-One and 57/100 Dollars ($836,151.57) as of the date
hereof (the "Deferred Interest"). The Deferred Interest shall bear interest at
the rate applicable to, and be due and payable to Holder on the Maturity Date
with the outstanding principal balance of this Note.
Payment Provision:
(i) Interest accrued on the unpaid principal balance of this Note and on
the Deferred Interest, from the date of disbursement hereof at the rate of 9.33%
per annum, shall be due and payable on November 15, 1995.
(ii) Thereafter, installments of interest only on the unpaid principal
balance of this Note and the Deferred Interest at the rate of 9.33% per annum,
shall be due and payable in One Hundred Seventy-Nine (179) consecutive monthly
installments commencing on December 15, 1995 and continuing on the fifteenth day
of each calendar month thereafter, with each such installment to be in the sum
of One Hundred Nineteen Thousand Two Hundred Thirty-Eight and 58/100 Dollars
($119,238.58).
Maturity:
The unpaid principal balance of this Note and all accrued unpaid interest
thereon, if not sooner paid, shall be due and payable in full on November 15,
2010 (the "Maturity Date").
Application of Payments:
All payments shall be applied first to the payment of accrued unpaid
interest on this Note, then to the accrued unpaid interest on the Deferred
Interest, and the balance, if any, shall be applied first to the reduction of
the outstanding principal balance of this Note, and then to the unpaid balance
of the Deferred Interest. Interest due hereunder shall be calculated on the
basis of a 360-day year composed of twelve 30-day months; provided, however, in
no event shall such calculation cause the interest payable under the terms of
this Note to exceed the maximum rate of interest permitted under applicable law.
Late Payment Charge:
The Holder of this Note may collect a late payment charge, prior to the
acceleration of this Note, in an amount equal to five percent (5%) of the
aggregate monthly installment which is not paid on the due date, for the purpose
of covering the extra expenses involved in handling delinquent installments.
Any full payment of principal and/or interest which is correctly addressed,
bears adequate first class postage and is postmarked by the United States Postal
Service on or before the due date shall not be considered delinquent and a late
payment charge shall not be assessed.
Prepayment:
(A) Except as hereinafter provided, Maker shall not have the right to
prepay all or any part of the obligations evidenced by this Note at any time.
Maker shall have the right to prepay, in full but not in part, the obligation
evidenced by this Note upon giving (i) not less than forty-five (45) days' prior
written notice to Holder of Maker's intention to so prepay this Note, and (ii)
payment to Holder of the Prepayment Premium (as hereinafter defined), if any,
then due to Holder as hereinafter provided. As used herein, the term
"Prepayment Premium" shall mean the greater of (i) one percent (1%) of the
outstanding principal balance of, and other obligations evidenced by this Note
at the time of prepayment or (ii) an amount equal to the sum of (a) the present
value of the scheduled monthly payments due under this Note from the date of
prepayment to the Maturity Date and (b) the present value of the amount of
principal and interest of, and other obligations evidenced by this Note due on
the Maturity Date (assuming all scheduled monthly payments due prior to the
Maturity Date were made when due), minus (c) the outstanding principal balance
of this Note and of the Deferred Interest as of the date of prepayment. The
present values described in (a) and (b) shall be computed on a monthly basis as
of the date of prepayment discounted at a sum equal to the product of (a) the
difference between the Note rate then in effect on this Note and the
yield-to-maturity of the U.S. Treasury Note or Bond closest in maturity to the
Maturity Date of this Note (as hereinabove defined) as reported in the Wall
Street Journal (or, if the Wall Street Journal is no longer published, as
reported in such other daily financial publication of national circulation which
shall be designated by Holder) on the fifth (5th) business day preceding the
date of prepayment expressed as a decimal equivalent, Maker shall be obligated
to prepay this Note on the date set forth in the notice to Holder required
hereinabove, after such notice has been delivered to Holder, (b) the outstanding
principal balance of this Note and of the Deferred Interest as of the date
immediately preceding the date on which prepayment occurs, and (c) the quotient
(rounded to the nearest one-hundredth) arrived at by dividing the number of days
from and including the date of prepayment to the Maturity Date by 365. Maker
shall be obligated to prepay the obligations evidenced by this Note on the date
set forth in the notice to Holder required hereinabove, after such notice has
been delivered to Holder. Notwithstanding the foregoing or any other provision
herein to the contrary, if Holder elects to apply insurance proceeds,
condemnation awards, or any escrowed amounts, if applicable, to the reduction of
the principal balance of this Note in the manner provided in the Mortgage (as
hereinafter defined), no Prepayment Premium shall be due or payable as a result
of such application and the monthly installments due and payable hereunder shall
be reduced accordingly.
(B) In the event the Maturity Date of the indebtedness evidenced by this
Note is accelerated by Holder hereof at any time due to a default by Maker in
the terms, covenants or conditions contained in this Note, the Mortgage or any
of the other Loan Documents (as hereinafter defined), then a tender of payment
in an amount necessary to satisfy the entire outstanding principal balance and
all accrued unpaid interest on and other obligations evidenced by this Note made
by Maker, or by anyone on behalf of Maker, at any time prior to, at, or as a
result of, a foreclosure sale or sale pursuant to power of sale, shall
constitute a voluntary prepayment hereunder prior to the contracted Maturity
Date of this Note thus requiring the payment to Holder of a Prepayment Premium
equal to the applicable
Prepayment Premium as set forth in paragraph (A) above; provided, however, that
in the event such Prepayment Premium is construed to be interest under the laws
of the Commonwealth of Kentucky in any circumstance, such payment shall not be
required to the extent that the amount thereof, together with other interest
payable hereunder, exceeds the maximum rate of interest that may be lawfully
charged under applicable law.
(C) Notwithstanding the foregoing, Maker shall be obligated to make a
Mandatory Prepayment of a portion of the outstanding principal balance of this
Note, without payment of a Prepayment Premium, under the circumstances
contemplated by and as defined in paragraph 18(c) of that certain mortgage loan
commitment letter dated August 11, 1995, as amended October 1, 1995 ("Commitment
Letter"), between Maker and Holder, the terms of which are incorporated herein
by reference. The monthly installments of principal to be paid in satisfaction
of the Mandatory Prepayment shall commence on the fifteenth (15) day of the
month next following the date on which Holder gives to Maker written notice that
a Determination of Disposition (as defined in the "Commitment Letter") has
occurred.
Additional Conditions:
This Note is secured by an Amended, Restated and Substituted Second
Mortgage, Security Agreement and Fixture Financing Statement (hereinafter
referred to as the "Mortgage") and by an Amended, Restated and Substituted
Assignment of Leases, Rents and Profits (hereinafter referred to as the
"Assignment") of even date herewith encumbering certain real property located in
the County of Jefferson, Commonwealth of Kentucky and other property as more
particularly described in the Mortgage (hereinafter collectively referred to as
the "Property"). The Mortgage and the Assignment contain terms and provisions
which provide grounds for acceleration of the indebtedness evidenced by this
Note together with additional remedies in the event of default hereunder or
thereunder. Failure on the part of Holder hereof to exercise any right granted
herein or in the aforesaid Mortgage or the Assignment shall not constitute a
waiver of such right or preclude the subsequent exercise and enforcement
thereof. This Note, the Mortgage, the Assignment and all other documents and
instruments executed as further evidence of, as additional security for, or
executed in connection with the indebtedness evidenced by this Note are
hereinafter collectively referred to as the "Loan Documents".
Except as herein otherwise provided, all parties to this Note, including
endorsers, sureties and guarantors, hereby jointly and severally waive
presentment for payment, demand, protest, notice of protest, notice of demand
and of nonpayment or dishonor and of protest, and any and all other notices and
demands whatsoever, and agree to remain bound hereby until the principal and
interest of this Note are paid in full, notwithstanding any extensions of time
for payment which may be granted by Holder, even though the period of extension
be indefinite, and notwithstanding any inaction by, or failure to assert any
legal rights available to Holder of this Note.
If the obligations evidenced by this Note, or any part thereof, are placed
in the hands of an attorney for collection, whether by suit or otherwise, at any
time, or from time to time, Maker shall be liable to Holder, in each instance,
for all costs and expenses incurred in connection therewith, including, without
limitation, reasonable attorneys' fees (as hereinafter defined).
Default:
If default shall be made in the payment of principal and/or interest as
stipulated above or in the payment of any other sums due hereunder or under any
of the other Loan Documents, or should any default be made in the performance of
any of the terms, covenants and conditions contained herein or in any of the
otherr Loan Documents, then in any or all of such events, at the option of
Holder, the entire outstanding principal balance of and other obligations
evidenced by this Note, together with all accrued unpaid interest thereon and
all other sums advanced by Holder on behalf of Maker shall become and be
immediately due and payable then or thereafter as Holder may elect, regardless
of the Maturity Date hereof. All such amounts shall bear interest after
maturity, by acceleration or otherwise at the lesser of either (i) the highest
rate of interest then allowed by the laws of the Commonwealth of Kentucky or, if
controlling, the laws of the United States, or (ii) the then applicable interest
rate of this Note plus five hundred (500) basis points.
During the existence of any default, Holder may apply any sums received,
including but not limited to, insurance proceeds or condemnation awards, to any
amount then due and owing hereunder or under the terms of any of the other Loan
Documents as Holder may determine. Neither the right nor the exercise of the
right herein granted unto Holder to apply such proceeds as aforesaid shall
preclude Holder from exercising its option to cause the entire indebtedness
evidenced by this Note to become immediately due and payable by reason of
Maker's default under the terms of this Note or any of the other Loan Documents.
Notwithstanding any provisions herein to the contrary, Holder's right,
power and privilege to accelerate the maturity of the indebtedness evidenced
hereby shall be conditioned upon, with respect to any Non-Monetary Default (as
hereinafter defined), Holder giving Maker written notice of such Non-Monetary
Default and a thirty (30) day period after the date of such notice within which
to cure such Non-Monetary Default, unless such Non-Monetary Default cannot
reasonably be cured within said thirty (30) day period, in which event Maker
shall have an extended period of time to complete cure, provided that action to
cure such Non-Monetary Default is commenced within said thirty (30) day period
and Maker is, in Holder's sole judgment, not diminishing nor impairing the value
of the Property, and is diligently pursuing a cure to completion. Any notice
required hereunder shall be given as provided in the Mortgage. Holder shall
have no obligation to give Maker notice of, or any period to cure any Monetary
Default (as hereinafter defined) or any Incurable Default (as hereinafter
defined) prior to exercising its right, power and privilege to accelerate the
maturity of the indebtedness evidenced hereby and to declare the same to be
immediately due and payable and exercise all other rights and remedies herein
granted or otherwise available to Holder at law or in equity. As used herein,
the term "Monetary Default" shall mean any default which can be cured by the
payment of money including, but not limited to, the payment of principal and
interest due under this Note and the payment of taxes, assessments and insurance
premiums when due as provided in the Mortgage. As used herein, the term
"Non-Monetary Default" shall mean any default which is not a Monetary Default or
an Incurable Default. As used herein, the term "Incurable Default" shall mean
(i) any voluntary or involuntary sale, assignment, mortgaging or transfer in
violation of the covenants of the Mortgage; or (ii) if Maker, or any person or
entity comprising Maker, should make an assignment for the benefit of creditors,
become insolvent, or file a petition in bankruptcy (including but not limited
to, a petition seeking a rearrangement or reorganization).
Notwithstanding any provision of this Note to the contrary, during any
period of default and regardless of any cure period applicable to such default,
in each instance under this Note, the Mortgage, or any of the other Loan
Documents in which either (i) Maker is permitted to take an action without
Holder's prior written consent or (ii) Holder's consent is to be exercised
reasonably, Holder's consent shall be required and shall be granted or withheld
in Holder's sole and absolute discretion.
Savings Clause; Severability:
Notwithstanding any provisions herein or in the Mortgage to the contrary,
the total liability for payments in the nature of interest including but not
limited to Prepayment Premiums, default interest and late fees shall not exceed
the limits imposed by the laws of the Commonwealth of Kentucky or the United
States of America relating to maximum allowable charges of interest. Holder
shall not be entitled to receive, collect or apply, as interest on the
indebtedness evidenced hereby, any amount in excess of the maximum lawful rate
of interest permitted to be charged by applicable law or regulations, as amended
or enacted from time to time. In the event Holder ever receives, collects or
applies, as interest, any such excess, such amount which would be excessive
interest shall be applied to reduce the unpaid principal balance of the
indebtedness evidenced by this Note. If the unpaid principal balance of such
indebtedness is paid in full, any remaining excess shall be forthwith paid to
Maker. If any clauses or provisions herein contained operate or would
prospectively operate to invalidate this Note, then such clauses or provisions
only shall be held for naught, as though not herein contained and the remainder
of this Note shall remain operative and in full force and effect.
Exculpation:
The liability of Maker with respect to the payment of principal and
interest hereunder shall be "non-recourse" and, accordingly, Holder's source of
satisfaction of said indebtedness and Maker's other obligations hereunder and
under the other Loan Documents shall be limited to the Property and Holder's
receipt of the rents, issues, and profits from the Property and Holder shall not
seek to procure payment out of any other assets of Maker, or any person or
entity comprising Maker, nor to seek judgment for any sums which are or may be
payable under this Note or under any of the other Loan Documents, as well as any
claim or judgment (except as hereafter provided) for any deficiency remaining
after foreclosure of the Mortgage. Notwithstanding the above, nothing herein
contained shall be deemed to be a release or impairment of the indebtedness
evidenced by this Note or the security therefor intended by the other Loan
Documents or be deemed to preclude Holder from exercising its rights to
foreclose the Mortgage or to enforce any of its other rights or remedies under
the Loan Documents.
Notwithstanding the foregoing, it is expressly understood and agreed that
the aforesaid limitation on liability shall in no way affect or apply to Maker's
continued personal liability for:
(1) fraud or misrepresentation made in or in connection with this Note
or any of the other Loan Documents governing, securing or pertaining to the
payment hereof;
(2) failure to pay taxes, assessments, charges for labor or materials or
any other charges which may create liens on any portion of the Property;
(3) the misapplication of (i) proceeds of insurance covering any portion
of the Property; or (ii) proceeds of the sale or condemnation of any portion of
the Property; or (iii) rentals received by or on behalf of Maker subsequent to
the date on which Holder makes written demand therefor pursuant to any Loan
Documents;
(4) causing or permitting waste to occur on, in or about the Property
and failure to maintain the Property, excepting ordinary wear and tear;
(5) loss by fire or casualty to the extent not compensated by insurance
proceeds collected by Holder;
(6) the return to Holder of all unearned advance rentals and security
deposits paid by tenants of the Property and not refunded to or forfeited by
such tenants;
(7) the return of, or reimbursement for, all personalty owned by Maker
taken from the Property by or on behalf of Maker, out of the ordinary course of
business, and not replaced by items of equal or greater value than the original
value of the personalty so removed;
(8) (i) any and all costs incurred in order to cause the Property to
comply with the Accessibility Laws (as defined in the Mortgage), and (ii) any
indemnity or other agreement to hold Holder harmless from and against any and
all losses, liabilities, damages, injuries, costs or expenses of any kind
arising under Paragraph 3 of the Mortgage regarding accessibility for the
disabled or handicapped, or under the separate Accessibility Laws Indemnity of
even date herewith executed by Maker. Maker shall not be liable hereunder for
compliance with any Accessibility Laws resulting from alterations or
improvements to the Property that are performed subsequent to Holder's
acquisition of the Property by foreclosure or acceptance of a deed in lieu
thereof or subsequent to any transfer of ownership which was approved or
authorized by Holder pursuant to the Mortgage, provided that such transferee
assumes all obligations pertaining to Accessibility Laws pursuant to the Loan
Documents;
(9) all court costs and reasonable attorneys' fees actually incurred
which are provided for in this Note or in any other Loan Document governing,
securing, or pertaining to the payment of this Note; and
(10) (i) the removal of any chemical, material or substance in excess of
legal limits, exposure to which is prohibited, limited, and required to be
removed by any Federal, state, county, regional or local authority which may or
could pose a hazard to the health and safety of the occupants of the Property
regardless of the source of origination; (ii) the restoration of the Property to
comply with all governmental regulations pertaining to hazardous waste found in,
on or under the Property, regardless of the source of origination; and (iii) any
indemnity or other agreement to hold the Holder harmless from and against any
and all losses, liabilities, damages, injuries, costs, expenses of any and every
kind arising under Paragraph 3 of the Mortgage and/or the Environmental
Certificate and Indemnity Agreement of even date herewith, executed by Maker.
The Maker shall not be liable hereunder if the Property became contaminated
subsequent to Holder's acquisition of the Property by foreclosure or acceptance
of a deed in lieu thereof or subsequent to any transfer of ownership which was
approved or authorized by Holder pursuant to the Mortgage, provided that such
transferee assumes all obligations pertaining to Hazardous Materials (as defined
in the Mortgage) pursuant to the Loan Documents. Liability under this section
shall extend beyond repayment of this Note and compliance with the terms of the
Mortgage unless at such time Maker provides Holder an environmental assessment
report acceptable to Holder showing the Property to be free of hazardous
materials and not in violation of hazardous waste laws. The burden of proof
under this subparagraph with regard to establishing the date upon which such
chemical, material or substance was placed or appeared in, on or under the
Property shall be upon Maker.
(11) the return to Holder of any and all fees paid to Maker by tenants of
the Property which fees permit tenants to terminate their leases; and
(12) obligations under the letter(s) of credit issued for the benefit of
Maker and held by Holder, Nationwide Life Insurance Company, an Ohio corporation
("Nationwide"), and/or West Coast Life Insurance company, a California
corporation ("West Coast"); provided however, this subparagraph (12) shall not
apply to letter(s) of credit issued for the benefit of Holder and shall not
obligate Maker to provide letter(s) of credit to Holder, Nationwide and/or West
Coast.
The obligations of Maker in subparagraphs (1) through (12), except as
specifically provided in subparagraphs (8) and (10), shall survive the repayment
of this Note and satisfaction of the Mortgage. Notwithstanding anything
contained herein, Maker shall become personally liable for the entire amount
evidenced hereby, including principal, interest and other charges, in the event
that Maker violates paragraph 30 or 31 of the Mortgage.
As used herein, the phrase "reasonable attorneys' fees" shall mean fees
charged by attorneys selected by Holder based upon such attorneys' then
prevailing hourly rates as opposed to any statutory presumption specified by any
statute then in effect in the Commonwealth of Kentucky.
As used herein, the term "Prior Note" shall refer to that certain
promissory note dated May 6, 1986 by and between Freeman Diversified Real Estate
III, L.P., a Delaware limited partnership ("Freeman"), payable to the order of
NTS-Plainview Partners, a Kentucky limited partnership ("Plainview Partners"),
in the original principal amount of $14,500,000. Such Prior Note was assigned
to Holder in connection with the dissolution of Plainview Partners. Maker has
heretofore assumed the obligations of Freeman under the Prior Note, in
connection with the conveyance by Freeman to Maker of the Property described in
the Mortgage. The Prior Note is hereby amended and restated, and this Note is
substituted therefor, without incorporating any of the terms and provisions of
the Prior Note.
THE PROVISIONS of this Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky and, if controlling, by
the laws of the United States and shall be binding upon Maker, its heirs,
personal representatives, successors and assigns and shall inure to the benefit
of Holder, its successors and assigns.
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the day
and year first above written.
PLAINVIEW APARTMENTS, L.P., a South Carolina
limited partnership
BY: DAVIDSON III GP LIMITED PARTNERSHIP, its
General Partner
BY: PLAINVIEW GP, INC., its General
Partner
BY:/s/Robert D. Long, Jr.
TITLE:CAO/Controller
ASSIGNMENT OF LEASES, RENTS AND PROFITS
THIS ASSIGNMENT OF LEASES, RENTS AND PROFITS (hereinafter referred to as
"Assignment") is executed and delivered this 15th day of November, 1995, by
PLAINVIEW APARTMENTS, L.P., a South Carolina limited partnership, having its
principal office at c/o IFGP Corporation, One Insignia Financial Plaza,
Greenville, South Carolina 29601 (hereinafter referred to as "Assignor"), to
and in favor of (i) NATIONWIDE LIFE INSURANCE COMPANY, an Ohio corporation
("Nationwide") having its principal office at One Nationwide Plaza, Columbus,
Franklin County, Ohio 43216, Attention: Real Estate Investments, its successors
and assigns, and (ii) WEST COAST LIFE INSURANCE COMPANY, a California
corporation, ("West Coast"), whose address is c/o Nationwide Life Insurance
Company, One Nationwide Plaza, Columbus, Franklin County, Ohio 43216, Attention:
Real Estate Investments, its successors and assigns, (Nationwide and West Coast
shall be sometimes hereinafter collectively referred to as "Assignee");
W I T N E S S E T H:
WHEREAS, Assignor is the present owner in fee simple of certain real
property located in Louisville, Jefferson County, Kentucky, more particularly
described on Exhibit A attached hereto and by this reference made a part hereof
(hereinafter referred to as the "Real Property"); and
WHEREAS, Assignee is the owner and holder of a certain mortgage, security
agreement and fixture financing statement of even date herewith (hereinafter
referred to as the "Mortgage") encumbering the Real Property and other property
more specifically described in the Mortgage (all of which property is referred
to herein and in the Mortgage as the "Property"), which Mortgage secures the
payment of (i) that certain Promissory Note A ("Note A") of even date herewith
in the amount of SIX MILLION SIX HUNDRED THOUSAND DOLLARS ($6,600,000.00) made
by NTS-Plainview Associates, a Kentucky limited partnership ("NTS") as Maker,
and payable to Nationwide, as Holder and (ii) that certain Promissory Note B
("Note B") of even date herewith in the amount of SEVEN HUNDRED FIFTY THOUSAND
DOLLARS ($750,000.00) made by NTS as Maker, and payable to West Coast, as Holder
(Note A and Note B shall be hereinafter collectively referred to as the "Note");
and
WHEREAS, the Note shall be due and payable no later than November 15,
2010; and
WHEREAS, the Recitals in the Mortgage are incorporated herein by
reference; and
WHEREAS, Assignee, as a condition to making the aforesaid loan and to
obtain additional security therefor, has required the execution of this
Assignment by Assignor; and
NOW THEREFORE, in order to further secure the payment of the indebtedness
evidenced by the Note, and secured by the Mortgage, and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Assignor does hereby sell, assign, transfer and set over unto Assignee all of
the leases, rents, issues, profits and income of, from or pertaining to the
Property. This Assignment shall include any and all leases or rental agreements
that may now be in effect, as well as any future or additional leases or rental
agreements, and any renewals or extensions of the same, that may be entered into
by Assignor. Assignor hereby agrees to execute and deliver such further
assignments of said leases or rental agreements as Assignee may from time to
time request.
This Assignment is absolute and effective immediately and without
possession. Notwithstanding the foregoing, Assignor shall have a license to
receive, collect and enjoy the rents, issues, profits and income accruing from
the Property until a default has occurred under the Note, the Mortgage or any
other instrument evidencing or securing the Note. Upon the occurrence of a
default, the license shall cease automatically, without need of notice,
possession, foreclosure or any other act or procedure, and all leases, rents,
issues, profits and income assigned hereby shall thereafter be payable to
Assignee.
PROVIDED ALWAYS that if NTS or Assignor shall pay unto Assignee the
indebtedness evidenced by the Note, and if NTS and Assignor shall duly, promptly
and fully perform, discharge, execute, effect, complete, comply with and abide
by each of their respective agreements, conditions and covenants contained in
the Note, the Mortgage, this Assignment and all other instruments executed by
NTS or Assignor to and in favor of Assignee as further evidence of or as
additional security for the indebtedness (hereinafter together referred to as
the "Loan Documents"), then this Assignment and the estates and interests hereby
granted and created shall terminate.
REPRESENTATIONS AND WARRANTIES OF ASSIGNOR
1. In furtherance of the foregoing assignment, Assignor:
A. Represents and warrants that it is the owner in fee simple of
the Property and has good title to the leases, rents, income, issues, and
profits hereby assigned and good right to assign the same, and that no other
person, entity, firm or corporation has any right, title or interest therein;
that Assignor has not previously sold, assigned, transferred, mortgaged or
pledged said rents, issues, profits, income and leases of the Property; and that
payment of any of the same has not otherwise been anticipated, waived, released,
discounted, set off or otherwise discharged or compromised.
B. Except as provided in the Mortgage, Assignee agrees and
warrants that, without the prior written consent of Assignee, the terms of any
and all leases will not be amended, altered, modified or changed in any manner
whatsoever, nor will they be surrendered or canceled, nor will any proceedings
for dispossession or eviction of any lessee under said leases be instituted by
Assignor.
C. Agrees and warrants that no request will be made of any lessee
to pay any rent, and no rent will be accepted by Assignor, for more than one
month in advance of the date such rent becomes due and payable under the terms
of any and all leases, it being agreed between Assignor and Assignee that rent
shall be paid as provided in said leases and not otherwise. The foregoing shall
not prevent Assignor from charging and collecting security deposits from each
tenant leasing space on the Real Property.
D. Authorizes Assignee, by and through its employees or agents or
a duly appointed receiver, at its option, after the occurrence of a default
under this Assignment, the Note, the Mortgage or any of the other Loan
Documents, to enter upon the Property and to collect, in the name of Assignor,
as its lawful attorney, or in its own name as Assignee, any rents, income or
profits accrued but unpaid and/or in arrears at the date of such default, as
well as the rents, income or profits thereafter accruing and becoming payable
during the period of the continuance of the said default or any other default.
To this end, Assignor further agrees that it will cooperate with and facilitate,
in all reasonable ways, Assignee's collection of said rents, income or profits
and will, upon request by Assignee, execute a written notice to each tenant,
occupant or licensee directing said tenant, occupant or licensee to pay directly
to Assignee all income, rents and profits due and payable under said leases;
provided, however, that Assignee may notify said tenant, occupant or licensee of
the effectiveness of this Assignment without giving notice to Assignor or
requesting Assignor to give such notice or join in such notice.
E. Authorizes Assignee, upon such entry, at its option, to take
over and assume the management, operation and maintenance of the Property and to
perform all acts necessary and proper and to expend such sums out of the income
of the Property as in Assignee's sole discretion may be reasonable or necessary
in connection therewith, in the same manner and to the same extent as Assignor
theretofore might do. Assignor hereby releases all claims against Assignee
arising out of such management, operation and maintenance.
F. Agrees to execute, upon the request of Assignee, any and all
other instruments requested by Assignee to effectuate this Assignment or to
accomplish any other purpose deemed by Assignee to be necessary or appropriate
in connection with this Assignment.
G. Agrees and acknowledges that nothing in this Assignment shall
be construed to limit or restrict in any way the rights and powers granted to
Assignee in the Note, the Mortgage or any of the other Loan Documents. The
collection and application of the rents, issues and profits as described herein
shall not constitute a waiver of any default which might at the time of
application or thereafter exist under the Note, the Mortgage or any of the other
Loan Documents, and the exercise by Assignee of the rights herein provided shall
not prevent Assignee's exercise of any rights provided under the Note, the
Mortgage or any of the other Loan Documents.
ASSIGNEE'S RIGHTS FOLLOWING DEFAULT BY ASSIGNOR
2. Assignee may, after the occurrence of a default as hereinabove
provided, from time to time, appoint and dismiss such agents or employees as
shall be necessary or reasonable for the collection of the rents, issues and
profits derived from the Property and for the proper care and operation of the
Property, and Assignor hereby grants to Assignee the authority to give such
agents or employees so appointed full and irrevocable authority on Assignor's
behalf to manage the Property and to do all acts relating to such management,
including, without limitation, the entry into and execution of new leases in the
name of Assignor or otherwise, the alteration or amendment of existing leases,
the authorization to repair or replace any items necessary in order to maintain
the building or buildings and chattels incidental thereto in good and tenantable
condition, and the effectuation of such alterations or improvements as in the
judgment of Assignee may be reasonable or necessary to maintain or increase the
income from the Property. Assignee shall have the sole control of such agents
or employees, whose remuneration shall be paid out of the rents, issues and
profits as hereinabove provided, at the rate of compensation accepted in the
community wherein the Property is situated.
APPLICATION BY ASSIGNEE OF NET INCOME FROM THE PROPERTY
3. Assignee shall, after payment of all proper charges and expenses
enumerated under Paragraph 2 above, and after retaining sufficient sums to meet
taxes, assessments, utilities and insurance coverages in requisite amounts
(including liability, fire and extended coverage), credit the net income
received by Assignee from the Property, by virtue of this Assignment, to any
amounts due and owing to Assignee by Assignor under and pursuant to the terms of
the Mortgage, but the manner of the application of such net income shall be
determined in the sole discretion of Assignee. Assignee shall make a reasonable
effort to collect rents, income and profits, reserving, however, within its sole
discretion, the right to determine the method of collection and the extent to
which enforcement of the collection of delinquent rents, income and profits
shall be prosecuted. Notwithstanding the foregoing, no such credit shall be
given by Assignee for any sum or sums received from the rents, issues and
profits of the Property until the sums collected are actually received by
Assignee at its principal office as stated above (or at such other place as
Assignee shall designate in writing), and no credit shall be given for any
uncollected rents or other uncollected amounts or bills, nor shall credit be
given for any rents, issues and profits derived from the Property under any
order of court or by operation of law until such amounts are actually received
by Assignee at its principal offices as stated above. The net amount of income
received by Assignee hereunder and applied by Assignee to the amounts due and
owing by NTS or Assignor shall not serve to cure any default under the Note, the
Mortgage or any of the other Loan Documents, nor shall any amounts received by
Assignee hereunder be in full satisfaction of the indebtedness evidenced by the
Note unless such amounts are sufficient to pay such indebtedness in full
(including any prepayment premiums, late payment charges and advancements) in
accordance with the terms of the Note, the Mortgage and the other Loan
Documents.
LIMITATION OF ASSIGNEE'S LIABILITY
4. Assignee shall not be obligated to perform or discharge any
obligation under the leases hereby assigned or under or by reason of this
Assignment, and Assignor hereby agrees to indemnify and hold Assignee harmless
against any and all liability, loss or damage which Assignee might incur under
the leases or under or by reason of this Assignment and of and from any and all
claims and demands whatsoever which may be asserted against Assignee by reason
of any alleged obligation or undertaking on Assignee's part to perform or
discharge any of the terms of such leases, except for claims and demands arising
by reason of Assignee's gross negligence or willful misconduct.
REINSTATEMENT AFTER DEFAULT
5. In the event that NTS or Assignor shall, with the consent of
Assignee, reinstate the indebtedness evidenced by the Note completely in good
standing, having complied with all the terms, covenants and conditions of the
Note, the Mortgage, this Assignment and all of the other Loan Documents, then,
in such event, Assignee shall return possession of the Property to Assignor, and
Assignor shall remain in possession of the Property unless and until another
default occurs under the Note, the Mortgage, this Assignment or any of the other
Loan Documents, at which time Assignee may, at its option, again take possession
of the Property under authority of and pursuant to the terms and provisions of
this Assignment.
TENANT'S NOTIFICATION OF ASSIGNMENT
6. Upon request by Assignee, at any time, Assignor will deliver a
written notice to each of the tenants and lessees of the Property, which notice
shall inform such tenants and lessees of this Assignment and instruct them that
upon receipt of notice by them from Assignee of the existence of a default by
Assignor under the Note, the Mortgage or any of the other Loan Documents, all
rent due thereafter shall be paid directly to Assignee.
SATISFACTION OF MORTGAGE; SATISFACTION OF ASSIGNMENT
7. This Assignment shall remain in full force and effect as long as the
indebtedness evidenced by the Note and secured by the Mortgage remains unpaid in
whole or in part. It is understood and agreed that a complete release or
satisfaction of the aforesaid Mortgage shall operate as a complete release or
satisfaction of all of Assignee's rights and interest hereunder, and that
satisfaction of the Mortgage shall operate to satisfy this Assignment.
EXCULPATION
8. The liability of NTS with respect to the payment of principal and
interest under the Note shall be "non-recourse" and, accordingly, Assignee's
source of satisfaction of the obligations of NTS under the Note and Assignor's
other obligations hereunder and under the other Loan Documents shall be limited
to the Property and Assignee's receipt of the rents, issues and profits from the
Property, and Assignee shall not seek to procure payment out of any other assets
of NTS or Assignor or any person or entity comprising NTS or Assignor, nor to
seek judgment for any sums which are or may be payable under the Note or under
any of the other Loan Documents, as well as any claim or judgment (except as
hereafter provided) for any deficiency remaining after foreclosure of the
Mortgage. Notwithstanding the above, nothing herein contained shall be deemed
to be a release or impairment of the indebtedness evidenced by the Note or the
security therefor intended by the other Loan Documents or be deemed to preclude
Assignee from exercising its rights to foreclose the Mortgage.
Notwithstanding the foregoing, it is expressly understood and agreed
that the aforesaid limitation on liability shall in no way affect or apply to
NTS' or Assignor's continued personal liability for:
A. fraud or misrepresentation made in or in connection with the
Note or any of the other Loan Documents governing, securing or pertaining to the
payment thereof;
B. failure to pay taxes, assessments, charges for labor or
materials or any other charges which may create liens on any portion of the
Property;
C. the misapplication of (i) proceeds of insurance covering any
portion of the Property; or (ii) proceeds of the sale or condemnation of any
portion of the Property; or (iii) rentals held or received by or on behalf of
the Assignor subsequent to the date on which Assignee gives written demand
therefor pursuant to any Loan Document;
D. causing or permitting waste to occur on, in or about the
Property, and failure to maintain the Property, excepting ordinary wear and
tear;
E. loss by fire or casualty to the extent not compensated by
insurance proceeds collected by Assignee;
F. the return to Assignee, of all unearned advance rentals and
security deposits paid by tenants of the Property and not refunded to or
forfeited by such tenants;
G. the return of, or reimbursement for, all Fixtures and Personal
Property owned by Assignor taken from the Property by or on behalf of Assignor
out of the ordinary course of business, and not replaced by personalty of equal
or greater value than the original value of the Fixtures and Personal Property
so removed;
H. any and all costs incurred in order to cause the Property to
comply with the Accessibility Laws, and (ii) any indemnity or other agreement to
hold Mortgagee harmless from and against any and all losses, liabilities,
damages, injuries, costs or expenses of any kind arising under Paragraph 3 of
the Mortgage regarding accessibility for the disabled or handicapped, or under
the separate Accessibility Indemnity Agreement of even date herewith executed by
Assignor;
I. all court costs and Reasonable Attorneys' Fees actually
incurred which are provided for in the Note or in any other Loan Document; and
J. (i) the removal of any chemical, material or substance,
exposure to which is prohibited, limited or regulated by any Federal, State,
County, Regional or Local Authority which may or could pose a hazard to the
health and safety of the occupants of the Property regardless of the source of
origination; and (ii) the restoration of the Property to comply with all
governmental regulations pertaining to hazardous waste found in, on or under the
Property regardless of the source of origination; and (iii) any indemnity or
other agreement to hold the Assignee harmless from and against any and all
losses, liabilities, damages, injuries, costs, expenses of any and every kind
arising under paragraph 3 of the Mortgage, and/or the Environmental Certificate
and Indemnity Agreement of even date herewith executed by Assignor. Assignor
shall not be liable hereunder if the Property becomes contaminated subsequent to
Assignee's acquisition of the Property by foreclosure or acceptance of a deed in
lieu thereof or subsequent to any transfer of ownership which was approved or
authorized by Assignee pursuant to the Mortgage, provided that such transferee
assumes all obligations pertaining to Hazardous Materials pursuant to the Loan
Documents. Liability under this subparagraph (J) shall extend beyond repayment
of the Note and compliance with the terms of the Mortgage unless at such time
Assignor provides Assignee with an environmental assessment report acceptable to
Assignee showing the Property to be free of Hazardous Materials and not in
violation of Hazardous Waste Laws. The burden of proof under this subparagraph
with regard to establishing the date upon which such chemical, material or
substance was placed or appeared in, on or under the Property shall be upon
Assignor.
K. the return to Assignee of any and all fees paid to Assignor by
tenants of the Property which fees permit tenants to terminate their leases; and
L. obligations under any letter(s) of credit issued at the request of
Assignor and held by NTS, Nationwide and/or West Coast; provided however, this
subparagraph L. shall not apply to letter(s) of credit issued for the benefit of
NTS and shall not obligate Assignor to provide letter(s) of credit to NTS,
Nationwide or West Coast.
The obligations of NTS and Assignor in subparagraphs (A) through (L)
above, except as specifically provided in subparagraphs (H) or (J) shall survive
the repayment of the Note and satisfaction of the Mortgage. Notwithstanding the
foregoing, Assignor shall become personally liable for the entire amount
evidenced hereby, including principal, interest and other charges, in the event
the Assignor violates paragraph 30 or paragraph 31 of the Mortgage.
Assignor has been advised by Assignee that (i) the obligations of NTS
under the Note are "nonrecourse", (ii) the general partners of NTS shall have no
personal liability for, and are exculpated from, all obligations evidenced by
the Note, (iii) the Note contains exceptions to the "exculpation" provision
which are similar to the exceptions set forth in subparagraphs (A) through (J)
above. Assignor acknowledges and agrees that the indebtedness secured by this
Assignment includes, but is not limited to, (a) the obligations of NTS under the
Note, including obligations of NTS arising under any of the exceptions to the
"exculpation" provision and (b) the obligations of Assignor hereunder, including
obligations of Assignor arising under the exceptions to this paragraph 8 as set
forth in subparagraphs (A) through (J) above.
The provisions of this Assignment shall inure to the benefit of Assignee,
its successors and assigns, and shall be binding upon Assignor, its personal
representatives, successors and assigns. The creation of rights and powers
under this Assignment in favor of, or available to, Assignee shall, in no way
whatsoever, be construed to impose concomitant duties or obligations on Assignee
in favor of Assignor except as expressly set forth herein.
As used herein, the phrase "Reasonable Attorneys' Fees" shall mean fees
charged by attorneys selected by Assignee based upon such attorneys' then
prevailing hourly rates as opposed to any statutory presumption specified by any
statute then in effect in the Commonwealth of Kentucky.
This Assignment is executed and delivered as additional security for a
loan transaction negotiated and consummated in Jefferson County, Kentucky and is
to be construed according to the laws of the Commonwealth of Kentucky, and the
laws of the United States.
IN WITNESS WHEREOF, the undersigned has executed this Assignment under
seal as of the day and year first above written.
PLAINVIEW APARTMENTS, L.P., a South Carolina
limited partnership
BY: Davidson III GP Limited Partnership, its
General Partner
BY: Plainview GP, Inc., its General
Partner
BY:/s/Robert D. Long, Jr.
TITLE:CAO/Controller
COMMONWEALTH OF KENTUCKY )
) SS:
COUNTY OF JEFFERSON )
The foregoing instrument was acknowledged before me this ____ day of
November, 1995, by ______________________, as ___________________ of PLAINVIEW
GP, INC., a _______________ corporation, on behalf of the corporation, as
general partner of DAVIDSON III GP LIMITED PARTNERSHIP, a ____________________
limited partnership, on behalf of the partnership, as general partner of
PLAINVIEW APARTMENTS, L.P., a South Carolina limited partnership, on behalf of
the partnership.
My commission expires:
NOTARY PUBLIC
THIS INSTRUMENT PREPARED BY:
William H. Haden, Jr., Esq.
Barry A. Hines, Esq.
STITES & HARBISON
1800 Providian Center
400 West Market Street
Louisville, Kentucky 40202-3352
(502) 587-3400
EXHIBIT A
(Insert Legal Description)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate III, L.P. 1995 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000773679
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 540,534
<SECURITIES> 0
<RECEIVABLES> 29,146
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 33,182,665
<DEPRECIATION> 12,412,437
<TOTAL-ASSETS> 22,196,502
<CURRENT-LIABILITIES> 0
<BONDS> 24,021,716
0
0
<COMMON> 0
<OTHER-SE> (2,511,089)
<TOTAL-LIABILITY-AND-EQUITY> 22,196,502
<SALES> 0
<TOTAL-REVENUES> 5,351,697
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,292,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,162,730
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (996,838)
<EPS-PRIMARY> (965.79)
<EPS-DILUTED> 0
</TABLE>
