FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-15676
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
Delaware 62-1242599
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
June 30, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 594
Restricted-tenant security deposits 123
Accounts receivable 16
Escrows for taxes 152
Restricted escrows 179
Other assets 461
Investment properties:
Land $ 2,821
Buildings and related personal
property 30,464
33,285
Less accumulated depreciation (13,079) 20,206
$21,731
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 68
Tenant security deposits 123
Accrued interest 89
Accrued taxes 338
Other liabilities 110
Mortgage notes payable 23,979
Partners' Deficit
General partner $ (59)
Limited partners (1,011.5 units
issued and outstanding) (2,917) (2,976)
$21,731
See Accompanying Notes to Consolidated Financial Statements
b) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,285 $ 1,206 $ 2,543 $ 2,377
Other income 106 111 220 252
Casualty gain 4 -- 10 --
Total revenues 1,395 1,317 2,773 2,629
Expenses:
Operating 422 433 825 818
General and administrative 51 41 86 64
Maintenance 232 188 363 355
Depreciation 335 316 667 628
Interest 547 537 1,093 1,074
Property taxes 96 68 204 177
Adjustment to casualty
gain (Note B) -- (93) -- 69
Total expenses 1,683 1,490 3,238 3,185
Net loss $ (288) $ (173) $ (465) $ (556)
Net loss allocated to general
partner (2%) $ (6) $ (3) $ (9) $ (11)
Net loss allocated to limited
partners (98%) (282) (170) (456) (545)
$ (288) $ (173) $ (465) $ (556)
Net loss per limited
partnership unit $(278.79) $(167.64) $(450.81) $(538.52)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
c) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 1,013 $ 1 $20,240 $20,241
Partners'deficit at December 31,
1995 1,011.5 $ (50) $(2,461) $(2,511)
Net loss for the six months
ended June 30, 1996 -- (9) (456) (465)
Partners' deficit at June 30,
1996 1,011.5 $ (59) $(2,917) $(2,976)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (465) $ (556)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation 667 628
Adjustment to casualty gain -- (69)
Amortization of discounts and
loan costs 32 25
Casualty gain (10) --
Change in accounts:
Restricted cash (13) --
Accounts receivable 13 212
Escrows for taxes (79) (70)
Other assets 4 (8)
Accounts payable (8) 37
Accrued property taxes 75 51
Tenant security deposit liabilities 13 2
Accrued interest -- 24
Other liabilities (28) (80)
Net cash provided by
operating activities 201 196
Cash flows from investing activities:
Property improvements and replacements (102) (191)
Deposits to restricted escrows (7) (68)
Receipts from restricted escrows 11 31
Net cash used in
investing activities (98) (228)
Cash flows from financing activities:
Payments on mortgage notes payable (50) (46)
Net cash used in financing
activities (50) (46)
Net increase (decrease) in cash and
cash equivalents 53 (78)
Cash and cash equivalents at beginning of period 541 661
Cash and cash equivalents at end of period $ 594 $ 583
Supplemental disclosure of cash
flow information:
Cash paid for interest $1,060 $1,025
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
e) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Davidson Diversified Properties, Inc.
("Managing General Partner"), all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1996, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Davidson Diversified Real
Estate III Limited Partnership ("Partnership") annual report on Form 10-KSB for
the year ended December 31, 1995.
Note B - Clubhouse Damage
In November 1994, the clubhouse at Plainview Apartments sustained extensive
damage due to an electrical fire. The insurance proceeds to be received
subsequent to December 31, 1994, were originally estimated at $500,000. The
destroyed clubhouse had a net book value of $263,000 resulting in a casualty
gain of $237,000. A receivable for the estimated proceeds, along with the
retirement of the clubhouse's net book value and $202,000 of the corresponding
casualty gain was recognized at December 31, 1994. The remaining $35,000 of the
$237,000 casualty gain was deferred at December 31, 1994, due to related
expenses that were not reimbursable by insurance which were expected to be
incurred during the coming year. During the six months ended June 30, 1995, the
Partnership reduced its estimate of the casualty gain by $69,000 due to
negotiations with the insurance carrier which modified the scope of the
clubhouse replacement and reduced the insurance proceeds to be received. During
the six months ended June 30, 1996, the Partnership recognized $10,000 of the
deferred gain. As of June 30, 1996, all insurance proceeds had been received.
Note C Transactions with Affiliated Parties
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling
ownership interest in the Managing General Partner. The Partnership has no
employees and is dependent on the Managing General Partner and its affiliates
for the management and administration of all partnership activities. The
Partnership Agreement provides for payments to affiliates for services and as
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following payments were made to affiliates of Insignia during the six
months ended June 30, 1996 and 1995:
Six Months Ended
June 30,
1996 1995
(in thousands)
Property management fees $ 137 $ 126
Reimbursement for services of affiliates 66 57
The Partnership insures its properties under a master policy through an
agency and insurer unaffiliated with the Managing General Partner. An affiliate
of the Managing General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the Managing General
Partner who receives payment on these obligations from the agent. The amount of
the Partnership's insurance premiums accruing to the benefit of the affiliate of
the Managing General Partner by virtue of the agent's obligations is not
significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of two apartment complexes.
The following table sets forth the average occupancy of these properties for the
six months ended June 30, 1996 and 1995:
Average
Occupancy
1996 1995
Salem Courthouse
Indianapolis, Indiana 94% 92%
Plainview Apartments
Louisville, Kentucky 93% 89%
The Managing General Partner attributes the increase in occupancy at
Plainview Apartments to the rebuilt amenities at the clubhouse including an
indoor pool and sauna.
The Partnership realized a net loss of $465,000 for the six months ended June
30, 1996, compared to a net loss of $556,000 for the corresponding period of
1995. The Partnership realized net losses of $288,000 and $173,000 for the
three months ended June 30, 1996 and 1995, respectively. Rental revenues
increased due to higher occupancy at both Salem Courthouse Apartments and
Plainview Apartments. Other income decreased for the six months ended June 30,
1996, as a result of decreased lease cancellation fees, utility collections, and
cleaning and damage fees at Plainview Apartments.
General and administrative expenses increased for the three and six months
ended June 30, 1996, compared to the corresponding period of 1995, due to
increased expense reimbursements to affiliates of the Managing General Partner
resulting from higher administrative costs. Maintenance expenses increased for
the three months ended June 30, 1996, due to increases in swimming pool repairs
and contract yards and grounds at Salem Courthouse Apartments. Property tax
expenses increased for the three and six months ended June 30, 1996, due to an
underestimation of the real estate tax expense for the first half of 1995. The
1995 expense was based on a lower 1994 real estate tax billing.
The adjustment to casualty gain for the three and six months ended June 30,
1995, resulted from negotiations with the insurance carrier that modified the
scope of the clubhouse replacement and adjusted the insurance proceeds to be
received. The casualty gain for the six months ended June 30, 1996, relates to
the recognition of a portion of the deferred gain (See "Note B" of the Notes to
Consolidated Financial Statements).
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels, and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Managing General Partner will be able to sustain
such a plan.
The Partnership held unrestricted cash of $594,000 at June 30, 1996, compared
to unrestricted cash of $583,000 at June 30, 1995. The decrease in net cash
used in activities during the six months ending June 30, 1996, was due primarily
to decreased property improvements and decreased deposits required for
restricted escrows.
The sufficiency of existing liquid assets to meet future liquidity and
capital expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets as well as meet future maturing mortgage obligations and related
refinancing expenses. Such assets are currently thought to be sufficient for
any near-term needs of the Partnership. The mortgage indebtedness of
approximately $24,000,000, net of discount, requires balloon payments on dates
ranging from October 15, 2003, to November 15, 2010, by which time the Managing
General Partner intends to sell or refinance the individual properties. The
principal debt of approximately $15,300,000 encumbering Plainview Apartments
requires interest-only payments and matures November 15, 2010. Approximately
$300,000 of second mortgage debt, net of discount, secured by Salem Courthouse
Apartments requires interest-only payments and matures October 15, 2003. The
first mortgage of $8,400,000, net of discount, secured by Salem Courthouse is
amortized over approximately 29 years, maturing on October 15, 2003. No cash
distributions were made during the first six months of 1995 or 1996. Future
cash distributions will depend on the levels of net cash generated from
operations, refinancings, property sales and the availability of partnership
cash reserves.
Salem Courthouse Apartments and Plainview Apartments are both owned by lower
tier partnerships known as Salem Courthouse, L.P. and Plainview Apartments,
L.P., respectively, in which the Partnership is the 99.99% limited partner. The
Partnership has retained substantially all control and economic benefits of the
properties.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAVIDSON DIVERSIFIED REAL ESTATE III
By: Davidson Diversified Properties, Inc.
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: August 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate III, L.P. 1996 Second Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000773679
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE III L.P.,
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 594
<SECURITIES> 0
<RECEIVABLES> 16
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 33,285
<DEPRECIATION> 13,079
<TOTAL-ASSETS> 21,731
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 23,979
0
0
<COMMON> 0
<OTHER-SE> (2,976)
<TOTAL-LIABILITY-AND-EQUITY> 21,731
<SALES> 0
<TOTAL-REVENUES> 2,773
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,093
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (465)
<EPS-PRIMARY> (450.81)<F2>
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
