FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1996
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: $5,589,000
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, 1996: 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 inherent risks 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, 1996, 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 1996 and 1995.
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:
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Useful Federal
Property Value Depreciation Life Method Tax Basis
<S> <C> <C> <C> <C> <C>
Plainview $20,800 $ 8,116 5-25 years S/L $ 8,950
Salem Courthouse 12,813 5,535 5-25 years S/L 4,722
Totals $33,613 $13,651 $13,672
</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:
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1996 Rate Amortized Date Maturity
<S> <C> <C> <C> <C> <C>
Plainview
1st mortgage $15,336 9.33% (1) 11/15/10 $15,336
Salem Courthouse
1st mortgage 8,462 7.83% 28.67 yrs 10/15/03 7,513
2nd mortgage 271 7.83% (1) 10/15/03 271
24,069
Less unamortized
discounts (133)
Total $23,936
<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:
Average Annual Average
Rental Rates Occupancy
Property 1996 1995 1996 1995
Plainview $6,672/unit $6,450/unit 94% 89%
Salem Courthouse 5,915/unit 5,895/unit 93% 93%
The Managing General Partner attributes the increase in occupancy and average
rental rates at Plainview Apartments to rebuilt amenities at the clubhouse
including an indoor pool and sauna.
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 1996 for each property were:
(dollar amounts in thousands)
1996 1996
Taxes Rate
Plainview $149 1.1%
Salem Courthouse 254 9.2%
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. As of January 1996, there were 1,382
holders of record owning an aggregate of 1,011.5 Units.
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.
There were no distributions of cash from operations for the years ending
December 31, 1995 and 1996. 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 $940,000 for the year ended December 31,
1996, compared to a net loss of $997,000 for the year ended December 31, 1995.
The net loss decreased primarily due to the non-recurring casualty gain
recognized in 1996 relating to the Plainview Apartments fire and hail damage
(See "Note G" to the Consolidated Financial Statements in "Item 7"). Rental
revenues increased slightly to $5,156,000 for the year ended December 31, 1996,
compared to $4,883,000 for the year ended December 31, 1995 due to the increased
occupancy and average rental rates at Plainview discussed in "Item 2" above.
Maintenance expenses increased $193,000 or 27.4% for the year ended December 31,
1996, compared to the year ended December 31, 1995, due to parking lot repairs
and various interior and exterior building repairs at Plainview Apartments and
major landscaping improvements, repairs for a gas leak and swimming pool repairs
at Salem Courthouse Apartments. Also during 1996, Salem Courthouse performed
various exterior building repairs including balcony and stairway renovations.
The casualty loss recognized during the year ended December 31, 1995, resulted
from negotiations with the insurance carrier that modified the scope of the
clubhouse replacement and adjusted the insurance proceeds to be received by
$51,000, offset by recognition of $25,000 of deferred gain. The casualty gain
for the year ended December 31, 1996, related to the recognition of $10,000 of
the deferred gain and a $201,000 gain relating to fire and hail damage at
Plainview Apartments (See "Note G" to the Consolidated Financial Statements in
"Item 7").
The loss on disposal of property for the years ended December 31, 1995 and 1996,
relates to roof replacements at Plainview Apartments.
Included in maintenance expense for 1996 is approximately $294,000 of major
repairs and maintenance comprised primarily of major landscaping expenses,
swimming pool repairs, exterior building repairs and parking lot repairs.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels, and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions which can result in the use of rental
concessions and rental reductions to offset softening market conditions, there
is no guarantee that the Managing General Partner will be able to sustain such a
plan.
LIQUIDITY AND CAPITAL RESOURCES
On November 15, 1995, the Partnership refinanced the mortgage encumbering
Plainview Apartments. The total indebtedness refinanced was $15,336,000, of
which $14,500,000 represented principal and $836,000 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 $216,000.
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 $465,000 at December 31, 1996,
compared to unrestricted cash of $541,000 at December 31, 1995. The decrease in
net cash provided by operating activities for the year ended December 31, 1996,
was primarily due to an increase in operating and maintenance expenses at both
properties. Net cash used in investing activities increased for the year ended
December 31, 1996, primarily due to an increase in the net deposits to
restricted escrows and a decrease in insurance proceeds received during the
year. Net cash used in financing activities decreased for the year ended
December 31, 1996, due to the non-recurring nature of the loan costs associated
with the debt refinancing at Plainview Apartments in 1995.
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
$23,936,000, 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, 1996
Consolidated Statements of Operations - Years ended December 31, 1996 and 1995
Consolidated Statement of Changes in Partners' Deficit - Years ended December
31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1996 and 1995
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. as of December 31, 1996, 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, 1996. 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. as of December 31, 1996, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
January 25, 1997
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1996
Assets
Cash:
Unrestricted $ 465
Restricted-tenant security deposits 117
Accounts receivable 5
Escrows for taxes 130
Restricted escrows 254
Other assets 437
Investment properties (Notes B and F):
Land $ 2,821
Buildings and related personal property 30,792
33,613
Less accumulated depreciation (13,651) 19,962
$21,370
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 191
Tenant security deposits 118
Accrued interest 89
Accrued taxes 267
Other liabilities 220
Mortgage notes payable (Note B) 23,936
Partners' Deficit
General partners $ (69)
Limited partners (1,011.5 units
issued and outstanding) (3,382) (3,451)
$21,370
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1996 1995
Revenues:
Rental income $ 5,156 $ 4,883
Other income 433 469
Total revenues 5,589 5,352
Expenses:
Operating 1,697 1,589
General and administrative 173 158
Maintenance 897 704
Depreciation 1,352 1,283
Interest 2,183 2,163
Property taxes 413 396
Total expenses 6,715 6,293
Casualty events (Note G) 211 (26)
Loss on disposal of property (25) (30)
Net loss $ (940) $ (997)
Net loss allocated to general partners (2%) $ (19) $ (20)
Net loss allocated to limited partners (98%) (921) (977)
$ (940) $ (997)
Net loss per limited partnership unit $(910.53) $(965.79)
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 1,013 $ 1 $ 20,240 $ 20,241
Partners' deficit at
December 31, 1994 1,011.5 $ (30) $ (1,484) $ (1,514)
Net loss for the year ended
December 31, 1995 -- (20) (977) (997)
Partners' deficit at
December 31, 1995 1,011.5 (50) (2,461) (2,511)
Net loss for the year ended
December 31, 1996 -- (19) (921) (940)
Partners' deficit at
December 31, 1996 1,011.5 $ (69) $ (3,382) $ (3,451)
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (940) $ (997)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,352 1,283
Amortization of discounts and loan costs 64 51
Casualty (gain) loss (211) 26
Loss on disposal of property 25 30
Change in accounts:
Restricted cash (7) (4)
Accounts receivable 24 3
Escrows for taxes (57) 30
Other assets 4 16
Accounts payable 115 (6)
Accrued property taxes 4 (1)
Tenant security deposit liabilities 8 3
Accrued interest -- 97
Other liabilities 82 (38)
Net cash provided by operating activities 463 493
Cash flows from investing activities:
Property improvements and replacements (710) (755)
Deposits to restricted escrows (355) (144)
Receipts from restricted escrows 284 165
Insurance proceeds from property damage 343 430
Net cash used in investing activities (438) (304)
Cash flows from financing activities:
Payments on mortgage notes payable (101) (93)
Loan costs -- (216)
Net cash used in financing activities (101) (309)
Net decrease in cash (76) (120)
Cash at beginning of period 541 661
Cash at end of period $ 465 $ 541
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,119 $ 2,015
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Interest Reclassification
As a result of the refinancing of the Plainview Apartments mortgage on November
7, 1995, $836,000 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
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. The Partnership owns and operates two
apartment complexes located in Kentucky and Indiana.
PRINCIPLES OF CONSOLIDATION
The financial statements include all the accounts of the Partnership and the
99.99% owned lower-tier 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. The minority interests in the lower-tier partnerships are
immaterial.
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.
INVESTMENT PROPERTIES
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 $83,000 and $71,000 for the years
ended December 31, 1996 and 1995, 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.
RESTRICTED ESCROWS
1) CAPITAL IMPROVEMENT RESERVES
At the time of the 1993 refinancing of the Salem Courthouse mortgage note
payable, approximately $176,000 of the proceeds were designated for a "Capital
Improvement Reserve" for certain capital improvements. At December 31, 1996,
the remaining reserve balance was $5,000. The capital improvements are
anticipated to be completed in calendar year 1997 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 approximately $114,000 was established with the refinancing proceeds
for the refinanced property. These funds were established to fund 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 approximately $155,000 in total. At December 31,
1996, the balance in the reserve account was $164,000 including interest earned
on the reserves.
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 make
repairs and improvements to the clubhouse. At December 31, 1996, the balance in
the project improvement account was $15,000.
LOAN COSTS
Loan costs of $559,000 less accumulated amortization of $122,000, 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 and considers the deposits to be restricted cash.
Deposits are refunded when the tenant vacates the apartment if there has been no
damage to the unit.
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 1995 balances to conform to the
1996 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
(dollar amounts in thousands)
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 1996 Interest Rate Date Maturity
<S> <C> <C> <C> <C> <C>
Plainview Apartments $15,336 $119(1) 9.33% 11/15/10 $15,336
Salem Courthouse
1st mortgage 8,462 64 7.83% 10/15/03 7,513
2nd mortgage 271 2(1) 7.83% 10/15/03 271
24,069
Less unamortized
discounts (133)
Totals $23,936 $23,120
<FN>
(1) Interest only payments.
</TABLE>
The Partnership exercised an interest rate buy-down option for Salem Courthouse
when the debt was refinanced, reducing the stated rate from 8.13% to 7.83%. The
fee for the interest rate reduction amounted to $177,000 and is being amortized
as a mortgage discount on the interest method over the life of the loan. The
unamortized discount fee is reflected as a reduction of the mortgage notes
payable and increases the effective rate of the debt to 8.13%.
Scheduled principal payments of mortgage notes payable subsequent to December 31
are as follows:
Years Ending December 31,
1997 $ 109
1998 118
1999 128
2000 138
2001 149
Thereafter 23,427
$24,069
Mortgages are collateralized by the related property and improvements of the
Partnership. Certain of the notes require prepayment penalties if repaid prior
to maturity.
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 $15,336,000, of
which $14,500,000 represented principal and $836,000 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 $216,000 and are
included in other assets.
NOTE D - INCOME TAXES
(dollar amounts in thousands, except unit data)
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 rental income received in advance, (4) casualty gain
(loss) on property damages, and (5) gain (loss) on disposition of property.
(dollar amounts in thousands, except unit data)
The following is a reconciliation of reported net loss and Federal taxable loss:
1996 1995
Net loss as reported $ (940) $ (997)
Add (deduct)
Depreciation differences (35) (73)
Unearned income (10) (91)
Amortization (3) (4)
Disposition of property (145) 56
Other 28 19
Federal taxable loss $ (1,105) $ (1,090)
Federal taxable loss per
limited partnership unit $(1,070.45) $(1,055.04)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net liabilities:
Net deficit as reported $(3,451)
Land and buildings 640
Accumulated depreciation (6,930)
Syndication 1,621
Distribution fees 1,051
Other 2
Net deficit - Federal tax basis $(7,067)
NOTE E - TRANSACTIONS WITH AFFILIATED PARTIES
(dollar amounts in thousands)
Affiliates of Insignia Financial Group, Inc. ("Insignia") own 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 1996 and 1995:
1996 1995
Property management fees $ 277 $ 261
Reimbursement for services of affiliates 174 114
Included in reimbursement for services of affiliates above are $46,000 and
$24,000 for the years ending December 31, 1996 and 1995, respectively, for
reimbursements for construction oversight costs related to the Partnership's
capital improvement and major repair projects.
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
(dollar amounts in thousands)
<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 Apartments
Indianapolis, Indiana $ 8,733 $ 774 $11,198 $ 841
Plainview
Louisville, Kentucky 15,336 2,047 16,584 2,169
Totals $24,069 $2,821 $27,782 $3,010
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1996
Buildings
And
Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciaion Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Salem Courthouse $ 774 $12,039 $12,813 $ (5,535) 1978 11/85 5-25
Phase I 1973 05/86
Plainview 2,047 18,753 20,800 (8,116) Phase II 05/86 5-25
1978
Totals $2,821 $30,792 $33,613 $(13,651)
</TABLE>
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31,
1996 1995
Investment Properties
Balance at beginning of year $33,183 $ 32,504
Property improvements 710 755
Disposition of apartment property (42) (76)
Removal for casualty event (238) --
Balance at End of Year $33,613 $ 33,183
Accumulated Depreciation
Balance at beginning of year $12,412 $ 11,175
Additions charged to expense 1,352 1,283
Disposition of apartment property (17) (46)
Removal for casualty event (96) --
Balance at end of year $13,651 $ 12,412
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1996 and 1995, is $34,253,000 and $33,886,000. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1996 and
1995, is $20,581,000 and $19,195,000.
NOTE G - DAMAGES
In November 1994, the clubhouse at Plainview Apartments sustained extensive
damage due to an electrical fire. The insurance proceeds to be received
subsequent to December 31, 1994, were originally estimated at $500,000. The
destroyed clubhouse had a net book value of $263,000 resulting in a casualty
gain of $237,000. A receivable for the estimated proceeds, along with the
retirement of the clubhouse's net book value and $202,000 of the corresponding
casualty gain was recognized at December 31, 1994. The remaining $35,000 of the
$237,000 casualty gain was deferred at December 31, 1994, due to related
expenses expected to be incurred during the coming year that were not
reimbursable by insurance. During the year ended December 31, 1995, the
Partnership recognized $25,000 of the deferred gain and reduced its estimate of
the casualty gain by $51,000 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 $430,000 of the
insurance proceeds during 1995. During the year ended December 31, 1996, the
Partnership recognized the remaining $10,000 of the deferred gain. As of
December 31, 1996, all insurance proceeds relating to the fire had been
received.
In May 1996, Plainview sustained hail damage to many of the roofs on the
property. Insurance proceeds received in connection with this casualty were
approximately $220,000 and were deposited in an escrow held by the mortgage
company. Payments are being made from the escrow as the roofs are repaired. At
December 31, 1996, approximately $71,000 remains in the escrow. The insurance
proceeds received approximated the estimated cost of the roof replacements.
In September 1996, Plainview Apartments incurred damage to eight apartment units
as the result of a fire at the property. Insurance proceeds received related to
the fire approximated $123,000. Total insurance proceeds received approximated
the estimated cost of replacing the damaged property.
As a result of the 1996 casualty events, investment property with a replacement
cost of approximately $343,000 and a net book value of approximately $142,000
was replaced. Accordingly, a casualty gain of $201,000 was recorded during
1996.
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 names of the directors and executive officers of Davidson Diversified
Properties, Inc., ("DDPI") the Partnership's Managing General Partner as of
December 31, 1996, their ages and the nature of all positions with DDPI
presently held by them are as follows:
Name Age Position
Carroll D. Vinson 56 President
Robert D. Long, Jr. 29 Controller and Principal
Accounting Officer
William H. Jarrard, Jr. 50 Vice President
John K. Lines 37 Secretary
Kelley M. Buechler 39 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.
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.
William H. Jarrard, Jr. has been Managing Director - Partnership Administration
of Insignia since January 1991. Mr. Jarrard served as Managing Director -
Partnership Administration and Asset Management from July 1994 until January
1996.
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.
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 1996 or 1995. 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 1997, no security holder was known by Registrant to be the
beneficial owner of more than 5% of the Units of Registrant.
As of February 1997, 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 1996 and 1995 were $277,000 and
$261,000 respectively. Reimbursements for administrative services paid to
Insignia affiliates in 1996 and 1995 were $174,000 and $114,000, respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
(b) No Reports on Form 8-K were filed during the fourth quarter of
1996.
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
By: Davidson Diversified Properties, Inc.,
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
Date: March 25, 1997
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
Carroll D. Vinson
/s/Robert D. Long, Jr. Controller and Principal
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate III, L.P. 1996 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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 465
<SECURITIES> 0
<RECEIVABLES> 5
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 33,613
<DEPRECIATION> 13,651
<TOTAL-ASSETS> 21,370
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 23,936
0
0
<COMMON> 0
<OTHER-SE> 3,451
<TOTAL-LIABILITY-AND-EQUITY> 21,370
<SALES> 0
<TOTAL-REVENUES> 5,589
<CGS> 0
<TOTAL-COSTS> 6,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,183
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (940)
<EPS-PRIMARY> (910.53)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
