FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[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, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from ___________ to ______________
Commission file number 0-15676
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
(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 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: $5,706,000
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 a specified date within the past 60 days. Market value
information for the Registrant's partnership interests is not available.
Should a trading market develop for these interests, it is the Managing General
Partner's belief that the aggregate market value of the voting partnership
interests would not exceed $25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Davidson Diversified Real Estate III Limited Partnership (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 Managing General Partner is owned by MAE GP corporation ("MAE GP"), which is
wholly owned by Metropolitan Asset Enhancement, L.P., an affiliate of Insignia
Financial Group, Inc. ("Insignia"). Effective February 25, 1998, MAE GP was
merged into Insignia Properties Trust ("IPT"), an affiliate of Insignia. Thus
the Managing General Partner is now a wholly-owned subsidiary of IPT.
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.
The offering of the Partnership's limited partnership units ("Units") commenced
on October 28, 1985, and terminated on October 24, 1986. The Partnership
received gross proceeds from the offering of $20,240,000 and net proceeds of
$17,912,400.
Holders of Units shall hereinafter be referred to as Limited Partners ("Limited
Partners"). Limited Partners together with the General Partners shall be
referred to as the Partners ("Partners").
The Partnership's primary business is to operate and hold for investment
existing income-producing residential real properties. Industry segment
information is not relevant. The Partnership 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 Partnership's six
properties, four of which have since been sold or foreclosed. See "Item 2.
Description of Properties," below for a description of the Partnership's
remaining properties.
The Partnership 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 Partnership 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.
The real estate business is highly competitive and the Partnership is not a
significant factor in this industry. The Partnership'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.
The Partnership has no employees. Management and administrative services are
performed by the Managing General Partner and affiliates of Insignia. Effective
January 1, 1992, affiliates of Insignia began providing property management and
asset management services to the Partnership. See "Item 12. Certain
Relationships and Related Transactions" for a discussion of transactions with
the Managing General Partner and its affiliates.
ITEM 2. DESCRIPTION OF PROPERTIES:
The following table sets forth the Partnership's investments in properties:
Date of
Property Purchase Type of Ownership Use
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
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands)
Gross
Carrying Accumulated Useful Federal
Property Value Depreciation Life Method Tax Basis
Plainview Apartments $20,998 $ 8,977 5-25 years S/L $ 8,287
Salem Courthouse 12,952 6,077 5-25 years S/L 4,321
Totals $33,950 $15,054 $12,608
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)
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1997 Rate Amortized Date Maturity
Plainview Apartments
1st mortgage $15,336 9.33% (1) 11/15/10 $15,336
Salem Courthouse
1st mortgage 8,352 7.83% 28.67 yrs 10/15/03 7,513
2nd mortgage 271 7.83% (1) 10/15/03 271
23,959
Less unamortized
discounts (117)
Total $23,842 $23,120
(1) Interest only payments
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 1997 1996 1997 1996
Plainview Apartments $6,974/unit $6,672/unit 92% 94%
Salem Courthouse 6,021/unit 5,915/unit 93% 93%
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
Managing 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 1997 for each property were:
(dollar amounts in thousands)
1997 1997
Taxes Rate
Plainview $148 1.1%
Salem Courthouse (a) 265 9.6%
(a) Amount per 1996 billings, tax bills for 1997 not yet received.
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 Partnership 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 Partnership did not vote on any matter during 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 1998, there were 1,370
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 to the partners for the years ending December 31,
1996 and 1997. 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. Future cash distributions will depend on
the levels of cash generated from operations, refinancings, property sales and
cash reserves.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
RESULTS OF OPERATIONS
The Partnership realized net losses of approximately $1,168,000 and
approximately $940,000 for the years ended December 31, 1997 and 1996,
respectively. The increase in net loss for the year ended December 31, 1997,
versus the same period in 1996, is primarily due to the non-recurring casualty
gain recognized in 1996 relating to the Plainview Apartments' fire and hail
damage (See "Note F" in the Notes to Consolidated Financial Statements in "Item
7"). Also contributing to the increase in net loss is an increase in total
expenses, partially offset by an increase in rental revenue.
Despite a slight drop in occupancy at Plainview Apartments, rental revenues
increased due to an increase in average rental rates at both investment
properties. Operating expenses increased for the year ended December 31, 1997,
as compared to the year ended December 31, 1996, due to utility rate increases
at both investment properties, the addition of a maintenance technician, the
completion of an exterior painting project and increased corporate units rentals
at Plainview Apartments. At Salem Courthouse, property expenses increased due
to increased administrative and maintenance salaries. Offsetting these
increases to operating expense was a decrease in maintenance expense at
Plainview Apartments due to the completion of a wood replacement project,
parking lot repairs and various interior and exterior building repairs in 1996.
The casualty gain for the year ended December 31, 1996, related to the
recognition of $10,000 of deferred gain from a fire at Plainview Apartments in
1994 and a $201,000 gain relating to fire and hail damage at Plainview
Apartments in 1996 (See "Note F" in the Notes to Consolidated Financial
Statements in "Item 7").
Included in operating expense for the year ended December 31, 1997, is
approximately $227,000 of major repairs and maintenance comprised primarily of
expenses to enhance the interior of the offices, exterior painting, and major
landscaping expenses. Included in operating expense for the year ended December
31, 1996 is, approximately $294,000 of major repairs and maintenance comprised
primarily of exterior building repairs, swimming pool repairs, parking lot
repairs and major landscaping expenses.
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
The Partnership held cash and cash equivalents of approximately $251,000 and
$465,000 at December 31, 1997 and 1996, respectively. For the year ended
December 31, 1997 cash and cash equivalents decreased $214,000 compared to a
decrease of $76,000 for the year ended December 31, 1996. The decrease in net
cash provided by operating activities for the year ended December 31, 1997, was
primarily due to the increase in net loss, a decrease in other liabilities and
the timing of the payment of various operating expenses. Net cash used in
investing activities decreased for the year ended December 31, 1997, primarily
due to a decrease in property improvements and replacements relating to the
reconstruction of the clubhouse and roof replacement necessitated by the
casualties at Plainview Apartments in 1994 and 1996. This decrease was offset
by the receipt of insurance proceeds in 1996 from these casualties. Net cash
used in financing activities was consistent for the years ended December 31,
1997 and 1996.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets as well as 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 $23,842,000, net of discount, requires balloon payments which
total approximately $23,120,000 at dates ranging from October 2003, to November
2010, at which time the Managing General Partner intends to sell or refinance
the individual properties. There were no cash distributions made for the years
ended December 31, 1997 or 1996. Future cash distributions will depend on the
levels of net cash generated from operations, refinancings and property sales.
YEAR 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
OTHER
Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
forward-looking statements speak only as of the date of this annual report. The
Partnership expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Partnership's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
ITEM 7. FINANCIAL STATEMENTS
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheet - December 31, 1997
Consolidated Statements of Operations - Years ended December 31, 1997 and 1996
Consolidated Statements of Changes in Partners' Deficit - Years ended December
31, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1997 and 1996
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, 1997, 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, 1997. 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. at December 31, 1997, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 1998
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1997
Assets
Cash and cash equivalents $ 251
Receivables and deposits 255
Restricted escrows 175
Other assets 425
Investment properties (Notes B and E):
Land $ 2,821
Buildings and related personal property 31,129
33,950
Less accumulated depreciation (15,054) 18,896
$20,002
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 209
Tenant security deposits 84
Accrued property taxes 278
Other liabilities 208
Mortgage notes payable (Notes B and E) 23,842
Partners' Deficit
General partners $ (92)
Limited partners (1,013 units issued and
1,011.5 outstanding) (4,527) (4,619)
$20,002
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1997 1996
Revenues:
Rental income $ 5,297 $ 5,156
Other income 409 433
Casualty gain (Note F) -- 211
Total revenues 5,706 5,800
Expenses:
Operating 2,689 2,619
General and administrative 172 173
Depreciation 1,403 1,352
Interest 2,174 2,183
Property taxes 436 413
Total expenses 6,874 6,740
Net loss $ (1,168) $ (940)
Net loss allocated to general partners (2%) $ (23) $ (19)
Net loss allocated to limited partners (98%) (1,145) (921)
$ (1,168) $ (940)
Net loss per limited partnership unit: $(1,131.63) $(910.53)
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 1,013.0 $ 1 $ 20,240 $ 20,241
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)
Net loss for the year ended
December 31, 1997 -- (23) (1,145) (1,168)
Partners' deficit at
December 31, 1997 1,011.5 $ (92) $ (4,527) $ (4,619)
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1997 1996
Cash flows from operating activities:
Net loss $ (1,168) $ (940)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,403 1,352
Amortization of mortgage discounts and loan costs 64 64
Casualty gain -- (211)
Loss on disposal of property -- 25
Change in accounts:
Receivables and deposits (3) (40)
Other assets (37) 4
Accounts payable 18 115
Accrued property taxes 11 4
Tenant security deposit liabilities (34) 8
Other liabilities (101) 82
Net cash provided by operating activities 153 463
Cash flows from investing activities:
Property improvements and replacements (337) (710)
Net receipts from (deposits to) restricted escrows 79 (71)
Insurance proceeds from property damage -- 343
Net cash used in investing activities (258) (438)
Cash flows used in financing activities:
Payments on mortgage notes payable (109) (101)
Net decrease in cash and cash equivalents (214) (76)
Cash and cash equivalents at beginning of period 465 541
Cash and cash equivalents at end of period $ 251 $ 465
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,111 $ 2,119
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1997
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Davidson Diversified Real Estate III Limited Partnership (the "Partnership" or
the "Registrant") 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. 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").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Partnership include its 99.99%
limited partnership interest in Plainview Apartments, L.P. and its wholly owned
partnership Salem GP, LLC. The Partnership may remove the General Partner of
Plainview Apartments, L.P.; therefore, the partnership is controlled and
consolidated by the Partnership. All significant interpartnership balances have
been eliminated.
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
Investment properties are stated at cost. Acquisition fees are capitalized as a
cost of real estate. In accordance with Statement of Financial Accounting
Standards("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", the Partnership records impairment
losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets. For the years ended December 31, 1997 and 1996, no adjustments
for impairment of value were necessary.
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 approximately $68,000 and $83,000
for the years ended December 31, 1997 and 1996, respectively.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents includes cash on hand and in banks, money market
funds, and certificates of deposit with original maturities of less than 90
days. At certain times, the amount of cash deposited at a bank may exceed the
limit on insured deposits.
SECURITY DEPOSITS:
The Partnership requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables and deposits. The security
deposits are refunded when the tenant vacates, provided the tenant has not
damaged its space and is current on its rental payments.
RESTRICTED ESCROWS
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, 1997,
the remaining reserve balance was $5,000. The capital improvements are
anticipated to be completed in calendar year 1998 and any excess funds will be
released for property operations.
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 Salem Courthouse. 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 equaled $400 per
apartment unit or approximately $155,000 in total. At December 31, 1997, the
balance in the reserve account was approximately $171,000 including interest
earned on the reserves.
PROJECT IMPROVEMENT ACCOUNT
Plainview Apartments had a project improvement account which held insurance
proceeds received after the 1994 clubhouse fire. The funds were used to make
repairs and improvements to the clubhouse. At December 31, 1996, the balance in
the project improvement account was $15,000. During 1997, the repairs to the
clubhouse were completed and the balance was expended.
LOAN COSTS
Loan costs of approximately $559,000 less accumulated amortization of
approximately $171,000, 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.
The Partnership recognized income as earned on its leases.
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 1996 balances to conform to the
1997 presentation.
FAIR VALUE
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying amount of its
financial instruments (except for long term debt) approximates their fair value
due to the short term maturity of these instruments. 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 (Note
B).
NOTE B - MORTGAGE NOTES PAYABLE
(dollar amounts in thousands)
The principle terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1997 Interest Rate Date Maturity
Plainview Apartments $15,336 $119 (1) 9.33% 11/15/10 $15,336
Salem Courthouse
1st mortgage 8,352 64 7.83% 10/15/03 7,513
2nd mortgage 271 2 (1) 7.83% 10/15/03 271
23,959
Less unamortized
discounts (117)
Totals $23,842 $23,120
(1) Interest only payments.
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, 1997, are as follows (dollar amounts in thousands):
Years Ending December 31,
1998 $ 118
1999 128
2000 138
2001 149
2002 161
Thereafter 23,265
$23,959
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 estimated fair value of the Partnership's aggregate mortgage notes payable
is approximately $26,943,000 as compared to the carrying value of approximately
$23,959,000. This estimate is not necessarily indicative of the amounts the
Partnership may pay in actual market transactions.
NOTE C - 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.
The following is a reconciliation of reported net loss and Federal taxable loss
(dollar amounts in thousands, except unit data):
1997 1996
Net loss as reported $ (1,168) $ (940)
Add (deduct)
Debt write-off 104
Depreciation differences 2 (35)
Unearned income 26 (10)
Amortization (2) (3)
Disposition of property -- (145)
Other (37) 28
Federal taxable loss $ (1,075) $ (1,105)
Federal taxable loss per
limited partnership unit $(1,041.52) $(1,070.59)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net liabilities (dollar amounts in thousands):
Net deficit as reported $(4,619)
Land and buildings 641
Accumulated depreciation (6,929)
Syndication 1,621
Distribution fees 1,051
Other 92
Net deficit - Federal tax basis $(8,143)
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
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 transactions with affiliates of Insignia were incurred during the
years ended December 31, 1997 and 1996 (dollar amounts in thousands):
1997 1996
Property management fees (included in
operating expenses) $284 $277
Reimbursement for services of affiliates
including $2,000 and $46,000 in
construction services reimbursements
in 1997 and 1996, respectively
(included in investment property and
general and administrative and
operating expenses) 130 174
For the period from January 1, 1996, to August 31, 1997, the Partnership insured
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 master
policy. The agent assumed the financial obligations to the affiliate of the
Managing General Partner who received payment on these obligations from the
agent. The amount of the Partnership's insurance premiums that accrued to the
benefit of the affiliate of the Managing General Partner by virtue of the
agent's obligations was not significant.
NOTE E - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
(dollar amounts in thousands)
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
Salem Courthouse
Indianapolis, Indiana $ 8,623 $ 774 $11,198 $ 980
Plainview Apartments
Louisville, Kentucky 15,336 2,047 16,584 2,367
Totals $23,959 $2,821 $27,782 $ 3,347
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1997
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> <C>
Salem Courthouse Apartments $ 774 $12,178 $12,952 $ (6,077) 1978 11/85 5-25
Phase I 1973 05/86
Plainview Apartments 2,047 18,951 20,998 (8,977) Phase II 05/86 5-25
Totals $2,821 $31,129 $33,950 $(15,054)
</TABLE>
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31,
1997 1996
Investment Properties
Balance at beginning of year $ 33,613 $ 33,183
Property improvements 337 710
Disposition of apartment property -- (42)
Removal for casualty event -- (238)
Balance at end of Year $ 33,950 $ 33,613
Accumulated Depreciation
Balance at beginning of year $ 13,651 $ 12,412
Additions charged to expense 1,403 1,352
Disposition of apartment property -- (17)
Removal for casualty event -- (96)
Balance at end of year $ 15,054 $ 13,651
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997 and 1996, is $34,591,000 and $34,253,000. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1997 and
1996, is $21,983,000 and $20,581,000.
NOTE F - DAMAGES
In May 1996, Plainview Apartments sustained hail damage to many of the roofs on
the property. Insurance proceeds received in connection with this casualty were
approximately $220,000 and were deposited in an escrow held by the mortgage
company. Payments were made from the escrow as the roofs were repaired. During
1997, the remaining funds in escrow were expended to complete the repairs to the
roofs. 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. Additionally, during 1996, approximately $10,000 of deferred gain
from a prior year's casualty event was recognized. Accordingly, a casualty gain
of approximately $211,000 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
Davidson Diversified Properties, Inc., ("DDPI" or the "Managing General
Partner"), is owned by MAE GP Corporation, which is wholly owned by Metropolitan
Asset Enhancement, L.P., an affiliate of Insignia Financial Group, Inc.
("Insignia"). Effective February 25, 1998, MAE GP was merged into Insignia
Properties Trust ("IPT"), an affiliate of Insignia. Thus the Managing General
Partner is now a wholly-owned subsidiary of IPT.
Effective January 1, 1992, services for partnership administration, asset
management, and investor relations were assumed by affiliates of Insignia.
The Registrant has no officers or directors. The Managing General Partner
manages and controls the Registrant and has general responsibility and authority
in all matters affecting its business.
The names of the directors and executive officers of the Managing General
Partner, as of December 31, 1997, their ages and the nature of all positions
with DDPI presently held by them are as follows:
Name Age Position
Carroll D. Vinson 57 President and
Director
Robert D. Long, Jr. 30 Vice President and
Chief Accounting
Officer
William H. Jarrard, Jr. 51 Vice President
Daniel M. LeBey 32 Secretary
Kelley M. Buechler 40 Assistant Secretary
Carroll D. Vinson has been President and Director of the Managing General
Partner and President of Metropolitan Asset Enhancement, L.P., and subsidiaries
since August 1994. He has acted as Chief Operating Officer of Insignia
Properties Trust, an affiliate of the General Partner, since May 1997. 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 which included portfolio acquisitions, asset dispositions, debt
restructurings and financial reporting. 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. has been Vice President of the Managing General Partner
since January 2, 1998. Mr. Long joined Metropolitan Asset Enhancement, L.P.
("MAE"), an affiliate of Insignia, in September 1993. Since 1994 he has acted
as Vice President and Chief Accounting Officer of the MAE subsidiaries. Mr.
Long was an accountant for Insignia until joining MAE in 1993. Prior to joining
Insignia, Mr. Long was an auditor for the State of Tennessee and was associated
with the accounting firm of Harsman Lewis and Associates.
William H. Jarrard, Jr. is Vice President of the Managing General Partner. He
has acted as Senior Vice President of Insignia Properties Trust ("IPT"), an
affiliate of Insignia, since May 1997. Mr. Jarrard previously acted as Managing
Director - Partnership Administration of Insignia from January 1991 through
September 1997 and served as Managing Director - Partnership Administration and
Asset Management from July 1994 until January 1996.
Daniel M. LeBey has been Vice President and Secretary of the Managing General
Partner since January 29, 1998 and Insignia's Assistant Secretary since April
30, 1997. Since July 1996 he has also served as Insignia's Associate General
Counsel. From September 1992 until June 1996, Mr. LeBey was an attorney with
the law firm of Alston & Bird LLP, Atlanta, Georgia.
Kelley M. Buechler has been Assistant Secretary of the Managing General Partner
since June 1996 and Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of the Managing General Partner. The Partnership has no
plan, nor does the Partnership presently propose a plan, which will result in
any remuneration being paid to any officer or director upon termination of
employment. However, fees and other payments have been made to the
Partnership's Managing General Partner and its affiliates, as described in "Item
12. Certain Relationships and Related Transactions."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 1998, no security holder was known by the Registrant to be the
beneficial owner of more than 5% of the Units of the Registrant.
As of February 1998, 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
(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 transactions with affiliates of Insignia were incurred in 1997 and
1996:
1997 1996
Property management fees (included in
operating expenses) $ 284 $ 277
Reimbursement for services of affiliates
including $2,000 and $46,000 in
construction services reimbursements
in 1997 and 1996, respectively
(included in investment property and
general and administrative and
operating expenses) 130 174
For the period from January 1, 1996, to August 31, 1997, 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 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
that accrued to the benefit of the affiliate of the Managing General Partner by
virtue of the agent's obligations was not significant.
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
1997.
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
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature/Name Title Date
/s/Carroll D. Vinson President March 16, 1998
Carroll D. Vinson
/s/Robert D. Long, Jr. Vice President and Chief March 16, 1998
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 Limited Partnership 1997 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 LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 251
<SECURITIES> 0
<RECEIVABLES> 255
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 33,950
<DEPRECIATION> 15,054
<TOTAL-ASSETS> 20,002
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 23,842
0
0
<COMMON> 0
<OTHER-SE> (4,619)
<TOTAL-LIABILITY-AND-EQUITY> 20,002
<SALES> 0
<TOTAL-REVENUES> 5,706
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,174
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,168)
<EPS-PRIMARY> (1,131.63)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
