FORM 10-QSB---QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-15675
DAVIDSON GROWTH PLUS, L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 52-1462866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
DAVIDSON GROWTH PLUS, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1999
Assets
Cash and cash equivalents $ 1,133
Receivables and deposits 514
Restricted escrows 264
Other assets 263
Investment properties:
Land $ 4,650
Buildings and related personal property 19,873
24,523
Less accumulated depreciation (10,568) 13,955
$ 16,129
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 58
Tenant security deposit liabilities 122
Accrued property taxes 361
Distribution payable 484
Other liabilities 281
Mortgage notes payable 11,645
Minority interest 103
Partners' (Deficit) Capital
General partners $ (726)
Limited partners (28,371.75 units issued and
outstanding) 3,801 3,075
$ 16,129
See Accompanying Notes to Consolidated Financial Statements
b)
DAVIDSON GROWTH PLUS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,315 $ 1,227 $ 3,932 $ 3,718
Other income 65 91 241 217
Total revenues 1,380 1,318 4,173 3,935
Expenses:
Operating 510 522 1,442 1,570
General and administrative 56 50 194 197
Depreciation 204 201 611 591
Interest 257 261 774 787
Property taxes 119 109 356 341
Total expenses 1,146 1,143 3,377 3,486
Income before minority interest
in net income of
joint venture 234 175 796 449
Minority interest in net
income of joint venture (12) (18) (68) (45)
Net income $ 222 $ 157 $ 728 $ 404
Net income allocated
to general partners (3%) $ 7 $ 5 $ 22 $ 12
Net income allocated
to limited partners (97%) 215 152 706 392
$ 222 $ 157 $ 728 $ 404
Net income per limited
partnership unit $ 7.58 $ 5.36 $ 24.88 $ 13.82
Distributions per limited
partnership unit $ 16.57 $ 15.26 $ 48.04 $ 27.17
See Accompanying Notes to Consolidated Financial Statements
c)
DAVIDSON GROWTH PLUS, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 28,371.75 $ 1 $28,376 $28,377
Partners' (deficit) capital at
December 31, 1998 28,371.75 $ (706) $ 4,458 $ 3,752
Distributions to partners (42) (1,363) (1,405)
Net income for the nine months
ended September 30, 1999 -- 22 706 728
Partners' (deficit) capital
at September 30, 1999 28,371.75 $ (726) $ 3,801 $ 3,075
See Accompanying Notes to Consolidated Financial Statements
d)
DAVIDSON GROWTH PLUS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net income $ 728 $ 404
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 611 591
Amortization of discounts and loan costs 79 78
Minority interest in net income of joint venture 68 45
Change in accounts:
Receivables and deposits (125) (180)
Other assets (42) 12
Accounts payable 28 (117)
Tenant security deposit liabilities (17) 17
Accrued property taxes 167 158
Other liabilities (16) 1
Net cash provided by operating activities 1,481 1,009
Cash flows from investing activities:
Property improvements and replacements (465) (260)
Net receipts from (deposits to) restricted escrows 219 (15)
Net cash used in investing activities (246) (275)
Cash flows from financing activities:
Payments on mortgage notes payable (190) (177)
Distributions to partners (921) (795)
Distributions to minority partner (177) (131)
Net cash used in financing activities (1,288) (1,103)
Net decrease in cash and cash equivalents (53) (369)
Cash and cash equivalents at beginning of period 1,186 1,080
Cash and cash equivalents at end of period $ 1,133 $ 711
Supplemental disclosure of cash flow information:
Cash paid for interest $ 695 $ 709
Supplemental disclosure of non-cash financing activities:
Distribution payable $ 484 $ --
See Accompanying Notes to Consolidated Financial Statements
e)
DAVIDSON GROWTH PLUS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Davidson Growth
Plus, L.P. (the "Partnership" or "Registrant") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Davidson Growth Plus GP Corporation (the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1999, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements of the Partnership include its 99% limited
partnership interest in The New Fairways, LP and its 82.5% general partnership
interest in Sterling Crest Joint Venture ("Sterling Crest") which operates
Brighton Crest. Because the Partnership may remove the general partner of The
New Fairways, L.P. and has a controlling interest in Sterling Crest, the
partnerships are controlled and consolidated by the Partnership. All
significant inter-entity balances have been eliminated.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
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. Affiliates of the Managing General Partner provide
property management and asset management services to the Partnership. The
Partnership Agreement provides for (i) payments to affiliates for services and
(ii) reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following amounts were paid or accrued to the Managing General Partner
and/or its affiliates during the nine month periods ended September 30, 1999 and
1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $213 $204
Reimbursement for services of affiliates (included in
operating expense, general and administrative expense,
and investment properties) 82 104
Subordinated management fee (included in general and
administrative expense) 24 14
During the nine months ended September 30, 1999 and 1998, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from all
of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$213,000 and $204,000 for management fees for the nine months ended September
30, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $82,000 and
$104,000 for the nine months ended September 30, 1999 and 1998, respectively.
Included in these expenses is approximately $9,000 and $20,000 for construction
oversight reimbursements for the nine months ended September 30, 1999 and 1998,
respectively.
The Partnership Agreement provides for the Managing General Partner to receive a
fee for managing the affairs of the Partnership. The fee is 2% of adjusted cash
from operations, as defined in the Partnership Agreement. Payment of this
management fee is subordinated and is payable only after the Partnership has
distributed, to the limited partners, adjusted cash from operations in any year
equal to 10% of the limited partners adjusted invested capital as defined in the
Partnership Agreement. Unpaid subordinated Partnership management fees at
September 30, 1999, are approximately $129,000. Included in the $129,000
subordinated management fee payable at September 30, 1999, were Partnership
management fees of approximately $24,000 and $14,000 for the nine month periods
ended September 30, 1999 and 1998, respectively.
On September 25, 1997, an affiliate of the Managing General Partner purchased
Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992-MI. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including the Fairway Apartments owned by the Partnership.
On August 27, 1998, an affiliate of the Managing General Partner (the
"Purchaser") commenced a tender offer for limited partnership interests in the
partnership. The Purchaser offered to purchase up to 10,000 (approximately
35.25% of the outstanding units) units of the limited partnership interest in
the Partnership at a purchase price of $400 per unit, net to the seller in cash.
The Purchaser acquired 3,947 units (or approximately 13.91%) of limited
partnership interest pursuant to this tender.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 9,659.73 (approximately
34.05% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $363 per unit. The offer expired on
July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 654.50
units. As a result, AIMCO and its affiliates currently own 7953.08 units of
limited partnership interest in the Partnership representing approximately
28.03% of the total outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO (see "Note F - Legal Proceedings").
NOTE D - DISTRIBUTIONS TO PARTNERS
Cash distributions from operations of approximately $921,000 (approximately
$893,000 to the limited partners or $31.47 per limited partnership unit) were
paid to the partners during the nine months ended September 30, 1999.
Subsequent to September 30, 1999, a distribution of approximately $484,000
(approximately $470,000 to the limited partners or $16.57 per limited
partnership unit) was paid to the partners which was approved and accrued during
the nine months ended September 30, 1999. Cash distributions from
operations of approximately $795,000 (approximately $771,000 to the limited
partners or $27.17 per limited partnership unit) were paid to the partners
during the nine months ended September 30, 1998.
NOTE E - SEGMENT INFORMATION
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment complexes
in Marietta, Georgia; Plano, Texas; and Brandon, Florida. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the nine months ended September 30, 1999 and 1998, is
shown in the following tables (in thousands). The "Other" column includes
Partnership administration related items and income and expense not allocated to
the reportable segment.
1999 Residential Other Totals
Rental income $ 3,932 $ -- $ 3,932
Other income 196 45 241
Interest expense 774 -- 774
Depreciation 611 -- 611
General and administrative expense -- 194 194
Minority interest in net income of
joint venture -- (68) (68)
Segment profit (loss) 945 (217) 728
Total assets 15,448 681 16,129
Capital expenditures for investment
properties 465 -- 465
1998 Residential Other Totals
Rental income $ 3,718 $ -- $ 3,718
Other income 180 37 217
Interest expense 787 -- 787
Depreciation 591 -- 591
General and administrative expense -- 197 197
Minority interest in net income of
joint venture -- (45) (45)
Segment profit (loss) 609 (205) 404
Total assets 15,777 553 16,330
Capital expenditures for investment
properties 260 -- 260
NOTE F - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain Managing General Partner
entities, past tender offers by Insignia Affiliates to acquire limited
partnership units, the management of partnerships by Insignia Affiliates and the
Insignia Merger (see "Note B - Transfer of Control"). The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999. Pending the
ruling on such demurrers, settlement negotiations commenced. On November 2,
1999, the parties executed and filed a Stipulation of Settlement
("Stipulation"), settling claims, subject to final court approval, on behalf of
the Partnership and all limited partners who own units as of November 3, 1999.
The Court has preliminarily approved the Settlement and scheduled a final
approval hearing for December 10, 1999. In exchange for a release of all
claims, the Stipulation provides that, among other things, an affiliate of the
Managing General Partner will make tender offers for all outstanding limited
partnership interests in 49 partnerships, including the Registrant, subject to
the terms and conditions set forth in the Stipulation, and has agreed to
establish a reserve to pay an additional amount in settlement to qualifying
class members (the "Settlement Fund"). At the final approval hearing,
Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The Managing General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for the
nine months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Brighton Crest Apartments 94% 95%
Marietta, Georgia
The Fairway Apartments 94% 92%
Plano, Texas
The Village Apartments 97% 98%
Brandon, Florida
Results of Operations
The Partnership realized net income of approximately $728,000 for the nine
months ended September 30, 1999, compared to net income of approximately
$404,000 for the nine months ended September 30, 1998. The Partnership's net
income for the three months ended September 30, 1999, was approximately $222,000
compared to net income of approximately $157,000 for the three months ended
September 30, 1998. The increase in net income for the nine months ended
September 30, 1999 is primarily attributable to an increase in total revenues
and a decrease in total expenses offset by an increase in minority interest in
income from joint venture. The increase in net income for the three months
ended September 30, 1999, is due to an increase in total revenues and a decrease
in minority interest in income from the joint venture which are slightly offset
by an increase in total expenses. Total revenues increased for both periods as
a result of increases in rental income. For the nine months ended September 30,
1999 other income also increased. For the three month period there was a
decrease in other income which partially offset the increase in rental revenue.
Rental income increased primarily due to an increase in average annual rental
rates at all the Partnership's properties and a reduction in concession costs at
Brighton Crest. These increases were partially offset by decreases in occupancy
at Brighton Crest and The Village Apartments. Other income increased for the
nine months ended September 30, 1999 primarily due to an increase in tenant
charges at Fairway and Brighton Crest Apartments. Tenant charges increased due
to increased tenant move outs due to an active home buying market. For the three
months ended September 30, 1999, other income decreased due to a decrease in
tenant charges for this period.
The decrease in total expenses for the nine month period is primarily
attributable to a decrease in operating expenses, partially offset by increases
in depreciation expense and the minority interest in the net income of the joint
venture. Operating expenses decreased primarily due to decreased maintenance
and repairs expenses at The Fairway Apartments and Brighton Crest Apartments and
reduced insurance expense at all the Partnership's properties due to lower rates
provided by a new insurance carrier in late 1998. These decreases were
partially offset by increased advertising expense at Brighton Crest and
increased payroll costs at Fairway Apartments. The increase in depreciation
expense is due to capital improvements completed during the past twelve months
that are now being depreciated. The increase in minority interest in net income
of joint venture for the nine months ended September 30, 1999 is due to the
improved operations at the joint venture's property Brighton Crest due primarily
to increased rental rates and reduced maintenance expenses. For the three
months ended September 30, 1999, the decrease in minority interest in net income
of joint venture was due primarily to increased advertising expenses, partially
offset by increased rental rates at the joint venture property.
For the three months ended September 30, 1999, total expenses increased
primarily due to an increase in property taxes and general and administrative
expenses which was partially offset by decreased operating expenses. Property
tax expense increased due to the timing of the receipt of property tax bills for
1999 and 1998 which affected the accruals as of September 30, 1999 and 1998.
General and administrative expense increased due to increased legal expenses due
to the settlements of lawsuits as previously disclosed in the Partnership's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998 and in
the Partnership's Form 10-QSB for the quarterly period ended June 30, 1999.
Included in general and administrative expenses at both September 30, 1999 and
1998, are reimbursements to the Managing General Partner allowed under the
Partnership Agreement associated with its management of the Partnership. Costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included. Operating expense decreased due to decreased maintenance
expenses at Fairway and Brighton Crest Apartments which was largely offset by
increased payroll and utility expenses at Fairway Apartments and increased
advertising charges at Brighton Crest.
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
expense. 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 $1,133,000 at
September 30, 1999, compared to approximately $711,000 at September 30, 1998.
The decrease in cash and cash equivalents of approximately $53,000 from the
Partnership's cash balance at December 31, 1998, is due primarily to
approximately $1,288,000 of cash used in financing activities and to a lesser
extent to approximately $246,000 of cash used in investing activities which was
largely offset by approximately $1,481,000 of cash provided by operating
activities. Cash used in financing activities consisted primarily of
distributions from operations to the partners, and to a lessor extent,
payments of principal made on the mortgages encumbering the Partnership's
properties and distributions to the minority partner of Sterling Crest. Cash
used in investing activities consists of property improvements and replacements
which were partially offset by net receipts from escrow accounts maintained by
the mortgage lenders. The Partnership invests its working capital reserves in
money market accounts.
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 and other operating needs of the Partnership and to comply with
Federal, state, and local legal and regulatory requirements. Capital
improvements planned for the Partnership's properties are detailed below.
Brighton Crest Apartments
During the nine months ended September 30, 1999, the Partnership completed
approximately $141,000 of capital improvements at the property, consisting
primarily of carpet and vinyl replacement, structural and other building
improvements and landscaping. These improvements were funded from operating
cash flow and from the Partnership's reserves. The structural and other
building improvements are complete as of September 30, 1999. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $169,000
of capital improvements over the next few years. The Partnership has budgeted,
but is not limited to, capital improvements of approximately $204,000 for 1999,
which include certain of the required improvements and consist of carpet and
vinyl replacement and landscaping.
Fairway Apartments
During the nine months ended September 30, 1999, the Partnership completed
approximately $203,000 of capital improvements at the property, consisting
primarily of carpet and vinyl replacement, parking lot resurfacing, interior
decorating, and landscaping. These improvements were funded from operating cash
flow and the Partnership's reserves. The parking lot resurfacing and interior
decorating are complete as of September 30, 1999. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $264,000
of capital improvements over the next few years. The Partnership has budgeted,
but is not limited to, capital improvements of approximately $328,000 for 1999,
which include certain of the required improvements and consist of carpet and
vinyl replacement, landscaping, parking lot resurfacing, pool upgrades, roof
replacement and structural improvements.
The Village Apartments
During the nine months ended September 30, 1999, the Partnership completed
approximately $121,000 of capital improvements at the property, consisting
primarily of carpet and vinyl replacement, air conditioning units, roof
replacement, appliances, and structural and other building improvements. These
improvements were funded from the Partnership's operating cash flow and from the
Partnership's reserves. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that the
property requires approximately $368,000 of capital improvements over the next
few years. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $370,000, which include certain of the required
improvements and consist of plumbing upgrades, landscaping, pool upgrades and
roof replacement.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $11,645,000, net of discount, is amortized over
periods ranging from approximately 21 to 29 years with balloon payments due in
2002 and 2003. The Managing General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity dates. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
may risk losing such properties through foreclosure.
Cash distributions from operations of approximately $921,000 (approximately
$893,000 to the limited partners or $31.47 per limited partnership unit) were
paid to the partners during the nine months ended September 30, 1999.
Subsequent to September 30, 1999, a distribution of approximately $484,000
(approximately $470,000 to the limited partners or $16.57 per limited
partnership unit) was paid to the partners which was approved and accrued during
the nine months ended September 30, 1999. Cash distributions from
operations of approximately $795,000 (approximately $771,000 to the limited
partners or $27.17 per limited partnership unit) were paid to the partners
during the nine months ended September 30, 1998. Future cash distributions will
depend on the levels of net cash generated from operations, refinancings,
property sales, timing of debt maturities and the availability of cash reserves.
The Partnership's distribution policy is reviewed on a semi-annual basis. There
can be no assurance, however, that the Partnership will generate sufficient
funds from operations after required capital improvements to permit further
distributions to its partners during the remainder of 1999 or subsequent
periods.
Tender Offers
On August 27, 1998, an affiliate of the Managing General Partner (the
"Purchaser") commenced a tender offer for limited partnership interests in the
partnership. The Purchaser offered to purchase up to 10,000 (or approximately
35.25%) of the outstanding units of the limited partnership interest in the
Partnership at a purchase price of $400 per unit, net to the seller in
cash. The Purchaser acquired 3,947 units (or approximately 13.91%) of limited
partnership interest pursuant to this tender.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 9,659.73 (approximately
34.05% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $363 per unit. The offer expired on
July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 654.50
units. As a result, AIMCO and its affiliates currently own 7,953.08 units of
limited partnership interest in the Partnership representing approximately
28.03% of the total outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO (see "Item 1. Financial Statements, Note F -
Legal Proceedings").
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain Managing General Partner
entities, past tender offers by Insignia Affiliates to acquire limited
partnership units, the management of partnerships by Insignia Affiliates and the
Insignia Merger (see "Part I - Financial Information, Item 1. Financial
Statements, Note B - Transfer of Control"). The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Managing General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs have filed
an amended complaint. The Managing General Partner filed demurrers to the
amended complaint which were heard February 1999. Pending the ruling on such
demurrers, settlement negotiations commenced. On November 2, 1999, the parties
executed and filed a Stipulation of Settlement ("Stipulation"), settling claims,
subject to final court approval, on behalf of the Partnership and all limited
partners who own units as of November 3, 1999. The Court has preliminarily
approved the Settlement and scheduled a final approval hearing for December 10,
1999. In exchange for a release of all claims, the Stipulation provides that,
among other things, an affiliate of the Managing General Partner will make
tender offers for all outstanding limited partnership interests in 49
partnerships, including the Registrant, subject to the terms and conditions set
forth in the Stipulation, and has agreed to establish a reserve to pay an
additional amount in settlement to qualifying class members (the "Settlement
Fund"). At the final approval hearing, Plaintiffs' counsel will make an
application for attorneys' fees and reimbursement of expenses, to be paid in
part by the partnerships and in part from the Settlement Fund. The Managing
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAVIDSON GROWTH PLUS, L.P.
By: DAVIDSON GROWTH PLUS GP CORPORATION
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Growth Plus, L.P. 1999 Third Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000795757
<NAME> DAVIDSON GROWTH PLUS, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,133
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,523
<DEPRECIATION> 10,568
<TOTAL-ASSETS> 16,129
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,645
0
0
<COMMON> 0
<OTHER-SE> 3,075
<TOTAL-LIABILITY-AND-EQUITY> 16,129
<SALES> 0
<TOTAL-REVENUES> 4,173
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 774
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 728
<EPS-BASIC> 24.88<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
