-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PZ0I2YtYAFtyfZ3dlJ6GqrtePgEDNc5Ov9c+MaOZAcW+4xZ63IoDcJiy2JmTbXYs 0iiWNCe45P+rLzB3laBBpw== 0000310303-98-000014.txt : 19980817 0000310303-98-000014.hdr.sgml : 19980817 ACCESSION NUMBER: 0000310303-98-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVIDSON DIVERSIFIED REAL ESTATE I LP CENTRAL INDEX KEY: 0000721673 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 621181565 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13530 FILM NUMBER: 98690950 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 FORMER COMPANY: FORMER CONFORMED NAME: FREEMAN DIVERSIFIED REAL ESTATE I LP DATE OF NAME CHANGE: 19910501 10QSB 1 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 June 30, 1998 [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.........to......... Commission file number 0-13530 DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. (Exact name of small business issuer as specified in its charter) Delaware 62-1181565 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (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 DIVERSIFIED REAL ESTATE I, L.P. CONSOLIDATED BALANCE SHEET (Unaudited) June 30, 1998 (in thousands, except unit data) Assets Cash and cash equivalents $ 951 Receivables and deposits 112 Restricted escrows 850 Other assets 212 Investment properties: Land $ 1,072 Buildings and related personal property 12,353 13,425 Less accumulated depreciation (6,926) 6,499 $ 8,624 Liabilities and Partners' Deficit Liabilities Accounts payable $ 262 Tenant security deposit liabilities 82 Accrued property taxes 177 Other liabilities 111 Due to affiliate 321 Mortgage notes payable 10,438 Partners' Deficit General partners' $ (115) Limited partners' (751.59 units issued and outstanding) (2,652) (2,767) $ 8,624 See Accompanying Notes to Consolidated Financial Statements b) DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 Revenues: Rental income $ 705 $ 703 $ 1,410 $ 1,387 Other income 57 51 120 100 Total revenues 762 754 1,530 1,487 Expenses: Operating 302 317 591 604 General and administrative 37 27 73 56 Depreciation 143 140 287 276 Interest 208 216 416 431 Property taxes 61 60 147 123 Loss on disposal of property 29 -- 29 -- Total expenses 780 760 1,543 1,490 Net loss $ (18) $ (6) $ (13) $ (3) Net loss allocated to general partners (5%) $ (1) $ -- $ (1) $ -- Net loss allocated to limited partners (95%) (17) (6) (12) (3) $ (18) $ (6) $ (13) $ (3) Net loss per limited partnership unit $ (22.62) $ (7.98) $ (15.97) $ (3.99) Distributions per limited partnership unit $ -- $ 1.33 $1,197.46 $ 254.13 See Accompanying Notes to Consolidated Financial Statements DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. c) CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners' Partners' Total Original capital contributions 751.84 $ 1 $15,008 $15,009 Partners' deficit at December 31, 1997 751.59 $ (114) $(1,740) $(1,854) Distributions to partners -- -- (900) (900) Net loss for the six months ended June 30, 1998 -- (1) (12) (13) Partners' deficit at June 30, 1998 751.59 $ (115) $(2,652) $(2,767) See Accompanying Notes to Consolidated Financial Statements DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1998 1997 Cash flows from operating activities: Net loss $ (13) $ (3) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 287 276 Amortization of discounts and loan costs 26 32 Loss on disposal of property 29 -- Change in accounts: Receivables and deposits 5 94 Other assets 17 (39) Accounts payable 230 (25) Tenant security deposit liabilities (7) 4 Accrued property taxes (73) (74) Other liabilities 10 (24) Net cash provided by operating activities 511 241 Cash flows from investing activities: Property improvements and replacements (489) (104) Net deposits to restricted escrows (58) (39) Net cash used in investing activities (547) (143) Cash flows from financing activities: Payments on mortgage notes payable (77) (56) Loan costs paid (12) -- Distributions to partners (900) (201) Net cash used in financing activities (989) (257) Net decrease in cash and cash equivalents (1,025) (159) Cash and cash equivalents at beginning of period 1,976 637 Cash and cash equivalents at end of period $ 951 $ 478 Supplemental disclosure of cash flow information: Cash paid for interest $ 390 $ 400 See Accompanying Notes to Consolidated Financial Statements e) DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Davidson Diversified Real Estate I, L.P. (the "Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Davidson Diversified Properties, Inc. (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 six month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 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 year ended December 31, 1997. Reclassifications Certain reclassifications have been made to the 1997 information to conform to the 1998 presentation. Principles of Consolidation During the third quarter of 1997, Ashley Woods Associates L.P. was restructured into a limited liability company known as Ashley Woods L.L.C. ("Ashley Woods"). The Partnership owns 100% of the new entity. As a result, the Partnership consolidates its interest in Ashley Woods (whereby all accounts of Ashley Woods are included in the consolidated financial statements of the Partnership with intercompany accounts being eliminated). NOTE B - DUE TO AFFILIATE The Partnership is liable to a company affiliated with the Managing General Partner through common ownership for real estate commissions in the amounts of $125,000 for Revere Village and $196,000 for Essex which were sold in previous years. Payment of the commissions will not be made to the affiliated company until after payment to the limited partners of their original invested capital, plus 8% per annum cumulative non-compounded on their adjusted invested capital commencing on the last day of the calendar quarter in which each limited partner was admitted to the Partnership through the date of payment. 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. Prior to February 25, 1998, the Managing General Partner was wholly-owned by MAE GP Corporation ("MAE GP"), an affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Thus, the Managing General Partner is now a wholly-owned subsidiary of IPT. The partnership agreement provides for payments to affiliates for property management services based on a percentage of revenue and for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following amounts were paid to affiliates of the Managing General Partner during each of the six month periods ended June 30, 1998 and 1997 (in thousands): 1998 1997 Property management fees (included in operating expense) $ 76 $ 75 Reimbursement for services of affiliates (included in general and administrative expenses) 47 33 In addition, the Partnership paid approximately $10,000, during the six month period ended June 30, 1998, to an affiliate of the Managing General Partner for construction oversight reimbursements related to capital improvements and major repair projects. Construction oversight reimbursements are included in operating expenses and investment properties. The Partnership also paid approximately $4,000 during the six months ended June 30, 1998 to an affiliate of the Managing General Partner for reimbursements of costs related to the Ashley Woods loan refinancing in November of 1997. For the period from January 1, 1997 to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the Managing General Partner with an 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 which received payments 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. On September 26, 1997, an affiliate of the Managing General Partner purchased Lehman Brother's Class "D" subordinated bonds of SASCO, 1992-M1. These bonds are secured by 55 multi-family apartment mortgage loan pairs held in Trust, including Versailles on the Lake Apartments owned by the Partnership. On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in IPT, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in September or October of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the Managing General Partner of the Partnership. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for the six months ended June 30, 1998 and 1997: Average Occupancy 1998 1997 Ashley Woods Apartments Cincinnati, Ohio 89% 89% Versailles on the Lake Apartments Fort Wayne, Indiana 91% 96% The Managing General Partner attributes the decrease in occupancy at Versailles on the Lake to the local rental market becoming soft and increased competition from surrounding properties. The Partnership realized a net loss of approximately $13,000 for the six months ended June 30, 1998 compared to a net loss of approximately $3,000 for the six months ended June 30, 1997. The Partnership's net loss for the three months ended June 30, 1998 was approximately $18,000 compared to a net loss of approximately $6,000 for the three months ended June 30, 1997. The increase in net loss is primarily due to increased property tax and general and administrative expenses, as well as a loss on disposal of property being incurred. These increased expenses are partially offset by increased rental revenue and other income. Property tax expense for Ashley Woods increased, as estimated 1997 taxes were underaccrued due to a tax rate increase on tax bills received and paid in arrears. Property tax expense for the six months ended June 30, 1998 reflects this increase. General and administrative costs increased primarily due to higher expense reimbursements. The loss on disposal of property resulted from the second quarter write-off of the undepreciated value of roofs that were replaced at Ashley Woods. Partially offsetting the increased expenses was an increase in rental revenue due to increased rental rates at both properties. Other income increased primarily due to increased interest income on higher average cash balances from the refinancing of Ashley Woods. Included in operating expense for the six months ended June 30, 1998 was approximately $11,000 of major repairs and maintenance comprised primarily of window coverings and exterior painting. For the six months ended June 30, 1997, operating expense included approximately $23,000 of major repairs and maintenance comprised primarily of window coverings, parking lot repairs and landscaping. 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. At June 30, 1998, the Partnership held cash and cash equivalents of approximately $951,000 compared to approximately $478,000 at June 30, 1997. The net decrease in cash and cash equivalents for the six months ended June 30, 1998 was approximately $1,025,000 compared to $159,000 for the six months ended June 30, 1997. Net cash provided by operations increased due to a decrease in cash used for accounts payable and other assets due to the timing of payments. Net cash used in investing activities increased due to increased property improvements and replacements. Net cash used in financing activities increased primarily due to increased distributions to the partners during the first six months of 1998 compared to the first six months of 1997. The 1998 distribution represented a portion of the net proceeds from the mortgage refinancing of Ashley Woods, as discussed below. On November 20, 1997, the Partnership refinanced the debt encumbering Ashley Woods. The refinancing replaced indebtedness of approximately $5,941,000 with a new mortgage in the amount of $8,000,000. The new mortgage carries a stated interest rate of 7.29% and is amortized over 30 years. Payments of approximately $55,000 are due on the first day of each month until maturity on December 1, 2004, at which time a balloon payment of approximately $7,334,000 is due. Loan costs of approximately $166,000 relating to the refinancing have been paid through June 30, 1998. 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. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of $10,438,000, net of discount, is amortized over varying periods. Of this amount, $7,962,000, which matures in 2004, relates to Ashley Woods and $2,476,000, which matures in 2002, relates to Versailles on the Lake. At the time of maturity, the properties will either be sold or refinanced. Distributions to partners of $900,000 and $201,000 were made during the six months ended June 30, 1998 and 1997, respectively. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, property sales and the availability of cash reserves. The Managing General Partner does not anticipate making further distributions during 1998. 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 quarterly 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 of the Partnership 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 quarterly report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates of 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. 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 and its affiliates of interests in certain general partner entities, past tender offers by Insignia affiliates to acquire limited partnership units, the management of partnerships by Insignia affiliates, as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partners 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 believes the action to be without merit, and intends to vigorously defend it. The Partnership is unaware of any other 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 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended June 30, 1998. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. By: Davidson Diversified Properties, Inc. Its Managing General Partner By: /s/Carroll D. Vinson Carroll D. Vinson President and Director By: /s/Robert D. Long, Jr. Robert D. Long, Jr. Vice President and Chief Accounting Officer Date: August 14, 1998 EX-27 2
5 This schedule contains summary financial information extracted from Davidson Diversified Real Estate I, L.P. 1998 Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000721673 DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. 1,000 6-MOS DEC-31-1998 JUN-30-1998 951 0 0 0 0 0 13,425 6,926 8,624 0 10,438 0 0 0 (2,767) 8,624 0 1,530 0 0 1,543 0 416 0 0 0 0 0 0 (13) (15.97) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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