-----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, E2TPlOyLNlcULgyc8OAz99MJoBPBnNDNjoBxAhnWD0RULZscehPN4/r07HRYhHPk KrvHupTey7YU8E2vfuqaSA== 0000711642-00-000113.txt : 20000505 0000711642-00-000113.hdr.sgml : 20000505 ACCESSION NUMBER: 0000711642-00-000113 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000504 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: 619066 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 FORMER COMPANY: FORMER CONFORMED NAME: FREEMAN DIVERSIFIED REAL ESTATE I LP DATE OF NAME CHANGE: 19910501 10QSB 1 FIRST QUARTER 10-QSB 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 March 31, 2000 [ ] 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 0-13530 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 (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, 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) (in thousands, except unit data) March 31, 2000
Assets Cash and cash equivalents $ 836 Receivables and deposits 90 Restricted escrows 138 Other assets 206 Investment properties: Land $ 1,072 Buildings and related personal property 13,377 14,449 Less accumulated depreciation (8,054) 6,395 $ 7,665 Liabilities and Partners' Deficit Liabilities Accounts payable $ 30 Tenant security deposit liabilities 71 Accrued property taxes 241 Other liabilities 123 Due to affiliate 321 Mortgage notes payable 10,179 Partners' Deficit General partners $ (125) Limited partners (751.59 units issued and outstanding) (3,175) (3,300) $ 7,665
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 March 31, 2000 1999 Revenues: Rental income $ 787 $ 698 Other income 60 62 Total revenues 847 760 Expenses: Operating 368 336 General and administrative 33 35 Depreciation 177 151 Interest 204 206 Property taxes 67 66 Total expenses 849 794 Net loss $ (2) $ (34) Net loss allocated to general partners (5%) $ -- $ (2) Net loss allocated to limited partners (95%) (2) (32) $ (2) $ (34) Net loss per limited partnership unit $(2.66) $(42.58) See Accompanying Notes to Consolidated Financial Statements c) Davidson Diversified Real Estate I, L.P. 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, 1999 751.59 $ (125) $(3,173) $(3,298) Net loss for the three months ended March 31, 2000 -- -- (2) (2) Partners' deficit at March 31, 2000 751.59 $ (125) $(3,175) $(3,300)
See Accompanying Notes to Consolidated Financial Statements d) Davidson Diversified Real Estate I, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended March 31, 2000 1999 Cash flows from operating activities: Net loss $ (2) $ (34) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 177 151 Amortization of discounts and loan costs 14 14 Change in accounts: Receivables and deposits 112 18 Other assets (37) (36) Accounts payable (30) 54 Tenant security deposit liabilities 3 1 Accrued property taxes (18) (20) Other liabilities 31 (5) Net cash provided by operating activities 250 143 Cash flows used in investing activities: Property improvements and replacements (124) (83) Net receipts from restricted escrows 65 244 Net cash (used in) provided by investing activities (59) 161 Cash flows used in financing activities: Payments on mortgage notes payable (36) (41) Net increase in cash and cash equivalents 155 263 Cash and cash equivalents at beginning of period 681 338 Cash and cash equivalents at end of period $ 836 $ 601 Supplemental disclosure of cash flow information: Cash paid for interest $ 143 $ 193
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" 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 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 month period ended March 31, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 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, 1999. Principles of Consolidation The consolidated financial statements include the Partnership's 100% membership interest in Ashley Woods L.L.C. 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 inter-entity accounts being 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 has had or 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 services to the Partnership. 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 payments were paid to affiliates of the Managing General Partner during each of the three month periods ended March 31, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $ 43 $ 39 Reimbursement for services of affiliates (included in general and administrative expenses) 16 22 During the three months ended March 31, 2000 and 1999, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from both of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $43,000 and $39,000 for the three month periods ended March 31, 2000 and 1999, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $16,000 and $22,000 for the three month periods ended March 31, 2000 and 1999, respectively. 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. The total amount of $321,000 is included on the consolidated balance sheet as "Due to affiliate". Payment of the commissions will not be made to the affiliated company until each limited partner has received distributions equal to 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. AIMCO and its affiliates currently own 270.15 limited partnership units in the Partnership representing 35.944% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. 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. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. As a result of its ownership of 35.944% of the outstanding units, AIMCO is in a position to significantly influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Managing General Partner because of their affiliation with the Managing General Partner. On September 26, 1997, an affiliate of the Managing General Partner purchased Lehman Brothers' 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 which is owned by the Partnership. Note D - Segment Reporting The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of two apartment complexes, one located in Cincinnati, Ohio, and the other located in Fort Wayne, Indiana. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The Partnership evaluates performance based on segment profit (loss) before depreciation. The accounting policies of the reportable segment are the same as those of the Partnership as described in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. 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 three months ended March 31, 2000 and 1999 is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segment.
2000 Residential Other Totals Rental income $ 787 $ -- $ 787 Other income 58 2 60 Interest expense 204 -- 204 Depreciation 177 -- 177 General and administrative expense -- 33 33 Segment profit (loss) 29 (31) (2) Total assets 7,496 169 7,665 Capital expenditures for investment properties 124 -- 124
1999 Residential Other Totals Rental income $ 698 $ -- $ 698 Other income 59 3 62 Interest expense 206 -- 206 Depreciation 151 -- 151 General and administrative expense -- 35 35 Segment loss (2) (32) (34) Total assets 7,898 322 8,220 Capital expenditures for investment properties 83 -- 83
Note E - 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 action 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 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 plaintiffs seek 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, settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Superior Court of the State of California, County of San Mateo, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of class plaintiffs' counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. Certain plaintiffs have filed a motion to disqualify some of the plaintiffs' counsel in the action. 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 OF 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 other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant'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 Registrant'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 two apartment complexes. The following table sets forth the average occupancy of the properties for the three months ended March 31, 2000 and 1999: Average Occupancy 2000 1999 Ashley Woods Apartments Cincinnati, Ohio 93% 93% Versailles on the Lake Apartments Fort Wayne, Indiana 97% 82% The Managing General Partner attributes the increase in occupancy at Versailles on the Lake to increased marketing and advertising efforts to attract new tenants. Results of Operations The Partnership realized a net loss of approximately $2,000 for the three months ended March 31, 2000 compared to a net loss of approximately $34,000 for the three months ended March 31, 1999. The decrease in net loss for the three months ended March 31, 2000 is primarily due to an increase in total revenues which was partially offset by an increase in total expenses. Total revenues increased primarily due to an increase in rental income. Rental income increased primarily due to increased occupancy at Versailles on the Lake Apartments and increased average annual rental rates at both of the Partnership's properties. Total expenses increased due primarily to increased operating expense and depreciation expense. Operating expense increased primarily due to an increase in contract repairs at Ashley Woods. Depreciation expense increased due to property improvements and replacements completed during the past twelve months that are now being depreciated. General and administrative expense remained relatively constant for the comparable periods. Included in general and administrative expenses at both March 31, 2000 and 1999, 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. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of both 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 At March 31, 2000, the Partnership had cash and cash equivalents of approximately $836,000 compared to approximately $601,000 at March 31, 1999. The increase in cash and cash equivalents of approximately $155,000 since the Partnership's year ended December 31, 1999 is due to approximately $250,000 of cash provided by operating activities which was partially offset by approximately $59,000 of cash used in investing activities and approximately $36,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements partially offset by net receipts from escrow accounts maintained by the mortgage lenders. Cash used in financing activities consisted of payments of principal made on the mortgages encumbering the Registrant's properties. 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 properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below: Ashley Woods During the three months ended March 31, 2000, the Partnership completed approximately $96,000 of capital improvements at the property, consisting primarily of fencing, cabinets, structural improvements, carpet replacement, and appliances. These improvements were funded from the Partnership's reserves. The Partnership evaluated the capital improvement needs of the property for the year. The amount budgeted is approximately $177,000, consisting primarily of electrical upgrades, air conditioning unit replacement, appliances, carpet replacements, and structural improvements. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Versailles on the Lake During the three months ended March 31, 2000, the Partnership completed approximately $28,000 of capital improvements at the property, consisting primarily of carpet and vinyl replacement and appliances. These improvements were funded from the Partnership's operating cash flow. The Partnership evaluated the capital improvement needs of the property for the year. The amount budgeted is approximately $163,000, consisting primarily of appliances, carpet replacements, exterior painting, parking lot improvements, and structural improvements. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The 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 Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $10,179,000, net of discount, is amortized over periods ranging from 21 to 30 years with balloon payments due in 2002 and 2004. 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 Registrant will risk losing such properties through foreclosure. No cash distributions were made during the three months ended March 31, 2000 or 1999. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings, and/or property sales. 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 distributions to its partners during the remainder of 2000 or subsequent periods. 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 action 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 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 1 - Financial Information, Item 1. Financial Statements, Note B - Transfer of Control"). The plaintiffs seek 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, settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Superior Court of the State of California, County of San Mateo, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of class plaintiffs' counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. Certain plaintiffs have filed a motion to disqualify some of the plaintiffs' counsel in the action. 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 March 31, 2000. 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/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: EX-27 2 FIRST QUARTER 10-QSB
5 This schedule contains summary financial information extracted from DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. 2000 First 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 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 836 0 90 0 0 0 14,449 (8,054) 7,665 0 10,179 0 0 0 (3,300) 0 0 847 0 0 849 0 204 0 0 0 0 0 0 (2) (2.66) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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