0000711642-01-500182.txt : 20011107
0000711642-01-500182.hdr.sgml : 20011107
ACCESSION NUMBER: 0000711642-01-500182
CONFORMED SUBMISSION TYPE: 10QSB
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011102
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: 1934 Act
SEC FILE NUMBER: 000-13530
FILM NUMBER: 1773517
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
ddre1.txt
DDRE1
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, 2001
[ ] 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)
September 30, 2001
Assets
Cash and cash equivalents $ 822
Receivables and deposits 7
Restricted escrows 110
Other assets 35
Investment property:
Land $ 191
Buildings and related personal property 4,824
5,015
Less accumulated depreciation (3,210) 1,805
$ 2,779
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 61
Tenant security deposit liabilities 14
Accrued property taxes 108
Other liabilities 99
Due to affiliate 321
Mortgage notes payable 2,250
Partners' Deficit
General partners $ --
Limited partners (751.59 units issued and
outstanding) (74) (74)
$ 2,779
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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Revenues:
Rental income $ 240 $ 786 $ 1,769 $ 2,372
Other income 31 67 195 209
Gain on sale of investment property 7,377 -- 7,377 --
Total revenues 7,648 853 9,341 2,581
Expenses:
Operating 157 387 987 1,081
General and administrative 48 68 130 142
Depreciation 64 179 441 538
Interest 71 200 471 608
Property taxes 26 68 161 198
Total expenses 366 902 2,190 2,567
Income (loss) before extraordinary
loss on early extinguishment of debt 7,282 (49) 7,151 14
Extraordinary loss on early
extinguishment of debt (82) -- (82) --
Net income (loss) $ 7,200 $ (49) $ 7,069 $ 14
Net income (loss) allocated to general
partners (5%) $ 173 $ (2) $ 166 $ 1
Net income (loss) allocated to limited
partners (95%) 7,027 (47) 6,903 13
$ 7,200 $ (49) $ 7,069 $ 14
Per limited partnership unit:
Income (loss) before extraordinary
loss on early extinguishment of debt $9,458.61 $(62.53) $9,293.63 $ 17.30
Extraordinary loss on early
extinguishment of debt (109.10) -- (109.10) --
Net income (loss) $9,349.51 $(62.53) $9,184.53 $ 17.30
Distributions per limited partnership
unit $4,104.63 $ -- $4,490.48 $546.84
See Accompanying Notes to Consolidated Financial Statements
c)
Davidson Diversified Real Estate I, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (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, 2000 751.59 $ (145) $(3,602) $(3,747)
Distributions to partners -- (21) (3,375) (3,396)
Net income for the nine months
ended September 30, 2001 -- 166 6,903 7,069
Partners' capital (deficit) at
September 30, 2001 751.59 $ -- $ (74) $ (74)
See Accompanying Notes to Consolidated Financial Statements
d)
Davidson Diversified Real Estate I, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2001 2000
Cash flows from operating activities:
Net income $ 7,069 $ 14
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 441 538
Amortization of discounts and loan costs 39 43
Extraordinary loss on early extinguishment of debt 82 --
Gain on sale of investment property (7,377) --
Change in accounts:
Receivables and deposits 16 88
Other assets 10 (24)
Accounts payable (10) 15
Tenant security deposit liabilities -- 24
Accrued property taxes (64) (14)
Other liabilities 35 41
Net cash provided by operating activities 241 725
Cash flows from investing activities:
Property improvements and replacements (212) (463)
Net (deposits to) receipts from restricted escrows (27) 29
Proceeds from sale of investment property 3,666 --
Net cash provided by (used in) investing activities 3,427 (434)
Cash flows from financing activities:
Payments on mortgage notes payable (131) (129)
Distributions to partners (3,396) (430)
Net cash used in financing activities (3,527) (559)
Net increase (decrease) in cash and cash equivalents 141 (268)
Cash and cash equivalents at beginning of period 681 681
Cash and cash equivalents at end of period $ 822 $ 413
Supplemental disclosure of cash flow information:
Cash paid for interest $ 479 $ 517
Supplemental disclosure of non-cash activity:
Extinguishment of debt and other liabilities upon sale of
Ashley Woods $ 8,007 $ --
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 and nine month periods ended September
30, 2001, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001. 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, 2000.
The Managing General Partner is an affiliate of Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust.
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. The investment property which Ashley Woods owns was
sold in July 2001.
Segment Reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" established standards for the
way that public business enterprises report information about operating segments
in annual financial statements and required that those enterprises report
selected information about operating segments in interim financial reports. It
also established standards for related disclosures about products and services,
geographic areas, and major customers. As defined in SFAS No. 131, the
Partnership has only one reportable segment. The Managing General Partner
believes that segment-based disclosures will not result in a more meaningful
presentation than the consolidated financial statements as currently presented.
Note B - 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 nine month periods ended September 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating
expenses) $113 $131
Reimbursement for services of affiliates (included
in investment properties and general and
administrative expenses) 126 88
During the nine months ended September 30, 2001 and 2000, 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 $113,000 and
$131,000 for the nine month periods ended September 30, 2001 and 2000,
respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $126,000 and
$88,000 for the nine month periods ended September 30, 2001 and 2000,
respectively. Included in these expenses were reimbursements for construction
service costs of approximately $47,000 and $6,000, respectively, for the nine
month periods ended September 30, 2001 and 2000.
The Partnership is liable to an affiliate of the Managing General Partner
through common ownership for real estate commissions in the amounts of
approximately $125,000 for Revere Village and approximately $196,000 for Essex
which were sold in previous years. The total amount of approximately $321,000 is
included on the consolidated balance sheet as "Due to affiliate". Payment of the
commissions will not be made to the affiliate until the limited partners have
received distributions equal to their original invested capital, plus 8% per
annum cumulative non-compounded return 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.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 310.25 limited partnership
units in the Partnership representing 41.28% 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, which
would include voting on certain amendments to the Partnership Agreement and
voting to remove the Managing General Partner. As a result of its ownership of
41.28% of the outstanding units, AIMCO is in a position to influence all such
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 its affiliation with the
Managing General Partner.
Note C - Distributions
During the nine months ended September 30, 2001, the Partnership declared and
paid distributions of approximately $3,396,000 (approximately $3,375,000 to the
limited partners or $4,490.48 per limited partnership unit) of which
approximately $411,000 (approximately $390,000 to the limited partners or
$518.90 per limited partnership unit) represented cash from operations and
approximately $2,985,000 ($3,971.58 per limited partnership unit) represented
proceeds from the sale of Ashley Woods Apartments in July 2001 which was paid
entirely to the limited partners. During the nine months ended September 30,
2000, the Partnership paid distributions of approximately $430,000
(approximately $411,000 to the limited partners or $546.84 per limited
partnership unit) of which approximately $49,000 ($65.19 per limited partnership
unit) represented a portion of the previously undistributed net proceeds from
the mortgage refinancing of Ashley Woods during 1997 which was paid entirely to
the limited partners and approximately $381,000 (approximately $362,000 to the
limited partners or $481.65 per limited partnership unit) was paid from
operations. Distributions may be restricted by the requirements to deposit net
operating income (as defined in the mortgage note) into the Reserve Account
until the Reserve Account is funded in an amount equal to $400 to $1,000 per
apartment unit for Versailles on the Lake Apartments for a total of $62,400 to
$156,000. As of September 30, 2001, the Partnership had deposits of
approximately $110,000 in the Reserve Account.
Note D - Sale of Investment Property
On July 12, 2001, the Partnership sold Ashley Woods Apartments to an unrelated
third party, for a gross sale price of $12,015,000. The net proceeds realized by
the Partnership were approximately $3,666,000 after payment of closing costs and
the assumption of the mortgage encumbering the property by the purchaser. The
Partnership realized a gain of approximately $7,377,000 as a result of the sale.
In addition, the Partnership recorded an extraordinary loss on early
extinguishment of debt of approximately $82,000 as a result of the write-off of
unamortized loan costs.
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. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its 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, among other
things, the acquisition of interests in certain general partner entities by
Insignia Financial Group, Inc. ("Insignia") and entities which were, at one
time, affiliates of Insignia; past tender offers by the Insignia affiliates to
acquire limited partnership units; management of the partnerships by the
Insignia affiliates; and the series of transactions which closed on October 1,
1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust,
respectively, were merged into AIMCO. 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 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 court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which, together with a demurrer filed
by other defendants, is currently scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. The matters are currently scheduled to be heard
on November 15, 2001.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases 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 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 property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the nine
months ended September 30, 2001 and 2000:
Average Occupancy
2001 2000
Versailles on the Lake Apartments
Fort Wayne, Indiana 90% 96%
The Managing General Partner attributes the decrease in occupancy at Versailles
on the Lake Apartments to increased market competition and increased home
purchases due to lower interest rates.
Results of Operations
The Partnership realized net income of approximately $7,069,000 for the nine
months ended September 30, 2001 compared to net income of approximately $14,000
for the nine months ended September 30, 2000. The Partnership realized net
income of approximately $7,200,000 for the three month period ended September
30, 2001 compared to a net loss of approximately $49,000 for the three month
period ended September 30, 2000. The increase in net income for the three and
nine month periods ended September 30, 2001 is primarily due to an increase in
total revenues resulting from the gain on sale of Ashley Woods Apartments in
July 2001 partially offset by the extraordinary loss on the early extinguishment
of debt of Ashley Woods Apartments.
On July 12, 2001, the Partnership sold Ashley Woods Apartments to an unrelated
third party, for a gross sale price of $12,015,000. The net proceeds realized by
the Partnership were approximately $3,666,000 after payment of closing costs and
the assumption of the mortgage encumbering the property by the purchaser. The
Partnership realized a gain of approximately $7,377,000 as a result of the sale.
In addition, the Partnership recorded an extraordinary loss on early
extinguishment of debt of approximately $82,000 as a result of the write-off of
unamortized loan costs.
Excluding the operations, gain on sale, and extraordinary loss on early
extinguishment of debt of Ashley Woods Apartments, the Partnership had a net
loss of approximately $184,000 for the nine month period ended September 30,
2001 and approximately $122,000 for the nine month period ended September 30,
2000. Excluding the operations, gain on sale, and extraordinary loss on early
extinguishment of debt of Ashley Woods Apartments, the Partnership had a net
loss of approximately $74,000 for the three month period ended September 30,
2001 and approximately $88,000 for the three month period ended September 30,
2000. The increase in net loss for the nine month period ended September 30,
2001 is due to a decrease in total revenues and an increase in total expenses.
The decrease in net loss for the three month period ended September 30, 2001 is
due to a decrease in total expenses which partially offset a decrease in total
revenues. Total revenues decreased for the nine month period ended September 30,
2001 due to a decrease in rental income. Total revenues decreased for the three
month period ended September 30, 2001 due to a decrease in rental income which
was partially offset by an increase in other income. Rental income decreased for
the three and nine month periods primarily due to increased concessions and
decreased occupancy at Versailles on the Lake Apartments which was partially
offset by increased average rental rates. Other income increased for the three
month period due to increased utilities reimbursements at the Partnership's
remaining investment property.
Excluding the operations of Ashley Woods Apartments, total expenses increased
for the nine month period ended September 30, 2001 primarily due to increased
depreciation expense which was partially offset by decreased general and
administrative expenses. Total expenses decreased for the three month period
ended September 30, 2001 primarily due to decreased operating and general and
administrative expenses. Depreciation expense increased due to property
improvements and replacements completed during the past twelve months. Operating
expenses decreased for the three month period ended September 30, 2001 primarily
due to a decrease in salary expenses at Versailles on the Lake Apartments.
General and administrative expense decreased for the three and nine month
periods ended September 30, 2001 due to a decrease in the cost of services
included in the management reimbursements to the Managing General Partner as
allowed under the Partnership Agreement and reduced professional expenses. Also
included in general and administrative expenses at both September 30, 2001 and
2000, are costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property 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 September 30, 2001, the Partnership had cash and cash equivalents of
approximately $822,000 compared to approximately $413,000 at September 30, 2000.
The increase in cash and cash equivalents of approximately $141,000 since
December 31, 2000 is due to approximately $3,427,000 of cash provided by
investing activities and approximately $241,000 of cash provided by operating
activities which was partially offset by approximately $3,527,000 of cash used
in financing activities. Cash provided by investing activities consisted of net
proceeds from the sale of Ashley Woods Apartments partially offset by property
improvements and replacements and net deposits to escrow accounts maintained by
the mortgage lenders. Cash used in financing activities consisted primarily of
distributions to the partners, and to a lesser extent, principal payments made
on the mortgages encumbering the Registrant's properties. The Partnership
invests its working capital reserves in interest bearing 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 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
Prior to its sale, the Partnership completed approximately $117,000 of capital
improvements at the property, consisting primarily of water heater replacements,
cabinet and countertop replacements, appliances, carpet and vinyl replacements,
and structural improvements. These improvements were funded from the
Partnership's operating cash flow and reserves. The Partnership sold this
property to an unaffiliated third party on July 12, 2001.
Versailles on the Lake
During the nine months ended September 30, 2001, the Partnership completed
approximately $95,000 of budgeted and non-budgeted capital improvements at the
property, consisting primarily of carpet and vinyl replacements. These
improvements were funded from the Partnership's operating cash flow. The
Partnership evaluated the capital improvement needs of the property for the year
2001. The amount budgeted is approximately $84,000, consisting primarily of
water heater replacements, appliances, window treatments, and carpet and vinyl
replacements. 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 $2,250,000, net of discount, is amortized over 21
years with a balloon payment due in 2002. The Managing General Partner will
attempt to refinance such indebtedness and/or sell the property prior to such
maturity date. If the property cannot be refinanced or sold for a sufficient
amount, the Registrant will risk losing such property through foreclosure.
During the nine months ended September 30, 2001, the Partnership declared and
paid distributions of approximately $3,396,000 (approximately $3,375,000 to the
limited partners or $4,490.48 per limited partnership unit) of which
approximately $411,000 (approximately $390,000 to the limited partners or
$518.90 per limited partnership unit) represented cash from operations and
approximately $2,985,000 ($3,971.58 per limited partnership unit) represented
proceeds from the sale of Ashley Woods Apartments in July 2001 which was paid
entirely to the limited partners. During the nine months ended September 30,
2000, the Partnership paid distributions of approximately $430,000
(approximately $411,000 to the limited partners or $546.84 per limited
partnership unit) of which approximately $49,000 ($65.19 per limited partnership
unit) represented a portion of the previously undistributed net proceeds from
the mortgage refinancing of Ashley Woods during 1997 which was paid entirely to
the limited partners and approximately $381,000 (approximately $362,000 to the
limited partners or $481.65 per limited partnership unit) was paid from
operations. 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 monthly 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 2001 or subsequent periods. Distributions may
be restricted by the requirements to deposit net operating income (as defined in
the mortgage note) into the Reserve Account until the Reserve Account is funded
in an amount equal to $400 to $1,000 per apartment unit for Versailles on the
Lake Apartments for a total of $62,400 to $156,000. As of September 30, 2001,
the Partnership had deposits of approximately $110,000 in the Reserve Account.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 310.25 limited partnership
units in the Partnership representing 41.28% 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, which
would include voting on certain amendments to the Partnership Agreement and
voting to remove the Managing General Partner. As a result of its ownership of
41.28% of the outstanding units, AIMCO is in a position to influence all such
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 its affiliation with the
Managing General Partner.
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. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its 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, among other
things, the acquisition of interests in certain general partner entities by
Insignia Financial Group, Inc. ("Insignia") and entities which were, at one
time, affiliates of Insignia; past tender offers by the Insignia affiliates to
acquire limited partnership units; management of the partnerships by the
Insignia affiliates; and the series of transactions which closed on October 1,
1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust,
respectively, were merged into AIMCO. 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 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 court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which, together with a demurrer filed
by other defendants, is currently scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. The matters are currently scheduled to be heard
on November 15, 2001.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K:
Current Report on Form 8-K dated July 12, 2001 and filed July 25,
2001, disclosing the sale of Ashley Woods Apartments to an unrelated
party.
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.
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: