-----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, LK6R1vB/9qWbd3BbmdYXfF+QTeVeMCkg4Ya6kOWqzracWFBZqYw57pu0iJ8kU/S0 tmrr1VyjUMTapHz7kRVedw== 0000721673-96-000002.txt : 19960314 0000721673-96-000002.hdr.sgml : 19960314 ACCESSION NUMBER: 0000721673-96-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960313 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13530 FILM NUMBER: 96534488 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 10KSB 1 FORM 10-KSB--Annual or Transitional Report Under Section 13 or 15(d) (As last amended by 34-31905, eff. 4/26/93) [X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995 or [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period.........to......... Commission file number 0-13530 DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. (Name of small business issuer in its charter) Delaware 62-1181565 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Limited Partnership Interest (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $2,955,837 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of December 31, 1995. Market value information for the Registrant's partnership interests is not available. Should a trading market develop for these interests, it is management's belief that such trading would not exceed $25,000,000. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Prospectus of Registrant dated November 16, 1983 (included in Registration Statement, No. 2-84436 of Registrant) are incorporated by reference into Parts I and III. PART I Item 1. Description of Business Davidson Diversified Real Estate I, L.P. (the "Registrant" or "Partnership") is a Delaware limited partnership organized in January 1983. The general partners of the Registrant are Davidson Diversified Properties, Inc., a Tennessee corporation ("Managing General Partner"); Diversified Equities, Limited, a Tennessee limited partnership ("Associate General Partner"); and David W. Talley ("Individual General Partner") (collectively, the "General Partners"). The offering of the Registrant's limited partnership units ("Units") commenced on November 16, 1983, and terminated on September 14, 1984. The Registrant received gross proceeds from the offering of $15,008,000 and net proceeds of $13,507,200. The Registrant's primary business is to acquire, own, operate and ultimately dispose of existing income-producing residential real properties. Industry segment information is not relevant. The Registrant does not engage in any foreign operations nor derive any income from foreign sources. All of the net proceeds of the offering were invested in the Registrant's six properties, four of which have since been sold or foreclosed upon. See "Item 2. Description of Properties," below for a description of the Registrant's remaining properties. The Registrant receives income from its properties and is responsible for operating expenses, capital improvements and debt service payments under mortgage obligations secured by the properties. The Registrant financed its properties primarily through non-recourse debt. Therefore, in the event of default, the lender can generally only look to the subject property for recovery of amounts due. Both the income and expenses of operating the properties owned by the Registrant are subject to factors outside of the Registrant's control, such as over-supply of similar properties resulting from over-building, increases in unemployment or population shifts, reduced availability of permanent mortgage funds, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Registrant. At this time, it appears that the investment objective of capital growth will not be attained. In addition, unless there is significant improvement in the performance of the Registrant's properties and the markets in which such properties are located, investors may not receive a return of a portion of their initial capital contributions. For the year ended December 31, 1995, the Registrant's properties accounted for, in the aggregate, in excess of 99% of the Registrant's gross revenues. Each of the properties was acquired prior to December 31, 1984. Competition The real estate business is highly competitive. The Registrant's properties are subject to competition from similar properties in the vicinity in which each property is located. The Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by the General Partners and/or their affiliates to engage in business which may be competitive with the Registrant. Employees The Registrant has no employees. Management and administrative services are performed by Davidson Diversified Properties, Inc., the Managing General Partner, and by Insignia Management Group, L.P., an affiliate of Insignia Financial Group, Inc. ("Insignia"), an affiliate of the Managing General Partner. See "Item 12. Certain Relationships and Related Transactions" for an enumeration of the affiliates and the compensation and reimbursement received from the Registrant during 1994 and 1995. Item 2. Description of Properties The following table sets forth the Registrant's investments in properties: Date of Property Purchase Type of Ownership Use Versailles on the Lake 04/05/84 Fee ownership subject Apartment to first and second 156 units mortgages. Ashley Woods Apts. 07/31/84 Fee ownership subject Apartment to first mortgage. 352 units Schedule of Properties:
Gross Carrying Accumulated Useful Federal Property Value Depreciation Life Method Tax Basis Versailles on the Lake $ 4,238,654 $1,980,204 5-25 yrs S/L $1,406,005 Ashley Woods 8,137,625 3,598,921 5-25 yrs S/L 3,254,714 $12,376,279 $5,579,125 $4,660,719 See Note A of the financial statements included in "Item 7" for a description of the Registrant's depreciation policy.
Schedule of Mortgages:
Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 1995 Rate Amortized Date Maturity Ashley Woods 1st mortgage $6,011,015 10.0% 20 yrs 07/01/00 $5,822,947 Versailles on the Lake 1st mortgage 2,674,487 7.6% 21.42 yrs 11/15/02 2,071,366 2nd mortgage 88,446 7.6% (1) 11/15/02 88,446 8,773,948 Less unamortized discounts (151,379) Total $8,622,569 (1) Interest only payments.
Schedule of Rental Rates and Occupancy: Average Annual Average Rental Rates Occupancy Property 1995 1994 1995 1994 Ashley Woods(1) $5,961/unit $5,899/unit 94% 88% Versailles on the Lake 5,509/unit 5,328/unit 94% 94% (1) The Managing General Partner attributes the increase in occupancy at Ashley Woods Apartments to increased levels of concessions and other leasing incentives along with the rehabilitation of the property's exterior, which has enhanced its ability to compete in the Cincinnati market. As noted under "Item 1. Description of Business," the real estate industry is highly competitive. All of the properties of the Registrant are subject to competition from other residential apartment complexes in the area. The Managing General Partner believes that all of the properties are adequately insured. The multi-family residential properties' lease terms are for one year or less. No residential tenant leases 10% or more of the available space. Schedule of Real Estate Taxes and Rates: 1995 1995 Taxes Rate Ashley Woods $138,219 4.38% Versailles on the Lake 89,100 9.06% Item 3. Legal Proceedings The Registrant is unaware of any pending or outstanding litigation that is not of a routine nature. The General Partner of the Registrant believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition or operations of the Partnership. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the fiscal year ended December 31, 1995, no matters were submitted to a vote of Unit holders through the solicitation of proxies or otherwise. PART II Item 5. Market for Partnership Equity and Related Partner Matters There is no established market for the Units and it is not anticipated that any will exist in the foreseeable future. As of January 1996, there were approximately 1,142 holders of record owning an aggregate of 751.59 Units. Distributions to partners for the year ended December 31, 1995, were $153,975. There were no distributions to partners for the year ended December 31, 1994. Pursuant to the terms of the Partnership Agreement, there are restrictions on the ability of the Limited Partners to transfer their Units. In all cases, the General Partners must consent to any transfer. The Revenue Act of 1987 contained provisions which have an adverse impact on investors in "publicly traded partnerships." Accordingly, the General Partners have established a policy of imposing limited restrictions on the transferability of the Units in secondary market transactions. Implementation of this policy should prevent a public trading market from developing and may impact the ability of an investor to liquidate his investment quickly. It is expected that such policy will remain in effect until such time, if ever, as further clarification of the Revenue Act of 1987 may permit the Registrant to lessen the scope of the restrictions. There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Registrant's Partnership Agreement. Item 6. Management's Discussion and Analysis or Plan of Operation Results of Operations The Partnership realized net income of $22,665 for the year ended December 31, 1995, compared to a net loss of $128,025 for the year ended December 31, 1994. The increase in net income for 1995 is attributable to increased revenues for the year. Rental income increased due to rent increases at both investment properties, combined with an increase in occupancy from 88% in 1994, to 94% in 1995, at Ashley Woods Apartments. The Managing General Partner attributes the increase in occupancy at Ashley Woods to increased levels of concessions and other leasing incentives along with the rehabilitation of the property's exterior, which has enhanced its ability to compete in the Cincinnati market. Other income increased due to an increase in lease cancellation fees at both properties totalling approximately $22,000 and an increase in cleaning and damage fees at Ashley Woods totalling approximately $13,000. Overall expenses increased slightly for the year ended December 31, 1995, compared to the year ended December 31, 1994. Maintenance expense increased during 1995, compared to 1994, due to an increase in interior building repairs, swimming pool repairs and parking lot paving and striping at Ashley Woods. Depreciation expense increased in 1995 as a result of the major exterior rehabilitation at Ashley Woods that was completed in June 1994 in combination with other property improvements and replacements at both properties in 1995. The loss on disposal of property of $31,151 in 1994 represents the write-off of old roofs that were replaced. The Managing General Partner continues to monitor the rental market environment in each location of its apartment properties to assess the feasibility of increasing rents and maintaining or increasing occupancy levels to protect the Partnership from increases in expenses. The Managing General Partner expects to be able, at a minimum, to continue protecting the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, rental concessions and rental reductions needed to offset softening market conditions could affect the ability to sustain this plan. Liquidity At December 31, 1995, the Partnership had unrestricted cash of $867,531 compared to unrestricted cash of $809,719 at December 31, 1994. Net cash provided by operating activities increased primarily as a result of the revenue increases noted above. Net cash used in investing activities decreased due to fewer property improvements and replacements at both of the Partnership's investment properties. Net cash used in financing activities increased due to the distribution to partners of $153,975 made during the first quarter of 1995. The Partnership has no material capital programs scheduled to be performed in 1996, although certain routine capital expenditures and maintenance expenses have been budgeted. These capital expenditures and maintenance expenses will be incurred only if cash is available from operations or are funded from the restricted escrows. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the various properties to adequately maintain the physical assets as well as future maturing mortgage obligations and related refinancing expenses. Such assets are currently thought to be sufficient for any near-term needs of the partnership. The Partnership made a distribution to partners of $153,975 during the first quarter of 1995. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, and property sales. Item 7. Consolidated Financial Statements DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. LIST OF CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors Consolidated Balance Sheet December 31, 1995 Consolidated Statements of Operations - Years ended December 31, 1995 and 1994 Consolidated Statements of Changes in Partners Deficit - Years ended December 31, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1995 and 1994 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Davidson Diversified Real Estate I, L.P. We have audited the accompanying consolidated balance sheet of Davidson Diversified Real Estate I, L.P. (A Limited Partnership) as of December 31, 1995, and the related consolidated statements of operations, changes in partners deficit and cash flows for each of the two years in the period ended December 31, 1995. These financial statements are the responsibility of the Partnership s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership s management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Davidson Diversified Real Estate I, L.P. (A Limited Partnership) as of December 31, 1995, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Greenville, South Carolina February 6, 1996 DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. CONSOLIDATED BALANCE SHEET
December 31, 1995 Assets Cash: Unrestricted $ 867,531 Restricted-tenant security deposits 87,377 Accounts receivable 13,596 Escrows for taxes and insurance 156,152 Restricted escrows 294,022 Other assets 245,623 Investment properties (Notes A, C and F): Land $ 1,071,881 Buildings and related personal property 11,304,398 12,376,279 Less accumulated depreciation (5,579,125) 6,797,154 $8,461,455 Liabilities and Partners' Deficit Liabilities Accounts payable $ 46,378 Tenant security deposits 86,153 Accrued taxes 231,774 Other liabilities 183,099 Due to affiliates (Note B) 320,830 Mortgage notes payable (Note C) 8,622,569 Partners' Deficit General partners $ (73,186) Limited partners (751.59 units issued and outstanding) (956,162) (1,029,348) $8,461,455 See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 1994 Revenues: Rental income $2,731,155 $2,564,748 Other income 224,682 190,984 Total revenues 2,955,837 2,755,732 Expenses: Operating 678,757 680,311 General and administrative 119,118 104,792 Property management fees 146,668 134,486 Maintenance 397,570 365,943 Depreciation 486,768 444,473 Interest 877,711 884,902 Property taxes 226,580 237,699 Total expenses 2,933,172 2,852,606 Loss on disposal of property -- (31,151) Net income (loss) (Note D) $ 22,665 $ (128,025) Net income (loss) allocated to general partners (5%) $ 1,133 $ (6,401) Net income (loss) allocated to limited partners (95%) 21,532 (121,624) $ 22,665 $ (128,025) Net income (loss) per limited partnership unit: (based on 751.59 and 751.84 limited partnership units outstanding during the periods, respectively) $ 28.65 $ (161.77) See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
Limited Partnership General Limited Units Partners Partners Total Original capital contributions 751.84 $ 1,000 $15,008,000 $15,009,000 Partners' deficit at December 31, 1993 751.84 $(60,219) $ (709,794) $ (770,013) Net loss for the year ended December 31, 1994 -- (6,401) (121,624) (128,025) Partners' deficit at December 31, 1994 751.84 (66,620) (831,418) (898,038) Distributions to partners -- (7,699) (146,276) (153,975) Abandonment of limited partnership units (Note A) (.25) -- -- -- Net income for the year ended December 31, 1995 -- 1,133 21,532 22,665 Partners' deficit at December 31, 1995 751.59 $(73,186) $ (956,162) $(1,029,348) See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 1994 Cash flows from operating activities: Net income (loss) $ 22,665 $(128,025) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 486,768 444,473 Amortization of discounts and loan fees 62,467 61,647 Loss on disposal of property -- 31,151 Change in accounts: Restricted cash (908) (14,377) Accounts receivable 1,678 (10,053) Escrows for taxes and insurance (14,480) (5,588) Other assets 1,332 (4,427) Accounts payable (15,709) 40,564 Tenant security deposit liabilities (933) 14,994 Accrued taxes (9,885) 5,574 Other liabilities 68,371 (15,054) Net cash provided by operating activities 601,366 420,879 Cash flows from investing activities: Property improvements and replacements (229,848) (672,531) Deposits to restricted escrows (75,143) (49,048) Receipts from restricted escrows 11,899 203,946 Net cash used in investing activities (293,092) (517,633) Cash flows from financing activities: Payments on mortgage notes payable (96,487) (88,757) Distributions to partners (153,975) -- Net cash used in financing activities (250,462) (88,757) Net increase (decrease) in cash 57,812 (185,511) Cash at beginning of year 809,719 995,230 Cash at end of year $ 867,531 $ 809,719 Supplemental disclosure of cash flow information: Cash paid for interest $ 815,524 $ 823,254 See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. Notes to Consolidated Financial Statements December 31, 1995 Note A Organization and Significant Accounting Policies Organization Davidson Diversified Real Estate I, L.P. (the "Partnership") is a Delaware limited partnership organized on January 14, 1983, to acquire and operate residential real estate properties. Principles of Consolidation The financial statements include all the accounts of the Partnership and a 99.9% owned partnership. All significant inter-partnership balances have been eliminated. Allocations to Partners Net earnings (loss) of the Partnership and taxable income (loss) are allocated 95% to the limited partners and 5% to the general partners. Distributions of available cash (cash flow) are allocated among the limited partners and the general partners in accordance with the agreement of limited partnership. Allocation of net income for tax purposes, arising from the occurrence of a sale or refinancing shall be allocated as follows: First, an amount equal to the aggregate deficit in the capital accounts of the General and Limited Partners having deficits in their capital accounts shall be allocated to each such partner in the same ratio as the deficit such partner s capital account bears to the aggregate of all such partners deficits. Second, to the Limited Partners in an amount equal to the cash distributed to them from a sale or refinancing. Third, the remainder, if any, five percent (5%) to the General Partners and ninety-five percent (95%) to the Limited Partners. Distributions of cash from sales or refinancings shall be distributed in the following order of priority: First, to the Limited Partners, an amount which when added to all prior distributions of cash from sales or refinancings shall equal their original invested capital, plus an amount which, when added to all prior distributions to the Limited Partners (excluding distributions which are deducted in the calculation of adjusted invested capital), will equal 8% per annum cumulative noncompounded on their adjusted invested capital, commencing the last day of the calendar quarter in which each Limited Partner is admitted to the Partnership through the date of payment. Note A - Organization and Significant Accounting Policies (continued) Second, to an affiliate of the general partners, an amount equal to its subordinated real estate commission, which fee is equal to the lesser of (i) 3% of the gross sales price of a property or (ii) one-half of the competitive commission, as defined, but may only be paid after the Limited Partners have received their priority distributions as discussed in the previous paragraph. Third, 85% of the remaining cash from sales or refinancings to the Limited Partners and 15% of the remaining cash from sales or refinancings to the General Partners. Abandoned Units During 1995, the number of limited partnership units decreased by .25 due to limited partners abandoning their units. In abandoning his or her partnership units, a limited partner relinquishes all right, title and interest in the Partnership as of the date of abandonment. Depreciation Depreciation is provided by the straight-line method over the estimated lives of the investment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used (1) for real property over 18 years for additions after March 15, 1984, and before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987, and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years, and (2) personal property additions over 7 years. Investment Properties During 1995, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of FASB No. 121 did not have a material effect on the Partnership's financial statements. Cash The Partnership considers only unrestricted cash to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Note A - Organization and Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was $30,318 and $39,384 for the years ended December 31, 1995 and 1994, respectively. Restricted Escrows 1) Reserve Account A general Reserve Account of $156,000 was established in 1992 from the REMIC refinancing proceeds for the refinanced property to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership was required to deposit net operating income (as defined in the mortgage note) from the refinanced property to the reserve account until the reserve account equalled $1,000 per apartment unit or $156,000 in total. At December 31, 1995, this reserve totalled $156,919. 2) Replacement Reserve A replacement reserve account has been established with the mortgagee for Ashley Woods, and these funds will be used, as needed, to make necessary repairs and replacements. At December 31, 1995, this reserve totalled $137,103. Present Value Discounts Periodically, the Partnership incurs debt at below market rates for similar debt. Present value discounts are recorded on the basis of prevailing market rates and are amortized using the interest method over the life of the related debt. The amortization expense is included in interest expense. Loan Costs Loan costs are being amortized on a straight-line basis over the life of the respective loans. The amortization expense is included in interest expense. Note A - Organization and Significant Accounting Policies (continued) Leases The Partnership generally leases apartment units for twelve-month terms or less. Restricted Cash The Partnership requires security deposits from all apartment lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Fair Value In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. The carrying amounts of variable-rate mortgages approximate fair value due to frequent re-pricing. Reclassifications Certain reclassifications have been made to the 1994 balances to conform to the 1995 presentation. Note B Due to Affiliates The Partnership is liable to a company affiliated with the Managing General Partner through common ownership for real estate commissions in the amounts of $124,500 for Revere Village and $196,330 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 Mortgage Notes Payable The principal terms of mortgage notes payable are as follows:
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1995 Interest Rate Date Maturity Ashley Woods $6,011,015 $52,870 10.0% 07/01/00 $5,822,947 Versailles on the Lake 1st mortgage 2,674,487 22,571 7.6% 11/15/02 2,071,366 2nd mortgage 88,446 560 7.6% 11/15/02 88,446 8,773,948 $76,001 Less unamortized discounts (151,379) Totals $8,622,569
The above non-recourse mortgages are secured by the related property and improvements of the Partnership and by pledge of revenues from the apartment properties. Certain of the notes require prepayment penalties if repaid prior to maturity and prohibit resale of the properties subject to existing indebtedness. The Partnership exercised an interest rate buy-down option for Versailles on the Lake reducing the stated rate from 8.76% to 7.60% during the REMIC refinancing discussed in Note A above. The fee for the interest rate reduction was $205,201 and is being amortized as a loan discount using the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The estimated fair values of the Partnership's aggregate debt is approximately $9,077,000. This value represents a general approximation of possible value and is not necessarily indicative of the amounts the Partnership may pay in actual market transactions. Note C Mortgage Notes Payable (continued) Scheduled principal payments of mortgage notes payable subsequent to December 31, 1995, are as follows: Years Ending December 31, 1996 $ 104,876 1997 114,037 1998 124,014 1999 134,882 2000 5,943,047 Thereafter 2,353,092 $8,773,948 Note D Income Taxes The Partnership received a ruling from the Internal Revenue Service that it is to be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Differences between the net income (loss) as reported and Federal taxable income (loss) result primarily from (1) amortization of present value discounts, (2) depreciation over different methods and lives and on differing cost bases of apartment properties, and (3) change in rental income received in advance. The following is a reconciliation of reported net income (loss) and Federal taxable income (loss): 1995 1994 Net income (loss) as reported $ 22,665 $(128,025) Add (deduct) Depreciation differences (66,649) (72,653) Unearned income 76,413 (11,397) Miscellaneous (11,104) 37,545 Federal taxable income (loss) $ 21,325 $(174,530) Federal taxable income (loss) per limited partnership unit $ 26.95 $ (220.53) Note D - Income Taxes (continued) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities at December 31, 1995: Net deficit as reported $(1,029,348) Differences in basis of assets and liabilities: Buildings and Land 136,576 Accumulated depreciation (2,273,010) Basis difference in lower tier partnership 374,636 Other 136,986 Net deficit - Federal tax basis $(2,654,160) Note E Transactions with Affiliated Parties Affiliates of Insignia Financial Group, Inc. ("Insignia") own controlling ownership interest in the Partnership s Managing General Partner. As a result, affiliates of Insignia provide property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1995 and 1994: 1995 1994 Property management fees $146,668 $134,486 Data processing services 3,135 2,325 Marketing services 2,289 4,236 Reimbursement for services of affiliates 82,703 68,481 The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner, who receives payments on these obligations from the agent. The amount of the partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. Note F - Investment Properties and Accumulated Depreciation
Initial Cost To Partnership Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition Versailles on the Lake Apartments Fort Wayne, Indiana $2,762,933 $ 191,447 $3,847,517 $ 199,690 Ashley Woods Apartments Cincinnati, Ohio 6,011,015 880,434 5,814,753 1,442,438 Totals $8,773,948 $1,071,881 $9,662,270 $1,642,128
Gross Amount At Which Carried At December 31, 1995 Buildings And Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years Versailles on the Lake Apartments Fort Wayne, Indiana $ 191,447 $4,047,207 $4,047,207 $1,980,204 1970 04/84 5-25 Ashley Woods Cincinnati, Ohio 880,434 7,257,191 8,137,625 3,598,921 1971 07/84 5-25 Totals $1,071,881 $11,304,398 $12,376,279 $5,579,125 The depreciable lives included above are for the buildings and related personal property. The depreciable lives for related personal property are for 5 to 15 years.
Note F - Investment Properties and Accumulated Depreciation (continued) Reconciliation of Investment Properties and Accumulated Depreciation : Year Ended December 31, 1995 1994 Investment Properties Balance at beginning of year $11,074,550 $10,495,536 Property improvements 229,848 672,531 Disposal of property -- (93,517) Balance at end of year $11,304,398 $11,074,550 Accumulated Depreciation Balance at beginning of year $5,092,357 $ 4,710,250 Depreciation expense 486,768 444,473 Disposal of property -- (62,366) Balance at end of year $5,579,125 $ 5,092,357 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1995 and 1994, is $12,512,854 and $12,283,006, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1995 and 1994, is $7,852,135 and $7,298,718, respectively. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act The names of the directors and executive officers of Davidson Diversified Properties, Inc., the Partnership's Managing General Partner, their ages and the nature of all positions with Davidson Diversified Properties, Inc. presently held by them are as follows: Name Age Position Carroll D. Vinson 55 President Robert D. Long, Jr. 28 Controller and Principal Accounting Officer William H. Jarrard, Jr. 49 Vice President John K. Lines 36 Secretary Kelley M. Buechler 38 Assistant Secretary Carroll D. Vinson has been President of Metropolitan Asset Enhancement, L.P., and subsidiaries since August of 1994. Prior to that, during 1993 to August 1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm) and engaged in various other investment and consulting activities. Briefly, in early 1993, Mr. Vinson served as President and Chief Executive Officer of Angeles Corporation, a real estate investment firm. From 1991 to 1993, Mr. Vinson was employed by Insignia in various capacities including Managing Director-President during 1991. From 1986 to 1990, Mr. Vinson was President and a Director of U.S. Shelter Corporation, a real estate services company, which sold substantially all of its assets to Insignia in December 1990. Robert D. Long, Jr. is Controller and Principal Accounting Officer. Prior to joining Metropolitan Asset Enhancement, L.P., and subsidiaries, he was an auditor for the State of Tennessee and was associated with the accounting firm of Harshman Lewis and Associates. He is a graduate of The University of Memphis. William H. Jarrard, Jr. is Managing Director - Partnership Administration of Insignia. During the five years prior to joining Insignia in 1991, he served in a similar capacity for U.S. Shelter. He was previously associated with the accounting firm, Ernst & Whinney, for eleven years. Mr. Jarrard is a graduate of the University of South Carolina and a certified public accountant. John K. Lines has been General Counsel and Secretary of Insignia since June 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice President of Oewen Financial Corporation in West Palm Beach, Florida. From October 1991 until April 1993, Mr. Lines was a Senior Attorney with Banc One Corporation in Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was employed as an Associate Attorney with Squire Sanders & Dempsey in Columbus, Ohio. Kelley M. Buechler is Assistant Secretary of Insignia. During the five years prior to joining Insignia in 1991, she served in a similar capacity for U.S. Shelter. Ms. Buechler is a graduate of the University of North Carolina. Item 10. Executive Compensation The Registrant was not required to and did not pay remuneration to officers and/or directors of the Managing General Partner during 1995 or 1994. See "Item 12." below and Note E of the Notes to the Consolidated Financial Statements for a discussion of compensation and reimbursements paid to the General Partners and certain affiliates. Item 11. Security Ownership of Certain Beneficial Owners and Management As of February 1996, no Unit holder was known by the Registrant to be the beneficial owner of more than 5% of the Units of the Registrant. As of February 1996, no director or officer of the Managing General Partner owns, nor do the directors or officers as a whole own more than 1% of the Registrant's Units. No such director or officer had any right to acquire beneficial ownership of additional Units of the Registrant. Item 12. Certain Relationships and Related Transactions Davidson Diversified Properties, Inc., the Managing General Partner of the Registrant, is owned by MAE GP Corporation, an affiliate of Insignia. The majority of general partner and limited partner interests in Diversified Equities, Ltd., the Associate General Partner, are owned by MAE Investments, Inc. and Insignia Jacques-Miller, L.P., respectively, both of whom are affiliates of Insignia. Effective January 1, 1992, management and administrative services were assumed by affiliates of Insignia. Amounts for management services paid to these affiliates in 1995 and 1994 were $146,668 and $134,486, respectively. Reimbursements for administrative services were paid to affiliates of Insignia during 1995 and 1994 in the amounts of $82,703 and $68,481, respectively. The Partnership Agreement provides for the Managing General Partner to receive a fee for managing the affairs of the Registrant. The fee is 5% of adjusted cash from operations, as defined in the Partnership Agreement. The fee is payable only after the Registrant has distributed, to all limited partners, adjusted cash from operations in any year equal to 8% of their adjusted invested capital as defined in the Partnership Agreement. Because the likelihood of payment of the fee is remote, the fee has not been accrued. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: see Exhibit Index contained herein. (b) No Reports on Form 8-K were filed during the fourth quarter of 1995. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. By: Davidson Diversified Properties, Inc., as Managing General Partner By: /s/Carroll D. Vinson Carroll D. Vinson President Date: March 13, 1996 In accordance with the Exchange Act, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the date indicated. /s/Carroll D. Vinson President March 13, 1996 Carroll D. Vinson /s/Robert D. Long, Jr. Controller and Principal March 13, 1996 Robert D. Long, Jr. Accounting Officer EXHIBIT INDEX Exhibit 3A Partnership Agreement dated January 14, 1983 is incorporated by reference to Exhibit A to the Prospectus of the Registrant dated November 16, 1983 as filed with the Commission pursuant to Rule 424(b) under the Act. 3B Amendment No. 1 dated January 1, 1986 to the Partnership Agreement is incorporated by reference to Exhibit 3B to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 4 Certificate of Limited Partnership dated December 2, 1982 is incorporated by reference to Exhibit 4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987. 4A Certificate of Amendment of Certificate of Limited Partnership dated March, 1983 is incorporated by reference to Exhibit 4A to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987. 4B Restated Certificate of Limited Partnership dated June 8, 1983 is incorporated by reference to Exhibit 4B to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987. 4C Amended and Restated Certificate of Limited Partnership dated January 1, 1986 is incorporated by reference to Exhibit 4C to the Registrant's Annual Report on form 10-K for the fiscal year ended December 31, 1987. 10A Agent's Agreement dated November 1, 1983 between the Registrant and Harvey Freeman & Sons, Inc. is incorporated by reference to Exhibit 10B to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1983. 10B Agreement Among Agents dated November 1, 1983 by and among Harvey Freeman & Sons, Inc., Harvey Freeman & Sons, Inc. of Arkansas, Harvey Freeman & Sons, Inc. of Florida, Harvey Freeman & Sons, Inc. of Georgia, Harvey Freeman & Sons, Inc. of Indiana, Harvey Freeman & Sons, Inc. of Kentucky, Harvey Freeman & Sons, Inc. of Mississippi, Harvey Freeman & Sons, Inc. of North Carolina, Harvey Freeman and Sons, Inc. of Ohio and Harvey Freeman & Sons, Inc. of South Carolina is incorporated by reference to Exhibit 10C to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1983. 10C Acquisition and Disposition Services Agreement dated October 3, 1983 between the Registrant and Criswell Freeman Company is incorporated by reference to Exhibit 10D to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1983. 10D Contract for Sale of Real Estate for Versailles on the Lake dated March 16, 1984 between Versailles on the Lake Associates, an Illinois limited partnership and Tennessee Trust Company, Trustee, is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated April 4, 1984. 10E Assignment of Contract for Sale dated April 2, 1984 between Tennessee Trust Company, Trustee, and the Registrant (relating to Versailles on the Lake Apartments) is incorporated by reference to Exhibit 10L to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1984. 10F Note dated November 19, 1984 executed by the Registrant payable to American Fletcher National Bank and Trust Company relating to Versailles on the Lake Apartments is incorporated by reference to Exhibit 10W to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10G Real Estate Mortgage, Assignment of Rents and Security Agreement dated November 19, 1984 executed by the Registrant payable to American Fletcher National Bank and Trust Company relating to Versailles on the Lake is incorporated by reference to Exhibit 10EE to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10H Memorandum of Understanding among SEC Realty Corp., Tennessee Properties, L.P., Freeman Mortgage Corporation, J. Richard Freeman, W. Criswell Freeman and Jacques-Miller Properties, Inc. is incorporated by reference to Exhibit 10BB to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. 10I Partnership Administration and Consultation Agreement among Freeman Properties, Inc., Freeman Diversified Properties, Inc., Residual Equities Limited and Jacques-Miller Properties, Inc. is incorporated by reference to Exhibit 10CC to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. 10J Partnership Agreement of Ashley Woods Associates dated May 16, 1990 owned 99.9% by the Registrant relating to refinancing of Ashley Woods Apartments is incorporated by reference to Exhibit 10EE to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10K Multifamily Note with Addendum dated June 14, 1990 executed by Ashley Woods Associates payable to PW Funding Inc. relating to Ashley Woods Apartments is incorporated by reference to Exhibit 10FF to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10L Multifamily Open-end Mortgage with Rider dated June 14, 1990 executed by Ashley Woods Associates in favor of PW Funding Inc. relating to Ashley Woods Apartments is incorporated by reference to Exhibit 10GG to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10M Termination Agreement, dated December 31, 1991 among Jacques-Miller, Inc.,Jacques-Miller Property Management, Davidson Diversified Properties, Inc., and Supar, Inc. is incorporated by reference to Exhibit 10HH to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10N Assignment of Limited Partnership Interest of Freeman Equities, Limited, dated December 31, 1991 between Davidson Diversified Properties, Inc and Insignia Jacques-Miller, L.P. is incorporated by reference to Exhibit 10II to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10O Assignment of General Partner Interests of Freeman Equities, Limited, dated December 31, 1991 between Davidson Diversified Properties, Inc. and MAE GP Corporation is incorporated by reference to Exhibit 10JJ to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10P Stock certificate, dated December 31, 1991 showing ownership of 1,000 shares of Davidson Diversified Properties, Inc. by MAE GP Corporation is incorporated by reference to Exhibit 10KK to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10Q Contracts related to refinancing of debt: (a) First Deed of Trust and Security Agreement dated October 28, 1992 between Davidson Diversified Real Estate I, Limited Partnership and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Versailles on the Lake is incorporated by reference to Exhibit 10Q (a) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (b) Second Deed of Trust and Security Agreement dated October 28, 1992 between Davidson Diversified Real Estate I, Limited Partnership and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Versailles on the Lake is incorporated by reference to Exhibit 10Q (b) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (c) First Assignment of Leases and Rents dated October 28, 1992 between Davidson Diversified Real Estate I, Limited Partnership and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Versailles on the Lake is incorporated by reference to Exhibit 10Q (c) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (d) Second Assignment of Leases and Rents dated October 28, 1992 between Davidson Diversified Real Estate, I Limited Partnership and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Versailles on the Lake is incorporated by reference to Exhibit 10Q (d) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (e) First Deed of Trust Note dated October 28, 1992 between Davidson Diversified Real Estate I Limited Partnership and First Commonwealth Realty Credit Corporation, relating to Versailles on the Lake is incorporated by reference to Exhibit 10Q (e) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (f) Second Deed of Trust Note dated October 28, 1992 between Davidson Diversified Real Estate I, Limited Partnership and First Commonwealth Realty Credit Corporation relating to Versailles on the Lake is incorporated by reference to Exhibit 10Q (f) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. 16 Letter from the Registrant's former independent accountant regarding its concurrence with the statements made by the Registrant is incorporated by reference to the exhibit filed with Form 8-K dated September 30, 1992. 22 Subsidiaries - the Registrant has no subsidiaries. 27 Financial Data Schedule EX-27 2
5 This schedule contains summary financial information extracted from Davidson Diversified Properties Real Estate I's Year-End 1995 10-KSB and is qualified in its entirety by reference to such 10-KSB filing. 0000721673 DAVIDSON DIVERSIFIED PROEPRTIES REAL ESTATE I 1 12-MOS DEC-31-1995 DEC-31-1995 867,531 0 13,596 0 0 0 12,376,279 5,579,125 8,461,455 0 8,622,569 0 0 0 (1,029,348) 8,461,455 0 2,955,837 0 2,933,172 0 0 877,711 0 0 0 0 0 0 22,665 28.65 0 The Registrant has an unclassified balance sheet.
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