-----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, N0MqxmCvVon7Xabsmz3Otc5G1GQKFQ2OMHmNhVHIsCaD8bjWJYVOML68E1uMmQlf +TjTx60wLTSniew6Q9TYGA== 0000730013-97-000002.txt : 19970317 0000730013-97-000002.hdr.sgml : 19970317 ACCESSION NUMBER: 0000730013-97-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000750258 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 621207077 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14483 FILM NUMBER: 97556635 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391513 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 II 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 [No Fee Required] For the fiscal year ended December 31, 1996 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 0-14483 DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. (Name of small business issuer in its charter) Delaware 62-1207077 (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. $9,526,000 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, 1996. Market value information for the Registrant's partnership interests is not available. Should a trading market develop for these interests, it is the Managing General Partner's belief that such trading would not exceed $25,000,000. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Prospectus of Registrant dated October 16, 1984 (included in Registration Statement, No. 2-92313, of Registrant) are incorporated by reference into Parts I and III. PART I ITEM 1. DESCRIPTION OF BUSINESS Davidson Diversified Real Estate II, L.P. ("the Registrant" or "the Partnership") is a Delaware limited partnership organized in June 1984. The general partners of the Registrant are Davidson Diversified Properties, Inc., a Tennessee corporation ("Managing General Partner"); Freeman Equities, Limited ("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 October 16, 1984, and terminated on October 15, 1985. The Registrant received gross proceeds from the offering of $24,485,000 and net proceeds of $21,760,500. The Registrant's primary business is to own, operate and ultimately dispose of existing income-producing residential and, to a lesser extent, existing and to- be-built commercial real estate. 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 eight properties, of which one has been sold and two have been foreclosed. See "Item 2. Description of Properties", below for a description of the Registrant's five 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 oversupply of similar properties resulting from overbuilding, 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 the control of the Registrant. At this time, it appears that the Partnership's 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 or possibly any of their initial capital contributions. For the year ended December 31, 1996, the Registrant's properties accounted for, in the aggregate, over 99% of the Registrant's gross revenues. All eight properties were acquired prior to December 31, 1985. Of the eight properties originally acquired, only five remain. The Registrant has no employees. Management and administrative services are performed by Davidson Diversified Properties, Inc., the Managing General Partner, and by Insignia Residential Group, L.P., an affiliate of Insignia Financial Group, Inc. ("Insignia"). See "Item 12. Certain Relationships and Related Transactions" for an enumeration of the affiliates and the compensation and reimbursement received from the Registrant during 1996 and 1995. The real estate business in which the Partnership is engaged is highly competitive and the Partnership is not a significant factor in this industry. The Registrant's real property investments are subject to competition from similar types of properties in the vicinities in which they are located. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Registrant. ITEM 2. DESCRIPTION OF PROPERTIES: The following table sets forth the Registrant's investments in properties as of December 31, 1996:
Date of Type of Property Purchase Ownership Use Big Walnut Apartments 03/28/85 Fee ownership subject Apartment- Columbus, Ohio to first and second 251 units mortgages LaFontenay Apartments 10/31/84 Fee ownership subject Apartment- (Phase I and II) to first mortgage 260 units Louisville, Kentucky The Trails Apartments 08/30/85 Fee ownership subject Apartment- Nashville, Tennessee to first mortgage 248 units Greensprings Manor Apartments 09/30/85 Fee ownership subject Apartment- Indianapolis, Indiana to first and second 582 units mortgages Outlet's Ltd. Mall 12/31/84 Fee ownership subject Commercial- Murfreesboro, Tennessee to first mortgage 118,103 sq. ft.
SCHEDULE OF PROPERTIES (IN THOUSANDS):
Gross Carrying Accumulated Federal Property Value Depreciation Rate Methods Tax Basis Big Walnut Apartments $ 8,103 $ 3,722 5-25 yrs. S/L $ 2,721 LaFontaney I & II Apartments 8,753 4,022 5-25 yrs. S/L 3,168 The Trails Apartments 8,422 3,571 5-25 yrs. S/L 3,705 Greensprings Apartments 11,913 5,419 5-25 yrs. S/L 5,090 Outlet's Ltd. Mall 6,588 2,679 5-25 yrs. S/L 3,423 $43,779 $19,413 $18,107
See "Note A" of the financial statements included in "Item 7" for a description of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES (IN THOUSANDS): Principal Principal Stated Balance Balance At Interest Period Maturity Due At Property December 1996 Rate Amortized Date Maturity Big Walnut Apartments 1st mortgage $ 4,918 7.60% 257 months 11/15/02 $ 3,912 2nd mortgage 167 7.60% 257 months 11/15/02 167 LaFontenay I & II Apartments 1st mortgage 6,749 9.25% 360 months 06/01/97 6,728 The Trails Apartments 1st mortgage 6,000 (1) 140 months 12/01/09 6,000 Greensprings Apartments 1st mortgage 8,645 7.60% 257 months 11/15/02 6,875 2nd mortgage 294 7.60% 257 months 11/15/02 294 Outlet's Ltd. Mall 1st mortgage 1,710 10.125% 180 months 01/15/00 1,490 28,483 $25,466 Less unamortized discounts (1,854) Total $ 26,629
(1) Adjustable rate based on 75% of the interest rate on new-issue long-term A- rate utility bonds as determined on the first day of each calendar quarter. The rate at December 31, 1996 was 5.76%.
Average Annual Average Annual Rental Rates Occupancy Property 1996 1995 1996 1995 Big Walnut Apartments $6,076/unit $5,924/unit 96% 96% LaFontenay I & II Apartments 6,825/unit 6,623/unit 94% 94% The Trails Apartments 6,532/unit 6,251/unit 92% 97% Greensprings Apartments 4,904/unit 4,729/unit 92% 92% Outlet's Ltd. Mall 6.50/sq. ft. 7.56/sq. ft. 82% 90%
Occupancy at The Trails Apartments decreased due primarily to move outs relating to job transfers out of the Nashville area and as a result of tenants buying homes due to attractive interest rates. Also contributing to the decrease in occupancy at The Trails Apartments was the fire that destroyed four units. A few tenants residing close to the destroyed units have moved out due to the reconstruction. Outlet's Ltd. Mall also had a decrease in occupancy primarily due to the move out of Leslie Fay, a tenant that occupied 6,250 square feet or 6% of the total space. In addition, Bass Shoe Outlet and Hush Puppies moved out during 1996. These tenants had previously occupied 3,125 and 3,750 square feet, respectively. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other residential apartment complexes and commercial buildings 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. The following is a schedule of the lease expirations at Outlet's Limited Mall for the years beginning 1997 through the maturities of current leases:
Number of % of Gross Expirations Square Feet Annual Rent Annual Rent Outlet's Ltd. Mall 1997 9 19,815 182,000 19.38% 1998 3 13,797 118,000 12.53% 1999 6 20,816 181,000 19.32% 2000 6 17,030 162,000 17.22% 2001 5 16,461 138,000 14.67%
1996 1996 Billing Rate Big Walnut Apartments $ 122 5.87% LaFontenay I & II Apartments 85 .94% The Trails Apartments 92 3.50% Greensprings Apartments 260 7.21% Outlet's Ltd. Mall 155 5.56% ITEM 3. LEGAL PROCEEDINGS The Registrant is unaware of any pending or outstanding litigation that is not of a routine nature. The Managing 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 The unit holders of the Registrant did not vote on any matter during the fiscal year covered by this report. 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 occur in the foreseeable future. As of December 31, 1996, there were 1,711 holders of record owning an aggregate of 1,224.25 Units. During the year ended December 31, 1995, approximately $2,000 of distributions were paid on behalf of the limited partners to the State of Indiana relating to the operations of Greensprings Manor Apartments. In August 1996, the Partnership distributed $100,000 to the partners. The limited partners received $98,000 ($80.05 per limited partnership unit) and the general partners received $2,000. In February 1997, the Partnership distributed $100,000 to the partners. The limited partners received $98,000 ($80.05 per limited partnership unit) and the general partners received $2,000. 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 This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. Results of Operations The Partnership's net loss as reported in the financial statements for the year ended December 31, 1996, was approximately $307,000 compared to a net loss of approximately $212,000 for the corresponding period of 1995 (see "Note D" of the financial statements for a reconciliation of these amounts to the Partnership's federal taxable loss). The increase in the net loss from 1995 to 1996 is primarily attributable to an increase in expenses. Expenses increased due to increases in operating, depreciation, maintenance, and general and administrative expenses but were partially offset by increases in rental income, other income, and a casualty gain. Operating expense increased primarily due to the hiring of maintenance employees on a full-time basis at Greensprings Manor Apartments. Depreciation expense increased due to 1995 and 1996 purchases of depreciable fixed assets. Maintenance expense increased at Big Walnut Apartments due to leaky pipes which resulted in extensive interior improvements such as interior painting, dry wall repairs, and concrete work. Also, contributing to the increase in maintenance expense at Big Walnut Apartments was the damp spring weather which caused management to incur excessive roof and balcony repairs to restore this property to an acceptable condition. Included in maintenance expense is $220,000 of major repairs and maintenance comprised of exterior building repairs, major landscaping, and window coverings for the year ended December 31, 1996. General and administrative expense increased due to increases in partnership administration cost reimbursements, insurance and audit fees. Cost reimbursements increased due to higher administrative expenses and reimbursements to affiliates of the Managing General Partner for project management of various property repairs and improvements. Rental income increased due to increases in average rental rates at all of the Partnership's residential properties. Other income increased due to an increase in lease cancellation fees and cleaning and damage fees at the Trails and Greensprings Manor Apartments as a result of higher turnover rates than in the past. (See Item 2. "Schedule of Rental Rates and Occupancy.") The Partnership recorded a net casualty gain in 1996 resulting from two fires at the Trails Apartments which destroyed four apartment units and caused minor smoke damage in one unit. The damage resulted in a net gain of approximately $227,000 arising from proceeds from the Partnership's insurance carrier of approximately $319,000 which exceeded the basis of the property and expenses to reconstruct the four destroyed apartment units and to repair the other unit which incurred minor smoke damage. The Partnership's properties experienced two casualties in 1995. Big Walnut Apartments incurred storm damage which resulted in a casualty gain of $2,000, net of insurance proceeds. The Trails Apartments experienced problems with the pool due to freeze damage and recorded a casualty loss of $14,000, net of insurance proceeds. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At December 31, 1996, the Partnership held unrestricted cash of approximately $1,004,000 compared to approximately $714,000 at December 31, 1995. Net cash provided by operating activities increased primarily due to the change in accounts payable due to the timing of payments. Net cash used in investing activities decreased due to a decrease in purchases of property improvements and replacements , offset by an increase in insurance proceeds. In 1995, there were substantial property improvements at Outlet's Ltd. Mall in an attempt to modernize the mall. Net cash used in financing activities increased due to the Partnership increasing the amount of distributions during 1996. On January 19, 1995, the Partnership refinanced the mortgage encumbering Outlet's Ltd. Mall. The total indebtedness refinanced was approximately $1,765,000 of which approximately $337,000 related to the first mortgage and approximately $1,428,000 related to the second mortgage. The refinancing replaced the existing indebtedness which carried stated interest rates ranging from 8.5% to 10.75% with maturity dates ranging from April 1995 to October 1995. The new mortgage indebtedness of $1,820,000 carries a stated interest rate of 10.125% and is amortized over 180 months with a balloon payment due on January 15, 2000. As a result of the refinancing, the Partnership recognized an extraordinary loss of approximately $32,000, as a result of the write-off of an unamortized mortgage discount and unamortized loan costs. The Partnership has no material capital programs scheduled to be performed in 1997, 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 is received from the capital reserve account. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the various properties to adequately maintain the physical assets and other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of approximately $26,629,000, net of discount, with stated interest rates of 7.6% to 10.125%, has maturity dates ranging from June 1997 to December 2009. Included in the outstanding indebtedness is a first mortgage, secured by the LaFontenay Apartments, which matures June 1, 1997, with a principal balance due at maturity of approximately $6,728,000. The Managing General Partner intends to refinance this indebtedness and in the process obtain a more favorable interest rate. During the year ended December 31, 1995, approximately $2,000 of distributions were paid on behalf of the limited partners to the State of Indiana relating to the operations of Greensprings Manor Apartments. In August 1996, the Partnership distributed $100,000 to the partners. The limited partners received $98,000 ($80.05 per limited partnership unit) and the general partners received $2,000. In February 1997, the Partnership distributed $100,000 to the partners. The limited partners received $98,000 ($80.05 per limited partnership unit) and the general partners received $2,000. Future cash distributions will depend on the levels of net cash generated from operations, refinancing, property sales and the availability of the cash reserves. ITEM 7. FINANCIAL STATEMENTS DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. LIST OF FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheet - December 31, 1996 Consolidated Statements of Operations -Years ended December 31, 1996 and 1995 Consolidated Statements of Changes in Partners' Capital (Deficit) - Years ended December 31, 1996 and 1995 Consolidated Statements of Cash Flows - Years ended December 31, 1996 and 1995 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Davidson Diversified Real Estate II, L.P. We have audited the accompanying consolidated balance sheet of Davidson Diversified Real Estate II, L.P. (A Limited Partnership) as of December 31, 1996, and the related consolidated statements of operations, changes in partners' capital (deficit) and cash flows for each of the two years in the period ended December 31, 1996. 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 II, L.P. (A Limited Partnership) as of December 31, 1996 and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /S/ ERNST & YOUNG LLP Greenville, South Carolina January 31, 1997 DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. CONSOLIDATED BALANCE SHEET (in thousands except unit data) December 31, 1996 Assets Cash and cash equivalents: Unrestricted $ 1,004 Restricted--tenant security deposits 182 Accounts receivable 70 Escrows for taxes 377 Restricted escrows 726 Other assets 383 Investment properties (Notes B and F) Land $ 2,878 Buildings and related personal property 40,901 43,779 Less accumulated depreciation (19,413) 24,366 $27,108 Liabilities and Partners' Deficit Liabilities Accounts payable $ 208 Tenant security deposits 183 Accrued taxes 585 Other liabilities 247 Mortgage notes payable (Note B) 26,629 Partners' Deficit General partners $ (450) Limited partners (1,224.25 units issued and outstanding) (294) (744) $27,108 See Accompanying Notes to Consolidated Financial Statements DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. (in thousands except unit data) CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1996 1995 Revenues: Rental income $ 8,587 $ 8,475 Other income 712 629 Casualty gain (Note G) 227 -- Total revenues 9,526 9,104 Expenses: Operating 3,235 2,990 General and administrative 312 209 Maintenance 1,130 1,008 Depreciation 1,951 1,793 Interest 2,494 2,546 Property taxes 711 726 Casualty loss (Note G) -- 12 9,833 9,284 Loss before extraordinary item (307) (180) Extraordinary item - loss on early extinguishment of debt (Note B) -- (32) Net loss (Note D) $ (307) $ (212) Net loss allocated to general partners (2%) $ (6) $ (4) Net loss allocated to limited partners (98%) (301) (208) Net loss $ (307) $ (212) Per limited partnership unit: Loss before extraordinary item $(245.97) $(144.03) Extraordinary loss -- (25.76) Net loss $(245.97) $(169.79) See Accompanying Notes to Consolidated Financial Statements DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. (in thousands except unit data) STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
Limited Partnership General Limited Units Partners Partners Total Original capital contributions 1,224.25 $ 1 $24,485 $24,486 Partners' (deficit) capital at December 31, 1994 1,224.25 (438) 315 (123) Distributions -- (2) (2) Net loss for the year ended December 31, 1995 (4) (208) (212) Partners' (deficit) capital at December 31, 1995 1,224.25 (442) 105 (337) Distributions (2) (98) (100) Net loss for the year ended December 31, 1996 (6) (301) (307) Partners' deficit at December 31, 1996 1,224.25 $ (450) $ (294) $ (744) See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 1996 1995 Cash flows from operating activities: Net loss $ (307) $ (212) Adjustments to reconcile net loss to net cash provided by operating activities: 1,951 1,793 Depreciation Amortization of discounts and loan costs 265 255 Casualty (gain) loss (227) 12 Extraordinary loss on retirement of debt -- 32 Change in accounts: Restricted cash 2 15 Accounts receivable (22) 56 Escrows for taxes (31) (61) Other assets (6) 15 Accounts payable 31 (257) Tenant security deposit liabilities (2) (20) Accrued taxes 76 16 Other liabilities (55) (29) Net cash provided by operating activities 1,675 1,615 Cash flows from investing activities: Property improvements and replacements (1,046) (1,351) Deposits to restricted escrows (141) (125) Receipts from restricted escrows 58 79 Insurance proceeds 319 110 Net cash used in investing activities (810) (1,287) Cash flows from financing activities: Payments on mortgage notes payable (471) (430) Repayment of mortgage notes payable -- (1,765) Proceeds from long-term borrowings -- 1,820 Loan costs (4) (31) Distributions (100) (2) Net cash used in financing activities (575) (408) Net increase (decrease) in cash 290 (80) Cash as beginning of period 714 794 Cash at end of period $ 1,004 $ 714 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,203 $ 2,283 [FN] See Accompanying Notes to Consolidated Financial Statements [/TABLE] DAVIDSON DIVERSIFIED REAL ESTATE II, L.P Notes to Consolidated Financial Statements December 31, 1996 NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Davidson Diversified Real Estate II, L.P. (the "Partnership" or "Registrant") is a Delaware limited partnership organized in June 1984 to acquire and operate residential and commercial real estate properties. The Partnership's Managing General Partner is Davidson Diversified Properties, Inc., an affiliate of Insignia Financial Group, Inc. As of December 31, 1996, the Partnership operates four residential and one commercial property located in or near major urban areas in the United States. PRINCIPLES OF CONSOLIDATION The financial statements include all the accounts of the Partnership and three 99.9% owned partnerships. All significant interpartnership balances have been eliminated. ALLOCATIONS TO PARTNERS Net income, other than that arising from the occurrence of a sale or refinancing, and net loss shall be allocated 2% to the general partners and 98% to the limited partners. 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 the 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; and second, after payment to an affiliate of the general partners of an amount equal to its subordinated real estate commissions, 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. RESTRICTED ESCROWS CAPITAL IMPROVEMENT RESERVES - At the time of the prior refinancing of Big Walnut Apartments mortgage notes payable, proceeds were designated for a "capital improvement escrow" for certain capital improvements. At December 31, 1995, Big Walnut Apartments had unexpended balances of $18,000. The remaining balances were expended in 1996 for certain routine capital expenditures and maintenance expenses. RESERVE ACCOUNT - In addition to the Capital Improvement Reserve, a general Reserve Account of $203,000 was established with the refinancing proceeds for each refinanced property. These funds were established 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 is required to deposit net operating income (as defined in the mortgage note) from each refinanced property to the respective reserve account until the reserve accounts equal $1,000 per apartment unit or approximately $833,000 in total. At December 31, 1996, the account balances were approximately $256,000 for Big Walnut Apartments and approximately $371,000 for Greensprings Manor Apartments. REPLACEMENT RESERVE - LaFontenay Apartments has a replacement reserve as required by its lender of approximately $99,000 at December 31, 1996, for capital improvements. ESCROWS FOR TAXES - These escrows are designated for the payment of real estate taxes as designated. The Partnership and external escrow agents currently maintain these accounts. The following properties escrows are maintained at an external escrow agent and they are LaFontenay I & II Apartments and Outlets Ltd. Mall. The remaining properties escrows are maintained at the Partnership. INVESTMENT PROPERTIES Prior to the fourth quarter of 1995, investment properties were carried at the lower of cost or estimated fair value, which was determined using the net operating income of the investment property capitalized at a rate deemed reasonable for the type of property. During the fourth quarter of 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 recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. DEPRECIATION Depreciation is calculated using the straight-line method over the estimated lives of the 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. Effective generally for property placed in service on or after May 13, 1993, the Great Deficit Reduction Act of 1993 increases the depreciation period from 31.5 to 39 years, although transition rules apply to property placed in service before 1994. PRESENT VALUE DISCOUNTS Periodically, the Partnership incurs debt at below market rates. 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 included in "Other assets" and are being amortized on a straight- line basis over the life of the respective loans. The amortization expense is included in interest expense. CASH AND CASH EQUIVALENTS The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. RESTRICTED CASH - TENANT SECURITY DEPOSITS The Partnership requires security deposits from all apartment lessees for the duration of the lease and are considered restricted cash. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. LEASES The Partnership generally leases apartment units for twelve-month terms or less. The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with "Financial Accounting Standards Board Statement No. 13." Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the lease. This straight-line basis recognized approximately $29,000 (1996) and approximately $33,000 (1995) more in rental income than was collected. This amount will be collected in future years as cash collections under the terms of the leases exceed the straight-line basis of revenue recognition. For all other leases, minimum rents are recognized over the terms of the leases. The Managing General Partner finds it necessary to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. During 1996, the properties offered various concessions including reduced rent for the first month, variable move-in allowances, and reduced security deposits. Concessions are charged to expense as incurred. ADVERTISING COSTS Advertising costs of approximately $313,000 and approximately $315,000 for the years ended December 31, 1996, and December 31, 1995, respectively, are charged to expense as they are incurred and are included in operating expenses. 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 carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short- term maturities. The Partnership estimates the fair value of its fixed rate mortgage 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. 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 finical statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made to the 1995 balances to conform to the 1996 presentation. NOTE B - MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows (dollar amounts in thousands):
Monthly Principal Principal Payment Stated Balance Balance At Including Interest Maturity Due At December 31, Property Interest Rate Date Maturity 1996 Big Walnut Apartments 1st mortgage $ 43 7.60% 11/15/02 $ 3,912 $ 4,918 2nd mortgage 1 7.60% 11/15/02 167 167 LaFontenay I & II Apartments 1st mortgage 56 9.25% 06/01/97 6,728 6,749 The Trails Apartments 1st mortgage 29 (1) 12/01/09 6,000 6,000 Greensprings Apartments 1st mortgage 75 7.60% 11/15/02 6,875 8,645 2nd mortgage 2 7.60% 11/15/02 294 294 Outlet's Ltd. Mall 1st mortgage 20 10.125% 01/15/00 1,490 1,710 $ 226 $25,466 28,483 Less unamortized discounts (1,854) Total $26,629 (1) Adjustable rate based on 75% of the interest rate on new-issue long-term A- rated utility bonds as determined on the first day of each calendar quarter. The rate at December 31, 1996 was 5.76%.
The carrying value of the Partnership's aggregate debt approximates the estimated fair value. The discount is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76% for Big Walnut Apartments and Greensprings Apartments and 7.96% for The Trails Apartments. On January 19,1995, the Partnership refinanced the mortgage encumbering Outlet's Ltd. Mall. The total indebtedness refinanced was approximately $1,765,000, of which approximately $337,000 related to the first mortgage and approximately $1,428,000 related to the second mortgage. The refinancing replaced the existing indebtedness which carried stated interest rates from 8.5% to 10.75% with maturity dates ranging from April 1995 to October 1995. The new mortgage indebtedness of $1,820,000 carries a stated interest rate of 10.125% and is amortized over 180 months with a balloon payment due on January 15, 2000. As a result of the refinancing, the Partnership recognized an extraordinary loss of approximately $32,000, as a result of the write-off of an unamortized mortgage discount and unamortized loan costs. Mortgages are nonrecourse and are collaterlized by the related property and improvements and by pledge of revenues from the property and improvements of the Partnership. Certain of the notes require prepayment penalties if repaid prior to maturity and prohibit resale of the properties subject to existing indebtedness. Scheduled principal payments of mortgage notes payable, subsequent to December 31, 1996, are as follows (in thousands): 1997 $ 7,208 1998 497 1999 539 2000 1,983 2001 532 Thereafter 17,724 $ 28,483 NOTE C - LEASES Property and improvements consist of apartments complexes and a shopping center which are under operating leases. Lease terms are one year or less for apartments and generally three to five years with renewal options for tenants of the shopping center. Tenants of Outlet's Mall reimburse the shopping center for common area expenses, including taxes, utilities, and insurance. Approximate minimum rentals for noncancelable operating leases with remaining terms of more than one year are as follows (in thousands): Year Amount 1997 $ 679 1998 515 1999 443 2000 206 2001 41 $1,884 These amounts do not include contingent rentals determined as a percentage of tenant sales and reimbursement for real estate taxes and common area maintenance costs. NOTE D - INCOME TAXES The Partnership has received a ruling from the Internal Revenue Service that it will 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. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands except unit data): 1996 1995 Net loss as reported $ (307) $ (212) Add (deduct): Depreciation differences (84) (214) Amortization of present value discounts 30 51 Casualty gain (233) -- Unearned income (65) (17) Miscellaneous (4) 2 Federal taxable loss $ (663) $ (390) Federal taxable loss per limited partnership unit $(530.74) $ (311.85) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net deficit as reported $ (744) Land and buildings 3,467 Accumulated depreciation (9,726) Mortgage discount (1,230) Other 148 Net deficit - Federal tax basis $(8,085) NOTE E - TRANSACTIONS WITH AFFILIATED AND OTHER 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. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following (in thousands) were paid to the Managing General Partner and affiliates in 1996 and in 1995: Years Ended December 31, 1996 1995 Property management fees $381 $370 Reimbursement for services of affiliates 257 173 Property management fees are included in operating expenses. Reimbursement for services of affiliates are included in general and administrative expenses. 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 (IN THOUSANDS) Initial Cost To Partnership Cost Buildings Capitalized and Related (Removed) Personal Subsequent to Encumbrances Land Property Acquisition LaFontenay $ 6,749 $ 650 $ 6,719 $ 1,384 Big Walnut 5,085 520 6,505 1,078 The Trails 6,000 586 7,054 782 Greensprings Manor 8,939 847 9,684 1,382 Shopping Center Outlet's Ltd. Mall 1,710 275 4,519 1,794 28,483 Less unamortized discounts (1,854) Total $26,629 $2,878 $34,481 $ 6,420
Gross Amount at Which Carried At December 31, 1996 Buildings Accum- Date Depre- and Related ulated of ciable Personal Depre- Const- Date Life- Description Land Property Total ciation ruction Acquired Years Apartment LaFontenay $ 650 $ 8,103 $ 8,753 $ 4,022 1971-1973 10/31/84 5-25 Big Walnut 520 7,583 8,103 3,722 1971 03/28/85 5-25 The Trails 586 7,836 8,422 3,571 1984-1985 08/30/85 5-25 Greensprings Manor 847 11,066 11,913 5,419 1970-1975 09/30/85 5-25 Shopping Center Outlet's Ltd. Mall 275 6,313 6,588 2,679 1980 12/31/84 5-25 Totals $2,878 $40,901 $43,779 $19,413
Reconciliation of "Investment Properties and Accumulated Depreciation" (in thousands): Years Ended December 31, 1996 1995 Real Estate Balance at beginning of year $42,854 $41,529 Property Improvements 1,046 1,351 Disposals of property (121) (26) Balance at end of year $43,779 $42,854 Accumulated Depreciation Balance at beginning of year $17,512 $15,738 Additions charged to expense 1,951 1,793 Disposals of property (50) (19) Balance at end of year $19,413 $17,512 The aggregate cost of the investment properties for Federal income tax purposes at December 31, 1996 and 1995 is approximately $47,246,000 and approximately $46,497,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 and 1995 is approximately $29,139,000 and approximately $27,104,000, respectively. NOTE G - CASUALTY GAIN (LOSS) The Partnership recorded a net casualty gain in 1996 resulting from two fires at the Trails Apartments which destroyed four apartment units and caused minor smoke damage in one unit. The damage resulted in a net gain of approximately $227,000 arising from proceeds from the Partnership's insurance carrier of approximately $319,000 which exceeded the basis of the property and expenses to reconstruct the four destroyed apartment units and to repair the other unit which incurred minor smoke damage. The Partnership's properties experienced two casualties in 1995. Big Walnut Apartments incurred storm damage which resulted in a casualty gain of $2,000, net of insurance proceeds. The Trails Apartments experienced problems with the pool due to freeze damage and recorded a casualty loss of $14,000, net of insurance proceeds. 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 Registrant does not have any directors or officers. The Managing General Partner, Davidson Diversified Properties, Inc., is responsible for the management and control of substantially all of the Registrant's operations and has general responsibility and ultimate authority in all matters affecting the Registrant's business. The Individual General Partner, in his capacity as such, did not devote any material amount of business time or attention to the Registrant's affairs. The present officers of the Managing General Partner are listed below: Name Age Position Carroll D. Vinson 56 President Robert D. Long, Jr. 29 Controller and Principal Accounting Officer William H. Jarrard, Jr. 50 Vice President John K. Lines 37 Vice President and Secretary Kelley M. Buechler 39 Assistant Secretary Carroll D. Vinson has been President of Davidson Diversified Properties, Inc. since August of 1994. Prior to that, from April 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 of Davidson Diversified Properties, Inc. 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. William H. Jarrard, Jr. has been Managing Director - Partnership Administration of Insignia since January 1991. Mr. Jarrard served as Managing Director - Partnership Administration & Asset Management from July 1994 until January 1996. 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 Ocwen 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 has been Assistant Secretary of the Managing General Partner and Assistant Secretary of Insignia since 1991. During the five years prior to joining Insignia in 1991, she served in similar capacities with U. S Shelter. 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 1996 or 1995. See "Item 12" below and "Note E" of the Notes to the 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 December 31, 1996, no security holder was known by the Registrant to be the beneficial owner of more than 5% of the Units of the Registrant. As of December 31, 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 No transactions have occurred between the Partnership and any officer or director of Davidson Diversified Properties, Inc. During the years ended December 31, 1996, and December 31, 1995, the transactions that occurred between the Partnership and Davidson Diversified Properties, Inc. and affiliates of Davidson Diversified Properties, Inc. pursuant to the terms of the Agreement are disclosed under "Note E" of the Partnership's Financial Statements included under "Item 7", which is hereby incorporated by reference. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. (b) No Reports on Form 8-K were filed during the fourth quarter of 1996. 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 II, L.P. By: Davidson Diversified Properties, Inc., as Managing General Partner By: /s/Carroll D. Vinson President By: /s/Robert D. Long, Jr. Controller (Principal Accounting Officer) Date: March 14, 1997 EXHIBIT INDEX Exhibit 3 Partnership Agreement dated June 11, 1984, as amended is incorporated by reference to Exhibit A to the Prospectus of the Registrant dated October 16, 1984 as filed with the Commission pursuant to Rule 424(b) under the Act. 3B Amendment No. 1 to the Partnership Agreement dated August 1, 1985 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 June 11, 1984 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 to Limited Partnership dated July 17, 1984 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 October 5, 1984 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. 10A Agent's Agreement dated October 16, 1984 by and among 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, 1984. 10B Agreement Among Agents dated October 16, 1984 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 & 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, 1984. 10C Acquisition and Disposition Services Agreement dated October 16, 1984 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, 1984. 10D Purchase Agreement Phases I and II dated October 3, 1984 between NTS- LaFontenay Partners and Tennessee Trust Company, Trustee, is incorporated by reference to Exhibit 10E to Amendment No. 1 to the Registrant's Registration Statement on Form S-11 (Registration No. 2- 92313) as filed on October 15, 1984. 10E Modification of Purchase Agreements dated October 31, 1984 by and amount NTS-LaFontenay Partners, the Registrant and LaFontenay Associates is incorporated by reference to Exhibit 10F to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-11 (Registration No. 2-92313) as filed on January 15, 1985. 10F Contract for Sale of Real Estate for Outlets Ltd. Mall dated November 15, 1984 between Company Stores Development Corp. and Tennessee Trust Company, as Trustee, is incorporated by reference to Exhibit 10G to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-11 (Registration No. 2-92313) as filed on January 15, 1985. 10G Submanagement Agreement dated December 31, 1984 between Harvey Freeman & Sons, Inc., Company Stores Management Corp. and the Registrant is incorporated by reference to Exhibit 10H to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-11 (Registration No. 2-92313) as filed on January 15, 1985. 10H Assignment of Purchase Agreement dated October 25, 1984 between Tennessee Trust Company, Trustee, and the Registrant relating to assignment of Purchase Agreement for LaFontenay Apartments is incorporated by reference to Exhibit 10I to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-11 (Registration No. 2-92313) as filed on January 15, 1985. 10I Contract for Sale of Real Estate for Big Walnut Apartments dated December 6, 1984 between Community Development Company, an Ohio limited partnership and Tennessee Trust Company, as Trustee, is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8- K dated March 28, 1985. 10J Assignment of Contract for Sale of Real Estate dated March 22, 1985 between Tennessee Trust Company, Trustee, and the Registrant, relating to assignment of Purchase Agreement for Big Walnut Apartments is incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated march 28, 1985. 10K Contract for Sale of Real Estate for the Trails Apartments dated July 31, 1985 between Trails of Nashville Associates, Ltd., a Tennessee limited partnership by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated August 30, 1985. 10L Assignment of Contract for Sale of Real Estate dated August 28, 1985 between Tennessee Trust Company, as Trustee and the Registrant, relating to assignment of Contract for Sale of Real Estate for The Trails Apartments is incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated August 30, 1985. 10M Contract for Sale of Real Estate for Greenspring Manor Apartments dated July 15, 1985 between Greenspring Apartments Associates, an Indiana limited partnership and Tennessee Trust Company, as Trustee, is incorporated by reference to Exhibit 20(d) to the Registrant's current Report on Form 8-K dated August 30, 1985. 10N Assignment of Contract for Sale of Real Estate dated August 28, 1985 between Tennessee Trust Company, as Trustee and the Registrant, relating to assignment of Contract for Sale of Real Estate for Greenspring Manor apartments is incorporated by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated August 30, 1985. 10O Tennessee Note dated September 25, 1980 executed by Company Stores Development Corp. payable to TVB Mortgage Corporation relating to Outlets, Ltd. Mall is incorporated by reference to Exhibit 10GG to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10P Deed of Trust and Security Agreement dated September 25, 1980 between Company Stores Development Corp. and TVB Mortgage Corporation relating to Outlets, Ltd. Mall is incorporated by reference to Exhibit 10HH to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10Q Note secured by Real Estate dated October 21, 1985 payable to First American National Bank of Nashville executed by the Registrant relating to Outlet's, Ltd. Mall is incorporated by reference to Exhibit 10II to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10R Deed of Trust and Security Agreement dated October 21, 1985 executed by the Registrant in favor of First American National Bank of Nashville relating to Outlet's Ltd. Mall is incorporated by reference to Exhibit 10EE to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. 10S Mortgage Note dated March 27, 1985 executed by the Registrant payable to The Great-West Life Assurance Company relating to Big Walnut Apartments is incorporated by reference to Exhibit 10KK to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10T Mortgage and Security Agreement dated March 27, 1985 between the Registrant and The Great-West Life Assurance company relating to Big Walnut Apartments is incorporated by reference to Exhibit 10Ll to the Registrant's annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10U Mortgage Note dated March 27, 1985, executed by the Registrant payable to BANCOhio National Bank relating to Big Walnut Apartments is incorporated by reference to Exhibit 10MM to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10V Open-End Mortgage and Security Agreement dated March 27, 1985 between the Registrant and BANCOhio National Bank relating to Big Walnut Apartments is incorporated by reference to Exhibit 10NN to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10W Deed of Trust and Security Agreement dated December 1, 1984 between Trails of Nashville Associates, Ltd., and Capital Holding Corporation relating to The Trails Apartments is incorporated by reference to Exhibit 10QQ to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10X Note dated December 28, 1984 executed by Trails of Nashville Associates, Ltd., payable to The Industrial Development Board of the Metropolitan Government of Nashville and Davidson County relating to The Trails Apartments is incorporated by reference to Exhibit 10RR to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10Y Wraparound Mortgage Note dated September 30, 1985 payable to Greenspring Apartments Associates executed by the Registrant relating to Greenspring Manor Apartments is incorporated by reference to Exhibit 10SS to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10Z Wraparound Mortgage Note dated September 30, 1985 between Green Spring Apartments Associates and the Registrant relating to Green Spring Manor apartments is incorporated by reference to Exhibit 10TT to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985. 10AA 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 10DDD to the Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1988. 10BB 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 10EEE to the Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1988. 10CC Partnership Agreement of La Fontenay, L.P. dated May 15, 1990 owned 99.9% by the Registrant relating to refinancing of La Fontenay Apartments is incorporated by reference to Exhibit 10FFF to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. 10DD Multifamily Note with Addendum dated May 24, 1990 executed by La Fontenay, L.P. payable to the Patrician Mortgage Company relating to La Fontenay Apartments is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. 10EE Multifamily Mortgage with Rider dated May 24, 1990 executed by La Fontenay, L.P. in favor of the Patrician Mortgage Company relating to La Fontenay Apartments is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. 10FF 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 10JJJ to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10GG 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 10KKK to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10HH 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 10LLL to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10II 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 10MMM to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10JJ (a) First Deeds of Trust and Security Agreements dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Greensprings Manor is incorporated by reference to Exhibit 10JJ (a) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (b) Second Deeds of Trust and Security Agreements dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Greensprings Manor is incorporated by reference to Exhibit 10JJ (b) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (c) First Assignments of Leases and Rents dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Greensprings Manor is incorporated by reference to Exhibit 10JJ (c) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (d) Second Assignments of Leases and Rents dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Greensprings Manor is incorporated by reference to Exhibit 10JJ (d) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (e) First Deeds of Trust Notes dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, relating to Greensprings Manor is incorporated by reference to Exhibit 10JJ (e) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (f) Second Deeds of Trust Notes dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, relating to Greensprings Manor is incorporated by reference to Exhibit 10JJ (f) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. 10KK (a) First Deeds of Trust and Security Agreements dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Big Walnut is incorporated by reference to Exhibit 10KK (a) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (b) Second Deeds of Trust and Security Agreements dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Big Walnut is incorporated by reference to Exhibit 10KK (b) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (c) First Assignments of Leases and Rents dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Big Walnut is incorporated by reference to Exhibit 10KK (c) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (d) Second Assignments of Leases and Rents dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing Big Walnut is incorporated by reference to Exhibit 10KK (d) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (e) First Deeds of Trust Notes dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, relating to Big Walnut is incorporated by reference to Exhibit 10KK (e) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. (f) Second Deeds of Trust Notes dated October 28, 1992 between Big Walnut, L.P. and First Commonwealth Realty Credit Corporation, relating to Big Walnut is incorporated by reference to Exhibit 10KK (f) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. 10LL (a) Loan Agreement dated June 30, 1993 between Outlet's Mall, L.P. and First American National Bank setting forth the terms and conditions of the loan, as a condition of extending the maturity date. (b) Renewal Note Secured by Real Estate dated June 30, 1993 between Outlet's Mall, L.P. and First American National Bank to extend the maturity date of the loan until April 1, 1995. (c) Loan modification and agreement dated January 18, 1995, between Outlet's Mall, L.P. and First American National Bank setting forth the new terms and conditions of the loan. 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. 27 Financial Data Schedule 99A Agreement of Limited Partnership for Big Walnut, L.P. between Davidson Diversified Properties, Inc. and Davidson Diversified Real Estate II, L.P. entered into on August 23, 1991 is incorporated by reference to Exhibit 99A to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. 99B Agreement of Limited Partnership for Outlet's Mall, L.P. between Outlet's Mall GP Limited Partnership and Davidson Diversified Real Estate II, L.P. is incorporated by reference to Exhibit 99B to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992. EX-27 2
5 This schedule contains summary financial information extracted from Davidson Diversified Real Estate II, L.P. 1996 Year-End 10-KSB and is qualified in its entirey by reference to such 10-KSB filing. 0000750258 DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. 1,000 12-MOS DEC-31-1996 DEC-31-1996 1,004 0 70 0 0 0 43,779 (19,413) 27,108 0 26,629 0 0 0 (744) 27,108 0 9,526 0 0 9,833 0 2,494 0 0 0 0 0 0 (307) (245.97) 0 Multiplier is 1.
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