-----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, MgYkHCNpx7hZONZHkbC2M39p/uTWgCynmaQgYXiyL+PQbVqHUPQ6CLlokdKpRLU2 14BT76LAbJQhHdfJQSDLLA== 0000750258-97-000002.txt : 19970804 0000750258-97-000002.hdr.sgml : 19970804 ACCESSION NUMBER: 0000750258-97-000002 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970801 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14483 FILM NUMBER: 97650169 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 10QSB 1 FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period.........to......... Commission file number 0-14483 DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP (Exact name of small business issuer as specified in its charter) Delaware 62-1207077 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Insignia Financial Plaza Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) (Issuer's telephone number) (864) 239-1000 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No . PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1997 Assets Cash and cash equivalents: Unrestricted $ 1,015 Restricted--tenant security deposits 188 Accounts receivable 131 Escrow for taxes 386 Restricted escrows 774 Other assets 388 Investment properties: Land $ 2,878 Buildings and related personal property 41,159 44,037 Less accumulated depreciation (20,410) 23,627 $ 26,509 Liabilities and Partners' Deficit Liabilities Accounts payable $ 197 Tenant security deposits 188 Accrued taxes 501 Other liabilities 251 Mortgage notes payable 26,451 Partners' Deficit General partners $ (457) Limited partners (1,224.25 units issued and outstanding) (622) (1,079) $ 26,509 See Accompanying Notes to Consolidated Financial Statements b) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Revenues: Rental income $ 2,105 $ 2,178 $ 4,189 $ 4,340 Interest income 16 15 35 27 Other income 245 176 376 358 Casualty gain -- 250 -- 186 Total revenues 2,366 2,619 4,600 4,911 Expenses: Operating 807 830 1,570 1,576 General and administrative 60 78 133 160 Maintenance 301 247 524 468 Depreciation 499 480 997 953 Interest 639 626 1,258 1,243 Bad debt recovery, net -- (40) -- -- Property taxes 160 156 353 345 Total expenses 2,466 2,377 4,835 4,745 Net (loss) income $ (100) $ 242 $ (235) $ 166 Net (loss) income allocated to general partners (2%) $ (2) $ 5 $ (5) $ 3 Net (loss) income allocated to limited partners (98%) (98) 237 (230) 163 Net (loss) income $ (100) $ 242 $ (235) $ 166 Net (loss) income per limited partnership unit $ (80.36) $ 193.59 $(187.87) $ 133.14 See Accompanying Notes to Consolidated Financial Statements c) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 1,224.25 $ 1 $24,485 $24,486 Partners' deficit at December 31, 1996 1,224.25 $ (450) $ (294) $ (744) Net loss for the six months ended June 30, 1997 -- (5) (230) (235) Distributions paid -- (2) (98) (100) Partners' deficit at June 30, 1997 1,224.25 $ (457) $ (622) $(1,079) See Accompanying Notes to Consolidated Financial Statements d) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1997 1996 Cash flows from operating activities: Net (loss) income $ (235) $ 166 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 997 953 Amortization of loan costs, discounts and lease concessions 130 131 Casualty (gain) -- (186) Change in accounts: Restricted cash (6) (7) Accounts receivable (62) 33 Escrow for taxes and insurance (9) (8) Other assets (64) (2) Accounts payable (11) 28 Tenant security deposit liabilities 6 6 Accrued taxes (84) (4) Other liabilities 4 (27) Net cash provided by operating activities 666 1,083 Cash flows from investing activities: Property improvements and replacements (257) (473) Deposits to restricted escrow (48) (321) Receipts from restricted escrow -- 3 Insurance proceeds from property damage -- 227 Net cash used in investing activities (305) (564) Cash flows from financing activities: Principal payments on notes payable (250) (231) Loan costs -- (3) Distributions (100) -- Net cash used in financing activities (350) (234) Net increase in cash 11 285 Cash and cash equivalents at beginning of period 1,004 714 Cash and cash equivalents at end of period $ 1,015 $ 999 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 1,104 $ 1,114 Property improvements and replacements in accounts payable $ -- $ 37 See Accompanying Notes to Consolidated Financial Statements e) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements of Davidson Diversified Real Estate II Limited Partnership (the "Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Davidson Diversified Properties, Inc. (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1997, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1997. For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the fiscal year ended December 31, 1996. Certain reclassifications have been made to the 1996 information to conform to the 1997 presentation. NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. 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 amounts were paid or accrued to the Managing General Partner and affiliates in 1997 and 1996 (in thousands): Six Months Ended June 30, 1997 1996 Property management fees (included in operating expenses) $220 $211 Reimbursement for services of affiliates (included in general and administrative and operating expenses) 87 113 During 1996, Shoppes At River Rock (formerly Outlet's Ltd. Mall) was managed by a third party. As of January 1997, the Managing General Partner assumed management of the day to day operations. 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 C - DISTRIBUTION TO PARTNERS In February 1997, the Partnership distributed approximately $100,000 to the partners. The limited partners received approximately $98,000 ($80.05 per limited partnership unit) and the general partners received approximately $2,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The Partnership's investment properties consist of four apartment complexes and one commercial property. The following table sets forth the average occupancy of the properties for each of the six months ended June 30, 1997 and 1996: Average Occupancy 1997 1996 Big Walnut Apartments Columbus, Ohio 95% 96% Lafontenay Apartments Louisville, Kentucky 93% 93% The Trails Apartments Nashville, Tennessee 92% 93% Greensprings Manor Apartments Indianapolis, Indiana 87% 94% Shoppes At River Rock (Formerly Outlet's Ltd. Mall) Murfreesboro, Tennessee 75% 83% The Managing General Partner attributes the decrease in occupancy at Greensprings Manor Apartments to a soft market caused by increased competition as a result of newly constructed units. Occupancy at the Shoppes At River Rock has also decreased due to increased competition. The property is not located in the retail corridor which makes it difficult to position the property. The Managing General Partner is in the process of exploring different concepts such as "big box", entertainment, and specialty center in an effort to reposition the Mall in hopes of reestablishing occupancy levels. The Partnership's net loss for the three and six month periods ended June 30, 1997, was approximately $100,000 and $235,000, respectively, compared to net income of approximately $242,000 and $166,000, respectively, for the same periods of 1996. The change from net income to net loss is primarily attributable to a casualty gain of $186,000 for the six months ended June 30, 1996, a decrease in rental income, and an increase in maintenance expense. 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 $186,000 as of June 30, 1996 arising from proceeds from the Partnership's insurance carrier 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 decrease in rental income is due to decreases in occupancy at Shoppes At River Rock and Greensprings Manor, as discussed above. The increase in maintenance expense is due to plumbing fixtures at Lafontenay Apartments, and the repair of pool decking at Greensprings Manor Apartments. Offsetting the above decreases to net income is an increase in interest income and a decrease in general and administrative expense. The increase in interest income is due to increases in interest-bearing reserves. The decrease in general and administrative expense is attributable to a decrease in partnership administration cost reimbursements. Bad debt recovery for the three months ended June 30, 1996 related to collection of past due rents from tenants at Greensprings Manor Apartments that had been evicted during the first quarter of 1996. Included in maintenance expense is approximately $71,000 of major repairs and maintenance comprised of new gas service lines, and water saving devices for the six months ended June 30, 1997. For the six months ended June 30, 1996, approximately $67,000 of major repairs and maintenance is included in operating and maintenance expense comprised of exterior building repairs, window coverings, and major landscaping. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. The Partnership had unrestricted cash of approximately $1,015,000 at June 30, 1997, versus unrestricted cash of approximately $999,000 at June 30, 1996. Net cash provided by operating activities decreased primarily due to the change from net income to net loss as discussed above. Also contributing to the decrease in net cash provided by operating activities were the decrease in accrued taxes and the increases in accounts receivable and other assets. The decrease in accrued taxes was due to timing of the tax payment. The increase in accounts receivable is due to the timing of receipts from tenants. The increase in other assets is due to an increase in prepaid insurance caused by the required down-payment at the renewal of the insurance policies in May 1997. Net cash used in investing activities decreased due to a decrease in deposits to restricted escrows and a decrease in property improvements and replacements. Offsetting these items was the receipt in 1996 of insurance proceeds related to the casualty gain at The Trails as discussed above. Net cash used in financing activities increased due to the Partnership making a distribution in 1997. 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 $26,451,000, net of discount, with stated interest rates of 7.6% to 10.125%, has maturity dates ranging from August 1997 to December 2009. Included in the outstanding indebtedness is a first mortgage, secured by the Lafontenay Apartments, which matures August 1, 1997, with a principal balance due at maturity of approximately $6,720,000. The Managing General Partner intends to refinance this indebtedness. No distributions were made during the six months ended June 30, 1996. In February 1997, the Partnership distributed approximately $100,000 to the partners. The limited partners received approximately $98,000 ($80.05 per limited partnership unit) and the general partners received approximately $2,000. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, property sales and the availability of the cash reserves. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended June 30, 1997. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAVIDSON DIVERSIFIED REAL ESTATE II By: Davidson Diversified Properties, Inc. Managing General Partner By: /s/ Carroll D. Vinson Carroll D. Vinson President By: /s/ Robert D. Long, Jr. Robert D. Long, Jr. Vice President/CAO Date: August 1, 1997 EX-27 2
5 This schedule contains summary financial information extracted from Davidson Diversified Real Estate II Limited Partnership 1997 Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000750258 DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP 1,000 6-MOS DEC-31-1997 JUN-30-1997 1,015 0 131 0 0 0 44,037 20,410 26,509 0 26,451 0 0 0 (1,079) 26,509 0 4,189 0 0 1,549 0 1,259 0 0 (235) 0 0 0 (235) (188.19) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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