-----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, EVH42OsstJGIylLNIiNafCrxRdtQMZ3TavW0T6rc5lRIhP4pD+q/EHod833rXUNM IhB+NTLc9dF+8CIggZK7qg== 0000773679-96-000004.txt : 19961115 0000773679-96-000004.hdr.sgml : 19961115 ACCESSION NUMBER: 0000773679-96-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96660501 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 QUARTERLY OR TRANSITIONAL REPORT (As last amended by 34-32231, eff. 6/3/93.) U. S. 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 September 30, 1996 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, P.O. Box 1089 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 Securities Exchange Act of 1934 during the preceding 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) September 30, 1996 Assets Cash and cash equivalents: Unrestricted $ 813 Restricted--tenant security deposits 197 Accounts receivable 166 Escrow for taxes and insurance 499 Restricted escrows 952 Other assets 424 Investment properties: Land $ 2,878 Buildings and related personal property 40,734 43,612 Less accumulated depreciation (18,911) 24,701 $ 27,752 Liabilities and Partners' Deficit Liabilities Accounts payable $ 373 Tenant security deposits 195 Accrued taxes 696 Other liabilities 274 Mortgage notes payable 26,716 Partners' Deficit $ (445) General partners Limited partners (1,224.25 units issued and outstanding) (57) (502) $ 27,752 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 Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Revenues: Rental income $ 2,157 $ 2,158 $ 6,497 $ 6,398 Casualty gain 66 -- 252 -- Other income 160 158 545 472 Total revenues 2,383 2,316 7,294 6,870 Expenses: Operating 815 764 2,393 2,193 General and administrative 76 43 236 148 Maintenance 409 140 875 643 Depreciation 495 446 1,448 1,310 Interest 627 633 1,870 1,891 Casualty loss -- -- -- 12 Property taxes 192 178 537 508 Total expenses 2,614 2,204 7,359 6,705 Income (loss) before extraordinary item (231) 112 (65) 165 Extraordinary loss on retirement of debt -- -- -- (32) Net income (loss) $ (231) $ 112 $ (65) $ 133 Net income (loss) allocated to general partners (2%) $ (5) $ 2 $ (1) $ 3 Net income (loss) allocated to limited partners (98%) (226) 110 (64) 130 Net income (loss) $ (231) $ 112 $ (65) $ 133 Per limited partnership unit: Income (loss) before extraordinary item $ (184.60) $ 89.34 $ (52.28) $ 132.07 Extraordinary loss -- -- -- (25.76) Net income (loss) $ (184.60) $ 89.34 $ (52.28) $ 106.31 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) capital at December 31, 1995 1,224.25 $ (442) $ 105 $ (337) Net loss for the nine months ended September 30, 1996 (1) (64) (65) Distributions paid -- (2) (98) (100) Partners' deficit at September 30, 1996 1,224.25 $ (445) $ (57) $ (502) See Accompanying Notes to Consolidated Financial Statements
d) DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 1996 1995 Cash flows from operating activities: Net (loss) income $ (65) $ 133 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 1,448 1,310 Amortization of loan costs, discounts 198 191 and lease concessions Casualty (gain) loss (252) 12 Extraordinary loss on retirement of debt -- 32 Change in accounts: Restricted cash (14) 3 Accounts receivable -- 46 Escrow deposits for taxes (153) (231) Other assets (22) (1) Accounts payable 203 (269) Tenant security deposit liabilities 10 (10) Accrued taxes 189 176 Other liabilities (29) (13) Net cash provided by operating activities 1,513 1,379 Cash flows from investing activities: Property improvements and replacements (879) (1,132) Deposits to restricted escrow (353) (104) Receipts from restricted escrow 44 74 Insurance proceeds from property damage 227 142 Net cash used in investing activities (961) (1,020) Cash flows from financing activities: Principal payments on notes payable (349) (319) 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 (453) (297) Net increase in cash 99 62 Cash and cash equivalents at beginning of period 714 794 Cash and cash equivalents at end of period $ 813 $ 856 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 1,675 $ 1,720 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 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Davidson Diversified Properties, Inc. (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1996, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Davidson Diversified Real Estate II, L.P.'s (the "Partnership") annual report on Form 10-KSB for the fiscal year ended December 31, 1995. Certain reclassifications have been made to the 1995 information to conform to the 1996 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 were paid to the Managing General Partner and affiliates for each of the nine month periods ended September 30, 1996 and 1995. 1996 1995 (in thousands) Property management fees $ 285 $ 340 Reimbursement for services of affiliates 186 131 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 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. 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 nine months ended September 30, 1996 and 1995: Average Occupancy Property 1996 1995 Big Walnut Apartments Columbus, Ohio 96% 97% Lafontenay Apartments Louisville, Kentucky 94% 95% The Trails Apartments Nashville, Tennessee 93% 98% Greensprings Manor Apartments Indianapolis, Indiana 93% 91% Outlet's Ltd. Mall Murfreesboro, Tennessee 83% 89% 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. The Partnership's net loss for the nine months ended September 30, 1996, was $65,000 versus net income of $133,000 for the nine months ended September 30, 1995. The Partnership realized a net loss of $231,000 for the three months ended September 30, 1996, versus net income of $112,000 for the three months ended September 30, 1995. The decrease in income can be primarily attributed to an increase in expenses. Expenses increased due to increases in general and administrative, maintenance, and operating expenses but were partially offset by increases in rental income, other income, and a casualty gain. General and administrative expense increased due to increases in partnership administration cost reimbursements, audit fees and insurance. Maintenance expense increased at Big Walnut Apartments due primarily to damp spring weather which resulted in excessive roof and balcony repairs. This increased expenditures for interior and exterior improvements due to interior painting, dry wall, and concrete work which had to be done. Operating expense increased due primarily to repairs for leaking pipes at Big Walnut and the hiring of maintenance employees on a full-time basis at Greensprings Manor Apartments. Depreciation expense increased due to additional purchases of depreciable fixed assets. Rental income increased due to increases in average rental rates at all of the Partnership's investment properties. Other income increased due to an increase in lease cancellation fees and cleaning and damage fees at Greensprings Manor Apartments and Lafontenay Apartments. Both properties experienced greater turnover compared to the prior year, which in turn increased cleaning and lease cancellation fees. On January 8, 1996, a fire at The Trails Apartments destroyed four apartment units. The write-off of these units, which were not yet fully depreciated, resulted in a $62,000 loss on disposal of property. During the second quarter of 1996, the Trails Apartments received insurance proceeds of $227,000 and expects to receive an additional $91,000 as more of the reconstruction is completed. Also, in February 1996, there was another fire at The Trails Apartments which caused minor smoke damage. As of September 30, 1996, $18,000 of expenses had been incurred for the clean-up of this fire. Insurance proceeds of $14,000 are expected to be received in the fourth quarter of 1996. As a result of the above, the Partnership realized a $252,000 casualty gain as of September 30, 1996. During the first nine months of 1995, the Partnership recorded two casualties. Big Walnut Apartments incurred storm damage which resulted in a casualty gain of $2,000, net of insurance proceeds. The Trails Apartments continued to experience problems with the pool due to freeze damage and recorded a casualty loss of $14,000, net of insurance proceeds. As a result of these casualties, the Partnership netted a $12,000 casualty loss for the nine months ended September 30, 1995. On January 19, 1995, the Partnership refinanced the mortgage encumbering Outlet's Ltd. Mall. The total indebtedness refinanced was $1,765,000 of which $337,000 related to the first mortgage and $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 $32,000, as a result of the write-off of an unamortized mortgage discount and unamortized loan costs. 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 $813,000 at September 30, 1996, versus unrestricted cash of $856,000 at September 30, 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 property improvements and replacements. 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 making a distribution during the first nine months of 1996. 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 $26,716,000 (net of discount), with stated interest rates of 7.6% to 10.125%, has maturity dates ranging from June 1997 to November 2002. 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 $6,728,000. The Managing General Partner intends to refinance this indebtedness in order to obtain a more favorable interest rate. During the first nine months of 1996 distributions in the amount of $100,000 were paid. The amount and timing of future cash distributions will depend on the levels of cash generated from operations, property sales, and the availability of 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 September 30, 1996. 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: November 12, 1996 EX-27 2
5 This schedule contains summary financial information extracted from Davidson Diversified Real Estate II Limited Partnership 1996 Third 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 9-MOS DEC-31-1996 SEP-30-1996 813 0 0 0 0 0 43,612 (18,911) 27,752 0 26,716 0 0 0 (502) 27,752 0 7,294 0 7,359 0 0 1,870 0 0 0 0 0 0 (65) (52.28) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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