0000711642-08-000575.txt : 20081114 0000711642-08-000575.hdr.sgml : 20081114 20081114095259 ACCESSION NUMBER: 0000711642-08-000575 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081114 DATE AS OF CHANGE: 20081114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVIDSON INCOME REAL ESTATE LP CENTRAL INDEX KEY: 0000768598 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 621242144 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14530 FILM NUMBER: 081187469 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 FORMER COMPANY: FORMER CONFORMED NAME: FREEMAN INCOME REAL ESTATE LP DATE OF NAME CHANGE: 19910329 10-Q 1 dire908a_10q.htm 10Q FORM 10-QSB—QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF

UNITED STATES

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to _________

Commission file number 0-14530

DAVIDSON INCOME REAL ESTATE, L.P.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	62-1242144
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

55 Beattie Place, PO Box 1089

Greenville, South Carolina 29602

(Address of principal executive offices)

(864) 239-1000

(Issuer's telephone number)

Indicate by check mark whether the registrant (1) has 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.

[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

(Do not check if a smaller reporting company)

Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DAVIDSON INCOME REAL ESTATE, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

	September 30,	December 31,
	2008	2007
	(Unaudited)	(Note)
		(Restated)
Assets
Cash and cash equivalents	$ 400	$ 841
Receivables and deposits	89	78
Other assets	91	107
Investment in joint venture (Note D)	36	- --
Investment property:
Land	1,935	1,935
Buildings and related personal property	9,958	9,705
	11,893	11,640
Less accumulated depreciation	(7,885)	(7,528)
	4,008	4,112
Assets held for sale (Note A)	2,908	2,635
	$ 7,532	$ 7,773

Liabilities and Partners' (Deficiency) Capital
Liabilities
Accounts payable	$ 107	$ 43
Tenant security deposit liabilities	24	26
Accrued property taxes	142	189
Other liabilities	119	131
Deficit in joint venture (Note D)	--	1,055
Mortgage notes payable	4,857	5,037
Liabilities related to assets held for sale (Note A)	2,409	2,053
	7,658	8,534

Partners' (Deficiency) Capital
General partners	(776)	(795)
Limited partners (26,776 units issued and
outstanding)	650	34
	(126)	(761)
	$ 7,532	$ 7,773

Note: The consolidated balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
		(Restated)		(Restated)
Revenues:
Rental income	$ 413	$ 405	$ 1,226	$ 1,203
Other income	35	46	112	100
Total revenues	448	451	1,338	1,303

Expenses:
Operating	232	212	646	587
General and administrative	45	50	131	148
Depreciation	129	116	375	346
Interest	50	56	153	325
Property taxes	42	47	142	142
Total expenses	498	481	1,447	1,548

Loss before equity in (loss) income of joint venture,
casualty gain and discontinued
operations	(50)	(30)	(109)	(245)
Casualty gains (Note E)	36	16	36	16
Equity in (loss) income of joint
venture	(2)	(17)	2,299	(60)
(Loss) income before discontinued
operations	(16)	(31)	2,226	(289)
Loss from discontinued operations
(Notes A and B)	(48)	(57)	(112)	(248)
Gain on sale of discontinued
operations (Note B)	--	--	--	5,716
Net (loss) income	$ (64)	$ (88)	$ 2,114	$ 5,179

Net (loss) income allocated to
general partners (3%)	$ (2)	$ (3)	$ 63	$ 155
Net (loss) income allocated to
limited partners (97%)	(62)	(85)	2,051	5,024
	$ (64)	$ (88)	$ 2,114	$ 5,179

Per limited partnership unit:
(Loss) income from continuing
operations	$ (.56)	$ (1.12)	$ 80.67	$(10.44)
Loss from discontinued operations	(1.75)	(2.05)	(4.07)	(9.00)
Gain on sale of discontinued
operations	--	--	--	207.07
	$ (2.31)	$ (3.17)	$ 76.60	$187.63

Distributions per limited
partnership Unit	$ --	$ 65.36	$ 53.59	$ 65.36

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) CAPITAL

(Unaudited)

(in thousands, except unit data)

	Limited
	Partnership	General	Limited
	Units	Partners	Partners	Total

Original capital contributions	26,776	$ 1	$26,776	$26,777

Partners' (deficiency) capital
at December 31, 2007	26,776	$ (795)	$ 34	$ (761)

Distributions to partners	--	(44)	(1,435)	(1,479)

Net income for the nine months
ended September 30, 2008	--	63	2,051	2,114

Partners' (deficiency) capital
at September 30, 2008	26,776	$ (776)	$ 650	$ (126)

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2008	2007
Cash flows from operating activities:
Net income	$ 2,114	$ 5,179
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Casualty gain	(36)	(16)
Gain on sale of investment property	--	(5,716)
Depreciation	554	738
Loss on extinguishment of debt	--	9
Amortization of loan costs	15	23
Equity in (income) loss of joint venture	(2,299)	60
Change in accounts:
Receivables and deposits	(11)	53
Other assets	3	19
Accounts payable	42	(53)
Tenant security deposit liabilities	(1)	(41)
Accrued property taxes	(59)	(69)
Other liabilities	(14)	(28)
Due to affiliates	--	(578)
Net cash provided by (used in) operating activities	308	(420)

Cash flows from investing activities:
Net proceeds from sale of investment property	--	8,823
Distribution from joint venture	1,208	--
Deferred revenue	410	--
Property improvements and replacements	(270)	(402)
Net (deposits to) withdrawals from restricted escrows	(410)	6
Insurance proceeds received	40	19
Net cash provided by investing activities	978	8,446

Cash flows from financing activities:
Payments on mortgage notes payable	(248)	(275)
Repayments of mortgage note payable	--	(2,611)
Distributions to partners	(1,479)	(1,804)
Advances from affiliates	--	123
Payment on advances from affiliates	--	(2,931)
Net cash used in financing activities	(1,727)	(7,498)

Net (decrease) increase in cash and cash equivalents	(441)	528
Cash and cash equivalents at beginning of period	841	279

Cash and cash equivalents at end of period	$ 400	$ 807

Supplemental disclosure of cash flow information:
Cash paid for interest	$ 247	$ 985

Supplemental disclosure of non-cash flow activity:
Property improvements and replacements in accounts
payable	$ 25	$ 5
Deferred revenue included in assets and liabilities
Held for sale	$ 26	$ --

At December 31, 2007 and 2006, approximately $3,000 and $6,000 of property improvements and replacements were included in accounts payable and are included in property improvements and replacements at September 30, 2008 and 2007, respectively.

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A – Basis of Presentation

The accompanying unaudited consolidated financial statements of Davidson Income Real Estate, L.P. (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. 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, 2008, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007. The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the accompanying consolidated statements of operations for the three and nine months ended September 30, 2007 have been restated to reflect the operations of Bexley House Apartments as discontinued operations. The Partnership entered into a sale contract on September 29, 2008 to sell Bexley House Apartments to a third party (see Note F – Subsequent Event). In connection with the sale contract, the Partnership received a deposit of approximately $436,000, of which approximately $26,000 was subsequently allocated from other partnerships affiliated with the Managing General Partner and is included as a receivable in assets and deferred revenue in liabilities held for sale at September 30, 2008. The respective assets and liabilities of Bexley House Apartments are classified as held for sale as of September 30, 2008 and December 31, 2007. The accompanying consolidated statements of operations for the three and nine months ended September 30, 2007 also include the operations of Lakeside Apartments as discontinued operations as a result of the sale of the property on June 29, 2007. Included in loss from discontinued operations for the three and nine months ended September 30, 2008 are losses of approximately $48,000 and $112,000, respectively, including revenues of approximately $230,000 and $683,000, respectively. Included in loss from discontinued operations for the three and nine months ended September 30, 2007 are losses of approximately $57,000 and $248,000, respectively, including revenues of approximately $201,000 and $1,334,000, respectively. The respective assets and liabilities of Bexley House Apartments were classified as held for sale as of December 31, 2007 and the accompanying consolidated balance sheet has been restated for this classification as of this date.

Certain reclassifications have been made to the 2007 balances to conform to the 2008 presentation.

Note B – Disposition of Investment Property

On June 29, 2007, the Partnership sold one of its investment properties, Lakeside Apartments, to a third party. In addition to Lakeside Apartments, affiliates of the third party also purchased nine other apartment complexes, all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Managing General Partner. The total sales price for Lakeside Apartments and the other properties was approximately $95,800,000 of which approximately $8,850,000 was allocated to Lakeside Apartments. The net proceeds realized by the Partnership were approximately $8,823,000 after payment of closing costs. The Partnership used approximately $2,611,000 to repay the mortgage encumbering the property. The Partnership realized a gain of approximately $5,716,000 for the nine months ended September 30, 2007 as a result of the sale. The property’s operations of approximately zero and $140,000 are shown as loss from discontinued operations for the three and nine months ended September 30, 2007, respectively, and include revenues of approximately zero and $700,000, respectively. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $9,000 as a result of the write off of unamortized loan costs of approximately $4,000 and a termination fee of approximately $5,000. This amount is included in loss from discontinued operations for the three and nine months ended September 30, 2007.

Note C – Transactions with Affiliated Parties

The Partnership has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.

Affiliates of the Managing General Partner receive 5% of gross receipts from both of the Partnership's investment properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $100,000 and $130,000 for the nine months ended September 30, 2008 and 2007, respectively, which is included in operating expenses and loss from discontinued operations.

An affiliate of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $81,000 and $112,000 for the nine months ended September 30, 2008 and 2007, respectively, which are included in general and administrative expenses, investment properties, assets held for sale and gain on sale of discontinued operations. The portion of these reimbursements included in investment properties, assets held for sale and gain on sale of discontinued operations for the nine months ended September 30, 2008 and 2007 are construction management services provided by an affiliate of the Managing General Partner of approximately $26,000 and $25,000, respectively.

During the nine months ended September 30, 2008, there were no advances or associated accrued interest owed to AIMCO Properties, L.P., an affiliate of the Managing General Partner. During the nine months ended September 30, 2007, AIMCO Properties, L.P. advanced approximately $123,000 to the Partnership to pay accounts payable and real estate taxes at Covington Pointe Apartments and accounts payable at Lakeside Apartments. Interest on the advances was charged at prime plus 1%. Interest expense on the advances was approximately $157,000 for the nine months ended September 30, 2007. During the nine months ended September 30, 2007, the Partnership repaid AIMCO Properties, L.P. approximately $3,560,000 which included $629,000 of accrued interest. There were no advances outstanding at September 30, 2008 and December 31, 2007. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

The Partnership Agreement provides for payment of a fee to the Managing General Partner for managing the affairs of the Partnership. The fee is 2% of adjusted cash from operations, as defined in the Partnership Agreement. The fee is payable only after the Partnership has distributed, to all limited partners, adjusted cash from operations in any year equal to 10% of their adjusted invested capital as defined in the partnership agreement. No fees were earned for the nine months ended September 30, 2008 and 2007 or payable at September 30, 2008 and December 31, 2007.

The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability, and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the nine months ended September 30, 2008, the Partnership was charged by AIMCO and its affiliates approximately $47,000 for insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the Partnership during 2008 as other insurance policies renew later in the year. The Partnership was charged by AIMCO and its affiliates approximately $123,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2007.

Note D – Investment/Deficit in Joint Venture Investment

The Partnership owns a 17.5% interest in the Sterling Crest Joint Venture (the “Joint Venture”) with Davidson Growth Plus, L.P., an affiliate of the Managing General Partner, which owns the remaining 82.5% of the Joint Venture. On June 10, 2008, the Joint Venture sold its investment property, Brighton Crest Apartments, to a third party for a gross sales price of approximately $21,500,000. The net proceeds realized by the Joint Venture were approximately $21,239,000 after payment of closing costs of approximately $261,000. The Joint Venture distributed approximately $6,904,000 to its partners during the nine months ended September 30, 2008, of which the Partnership’s share was approximately $1,208,000.

There were no distributions received from the Joint Venture during the nine months ended September 30, 2007. During the nine months ended September 30, 2008 and 2007, the Partnership recognized approximately $2,299,000 and $(60,000) of equity in income (loss) of the Joint Venture, respectively. At December 31, 2007, the Partnership had received distributions and recognized equity in losses of the Joint Venture in excess of its general partnership interest and had an investment deficit of approximately $1,055,000. At September 30, 2008, the Partnership’s investment in the Joint Venture is approximately $36,000.

The following table represents the net income (loss) of the Sterling Crest Joint Venture for the nine months ended September 30, 2008 and 2007 (in thousands):

	Nine Months Ended September 30,
	2008	2007

Operating revenues	$ 1,155	$ 1,891
Operating expenses	(1,414)	(2,231)
Operating loss	(259)	(340)
Debt extinguishment costs	(2,800)	- --
Gain on sale of investment property	15,465	- --

Net income (loss)	$12,406	$ (340)

Note E – Casualty

In September 2008, Bexley House Apartments sustained damage from Hurricane Ike. During the nine months ended September 30, 2008, the Partnership estimated damages to be approximately $25,000 of clean up costs. The estimated clean up costs were included in loss from discontinued operations for the three and nine months ended September 30, 2008.

On April 10, 2008 Covington Pointe Apartments suffered damage to several of its apartment units as a result of severe winds which resulted in roofs blowing off the apartment units. During the nine months ended September 30, 2008, the Partnership received approximately $43,000 in insurance proceeds, including approximately $3,000 in lost rents, related to this casualty. The Partnership recognized a casualty gain of approximately $36,000 for the three and nine months ended September 30, 2008 as a result of the receipt of approximately $40,000 in insurance proceeds net of the write-off of undepreciated assets of approximately $4,000.

In May 2007, Covington Pointe suffered damage to two of its rental units as a result of vandalism and water damage. Insurance proceeds of approximately $19,000 were received during the three and nine months ended September 30, 2007. The Partnership recognized a casualty gain of approximately $16,000 for the three and nine months ended September 30, 2007 as a result of the receipt of approximately $19,000 in insurance proceeds net of the write-off of the undepreciated assets of approximately $3,000.

Note F – Subsequent Event

On October 22, 2008, the Partnership sold one of its investment properties, Bexley House Apartments, to a third party for a sales price of $4,350,000. The net proceeds realized by the Partnership were approximately $4,329,000 after payment of closing costs. The Partnership used approximately $1,867,000 to repay the mortgage encumbering the property. The Partnership anticipates recognizing a gain, during the fourth quarter of 2008, of approximately $1,848,000 as a result of the sale. In addition, the Partnership anticipates recognizing a loss on extinguishment of debt, during the fourth quarter of 2008, of approximately $438,000 as a result of the write off of unamortized loans costs and payment of a prepayment penalty.

In addition, subsequent to September 30, 2008, the Partnership distributed approximately $1,724,000 (approximately $1,672,000 to its limited partners or $62.44 per limited partnership unit) to its partners from the proceeds received from the October 22, 2008 sale of Bexley House Apartments.

Note G – Contingencies

The Partnership has previously disclosed in its quarterly, annual and current reports the legal proceedings related to the Nuanes and Heller actions. On June 30, 2006, the trial court entered an order confirming its approval of the class action settlement and entering judgment thereto after the Court of Appeal had remanded the matter for further findings. On August 31, 2006, an objector filed an appeal from the order. The Court of Appeal issued an opinion on February 20, 2008, affirming the order approving the settlement and judgment entered thereto, and the California Supreme Court thereafter denied the objector’s petition for review. All appeals were exhausted, and the Court’s order approving the settlement and entering judgment is now final. Payments associated with the settlement were disbursed during September 2008.

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts will be dismissed. During the three months ended September 30, 2008, the Partnership was charged approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties.

Mold

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s consolidated financial condition or results of operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and, in addition, will be affected by a variety of risks and factors that are beyond the Partnership’s control including, without limitation: natural disasters such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s property and interpretations of those regulations; the competitive environment in which the Partnership operates; financing risks, including the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets; insurance risks; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s consolidated financial statements and the notes thereto, as well as the risk factors described in the documents the Partnership files from time to time with the Securities and Exchange Commission.

The Partnership's investment properties consist of two apartment complexes at September 30, 2008. The following table sets forth the average occupancy of the properties for the nine months ended September 30, 2008 and 2007:

	Average Occupancy
Property	2008	2007

Bexley House Apartments (1)	99%	97%
Columbus, Ohio
Covington Pointe Apartments	96%	98%
Dallas, Texas

(1) Bexley House Apartments is classified as held for sale at September 30, 2008

and sold October 2008.

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. 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, the Managing General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.

Results of Operations

The Partnership had a net loss of approximately $64,000 and net income of approximately $2,114,000 for the three and nine months ended September 30, 2008, respectively, compared to a net loss of approximately $88,000 and net income of approximately $5,179,000 for the three and nine months ended September 30, 2007, respectively. The decrease in net loss for the three months ended September 30, 2008 is due to an increase in the recognition of a casualty gain, a decrease in the Partnership’s share of loss from its joint venture investment and a decrease in loss from discontinued operations, partially offset by an increase in total expenses. The decrease in net income for the nine months ended September 30, 2008 is primarily due to a decrease in the recognition of a gain on sale of discontinued operations partially offset by an increase in the Partnership’s share of income from its joint venture investment, an increase in total revenues, an increase in the recognition of a casualty gain, a decrease in loss from discontinued operations and a decrease in total expenses.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the consolidated statements of operations for the three and nine months ended September 30, 2007 have been restated to reflect the operations of Bexley House Apartments as discontinued operations. The Partnership entered into a sale contract on September 29, 2008 to sell Bexley House Apartments to a third party. See Item 1. Financial Statements Note F-Subsequent Event. In connection with the sale contract, the Partnership received a deposit of approximately $436,000, of which approximately $26,000 was subsequently allocated from other partnerships affiliated with the Managing General Partner and is included as a receivable in assets and deferred revenue in liabilities held for sale at September 30, 2008. The respective assets and liabilities of Bexley House Apartments are classified as held for sale as of September 30, 2008 and December 31, 2007. The accompanying consolidated statements of operations for the three and nine months ended September 30, 2007 also include the operations of Lakeside Apartments as discontinued operations as a result of the sale of the property on June 29, 2007. Included in loss from discontinued operations for the three and nine months ended September 30, 2008 are losses of approximately $48,000 and $112,000, respectively, including revenues of approximately $230,000 and $683,000, respectively. Included in loss from discontinued operations for the three and nine months ended September 30, 2007 are losses of approximately $57,000 and $248,000, respectively, including revenues of approximately $201,000 and $1,334,000, respectively. The respective assets and liabilities of Bexley House Apartments were classified as held for sale as of December 31, 2007 and the consolidated balance sheet has been restated for this classification as of this date.

On June 29, 2007, the Partnership sold one of its investment properties, Lakeside Apartments, to a third party. In addition to Lakeside Apartments, affiliates of the third party also purchased nine other apartment complexes, all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Managing General Partner of the Partnership. The total sales price for Lakeside Apartments and the other properties was approximately $95,800,000 of which approximately $8,850,000 was allocated to Lakeside Apartments. The net proceeds realized by the Partnership were approximately $8,823,000 after payment of closing costs. The Partnership used approximately $2,611,000 to repay the mortgage encumbering the property. The Partnership realized a gain of approximately $5,716,000 for the nine months ended September 30, 2007 as a result of the sale. The property’s operations of approximately zero and $140,000 are shown as loss from discontinued operations for the three and nine months ended September 30, 2007, respectively, and include revenues of approximately zero and $700,000, respectively. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $9,000 as a result of the write off of unamortized loan costs of approximately $4,000 and a termination fee of approximately $5,000. This amount is included in loss from discontinued operations for the nine months ended September 30, 2007.

The Partnership had a loss before equity in (loss) income of joint venture, casualty gain and discontinued operations of approximately $50,000 and $109,000 for the three and nine months ended September 30, 2008, respectively, compared to a loss before equity in (loss) income of joint venture, casualty gain and discontinued operations of approximately $30,000 and $245,000 for the three and nine months ended September 30, 2007, respectively. The increase in the loss for the three months ended September 30, 2008, is due to an increase in total expense and a slight decrease in total revenues. The decrease in the loss for the nine months ended September 30, 2008 is due to a decrease in total expenses and an increase in total revenues. Total revenues decreased for the three months ended September 30, 2008 due to a decrease in other income, partially offset by an increase in rental income. Total revenues increased for the nine months ended September 30, 2008 due to increases in both rental income and other income. Rental income increased for both periods due to an increase in the average rental rate at Covington Pointe Apartments, partially offset by a decrease in occupancy and an increase in bad debt expense. Other income increased for the nine months ended September 30, 2008 due to an increase in resident utility reimbursements at Covington Pointe Apartments partially offset by a decrease in interest income due to a decrease in interest rates. The decrease in other income for the three months ended September 30, 2008 is primarily due to a decrease in interest income.

Total expenses increased for the three months ended September 30, 2008 due to increases in operating and depreciation expenses. Property tax expense, interest expense and general and administrative expense remained relatively constant for the comparable period. Operating expense increased for the three month period primarily due to an increase in maintenance expense, partially offset by decreases in property, administrative and insurance expenses. Maintenance expense increased due to increases in painting and cleaning costs along with a decrease in capitalized payroll costs. The decrease in property expense is primarily related to a decrease in payroll costs. The decrease in administrative expense is due to a decrease in professional fees which were incurred during 2007 related to appealing property tax billings. Insurance expense decreased as a result of a decrease in insurance premiums charged to the property. Depreciation expense increased due to new property improvements and replacements being placed in service. Total expenses decreased for the nine months ended September 30, 2008 due to decreases in interest and general and administrative expenses partially offset by increases in operating and depreciation expenses. Property tax expense remained constant for the comparable period. Interest expense decreased due to a decrease in interest on advances from AIMCO Properties, L.P. as advances were repaid during the nine months ended September 30, 2007 and no advances were made during the nine months ended September 30, 2008. Operating expense increased for the nine month period primarily due to increases in maintenance expense, partially offset by decreases in property and insurance expenses. Maintenance expense increased due to increases in painting and cleaning costs, maintenance supplies, pool repairs and repair costs to apartment units along with a decrease in capitalized payroll costs. The decrease in property expense is primarily related to a decrease in payroll costs. Insurance expense decreased as a result of a decrease in insurance premiums charged to the property. Depreciation expense increased due to new property improvements and replacements being placed in service.

On April 10, 2008 Covington Pointe Apartments suffered damages to several of its apartment units as a result of severe winds which resulted in roofs blowing off the apartment units. During the nine months ended September 30, 2008, the Partnership received approximately $43,000 in insurance proceeds, including approximately $3,000 in lost rents, related to this casualty. The Partnership recognized a casualty gain of approximately $36,000 for the three and nine months ended September 30, 2008 as a result of the receipt of approximately $40,000 in insurance proceeds net of the write-off of undepreciated assets of approximately $4,000.

General and administrative expenses decreased for the nine months ended September 30, 2008 primarily due to a decrease in management reimbursements as a result of the June 2007 sale of Lakeside Apartments. Included in general and administrative expense for the nine months ended September 30, 2008 and 2007 are management reimbursements to the Managing General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.

Liquidity and Capital Resources

At September 30, 2008, the Partnership had cash and cash equivalents of approximately $400,000 compared to approximately $807,000 at September 30, 2007. Cash and cash equivalents decreased approximately $441,000 since December 31, 2007 due to approximately $1,727,000 of cash used in financing activities, partially offset by approximately $978,000 and $308,000 of cash provided by investing and operating activities, respectively. Cash used in financing activities consisted of payments of principal on the mortgages encumbering the Partnership's investment properties and distributions to partners. Cash provided by investing activities consisted of the receipt of insurance proceeds, a distribution received from the Partnership’s investment in a Joint Venture and the receipt of a good faith deposit related to the sale of Bexley House Apartments, partially offset by property improvements and replacements and net deposits to restricted escrows. The Partnership invests its working capital reserves in interest bearing accounts.

The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the investment properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state and local legal and regulatory requirements. The Managing General Partner monitors developments in the area of legal and regulatory compliance. Capital improvements planned for each of the Partnership’s properties are detailed below.

Bexley House Apartments

During the nine months ended September 30, 2008, the Partnership completed approximately $18,000 of capital improvements at Bexley House Apartments, consisting primarily of interior model enhancements, flooring replacements and washer and dryer replacements. These improvements were funded from operating cash flow. Subsequent to September 30, 2008, the Partnership sold Bexley House Apartments to a third party.

Covington Pointe Apartments

During the nine months ended September 30, 2008, the Partnership completed approximately $274,000 of capital improvements at Covington Pointe Apartments, consisting primarily of air conditioning, flooring covering, kitchen and bath upgrades, appliance and roof replacements. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during the remainder of 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

Capital expenditures will be incurred only if cash is available from operations or Partnership reserves. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term.

The Partnership's assets are thought to be generally sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness encumbering the Partnership’s investment properties of approximately $6,732,000 is amortized over varying periods, with a balloon payment of approximately $4,416,000 due in July 2010 for Covington Pointe Apartments. The mortgage encumbering Bexley House Apartments was to mature in July 2021 at which time the loan was scheduled to be fully amortized. Subsequent to September 30, 2008, the Partnership repaid the mortgage encumbering Bexley House Apartments with proceeds from the October 22, 2008 sale of the investment property. The Managing General Partner will attempt to refinance and/or sell Covington Pointe Apartments prior to such maturity dates. If the property cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing such property through foreclosure.

The Partnership distributed the following amounts during the nine months ended September 30, 2008 and 2007 (in thousands, except per unit data).

	Nine Months	Per Limited	Nine Months	Per Limited
	Ended	Partnership	Ended	Partnership
	September 30, 2008	Unit	September 30, 2007	Unit

Sale (1)	$1,479	$53.59	$ --	$ --

(1) Additional sale proceeds from the 2007 sale of Lakeside Apartments and the 2008 distribution of sale proceeds from the Sterling Crest Joint Venture sale of its investment property.

Subsequent to September 30, 2008, the Partnership distributed approximately $1,724,000 (approximately $1,672,000 to its limited partners or $62.44 per limited partnership unit) to its partners representing proceeds from the October 22, 2008 sale of Bexley House Apartments.

Future cash distributions will depend on the levels of net cash generated from operations, and the timing of debt maturities, property sales and/or refinancings. The Partnership’s cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after capital expenditures to permit additional distributions to its partners during the remainder of 2008 or subsequent periods.

Other

In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 13,236.50 limited partnership units (the "Units") in the Partnership representing 49.43% of the outstanding Units at September 30, 2008. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 49.43% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.

Critical Accounting Policies and Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

Impairment of Long-Lived Assets

Investment properties are recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

Real property investment is subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership’s investment properties. These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing. Any adverse changes in these factors could cause impairment of the Partnership’s assets.

Revenue Recognition

The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

ITEM 4T. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

(b) Changes in Internal Control Over Financial Reporting. There have been no significant changes in the Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DAVIDSON INCOME REAL ESTATE, L.P.

	By: Davidson Diversified Properties, Inc.,
	Managing General Partner

Date: November 13, 2008	By: /s/Martha L. Long
	Martha L. Long
	Senior Vice President

Date: November 13, 2008	By: /s/Stephen B. Waters
	Stephen B. Waters
	Vice President

DAVIDSON INCOME REAL ESTATE, L.P.

EXHIBIT INDEX

Exhibit

3 Agreement of Limited Partnership is incorporated by reference to Exhibit A to the Prospectus of the Registrant dated July 26, 1985 as filed with the Commission pursuant to Rule 424(b) under the Act.

3A Amendment to Partnership Agreement dated October 1, 1985 is incorporated by reference to Exhibit 3A to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.

4 Certificate of Limited Partnership dated April 29, 1985 is incorporated by reference to Exhibit 4 to the Registrant's Registration Statement on Form S-11 dated May 7, 1985.

4A Certificate of Amendment to Certificate of Limited Partnership dated July 16, 1985 is incorporated by reference to Exhibit 4B in Amendment No. 1 to Registration Statement No. 2-97539, dated July 24, 1985.

10L Contract for Sale of Real Estate for The Bexley House dated July 16, 1986 between Bexley House, Limited, an Ohio limited partnership and Tennessee Trust Company is incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated September 30, 1986.

10M Reinstatement and Amendment of Contract for Sale of Real Estate for The Bexley House dated September 4, 1986 between Bexley House, Limited, an Ohio limited partnership and Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated September 30, 1986.

10N Amendment to Reinstated and Amended for Sale of Real Estate for The Bexley House dated September 19, 1986 between Bexley House, Limited, an Ohio limited partnership and Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated September 30, 1986.

10O Assignment of Contract for Sale of Real Estate for The Bexley House dated September 30, 1986 between Tennessee Trust Company and the Registrant is incorporated by reference to Exhibit 10(d) to the Registrant's Current Report on Form 8-K dated September 30, 1986.

10P Limited Warranty Deed dated September 28, 1986 between Bexley House, Ltd., an Ohio limited partnership and the Registrant is incorporated by reference to Exhibit 10(e) to the Registrant's Current Report on Form 8-K dated September 30, 1986.

10Q Contract for Sale of Real Estate for Covington Pointe Apartments dated January 20, 1987 between F.G.M.C. Investment Corp., a Texas corporation Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated March 10, 1987.

10R Amendment to Contract for Purchase of Real Estate for Covington Pointe Apartments dated January 23, 1987 between F.G.M.C. Investment Corp., a Texas corporation Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated March 10, 1987.

10S Assignment of Contract for Purchase of Real Estate for Covington Pointe Apartments dated March 2, 1987 between Tennessee Trust Company and the Registrant is incorporated by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated March 10, 1987.

10Y Sterling Crest Joint Venture Agreement dated June 29, 1987 between the Registrant and Freeman Georgia Ventures, Inc. is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated June 30, 1987.

10GG Amended and Restated Sterling Crest Joint Venture Agreement dated June 29, 1987 among the Registrant, Freeman Georgia Ventures, Inc., and Freeman Growth Plus, L.P., is incorporated by reference to Exhibit 10(d) to the Registrant's Report on Form 8-K dated December 29, 1987.

10RR Multifamily Note dated December 15, 2000, between Davidson Income Real Estate, L.P., a Delaware limited partnership and Reilly Mortgage Group, Inc., a District of Columbia corporation, related to Bexley House Apartments, incorporated by reference to Form 10-KSB dated March 30, 2001.

10TT Contracts related to refinancing of debt of Covington Pointe Apartments:

(a) Multifamily Note dated June 26, 2003 between AIMCO Covington Pointe, L.P., a Delaware limited partnership, and Keycorp Real Estate Capital Markets, Inc., an Ohio corporation, incorporated by reference to Form 8-K dated June 26, 2003.

(b) Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated June 26, 2003 between AIMCO Covington Pointe, L.P., a Delaware limited partnership, and Keycorp Real Estate Capital Markets, Inc., an Ohio corporation, incorporated by reference to Form 8-K dated June 26, 2003.

(c) Replacement Reserve and Security Agreement dated June 26, 2003 between AIMCO Covington Pointe, L.P., a Delaware limited partnership, and Keycorp Real Estate Capital Markets, Inc., an Ohio corporation, incorporated by reference to Form 8-K dated June 26, 2003.

10WW Purchase and Sale Contract between Brighton Crest, L.P., a South Carolina Limited Partnership and Titan Real Estate Investment Group, LLC, an Ohio limited liability company, dated April 1, 2008. Filed with Current Report on Form 8-K of Registrant dated April 1, 2008 and incorporated herein by reference.

10XX Reinstatement of and Second Amendment to Purchase and Sale Contract between Brighton Crest, L.P., a South Carolina Limited Partnership and Tital Real Estate Investment Group, LLC, an Ohio limited liability company, dated June 5, 2008. Filed with Current Report on Form 8-K of Registrant dated June 5, 2008 and incorporated herein by reference.

10 YY Agreement for Purchase and Sale and Joint Escrow Instructions between Bexley House, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated September 29, 2008. Filed with Current Report on Form 8-K of Registrant dated September 29, 2008 and incorporated herein by reference.

10 ZZ First Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Bexley House, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated September 30, 2008. Filed with Current Report on Form 8-K of Registrant dated September 29, 2008 and incorporated herein by reference.

10 AAA Second Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Bexley House, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated October 2, 2008. Filed with Current Report on Form 8-K of Registrant dated September 29, 2008 and incorporated herein by reference.

10 BBB Third Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Bexley House, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated October 21, 2008. Filed with Current Report on Form 8-K of Registrant dated October 22, 2008 and incorporated herein by reference.

31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99A Agreement of Limited Partnership for Davidson IRE GP Limited Partnership between Davidson Diversified Properties, Inc. and Davidson Income Real Estate, L.P. entered into on September 15, 1993 is incorporated by reference to Exhibit 99A to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1993.

99B Agreement of Limited Partnership for Davidson IRE Associates, L.P. between Davidson IRE GP Limited Partnership and Davidson Income Real Estate, L.P. is incorporated by reference to Exhibit 99B to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1993.

99C Agreement of Limited Partnership for Bexley House L.P. between Davidson Income GP Limited Partnership and Davidson Income Real Estate, L.P. entered into on October 13, 1993 is incorporated by reference to Exhibit 99C to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992.

EX-31.1 2 dire_ex31z1.htm EXHIBIT 31.1 Exhibit 31

Exhibit 31.1

CERTIFICATION

I, Martha L. Long, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Davidson Income Real Estate, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2008

/s/Martha L. Long

Martha L. Long

Senior Vice President of Davidson Diversified Properties, Inc., equivalent of the chief executive officer of the Partnership

EX-31.2 3 dire_ex31z2.htm EXHIBIT 31.2 Exhibit 31

Exhibit 31.2

CERTIFICATION

I, Stephen B. Waters, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Davidson Income Real Estate, L.P.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2008

/s/Stephen B. Waters

Stephen B. Waters

Vice President of Davidson Diversified Properties, Inc., equivalent of the chief financial officer of the Partnership

EX-32.1 4 dire_ex32z1.htm EXHIBIT 32.1 Exhibit 32

Exhibit 32.1

Certification of CEO and CFO

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Davidson Income Real Estate, L.P. (the "Partnership"), for the quarterly period ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

	/s/Martha L. Long
	Name: Martha L. Long
	Date: November 13, 2008

	/s/Stephen B. Waters
	Name: Stephen B. Waters
	Date: November 13, 2008

This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.