DSI REALTY INCOME FUND XI
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the fiscal year ended December 31, 2006, or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________.
Commission File No. 33-26038.
DSI REALTY INCOME FUND XI, a California Limited Partnership
(Exact name of Registrant as specified in governing instruments)
__________California_________________________33-0324161_______
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification
number)
6700 E. Pacific Coast Hwy., Long Beach, California 90803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code-(562)493-8881
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [ ] No [X]
Indicate by check mark, whether the Registrant (l) 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 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The Registrant is a limited partnership and there is no voting stock. All units
of limited partnership are owned by non-affiliates of the Registrant. All units
sold to date were sold at $500.00 per unit.
DOCUMENTS INCORPORATED BY REFERENCE
Item 8. Registrant's Financial Statements for its fiscal year ended December
31, 2006, incorporated by reference to Form 10-K, Part II.
Item 11. Registrant's Financial Statements for its fiscal year ended December
31, 2006, incorporated by reference to Form 10-K, Part III.
Item 12. Registration Statement on Form S-11, as amended, previously filed with
the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, incorporated by reference to Form 10-K, Part III.
Item 13. Registrant's financial statements for its fiscal year ended December
31, 2006, together with report of independent public accountants,
incorporated by reference to Form 10-K, Part III.
PART I
Item l. BUSINESS
Registrant (the "Partnership") is a publicly held limited partnership
organized under the California Uniform Limited Partnership Act pursuant to
Agreement of Limited Partnership (the "Agreement") dated December 7, 1988. The
General Partners are DSI Properties, Inc., a California corporation, Robert J.
Conway and Joseph W. Conway. The General Partners are affiliates of the Selling
Agent, Diversified Securities, Inc., a wholly-owned subsidiary of DSI Financial,
Inc. The General Partners provide similar services to other partnerships.
The Partnerships's public offering was completed on February 12, 1991, with
20,000 Units ($10,000,000) of limited partnership interests having been
subscribed for. The General Partners have retained a l% interest in all profits,
losses and distributions (subject to certain conditions) without making any
capital contributions to the Partnership. The General Partners are not required
to make any contributions to capital in the future. The General Partners and the
Partnership have obtained a ruling from the Internal Revenue Service, that under
present provisions of the Internal Revenue Code, current Treasury Regulations
thereunder and the interpretations thereof by the Service and the courts, the
Partnership should be treated for federal income tax purposes as a partnership
and not as an association, which is taxable as a corporation. Such ruling was
based upon certain representations contained in the ruling request.
The Partnership is engaged in the business of investing in and operating
mini-storage facilities with the primary objectives of generating, for its
partners, cash flow, capital appreciation of its properties and obtaining
federal income tax deductions in order to shelter a portion of cash distributed
from taxation. The Partnership has interests in joint ventures which purchased
four mini-storage facilities. See discussion under Item 2 - Properties for
further information.
The Partnership does not intend to sell additional limited partnership
interests in the future. The term of the Partnership is fifty years, however, it
is anticipated that all properties will be sold and/or refinanced prior thereto.
The Partnership is intended to be self-liquidating and it is not anticipated
that proceeds from the sale or refinancing of its operating properties will be
reinvested. The Registrant has no full time employees other than on-site
managers at each mini-storage facility. However, the Partnership shares the
expenses of one or more employees with its various affiliated Limited
Partnerships. The general management and supervision of the business and affairs
of the Registrant is vested exclusively in the General Partners. Limited
Partners have no right to participate in the management or conduct of the
Registrant's business and affairs. An independent management company has been
retained to provide day-to-day management services with respect to all of the
Partnership's investment properties.
The average occupancy levels for each of the Partnership's four properties
for the years ended December 31, 2006 and 2005 were as follows:
Location of Property Average Occupancy Average Occupancy
for the Level for the
Year Ended Year Ended
Dec. 31, 2006 Dec. 31, 2005
Whittier, CA(1) 89% 89%
Bloomingdale, IL(2) 85% 86%
Edgewater, NJ(3) 79% 84%
Sterling Heights, MI(4) 75% 78%
(1) The Partnership owns a 90% interest in this property.
(2) The Partnership owns a 90% interest in this property.
(3) The Partnership owns an 85% interest in this property.
(4) The Partnership owns a 75% interest in this property.
The business in which the Partnership is engaged is highly competitive.
Each of its mini-storage facilities is located in or near a major urban area,
and accordingly, will compete with a significant number of individuals and
organizations with respect to both the purchase and sale of its properties and
for rentals.
Item 1a. RISK FACTORS
Some Potential Losses Are Not Covered By Insurance.
We carry comprehensive liability, fire, extended coverage and rental loss
insurance on all of our Properties. We believe the policy specifications and
insured limits of these policies are adequate and appropriate. There are,
however, types of losses, such as lease and other contract claims and acts of
war that generally are not insured. We cannot be assured that we will be able
to renew insurance coverage upon expiration of our policies in an adequate
amount or at reasonable prices. In addition, insurance companies may no longer
offer coverage against certain types of losses, such as losses due to terrorist
acts and mold or, if offered, these types of insurance may be prohibitively
expensive. Should uninsured loss or a loss in excess from insured limits
occur, we could lose all or a portion of the capital we have invested in a
Property, as well as the anticipated future revenue from the Property. In
such an event, we might nevertheless remain obligated for any mortgage debt
or other financial obligations related to the Property. We cannot be assured
that material losses in excess of insurance proceeds will not occur in the
future. If any of our Properties were to experience catastrophic loss, it
could seriously disrupt our operations, delay revenue and result in large
expenses to repair or rebuild the Property. Such events could adversely
affect our cash flow and ability to make distributions to shareholders.
Because real estate is illiquid, we may not be able to sell Properties when
appropriate.
Real estate investments generally, mini-storage facilities like those that we
own, in particular, often cannot be sold quickly. Consequently, we may not be
able to sell Properties when appropriate. This could adversely affect our cash
flow and ability to make distributions.
Our operating costs might rise, which might reduce our profitability and have
an adverse affect on our cash flow and our ability to make distributions to
shareholders.
We might face higher operating expenses as a result of rising costs generally,
and in particular as a result of increased costs following a terrorist attack
or other catastrophic event. For example, it might cost more in the future
for security, property/casualty and liability insurance, and property mainten-
ance. As noted above, when our insurance policies expire, the cost of premiums
for comparable coverage might be significantly higher after such an event when
it is time to renew our coverage, which could then increase our operating
expenses and reduce or profitability and our cash flow. Because of rising
costs in general, we might experience increases in our property maintenance
costs, such as for cleaning and electricity. If operating expenses increase
dramatically, the availability of other comparable mini-storage facilities in
our specific geographic markets might limit our ability to increase rents,
which could reduce our profitability (if operating expenses increase without a
corresponding increase in revenues) and limit our ability to make distributions.
We face significant competition.
We compete with numerous other owners of mini-storage facilities for tenants.
Some of these competitors have significantly greater financial resources than
we do. Such competition may reduce our ability to attract and keep and retain
tenants, and may increase vacancies, which increases may lower rental rates.
In addition, some of our competitors may be willing, because their properties
may have vacancy rates higher than those for our properties, to make space
available at lower prices than the space in our properties. We cannot be
assured that this competition will not adversely affect our cash flow and
ability to make distributions.
Our ability to make distributions is subject to various risks.
We have been paying quarterly distributions since inception. Our ability to
make distributions in the future will depend upon:
- Financial performance of our Property;
- The absence of significant expenditures relating to environmental
and regulator matters; and
- Our ability to attract and maintain tenants.
Certain of these matters are beyond our control and any significant difference
between our expectations and actual results could have a material adverse
affect on our cash flow and our ability to make distributions.
Changes in the law may adversely affect our cash flow.
The Properties are subject to various regulatory requirements, such as those
relating to the environment, fire and safety. Our failure to comply with
these requirements could result in the imposition of fines and damage awards.
Additionally, the cost to comply with any new or different regulation could
adversely affect our cash flow and our ability to make distributions. While
we believe that the Properties are currently in material compliance with all
such requirements, we cannot be assured that these requirements will not change
our that newly imposed requirements will not require significant unanticipated
expenditures.
Should we incur long-term indebtedness, it will subject us to additional risks.
Like other real estate companies, should we incur indebtedness on our proper-
ties, we will be subject to risks normally associated with debt financing,
such as the insufficiency of cash flow to meet required debt service payment
obligations and the inability to refinance existing indebtedness. If such
debt cannot be paid, refinanced or extended at maturity, in addition to our
failure to repay our debt, we may not be able to make distributions at expected
levels or at all. Furthermore, an increase in interest expense could adversely
affect our cash flow and ability to make distributions to Limited Partners.
If we should not meet our debt service obligations, any Properties securing
such indebtedness could be foreclosed on, which would have a material adverse
affect on our cash flow and ability to make distributions and, depending on
the number of Properties foreclosed on, could threaten our continued viability.
Our organizational documents do not contain any limitation on our ability to
incur debt secured by our Properties. Accordingly, we could place financing
on our Properties almost without restriction. If we were to take such action,
the debt service could adversely affect our cash flow and ability to make dis-
tributions and would include the risk of default on such indebtedness. There
are no plans to incur any long-term indebtedness on any of the Partnership's
Properties.
Environmental problems at the Properties are possible and may be costly.
Federal, state and local laws, ordinances and regulations may require a current
or previous owner or operator of real estate to investigate and clean up hazard-
ous or toxic substances or releases at such property. The owner or operator
may be forced to pay for property damage and for investigation and clean up
costs incurred by others in connection with environmental contamination. Such
laws typically impose clean-up responsibility and liability without regard to
whether the owner or operator knew of or caused the presence of contaminates.
Even if more than one person may have been responsible for the contamination,
each person covered by the environmental laws may be held responsible for all
the clean-up costs incurred. In addition, third parties may sue the owner or
operator of a site for damages and costs resulting from environmental contamin-
ation emanating from that site. These costs may be substantial and the presence
of such substances may adversely affect the owner's ability to sell or rent
such property or to borrow using such property as collateral.
Environmental laws that govern the presence, maintenance and removal of asbestos
require that owners or operators of buildings containing asbestos properly
manage and maintain the asbestos, notifying and train those who may come into
contact with asbestos and undertake special precautions, including removal or
other abatement, if asbestos would be disturbed during renovation or demolition
of a building. Such laws may impose fines and penalties on building owners or
operators who fail to comply with these requirements and may allow third parties
to seek recovery from owners or operators for personal injury associated with
exposure to asbestos fibers.
To the best of our knowledge, asbestos was not used in the construction of any
of the Properties. Tenants of the Partnership's mini-storage facilities are
prohibited from storing hazardous or toxic substances or from even bringing
hazardous or toxic substances onto the property. To the best knowledge of the
General Partners, there are no instances of storage or release of hazardous or
toxic substances at any of the Partnership's Properties. However, there can
be no guaranty that one or more tenants did not actually store such materials
or cause releases at any of the Partnership's Properties. If these conditions
should occur, we may need to undertake a target remediation program which could
become costly and could necessitate the temporary location of some or all of
the Properties' tenants or require rehabilitation of the affected property.
Americans With Disabilities Act compliance can be costly.
Under the Americans With Disabilities Act of 1990 ("ADA"), all public accom-
modations and commercial facilities, must meet certain Federal requirements
related to access and use by disabled persons. Compliance with the ADA re-
quirements could involve removal of structural barriers from certain disabled
persons' entrances, which could adversely affect our financial condition, and
results of operations. Other Federal, state or local laws may require modifi-
cations to or restrict further renovations of our Properties with respect to
such accesses. Although we believe that our Properties are currently in
material compliance with present requirements, non-compliance with the ADA or
similar or related laws or regulations could result in the United States govern-
ment imposing fines or private litigants being awarded damages against us. In
addition, we do not know whether existing requirements will change or whether
compliance with future requirements will require significant unanticipated
expenditures. Such costs may adversely affect our cash flow and ability to
make distributions.
Partnership's status as a limited partnership is dependent on compliance with
Federal income tax requirements.
Failure of the Partnership to be treated as a limited partnership would have
serious adverse consequences to holders of our Units. If the IRS were to
successfully challenge the tax status of the Partnership for Federal income
tax purposes, the Partnership would be treatable as a corporation. In such
event, the imposition of a corporate tax on the Partnership would reduce the
amount of cash available for distribution from such Partnership to the Limited
Partners. We do not anticipate such a challenge.
We are dependent upon our key personnel whose continued service is not guar-
anteed. We are dependent upon our independent property manager for experience
in managing mini-storage facilities. While we believe we could find replace-
ments for these key personnel, loss of their services could adversely affect
our operations.
Item 1b. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Registrant owns a fee interest in four mini-storage facilities, none of
which are subject to long-term indebtedness. The following table sets forth
information regarding properties owned by the Partnership.
2006 2005
Location Size of Net Rentable No. of Completion Avg. Rent
Parcel Area Rental Units Date Per. Sq. Ft.
Whittier, CA(1) 3.92 acres 60,249 513 3/90 14.71 14.31
Bloomingdale,
IL(2) 3.542 acres 60,624 571 1/31/91 9.10 7.80
Edgewater,NJ(2) 4.118 acres 52,940 447 8/21/90 11.06 11.08
Sterling
Heights, MI(4) 3.76 acres 58,198 515 7/17/91 7.75 8.22
(1) The Partnership owns a 90% interest in this property.
(2) The Partnership owns a 90% interest in this property.
(3) The Partnership owns an 85% interest in this property.
(4) The Partnership owns a 75% interest in this property.
Item 3. LEGAL PROCEEDINGS
Registrant is not a party to any material pending proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Registrant, a publicly-held limited partnership, had approximately 524
Limited Partners at December 31, 2006. The Registrant completed its public
offering of limited partnership Units. There is no public market for the resale
of these Units.
Average cash distributions of $11.25 per Limited Partnership Unit were
declared and paid each quarter for the year ended December 31, 2006 and $10.62
per Limited Partnership Unit were declared and paid each quarter for the year
ended December 31, 2005 and $14.37 per Limited Partnership Unit were declared
and paid each quarter for the year ended December 31, 2004. It is Registrant's
expectations that distributions will continue to be paid in the future.
Item 6. SELECTED FINANCIAL DATA
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
- ----------------------------------------------
SELECTED FINANCIAL DATA
FOR THE FIVE YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
TOTAL REVENUES
AND OTHER
INCOME $2,500,107 $2,399,809 $2,269,596 $2,335,866 $2,334,725
TOTAL
EXPENSES 1,583,308 1,633,391 1,438,441 1,444,226 1,453,731
MINORITY INTEREST
IN INCOME OF
REAL ESTATE JOINT
VENTURE (175,650) (180,154) (188,904) (204,804) (190,054)
--------- --------- --------- --------- ---------
NET INCOME $ 741,149 $ 586,264 $ 642,251 $ 686,836 $ 690,940
========= ========= ========= ========= =========
TOTAL ASSETS $3,845,928 $4,031,099 $4,292,224 $4,676,176 $5,091,587
========== ========== ========== ========== ==========
CASH FLOWS FROM (USED IN):
OPERATING $1,173,269 $1,181,906 $1,184,400 $1,254,113 $1,262,126
INVESTING (21,835) (9,680) (16,112) - (17,459)
FINANCING (1,115,510) (1,067,724) (1,360,518) (1,323,888) (1,099,145)
NET INCOME
PER LIMITED
PARTNERSHIP
UNIT $ 36.69 $ 29.02 $ 31.79 $ 34.00 $ 34.20
======== ======== ======== ======== ========
CASH
DISTRIBUTIONS
PER LIMITED
PARTNERSHIP
UNIT $ 45.00 $ 42.50 $ 57.50 $ 55.39 $ 45.00
======== ======== ======== ======== ========
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies- Rental revenue is recognized using the accrual
method based on contractual amounts provided for in the lease agreements,
which approximates recognition on a straight-line basis. The term of the
lease agreements is usually less than one year.
The Partnership holds a 90% interest in a joint venture that owns an operating
mini-storage facility in Whittier, California, an 85% interest in an operating
mini-storage facility in Edgewater Park, New Jersey, a 90% interest in an oper-
ating mini-storage facility in Bloomingdale, Illinois and a 75% interest in an
operating facility in Sterling Heights, Michigan. Occupancy levels for the
Partnership's four mini-storage facilities at December 31, 2006, were: Whittier
89%, Edgewater Park 84%, Bloomingdale 86% and Sterling Heights 78%.
RESULTS OF OPERATIONS
2006 COMPARED TO 2005
Total revenues increased from $2,399,478 in 2005 to $2,448,474 in 2006, total
expenses decreased from $1,633,391 to $1,583,308, other income increased from
$331 to $51,633 and minority interest in real estate joint ventures decreased
from $180,154 to $175,650. As a result, net income increased from $586,264
to $741,149. The increase in rental revenues can be attributed to higher unit
rental rates. Occupancy levels for the Partnership's four mini-storage facil-
ities averaged 81.8% for the year ended December 31, 2006, compared to 84.2%
for the year ended December 31, 2005. Other income includes a gain on property
damage in the amount of $51,301. This amount represents the difference between
insurance proceeds received versus the net book value of the facilities' office
and part of the managers' apartment destroyed due to a traffic accident.
Operating expenses remained constant primarily as a result of decreases in
advertising and purchase of locks and packing materials expenses offset by
increases in repairs and maintenance and real estate tax expenses. General
and administrative expenses decreased approximately $16,600 (7.2%) primarily
as a result of decreases in legal and professional and office supplies and
printing expenses. Incentive management fees, which are based on distributions
paid to limited partners, increased as a result of the increase in distri-
butions to limited partners. Property management fees, which are computed
as a percentage of rental revenues, increased as a result of the increase in
rental revenue.
2005 COMPARED TO 2004
Total revenues increased from $2,269,266 in 2004 to $2,399,478 in 2005, total
expenses increased from $1,438,441 to $1,633,391, other income increased from
$330 to $331 and minority interest in real estate joint ventures decreased
from $188,904 to $180,154. As a result, net income decreased from $642,251
to $586,264. The approximate $130,200 (5.7%) increase in rental revenues can
be attributed primarily to higher occupancy and unit rental rates. Occupancy
levels for the Partnership's four mini-storage facilities averaged 84.2% for
the year ended December 31, 2005, compared to 83.0% for the year ended
December 31, 2004. Operating expenses increased approximately $125,800 (19.4%)
primarily as a result of increases in advertising, repairs and maintenance,
purchase of locks and packing materials, real estate tax, salaries and wages
and truck insurance and maintenance expenses. General and administrative
expenses increased approximately $38,000 (19.7%) primarily as a result of in-
creases in legal and professional, equipment and computer lease and office
supplies and printing expenses. Incentive management fees, which are based on
distributions paid to limited partners, decreased as a result of the decrease
in distributions to limited partners. Property management fees, which are
computed as a percentage of rental revenue, increased as a result of the in-
crease in rental revenue.
Operating expenses consists mainly of expenses such as yellow pages and
other advertising, utilities, repairs and maintenance, real estate taxes,
salaries and wages and their related expenses. General and administrative
expenses consist mainly of expenses such as legal and professional, office
supplies accounting services and computer expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased approximately $8,600
(0.7%) in 2006 compared to 2005 primarily as a result of the decrease in net
income before depreciation and minority interest in real estate joint ventures,
partially offset by an increase in customer deposits and other liabilities. Net
cash provided by operating activities decreased approximately $2,500 (0.2%) in
2005 compared to 2004, primarily as a result of the decrease in net income.
Cash used in investing activities, as set forth in the statement of cash flows,
consists of acquisitions of equipment for the Partnership's mini storage
facilities in 2006, 2005 and 2004. The Partnership has no material commit-
ments for capital expenditures.
Cash used in financing activities consisted of cash distributions to partners
and the minority interest in the real estate joint ventures in 2006, 2005
and 2004, as well as payments on capital lease obligations starting in 2004.
In December 2006, 2005 and 2004, the General Partners declared and paid a
special distribution equal to 1.0%, 0.5%, and 3.5%, respectively.
The General Partners plan to continue their policy of funding the continuing
improvement and maintenance of the Partnership properties with cash generated
from operations. The Partnership anticipates that cash flows generated from
operations of the Partnership's rental real estate operations will be
sufficient to cover operating expenses and distributions for the next twelve
months and beyond.
The General Partners are not aware of any environmental problems which could
have a material adverse effect upon the financial position of the Partnership.
LONG-TERM LIABILITIES, CONTRACTUAL OBLIGATIONS, AND OFF-BALANCE SHEET
ARRANGEMENTS
Long-Term Liabilities and Contractual Obligations. The following table summar-
izes our long-term liabilities, material obligations and commitments to make
future payments under certain contracts, including long-term debt obligations,
purchase commitments and operating leases.
Payments due by period
Less More
than 1 1-3 3-5 than 5
Contractual Obligations Total year years years years
Long-Term Debt - - - - -
Capital (Finance) Lease 101,000 58,500 42,500 - -
Purchase Obligations - - - - -
Other Long-Term Liablities - - - - -
Reflected on the Registrant's
Balance Sheet under the GAAP
of the primary financial
Statements
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 2006 and
2005 was as follows:
2006 QUARTER ENDED
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Total revenues $595,706 $606,671 $618,190 $627,907
Income before minority
interest in
joint venture 212,834 176,877 193,630 333,458
Net income 212,834 176,877 70,426 281,012
Net income per
limited partnership
unit $ 10.54 $ 8.76 $ 3.49 $ 13.91
Weighted average
number of limited
partnership units
outstanding 20,000 20,000 20,000 20,000
2005 QUARTER ENDED
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Total revenues $580,855 $604,656 $606,234 $607,733
Income before minority
interest in
joint venture 212,387 185,367 244,547 124,117
Net income 212,387 185,367 107,893 80,617
Net income per
limited partnership
unit $ 10.51 $ 9.18 $ 5.34 $ 3.99
Weighted average
number of limited
partnership units
outstanding 20,000 20,000 20,000 20,000
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto as Exhibit l is the information required to be set forth as
item 8, Part II hereof. See the financial statements.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9a. CONTROLS AND PROCEDURES
The Partnership evaluated the effectiveness of its disclosure controls
and procedures. This evaluation was performed by the Partnership's
Controller with the assistance of the Partnership's President and the
Chief Executive Officer. These disclosure controls and procedures are
designed to ensure that the information required to be disclosed by the
Parnership in its periodic reports filed with the Securities and Exchange
Commission (the "Commission") is recorded, processed summarized and
reported, within the time periods specified by the Commission's rules
and forms, and that the information is communicated to the certifying
officers on a timely basis. Based on this evaluation, the Partnership
concluded that its disclosure controls and procedures were effective.
There have been no significant changes in the Partnership's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of their evaluation.
Item 9b. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT'S
GENERAL PARTNER
The General Partners of Registrant are the same as when the Partnership was
formed, i.e., DSI Properties, Inc., a California corporation, Robert J. Conway
and Joseph W. Conway, brothers. As of December 31, 2006, Messrs. Robert J.
Conway and Joseph W. Conway, each of whom own approximately 48.4% of the issued
and outstanding capital stock of DSI Financial, Inc., a California corporation,
together with Mr. Joseph W. Stok, currently comprise the entire Board of
Directors of DSI Properties, Inc.
Mr. Robert J. Conway is 73 years of age and is a licensed California real
estate broker, and since 1965 has been President and a member of the Board of
Directors of Diversified Securities, Inc., and since 1973 President, Chief
Financial Officer and a member of the Board of Directors of DSI Properties, Inc.
Mr. Conway received a Bachelor of Science Degree from Marquette University with
majors in Corporate Finance and Real Estate.
Mr. Joseph W. Conway is age 78 and has been Executive Vice President,
Treasurer and a member of the Board of Directors of Diversified Securities, Inc.
since 1965 and since 1973 the Vice President, Treasurer and member of the Board
of Directors of DSI Properties, Inc. Mr. Conway received a Bachelor of Arts
Degree from Loras College with a major in Accounting.
Mr. Joseph W. Stok is age 84 and has been a member of the Board of
Directors of DSI Properties, Inc. since 1994, a Vice President of Diversified
Securities, Inc. since 1973, and an Account Executive with Diversified
Securities, Inc. since 1967.
Item 11. MANAGEMENT REMUNERATION AND TRANSITIONS
The information required to be furnished in Item 11 of Part III is
contained in Registrant's Financial Statements for its fiscal year ended
December 31, 2006, which together with the report of its independent auditors,
Deloitte & Touche LLP, is attached hereto as Exhibit 1 and incorporated herein
by this reference. In addition to such information:
(a) No annuity, pension or retirement benefits are proposed to be paid by
the Registrant to any of the General Partners or to any officer or
director of the corporate General Partner;
(b) No standard or other agreement exists by which directors of the
Registrant are compensated;
(c) The Registrant has no plan, nor does the Registrant presently propose
a plan, which will result in any remuneration being paid to any
officer or director upon termination of employment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Fund's limited partnership units as of December 31, 2006 of
(i) each person known to beneficially own more than 5% of the Fund's limited
partnership units(2), (ii) each director or director nominee of the Fund,
(iii) each executive officer of the Fund for whom information is given in the
Summary Compensation Table in this proxy statement, and (iv) all directors and
executive officers of the Fund.
TITLE OF NAME OF NUMBER OF LP UNITS PERCENT
CLASS BENEFICIAL OWNER BENEFICIALLY HELD(1) OF CLASS
- -------- ----------------- -------------------- --------
Limited
Partnership
Interest Robert J. Conway 326 - Direct 1.63
Limited
Partnership
Interest Joseph W. Conway 183 - Direct *
* Less than one percent of the Fund's limited partnership's units.
(1) Unless otherwise indicated, the address for each listed director or officer
is c/o 6700 E. Pacific Coast Hwy. #150. As used in this table, "beneficial
ownership" means the sole or shared power to vote or direct the voting
or to dispose or direct the disposition of any security. For purposes of
this table, a person is deemed to be the beneficial owner of units acquired
before the date of this filing.
(2) As of December 31, 2006, no person of record owned more than 5% of the
limited partnership units of Registrant, nor was any person known by
Registrant to own of record and beneficiary, or beneficially only, more
than 5% thereof. The balance of the information required to be furnished
in Item 12 of Part III is contained in Registrant's Registration State-
ment on Form S-11, previously filed pursuant to the Securities Act of
1933, as amended, and which is incorporated herein by this reference.
The only change to the information contained in said Registration State-
ment on Form S-11 is the fact that Messrs. Benes and Blakley have retired
and Messrs. Robert J. Conway and Joseph W. Conway equity interest in DSI
Financial, Inc., parent of DSI Properties, Inc., has increased. Please
see information contained in Item 10 hereinabove.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished in Item 13 of Part III is
contained in the Registrant's Financial Statements and Financial Statement
Schedule for it fiscal year ended December 31, 2006, attached hereto as Exhibit
l and incorporated herein by this reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees for professional services rendered by Deloitte & Touche
LLP for the audit of the Partnership's annual financial statements and for re-
view of the financial statements included in the Partnership's Quarterly Reports
on Form 10-Q for 2006 were $31,240 and for 2005 were $29,640.
Tax Fees
The aggregate fees for professional services rendered by Deloitte Tax
LLP for tax compliance, tax advice and tax planning for 2006 were $18,550
and 2005 were $15,250. Most of the fees related to preparation of the Partner-
ship's tax returns.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(l) Attached hereto and incorporated herein by this reference as Exhibit
l are Registrant's Financial Statements for its fiscal year ended
December 31, 2006, together with the reports of its independent
auditors, Deloitte, & Touche LLP.
(a)(2) Attached hereto and incorporated herein by this reference as Exhibit
2 is Registrant's Letter to Limited Partners regarding the Annual
Report for its fiscal year ended December 31, 2006.
(b) There have been no 8K's filed during the last quarter of the period
covered by this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
DSI REALTY INCOME FUND XI
by: DSI Properties, Inc., a
California corporation, as
General Partner
/s/ ROBERT J. CONWAY
By_______________________________ Dated: March 30, 2007
ROBERT J. CONWAY (President,
Chief Executive Officer, Chief
Financial Officer and Director)
/s/ JOSEPH W. CONWAY
By_______________________________ Dated: March 30, 2007
JOSEPH W. CONWAY (Executive
Vice President and Director)
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
DSI REALTY INCOME FUND XI
by: DSI Properties, Inc., a
California corporation, as
General Partner
/s/ ROBERT J. CONWAY
By_______________________________ Dated: March 30, 2007
ROBERT J. CONWAY (President,
Chief Executive Officer, Chief
Financial Officer and Director)
/s/ JOSEPH W. CONWAY
By______________________________ Dated: March 30, 2007
JOSEPH W. CONWAY (Executive
Vice President and Director)
DSI REALTY INCOME FUND XI
CROSS REFERENCE SHEET
FORM 1O-K ITEMS TO ANNUAL REPORT
PART I, Item 3. There are no legal proceedings pending or threatened.
PART I, Item 4. Not applicable.
PART II, Item 5. Not applicable.
PART II, Item 6. The information required is contained in Registrant's Financial
Statements for its fiscal year ended December 31, 2006, attached as Exhibit l to
Form 10-K.
PART II, Item 8. See Exhibit l to Form 10-K filed herewith.
PART II, Item 9. Not applicable.
EXHIBIT l
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
SELECTED FINANCIAL DATA
FOR THE FIVE YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
TOTAL REVENUES
AND OTHER
INCOME $2,500,107 $2,399,809 $2,269,596 $2,335,866 $2,334,725
TOTAL
EXPENSES 1,583,308 1,633,391 1,438,441 1,444,226 1,453,731
MINORITY INTEREST
IN INCOME OF
REAL ESTATE JOINT
VENTURE (175,650) (180,154) (188,904) (204,804) (190,054)
--------- --------- --------- --------- ---------
NET INCOME $ 741,149 $ 586,264 $ 642,251 $ 686,836 $ 690,940
========= ========= ========= ========= =========
TOTAL ASSETS $3,845,928 $4,031,099 $4,292,224 $4,676,176 $5,091,587
========== ========== ========== ========== ==========
CASH FLOWS FROM (USED IN):
OPERATING $1,173,269 $1,181,906 $1,184,400 $1,254,113 $1,262,126
INVESTING (21,835) (9,680) (16,112) - (17,459)
FINANCING (1,115,510) (1,067,724) (1,360,518) (1,323,888) (1,099,145)
NET INCOME
PER LIMITED
PARTNERSHIP
UNIT $ 36.69 $ 29.02 $ 31.79 $ 34.00 $ 34.20
======== ======== ======== ======== ========
CASH
DISTRIBUTIONS
PER LIMITED
PARTNERSHIP
UNIT $ 45.00 $ 42.50 $ 57.50 $ 55.39 $ 45.00
======== ======== ======== ======== ========
The following are reconciliations between the operating results and partners'
equity per the financial statements and the Partnership's income tax return for
the year ended December 31, 2006:
Net Partners'
Income Equity
Per financial statements $ 725,753 $ 3,386,912
Excess book depreciation 145,953 2,049,347
State taxes (12,980)
Accrued incentive management fee 443,214
Property acquisition costs 1,033,227
Deferred rental revenues (9,177) 59,818
Accrued expenses (13,400) 17,600
Fixed asset adjustment (82,069) (143,735)
Excess book distributions 186,479
Tax expense adjustment 15,396
Bad debt allowance 25,564 25,564
Miscellaneous expense (2,865) (2,863)
Real estate taxes 11,257 11,257
----------- -----------
Per Partnership income tax return $ 816,412 $ 7,053,840
=========== ===========
Net taxable income per
limited partnership unit $ 25.43
===========
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Page
PAGE
FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of December 31, 2006 and 2005 F-2
Consolidated Statements of Income for Each of the Three
Years Ended December 31, 2006 F-3
Consolidated Statements of Changes in Partners' Equity(Deficit)
for Each of the Three Years Ended December 31, 2006 F-4
Consolidated Statements of Cash Flows for Each of the Three Years
Ended December 31, 2006 F-5
Notes to Consolidated Financial Statements as of December 31, 2006
and 2005, and for Each of the Three Years
Ended December 31, 2006 F-6
SUPPLEMENTAL SCHEDULE:
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 2006 F-10
NOTE:
Financial statements and schedules not listed above are omitted because of the
absence of conditions under which they are required or because the
information is included in the financial statements named above, or in the
notes thereto.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Partners of
DSI Realty Income Fund XI:
We have audited the accompanying consolidated balance sheets of DSI Realty
Income Fund XI, a California Real Estate Limited Partnership and subsidiary
(the "Partnership") as of December 31, 2006 and 2005, and the related
consolidated statements of income, changes in partners' equity (deficit), and
cash flows for each of the three years in the period ended December 31, 2006.
Our audits also included the supplemental schedule listed in the Index at Item
15. These financial statements and the supplemental schedule are the respons-
ibility of the Partnership's management. Our responsibility is to express an
opinion on the financial statements and supplemental schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Partnership
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Partnership's internal
control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consoldiated financial statements present fairly,
in all material respects, the financial position of the partnership at
December 31, 2006 and 2005, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2006
in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such supplemental schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
_______________________________________
Deloitte & Touche
Los Angeles, California
March 30, 2007
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
- -------------------------------------------------------------------------------
ASSETS 2006 2005
CASH AND CASH EQUIVALENTS $ 475,705 $ 439,781
PROPERTY, net (Note 3) 3,248,480 3,535,858
OTHER ASSETS 121,743 55,460
----------- -----------
TOTAL $ 3,845,928 $ 4,031,099
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Distribution due partners (Note 4) $ 202,020 $ 202,020
Property management
fees payable (Note 6) 12,224 12,694
Customer Deposits and other liabilities 189,825 175,815
Capital lease obligations (Notes 3 and 6) 93,630 124,398
----------- ----------
Total liabilities 497,699 514,927
----------- ----------
PARTNERS' EQUITY (DEFICIT)(Note 4):
General partners (56,185) (54,505)
Limited partners (20,000 limited
partnership units outstanding
at December 31, 2006 and 2005) 3,404,414 3,570,677
------------ -----------
Total partners' equity 3,348,229 3,516,172
------------ -----------
TOTAL $ 3,845,928 $ 4,031,099
============ ===========
See notes to consolidated financial statements.
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
2006 2005 2004
REVENUES:
Rental $2,448,474 $2,399,478 $2,269,266
---------- ---------- ----------
EXPENSES:
Depreciation 360,514 398,597 355,397
Operating 776,703 775,400 649,620
Interest 5,232 7,016 -
General and administrative 214,513 231,134 193,171
General partners' incentive
management fee (Note 4) 81,819 77,273 104,546
Property management fee (Note 6) 144,527 143,971 135,707
---------- ---------- ----------
Total expenses 1,583,308 1,633,391 1,438,441
---------- ---------- ----------
OPERATING INCOME 865,166 766,087 830,825
---------- ---------- ----------
OTHER INCOME -
Interest income 332 331 330
Gain on property damage 51,301 - -
---------- ---------- ----------
Total other income 51,633 331 330
---------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS
IN INCOME OF REAL ESTATE
JOINT VENTURES 916,799 766,418 831,155
MINORITY INTERESTS IN INCOME OF
REAL ESTATE JOINT VENTURES (175,650) (180,154) (188,904)
---------- ---------- ----------
NET INCOME $ 741,149 $ 586,264 $ 642,251
========== ========== ==========
AGGREGATE NET INCOME ALLOCATED
TO (Note 4):
General partners $ 7,411 $ 5,863 $ 6,423
Limited partners 733,738 580,401 635,828
---------- ---------- ----------
TOTAL $ 741,149 $ 586,264 $ 642,251
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (Notes 2 and 4) $ 36.39 $ 29.02 $ 31.79
========== ========== ==========
See notes to consolidated financial statements.
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
THREE YEARS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
General Limited
Partners Partners Total
BALANCE, JANUARY 1, 2004 $(46,589) $4,354,446 $4,307,857
Net income 6,423 635,828 642,251
Distributions (11,616) (1,149,998) (1,161,614)
-------- ---------- -----------
BALANCE, DECEMBER 31, 2004 (51,782) 3,840,276 3,788,494
Net income 5,863 580,401 586,264
Distributions (8,586) (850,000) (858,586)
-------- ---------- -----------
BALANCE, DECEMBER 31, 2005 (54,505) 3,570,677 3,516,172
Net income 7,411 733,738 741,149
Distributions (9,091) (900,001) (909,092)
-------- ---------- -----------
BALANCE, DECEMBER 31, 2006 $(56,185) $3,404,414 $ 3,348,229
======== =========== ===========
See notes to consolidated financial statements.
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
2006 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 741,149 $ 586,264 $ 642,251
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 360,514 398,597 355,397
Minority interests in income
of real estate joint ventures 175,650 180,154 188,904
Gain on property damage (51,301) - -
Changes in assets and liabilities:
Other assets (66,283) (7,471)
Property management fees payable (470) 1,779 (442)
Customer deposits
and other liabilities 14,010 15,112 5,761
---------- ----------- ----------
Net cash provided by operating
activities 1,173,269 1,181,906 1,184,400
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (78,626) (9,680) (16,112)
Insurance proceeds from
property damage 56,791 - -
----------- ----------- -----------
Net cash used in investing activities (21,835) (9,680) (16,112)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (909,092) (858,586) (1,161,614)
Distributions paid to minority inter-
ests in real estate joint ventures (175,650) (180,154) (188,904)
Captial lease obligations (30,768) (28,984) (10,000)
----------- ----------- ----------
Net cash used in
financing activities (1,115,510) (1,067,724) (1,360,518)
----------- ----------- ----------
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS 35,924 104,502 (192,230)
CASH AND CASH EQUIVALENTS,
AT BEGINNING OF YEAR 439,781 335,279 527,509
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
AT END OF YEAR $ 475,705 $ 439,781 $ 335,279
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 5,232 $ 7,016 $ -
=========== =========== ===========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of trucks utilizing
capital leases $ - $ 23,290 $ 140,092
=========== =========== ===========
Distribution due partners
included in partners' equity $ 202,020 $ 202,020 $ 202,020
=========== =========== ===========
See notes to consolidated financial statements.
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2006 AND 2005,
AND FOR EACH OF THE THREE YEARS
ENDED DECEMBER 31, 2006
1. GENERAL
DSI Realty Income Fund XI, a California Limited Partnership (the
"Partnership"), has three general partners (DSI Properties, Inc.,
Robert J. Conway, and Joseph W. Conway) and limited partners owning 20,000
limited partnership units, which were purchased for $500 a unit. The
general partners have made no capital contribution to the Partnership
and are not required to make any capital contribution in the future.
The Partnership has a maximum life of 50 years and was formed on
December 7, 1986 under the California Uniform Limited Partnership Act
for the primary purpose of acquiring and operating real estate.
The Partnership has entered into four joint venture arrangements with
affiliates of Dahn Corporation ("Dahn"). The Partnership and its joint
venture partners have acquired four mini-storage properties located in
Whittier, California; Edgewater, New Jersey; Bloomingdale, Illinois; and
Sterling Heights, Michigan. The properties were acquired from Dahn.
Under the terms of the property purchase agreements, the Partnership and
its joint venture partners (Whittier Mini, Bloomingdale Mini, Edgewater
Mini, and Sterling Heights Mini, each a California Limited Partnership and
an affiliate of Dahn, and hereinafter referred to as the "Joint Venture
Partners") own an undivided interest in the mini-storage facilities as
follows:
Joint Venture
Mini-Storage Property Partnership Partner
Whittier, CA 90% 10%
Bloomingdale, IL 90% 10%
Edgewater, NJ 85% 15%
Sterling Heights, MI 75% 25%
The Joint Venture Partners have made no cash contributions to any of the
joint ventures. Rather, each Joint Venture Partner's interest in each
respective mini-storage property was obtained in consideration of a
reduction in the purchase price of the property by Dahn. The Partnership
has control over the business and operations of the mini-storage
facilities (see Note 6).
Pursuant to the terms of each joint venture agreement, annual profits
(before depreciation) of each joint venture will be allocated to the
Joint Venture Partners on the basis of actual distributions received,
while annual losses (before depreciation) are to be allocated in pro-
portion to the ownership percentages as specified above. Cash distri-
butions are to be made to each Joint Venture Partner based upon each
Joint Venture Partner's ownership percentage. However, the Joint Venture
Partners have subordinated their rights to any distributions to the
Partnership's receipt of an annual, noncumulative, 8% return (7.75%
for the Whittier Mini) from the operation of the joint ventures.
Requirements under the subordination agreement were met during 2006,
2005 and 2004. A minority interest in real estate joint venture is
recorded to the extent of any distributions due to the Joint Venture
Partners. The Joint Venture Partners are also entitled to receive
a percentage, based upon a pre-determined formula, of the net proceeds
from the sale of the properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation - The accompanying consolidated finacial
statements include the accounts of the Partnership and its joint venture
investments. All significant intercompany balances and transactions have
been eliminated.
Cash and Cash Equivalents - The Partnership classifies its short-term
investments purchased with an original maturity of three months or less as
cash equivalents.
Property and Depreciation - Property is recorded at cost and consists
primarily of mini-storage facilities. Depreciation is provided for using
the straight-line method over an estimated useful life of 20 years.
Building improvements are depreciated over a five-year period. Property
under capital leases is amortized over the lesser of the lives of the re-
spective leases or the estimated useful lives of the assets.
Income Taxes - No provision has been made for income taxes in the
accompanying consolidated financial statements. The taxable income
or loss of the Partnership is allocated to each partner in accordance
with the terms of the Agreement of Limited Partnership. Each partner's
tax status, in turn, determines the appropriate income tax for its
allocated share of the Partnership taxable income or loss. The net
difference between the basis of the Partnership's asset and liabilities
for federal income tax purposes and as reported for financial statement
purposes for the year ended December 31, 2006 is $90,659.
On February 27, 2003, New Jersey adopted new regulations effective retro-
actively to January 1, 2002 that impose a filing fee of $150 per each New
Jersey resident partner and a filing fee of $150 multiplied by the corpor-
ate allocation factor of the Partnership for each non resident partner.
As a result, the Partnership recorded $29,224 and $20,697 in partnership
filing fees during the years ended December 31, 2006 and 2005, respectively
which are included in general and administrative expenses.
Revenues - Rental revenue is recognized using the accrual method based
on contractual amounts provided for in the lease agreements, which
approximates recognition on a straight-line basis. The term of the lease
agreements is usually less than one year.
Net Income per Limited Partnership Unit - Net income per limited
partnership unit is computed by dividing net income allocated to the
limited partners by the weighted average number of limited partnership
units outstanding during each period.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the Partnership's management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Impairment of Long-Lived Assets - The Partnership regularly reviews long-
lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. If
the sum of the expected undiscounted future cash flow is less than the
carrying amount of the asset, the Partnership would recognize an impair-
ment loss to the extent that the carrying value exceeded the fair value of
the property. No impairment losses were required in 2006, 2005 or 2004.
Fair Value of Financial Instruments - For all financial instruments,
including cash and cash equivalents, other assets, distributions due
partners, incentive management fee payable to general partners, property
management fee payable, customer deposits and other liabilities, carrying
values approximate fair values becuase of the short maturity of those
instruments. The carrying values of the capital lease obligations approx-
mates fair value because the terms of the instrument are similar to terms
available to the Partnership for similar types of leasing agreements.
Concentrations of Credit Risk - Financial instruments that potentially
subject the Partnership to concentrations of credit risk consist
primarily of cash equivalents and rent receivables. The Partnership
places its cash and cash equivalents with high credit quality institutions.
Recent Accounting Pronouncement - In September 2006, the financial Account-
ing Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 157, "Fair Value Measurements." SFAS No. 157 defines fair
value, establishes a framework for measuring fair value and expands dis-
closures about fair value measurements. The Partnership is required to
adopt SFAS No. 157 for fiscal year 2008 and does not expect its adoption
to have a material effect on the Partnership's results of operations or
financial condition.
3. PROPERTY
The total cost of property and accumulated depreciation is as follows
as of December 31, 2006 and 2005, is as follows:
2006 2005
Land $ 1,894,250 $ 1,894,250
Buildings and improvements 6,622,462 6,576,518
Rental trucks under capital leases 163,382 163,382
----------- -----------
Total 8,680,094 8,634,150
Less accumulated depreciation 5,431,614 5,098,292
----------- ----------
Property - net $ 3,248,480 $ 3,535,858
=========== ===========
Depreciation expense of $40,620 and $40,620 was recorded on the rental
trucks under capital leases in 2006 and 2005, respectively.
The Partnership leases certain vehicles under agreements that meet the
criteria for classification as capital leases which expire in 2009.
Future minimum lease payments under these capital leases at December 31,
2006, are summarized as follows:
2007 $58,500
2008 42,000
2009 500
-------
Total future minimum payment obligations 101,000
Less interest portion 7,370
-------
Present value of net minimum lease payments $ 93,630
========
4. ALLOCATION OF PROFITS AND LOSSES AND GENERAL PARTNERS' INCENTIVE
MANAGEMENT FEE
Under the Agreement of Limited Partnership, the general partners are to be
allocated 1% of the net profits or losses from operations and the
limited partners are to be allocated the balance of the net profits
or losses from operations in proportion to their limited partnership
interests. The general partners are also entitled to receive a percent-
age, based on a predetermined formula, of any cash distribution from
the sale, other disposition, or refinancing of a real estate project.
In addition, the general partners are entitled to receive an incentive
management fee for supervising the operations of the Partnership. The
fee is equal to 9% per annum of the Partnership distributions made
from cash available for distribution calculated as cash generated
from operations less capital expenditures.
5. BUSINESS SEGMENT INFORMATION
The following disclosure about segment reporting of the Partnership is
made in accordance with the requirements of SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." The Partnership
operates under a single segment; storage facility operations, under which
the Partnership rents its storage facilities to its customers on a need
basis and charges rent on a predetermined rate.
6. RELATED-PARTY TRANSACTIONS
The Partnership has entered into management agreements with Dahn to operate
their mini-storage facilities. The management agreement provides for a
management fee equal to 6% of gross revenue from operations, which is
defined as the entire amount of all receipts from the renting or leasing
of storage compartments and sale of locks. The management is renewable
annually. Dahn earned management fees equal to $144,527, $143,971, and
$135,707 for the years ended December 31, 2006, 2005, and 2004, respec-
tively. Amounts payable to Dahn at December 31, 2006 and 2005, were
$12,224 and $12,694, respectively.
In 2004, the Partnership entered into truck and van lease agreements with
KMD Trucks, LLC ("KMD"). The president of Dahn, Brian Dahn, is also a
member of KMD. The truck and van lease are 48-month leases with monthly
payments in the amount of $750 and $500, respectively (seeNote 3).
DSI REALTY INCOME FUND XI
(A California Real Estate Limited Partnership)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
- --------------------------------------------------------------------------------
Costs Capitalized
Initial Cost to Subsequent to Gross Amount at Which Carried
Partnership Acquisition at Close of Period
------------------- ----------------- -----------------------------
Buildings Buildings Date
and Improve- Carrying and Accum. of Date
Description Encumbrances Land Improvements ments Costs Land Improvements Total Deprec. Const. Acq. Life
MINI-U-STORAGE
Whittier, CA None $845,000 $1,969,083 $18,852 $845,000 $1,987,935 $2,832,935 $1,664,784 04/90 03/90 20 Yrs
Edgewater, NJ None 191,250 2,400,712 49,206 191,250 2,449,918 2,641,168 1,947,022 06/89 09/90 20 Yrs
Bloomingdale, IL None 442,000 1,579,879 76,982 442,000 1,656,861 2,098,861 1,323,830 07/88 01/91 20 Yrs
Sterling Heights, MI None 416,000 467,979 59,769 416,000 527,748 943,748 414,738 06/77 07/91 20 Yrs
-------- ---------- ------- -------- ---------- ---------- ----------
$1,894,250 $6,417,653 $204,809 $1,894,250 $6,622,462 $ 8,516,712 $5,350,374
========== ========== ======== ========== ========== =========== ==========
Real Estate Accumulated
at Cost Depreciation
Balance at January 1, 2004 $ 8,444,976 $4,344,298
Additions 16,112 355,397
----------- ----------
Balance at December 31, 2004 8,461,088 4,699,695
Additions 9,680 357,977
----------- ----------
Balance at December 31, 2005 8,470,768 5,057,672
Disposals (32,682) (27,192)
Additions 78,626 319,894
----------- ----------
Balance at December 31, 2006 $ 8,516,712 $5,350,374
=========== ==========
EXHIBIT 2
March 30, 2007
ANNUAL REPORT TO LIMITED PARTNERS OF
DSI REALTY INCOME FUND XI
Dear Limited Partner:
This report contains the Partnership's balance sheets as of December 31,
2006 and 2005, and the related statements of income, changes in partners' equity
(deficit) and cash flows for each of the three years ended December 31, 2006
accompanied by a report of independent registered public accounting firm. The
Partnership owns an interest in four mini-storage. Partnership's properties were
each purchased for all cash and funded solely from subscriptions for limited
partnership interests without the use of mortgage financing.
Your attention is directed to the section entitled Management's Discussion
and Analysis of Financial Condition and Results of Operations for the General
Partners' discussion and analysis of the financial statements and operations of
the Partnership.
Average occupancy levels for each of the Partnership's four properties for
the years ended December 31, 2006 and 2005 were as follows:
Location of Property Average Occupancy Average Occupancy
Levels for the Levels for the
Year Ended Year Ended
Dec. 31, 2006 Dec. 31, 2005
Whittier, CA(1) 89% 89%
Bloomingdale, IL(2) 85% 86%
Edgewater, NJ(3) 79% 84%
Sterling Heights, MI(4) 75% 78%
(1) The Partnership owns a 90% interest in this property.
(2) The Partnership owns a 90% interest in this property.
(3) The Partnership owns an 85% interest in this property.
(4) The Partnership owns a 75% interest in this property.
We will keep you informed of the activities of DSI Realty Income Fund XI as
they develop. If you have any questions, please contact us at your convenience
at (562) 493-3022.
If you would like a copy of the Partnership's Annual Report on Form 10-K
for the year ended December 31, 2006, which was filed with the Securities
and Exchange Commission (which report includes the enclosed Financial
Statements), we will forward a copy of the report to you upon written request.
Very truly yours,
DSI REALTY INCOME FUND XI
By: DSI Properties, Inc.
/s/ ROBERT J. CONWAY
By_______________________________
ROBERT J. CONWAY, President
CERTIFICATIONS
I, Robert J. Conway, certify that:
1. I have reviewed this annual report on Form 10-K of DSI Realty Income
Fund XI;
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 cover-
ed 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 and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our super-
vision, 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) 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
c) 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 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 re-
cord, 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 in-
ternal control over financial reporting.
Date: March 30, 2007
/s/ ROBERT J. CONWAY
_________________________________
Robert J. Conway
Chief Executive Officer
CERTIFICATIONS
I, Richard P. Conway, certify that:
1. I have reviewed this annual report on Form 10-K of DSI Realty Income
Fund XI;
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 cover-
ed 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 and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our super-
vision, 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) 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
c) 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 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 re-
cord, 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 in-
ternal control over financial reporting.
Date: March 30, 2007
/s/ RICHARD P. CONWAY
__________________________________
Richard P. Conway
Vice President
EXHIBIT 3
CERTIFICATION 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 Annual Report of DSI Realty Income Fund XI (the
"Partnership") on Form 10-K for the period ending December 31, 2006 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Robert J. Conway, Chief Executive Officer of the Partnership, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley
Act of 2002, that:
(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 result of operations of the
Partnership.
/s/ ROBERT J. CONWAY
_______________________________
Robert J. Conway
Chief Executive Officer
March 30, 2007
EXHIBIT 4
CERTIFICATION 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 Annual Report of DSI Realty Income Fund XI (the
"Partnership") on Form 10-K for the period ending December 31, 2006 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Richard P. Conway, Vice President of the Corporate General Partner, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley
Act of 2002, that:
(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 result of operations of the
Partnership.
/s/ RICHARD P. CONWAY
_______________________________
Richard P. Conway
Vice President
March 30, 2007