UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file 0-14645
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DIVERSIFIED HISTORIC INVESTORS II
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2361261
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 500, 1521 LOCUST STREET, PHILADELPHIA, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 735-5001
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: 20,593.3
Units
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of Class)
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. Yes No X
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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. [ ]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
* Securities not quoted in any trading market to Registrant's
knowledge.
<PAGE>
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors II ("Registrant") is a
limited partnership formed in 1984 under the Pennsylvania Uniform
Limited Partnership Act. As of December 31, 1994, Registrant had
outstanding 20,593.3 units of limited partnership interest (the
"Units").
Registrant is presently in its operating stage. It
currently owns three properties or interests therein. See Item 2.
Properties, for a description thereof. For a discussion of the
operations of the Registrant, see Part II, Item 7. Management's
Discussion and Analysis of Financial Conditions and Results of
Operations.
b. Financial Information about Industry Segments
The Registrant operates in one industry segment.
c. Narrative Description of Business
Registrant is in the business of operating,
holding, selling, exchanging and otherwise dealing in and with real
properties containing improvements which are "Certified Historic
Structures," as such term is defined in the Internal Revenue Code (the
"Code"), or which are eligible for designation as such, for use as
apartments, offices, hotels and commercial spaces, or any combination
thereof, or low income housing eligible for the tax credit provided by
Section 42 of the Code, and such other uses as the Registrant's
general partner may deem appropriate.
Since the Registrant's inception, all the
properties acquired either by the Registrant, or the subsidiary
partnerships in which it has an interest, have been rehabilitated and
certified as Historic Structures and have received the related
Investment Tax Credit. Two of the properties are held for rental
operations and one is operated as a hotel. As of the hereof it is
anticipated that all the properties will continue to be held for these
purposes. At such time as real property values begin to increase, the
Registrant will re-evaluate its investment strategy regarding the
properties.
As of December 31, 1994, Registrant owned three
properties (or interests therein), located in Pennsylvania. In total,
the three properties contain 269 apartment units, 70,000 square feet
("sf") of commercial/retail space and 44 hotel rooms. As of December
31, 1994, 256 of the apartment units were under lease at monthly
rental rates ranging from $630 to $1,225 and approximately 55,802 sf
of commercial space was under lease at annual rental rates ranging
from $1.58 per sf to $23.12 per sf. Throughout 1994, all of the hotel
rooms were available for use. Rental of the apartments and commercial
space is not expected to be seasonal. However the hotel does
experience seasonal changes, with the busiest months being March and
April and the slowest months being January and December. For further
discussion of the properties, see Item 2. Properties.
Due to the overbuilding that occurred in the
1980's, the competition for both residential and commercial tenants
and hotel operations in the local markets where the Registrant's
properties are located is generally strong. As a result, the
Registrant is forced to keep its rent levels competitively low in
order to maintain moderate to high occupancy levels. In each market,
there are several similar historically certified rehabilitated
buildings. However, there is no organization which holds a dominant
position in the residential housing or commercial leasing market, or
hotel operations in any of the geographic areas in which the
Registrant's properties are located.
Registrant has no employees. Registrant's
activities are overseen by Brandywine Construction & Management, Inc.,
("BCMI"), a real estate management firm.
d. Financial Information About Foreign and Domestic
Operations and Export Sales.
See Item 8. Financial Statements and Supplementary
Data.
Item 2. Properties
As of the date hereof, Registrant owned three
properties, or interests therein. A summary description of each
property held at December 31, 1994 is given below.
a. Tindeco Wharf - consists of 240 apartment units
and approximately 39,000 sf of commercial space located at 2809 Boston
Street in the Fell's Point-Canton Historic District of Baltimore,
Maryland. In October 1985, Registrant was admitted with an 85%
interest in Tindeco Wharf Partnership ("TWP"), a Maryland general
partnership, for a cash contribution of $7,271,300. Registrant
subsequently increased its ownership interest in TWP to 90% by
purchasing an additional 5% interest for $262,500. TWP acquired and
rehabilitated this Property at an approximate cost of $28,600,000 ($66
per sf), funded by the equity contribution and mortgage financing of
$21,869,600. The mortgage financing is comprised of mortgage revenue
bonds and a Urban Development Action Grant ("UDAG") loan. Other
financing includes a loan from the developer of $2,300,000 and
operating deficit loans from both the property manager and D, LTD in
the original amounts of $300,000 and $200,000 respectively. The
excess of equity and mortgage financing over the acquisition and
rehabilitation costs was utilized to provide various escrow deposits
and required reserves.
The City of Baltimore issued mortgage revenue
bonds, Series 1985, (GNMA collateralized) for the purpose of providing
permanent financing for TWP. The bonds are backed by a HUD-insured
mortgage ("the note"). The note, held by GNMA as lender, bears
interest at a rate of 9.75% per annum and is secured by a first
mortgage on the property. Principal and interest is payable in
monthly installments of $143,801. The note matures December 2028. In
October 1992, the original bond issue was refunded by a 1992 issue.
The original bond issue had an average interest rate which
approximated the interest on the mortgage of 9.75%. The refunding
issue bears interest at an average rate of 6.62%. The difference in
the interest on the mortgage and the refunding bonds is returned to
the Partnership for operations.
The principal balance of the bonds were
$17,046,806 at December 31, 1994. The bonds are comprised of both
serial and revenue bonds. The serial bonds bear interest at rates
ranging from 2.75% to 6.1% and mature semi-annually from June 1995
through December 2006. The term bonds bear interest at rate ranging
from 6.5% to 6.7% and mature in 2012, 2024, and 2028. The UDAG loan
(which has a balance of $4,953,471 at December 31, 1994) bore interest
at 4% through August 1994 and at 7 1/2% thereafter. This loan is due
in 2004. The developer's loan (principal balance of $2,300,000 at
December 31, 1994) and the operating deficit loans (principal balances
of $300,000 and $103,739, respectively, at December 31, 1994) all bear
interest at 12% and are payable on a pro-rata basis out of cash flow
from the property. The property is managed by an independent property
management firm. As of December 31, 1994, 228 apartment units (95%)
and 36,125 sf of commercial space (93%) were under lease. Monthly
rental rates range from $695 to $1,225 for apartments and annual
rental rates range from $10.30 per sf to $22.39 per sf for commercial
space.
All residential leases are renewable, one-year
leases. The occupancy for the residential units for the previous four
years was 92% for 1993, 94% for 1992, 100% for 1991, and 98% for 1990.
The monthly rental range has been approximately the same since 1990.
The occupancy for the commercial space for the previous four years has
been 93% for 1993, 95% for 1992, 100% for 1991, and 100% for 1990.
The range for annual rents has been $5.88 to $21.36 per sf for 1993,
$5.28 to $15.96 per sf for 1992, $7.08 to $14.16 per sf for 1991, and
$12.00 to $15.00 per sf for 1990. There are three tenants who each
occupy ten percent or more of the rentable square footage. They
operate principally as a medical office, restaurant, and a fitness
club.
The following is a table showing commercial lease
expirations at Tindeco Wharf for the next five years.
Total annual
Number Total sf of rental % of gross
Years of expiring covered annual
leases leases by expiring rental
expiring leases
1995 2 3,235 $ 52,812 8%
1996 2 18,550 358,272 57%
1997 2 4,000 51,924 8%
1998 0 0 0 0%
1999 1 4,755 106,464 17%
Thereafter 2 5,585 63,768 10%
For tax purposes, this property has a federal tax basis
of $28,105,775 and is depreciated using the straight-line method with
a useful life of 27.5 years. The annual real estate taxes are
$407,185 which is based on an assessed value of $6,719,220 taxed at a
rate of $6.06 per $100. It is of the opinion of the management of the
Registrant that the property is adequately covered by insurance.
b. River Street Inn/Factor's Walk - consists of 44
hotel rooms and 21,500 sf of commercial space located at 115 E. River
Street in Savannah, Georgia. In August 1985, Registrant was admitted
with a 99% interest in Factor's Walk Partners ("FWP") a Georgia
general partnership, for $3,600,409. FWP acquired and rehabilitated
the Property for $8,900,409 ($127 per sf), including financing,
through an issuance by a governmental agency of tax-exempt bonds in
the principal amount of $5,800,000. The excess of equity and mortgage
financing over the acquisition and rehabilitation costs were utilized
to provide working capital reserves of $500,000. The bonds bear
interest at TENR (a rate based on yields of high quality, short-term
tax exempt obligations) plus 0.5% (6% at December 31, 1994) The
principal balance of the bonds at December 31, 1994 is $5,800,000 and
they are due in 2015. The property is managed by BCMI. As of
December 31, 1994, 19,677 sf of its 21,500 sf (92%) of commercial
space was under lease at annual rental rates ranging from $1.58 to
$23.12 per sf. The Property also maintains 44 operating hotel rooms
at an average nightly rate of $90.18; average occupancy is
approximately 74%.
The hotel occupancy rate for the previous four
years has been 71% for 1993, 72% for 1992, 67% for 1991, and 65% for
1990. The average room rates have been $86.59 for 1993, $86.44 for
1992, $85.00 for 1991, and $83.00 for 1990. The occupancy for the
commercial space for the previous four years has been 83% for 1993,
80% for 1992, 63% for 1991, and 70% for 1990. The range for annual
rents has been $1.56 to $23.16 per sf for 1993, $5.28 to $15.96 per sf
for 1992, $3.72 to $22.92 per sf for 1991, and $14.00 to $20.00 per sf
for 1990. There are two tenants who each occupy ten percent or more
of the rentable square footage. They operate principally as a
restaurant and a retail store.
The following is a table showing commercial lease
expirations at Factor's Walk for the next five years.
Total annual
Number of Total sf of rental % of gross
Years leases expiring covered annual
expiring leases by expiring rental
leases
1995 2 2,366 $ 42,685 20%
1996 4 6,748 85,061 41%
1997 1 402 4,800 3%
1998 3 8,612 63,152 30%
1999 2 819 12,000 6%
Thereafter 1 760 1,200 0%
For tax purposes, this property has a federal tax basis of
$8,863,762 and is depreciated using the straight-line method with a
useful life of 27.5 years. The annual real estate taxes are $30,904
which is based on an assessed value of $908,667 taxed at a rate of
$3.40 per $100. It is the opinion of the management of the Registrant
that the property is adequately covered by insurance.
c. Washington Square - consists of 9,500 sf of
commercial space and 29 residential units located at 320 N. Church
Street, West Chester, Pennsylvania. In October 1985, Registrant
acquired and rehabilitated the Property for $2,750,000 ($79 per sf;
such amount is exclusive of $170,883 of capitalized fees incurred
which were funded by Registrant's equity contributions), including
mortgage financing of $1,600,000. The mortgage loan (principal
balance of $1,233,214 at December 31, 1994) bears interest at the
Federal Reserve Discount rate plus 2% with a minimum of 7% and a
maximum of 15% (7% at December 31, 1994) and is due in 1996 when the
total outstanding balance will be $1,081,704. The property is managed
by an independent property management firm. As of December 31, 1994,
all commercial space is rented out at annual rates ranging from $6.00
per sf to $13.23 per sf. At December 31, 1994, 28 of the residential
units (97%) were under lease at monthly rental rates ranging from $630
to $1,050.
All residential leases are renewable, one-year
leases. The occupancy for the residential units for the previous four
years was 92% for 1993, 97% for 1992, 100% for 1991, and 90% for 1990.
The monthly rental range has been approximately the same since 1990.
The occupancy for the commercial space for the previous four years has
been 100% for 1993, 100% for 1992, 100% for 1991, and 100% for 1990.
The range for annual rents has been $6.12 to $12.12 per sf for 1993,
$6.00 to $11.52 per sf for 1992, $6.00 to $11.52 per sf for 1991, and
$5.64 to $12.96 per sf for 1990.
The following is a table showing commercial lease
expirations at Washington Square for the next five years.
Total annual
Number of Total sf of rental % of gross
Years leases expiring covered annual
expiring leases by expiring rental
leases
1995 1 1,094 $ 14,474 19%
1996 1 4,000 24,000 31%
1997 0 0 0 0
1998 0 0 0 0
1999 1 1,900 16,150 20%
Thereafter 2 2,506 23,448 30%
For tax purposes of depreciation, this property
has federal tax basis of $2,840,483 and is depreciated using the
straight-line method with a useful life of 27.5 years. The annual
real estate taxes are $29,059 which is based on an assessed value of
$119,610 taxed at a rate of $242.95 per $100. It is of the opinion of
the management of the Registrant that the property is adequately
covered by insurance.
Item 3. Legal Proceedings
a. For a description of legal proceedings involving
Registrant's properties, see Part II, Item 7. River Street
Inn/Factor's Walk Partners.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fiscal years covered
by this report to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
a. There is no established public trading market for
the Units. Registrant does not anticipate any such market will
develop. Trading in the Units occurs solely through private
transactions. The Registrant is not aware of the prices at which
trades occur. Registrant's records indicate that 46 Units of record
were sold or exchanged in 1994.
b. As of December 31, 1994, there are 2,564 record
holders of Units.
c. Registrant has not declared any cash dividends in
1994 or 1993.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1994.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Rental income $ 3,950,879 $ 3,763,979 $ 3,418,773* $ 3,516,818 $ 3,543,559
Hotel revenues 1,108,942 1,227,925 3,007,997* 2,697,852 1,405,595
Interest income 9,219 10,300 121,721* 27,076 110,004
Net loss (2,360,840) (4,825,243) (3,277,482) (3,207,259)
(4,348,359)*
Net loss per Unit (113.49) (231.97) (209.04)* (157.56) (154.19)
Total assets (net of 30,120,812 31,466,054 38,107,985 40,456,759 43,348,594
depreciation and
amortization)
Debt obligations 33,527,230 33,547,443 35,562,071 35,490,842 36,077,112
*Unaudited
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
(1) Liquidity and Capital Resources
At December 31, 1994, Registrant had cash of
approximately $101,340. Such funds are expected to be used to pay
liabilities and general and administrative expenses of Registrant and
to fund cash deficits of the properties. Cash generated from
operations is used primarily to fund operating expenses and debt
service. If cash flow proves to be insufficient, the Registrant will
attempt to negotiate with the various lenders in order to remain
current on all obligations. The Registrant is not aware of any
additional sources of liquidity.
As of December 31, 1994, Registrant had restricted
cash of $607,039 consisting primarily of funds held as security
deposits, replacement reserves and escrows for taxes. As a
consequence of these restrictions as to use, Registrant does not deem
these funds to be a source of liquidity.
(2) Capital Resources
Due to the recent rehabilitations of the
properties, any capital expenditures needed are generally replacement
items and are funded out of cash from operations or replacement
reserves, if any. The Registrant is not aware of any factors which
would cause historical capital expenditures levels not to be
indicative of capital requirements in the future. Accordingly, at
December 31, 1994, Registrant's material commitment for capital
expenditures consists solely of required debt service.
(3) Results of Operations
During 1994, Registrant incurred a net loss of
$2,360,840 ($113.49 per limited partnership unit), compared to a net
loss of $4,825,243 ($231.97 per limited partnership unit), in 1993 and
a net loss of $4,348,359 ($209.04 per limited partnership unit), in
1992.
Rental and hotel income decreased from $6,426,770
in 1992 to $4,991,904 in 1993 and increased to $5,059,821 in 1994.
The increase from 1993 to 1994 is the result of an increase of
$187,000 in rental income and decrease of $119,000 in hotel income.
The increase in rental income is mainly the result of an increase in
residential occupancy at both Tindeco Wharf and Washington Square and
an increase in the occupancy of commercial space at Factor's Walk.
The decrease in hotel income is the result of an increase in average
room rates at Factor's Walk ($86.59 to $90.18) and an increase in
occupancy partially offset by the loss of one of the Registrant's
properties in 1993 through foreclosure (see below).
As a result of a decrease in the amount of cash
during 1993 and 1992, interest income declined from $122,721 in 1992
to $10,300 in 1993 and remained constant to $9,219 in 1994.
Rental operations expenses increased from
$1,482,410 in 1992 to $1,556,301 in 1993 and increased to $1,590,865
in 1994. The increase from 1993 to 1994 is due to higher operating
expenses at Tindeco Wharf including management fees, real estate
taxes, and general and administrative. Hotel operations expense
decreased from $2,707,850 in 1992 to $1,333,260 in 1993 and to
$1,018,311 in 1994. The decrease from 1993 to 1994 is due to the
accrual in 1993 of management fees owed to the previous management
company (see below).
General and administrative expenses decreased from
$377,008 in 1992 to $198,000 in 1993 and remained constant in 1994.
Interest expense decreased from $3,319,643 in 1992
to $2,571,868 in 1993 and increased to $2,995,675 in 1994. The
increase from 1993 to 1994 is due to the increase in interest rates at
Factor's Walk and the second mortgage at Tindeco Wharf combined with
the accrual of interest in 1994, on amounts owed, upon which interest
had not been accrued in prior years.
Depreciation and amortization decreased from
$2,009,743 in 1992 to $1,621,508 in 1993 and remained constant at
$1,627,029 in 1994.
In 1994, losses of $1,894,928 were incurred at the
Registrant's three properties. A discussion of property
operations/activities follows:
In 1994, Tindeco Wharf sustained a loss of $1,504,919
including $1,135,336 of depreciation and amortization expenses and
$641,000 of deferred interest compared to $1,419,504 including
$1,124,145 of depreciation and amortization expense and $901,200 of
deferred interest in 1993 and a loss of $2,465,000, including
$1,145,000 of depreciation and amortization expense and $946,900 of
deferred interest in 1992. The increased loss from 1993 to 1994 is
due to an increase in interest expense and other operating expenses
such as management fees, real estate taxes, and general and
administrative offset by an increase in rental income. Interest
expense increased due to a scheduled increase in the interest rate (3%
to 7.5%) on the second mortgage. The increase in rental income is the
result of an increase in residential occupancy from 92% to 95% and an
increase in the average rents. The Registrant expects operations in
1995 to approximate those experienced in 1994. The 1992 losses
include an extraordinary loss of $575,687 relating to the refunding of
the bond issue, resulting from the write-off of the original issue
financing fees.
In addition, on March 23, 1993 an affiliate of the
General Partner, which had previously been assigned a note receivable
from the Registrant, executed a judgment on its note and obtained a
court order providing that all future distributions, in any form, due
to the Registrant on account of its ownership interest in TWP, be
immediately delivered to it.
In 1994, River Street Inn sustained a loss of $357,403
including $327,748 of depreciation expense compared to a loss of
$510,687 including $333,478 of depreciation expense in 1993 and a loss
of $715,000, including $339,000 of depreciation expense in 1992. The
decreased loss from 1993 to 1994 is the result of an increase in hotel
income combined with a decrease in hotel operations expense offset by
an increase in interest expense. Hotel income increased due to an
increase in average room rates ($86.59 to $90.18) and an increase in
occupancy from 71% to 74%. Hotel operations expense decreased due to
the accrual in 1993 of management fees owed to the previous management
company (see below). Interest expense increased due to an increase in
the interest rates on the bonds (4.5% to 6%). Registrant expects
operations in 1995 to approximate those experienced in 1994. A
private corporation provides an interest guarantee of the bonds. The
guarantor charges FWP an annual fee of approximately 2% of the
outstanding balance of the bonds. Included in interest expense in
1992 is approximately $280,000 relating to unpaid guarantor's fees for
1990 and 1991 plus accrued interest at a rate of prime plus 2%.
Although the interest rate on the bonds remained low during 1992,
there was not sufficient cash flow to pay the guarantor's fee due to
expenditures made for deferred maintenance that had accumulated in
previous years and legal fees resulting from the disputes discussed
below. The guarantor has not declared a default and due to improved
operations, FWP has been able to pay a portion of the fees during 1993
and 1994. The decreased loss from 1992 to 1993 is primarily due to
the inclusion, in 1992, of unpaid guarantor fees relating to 1990 and
1991.
FWP has been involved in two legal proceedings as
discussed below:
(a) J. A. Jones Construction Company ("Jones")
contracted with FWP for the renovation of what was originally a
warehouse into the River Street Inn/Factor's Walk. During
construction, numerous disputes arose between the parties. As a
result of those disputes, Jones abandoned the project prior to
completion and filed suit. On January 1, 1994, the court entered a
judgment in favor of Jones and against FWP in the amount of
$1,069,017. FWP filed an appeal and this appeal is currently held in
abeyance while FWP and Jones participate in a court sponsored
settlement program. Because of the complexity of the factual and
legal issues involved, it is impossible to predict with any reasonable
degree of certainty the outcome of the post-judgment motions, or an
appeal if the post-judgment motions are unsuccessful. A final outcome
adverse to FWP is a reasonable probability.
(b) In October 1992, FWP terminated its contract with
the existing management company, Great Inns of America ("GIA"), and
hired a new management company. In February 1993, GIA sued FWP for
breach of contract and tortious interference. On September 10, 1993
the lawsuit was settled for $102,669.50, of which $25,000 was paid at
the time of settlement and equal monthly installments of $6,472.45 are
payable commencing October 10, 1993 and continuing until September 10,
1994. As of December 31, 1994, $26,422 remained outstanding on this
obligation.
In addition, on January 13, 1994 an affiliate of the
General Partner, which had previously been assigned a note receivable
from the Registrant, executed a judgment on its note and obtained a
court order providing that all future distributions, in any form, due
to the Registrant on account of its ownership interest in FWP, be
immediately delivered to it.
In 1994, Washington Square sustained a loss of $32,606
including $110,003 of depreciation expense compared to a loss of
$52,039 including $109,943 of depreciation expense in 1993 and a loss
of $162,000 including $110,000 of depreciation expense in 1992. The
decreased loss from 1993 to 1994 is mainly the result of an increase
in rental income due to an increase in average occupancy (92% to 97%).
The decreased loss from 1992 to 1993 is primarily due to the inclusion
in 1992 of interest expense, relating to previous years, due to the
property manager on amounts advanced to fund negative cash flow.
Registrant expects operations in 1995 to approximate those experienced
in 1994.
On March 23, 1993 an affiliate of the General Partner,
which had previously been assigned a note receivable from the
Registrant, obtained a judgment on its note in Common Pleas Court for
Philadelphia County, Pennsylvania
In 1994, Morrison-Clark Inn sustained a loss of $-0-
including $-0- of depreciation expense compared to a loss of
$2,356,741 including $-0- of depreciation expense in 1993 and a loss
of $860,000, including $314,000 of depreciation expense in 1992. As a
result of insufficient cash flow generated by the property, Mass & L
was unable to make scheduled debt service payments. In 1992, the
lender notified Mass & L of the default under both notes and made a
demand for payment. In May 1992, in order to forestall the threatened
foreclosure by the lender, a reorganization petition was filed
pursuant to Chapter 11 of the U.S. Bankruptcy Code. In addition, the
lender filed a claim against the Registrant on its guaranty of payment
of both notes. In February 1993, the lender, with permission of the
bankruptcy court, foreclosed on the property. In November 1993, the
lender obtained a judgment against the Registrant in the amount of
$1,800,000. The Registrant is negotiating with the lender and the
lender has agreed to defer any action until July 1995 in anticipation
of a final settlement. Included in operations for 1993 is an
extraordinary loss of $2,350,510 representing the difference between
the fair market value of the assets relinquished and the liabilities
satisfied.
Item 8. Financial Statements and Supplementary Data
Registrant is not required to furnish the supplementary
financial information referred to in Item 302 of Regulations S-K.
<PAGE>
Independent Auditor's Report
To the Partners of
Diversified Historic Investors II
We have audited the accompanying consolidated balance sheets of
Diversified Historic Investors II (a Pennsylvania Limited Partnership)
and its subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of operations, changes in partners' equity and
cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the
financial statements of Tindeco Wharf Partnership, which statements
reflect total assets of $21,583,406 and $22,488,498 as of December 31,
1994 and 1993, and total revenues of $3,319,873 and $3,207,345,
respectively for the years then ended. Those statements were audited
by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Tindeco
Wharf Partnership, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit
also includes 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 and the
report of other auditors provides a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above
presents fairly, in all material respects, the financial position of
Diversified Historic Investors II and subsidiaries as of December 31,
1994 and 1993, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedule of Real
Estate and Accumulated Depreciation on page 29 is presented for the
purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
Gross, Kreger & Passio
Philadelphia, Pennsylvania
February 21 , 1995
<PAGE>
Independent Auditor's Report
To the Partners of
Tindeco Wharf Partnership
We have audited the accompanying consolidated balance sheet of Tindeco
Wharf Partnership as of December 31, 1994, and the related statements
of profit and loss (on HUD Form No. 92410), partners' deficit and cash
flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audits in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller
General of the United States. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Tindeco
Wharf Partnership as of December 31, 1994, and the result of its
operations, changes in partners' deficit and cash flows for the year
then ended in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information
on pages 22 through 28 is presented for the purposes of additional
analysis and is not a required part of the basic financial statements.
Such information has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Reznick Fedder and Silverman
Baltimore, Maryland
January 17, 1995
<PAGE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1994 and 1993 15
Consolidated Statements of Operations for the Years
Ended December 1994, 1993, and 1992 (unaudited) 16
Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1994, 1993, and 1992 17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993, and 1992 (unaudited) 18
Notes to consolidated financial statements 19-20
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 28
Notes to Schedule XI 29
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
<PAGE>
<TABLE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
<CAPTION>
Assets
1994 1993
Rental properties at cost: -------- --------
<S> <C> <C>
Land $ 934,582 $ 934,582
Buildings and improvements 38,648,824 38,537,940
Furniture and fixtures 2,566,749 2,498,168
---------- ----------
42,150,155 41,970,690
---------- ----------
Less - accumulated depreciation (14,549,778) (12,958,664)
27,600,377 29,012,026
Cash and cash equivalents 101,340 21,454
Restricted cash 607,039 597,868
Accounts receivable 31,298 31,697
Other assets (net of accumulated
amortization of $48,675 and $44,064) 1,780,758 1,803,009
---------- ----------
Total $ 30,120,812 $ 31,466,054
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 33,527,230 $33,547,443
Accounts payable:
Trade 734,109 500,600
Related parties 1,629,943 1,641,774
Interest payable 5,887,209 5,108,678
Tenant security deposits 247,139 211,537
---------- ----------
Total liabilities 42,025,630 41,010,032
---------- ----------
Partners' equity (11,904,818) (9,543,978)
---------- ----------
Total $ 30,120,812 $ 31,466,054
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
(Unaudited)
------- -------- -----------
Revenues:
<S> <C> <C> <C>
Rental income $3,950,879 $ 3,763,979 $3,418,773
Hotel income 1,108,942 1,227,925 3,007,997
Interest income 9,219 10,300 122,721
--------- --------- ---------
Total revenues 5,069,040 5,002,204 6,549,491
--------- --------- ---------
Costs and expenses:
Rental operations 1,590,865 1,556,301 1,482,410
Hotel operations 1,018,311 1,333,260 2,707,850
General and administrative 198,000 198,000 377,008
Interest 2,995,675 2,571,868 3,319,643
Depreciation and amortization 1,627,029 1,621,508 2,009,743
Loss on disposal of property -0- 206,000 627,270
--------- --------- ----------
Total costs and expenses 7,429,880 7,486,937 10,523,924
--------- --------- ----------
Loss before extraordinary item (2,360,840) (2,484,733) (3,974,433)
Extraordinary loss -0- (2,340,510) (575,687)
--------- --------- ---------
Loss before minority interests (2,360,840) (4,825,243) (4,550,120)
Minority interests' portion of loss -0- -0- 201,761
--------- --------- ---------
Net loss ($2,360,840) ($4,825,243) ($ 4,348,359)
========= ========= =========
Net loss per limited partnership unit:
Loss before extraordinary item (113.49) (119.45) (191.07)
Extraordinary loss 0 (112.52) (27.67)
------ ------ ------
Loss before minority interests (113.49) (231.97) (218.74)
Minority interests 0 0 9.70
------ ------ ------
($113.49) ($231.97) ($209.04)
====== ====== ======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
<CAPTION>
Dover
Historic Limited
Advisors (1) Partners (2) Total
------------ ------------ -------------
Percentage participation in profit or loss 1% 99% 100%
<S> <C> <C> <C>
Balance at December 31, 1991 (unaudited) ($ 175,124) ($ 195,252) ($ 370,376)
Net loss (unaudited) (43,484) (4,304,875) (4,348,359)
-------- ---------- ----------
Balance at December 31, 1992 (218,608) (4,500,127) (4,718,735)
Net loss (48,252) (4,776,991) (4,825,243)
-------- ---------- ----------
Balance at December 31, 1993 (266,860) (9,277,118) (9,543,978)
Net loss (23,608) (2,337,232) (2,360,840)
-------- ---------- ----------
Balance at December 31, 1994 ($ 290,468) ($11,614,350) ($11,904,818)
======== ========== ==========
(1) General Partner.
(2) 20,593.3 limited partnership units outstanding at December 31,
1994, 1993, and 1992.
</TABLE>
<PAGE>
<TABLE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
(Unaudited)
-------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss ($ 2,360,840) ($4,825,243) ($4,348,359)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,627,029 1,621,508 2,009,743
Bad debt expense -0- 206,000 627,270
Extraordinary loss on extinguishment of debt -0- 2,340,510 -0-
Minority interests' portion of loss -0- -0- (201,761)
Changes in assets and liabilities,
net of disposals due to foreclosure:
(Increase) decrease in restricted cash (9,171) 38,628 (150,450)
Decrease in accounts receivable 399 5,279 78,415
Increase in other assets (13,660) (1,761) (44,045)
Increase in accounts payable - trade 233,505 15,617 333,166
(Decrease) increase in accounts (11,831) 364,716 672,588
payable - related parties
Increase in interest payable 778,531 614,852 1,121,711
Increase (decrease) in tenant security deposits 35,602 (112) 2,652
------- ------- ---------
Net cash provided by operating activities: 279,564 379,994 100,930
------- ------- ---------
Cash flows from investing activities:
Capital expenditures (179,465) (106,374) (241,313)
------- ------- -------
Net cash used in investing activities: (179,465) (106,374) (241,313)
------- ------- -------
Cash flows from financing activities:
Borrowings under debt obligations 43,423 -0- 264,639
Payments of principal under debt obligations (63,636) (288,026) (193,410)
Other financing activities -0- (4,752) -0- -0-
------- ------- --------
Net cash (used in) provided by (20,213) (292,778) 71,229
financing activities: -------- ------- --------
Increase (decrease) in cash and cash equivalents 79,886 (19,158) (69,154)
Cash and cash equivalents at beginning of year 21,454 40,612 109,766
-------- ------- --------
Cash and cash equivalents at end of year $ 101,340 $ 21,454 $ 40,612
======== ======= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 2,223,822 $ 1,561,485 $ 2,540,939
Supplemental Schedule of Non-Cash
Investing and financing activities:
Net assets transferred for liability reduction:
Net assets transferred 0 $5,070,245 -0-
Liability reduction 0 $2,729,735 -0-
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
NOTE A - ORGANIZATION
Diversified Historic Investors II (the "Partnership") was formed in
December 1984 to acquire, rehabilitate, and manage real properties
which are certified historic structures as defined in the Internal
Revenue Code (the "Code"), or which are eligible for designation as
such, utilizing the mortgage financing and the net proceeds from the
sale of limited partnership units. Rehabilitations undertaken by the
Partnership were done with a view to obtaining certification of
expenditures therefore as "qualified rehabilitation expenditures" as
defined in the Code. The General Partner, Dover Historic Advisors,
whose corporate partner is DHP, Inc., (formerly Dover Historic
Properties, Inc.), has the exclusive responsibility for all aspects of
the Partnership's operations
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
The accompanying consolidated financial statements of the Partnership
include the accounts of three subsidiary partnerships (the
"Ventures"), in which the Partnership has controlling interests, with
appropriate elimination of inter-partnership transactions and
balances. The financial statements for the year ended December 31,
1992 are unaudited with the exception of the balance sheet which is
audited. These financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which, in the
opinion of the Partnership's General Partner, are necessary for a fair
statement of the results for the years presented.
2. Depreciation
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Buildings and improvements are
depreciated over 25 years and furniture and fixtures over five years.
3. Deferred Expenses
Loan fees have been incurred with respect to certain loans. Such fees
have been deferred and are being amortized over the terms of the
related loans (18 to 40 years).
The Partnership prepaid all amounts due under a ground lease for one
of its properties. Such prepayment has been deferred and is being
amortized over the term of the lease (75 years).
4. Venture Bond Refunding
The City of Baltimore issued mortgage revenue bonds, Series 1985,
(GNMA collateralized) for the purpose of providing permanent financing
for one venture, Tindeco Wharf Partnership ("TWP"), The bonds are
backed by a HUD-insured note (the "note") to TWP. The note, held by
GNMA as lender, bears interest at a rate of 9.75% per annum and is
secured by a first mortgage on the property. Principal and interest
is payable in monthly installments of $143,801. The note matures
December 2028. In October 1992, the original bond issue was refunded
by a 1992 issue. The original bond issue had an average interest rate
which approximated the interest on the mortgage of 9.75%. The
refunding issue bears interest at an average rate of 6.62%. The
difference in the interest on the mortgage and the refunding bonds is
returned to the Partnership for operations.
TWP incurred an extraordinary loss of $575,687 in connection with the
refunding of the bond issue resulting from the write-off of the
original issue financing fees.
TWP incurred $791,054 of settlement fees in conjunction with the bond
refinancing. These settlement fees are included in other assets and
are being amortized over the term of the bond issue. Accumulated
amortization was $52,264 and $29,704 at December 31, 1994 and 1993,
respectively.
5. Net Income Per Limited Partnership Unit
The net income per limited partnership unit is based on the weighted
average number of limited partnership units outstanding during the
period (20,593.3 in 1994, 1993 and 1992).
6. Income Taxes
Federal and state income taxes are payable by the individual partners;
therefore, no provision or liability for income taxes is reflected in
the financial statements.
7. Reclassifications
Certain amounts in the 1993 financial statements have been
reclassified to conform with the format adopted in 1994.
NOTE C - DEBT OBLIGATIONS
Debt obligations were as follows:
<TABLE>
<CAPTION)
December 31,
1994 1993
<S> <C> <C>
Mortgage loan, interest only at TENR plus 1/2% (6% and 4.5% $ 5,800,000 $ 5,800,000
at December 31, 1994 and 1993, respectively) (TENR is a rate
based upon yields of high quality, short-term, tax exempt
obligation), subject to certain adjustments, to a maximum of
15%; principal due in 2015, collateralized by the related
rental property (A)
Mortgage loan, interest at 12%, collateralized by the related
rental property with maturity at January 1, 1992 (B)
1,800,000 1,800,000
Mortgage loans, interest at the Federal Reserve Discount rate
plus 2% with a minimum of 7% and a maximum of 15% (7% at
December 31, 1994, and 1993), principal and interest payable
monthly based on a 20-year amortization schedule at the
foregoing rates of interest, as applicable; callable by the
lender in 1996, at which time the balance will be
approximately $1,081,704; collateralized by the related
rental property 1,223,214 1,286,850
Mortgage revenue bonds comprised of the following:
$1,440,000 Serial Bonds, interest rates ranging from 2.75% to
6.10%, maturing semi-annually from June 20, 1995, to December
20, 2006; $1,650,000 Term Bonds, interest at 6.5%, maturing
December 20, 2012; $8,260,000 Term Bonds, interest at 6.6%,
maturing December 20, 2024; $5,605,000 Term Bonds, interest
at 6.7%, maturing December 20, 2028; collateralized by the
related rental property
17,046,806 17,107,122
Notes payable to a property management company, bearing
interest at 12% per annum; principal and interest to be
repaid from the earliest positive cash flow from operations
or capital transactions, or within 90 days of termination of
the management agreement; unpaid principal and interest due
upon the earlier of sale or refinance of the property or
December 1, 2007 300,000 300,000
Note payable; interest accrues at 12%; principal and interest
to be repaid from the earliest positive cash flow from
operations; unsecured and due on demand 103,739 104,157
Second mortgage loan, interest only payable at 4% until
August 1, 1994; thereafter, principal and interest (at 7.5%)
payable in monthly installments of $36,606 to August 2004, at
which time the balance of approximately $3,948,784 is due;
collateralized by the related rental property (C)
4,953,471 4,953,471
Note payable to the developer, interest accrues at 12%, of
which 6% interest is payable annually; deferred interest is
payable out of cash flow after a preference return to the
Partnership with interest accruing on the unpaid amount;
principal and unpaid interest due at the earlier of sale or
refinancing of the property or 2005; unsecured
2,300,000 2,300,000
---------- ----------
$ 33,527,230 $ 33,547,443
========== ==========
</TABLE>
(A) The partnership has the right to convert the interest rate to a
fixed rate, based upon market conditions at the time of
conversion.
A private corporation provides an interest guarantee on these
bonds. The guarantor charges an annual fee of approximately 2% of the
outstanding balance of the bonds.
(B) Interest payments were not made after August, 1991. Lender
declared default and accelerated payment of note in February 1992.
The partnership which owns the property filed a petition of
reorganization in May 1992. In November 1992, the automatic stay was
lifted and the property which collateralizes this loan was foreclosed
by the lender in February 1993. However, the partnership guaranteed
$1,800,000 of the original note balance, which is included in debt
obligations.
(C) Interest and principal after August 1, 1990, is due only to the
extent of available cash flow. Any unpaid principal and interest
is deferred. Additional interest equal to 20% of net cash flow from
operations, as defined, in excess of $1,075,000 is payable annually.
The lender is also entitled to receive 10% of the net proceeds from
the sale of the property as defined. No additional interest was
paid during 1994, 1993 or 1992.
Approximate maturities of mortgage loan obligations at December 31,
1994, for each of the succeeding five years are as follows:
Year Ending December 31,
1995 $ 1,936,099
1996 147,910
1997 160,779
1998 174,798
1999 190,075
Thereafter 30,917,569
----------
$ 33,527,230
==========
NOTE D - ACQUISITIONS
The Partnership acquired one property and three general or limited
partnership interests in Ventures during the period August 1985 to
October 1985, as discussed below.
In August 1985, the Partnership was admitted, with a 99% general
partner interest, to a Pennsylvania general partnership, which owns a
building located in Savannah, Georgia, consisting of 21,500 commercial
square feet and a 44 room hotel, for a cash capital contribution of
$3,600,409.
In October 1985, the Partnership was admitted, with an 85% general
partner interest, to a Pennsylvania general partnership, which owns a
54-room hotel located in Washington, D.C., for a cash capital
contribution of $1,820,100. The Partnership's interest was
subsequently reduced to 69% when an affiliate of the Partnership
acquired a 19% interest. The lender foreclosed in 1993.
In October 1985, the Partnership purchased a three-story building,
consisting of 29 residential apartments and 9,500 square feet of
commercial space, for a cash contribution of $2,750,000.
In October 1985, the Partnership was admitted, with an 85% general
partner interest, to a Maryland general partnership, which owns a
building located in Baltimore, Maryland, consisting of 240 residential
units and 39,000 square feet of commercial space, for a cash capital
contribution of $7,271,300. The Partnership subsequently purchased an
additional 5% interest for $262,500.
NOTE E- COMMITMENTS AND CONTINGENCIES
Pursuant to certain agreements, the developers of and lenders to the
properties are entitled to share in the following:
1. 15% of net cash flow from operations (one property), and 15% to
50% of net cash flow from operations above certain specified amounts
(two properties);
2. 10% to 45% of the net proceeds, as defined, of the sale of the
respective properties (three properties). Generally, the Partnership
is entitled to a priority distribution of the net proceeds of
sale prior to any payments to developers.
The Partnership is involved in legal proceedings in connection with
the development of one of its properties. J. A. Jones Construction
Company ("Jones") contracted with Factors Walk Partners ("FWP") which
owns the 44 room hotel in Savannah, Georgia, for the renovation of a
warehouse into the hotel and retail shops. During construction,
numerous disputes arose between the parties. As a result of those
disputes, Jones abandoned the project prior to completion and filed
suit.
On January 1, 1994, the court entered a judgment in favor of Jones and
against FWP in the amount of $1,069,017. FWP filed an appeal and this
appeal is currently held in abeyance while FWP and Jones participate
in a court sponsored settlement program.
Because of the complexity of the factual and legal issues involved, it
is impossible to predict with any reasonable degree of certainty the
outcome of the post-judgment motions, or an appeal if the post-
judgment motions are unsuccessful. A final outcome adverse to FWP is
a reasonable probability.
The Partnership was also a party to a lawsuit brought against it by a
former property manager alleging breach of contract and tortuous
interference. On September 10, 1993, the lawsuit was settled for
$102,670, or which $25,000 was paid at the time of settlement and
equal monthly installments of $6,472.45 are payable commencing October
10, 1993, and continuing until September 10, 1994.
In May 1992, one Venture filed a reorganization petition pursuant to
Chapter 11 of the U.S. Bankruptcy Code. In November 1992, the
automatic stay was lifted and the property was foreclosed by the
lender in February 1993.
NOTE F - RELATED PARTY TRANSACTIONS
The Partnership reimburses an affiliate of the General Partner for
administrative expenses incurred on the Partnership's behalf. Such
expenses aggregated $-0-, $-0- and $112,000 for 1994, 1993 and 1992,
respectively.
Registrant maintained $356 at December 31, 1992 in a bank who has as a
director a person who at that time was an affiliate of the General
Partner. The Partnership also earned approximately $400 from these
deposits in 1992.
In 1992, the Partnership incurred legal fees of $143,779 to a law firm
who has a member a person who at that time was an affiliate of the
General Partner.
On March 23, 1993, an affiliate of a partner of the General Partner,
who had previously been assigned a note receivable from the
partnership, obtained a judgment on its note in Common Pleas Court for
Philadelphia County, Pennsylvania.
On January 13, 1994, an affiliate of a partner of the General Partner,
who had previously been assigned a note receivable from the
Partnership, obtained a judgment on its note in Common Pleas Court for
Chatham County, Georgia.
NOTE G - EXTRAORDINARY GAINS/ LOSSES
During 1993, the mortgagee of the property located at the intersection
of Massachusetts Avenue and L Street ("Mass and L") in Washington,
D.C. (54 hotel rooms and a 120 seat restaurant) foreclosed on the
property.
Due to insufficient cash flow generated by the property, Mass & L was
unable to make scheduled debt service payments. In 1992, the lender
notified Mass & L of the default under both notes and made a demand
for payment. In May 1992, in order to forestall the threatened
foreclosure by the lender, a reorganization petition was filed
pursuant to Chapter 11 of the U.S. Bankruptcy Code. In addition, the
lender filed a claim against the Partnership on its guaranty of
payment of both notes. In February 1993, the lender, with permission
of the bankruptcy court, foreclosed on the property. In November
1993, the lender obtained a judgment against the Registrant in the
amount of $1,800,000.
The Partnership has recognized an extraordinary loss in 1993 for the
difference between the book value of the property (which approximated
fair value) and the extinguished debt.
NOTE I - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time periods for financial reporting ("book")
purposes and for income tax ("tax") purposes. Reconciliations of net
loss and partners' equity follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Net loss - book ($ 2,360,840) ($ 4,825,243) ($ 4,348,359)
Excess of tax (under) book depreciation (191,940) (229,723) (53,178)
Other timing differences (960,135) 1,734,941 1,662,820
Minority interest - tax only 165,061 951,749 480,426
--------- --------- ---------
Net loss - tax ($ 3,347,854) ($ 2,368,276) ($ 2,258,291)
========= ========= =========
Partners' equity - book ($11,904,818) ($ 9,543,978) ($ 4,718,735)
Costs of issuance 2,471,196 2,471,196 2,471,196
Cumulative tax over (under) book loss 3,997,356 5,336,595 2,879,628
Facade easement donation (tax only) 203,778 203,778 203,778
Prior period adjustment 48,071 48,071 48,071
Capital adjustments (tax only) (443,431) (352,225) (567,002)
--------- --------- ---------
Partners' equity - tax ($ 5,627,848) ($ 1,836,563) $ 316,936
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
Costs
Capitalized
<CAPTION> Subsequent
Initial Cost to Acquisition
to Partnership
(b)
Buildings
and
Description (a) Encumbrances Land Improvements Improvements
(f)
<S> <C> <C> <C> <C>
44 room hotel with 21,500 square feet
of commercial spacein Savannah, GA $5,800,000 $200,000 $9,178,160 $136,412
29 apartment units and 9,500
square feet of commercial
space in West Chester, PA 1,223,214 87,500 2,833,383 1,500
262 apartment units and 39,000
square feet of commercial
space in Baltimore, MD 24,704,016 647,082 2,000,000 26,886,653
54 room hotel with
restaurant in Washington, DC 1,800,000 381,751 6,250,767 0
Gross Amount at which Carried
at
December 31,
1994
Buildings
and Accumulated Date of Date
Land Improvements Total (c) (d) Depr. (d) (e) Constr. (a) Acquired
$200,000 $9,341,513 $9,541,513 $3,513,441 1985-1986 8/9/85
87,500 2,840,483 2,927,983 1,083,413 1985 10/1/85
647,082 29,033,577 29,680,659 9,952,924 1985-1988 10/15/85
0 0 0 0 1985-1988 10/1/85
</TABLE>
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1994
(A) All properties are certified historic structures as defined in
the Internal Revenue Code, or are eligible for designation as
such. The "date of construction" refers to the period in which
such properties are rehabilitated.
(B) Includes development/rehabilitation costs incurred pursuant to
development agreements entered into when the properties are
acquired.
(C) The aggregate cost of real estate owned at December 31, 1994,
for Federal income tax purposes is approximately $39,810,020.
However, the depreciable basis of buildings and improvements is
reduced for Federal income tax purposes by the investment tax
credit and the historic rehabilitation credit obtained.
(D) Reconciliation of real estate:
1994 1993 1992
Balance at beginning of year $41,970,690 $48,496,834 $48,255,521
Additions during the year:
Improvements 179,465 106,374 241,313
Deductions during the year:
Retirements -0- (6,632,518) -0-
Balance at end of year $42,150,155 $41,970,690 $48,496,834
Reconciliation of accumulated depreciation:
1994 1993 1992
Balance at beginning of year $12,958,664 $12,976,944 $11,004,983
Depreciation expense for the year 1,591,114 1,584,151 1,971,961
Retirements -0- (1,602,431) -0-
Balance at end of year $14,549,778 $12,958,66 $12,976,944
(E) See Note B to the financial statements for depreciation method
and lives.
(F) See Note F to the financial statements for further information.
Item 9. Changes in and Disagreements with Accountants on
Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
a. Identification of Directors - Registrant has no
directors.
b. Identification of Executive Officers
The General Partner of the Registrant is Dover
Historic Advisors (DoHA), a Pennsylvania general partnership. The
corporate partner of DoHA is DHP, Inc. (formerly Dover Historic
Properties, Inc.)
For further description of DHP, Inc., see paragraph e.
of this Item
c. Identification of Certain Significant Employees.
Registrant has no employees. Its administrative and operational
functions are carried out by a property management and partnership
administration firm engaged by the Registrant.
d. Family Relationships. There is no family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DoHA is a general
partnership formed in August, 1985.
The General Partner is responsible for the management
and control of the Registrant's affairs and has general responsibility
and authority in conducting its operations.
Dover Historic Properties, Inc. was incorporated in
Pennsylvania in December 1984 for the purpose of sponsoring
investments in, rehabilitating, developing and managing historic (and
other) properties. In February 1992, Dover Historic Properties,
Inc.'s name was changed to DHP, Inc. DHP, Inc. is a subsidiary of The
Dover Group, Ltd., an entity formed in 1985 to act as the holding
company for DHP and certain other companies involved in the
development and operation of both historic properties and conventional
real estate as well as in financial (non-banking) services. In
February 1992, Dover Group's name was changed to D, LTD.
The executive officers, directors, and key employees of
Dover are described below.
Michael J. Tuszka (age 48) was appointed Chairman and
Director of both D, LTD and DHP, Inc. on January 27, 1993. Mr. Tuszka
has been associated with DHP, Inc. and its affiliates since 1984.
Donna M. Zanghi (age 38) is Secretary/Treasurer of DHP,
Inc.. She is also a Director and Secretary/Treasurer of D, LTD. She
has been associated with DHP, Inc. and its affiliates since 1984,
except for the period from December 1986 to June 1989 and the period
from November 1, 1992 to June 14, 1993.
Michele F. Rudoi (age 30) was appointed on January 27,
1993 as Assistant Secretary of both D. LTD and DHP, Inc.
Item 11. Executive Compensation
a. Cash Compensation - During 1994, Registrant has
paid no cash compensation to DoHA, any partner therein or any person
named in paragraph c. of Item 10. Certain fees have been paid to DHP,
Inc. by Registrant.
b. Compensation Pursuant to Plans - Registrant has no
plan pursuant to which compensation was paid or distributed during
1994, or is proposed to be paid or distributed in the future, to DoHA,
any partner therein, or any person named in paragraph c. of Item 10 of
this report.
c. Other Compensation - No compensation not referred
to in paragraph a. or paragraph b. of this Item was paid or
distributed during 1994 to DoHA, any partner therein, or any person
named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no
directors.
e. Termination of Employment and Change of Control
Arrangement - Registrant has no compensatory plan or arrangement, with
respect to any individual, which results or will result from the
resignation or retirement of any individual, or any termination of
such individual's employment with Registrant or from a change in
control of Registrant or a change in such individual's
responsibilities following such a change in control.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a. Security Ownership of Certain Beneficial Owners -
No person is known to Registrant to be the beneficial owner of more
than five percent of the issued and outstanding Units.
b. Security Ownership of Management - No equity
security of Registrant are beneficially owned by any person named in
paragraph c. of Item 10.
c. Changes in Control - Registrant does not know of
any arrangement, the operation of which may at a subsequent date
result in a change in control of Registrant.
Item 13. Certain Relationships and Related Transactions
Pursuant to Registrant's Amended and Restated Agreement
of Limited Partnership, DoHA is entitled to 10% of Registrant's
distributable cash from operations in each year. There was no such
share allocable to DoHA for fiscal years 1992 through 1994.
a. Certain Business Relationships - Registrant has no
directors.
b. Indebtedness of Management - No executive officer
or significant employee of Registrant, Registrant's general partner
(or any employee thereof), or any affiliate of any such person, is or
has at any time been indebted to Registrant.
PART IV
Item 14. (A) Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1994
and 1993.
b. Consolidated Statements of Operations for the Years
Ended December 31, 1994, 1993 and 1992 (unaudited).
c. Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 1994, 1993
and 1992.
d. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992 (unaudited).
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI-Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(a) Exhibit Document
Number
3 Registrant's Amended and Restated
Certificate of Limited
Partnership and Agreement of
Limited Partnership, previously
filed as part of Amendment No. 2
of Registrant's Registration
Statement on Form S-11, are
incorporated herein by reference.
21 Subsidiaries of the Registrant
are listed in Item 2. Properties
of this Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
ended December 31, 1994.
(c) Exhibits:
See Item 14(A)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIVERSIFIED HISTORIC INVESTORS II
Date: April 13, 1995 By: Dover Historic Advisors, General Partner
By: DHP, Inc., Partner
By: /s/ Michael J. Tuszka
MICHAEL J. TUSZKA,
Chairman
By: /s/ Donna M. Zanghi
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi
MICHELE F. RUDOI,
Assistant Secretary
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of Registrant and in the capacities and on the dates
indicated.
Signature Capacity Date
DOVER HISTORIC ADVISORS General Partner
By: DHP, Inc., Partner
By: /s/ Michael J. Tuszka April 12, 1995
MICHAEL J. TUSZKA,
Chairman
By: /s/ Donna M. Zanghi April 13, 1995
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi April 13, 1995
MICHELE F. RUDOI,
Assistant Secretary
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