UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 33-19811
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DIVERSIFIED HISTORIC INVESTORS VI
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2492210
- ------------------------------- -------------------
(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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N/A
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(Former name, former address and former fiscal year, if changed since
last report)
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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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - September 30, 1996
(unaudited) and December 31, 1995
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows - Three Months and
Nine Months Ended September 30, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
As of September 30, 1996, Registrant had cash of
$45,427. Such funds are expected to be used to pay the liabilities 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 loan modifications 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 September 30, 1996, Registrant had
restricted cash of $376,611 consisting primarily of funds held as
security deposits, replacement reserves and escrows for taxes and
insurance. As a consequence of the restrictions as to use, Registrant
does not deem these funds to be a source of liquidity.
In recent years the Registrant has realized
significant losses, including the foreclosure of one property. At the
present time, all remaining properties are able to pay their operating
expenses and debt service; however, at three of the seven properties,
the mortgages are basically "cash-flow" mortgages, requiring all
available cash after payment of operating expenses to be paid to the
first mortgage holder. Therefore, it is unlikely that any cash will
be available to the Registrant to pay its general and administrative
expenses.
It is the Registrant's intention to continue to
hold the properties until they can no longer meet the debt service
requirements and the properties are foreclosed, or the market value of
the properties increases to a point where they can be sold at a price
which is sufficient to repay the underlying indebtedness (principal
plus accrued interest).
(2) Capital Resources
Due to the relatively 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. Registrant is not aware of any factors
which would cause historical capital expenditure levels not to be
indicative of capital requirements in the future and accordingly, does
not believe that it will have to commit material resources to capital
investment for the foreseeable future. If the need for capital
expenditures does arise, the first mortgage holder for Canal House,
Firehouse Square and Locke Mill has agreed to fund capital
expenditures at terms similar to the first mortgage. The mortgagee
did not fund any capital expenditures during the first nine months of
1996.
In April 1996 the Registrant refinanced $3,215,000
of the first mortgage on Canal House. The refinancing has an interest
rate of 8.75%, is payable in monthly installments of $25,300 and is
due in April 2003.
In August 1996, the Registrant refinanced the
first mortgage on Roseland. The refinancing was in the amount of
$370,000, is due in August 2006 and has a variable interest rate
beginning with 8.25% for the first year and thereafter adjusting every
12 months to a rate which is 225 basis points over the 1-year Treasury
Constant Maturities with a floor of 8% and a ceiling of 10%.
(3) Results of Operations
During the third quarter of 1996, Registrant
incurred a net loss of $475,147 ($18.48 per limited partnership unit)
compared to a net loss of $513,736 ($19.98 per limited partnership
unit) for the same period in 1995. For the first nine months of 1996,
the Registrant incurred a net loss of $1,620,058 ($62.99 per limited
partnership unit) compared to a net loss of $1,411,768 ($54.89 per
limited partnership unit) for the same period in 1995.
Rental income increased $11,057 from $636,618 in
the third quarter of 1995 to $647,675 in the same period in 1996. The
increase in the third quarter of 1996 from the same period in 1995 is
due to increases in rental income at Locke Mill and Canal House
partially offset by a decrease at Firehouse Square. Rental income
increased at Locke Mill due to an increase in the average rental
rates, increased at Canal House due to an increase in the average
occupancy (90% to 93%) and decreased at Firehouse Square due to a
decrease in the average occupancy (91% to 85%).
Rental income increased $56,937 from $1,890,094 in
the first nine months of 1995 to $1,947,031 in the same period in
1996. The increase from the first nine months of 1996 from the same
period in 1995 is due to increases in rental income at Locke Mill,
Strehlow Terrace and Canal House, partially offset by a decrease at
Firehouse Square. Rental income increased at Locke Mill due to an
increase in the average rental rates and at Strehlow Terrace due to a
one-time, lump sum payment for rental increases received from the
Omaha Housing Authority retroactive to the years 1989-1994. The
increase at Canal House is due to an increase in the average occupancy
(86% to 93%) while rental income decreased at Firehouse Square due to
a decrease in the average occupancy (93% to 87%).
Expenses for rental operations decreased by
$45,223 from $367,211 in the third quarter of 1995 to $321,988 in the
same period in 1996. The decrease in the third quarter from the same
period in 1995 is mainly the result of a decrease in legal fees at
Firehouse Square and Locke Mill partially offset by an increase in
commissions expense and condominium fees at Locke Mill. Legal fees
decreased at Firehouse Square due to legal fees incurred in the third
quarter of 1995 in connection with the refinancing of part of the debt
and decreased at Locke Mill due to legal fees incurred in the third
quarter of 1995 in connection with the bankruptcy each as referred to
in the Registrant's 1995 Annual Report on Form 10-K. Commissions
expense increased at Locke Mill due to a change in management
companies (which was made to help the Registrant increase its revenues
from the property) in September 1995 and condominium fees increased at
Locke Mill due to a special assessment charged by the condominium
association for capital improvements of the building.
Expenses for rental operations increased $184,874
from $949,893 in the first nine months of 1995 to $1,134,767 in the
same period in 1996. The increase for the first nine months of 1996
from the same period in 1995 is mainly the result of an increase in
commissions expense and condominium fees at Locke Mill, an increase in
commissions expense and legal fees at Canal House, partially offset by
a decrease in legal fees at Firehouse Square and Locke Mill.
Commissions expense increased at Locke Mill due to a change in
management companies in September 1995 and increased at Canal House
due to the renewal of one of the commercial leases in the second
quarter. Condominium fees increased at Locke Mill due to a special
assessment charged by the condominium association for capital
improvements of the building. Legal fees increased at Canal House due
to fees incurred in the first quarter of 1996 in connection with the
restructuring of its debt. Legal fees decreased to more normal levels
for the first nine months of 1996 as compared to the same period in
1995 due to refinancing of part of the debt at Firehouse Square and in
connection with the bankruptcy proceedings for Locke Mill in the first
nine months of 1995.
Depreciation and amortization expense decreased
$18,597 from $366,909 in the third quarter of 1995 to $348,312 in the
same period in 1996 and decreased $52,120 from $1,089,948 in the first
nine months of 1995 to $1,037,828 in the same period in 1996. The
decrease is due to decreases at Canal House and Strehlow Terrace
partially offset by an increase at Locke Mill. Depreciation decreased
at Canal House and Strehlow Terrace due to fact that the personal
property became fully depreciated in 1995. Depreciation and
amortization increased at Locke Mill due to the increase in fixed
assets resulting from the loan restructuring (as disclosed in the 1995
Form 10-K) and the amortization of loan fees paid in connection with
the restructuring.
Interest expense increased by $45,398 from
$343,210 in the third quarter of 1995 to $388,608 in the same period
in 1996 and increased $153,741 from $1,048,433 in the first nine
months of 1995 to $1,202,174 in the same period in 1996. The increase
is due to increases in the principal balances of the notes at both
Canal House and Locke Mill upon which interest is accrued (as
disclosed in the 1995 Form 10-K).
Losses incurred during the quarter at the
Registrant's properties amounted to $393,000, compared to a loss of
approximately $426,000 for the same period in 1995. For the first
nine months of 1996 the Registrant's properties recognized a loss of
$1,370,000 compared to approximately $1,154,000 for the same period in
1995.
In the third quarter of 1996, Registrant incurred
a loss of $165,000 at Locke Mill Plaza including $63,000 of
depreciation and amortization expense, compared to a loss of $105,000
in the third quarter of 1995, including $57,000 of depreciation and
amortization expense; for the first nine months of 1996, the
Registrant incurred a loss of $397,000 including $188,000 of
depreciation and amortization expense, compared to a loss $209,000 for
the same period in 1995, including $167,000 of depreciation expense.
The increased loss from the third quarter and the first nine months of
1995 to the same periods in 1996 is the result of an increase in
interest, commissions, condominium fees and depreciation and
amortization expense partially offset by an increase in rental income
and a decrease in legal fees. Interest expense increased due to a
higher debt balance and an increase in the interest rate with respect
to the financing secured by the property while commissions increased
due to a change in management companies in September 1995.
Condominium fees increased due to a special assessment charged by the
condominium association for capital improvements of the building.
Depreciation and amortization increased due to the increase in fixed
assets resulting from the loan restructuring (as disclosed in the
Registrant's 1995 Annual Report on Form 10-K) and the amortization of
loan fees paid in connection with the restructuring. Rental income
increased due to an increase in the average rental rates and legal
fees decreased due to legal fees incurred in the third quarter of 1995
in connection with the bankruptcy.
In the third quarter of 1996, Registrant incurred
a loss of $18,000 at Roseland including $19,000 of depreciation
expense, compared to a loss of $12,000 including $19,000 of
depreciation in the third quarter of 1995; for the first nine months
of 1996, the Registrant incurred a loss of $61,000 including $55,000
of depreciation expense, compared to a loss of $51,000 for the same
period in 1995, including $55,000 of depreciation expense. The
increase in the loss from the third quarter and the first nine months
of 1995 to the same period in 1996 results from normal inflationary
increases in operating expenses at the property combined with a
decrease in rental income due to decreases in the average rental
rates.
In the third quarter of 1996, Registrant incurred
a loss of $137,000 at Firehouse Square including $64,000 of
depreciation and amortization expense, compared to a loss of $172,000
including $66,000 of depreciation and amortization expense in the
third quarter of 1995. The decrease in the loss from the third
quarter of 1995 to the same period in 1996 is mainly due to a decrease
in legal fees partially offset by a decrease in rental income due to a
decrease in occupancy (91% to 85%). Legal fees decreased due to legal
fees incurred in the third quarter of 1995 in connection with the
refinancing of part of the debt.
For the first nine months of 1996, the Registrant
incurred a loss of $423,000 at Firehouse Square including $192,000 of
depreciation and amortization expense, compared to a loss $422,000 for
the same period in 1995, including $190,000 of depreciation and
amortization expense. The increase in the loss from the first nine
months of 1995 to the same period in 1996 is mainly due to a decrease
in rental income due to a decrease in occupancy (93% to 87%) partially
offset by a decrease in legal fees due to legal fees incurred in the
third quarter of 1995 in connection with the refinancing of part of
the debt.
In the third quarter of 1996, Registrant incurred
a loss of $2,000 at Mater Dolorosa including $32,000 of depreciation
and amortization expense, compared to a loss of $5,000 including
$32,000 of depreciation and amortization expense in the first quarter
of 1995. and for the first nine months of 1996, the Registrant
incurred a loss of $5,000 including $97,000 of depreciation and
amortization expense, compared to a loss $10,000 for the same period
in 1995, including $97,000 of depreciation and amortization expense.
The decrease in the loss from the quarter and first nine months of
1995 to the same periods in 1996 is due to operational efficiencies
achieved at the property.
In the third quarter of 1996, Registrant incurred
a loss of $51,000 at Strehlow Terrace including $57,000 of
depreciation expense, compared to a loss of $54,000 including $64,000
of depreciation expense in the third quarter of 1995. The decrease in
the loss from the third quarter of 1995 to the same period of 1996 is
due to a decrease in depreciation expense as personal property became
fully depreciated in 1995 combined with an increase in rental income
due to an increase in the average rental rates.
For the first nine months of 1996, the Registrant
incurred a loss of $123,000 at Strehlow Terrace including $170,000 of
depreciation expense, compared to a loss $178,000 for the same period
in 1995, including $191,000 of depreciation and amortization expense.
The decrease in the loss from the first nine months of 1995 to the
same period in 1996 is due to an increase in rental income and a
decrease in depreciation expense. Rental income increased due to a
one-time lump sum payment for rental increases received in the first
quarter of 1996 from the Omaha Housing Authority retroactive to the
years 1989-1994. Depreciation decreased due to the fact that all
personal property became fully depreciated in 1995.
In the third quarter of 1996, Registrant incurred
a loss of $20,000 at Canal House including $96,000 of depreciation
expense, compared to a loss of $78,000 including $111,000 of
depreciation expense in the third quarter of 1995. The decrease in
the loss from the third quarter of 1995 to the same period in 1996 is
due to an increase in rental income due to higher average occupancy
(90% to 93%) and a decrease in depreciation expense partially offset
by an increase in interest expense. Depreciation expense decreased
due to fact that the personal property became fully depreciated in
1995. Interest expense increased due to a higher principal balance
upon which interest is accrued.
For the first nine months of 1996, the Registrant
incurred a loss of $361,000 at Canal House including $279,000 of
depreciation and amortization expense, compared to a loss $284,000 for
the same period in 1995, including $332,000 of depreciation expense.
The increase in the loss from the first nine months of 1995 to the
same period in 1996 is due to an increase in legal fees, interest and
commissions expense partially offset by an increase in rental income
due to higher average occupancy (86% to 93%) and a decrease in
depreciation expense. Legal fees increased due to fees incurred in
the first quarter in connection with the restructuring of the debt
while interest expense increased due to a higher principal balance
upon which interest is accrued. Commissions expense increased due to
the renewal of one of the commercial leases at the property in the
second quarter. Depreciation expense decreased due to fact that the
personal property became fully depreciated in 1995.
In the third quarter of 1996, Registrant incurred
a loss of $4,000 at Saunders Apartments compared to a loss of $6,000
in the third quarter of 1995. For the first nine months of 1996, the
Registrant incurred a loss of $13,000 at Saunders Apartments compared
to a loss $18,000 for the same period in 1995. The Registrant
accounts for this investment on the equity method and the decrease in
the loss is due to an increase in rental income due to an increase in
the average rental rates.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30, 1996 December 31, 1995
(Unaudited)
Rental properties, at cost:
Land $ 1,081,164 $ 1,081,164
Buildings and improvements 33,490,744 33,462,131
Furniture and fixtures 1,068,784 1,068,784
35,640,692 35,612,079
Less - Accumulated depreciation (10,602,016) (9,605,719)
---------- ----------
25,038,676 26,006,360
Cash and cash equivalents 45,427 72,395
Restricted cash 376,611 297,751
Investment in affiliate 31,678 44,572
Other assets (net of amortization of
$396,389 and $354,858 at September 30,
1996 and December 31, 1995, respectively)
390,398 346,643
---------- ----------
Total $25,882,790 $26,767,721
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $19,327,103 $19,141,915
Accounts payable:
Trade 865,768 675,141
Taxes 49,414 49,414
Related parties 273,921 296,166
Other 39,641 39,310
Interest payable 1,034,984 654,897
Tenant security deposits 142,449 141,310
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Total liabilities 21,733,280 20,998,153
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Partners' equity 4,149,510 5,769,568
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Total $25,882,790 $26,767,721
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Three months Nine months
ended September 30, ended September 30,
1996 1995 1996 1995
Revenues:
Rental income $ 647,675 $ 636,618 $1,947,031 $1,890,094
Interest income 191 1,107 839 2,541
--------- --------- --------- ---------
Total revenues 647,866 637,725 1,947,870 1,892,635
--------- --------- --------- ---------
Costs and expenses:
Rental operations 321,988 367,211 1,134,767 949,893
General and administrative 60,000 67,750 180,265 198,529
Interest 388,608 343,210 1,202,174 1,048,433
Depreciation and
amortization 348,312 366,909 1,037,828 1,089,948
--------- --------- --------- ---------
Total costs and
expenses 1,118,908 1,145,080 3,555,034 2,286,803
--------- --------- --------- ---------
Loss before equity in
affiliate (471,042) (507,355) (1,607,164) (1,394,168)
Equity in net loss of
affiliate (4,105) (6,381) (12,894) (17,600)
--------- --------- --------- ---------
Net loss ($ 475,147) ($ 513,736) ($1,620,058) ($1,411,768)
========= ========= ========= =========
Net loss per limited
partnership unit
Loss before equity
in affiliate ($ 18.32) ($ 19.73) ($ 62.49) ($ 54.21)
Equity in net loss of
of affiliate (.16) (.25) (.50) (.68)
--------- --------- --------- ---------
($ 18.48) ($ 19.98) ($ 62.99) ($ 54.89)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Nine months ended
September 30,
1996 1995
Cash flows from operating activities:
Net loss ($1,620,058) ($1,411,768)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,037,828 1,089,948
Equity in loss of affiliate 12,894 17,600
Changes in assets and liabilities:
(Increase) decrease in restricted cash (78,860) 46,440
Increase in other assets (85,286) (191,663)
Increase in accounts payable - trade 190,627 149,899
Decrease in accounts payable - related parties (22,245) (25,356)
Increase (decrease) in accounts payable - other 331 (11)
Increase (decrease) in interest payable 380,087 (43,057)
Increase in tenant security deposits 1,139 1,531
------- -------
Net cash used in operating activities (183,543) (369,092)
------- -------
Cash flows from investing activities:
Capital expenditures (28,613) (73,060)
------- -------
Net cash used in investing activities (28,613) (73,060)
------- -------
Cash flows from financing activities:
Proceeds from debt financing 267,612 549,143
Principal payments (82,424) (94,053)
-------- -------
Net cash provided by financing activities 185,188 455,090
-------- -------
(Decrease) increase in cash and cash equivalents (26,968) 12,938
Cash and cash equivalents at beginning of period 72,395 59,176
-------- -------
Cash and cash equivalents at end of period $ 45,427 $ 72,114
======== =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $903,444 $708,886
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified
Historic Investors VI (the "Registrant") and related notes have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying
consolidated financial statements and related notes should be read in
conjunction with the audited financial statements in Form 10-K of the
Registrant, and notes thereto, for the year ended December 31, 1995.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the results of the interim periods presented.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is not party
to, nor is any of its property the subject of, any pending material
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by
this report to a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(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 on Form 10-K, previously
filed and incorporated herein by reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the
quarter ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date: November 8, 1996 DIVERSIFIED HISTORIC INVESTORS VI
By: Dover Historic Advisors VI, General Partner
By: DHP, Inc., Partner
By: /s/ Donna M. Zanghi
-------------------
DONNA M. ZANGHI,
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 45,427
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,640,692
<DEPRECIATION> 10,602,016
<TOTAL-ASSETS> 25,882,790
<CURRENT-LIABILITIES> 1,228,744
<BONDS> 19,327,103
0
0
<COMMON> 0
<OTHER-SE> 4,149,510
<TOTAL-LIABILITY-AND-EQUITY> 25,882,790
<SALES> 0
<TOTAL-REVENUES> 1,947,870
<CGS> 0
<TOTAL-COSTS> 1,134,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,202,174
<INCOME-PRETAX> (1,620,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,620,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,620,058)
<EPS-PRIMARY> (62.99)
<EPS-DILUTED> 0
</TABLE>
