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 June 30, 1997
---------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________
Commission file number 33-19811
-----------------------------------------------
DIVERSIFIED HISTORIC INVESTORS VI
- ----------------------------------------------------------------------
(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
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 735-5001
N/A
- ----------------------------------------------------------------------
(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 X No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 1997 (unaudited)
and December 31, 1996
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Three Months and
Six Months Ended June 30, 1997 and 1996 (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 June 30, 1997, Registrant had cash of
$48,062. 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 June 30, 1997, Registrant had restricted
cash of $279,007 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.
A property owned by Strehlow Terrace Apartments
Limited Partnership ("STALP"), a limited partnership in which the
Registrant owns a 98% interest, has historically been unable, from its
own revenues, to meet its operating expenses and required debt service
payments, the Developer/Operating General Partner has provided the
necessary funds. Through 1992, these funds were provided pursuant to
legal obligations. Thereafter, the Registrant was able to prevail
upon the Developer to continue such funding on a voluntary basis. In
1996, the Developer reported that it was no longer able nor willing to
make such advances. To avoid loss of STALP's property, either through
foreclosure or a forced sale at depressed values, in January 1997 the
Registrant sold approximately 20% of its interest in STALP.
Simultaneously with the sale, the Partnership Agreement was amended to
allocate Low Income Housing Tax Credits in the amount of $587,549 over
the next four years to the purchaser. The proceeds from the sale were
sufficient to satisfy outstanding obligations and should enable STALP
to continue to operate in the foreseeable future.
On March 14, 1997, one of the Registrant's
properties, held by Locke Mill Partners ("LMP"), was declared in
default on its first mortgage for failure to make the minimum monthly
payment. On March 31, 1997, a settlement agreement was reached
whereby the Registrant agreed to relinquish its partnership interests
in LMP in satisfaction of the mortgage.
In recent years the Registrant has realized
significant losses, including the foreclosure of two properties. At
the present time, all remaining properties are able to pay their
operating expenses and debt service; however, at two of the six
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.
(3) Results of Operations
During the second quarter of 1997, Registrant
incurred a net loss of $385,011 ($14.97 per limited partnership unit)
compared to a net loss of $480,196 ($18.67 per limited partnership
unit) for the same period in 1996. For the first six months of 1997,
the Registrant incurred a net loss of $1,536,028 ($59.73 per limited
partnership unit) compared to a net loss of $1,144,911 ($44.52 per
limited partnership unit) for the same period in 1996.
Rental income decreased $80,205 from $635,701 in
the second quarter of 1996 to $555,496 in the same period in 1997.
The decrease in the second quarter of 1997 from the same period in
1996 is due mainly to the foreclosure of Locke Mill partially offset
by increases at Canal House, Firehouse Square, Roseland, Strehlow
Terrace and Mater Dolorosa.
Rental income decreased $89,618 from $1,299,356 in
the first six months of 1996 to $1,209,738 in the same period in 1997.
The decrease from the first six months of 1997 from the same period in
1996 is due mainly to the foreclosure of Locke Mill combined with a
decrease at Strehlow Terrace due to the one time effect in 1996 of a
rental increase received in 1996 from the Omaha Housing Authority
retroactive to the years 1989-1994 partially offset by increases at
Canal House, Firehouse Square, Roseland and Mater Dolorosa.
Other income increased $205,643 from $0 in the
first six months of 1996 to $205,643 in the same period in 1997. The
increase from the first six months of 1996 to the same period in 1997
is due to the sale of the interest in Strehlow Terrace Apartments
Limited Partnership, as referred to above.
Expenses for rental operations decreased by
$120,544 from $300,103 in the second quarter of 1996 to $179,559 in
the same period in 1997. The decrease is mainly the result of the
foreclosure of Locke Mill combined with a decrease in commissions
expense at Canal House due to commissions paid in 1996 with respect to
the renewal of one of the commercial leases at the property in the
second quarter of 1996.
Expenses for rental operations decreased $237,753
from $812,779 in the first six months of 1996 to $575,026 in the same
period in 1997. The decrease is mainly the result of the foreclosure
of Locke Mill combined with a decrease in commissions expense and
legal fees at Canal House. Commission expense decreased due to
commissions paid in 1996 with respect the renewal of one of the
commercial leases at the property in the second quarter of 1996 while
legal fees decreased due to fees incurred in connection with the
restructuring of debt in the first quarter of 1996.
Depreciation and amortization expense decreased
$53,591 from $345,469 in the second quarter of 1996 to $291,878 in the
same period in 1997 and decreased $44,728 from $689,516 in the first
six months of 1996 to $644,788 in the same period in 1997. The
decreases are due to the foreclosure of Locke Mill partially offset by
an increase in amortization expense at Canal House due to the
amortization of loan fees incurred in the refinancing of the property.
Interest expense decreased by $3,575 from $406,990
in the second quarter of 1996 to $403,415 in the same period in 1997.
The decrease is due to the foreclosure of Locke Mill in March 1997
partially offset by an increase at Canal House due to an increase in
the principal balance of the note and an increase in the prime lending
rate upon which interest is calculated at Firehouse Square.
Interest expense increased $17,713 from $813,566
in the first six months of 1996 to $831,279 for the same period in
1997. The increase is due to an increase at Canal House due to an
increase in the principal balance of the note and an increase in the
prime lending rate upon which interest is calculated at Firehouse
Square partially offset by a partial period decrease due to the
foreclosure of Locke Mill.
Losses incurred during the quarter at the
Registrant's properties amounted to $326,000, compared to a loss of
approximately $401,000 for the same period in 1995. For the first six
months of 1997 the Registrant's properties recognized a loss of
$1,549,000 compared to approximately $986,000 for the same period in
1996. Included in the loss for the first six months of 1997 is
$770,000 of extraordinary loss relating to the foreclosure of Locke
Mill.
In the second quarter of 1997, Registrant incurred
a loss of $0 at Locke Mill, compared to a loss of $113,000 in the
second quarter of 1996, including $66,000 of depreciation expense, and
for the first six months of 1997, the Registrant incurred a loss of
$852,000 including $63,000 of depreciation and amortization expense,
compared to a loss $232,000 for the same period in 1996, including
$125,000 of depreciation expense. Included in the loss for the first
six months of 1997 is $770,000 of extraordinary loss relating to the
foreclosure of the property. The loss without the effect of the
foreclosure for the first six months of 1997 would have been $82,000.
The decreased loss from the second quarter and the first six months of
1996 to the same periods in 1997 is the due to the foreclosure of the
property on March 31, 1997.
In the second quarter of 1997, Registrant incurred
a loss of $19,000 at Roseland including $18,000 of depreciation
expense, compared to a loss of $26,000 including $18,000 of
depreciation in the second quarter of 1996; for the first six months
of 1997, the Registrant incurred a loss of $36,000 including $36,000
of depreciation expense, compared to a loss $43,000 for the same
period in 1996, including $36,000 of depreciation expense. The
decreased loss from the second quarter and the first six months of
1996 to the same periods in 1997 is mainly due to an increase in
rental income due to an increase in the average occupancy (84% to 94%)
for the quarter and (91% to 93%) for the first six months.
In the second quarter of 1997, Registrant incurred
a loss of $147,000 at Firehouse House including $65,000 of
depreciation and amortization expense, compared to a loss of $139,000
including $55,000 of depreciation and amortization expense in the
first quarter of 1996. The increase in the loss from the second
quarter of 1996 to the same period in 1997 is due to an increase in
interest expense partially offset by an increase in rental income due
to an increase in the average occupancy (85% to 96%). Interest
expense increased due to an increase in the prime lending rate upon
which interest on the debt relating to the property is calculated.
For the first six months of 1997, the Registrant
incurred a loss of $281,000 at Firehouse Square including $128,000 of
depreciation and amortization expense, compared to a loss $286,000 for
the same period in 1996, including $119,000 of depreciation and
amortization expense. The decrease in the loss from the first six
months of 1996 to the same period in 1997 is due to an increase in
rental income due to an increase in the average occupancy (87% to 89%)
partially offset by an increase in interest expense resulting from an
increase in the prime lending rate upon which interest on the debt
relating to the property is calculated.
In the second quarter of 1997, Registrant
recognized income of $6,000 at Mater Dolorosa including $32,000 of
depreciation and amortization expense, compared to a loss of $5,000
including $33,000 of depreciation and amortization expense in the
second quarter of 1996 and for the first six months of 1997, the
Registrant incurred a loss of $1,000 at Mater Dolorosa including
$64,000 of depreciation and amortization expense, compared to a loss
of $3,000 for the same period in 1996, including $65,000 of
depreciation and amortization expense. The decrease in the loss from
the second quarter and the first six months of 1996 to the same
periods in 1997 is due to an increase in rental income resulting from
an increase in the average rental rates and an overall decrease in
operating expenses due to operational efficiencies achieved at the
property.
In the second quarter of 1997, Registrant incurred
a loss of $51,000 at Strehlow Terrace including $57,000 of
depreciation expense, compared to a loss of $58,000 including $56,000
of depreciation expense in the second quarter of 1995. The decrease
in the loss from the second quarter of 1996 to the same period of 1997
is due to an increase in rental income due to an increase in the
average rental rates.
For the first six months of 1997, the Registrant
incurred a loss of $108,000 at Strehlow Terrace including $114,000 of
depreciation expense, compared to a loss $72,000 for the same period
in 1996, including $113,000 of depreciation and amortization expense.
The increase in the loss from the first six months of 1996 to the same
period in 1997 is due to a decrease in rental income. Rental income
decreased due the one time effect in 1996 of a lump sum payment of
rental increases received from the Omaha Housing Authority retroactive
to the years 1989-1994 in the first quarter of 1996.
In the second quarter of 1997, Registrant incurred
a loss of $107,000 at Canal House including $101,000 of depreciation
and amortization expense, compared to a loss of $56,000 including
$92,000 of depreciation expense in the second quarter of 1996. The
increase in the loss from the second quarter of 1996 to the same
period in 1997 is due to an increase in interest and amortization
expense partially offset by an increase in rental income and a
decrease in legal fees and commissions expense. Interest expense
increased due to a higher principal balance upon which interest is
accrued and amortization expense increased due to the amortization of
loan fees, in connection with the refinancing of the property. Rental
income increased due to an increase in average occupancy (94% to 97%)
and an increase in the average rental rates and commissions expense
decreased due to commissions paid in 1996 with respect to the renewal
of one of the commercial leases at the property in the second quarter
of 1996. Legal fees decreased due to fees incurred in connection with
the restructuring of the debt in the first quarter of 1996.
For the first six months of 1997, the Registrant
incurred a loss of $259,000 at Canal House including $202,000 of
depreciation and amortization expense, compared to a loss $341,000 for
the same period in 1996, including $183,000 of depreciation expense.
The decrease in the loss from the first six months of 1996 to the same
period in 1997 is due to an increase in rental income combined with a
decrease in commissions expense partially offset by an increase in
interest and amortization expense. Rental income increased due to an
increase in the average occupancy (94% to 96%) and commissions expense
decreased due to commissions paid in 1996 with respect to the renewal
of one of the commercial leases at the property in the second quarter
of 1996. Interest expense increased due to a higher principal balance
upon which interest is accrued and amortization expense increased due
to the amortization of loan fees incurred in the refinancing of the
property.
In the second quarter of 1997, Registrant incurred
a loss of $8,000 at Saunders Apartments compared to a loss of $4,000
in the second quarter of 1996. For the first six months of 1997, the
Registrant incurred a loss of $12,000 at Saunders Apartments compared
to a loss $9,000 for the same period in 1996. The Registrant accounts
for this investment on the equity method and the increase in the loss
is due to an overall increase in operating expenses due to an increase
in the average occupancy.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
June 30, 1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 950,238 $ 1,081,164
Buildings and improvements 27,119,224 33,506,067
Furniture and fixtures 831,543 1,068,784
---------- ----------
28,901,005 35,656,555
Less - Accumulated depreciation (9,444,431) (10,933,587)
---------- ----------
19,456,574 24,722,968
Cash and cash equivalents 48,062 59,334
Restricted cash 279,007 362,796
Investment in affiliate 15,600 27,301
Other assets (net of amortization of
$413,268 and $424,590 at March 31, 1997
and December 31, 1996, respectively) 374,475 385,345
---------- ----------
Total $20,173,718 $25,557,744
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $15,686,863 $19,353,961
Accounts payable:
Trade 677,328 790,335
Taxes 21,830 21,830
Related parties 290,544 272,760
Other 6,189 70,926
Interest payable 1,236,398 1,254,336
Tenant security deposits 135,961 138,963
---------- ----------
Total liabilities 18,055,113 21,903,111
---------- ----------
Partners' equity 2,118,605 3,654,633
---------- ----------
Total $20,173,718 $25,557,744
========== ==========
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 Six Months Ended June 30, 1997 and 1996
(Unaudited)
Three months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
Revenues:
Rental income $555,496 $ 635,701 $1,209,738 $1,299,356
Other income 0 0 205,643 0
Interest income 170 289 436 648
------- --------- --------- ---------
Total revenues 555,666 635,990 1,415,817 1,300,004
------- --------- --------- ---------
Costs and expenses:
Rental operations 179,559 300,103 575,026 812,779
General and administrative 57,906 60,010 119,431 120,265
Interest 403,415 406,990 831,279 813,566
Depreciation and
amortization 291,878 345,469 644,788 689,516
------- --------- --------- ---------
Total costs and expenses 932,758 1,112,572 2,170,524 2,436,126
------- --------- --------- ---------
Loss before equity in affiliate
and extraordinary loss (377,092) (476,582) (754,707) (1,136,122)
Equity in net loss of affiliate (7,919) (3,614) (11,701) (8,789)
------- --------- --------- ---------
Loss before extraordinary loss (385,011) (480,196) (766,408) (1,144,911)
Extraordinary loss 0 0 (769,620) 0
------- --------- --------- ---------
Net loss ($385,011) ($ 480,196) ($1,536,028) ($1,144,911)
======= ========= ========= =========
Net loss per limited
partnership unit
Loss before equity in affiliate($ 14.67) ($ 18.53) ($ 29.35) ($ 44.18)
Equity in net loss of affiliate (.30) (.14) (.45) (.34)
------- --------- --------- ---------
Loss before extraordinary loss (14.97) (18.67) (29.80) (44.52)
Extraordinary loss 0 0 (29.93) 0
------- --------- --------- ---------
($ 14.97) ($ 18.67) ($ 59.73) ($ 44.52)
======= ========= ========= =========
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 Six Months Ended June 30, 1997 and 1996
(Unaudited)
Six months ended
June 30,
1997 1996
Cash flows from operating activities:
Net loss ($1,536,028) ($1,144,911)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 644,788 689,516
Equity in loss of affiliate 11,701 8,789
Extraordinary loss 769,620 0
Changes in assets and liabilities:
Decrease (increase) in restricted cash 60,715 (33,293)
Increase in other assets (98,280) (79,359)
Increase in accounts payable - trade 35,044 99,942
Increase (decrease) in accounts payable -
related parties 27,784 (41,492)
Decrease in accounts payable - other (59,662) (4,459)
Increase in interest payable 205,340 265,616
Decrease (increase) in tenant security deposits 12,798 (2,478)
-------- ---------
Net cash provided by (used in) operating activities 73,820 (242,129)
-------- ---------
Cash flows from investing activities:
Capital expenditures (69,047) (19,589)
-------- ---------
Net cash used in investing activities (69,047) (19,589)
-------- ---------
Cash flows from financing activities:
Proceeds from debt financing 67,532 286,786
Principal payments (83,577) (56,663)
-------- ---------
Net cash (used in) provided by financing activities (16,045) 230,123
-------- ---------
Decrease in cash and cash equivalents (11,272) (31,595)
Cash and cash equivalents at beginning of period 59,334 72,395
-------- ---------
Cash and cash equivalents at end of period $ 48,062 $ 40,800
======== =========
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 and
notes thereto, in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
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
On March 14, 1997, one of the Registrant's
properties, held by Locke Mill Partners ("LMP"), was declared in
default on its first mortgage for failure to make the minimum monthly
payment. On March 31, 1997, a settlement agreement was reached
whereby the Registrant agreed to relinquish its partnership interests
in LMP in satisfaction of the mortgage.
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 June 30, 1997.
<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: October 14, 1997 DIVERSIFIED HISTORIC INVESTORS VI
----------------
By: Dover Historic Advisors VI, General Partner
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi
-----------------------
DONNA M. ZANGHI,
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 48,062
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,901,005
<DEPRECIATION> 9,444,431
<TOTAL-ASSETS> 20,173,718
<CURRENT-LIABILITIES> 995,891
<BONDS> 15,686,863
0
0
<COMMON> 0
<OTHER-SE> 2,118,605
<TOTAL-LIABILITY-AND-EQUITY> 20,173,718
<SALES> 0
<TOTAL-REVENUES> 1,415,817
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 575,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 831,279
<INCOME-PRETAX> (766,408)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (769,620)
<CHANGES> 0
<NET-INCOME> (1,536,028)
<EPS-PRIMARY> (59.73)
<EPS-DILUTED> 0
</TABLE>
