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 March 31, 1997
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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 _____________
Commission file number 33-19811
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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
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(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 - March 31, 1997 (unaudited)
and December 31, 1996
Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 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 March 31, 1997, Registrant had cash of
$50,981. 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
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 March 31, 1997, Registrant had restricted
cash of $278,231 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 first quarter of 1997, Registrant
incurred a net loss of $1,151,017 ($44.76 per limited partnership
unit) compared to a net loss of $664,716 ($25.85 per limited
partnership unit) for the same period in 1995. Included in the first
quarter of 1997 loss is $769,620 of extraordinary loss relating to the
foreclosure of Locke Mill.
Rental income decreased $9,413 from $663,655 in
the first quarter of 1996 to $654,242 in the same period in 1997. The
decrease in the first quarter of 1997 from the same period in 1996 is
due to a decrease at Strehlow Terrace partially offset by increases in
rental income at Locke Mill, Canal House, and Firehouse Square.
Rental income decreased at Strehlow Terrace due to a rental increase
received in 1996 from the Omaha Housing Authority retroactive to the
years 1989-1994. The increases at Locke Mill and Canal House were due
to increases in the average occupancy (89% to 91% and 93% to 98%),
respectively, and an increase in the average rental rates. The
increase at Firehouse Square was due to an increase in the average
occupancy (64% to 81%).
Other income increase $205,643 from $0 in the first
quarter of 1996 to $205,643 in the same period in 1997. The increase
from the first quarter 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
$117,209 from $512,676 in the first quarter of 1996 to $395,467 in the
same period in 1997. The decrease is mainly the result of legal fees
incurred in 1996 in connection with the restructuring of the debt at
Canal House partially offset by an increase in condominium fees at
Locke Mill due to a special assessment charged by the condominium
association for capital improvements to the building and an increase
in bad debt expense resulting from the write-off of tenant receivables
that were deemed uncollectible at Mater Dolorosa.
Depreciation and amortization expense increased
$8,863 from $344,047 in the first quarter of 1996 to $352,910 in the
same period in 1997. The increase is due to an increase in
amortization expense at Canal House due to the amortization of loan
fees incurred in the refinancing of the property.
Interest expense increased by $21,288 from
$406,576 in the first quarter of 1996 to $427,864 in the same period
in 1997. The increase is due to an increase in the principal balance
of the note at Canal House and an increase in the prime lending rate
upon which interest is accrued at Firehouse Square.
Losses incurred during the quarter at the
Registrant's properties amounted to $1,236,000 compared to a loss of
approximately $580,000 for the same period in 1996.
In the first quarter of 1997, Registrant incurred
a loss of $852,000 at Locke Mill Plaza including $63,000 of
depreciation and amortization expense, compared to a loss of $119,000
in the first quarter of 1996, including $59,000 of depreciation and
amortization expense. The first quarter of 1997 loss without the
effect of the foreclosure would have been $118,000. The decreased
loss from the first quarter of 1996 to the same quarter of 1997 is the
result of an increase in rental income due an increase in average
occupancy (89% to 91%) and an increase in the average rental rates
partially offset by an increase in condominium fees due to a special
assessment charged by the condominium association for capital
improvements to the building.
In both the first quarters of 1997 and 1996,
Registrant incurred a loss of $17,000 at Roseland including $18,000 of
depreciation. Since Roseland is a low income housing property, rents
are fixed in relation to specified income levels. As a result,
similar to Mater Dolorosa and Strehlow Terrace discussed below, the
property experiences high occupancy but rental income and operating
expenses do not vary significantly.
In the first quarter of 1997, Registrant incurred
a loss of $134,000 at Firehouse House including $63,000 of
depreciation and amortization expense, compared to a loss of $147,000
including $64,000 of depreciation and amortization expense in the
first quarter of 1996. The decrease in the loss from the first
quarter of 1996 to the same period in 1997 is due to an increase in
rental income partially offset by an increase in interest expense.
Rental income increased due to an increase in the average occupancy
(64% to 81%) while interest expense increased due to an increase in
the prime lending rate upon which interest is accrued.
In the first quarter of 1997, Registrant incurred
a loss of $24,000 at Mater Dolorosa including $32,000 of depreciation
and amortization expense, compared to a income of $2,000 including
$32,000 of depreciation and amortization expense in the first quarter
of 1995. The increase in the loss from the first quarter of 1996 to
the same period in 1997 is due to an increase in bad debt expense
resulting from the write-off of tenant receivables that were deemed
uncollectible.
In the first quarter of 1997, Registrant incurred
a loss of $57,000 at Strehlow Terrace including $57,000 of
depreciation expense, compared to a loss of $14,000 including $57,000
of depreciation expense in the first quarter of 1996. The increase in
the loss from the first quarter of 1996 to the same period in 1997 is
due to a decrease in rental income. Rental income decreased due to 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 first quarter of 1997, Registrant incurred
a loss of $152,000 at Canal House including $101,000 of depreciation
and amortization expense, compared to a loss of $285,000 including
$91,000 of depreciation and amortization expense in the first quarter
of 1996. The decrease in the loss from the first quarter of 1996 to
the same period in 1997 is due to an increase in rental income
combined with a decrease in legal fees partially offset by an increase
in interest and amortization expense. Rental income increased due to
an increase in average occupancy (93% to 98%) and an increase in the
average rental rates. Legal fees decreased due to fees incurred in
connection with the restructuring of the debt in the first 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.
The Registrant owns a minority interest in
Saunders Apartments which it accounts for on the equity method. The
Registrant does not include the assets or liabilities of Saunders
Apartments in its consolidated financial statements. The following
information is provided for the property. In the first quarter of
1997, Registrant incurred a loss of $4,000 at Saunders Apartments
compared to a loss of $5,000 in the first quarter 1996. 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
March 31, 1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 950,238 $ 1,081,164
Buildings and improvements 27,056,185 33,506,607
Furniture and fixtures 831,543 1,068,784
---------- ----------
28,837,966 35,656,555
Less - Accumulated depreciation (9,173,342) (10,933,587)
---------- ----------
19,664,624 24,722,968
Cash and cash equivalents 50,981 59,334
Restricted cash 278,231 362,796
Investment in affiliate 23,519 27,301
Other assets (net of amortization of
$392,480 and $424,590 at March 31, 1997
and December 31, 1996, respectively) 377,384 385,345
---------- ----------
Total $20,394,739 $25,557,744
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $15,664,204 $19,353,961
Accounts payable:
Trade 639,879 790,335
Taxes 21,830 21,830
Related parties 265,757 272,760
Other 37,692 70,926
Interest payable 1,122,475 1,254,336
Tenant security deposits 139,286 138,963
---------- ----------
Total liabilities 17,891,123 21,903,111
---------- ----------
Partners' equity 2,503,616 3,654,633
---------- ----------
Total $20,394,739 $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 Ended March 31, 1997 and 1996
(Unaudited)
Three months Three months
ended ended
March 31, March 31,
1997 1996
Revenues:
Rental income $ 654,242 $ 663,655
Other income 205,643 0
Interest income 266 359
--------- ---------
Total revenues 860,151 664,014
--------- ---------
Costs and expenses:
Rental operations 395,467 512,676
General and administrative 61,525 60,255
Interest 427,864 406,576
Depreciation and amortization 352,910 344,047
--------- ---------
Total costs and expenses 1,237,766 1,323,554
--------- ---------
Loss before equity in affiliate and
extraordinary loss (377,615) (659,541)
Equity in net loss of affiliate (3,782) (5,175)
--------- ---------
Loss before extraordinary loss (381,397) (664,716)
Extraordinary loss (769,620) 0
--------- ---------
Net loss ($1,151,017) ($ 664,716)
========= =========
Net loss per limited partnership unit:
Loss before equity in affiliate and
extraordinary loss ($ 14.68) ($ 25.65)
Equity in net loss of affiliate (.15) (.20)
--------- ---------
Loss before extraordinary loss (14.83) (25.85)
Extraordinary loss (29.93) 0
--------- ---------
($ 44.76) ($ 25.85)
========= =========
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 Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three months ended
March 31,
1997 1996
Cash flows from operating activities:
Net loss ($1,151,017) ($664,716)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 352,910 344,047
Equity in loss of affiliate 3,782 5,175
Extraordinary loss 769,620 0
Changes in assets and liabilities:
Decrease in restricted cash 61,491 51,330
Increase in other assets (80,400) (22,860)
(Decrease) increase in accounts payable - trade (2,405) 76,961
Increase in accounts payable - related parties 2,997 915
(Decrease) increase in accounts payable - other (28,159) 4,533
Increase in interest payable 91,417 134,269
Increase (decrease) in tenant security deposits 16,123 (10,637)
---------- -------
Net cash provided by (used in) operating activities 36,359 (80,983)
---------- -------
Cash flows from investing activities:
Capital expenditures (6,008) (16,769)
---------- -------
Net cash used in investing activities (6,008) (16,769)
---------- -------
Cash flows from financing activities:
Proceeds from debt financing 4,008 127,455
Principal payments (42,712) (28,565)
---------- -------
Net cash (used in) provided by financing activities (38,704) 98,890
---------- -------
(Decrease) increase in cash and cash equivalents (8,353) 1,138
---------- -------
Cash and cash equivalents at beginning of period 59,334 72,395
---------- -------
Cash and cash equivalents at end of period $ 50,981 $ 73,533
========== =======
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, 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 March 31, 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 13, 1997 DIVERSIFIED HISTORIC INVESTORS VI
----------------
By: Dover Historic Advisors VI, Inc., 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 50,981
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,837,966
<DEPRECIATION> 9,173,342
<TOTAL-ASSETS> 20,394,739
<CURRENT-LIABILITIES> 965,158
<BONDS> 15,664,204
0
0
<COMMON> 0
<OTHER-SE> 2,503,616
<TOTAL-LIABILITY-AND-EQUITY> 20,394,739
<SALES> 0
<TOTAL-REVENUES> 860,151
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 395,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427,864
<INCOME-PRETAX> (1,151,017)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,151,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,151,017)
<EPS-PRIMARY> (44.76)
<EPS-DILUTED> 0
</TABLE>
