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, 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 - September 30, 1997
(unaudited) and December 31, 1996
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Three Months and
Nine Months Ended September 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 September 30, 1997, Registrant had cash of
$39,136. 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, 1997, Registrant had
restricted cash of $354,271 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 third quarter of 1997, Registrant
incurred a net loss of $84,138 ($3.27 per limited partnership unit)
compared to a net loss of $475,147 ($18.67 per limited partnership
unit) for the same period in 1996. For the first nine months of 1997,
the Registrant incurred a net loss of $1,620,166 ($63.00 per limited
partnership unit) compared to a net loss of $1,620,058 ($62.99 per
limited partnership unit) for the same period in 1996. Included in
the loss for the first nine months of 1997 is $769,620 of
extraordinary loss relating to the foreclosure of Locke Mill.
Rental income decreased $81,745 from $647,675 in
the third quarter of 1996 to $565,930 in the same period in 1997. The
decrease from the third quarter of 1996 to the same period in 1997 is
due mainly to the foreclosure of Locke Mill partially offset by
increases at Canal House, Firehouse Square and Roseland, as described
below.
Rental income decreased $171,363 from $1,947,031
in the first nine months of 1996 to $1,775,668 in the same period in
1997. The decrease from the first nine months of 1996 to the same
period in 1997 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, as
described below.
Other income increased $205,643 from $0 in the
first nine months of 1996 to $205,643 in the same period in 1997. The
increase from the first nine 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
$121,369 from $321,988 in the third quarter of 1996 to $200,619 in the
same period in 1997. The decrease from the third quarter of 1996 to
the same period in 1997 is mainly the result of the foreclosure of
Locke Mill partially offset by an increase in wages expense at Mater
Dolorosa due to cost of living adjustments and an increase in
maintenance expense at Roseland and Strehlow due to deferred
maintenance performed in 1997.
Expenses for rental operations decreased $359,122
from $1,134,767 in the first nine months of 1996 to $775,645 in the
same period in 1997. The decrease from the first nine months of 1996
to the same period in 1997 is mainly the result of the foreclosure of
Locke Mill combined with a decrease in commissions expense and legal
fees at Canal House partially offset by an increase in maintenance
expense at Roseland and an overall increase in operating expenses at
Mater Dolorosa due to an increase in the occupancy. 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, none of which were repeated in 1997. At Roseland,
maintenance expense increased due to deferred maintenance performed.
Depreciation and amortization expense decreased
$76,738 from $348,312 in the third quarter of 1996 to $271,574 in the
same period in 1997 and decreased $121,466 from $1,037,828 in the
first nine months of 1996 to $916,362 in the same period in 1997. The
decreases are due to the foreclosure of Locke Mill.
Interest expense decreased by $275,783 from
$388,608 in the third quarter of 1996 to $112,825 in the same period
in 1997 and decreased $258,070 from $1,202,174 in the first nine
months of 1996 to $944,104 in the same period in 1997. The decreases
are due to the foreclosure of Locke Mill in March 1997 and a decrease
at Canal House due to a decrease in the interest rate of the note
partially offset by an increase in the prime lending rate upon which
interest is calculated at Firehouse Square.
Losses incurred during the quarter at the
Registrant's properties amounted to $16,000, compared to a loss of
approximately $393,000 for the same period in 1996. For the first
nine months of 1997 the Registrant's properties recognized a loss of
$1,536,000 compared to approximately $1,370,000 for the same period in
1996. Included in the loss for the first nine months of 1997 is
$770,000 of extraordinary loss relating to the foreclosure of Locke
Mill.
In the third quarter of 1997, Registrant incurred
a loss of $0 at Locke Mill Plaza, compared to a loss of $165,000 in
the third quarter of 1996, including $63,000 of depreciation and
amortization expense; for the first nine months of 1997, the
Registrant incurred a loss of $852,000 including $63,000 of
depreciation and amortization expense, compared to a loss $397,000 for
the same period in 1996, including $188,000 of depreciation expense.
Included in the loss for the first nine months of 1997 is $770,000 of
extraordinary loss relating to the foreclosure of Locke Mill. The
loss without the effect of the foreclosure for the first nine months
of 1997 would have been $82,000. The decreased loss from the third
quarter and the first nine months of 1996 to the same periods in 1997
is the result of the foreclosure of the property on March 31, 1997.
In the third quarter of 1997, Registrant incurred
a loss of $20,000 at Roseland including $19,000 of depreciation
expense, compared to a loss of $18,000 including $19,000 of
depreciation in the third quarter of 1996. The increase in the loss
from the third quarter 1996 to the same period in 1997 results from an
increase in maintenance expense due to deferred maintenance performed
in the third quarter of 1997 partially offset by an increase in rental
income due to increases in the average rental rates.
For the first nine months of 1997, the Registrant
incurred a loss of $56,000 at Roseland including $55,000 of
depreciation expense, compared to a loss of $61,000 for the same
period in 1996, including $55,000 of depreciation expense. The
decrease in the loss from the first nine months of 1996 to the same
period in 1997 results from an increase in rental income due to
increases in the average rental rates partially offset by an increase
in maintenance expense due to deferred maintenance performed in the
first nine months of 1997.
In the third quarter of 1997, Registrant incurred
a loss of $126,000 at Firehouse Square including $64,000 of
depreciation and amortization expense, compared to a loss of $137,000
including $64,000 of depreciation and amortization expense in the
third quarter of 1996. The decrease in the loss from the third
quarter of 1996 to the same period in 1997 is due to an increase in
rental income due to an increase in the average occupancy (88% to
100%) 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.
For the first nine months of 1997, the Registrant
incurred a loss of $407,000 at Firehouse Square including $192,000 of
depreciation and amortization expense, compared to a loss $423,000 for
the same period in 1995, including $192,000 of depreciation and
amortization expense. The decrease in the loss from the first nine
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 93%)
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 third quarter of 1997, Registrant incurred
a loss of $4,000 at Mater Dolorosa including $31,000 of depreciation
and amortization expense, compared to a loss of $2,000 including
$32,000 of depreciation and amortization expense in the first quarter
of 1996. The increase in the loss from the third quarter of 1996 to
the same period in 1997 is due to an increase in wages and salaries
expense due to cost of living adjustments given to employees.
For the first nine months of 1997, the Registrant
incurred a loss of $5,000 at Mater Dolorosa including $95,000 of
depreciation and amortization expense, compared to a loss of $5,000
for the same period in 1995, including $97,000 of depreciation and
amortization expense. Although there was no overall change in the
loss from the first nine months of 1996 to the same period in 1997,
there was an increase in rental income due to an increase in the
average occupancy (92% to 96%) offset by an overall increase in
operating expenses due to the increased occupancy.
In the third quarter of 1997, Registrant incurred
a loss of $55,000 at Strehlow Terrace including $57,000 of
depreciation expense, compared to a loss of $51,000 including $57,000
of depreciation expense in the third quarter of 1996. The increase in
the loss from the third quarter of 1996 to the same period in 1997 is
due to an increase in maintenance expense due to deferred maintenance
performed in the third quarter of 1997.
For the first nine months of 1997, the Registrant
incurred a loss of $146,000 at Strehlow Terrace including $171,000 of
depreciation expense, compared to a loss $123,000 for the same period
in 1996, including $170,000 of depreciation and amortization expense.
The increase in the loss from the first nine months of 1996 to the
same period in 1997 is due to a decrease in rental income 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.
In the third quarter of 1997, Registrant
recognized income of $189,000 at Canal House including $80,000 of
depreciation expense, compared to a loss of $20,000 including $96,000
of depreciation expense in the third quarter of 1996. The change from
loss to recognition of income from the third quarter of 1996 to the
same period in 1997 is due to a decrease in interest expense due to a
decrease in the interest rate combined with an increase in rental
income due to an increase in the average rental rates.
For the first nine months of 1997, the Registrant
incurred a loss of $70,000 at Canal House including $282,000 of
depreciation and amortization expense, compared to a loss $361,000 for
the same period in 1996, including $279,000 of depreciation expense.
The decrease in the loss from the first nine months of 1996 to the
same period in 1997 is due to a decrease in interest and commissions
expense and legal fees partially offset by an increase in rental
income. Interest expense decreased due to a decrease in the interest
rate 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 which were not repeated in the
1997 period. Legal fees decreased due to fees incurred in connection
with the restructuring of the debt in the first quarter of 1996 and
rental income increased due to an increase in the average rental
rates.
In the third quarter of 1997, Registrant incurred
a loss of $9,000 at Saunders Apartments compared to a loss of $4,000
in the third quarter of 1996. For the first nine months of 1997, the
Registrant incurred a loss of $17,000 at Saunders Apartments compared
to a loss $13,000 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
September 30, 1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 950,238 $ 1,081,164
Buildings and improvements 27,138,591 33,506,067
Furniture and fixtures 831,543 1,068,784
---------- ----------
28,920,372 35,656,555
Less - Accumulated depreciation (9,715,521) (10,933,587)
---------- ----------
19,204,851 24,722,968
Cash and cash equivalents 39,136 59,334
Restricted cash 354,271 362,796
Investment in affiliate 10,324 27,301
Other assets (net of amortization of
$413,752 and $424,590 at September 30,
1997 and December 31, 1996, respectively) 373,068 385,345
---------- ----------
Total $19,981,650 $25,557,744
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $15,535,757 $19,353,961
Accounts payable:
Trade 744,029 790,335
Taxes 21,830 21,830
Related parties 290,544 272,760
Other 9,768 70,926
Interest payable 1,202,637 1,254,336
Tenant security deposits 142,618 138,963
---------- ----------
Total liabilities 17,947,183 21,903,111
---------- ----------
Partners' equity 2,034,467 3,654,633
---------- ----------
Total $19,981,650 $25,557,744
========== ==========
The accompanying notes are an integral part of thes 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, 1997 and 1996
(Unaudited)
Three months Nine months
ended September 30, ended September 30,
1997 1996 1997 1996
------ ------ ------ ------
Revenues:
Rental income $565,930 $647,675 $1,775,668 $1,947,031
Other income 0 0 205,643 0
Interest income 286 191 722 839
------- ------- --------- --------
Total revenues 566,216 647,866 1,982,033 1,947,870
------- ------- --------- ---------
Costs and expenses:
Rental operations 200,619 321,988 775,645 1,134,767
General and administrative 60,060 60,000 179,491 180,265
Interest 112,825 388,608 944,104 1,202,174
Depreciation and amortization 271,574 348,312 916,362 1,037,828
------- --------- --------- ---------
Total costs and expenses 645,078 1,118,908 2,815,602 3,555,034
------- --------- --------- ---------
Loss before equity in affiliate(78,862) (471,042) (833,569) (1,607,164)
Equity in net loss of affiliate (5,276) (4,105) (16,977) (12,894)
------- --------- --------- ---------
Loss before extraordinary loss (84,138) (475,147) (850,546) (1,620,058)
Extraordinary loss 0 0 (769,620) 0
------- --------- --------- ---------
Net loss ($ 84,138)($ 475,147) ($1,620,166) ($1,620,058)
======= ========= ========= =========
Net loss per limited partnership
unit
Loss before equity in affiliate($ 3.06)($ 18.32) ($ 32.41) ($ 62.49)
Equity in net loss of affiliate (.21) (.16) (.66) (.50)
----- --------- --------- ---------
Loss before extraordinary loss (3.27) (18.67) (33.07) (62.99)
Extraordinary loss 0 0 (29.93) 0
----- --------- --------- ---------
($ 3.27)($ 18.67) ($ 63.00) ($ 62.99)
===== ========= ========= =========
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, 1997 and 1996
(Unaudited)
Nine months ended
September 30,
1997 1996
Cash flows from operating activities: ------ ------
Net loss ($1,620,166) ($1,620,058)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 916,362 1,037,828
Equity in loss of affiliate 16,977 12,894
Extraordinary loss 769,620 0
Changes in assets and liabilities:
Increase in restricted cash (14,549) (78,860)
Increase in other assets (97,355) (85,286)
Increase in accounts payable - trade 101,743 190,627
Increase (decrease) in accounts payable - related
parties 27,784 (22,245)
(Decrease) increase in accounts payable - other (56,083) 331
Increase in interest payable 171,579 380,087
Increase in tenant security deposits 19,455 1,139
--------- ---------
Net cash provided by (used in) operating activities 235,367 (183,543)
--------- ---------
Cash flows from investing activities:
Capital expenditures (88,414) (28,613)
--------- ---------
Net cash used in investing activities (88,414) (28,613)
--------- ---------
Cash flows from financing activities:
Proceeds from debt financing 67,967 267,612
Principal payments (235,118) (82,424)
--------- ---------
Net cash (used in) provided by financing activities (167,151) 185,188
--------- ---------
Decrease in cash and cash equivalents (20,198) (26,968)
Cash and cash equivalents at beginning of period 59,334 72,395
--------- ---------
Cash and cash equivalents at end of period $ 39,136 $ 45,427
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 995,803 $ 903,444
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
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, 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: November 17, 1997 DIVERSIFIED HISTORIC INVESTORS VI
----------------
By: Dover Historic Advisors VI, General Partner
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi
----------------------------
DONNA M. ZANGHI,
Vice President and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 39,136
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,920,372
<DEPRECIATION> 9,715,521
<TOTAL-ASSETS> 19,981,650
<CURRENT-LIABILITIES> 1,066,171
<BONDS> 15,535,757
0
0
<COMMON> 0
<OTHER-SE> 2,034,467
<TOTAL-LIABILITY-AND-EQUITY> 19,981,650
<SALES> 0
<TOTAL-REVENUES> 1,982,033
<CGS> 0
<TOTAL-COSTS> 775,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 944,104
<INCOME-PRETAX> (850,546)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (769,620)
<CHANGES> 0
<NET-INCOME> (1,620,166)
<EPS-PRIMARY> (63.00)
<EPS-DILUTED> 0
</TABLE>
