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, 1998
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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.)
1609 Walnut Street, Philadelphia, PA 19103
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
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, 1998
(unaudited) and December 31, 1997
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Three Months and
Nine Months Ended September 30, 1998 and 1997 (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, 1998, Registrant had cash of
$28,750. 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, 1998, Registrant had
restricted cash of $541,262 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 two properties and a
substantial reduction of interest in a third property. At the present
time, all remaining properties are able to pay their operating
expenses and debt service including two of the six properties where
the mortgages are basically "cash-flow" mortgages, requiring all
available cash after payment of operating expenses to be paid to the
first mortgage holder. None of the properties are currently producing
a material amount of revenues in excess of operating expenses and debt
service. 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 1998, Registrant
incurred a net loss of $1,055,724 ($41.05 per limited partnership
unit) compared to a net loss of $84,138 ($3.27 per limited partnership
unit) for the same period in 1997. For the first nine months of 1998,
the Registrant incurred a net loss of $1,894,421 ($73.66 per limited
partnership unit) compared to a net loss of $1,620,166 ($63.00 per
limited partnership unit) for the same period in 1997.
Rental income increased $5,130 from $565,930 in
the third quarter of 1997 to $571,060 in the same period in 1998. The
increase from the third quarter of 1997 to the same period in 1998 is
due mainly to increases at Canal House, Firehouse Square, Roseland,
and Mater Dolorosa.
Rental income decreased $51,537 from $1,775,668 in
the first nine months of 1997 to $1,724,131 in the same period in
1998. The decrease from the first nine months of 1997 to the same
period in 1998 is due mainly to the foreclosure of Locke Mill and a
decrease at Strehlow Terrace partially offset by increases at Canal
House, Firehouse Square, and Mater Dolorosa.
Other income decreased $205,643 from $205,643 in
the first nine months of 1997 to $0 in the same period in 1998. The
decrease from the first nine months of 1997 to the same period in 1998
is due to the sale of the interest in Strehlow Terrace Apartments
Limited Partnership, as referred to in the Form 10-K for the year
ended December 31, 1997.
Expenses for rental operations increased by
$10,144 from $200,619 in the third quarter of 1997 to $210,763 in the
same period in 1998. The increase is mainly the result of an increase
in maintenance expense at Mater Dolorosa and an increase in wages and
salary expense at Strehlow Terrace partially offset by the foreclosure
of Locke Mill and a decrease in maintenance expense at Strehlow
Terrace. At Mater Dolorosa, maintenance expense increased due to
deferred maintenance performed at the property in the third quarter of
1998 and at Strehlow Terrace, wages and salaries expense increased due
to cost of living adjustments given to the employees.
Expenses for rental operations increased by
$10,964 from $775,645 in the first nine months of 1997 to $786,609 in
the same period in 1998. The increase is mainly the result of an
increase in maintenance expense at both Mater Dolorosa and Strehlow
Terrace and an increase in wages and salary expense at Mater Dolorosa
partially offset by the foreclosure of Locke Mill. At both Mater
Dolorosa and Strehlow Terrace, maintenance expense increased due to
deferred maintenance performed at the property in the first nine
months of 1998 and at Mater Dolorosa, wages and salaries expense
increased due to cost of living adjustments given to the employees.
Depreciation and amortization expense increased
$17,507 from $271,574 in the third quarter of 1997 to $289,081 in the
same period in 1998. The increase is due to an increase in
amortization expense at Firehouse Square due to the amortization of
leasing commissions incurred during 1997 partially offset by a
decrease at Roseland.
Depreciation and amortization expense decreased
$49,120 from $916,362 in the first nine months of 1997 to $867,242 in
the same period in 1998. The decrease is due to the foreclosure of
Locke Mill combined with a decrease at Roseland partially offset by an
increase in amortization expense at Firehouse Square due to the
amortization of leasing commissions incurred during 1997.
Interest expense increased by $951,095 from
$112,825 in the third quarter of 1997 to $1,063,920 in the same period
in 1998 and increased $832,678 from $944,104 in the first nine months
of 1997 to $1,776,782 for the same period in 1998. The increase from
the third quarter and the first nine months of 1997 to the same
periods of 1998 is mainly due to prepayment penalties incurred in
connection with refinancing of the first mortgages at Canal House and
Firehouse Square partially offset by the foreclosure of Locke Mill in
March 1997.
Losses incurred during the quarter at the
Registrant's properties amounted to $974,000, compared to a loss of
approximately $16,000 for the same period in 1997. For the first nine
months of 1998 the Registrant's properties recognized a loss of
$1,647,000 compared to approximately $1,536,000 for the same period in
1997. 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 1998, Registrant incurred
a loss of $0 at Locke Mill, compared to a loss of $0 in the third
quarter of 1997, and for the first nine months of 1998, incurred a
loss of $0 compared to a loss of $852,000 for the same period in 1997,
including $63,000 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 the property. The loss without the
effect of the foreclosure for the first nine months of 1997 would have
been $82,000. The change in the loss from the first nine months of
1997 to the same period in 1998 is due to the foreclosure of the
property on March 31, 1997.
In the third quarter of 1998, Registrant incurred
a loss of $15,000 at Roseland including $16,000 of depreciation
expense, compared to a loss of $20,000 including $19,000 of
depreciation in the third quarter of 1997; for the first nine months
of 1998, the Registrant incurred a loss of $41,000 including $50,000
of depreciation expense, compared to a loss of $56,000 for the same
period in 1997, including $55,000 of depreciation expense. The
decreased loss from the third quarter and the first nine months of
1997 to the same periods in 1998 is mainly due to an increase in
rental income due to an increase in the average rental rates and a
decrease in depreciation expense due to the fact that certain personal
property was fully depreciated in the third quarter of 1997.
In the third quarter of 1998, Registrant incurred
a loss of $348,000 at Firehouse Square including $70,000 of
depreciation and amortization expense, compared to a loss of $126,000
including $64,000 of depreciation and amortization expense in the
third quarter of 1997 and, for the first nine months of 1998, incurred
a loss of $633,000 including $211,000 of depreciation and amortization
expense, compared to a loss of $407,000 for the same period in 1997,
including $192,000 of depreciation and amortization expense. The
increase in the loss from the third quarter and the first nine months
of 1997 to the same periods in 1998 is due to an increase in interest
and amortization expense partially offset an increase in rental income
due to an increase in the average rental rates. Interest expense
increased due to a prepayment penalty incurred in connection with a
refinancing of the first mortgage loan. Amortization expense
increased due to the amortization of leasing commissions incurred
during 1997.
In the third quarter of 1998, Registrant incurred
a loss of less than $1,000 at Mater Dolorosa including $32,000 of
depreciation and amortization expense, compared to a loss of $4,000
including $31,000 of depreciation and amortization expense in the
third quarter of 1997. The decrease in the loss from the third
quarter of 1997 to the same period in 1998 is due to an increase in
rental income partially offset by an increase in maintenance expense.
The increase in rental income is due to an increase in the average
rental rates. Maintenance expense increased due to deferred
maintenance performed at the property in the third quarter of 1998.
For the first nine months of 1998, the Registrant
incurred a loss of $19,000 at Mater Dolorosa including $95,000 of
depreciation and amortization expense, compared to a loss of $5,000
for the same period in 1997, including $95,000 of depreciation and
amortization expense. The increase in the loss from the first nine
months of 1997 to the same period in 1998 is due to an increase in
maintenance and wages and salaries expense partially offset by an
increase in rental income. Maintenance expense increased due to
deferred maintenance performed at the property in the first nine
months of 1998. Wages and salaries increased due to cost of living
adjustments given to employees. The increase in rental income is due
to an increase in the average rental rates.
In the third quarter of 1998, the Registrant
incurred a loss of $54,000 at Strehlow Terrace including $58,000 of
depreciation expense, compared to a loss of $55,000 including $57,000
of depreciation expense in the second quarter of 1997. The decrease
in the loss from the third quarter of 1997 to the same period in 1998
is due to a decrease in maintenance expense due to deferred
maintenance performed in the third quarter of 1997 which was not
required in the third quarter of 1998 partially offset by an increase
in wages and salaries expense due to cost of living adjustments given
to employees.
For the first nine months of 1998, the Registrant
incurred a loss of $166,000 at Strehlow Terrace including $174,000 of
depreciation expense, compared to a loss of $146,000 for the same
period in 1997, including $171,000 of depreciation and amortization
expense. The increase in the loss from the first nine months of 1997
to the same period in 1998 is due to an increase in maintenance
expense due to deferred maintenance performed in the first six months
of 1998 combined with a decrease in rental income due to a decrease in
the average occupancy (95% to 88%).
In the third quarter of 1998, Registrant incurred
a loss of $556,000 at Canal House including $93,000 of depreciation
and amortization expense, compared to income of $189,000 including
$80,000 of depreciation expense in the third quarter of 1997 and, for
the first nine months of 1998, the Registrant incurred a loss of
$788,000 including $279,000 of depreciation and amortization expense,
compared to a loss of $70,000 for the same period in 1997, including
$282,000 of depreciation expense. The increase in the losses from the
third quarter and the first nine months of 1997 to the same periods in
1998 is due mainly to an increase in interest expense partially offset
by an increase in rental income. Interest expense increased due to a
prepayment penalty incurred in connection with a refinancing of the
property. Rental income increased due to an increase in the average
rental rates.
In the third quarter of 1998, Registrant incurred
a loss of $3,000 at Saunders Apartments compared to a loss of $9,000
in the second quarter of 1997. For the first nine months of 1998, the
Registrant incurred a loss of $17,000 at Saunders Apartments compared
to a loss $10,000 for the same period in 1997. The Registrant
accounts for this investment on the equity method and the decrease in
the loss is due to an overall 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, 1998 December 31, 1997
(Unaudited)
Rental properties, at cost:
Land $ 950,238 $ 950,238
Buildings and improvements 27,160,191 27,138,941
Furniture and fixtures 845,914 845,914
---------- ----------
28,956,343 28,935,093
Less - Accumulated depreciation (10,762,549) (9,949,357)
---------- ----------
18,193,794 18,985,736
Cash and cash equivalents 28,750 23,036
Restricted cash 541,262 334,180
Investment in affiliate (4,155) 5,748
Other assets (net of amortization of
$480,571 and $426,518 at September 30,
1998 and December 31, 1997, respectively) 524,984 360,606
---------- ----------
Total $19,284,635 $19,709,306
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $16,480,108 $15,451,686
Accounts payable:
Trade 1,033,467 872,625
Taxes 20,004 20,004
Related parties 316,050 308,474
Other 23,447 1,026
Interest payable 1,538,975 1,292,641
Tenant security deposits 128,502 124,350
---------- ----------
Total liabilities 19,540,553 18,070,806
---------- ----------
Partners' equity (255,918) 1,638,500
---------- ----------
Total $19,284,635 $19,709,306
========== ==========
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, 1998 and 1997
(Unaudited)
Three months Nine months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Rental income $ 571,060 $565,930 $1,724,131 $1,775,668
Other income 0 0 0 205,643
Interest income 459 286 1,984 722
------- ------- --------- ---------
Total revenues 571,519 566,216 1,726,115 1,982,033
------- ------- --------- ---------
Costs and expenses:
Rental operations 210,763 200,619 786,609 775,645
General and administrative 60,000 60,060 180,000 179,491
Interest 1,063,920 112,825 1,776,782 944,104
Depreciation and
amortization 289,081 271,574 867,242 916,362
--------- ------- --------- ---------
Total costs and expenses 1,623,764 645,078 3,610,633 2,815,602
--------- ------- --------- ---------
Loss before equity in affiliate
and extraordinary loss (1,052,245) (78,862) (1,884,518) (833,569)
Equity in net loss of affiliate (3,479) (5,276) (9,903) (16,977)
--------- ------- --------- ---------
Loss before extraordinary loss (1,055,724) (84,138) (1,894,421) (850,546)
Extraordinary loss 0 0 0 (769,620)
--------- ------- --------- ---------
Net loss ($1,055,724)($ 84,138)($1,894,421)($1,620,166)
========= ======= ========= =========
Net loss per limited
partnership unit
Loss before equity in affiliate ($ 40.91)($ 3.06)($ 73.27)($ 32.41)
Equity in net loss of affiliate (.14) (.21) (.39) (.66)
--------- ------- --------- ---------
Loss before extraordinary loss (41.05) (3.27) (73.66) (33.07)
Extraordinary loss 0 0 0 (29.93)
--------- ------- --------- ---------
($ 41.05)($ 3.27)($ 73.66)($ 63.00)
========= ======= ========= =========
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, 1998 and 1997
(Unaudited)
Nine months ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss ($1,894,421) ($1,620,166)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 867,242 916,362
Equity in loss of affiliate 9,903 16,977
Extraordinary loss 0 769,620
Changes in assets and liabilities:
Increase in restricted cash (207,082) (14,549)
Increase in other assets (218,429) (97,355)
Increase in accounts payable - trade 160,842 101,743
Increase in accounts payable - related parties 7,576 27,784
Increase (decrease) increase in accounts
payable - other 22,421 (56,083)
Increase in interest payable 246,334 171,579
Increase in tenant security deposits 4,156 19,455
Net cash (used in) provided by operating --------- ---------
activities (1,001,458) 235,367
--------- ---------
Cash flows from investing activities:
Capital expenditures (21,250) (88,414)
--------- ---------
Net cash used in investing activities (21,250) (88,414)
--------- ---------
Cash flows from financing activities:
Proceeds from debt financing 1,139,659 67,967
Principal payments (111,237) (235,118)
Net cash provided by (used in) financing --------- ---------
activities 1,028,422 (167,151)
--------- ---------
Increase (decrease) in cash and cash equivalents 5,714 (20,198)
Cash and cash equivalents at beginning of period 23,036 59,334
--------- ---------
Cash and cash equivalents at end of period $ 28,750 $ 39,136
========= =========
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, 1997.
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, 1998.
<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: December 14, 1998 DIVERSIFIED HISTORIC INVESTORS VI
-----------------
By: Dover Historic Advisors VI, General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
-----------------------
SPENCER WERTHEIMER
President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 28,750
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,956,343
<DEPRECIATION> 10,762,549
<TOTAL-ASSETS> 19,284,635
<CURRENT-LIABILITIES> 1,392,968
<BONDS> 16,480,108
0
0
<COMMON> 0
<OTHER-SE> (255,918)
<TOTAL-LIABILITY-AND-EQUITY> 19,284,635
<SALES> 0
<TOTAL-REVENUES> 1,726,115
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 786,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,776,782
<INCOME-PRETAX> (1,894,421)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,894,421)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,894,421)
<EPS-PRIMARY> (73.66)
<EPS-DILUTED> 0
</TABLE>
