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, 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 1998 (unaudited)
and December 31, 1997
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Three Months and
Six Months Ended June 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 June 30, 1998, Registrant had cash of
$31,675. 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, 1998, Registrant had restricted
cash of $295,822 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 second quarter of 1998, Registrant
incurred a net loss of $361,991 ($14.08 per limited partnership unit)
compared to a net loss of $385,011 ($14.97 per limited partnership
unit) for the same period in 1997. For the first six months of 1998,
the Registrant incurred a net loss of $838,697 ($32.61 per limited
partnership unit) compared to a net loss of $1,536,028 ($59.73 per
limited partnership unit) for the same period in 1997.
Rental income increased $25,660 from $555,496 in
the second quarter of 1997 to $581,156 in the same period in 1998.
The increase in the second quarter of 1998 from the same period in
1997 is due mainly to increases at Canal House, Roseland, Strehlow
Terrace and Mater Dolorosa.
Rental income decreased $56,667 from $1,209,738 in
the first six months of 1997 to $1,153,071 in the same period in 1998.
The decrease from the first six months of 1997 to the same period in
1998 is due mainly to the foreclosure of Locke Mill partially offset
by increases at Canal House, Firehouse Square, Roseland, Mater
Dolorosa and Strehlow Terrace.
Other income decreased $205,643 from $205,643 in
the first six months of 1997 to $0 in the same period in 1998. The
decrease from the first six 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
$49,592 from $179,559 in the second quarter of 1997 to $229,151 in the
same period in 1998 and increased $820 from $575,015 in the first six
months of 1997 to $575,846 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 six 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 decreased
$2,798 from $291,878 in the second quarter of 1997 to $289,080 in the
same period in 1998 and decreased $66,627 from $644,788 in the first
six months of 1997 to $578,161 in the same period in 1998. The
decreases are due to the foreclosure of Locke Mill combined with
decreases at Canal House and Roseland partially offset by an increase
in amortization expense at Firehouse Square due to the amortization of
leasing commissions incurred during 1997.
Interest expense decreased by $40,444 from
$403,415 in the second quarter of 1997 to $362,971 in the same period
in 1998 and decreased $118,417 from $831,279 in the first six months
of 1997 to $712,862 for the same period in 1998. The decrease from
second quarter and the first six months of 1997 to the same periods of
1998 is mainly due to the foreclosure of Locke Mill in March 1997
partially offset by an increase at Firehouse Square due to an increase
in the principal balance upon interest is calculated.
Losses incurred during the quarter at the
Registrant's properties amounted to $283,000, compared to a loss of
approximately $326,000 for the same period in 1997. For the first six
months of 1998 the Registrant's properties recognized a loss of
$680,000 compared to approximately $1,549,000 for the same period in
1997. 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 1998, Registrant incurred
a loss of $0 at Locke Mill, compared to a loss of $0 in the second
quarter of 1997, and for the first six 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 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 change in the loss from the first six months of
1997 to the same period in 1998 is due to the foreclosure of the
property on March 31, 1997.
In the second quarter of 1998, Registrant incurred
a loss of $15,000 at Roseland including $16,000 of depreciation
expense, compared to a loss of $19,000 including $18,000 of
depreciation in the second quarter of 1997; for the first six months
of 1998, the Registrant incurred a loss of $26,000 including $34,000
of depreciation expense, compared to a loss of $36,000 for the same
period in 1997, including $36,000 of depreciation expense. The
decreased loss from the second quarter and the first six 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 second quarter of 1998, Registrant incurred
a loss of $149,000 at Firehouse House including $71,000 of
depreciation and amortization expense, compared to a loss of $147,000
including $65,000 of depreciation and amortization expense in the
first quarter of 1997. The increase in the loss from the second
quarter of 1997 to the same period in 1998 is due to an increase in
amortization expense partially offset by a decrease in real estate tax
expense due to a decrease in the assessed value of the property.
Amortization expense increased due to the amortization of leasing
commissions incurred during 1997.
For the first six months of 1998, the Registrant
incurred a loss of $285,000 at Firehouse Square including $141,000 of
depreciation and amortization expense, compared to a loss of $281,000
for the same period in 1997, including $128,000 of depreciation and
amortization expense. The increase in the loss from the first six
months of 1997 to the same period in 1998 is due to an increase in
interest and amortization expense partially offset by an increase in
rental income due to an increase in the average rental rates.
Interest expense increased due to an increase in the average principal
balance of the loan upon which interest is calculated. Amortization
expense increased due to the amortization of leasing commissions
incurred during 1997.
In the second quarter of 1998, Registrant incurred
a loss of $5,000 at Mater Dolorosa including $31,000 of depreciation
and amortization expense, compared to income of $6,000 including
$32,000 of depreciation and amortization expense in the second quarter
of 1997, and for the first six months of 1998, the Registrant incurred
a loss of $19,000 at Mater Dolorosa including $63,000 of depreciation
and amortization expense, compared to a loss of $1,000 for the same
period in 1997, including $64,000 of depreciation and amortization
expense. The increase in the loss from the second quarter and the
first six months of 1997 to the same periods in 1998 is due to an
increase in maintenance and wages and salaries expense partially
offset by an increase in rental income due to an increase in the
average rental rates. Maintenance expense increased due to deferred
maintenance performed at the property in the first six months of 1998
and wages and salaries expense increased due to cost of living
adjustments given to the employees.
In the second quarter of 1998, Registrant incurred
a loss of $58,000 at Strehlow Terrace including $58,000 of
depreciation expense, compared to a loss of $51,000 including $57,000
of depreciation expense in the second quarter of 1997 and, for the
first six months of 1998, the Registrant incurred a loss of $112,000
including $116,000 of depreciation expense, compared to a loss of
$108,000 for the same period in 1997, including $114,000 of
depreciation and amortization expense. The increase in the loss from
the second quarter and the first six months of 1997 to the same
periods in 1998 is due to an increase in maintenance expense due to
deferred maintenance performed in the first six months of 1998
partially offset by an increase in rental income due to an increase in
the average rental rates.
In the second quarter of 1998, Registrant incurred
a loss of $53,000 at Canal House including $93,000 of depreciation and
amortization expense, compared to a loss of $107,000 including
$101,000 of depreciation expense in the second quarter of 1997 and,
for the first six months of 1998, the Registrant incurred a loss of
$232,000 including $186,000 of depreciation and amortization expense,
compared to a loss $259,000 for the same period in 1997, including
$202,000 of depreciation expense. The decrease in the losses from the
second quarter and the first six months of 1997 to the same periods in
1998 is due to an increase in rental income combined with a decrease
in amortization expense. Rental income increased due to an increase
in average occupancy (88% to 96%) for the second quarter and (89% to
96%) for the first six months and an increase in the average rental
rates. Amortization expense decreased due to the fact that certain
leasing commissions became fully amortized in the third quarter of
1997.
In the second quarter of 1998, Registrant incurred
a loss of $3,000 at Saunders Apartments compared to a loss of $8,000
in the second quarter of 1997. For the first six months of 1998, the
Registrant incurred a loss of $6,000 at Saunders Apartments compared
to a loss $12,000 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
June 30, 1998 December 31, 1997
(Unaudited)
Rental properties, at cost:
Land $ 950,238 $ 950,238
Buildings and improvements 27,151,192 27,138,941
Furniture and fixtures 845,914 845,914
---------- ----------
28,947,344 28,935,093
Less - Accumulated depreciation (10,491,485) (9,949,357)
---------- ----------
18,455,859 18,985,736
Cash and cash equivalents 31,675 23,036
Restricted cash 295,822 334,180
Investment in affiliate (676) 5,748
Other assets (net of amortization of
$462,553 and $426,518 at June 30, 1998
and December 31, 1997, respectively) 327,662 360,606
---------- ----------
Total $19,110,342 $19,709,306
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $15,374,419 $15,451,686
Accounts payable:
Trade 972,693 872,625
Taxes 20,004 20,004
Related parties 314,056 308,474
Other 22,862 1,026
Interest payable 1,468,685 1,292,641
Tenant security deposits 137,820 124,350
---------- ----------
Total liabilities 18,310,539 18,070,806
---------- ----------
Partners' equity 799,803 1,638,500
---------- ----------
Total $19,110,342 $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 Six Months Ended June 30, 1998 and 1997
(Unaudited)
Three months Six months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 581,156 $ 555,496 $1,153,071 $1,209,738
Other income 0 0 0 205,643
Interest income 1,192 170 1,525 436
------- ------- --------- ---------
Total revenues 582,348 555,666 1,154,596 1,415,817
------- ------- --------- ---------
Costs and expenses:
Rental operations 229,151 179,559 575,846 575,026
General and administrative 60,000 57,906 120,000 119,431
Interest 362,971 403,415 712,862 831,279
Depreciation and
amortization 289,080 291,878 578,161 644,788
------- ------- --------- ---------
Total costs and expenses 941,202 932,758 1,986,869 2,170,524
------- ------- --------- ---------
Loss before equity in affiliate
and extraordinary loss (358,854) (377,092) (832,273) (754,707)
Equity in net loss of affiliate (3,137) (7,919) (6,424) (11,701)
------- ------- ------- ---------
Loss before extraordinary loss (361,991) (385,011) (838,697) (766,408)
Extraordinary loss 0 0 0 (769,620)
------- ------- ------- ---------
Net loss ($ 361,991) ($ 385,011) ($ 838,697) ($1,536,028)
======= ======= ======= =========
Net loss per limited
partnership unit
Loss before equity in affiliate($ 13.96) ($ 14.67) ($ 32.36) ($ 29.35)
Equity in net loss of affiliate (.12) (.30) (.25) (.45)
------- -------- -------- ---------
Loss before extraordinary loss (14.08) (14.97) (32.61) (29.80)
Extraordinary loss 0 0 0 (29.93)
------- -------- -------- ---------
($ 14.08) ($ 14.97) ($ 32.61) ($ 59.73)
======= ======== ======== =========
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, 1998 and 1997
(Unaudited)
Six months ended
June 30,
1998 1997
Cash flows from operating activities:
Net loss ($ 838,697) ($1,536,028)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 578,161 644,788
Equity in loss of affiliate 6,424 11,701
Extraordinary loss 0 769,620
Changes in assets and liabilities:
Decrease in restricted cash 38,358 60,715
Increase in other assets (3,089) (98,280)
Increase in accounts payable - trade 100,068 35,044
Increase in accounts payable - related parties 5,582 27,784
Increase (decrease) in accounts payable - other 21,836 (59,662)
Increase in interest payable 176,044 205,340
Increase in tenant security deposits 13,470 12,798
------- ---------
Net cash provided by operating activities 98,157 73,820
------- ---------
Cash flows from investing activities:
Capital expenditures (12,251) (69,047)
------- ---------
Net cash used in investing activities (12,251) (69,047)
------- ---------
Cash flows from financing activities:
Proceeds from debt financing 6,831 67,532
Principal payments (84,098) (83,577)
------- ---------
Net cash used in financing activities (77,267) (16,045)
------- ---------
Increase (decrease) in cash and cash equivalents 8,639 (11,272)
Cash and cash equivalents at beginning of period 23,036 59,334
------- ---------
Cash and cash equivalents at end of period $ 31,675 $ 48,062
======= =========
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
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
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, 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: August 20, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 31,675
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,947,344
<DEPRECIATION> 10,491,485
<TOTAL-ASSETS> 19,110,342
<CURRENT-LIABILITIES> 1,329,615
<BONDS> 15,374,419
0
0
<COMMON> 0
<OTHER-SE> 799,803
<TOTAL-LIABILITY-AND-EQUITY> 19,110,34
<SALES> 0
<TOTAL-REVENUES> 1,154,596
<CGS> 0
<TOTAL-COSTS> 575,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 712,862
<INCOME-PRETAX> (838,697)
<INCOME-TAX> 0
<INCOME-CONTINUING> (838,697)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (838,697)
<EPS-PRIMARY> (32.61)
<EPS-DILUTED> 0
</TABLE>
