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, 1999
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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 - September 30, 1999 (unaudited) and
December 31, 1998
Consolidated Statements of Operations - Three Months and Nine Months
Ended September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows - Three Months and Nine Months
Ended September 30, 1999 and 1998 (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, 1999, Registrant had cash of $26,125.
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, 1999, Registrant had restricted cash of
$321,098 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
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 1999, Registrant incurred a net
loss of $376,830 ($14.65 per limited partnership unit) compared to a net
loss of $1,055,724 ($41.05 per limited partnership unit) for the same period
in 1998. For the first nine months of 1999, the Registrant incurred a net
loss of $1,269,527 ($49.36 per limited partnership unit) compared to a net
loss of $1,894,421 ($73.66 per limited partnership unit) for the same period
in 1998.
Rental income increased $25,881 from $571,060 in the third
quarter of 1998 to $596,941 in the same period in 1999 and, for the first nine
months increased $57,327 from $1,724,131 in the first nine months of 1998
to $1,781,458 in the same period in 1999. The increase from the first
nine months of 1998 to the same periods in 1999 is due mainly to an increase
in rental income at Canal House, Strehlow Terrace and Firehouse Square
partially offset by a decrease at Roseland.
Expenses for rental operations increased by $46,555 from
$210,763 in the third quarter of 1998 to $257,318 in the same period in
1999 and, for the first nine months increased by $78,006 from $786,609 in
1998 to $864,615 in the same period in 1999. The increase is mainly the
result of an increase in wages and salary expense at both Canal House and
Strehlow Terrace combined with an increase in management fees and salary
expense at Roseland partially offset by a decrease in maintenance expense
at Mater Dolorosa. The increase in maintenance expense at Canal House is
due to a higher turnover of apartment units and, at Strehlow Terrace, is
due to the repairs made to the heating and air conditioning system. The
increase in wages and salaries expense at Roseland is due to a change in the
management company that increased the maintenance staff at the property.
The decrease in maintenance expense at Mater Dolorosa is due to
deferred maintenance performed at the property in 1998, which did not recur
in 1999.
Interest expense decreased by $713,123 from $1,063,920
in the third quarter of 1998 to $350,797 in the same period in 1999 and
decreased $724,196 from $1,776,782 in the first nine months of 1998 to
$1,052,586 for the same period in 1999. The decrease from the third
quarter and the first nine months of 1998 to the same periods of 1999 is
mainly due to prepayment penalties incurred in connection with refinancings
of the first mortgages at both Canal House and Firehouse Square in 1998,
which did not recur in 1999, combined with a decrease in interest expense
at Mater Dolorosa and Roseland partially offset by an increase in interest
expense at Strehlow Terrace. The decreases at Mater Dolorosa and
Roseland are due to decreases in the principal balances of the mortgage
loans. The increase in interest expense at Strehlow Terrace is due to an
increase in the principal balance upon which interest is calculated.
Depreciation and amortization expense increased $10,874 from
$289,081 in the third quarter of 1998 to $299,955 in the same period in
1999. For the nine months ended September 30, 1999 increased $75,206 to
$942,448 as compared to $867,242 in the same period in 1998. The increase
is mainly due to an increase in amortization expense at Canal House
partially offset by a decrease in amortization expense at Firehouse
Square. Amortization expense increased at Canal House due to the
amortization of loan costs incurred in the refinancing. The decrease at
Firehouse Square is the result of the amortization in 1998 of leasing
commissions for tenants who vacated in 1998.
Losses incurred during the quarter at the Registrant's properties
amounted to $291,000, compared to a loss of approximately $974,000 for
the same period in 1998. For the first nine months of 1999 the
Registrant's properties recognized a loss of $1,017,000 compared to
approximately $1,647,000 for the same period in 1999.
In the third quarter of 1999, Registrant incurred a loss
of $34,000 at Roseland including $17,000 of depreciation expense,
compared to a loss of $15,000 including $16,000 of depreciation in the third
quarter of 1998; for the first nine months of 1999, the Registrant incurred
a loss of $72,000 including $51,000 of depreciation expense,
compared to a loss of $41,000 for the same period in 1998, including
$50,000 of depreciation expense. The increased loss from the third quarter
and the first nine months of 1998 to the same periods in 1999 is
mainly due to an increase in wages and salary expense and a decrease in
rental income partially offset by a decrease in interest expense. Rental
income decreased due to a decrease in the average occupancy (100% to 82%).
The increase in wages and salaries expense is due to a change in the
management company that increased the maintenance staff at the property.
Interest expense decreased due to the amortization of the principal balance.
In the third quarter of 1999, Registrant incurred a loss
of $114,000 at Firehouse Square including $65,000 of depreciation and
amortization expense, compared to a loss of $348,000 including $70,000 of
depreciation and amortization expense in the third quarter of 1998 and, for
the first nine months of 1999, incurred a loss of $352,000 including $194,000
of depreciation and amortization expense, compared to a loss of $633,000 for
the same period in 1998, including $211,000 of depreciation and amortization
expense. The decrease in the loss from the third quarter and the first
nine months of 1998 to the same periods in 1999 is due to a decrease in
interest and amortization expense combined with an increase in rental
income due to an increase in average rental rates while occupancy remained
at 100%. Interest expense decreased due to prepayment penalties paid in
1998 in conjunction with the refinancing of the first mortgage which did
not recur in 1999. Amortization expense decreased as a result of the
amortization in 1998 of leasing commissions for tenants who vacated in 1998.
In the third quarter of 1999, Registrant recognized
income of $3,000 at Mater Dolorosa including $35,000 of depreciation
and amortization expense, compared to a loss of $1,000 including $32,000 of
depreciation and amortization expense in the third quarter of 1998 and, for
the first nine months of 1999, the Registrant recognized income of
$13,000 at Mater Dolorosa including $95,000 of depreciation and amortization
expense, compared to a loss of $19,000 for the same period in 1998,
including $95,000 of depreciation and amortization expense. The
recognition of income for the third quarter and first nine months of 1999
compared to a loss for the same periods in 1998 is due to a decrease in
interest expense and maintenance expense. Interest expense decreased
due to a decrease in the principal balance of the mortgage loan.
Maintenance expense decreased due to deferred maintenance performed at
the property in 1998 which did not recur in 1999.
In the third quarter of 1999, the Registrant incurred a loss
of $78,000 at Strehlow Terrace including $59,000 of depreciation expense,
compared to a loss of $54,000 including $58,000 of depreciation expense in
the third quarter of 1998 and, for the first nine months of 1999, the
Registrant incurred a loss of $184,000 at Strehlow Terrace including $177,000
of depreciation expense, compared to a loss of $166,000 for the same period
in 1998, including $174,000 of depreciation and amortization expense.
The increase in the loss from the third quarter and first nine months of
1998 to the same periods in 1999 is due to an increase in interest
and maintenance expense partially offset by an increase in rental income
due to an increase in average rental rates while occupancy remained
stable. Interest expense increased due to an increase in the principal
balance upon which interest is calculated at Strehlow Terrace.
Maintenance expense increased due to general repairs made to the property.
In the third quarter of 1999, Registrant incurred a loss
of $68,000 at Canal House including $108,000 of depreciation and
amortization expense, compared to a loss of $556,000 including $93,000
of depreciation expense in the third quarter of 1998 and, for the first
nine months of 1999, the Registrant incurred a loss of $422,000 including
$367,000 of depreciation and amortization expense, compared to a loss of
$788,000 for the same period in 1998, including $279,000 of depreciation
expense. The decrease in the losses from the third quarter and the first
nine months of 1998 to the same periods in 1999 is due mainly to a decrease
in interest expense combined with an increase in rental income partially
offset by an increase in maintenance and amortization expense. Interest
expense decreased due to prepayment penalties in conjunction with the
refinancing of the first mortgage in 1998 that did not recur in 1999.
Rental income increased due to an increase in the average rental rates and
average occupancy for the third quarter (90% to 97%); however occupancy
decreased for the first nine months (94% to 91%). The increase in
maintenance expense is due to the higher turnover of apartment units for
the first nine months compared to the prior year. Amortization expense
increased due to the amortization of loan costs incurred in the refinancing.
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 operating information
is provided for the property. In the third quarter of 1999,
Registrant incurred a loss of $7,000 compared to a loss of $3,000 for
the same period of 1998. For the first nine months of 1999, Registrant
incurred a loss of $14,000 at Saunders Apartments compared to a loss of
$9,000 for the same period of 1998. The increase in the loss from the third
quarter and first nine months of 1998 to the same period in 1999 is due to
an increase in maintenance expense due to the painting of several
units and repairs made to the floor.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VI
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30, 1999 December 31, 1998
(Unaudited)
Rental properties, at cost:
Land $ 950,238 $ 950,238
Buildings and improvements 27,178,202 27,176,328
Furniture and fixtures 856,147 858,106
---------- ----------
28,984,587 28,984,672
Less - Accumulated depreciation (11,856,307) (11,038,617)
---------- ----------
17,128,280 17,946,055
Cash and cash equivalents 26,125 28,064
Restricted cash 321,098 280,896
Investment in affiliate (23,079) (8,971)
Other assets (net of
amortization of $673,264 and
$548,506 at September 30,
1999 and December 31, 1998,
respectively) 484,913 632,692
---------- ----------
Total $17,937,337 $18,878,736
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $17,140,807 $17,161,190
Accounts payable:
Trade 1,219,517 1,081,777
Taxes 1,368 20,492
Related parties 419,398 396,529
Other 17,110 27,039
Interest payable 1,079,418 870,643
Tenant security deposits 138,038 129,858
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Total liabilities 20,015,656 19,687,528
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Partners' equity (2,078,319) (808,792)
---------- ----------
Total $17,937,337 $18,878,736
========== ==========
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, 1999 and 1998
(Unaudited)
Three months Nine months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 596,941 $ 571,060 $1,781,458 $1,724,131
Interest income 938 459 2,772 1,984
--------- --------- --------- ---------
Total revenues 597,879 571,519 1,784,230 1,726,115
--------- --------- --------- ---------
Costs and expenses:
Rental operations 257,318 210,763 864,615 786,609
General and 60,000 60,000 180,000 180,000
administrative
Interest 350,797 1,063,920 1,052,586 1,776,782
Depreciation and
amortization 299,955 289,081 942,448 867,242
--------- --------- --------- ---------
Total costs and expenses 968,070 1,623,764 3,039,649 3,610,633
--------- --------- --------- ---------
Loss before equity in (370,191)(1,052,245) (1,255,419) (1,884,518)
affiliate
Equity in net loss of
affiliate (6,639) (3,479) (14,108) (9,903)
--------- --------- --------- ---------
Net loss ($ 376,830)($1,055,724)($1,269,527)($1,894,421)
========= ========= ========= =========
Net loss per limited
partnership unit
Loss before equity in
affiliate ($ 14.39)($ 40.91)($ 48.81)($ 73.27)
Equity in net loss of
affiliate (.26) (.14) (.55) (.39)
--------- --------- --------- ---------
($ 14.65)($ 41.05)($ 49.36)($ 73.66)
========= ========= ========= =========
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, 1999 and 1998
(Unaudited)
Nine months ended
September 30,
1999 1998
Cash flows from operating activities:
Net loss ($1,269,527) ($1,894,421)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 942,447 867,242
Equity in loss of affiliate 14,108 9,903
Changes in assets and liabilities:
Increase in restricted cash (40,202) (207,082)
(Decrease) increase in other assets 23,021 (218,429)
Decrease in accounts payable taxes (19,124) 0
Increase in accounts payable - trade 137,739 160,842
Increase in accounts payable - related parties 22,869 7,576
(Decrease) increase in accounts payable - other (9,927) 22,421
Increase in interest payable 208,775 246,334
Increase in tenant security deposits 8,180 4,156
------- ---------
Net cash provided by (used in) 18,359 (1,001,458)
operating activities ------- ---------
Cash flows from investing activities:
Capital expenditures 85 (21,250)
------- ---------
Net cash used in investing activities 85 (21,250)
------- ---------
Cash flows from financing activities:
Proceeds from debt financing 17,049 1,139,659
Principal payments (37,432) (111,237)
-------- ---------
Net cash (used in) provided by (20,383) 1,028,422
financing activities -------- ---------
(Decrease) increase in cash and cash (1,939) 5,714
equivalents -------- ---------
Cash and cash equivalents at beginning of period 28,064 23,036
Cash and cash equivalents at end of period $ 26,125 $ 28,750
======== =========
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 and notes thereto contained in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
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 Number 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
September 30, 1999.
<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 29, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 26,125
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,984,587
<DEPRECIATION> 11,856,307
<TOTAL-ASSETS> 17,937,337
<CURRENT-LIABILITIES> 1,219,517
<BONDS> 17,140,807
0
0
<COMMON> 0
<OTHER-SE> (2,078,319)
<TOTAL-LIABILITY-AND-EQUITY> 17,937,337
<SALES> 0
<TOTAL-REVENUES> 1,784,230
<CGS> 0
<TOTAL-COSTS> 864,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,052,586
<INCOME-PRETAX> (1,269,527)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,269,527)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,269,527)
<EPS-BASIC> 0
<EPS-DILUTED> (49.36)
</TABLE>
