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, 1996
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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
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Commission file number 33-26385
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DIVERSIFIED HISTORIC INVESTORS VII
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2539694
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Suite 500, 1521 Locust Street, Philadelphia, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 735-5001
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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 No X
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - September 30, 1996
(unaudited) and December 31, 1995
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1996 and 1995 (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, 1996, Registrant had cash of
$36,832. 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, 1996, Registrant had
restricted cash of $85,825 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 one property due to
the property's inability to generate sufficient cash flow to pay
operating expenses and debt service. At the present time, with the
exception of Northern Liberty, the remaining properties are able to
generate enough cash flow to cover their operating expenses and debt
service, but there is no additional cash 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). With respect to Northern Liberty, any
development of the remaining lot will require additional funding of
capital. The Registrant has not identified any sources for this
funding.
(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. With respect to Northern Liberty, any
development of the remaining lot will require additional funding of
capital. The Registrant has not identified any sources for this
funding. Except for such costs, the 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 1996, Registrant
incurred a net loss of $141,012 ($7.82 per limited partnership unit)
compared to a net loss of $157,163 ($8.72 per limited partnership
unit) for the same period in 1995. For the first nine months of 1996,
the Registrant incurred a net loss of $469,714 ($26.06 per limited
partnership unit) compared to a net loss of $631,245 ($35.03 per
limited partnership unit) for the same period in 1995.
Rental income increased slightly from $177,069 in
the third quarter of 1995 to $177,253 in the same period in 1996 and
decreased $130,000 from $651,768 for the first nine months of 1995 to
$521,768 for the same period in 1996. This decrease from the first
nine months of 1995 to the same period in 1996 is mainly the result of
the foreclosure of one of the Registrant's properties ("Shriver
Square") on March 30, 1995 and a decrease in the rental income at
Robidoux, due to lower rental rate tenants replacing higher rental
rate tenants, partially offset by an increase in rental income at
Flint Goodridge due to higher average rental rates.
Expenses for rental operations decreased by $7,901
from $78,162 in the third quarter of 1995 to $70,261 in the same
period in 1996. Expenses for rental operations decreased mainly due
to an overall decrease in operating expenses at Robidoux, partially
offset by an increase in maintenance, insurance, and salary and wage
expense at Flint Goodridge, as discussed below.
Expenses for rental operations decreased by
$140,560 from $379,684 for the first nine months of 1995 to $239,124
for the same period in 1996. Expenses for rental operations decreased
mainly due to the foreclosure of Shriver Square on March 30, 1995,
partially offset by an increase in maintenance, insurance and salary
and wage expense at Flint Goodridge, as discussed below.
Depreciation and amortization expense decreased
$2,117 from $109,793 in the third quarter of 1995 to $107,676 in the
same period in 1996 due to certain fixed assets at Flint Goodridge
becoming fully depreciated.
Depreciation and amortization expense decreased
$75,646 from $398,673 for the first nine months of 1995 to $323,027 in
the same period in 1996. This decrease is mainly the result of the
foreclosure of Shriver Square on March 30, 1995.
Interest expense decreased by $5,045 from $92,235
in the third quarter of 1995 to $87,190 in the same period in 1996 due
to a non-interest bearing advance made by the Registrant's co-general
partner in order to repay the principal balance of a loan which
matured in March 1996 at Robidoux.
Interest expense decreased by $78,810 from
$351,189 for the first nine months of 1995 to $272,379 in the same
period in 1996 mainly due to the foreclosure of Shriver Square on
March 30, 1995, as well as a decrease in interest expense at Robidoux,
as noted above.
Losses incurred during the third quarter at the
Registrant's properties amounted to $76,000, compared to a loss of
approximately $88,000 for the same period in 1995. For the first nine
months of 1996 the Registrant's properties recognized a loss of
$277,000 compared to a loss of approximately $434,000 for the same
period in 1995.
In the third quarter of 1996, Registrant incurred
a loss of $34,000 at Flint Goodridge including $53,000 of depreciation
and amortization expense, compared to a loss of $40,000 in the third
quarter of 1995, including $53,000 of depreciation and amortization
expense, and for the first nine months of 1996, Registrant incurred a
loss of $122,000, including $159,000 of depreciation and amortization
expense compared to a loss of $123,000, including $166,000 of
depreciation and amortization expense for the same period in 1995. The
decrease in the loss from the third quarter and first nine months of
1996 to the same periods in 1995 is the result of an increase in
rental income, combined with a decrease in depreciation expense,
partially offset by an increase in maintenance, insurance, and wage
and salary expense. The increase in rental income is the result of
higher average rental rates. Depreciation expense decreased due to
furniture and fixtures becoming fully depreciated in the second
quarter of 1995. Maintenance expense increased due to expenditures for
certain deferred maintenance items, insurance expense increased due to
an increase in premiums, and wage and salary expense increased due to
cost of living increases given to employees.
In the third quarter of 1996, Registrant
incurred a loss of $42,000 at Robidoux, including $43,000 of
depreciation and amortization expense, compared to a loss of $48,000,
including $43,000 of depreciation and amortization expense in the
third quarter of 1995, and for the first nine months of 1996,
Registrant incurred a loss of $155,000, including $130,000 of
depreciation and amortization expense, compared to a loss of $163,000
including $129,000 of depreciation and amortization expense for the
same period in 1995. The decrease in the loss from the third quarter
and first nine months of 1996 to the same periods in 1995 is due to an
overall decrease in operating expenses, combined with a decrease in
interest expense, partially offset by a decrease in rental income.
Operating expenses decreased due to operational efficiencies achieved
at the property, and interest expense decreased due to a non-interest
bearing advance made by the Registrant's co-general partner in order
to repay the principal balance of a loan which matured in March 1996.
Rental income decreased as a result of lower rental rate tenants
replacing higher rental rate tenants.
In the third quarter of 1996, Registrant
incurred a loss of $0 at Shriver Square, compared to a loss of $0 in
the third quarter of 1995, and for the first nine months of 1996,
Registrant incurred a loss of $0, compared to a loss of $148,000,
including $61,000 of depreciation and amortization for the same period
in 1995. The decrease in the loss from the first nine months of 1995
to the same period in 1996 is due to the fact that the property was
foreclosed by the lender in March 1995.
In the third quarter of 1996 Registrant incurred a
loss of $12,000 at Kensington Tower, compared to a loss of $13,000 for
the same period of 1995. For the first nine months of 1996,
Registrant incurred a loss of $33,000, compared to a loss of $30,000
for the same period in 1995. The increase in the loss from the first
nine months of 1995 to the same period in 1996 is due to an increase
in operating expenses due to normal inflationary increases. The
Registrant accounts for this investment on the equity method.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30,1996 December 31, 1995
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,526,211 10,517,258
10,561,680 10,552,727
Less - Accumulated depreciation (2,726,600) (2,405,790)
7,835,080 8,146,937
Cash and cash equivalents 36,832 29,942
Restricted cash 85,825 87,909
Investment in affiliate 1,460,264 1,492,779
Other assets (net of amortization of
$95,129 and $92,912 at September 30, 1996
and December 31, 1995, respectively)
452,693 437,376
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Total $9,870,694 $10,194,943
========= ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,625,620 $ 3,858,348
Accounts payable:
Trade 522,272 380,863
Related parties 305,590 105,369
Interest payable 86,721 53,122
Tenant security deposits 28,280 23,753
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Total liabilities 4,568,483 4,421,455
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Minority interests 250,585 252,148
Partners' equity 5,051,626 5,521,340
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Total $ 9,870,694 $10,194,943
========== ==========
The accompanying notes are an intergral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Three months Nine months
ended September 30, ended September 30,
1996 1995 1996 1995
Revenues:
Rental income $177,253 $ 177,069 $ 521,768 $ 651,768
------- ------- ------- -------
Costs and expenses:
Rental operations 70,261 78,162 239,124 379,684
General and administrative 42,000 42,000 126,000 126,000
Interest 87,190 92,235 272,379 351,189
Depreciation and amortization 107,676 109,793 323,027 398,673
------- ------- ------- ---------
Total costs and expenses 307,127 322,190 960,530 1,255,546
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Loss before minority interests
and equity in affiliate (129,874) (145,121) (438,762) (603,778)
------- ------- ------- -------
Minority interests' 426 487 1,563 2,206
Equity in net loss of affiliate (11,564) (12,529) (32,515) (29,673)
------- ------- ------- -------
Net Loss ($ 141,012) ($ 157,163) ($ 469,714) ($631,245)
Net loss per limited
partnership unit ($ 7.82) ($ 8.72) ($ 26.06) ($ 26.06)
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Nine months ended
September 30,
1996 1995
Cash flows from operating activities:
Net loss ($469,714) ($631,245)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 323,027 398,673
Equity in loss of affiliate 32,515 29,673
Changes in assets and liabilities:
Decrease (increase) in restricted cash 2,084 (5,098)
Increase in other assets (17,534) -0-
Increase (decrease) in accounts payable -
trade 141,409 (124,015)
Increase in accounts payable
related parties 200,221 317,392
Increase in interest payable 33,599 40,712
Increase in tenant security deposits 4,527 1,298
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Net cash provided by operating activities 250,134 27,390
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Cash flows from investing activities:
Capital expenditures (8,953) (8,192)
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Net cash used in investing activities (8,953) (8,192)
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Cash flows from financing activities:
Principal payments (232,728) (9,687)
Minority interest (1,563) (2,206)
------- --------
Net cash used in financing activities (234,291) (11,893)
------- -------
Increase in cash and cash equivalents 6,890 7,305
Cash and cash equivalents at beginning of period 29,942 12,909
------- -------
Cash and cash equivalents at end of period $ 36,832 $ 20,214
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $234,111 $310,476
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified
Historic Investors VII (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, 1995.
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, 1996.
<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 8, 1996 DIVERSIFIED HISTORIC INVESTORS VII
By: Dover Historic Advisors VII, General Partner
By: Dover Historic Advisors, Inc., Partner
By: /s/ Donna M. Zanghi
DONNA M. ZANGHI
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 36,832
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,561,680
<DEPRECIATION> 2,726,600
<TOTAL-ASSETS> 9,870,694
<CURRENT-LIABILITIES> 827,862
<BONDS> 3,625,620
0
0
<COMMON> 0
<OTHER-SE> 5,302,211
<TOTAL-LIABILITY-AND-EQUITY> 9,870,694
<SALES> 0
<TOTAL-REVENUES> 521,768
<CGS> 0
<TOTAL-COSTS> 239,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272,379
<INCOME-PRETAX> (469,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> (469,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (469,714)
<EPS-PRIMARY> (26.06)
<EPS-DILUTED> 0
</TABLE>
