UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 17,839 Units
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
* Securities not quoted in any trading market to Registrant's
knowledge.
<PAGE>
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors VII ("Registrant")
is a limited partnership formed in 1988 under the Pennsylvania Uniform
Limited Partnership Act. As of December 31, 1994, Registrant had
outstanding 17,839 units of limited partnership interest (the
"Units").
Registrant is presently in its operating stage.
It originally owned seven properties or interests therein. Interests
in two properties have been lost through foreclosure of the
properties, and interests in two others have been reduced
substantially. See Item 2. Properties, for a description of the
remaining properties. For a discussion of the operations of the
Registrant, See Part II, Item 7. Management's Discussion and Analysis
of Financial Condition and the Results of Operations.
The following is a summary of significant
transactions involving the Registrant's interests:
In February 1990, Registrant acquired a 99%
general partnership interest in Northern Liberty Development
Associates ("NLDA"), a Pennsylvania limited partnership which owned
approximately 250,000 square feet ("sf") of undeveloped property in
the Northern Liberties section of Philadelphia, Pennsylvania. The
property was acquired during the active historic rental residential
period in downtown Philadelphia and was programmed to be rehabilitated
as historically-certified, market rate residences; this use was in
keeping with the redevelopment and gentrification of the Northern
Liberties section of Philadelphia. Due to the significant downturn in
many sections of the country in the urban real estate market for
luxury housing, the original development plan was reconsidered. The
Registrant explored various alternatives including the development of
the property for light industrial use or artists' loft space.
However, these projects were determined to be economically infeasible
due to the deteriorating physical condition of the property. During
1994, the Registrant was contacted by a local neighborhood group that
was interested in developing the property in a way that would
rehabilitate the existing historic structure. The Registrant entered
into negotiations with the group and in December 1994, the Registrant
donated to the neighborhood group all but a 12,247 sf vacant lot.
NLDA continues to own 25% of a neighboring property which contains a
15,744 sf building.
In 1990, the Registrant acquired a 19% minority
interest for $550,000 in Mass & L Street Associates ("Mass & L"), a
general partnership which owned a hotel called the Morrison Clark Inn.
As a result of insufficient cash flow, Mass & L was unable to meet
scheduled debt service payments. In May 1992, in order to forestall
the threatened foreclosure by the lender, a reorganization petition
was filed pursuant to Chapter 11 of the U.S. Bankruptcy Code. In
February 1993, a party holding a mortgage on the property, with
permission of the bankruptcy court, foreclosed on the property.
On March 1, 1993, Shriver Square Joint Venture
("SSJV"), a general partnership in which the Registrant owns a 98%
interest, filed a reorganization petition pursuant to Chapter 11 of
the U.S. Bankruptcy Code. SSJV has since filed a Plan of
Reorganization and an Amended Plan of Reorganization (the "Amended
Plan"). The Amended Plan, with some minor changes, was confirmed on
October 15, 1993. See Item 2.c. Properties for a description of the
Amended Plan. Due to insufficient cash flow generated by the
property, SSJV ceased making debt service payments in January 1995.
The loan was declared in default by the lender and on March 30, 1995,
the deed to the property, which was held in escrow pursuant to the
Amended Plan, was delivered to the first mortgage holder.
On June 1, 1993, an amended and restated joint
venture agreement was reached for Hill Hotel Apartments Joint Venture
("HHAJV"), a partnership in which the Registrant originally owned a
98% general partnership interest. The agreement provided for, among
other things, the resolution of certain litigation and a reduction of
the Registrant's general partnership interest to a 30% interest.
b. Financial Information about Industry Segments
The Registrant operates in one industry segment.
c. Narrative Description of Business
Registrant is in the business of operating,
holding, selling, exchanging and otherwise dealing in and with real
properties containing improvements which are "Certified Historic
Structures," as such term is defined in the Internal Revenue Code (the
"Code"), or which are eligible for designation as such, for use as
apartments, offices, hotels and commercial spaces, or any combination
thereof, or low income housing eligible for the tax credit provided by
Section 42 of the Code, and such other uses as the Registrant's
general partner may deem appropriate.
Since the Registrant's inception, all the
properties acquired either by the Registrant, or the subsidiary
partnerships in which it has an interest, except for one, have been
rehabilitated and certified as Historic Structures and have received
the related Investment Tax Credit. In addition, three properties are
low-income housing structures which qualify for, have received, and
will continue to receive, the Low Income Tax Credits. Five properties
currently held by the Registrant are held for rental operations and
one property's final use has not yet been determined. At this time it
is anticipated that all the properties, except the undeveloped
property, will continue to be held for this purpose. At such time as
real property values begin to increase, the Registrant will re-
evaluate its investment strategy regarding the properties.
As of December 31, 1994, Registrant owned
interests in six properties located in Nebraska (one), Missouri (one),
South Dakota (one), Pennsylvania (one), and Louisiana (two). One of
the six properties, Shriver Square (See Item 1, a. above) was taken by
deed-in-lieu of foreclosure in March 1995. In total, the properties
in which the Registrant has a controlling interest contain 153
apartment units, and 60,775 sf of commercial/retail space. As of
December 31, 1994, 144 apartment units were under lease at monthly
rental rates ranging from $195 to $530; and approximately 53,287 sf of
commercial/rental space was under lease at annual rental rates of
$4.00 to $24.00 per sf. For a further discussion of the properties,
see Item 2. Properties.
Due to the overbuilding that occurred in the
1980's, the competition for both residential and commercial tenants in
the local markets where the Registrant's properties are located is
generally strong. As a result, the Registrant is forced to keep its
rent levels competitively low in order to maintain moderate to high
occupancy levels. In each market, there are several similar
historically-certified rehabilitated buildings. However, there is no
organization which holds a dominant position in the residential
housing or commercial leasing market in any of the geographic areas in
which Registrant's properties are located.
Registrant has no employees. Registrant's
activities are overseen by Brandywine Construction & Management, Inc.
("BCMI"), a real estate management firm.
d. Financial Information about Foreign and Domestic
Operations and Export Sales.
See Item 8, Financial Statements and Supplementary
Data
Item 2. Properties
As December 31, 1994, Registrant owned controlling
interests in four partnerships which each own one property and
minority interests in two additional partnerships which each own one
property. A summary description of each property is given below.
a. Flint-Goodridge Apartments - consists of a 93 unit
low income housing facility at 2425 Louisiana Avenue in New Orleans,
Louisiana. In July 1989, Registrant acquired a 90% interest in Flint-
Goodridge General Partnership ("FGGP"), a general partnership which
owns Flint-Goodridge Apartments, for a cash contribution of
$2,808,000. Registrant subsequently capitalized $574,000 in
acquisition costs related to the investment. FGGP acquired and
rehabilitated the buildings for $5,108,022 ($100.99 per sf), including
a mortgage note payable of $2,427,000. The note bears interest at 10%
and both principal (based on a 30-year amortization) and interest are
payable monthly until June 2020. The principal balance at December
31, 1994 was $2,301,097. In addition, FGGP entered into a 45-year
ground lease for the land on which the buildings are located for a
lump sum rent of $90,000 payable at the inception of the lease. The
property is managed by a property management firm which is an
affiliate of the Registrant's co-general partner of FGGP. As of
December 31, 1994, 90 units were under lease (97%) with monthly rents
ranging from $382 to $530. All leases are renewable, one-year leases.
The occupancy rate since completion of the building in 1990 has been
96% for 1993, 92% for 1992, 98% for 1991 and 91% for 1990. The
monthly rental range has been approximately the same since 1990. For
tax purposes, this property has a federal tax basis of $4,076,296 and
is depreciated using the straight-line method of depreciation with a
useful life of 27.5 years. The annual real estate taxes are $2,939
which is based on an assessed value of $18,300 taxed at a rate of
$160.60 per $1,000. No one tenant occupies ten percent or more of the
building. It is the opinion of the management of the Registrant that
the property is adequately covered by insurance.
b. Robidoux School Apartments - consists of a 60 unit
low income housing facility at 201 South 10th Street in St. Joseph,
Missouri. In September 1989, Registrant acquired a 99% general
partnership interest in Robidoux Redevelopment Joint Venture ("RRJV"),
a Missouri general partnership which owns the property, for a cash
capital contribution of $2,400,000. Registrant subsequently
capitalized $446,000 in acquisition costs relating to the investment.
The cost to acquire and rehabilitate the property was $3,641,993
($99.52 sf) including a construction note payable of $1,450,000,
(principal balance at December 31, 1994 of $1,043,812), a Community
Development Block Grant ("CDBG") loan of $74,000 (principal balance at
December 31, 1994 of $42,839), and a CDBG grant of $38,500. RRJV is
in the process of negotiating permanent financing to replace the
construction loan whose maturity was first extended from November 30,
1992 to May 15, 1993, by reducing the principal balance by $200,000
and then extended again until September 15, 1994 by reducing the
principal balance by $100,000 on June 17, 1993, $50,000 on September
14, 1993 and an additional $50,000 on March 15, 1994. The loan was
further extended to March 15, 1995 by paying an extension fee equal to
one-half (1/2) percent and again until June 15, 1995. The amounts
repaid were funded by a line of credit extended by another lender
($400,025 and $334,000 principal outstanding at December 31, 1994 and
1993, respectively) which bears interest at prime plus 1% (9 1/2% and
7% at December 31, 1994 and 1993, respectively) and is due November
1995. It is expected that the construction loan will again be
extended but that another principal paydown will not be required.
Applications to convert this loan to permanent financing have been
submitted to two other lenders and are currently being reviewed. The
property is managed by a property management firm which is an
affiliate of the Registrant's co-general partner of RRJV. As of
December 31, 1994, 54 of the 60 apartment units were under lease
(90%), with monthly rents ranging from $195 to $341. All leases are
renewable, one-year leases. The occupancy rate since completion of
the building in 1990 has been 97% for 1993, 93% for 1992, 100% for
1991, and 22% for 1990. The monthly rental range has been
approximately the same since 1990. For tax purposes, this property
has a federal tax basis of $4,308,597, and is depreciated using the
straight-line method of depreciation with a useful life of 27.5 years.
The annual real estate taxes are $1,115 which is based on an assessed
value of $13,840 taxed at a rate of $80.56 per $1,000. No one tenant
occupies ten percent or more of the building. It is the opinion of
the management of the Registrant that property is adequately covered
by insurance.
c. Shriver Square - consists of 60,775 sf of rentable
commercial space at 230 South Philips Avenue in Sioux Falls, South
Dakota. In December 1989, Registrant acquired a 98% general
partnership interest in Shriver Square Joint Venture ("SSJV"), a
Nebraska general partnership which owns the property, for a cash
contribution of $1,350,000. Registrant subsequently capitalized
$251,000 in acquisition costs relating to the investment. SSJV
acquired and rehabilitated the property for $4,629,856 ($74.69 sf),
which was funded by two notes with original principal amounts of
$2,650,000 and $500,000. Pursuant to the Amended Plan (see below) the
notes have been restructured (principal balances at December 31, 1994
were $2,757,128 and $476,012, respectively) and bear interest at 8%,
payable interest only until October 15, 1995, when monthly payments of
principal (based on a 25-year amortization) and interest in the amount
of $24,954 will commence with the entire principal balance due June
2000. In 1991, a third note for $200,000 was issued relating to a
Grant of Easement loan. This loan between SSJV and the City of Sioux
Falls provided for $200,000 in return for the permanent easement of
the pedestrian ramp and skyway system at the SSJV building. $100,000
of the loan was released upon the attainment of executed leases
occupying 39,125 sf (this was achieved in February, 1993). The
balance is due upon sale or refinance of the property.
During 1992 two leases were signed with government
agencies for approximately 26,350 sf. In order to perform the tenant
fit-out for this space, Shriver Square incurred approximately $500,000
of construction and trade payables for which there was not sufficient
cash flow after paying debt service to the first mortgage holder. As
a result, several creditors filed liens against the property, and the
construction lender declared the loan in default. The Registrant
attempted to negotiate various loan modifications with the lender
including borrowing additional funds in order to repay the unsecured
creditors. However, no agreement was reached and the lender
threatened foreclosure proceedings. In order to forestall these
proceedings, Shriver Square filed a reorganization petition pursuant
to Chapter 11 of the U.S. Bankruptcy Code on March 1, 1993. Shriver
Square filed a Plan of Reorganization and an Amended Plan of
Reorganization (the "Amended Plan"). The Amended Plan, with some
minor changes, was confirmed on October 15, 1993. The Amended Plan
provides for payment of interest only for two years at a rate of 8% to
the secured creditors, with principal amortization commencing in
October 1995. In addition, the unsecured creditors (including those
who have filed liens) were paid approximately 35% of their claim in
November 1993 with the balance to be paid over six years. The
payments made under the Amended Plan were funded by a cash
contribution of $189,521 by the Registrant and cash flow from the
property. The remaining payments required were expected to be funded
out of operating cash flow. However as described in Item 1 a., the
property's cash flow was not sufficient to make all the payments
required by the Amended Plan. As a result, the first mortgage holder
declared a loan default, and on March 30, 1995 took possession of the
deed to the property.
The property was managed by BCMI. As of December
31, 1994, Shriver Square had 53,287 sf under lease (88%) for which
annual rental rates range from $4.00 sf to $24.00 sf. The occupancy
since completion in 1990 of the building had been 79% for 1993, 59%
for 1992, 59% for 1991, and 16% for 1990. The range for annual rents
had been $5.11 per sf to $14.84 per sf, $9.00 per sf to $14.28 per sf
for 1992, $9.00 per sf to $14.16 per sf for 1991, and $10.71 per sf to
$14.00 per sf for 1990. There were two tenants who each occupy ten
percent or more of the rentable square footage. Their principal
businesses are banking and government services.
The following is a table showing commercial lease
expirations at Shriver Square for the next five years.
Total annual
Number of Total sf of rental % of gross
leases expiring covered by annual
expiring leases expiring rental
leases
1995 4 8,900 $ 62,197 10%
1996 2 2,229 27,628 5%
1997 1 1,199 13,489 2%
1998 4 13,033 109,811 18%
1999 2 1,801 23,767 4%
Thereafter 2 26,120 369,683 61%
For tax purposes, this property has a federal tax
basis of $5,957,978, and is depreciated using the straight-line method
of depreciation with a useful life of 31.5 years. The annual real
estate taxes are $4,288 which is based on an assessed value of
$143,243 taxed at a rate of $29.94 per $1,000. It is the opinion of
the management of the Registrant that the property is adequately
covered by insurance. For a description of the legal proceedings
involving Shriver Square see Item 3. Legal Proceedings.
d. The Bakery Apartments - consists of 68 apartment
units at 1111 South Peter Street in New Orleans, Louisiana. In March
1991, Registrant acquired a 16.83% general partnership interest in The
Bakery Apartments General Partnership ("BAGP"), a Louisiana general
partnership which owns the property, for a cash contribution of
$300,000. Certain affiliates of the Registrant simultaneously
acquired 82.17% of the general partnership interests in the same
Louisiana general partnership for an aggregate cash contribution of
$1,400,000. BAGP acquired and rehabilitated the property for
$5,029,000 ($65.18 per sf). The rehabilitation of the property was
financed in part by a $3,329,000 construction loan which bore interest
at Chase Manhattan Bank's prime rate plus 1/2%, with interest payable
monthly. In October 1992, the loan was refinanced with two new loans,
one for $3,135,000 (principal balance of $3,080,215 at December 31,
1994) and the other for $201,500 (principal balance of $198,369 at
December 31, 1994). The first loan bears interest at 8.25%, with
monthly principal and interest payments based on a 30 year
amortization schedule, principal balance due in 1999. The second loan
is from the general partner of BAGP and has the same terms as the
first loan. In March 1991, a $175,000 collateral mortgage note
(principal balance of $160,874 at December 31, 1994) was issued to the
developer/partner for working capital advances. This note bears
interest at 9% with payments based on available positive cash flow of
the property. In order to satisfy certain credit requirements of the
lender, the Registrant exchanged its general partnership interest for
a limited partnership interest in a reconstituted partnership.
However, the Registrant retained substantially the same rights and
privileges as they had as general partners. The property is managed by
a property management firm which is an affiliate of the general
partner of BAGP. As of December 31, 1994, 58 units are under lease
(85%) with monthly rents ranging from $465 to $1,720. All leases are
renewable, one year leases. The occupancy rates since completion of
the building in 1991 has been 92% for 1993, 93% for 1992 and 29% for
1991. The monthly rental range has been approximately the same since
1991. For tax purposes, this property has a federal tax basis of
$3,344,526, and is depreciated using the straight-line method of
depreciation with a useful life of 27.5 years. The annual real estate
taxes are $11,708 which is based on an assessed value of $65,700 taxed
at a rate of $17.82 per $100. No one tenant occupies ten percent or
more of the building. It is the opinion of the management of the
Registrant that the property is adequately covered by insurance.
e. Kensington Tower ("Hill Hotel")- consists of a 65
unit low income housing facility and 3,550 sf of commercial space at
505 South 16th Street in Omaha, Nebraska. In June 1989, Registrant
acquired a 98% general partnership interest in Hill Hotel Apartments
Joint Venture ("HHAJV"), a Nebraska general partnership which owns the
property for a cash contribution of $2,350,000. HHAJV acquired and
rehabilitated the property for $4,369,249 ($105.93 sf), including a
construction note payable of $2,700,000. The note bears interest at
the lender's prime rate plus 1/2%, (6-1/2% at December 31, 1993) and
was originally due in April 1992. During 1990 and 1991, this note was
partially refinanced with $400,000 of a $600,000 Community Development
Block Grant ("CDBG") loan (principal balance at December 31, 1994 of
$600,000), a $500,000 Tax Increment Financing ("TIF") Loan (principal
balance at December 31, 1994 of $283,160) and a $1,100,000
subordinated note payable to the co-general partner. In 1992, the
remaining $200,000 of the CDBG Loan was applied to the construction
loan ($60,000) and to the TIF Loan ($140,000), in order to extend the
date of the construction loan's maturity from April 1992 to June 1993.
The construction loan balance was $1,030,591 at December 31, 1993. In
March 1994, the construction loan was repaid with a $665,000
(principal balance of $648,375 at December 31, 1994), 15-year
permanent loan with an interest rate of 8-3/8% and a $365,000 equity
contribution from Commercial Federal Realty Investors Corporation, the
Registrant's co-general partner. On June 1, 1993, an amended and
restated joint venture agreement was reached whereby the Registrant's
interest was reduced to a 30% interest. The property is managed by an
independent property management firm. As of December 31, 1994, 58
units are under lease (89%) with monthly rents ranging from $295 to
$490. All leases are renewable, one-year leases. The occupancy for
the previous four years was 92% for 1993, 89% for 1992, 85% for 1991,
and 90% for 1990. The monthly rental range has been approximately the
same since 1989. For tax purposes, this property has a federal tax
basis of $5,309,460, and is depreciated using the straight-line method
of depreciation with a useful life of 27.5 years. The annual real
estate taxes are $55,283 which is based on an assessed value of
$2,045,900 taxed at a rate of $27.0212 per $1,000. No one tenant
occupies ten percent or more of the building. It is the opinion of
the management of the Registrant that the property is adequately
covered by insurance.
Item 3. Legal Proceedings
On March 1, 1993, Shriver Square Joint Venture
filed a reorganization petition pursuant to Chapter 11 of the U.S.
Bankruptcy Code. Shriver has since filed a Plan of Reorganization and
an Amended Plan of Reorganization (the "Amended Plan"). The Amended
Plan, with some minor changes, was confirmed on October 15, 1993. See
Item 2. Properties for a description of the amended plan. Due to
insufficient cash flow generated by the property, SSJV ceased making
debt service payments in January 1995. The loan was declared in
default by the lender and on March 30, 1995, the deed to the property,
which was held in escrow pursuant to the Amended Plan, was delivered
to the first mortgage holder.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fiscal year covered
by this report to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
a. There is no established public trading market for
the Units. Registrant does not anticipate any such market will
develop. Trading in the units occurs solely through private
transactions. The Registrant is not aware of the prices at which
trades occur. Registrant's records indicate that 75 units of record
were sold or exchanged in 1994.
b. As of December 31, 1994, there were 1,715 record
holders of Units.
c. Registrant has not declared any cash dividends in
1994 or 1993.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1994.
1994 1993 1992 1991 1990
(unaudited)(unaudited)
Rental income $ 1,271,400 $ 1,323,950 $ 1,135,053* $ 1,013,926 $ 607,389
Interest income 1,851 16,010 42,911* 83,521 203,153
Net loss 3,410,809 1,982,140 1,341,756* 1,204,451 910,252
Net loss per Unit 189.29 110.00 74.46* 66.84 50.52
Total assets (net 16,244,826 19,711,424 24,851,148 25,612,785 25,618,690
of depreciation
and amortization)
Debt obligations 7,184,570 7,197,834 9,087,050 8,871,152 9,639,426
Distributions to -0- -0- -0- -0- 33,861
partners
* Unaudited
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Liquidity
As of December 31, 1994 Registrant had total
unrestricted cash of $12,909. Such funds are expected to be used to
pay liabilities and general and administrative expenses of the
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 December 31, 1994, Registrant had restricted
cash of $81,050 consisting primarily of funds held as security
deposits, replacement reserves and escrows for taxes and insurance.
As a consequence of these restrictions as to use, Registrant does not
deem these funds to be a source of liquidity.
(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. 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 1994 (the "Year"), Registrant incurred a
net loss of $3,433,586 ($190.55 per limited partnership unit),
compared to a net loss of $1,982,140 ($110.00 per limited partnership
unit) in 1993, and a net loss of $1,341,756 ($74.46 per limited
partnership unit) in 1992. Included in the 1994 loss is $2,480,680 of
extraordinary loss relating to the donation of the property owned by
Northern Liberty Development Associates. The increase of $640,384 in
net loss from 1992 to 1993 results mainly from the inclusion of
$593,523 of extraordinary loss recognized on the foreclosure of one
property ('Mass & L") in which the Registrant had a minority interest.
Rental income increased from $1,135,053 in 1992 to
$1,323,950 in 1993 and decreased to $1,271,400 in 1994. The decrease
from 1993 to 1994 is mainly the result of the change in the accounting
method as a result of the change in ownership used for one of the
properties (Hill Hotel) partially offset by an increase in rental
income at one of the properties due to higher average occupancy. The
increase from 1992 to 1993 results mainly from increased rental income
due to two new leases for an additional 26,350 sf of commercial space
at Shriver Square.
During 1992 and 1993, substantial cash balances
were held in interest bearing accounts prior to being used for their
intended purposes. As a result of a decrease in cash, interest income
declined from $42,911 in 1992 to $16,010 in 1993 to $1,851 in 1994.
Other income of $100,000 in 1993 results from an
extinguishment of debt according to the Grant of Easement loan
agreement between Shriver Square Joint Venture and the City of Sioux
Falls in which $100,000 of the loan was released upon attainment of
leases for 67 percent of net square footage. This percentage was
achieved in February 1993.
Operating expenses increased from $694,182 in 1992
to $1,017,118 in 1993 and decreased to $650,715 in 1994. The decrease
from 1993 to 1994 and the increase from 1992 to 1993 is primarily due
to the legal fees incurred in 1993 in connection with the Shriver
Square bankruptcy. The decrease from 1993 to 1994 is secondarily the
result of the change in accounting methods as a result of a change in
the ownership at one of the properties (Hill Hotel). The increase
from 1992 to 1993 is secondarily due to an increase in certain
variable expenses (i.e. utilities, repairs & maintenance, and
management fees) as a result of higher occupancy at Shriver Square.
General and administrative expenses increased from
$224,990 in 1992 to $255,444 in 1993 and decreased to $168,000 in
1994. The decrease from 1993 to 1994 and the increase from 1992 to
1993 resulted from legal fees incurred in 1993 in connection with the
litigation and subsequent settlement agreement involving the Hill
Hotel Apartments Joint Venture.
Interest expense increased from $643,998 in 1992
to $690,060 in 1993 and decreased to $625,778 in 1994. The decrease
from 1993 to 1994 is due to a decrease in the interest rate on the
loans at one of the properties. This increase from 1992 to 1993 is
the result of the restructuring of several notes which led to higher
principal balances on which interest expense is calculated.
During the year, losses of $627,232 were incurred
at Registrant's Properties compared to $1,057,358 in 1993 and
$1,044,055 in 1992. A discussion of property operations/activities
follows:
In 1994, Registrant sustained a loss of $209,093
at Flint-Goodridge including $226,977 of depreciation and amortization
expense compared to a loss of $194,351 including $220,488 of
depreciation and amortization expense in 1993 and a loss of $200,219
including $237,278 of depreciation and amortization expense in 1992.
Since Flint-Goodridge is a low income housing property, rents are
fixed in relation to specified income levels. As a result, the
property experiences high occupancy but rental income remains low.
The decrease in the loss for 1994 from 1993 and 1992 results from a
continuing effort to decrease discretionary operating expenses. The
Registrant continues to work with the property manager to promote the
further reduction of discretionary operating expenses. The Registrant
expects to achieve in 1995 results comparable to those experienced in
1994.
In 1994, Registrant incurred a loss of $156,901 at
Robidoux including $172,553 of depreciation expense compared to a loss
of $145,890 including $172,344 of depreciation expense in 1993 and a
loss of $187,229 including $172,444 of depreciation expense in 1992.
Since Robidoux is a low income housing property, rents are fixed in
relation to specified income levels. Accordingly, as with Flint
Goodridge, the property experiences high occupancy but rental income
remains low. The increase in the loss from 1993 to 1994 is the result
of increases in the interest rate on one of the loans as prime rate
increased. The decrease in the loss from 1992 to 1993 results from a
decrease in operating expenses while rental income remained stable.
The Registrant expects that this property will achieve operating
results in 1995 similar to those experienced in 1994.
In 1994, Registrant incurred a loss of $261,238 at
Shriver Square including $245,672 of depreciation expense compared to
a loss of $582,138 including $233,272 of depreciation expense in 1993
and a loss of $412,326 including $218,106 of depreciation expense in
1992. The decrease in the loss from 1993 to 1994 is the result of an
increase in rental income, and a decrease in other income, interest
expense and legal fees. Rental income increased due to higher average
occupancy. Other income decreased due to the income recognized in
1993 related to the Grant of Easement loan. Interest expense
decreased due to the reduction in the interest rate as a part of the
Amended Plan. Legal fees decreased due additional legal fees incurred
in 1993 in connection with the bankruptcy.
In 1994, the Registrant was contacted by a local
neighborhood that was interested in developing the property owned by
Northern Liberty Development Associates ("NLDA") in a way that would
rehabilitate the existing historic structure. The Registrant entered
into negotiations with the group and in December 1994, the Registrant
donated to the neighborhood group all but a 12,247 sf vacant lot.
NLDA continues to own 25% of a neighboring property which contains a
15,744 sf building. Included in operations for 1994 is an
extraordinary loss of $2,480,680 relating to the donation of the
property.
Summary of Minority Interest Investments
In May 1992, in order to forestall threatened
foreclosure by the lender, Mass & L filed a reorganization petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code. In February 1993,
a party holding a mortgage on the property, with permission of the
bankruptcy court, foreclosed on the property. Included in operations
for 1993 is an extraordinary loss of $593,523 representing the write-
off of the investment in Mass & L.
The Registrant owns a minority interest in the
Bakery Apartments which it accounts for on the cost method. The
Registrant does not include the assets, liabilities, income or
expenses of the Bakery in the consolidated financial statements. The
following operating information is provided for the property. In
1994, the Bakery Apartments incurred a loss of $205,606 including
$257,065 of depreciation and amortization expense compared to a loss
of $180,072 including $246,635 of depreciation and amortization
expense in 1993 compared to a loss of $244,232 including $252,270 of
depreciation and amortization expense in 1992. The Registrant expects
that full occupancy and positive cash flow will continue throughout
1995.
In 1994, Registrant incurred a loss of $51,071 at
Kensington Tower compared to a loss of $134,979 including $96,134 of
depreciation and amortization expense in 1993 and a loss of $247,116
including $232,384 of depreciation and amortization expense in 1992.
For the first five months of 1993 and prior years, Kensington Tower
was treated as a consolidated subsidiary. This results in a loss of
$95,056 for the five months ended May 1993. Pursuant to the June 1,
1993 settlement agreement, the Registrant's ownership interest was
reduced to 30%. From that time forward, the investment is accounted
for by the equity method. The Registrant recognized a loss on the
investment of $39,923 from June through December 1993. The Registrant
expects to achieve in 1995 results comparable to those experienced in
1994.
Item 8. Financial Statements and Supplementary Data
Registrant is not required to furnish the supplementary
financial information referred to in Item 302 of Regulation S-K.
<PAGE>
Independent Auditor's Report
To the Partners of
Diversified Historic Investors VII
We have audited the accompanying consolidated balance sheets of
Diversified Historic Investors VII (a Pennsylvania Limited
Partnership) and subsidiaries as of December 31, 1994 and 1993 and the
related statements of operations, changes in partners' equity and cash
flows for the years then ended. These consolidated statements are the
responsibility of the Partnership's management. Our responsibility is
to express an opinion on these consolidated financial statements based
on our audits. We did not audit the financial statements of Flint
Goodridge General Partnership, which statements reflect total assets
of $4,278,602 and $4,477,085 as of December 31, 1994 and 1993,
respectively, and total revenues of $503,393 and $492,766,
respectively for the years then ended. Those statements were audited
by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Flint
Goodridge General Partnership, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
Diversified Historic Investors VII as of December 31, 1994 and 1993,
and the results of their operations and their cash flows for the years
ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedule of Real
Estate and Accumulated Depreciation on page 30 is presented for the
purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
Gross, Kreger & Passio
Philadelphia, Pennsylvania
March 7, 1995
<PAGE>
Independent Auditor's Report
To the Partners of
Flint Goodridge General Partnership
New Orleans, Louisiana
We have audited the accompanying balance sheets of Flint Goodridge
General Partnership HUD Project No. 064-35269-PM of as of December 31,
1994 and the related statement of income (loss), changes in partners'
equity and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller
General of the United States, and the Consolidated Audit Guide for
Audits of HUD Programs, issued by the U.S. Department of Housing and
Urban Development, Office of Inspector General, in July 1993. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Flint
Goodridge General Partnership, HUD Project No. 064-35269 - PM, as of
December 31, 1994, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supporting
information included with the financial statements (shown in Schedules
1 through 12) is presented for purposes of additional analysis and is
not a required part of the basic financial statements of Flint
Goodridge General Partnership, HUD Project No. 064-35269 - PM. Such
information has been subjected to the same auditing procedures applied
in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Murphy, Whalen & Broussard
New Orleans, Louisiana
February 3, 1995
<PAGE>
Independent Auditor's Report
To the Partners of
The Bakery Apartments Limited Partnership
We have audited the accompanying balance sheets of The Bakery
Apartments Limited Partnership, for December 31, 1994 and 1993 and the
related statements of operations, partners' equity and cash flows for
the years ended. These financial statements are the responsibility of
the partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Bakery
Apartments Limited Partnership as of December 31, 1994 and 1993 and
the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Pailet, Meurier and LeBlanc, L.L.P.
Metairie, Louisiana
January 27, 1995
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1994 and 1993 18
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993 and 1992 (unaudited) 19
Consolidated Statements of Changes in Partners' Equity for
the Years Ended December 31, 1994, 1993, and 1992 20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993, and 1992 (unaudited) 21
Notes to consolidated financial statements 22-28
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 30
Notes to Schedule XI 31
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
Assets
1994 1993
Rental properties at cost:
Land $ 118,627 $ 241,442
Buildings and improvements 16,915,728 18,569,923
Construction in progress 142,548 891,570
---------- ----------
17,176,903 19,702,935
Less - accumulated depreciation (3,007,245) (2,412,417)
---------- ----------
14,169,658 17,290,518
Cash and cash equivalents 12,909 316,630
Restricted cash 81,050 33,019
Investment in affiliate 1,535,760 1,586,831
Other assets (net of accumulated
amortization of $125,424 and $103,739) 445,449 484,426
---------- ----------
Total $16,244,826 $19,711,424
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 7,184,570 $ 7,197,834
Accounts payable:
Trade 568,991 573,426
Related parties 790,420 826,366
Interest payable 68,771 49,386
Tenant security deposits 24,925 24,790
---------- ----------
Total liabilities 8,637,677 8,671,802
---------- ----------
Minority interests 253,359 252,246
---------- ----------
Partners' equity 7,353,790 10,787,376
---------- ----------
Total $16,244,826 $19,711,424
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
(Unaudited)
Revenues:
Rental income $1,271,400 $1,323,950 $1,135,053
Interest income 1,851 16,010 42,911
Other income -0- 100,000 -0-
--------- --------- ---------
Total revenues 1,273,251 1,439,960 1,177,964
--------- --------- ---------
Costs and expenses:
Rental operations 650,715 1,017,118 694,182
General and administrative 168,000 255,444 224,990
Interest 625,778 690,060 643,998
Depreciation and amortization 733,184 829,726 959,385
--------- --------- ---------
Total costs and expenses 2,177,677 2,792,348 2,522,555
--------- --------- ---------
Loss before minority interests and
equity in affiliate (904,426) (1,352,388) (1,344,591)
Minority interests' portion of loss 2,581 3,694 2,835
Equity in net loss of affiliate (51,071) (39,923) -0-
--------- --------- ---------
Loss before extraordinary item (952,916) (1,388,617) (1,341,756)
Extraordinary loss (2,480,670) (593,523) -0-
--------- --------- ---------
Net loss ($3,433,586) ($1,982,140) ($1,341,756)
========= ========= =========
Net loss per limited partnership unit:
Loss before minority interests and
equity in affiliate ($ 50.19) ($ 75.05) ($ 74.62)
Minority interests .14 .21 .16
Equity in net loss of affiliate (2.83) (2.22) -0-
------- ------- -------
Loss before extraordinary item (52.88) (77.06) (74.46)
Extraordinary item (137.67) (32.94) -0-
------- ------- -------
($ 190.55) ($ 110.00) ($ 74.46)
======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
Dover
Historic
Advisors Limited
VII (1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1991 (unaudited) ($ 9,871) $13,559,654 $13,549,783
Capital contributions 561,854 -0- 561,854
Net loss (unaudited) (13,418) (1,328,338) (1,341,756)
------- ---------- ----------
Balance at December 31, 1992 538,565 12,231,316 12,769,881
Distributions to partners (365) -0- (365)
Net loss (19,821) (1,962,319) (1,982,140)
------- ---------- ----------
Balance at December 31, 1993 518,379 10,268,997 10,787,376
Net loss (34,336) (3,399,250) (3,433,586)
------- ---------- ----------
Balance at December 31, 1994 $484,043 $ 6,869,747 $ 7,353,790
======= ========== ==========
(1) General Partner.
(2) 17,839 limited partnership units outstanding at December 31,
1994, 1993, and 1992.
The accompaning notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
(Unaudited)
Cash flows from operating activities:
Net loss ($3,433,586) ($1,982,140) ($1,341,756)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization 733,184 829,726 959,385
Extraordinary loss 2,480,670 593,523 -0-
Equity in loss of affiliate 51,071 39,923 -0-
Changes in assets and liabilities:
(Increase) decrease in restricted cash (48,031) 3,083 244,738
(Decrease) increase in accounts (4,435) 76,366 380,620
payable - trade
Increase (decrease) increase in 19,385 (46,128) 40,564
interest payable
Increase (decrease) increase in
tenant security deposits 135 (850) (3,252)
-------- ------- --------
Net cash (used in) provided by
operating activities (486,497) 280,299 (201,607)
-------- ------- --------
Cash flows from investing activities:
Purchase of rental property and
improvements (67,615) (272,096) (866,500)
Proceeds from sale of property -0- -0- 112,502
Decrease (increase) in other assets 17,292 164,487 (203,970)
Investment in affiliate -0- 225,000 -0-
-------- ------- --------
Net cash (used in) provided by
investing activities 117,391 (957,968) (50,323)
-------- ------- --------
Cash flows from financing activities:
Proceeds from debt financing 65,926 112,558 663,221
Principal payments (79,190) (40,353) (447,323)
Capital contributions -0- -0- 561,854
Distributions to partners -0- (365) -0-
Minority interest (2,581) (3,694) (68,230)
(Decrease) increase in accounts
payable - related parties (35,946) 28,502 (547,335)
--------- -------- ---------
Net cash (used in) provided by
financing activities 96,648 162,187 (51,791)
--------- -------- ---------
Net decrease in cash and cash equivalents (303,721) (272,458) (515,482)
--------- -------- ---------
Cash and cash equivalents at beginning of
year 316,630 589,088 1,104,570
--------- -------- ---------
Cash and cash equivalents at end of year $ 12,909 $ 316,630 $ 589,088
========= ======== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors VII (the "Partnership") was formed in
December 1988 under the laws of the Commonwealth of Pennsylvania. The
Partnership commenced operations in June 1989. The partnership was
organized to acquire, rehabilitate, renovate, manage, operate, hold,
sell, exchange, and otherwise deal in and manage real properties
containing improvements which are Certified Historic Structures, as
defined in the Internal Revenue Code of 1986 ("the Code"), or which
may also be (but are not required to be) eligible for low income
housing tax credits as provided by Section 42 of the Code, and such
other uses as Dover Historic Advisors VII (the "General Partner")
deems appropriate, and to engage in any and all activities related or
incidental thereto.
The General Partner of the Partnership, Dover Historic Advisors VII (a
general partnership), whose partners are Gerald Katzoff and Dover
Historic Advisors, Inc., (a Pennsylvania corporation and wholly-owned
subsidiary of DHP, Inc., (formerly aspects of the Partnership'
operations. DHP, Inc., was the Initial Limited Partner of the
Partnership.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements follows.
1. Principles of Consolidation
The accompanying financial statements of the Partnership include the
accounts of four subsidiary partnerships (the "Ventures"), in which
the Partnership has controlling interests, with appropriate
elimination of inter-partnership transactions and balances. In
addition, the Partnership owns a minority interest of 16.83% in one
partnership, which it accounts for on the cost method, and a minority
interest of 30% in one partnership, which it accounts for on the
equity method. The financial statements for the year ended December
31, 1992 are unaudited, with the exception of the balance sheet which
is audited. These financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which, in the
opinion of the General Partner, are necessary for a fair statement of
results for those years.
2. Acquisition Costs
Costs incurred in identifying and evaluating properties for possible
acquisition and rehabilitation are deferred. Such costs are
capitalized as part of the cost of the property if the related
property is acquired and are charged to expense if it is not acquired.
Interest, real estate taxes, and insurance costs incurred during the
rehabilitation period have been capitalized as part of the cost of the
property.
3. Deferred Expenses
Loan fee have been incurred with respect to certain loans. Such fees
were deferred and are being amortized over the term of the related
loans.
The Partnership prepaid all amounts due under a ground lease for one
of its properties. Such prepayments have been deferred and are being
amortized over the term of the lease (45 years).
4. Net Loss per Limited Partnership Unit
The net loss per limited partnership unit is based on the weighted
average number of limited partnership units outstanding during the
period (17,839 in 1994, 1993, and 1992).
5. Costs of Issuance
Costs incurred in connection with the offering and sale of limited
partnership units have been charged against partners' equity as a
reduction of the gross proceeds.
6. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
7. Depreciation
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Buildings and improvements are
depreciated over 25 years and furniture and fixtures over five years.
8. Income Taxes
Federal and state income taxes are payable by the individual partners;
accordingly, no provision or liability for income taxes is reflected
in the financial statements.
NOTE C - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Partnership made cash payments of interest in the amounts of
$602,291, $744,645, and $603,434 in 1994, 1993 and 1992, respectively.
During 1993, the Partnership reached a settlement agreement with one
of its joint venture partners (se Note H - Commitments and
Contingencies). Pursuant to this agreement, the Partnership changed
its method accounting for one affiliate from consolidation to the
equity method. The effect of this transaction, which is excluded from
the consolidated statement of cash flows, follows:
Decrease in assets $5,231,508
Decrease in liabilities (3,379,754)
---------
Increase in investment in affiliate $1,851,754
=========
During 1993, a party holding a mortgage on the property located in
Washington, D.C., foreclosed on the property. The extraordinary loss
of $593,523 associated with this transaction represents the loss on
the investment in the partnership which owned the property.
NOTE D - PARTNERSHIP AGREEMENTS
The significant terms of the Agreement of Limited Partnership (the
"Agreement"), as they relate to the financial statements, follow:
All distributable cash from operations (as defined in the Agreement of
Limited Partnership) will be distributed 1% to the General Partner and
99% to the limited partners.
All distributable cash from sales or dispositions (as defined) will be
distributed to the limited partners up to their adjusted invested
capital (as defined) plus an amount equal to the sum of the greater of
an 8.5% cumulative, noncompounded annual return on the average after-
credit invested capital (as defined), less amounts previously
distributed (as defined); thereafter, after receipt by the General
Partner or its affiliates of any accrued but unpaid real estate
brokerage commissions, the balance will be distributed 15% to the
General Partner and 85% to the limited partners.
Net income or loss from operations of the Partnership is allocated 1%
to the General Partner and 99% to the limited partners.
NOTE E - ACQUISITIONS
The Partnership acquired controlling general or limited partnership
interests in Ventures and minority interests in partnerships during
the period from June 1989 to March 1991, as discussed below.
In June 1989, the Partnership was admitted, with a 98% general partner
interest, to a Nebraska general partnership which owns a building
located in Nebraska, consisting of 65 apartment units and 3,550 square
feet of commercial space, for a cash capital contribution of
$2,350,000. In addition, $3,000,000 of rehabilitation costs relating
to the investment have been capitalized as part of the building and
improvements. These capitalized costs have been removed from the
balance sheet (see NOTE C - SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION). Pursuant to the June 1993 Amended and Restated Joint
Venture Agreement, the Partnership's interest was reduced to 30%.
In July 1989, the Partnership was admitted, with a 90% general partner
interest, to a Pennsylvania general partnership which owns two
buildings located in Louisiana, consisting of 93 apartments units, for
a cash capital contribution of $2,808,000.
In September 1989, the Partnership was admitted, with a 99% general
partner interest, to a Missouri general partnership which owns a
building located in Missouri, consisting of 60 apartment units, for a
cash capital contribution of $2,400,000. In addition, $2,300,000 of
rehabilitation costs relating to the investment have been capitalized
as part of the building and improvements.
In December 1989, the Partnership was admitted, with a 98% general
partner interest, to a Nebraska general partnership which owns
property located in South Dakota, consisting of 58,793 square feet of
commercial space, for a cash capital contribution of $1,350,000. In
addition, $3,400,000 of acquisition costs relating to the investment
have been capitalized as part of the building and improvements.
In February 1990, the Partnership was admitted, with a 99% general
partner interest, to a Pennsylvania general partnership, which owned a
property which was originally intended to be rehabilitated into
250,000 square feet of residential and commercial space located in
Pennsylvania, for a cash contribution of $2,000,000. In December
1994, the Partnership donated to a neighborhood group all but a 12,247
sf vacant lot and a 15,744 sf building of which the Partnership owns
25%.
In September 1990, the Partnership purchased 19% interest of a
Washington, D.C. general partnership which owned a building located in
Washington, D.C., consisting of 54 hotel rooms, for a cash capital
contribution of $550,000. In February 1993, a party holding a
mortgage on the property, with permission of the bankruptcy court,
foreclosed on the property.
In March 1991, the Partnership purchased 16.83% interest of a
Pennsylvania general partnership which owns a building located in
Louisiana, consisting of 68 units, for $300,000.
<TABLE>
NOTE F - DEBT OBLIGATIONS
Debt obligations are as follows:
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Mortgage payable, interest at 10%; payable in monthly $2,301,097 $2,319,783
installments of principal and interest of $20,819, with
maturity in June 2020; collateralized by related rental
property.
Construction note payable, interest at prime plus .5% 1,043,812 1,097,004
(effective rate of 9% and 6.5% at December 31, 1994 and 1993,
respectively); principal balance due June 15, 1995.
Note payable, interest only at prime plus 1% (effective rate 400,025 334,099
of 9.5% and 7% at December 31, 1994 and 1993, respectively);
payable in monthly payments of principal of $1,680 and
interest; remaining principal balance due November 1995.
Note payable, interest at 1%; principal and interest payments 42,839 50,151
of $648 due monthly; remaining principal due September 2000.
Note payable, interest only at 8%, payable monthly; remaining 2,757,128 2,757,128
principal balance due June 2000 (A).
Note payable, interest only at 8% payable monthly; remaining 476,012 476,012
principal balance due June 2000 (A).
Subordinated note payable, non interest-bearing; 50% deemed 100,000 100,000
released upon attainment of executed leases to occupy 39,195
square feet; balance due upon sale or refinance of property.
Note payable, interest at 7%; entire principal balance and
accrued interest payable on the earlier of (1) repayment in
full of the current and all future indebtedness to the first
mortgage holder, or (2) January 2002; collateralized by
related rental property. 63,657 63,657
--------- ---------
$7,184,570 $7,197,834
========= =========
(A) Pursuant to the Third Amended Plan of Reorganization (the
"Plan") dated October 15, 1993, the monthly debt service will consist
of interest only until October 15, 1995, when payments of principal
and interest in the amount of $24,954 will commence.
Maturities of debt obligations at December 31, 1994, are as follows:
Year Ending
December 31,
1995 $ 1,471,871
1996 40,536
1997 75,908
1998 82,206
1999 89,079
Thereafter 5,424,970
---------
$ 7,184,570
=========
NOTE G - OTHER INCOME
Other income in 1993 consists of $100,000 which resulted from the
attainment of executed leases to occupy 39,195 square feet, at which
time the debt was released.
NOTE H - COMMITMENTS AND CONTINGENCIES
In May 1992, one partnership in which the Partnership holds a minority
interest filed a reorganization petition pursuant to Chapter 11 of the
U.S. Bankruptcy Code. In February 1993, a party holding a mortgage on
the property, with permission of the bankruptcy court, foreclosed on
the property. The Partnership recognized an extraordinary loss on its
investment in the partnership.
On August 14, 1992, Commercial Federal Realty Investors Corporation
("CFRIC"), the owner of a 2% interest in the Hill Hotel Apartments
Joint Venture ("HHAJV"), filed an action seeking damages of $225,000
plus interest alleged to be due under the terms of various agreements
between parties which were executed in connection with the established
of the Joint Venture. The Partnership denied liability and filed a
counterclaim seeking declaratory judgment and money damages for breach
of contract and breach of fiduciary duty. On June 1, 1993, a
settlement agreement was reached and an Amended and Restated Joint
Venture Agreement was signed whereby the Partnership was entitled to
retain all funds held in escrow ($225,000) pursuant to the original
joint venture agreement. In return, CFRIC agreed to convert
$1,319,000 in amounts owned to it by HHAJV to a capital contribution,
(increasing its ownership in HHAJV to 70%) and will receive 100% of
future income, losses, and tax credits until such time as it recovers
$319,000 of the capital contribution, any advances it must make on
behalf of the property in the form of loan reduction and cash flow
shortfalls (with interest at 10%), and any amounts resulting from any
recapture of tax credits. Thereafter future income and losses will be
allocated 70% to CFRIC and 30% to the Partnership. This change in
ownership also results in a change in the method in which the
investment is accounted for. For the first five months of 1993 and
prior years, HHAJV is treated as a consolidated subsidiary. As of
June 1, 1993, the Partnership's interest in HHAJV is treated as an
equity investment.
On March 1, 1993, Shriver Square Joint Venture ("SSJV") filed a
reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy
Code. On September 10, 1993, SSJV filed the Third Amended Plan of
Reorganization (the "Plan"). The Plan was confirmed in October 1993.
Due to insufficient cash flow generated by the property, SSJV ceased
making debt service payments in January 1995. The loan was declared
in default by the lender and on March 30, 1995, the deed to the
property, which was held in escrow pursuant to the Amended Plan, was
delivered to the first mortgage holder.
NOTE I - TRANSACTIONS WITH RELATED PARTIES
At December 31, 1992, the Partnership maintained $750,200 in bank
accounts ($747,843 of which was in interest-bearing accounts in 1992
in a bank who has as a director a person who at that time was an
affiliate of the General Partner. The Partnership also earned
approximately $38,487 from deposits at this bank in 1992.
In 1992 the Partnership incurred fees of $20,680, for accounting
services performed by a company whose Chairman of the Board was at
that time an affiliate of the General Partner.
NOTE J - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time period for financial reporting ("book")
purposes and for income tax ("tax") purposes. A reconciliation
follows:
For the Years Ended December 31,
1994 1993 1992
-------- -------- --------
Net loss - book ($ 3,433,586) ($ 1,982,140) ($ 1,341,756)
Timing differences (168,242) (38,279) 39,708
Minority interest 40,559 292,745 (92,311)
Excess of book over tax
depreciation 224,885 313,742 392,559
--------- --------- ---------
Net loss - tax ($ 3,530,788) ($ 1,413,932) ($ 1,001,800)
========= ========= =========
Partners' equity - book $ 7,353,790 $10,787,376 $12,769,881
Distribution to limited partners 33,861 33,861 33,861
Costs of issuance 2,288,270 2,288,270 2,288,270
Basis reduction due to
Investment Tax Credit (3,790,041) (3,790,041) (3,922,472)
Cumulative tax under book loss 1,164,302 1,261,504 693,296
Capital contributions (641,684) (641,684) (641,684)
--------- --------- ----------
Partner's equity - tax $ 6,408,498 $ 9,939,286 $11,221,152
========= ========= ==========
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
Costs
Capitalized
Subsequent
Initial Cost to Acquisition
to Partnership
(b)
Buildings Construction
and in
Description (a) Encumbrances Land (b) Improvements Progress Improvements
(e)
93 unit apartments
in New Orleans, LA $2,280,454 $17,182 $4,667,050 - $969,253
60 unit apartments in
St. Joseph, MO 1,577,894 1,500 2,482,287 - 2,272,024
250,000 square feet
of residential and
commercial space in
Philadelphia, PA - 145,000 1,792,112 891,570 193,190
--------- ------- --------- ------- ---------
$3,858,348 $163,682 $8,941,449 $891,570 $3,434,467
========= ======= ========= ======= =========
Gross Amount
at which
Carried at
December 31,
1995
Buildings
and Accumulated Date of Date
Land Improvements Total(c)(d) Depr.(d)(f) Constr. (a) Acquired
$17,182 $5,655,494 $5,672,676 $1,368,300 1989 7/89
1,500 4,760,061 4,761,561 1,016,567 1989 9/89
16,787 101,703 118,490 20,923 (a) 2/90
------ ---------- ---------- ---------
$35,469 $10,517,258 $10,552,727 $2,405,790
====== ========== ========== =========
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
NOTES TO SCHEDULE XI
DECEMBER 31, 1994
(A) All properties are certified historic structures as defined in
the Internal Revenue Code of 1986, or are eligible for
designations as such. The "date of construction" refers to the
period in which such properties were rehabilitated.
(B) The cost of real estate owned at December 31, 1994, for Federal
income tax purposes was approximately $14,342,871. The
depreciable basis of the building and improvements of the
properties has been reduced for Federal income tax purposes by
the historic rehabilitation credit.
(C) Reconciliation of real estate:
1994 1993 1992
Balance at beginning of year $19,702,935 $25,218,634 $24,464,636
Additions during this year:
Improvements 22,284 272,096 866,500
Deductions during the year:
Retirements 2,548,316 -0- (112,502)
Deconsolidated subsidiary -0- (5,787,795) -0-
---------- ---------- ----------
Balance at end of year $17,176,903 $19,702,935 $25,218,634
========== ========== ==========
Reconciliation of accumulated depreciation:
1994 1993 1992
Balance at beginning of year $ 2,412,417 $ 2,463,848 $ 1,533,334
Depreciation expense for the year 716,497 806,315 930,514
Deductions during the year:
Retirements (121,669) -0- -0-
Deconsolidated subsidiary -0- (857,746) -0-
---------- ---------- ----------
Balance at end of year $ 3,007,245 $ 2,412,417 $ 2,463,848
========== ========== ==========
(D) See Note E to the consolidated financial statements for further
information.
(E) See Note B to the consolidated financial statements for
depreciation method and lives.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
a. Identification of Directors - Registrant has no
directors.
b. Identification of Executive Officers
The General Partner of the Registrant is Dover
Historic Advisors VII (DoHA-VII), a Pennsylvania general partnership.
The partners of DoHA-VII are as follows:
Name Age Position Term of Office Period Served
Gerald Katzoff 47 Partner in DoHA- No fixed term Since December
VII 1988
Dover Historic -- Partner in DoHA- No fixed term Since December
Advisors, Inc. VII 1988
("Dover Advisors")
For further description of Dover Advisors, see
paragraph e. of this Item. There is no arrangement or understanding
between either person named above and any other person pursuant to
which any person was or is to be selected as an officer.
c. Identification of Certain Significant Employees.
Registrant has no employees. Its administrative and operational
functions are carried out by a property management and partnership
administration firm engaged by the Registrant.
d. Family Relationships. There is no family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DoHA-VII is a general
partnership formed in 1988. The partners of DoHA-VII are Dover
Advisors and Gerald Katzoff. The general partner is responsible for
management and control of Registrant's affairs and will have general
responsibility and authority in conducting its operations.
Gerald Katzoff (age 47) has been involved in
various aspects of the real estate industry since 1974. Mr. Katzoff
is the owner of Katzoff Resorts, which controls various hotel and spa
resorts in the United States. Mr. Katzoff is a principal in an entity
which is the owner of a property in Avalon, New Jersey which has filed
a petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. Mr.
Katzoff is a former President and director of D, Ltd. (formerly The
Dover Group, Ltd).
Dover Advisors, a wholly-owned subsidiary of DHP,
Inc., (formerly Dover Historic Properties, Inc.) is a corporation
formed in February 1989 under the laws of the Commonwealth of
Pennsylvania for the purpose of acting as the general partner (or a
partner of the general partner) in real estate programs such as the
Registrant. DHP, Inc. is a subsidiary of D, Ltd., an entity formed in
1985 to act as the holding company for DHP, Inc. and certain other
companies involved in the development and operation of both historic
properties and conventional real estate as well as in financial (non-
banking) services.
The executive officers, directors, and key
employees of Dover Advisors are described below.
Michael J. Tuszka (age 48) was appointed Chairman
of Dover Advisors on January 27, 1993. Mr. Tuszka has been associated
with Dover Advisors and its affiliates since 1984.
Donna M. Zanghi (age 38) was appointed
Secretary/Treasurer of Dover Advisors and Secretary/Treasurer of DHP,
Inc. on June 15, 1993. She is also a Director, and
Secretary/Treasurer of D, Ltd. She has been associated with Dover
Advisors and its affiliates since 1984 except for the period from
December 1986 to June 1989 and the period from November 1, 1992 to
June 14, 1993.
Michele F. Rudoi (age 31) was appointed on January
27, 1993 as Assistant Secretary of Dover Advisors, D, Ltd and DHP,
Inc. and Director of D, Ltd.
Item 11. Executive Compensation
a. Cash Compensation - During 1994, Registrant paid
no cash compensation to DoHA-VII, any partner therein or any person
named in paragraph c. of Item 10.
b. Compensation Pursuant to Plans - Registrant has no
plan pursuant to which compensation was paid or distributed during
1994, or is proposed to be paid or distributed in the future, to DoHA-
VII, any partner therein, or any person named in paragraph c. of Item
10.
c. Other Compensation - No compensation not referred
to in paragraph a. or paragraph b. of this Item was paid or
distributed during 1994 to Dover Advisors, DoHA-VII, any partner
therein, or any person named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no
directors.
e. Termination of Employment and Change of Control
Arrangement -
Registrant has no compensatory plan or arrangement, with respect to
any individual, which results or will result from the resignation or
retirement of any individual, or any termination of such individual's
employment with Registrant or from a change in control of Registrant
or a change in such individual's responsibilities following such a
change in control.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a. Security Ownership of Certain Beneficial Owners -
No person is known to Registrant to be the beneficial owner of more
than five percent of the issued and outstanding Units.
b. Security Ownership of Management - No equity
securities of Registrant are beneficially owned by any person named in
paragraph c. of Item 10.
c. Changes in Control - Registrant does not know of
any arrangement, the operation of which may at a subsequent date
result in a change in control of Registrant.
Item 13. Certain Relationships and Related Transactions
a. Pursuant to Registrant's Amended and Restated
Agreement of Limited Partnership, DoHA-VII is entitled to 10% of
Registrant's distributable cash from operations in each year. There
was no such share allocable to DoHA-VII for fiscal years 1992 through
1994.
b. Certain Business Relationships - Registrant has no
directors.
c. Indebtedness of Management - No executive officer
or significant employee of Registrant, Registrant's general partner
(or any employee thereof), or any affiliate of any such person, is or
has at any time been indebted to Registrant.
PART IV
Item 14. (A) Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31,
1994 and 1993.
b. Consolidated Statements of Operations for the
Years Ended December 31, 1994, 1993 and 1992
(unaudited).
c. Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 1994, 1993
and 1992.
d. Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992
(unaudited).
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI- Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(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 of this Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the
quarter ended December 31, 1994.
(c) Exhibits:
See Item 14 (A) (3) above.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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.
DIVERSIFIED HISTORIC INVESTORS VII
Date: May 12, 1995 By: Dover Historic Advisors, VII, General Partner
By: Dover Historic Advisors, Inc., Partner
By: /s/ Michael J. Tuszka
MICHAEL J. TUSZKA,
Chairman
By: /s/ Donna M. Zanghi
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi
MICHELE F. RUDOI,
Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
DOVER HISTORIC ADVISORS VII General Partner
By: Dover Historic Advisors, Inc.,
Partner
By: /s/ Michael J. Tuszka May 11, 1995
MICHAEL J. TUSZKA,
Chairman
By: /s/ Donna M. Zanghi May 12, 1995
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi May 12, 1995
MICHELE F. RUDOI,
Assistant Secretary
</TABLE>
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 29,942
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,552,727
<DEPRECIATION> 2,405,790
<TOTAL-ASSETS> 10,194,943
<CURRENT-LIABILITIES> 486,232
<BONDS> 3,858,348
0
0
<COMMON> 0
<OTHER-SE> 5,773,488
<TOTAL-LIABILITY-AND-EQUITY> 10,194,943
<SALES> 0
<TOTAL-REVENUES> 830,652
<CGS> 0
<TOTAL-COSTS> 475,921
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (1,482,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,482,456)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,482,456)
<EPS-PRIMARY> (82.28)
<EPS-DILUTED> 0
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