UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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________________________
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
-----------------------------
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__
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 1996 (unaudited) and December
31, 1995
Consolidated Statements of Operations - Three Months and Six Months
Ended June 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended June 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 June 30, 1996, Registrant had cash of $27,005. 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 June 30, 1996, Registrant had restricted cash of $82,963
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 yet identified any sources for this
funding.
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<PAGE>
(2) Capital Resources
Due to the relatively recent rehabilitations of the properties,
any capital expenditures needed are generally replacement items and are funded
out of cash from operations or replacement reserves, if any. Registrant is not
aware of any factors which would cause historical capital expenditure levels not
to be indicative of capital requirements in the future and accordingly, does not
believe that it will have to commit material resources to capital investment for
the foreseeable future.
(3) Results of Operations
During the second quarter of 1996, Registrant incurred a net
loss of $163,595 ($9.08 per limited partnership unit) compared to a net loss of
$158,593 ($8.80 per limited partnership unit) for the same period in 1995. For
the first six months of 1996, the Registrant incurred a net loss of $328,702
($18.24 per limited partnership unit) compared to a net loss of $474,081 ($26.30
per limited partnership unit) for the same period in 1995.
Rental income increased slightly from $174,529 in the second
quarter of 1995 to $176,254 in the same period in 1996 and decreased $130,184
from $474,699 for the first six months of 1995 to $344,515 for the same period
in 1996. This decrease from the first six months of 1995 to the same period in
1996 is mainly the result of the foreclosure of Shriver Square on March 30, 1995
and a slight decrease in the rental income at Robidoux, partially offset by an
increase in rental income at Flint Goodridge. Rental income decreased at
Robidoux due to lower rental rate tenants replacing higher rental rate tenants,
even though occupancy levels increased (96% to 98%). The increase in rental
income at Flint Goodridge is the result of higher average rental rates.
Expenses for rental operations increased by $9,535 from $71,537
in the second quarter of 1995 to $81,072 in the same period in 1996. Expenses
increased mainly due to an increase in operating expenses such as maintenance
and salary and wage expense at Flint Goodridge and Robidoux, as well as an
increase in professional fees at Robidoux. Maintenance expense at Flint
Goodridge increased due to expenditures for certain deferred maintenance items.
Robidoux experienced an increase in maintenance expense due to higher occupancy
levels (93% to 95%). Salary and wage expense increased due to cost of living
increases given to employees, and professional fees increased due to an
appraisal done at the property.
Expenses for rental operations decreased by $132,658 from
$301,521 for the first six months of 1995 to $168,863 for the same period in
1996. Expenses decreased mainly due to the foreclosure of Shriver Square on
March 30, 1995, partially offset by an increase in maintenance and insurance
expense at Flint Goodridge and an increase in maintenance, professional fees,
and salary and wage expense at Robidoux. Maintenance expense at Flint Goodridge
increased due to expenditures for certain deferred maintenance items, and
insurance expense increased due to an increase in premiums. Maintenance expense
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<PAGE>
at Robidoux increased due to higher occupancy levels (96% to 98%). Professional
fees increased due to an appraisal done at the property, and salary and wage
expense increased due to cost of living increases given to employees.
Depreciation and amortization expense decreased $6,057 from
$113,732 in the second quarter of 1995 to $107,675 in the same period in 1996
due to certain fixed assets at Flint Goodridge becoming fully depreciated.
Depreciation and amortization expense decreased $73,529 from
$288,880 for the first six months of 1995 to $215,351 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 $200 from $97,793 in the second
quarter of 1995 to $97,593 in the same period in 1996 and decreased by $73,765
from $258,954 for the first six months of 1995 to $185,189 in the same period in
1996. The decrease from the first six months of 1995 to the same period in 1996
is mainly due to the foreclosure of Shriver Square on March 30, 1995, as well as
a decrease in interest expense at Robidoux 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.
Losses incurred during the second quarter at the Registrant's
properties amounted to $99,000, compared to a loss of approximately $94,000 for
the same period in 1995. For the first six months of 1996 the Registrant's
properties recognized a loss of $202,000 compared to a loss of approximately
$346,000 for the same period in 1995.
In the second quarter of 1996 Registrant incurred a loss of
$12,000 at Kensington Tower, compared to a loss of $9,000 for the same period of
1995. For the first six months of 1996, Registrant incurred a loss of $21,000 at
Kensington Tower compared to a loss of $17,000 for the same period in 1995. The
Registrant accounts for this investment on the equity method and the increase in
the loss is due to an increase in operating expenses due to normal inflationary
increases.
In the second quarter of 1996, Registrant incurred a loss of
$37,000 at Flint Goodridge including $53,000 of depreciation and amortization
expense, compared to a loss of $39,000 in the second quarter of 1995, including
$57,000 of depreciation and amortization expense. The decrease in the loss from
the second quarter of 1995 to the same period in 1996 is the result of an
increase in rental income, partially offset by an increase in maintenance and
salary and wage expense. The increase in rental income is the result of higher
average rental rates. Maintenance expense increased due expenditures for certain
deferred maintenance items, and salary and wage expense increased due to cost of
living increases given to employees.
For the first six months of 1996, Registrant incurred a loss of
$88,000, at Flint Goodridge, including $106,000 of depreciation and amortization
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<PAGE>
expense, compared to a loss of $83,000, including $113,000 of depreciation and
amortization expense. The increase in the loss is the result of an increase in
maintenance and insurance expense, partially offset by an increase in rental
income, as well as a decrease in depreciation expense. Maintenance expense
increased due to expenditures for certain deferred maintenance items, and
insurance expense increased due to an increase in premiums. The increase in
rental income is the result of higher average rental rates. Depreciation and
amortization expense decreased due to furniture and fixtures becoming fully
depreciated and organization costs becoming fully amortized in the second
quarter of 1995.
In the second quarter of 1996, Registrant incurred a loss of
$62,000 at Robidoux, including $43,000 of depreciation and amortization expense,
compared to a loss of $55,000 including $43,000 of depreciation and amortization
expense in the second quarter of 1995. The increase in the loss is the result of
an increase in professional fees, maintenance, and salary and wage expense. The
increase in professional fees is due to an appraisal done at the property.
Maintenance expense increased due to higher occupancy levels (93% to 95%)
experienced at the property. Salary and wage expense increased due to cost of
living increases given to employees.
For the first six months of 1996, Registrant incurred a loss of
$114,000 at Robidoux, including $86,000 of depreciation and amortization
expense, compared to a loss of $115,000, including $86,000 of depreciation and
amortization expense for the same period in 1995. The decrease in the loss is
due to a decrease in interest expense, partially offset by a decrease in rental
income and an increase in professional fees, maintenance, and salary and wage
expense. 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, even though
occupancy levels increased. The increase in professional fees is due to an
appraisal done at the property. Maintenance expense increased due to higher
occupancy levels (96% to 98%) experienced at the property. Salary and wage
expense increased due to cost of living increases given to employees.
In the second quarter of 1996, Registrant incurred a loss of $0
at Shriver Square, compared to a loss of $400 including $0 of depreciation and
amortization expense in the second quarter of 1995, and for the first six months
of 1996, Registrant incurred a loss of $0 compared to a loss of $148,000 for the
same period in 1995, including $61,000 of depreciation and amortization expense.
The decrease in the loss from the second quarter and the first six months of
1995 to the same periods in 1996 is due to the fact that the property was
foreclosed by the lender in March 1995.
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<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
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(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
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Assets
------
June 30, 1996 December 31, 1995
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(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,526,211 10,517,258
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10,561,680 10,552,727
Less - Accumulated depreciation (2,619,663) (2,405,790)
---------- ----------
7,942,017 8,146,937
Cash and cash equivalents 27,005 29,942
Restricted cash 82,963 87,909
Investment in affiliate 1,471,828 1,492,779
Other assets (net of amortization
of $94,390 and $92,912 at June 30,
1996 and December 31, 1995, respectively) 433,640 437,376
---------- ----------
Total $ 9,957,453 $10,194,943
========== ==========
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Debt obligations $ 3,637,545 $ 3,858,348
Accounts payable:
Trade 461,302 380,863
Related parties 311,791 105,369
Interest payable 76,507 53,122
Tenant security deposits 26,659 23,753
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Total liabilities 4,513,804 4,421,455
---------- ----------
Minority interests 251,011 252,148
---------- ----------
Partners' equity 5,192,638 5,521,340
---------- ----------
Total $ 9,957,453 $10,194,943
========== ==========
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<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
----------------------------------
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the Three Months and Six Months Ended June 30, 1996 and 1995
(Unaudited)
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Revenues:
Rental income $176,254 $174,529 $344,515 $474,699
-------- -------- -------- --------
Costs and expenses:
Rental operations 81,072 71,537 168,863 301,521
General and administrative 42,000 42,000 84,000 84,000
Interest 97,593 97,793 185,189 258,954
Depreciation and amortization 107,675 113,732 215,351 288,880
-------- -------- -------- --------
Total costs and expenses 328,340 325,062 653,403 933,355
-------- -------- -------- --------
Loss before minority interests
and equity in affiliate (152,086) (150,533) (308,888) (458,656)
Minority interests' portion of loss 618 547 1,137 1,719
Equity in net loss of affiliate (12,127) (8,607) (20,951) (17,144)
-------- -------- -------- --------
Net Loss ($163,595) ($158,593) ($328,702) ($474,081)
======== ======== ======== ========
Net loss per limited
partnership unit ($ 9.08) ($ 8.80) ($ 18.24) ($ 26.30)
======== ======== ======== ========
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<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
----------------------------------
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
Six months ended
June 30,
1996 1995
--------- ---------
Cash flows from operating activities:
Net loss ($ 328,702) ($ 474,081)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 215,351 288,880
Equity in loss of affiliate 20,951 17,144
Changes in assets and liabilities:
Decrease (increase) in restricted cash 4,946 (4,327)
Decrease (increase) in other assets 2,258 (1,090)
Increase (decrease) in accounts payable-
trade 80,439 (165,415)
Increase in accounts payable
related parties 206,422 317,843
Increase in interest payable 23,385 40,712
Increase in tenant security deposits 2,906 761
--------- ---------
Net cash provided by operating activities 227,956 20,427
--------- ---------
Cash flows from investing activities:
Capital expenditures (8,953) (6,565)
--------- ---------
Net cash used in investing activities (8,953) (6,565)
--------- ---------
Cash flows from financing activities:
Principal payments (220,803) (10,064)
Minority interest (1,137) (1,719)
--------- ---------
Net cash used in financing activities (221,940) (11,783)
--------- ---------
(Decrease) increase in cash and cash
equivalents (2,937) 2,079
--------- ---------
Cash and cash equivalents at beginning of 29,942 12,909
period --------- ---------
Cash and cash equivalents at end of period $ 27,005 $ 14,988
========= =========
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<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.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is not party to, nor is any
of its property the subject of, any pending material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by this report to
a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Document
3 Registrant's Amended and Restated
Certificate of Limited Partnership
and Agreement of Limited Partnership,
previously filed as part of Amendment
No. 2 of Registrant's Registration
Statement on Form S-11, are
incorporated herein by reference.
21 Subsidiaries of the Registrant are
listed in Item 2. Properties on Form
10-K, previously filed and
incorporated herein by reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended June
30, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 6, 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
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 000845029
<NAME> DHI VII
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,005
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 433,640
<PP&E> 10,561,680
<DEPRECIATION> 2,619,663
<TOTAL-ASSETS> 9,957,453
<CURRENT-LIABILITIES> 773,093
<BONDS> 3,637,545
0
0
<COMMON> 0
<OTHER-SE> 5,192,638
<TOTAL-LIABILITY-AND-EQUITY> 9,957,453
<SALES> 0
<TOTAL-REVENUES> 344,515
<CGS> 0
<TOTAL-COSTS> 252,863
<OTHER-EXPENSES> 215,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,189
<INCOME-PRETAX> (328,702)
<INCOME-TAX> 0
<INCOME-CONTINUING> (328,702)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (328,702)
<EPS-PRIMARY> (18.24)
<EPS-DILUTED> 0.00
</TABLE>
