UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
---------------------------------------
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
-----------------------------------------------
DIVERSIFIED HISTORIC INVESTORS VII
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2539694
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Suite 500, 1521 Locust Street, Philadelphia, PA 19102
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 735-5001
N/A
- ----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
(unaudited) and December 31, 1996
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
As of September 30, 1997, Registrant had cash of
$95,715. Such funds are expected to be used to pay the liabilities of
Registrant, and to fund cash deficits of the properties. Cash
generated from operations is used primarily to fund operating expenses
and debt service. If cash flow proves to be insufficient, the
Registrant will attempt to negotiate loan modifications with the
various lenders in order to remain current on all obligations. The
Registrant is not aware of any additional sources of liquidity.
As of September 30, 1997, Registrant had
restricted cash of $45,970 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.
A property owned by Robidoux Redevelopment Joint
Venture ("RRJV"), a limited partnership in which the Registrant owns a
99% interest, has historically been unable, from its own revenues, to
meet its operating expenses and required debt service payments. The
Developer/Operating General Partner has provided the necessary funds.
Through 1992 these funds were provided pursuant to legal obligations.
Thereafter, the Registrant was able to prevail upon the Developer to
continue such funding on a voluntary basis. In 1996, the Developer
reported that it was no longer able nor willing to make such advances.
To avoid loss of RRJV's property, either through foreclosure or a
forced sale at depressed values, in January 1997 the Registrant sold
approximately 20% of its interest in RRJV. Simultaneously with the
sale, the Partnership Agreement was amended to allocate Low Income
Housing Tax Credits in the amount of $1,081,930 over the next nine
years to the purchaser. The proceeds from the sale were sufficient to
satisfy outstanding obligations and should enable RRJV to continue to
operate in the foreseeable future.
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).
(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. With respect to Northern
Liberty, any development of the remaining lot will require additional
funding of capital. The Registrant has not identified any sources for
this funding.
(3) Results of Operations
During the third quarter of 1997, Registrant
incurred a net loss of $151,706 ($8.42 per limited partnership unit)
compared to a net loss of $141,012 ($7.83 per limited partnership
unit) for the same period in 1996. For the first nine months of 1997,
the Registrant incurred a net loss of $5,554 ($.31 per limited
partnership unit) compared to a net loss of $469,714 ($26.06 per
limited partnership unit) for the same period in 1996.
Rental income increased $3,371 from $177,253 in
the third quarter of 1996 to $180,624 in the same period in 1997 and
increased $16,765 from $521,768 for the first nine months of 1996 to
$538,533 for the same period in 1997 due to an increase in average
occupancy at Robidoux Apartments and higher average rental rates at
Flint Goodridge Apartments.
There was no change in other income from the third
quarter of 1996 to the same period in 1997. Other income increased
from $0 in the first nine months of 1996 to $411,632 in the same
period in 1997 due to the sale of interest in Robidoux Redevelopment
Joint Venture, as referred to above.
Expenses for rental operations increased by
$20,920 from $70,261 in the third quarter of 1996 to $91,181 in the
same period in 1997 due to an increase in utilities expense at Flint
Goodridge and an increase in salaries and wages expense at Flint
Goodridge and Robidoux, partially offset by a decrease in insurance
expense at Flint Goodridge, as discussed below.
Expenses for rental operations decreased by
$10,623 from $239,124 for the first nine months of 1996 to $228,501
for the same period in 1997 due to a decrease in maintenance and
insurance expense at Flint Goodridge and a decrease in maintenance
expense at Robidoux, partially offset by an increase in management
fees at Robidoux and an increase in salaries and wages expense at
Flint Goodridge and Robidoux, as discussed below.
Depreciation and amortization expense decreased
$1,314 from $107,676 in the third quarter of 1996 to $106,362 in the
same period in 1997 and decreased $3,942 from $323,027 for the first
nine months of 1996 to $319,085 in the same period in 1997 due to
certain fixed assets at Flint Goodridge becoming fully depreciated in
1996.
Interest expense decreased $2,056 from $87,190 in
the third quarter of 1996 to $85,134 in the same period in 1997 and
decreased $15,197 from $272,379 for the first nine months of 1996 to
$257,182 in the same period in 1997. The decrease from the third
quarter of 1996 to the same period in 1997 is due to the reduction of
principal loan balances at Flint Goodridge and Robidoux on which
interest is calculated. The decrease from the first nine months of
1996 to the same period in 1997 is due to a non-interest bearing
advance made by the Registrant's co-general partner in order to repay
the principal balance of a loan which matured in March 1996 at
Robidoux Apartments.
Losses incurred during the third quarter at the
Registrant's properties amounted to $91,000, compared to a loss of
approximately $76,000 for the same period in 1996. For the first nine
months of 1997 the Registrant's properties recognized a loss of
$230,000 compared to a loss of approximately $277,000 for the same
period in 1996.
In the third quarter of 1997, Registrant incurred
a loss of $36,000 at Flint Goodridge including $51,000 of depreciation
and amortization expense, compared to a loss of $34,000 in the third
quarter of 1996, including $53,000 of depreciation and amortization
expense. The increase in the loss is due to an increase in utilities
and salaries and wages expense, partially offset by an increase in
rental income and a decrease in insurance and depreciation expense.
Utilities expense increased due to higher rates charged for electric
and water usage, and salaries and wages expense increased as a result
of cost of living pay increases given to employees. Rental income
increased due to an increase in average rental rates. Insurance
expense decreased as a result of reductions in property and mortgage
insurance rates, and depreciation expense decreased due to personal
property becoming fully depreciated in 1996.
For the first nine months of 1997, Registrant
incurred a loss of $96,000 at Flint Goodridge, including $154,000 of
depreciation and amortization expense compared to a loss of $122,000,
including $159,000 of depreciation and amortization expense for the
same period in 1996. The decrease in the loss is the result of an
increase in rental income due to higher average rental rates, combined
with a decrease in maintenance, depreciation and insurance expense,
partially offset by an increase in utilities and salaries and wages
expense. Maintenance expense decreased from 1996 to 1997 due to an
abnormally high level in 1996 due to the performance of deferred
maintenance. Maintenance expense returned to more normal levels in
1997. Depreciation expense decreased due to furniture and fixtures
becoming fully depreciated in 1996, and insurance expense decreased
due to reductions in property and mortgage insurance rates. Utilities
expense increased due to higher rates charged for electric and water
usage, and salaries and wages expense increased due to cost of living
increases given to employees.
In the third quarter of 1997, Registrant incurred
a loss of $55,000 at Robidoux, including $44,000 of depreciation and
amortization expense, compared to a loss of $42,000, including $43,000
of depreciation and amortization expense in the third quarter of 1996.
The increase in the loss is due to an increase in salaries and wages
expense, partially offset by an increase in rental income. Salaries
and wages expense increased as a result of an increase in maintenance
personnel, and rental income increased due to higher occupancy levels
(95% to 97%).
For the first nine months of 1997, Registrant
incurred a loss of $134,000 at Robidoux, including $131,000 of
depreciation and amortization expense, compared to a loss of $155,000
including $130,000 of depreciation and amortization expense for the
same period in 1996. The decrease in the loss is due to an increase
in rental income due to an increase in average occupancy (94% to 98%),
combined with a decrease in maintenance and interest expense,
partially offset by an increase in management fees and salaries and
wages expense. Maintenance expense decreased as a result of
operational efficiencies achieved at the property, and interest
expense decreased as a result of a non-interest bearing advance made
by the Registrant's co-general partner in order to repay the principal
of a loan which matured in March 1996. Management fees increased due
to a change in the property's management company (which was done in
order to improve the property's operations), and salaries and wages
expense increased as a result of an increase in maintenance personnel.
Summary of Minority Interest Investments
In the third quarter of 1997, Registrant incurred
a loss of $58,000 at the Bakery Apartments, including $60,000 of
depreciation and amortization expense compared to a loss of $96,000
including $63,000 of depreciation and amortization expense for the
same period in 1996, and for the first nine months of 1997, Registrant
incurred a loss of $123,000, including $180,000 of depreciation and
amortization expense compared to a loss of $172,000, including
$189,000 of depreciation and amortization expense for the same period
in 1996. The decrease in the losses from both the third quarter and
first nine months of 1997 to the same periods in 1996 is due to a
decrease in maintenance, corporate apartment expense, interest,
depreciation, and salaries and wages expense, partially offset by a
decrease in rental income. Maintenance expense decreased due to the
replacement of carpeting in several units and extermination services
performed to control termites in 1996. Corporate apartment expense
decreased due to lower rentals of corporate apartments, and interest
expense decreased due to a decrease in the principal loan balance on
which interest is calculated. Depreciation expense decreased due to
certain fixed assets becoming fully depreciated in 1996, and salaries
and wages expense decreased as a result of a reduction in the average
occupancy of residential units. Rental income decreased due to a
reduction in corporate apartment rentals and a decline in the average
occupancy of residential units (93% to 92%) and (94% to 92%) for the
third quarter and first nine months of 1997, respectively.
The Registrant owns a minority interest in
Kensington Tower which it accounts for on the equity method. The
Registrant does not include the assets or liabilities of Kensington
Tower in its consolidated financial statements. The following
operating information is provided for the property. In the third
quarter of 1997, Registrant incurred a loss of $8,000 compared to a
loss of $5,000 for the same period of 1996, and for the first nine
months of 1997 the Registrant incurred a loss of $26,000 compared to a
loss of $26,000 for the same period in 1996. The increase in the loss
from the third quarter of 1996 to the same period of 1997 is due to an
increase maintenance expense, partially offset by an increase in
rental income due to higher occupancy levels.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30,1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,542,097 10,520,536
---------- ----------
10,577,566 10,556,005
Less - Accumulated depreciation (3,142,117) (2,826,761)
---------- ----------
7,435,449 7,729,244
Cash and cash equivalents 95,715 66,639
Restricted cash 45,970 94,758
Investment in affiliate 1,417,510 1,443,806
Other assets (net of amortization of
$102,260 and $92,912 at September 30, 1997
and December 31, 1995, respectively) 692,285 594,663
---------- ----------
Total $ 9,686,929 $ 9,929,110
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,542,614 $ 3,605,963
Accounts payable:
Trade 620,091 800,373
Related parties 405,779 360,346
Interest payable 35,963 40,631
Tenant security deposits 26,437 27,352
Other liabilities 0 31,502
---------- ----------
Total liabilities 4,630,884 4,866,167
---------- ----------
Minority interests 248,918 250,262
---------- ----------
Partners' equity 4,807,127 4,812,681
---------- ----------
Total $ 9,686,929 $ 9,929,110
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Three months Nine months
ended September 30, ended September 30,
1997 1996 1997 1996
------ ------ ------ ------
Revenues:
Rental income $180,624 $177,253 $538,533 $521,768
Other income 0 0 411,632 0
------- ------- ------- -------
Total Revenue 180,624 177,253 950,165 521,768
------- ------- ------- -------
Costs and expenses:
Rental operations 91,181 70,261 228,501 239,124
General and administrative 42,000 42,000 126,000 126,000
Interest 85,134 87,190 257,182 272,379
Depreciation and amortization 106,362 107,676 319,085 323,027
------- ------- ------- -------
Total costs and expenses 324,677 307,127 930,768 960,530
------- ------- ------- -------
(Loss) income before minority
interests and equity in affiliate(144,053) (129,874) 19,397 (438,762)
Minority interests'portion ofloss 550 426 1,344 1,563
Equity in net loss of affiliate (8,203) (11,564) (26,295) (32,515)
------- ------- ------- -------
Net loss ($151,706) ($141,012) ($ 5,554) ($469,714)
======= ======= ======= =======
Net (loss) income per limited
partnership unit:
(Loss) income before minority
interests and equity in
affilitiate ($ 7.99) ($ 7.20) $ 1.08 ($ 24.35)
Minority interests .03 .02 .07 .09
Equity in net loss of affiliate ( .46) ( .64) ( 1.46) ( 1.80)
------- ------- ------- --------
($ 8.42) ($ 7.83) ($ .31) ($ 26.06)
======= ======= ======= ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Nine months ended
September 30,
1997 1996
Cash flows from operating activities:
Net loss ($5,554) ($469,714)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 319,085 323,027
Equity in loss of affiliate 26,295 32,515
Changes in assets and liabilities:
Decrease in restricted cash 48,788 2,084
Increase in other assets (101,350) (17,534)
(Decrease) increase in accounts payable - trade (180,282) 141,409
Increase in accounts payable related parties 45,433 200,221
(Decrease) increase in interest payable (4,668) 33,599
(Decrease) increase in tenant security deposits (915) 4,527
Decrease in other liabilities (31,502) 0
------- -------
Net cash provided by operating activities 115,330 250,134
------- -------
Cash flows from investing activities:
Capital expenditures (21,561) (8,953)
------- -------
Net cash used in investing activities (21,561) (8,953)
------- -------
Cash flows from financing activities:
Principal payments (63,349) (232,728)
Minority interest (1,344) (1,563)
------- -------
Net cash used in financing activities (64,693) (234,291)
------- -------
Increase in cash and cash equivalents 29,076 6,890
Cash and cash equivalents at beginning of period 66,639 29,942
------- -------
Cash and cash equivalents at end of period $ 95,715 $ 36,832
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $221,219 $234,111
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified
Historic Investors VII (the "Registrant") and related notes have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying
consolidated financial statements and related notes should be read in
conjunction with the audited financial statements in Form 10-K of the
Registrant, and notes thereto, for the year ended December 31, 1996.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the results of the interim periods presented.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is not party
to, nor is any of its property the subject of, any pending material
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by
this report to a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Doucment
Number
3 Registrant's Amended and Restated Certificate
of Limited Partnership and Agreement of
Limited Partnership, previously filed as part
of Amendment No. 2 of Registrant's
Registration Statement on Form S-11, are
incorporated herein by reference.
21 Subsidiaries of the Registrant are listed in
Item 2. Properties on Form 10-K, previously
filed and incorporated herein by reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the
quarter ended September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: November 14, 1997 DIVERSIFIED HISTORIC INVESTORS VII
By: Dover Historic Advisors VII, General Partner
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi
----------------------------
DONNA M. ZANGHI
Vice President and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 95,715
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,577,566
<DEPRECIATION> 3,142,177
<TOTAL-ASSETS> 9,686,929
<CURRENT-LIABILITIES> 1,025,870
<BONDS> 3,542,614
0
0
<COMMON> 0
<OTHER-SE> 4,807,127
<TOTAL-LIABILITY-AND-EQUITY> 9,686,929
<SALES> 0
<TOTAL-REVENUES> 950,165
<CGS> 0
<TOTAL-COSTS> 228,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,182
<INCOME-PRETAX> (5,554)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,554)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,554)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> 0
</TABLE>
