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 March 31, 1997
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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 X No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - March 31, 1997 (unaudited)
and December 31, 1996
Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 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 March 31, 1997, Registrant had cash of
$85,186. Such funds are expected to be used to pay liabilities and
general and administrative expenses 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 March 31, 1997 Registrant had restricted
cash of $46,708 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 has
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.
The legal proceedings in which the Registrant has
been involved over the last several years has only affected the
Registrant's liquidity to the extent that legal fees were required to
be paid, as none of the properties or interests that were ultimately
lost had previously generated any positive cash flow.
(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 lots and building will
require additional funding of capital. The Registrant has not yet
identified any sources for this funding.
(3) Results of Operations
During the first quarter of 1997, Registrant
recognized net income of $277,477 ($15.40 per limited partnership
unit) compared to a net loss of $165,107 ($9.16 per limited
partnership unit) for the same period in 1996.
Rental income increased $8,795 from $168,261 in
the first quarter of 1996 to $177,056 in the same period in 1997. The
increase is due to higher average rental rates at Flint Goodridge and
higher occupancy levels at Robidoux Apartments.
Other income increased from $0 in the first
quarter of 1996 to $411,632 in the same period in 1997 due to the sale
of the interest in Robidoux Redevelopment Joint Venture, as referred
to above.
Expenses for rental operations decreased by
$21,081 from $87,791 in the first quarter of 1996 to $66,710 in the
same period in 1997 due to a reduction in maintenance and salaries and
wages expense at both Flint Goodridge and Robidoux Apartments,
partially offset by an increase in management fees at Robidoux.
Maintenance and salaries and wages expense decreased at Flint
Goodridge due to deferred maintenance performed in 1996, in addition
to a slight decrease in average occupancy, and maintenance expense
decreased at Robidoux due to operational efficiencies achieved at the
property. Management fees increased and salaries and wages expense
decreased at Robidoux due to a change in the property's management
company.
Losses incurred during the quarter at the
Registrant's properties amounted to $69,000, compared to a loss of
approximately $102,000 for the same period in 1996.
In the first quarter of 1997 Registrant incurred a
loss of $28,000 at Flint Goodridge including $51,000 of depreciation
and amortization expense, compared to a loss of $51,000 in the first
quarter of 1996, including $53,000 of depreciation and amortization
expense. The decrease in the loss from the first quarter of 1996 to
the same quarter of 1997 is the result of an increase in rental income
combined with a decrease in maintenance, salaries and wages, and
depreciation expense. Rental income increased due to higher average
rental rates partially offset by a slight decrease in average
occupancy (98% to 97%). Maintenance and salaries and wages expense
decreased due to deferred maintenance performed in 1996, combined with
a slight decrease in occupancy. Depreciation expense decreased due to
personal property becoming fully depreciated in the second quarter of
1996.
In the first quarter of 1997 Registrant incurred a
loss of $41,000 at Robidoux, including $44,000 of depreciation and
amortization expense, compared to a loss of $51,000 including $ 43,000
of depreciation and amortization expense in the first quarter of 1996.
The decrease in the loss from the first quarter of 1996 to the first
quarter of 1997 is the result of an increase in rental income combined
with a decrease in maintenance and salaries and wages expense
partially offset by an increase in management fees. The increase in
rental income is due to an increase in the occupancy level (92% to
98%). Maintenance expense decreased due to operational efficiencies
achieved at the property, and management fees increased and salaries
and wages expense decreased due to a change in the property's
management company.
Summary of Minority Interest Investments
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 its consolidated financial statements. The
following operating information is provided for the property. In the
first quarter of 1997, the Bakery Apartments incurred a loss of
$34,000 including $60,000 of depreciation and amortization expense
compared to a loss of $22,000 including $63,000 of depreciation and
amortization expense for the same period in 1996.
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 first
quarter of 1997, Registrant incurred a loss of $11,000 compared to a
loss of $9,000 in the same period of 1996. The increased loss from
the first quarter of 1996 to the same period in 1997 is due to an
overall increase in operating expenses.
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
March 31, 1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,520,536 10,520,536
---------- ----------
10,556,005 10,556,005
Less - Accumulated depreciation (2,931,880) (2,826,761)
---------- ----------
7,624,125 7,729,244
Cash and cash equivalents 85,186 66,639
Restricted cash 46,708 94,758
Investment in affiliate 1,433,290 1,443,806
Other assets (net of amortization of
$99,774 and $98,531 at March 31, 1997 and
December 31, 1996, respectively) 707,514 594,663
---------- ----------
Total $ 9,896,823 $ 9,929,110
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,585,152 $ 3,605,963
Accounts payable:
Trade 533,794 800,373
Related parties 371,982 360,346
Interest payable 39,075 40,631
Tenant security deposits 26,811 27,352
Other liabilities 0 31,502
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Total liabilities 4,556,814 4,866,167
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Minority interests 249,851 250,262
Partners' equity 5,090,158 4,812,681
---------- ----------
Total $ 9,896,823 $ 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 Ended March 31, 1997 and 1996
(Unaudited)
Three months Three months
ended ended
March 31, March 31,
1997 1996
Revenues:
Rental income $177,056 $168,261
Other Income 411,632 0
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Total Revenues 588,688 168,261
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Costs and expenses:
Rental operations 66,710 87,791
General and administrative 42,000 42,000
Interest 86,032 87,596
Depreciation and amortization 106,362 107,676
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Total costs and expenses 301,104 325,063
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Income (loss) before minority interests
and equity in affiliate 287,584 (156,802)
Minority interests' portion of loss 409 519
Equity in net loss of affiliate (10,516) (8,824)
------- -------
Net income (loss) $277,477 ($165,107)
======= =======
Net income (loss) per limited partnership
unit $ 15.40 ($ 9.16)
======= =======
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 Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three months ended
March 31,
1997 1996
Cash flows from operating activities:
Net income (loss) $277,477 ($165,107)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 106,362 107,676
Equity in loss of affiliate 10,516 8,824
Changes in assets and liabilities:
Decrease in restricted cash 48,050 8,664
(Increase) decrease in other assets (114,094) 207
(Decrease) increase in accounts payable - trade (266,579) 45,411
Increase (decrease)in accounts payable-related parties 11,634 (451)
(Decrease) increase in interest payable (1,556) 3,737
(Decrease) increase in tenant security deposits (541) 410
Decrease in other liabilities (31,502) 0
------- -------
Net cash provided by operating activities 39,767 9,371
------- -------
Cash flows from investing activities:
Capital expenditures 0 (6,853)
------- -------
Net cash used in investing activities 0 (6,853)
------- -------
Cash flows from financing activities:
Principal payments (20,811) (1,334)
Minority interest (409) (519)
------- -------
Net cash used in financing activities (21,220) (1,853)
------- -------
Increase in cash and cash equivalents 18,547 665
Cash and cash equivalents at beginning of period 66,639 29,942
------- -------
Cash and cash equivalents at end of period $ 85,186 $ 30,607
======= =======
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 Document
Number
3 Registrant's Amended and Restated Certificate
of Limited Partnership and Agreement of
Limited Partnership, previously filed as part
of Amendment No. 2 of Registrant's
Registration Statement on Form S-11, are
incorporated herein by reference.
21 Subsidiaries of the Registrant are listed in
Item 2. Properties on Form 10-K, previously
filed and incorporated herein by reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the
quarter ended March 31, 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: October 13, 1997 DIVERSIFIED HISTORIC INVESTORS VII
----------------
By: Dover Historic Advisors VII, Inc., General Partner
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi
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DONNA M. ZANGHI
Secretary and Treasurer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 84,186
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,556,005
<DEPRECIATION> 2,931,880
<TOTAL-ASSETS> 9,896,823
<CURRENT-LIABILITIES> 905,776
<BONDS> 3,585,152
0
0
<COMMON> 0
<OTHER-SE> 5,090,158
<TOTAL-LIABILITY-AND-EQUITY> 9,896,823
<SALES> 0
<TOTAL-REVENUES> 588,688
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 66,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,032
<INCOME-PRETAX> 277,477
<INCOME-TAX> 0
<INCOME-CONTINUING> 277,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277,477
<EPS-PRIMARY> 15.40
<EPS-DILUTED> 0
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