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, 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
- ----------------------------------------------------------------------
(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
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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 - June 30, 1997 (unaudited)
and December 31, 1996
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended
June 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 June 30, 1997, Registrant had cash of
$101,927. 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, 1997, Registrant had restricted
cash of $46,065 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 (principal
plus accrued interest). With respect to Northern Liberty, any
development of the remaining lot will require additional. The
Registrant has not yet identified any sources for this funding or
capital.
(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 second quarter of 1997, Registrant
incurred a net loss of $131,325 ($7.29 per limited partnership unit)
compared to a net loss of $163,595 ($9.08 per limited partnership
unit) for the same period in 1996. For the first six months of 1997,
the Registrant realized net income of $146,152 ($8.11 per limited
partnership unit) compared to a net loss of $328,702 ($18.24 per
limited partnership unit) for the same period in 1996.
Rental income increased $4,599 from $176,254 in
the second quarter of 1996 to $180,853 in the same period in 1997 due
to higher average rental rates at Flint Goodridge Apartments, and
increased $13,394 from $344,515 for the first six months of 1996 to
$357,909 for the same period in 1997 due to higher occupancy levels at
Robidoux Apartments and higher average rental rates at Flint Goodridge
Apartments.
There was no change in other income from the
second quarter of 1996 to the same period in 1997. Other income
increased from $0 in the first six months 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
$10,462 from $81,072 in the second quarter of 1996 to $70,610 in the
same period in 1997 due to a reduction in maintenance and insurance
expense at Flint Goodridge Apartments and a decrease in professional
fees, maintenance, and salaries and wages expense at Robidoux
Apartments, partially offset by an increase in salaries and wages
expense at Flint Goodridge Apartments. Maintenance expense decreased
at Flint Goodridge due to deferred maintenance performed in 1996 and
insurance expense decreased due to lower insurance premiums.
Professional fees decreased at Robidoux due to a reduction in
appraisal fees, and maintenance expense decreased as a result of
efficiencies achieved at the property. Salaries and wages expense
decreased due to a change in the property's management company.
Salaries and wages expense increased at Flint Goodridge Apartments due
to cost of living pay increases given to employees.
Expenses for rental operations decreased by
$31,543 from $168,863 for the first six months of 1996 to $137,320 for
the same period in 1997 due to a reduction in maintenance and
insurance expense at Flint Goodridge Apartments, and a decrease in
professional fees, maintenance, and salaries and wages expense at
Robidoux Apartments, partially offset by an increase in salaries and
wages expense at Flint Goodridge Apartments and an increase in
management fees at Robidoux Apartments. Maintenance expense decreased
at Flint Goodridge due to deferred maintenance performed in 1996 and
insurance expense decreased due to lower insurance premiums.
Professional fees decreased at Robidoux due to a reduction in
appraisal fees, and maintenance expense decreased due to efficiencies
achieved at the property. Salaries and wages expense decreased and
management fees increased due to a change in the property's management
company. Salaries and wages expense increased at Flint Goodridge due
to cost of living pay increases given to employees.
Depreciation and amortization expense decreased by
$1,314 from $107,675 in the second quarter of 1996 to $106,361 in the
same period in 1997 and decreased by $2,628 from $215,351 for the
first six months of 1996 to $212,723 in the same period in 1997 due to
certain fixed assets at Flint Goodridge becoming fully depreciated.
Interest expense decreased by $11,577 from $97,593
in the second quarter of 1996 to $86,016 in the same period in 1997
and decreased by $13,141 from $185,189 for the first six months of
1996 to $172,048 in the same period of 1997. The decrease from the
second quarter and first six months of 1996 to the same periods in
1997 is the result of 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 $70,000, compared to a loss of
approximately $99,000 for the same period in 1996. For the first six
months of 1997 the Registrant's properties recognized a loss of
$139,000 compared to a loss of approximately $202,000 for the same
period in 1996.
In the second quarter of 1997, Registrant incurred
a loss of $32,000 at Flint Goodridge including $51,000 of depreciation
and amortization expense, compared to a loss of $37,000 in the second
quarter of 1996, including $53,000 of depreciation and amortization
expense, and for the first six months of 1997, Registrant incurred a
loss of $60,000, including $103,000 of depreciation and amortization
expense, compared to a loss of $88,000, including $106,000 of
depreciation and amortization expense for the same period in 1996.
The decrease in the losses from the second quarter and first six
months of 1996 to the same periods in 1997 is the result of an
increase in rental income due to higher average rental rates combined
with a decrease in maintenance, insurance, and depreciation expense,
partially offset by an increase in salaries and wages expense.
Maintenance expense decreased due to deferred maintenance performed in
1996, 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 the
second quarter of 1996. Salaries and wages expense increased due to
cost of living increases given to employees.
In the second quarter of 1997, Registrant incurred
a loss of $38,000 at Robidoux, including $44,000 of depreciation and
amortization expense, compared to a loss of $62,000 including $43,000
of depreciation and amortization expense in the second quarter of
1996. The decrease in the loss is due to a reduction in maintenance,
professional fees, interest, and salaries and wages expense.
Maintenance decreased due operational efficiencies achieved at the
property, and professional fees decreased due a reduction in appraisal
fees. 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 balance of a loan which matured in March 1996,
and salaries and wages expense decreased due to a change in the
property's management company.
For the first six months of 1997, Registrant
incurred a loss of $79,000 at Robidoux, including $87,000 of
depreciation and amortization expense, compared to a loss of $114,000,
including $86,000 of depreciation and amortization expense for the
same period in 1996. The decrease in the loss is due to an increase in
rental income, combined with a decrease in interest expense,
professional fees, maintenance, and salary and wage expense, partially
offset by an increase in management fees. Rental income increased due
to an increase in occupancy levels (94% to 99%). 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. The decrease in
professional fees is due to a reduction in appraisal fees, and
maintenance expense decreased due to operational efficiencies achieved
at the property. Salaries and wages expense decreased and management
fees increased 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
second quarter of 1997, the Bakery Apartments incurred a loss of
$32,000 including $60,000 of depreciation and amortization expense
compared to a loss of $54,000 including $63,000 of depreciation and
amortization expense for the same period in 1996. For the first six
months of 1997, the Bakery Apartments incurred a loss of $66,000,
including $120,000 of depreciation and amortization expense compared
to a loss of $76,000, including $126,000 of depreciation and
amortization expense for the same period in 1996. The decrease in the
losses from the second quarter and first six months of 1996 to the
same periods in 1997 is due to a decrease in maintenance, salaries and
wages expense, depreciation expense, and corporate apartment expense,
partially offset by a decrease in rental income. Maintenance, salaries
and wages expense decreased as a result of a decrease in the rental of
residential units, and depreciation expense decreased due to certain
fixed assets becoming fully depreciated in the second quarter of 1996.
Corporate apartment expense decreased due to a decline in corporate
apartment rentals. Rental income decreased due to a decrease in
occupancy levels (95% to 92%) and (94% to 93%) for the second quarter
and first six 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 second
quarter of 1997, Registrant incurred a loss of $8,000 compared to a
loss of $12,000 for the same period of 1996. For the first six months
of 1997, Registrant incurred a loss of $18,000 at Kensington Tower
compared to a loss of $21,000 for the same period of 1996. The
decrease in the loss from the second quarter and first six months of
1996 to the same periods in 1997 is due an increase in rental income
and an overall decrease in operating expenses due to operational
efficiencies achieved at the property.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
June 30, 1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,525,538 10,520,536
---------- ----------
10,561,007 10,556,005
Less - Accumulated depreciation (3,036,998) (2,826,761)
---------- ----------
7,524,009 7,729,244
Cash and cash equivalents 101,927 66,639
Restricted cash 46,065 94,758
Investment in affiliate 1,425,714 1,443,806
Other assets (net of amortization of
$101,017 and $94,390 at June 30, 1997 and
December 31, 1996, respectively) 694,310 594,663
---------- ----------
Total $ 9,792,025 $ 9,929,110
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,564,324 $ 3,605,963
Accounts payable:
Trade 575,740 800,373
Related parties 379,930 360,346
Interest payable 37,519 40,631
Tenant security deposits 26,212 27,352
Other liabilities 0 31,502
---------- ----------
Total liabilities 4,583,725 4,866,167
---------- ----------
Minority interests 249,468 250,262
---------- ----------
Partners' equity 4,958,832 4,812,681
---------- ----------
Total $ 9,792,025 $ 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 Six Months Ended June 30, 1997 and 1996
(Unaudited)
Three months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
Revenues:
Rental income $180,853 $176,254 $357,909 $344,515
Other income 0 0 411,632 0
------- ------- ------- -------
Total revenues 180,853 176,254 769,541 344,515
------- ------- ------- -------
Costs and expenses:
Rental operations 70,610 81,072 137,320 168,863
General and administrative 42,000 42,000 84,000 84,000
Interest 86,016 97,593 172,048 185,189
Depreciation and amortization 106,361 107,675 212,723 215,351
------- ------- ------- -------
Total costs and expenses 304,987 328,340 606,091 653,403
------- ------- ------- -------
(Loss) income before minority
interests and equity in
affiliate (124,134) (152,086) 163,450 (308,888)
Minority interests' portion of
loss 385 618 794 1,137
Equity in net loss of affiliate (7,576) (12,127) (18,092) (20,951)
------- ------- ------- -------
Net (loss) income ($131,325) ($163,595) $146,152 ($328,702)
======= ======= ======= =======
Net (loss) income per limited
partnership unit:
(Loss) income before minority
interests and equity in
affiliate ($ 6.89) ($ 8.44) $ 9.07 ($ 17.14)
Minority interests .02 .03 .04 .06
Equity in net loss of
affiliate (.42) (.67) (1.00) (1.16)
------- ------- ------- -------
($ 7.29) ($ 9.08) $ 8.11 ($ 18.24)
======= ======= ======= =======
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 Six Months Ended June 30, 1997 and 1996
(Unaudited)
Six months ended
June 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $146,152 ($328,702)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 212,723 215,351
Equity in loss of affiliate 18,092 20,951
Changes in assets and liabilities:
Decrease in restricted cash 48,693 4,946
(Increase) decrease in other assets (102,135) 2,258
(Decrease) increase in accounts payable - trade (224,633) 80,439
Increase in accounts payable related parties 19,584 206,422
(Decrease) increase in interest payable (3,112) 23,385
(Decrease) increase in tenant security deposits (1,139) 2,906
Decrease in other liabilities (31,502) 0
------- -------
Net cash provided by operating activities 82,723 227,956
------- -------
Cash flows from investing activities:
Capital expenditures (5,002) (8,953)
------- -------
Net cash used in investing activities (5,002) (8,953)
------- -------
Cash flows from financing activities:
Principal payments (41,639) (220,803)
Minority interest (794) (1,137)
------- -------
Net cash used in financing activities (42,433) (221,940)
------- -------
Increase (decrease) in cash and cash equivalents 35,288 (2,937)
Cash and cash equivalents at beginning of period 66,639 29,942
------- -------
Cash and cash equivalents at end of period $101,927 $ 27,005
======= =======
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 and
notes thereto, in the Registrant's Annual Report on Form 10-K 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 June 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: October 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
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 101,927
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,561,007
<DEPRECIATION> 3,3036,998
<TOTAL-ASSETS> 9,792,025
<CURRENT-LIABILITIES> 955,670
<BONDS> 3,564,324
0
0
<COMMON> 0
<OTHER-SE> 4,958,832
<TOTAL-LIABILITY-AND-EQUITY> 9,792,025
<SALES> 0
<TOTAL-REVENUES> 769,541
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 137,320
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,048
<INCOME-PRETAX> 146,152
<INCOME-TAX> 0
<INCOME-CONTINUING> 146,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,152
<EPS-PRIMARY> 8.11
<EPS-DILUTED> 0
</TABLE>
