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, 1998
---------------------------------------
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.)
1609 Walnut Street, Philadelphia, PA 19103
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
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, 1998
(unaudited) and December 31, 1997
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1998 and 1997 (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, 1998, Registrant had cash of
$12,740. 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, 1998, Registrant had
restricted cash of $110,420 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 two properties. 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 their debt service
requirements and the properties (or its interests therein) 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. 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, and does not anticipate being able to identify any such
sources for the foreseeable future.
(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 the third quarter of 1998, Registrant
incurred a net loss of $155,433 ($8.63 per limited partnership unit)
compared to a net loss of $151,706 ($8.42 per limited partnership
unit) for the same period in 1997. For the first nine months of 1998,
the Registrant incurred a net loss of $456,371 ($25.33 per limited
partnership unit) compared to a loss of $5,554 ($.31 per limited
partnership unit) for the same period in 1997.
Rental income increased $6,820 from $180,624 in
the third quarter of 1997 to $187,444 in the same period in 1998 and
increased $16,906 from $538,533 for the first nine months of 1997 to
$555,439 for the same period in 1998. The increases for the third
quarter and the first nine months of 1998 from the same periods in
1997 were due to higher average rental rates at Robidoux Apartments.
There was no change in other income from the third
quarter of 1997 to the same period in 1998. Other income decreased
from $411,632 in the first nine months of 1997 to $0 in the same
period in 1998 due to the sale in 1997 of a 20% interest in Robidoux
Redevelopment Joint Venture as referred to in the Form 10-K for the
year ended December 31, 1997.
Expenses for rental operations increased by $7,758
from $91,181 in the third quarter of 1997 to $98,939 in the same
period in 1998 due to an increase in maintenance expense at Flint
Goodridge Apartments due to deferred maintenance performed in the
third quarter of 1998.
Expenses for rental operations increased by
$60,436 from $228,501 for the first nine months of 1997 to $288,937
for the same period in 1998 due to an increase in maintenance expense
at Flint Goodridge Apartments and an increase in wages and salaries
and management fee expense at Robidoux Apartments. At Flint Goodridge
Apartments, maintenance expense increased due to deferred maintenance
performed in the first nine months of 1998. At Robidoux Apartments,
wages and salaries expense increased due to a change in the property's
management company and management fee expense increased due to the
increase in rental income.
Losses incurred during the third quarter at the
Registrant's properties amounted to $90,000, compared to a loss of
approximately $91,000 for the same period in 1997. For the first nine
months of 1998 the Registrant's properties recognized a loss of
$276,000 compared to a loss of approximately $230,000 for the same
period in 1997.
In the third quarter of 1998, Registrant incurred
a loss of $44,000 at Flint Goodridge including $52,000 of depreciation
and amortization expense, compared to a loss of $36,000, including
$51,000 of depreciation and amortization expense for the same period
in 1997 and for the first nine months of 1998, incurred a loss of
$130,000 including $155,000 of depreciation and amortization expense,
compared to a loss of $96,000, including $154,000 of depreciation and
amortization expense for the same period in 1997. The increase in the
loss from the third quarter and the first nine months of 1997 to the
same periods in 1998 is mainly the result of an increase in
maintenance expense due to deferred maintenance performed in 1998.
In the third quarter of 1998, Registrant incurred
a loss of $46,000 at Robidoux, including $44,000 of depreciation and
amortization expense, compared to a loss of $55,000 including $44,000
of depreciation and amortization expense in the third quarter of 1997.
The decrease in the loss from the third quarter of 1997 to the same
period in 1998 is due to an increase in rental income due to an
increase in the average rental rates of the apartment units.
For the first nine months of 1998, Registrant
incurred a loss of $146,000 at Robidoux, including $133,000 of
depreciation and amortization expense, compared to a loss of $134,000,
including $131,000 of depreciation and amortization expense for the
same period in 1997. The increase in the loss for the first nine
months of 1998 from the same period in 1997 is due to an increase in
wages and salaries and management fee expense partially offset by an
increase in rental income due to an increase in the average rental
rates. Salaries and wages expense increased due to a change in the
property's management company and management fee expense increased due
to the increase in rental income.
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
third quarter of 1998, the Bakery Apartments incurred a loss of
$37,000 including $56,000 of depreciation and amortization expense
compared to a loss of $58,000 including $60,000 of depreciation and
amortization expense for the same period in 1997. The decrease in the
loss from the third quarter of 1997 to the same period in 1998 is
due to an increase in rental income and a decrease in wages and salaries
and depreciation expense. Rental income increased due to an increase in
the average rental rates of the apartment units. Wages and salaries
expense decreased due to the replacement of employees with contracted
security service. Depreciation expense decreased due to personal property
becoming fully depreciated.
For the first nine months of 1998, the Bakery
Apartments incurred a loss of $118,000, including $167,000 of
depreciation and amortization expense compared to a loss of $123,000,
including $180,000 of depreciation and amortization expense for the same
period in 1997. The decrease in the loss from the first nine months of
1997 to the same period in 1998 is due to a decrease in wages and salaries,
depreciation and corporate apartment expense partially offset by an increase
in maintenance expense. Wages and salaries expense decreased due to the
replacement of employees with contracted security service. Corporate
apartment expense decreased due to a decrease in the rental of the
orporate apartments and depreciation expense decreased due to personal
property becoming fully depreciated. Maintenance expense increased as a
result of repairs to the roof in the first quarter of 1998.
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 1998, Registrant incurred a loss of $10,000 compared to a
loss of $8,000 for the same period of 1997. For the first nine months
of 1998, Registrant incurred a loss of $20,000 at Kensington Tower
compared to a loss of $26,000 for the same period of 1997. The
increase in the loss from the third quarter of 1997 to the same period
in 1998 is due to an overall increase in the operating expenses at the
property. The decrease from the first nine months of 1997 to the same
period in 1998 is due an increase in rental income due to an increase
in the average rental rates.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30, 1998 December 31, 1997
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,560,457 10,544,063
---------- ----------
10,595,926 10,579,532
Less - Accumulated depreciation (3,574,568) (3,250,162)
---------- ----------
7,021,358 7,329,370
Cash and cash equivalents 12,740 92,375
Restricted cash 110,420 43,304
Investment in affiliate 1,391,138 1,410,917
Other assets (net of amortization of
$107,234 and $103,505 at September 30,
1998 and December 31, 1997, respectively) 698,583 694,812
---------- ----------
Total $ 9,234,239 $ 9,570,778
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,455,605 $ 3,521,250
Accounts payable:
Trade 847,637 738,030
Related parties 464,643 380,143
Interest payable 34,221 38,388
Tenant security deposits 27,419 30,422
---------- ----------
Total liabilities 4,829,525 4,708,233
---------- ----------
Minority interests 248,438 248,438
---------- ----------
Partners' equity 4,156,276 4,614,107
---------- ----------
Total $ 9,234,239 $ 9,570,778
========== ==========
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, 1998 and 1997
(Unaudited)
Three months Nine months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Rental income $187,444 $180,624 $555,439 $538,533
Other income 0 0 0 411,632
------- ------- ------- -------
Total Revenue 187,444 180,624 555,439 950,165
------- ------- ------- -------
Costs and expenses:
Rental operations 98,939 91,181 288,937 228,501
General and administrative 42,000 42,000 126,000 126,000
Interest 85,751 85,134 257,272 257,182
Depreciation and amortization 107,094 106,362 321,281 319,085
------- ------- ------- -------
Total costs and expenses 333,784 324,677 993,490 930,768
------- ------- ------- -------
(Loss) income before minority
interests and equity in affiliate (146,340) (144,053) (438,051) 19,397
Minority interests' portion of loss 459 550 1,459 1,344
Equity in net loss of affiliate (9,552) (8,203) (19,779) (26,295)
------- ------- ------- -------
Net loss ($155,433) ($151,706) ($456,371) ($ 5,554)
======= ======= ======= ======
Net (loss) income per limited
partnership unit:
(Loss) income before minority
interests and equity in affiliate ($ 8.12) ($ 7.99) ($ 24.31) $ 1.08
Minority interests .02 .03 .08 .07
Equity in net loss of affiliate ( .53) ( .46) ( 1.10) ( 1.46)
-------- -------- -------- -------
($ 8.63) ($ 8.42) ($ 25.33) ($ .31)
======= ======= ======= ======
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, 1998 and 1997
(Unaudited)
Nine months ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss ($456,371) ($5,554)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 321,281 319,085
Equity in loss of affiliate 19,779 26,295
Changes in assets and liabilities:
(Increase) decrease in restricted cash (67,116) 48,788
Increase in other assets (647) (101,350)
Increase (decrease) in accounts payable - trade 109,607 (180,282)
Increase in accounts payable related parties 84,500 45,433
Decrease in interest payable (4,167) (4,668)
Decrease in tenant security deposits (3,003) (915)
Decrease in other liabilities 0 (31,502)
------- -------
Net cash provided by operating activities 3,863 115,330
------- -------
Cash flows from investing activities:
Capital expenditures (16,394) (21,561)
------- -------
Net cash used in investing activities (16,394) (21,561)
------- -------
Cash flows from financing activities:
Principal payments (65,645) (63,349)
Minority interest (1,459) (1,344)
------- -------
Net cash used in financing activities (67,104) (64,693)
------- -------
(Decrease) increase in cash and cash equivalents (79,635) 29,076
Cash and cash equivalents at beginning of period 92,375 66,639
------- -------
Cash and cash equivalents at end of period $ 12,740 $ 95,715
======= =======
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, 1997.
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 September 30, 1998.
<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 30, 1998 DIVERSIFIED HISTORIC INVESTORS VII
-----------------
By: Dover Historic Advisors, VII, General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,740
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,595,926
<DEPRECIATION> 3,574,568
<TOTAL-ASSETS> 9,234,239
<CURRENT-LIABILITIES> 1,312,280
<BONDS> 3,455,605
0
0
<COMMON> 0
<OTHER-SE> 4,156,276
<TOTAL-LIABILITY-AND-EQUITY> 9,234,239
<SALES> 0
<TOTAL-REVENUES> 555,439
<CGS> 288,937
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,272
<INCOME-PRETAX> (456,371)
<INCOME-TAX> 0
<INCOME-CONTINUING> (456,371)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (456,371)
<EPS-PRIMARY> (25.33)
<EPS-DILUTED> 0
</TABLE>
