UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
--------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 17,839 Units
UNITS OF LIMITED PARTNERSHIP INTEREST
- -----------------------------------------------------------------------
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
* Securities not quoted in any trading market to Registrant's
knowledge.
<PAGE>
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors VII ("Registrant")
is a limited partnership formed in 1988 under the Pennsylvania Uniform
Limited Partnership Act. As of December 31, 1997, Registrant had
outstanding 17,839 units of limited partnership interest (the
"Units").
Registrant is presently in its operating stage.
It originally owned seven properties or interests therein. Interests
in two properties have been lost through foreclosure of the
properties, and interests in two others have been reduced
substantially. See Item 2. Properties, for a description of the
remaining properties. It currently owns interests in five properties.
For a discussion of the operations of the Registrant, See Part II,
Item 7. Management's Discussion and Analysis of Financial Condition
and the Results of Operations.
b. Financial Information about Industry Segments
The Registrant operates in one industry segment.
c. Narrative Description of Business
Registrant is in the business of operating,
holding, selling, exchanging and otherwise dealing in and with real
properties containing improvements which are "Certified Historic
Structures," as such term is defined in the Internal Revenue Code (the
"Code"), or which are eligible for designation as such, for use as
apartments, offices, hotels and commercial spaces, or any combination
thereof, or low income housing eligible for the tax credit provided by
Section 42 of the Code, and such other uses as the Registrant's
general partner may deem appropriate.
Since the Registrant's inception, all the
properties acquired either by the Registrant, or the subsidiary
partnerships in which it has an interest, except for one (Northern
Liberties), have been rehabilitated and certified as historic
structures and have received the related investment tax credit. In
addition, three properties (Flint Goodridge, Kensington Tower and
Robidoux) are low-income housing structures which qualify for, have
received, and will continue to receive, the Low Income Tax Credits.
Four of the Registrant's properties are currently
held for rental operations, and are anticipated to continue to be held
for this purpose. Registrant's remaining property has not been
developed and its use has not been determined. At such time as real
property values begin to increase, the Registrant will re-evaluate its
investment strategy regarding the properties.
As of December 31, 1997, Registrant owned
interests in five properties located in Nebraska (one), Missouri
(one), Pennsylvania (one), and Louisiana (two). In total, the
properties in which the Registrant has a controlling interest (Flint-
Goodridge and Robidoux) contain 221 apartment units. As of December
31, 1997, 145 apartment units were under lease at monthly rental rates
ranging from $194 to $580. For a further discussion of the
properties, see Item 2. Properties.
The Registrant is affected by and subject to the
general competitive conditions of the residential real estate
industry. Due to the overbuilding that occurred in the 1980's, the
competition for moderate-to-low income residential tenants in the
local markets where the Registrant's properties are located is
generally strong. As a result, the Registrant is forced to keep its
rent levels competitively low in order to maintain moderate to high
occupancy levels. In each market (New Orleans, Louisiana, Omaha,
Nebraska, and St. Joseph's, Missouri), there are several similar
historically-certified rehabilitated buildings that are available to
tenants who fall within certain income restrictions. However, there
is no organization which holds a dominant position in the residential
housing in any of the geographic areas in which Registrant's
properties are located.
Registrant has no employees. Registrant's
activities are overseen by Brandywine Construction & Management, Inc.
("BCMI"), a real estate management firm.
d. Financial Information about Foreign and Domestic
Operations and Export Sales.
See Item 8. Financial Statements and Supplementary
Data
Item 2. Properties
As of December 31, 1997, Registrant owned
controlling interests in two partnerships which each own one property
and minority interests in two additional partnerships which each own
one property. A summary description of each property is given below.
a. Flint-Goodridge Apartments - consists of a 93 unit
low income housing facility at 2425 Louisiana Avenue in New Orleans,
Louisiana. In July 1989, Registrant acquired a 90% interest in Flint-
Goodridge General Partnership ("FGGP"), a general partnership which
owns Flint-Goodridge Apartments, for a cash contribution of
$2,808,000. Registrant subsequently capitalized $574,000 in
acquisition costs related to the investment. FGGP acquired and
rehabilitated the buildings for $5,108,022 ($100.99 per sf), including
a mortgage note payable of $2,427,000. The note bears interest at 10%
and both principal (based on a 30-year amortization) and interest are
payable monthly until June 2020. The principal balance at December
31, 1997 was $2,232,457. In addition, FGGP entered into a 45-year
ground lease for the land on which the buildings are located for a
lump sum rent of $90,000 payable at the inception of the lease.
The property is managed by a property management firm
which is an affiliate of the Registrant's co-general partner in FGGP.
As of December 31, 1997, 88 units were under lease (95%) with monthly
rents ranging from $418 to $580. All leases are renewable, one-year
leases. The occupancy rate was 92% for 1996, 99% for 1995, 96% for
1994, and 96% for 1993. The monthly rental range has been
approximately the same since 1993. For tax purposes, this property
has a federal tax basis of $4,082,816 and is depreciated using the
straight-line method of depreciation with a useful life of 27.5 years.
The annual real estate taxes are $2,958 which is based on an assessed
value of $18,300 taxed at a rate of $161.64 per $1,000. No one tenant
occupies ten percent or more of the building. It is the opinion of
the management of the Registrant that the property is adequately
covered by insurance.
b. Robidoux School Apartments - consists of a 60 unit
low income housing facility at 201 South 10th Street in St. Joseph,
Missouri. In September 1989, Registrant acquired a 99% general
partnership interest in Robidoux Redevelopment Joint Venture ("RRJV"),
a Missouri general partnership which owns the property, for a cash
capital contribution of $2,400,000. Registrant subsequently
capitalized $446,000 in acquisition costs relating to the investment.
The cost to acquire and rehabilitate the property was $3,641,993
($99.52 sf) including a construction note payable of $1,450,000, a
Community Development Block Grant ("CDBG") loan of $74,000 (principal
balance at December 31, 1997 of $20,462), and a CDBG grant of $38,500.
On October 30, 1995, the construction loan was repaid with two new
loans, one for $850,000 and the other for $200,000. The first loan
bears interest at 9% with monthly principal and interest payments
based on a 30 year amortization, principal balance due in October
2005. There is currently $813,408 outstanding on the loan. The
second loan had an interest rate of 8.75% and was due in March 1996.
It was repaid by an advance in March 1996 from David E. Slattery, an
affiliate of the Registrant's co-general partner. The advance will be
repaid out of available cash flow and is non-interest bearing.
Amounts repaid on the construction loan from the period November 1992
to June 1995 were funded by a line of credit extended by another
lender ($454,923 principal outstanding at December 31, 1997) which
bears interest at prime plus 1% (9.5% and 9.25% at December 31, 1997
and 1996, respectively) and is due July 2000. The CDBG loan bears
interest at 1% and both principal and interest are payable monthly
until September 2000.
The property is managed by a property management
firm which is an affiliate of the Registrant's co-general partner in
RRJV. As of December 31, 1997, 57 of the 60 apartment units were
under lease (95%), with monthly rents ranging from $194 to $398. All
leases are renewable, one-year leases. The occupancy rate was 98% for
1996, 92% for 1995, 87% for 1994, and 97% for 1993. The monthly
rental range has been approximately the same since 1993. For tax
purposes, this property has a federal tax basis of $4,341,152 and is
depreciated using the straight-line method of depreciation with a
useful life of 27.5 years. The annual real estate taxes are $758
which is based on an assessed value of $8,450 taxed at a rate of
$89.70 per $1,000. No one tenant occupies ten percent or more of the
building. It is the opinion of the management of the Registrant that
the property is adequately covered by insurance.
c. The Bakery Apartments - consists of 68 apartment
units at 1111 South Peters Street in New Orleans, Louisiana. In March
1991, the Registrant acquired a 16.83% general partnership interest in
The Bakery Apartments General Partnership ("BAGP"), a Louisiana
general partnership which owns the property, for a cash contribution
of $1,235,000. Certain affiliates of the Registrant simultaneously
acquired 26.7% of the general partnership interests in BAGP for an
aggregate cash contribution of $465,000. Registrant subsequently
capitalized $242,040 in acquisition costs relating to the investment.
BAGP acquired and rehabilitated the property for $5,029,000 ($65.18
per sf). The rehabilitation of the property was financed in part with
two loans, one for $3,135,000 (principal balance of $2,984,137 at
December 31, 1997) and the other for $201,500 (principal balance of
$194,273 at December 31, 1997). The first loan bears interest at
8.25%, with monthly principal and interest payments based on a 30-year
amortization schedule, principal due in 1999. The second loan is from
the general partner of BAGP and has the same terms as the first loan.
In March 1991, a $175,000 collateral mortgage note (principal balance
of $161,533 at December 31, 1997) was issued to the developer/partner
for working capital advances. This note bears interest at 9% with
payments based on available positive cash flow of the property. In
order to satisfy certain credit requirements of the lender, the
Registrant exchanged its general partnership interest for a limited
partnership interest in a reconstituted partnership. However, the
Registrant retained substantially the same rights and privileges as it
had as a general partner. The property is managed by a property
management firm which is an affiliate of the general partner of BAGP.
As of December 31, 1997, 64 units are under lease
(94%) with rents ranging from $560 to $2,170. All leases are
renewable, one-year leases. The occupancy rate was 95% for 1996, 100%
for 1995, 93% for 1994, and 92% for 1993. The monthly rental range
has been approximately the same since 1993. For tax purposes, this
property has a basis of $3,381,856 and is depreciated using the
straight-line method with a useful life of 27.5 years. The annual
real estate taxes are $11,677 which is based on an assessed value of
$65,700 taxed at a rate of $17.773 per $100. No one tenant occupies
ten percent or more of the building. It is the opinion of the
management of the Registrant that the property is adequately covered
by insurance.
d. Kensington Tower ("Hill Hotel")- consists of a 65
unit low income housing facility and 3,550 sf of commercial space at
505 South 16th Street in Omaha, Nebraska. In June 1989, Registrant
acquired a 98% general partnership interest in Hill Hotel Apartments
Joint Venture ("HHAJV"), a Nebraska general partnership which owns the
property for a cash contribution of $2,350,000. HHAJV acquired and
rehabilitated the property for $4,369,249 ($105.93 sf), including a
construction note payable of $2,700,000. The note was originally due
in April 1992. During 1990 and 1991, this note was partially
refinanced with $400,000 of a $600,000 Community Development Block
Grant ("CDBG") loan (principal balance at December 31, 1997 of
$600,000), a $500,000 Tax Increment Financing ("TIF") Loan (principal
balance at December 31, 1997 of $195,820) and a $1,100,000
subordinated note payable to the co-general partner. In 1992, the
remaining $200,000 of the CDBG Loan was applied to the construction
loan ($60,000) and to the TIF Loan ($140,000), in order to extend the
date of the construction loan's maturity from April 1992 to June 1993.
The construction loan balance was $1,030,591 at December 31, 1993. In
March 1994, the construction loan was repaid with a $665,000
(principal balance of $548,625 at December 31, 1997), 15-year
permanent loan with an interest rate of 8-3/8% and a $365,000 equity
contribution from Commercial Federal Realty Investors Corporation, the
Registrant's co-general partner. On June 1, 1993, an amended and
restated joint venture agreement was reached whereby the Registrant's
interest was reduced to a 30% interest.
The property is managed by an independent property
management firm. As of December 31, 1997, 66 units are under lease
(97%) with monthly rents ranging from $300 to $445. All leases are
renewable, one-year leases. The occupancy rate was 94% for 1996, 94%
for 1995, 89% for 1994, and 92% for 1993. The monthly rental range
has been approximately the same since 1993. For tax purposes, this
property has a federal tax basis of $5,323,340, and is depreciated
using the straight-line method of depreciation with a useful life of
27.5 years. The annual real estate taxes are $52,934 which is based
on an assessed value of $2,045,900 taxed at a rate of $25.873 per
$1,000. No one tenant occupies ten percent or more of the building.
It is the opinion of the management of the Registrant that the
property is adequately covered by insurance.
Item 3. Legal Proceedings
a. 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 fiscal year covered
by this report to a vote of security holders.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
a. There is no established public trading market for
the Units. Registrant does not anticipate any such market will
develop. Trading in the units occurs solely through private
transactions. The Registrant is not aware of the prices at which
trades occur. Registrant's records indicate that 227 units of record
were sold or exchanged in 1997.
b. As of December 31, 1997, there were 1,718 record
holders of Units.
c. Registrant has not declared any cash dividends in
1997 or 1996.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1997. The data should be read in conjunction
with the consolidated financial statements included elsewhere herein.
This data is not covered by the independent auditors' report.
1997 1996 1995 1994 1993
Rental income $ 725,798 $ 713,215 $ 829,061 $1,271,400 $1,323,950
Interest income 0 1,742 1,591 1,851 16,010
Net loss 198,574 708,659 1,482,456 3,782,580 1,982,140
Net loss per Unit 11.02 39.33 82.28 209.97 110.00
Total assets (net of
depreciation and
amortization) 9,570,778 9,929,110 10,194,943 15,894,832 19,711,424
Debt obligations 3,521,250 3,605,963 3,858,348 7,184,570 7,197,834
Note: See Part II, Item 7.2 Results of Operations for a discussion
of factors which materially affect the comparability of the
information reflected in the above table.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Liquidity
As of December 31, 1997, Registrant had total
unrestricted cash of $92,375. Such funds are expected to be used to
pay liabilities and general and administrative expenses of the
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 December 31, 1997, Registrant had restricted
cash of $43,304 consisting primarily of funds held as security
deposits, replacement reserves and escrows for taxes and insurance.
As a consequence of these restrictions as to use, Registrant does not
deem these funds to be a source of liquidity.
The property owned by RRJV has historically been
unable to meet its operating expenses and required debt service
payments from its own revenues. 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 or 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 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 and building 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.
The legal proceedings in which the Registrant has
been involved over the last several years have 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. 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 1997, the Registrant incurred a net loss of
$198,574 ($11.02 per limited partnership unit), compared to a net loss
of $708,659 ($39.33 per limited partnership unit) in 1996, and a net
loss of $1,482,456 ($82.28 per limited partnership unit) in 1995.
Included in the loss for 1995 is $697,082 of extraordinary loss
relating to the foreclosure of one of the Registrant's properties
(Shriver Square).
Rental income decreased from $829,061 in 1995 to
$713,215 in 1996 and increased to $725,798 in 1997. The increase from
1996 to 1997 is due to an increase of rental income at Flint Goodridge
and Robidoux Apartments due to an increase in average occupancy (92%
to 95%) and (98% to 99%), respectively. The decrease from 1995 to
1996 is mainly due to the foreclosure of Shriver Square on March 30,
1995, partially offset by an increase in rental income at Flint
Goodridge due to higher average rental rates.
Other income increased from $0 in 1995 and 1996 to
$411,632 in 1997 due to the sale of interest in Robidoux Redevelopment
Joint Venture, as referred to in "Liquidity", above.
Operating expenses decreased from $475,921 in 1995
to $426,718 in 1996 and to $363,624 in 1997. The decrease from 1996
to 1997 is the result of a decrease in insurance expense at Robidoux,
partially offset by an increase in maintenance, salaries and wages
expense at Robidoux, and an increase in maintenance and utilities at
Flint Goodridge. Insurance expense decreased at Robidoux due to a
decrease in premiums. Maintenance and salaries and wages expense
increased at Robidoux due to higher average occupancy rates (98% to
99%), as well a change in the property's management company.
Maintenance and utilities expense increased at Flint Goodridge due to
higher average occupancy rates (92% to 95%). The decrease from 1995 to
1996 is mainly due to the foreclosure of Shriver Square on March 30,
1995, as well as a decrease in maintenance expense at Robidoux due to
operational efficiencies achieved at the property, partially offset by
an increase in maintenance expense at Flint Goodridge due to deferred
maintenance performed in 1996 and an increase in wages and salaries
expense at Flint Goodridge due to the fact that employees received
cost of living pay increases. The decreased loss from 1995 to 1996 is
also due to an overall decrease in rental operations expense at Flint
Goodridge due to a decrease in maintenance expense as a result of a
reduction in security services, partially offset by an increase in
wages and salaries expense (which was due to employees receiving cost
of living pay increases as well as higher health and property
insurance premiums).
Interest expense decreased from $437,942 in 1995
to $355,222 in 1996 to $344,941 in 1997. The decrease from 1996 to
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 of a loan which matured in
March 1996. The decrease from 1995 to 1996 is due to the foreclosure
of Shriver Square, as well as a decrease in interest expense at
Robidoux resulting from 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.
Depreciation and amortization decreased from
$494,626 in 1995 to $426,589 in 1996 and increased to $428,374 in
1997. The increase from 1996 to 1997 is the result of an increase in
depreciation expense at Robidoux due to depreciation of capital
improvements made at the property. The decrease from 1995 to 1996 is
due to the foreclosure on Shriver Square, as well as a decrease in
depreciation expense at Flint Goodridge due to the fact that all
personal property became fully depreciated in the second quarter of
1996, partially offset by an increase in amortization expense at
Robidoux due to the amortization of loan costs incurred in the
refinancing of the construction loan.
During the year, losses of $355,000 were incurred
at Registrant's properties compared to a loss of $363,000 in 1996 and
a loss of $711,000 in 1995. A discussion of individual property
operations/activities follows:
In 1997, Registrant sustained a loss of $173,000
at Flint-Goodridge including $206,000 of depreciation and amortization
expense compared to a loss of $174,000 including $213,000 of
depreciation and amortization expense in 1996 and a loss of $155,000
including $227,000 of depreciation and amortization expense in 1995.
Since Flint-Goodridge is a low income housing property, rents are
fixed in relation to specified income levels of its tenants. As a
result, the property experiences high occupancy but rental income
remains low. The decrease in the loss from 1996 to 1997 is due to an
increase in rental income as a result of an increase in average
occupancy (92% to 95%), partially offset by an increase in maintenance
and utilities expense. Maintenance and utilities expense increased
due to the increase in average occupancy. The increase in the loss
from 1995 to 1996 is the result of an increase in maintenance and
wages and salaries expense partially offset by an increase in rental
income and a decrease in depreciation expense. Maintenance expense
increased due to deferred maintenance performed in 1996 while wages
and salaries expense increased due to the fact that employees received
cost of living pay increases. Rental income increased due to an
increase in the average rental rates and depreciation decreased due to
the fact that personal property became fully depreciated in the second
quarter of 1996.
In 1997, Registrant incurred a loss of $182,000 at
Robidoux including $177,000 of depreciation and amortization expense
compared to a loss of $189,000 including $175,000 of depreciation and
amortization expense in 1996 and a loss of $211,000 including $173,000
of depreciation and amortization expense in 1995. Since Robidoux is a
low income housing property, rents are fixed in relation to specified
income levels of its tenants. Accordingly, as with Flint Goodridge,
the property experiences high occupancy but rental income remains low.
The decrease in the loss from from 1996 to 1997 is due to an increase
in rental income combined with a decrease in interest expense and
insurance expense, partially offset by an increase in maintenance,
salaries and wages, and depreciation expense. Rental income increased
due to an increase in average occupancy (98% to 99%), 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. Insurance expense decreased
due to a decrease in premiums. Maintenance and salaries and wages
expense increased as a result of the increase in average occupancy,
and depreciation expense increased due to depreciation of capital
improvements made at the property. The decrease in the loss from 1995
to 1996 is due to a decrease in maintenance and interest expense
partially offset by an increase in amortization expense. Maintenance
expense decreased due to operational efficiencies achieved at the
property while 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.
Amortization expense increased due to the amortization of loan costs
incurred in the refinancing of the construction loan.
In 1997, Registrant incurred a loss of $0 at
Shriver Square compared to losses of $0 in 1996, and $345,000,
including $61,000 of depreciation and amortization expense, in 1995.
The 1995 loss without effect of the foreclosure would have been
$147,036. The loss in 1995 results mainly from the loss of the
property on March 30, 1995 and an increase of legal fees associated
with the foreclosure of the property. Included in operations from
1995 is an extraordinary loss of $197,715, representing the difference
between the fair market value of the assets foreclosed and the
liabilities satisfied.
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
1997, the Bakery Apartments incurred a loss of $190,000 including
$223,000 of depreciation and amoritization expense compared to a loss
of $211,000 including $236,000 of depreciation and amortization
expense in 1996 and a loss of $179,000 including $252,000 of
depreciation and amortization expense in 1995. The Registrant expects
that full occupancy and positive cash flow will continue throughout
1997.
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 1997,
Registrant incurred a loss of $33,000 compared to a loss of $49,000 in
1996, and a loss of $43,000 in 1995. The decrease in the loss from
1997 to 1996 is due an increase in rental income resulting from higher
average rental rates, as well as a decrease in operating expenses due
to efficiencies achieved at the property. The increase in the loss
from 1995 to 1996 is due to a decrease in average rental rates
combined with an increase in maintenance expense due to the
replacement of carpeting in several units. The Registrant expects to
achieve in 1998 results comparable to those experienced in 1997.
Item 8. Financial Statements and Supplementary Data
Registrant is not required to furnish the supplementary
financial information referred to in Item 302 of Regulation S-K.
<PAGE>
Independent Auditor's Report
To the Partners of
Diversified Historic Investors VII
We have audited the accompanying consolidated balance sheets of
Diversified Historic Investors VII (a Pennsylvania Limited
Partnership) and subsidiaries as of December 31, 1997 and 1996 and the
related statements of operations, changes in partners' equity and cash
flows for the years ended December 31, 1997, 1996 and 1995. These
consolidated statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not
audit the financial statements of Flint Goodridge General Partnership,
which statements reflect total assets of $3,693,456 and $3,930,967 as
of December 31, 1997 and 1996, respectively, and total revenues of
$534,241 and $528,792, respectively for the years then ended. In
addition, we did not audit the financial statements of The Bakery
Apartments General Partnership, which statements reflect total assets
of $3,705,621 and $3,943,320 as of December 31, 1997 and 1996
respectively, and total revenues of $625,890 and $629,206 respectively
for the years then ended. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for Flint Goodridge
General Partnership and The Bakery Apartments General Partnership, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
Diversified Historic Investors VII as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years
ended December 31, 1997, 1996 and 1995 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedule of Real
Estate and Accumulated Depreciation on page 28 is presented for the
purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
March 9, 1998
<PAGE>
Independent Auditor's Report
To the Partners of
Flint Goodridge General Partnership
New Orleans, Louisiana:
We have audited the accompanying balance sheets of HUD Project No. 064-
35269-PM of the Flint Goodridge General Partnership, as of December
31, 1997 and 1996, and the related statements of income, changes in
partners' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller
General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Flint
Goodridge General Partnership, HUD Project No. 064-35269-PM, as of
December 31, 1997 and 1996, and the results of its operations, changes
in partners' equity, and cash flows for the years then ended in
conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards and the Consolidated
Audit Guide for Audits of HUD Programs issued by the U.S. Department
of Housing and Urban Development, we have also issued a report dated
January 29, 1998, on our consideration of Flint Goodridge General
Partnership's internal control structure and reports dated January 29,
1998, on its compliance with specific requirements applicable to major
HUD programs and specific requirements applicable to Affirmative Fair
Housing.
Pailet, Meurier and LeBlanc, L.L.P.
Metairie, Louisiana
January 29, 1998
<PAGE>
Independent Auditor's Report
To the Partners of
The Bakery Apartments Limited Partnership
We have audited the accompanying balance sheets of The Bakery
Apartments Limited Partnership, for December 31, 1997 and 1996 and the
related statements of operations, partners' equity and cash flows for
the years ended. These financial statements are the responsibility of
the partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Bakery
Apartments Limited Partnership as of December 31, 1997 and 1996 and
the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Pailet, Meurier and LeBlanc, L.L.P.
Metairie, Louisiana
January 30, 1998
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1997 and 1996 17
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995 18
Consolidated Statements of Changes in Partners' Equity for
the Years Ended December 31, 1997, 1996, and 1995 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 20
Notes to consolidated financial statements 21-26
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 28
Notes to Schedule XI 29
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
Assets
1997 1996
Rental properties at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,544,063 10,520,536
---------- ----------
10,579,532 10,556,005
Less - accumulated depreciation (3,250,162) (2,826,761)
---------- ----------
7,329,370 7,729,244
Cash and cash equivalents 92,375 66,639
Restricted cash 43,304 94,758
Investment in affiliate 1,410,917 1,443,806
Other assets (net of accumulated
amortization of $103,505 and $98,531) 694,812 594,663
---------- ----------
Total $ 9,570,778 $ 9,929,110
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,521,250 $ 3,605,963
Accounts payable:
Trade 738,030 800,373
Related parties 380,143 360,346
Interest payable 38,388 40,631
Tenant security deposits 30,422 27,352
Other liabilities 0 31,502
---------- ----------
Total liabilities 4,708,233 4,866,167
---------- ----------
Minority interests 248,438 250,262
---------- ----------
Partners' equity 4,614,107 4,812,681
---------- ----------
Total $ 9,570,778 $ 9,929,110
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Rental income $ 725,798 $ 713,215 $ 829,061
Other income 411,632 0 0
Interest income 0 1,742 1,591
--------- --------- ---------
Total revenues 1,137,430 714,957 830,652
--------- --------- ---------
Costs and expenses:
Rental operations 363,624 426,718 475,921
General and administrative 168,000 168,000 168,000
Interest 344,941 355,222 437,942
Depreciation and amortization 428,374 426,589 494,626
--------- --------- ---------
Total costs and expenses 1,304,939 1,376,529 1,576,489
--------- --------- ---------
Loss before minority interests and
equity in affiliate (167,509) (661,572) (745,837)
Minority interests' portion of loss 1,824 1,886 3,444
Equity in net loss of affiliate (32,889) (48,973) (42,981)
--------- --------- ---------
Loss before extraordinary item (198,574) (708,659) (785,374)
Extraordinary loss 0 0 (697,082)
--------- --------- ---------
Net loss ($ 198,574) ($ 708,659) ($1,482,456)
========= ========= =========
Net loss per limited partnership unit:
Loss before minority interests and
equity in affiliate ($ 9.30) ($ 36.71) ($ 41.39)
Minority interests .10 .10 .19
Equity in net loss of affiliate (1.82) (2.72) (2.39)
--------- --------- ---------
Loss before extraordinary item (11.02) (39.33) (43.59)
Extraordinary item 0 0 (38.69)
--------- --------- ---------
($ 11.02) ($ 39.33) ($ 82.28)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
Dover
Historic
Advisors Limited
VII (1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1994 $480,543 $6,523,253 $7,003,796
Net loss (14,824) (1,467,632) (1,482,456)
------- --------- ---------
Balance at December 31, 1995 465,719 5,055,621 5,521,340
Net loss (7,087) (701,572) (708,659)
------- --------- ---------
Balance at December 31, 1996 458,632 4,354,049 4,812,681
Net loss (1,986) (196,588) (198,574)
------- --------- ---------
Balance at December 31, 1997 $456,646 $4,157,461 $4,614,107
======= ========= =========
(1) General Partner.
(2) 17,839 limited partnership units outstanding at December 31,
1997, 1996, and 1995.
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities:
Net loss ($198,574) ($708,659) ($1,482,456)
Adjustments to reconcile net loss to net
cash privided by (used in) operating
activities:
Depreciation and amortization 428,374 426,589 494,626
Extraordinary loss 0 0 697,082
Equity in loss of affiliate 32,889 48,973 42,981
Changes in assets and liabilities:
Decrease (increase) in restricted cash 51,454 (6,849) (9,743)
Increase in other assets (105,122) (162,905) (2,831)
(Decrease) increase in accounts payable
- trade (62,343) 419,510 233,399
Increase (decrease) in accounts payable -
related parties 19,797 254,977 (59,456)
(Decrease) increase in interest payable (2,243) (12,491) 46,618
Increase in tenant security deposits 3,070 3,599 1,952
(Decrease) increase in other liabilities (31,502) 31,502 0
------- ------- --------
Net cash provided by (used in) operating 135,800 294,246 (37,828)
activities ------- ------- --------
Cash flows from investing activities:
Purchase of rental property and improvements (23,527) (3,278) (12,270)
------- ------- --------
Net cash used in investing activities (23,527) (3,278) (12,270)
------- ------- --------
Cash flows from financing activities:
Proceeds from debt financing 0 0 295,142
Principal payments (84,713) (252,385) (224,567)
Minority interest (1,824) (1,886) (3,444)
------- ------- --------
Net cash (used in) provided by financing (86,537) (254,271) 67,131
activities ------- ------- --------
Net increase in cash and cash equivalents 25,736 36,697 17,033
Cash and cash equivalents at beginning of year 66,639 29,942 12,909
------- ------- --------
Cash and cash equivalents at end of year $ 92,375 $ 66,639 $ 29,942
======= ======= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $347,184 $379,053 $426,051
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors VII (the "Partnership") was formed in
December 1988 with Dover Historic Advisors VII as the General Partner.
Upon the admittance of additional limited partners, the initial
limited partner withdrew.
The Partnership was organized to acquire, rehabilitate, and manage
real properties containing improvements which are Certified Historic
Structures, as defined in the Internal Revenue Code of 1986 ("the
Code"), or which may also be (but are not required to be) eligible for
low income housing tax credits as provided by Section 42 of the Code,
and such other uses as Dover Historic Advisors VII (the "General
Partner") deems appropriate, and to engage in any and all activities
related or incidental thereto.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements follows.
1. Principles of Consolidation
The accompanying financial statements of the Partnership include the
accounts of three subsidiary partnerships (the "Ventures"), in which
the Partnership has controlling interests, with appropriate
elimination of inter-partnership transactions and balances. In
addition, the Partnership owns a minority interest of 16.83% in one
partnership, which it accounts for on the cost method, and a minority
interest of 30% in one partnership, which it accounts for on the
equity method. These financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which, in the
opinion of the General Partner, are necessary for a fair statement of
results for those years.
2. Deferred Expenses
Loan fees have been incurred with respect to certain loans. Such fees
were deferred and are being amortized over the term of the related
loans.
The Partnership prepaid all amounts due under a ground lease for one
of its properties. Such prepayments have been deferred and are being
amortized over the term of the lease (45 years).
3. Net Loss per Limited Partnership Unit
The net loss per limited partnership unit is based on the weighted
average number of limited partnership units outstanding during the
period (17,839 in 1997, 1996, and 1995).
4. Cash and Cash Equivalents
The Partnership considers all highly liquid investments purchased with
a maturity of three months or less to be cash equivalents.
5. Restricted Cash
Restricted cash includes amounts held for tenant security deposits,
real estate tax reserves and other cash restricted as to use.
6. Depreciation
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Buildings and improvements are
depreciated over 25 years and furniture and fixtures over five years.
7. Income Taxes
Federal and state income taxes are payable by the individual partners;
accordingly, no provision or liability for income taxes is reflected
in the financial statements.
8. Revenue Recognition
Revenues are recognized when rental payments are due on a straight-
line basis. Rental payments received in advance are deferred until
earned.
9. Rental Properties
Rental properties are stated at cost. A provision for impairment of
value is recorded when a decline in value of property is determined to
be other than temporary as a result of one or more of the following:
(1) a property is offered for sale at a price below its current
carrying value, (2) a property has significant balloon payments due
within the foreseeable future for which the Partnership does not have
the resources to meet, and anticipates it will be unable to obtain
replacement financing or debt modification sufficient to allow a
continued hold of the property over a reasonable period of time, (3) a
property has been, and is expected to continue, generating significant
operating deficits and the Partnership is unable or unwilling to
sustain such deficit results of operations, and has been unable to, or
anticipates it will be unable to, obtain debt modification, financing
or refinancing sufficient to allow a continued hold of the property
for a reasonable period of time or, (4) a property's value has
declined based on management's expectations with respect to projected
future operational cash flows and prevailing economic conditions. An
impairment loss is indicated when the undiscounted, sum of estimated
future cash flows from an asset, including estimated sales proceeds,
and assuming a reasonable period of ownership up to 5 years, is less
than the carrying amount of the asset. The impairment loss is
measured as the difference between the estimated fair value and the
carrying amount of the asset. In the absence of the above
circumstances, properties and improvements are stated at cost. An
analysis is done on an annual basis at December 31.
NOTE C - PARTNERSHIP AGREEMENTS
The significant terms of the Agreement of Limited Partnership (the
"Agreement"), as they relate to the financial statements, follow:
All distributable cash from operations (as defined in the Agreement of
Limited Partnership) will be distributed 1% to the General Partner and
99% to the limited partners.
All distributable cash from sales or dispositions (as defined) will be
distributed to the limited partners up to their adjusted invested
capital (as defined) plus an amount equal to the sum of the greater of
an 8.5% cumulative, noncompounded annual return on the average after-
credit invested capital (as defined), less amounts previously
distributed (as defined); thereafter, after receipt by the General
Partner or its affiliates of any accrued but unpaid real estate
brokerage commissions, the balance will be distributed 15% to the
General Partner and 85% to the limited partners.
Net income or loss from operations of the Partnership is allocated 1%
to the General Partner and 99% to the limited partners.
NOTE D - ACQUISITIONS
The Partnership acquired controlling general or limited partnership
interests in Ventures and minority interests in partnerships during
the period from June 1989 to March 1991, as discussed below.
In June 1989, the Partnership was admitted, with a 98% general partner
interest, to a Nebraska general partnership which owns a building
located in Nebraska, consisting of 65 apartment units and 3,550 square
feet of commercial space, for a cash capital contribution of
$2,350,000. In addition, $3,000,000 of rehabilitation costs relating
to the investment were capitalized as part of the building and
improvements. These capitalized costs have been removed from the
balance sheet. Pursuant to the June 1993 Amended and Restated Joint
Venture Agreement, the Partnership's interest was reduced to 30%.
In July 1989, the Partnership was admitted, with a 90% general partner
interest, to a Pennsylvania general partnership which owns two
buildings located in Louisiana, consisting of 93 apartments units, for
a cash capital contribution of $2,808,000.
In September 1989, the Partnership was admitted, with a 99% general
partner interest, to a Missouri general partnership which owns a
building located in Missouri, consisting of 60 apartment units, for a
cash capital contribution of $2,400,000. In addition, $2,300,000 of
rehabilitation costs relating to the investment were capitalized as
part of the building and improvements.
In December 1989, the Partnership was admitted, with a 98% general
partner interest, to a Nebraska general partnership which owns
property located in South Dakota, consisting of 58,793 square feet of
commercial space, for a cash capital contribution of $1,350,000. In
addition, $3,400,000 of acquisition costs relating to the investment
have been capitalized as part of the building and improvements. In
March 1995, the deed to the property, which was held in escrow, was
delivered to the first mortgage holder.
In February 1990, the Partnership was admitted, with a 99% general
partner interest, to a Pennsylvania general partnership, which owned a
property which was originally intended to be rehabilitated into
250,000 square feet of residential and commercial space located in
Pennsylvania, for a cash contribution of $2,000,000. In December
1994, the Partnership donated to a neighborhood group all but a 12,247
square foot vacant lot.
In September 1990, the Partnership purchased 19% interest in a
Washington, D.C. general partnership which owned a building located in
Washington, D.C., consisting of 54 hotel rooms, for a cash capital
contribution of $550,000. In February 1993, a party holding a
mortgage on the property, with permission of the bankruptcy court,
foreclosed on the property.
In March 1991, the Partnership purchased 16.83% interest in a
Pennsylvania general partnership which owns a building located in
Louisiana, consisting of 68 units, for $300,000.
NOTE E - DEBT OBLIGATIONS
Debt obligations are as follows:
December 31,
1997 1996
Mortgage payable, interest at 10%; payable in monthly $2,232,457 $2,257,650
installments of principal and interest of $20,819,
with maturity in June 2020; collateralized by related
rental property.
Note payable, interest at 9%; principal and interest 813,408 831,099
payments of $7,648 due monthly; with maturity at
October 2005; collateralized by related rental property.
Note payable, interest only at prime plus 1% (effective 454,923 489,539
rate of 9.5% and 9.25% at December 31, 1997 and 1996,
respectively); payable in monthly payments of principal
of $5,300 and interest; remaining principal balance due
July 2000; collateralized by related rental property.
Note payable, interest at 1%; principal and interest
payments of $ due monthly; remaining principal due
September 2000; collateralized by related rental property 20,462 27,675
--------- ---------
$3,521,250 $3,605,963
========= =========
Maturities of debt obligations at December 31, 1997, are as follows:
Year Ending December 31,
1998 $ 90,419
1999 89,384
2000 451,790
2001 62,844
2002 69,160
Thereafter 2,757,653
---------
$3,521,250
=========
NOTE F - RELATED PARTY TRANSACTIONS
Included in Accounts Payable - Related Party is $380,143 and $311,030
at December 31, 1997 and 1996, respectively, owed to an affiliate of
the General Partner, by one of the Partnership's Ventures, for
additional amounts advanced for working capital needs. These advances
are non-interest bearing and will be paid out of available cash flow.
Included in Accounts Payable - Related Party is $48,819 and $49,316 at
December 31, 1997 and 1996, respectively, owed to the co - general
partner, by one of the Partnership's Ventures, for additional amounts
advanced for working capital needs. These advances are non-interest
bearing and will be paid out of available cash flow.
NOTE G - COMMITMENTS AND CONTINGENCIES
On March 1, 1993, Shriver Square Joint Venture ("SSJV") filed a
reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy
Code. On September 10, 1993, SSJV filed the Third Amended Plan of
Reorganization (the "Plan"). The Plan was confirmed in October 1993.
Due to insufficient cash flow generated by the property, SSJV ceased
making debt service payments in January 1995. The loan was declared
in default by the lender and on March 30, 1995, the deed to the
property, which was held in escrow pursuant to the Amended Plan, was
delivered to the first mortgage holder. The Partnership recognized an
extraordinary loss of $697,082 in 1995 for the difference between the
book value of the property (which approximated fair value) and the
extinguished debt.
NOTE H - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time period for financial reporting ("book")
purposes and for income tax ("tax") purposes. A reconciliation
follows:
For the Years Ended December 31,
1997 1996 1995
------ ------ ------
Net loss - book ($ 198,574) ($ 708,659) ($1,482,456)
Other income (411,632) 0 0
Loss on foreclosure 0 0 1,865,551
Loss on donation 0 (325,907) 0
Other timing differences 0 370 (22,453)
Minority interest 134,243 16,651 17,795
Excess of book over tax depreciation 161,981 163,237 203,405
--------- --------- ---------
Net income (loss) - tax ($ 313,982) ($ 854,308) ($ 581,842)
========= ========= =========
Partners' equity - book $4,614,106 $4,812,681 $5,521,340
Distribution to limited partners 33,861 33,861 33,861
Costs of issuance 2,288,270 2,288,270 2,288,270
Basis reduction due to Investment Tax
Credit (3,790,041) (3,790,041) (3,790,041)
Cumulative tax under book loss 3,317,650 3,432,945 3,578,594
Capital contributions (641,684) (641,684) (641,684)
--------- --------- ---------
Partner's equity - tax $5,822,162 $6,136,032 $6,990,340
========= ========= =========
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Initial Cost to Costs
Partnership Capitalized
(b) Subsequent
to
Acquisition
Buildings
and
Description (a) Encumbrances Land (b) Improvements Improvements
(d)
93 unit
apartments in
New Orleans, LA $2,232,457 $17,182 $4,667,050 $988,444
60 unit
apartments in
St. Joseph, MO 1,288,793 1,500 2,482,287 2,304,579
12,247 square
feet of
residential
and commercial
space in
Philadelphia, PA - 16,787 101,703 0
--------- ------ --------- ---------
$3,521,250 $35,469 $7,251,040 $3,293,023
========= ====== ========= =========
Gross Amount at which
Carried at December 31,
1997
Buildings
and Accumulated Date of Date
Description (a) Land (b) Improvements Total Depreciation Const. Acquired
(b)(c) (c)(e)
93 unit
apartments in
New Orleans, LA $17,182 $ 5,655,494 $ 5,672,676 $1,797,622 1989 7/89
60 unit
apartments in
St. Joseph, MO 1,500 4,786,866 4,788,366 1,379,194 1989 9/89
12,247 square
feet of
of residential
and commercial
space in
Philadelphia, PA 16,787 101,703 118,490 73,346 (a) 2/90
------ ---------- ---------- ---------
$35,469 $10,544,063 $10,579,532 $3,250,162
====== ========== ========== =========
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
NOTES TO SCHEDULE XI
DECEMBER 31, 1997
(A) All properties are certified historic structures as defined in
the Internal Revenue Code of 1986, or are eligible for
designations as such. The "date of construction" refers to the
period in which such properties were rehabilitated.
(B) The cost of real estate owned at December 31, 1997, for Federal
income tax purposes was approximately $11,805,824. The
depreciable basis of the building and improvements of the
properties has been reduced for Federal income tax purposes by
the historic rehabilitation credit.
(C) Reconciliation of real estate:
1997 1996 1995
Balance at beginning of year $10,556,005 $10,552,727 $16,826,909
Additions during this year:
Improvements 23,527 3,278 12,270
Deductions during the year:
Retirements 0 0 (6,286,452)
---------- ---------- ----------
Balance at end of year $10,579,532 $10,556,005 $10,552,727
========== ========== ==========
Reconciliation of accumulated depreciation:
1997 1996 1995
Balance at beginning of year $ 2,826,761 $ 2,405,790 $ 3,007,245
Depreciation expense for the year 423,401 420,971 422,396
Deductions during the year:
Retirements 0 0 (1,023,851)
---------- ---------- ----------
Balance at end of year $ 3,250,162 $ 2,826,761 $ 2,405,790
========== ========== ==========
(D) See Note E to the consolidated financial statements for further
information.
(E) See Note B to the consolidated financial statements for
depreciation method and lives.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
a. Identification of Directors - Registrant has no
directors.
b. Identification of Executive Officers
The General Partner of the Registrant is Dover
Historic Advisors VII (DoHA-VII), a Pennsylvania general partnership.
The partners of DoHA-VII are as follows:
Name Age Position Term of Office Period Served
Gerald Katzoff 49 Partner in DoHA- No fixed term December 1988-
VII May 1997
Dover Historic -- Partner in DoHA- No fixed term December 1988 -
Advisors, Inc. VII May 1997
("Dover Advisors")
SWDHA, Inc. -- Partner in DoHA- No fixed term Since May 1997
VII
EPK, Inc. -- Partner in DoHA- No fixed term Since May 1997
VII
For further description of Dover Advisors, see
paragraph e. of this Item. There is no arrangement or understanding
between either person named above and any other person pursuant to
which any person was or is to be selected as an officer.
c. Identification of Certain Significant Employees.
Registrant has no employees. Its administrative and operational
functions are carried out by a property management and partnership
administration firm engaged by the Registrant.
d. Family Relationships. There is no family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DoHA-VII is a general
partnership formed in 1988. The General Partner is responsible for
management and control of Registrant's affairs and will have general
responsibility and authority in conducting its operations. The
General Partner may retain its affiliates to manage certain of the
Properties.
On May 13, 1997, SWDHA, Inc. replaced Gerald Katzoff and
EPK, Inc. replaced DHP, Inc. as partners of DoHA-VII. Spencer
Wertheimer, the President of SWDHA, Inc., is an attorney with
extensive experience in real estate activities ventures.
EPK, Inc. is a Delaware corporation formed for the
purpose of managing properties or interests therein. EPK, Inc. is a
wholly-owned subsidiary of D, LTD, an entity formed in 1985 to act as
the holding company for various corporations engaged in the
development and management of historically certified properties and
conventional real estate as well as a provider of financial (non-
banking) services. EPK, Inc. is an affiliate of DoHA-VII.
The officers and directors of EPK, Inc. are described
below.
Spencer Wertheimer was appointed May 13, 1997 as
President, Treasurer and Sole Director of EPK, Inc. Mr. Wertheimer is
an attorney with extensive experience in real estate ventures.
Donna M. Zanghi (age 41) was appointed on May 13, 1997 as
Vice President and Secretary of EPK, Inc. Ms. Zanghi previously
served as Secretary and Treasurer of DHP, Inc. since June 14, 1993
and as a Director and Secretary/Treasurer of D, LTD. She was
associated with DHP, Inc. and its affiliates since 1984 except for the
period from December 1986 to June 1989 and the period from November 1,
1992 to June 14, 1993.
Michele F. Rudoi (age 32) was appointed on May 13, 1997
as Assistant Secretary of EPK, Inc. Ms. Rudoi previously served as
Assistant Secretary and Director of both D, LTD and DHP, Inc. since
January 27, 1993.
Item 11. Executive Compensation
a. Cash Compensation - During 1997, Registrant paid
no cash compensation to DoHA-VII, any partner therein or any person
named in paragraph c. of Item 10.
b. Compensation Pursuant to Plans - Registrant has no
plan pursuant to which compensation was paid or distributed during
1997, or is proposed to be paid or distributed in the future, to DoHA-
VII, any partner therein, or any person named in paragraph c. of Item
10.
c. Other Compensation - No compensation not referred
to in paragraph a. or paragraph b. of this Item was paid or
distributed during 1997 to Dover Advisors, DoHA-VII, any partner
therein, or any person named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no
directors.
e. Termination of Employment and Change of Control
Arrangement -
Registrant has no compensatory plan or arrangement, with respect to
any individual, which results or will result from the resignation or
retirement of any individual, or any termination of such individual's
employment with Registrant or from a change in control of Registrant
or a change in such individual's responsibilities following such a
change in control.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a. Security Ownership of Certain Beneficial Owners -
No person is known to Registrant to be the beneficial owner of more
than five percent of the issued and outstanding Units.
b. Security Ownership of Management - No equity
securities of Registrant are beneficially owned by any person named in
paragraph c. of Item 10.
c. Changes in Control - Registrant does not know of
any arrangement, the operation of which may at a subsequent date
result in a change in control of Registrant.
Item 13. Certain Relationships and Related Transactions
a. Pursuant to Registrant's Amended and Restated
Agreement of Limited Partnership, DoHA-VII is entitled to 10% of
Registrant's distributable cash from operations in each year. There
was no such share allocable to DoHA-VII for fiscal years 1995 through
1997.
b. Certain Business Relationships - Registrant has no
directors.
c. Indebtedness of Management - No executive officer
or significant employee of Registrant, Registrant's general partner
(or any employee thereof), or any affiliate of any such person, is or
has at any time been indebted to Registrant.
<PAGE>
PART IV
Item 14. (A) Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1997
and 1996.
b. Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995.
c. Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1997, 1996 and 1995.
d. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995.
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI - Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(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 of this Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
ended December 31, 1997.
(c) Exhibits:
See Item 14 (A) (3) above.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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.
DIVERSIFIED HISTORIC INVESTORS VII
Date: April 15, 1998 By: Dover Historic Advisors, VII General Partner
--------------
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
-----------------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi
------------------------
MICHELE F. RUDOI,
Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
DOVER HISTORIC ADVISORS VII General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer April 15, 1998
----------------------- --------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi April 15, 1998
------------------------ --------------
MICHELE F. RUDOI,
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 92,375
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,579,532
<DEPRECIATION> 3,250,162
<TOTAL-ASSETS> 9,570,778
<CURRENT-LIABILITIES> 1,118,173
<BONDS> 3,521,250
0
0
<COMMON> 0
<OTHER-SE> 4,862,545
<TOTAL-LIABILITY-AND-EQUITY> 9,570,778
<SALES> 0
<TOTAL-REVENUES> 1,137,430
<CGS> 0
<TOTAL-COSTS> 363,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344,941
<INCOME-PRETAX> (198,574)
<INCOME-TAX> 0
<INCOME-CONTINUING> (198,574)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (198,574)
<EPS-PRIMARY> (11.02)
<EPS-DILUTED> 0
</TABLE>
