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, 1998
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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.)
1609 Walnut Street, Philadelphia, PA 19103
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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, 1998 (unaudited)
and December 31, 1997
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended
June 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 June 30, 1998, Registrant had cash of
$17,701. 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, 1998, Registrant had restricted
cash of $117,676 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 second quarter of 1998, Registrant
incurred a net loss of $150,454 ($8.35 per limited partnership unit)
compared to a net loss of $131,325 ($7.29 per limited partnership
unit) for the same period in 1997. For the first six months of 1998,
the Registrant incurred a net loss of $300,938 ($16.70 per limited
partnership unit) compared to income of $146,152 ($8.11 per limited
partnership unit) for the same period in 1997.
Rental income increased $10,217 from $180,853 in
the second quarter of 1997 to $191,070 in the same period in 1998 and
increased $10,086 from $357,909 for the first six months of 1997 to
$367,995 for the same period in 1998. The increase for the quarter
and the first six months of 1998 from the same periods in 1997 were
due to higher average rental rates at Flint Goodridge Apartments and
Robidoux Apartments.
There was no change in other income from the
second quarter of 1997 to the same period in 1998. Other income
decreased from $411,632 in the first six 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
$30,227 from $70,610 in the second quarter of 1997 to $100,837 in the
same period in 1998 due to an increase in management fee expense at
Flint Goodridge Apartments as a result of an increase in rental income
and an increase in wages and salaries and management fee expense at
Robidoux Apartments. 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.
Expenses for rental operations increased by
$52,678 from $137,320 for the first six months of 1997 to $189,998 for
the same period in 1998 due to an increase in maintenance and
management fee 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 quarter
of 1998 and management fee expense increased due to the increase in
rental income. 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 second quarter at the
Registrant's properties amounted to $92,000, compared to a loss of
approximately $70,000 for the same period in 1997. For the first six
months of 1998 the Registrant's properties recognized a loss of
$186,000 compared to a loss of approximately $139,000 for the same
period in 1997.
In the second quarter of 1998, Registrant incurred
a loss of $33,000 at Flint Goodridge including $52,000 of depreciation
and amortization expense, compared to a loss of $32,000, including
$51,000 of depreciation and amortization expense for the same period
in 1997. The increase in the loss from the second quarter of 1997 to
the same period in 1998 is the result of an increase in management fee
expense partially offset by an increase in rental income due to higher
average rental rates. Management fee expense increased due to the
increase in rental income.
For the first six months of 1998, Registrant
incurred a loss of $86,000 at Flint Goodridge including $103,000 of
depreciation and amortization expense, compared to a loss of $60,000,
including $103,000 of depreciation and amortization expense for the
same period in 1997. The increase in the loss from the first six
months of 1997 to the same period in 1998 is the result of an increase
in maintenance and management fee expense partially offset by an
increase in rental income due to higher average rental rates.
Maintenance expense increased due to deferred maintenance performed in
the first quarter of 1998 and management fee expense increased due to
the increase in rental income.
In the second quarter of 1998, Registrant incurred
a loss of $59,000 at Robidoux, including $44,000 of depreciation and
amortization expense, compared to a loss of $38,000 including $44,000
of depreciation and amortization expense in the second quarter of 1997
and for the first six months of 1998, incurred a loss of $100,000 at
Robidoux, including $89,000 of depreciation and amortization expense,
compared to a loss of $79,000, including $87,000 of depreciation and
amortization expense for the same period in 1997. The increases in
the losses for the second quarter and the first six 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
second quarter of 1998, the Bakery Apartments incurred a loss of
$40,000 including $55,000 of depreciation and amortization expense
compared to a loss of $32,000 including $60,000 of depreciation and
amortization expense for the same period in 1996 and for the first six
months of 1998, incurred a loss of $81,000, including $111,000 of
depreciation and amortization expense compared to a loss of $66,000,
including $120,000 of depreciation and amortization expense for the
same period in 1997. The increase in the losses from the second
quarter and first six months of 1997 to the same periods in 1998 is
due to a decrease in rental income and an increase in maintenance
expense partially offset by a decrease in depreciation and corporate
apartments expense. Rental income decreased due to a decline in the
rental of corporate apartments. Maintenance expense increased as a
result of repairs to the roof in the first quarter of 1998.
Depreciation expense decreased to personal property becoming fully
depreciated. Corporate apartment expense decreased due to the
decrease in the rental of the corporate apartments.
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 1998, Registrant incurred a loss of $6,000 compared to a
loss of $8,000 for the same period of 1997. For the first six months
of 1998, Registrant incurred a loss of $10,000 at Kensington Tower
compared to a loss of $18,000 for the same period of 1997. The
decrease in the loss from the second quarter and first six months of
1997 to the same periods in 1998 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, 1998 December 31, 1997
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,554,384 10,544,063
---------- ----------
10,589,853 10,579,532
Less - Accumulated depreciation (3,468,718) (3,250,162)
---------- ----------
7,121,135 7,329,370
Cash and cash equivalents 17,701 92,375
Restricted cash 117,676 43,304
Investment in affiliate 1,400,690 1,410,917
Other assets (net of amortization of
$105,991 and $103,505 at June 30, 1998 and
December 31, 1997, respectively) 694,698 694,812
---------- ----------
Total $ 9,351,900 $ 9,570,778
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,477,908 $ 3,521,250
Accounts payable:
Trade 809,802 738,030
Related parties 439,143 380,143
Interest payable 35,557 38,388
Tenant security deposits 28,883 30,422
Total liabilities 4,791,293 4,708,233
---------- ----------
Minority interests 248,438 248,438
---------- ----------
Partners' equity 4,312,169 4,614,107
---------- ----------
Total $ 9,351,900 $ 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 Six Months Ended June 30, 1998 and 1997
(Unaudited)
Three months Six months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Revenues:
Rental income $191,070 $180,853 $367,995 $357,909
Other Income 0 0 0 411,632
------- ------- ------- -------
Total revenues 191,070 180,853 367,995 769,541
------- ------- ------- -------
Costs and expenses:
Rental operations 100,837 70,610 189,998 137,320
General and administrative 42,000 42,000 84,000 84,000
Interest 86,216 86,016 171,521 172,048
Depreciation and amortization 107,093 106,361 214,187 212,723
------- ------- ------- -------
Total costs and expenses 336,146 304,987 659,706 606,091
------- ------- ------- -------
(Loss) income before minority
interests and equity in affiliate (145,076) (124,134) (291,711) 163,450
Minority interests' portion of loss 590 385 1,000 794
Equity in net loss of affiliate (5,968) (7,576) (10,227) (18,092)
------- ------- ------- -------
Net (loss) income ($150,454) ($131,325) ($300,938) $146,152
======= ======= ======= =======
Net (loss) income per limited
partnership unit:
(Loss) income before minority
interests and equity in affiliate ($ 8.05) ($ 6.89) ($ 16.19) $ 9.07
Minority interests .03 .02 .06 .04
Equity in net loss of affiliate (.33) (.42) (.57) (1.00)
------- ------- ------- -------
($ 8.35) ($ 7.29) ($ 16.70) $ 8.11
======= ======= ======= =======
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, 1998 and 1997
(Unaudited)
Six months ended
June 30,
1998 1997
Cash flows from operating activities:
Net (loss) income ($300,938) $146,152
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 214,187 212,723
Equity in loss of affiliate 10,227 18,092
Changes in assets and liabilities:
(Increase) decrease in restricted cash (74,372) 48,693
Decrease (increase) in other assets 4,483 (102,135)
Increase (decrease) in accounts payable - trade 71,772 (224,633)
Increase in accounts payable related parties 59,000 19,584
Decrease in interest payable (2,831) (3,112)
Decrease in tenant security deposits (1,539) (1,139)
Decrease in other liabilities 0 (31,502)
------- -------
Net cash (used in) provided by operating activities (20,011) 82,723
------- -------
Cash flows from investing activities:
Capital expenditures (10,321) (5,002)
------- -------
Net cash used in investing activities (10,321) (5,002)
------- -------
Cash flows from financing activities:
Principal payments (43,342) (41,639)
Minority interest (1,000) (794)
------- -------
Net cash used in financing activities (44,342) (42,433)
------- -------
(Decrease) increase in cash and cash equivalents (74,674) 35,288
Cash and cash equivalents at beginning of period 92,375 66,639
------- -------
Cash and cash equivalents at end of period $ 17,701 $101,927
======= =======
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 June 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: August 20, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 17,701
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,589,853
<DEPRECIATION> 3,468,718
<TOTAL-ASSETS> 9,351,900
<CURRENT-LIABILITIES> 1,248,945
<BONDS> 3,477,908
0
0
<COMMON> 0
<OTHER-SE> 4,560,607
<TOTAL-LIABILITY-AND-EQUITY> 9,351,900
<SALES> 0
<TOTAL-REVENUES> 367,995
<CGS> 0
<TOTAL-COSTS> 189,998
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,521
<INCOME-PRETAX> (300,938)
<INCOME-TAX> 0
<INCOME-CONTINUING> (300,938)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (300,938)
<EPS-PRIMARY> (16.70)
<EPS-DILUTED> 0
</TABLE>
