UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2539694
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
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) 557-9800
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - March 31, 1998 (unaudited)
and December 31, 1997
Consolidated Statements of Operations - Three Months
Ended March 31, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 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 March 31, 1998, Registrant had cash of
$14,679. Cash generated from operations is used primarily to fund
operating expenses and debt service. If cash flow proves to be
insufficient, the Registrant will attempt to negotiate loan
modifications with the various lenders in order to remain current on
all obligations. The Registrant is not aware of any additional
sources of liquidity.
As of March 31, 1998 Registrant had restricted
cash of $115,310 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 one property due to
the property's inability to generate sufficient cash flow to pay
operating expenses and debt service. At the present time, with the
exception of Northern Liberty, the remaining properties are able to
generate enough cash flow to cover their operating expenses and debt
service, but there is no additional cash available to the Registrant
to pay its general and administrative expenses.
It is the Registrant's intention to continue to
hold the properties until they can no longer meet the debt service
requirements and the properties are foreclosed, or the market value of
the properties increases to a point where they can be sold at a price
which is sufficient to repay the underlying indebtedness.
(2) Capital Resources
Due to the relatively recent rehabilitations of
the properties, any capital expenditures needed are generally
replacement items and are funded out of cash from operations or
replacement reserves, if any. Registrant is not aware of any factors
which would cause historical capital expenditure levels not to be
indicative of capital requirements in the future and accordingly, does
not believe that it will have to commit material resources to capital
investment for the foreseeable future. With respect to Northern
Liberty, any development of the remaining lots and building will
require additional funding of capital. The Registrant has not yet
identified any sources for this funding and does not anticipate being
able to do so, while the Registrant will be seeking to sell this
property. The Registrant does not believe that there is an active
market for properties of this sort and accordingly, there can be no
assurance that the property can be sold at a price acceptable to the
Registrant.
(3) Results of Operations
During the first quarter of 1998, Registrant
incurred a loss of $150,483 ($8.35 per limited partnership unit)
compared to net income of $277,477 ($15.40 per limited partnership
unit) for the same period in 1997.
Rental income decreased $131 from $177,056 in the
first quarter of 1997 to $176,925 in the same period in 1998. The
decrease in rental income is the result of a decrease in the average
occupancy (97% to 89%) at Flint Goodridge (as discussed below)
partially offset by an increase at Robidoux due to an increase in
average occupancy (85% to 91%).
Other income decreased from $411,632 in the first
quarter 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
$22,450 from $66,710 in the first quarter of 1997 to $89,160 in the
same period in 1998 due to an increase in maintenance and salaries and
wages expense at Flint Goodridge and an overall increase in operating
expenses at Robidoux due to an increase in the average occupancy. At
Flint Goodridge, maintenance increased due to deferred maintenance
performed in 1998 and salaries and wages expense increased due to cost
of living adjustments given to the employees.
Losses incurred during the quarter at the
Registrant's properties amounted to $93,000, compared to a loss of
approximately $69,000 for the same period in 1997.
In the first quarter of 1998 Registrant incurred a
loss of $52,000 at Flint Goodridge including $52,000 of depreciation
and amortization expense, compared to a loss of $28,000 in the first
quarter of 1997, including $53,000 of depreciation and amortization
expense. The increase in the loss from the first quarter of 1997 to
the same quarter of 1998 is the result of a decrease in rental income
combined with an increase in maintenance and salaries and wages.
Rental income decreased due to a decrease in the average occupancy
(97% to 89%). Maintenance increased due to deferred maintenance
performed in 1998 and salaries and wages expense increased due to cost
of living adjustments given to the employees.
In the first quarter of 1998 Registrant incurred a
loss of $41,000 at Robidoux, including $44,000 of depreciation and
amortization expense, compared to a loss of $41,000 including $ 44,000
of depreciation and amortization expense in the first quarter of 1996.
Although there was no overall change in income from the first quarter
of 1997 to the same period in 1998 there was an increase in rental
income due to an increase in average occupancy (85% to 91%) combined
with an overall increase in operating expenses due to the increase in
average occupancy.
Summary of Minority Interest Investments
The Registrant owns a minority interest in
Kensington Tower which it accounts for on the equity method. The
Registrant does not include the assets or liabilities of Kensington
Tower in its consolidated financial statements. The following
operating information is provided for the property. In the first
quarter of 1998, Registrant incurred a loss of $4,000 compared to a
loss of $11,000 in the same period of 1996. The decreased loss from
the first quarter of 1997 to the same period in 1998 is due to an
overall decrease in operating expenses.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
March 31, 1998 December 31, 1997
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,553,165 10,544,063
---------- ----------
10,588,634 10,579,532
Less - accumulated depreciation (3,362,868) (3,250,162)
---------- ----------
7,225,766 7,329,370
Cash and cash equivalents 14,679 92,375
Restricted cash 115,310 43,304
Investment in affiliate 1,406,658 1,410,917
Other assets (net of amortization of
$104,748 and $103,505 at March 31, 1998
and December 31, 1997, respectively) 694,913 694,812
---------- ----------
Total $ 9,457,326 $ 9,570,778
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,499,711 $ 3,521,250
Accounts payable:
Trade 769,497 738,020
Related parties 411,043 380,143
Interest payable 36,831 38,388
Tenant security deposits 28,595 30,422
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Total liabilities 4,745,677 4,708,233
---------- ----------
Minority interests 248,438 248,438
Partners' equity 4,463,211 4,614,107
---------- ----------
Total $ 9,457,326 $ 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 Ended March 31, 1998 and 1997
(Unaudited)
Three months Three months
ended ended
March 31, March 31,
1998 1997
Revenues:
Rental income $176,925 $177,056
Other Income 0 411,632
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Total Revenues 176,925 588,688
------- -------
Costs and expenses:
Rental operations 89,160 66,710
General and administrative 42,000 42,000
Interest 85,305 86,032
Depreciation and amortization 107,094 106,362
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Total costs and expenses 323,559 301,104
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(Loss) income before minority interests
and equity in affiliate (146,634) 287,584
Minority interests' portion of loss 410 409
Equity in net loss of affiliate (4,259) (10,516)
------- -------
Net (loss) income ($150,483) $277,477
======= =======
Net (loss) income per limited partnership
unit ($ 8.35) $ 15.40
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
Three months ended
March 31,
1998 1997
Cash flows from operating activities:
Net (loss) income ($150,483) $277,477
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 107,094 106,362
Equity in loss of affiliate 4,259 10,516
Changes in assets and liabilities:
(Increase) decrease in restricted cash (72,006) 48,050
Decrease (increase) in other assets 5,508 (114,094)
Increase (decrease) in accounts payable - trade 31,467 (266,579)
Increase in accounts payable - related parties 30,900 11,634
Decrease in interest payable (1,557) (1,556)
Decrease in tenant security deposits (1,827) (541)
Decrease in other liabilities 0 (31,502)
------- -------
Net cash (used in) provided by operating activities (46,645) 39,767
------- -------
Cash flows from investing activities:
Capital expenditures (9,102) 0
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Net cash used in investing activities (9,102) 0
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Cash flows from financing activities:
Principal payments (21,539) (20,811)
Minority interest (410) (409)
-------- -------
Net cash used in financing activities (21,949) (21,220)
-------- -------
(Decrease) increase in cash and cash equivalents (77,696) 18,547
Cash and cash equivalents at beginning of period 92,375 66,639
-------- -------
Cash and cash equivalents at end of period $ 14,679 $ 85,186
======== =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified
Historic Investors VII (the "Registrant") and related notes have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying
consolidated financial statements and related notes should be read in
conjunction with the audited financial statements in Form 10-K of the
Registrant, and notes thereto, for the year ended December 31, 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
3 Registrant's Amended and Restated Certificate
of Limited Partnership and Agreement of
Limited Partnership, previously filed as part
of Amendment No. 2 of Registrant's
Registration Statement on Form S-11, are
incorporated herein by reference.
21 Subsidiaries of the Registrant are listed in
Item 2. Properties on Form 10-K, previously
filed and incorporated herein by reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the
quarter ended March 31, 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: May 29, 1998 DIVERSIFIED HISTORIC INVESTORS VII
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By: Dover Historic Advisors VII, Inc., General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
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SPENCER WERTHEIMER
President and Treasurer
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
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<INCOME-PRETAX> (150,483)
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<INCOME-CONTINUING> (150,483)
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