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, 1999
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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 - June 30, 1999 (unaudited)
and December 31, 1998
Consolidated Statements of Operations - Three Months and
Nine Months Ended June 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended
June 30, 1999 and 1998 (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, 1999, Registrant had cash of
$14,277. 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, 1999, Registrant had restricted
cash of $89,602 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 identified any sources for this
funding, and does not anticipate being able to identify any such
sources for the foreseeable future.
(2) Capital Resources
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 1999, Registrant
incurred a net loss of $175,301 ($9.73 per limited partnership unit)
compared to a net loss of $150,454 ($8.35 per limited partnership
unit) for the same period in 1998. For the first six months of 1998,
the Registrant incurred a net loss of $300,792 ($16.69 per limited
partnership unit) compared to income of $300,938 ($16.70 per limited
partnership unit) for the same period in 1998.
Rental income decreased $13,900 from $191,070 in
the second quarter of 1998 to $177,170 in the same period in 1999.
The decrease was due to a decrease in the average occupancy at Flint
Goodridge Apartments (97% to 93%).
Rental income decreased $3,193 from $367,995 for
the first six months of 1998 to $364,802 for the same period in 1999.
The decrease is due to a decrease in the average occupancy (98% to
92%) at Flint Goodridge partially offset by an increase at Robidoux
Apartments due to an increase in the average rental rates.
Expenses for rental operations decreased by $3,111
from $100,837 in the second quarter of 1998 to $97,726 in the same
period in 1999 due to a decrease in wages and salaries at Robidoux due
to a change in management company partially offset by an increase in
maintenance expense due to the recarpeting and painting of several
units at Flint Goodridge.
Expenses for rental operations decreased by
$11,266 from $189,998 for the first six months of 1998 to $178,732 for
the same period in 1999 due to a decrease in management fees,
utilities, and wages as a result of the decrease in the average
occupancy at Flint Goodridge.
Losses incurred during the second quarter at the
Registrant's properties amounted to $113,000, compared to a loss of
approximately $92,000 for the same period in 1998. For the first six
months of 1999 the Registrant's properties recognized a loss of
$176,000 compared to a loss of approximately $186,000 for the same
period in 1998.
In the second quarter of 1999, Registrant incurred
a loss of $50,000 at Flint Goodridge including $51,000 of depreciation
and amortization expense, compared to a loss of $33,000, including
$52,000 of depreciation and amortization expense for the same period
in 1998. The increase in the loss from the second quarter of 1998 to
the same period in 1999 is the result of a decrease in rental income
due to a decrease in the average occupancy (97% to 93%) combined with
an increase in maintenance expense due to the recarpeting and painting
of several units.
For the first six months of 1999, Registrant
incurred a loss of $86,000 at Flint Goodridge including $103,000 of
depreciation and amortization expense, compared to a loss of $86,000,
including $103,000 of depreciation and amortization expense for the
same period in 1998. Even though there was no significant amount
change during the first six months of 1999 at Flint Goodridge, rental
income decreased due to a decrease in the average occupancy (98% to
92%). As a result of the decrease in the average occupancy, there was
a decrease in wages, utilities and management fees.
In the second quarter of 1999, Registrant incurred
a loss of $63,000 at Robidoux, including $44,000 of depreciation and
amortization expense, compared to a loss of $59,000 including $44,000
of depreciation and amortization expense in the second quarter of
1998. The increase in the loss for the second quarter of 1999 from
the same period in 1998 is due to an increase in interest expense due
to an increase in the principal balance of the notes partially offset
by a decrease in wages and salaries expense due to a change in the
management company.
For the first six months of 1999, incurred a loss
of $90,000 at Robidoux, including $92,000 of depreciation and
amortization expense, compared to a loss of $100,000, including
$89,000 of depreciation and amortization expense for the same period
in 1998. The decrease in the losses for the first six months of 1999
as compared to the first six months of 1998 is mainly due to an
increase in rental income due to an increase in the average rental
rates.
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 1999, the Bakery Apartments incurred a loss of
$19,000 including $50,000 of depreciation and amortization expense
compared to a loss of $40,000 including $55,000 of depreciation and
amortization expense for the same period in 1998 and for the first six
months of 1999, incurred a loss of $36,000, including $101,000 of
depreciation and amortization expense compared to a loss of $81,000,
including $111,000 of depreciation and amortization expense for the
same period in 1998. The decrease in the losses from the second
quarter and first six months of 1998 to the same periods in 1999 was
due to an increase in rental income due to an increase in average
rental rates, combined with a decrease in interest, amortization and
wages and salaries expense partially offset by an increase in
maintenance expense. Interest expense decreased as a result of a
reduction in the interest rate due to the refinancing of the first
mortgage in December 1998. Amortization expense decreased due to loan
costs becoming fully amortized. Wages and salaries expense decreased
due to the replacement of employees with a contracted security
service. Maintenance expense increased due to the painting and
recarpeting of several apartment units.
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 1999, Registrant incurred a loss of $9,000 compared to a
loss of $6,000 for the same period of 1998. For the first six months
of 1999, Registrant incurred a loss of $17,000 at Kensington Tower
compared to a loss of $10,000 for the same period of 1998. The
increase in the loss from the second quarter and first six months of
1998 to the same periods in 1999 is due to a decrease in rental income
due to a decrease in the average rental rates.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
June 30, 1999 December 31, 1998
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,571,860 10,562,083
---------- ----------
10,607,329 10,597,552
Less - Accumulated depreciation (3,891,118) (3,676,865)
---------- ----------
6,716,211 6,920,687
Cash and cash equivalents 14,277 8,615
Restricted cash 89,602 116,295
Investment in affiliate 1,366,645 1,383,270
Other assets (net of amortization of
$110,789 and $108,361 at June 30, 1999 and
December 31, 1998, respectively) 687,227 691,484
---------- ----------
Total $ 8,873,962 $ 9,120,351
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,461,476 $ 3,488,821
Accounts payable:
Trade 885,430 812,312
Related parties 528,285 530,957
Interest payable 46,522 33,886
Tenant security deposits 26,161 26,595
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Total liabilities 4,947,874 4,892,571
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Minority interests 245,527 246,427
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Partners' equity 3,680,561 3,981,353
---------- ----------
Total $ 8,873,962 $ 9,120,351
========== ==========
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, 1999 and 1998
(Unaudited)
Three months Six months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenues:
Rental income $177,170 $191,070 $364,802 $367,995
Other income 0 0 0 0
------- ------- ------- -------
Total revenues 177,170 191,070 364,802 367,995
------- ------- ------- -------
Costs and expenses:
Rental operations 97,726 100,837 178,729 189,998
General and administrative 42,000 42,000 84,000 84,000
Interest 96,160 86,216 170,460 171,521
Depreciation and amortization 108,340 107,093 216,680 214,187
------- ------- ------- -------
Total costs and expenses 344,226 336,146 649,869 659,706
------- ------- ------- -------
Loss before minority interests
and equity in affiliate (167,056) (145,076) (285,067) (291,711)
Minority interests' portion of loss 629 590 900 1,000
Equity in net loss of affiliate (8,874) (5,968) (16,625) (10,227)
------- ------- ------- -------
Net loss ($175,301) ($150,454) ($300,792) ($300,938)
======= ======= ======= =======
Net loss per limited Partnership unit:
Loss before minority interests
and equity in affiliate ($ 9.27) ($ 8.05) ($ 15.81) ($ 16.19)
Minority interests .03 .03 .05 .06
Equity in net loss of affiliate (.49) (.33) (.93) (.57)
------- ------- ------- -------
($ 9.73) ($ 8.35) ($ 16.69) ($ 16.70)
======= ======= ======= =======
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, 1999 and 1998
(Unaudited)
Six months ended
June 30,
1999 1998
Cash flows from operating activities:
Net loss ($300,792) ($300,938)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 216,680 214,187
Equity in loss of affiliate 16,625 10,227
Changes in assets and liabilities:
Decrease (increase) in restricted cash 26,693 (74,372)
Decrease in other assets 1,829 4,483
Increase in accounts payable - trade 73,118 71,772
(Decrease) increase in accounts payable related parties (2,672) 59,000
Increase (decrease) in interest payable 12,636 (2,831)
Decrease in tenant security deposits (433) (1,539)
------- -------
Net cash provided by (used in) operating activities 43,684 (20,011)
------- -------
Cash flows from investing activities:
Capital expenditures (9,777) (10,321)
------- -------
Net cash used in investing activities (9,777) (10,321)
------- -------
Cash flows from financing activities:
Principal payments (27,345) (43,342)
Minority interest (900) (1,000)
------- -------
Net cash used in financing activities (28,245) (44,342)
------- -------
Increase (decrease) increase in cash and cash equivalents 5,662 (74,674)
Cash and cash equivalents at beginning of period 8,615 92,375
------- -------
Cash and cash equivalents at end of period $ 14,277 $ 17,701
======= =======
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, 1998.
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, 1999.
<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: September 2, 1999 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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,277
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,607,329
<DEPRECIATION> 3,891,118
<TOTAL-ASSETS> 8,873,962
<CURRENT-LIABILITIES> 885,430
<BONDS> 3,461,476
0
0
<COMMON> 0
<OTHER-SE> 3,680,561
<TOTAL-LIABILITY-AND-EQUITY> 8,873,962
<SALES> 0
<TOTAL-REVENUES> 364,802
<CGS> 0
<TOTAL-COSTS> 178,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170,460
<INCOME-PRETAX> (300,792)
<INCOME-TAX> 0
<INCOME-CONTINUING> (300,792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (300,792)
<EPS-BASIC> 0
<EPS-DILUTED> (16.69)
</TABLE>
