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, 1998
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[ ] 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
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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
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
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(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 Pennsylvania law. As of
December 31, 1998, 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 qualifying for low income
housing 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. 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, 1998, 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 153 apartment units. As of December
31, 1998, 142 apartment units were under lease at monthly rental rates
ranging from $210 to $504. 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 addition, rents are fixed in relation to
specified income levels of the tenants. 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, 1998, 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, 1998 was $2,204,627. 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, 1998, 85 units were under lease (91%) with monthly
rents ranging from $418 to $504. All leases are renewable, one-year
leases. The occupancy rate was 95% for 1997, 92% for 1996, 99% for
1995 and 96% for 1994. The monthly rental range has been
approximately the same since 1994. 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 loan of $1,450,000, a Community
Development Block Grant ("CDBG") loan of $74,000 (principal balance at
December 31, 1998 of $12,853), and a CDBG grant of $38,500. A portion
of the construction loan was paid through a line of credit extended by
another lender ($478,174 principal outstanding at December 31, 1998)
which bears interest at the prime rate (8% and 9.5% at December 31,
1998 and 1997, respectively) and is due October 2008. This loan is
personally guaranteed by an affiliate of the Registrant's co-general
partner. On October 30, 1995, the balance of 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. At December 31, 1998, there was $793,883
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. The CDBG loan bears interest at 1%
and both principal and interest are payable monthly until September
2000.
The property is managed by an independent
property management firm. As of December 31, 1998, 57 of the 60
apartment units were under lease (95%), with monthly rents ranging
from $210 to $350. All leases are renewable, one-year leases. The
occupancy rate was 99% for 1997, 98% for 1996, 92% for 1995 and 87%
for 1994. The monthly rental range has been approximately the same
since 1994. For tax purposes, this property has a federal tax basis
of $4,359,173 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 $300,000. Certain affiliates of the Registrant simultaneously
acquired 82.17% of the general partnership interests in BAGP for an
aggregate cash contribution of $1,400,000. BAGP 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 and the other for $201,500 (principal
balance of $191,824 at December 31, 1998). The first loan bore
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. The first loan was refinanced in November 1998. The new
loan was for $3,100,000 (principal balance of $3,100,000 at December
31, 1998), bears interest at 6.775%, is payable in monthly payments of
principal and interest in the amount of $20,158 and is due in November
2008. In March 1991, a $175,000 collateral mortgage note (principal
balance of $152,385 at December 31, 1998) 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, 1998, 65 units are under lease (96%) with rents ranging from $500
to $2,150. All leases are renewable, one-year leases. The occupancy
rate was 94% for 1997, 95% for 1996, 100% for 1995 and 93% for 1994.
The monthly rental range has been approximately the same since 1994.
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 square feet 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, 1998 of
$600,000), a $500,000 Tax Increment Financing ("TIF") Loan (principal
balance at December 31, 1998 of $168,338) 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 $515,375 at December 31, 1998), 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, 1998, 61 units are under lease
(94%) with monthly rents ranging from $300 to $445. All leases are
renewable, one-year leases. The occupancy rate was 97% for 1997, 94%
for 1996, 94% for 1995 and 89% for 1994. The monthly rental range has
been approximately the same since 1994. 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.
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 175 units of record
were sold or exchanged in 1998.
b. As of December 31, 1998, there were 1,719 record
holders of Units.
c. Registrant has not declared any cash dividends in
1998 or 1997.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1998. 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.
1998 1997 1996 1995 1994
Rental income $ 738,997 $ 725,798 $ 713,215 $ 829,061 $1,271,400
Interest income 2,358 0 1,742 1,591 1,851
Net loss 632,754 198,574 708,659 1,482,456 3,782,580
Net loss per Unit 35.12 11.02 39.33 82.28 209.97
Total assets (net of
depreciation and
amortization) 9,120,351 9,570,778 9,929,110 10,194,943 15,894,832
Debt obligations 3,488,821 3,521,250 3,605,963 3,858,348 7,184,570
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, 1998, Registrant had total
unrestricted cash of $8,615. 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, 1998, Registrant had restricted
cash of $116,295 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
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 1998, the Registrant incurred a net loss of
$632,754 ($35.12 per limited partnership unit), compared to a net loss
of $198,574 ($11.02 per limited partnership unit) in 1997, and a net
loss of $708,659 ($39.33 per limited partnership unit) in 1996.
Rental income increased from $713,215 in 1996 to
$725,798 in 1997 to $738,997 in 1998. The increase from 1997 to 1998
is due to an increase in the average rental rates at Robidoux
partially offset by a decrease in the average occupancy at Flint
Goodridge (95% to 90%). 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.
Other income increased from $0 in 1996 to $411,632
in 1997 and decreased to $0 in 1998 due to the sale of interest in
Robidoux Redevelopment Joint Venture, as referred to in "Liquidity",
above.
Operating expenses decreased from $426,718 in 1996
to $363,624 in 1997 and increased to $405,012 in 1998. The increase
from 1997 to 1998 is due to an increase in maintenance expense at both
Flint Goodridge and Robidoux and an increase in wages and salaries at
Robidoux. Maintenance expense at Flint Goodridge increased due to
deferred maintenance performed in 1998. Maintenance and wages and
salaries increased due to a change in the property's management
company. 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%).
Interest expense decreased from $355,222 in 1996
to $344,941 in 1997 to $343,902 in 1998. 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.
Depreciation and amortization increased from
$426,589 in 1996 to $428,374 in 1997 to $431,559 in 1998. The
increase from 1996 to 1997 and 1998 to 1998 is the result of an
increase in depreciation expense at Robidoux due to depreciation of
capital improvements made at the property.
During the year, losses of $383,000 were incurred
at Registrant's properties compared to a loss of $355,000 in 1997 and
a loss of $363,000 in 1996. A discussion of individual property
operations/activities follows:
In 1998, Registrant sustained a loss of $182,000
at Flint-Goodridge including $205,000 of depreciation and amortization
expense compared to a loss of $173,000 including $206,000 of
depreciation and amortization expense in 1997 and a loss of $174,000
including $213,000 of depreciation and amortization expense in 1996.
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 increase in the loss from 1997 to 1998 is due to a
decrease in rental income due to a decrease in the average occupancy
(95% to 90%) combined with an increase in maintenance expense.
Maintenance expense increased due to deferred maintenance performed in
1998. 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.
In 1998, Registrant incurred a loss of $201,000 at
Robidoux including $181,000 of depreciation and amortization expense
compared to a loss of $182,000 including $177,000 of depreciation and
amortization expense in 1997 and a loss of $189,000 including $175,000
of depreciation and amortization expense in 1996. 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 increase in the loss from 1997 to 1998 is mainly the result of an
increase in maintenance and wages and salaries expense partially
offset by an increase in rental income due to an increase in the
average rental rates. Maintenance and wages and salaries expense
increased due to a change in the property's management company. 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.
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
1998, the Bakery Apartments incurred a loss of $184,000 including
$239,000 of depreciation and amoritization expense compared to a loss
of $190,000 including $223,000 of depreciation and amortization
expense in 1997 and a loss of $211,000 including $236,000 of
depreciation and amortization expense in 1996. The Registrant expects
that full occupancy and positive cash flow will continue throughout
1998.
The Registrant owns a minority interest in
Kensington Tower which it accounts for on the equity method. The
Registrant does not include the assets or liabilities of Kensington
Tower in its consolidated financial statements. The following
operating information is provided for the property. In 1998,
Registrant incurred a loss of $28,000 compared to a loss of $33,000 in
1997, and a loss of $49,000 in 1996. The decrease in the loss from
1997 to 1998 and 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.
Item7A. Quantitative and Qualitative Disclosures about Market
Risk
Not applicable.
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 sheet of
Diversified Historic Investors VII (a Pennsylvania Limited
Partnership) and subsidiaries as of December 31, 1998 and 1997 and the
related statements of operations and changes in partners' equity and
cash flows for the years ended December 31, 1998, 1997 and 1996.
These consolidated 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 did not audit
the financial statements of Flint Goodridge General Partnership, which
statements reflect total assets of $3,478,899 and $3,693,456 as of
December 31, 1998 and 1997, respectively, and total revenues of
$531,335 and $534,241, 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, is based solely on
the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
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 audit provides 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, 1998 and 1997,
and the results of operations and cash flows for the years ended
December 31, 1998, 1997 and 1996 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 26 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
February 22, 1999
<PAGE>
Independent Auditor's Report
To the Partners of
Flint Goodridge General Partnership
New Orleans, Louisiana:
We have audited the accompanying balance sheets of Flint Goodridge
General Partnership, HUD Project No. 064-35269-PM, as of December 31,
1998 and 1997, 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, 1998 and 1997, 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
February 10,1999, on our consideration of Flint Goodridge General
Partnership's internal control structure and reports dated February
10,1999, 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
February 10, 1999
<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, 1998 and 1997 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, 1998 and 1997 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
February 10, 1999
<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, 1998 and 1997 15
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996 16
Consolidated Statements of Changes in Partners' Equity for
the Years Ended December 31, 1998, 1997, and 1996 17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996 18
Notes to consolidated financial statements 19-24
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 26
Notes to Schedule XI 27
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, 1998 and 1997
Assets
1998 1997
Rental properties at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,562,083 10,544,063
---------- ----------
10,597,552 10,579,532
Less - accumulated depreciation (3,676,865) (3,250,162)
---------- ----------
6,920,687 7,329,370
Cash and cash equivalents 8,615 92,375
Restricted cash 116,295 43,304
Investment in affiliate 1,383,270 1,410,917
Other assets (net of accumulated
amortization of $108,361 and $103,505) 691,484 694,812
---------- ----------
Total $ 9,120,351 $ 9,570,778
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,488,821 $ 3,521,250
Accounts payable:
Trade 812,313 738,030
Related parties 530,957 380,143
Interest payable 33,886 38,388
Tenant security deposits 26,595 30,422
---------- ----------
Total liabilities 4,892,571 4,708,233
---------- ----------
Minority interests 246,427 248,438
---------- ----------
Partners' equity 3,981,353 4,614,107
---------- ----------
Total $ 9,120,351 $ 9,570,778
========== ==========
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, 1998, 1997 and 1996
1998 1997 1996
Revenues:
Rental income $ 738,997 $ 725,798 $ 713,215
Other income 0 411,632 0
Interest income 2,358 0 1,742
--------- --------- ---------
Total revenues 741,355 1,137,430 714,957
--------- --------- ---------
Costs and expenses:
Rental operations 405,012 363,624 426,718
General and administrative 168,000 168,000 168,000
Interest 343,902 344,941 355,222
Depreciation and amortization 431,559 428,374 426,589
--------- --------- ---------
Total costs and expenses 1,348,473 1,304,939 1,376,529
--------- --------- ---------
Loss before minority interests and
equity in affiliate (607,118) (167,509) (661,572)
Minority interests' portion of loss 2,011 1,824 1,886
Equity in net loss of affiliate (27,647) (32,889) (48,973)
--------- --------- ---------
Net loss ($ 632,754) ($ 198,574)($ 708,659)
========= ========= =========
Net loss per limited partnership unit:
Loss before minority interests and
equity in affiliate ($ 33.70) ($ 9.30)($ 36.71)
Minority interests .11 .10 .10
Equity in net loss of affiliate (1.53) (1.82) (2.72)
--------- --------- ---------
($ 35.12) ($ 11.02)($ 39.33)
========= ========= =========
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, 1998, 1997 and 1996
Dover
Historic
Advisors Limited
VII (1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
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
Net loss (6,328) (626,426) (632,754)
------- --------- ---------
Balance at December 31, 1998 $450,318 $3,531,035 $3,981,353
======= ========= =========
(1) General Partner.
(2) 17,839 limited partnership units outstanding at December 31,
1998, 1997, and 1996.
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, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net loss ($632,754)($198,574)($708,659)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 431,559 428,374 426,589
Equity in loss of affiliate 27,647 32,889 48,973
Changes in assets and liabilities:
(Increase) decrease in restricted cash (72,991) 51,454 (6,849)
Increase in other assets (1,528) (105,122) (162,905)
Increase (decrease) in accounts payable - trade 74,283 (62,343) 419,510
Increase in accounts payable - related parties 150,814 19,797 254,977
Decrease in interest payable (4,502) (2,243) (12,491)
(Decrease) increase in tenant security deposits (3,827) 3,070 3,599
(Decrease) increase in other liabilities 0 (31,502) 31,502
------- ------- -------
Net cash (used in) provided by operating (31,300) 135,800 294,246
activities ------- ------- -------
Cash flows from investing activities:
Purchase of rental property and improvements (18,020) (23,527) (3,278)
------- ------- -------
Net cash used in investing activities (18,020) (23,527) (3,278)
------- ------- -------
Cash flows from financing activities:
Principal payments (32,429) (84,713) (252,385)
Minority interest (2,011) (1,824) (1,886)
------- ------- -------
Net cash used in financing activities (34,440) (86,537) (254,271)
------- ------- -------
Net (decrease) increase in cash and cash (83,760) 25,736 36,697
equivalents
Cash and cash equivalents at beginning of year 92,375 66,639 29,942
------- ------- -------
Cash and cash equivalents at end of year $ 8,615 $ 92,375 $ 66,639
======= ======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $348,404 $347,184 $379,053
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 1998, 1997, and 1996).
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.
10. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
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,
1998 1997
Mortgage payable, interest at 10%; payable in monthly $2,204,627 $2,232,457
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 793,883 813,408
payments of $7,648 due monthly; with maturity at
October 2005; collateralized by related rental property
Note payable, interest only at the prime rate (effective 477,458 454,923
rate of 8% and 9.5% at December 31, 1998 and 1997,
respectively); payable in monthly payments of principal
of $5,300 and interest; remaining principal balance due
October 2008; collateralized by related rental property (A)
Note payable, interest at 1%; principal and interest
payments of $648 due monthly; remaining principal due
September 2000; collateralized by related rental property 12,853 20,462
--------- ---------
$3,488,821 $3,521,250
========= =========
(A) This note payable is personally guaranteed by an affiliate of the
Registrant's co-general partner.
Maturities of debt obligations at December 31, 1998, are as follows:
Year Ending December 31,
1999 $ 89,384
2000 509,953
2001 62,844
2002 69,148
2003 76,087
Thereafter 2,681,405
---------
$3,488,821
=========
NOTE F - RELATED PARTY TRANSACTIONS
Included in Accounts Payable - Related Party is $455,345 and $380,143
at December 31, 1998 and 1997, 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 $48,269 and $48,819 at
December 31, 1998 and 1997, 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.
In June 1998, the General Partner advanced the Partnership $27,343 to
pay certain outstanding liabilities of the Partnership. The advance
is non-interest bearing and will be paid out of available cash flow.
NOTE G - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time period for financial reporting ("book")
purposes and for income tax ("tax") purposes. A reconciliation
follows:
For the Years Ended December 31,
1998 1997 1996
------ ------ ------
Net loss - book ($ 632,754) ($ 198,574) ($ 708,659)
Other income 0 (411,632) 0
Loss on donation 0 0 (325,907)
Other timing differences 0 0 370
Minority interest 138,002 134,243 16,651
Excess of book over tax depreciation 168,344 161,981 163,237
--------- --------- ---------
Net income (loss) - tax ($ 326,408)($ 313,982)($ 854,308)
========= ========= ==========
Partners' equity - book $3,981,353 $4,614,107 $4,812,681
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 3,623,995 3,317,649 3,432,945
Capital contributions (641,684) (641,684) (641,684)
--------- --------- ---------
Partner's equity - tax $5,495,754 $5,822,162 $6,136,032
========= ========= =========
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
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 $2,204,627 $17,182 $4,667,050 $988,444
60 unit
apartments in
St. Joseph, MO 1,284,194 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
--------- ------ --------- ---------
$3,488,821 $35,469 $7,251,040 $3,293,023
========= ====== ========= =========
Gross Amount at which
Carried at December 31,
1998
Buildings Accumulated
and Depreciation Date of Date
Description (a) Land (b) Improvements Total ) (c) (e) Const Acquired
(b)(c)
93 unit
apartments
in New Orleans, LA $17,182 $5,655,494 $5,672,676 $2,046,188 1989 7/89
60 unit
apartments in
St. Joseph, MO 1,500 4,804,886 4,806,386 1,594,063 1989 9/89
12,247 square
feet of
residential
and commercial
space in
Philadelphia,PA 16,787 101,703 118,490 36,614 (a) 2/90
------ ---------- ---------- ---------
$35,469 $10,562,083 $10,597,552 $3,676,865
====== ========== ========== =========
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
NOTES TO SCHEDULE XI
DECEMBER 31, 1998
(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, 1998, for Federal
income tax purposes was approximately $8,441,989 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:
1998 1997 1996
Balance at beginning of year $10,579,532 $10,556,005 $10,552,727
Additions during this year:
Improvements 18,020 23,527 3,278
---------- ---------- ----------
Balance at end of year $10,597,552 $10,579,532 $10,556,005
========== ========== ==========
Reconciliation of accumulated depreciation:
1998 1997 1996
Balance at beginning of year $3,250,162 $2,826,761 $2,405,790
Depreciation expense for the year 426,703 423,401 420,971
--------- --------- ---------
Balance at end of year $3,676,865 $3,250,162 $2,826,761
========= ========= =========
(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.
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
SWDHA, Inc. -- Partner in DoHA- No fixed term Since May 1997
VI
EPK, Inc. -- Partner in DoHA- No fixed term Since May 1997
VI
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 1998, 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
1998, 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 1998 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 1996 through
1998.
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, 1998
and 1997.
b. Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996.
c. Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1998, 1997 and 1996.
d. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996.
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 Number 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 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, 1998.
(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 26, 1999 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 26, 1999
------------------------ --------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi April 26, 1999
------------------------ --------------
MICHELE F. RUDOI,
Assistant Secretary
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,615
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<PP&E> 10,597,552
<DEPRECIATION> 3,676,865
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<CURRENT-LIABILITIES> 812,313
<BONDS> 3,488,821
0
0
<COMMON> 0
<OTHER-SE> 4,227,780
<TOTAL-LIABILITY-AND-EQUITY> 9,120,351
<SALES> 0
<TOTAL-REVENUES> 738,997
<CGS> 0
<TOTAL-COSTS> 405,012
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 343,902
<INCOME-PRETAX> (632,754)
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<INCOME-CONTINUING> (632,754)
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<EXTRAORDINARY> 0
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<NET-INCOME> (632,754)
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