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 September 30, 1999
------------------------
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
--------------------------------
DIVERSIFIED HISTORIC INVESTORS VII
- -------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2539694
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization
Identification No.)
1609 Walnut Street, Philadelphia, PA 19103
- ------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
N/A
- -------------------------------------------------------
(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 - September 30,
1999 (unaudited) and December 31, 1998
Consolidated Statements of Operations - Three
Months and Nine Months Ended September 30,
1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows - Nine
Months Ended September 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 September 30, 1999, Registrant had
cash of $5,029. 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 September 30, 1999, Registrant had
restricted cash of $80,882 consisting primarily of
funds held as security deposits, replacement reserves
and escrows for taxes and insurance. As a consequence
of the restrictions as to use, Registrant does not deem
these funds to be a source of liquidity.
In recent years the Registrant has
realized significant losses, including the foreclosure
of two properties. At the present time, with the
exception of Northern Liberty, the remaining properties
are able to generate enough cash flow to cover their
operating expenses and debt service, but there is no
additional cash available to the Registrant to pay its
general and administrative expenses.
It is the Registrant's intention to
continue to hold the properties until they can no
longer meet their debt service requirements and the
properties (or its interests therein) are foreclosed,
or the market value of the properties increases to a
point where they can be sold at a price which is
sufficient to repay the underlying indebtedness. With
respect to Northern Liberty, any development of the
remaining lot will require additional funding of
capital. The Registrant has not yet identified any
sources for this funding, and does not anticipate being
able to identify any such sources for the foreseeable
future.
(2) Capital Resources
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 third quarter of 1999,
Registrant incurred a net loss of $161,165 ($8.95 per
limited partnership unit) compared to a net loss of
$155,433 ($8.63 per limited partnership unit) for the
same period in 1998. For the first nine months of
1999, the Registrant incurred a net loss of $461,957
($25.64 per limited partnership unit) compared to a
loss of $456,371 ($25.33 per limited partnership unit)
for the same period in 1998.
Rental income decreased $6,026 from
$187,444 in the third quarter of 1998 to $181,418 in
the same period in 1999 and decreased $9,219 from
$555,439 for the first nine months of 1998 to $546,220
for the same period in 1999. The decreases for the
third quarter and the first nine months of 1999 from
the same periods in 1998 were due to a decrease in the
rental income at Flint Goodridge Apartments partially
offset by an increase at Robidoux. The decrease at
Flint Goodridge is due to a decrease in the average
occupancy (98% to 93%) for the third quarter and (97%
to 95%) for the nine months. The increase at Robidoux
is due to an increase in the average rental rates of
the apartment units.
Expenses for rental operations increased
by $2,718 from $98,939 in the third quarter of 1998 to
$101,657 in the same period in 1999 and decreased by
$8,551 from $288,937 for the first nine months of 1998
to $280,386 for the same period in 1999. The increase
for the first nine months of 1998 from the same period
in 1999 is due to an increase in the maintenance
expense at Flint Goodridge Apartments due to deferred
maintenance performed in the first nine months of 1998,
which did not recur in 1999.
Losses incurred during the third quarter
at the Registrant's properties amounted to $101,000,
compared to a loss of approximately $90,000 for the
same period in 1998. For the first nine months of 1999
the Registrant's properties recognized a loss of
$277,000 compared to a loss of approximately $276,000
for the same period in 1998.
In the third quarter of 1999, Registrant
incurred a loss of $58,000 at Flint Goodridge including
$51,000 of depreciation and amortization expense,
compared to a loss of $44,000, including $52,000 of
depreciation and amortization expense for the same
period in 1998. For the first nine months of 1999,
Registrant incurred a loss of $144,000 including
$154,000 of depreciation and amortization expense,
compared to a loss of $130,000, including $155,000 of
depreciation and amortization expense for the same
period in 1998. The increase in the loss from the
third quarter and the first nine months of 1998 to the
same periods in 1999 is mainly the result of a decrease
in rental income due to a decrease in the average
occupancy (98% to 93%) for the third quarter and (97%
to 95%) for the nine months partially offset by a
decrease in maintenance expense due to deferred
maintenance performed in 1998, which did not recur in
1999.
In the third quarter of 1999, Registrant
incurred a loss of $43,000 at Robidoux, including
$46,000 of depreciation and amortization expense,
compared to a loss of $46,000 including $44,000 of
depreciation and amortization expense in the third
quarter of 1998. For the first nine months of 1999,
Registrant incurred a loss of $133,000 including
$137,000 of depreciation and amortization expense,
compared to a loss of $146,000, including $133,000 of
depreciation and amortization expense for the same
period in 1998. The decrease in the losses from the
third quarter and the first nine months of 1998 to the
same periods in 1999 is due to an increase in rental
income due to an increase in the average rental rates
of the apartment units.
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 third quarter of 1999, the Bakery Apartments
incurred a loss of $37,000 including $66,000 of
depreciation and amortization expense compared to a
loss of $37,000 including $56,000 of depreciation and
amortization expense for the same period in 1998.
Although there was no overall change in the loss from
the third quarter of 1998 to the same period in 1999,
there was a decrease in rental income and an increase
in amortization expense partially offset by a decrease
in maintenance and interest expense. The decrease in
rental income and the decrease in maintenance expense
are due to a decrease in average occupancy (94% to
89%). Interest expense decreased due to a reduction in
the interest rate as a result of a refinancing of the
first mortgage in December of 1998. The increase in
amortization expense is due to the amortization of
additional loan costs incurred in connection with the
refinancing.
For the first nine months of 1999, the
Bakery Apartments incurred a loss of $72,000, including
$167,000 of depreciation and amortization expense
compared to a loss of $118,000, including $167,000 of
depreciation and amortization expense for the same
period in 1998. The decrease in the loss from the
first nine months of 1998 to the same period in 1999 is
due to a decrease in wages and salaries and interest
expense partially offset by an increase in maintenance
expense and a decrease in rental income. Wages and
salaries expense decreased due to the replacement of
employees with contracted security service. Interest
expense decreased due to a reduction in the interest
rate as a result of a refinancing of the first mortgage
in December of 1998. Maintenance expense increased due
to the painting and recarpeting of several apartment
units. The decrease in rental income is due to the
decrease in the average occupancy (93% to 90%).
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 third
quarter of 1999, Registrant incurred a loss of $6,000
compared to a loss of $10,000 for the same period of
1998. For the first nine months of 1999, Registrant
incurred a loss of $23,000 at Kensington Tower compared
to a loss of $20,000 for the same period of 1998. The
decrease in the loss from the third quarter of 1998 to
the same period in 1999 is due to an increase in rental
income due to an increase in the average rental rates
of the apartment units. The increase in the loss from
the first nine months of 1998 to the same period in
1999 is due an overall increase in the operating
expenses of the property.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS VII
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30, 1999 December 31, 1998
(Unaudited)
Rental properties, at cost:
Land $ 35,469 $ 35,469
Buildings and improvements 10,575,027 10,562,083
---------- ----------
10,610,496 10,597,552
Less-Accumulated depreciation (3,998,245) (3,676,865)
---------- ----------
6,612,251 6,920,687
Cash and cash equivalents 5,029 8,615
Restricted cash 80,882 116,295
Investment in affiliate 1,360,507 1,383,270
Other assets (net of amortization
of $112,004 and $108,361
at September 30, 1999
and December 31, 1998, 689,806 691,484
respectively)
---------- ----------
Total $ 8,748,475 $ 9,120,351
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 3,448,501 $ 3,488,821
Accounts payable:
Trade 926,765 812,312
Related parties 527,584 530,957
Interest payable 55,339 33,886
Tenant security deposits 25,797 26,595
---------- ----------
Total liabilities 4,983,986 4,892,571
---------- ----------
Minority interests 245,093 246,427
---------- ----------
Partners' equity 3,519,396 3,981,353
---------- ----------
Total $ 8,748,475 $ 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 Nine Months Ended September
30, 1999 and 1998
(Unaudited)
Three months Nine months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Revenues:
Rental income $181,418 $187,444 $546,220 $555,439
Other income 0 0 0 0
------- ------- ------- -------
Total Revenue 181,418 187,444 546,220 555,439
------- ------- ------- -------
Costs and expenses:
Rental operations 101,657 98,939 280,386 288,937
General and adminstrative 42,000 42,000 126,000 126,000
Interest 84,882 85,751 255,342 257,272
Depreciation and 108,340 107,094 325,020 321,281
amortization ------- ------- ------- -------
Total costs and expenses 336,879 333,784 986,748 993,490
------- ------- ------- -------
Loss before minority
interests and equity in (155,461) (146,340) (440,528) (438,051)
affiliate
Minority interests' 434 459 1,334 1,459
portion of loss
Equity in net loss of
affiliate (6,138) (9,552) (22,763) (19,779)
-------- ------- ------- -------
Net loss ($161,165) ($155,433) ($461,957) ($456,371)
======= ======= ======= =======
Net loss per limited
partnership unit:
Loss before minority
interests and equity in
affiliate ($ 8.64) ($ 8.12) ($ 24.45) ($ 24.31)
Minority interests .02 .02 .07 .08
Equity in net loss of
affiliate (.33) (.53) (1.26) (1.10)
------- ------ ------- -------
($ 8.95) ($ 8.63) ($ 25.64) ($ 25.33)
======= ====== ======= =======
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 Nine Months Ended September 30, 1999 and 1998
(Unaudited)
Nine months ended
September 30,
1999 1998
Cash flows from operating activities:
Net loss ($461,957) ($456,371)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 325,020 321,281
Equity in loss of affiliate 22,763 19,779
Changes in assets and liabilities:
Decrease (increase) in restricted cash 35,413 (67,116)
Increase in other assets (1,961) (647)
Increase in accounts payable - trade 114,452 109,607
(Decrease) increase in accounts
payable related parties (3,373) 84,500
Increase (decrease) in interest 21,453 (4,167)
payable
Decrease in tenant security deposits (798) (3,003)
Decrease in other liabilities 0 0
------- -------
Net cash provided by operating 51,012 3,863
activities ------- -------
Cash flows from investing activities:
Capital expenditures (12,944) (16,394)
------- -------
Net cash used in investing activities (12,944) (16,394)
------- -------
Cash flows from financing activities:
Principal payments (40,320) (65,645)
Minority interest (1,334) (1,459)
------- -------
Net cash used in financing activities (41,654) (67,104)
------- -------
Decrease in cash and cash equivalents (3,586) (79,635)
------- -------
Cash and cash equivalents at beginning 8,615 92,375
of period
------- -------
Cash and cash equivalents at end of $ 5,029 $ 12,740
period ======= =======
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 September 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: December 21, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,029
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,610,496
<DEPRECIATION> 3,998,245
<TOTAL-ASSETS> 8,748,475
<CURRENT-LIABILITIES> 926,765
<BONDS> 3,448,501
0
0
<COMMON> 0
<OTHER-SE> 3,519,396
<TOTAL-LIABILITY-AND-EQUITY> 8,748,475
<SALES> 0
<TOTAL-REVENUES> 546,220
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 280,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255,342
<INCOME-PRETAX> (461,957)
<INCOME-TAX> 0
<INCOME-CONTINUING> (461,957)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (461,957)
<EPS-BASIC> 0
<EPS-DILUTED> (25.64)
</TABLE>
