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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, 1995
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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 ______________________
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.)
SUITE 500, 1521 LOCUST STREET, PHILADELPHIA, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 735-5001
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: 17,839 Units
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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 ___ No _X_
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*
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* Securities not quoted in any trading market to Registrant's knowledge.
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors VII ("Registrant") is a
limited partnership formed in 1988 under the Pennsylvania Uniform Limited
Partnership Act. As of December 31, 1995, 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.
The following is a summary of significant transactions
involving the Registrant's interests:
In February 1990, Registrant acquired a 99% general
partnership interest in Northern Liberty Development Associates ("NLDA"), a
Pennsylvania limited partnership which owned approximately 250,000 square feet
("sf") of undeveloped property in the Northern Liberties section of
Philadelphia, Pennsylvania. The property was acquired during the active historic
rental residential period in downtown Philadelphia and was programmed to be
rehabilitated as historically-certified, market rate residences; this use was in
keeping with the redevelopment and gentrification of the Northern Liberties
section of Philadelphia. Due to the significant downturn in many sections of the
country in the urban real estate market for luxury housing, the original
development plan was reconsidered. The Registrant explored various alternatives
including the development of the property for light industrial use or artists'
loft space. However, these projects were determined to be economically
infeasible due to the deteriorating physical condition of the property. During
1994, the Registrant was contacted by a local neighborhood group that was
interested in developing the property in a way that would rehabilitate the
existing historic structure. The Registrant entered into negotiations with the
group and in December 1994, the Registrant donated to the neighborhood group all
but a 12,247 sf vacant lot. At the time of the donation, there was no
outstanding debt on the property.
In 1990, the Registrant acquired a 19% minority interest for
$550,000 in Mass & L Street Associates ("Mass & L"), a general partnership which
owned a hotel called the Morrison Clark Inn. As a result of insufficient cash
flow, Mass & L was unable to meet scheduled debt service payments. In May 1992,
in order to forestall the threatened foreclosure by the lender, a reorganization
petition was filed pursuant to Chapter 11 of the U.S. Bankruptcy Code. In
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February 1993, a party holding a mortgage on the property, with permission of
the bankruptcy court, foreclosed on the property.
On March 1, 1993, Shriver Square Joint Venture ("SSJV"), a
general partnership in which the Registrant owns a 98% interest, filed a
reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. SSJV
filed a Plan of Reorganization and an Amended Plan of Reorganization (the
"Amended Plan"). The Amended Plan, with some minor changes, was confirmed on
October 15, 1993. See Item 2.c. Properties for a description of the Amended
Plan. Due to insufficient cash flow generated by the property, SSJV ceased
making debt service payments in January 1995. The loan was declared in default
by the lender and, on March 30, 1995, the deed to the property, which was held
in escrow pursuant to the Amended Plan, was delivered to the first mortgage
holder.
On August 14, 1992, Commercial Federal Realty Investors
Corporation ("CFRIC"), the owner of a 2% interest in the Hill Hotel Apartments
Joint Venture ("HHAJV") (the partnership which owns Kensington Tower) filed an
action in the District Court of Douglas County, Nebraska seeking damages of
$225,000 plus interest alleged to be due under the terms of various agreements
between parties which were executed in connection with the establishment of the
joint venture. The Registrant denied liability and filed a counterclaim seeking
declaratory judgment and money damages for breach of contract and breach of
fiduciary duty. On June 1, 1993, a settlement agreement was reached and an
Amended and Restated Joint Venture Agreement was reached whereby the Registrant
was entitled to retain all funds held in escrow ($275,000) pursuant to the
original joint venture agreement. In return, CFRIC agreed to convert $1,319,000
in amounts owed to it by HHAJV to a capital contribution, (increasing its
ownership in HHAJV to 70%) and will receive 100% of future income, losses and
tax credits for tax purposes until such time as it recovers $319,000 of the
capital contribution, any advances it must make on behalf of the property in the
form of loan reduction and cash flow shortfalls (with interest at 10%), and any
amounts resulting from any recapture of tax credits. Thereafter, future income
and losses for both book and tax purposes will be allocated 70% to CFRIC and 30%
to the Registrant.
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.
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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, 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 which qualify for, have received, and will
continue to receive, the Low Income Tax Credits. Four properties currently held
by the Registrant are held for rental operations and one property's final use
has not yet been determined. At this time it is anticipated that all the
properties, except the undeveloped property, will continue to be held for this
purpose. 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, 1995, 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, 1995, 147 apartment units were under lease at monthly rental
rates ranging from $195 to $541. 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 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 December 31, 1995, Registrant owned controlling interests
in three 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.
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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, 1995 was $2,280,454. 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, 1995, 92 units were
under lease (99%) with monthly rents ranging from $390 to $541. All leases are
renewable, one-year leases. The occupancy rate has been 96% for 1994, 96% for
1993, 92% for 1992, and 98% for 1991. The monthly rental range has been
approximately the same since 1991. 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
$2,953 which is based on an assessed value of $18,300 taxed at a rate of $161.37
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 note payable of $1,450,000, a Community
Development Block Grant ("CDBG") loan of $74,000 (principal balance at December
31, 1995 of $35,455), and a CDBG grant of $38,500. The construction loan's
maturity was first extended from November 30, 1992 to May 15, 1993, by reducing
the principal balance by $200,000 and then extended again until September 15,
1994 by reducing the principal balance by $200,000, payable $100,000 on June 17,
1993, $50,000 on September 14, 1993 and $50,000 on March 15, 1994. The loan was
further extended to March 15, 1995 by paying an extension fee equal to one-half
(1/2) percent of the principal balance and again until June 15, 1995. On October
30, 1995, the construction loan was repaid with two new loans, one for $850,000
(principal balance of $847,273 at December 31, 1995) and the other for $200,000
(principal balance of $198,058 at December 31, 1995.) 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. The second loan bears
interest at 8.75% and was due in March 1996. This note 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 amounts repaid on the construction loan from the
period November 1992 to June 1995 were funded by a line of credit extended by
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another lender ($497,108 and $400,025 principal outstanding at December 31, 1995
and 1994, respectively) which bears interest at prime plus 1% (9 1/2% at
December 31, 1995 and 1994) and is due July 2000. The CDBG loan bears interest
at 1% and both principal and interest are payable monthly until September 2000.
The property is managed by a property management firm which is an affiliate of
the Registrant's co-general partner of RRJV. As of December 31, 1995, 55 of the
60 apartment units were under lease (92%), with monthly rents ranging from $195
to $350. All leases are renewable, one-year leases. The occupancy rate has been
87% for 1994, 97% for 1993, 93% for 1992, and 100% for 1991. The monthly rental
range has been approximately the same since 1991. For tax purposes, this
property has a federal tax basis of $4,314,347, and is depreciated using the
straight-line method of depreciation with a useful life of 27.5 years. The
annual real estate taxes are $1,115 which is based on an assessed value of
$13,840 taxed at a rate of $80.56 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 Peter Street in New Orleans, Louisiana. In March 1991, 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 the same
Louisiana general partnership for an aggregate cash contribution of $1,400,000.
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 (principal balance of $3,050,603 at December 31, 1995) and the other
for $201,500 (principal balance of $193,864 at December 31, 1995). The first
loan bears interest at 8.25%, with monthly principal and interest payments based
on a 30 year amortization schedule and is due in 1999. The second loan is from
the general partner of BAGP and has the same terms as the first loan. In March
1991, a $175,000 collateral mortgage note (principal balance of $152,385 at
December 31, 1995) 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,
1995, 68 units are under lease (100%) with monthly rents ranging from $460 to
$2,065. All leases are renewable, one year leases. The occupancy rates have been
93% for 1994, 92% for 1993, 93% for 1992 and 29% for 1991. The monthly rental
range has been approximately the same since 1991. For tax purposes, this
property has a federal tax basis of $3,348,205, and is depreciated using the
straight-line method of depreciation with a useful life of 27.5 years. The
annual real estate taxes are $11,708 which is based on an assessed value of
$65,700 taxed at a rate of $17.82 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.
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d. Kensington Tower ("Hill Hotel")- consists of a 65 unit low
income housing facility and 3,550 sf 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, 1995 of $600,000), a $500,000
Tax Increment Financing ("TIF") Loan (principal balance at December 31, 1995 of
$252,641) 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 $615,125 at
December 31, 1995), 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. See Item 1.a. for additional information
The property is managed by an independent property management firm. As of
December 31, 1995, 61 units are under lease (94%) with monthly rents ranging
from $300 to $445. All leases are renewable, one-year leases. The occupancy
rates have been 89% for 1994, 92% for 1993, 89% for 1992, and 85% for 1991. The
monthly rental range has been approximately the same since 1991. 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 $55,283 which is based on an
assessed value of $2,045,900 taxed at a rate of $27.02 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
On March 1, 1993, Shriver Square Joint Venture filed a
reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. SSJV
filed a Plan of Reorganization and an Amended Plan of Reorganization (the
"Amended Plan"). The Amended Plan, with some minor changes, was confirmed on
October 15, 1993. Due to insufficient cash flow generated by the property, SSJV
ceased making debt service payments in January 1995. The loan was declared in
default by the lender and on March 30, 1995, the deed to the property, which was
held in escrow pursuant to the Amended Plan, was delivered to the first mortgage
holder.
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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 125 units
of record were sold or exchanged in 1995.
b. As of December 31, 1995, there were 1,715 record holders of
Units.
c. Registrant has not declared any cash dividends in 1995 or
1994.
Item 6. Selected Financial Data
The following selected financial data are for the five years
ended December 31, 1995. 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.
1995 1994 1993 1992 1991
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Rental income $ 829,061 $ 1,271,400 $ 1,323,950 $ 1,135,053 $ 1,013,926
Interest income 1,591 1,851 16,010 42,911 83,521
Net loss 1,482,456 3,783,580 1,982,140 1,341,756 1,204,451
Net loss per Unit 82.28 209.97 110.00 74.46 66.84
Total assets (net of
depreciation and
amortization) 10,194,943 15,894,832 19,711,424 24,851,148 25,612,785
Debt obligations 3,858,348 7,184,570 7,197,834 9,087,050 8,871,152
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, 1995 Registrant had total unrestricted
cash of $29,942. 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
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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, 1995, Registrant had restricted cash of
$87,909 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.
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 the 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.
The legal proceedings in which the Registrant has been
involved over the last several years has 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
Due to the relatively recent rehabilitations of the
properties, any capital expenditures needed are generally replacement items and
are funded out of cash from operations or replacement reserves, if any. The
Registrant is not aware of any factors which would cause historical capital
expenditure levels not to be indicative of capital requirements in the future,
and accordingly, does not believe that it will have to commit material resources
to capital investment for the foreseeable future.
(3) Results of Operations
During 1995, the Registrant incurred a net loss of
$1,482,456 ($82.28 per limited partnership unit), compared to a net loss of
$3,783,580 ($209.97 per limited partnership unit) in 1994, and a net loss of
$1,982,140 ($110.00 per limited partnership unit) in 1993. Included in the 1994
loss is $2,830,664 of extraordinary loss relating to the donation of the
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property owned by Northern Liberty Development Associates. Included in the loss
for 1995 is $697,082 of extraordinary loss relating to the foreclosure of
Shriver Square.
Rental income decreased from $1,323,950 in 1993 to
$1,271,400 in 1994 and to $829,061 in 1995. The decrease from 1994 to 1995 is
mainly due to the foreclosure of Shriver Square on March 30, 1995. In addition,
rental income increased at Flint Goodridge due to an increase in average
occupancy at the property and rental income decreased at Robidoux due to a
gradual decrease in rents charged by the property. The decrease from 1993 to
1994 is mainly the result of the change in the accounting method as a result of
the change in ownership used for one of the properties (Hill Hotel) partially
offset by an increase in rental income at Shriver Square due to an increase in
average occupancy.
During 1993, substantial cash balances were held in interest
bearing accounts prior to being used for their intended purposes. As a result of
a decrease in cash, interest income declined from $16,010 in 1993 to $1,851 in
1994 to $1,591 in 1995.
Other income of $100,000 in 1993 resulted from an
extinguishment of debt under the loan agreement between Shriver Square Joint
Venture and the City of Sioux Falls in which $100,000 of the loan was released
upon attainment of leases for 67 percent of net square footage.
This percentage was achieved in February 1993.
Operating expenses decreased from $1,017,118 in 1993 to
$650,715 in 1994 to $475,921 in 1995. The decrease from 1994 to 1995 is mainly
due to the foreclosure of Shriver Square on March 30, 1995, as well as an
overall decrease in rental operations expense at Flint Goodridge. Rental
operations expense decreased due to a decrease in maintenance expense as a
result of a reduction in security services, offset by an increase in wages and
salaries expense (which was due to employees receiving cost of living pay
increases as well as higher health and property insurance premiums). The
decrease from 1993 to 1994 is primarily due to the legal fees incurred ($285,000
and $3,800 in 1993 and 1994 respectively) in connection with the Shriver Square
bankruptcy, as well as a decrease in operating expenses from 1993 to 1994 of
$84,000, resulting from the change in accounting methods as a result of a change
in the ownership at one of the properties (Hill Hotel).
General and administrative expenses decreased from $255,444
in 1993 to $168,000 in 1994 and $168,000 in 1995. The decrease from 1993 to 1994
resulted from legal fees incurred in 1993 in connection with the litigation and
subsequent settlement agreement involving the Hill Hotel Apartments Joint
Venture.
Interest expense decreased from $690,060 in 1993 to $625,778
in 1994 and $437,942 in 1995. The decrease from 1994 to 1995 is due to the
foreclosure of Shriver Square. In addition, at Flint Goodridge, interest
decreased due to an audit adjustment made in 1994 to accrue interest on a note
which was in prior years deemed to be non-interest bearing and an increase at
Robidoux due to the refinancing of the construction loan. The decrease from 1993
to 1994 is due to a decrease in the interest rate on the loans at Shriver Square
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partially offset by an increase in the interest rate on one of the loans at the
Robidoux as prime rate increased.
Depreciation and amortization decreased from $829,726 in
1993 to $733,184 in 1994 and $494,626 in 1995. The decrease from 1994 to 1995 is
due to the foreclosure on Shriver Square. The decrease from 1993 to 1994 is due
to the foreclosure of Mass & L Street Associates in February 1993.
During the year, losses of $710,180 were incurred at
Registrant's Properties compared to $627,232 in 1994 and $1,057,358 in 1993. A
discussion of property operations/activities follows:
In 1995, Registrant sustained a loss of $154,622 at
Flint-Goodridge including $212,662 of depreciation and amortization expense
compared to a loss of $209,093 including $226,977 of depreciation and
amortization expense in 1994 and a loss of $194,351 including $220,488 of
depreciation and amortization expense in 1993. 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 decrease in the loss from 1995 to 1994 is due to an
increase in rental income, a decrease in interest and maintenance expense,
partially offset by an increase in insurance and wage expense. Rental income
increased due to higher occupancy levels during the year and interest decreased
due to an audit adjustment made in 1994 to accrue interest on a note which was
in prior years deemed to be non-interest bearing. Maintenance expense decreased
as a result of a reduction in security services, and the increased wages expense
is due to the fact that employees received cost of living pay increases. Higher
health and property insurance premiums were experienced at the property. The
decrease in the loss for 1994 from 1993 results from a continuing effort to
decrease discretionary operating expenses. The Registrant continues to work with
the property manager to promote the further reduction of discretionary operating
expenses. The Registrant expects to achieve in 1996 results comparable to those
experienced in 1995.
In 1995, Registrant incurred a loss of $210,807 at Robidoux
including $172,674 of depreciation and amortization expense compared to a loss
of $156,901 including $172,553 of depreciation and amortization expense in 1994
and a loss of $145,890 including $172,444 of depreciation and amortization
expense in 1993. 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 1995 to 1994 is due to the fact that
rental income decreased combined with an increase in interest expense. Rental
income decreased as a result of a turnover from higher rental rate tenants to
lower rental rate tenants. The increase in interest expense is due to the
refinancing of the construction loan. The increase in the loss for 1994 from
1993 is the result of increases in the interest rate on one of the loans as
prime rate increased. The Registrant expects that this property will achieve
operating results in 1996 similar to those experienced in 1995.
-11-
In 1995, Registrant incurred a loss of $344,751 at Shriver
Square including $61,418 of depreciation and amortization expense compared to a
loss of $261,238 including $245,672 of depreciation and amortization expense in
1994 and a loss of $582,138 including $233,272 of depreciation and amortization
expense in 1993. The 1995 loss without effect of the foreclosure would have been
$147,036. The increase in the loss from 1994 to 1995 results mainly from the
loss of the property on March 30, 1995 and an increase of legal fees associated
with the foreclosure of the property. Included in operations from 1995 is an
extraordinary loss of $197,715, representing the difference between the fair
market value of the assets and the liabilities satisfied. The decrease in the
loss from 1993 to 1994 is the result of an increase in rental income, and a
decrease in other income, interest expense and legal fees. Rental income
increased due to higher average occupancy. Other income decreased due to the
income recognized in 1993 related to the Grant of Easement loan. Interest
expense decreased due to the reduction in the interest rate as a part of the
Amended Plan. Legal fees decreased due to fees incurred in 1993 in connection
with the bankruptcy.
In 1994, the Registrant was contacted by a local
neighborhood that was interested in developing the property owned by Northern
Liberty Development Associates ("NLDA") in a way that would rehabilitate the
existing historic structure. The Registrant entered into negotiations with the
group and in December 1994, the Registrant donated to the neighborhood group all
but a 12,247 sf vacant lot. At the time of the donation, there was no
outstanding debt on the property. Included in operations for 1994 is an
extraordinary loss of $2,830,664 relating to the donation of 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 the
consolidated financial statements. The following operating information is
provided for the property. In 1995, the Bakery Apartments incurred a loss of
$179,963 including $252,389 of depreciation and amortization expense compared to
a loss of $200,761 including $252,218 of depreciation and amortization expense
in 1994 compared to a loss of $180,072 including $246,635 of depreciation and
amortization expense in 1993. The Registrant expects that full occupancy and
positive cash flow will continue throughout 1996.
In 1995, Registrant incurred a loss of $42,981 compared to a
loss of $51,071 in 1994, and a loss of $134,979 in 1993. For the first five
months of 1993 and prior years, Kensington Tower was treated as a consolidated
subsidiary. This results in a loss of $95,056 for the five months ended May
1993. Pursuant to the June 1, 1993 settlement agreement, the Registrant's
ownership interest was reduced to 30%. From that time forward, the investment is
accounted for by the equity method. The Registrant recognized a loss on the
investment of $39,923 from June through December 1993. The Registrant expects to
achieve in 1996 results comparable to those experienced in 1995.
-12-
Effective January 1, 1995, the Partnership adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long - Lived Assets and for Long - Lived
Assets to be Disposed Of." There was no cumulative effect of the adoption of
SFAS No. 121.
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.
-13-
Independent Auditor's Report
To the Partners of
Diversified Historic Investors VII
We have audited the accompanying consolidated balance sheets of Diversified
Historic Investors VII (a Pennsylvania Limited Partnership) and subsidiaries as
of December 31, 1995 and 1994 and the related statements of operations, changes
in partners' equity and cash flows for the years ended December 31, 1995, 1994
and 1993. These consolidated statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Flint Goodridge General Partnership, which statements
reflect total assets of $4,096,553 and $4,278,602 as of December 31, 1995 and
1994, respectively, and total revenues of $514,172 and $503,393, respectively
for the years then ended. In addition, we did not audit the financial statements
of The Bakery Apartments Limited Partnership, which statements reflect total
assets of $4,137,829 and $4,378,350 as of December 31, 1995 and 1994
respectively, and total revenues of $640,781 and $602,641 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 and The Bakery Apartments
Limited Partnership, is based solely on the reports of the other auditors.
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 and the report of other auditors provide 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, 1995 and 1994, and the results of their operations and their
cash flows for the years ended December 31, 1995, 1994 and 1993 in conformity
with generally accepted accounting principles.
-14-
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 33 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
Philadelphia, Pennsylvania
February 21, 1996
-15-
Independent Auditor's Report
To the Partners of
Flint Goodridge General Partnership
New Orleans, Louisiana:
We have audited the accompanying balance sheets of HUD Project No. 064-35269-PM
of the Flint Goodridge General Partnership, as of December 31, 1995 and the
related statements of profit and loss, changes in partners' equity and cash
flows for the year 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 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 and the report of other auditors
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, 1995, and the
results of its operations, changes in partners' equity, and its cash flows for
the year 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 8, 1996, on our
consideration of Flint Goodridge General Partnership's internal control
structure and reports dated February 8, 1996, on its compliance with specific
requirements applicable to major HUD programs.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information shown on pages 18 to 26 is presented for purposes of additional
analysis and is not a required part of the basic financial statements of the
Partnership. 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.
Pailet, Meurier and LeBlanc, L.L.P.
Metairie, Louisiana
February 8, 1996
-16-
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, 1995 and 1994 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 audits.
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, 1995 and 1994 and the results of its operations
and its cash flows for the yeas then ended in conformity with generally accepted
accounting principles.
Pailet, Meurier and LeBlanc, L.L.P.
Metairie, Louisiana
February 7, 1996
-17-
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, 1995 and 1994 19
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994, and 1993 20
Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1995, 1994, and 1993 21
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 22
Notes to consolidated financial statements 23-31
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 33
Notes to Schedule XI 34
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
-18-
DIVERSIFIED HISTORIC INVESTORS VII
----------------------------------
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31, 1995 and 1994
Assets
------
1995 1994
------------ ------------
Rental properties at cost:
Land $ 35,469 $ 113,229
Buildings and improvements 10,517,258 16,713,680
------------ ------------
10,552,727 16,826,909
Less - accumulated depreciation (2,405,790) (3,007,245)
------------ ------------
8,146,937 13,819,664
Cash and cash equivalents 29,942 12,909
Restricted cash 87,909 81,050
Investment in affiliate 1,492,779 1,535,760
Other assets (net of accumulated
amortization of $92,912 and $125,424) 437,376 445,449
------------ ------------
Total $ 10,194,943 $ 15,894,832
============ ============
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Debt obligations $ 3,858,348 $ 7,184,570
Accounts payable:
Trade 380,863 568,991
Related parties 105,369 790,420
Interest payable 53,122 68,771
Tenant security deposits 23,753 24,925
------------ ------------
Total liabilities 4,421,455 8,637,677
------------ ------------
Minority interests 252,148 253,359
------------ ------------
Partners' equity 5,521,340 7,003,796
------------ ------------
Total $ 10,194,943 $ 15,894,832
============ ============
The accompanying notes are an integral part of these financial statements.
-19-
DIVERSIFIED HISTORIC INVESTORS VII
----------------------------------
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
----------- ---------- ----------
Revenues:
Rental income $ 829,061 $ 1,271,400 $ 1,323,950
Interest income 1,591 1,851 16,010
Other income -0- -0- 100,000
----------- ----------- -----------
Total revenues 830,652 1,273,251 1,439,960
----------- ----------- -----------
Costs and expenses:
Rental operations 475,921 650,715 1,017,118
General and administrative 168,000 168,000 255,444
Interest 437,942 625,778 690,060
Depreciation and amortization 494,626 733,184 829,726
----------- ----------- -----------
Total costs and expenses 1,576,489 2,177,677 2,792,348
----------- ----------- -----------
Loss before minority interests and
equity in affiliate (745,837) (904,426) (1,352,388)
Minority interests' portion of loss 3,444 2,581 3,694
Equity in net loss of affiliate (42,981) (51,071) (39,923)
----------- ----------- -----------
Loss before extraordinary item (785,374) (952,916) (1,388,617)
Extraordinary loss (697,082) (2,830,664) (593,523)
----------- ----------- -----------
Net loss ($1,482,456) ($3,783,580) ($1,982,140)
=========== =========== ===========
Net loss per limited partnership unit:
Loss before minority interests and
equity in affiliate ($ 41.39) ($ 50.19) ($ 75.05)
Minority interests .19 .14 .21
Equity in net loss of affiliate (2.39) (2.83) (2.22)
----------- ----------- -----------
Loss before extraordinary item (43.59) (52.88) (77.06)
Extraordinary item (38.68) (157.09) (32.94)
----------- ----------- -----------
($ 82.28) ($ 209.97) ($ 110.00)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-20-
DIVERSIFIED HISTORIC INVESTORS VII
----------------------------------
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
------------------------------------------------------
For the Years Ended December 31, 1995, 1994 and 1993
Dover
Historic
Advisors Limited
VII (1) Partners (2) Total
------------ ------------ ------------
Percentage participation in
profit or loss 1% 99% 100%
============ ============ ============
Balance at December 31, 1992 $ 538,565 $ 12,231,316 $ 12,769,881
Distributions to partners (365) -0- (365)
Net loss (19,821) (1,962,319) (1,982,140)
------------ ------------ ------------
Balance at December 31, 1993 518,379 10,268,997 10,787,376
Net loss (34,336) (3,399,250) (3,783,580)
------------ ------------ ------------
Balance at December 31, 1994 484,043 6,869,747 7,003,796
Net loss (14,824) (1,467,632) (1,482,456)
------------ ------------ ------------
Balance at December 31, 1995 $ 469,219 $ 5,402,115 $ 5,521,340
============ ============ ============
(1) General Partner.
(2) 17,839 limited partnership units outstanding at December 31, 1995, 1994,
and 1993.
The accompanying notes are an integral part of these financial statements.
-21-
DIVERSIFIED HISTORIC INVESTORS VII
----------------------------------
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
-------- -------- --------
Cash flows from operating activities:
Net loss ($1,482,456)($3,783,580)($1,982,140)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 494,626 733,184 829,726
Extraordinary loss 697,082 2,830,664 593,523
Equity in loss of affiliate 42,981 51,071 39,923
Changes in assets and liabilities:
(Increase) decrease in restricted cash (9,743) (48,031) 3,083
(Increase) decrease in other assets (2,831) 17,292 164,487
Increase (decrease) in accounts
payable - trad 233,399 (4,435) 76,366
(Decrease ) increase in accounts
payable - related parties (59,456) (35,946) 28,502
Increase (decrease) in interest payable 46,618 19,385 (46,128)
Increase (decrease) tenant security
deposits 1,952 135 (850)
----------- ----------- -----------
Net cash used in operating activities (37,828) (220,261) (293,508)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of rental property and
improvements (12,270) (67,615) (272,096)
Investment in affiliate -0- -0- 225,000
----------- ----------- -----------
Net cash used in investing activities (12,270) (67,615) (47,096)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt financing 295,142 65,926 112,558
Principal payments (224,567) (79,190) (40,353)
Distributions to partners -0- -0- (365)
Minority interest (3,444) (2,581) (3,694)
----------- ----------- -----------
Net cash provided by (used in) financing 67,131 (15,845) 68,146
----------- ----------- -----------
activities
Net increase (decrease) in cash and cash 17,033 (303,721) (272,458)
----------- ----------- -----------
equivalents
Cash and cash equivalents at beginning
of year 12,909 316,630 589,088
----------- ----------- -----------
Cash and cash equivalents at end of year $ 29,942 $ 12,909 $ 316,630
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-22-
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 (a general partnership whose partners are
Mr. Gerald Katzoff and Dover Historic Advisors, Inc.) 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
four 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).
-23-
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
1995, 1994, and 1993).
4. Cash and Cash Equivalents
The Company 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
-24-
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, 1995.
10. New Accounting Pronouncement
Effective January 1, 1995, the Partnership adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long - Lived Assets and for Long - Lived Assets to be Disposed
Of." There was no cumulative effect of the adoption of SFAS No. 121.
NOTE C - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Partnership made cash payments of interest in the amounts of $426,051,
$602,291, and $744,645 in 1995, 1994 and 1993, respectively. During 1993, the
Partnership reached a settlement agreement with one of its joint venture
partners (see Note H - Commitments and Contingencies). Pursuant to this
agreement, the Partnership changed its method accounting for one affiliate from
consolidation to the equity method. The effect of this transaction, which is
excluded from the consolidated statement of cash flows, follows:
Decrease in assets $5,231,508
Decrease in liabilities (3,379,754)
----------
Increase in investment in affiliate $1,851,754
==========
During 1993, a party holding a mortgage on the property located in Washington,
D.C., foreclosed on the property. The extraordinary loss of $593,523 associated
with this transaction represents the loss on the investment in the partnership
which owned the property.
On March 30, 1995, a party holding a mortgage on the property located in South
Dakota foreclosed on the property. The extraordinary loss of $197,715 associated
with this transaction represents the loss on the investment in the partnership
which owned the property.
NOTE D - 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.
-25-
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 E - 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 have been capitalized as part of
the building and improvements. These capitalized costs have been removed from
the balance sheet (see NOTE C - SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION). 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 have been 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.
-26-
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 sf vacant lot.
In September 1990, the Partnership purchased 19% interest of 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 of a Pennsylvania
general partnership which owns a building located in Louisiana, consisting of 68
units, for $300,000.
NOTE F - DEBT OBLIGATIONS
Debt obligations are as follows:
December 31,
------------
1995 1994
---- ----
Mortgage payable, interest at 10%; payable $2,280,454 $2,301,097
in monthly 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 847,273 1,043,812
payments of $7,648 due monthly; with maturity at
October 2005.(A)
Note payable, interest at 8.75%; equal monthly 198,058 -0-
installments of $50,000 beginning December 15, 1995;
with balance of principal and accrued interest due
March 1996. (A)
Note payable, interest only at prime plus 1% 497,108 400,025
(effective rate of 9.5% at December 31, 1995 and 1994,
respectively); payable in monthly payments of principal
of $5,300 and interest; remaining principal balance due
July 2000.
-27-
Note payable, interest at 1%; principal and interest 35,455 42,839
payments of $648 due monthly; remaining principal due
September 2000.
Note payable, interest only at 8%, payable monthly; -0- 2,757,128
remaining principal balance due June 2000. (B)
Note payable, interest only at 8% payable monthly; -0- 476,012
remaining principal balance due June 2000. (B)
Subordinated note payable, non interest-bearing; 50% -0- 100,000
deemed released upon attainment of executed leases to
occupy 39,195 square feet; balance due upon sale or
refinance of property. (B)
Note payable, interest at 7%; entire principal balance
and accrued interest payable on the earlier of (1)
repayment in full of the current and all future
indebtedness to the first mortgage holder, or (2) January
2002; collateralized by related rental property. (B) -0- 63,657
---------- ----------
$3,858,348 $7,184,570
========== ==========
(A) On October 30, 1995, the construction loan was repaid with two new
loans, one for $850,000 (principal balance of $847,273 at December 31,
1995) and the other for $200,000 (principal balance of $198,058 at
December 31, 1995).
(B) On March 1, 1993, Shriver Square Joint Venture ("SSJV"), a general
partnership in which the Registrant owns a 98% interest, filed a
reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy
Code. SSJV filed a Plan of Reorganization and an Amended Plan of
Reorganization (the "Amended Plan"). The Amended Plan, with some minor
changes, was confirmed on October 15, 1993. Due to insufficient cash
flow generated by the property, SSJV ceased making debt service payments
in January 1995. The loan was declared in default by the lender and on
March 30, 1995, the deed to the property, which was held in escrow
pursuant to the Amended Plan, was delivered to the first mortgage
holder.
Maturities of debt obligations at December 31, 1995, are as follows:
Year Ending December 31,
------------------------
1996 $ 283,322
1997 98,553
1998 112,769
1999 133,418
2000 340,666
Thereafter 2,889,620
----------
$3,858,348
==========
-28-
NOTE G - OTHER INCOME
Other income in 1993 consists of $100,000 which resulted from the attainment of
executed leases to occupy 39,195 square feet, at which time the debt was
released.
NOTE H - RELATED PARTY TRANSACTIONS
Included in Accounts Payable - Related Party is $55,674 and $115,545 at December
31, 1995 and 1994, 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 $49,695 and $49,803 at December
31, 1995 and 1994, 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.
NOTE I - COMMITMENTS AND CONTINGENCIES
In May 1992, one partnership in which the Partnership holds a minority interest
filed a reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy
Code. In February 1993, a party holding a mortgage on the property, with
permission of the bankruptcy court, foreclosed on the property. The Partnership
recognized an extraordinary loss of $593,523 on its investment in the
partnership.
On August 14, 1992, Commercial Federal Realty Investors Corporation ("CFRIC"),
the owner of a 2% interest in the Hill Hotel Apartments Joint Venture ("HHAJV"),
filed an action seeking damages of $225,000 plus interest alleged to be due
under the terms of various agreements between parties which were executed in
connection with the established of the Joint Venture. The Partnership denied
liability and filed a counterclaim seeking declaratory judgment and money
damages for breach of contract and breach of fiduciary duty. On June 1, 1993, a
settlement agreement was reached and an Amended and Restated Joint Venture
Agreement was signed whereby the Partnership was entitled to retain all funds
held in escrow ($225,000) pursuant to the original joint venture agreement. In
return, CFRIC agreed to convert $1,319,000 in amounts owned to it by HHAJV to a
capital contribution, (increasing its ownership in HHAJV to 70%) and will
receive 100% of future income, losses, and tax credits for tax purposes until
such time as it recovers $319,000 of the capital contribution, any advances it
must make on behalf of the property in the form of loan reduction and cash flow
shortfalls (with interest at 10%), and any amounts resulting from any recapture
of tax credits. Thereafter future income and losses for both book and tax
purposes will be allocated 70% to CFRIC and 30% to the Partnership. This change
in ownership also results in a change in the method in which the investment is
accounted for. For the first five months of 1993 and prior years, HHAJV is
treated as a consolidated subsidiary. As of June 1, 1993, the Partnership's
interest in HHAJV is treated as an equity investment.
-29-
In 1994, the Registrant was contacted by a local neighborhood group that was
interested in developing the property located in the Northern Liberties section
of Philadelphia, Pennsylvania in a way that would rehabilitate the existing
historic structure. The Registrant entered into negotiations with the group and
in December 1994, the Registrant donated to the neighborhood group all but a
12,247 sf vacant lot. At the time of the donation, there was no outstanding debt
on the property.
On March 1, 1993, Shriver Square Joint Venture ("SSJV") filed a reorganization
petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. On September 10,
1993, SSJV filed the Third Amended Plan of Reorganization (the "Plan"). The Plan
was confirmed in October 1993. Due to insufficient cash flow generated by the
property, SSJV ceased making debt service payments in January 1995. The loan was
declared in default by the lender and on March 30, 1995, the deed to the
property, which was held in escrow pursuant to the Amended Plan, was delivered
to the first mortgage holder. The Partnership recognized an extraordinary loss
of $697,082 in 1995 for the difference between the book value of the property
(which approximated fair value) and the extinguished debt.
-30-
NOTE J - 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,
--------------------------------
1995 1994 1993
---- ---- ----
Net loss - book ($1,482,456) ($3,783,580) ($ 1,982,140)
Legal fees -0- (312,280) -0-
Loss on foreclosure 1,865,551 349,994 -0-
Other timing differences (22,453) (50,366) (38,279)
Minority interest 17,795 40,559 292,745
Excess of book over tax depreciation 203,405 224,885 313,742
----------- ----------- ------------
Net income (loss) - tax $ 581,842 ($3,530,788) ($ 1,413,932)
=========== =========== ============
Partners' equity - book $ 5,521,340 $ 7,003,796 $ 10,787,376
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 3,578,594 1,514,296 1,261,504
Capital contributions (641,684) (641,684) (641,684)
----------- ----------- ------------
Partner's equity - tax $ 6,990,340 $ 5,521,340 $ 9,939,286
=========== =========== ============
-31-
SUPPLEMENTAL INFORMATION
-32-
DIVERSIFIED HISTORIC INVESTORS VII
----------------------------------
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
Costs
Capitalized
Initial Cost Subsequent
to Partnership(b) to Acquisition
----------------- --------------
Buildings Construction
and in
Description (a) Encumbrances Land(b) Improvements Progress Improvements
- - --------------- ------------ -------------------- ---------------------
(e)
---
93 unit apartments
in New Orleans, LA $2,280,454 $ 17,182 $4,667,050 -- $ 969,253
60 unit apartments in
St. Joseph, MO 1,577,894 1,500 2,482,287 -- 2,272,024
250,000 square feet
of residential and
commercial space in
Philadelphia, PA -- 145,000 1,792,112 891,570 193,190
---------- ---------- ---------- ---------- ----------
$3,858,348 $ 163,682 $8,941,449 $ 891,570 $3,434,467
========== ========== ========== ========== ==========
Gross Amount at which Carried at
December 31, 1995
-----------------
Buildings
and Accumulated Date of Date
Land Improvements Total(c)(d) Depr.(d)(f) Constr.(a) Acquired
---- ------------ ----------- ----------- ---------- --------
$17,182 $ 5,655,494 $ 5,672,676 $ 1,368,300 1989 7/89
1,500 4,760,061 4,761,561 1,016,567 1989 9/89
16,787 101,703 118,490 20,923 (a) 2/90
- - ---------- ----------- ----------- -----------
$35,469 $10,517,258 $10,552,727 $ 2,405,790
========== =========== =========== ===========
-33-
DIVERSIFIED HISTORIC INVESTORS VII
(a limited partnership)
NOTES TO SCHEDULE XI
DECEMBER 31, 1995
(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, 1995, for Federal income
tax purposes was approximately $8,397,163. 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:
1995 1994 1993
---------- ---------- ----------
Balance at beginning of year $ 16,826,909 $ 19,702,935 $ 25,218,634
Additions during this year:
Improvements 12,270 22,284 272,096
Deductions during the year:
Retirements (6,286,452) (2,898,310) -0-
Deconsolidated subsidiary -0- -0- (5,787,795)
------------ ------------ ------------
Balance at end of year $ 10,552,727 $ 16,826,909 $ 19,702,935
============ ============ ============
Reconciliation of accumulated
depreciation:
1995 1994 1993
------------ ------------ ------------
Balance at beginning of year $ 3,007,245 $ 2,412,417 $ 2,463,848
Depreciation expense for the year 422,396 716,497 806,315
Deductions during the year:
Retirements (1,043,851) (121,669) -0-
Deconsolidated subsidiary -0- -0- (857,746)
------------ ------------ ------------
Balance at end of year $ 2,405,790 $ 3,007,245 $ 2,412,417
============ ============ ============
(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.
-34-
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
---- --- -------- -------------- -------------
Gerald Katzoff 48 Partner in No fixed term Since
DoHA-VII December 1988
Dover Historic -- Partner in No fixed term Since
Advisors, Inc. DoHA-VII December 1988
("Dover Advisors")
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 partners of DoHA-VII are Dover Advisors and Gerald Katzoff. The
general partner is responsible for management and control of Registrant's
affairs and will have general responsibility and authority in conducting its
operations.
-35-
Gerald Katzoff (age 48) has been involved in various aspects of
the real estate industry since 1974. Mr. Katzoff is the owner of Katzoff
Resorts, which controls various hotel and spa resorts in the United States. Mr.
Katzoff is a principal in an entity which is the owner of a property in Avalon,
New Jersey which has filed a petition pursuant to Chapter 11 of the U.S.
Bankruptcy Code. Mr. Katzoff is a former President and director of D, Ltd.
(formerly The Dover Group, Ltd).
Dover Advisors, a wholly-owned subsidiary of DHP, Inc., (formerly
Dover Historic Properties, Inc.) is a corporation formed in February 1989 under
the laws of the Commonwealth of Pennsylvania for the purpose of acting as the
general partner (or a partner of the general partner) in real estate programs
such as the Registrant. DHP, Inc. is a subsidiary of D, Ltd., an entity formed
in 1985 to act as the holding company for DHP, Inc. and certain other companies
involved in the development and operation of both historic properties and
conventional real estate as well as in financial (non-banking) services.
The executive officers, directors, and key employees of Dover
Advisors are described below.
Michael J. Tuszka (age 49) was appointed Chairman of Dover
Advisors on January 27, 1993. Mr. Tuszka has been associated with Dover
Advisors and its affiliates since 1984.
Donna M. Zanghi (age 39) was appointed Secretary/Treasurer of
Dover Advisors and Secretary/Treasurer of DHP, Inc. on June 15, 1993. She is
also a Director, and Secretary/Treasurer of D, Ltd. She has been associated
with Dover Advisors 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 January 27, 1993 as
Assistant Secretary of Dover Advisors, D, Ltd and DHP, Inc. and Director of D,
Ltd.
Item 11. Executive Compensation
a. Cash Compensation - During 1995, 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 1995, 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 1995 to Dover
Advisors, DoHA-VII, any partner therein, or any person named in paragraph c. of
Item 10.
-36-
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 1993 through 1995.
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.
-37-
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, 1995 and
1994.
b. Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993.
c. Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1995, 1994 and 1993.
d. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.
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, 1995.
(c) Exhibits:
See Item 14 (A) (3) above.
-38-
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: June 20, 1996 By: Dover Historic Advisors, VII General Partner
-------------
By: Dover Historic Advisors, Inc., Partner
By: /s/ Donna M. Zanghi
-----------------------------------
DONNA M. ZANGHI,
Secretary 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: Dover Historic Advisors, Inc.,
Partner
By: /s/ Donna M. Zanghi June 20, 1996
----------------------- -------------
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi June 20, 1996
----------------------- -------------
MICHELE F. RUDOI,
Assistant Secretary
-39-