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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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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 33-19811
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DIVERSIFIED HISTORIC INVESTORS VI
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2492210
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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: 25,461 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
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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 VI ("Registrant") is a limited
partnership formed in 1988 under the Pennsylvania Uniform Limited Partnership
Act. As of December 31, 1995, Registrant had outstanding 25,461 units of limited
partnership interest (the "Units").
Registrant is presently in its operating stage. It originally owned
eight properties or interests therein. Its interest in one property has been
lost through foreclosure, a second property is in the process of being
liquidated to pay outstanding indebtedness relating to the property, and an
interest in one other has been reduced substantially. See Item 2. Properties,
for a description thereof.
The following is a summary of significant transactions involving the
Registrant's interests:
In order to forestall the lender's threatened foreclosure, on January
28, 1993, Firehouse Square General Partnership, a general partnership in which
the Registrant owns a 90% interest, filed a reorganization petition pursuant to
Chapter 11 of the U.S. Bankruptcy Code. In May 1993, the lender sold its note
and mortgage to another entity. On June 1, 1993, an agreement was entered into
with the new holder of the note and mortgage to restructure the note. The
bankruptcy was subsequently dismissed. See Item 2. Properties for a description
of the restructured note. On November 16, 1994, the first mortgage holder
foreclosed on its mortgage and subsequently sold it to a newly formed
partnership known as 901 King Street Associates which is owned 90% by the
Registrant. See Item 2. Properties for a description of the foreclosure.
On September 9, 1993, St. James Limited Partnership ("SJLP"), a limited
partnership in which the Registrant owns a 98% interest, filed a reorganization
petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. After filing the
petition, it became apparent that there could not be a confirmable plan of
reorganization without either the Registrant making an additional equity
contribution to SJLP or an extremely favorable settlement of a complaint by the
Registrant against the Registrant's co-general partner in SJLP and United
National Bank alleging misappropriation of funds from a deficit cash reserve
account. See Part II, Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. Since the Registrant had no additional
sources of equity and the outcome of the co-general partner/bank suit was
uncertain, the automatic stay was lifted and the first mortgage holder
foreclosed on the property on October 21, 1994.
On January 21, 1994, a property owned by the Registrant, Locke Mill
Plaza, was transferred to Locke Mill Partners ("LMP") a limited partnership in
which the Registrant owns a 99% interest. The property was transferred so that
it would be held by the Registrant in a manner similar to all of the other
properties held by the Registrant. On February 14, 1994, LMP filed a
reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. LMP
filed a Plan of Reorganization and Disclosure Statement on July 7, 1994. On June
6, 1995, LMP filed the Second Plan of Reorganization (the "Plan") and the Plan
was confirmed in August 1995. The bankruptcy was subsequently dismissed. For a
description of the proceedings, see Item 2. Properties.
2
On August 14, 1992, Commercial Federal Realty Investors Corporation
("CFRIC"), the owner of a 1% interest in the Saunders Apartments Joint Venture
("SAJV") filed an action in the District Court of Douglas County, Nebraska
seeking damages of $275,000 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 $1,155,000 in amounts owed to it by SAJV to a capital
contribution, (increasing its ownership in SAJV to 70%) and will receive 100% of
future income, losses and tax credits for tax purposes until such time as it
recovers $430,000 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.
Since the Registrant's inception, all the properties acquired either by
the Registrant, or the subsidiary partnerships in which it has an interest, have
been rehabilitated and certified as Historic Structures and have received the
related Investment Tax Credit. In addition, four properties (Roseland, Mater
Dolorosa, Strehlow Terrace and Saunders Apartments) are low-income housing
structures which qualify for, have received, and will continue to receive, the
Low Income Tax Credits. Each of the seven properties currently owned are held
for rental operations. At this time it is anticipated that all the properties
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.
3
As of December 31, 1995, Registrant owned interests in seven
properties, located in Nebraska (three), North Carolina (one), Virginia (one),
Pennsylvania (one), and Louisiana (one). In total, the properties contain 178
apartment units, 149 condominium units used as rental units, and 50,815 square
feet ("sf") of commercial/retail space. As of December 31, 1995, 304 of the
apartment and condominium units were under lease (93%) at monthly rental rates
ranging from $275 to $1,085. In addition, 41,875 sf of commercial/retail space
was under lease (82%) at annual rates ranging from $1.45 to $26.96 per sf.
Rental of the apartments and commercial space is not expected to be seasonal.
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 and commercial real estate industry. As a result
of the overbuilding that occurred in the 1980's, the competition for both
residential and commercial tenants in the local markets where the Registrant's
properties are located is generally strong. In each of the markets, there are
several similar historically certified rehabilitated buildings. Three of the
properties held for rental are market-rate properties and are located in North
Concord, North Carolina, Alexandria, Virginia, and Philadelphia, Pennsylvania.
At these properties the Registrant is forced to keep its rent levels
competitively low in order to maintain moderate to high occupancy levels.
Management of each of these properties makes frequent analyses of "what the
market will bear" in order to set rent levels. When occupancy nears the 97-99%
range, management considers raising the rents by more than a normal cost of
living increase. If occupancy falls below 85%, management considers lowering
rents. Four of the properties held for rental are low-income housing structures
and are located in Omaha, Nebraska, and New Orleans, Louisiana. These properties
have fixed rental rates and face competition for low to moderate income tenants
from other low income properties in the area. However, there is no organization
which holds a dominant position in the residential housing or commercial leasing
market in any of the geographic areas in which the Registrant's properties are
located.
Registrant has no employees. Registrant's activities are overseen by
Brandywine Construction & Management, Inc., ("BCMI") a real estate management
firm.
d. Financial Information About Foreign and Domestic Operations and
Export Sales
See Item 8. Financial Statements and Supplementary Data.
Item 2. Properties
As of December 31, 1995, Registrant owned interests in six partnerships
which each own one property and a minority interest in an additional partnership
which owns one property. A summary description of each property is given below.
4
a. Locke Mill Plaza - consists of 78 residential condominium units and
6,700 sf of commercial/retail space (of which 1,600 sf is used for in-house
office and maintenance services) in a 185 condominium unit project located at
Buffalo Avenue and Union Street in North Concord, North Carolina. An affiliate
of the Registrant owns an additional 10 units. In December 1988, Registrant
acquired the units for $5,042,000, ($65.44 per sf) which was funded by
Registrant's equity contribution and two $1,250,000 notes payable. In February
1992, one lender advanced $50,217 to pay real estate taxes. This amount was
added to the then outstanding principal balance. Subsequently, at the
recommendation of the lender, the existing property management contract was
terminated and a new manager was engaged. Since that time, occupancy and cash
flow have improved. However, the cash flow has still not been sufficient to
cover operating expenses (including real estate taxes) and debt service,
including principal amortization. In order to ease the debt service payment
burden on the property, the Registrant discussed with its two lenders the
possibility of restructuring its loan obligations. These discussions were not
successful. In January 1994, the property's ad valorem property tax payments
were in default and the taxing authorities commenced proceedings to sell the
property. Since the property was unable to satisfy past due obligations and meet
the demands of its secured creditors, on February 14, 1994, Locke Mill Partners
("LMP", the partnership to which the property was transferred on January 21,
1994) filed a reorganization petition pursuant to Chapter 11 of the U.S.
Bankruptcy Code. On June 6, 1995, LMP filed the Second Plan of Reorganization
(the "Plan") and the Plan was confirmed in August 1995. The Plan provides for
the following : (1) the sale of some or all of the units to satisfy the claims
of its creditors; and (2) an extension of the maturity date of the notes payable
for three years, with the option to extend for an additional two years if at
least fifty percent (50%) of the principal amount of the debt outstanding at the
confirmation of the Plan has been repaid. The net proceeds of the sales will be
used to retire the principal balance of the debt. At December 31, 1995 none of
the units have been sold. A new lender has placed a wrap-around mortgage on the
property in the amount of $3,500,000 (principal balance of $3,583,625 at
December 31, 1995) and has agreed to fund the necessary costs for the marketing
and any improvements to the units. The wrap-around mortgage amount is supported
by a current appraisal of the property, therefore the difference between the
wrap-around mortgage and the underlying mortgages was accounted for as an
adjustment to the related fixed assets. Monthly payments of interest to the new
lender are to be made in an amount equal to net operating income, with a minimum
of $25,000 per month. The note accrues interest at 12% and is due in August
2000. The property is managed by BCMI. As of December 31, 1995, 73 units were
under lease (94%) with monthly rents ranging from $400 to $600, and 5,243 sf of
commercial space were leased (78%) at annual rents ranging from $1.45 to $3.16
per sf.
All residential leases are renewable, one-year leases. The occupancy
for the residential units for the previous four years was 93% for 1994, 96% for
1993, 94% for 1992 and 91% for 1991. The monthly rental range has been
approximately the same since 1991. The occupancy for the commercial space was
46% for 1994, 46% for 1993, 41% for 1992 and 24% for 1991. The average annual
rent has been $2.07 per sf in 1994, $5.10 to $6.75 per sf for 1993, $5.85 per sf
for 1992 and $3.24 per sf for 1991. There are four tenants who each occupy ten
percent or more of the rentable square footage. They operate principally as a
beauty salon, modeling agency, leasing office and a maintenance shop. The
leasing office and maintenance shop each have month to month leases which
requires sixty (60) days notice to vacate. All leases are operating leases and
the minimum future rentals on the noncancelable leases as of December 31, 1995
are $8,100. There are no contingent liabilities included in income for the years
ended December 31, 1995, 1994 and 1993.
5
The following is a table showing commercial lease expirations at Locke
Mill Plaza for the next five years.
Total annual
rental covered % of gross
Number of Total sf of by expiring annual rental
leases expiring expiring leases leases from property
1996 2 3,683 $ 8,100 2%
1997 - -0- -0- 0
1998 - -0- -0- 0
1999 - -0- -0- 0
2000 - -0- -0- 0
Although no firm commitments have been made, the Registrant anticipates
that the two leases which are scheduled to expire in 1996 will be extended for
at least an additional year, due to the long-standing tenancy of the merchants
and the availability of renewal options under their leases.
For tax purposes, this property has a federal tax basis of $5,756,314
and is depreciated using the straight-line method with a useful life of 27.5
years. The annual real estate taxes are $39,997 which is based on an assessed
value of $3,703,390 taxed at a rate of $.46 per $100 by the City of Concord and
a rate of $.62 per $100 by the County of Cabarrus. It is the opinion of the
management of the Registrant that the property is adequately covered by
insurance.
b. Firehouse Square - consists of 32,544 sf of commercial space at
902-910 King Street in Alexandria, Virginia. In December 1988, Registrant was
admitted, with a 90% general partner interest, to Firehouse Square General
Partnership ("FSGP"), a Virginia general partnership, for a cash capital
contribution of $1,750,000. FSGP acquired and rehabilitated the property for
$5,660,000 ($151.51 per sf), funded by the equity contribution and a mortgage
note payable of $4,207,000. The original note terms, as amended on December 28,
1988, provided for interest payable monthly at a rate of prime plus 1/2% in
addition to monthly principal installments of $2,600 with maturity in June 1993.
Due to insufficient cash flow, FSGP ceased making debt service payments in
November 1992. On December 1, 1992, FSGP was given notice of the existence of
certain defaults under the loan documents. After the cure period expired, the
lender accelerated the loan and declared it due and payable in full. In
addition, the lender exercised its rights pursuant to the Assignment of Lessor's
Interest in Leases and directed all tenants to commence making their rent
payments directly to the lender. In order to forestall the lender's threatened
6
foreclosure, on January 28, 1993, FSGP filed a reorganization petition pursuant
to Chapter 11 of the U.S. Bankruptcy Code. In May 1993 the lender sold its note
and mortgage to another entity. On June 1, 1993, an agreement was entered into
with the new holder of the note and mortgage to restructure the loan and the
bankruptcy was subsequently dismissed. Accrued interest in the amount of
$218,728 was added to the principal balance of the note. The lender also
advanced $40,711 for real estate taxes and $33,627 for tenant improvements.
Monthly payments of interest to the new note holder were to be made in an amount
equal to net operating income, with a minimum of $22,916 per month. The note
accrues interest at prime plus 1/2% (9% at December 31, 1995 and 1994). On
November 16, 1994, a foreclosure sale was held the first mortgage holder bid its
loan receivable at the sale, and became the successful bidder. The first
mortgage holder sold its successful bid to a partnership known as 901 King
Street Associates ("KSA"). KSA is a general partnership owned 90% by DHI-VI. The
selling price of the mortgage was the outstanding balance of the mortgage
immediately prior to foreclosure. The obligation has terms materially the same
as the original mortgage loan and is secured by a new mortgage on the Property.
Therefore, after the sale, the Registrant's interest in the Property is
unchanged. The principal balance at December 31, 1995 was $4,202,189. The entire
principal balance is due October 1998. In June 1995, the Registrant refinanced
$900,000 of the first mortgage (principal balance of $895,661 at December 31,
1995). The new loan bears interest at 9.75%, payable in monthly installments of
principal and interest of $8,021 and is due in June 2005. The property is
managed by BCMI. As of December 31, 1995, Firehouse Square has 26,041 sf of
space under lease (80%) at annual rates ranging from $6.57 to $26.96 per sf.
The occupancy for the previous four years was 88% for 1994, 87% for
1993, 53% for 1992 and 53% for 1991. The average annual rent has been $6.50 to
$19.29 per sf for 1994, $6.50 to $30.18 per sf for 1993, $19.78 per sf for 1992,
and $23 per sf for 1991. There are three tenants who each occupy ten percent or
more of the rentable square footage. They operate principally as a civic
association, a law firm and an architectural firm. All leases are operating
leases and the minimum future rentals on the noncancelable leases as of December
31, 1995 are $409,160. There are no contingent liabilities included in income
for the years ended December 31, 1995, 1994 and 1993.
The following is a table showing commercial lease expirations at
Firehouse Square for the next five years.
Total annual
rental covered % of gross
Number of Total sf of by expiring annual rental
leases expiring expiring leases leases from property
1996 4 6,115 $ 96,813 24%
1997 1 1,965 27,510 7%
1998 2 3,436 59,661 15%
1999 2 12,719 205,688 50%
2000 1 1,344 19,488 4%
7
The Registrant has entered into negotiations with a current tenant to
expand into 452 sf of space under an expiring lease at $7.00 per sf and into
2,816 sf of vacant space at $10.50 per sf. There have been no additional
negotiations regarding the remaining 5,663 sf of space under expiring leases and
the Registrant expects that the space will be vacated. The Registrant also
leased 2,574 of vacant space commencing May 1, 1996 at $16.00 per sf for a
period of five years.
For tax purposes, this property has a federal tax basis of $3,579,213
and is depreciated using the straight-line method with a useful life of 39
years. The annual real estate taxes are $36,911 which is based on an assessed
value of $3,449,600 taxed at a rate of $1.07 per $100. It is the opinion of the
management of the Registrant that the property is adequately covered by
insurance.
c. Roseland - consists of 17 low income apartments and 3,100 sf of
retail space at 4932 South 24th Street in South Omaha, Nebraska. In July 1988,
Registrant was admitted with a 98% general partner interest and a 1% limited
partner interest to Roseland Redevelopment Partners ("RRP"), a Nebraska limited
partnership, for a cash capital contribution of $700,000. RRP acquired and
rehabilitated the property for $1,680,000 ($70.29 per sf), funded by the equity
contribution and three notes payable. The first note payable of $500,000 is
non-interest bearing, principal due upon sale of the property; the second note
payable of $63,313 bears interest at 9.73%, interest adjusting every three years
based on the three-year Treasury Bill rate plus 250 basis points, payable in
semi-annual installments of principal and interest of $5,188, due in November
2001 (principal balance at December 31, 1995 of $44,294); the third note payable
of $393,786 bears interest at 9.44%, payable in monthly installments of
principal and interest of $3,346, due in August 1996 (principal balance at
December 31, 1995 of $379,383). The Registrant is in the process of refinancing
the third note payable which is maturing in August 1996. It is anticipated that
the refinancing will extend the maturity date of the note until August 2006. The
property is managed by a property management firm which is an affiliate of the
Registrant's co-general partner of RRP. On December 31, 1995, 16 of the units
were leased (94%) at monthly rents of $275 to $450, and 3,100 sf of commercial
space (100%) was leased at annual rents ranging from $3.00 to $3.43 per sf.
All residential leases are renewable, one-year leases. The occupancy
for the residential units for the previous four years was 87% for 1994, 98% for
1993, 98% for 1992 and 88% for 1991. The monthly rental range has been
approximately the same since 1991. The commercial space has been 100% occupied
since the completion of the building in 1991. The range for annual rents has
been $2.75 per sf for 1994, $2.75 to $5.14 per sf for 1993, $5.15 to $8.25 per
sf for 1992 and $5.15 to $8.25 per sf for 1991. There is one tenant who occupies
ten percent or more of the rentable square footage. It principally functions as
a counseling center. All commercial leases are operating leases and the minimum
future rentals on the noncancelable leases as of December 31, 1995 are $9,000.
There are no contingent liabilities included in income for the years ended
December 31, 1995, 1994 and 1993.
8
The following is a table showing commercial lease expirations at
Roseland for the next five years:
Total annual
rental covered
Number of Total sf of by expiring % of gross
leases expiring expiring leases leases annual rental
1995 - -- -- --
1996 - -- -- --
1997 - -- -- --
1998 - -- -- --
1999 1 700 $2,400 3%
Thereafter 1 2,400 6,600 10%
For tax purposes, this property has a federal tax basis of $1,659,151
and is depreciated using the straight-line method with a useful life of 27.5
years. The annual real estate taxes are $9,399 which is based on an assessed
value of $333,300 taxed at a rate of $2.81991 per $100. It is the opinion of the
management of the Registrant that the property is adequately covered by
insurance.
d. Mater Dolorosa Apartments - consists of 68 low income apartments
located at 1265 South Carrollton Avenue in New Orleans, Louisiana. In July 1988,
Registrant was admitted with a 90% general partnership interest to Mater
Dolorosa General Partnership ("MDGP") a Pennsylvania general partnership, for a
cash contribution of $1,519,000. MDGP acquired and rehabilitated the property
for $3,149,000 ($59.39 per sf), funded by the equity contribution and a note
payable of $1,718,000 which bore interest at 10-3/4%, principal and interest due
upon conversion to a permanent loan. In March 1990, the note was converted to
permanent financing in the amount of $1,790,000, with interest at 8.5%, payable
monthly in principal and interest payments of $17,627, due in April 2005
(principal balance at December 31, 1995 of $1,359,710). The property is managed
by a property management firm which is an affiliate of the Registrant's
co-general partner of MDGP. At December 31, 1995, 68 of the units were rented
(100%) at monthly rents of $482 to $567. All leases are renewable, one-year
leases. The occupancy for the previous four years was 99% for 1994, 99% for
1993, 99% for 1992 and 94% for 1991. The monthly rental range has been
approximately the same since 1991. For tax purposes, this property has a federal
tax basis of $3,178,476 and is depreciated using the straight-line method with a
useful life of 27.5 years. The annual real estate taxes are $5,248 which is
based on an assessed value of $32,530 taxed at a rate of $16.1328 per $100.
There is no one tenant who 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.
9
e. Strehlow Terrace Apartments - consists of 70 low income apartment
units located at 2024 North 16th Street, Omaha, Nebraska. In January 1989,
Registrant was admitted with a 98% general partner interest to Strehlow Terrace
Apartments Limited Partnership ("STALP"), a Nebraska limited partnership, for a
cash capital contribution of $2,250,000. STALP acquired and rehabilitated the
property for $5,817,000 ($52.02 per sf) funded by the equity contribution and
three mortgage loans. The first loan, financed through the Governmental National
Mortgage Association ("GNMA") is for $1,789,000 (principal balance at December
31, 1995 of $1,775,053), bears interest at 10-1/4%, is payable in monthly
installments of principal and interest of $15,540, and is due in 2030. In August
1993, six units were damaged by a fire at Strehlow Terrace. Due to the financial
difficulties caused by the fire, STALP fell behind on its monthly debt service
by several months. Although the property was able to reduce the arrearage by 50%
and commenced regular, monthly payments by May 1994, the loan was declared in
default and was assigned by GNMA to the Federal Housing Administration/Housing
and Urban Development ("FHA/HUD"), on June 24, 1994. Although this assignment
subjects the management and operation of this property to more intense scrutiny,
it does provide greater flexibility for structuring a workout. A workout
proposal, which provides for a reduced interest rate and repayment of the loan
arrearage over thirty-six months, was submitted to FHA/HUD in August 1994. The
workout proposal has been revised several times and it is anticipated that an
acceptable workout agreement will be reached and the loan will be returned to a
current status. The other two loans were made by the City of Omaha. One, in the
amount of $1,700,000, bears interest at 1%, and the other, in the amount of
$75,000, is non-interest bearing. The principal and interest (if any) on both
City of Omaha loans is due upon the sale of the property or in the year 2030,
whichever is earlier. The property is managed by a property management firm
which is an affiliate of the Registrant's co-general partner of STALP. On
December 31, 1995, 61 of the apartments were leased (87%) at monthly rents
ranging from $275 to $533.
All leases are renewable, one-year leases. The occupancy for the
previous four years was 91% for 1994, 95% for 1993, 96% for 1992 and 93% for
1991. The monthly rental range has been approximately the same since 1991. For
tax purposes, this property has a federal tax basis of $5,828,959 and is
depreciated using the straight-line method with a useful life of 27.5 years. The
annual real estate taxes are $16,284 which is based on an assessed value of
$575,500 taxed at a rate of $2.81991 per $100. No one tenant occupies ten
percent of more of the building. It is the opinion of the management of the
Registrant that the property is adequately covered by insurance.
f. Canal House - consists of 71 residential condominium units and 8,471
sf of commercial condominium space located at 4250-4312 Main Street, Manayunk,
Pennsylvania. In February 1989, Registrant was admitted to Canal House Historic
Associates ("CHHA"), a Pennsylvania limited partnership with a 99% general
partner interest for a cash contribution of $6,000,000. During 1990, Registrant
made an additional cash contribution of $200,000. (The 1% limited partnership
interest is also controlled by Registrant; it is held by a Pennsylvania
corporation whose stock is owned by Registrant). CHHA acquired and rehabilitated
the property for $9,700,000 ($94.41 per sf) which was funded by the equity
contribution and a construction loan of $4,000,000 which bore interest at prime
plus 1%. In order to extend the maturity date of the construction loan until
September 1993, the Registrant agreed to make monthly principal payments of
$7,500 in addition to the interest. CHHA ceased making these principal payments
in April 1993 due to cash shortfalls resulting from expenditures for certain
10
deferred maintenance items. In September 1993, the loan was converted to a
permanent loan with a maturity date of September 1998. Beginning in October
1993, principal payments of $2,500 per month and interest at prime plus 1% were
made for one year. In October 1994, the interest became fixed at 7.75% and
monthly principal (based on a 30-year amortization) and interest payments
commenced. In October 1995, the Registrant ceased making debt service payments.
The loan was sold in December 1995. The Registrant entered into an agreement
with the new holder of the note (principal balance of $4,627,000 at December 31,
1995) whereby the maturity of the loan was extended to December 2000 and monthly
payments of interest are to be made to the new note holder in an amount equal to
net operating income, with a minimum of $30,000 per month. In April 1996, the
Registrant refinanced $3,216,000 of the first mortgage. The new loan is a first
mortgage which bears interest at 8.75%, payable in monthly installments of
principal and interest of $25,300 and is due in April 2003. The property is
managed by BCMI. At December 31, 1995, 67 of the residential units were under
lease (94%) at monthly rents of $600 to $1,085, and 7,491 sf of the commercial
space was under lease (88%) at annual rents ranging from $18.86 to $19.52 per
sf.
All residential leases are renewable, one-year leases. The occupancy
for the residential units for the previous four years was 90% for 1994, 99% for
1993, 92% for 1992 and 86% for 1991. The monthly rental range has been
approximately the same since 1991. The occupancy for the commercial units was
88% for 1994, 88% for 1993, 88% in 1992 and 100% in 1991. The range for annual
rents has been $17.00 to $19.00 per sf for 1994, $11.59 to $18.51 per sf in
1993, $11.52 to $15.96 per sf for 1992 and $13.40 to $15.30 per sf for 1991.
There are three tenants who each occupy ten percent or more of the rentable
square footage. They function principally as a bank, a restaurant and a retail
store. All leases are operating leases and the minimum future rentals on the
noncancelable leases as of December 31, 1995 are $124,760. There are no
contingent liabilities included in income for the years ended December 31, 1995,
1994 and 1993. However, in March 1996, the retail store defaulted under its
lease agreement (with respect to 1,035 sf of commercial space) and vacated the
property.
The following is a table showing commercial lease expirations at Canal
House for the next five years.
Total annual
rental covered
Number of Total sf of by expiring % of gross
leases expiring expiring leases leases annual rental
1996 - -- -- --
1997 - -- -- --
1998 - -- -- --
1999 - -- -- --
2000 1 2,426 46,094 6%
Thereafter 1 4,030 78,666 9%
11
For tax purposes, this property has a federal tax basis of $9,251,975
and is depreciated using the straight-line method with a useful life of 27.5
years. The annual real estate taxes are $52,890 which is based on an assessed
value of $640,000 taxed at a rate of $8.264 per $100. It is the opinion of the
management of the Registrant that the property is adequately covered by
insurance.
g. Saunders Apartments - consists of 23 low-income apartments at 415
North 41st Avenue in Omaha, Nebraska. Registrant acquired a 99% joint venture
interest in Saunders Apartments Joint Venture ("SAJV"), a Nebraska Joint
Venture, for a cash capital contribution of $875,000. SAJV acquired and
rehabilitated the property for $1,815,000 ($79.96 per sf), funded by the equity
contribution and a mortgage payable of $675,000. The note was retired with
$285,000 advanced from Registrant's co-general partner, and a mortgage note
payable of $395,000 (principal balance at December 31, 1995 of $383,270). The
mortgage note bears interest at 10.87%, is payable in monthly installments of
$3,723 and matures in May 1997. 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. "Business - General Development of Business." The
property is managed by an independent property management firm. As of December
31, 1995, 19 units were under lease (83%) with rents ranging from $350 to $410.
All leases are renewable, one-year leases. The occupancy for the previous four
years was 78% for 1994, 83% for 1993, 100% for 1992 and 96% for 1991. The
monthly rental range has been approximately the same since 1991. For tax
purposes, this property has a federal tax basis of $1,990,022 and is depreciated
using the straight-line method with a useful life of 27.5 years. The annual real
estate taxes are $9,401 which is based on an assessed value of $347,900 taxed at
a rate of $27.0212 per $1,000. No one tenant occupies ten percent or more of the
building. It is the opinion of the management of the Registrant that the
property is adequately covered by insurance.
Item 3. Legal Proceedings
a. On February 14, 1994, Locke Mill Partners, a limited partnership in
which the Registrant owns a 99% interest, filed a reorganization petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code. For a description of the
proceedings, see Item 2.a, Properties.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fiscal years covered by this report
to a vote of security holders.
12
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 266 units
were sold or exchanged of record in 1995.
b. As of December 31, 1995, there were 2,802 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. This 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
---- ---- ---- ---- ----
Rental income $ 2,516,916 $ 2,976,153 $ 3,053,542 $ 2,872,735 $ 2,702,171
Interest income 3,330 5,864 6,430 16,432 41,314
Net loss 2,497,861 816,728 2,555,477 2,559,710 2,816,063
Net loss per Unit 97.13 31.75 99.36 99.53 109.50
Total assets (net of depre-
ciation and amortization) 26,767,721 26,779,880 34,240,234 37,520,594 40,158,407
Debt obligations 19,141,915 17,026,650 22,292,519 22,548,622 22,711,295
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
At December 31, 1995, Registrant had total unrestricted cash of
$72,395. Such funds are expected to be used to pay liabilities and general and
administrative expenses of the Registrant, and to fund cash deficits of the
properties. Cash generated from operations is used primarily to fund operating
expenses and debt service. If cash flow proves to be insufficient, the
Registrant will attempt to negotiate loan modifications with the various lenders
in order to remain current on all obligations. The Registrant is not aware of
any additional sources of liquidity.
13
As of December 31, 1995, Registrant had restricted cash of $297,751
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 one property. At the present time, all remaining
properties are able to pay their operating expenses and debt service; however,
at three of the seven properties, the mortgages are basically "cash-flow"
mortgages, requiring all available cash after payment of operating expenses to
be paid to the first mortgage holder. Therefore, it is unlikely that any cash
will be available to the Registrant to pay its general and administrative
expenses.
It is the Registrant's intention to continue to hold the properties
until they can no longer meet the debt service requirements and the properties
are foreclosed, or the market value of the properties increases to a point where
they can be sold at a price which is sufficient to repay the underlying
indebtedness (principal plus accrued interest).
(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 expenditures 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
investments for the foreseeable future.
(3) Results of Operations
During 1995, Registrant incurred a net loss of $2,497,861 ($97.13 per
limited partnership unit) compared to a net loss of $816,728 ($31.75 per limited
partnership unit), in 1994 and a net loss of $2,555,477 ($99.36 per limited
partnership unit) in 1993. Included in the 1994 loss is $1,483,064 of
extraordinary income relating to the foreclosure of the St. James and the
extinquishment of debt at Firehouse Square.
Rental income decreased from $3,053,542 in 1993 to $2,976,153 in 1994
to $2,516,916 in 1995. The decrease from 1994 to 1995 is mainly the result of
the loss of one of the properties (St. James) due to foreclosure combined with a
decrease at Firehouse Square due to a decrease in average occupancy partially
offset by increases in rental income at Strehlow Terrace and Canal House. The
decrease from 1993 to 1994 is mainly the result of the loss of St. James and the
change in accounting method as a result of the change in ownership used for one
of the properties (Saunders Apartments) partially offset by an increase in
rental income at several of the Registrant's properties (Locke Mill, Firehouse
Square and Canal House) due to higher average occupancy.
14
Rental operations expense decreased from $1,642,902 in 1993 to
$1,495,727 in 1994 to $1,228,389 in 1995. The decrease from 1994 to 1995 is
mainly the result of the loss of St. James and a decrease in overall operating
expenses (i.e. utilities, repairs and maintenance, commissions and wages) at
several of the properties partially offset by an increase in real estate taxes
at Canal House. The decrease from 1993 to 1994 is the result of the combination
of the loss of St. James and the change in accounting method as a result of a
change in ownership at one of the properties (Saunders Apartments) partially
offset by an increase in legal fees incurred in connection with the Locke Mill
bankruptcy.
General and administrative expenses decreased from $365,462 in 1993 to
$342,785 in 1994 to $280,577 in 1995. The decrease from 1994 to 1995 is the
result of a decrease in administrative fees at Locke Mill and a decrease in
legal fees incurred in connection with the loss of St. James. The decrease from
1993 to 1994 resulted from legal fees incurred in 1993 in connection with the
litigation and ensuing settlement agreement involving the Saunders Apartments
Joint Venture partially offset by legal fees incurred at St. James.
Interest expense decreased from $1,730,507 in 1993 to $1,719,645 in
1994 and increased to $2,123,206 in 1995. The increase from 1994 to 1995 is the
result of increases at Locke Mill and Canal House partially offset by the loss
of St. James and a decrease at Firehouse Square due to the extinguishment of
debt in 1994. The decrease from 1993 to 1994 is primarily the result of the
combination of the loss of St. James and the change in accounting method as a
result of a change in ownership at one of the properties (Saunders Apartment).
Depreciation and amortization expense decreased from $1,856,327 in 1993
to $1,703,576 in 1994 and to $1,364,876 in 1995. The decrease from 1994 to 1995
is the result of the loss of St. James in 1994 and the fact that the equipment
at Strehlow was fully depreciated during 1994. The decrease from 1993 to 1994
was primarily the result of the combination of the loss of St. James and the
change in accounting method as a result of a change in ownership at one of the
properties (Saunders Apartments). The decrease was secondarily the result of the
fact that the personal property at several of the properties (Locke Mill,
Roseland, and Mater Dolorosa) became fully depreciated early in 1994.
In 1995, losses of $2,136,000 were incurred at Registrant's Properties
compared to a loss of $31,000 in 1994 and $2,093,000 in 1993. A discussion of
property operations/activities follows:
In 1995, Registrant sustained a loss of $338,000 at Locke Mill Plaza
including $240,000 of depreciation and amortization expense, compared to a loss
of $327,000 including $227,000 of depreciation and amortization expense in 1994
and a loss of $256,000 including $278,000 of depreciation and amortization
expense in 1993. The increase in the loss from 1994 to 1995 is the result of an
increase in interest expense partially offset by a decrease in legal and
administrative fees incurred in connection with the bankruptcy combined with an
increase in rental income. Interest expense increased due to the higher debt
balance and an increase in the interest rate. Rental income increased due to an
increase in average occupancy in the commercial space (46% to 78%). The increase
in the loss from 1993 to 1994 is the result of an increase in legal and
administrative fees incurred in connection with the bankruptcy partially offset
by an increase in rental income.
15
In 1995, Registrant recognized income of $-0- at The St. James compared
to income of $129,000 including $223,000 of depreciation and amortization
expense in 1994, and a loss of $420,000 including $258,000 of depreciation and
amortization expense in 1993. Included in operations for 1994 is an
extraordinary gain of $409,000 relating to the foreclosure of the property.
Excluding such income, the loss in 1994 would have been $280,000. The decrease
from 1993 to 1994 is the result of a decrease in rental income of $131,000 and a
decrease in operating expenses of $271,000. These decreases result from the
foreclosure of the property during the year. In July 1991, SJLP filed a
reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. In
March 1992, a settlement agreement was reached with the first mortgage holder.
The settlement agreement provided for modification of one loan and the use of
certain escrowed funds to pay delinquencies on another loan. In addition,
Registrant filed a complaint against its co-general partner and United National
Bank which claimed misappropriation of monies from the deficit cash reserve
account. Throughout the rest of 1992 and 1993 the operating losses continued as
occupancy did not increase significantly in the commercial space. In addition,
certain commercial leases were scheduled to expire in 1994 and were not expected
to be renewed. As a result, it became increasingly difficult to pay the
operating expenses of the property and the monthly debt service and SJLP
anticipated that its operating income was going to decrease, rather then
increase, in the near future. Thus, on September 9, 1993, SJLP filed a
reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy Code.
After filing the petition, it became apparent that there could not be a
confirmable plan of reorganization without either the Registrant making an
additional equity contribution to SJLP or an extremely favorable settlement of
the complaint against the Registrant's co-general partner in SJLP and United
National Bank. Since the Registrant has no additional sources of equity and the
outcome of the co-general partner/bank suit is uncertain, the automatic stay was
lifted and the first mortgage holder foreclosed on the property on October 21,
1994.
In 1995, Registrant incurred losses of $77,000 at Roseland including
$73,000 of depreciation expense compared to a loss of $74,000 including $73,000
of depreciation expense in 1994 and a loss of $82,000 including $79,000 of
depreciation expense in 1993. Since Roseland is a low income housing property,
rents are fixed in relation to specified income levels. As a result, similar to
Mater Dolorosa and Strehlow Terrace, the property experiences high occupancy but
rental income remains low. The increase in the loss from 1994 to 1995 is the
result of an increase for expenditures for certain deferred maintenance items
such as the painting and recarpeting of several units. The decrease in the loss
from 1993 to 1994 results from an overall decrease in operating expenses while
rental income remained stable. Registrant expects the property to continue to
generate break-even cash flow in 1996.
16
In 1995, Registrant incurred a loss of $575,000 at Firehouse Square
including $255,000 of depreciation and amortization expense compared to income
of $944,000 including $257,000 of depreciation and amortization expense in 1994
and a loss of $588,000 including $273,000 of depreciation and amortization
expense in 1993. Included in operations for 1994 is an extraordinary gain of
$1,470,000 relating to the extinquishment of debt in connection with the
foreclosure (See Item 2. Properties for a discussion of the foreclosure).
Excluding such income, the loss in 1994 would have been $526,000. The increase
in the loss (excluding extraordinary items) from 1994 to 1995 is the result of a
decrease in rental income due to a decrease in average occupancy (88% to 80%)
combined with an increase in legal fees incurred in connection with the
refinancing of part of the debt partially offset by a decrease in interest
expense due to the extinguishment of debt in 1994. The decrease in the loss from
1993 to 1994 is the result of an increase in rental income partially offset by
an increase in interest expense.
In 1995, Registrant incurred a loss of $24,000 at Mater Dolorosa
including depreciation expense of $130,000 compared to a loss of $50,000
including depreciation expense of $130,000 in 1994 and a loss of $129,000
including depreciation expense of $166,000 in 1993. Since Mater Dolorosa is a
low income housing property, rents are fixed in relation to specified income
levels. As a result, similar to Roseland and Strehlow Terrace, the property
experiences high occupancy but rental income remains low. The decrease in the
loss from 1994 to 1995 is due to an overall decrease in operating expenses (i.e.
utilities, maintenance, and wages) due to operating efficiencies achieved at the
property. The decrease in the loss from 1993 to 1994 is mainly the result of a
decrease in depreciation due to the fact that all personal property became fully
depreciated early in 1995. Included in the 1993 loss is a one-time expense
adjustment of $39,000 relating to a prior year which resulted from the audit of
1993 by independent Certified Public Accountants. While the adjustment increased
the loss by $39,000, it has no effect on cash flow in 1993. Revenues have been
sufficient to meet operating expenses and debt service and the Registrant
expects these favorable results to continue in 1996.
In 1995, Registrant incurred a loss of $239,000 at Strehlow Terrace
Apartments, including $226,000 of depreciation expense compared to a loss of
$314,000 including $255,000 of depreciation expense in 1994 and a loss of
$208,000 including $215,000 of depreciation expense in 1993. Since Strehlow is a
low income housing property, rents are fixed in relation to specified income
levels. As a result, similar to Registrant's other low-income properties, the
property experiences high occupancy but rental income remains low. The decrease
in the loss from 1994 to 1995 the result of an increase in rental income and a
decrease in maintenance and depreciation expense. Maintenance decreased due to
maintenance work done in 1994 to repair damage from a fire and depreciation
decreased due to the fact that the furniture and fixtures became fully
depreciated in 1994. The increase in the loss from 1993 to 1994 is the result of
the combination of a decrease in rental income and an increase in certain
operating expenses (i.e. utilities, repairs and maintenance) partially offset by
a decrease in tax expense and bad debt expense.
17
In 1995, Registrant incurred losses of $883,000 at Canal House,
including $443,000 of depreciation expense compared to a loss of $339,000
including depreciation and amortization expense of $443,000 in 1994 and a loss
of $277,000 including depreciation and amortization expense of $450,000 in 1993.
The increase in the loss from 1994 to 1995 is the result of an increase in
interest expense and real estate tax expense partially offset by an increase in
rental income due to an increase in average occupancy (90% to 94%) and higher
average rental rates combined with a decrease in maintenance and commissions
expense. Interest expense increased due to default interest incurred before the
loan was sold and real estate taxes increased due to the expiration of the tax
abatement. Repairs and maintenance expense decreased due to expenditures for
certain deferred maintenance items in 1994 and commissions decreased due to
lower turnover of units. The increase in the loss from 1993 to 1994 is the
result of an increase in certain operating expenses such as repairs and
maintenance, commissions, and insurance partially offset by an increase in
rental income as a result of higher average rental rates. Repairs and
maintenance expense increased due expenditures for certain deferred maintenance
items.
Summary of Minority Interest Investments
In 1995, Registrant incurred losses of $21,000 at Saunders Apartments
compared to a loss of $20,000 in 1994 and a loss of $133,000 including $39,000
of depreciation and amortization expense in 1993. For the first five months of
1993 and prior years, Saunders Apartments was treated as a consolidated
subsidiary. This resulted in a loss of $113,000 for the first five months ended
May 31, 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 $20,000 from June through December 1993. The Registrant expects to
achieve in 1996 results comparable to those experienced in 1995.
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 Regulations S-K.
18
Independent Auditor's Report
To the Partners of Diversified Historic Investors VI
We have audited the accompanying consolidated balance sheets of Diversified
Historic Investors VI (a Pennsylvania Limited Partnership) and subsidiaries as
of December 31, 1995 and 1994 and the related consolidated statements of
operations, changes in partners' equity and cash flows for the years ended
December 31, 1995, 1994 and 1993. These consolidated financial 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 Strehlow Terrace Apartments
Limited Partnership, which reflect total assets of $4,437,173 and $4,572,560 as
of December 31, 1995 and 1994 and total revenues of $329,956 and $306,138,
respectively for the years then ended. In addition, we did not audit the
financial statements of Mater Dolorosa General Partnership which reflect assets
of $2,270,611 and $2,368,217 as of December 31, 1995 and 1994 and total revenues
of $394,822 and $391,681, 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 Strehlow
Terrace Apartments Limited Partnership and Mater Dolorosa General Partnership,
is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 reports of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Diversified Historic Investors VI
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flow for the years ended December 31, 1995, 1994 and
1993 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule of Real Estate and
Accumulated Depreciation on page 38 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
March 28, 1996
19
Independent Auditor's Report
To the Partners of
Strehlow Terrace Apartments Limited Partnership
We have audited the financial statements of Strehlow Terrace Apartments Limited
Partnership, (a Nebraska limited partnership), FHA Project No. 103-94006, listed
in the accompanying table of contents, as of and for the years ended December
31, 1995 and 1994. These financial 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 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 consolidated 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 reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of Strehlow Terrace Apartments Limited
Partnership at December 31, 1995 and 1994, and the results of its operations,
changes in partners' deficit and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information listed in
the table of contents is presented for the purposes of additional analysis and
is not a required part of the basic financial statements. This information is
the responsibility of the Partnerships' management. 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.
Blackman & Associates, P.C.
Omaha, Nebraska
March 28, 1996
20
Independent Auditor's Report
To the Partners of
Mater Dolorosa General Partnership
We have audited the accompanying balance sheets of Mater Dolorosa General
Partnership, for December 31, 1995 and 1994 and the related consolidated
statements of operations, partners' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 reports 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 Mater Dolorosa General
Partnership as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Pailet, Meunier and LeBlanc, L.L.P.
Metairie, Louisiana
February 9, 1996
21
DIVERSIFIED HISTORIC INVESTORS VI
(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 23
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994, and 1993 24
Consolidated Statements of Changes in Partners' Equity for the
Years Ended December 31, 1995, 1994, and 1993 25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 26
Notes to consolidated financial statements 27-35
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 38
Notes to Schedule XI 39
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
22
DIVERSIFIED HISTORIC INVESTORS VI
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
Assets
1995 1994
------------ ------------
Rental properties at cost:
Land $ 1,081,164 $ 1,081,164
Buildings and improvements 33,462,131 32,357,276
Furniture and fixtures 1,068,784 1,068,784
------------ ------------
35,612,079 34,507,224
Less - accumulated depreciation (9,605,719) (8,277,323)
------------ ------------
26,006,360 26,229,901
Cash and cash equivalents 72,395 59,176
Restricted cash 297,751 291,540
Investment in affiliate 44,572 65,601
Other assets (net of accumulated
amortization of $344,858 and $318,738) 346,643 133,662
------------ ------------
Total $ 26,767,721 $ 26,779,880
============ ============
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 19,141,915 $ 17,026,650
Accounts payable:
Trade 675,141 459,552
Taxes 49,414 67,722
Related parties 296,166 268,811
Other 39,310 42,643
Interest payable 654,897 510,149
Tenant security deposits 141,310 136,924
------------ ------------
Total liabilities 20,998,153 18,512,451
------------ ------------
Partners' equity 5,769,568 8,267,429
------------ ------------
Total $ 26,767,721 $ 26,779,880
============ ============
The accompanying notes are an integral part of these financial statements.
23
DIVERSIFIED HISTORIC INVESTORS VI
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
----------- ----------- -----------
Revenues:
Rental income $ 2,516,916 $ 2,976,153 $ 3,053,542
Interest income 3,300 5,864 6,430
----------- ----------- -----------
Total revenues 2,520,216 2,982,017 3,059,972
----------- ----------- -----------
Costs and expenses:
Rental operations 1,228,389 1,495,727 1,642,902
General and administrative 280,577 342,785 365,462
Interest 2,123,206 1,719,645 1,730,507
Depreciation and amortization 1,364,876 1,703,576 1,856,327
----------- ----------- -----------
Total costs and expenses 4,997,048 5,261,733 5,595,198
----------- ----------- -----------
Loss before minority interests and
equity in affiliate (2,476,832) (2,279,716) (2,535,226)
Equity in net loss of affiliate (21,029) (20,076) (20,251)
----------- ----------- -----------
Loss before extraordinary item (2,497,861) (2,299,792) (2,555,477)
Extraordinary income -0- 1,483,064 -0-
----------- ----------- -----------
Net loss ($2,497,861) ($ 816,728) ($2,555,477)
=========== =========== ===========
Net loss per limited partnership unit:
Loss before minority interests and
equity in affiliate ($ 86.31) ($ 88.64) ($ 98.57)
Equity in net loss of affiliate (.82) (.78) (.79)
----------- ----------- ----------
Loss before extraordinary item (97.13) (89.42) (99.36)
Extraordinary item -0- 57.67 -0-
----------- ----------- ----------
($ 97.13) ($ 31.75) ($ 99.36)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
24
DIVERSIFIED HISTORIC INVESTORS VI
(a limited partnership)
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
Dover
Historic
Advisors Limited
VI (1) Partners (2) Total
--------- ------------ ------------
Percentage participation in profit or loss 1% 99% 100%
========= ============ ============
Balance at December 31, 1992 $ (94,263) $ 11,733,897 $ 11,639,634
Net loss (25,555) (2,529,922) (2,555,477)
--------- ------------ ------------
Balance at December 31, 1993 (119,818) 9,203,975 9,084,157
Net loss (8,167) (808,561) (816,728)
--------- ------------ ------------
Balance at December 31, 1994 (127,985) 8,395,414 8,267,429
Net loss (24,979) (2,472,882) (2,497,861)
--------- ------------ ------------
Balance at December 31, 1995 ($152,964) $ 5,922,532 $ 5,769,568
========= ============ ============
(1) General Partner.
(2) 25,461 limited partnership units outstanding at December 31, 1995, 1994,
and 1993.
The accompanying notes are an integral part of these financial statements.
25
DIVERSIFIED HISTORIC INVESTORS VI
(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 ($2,497,861) ($ 816,728) ($2,555,477)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,364,876 1,703,576 1,856,327
Extraordinary income -0- (1,483,064) -0-
Equity in loss of affiliate 21,029 20,076 20,251
Changes in assets and liabilities:
(Increase) decrease in restricted cash (6,211) 147,156 (34,135)
(Increase) decrease in other assets (249,461) (3,477) 79,293
Increase in accounts payable - trade 215,589 224,274 202,648
(Decrease) increase in accounts payable - taxes (18,308) 11,138 72,256
Increase (decrease) in accounts payable - related
party 27,355 (5,982) 26,206
(Decrease) increase in accounts payable - other (3,333) 52,726 (18,024)
Increase in interest payable 144,748 150,678 325,564
Increase in tenant security deposits 4,386 6,123 16,889
----------- ----------- -----------
Net cash (used in) provided by operating
activities (997,191) 6,496 (8,202)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of rental property and improvements (171,516) (17,167) (165,374)
Investment in affiliate -0- -0- 115,345
----------- ----------- -----------
Net cash used in investing activities (171,516) (17,167) (50,029)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from debt financing 1,309,064 31,222 293,066
Principal payments (127,138) (139,022) (159,328)
----------- ----------- -----------
Net cash provided by (used in) financing
activities 1,181,926 (107,800) 133,738
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 13,219 (118,471) 75,507
Cash and cash equivalents at beginning of year 59,176 177,647 102,140
----------- ----------- -----------
Cash and cash equivalents at end of year $ 72,395 $ 59,176 $ 177,647
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,076,594 $ 1,164,477 $ 1,404,943
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
Net assets transferred for liability reduction*:
Net assets transferred 0 $ 5,119,758 0
Liability reduction 0 $ 5,528,863 0
* As a result of foreclosures on properties owned by the Partnership
The accompanying notes are an integral part of these financial statements.
26
DIVERSIFIED HISTORIC INVESTORS VI
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors VI (the "Partnership"), a limited partnership,
was formed in January 1988 to acquire, rehabilitate, renovate, manage, operate,
hold, sell, exchange, and otherwise deal in and with real properties containing
improvements which are "certified historic structures" as defined in the
Internal Revenue Code of 1986 (the "Code"), or which are eligible for the tax
credit provided by Section 42 of the Code, and such other uses as Dover Historic
Advisors VI (the "General Partner") deems appropriate, and to engage in any and
all activities related or incidental thereto. Any rehabilitations undertaken by
the Partnership will be done with a view to obtaining certification of
expenditures therefor as "qualified rehabilitation expenditures" as defined in
the Code.
The General Partner, whose partners are DHP, Inc. ( a Pennsylvania corporation,
formerly Dover Historic Properties, Inc.) and Gerald Katzoff, has the exclusive
responsibility for all aspects of the Partnership's operations.
NOTE B - SUMMARY OF 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 include the accounts of the Partnership
and six subsidiary partnerships ("Ventures") in which the Partnership has
controlling interest, with appropriate elimination of inter-partnership
transactions and balances. In addition, the Partnership owns a minority interest
of 30% in one partnership, which it accounts for on the equity method.
Allocations of income and loss to the minority owners of the Ventures will be
made until and unless the cumulative losses applicable to the minority interests
exceed the minority interests in the equity capital of the Ventures. These
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of the Partnership's General
partner, are necessary for a fair statement of the results for those years.
2. 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.
27
3. Net Loss Per Partnership Unit
The net loss per limited partnership unit is based on the weighted average
number of limited partnership units outstanding (25,461 in 1995, 1994 and 1993).
3. Costs of Issuance
Costs incurred in connection with the offering and sale of limited partnership
units were charged against partners' equity as incurred.
4. Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased with a
maturity of less than three months to be cash equivalents.
5. Income Taxes
Income taxes or credits resulting from earnings or losses are payable by or
accrue to the benefits of the partners; accordingly, no provision has been made
for income taxes in these financial statements.
6. Restricted Cash
Restricted cash includes amounts held for tenant security deposits and real
estate tax reserves.
7. Revenue Recognition
Revenues are recognized when rental payments are due on a straight-line basis.
Rental payments received in advance are deferred until earned.
8. 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 which the
Partnership does not have the resources to meet, and which the Partnership
anticipates it will be unable to obtain replacement financing or debt
modification sufficient to allow a continued hold of the property over a
reasonable period of time, (3) a property has been, and is expected to continue,
generating significant operating deficits and the Partnership is unable or
unwilling to sustain such deficit results of operations, and has been unable to,
or anticipates it will be unable to, obtain debt modification, financing or
refinancing sufficient to allow a continued hold of the property for a
reasonable period of time or, (4) a property's value has declined based on
management's expectations with respect to projected future operational cash
flows and prevailing economic conditions. An impairment loss is indicated when
the undiscounted sum of estimated future cash flows from an asset, including
estimated sales proceeds, and assuming a reasonable period of ownership up to 5
years, is less than the carrying amount of the asset. The impairment loss is
measured as the difference between the estimated fair value and the carrying
amount of the asset. In the absence of the above circumstances, properties and
improvements are stated at cost. An analysis is done on an annual basis at
December 31 of each year.
28
9. 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
During 1995, a new lender placed a wrap-around mortgage in the amount of
$3,500,000 on one of the properties owned by the Partnership. The wrap-around
mortgage amount is supported by a current appraisal of the property, therefore
the difference between the wrap-around mortgage and the underlying mortgages is
accounted for as an adjustment to related fixed assets. The effect of this
transaction, which is excluded from the statement of cash flows, follows:
Increase in assets $ 933,339
Increase in liabilities (933,339)
---------
Net effect on Partnership $ 0
=========
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 of accounting for one
affiliate from consolidation to the equity method. The effect of this
transaction, which is excluded from the statement of cash flows, follows:
Decrease in assets $1,705,433
Decrease in liabilities (1,484,160)
----------
Increase in investment in affiliate $ 221,273
==========
NOTE D - LEASES
The Partnership's leases with commercial tenants are classified as operating
leases. Leases are generally for a period of three to five years and provide for
a fixed base rent plus contingent rents based on level of sales and sharing of
certain operating costs.
29
Minimum future commercial rentals on operating leases as of December 31, 1995
are as follows:
1996 $ 570,570
1997 465,627
1998 418,597
1999 358,936
2000 150,848
NOTE E - PARTNERSHIP AGREEMENT
The significant terms of the amended and restated Agreement of Limited
Partnership (the "Agreement"), as they relate to the financial statements,
follow:
1. Capital Contributions
The partnership offered investors limited partnership units at $1,000 per unit;
the minimum purchase per investor was three units. A total of 25,461 limited
partnership units was sold. After payment of costs of issuance as provided for
in the Agreement and the withdrawal of the initial limited partner, initial
partnership capital net of costs of issuance was $22,181,070 from limited
partners and $9,900 from the General Partner.
2. Distributions from Operations
The Agreement provides that, beginning with the date of the admission of
subscribers as limited partners, all distributable cash from operations (as
defined) will be distributed 99% to the limited partners and 1% to the General
Partner. After cash flows from operations are positive, the General Partner
shall also receive 4% of such cash flows exclusive of interest earned on
investments.
All distributable cash from sales or dispositions will be distributed to the
limited partners up to their adjusted invested capital plus an amount equal to
the sum of the greater of an 8.5% cumulative, non-compounded annual return on
the average after-credit invested capital or a 6% cumulative, non-compounded
annual return on the average adjusted invested capital, plus an early investor
incentive, less amounts previously distributed; thereafter, after receipt by the
General Partner or its affiliates of any accrued but unpaid real estate
brokerage commissions, the balance will be distributed 85% to the limited
partners and 15% to the General Partner. Terms used throughout this paragraph
are as defined under the Agreement.
3. Allocation of Net Income and Net Losses from Operations
Net income and net loss (as defined) will be allocated 99% to the limited
partners and 1% to the General Partner with certain exceptions as defined in the
Agreement.
30
The Agreement provides that the fiscal year of the Partnership will be the
calendar year and that the Partnership shall continue until December 31, 2038,
unless sooner terminated upon the occurrence of certain events.
NOTE F - ACQUISITIONS
The Partnership acquired one property and five general or limited partnership
interests in Ventures during the period from January 7, 1988, to December 1988,
and one general and one limited partnership interest in Ventures in 1989, as
discussed below.
In July 1988, the Partnership was admitted, with a 98% general partner and a 1%
limited partner interest, to a Nebraska limited partnership which owns a
building located in Omaha, Nebraska, consisting of 17 apartment units, for a
cash capital contribution of $700,000. In addition, $128,284 in acquisition
costs relating to the investment have been capitalized as part of buildings and
improvements.
In July 1988, the Partnership was admitted, with a 90% general partner interest,
to a Louisiana general partnership which owns a building located in New Orleans,
Louisiana, consisting of 68 apartment units, for a cash capital contribution of
$1,519,000. In addition, $241,173 of acquisition costs relating to the
investment have been capitalized as part of buildings and improvements. During
1990, as permanent financing was obtained, $60,000 of the capital contribution
was returned to the Partnership.
In December 1988, the Partnership acquired a 99% joint venture interest in a
Nebraska joint venture which owns a building located in Omaha, Nebraska,
consisting of 23 apartment units, for a cash capital contribution of $875,000.
In addition, $153,940 in acquisition costs relating to the investment have been
capitalized as part of buildings and improvements. These capitalized costs have
been removed from the balance sheet (see NOTE C - SUPPLE-MENTAL 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 December 1988, the Partnership was admitted, with a 97% general partner and a
1% limited partner interest, to a West Virginia limited partnership which owns a
building located in Huntington, West Virginia, consisting of 53 apartment units
and 41,590 square feet of commercial space, for a general partner cash capital
contribution of $1,470,000 and limited partner cash capital contribution of
$10,000. In addition, $492,609 of acquisition costs relating to the investment
have been capitalized as part of building and improvements. The lender
foreclosed on the property in October 1994.
In December 1988, the Partnership was admitted, with a 90% general partner
interest, to a Virginia general partnership which owns a building located in
Alexandria, Virginia, consisting of 32,544 square feet of commercial space, for
a cash capital contribution of $1,750,000. In addition, $436,164 in acquisition
costs relating to the investment have been capitalized as part of buildings and
improvements. In 1990, the Partnership made an additional cash contribution of
$196,621 pursuant to an agreement with the co-general partner.
31
In December 1988, the Partnership purchased 78 condominium units and 6,700
square feet of commercial space located in North Carolina for $5,042,000. In
addition, $774,258 of acquisition costs relating to the property have been
capitalized as part of buildings and improvements. On January 21, 1994, the
property was transferred to a Pennsylvania limited partnership in which the
partnership owns a 99% interest.
In January 1989, the Partnership was admitted, with a 98% general partner
interest, to a Nebraska general partnership which owns a building located in
Omaha, Nebraska, consisting of 70 apartments units, for a cash capital
contribution of $2,250,000. In addition, $448,993 of acquisition costs relating
to the investment have been capitalized as part of buildings and improvements.
In February 1989, the Partnership was admitted, with a 99% general partner
interest, to a Pennsylvania limited partnership which owns a building located in
Manayunk, Pennsylvania, consisting of 73 apartment units and 8,471 square feet
of commercial space, for a total cash capital contribution of $6,000,000, less
funds advanced prior to admittance ($2,431,552 at December 31, 1988). In
addition, $664,509 of acquisition costs relating to the investment have been
capitalized as part of buildings and improvements. The building was subsequently
converted to a condominium, with the Partnership retaining title to all
property. During 1990, the Partnership made additional cash contributions of
$220,000.
NOTE G - DEBT OBLIGATIONS
Debt obligations were as follows: December 31,
-------------------------
1995 1994
---------- ----------
Note payable, non-interest bearing; principal due upon sale of property; $ 500,000 $ 500,000
collateralized by related rental property
Note payable, interest at 9.73% at December 31, 1995 and 1994, adjusted 44,294 49,605
every three years, based upon the three-year Treasury Bill rate plus 250
basis points, payable in semi-annual installments of principal and
interest of $5,188 (payment adjusted in accordance with interest rate
changes); due in November 2001; collateralized by related rental property
Note payable, interest at 9.44% at December 31, 1995 and 1994, payable in 379,383 383,506
monthly installments of principal and interest of $3,346; due in August
1996; collateralized by related rental property
Note payable, interest at 8.5%, payable in monthly installments of 1,359,710 1,451,382
principal and interest of $17,627, due in April 2005; collateralized by
related rental property
32
Mortgage loan, interest accrues at prime plus .5% (effective rate of 9% 4,202,189 4,725,356
at December 31, 1995 and 1994), interest only payable monthly to the
extent of net operating income; principal due October 1998;
collateralized by related rental property. (A)
Mortgage loan, interest at 9.75%, payable in monthly installments of 895,661 0
principal and interest of $8,021; principal due June 2005; collateralized
by related rental property. (A)
Mortgage loan, interest at 12%, interest only payable monthly to the 3,583,625 0
extent of net operating income with a minimum of $25,000; principal due
August 2000; collateralized by related rental property. (B)
Note payable, interest at prime plus 1%, but not less than 10% (effective 0 1,231,623
rate of 10% at December 31, 1994), payable in monthly installment of
$11,824 (payment adjusted annually based on interest rate changes);
collateralized by related rental property. (B)
Note payable, interest at prime plus 1% (effective rate of 9.5% at 0 1,221,659
December 31, 1994), payable in monthly installments of principal and
interest of $8,537 (payment adjusted based on interest rate changes);
with maturity in January 2019 (at lender's option, note may be called on
January 1, 1995, with sixty days notice); collateralized by related
rental property. (B)
Note payable, non-interest bearing; principal due upon sale of property; 75,000 75,000
collateralized by related rental property
Note payable, interest at 10.25%; payable in monthly installments of 1,775,053 1,772,737
principal and interest of $15,540, with maturity in March 2030;
collateralized by related rental property
Note payable, interest at 1%, accruing to principal; unpaid principal and 1,700,000 1,700,000
interest are due upon sale or in January 2030; collateralized by related
rental property.
33
Note payable, interest at 7.75%; interest only payable monthly to the extent
of net operating income with a minimum of $30,000; due December 2000;
collateralized by related rental property.
4,627,000 3,915,782
----------- -----------
$19,141,915 $17,026,650
========== ==========
(A) In June 1995, the Partnership refinanced $900,000 of the first
mortgage.
(B) On February 14, 1994, the Partnership filed a reorganization petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code. LMP filed a Plan of
Reorganization and Disclosure Statement (the "Plan") on July 7, 1994.
On June 6, 1995, LMP filed the Second Plan of Reorganization (the
"Plan") and the Plan was confirmed in August 1995. The Plan provides
for the following : (1) the sale of some or all of the units to satisfy
the claims of its creditors; and (2) an extension of the maturity date
of the notes payable for three years, with the option to extend for an
additional two years if at least fifty percent (50%) of the principal
amount of the debt outstanding at the confirmation of the Plan has been
repaid. The net proceeds of the sales will be used to retire the
principal balance of the debt. A new lender has placed a wrap mortgage
on the property in the amount of $3,500,000 and has agreed to fund the
necessary costs for the marketing and any improvements to the units.
Maturities of debt obligation at December 31, 1995, were as follows:
Year Ending December 31,
1996 $ 500,699
1997 132,351
1998 4,346,580
1999 157,533
2000 8,382,417
Thereafter 5,622,335
-----------
$19,141,915
NOTE H - COMMITMENTS AND CONTINGENCIES
On August 14, 1992, Commercial Federal Realty Investors Corporation ("CFRIC"),
the owner of a 1% interest in the Saunders Apartment Joint Venture ("SAJV")
filed an action seeking damages of $275,000 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 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 ($275,000) pursuant to the original joint venture agreement. In
return, CFRIC agreed to convert $1,155,000 in amounts owed to it by SAJV to a
capital contribution, (increasing its ownership in SAJV to 70%) and will receive
100% of future income, losses, and tax credits until such time as CFRIC recovers
$430,000 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 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, SAJV is treated as a consolidated subsidiary. As of June 1, 1993,
the Partnership's interest in SAJV is treated as an equity investment.
34
On February 14, 1994, Locke Mill Partners, a limited partnership in which the
Partnership owns a 99% interest, filed a reorganization petition pursuant to
Chapter 11 of the U.S. Bankruptcy Code. On June 6, 1995, LMP filed the Second
Plan of Reorganization (the "Plan") and the Plan was confirmed in August 1995.
The Plan provides for the following : (1) the sale of some or all of the units
in order to satisfy the claims of its creditors; and (2) an extension of the
maturity date of the notes payable for three years, with the option to extend
for an additional two years if fifty percent (50%) of the principal amount of
the debt has been retired at that time. The net proceeds of the sales will be
used to retire the principal balance of the debt. The Partnership has entered
into an agreement with a new lender who has agreed to fund the necessary costs
for the marketing and any improvements to the units in return for a wrap
mortgage on the property in the amount of $3,500,000. Monthly payments of
interest to the new lender are to be made in an amount equal to net operating
income, with a minimum of $25,000 per month. The note accrues interest at 12%
and is due in August 2000.
NOTE I- EXTRAORDINARY GAINS/LOSSES
In order to forestall the lender's threatened foreclosure, on January 28, 1993
Firehouse Square General Partnership, a general partnership in which the
Partnership owns a 90% interest, filed a reorganization petition pursuant to
Chapter 11 of the U.S. Bankruptcy Code. In May 1993, the lender sold its note
and mortgage to another entity. On June 1, 1993, an agreement was entered into
with the new holder of the note and mortgage to restructure the note. The
bankruptcy was subsequently dismissed. On November 16, 1994, the first mortgage
holder foreclosed on its mortgage and subsequently sold it to a partnership
known as 901 King Street Associates which is owned 90% by DHI-VI. The
Partnership recognized extraordinary income of $1,470,000 in 1994 relating to
the extinguishment of debt in connection with the foreclosure.
In July 1991, St. James Limited Partnership ("SJLP"), a limited partnership in
which the Partnership owns a 98% interest, filed a reorganization petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code. In March 1992, a settlement
agreement was reached with the first mortgage holder. The settlement agreement
provided for modification of one loan and the use of certain escrowed funds to
pay delinquencies on another loan. In addition, the Partnership filed a
complaint against its co-general partner and United National Bank which claimed
misappropriation of monies from the deficit cash reserve account. Throughout the
rest of 1992 and 1993 the operating losses continued as occupancy did not
increase significantly in the commercial space. In addition, certain commercial
leases were scheduled to expire in 1994 and were not expected to be renewed. As
a result, it became increasingly difficult to pay the operating expenses of the
property and the monthly debt service and SJLP anticipated that its operating
income was going to decrease, rather then increase, in the near future. On
September 9, 1993, SJLP filed a reorganization petition pursuant to Chapter 11
of the U.S. Bankruptcy Code. After filing the petition, it became apparent that
there could not be a confirmable plan of reorganization without either the
Partnership making an additional equity contribution to SJLP or an extremely
favorable settlement of the complaint against the Partnership's co-general
partner in SJLP and United National Bank. Since the Registrant had no additional
sources of equity and the outcome of the co-general partner/bank suit was
uncertain, the automatic stay was lifted and the first mortgage holder
foreclosed on the property on October 21, 1994. The Partnership recognized an
extraordinary gain of $409,000 in 1994 for the difference between the book value
of the property (which approximated fair value) and the extinguished debt.
35
NOTE J - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of operations in
different time periods for financial reporting ("book") purposes and for income
tax ("tax") purposes. Reconciliations of net loss and partners' equity follow:
For the Years Ended December 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
Net loss - book ($ 2,497,861) ($ 816,728) ($ 2,555,477)
Excess of tax under book depreciation 380,754 379,925 406,905
Interest 676,241 213,252 103,525
Gain on foreclosure -0- (943,490) -0-
Other timing differences (81,401) 10,827 16,304
Minority interest - tax only 46,386 59,798 168,360
------------ ------------ ------------
Net loss - tax ($ 1,475,881) ($ 1,096,416) ($ 1,860,383)
============ ============ ============
Partners' equity - book $ 5,769,568 $ 8,267,429 $ 9,084,157
Costs of issuance 3,279,930 3,279,930 3,279,930
Cumulative tax under book loss 3,541,092 2,519,112 2,798,800
Investment credit recapture 9,900 9,900 9,900
Rehabilitation credit (251,117) (251,117) (251,117)
------------ ------------ ------------
Partner's equity - tax $ 12,349,373 $ 13,825,254 $ 14,921,670
============ ============ ============
36
SUPPLEMENTAL INFORMATION
37
DIVERSIFIED HISTORIC INVESTORS VI
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
Costs Capitalized
Initial Cost to Partnership (b) Subsquent to Acquisition
------------------------------- ------------------------
Buildings and
Description (a) Encumbrances Land (b) Improvements Improvements Land
----------- ----------- ----------- ----------- ----------
(e)
---
17 unit apartments and 3,100 square
feet of retail space in Omaha, NE $ 923,677 $ 10,000 $ 1,774,986 $ 15,454 $ 10,000
68 unit apartments in New Orleans, LA 1,359,710 -- 2,948,634 469,298 --
32,500 square feet of commercial
space in Alexandria, VA 5,097,850 540,238 5,014,827 1,157,332 540,238
78 unit condominiumsand 6,700 square feet of
commercial space in Concord, NC 3,583,625 130,926 5,748,914 10,830 130,926
I70 apartment units n Omaha, NE 3,550,053 -- 448,993 5,792,699 --
73 unit apartments and 8,500 square feet of
commercial space in Manayunk, PA 4,627,000 400,000 664,508 9,364,897 400,000
----------- ----------- ----------- ----------- ----------
$19,141,915 $ 1,081,164 $16,600,862 $16,810,510 $1,081,164
=========== =========== =========== =========== ==========
Gross Amount at which Carried at
December 31, 1995
-----------------
Buildings
and Accumulated Date of Date
Improvements Total (c) (d) Depr.(d)(f) Constr. Acquired
- - --------------- -------------- ------------- -------- --------
(a)
---
$1,790,440 $1,800,440 $ 541,884 1988 7/88
3,419,649 3,419,649 1,084,110 1988 7/88
6,243,145 6,783,383 1,667,248 1988 12/88
6,689,652 6,820,578 1,796,576 1988 12/88
6,292,047 6,292,047 1,612,141 1989 1/89
10,095,982 10,495,982 2,903,760 1989 2/89
- - --------------- -------------- -------------
$34,530,915 $35,612,079 $9,605,719
=============== ============== =============
38
DIVERSIFIED HISTORIC INVESTORS VI
(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. The "date of construction" refers to the
period in which such properties were rehabilitated.
(B) Represents costs of a parcel of land with historic building located
thereon. Amounts do not include any development/rehabilitation costs
incurred pursuant to a turnkey development agreement entered into when
the property was purchased.
(C) The cost of real estate owned at December 31, 1995, for Federal income
tax purposes was approximately $29,254,088. The depreciable basis of
the building and improvements of the properties has been reduced for
Federal income tax purposes by the historic rehabilitation credit.
(D) Reconciliation of real estate:
1995 1994 1993
----------- ------------ ------------
Balance at beginning of year $34,507,224 $ 41,460,786 $ 43,447,874
Additions during this year:
Improvements 171,516 17,167 165,374
Other increase 933,339 -0- -0-
----------- ------------ ------------
Deductions during the year:
Retirements -0- (6,970,729) -0-
Deconsolidated subsidiary -0- -0- (2,152,462)
----------- ------------ ------------
Balance at end of year $35,612,079 $ 34,507,224 $ 41,460,786
=========== ============ ============
Reconciliation of accumulated depreciation:
1995 1994 1993
----------- ------------ ------------
Balance at beginning of year $ 8,277,323 $ 8,185,818 $ 6,857,667
Depreciation expense for the year 1,328,396 1,703,576 1,779,315
Retirements -0- (1,612,071) -0-
Deconsolidated subsidiary -0- -0- (451,164)
----------- ------------ ------------
Balance at end of year $ 9,605,719 $ 8,277,323 $ 8,185,818
=========== ============ ============
(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.
39
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 VI
(DoHA-VI), a Pennsylvania general partnership. The partners of DoHA-VI are as
follows:
Name Age Position Term of Office Period Served
---- --- -------- -------------- -------------
Gerald Katzoff 49 Partner in DoHA-VI No fixed term Since January 1988
DHP, Inc. -- Partner in DoHA-VI No fixed term Since January 1988
(Formerly Dover Historic
Properties, Inc.)
For further description of DHP, Inc., 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
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-VI is a general partnership formed in
January, 1988. The partners of DoHA-VI are DHP, Inc. and Gerald Katzoff. The
general partner is responsible for the management and control of Registrant's
affairs and will have general responsibility and authority in conducting its
operations.
40
Gerald Katzoff (age 47) 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, the corporate parent of DHP, Inc.)
Dover Historic Properties, Inc., was incorporated in Pennsylvania in
December 1984 for the purpose of sponsoring investments in, rehabilitating,
developing and managing historic (and other) properties. In February 1992, Dover
Historic Properties, Inc.'s name was changed to DHP, Inc. DHP, Inc. is a
subsidiary of The Dover Group 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 DHP, Inc. are
described below.
Michael J. Tuszka (age 50) was appointed Chairman and Director of both
D,Ltd and DHP, Inc. on January 27, 1993. Mr. Tuszka has been associated with
DHP, Inc. and its affiliates since 1984.
Donna M. Zanghi (age 39) was appointed Secretary/Treasurer of DHP, Inc.
on June 15, 1993. She is also a Director, Secretary/Treasurer of D,Ltd. She has
been associated with DHP, Inc. and its affiliates since 1984 except for the
period from December 1986 to June 1989 and the period from November 1, 1992 to
June 14, 1993.
Michele F. Rudoi, (age 32) was appointed on January 27, 1993 as
Assistant Secretary of both D,Ltd and DHP, Inc. and Director of D,Ltd.
Item 11. Executive Compensation
a. Cash Compensation - During 1994, Registrant paid no cash
compensation to DoHA-VI, 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-VI, any partner therein, or any
person named in paragraph c. of Item 10 of this report.
c. Other Compensation - No compensation not referred to in paragraph a.
or paragraph b. of this Item was paid or distributed during 1995 to DoHA-VI, any
partner therein, or any person named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no directors.
41
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-VI is entitled to 10% of Registrant's distributable cash from
operations in each year. There was no such share allocable to DoHA-VI for fiscal
years 1993 through 1995.
b. Certain Business Relationships - Registrant has no directors. For a
description of business relationships between Registrant and certain affiliated
persons, see paragraph a. of this Item.
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.
42
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.
43
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 VI
Date: July 19, 1996 By: Dover Historic Advisors VI, General Partner
-------------
By: DHP, 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 VI General Partner
By: DHP, Inc., Partner
By: /s/ Donna M. Zanghi July 19, 1996
---------------------------------- -------------
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi July 23, 1996
---------------------------------- -------------
MICHELE F. RUDOI,
Assistant Secretary
44