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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, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file 33-15597
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DIVERSIFIED HISTORIC INVESTORS V
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2479468
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1609 WALNUT STREET, PHILADELPHIA, PA 19103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 11,142 Units
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
* Securities not quoted in any trading market to Registrant's
knowledge.
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors V ("Registrant") is
a limited partnership formed in 1987 under Pennsylvania Law. As of
December 31, 1998, Registrant had outstanding 11,142 units of limited
partnership interest (the "Units").
Registrant is currently in its operating stage.
It originally owned three properties or interests therein; however, in
October 1996, its interest in one property was sold. It currently
owns two properties or interests therein. See Item 2. Properties, for
a description thereof. For a discussion of the operations of the
Registrant, See Part II. Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
b. Financial Information about Industry Segments
The Registrant operates in one industry segment.
c. Narrative Description of the 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"), for use as apartments, offices, hotels and commercial spaces,
or any combination thereof, or low income housing eligible for the
investment 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
partnership in which it has an interest, have been rehabilitated and
certified as historic structures and have received the related
investment tax credit. One of the Registrant's properties is being
held for rental operations and one is being held for hotel operations.
At this time it is anticipated that these properties will continue to
be held for those purposes. At such time as real property values in
the areas in which the properties are located begin to increase, the
Registrant will re-evaluate its investment strategy regarding the
properties.
As of December 31, 1998, Registrant owned two
properties (or interests therein), located in Nebraska (one) and
Pennsylvania (one). The Properties contain 89 hotel rooms and 21
apartment units. As of December 31, 1998, 16 of the apartment units
were under lease at monthly rental rates ranging from $425 to $610.
During 1998, the hotel maintained an average nightly room rate of
$82.16 and average occupancy of 39%. Rental of the apartment units is
not expected to be seasonal. However, the hotel does experience
seasonal changes, with the busiest months being June and September and
the slowest months being January and December. 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 hotel real
estate industries. As a result of the overbuilding that occurred in
the 1980's, the competition for residential tenants in the local
market where the Registrant's residential property is located is
generally strong. As a result, the Registrant is forced to keep its
rent levels competitively low in order to maintain moderate to high
occupancy levels. The residential property currently owned by the
Registrant is located in a suburb of Philadelphia, Pennsylvania in
which there are several similar historically certified rehabilitated
buildings. The Registrant's main competitors in this market are
organizations that own similar residential buildings. In this area,
the apartment market remains stable and new construction remains
virtually nonexistent although the availability of favorable home
financing has placed pressure on the rental tenant base. The hotel is
located in downtown Omaha, Nebraska and relies heavily on business
travelers to the city. It recently began an aggressive marketing
campaign intended to attract tourists to the hotel by offering weekend
packages and is exploring an affiliation with a major hotel chain.
The main competition to the hotel comes from other chain hotels in the
area, especially hotels located closer to the airport.
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 the date hereof, Registrant owned two Properties,
or interests therein. A summary description of each property held at
December 31, 1998 is given below.
a. Redick Plaza Hotel is an historically-certified
building located at 1504 Harney Street, Omaha, Nebraska. In December
1987, the Registrant acquired a 100% equity ownership interest in this
property. The property has been rehabilitated as an 89-room hotel.
Additionally, the property has a restaurant with a seating capacity
for 160, 3,500 square feet ("sf") of meeting/banquet space, and 45,510
sf of garage space (119 covered spaces). The acquisition and
rehabilitation price of this property was approximately $9,500,000
($71 per sf), financed in part by industrial revenue bonds from the
City of Omaha of $6,500,000 (principal balance at December 31, 1998 of
$6,659,990). On February 9, 1995, the Registrant refinanced the
outstanding bonds that lowered the interest rate from 7.75% to a
variable rate based on market rates, with a maximum rate of 7.75%.
Payments of interest only were due on the bonds monthly beginning
March 2, 1995 and the entire principal balance was due on November 1,
1996. In October 1996, Redick Plaza Hotel, was transferred to 1504
Harney Street Associates ("HSA") a limited partnership in which the
Registrant owns a 99% interest. HSA was unable to pay the bonds as
they became due, and on October 28, 1996, HSA filed a reorganization
petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. In July
1997, the loan was sold and the bankruptcy dismissed. The Registrant
entered into an agreement with the new holder of the note whereby
monthly payments of interest are to be made to the new note holder in
an amount equal to net operating income and the due date extended to
September 30, 2002 and the interest rate was increased to 14%. In
September, 1998, a second lender advanced $500,000 to fund
improvements to the hotel. The new note has an interest rate of 10%
and is due on March 29, 1999.
The property is managed by BCMI. Average
occupancy was 39% in 1998 at an average room rate of $82.16. The
occupancy for the previous four years was 53% for 1997, 73% for 1996,
83% for 1995 and 72% for 1994. The average room rates were $91.88 for
1997, $92.15 for 1996, $94.24 for 1995 and $90.84 for 1994. For tax
purposes, this property has a basis of $10,626,692 and is depreciated
using the straight-line method with a useful life of 31.5 years. The
annual real estate taxes are $107,139 which is based on an assessed
value of $3,818,100 taxed at a rate of $2.80608 per $100. It is the
opinion of the management of the Registrant that the property is
adequately covered by insurance.
b. The Lofts at Red Hill is an historically-
certified, four-story former factory located at 350 Main Street, Red
Hill Borough, Pennsylvania. In December 1987, the Registrant acquired
the building and is the 100% equity owner of this property. The
property was rehabilitated as a 21-unit rental residential complex.
The acquisition and rehabilitation price of this property was
approximately $1,350,000 ($81 per sf). In September 1997, a mortgage
was placed on the property in the amount of $400,000 (principal
balance of $406,984 at December 31, 1998). The note accrues interest
at 14% and is payable at 10% interest monthly with the entire
principal balance due October 1, 2002. The proceeds from the mortgage
were utilized to satisfy certain outstanding liabilities of the
Registrant.
The property is managed by BCMI. As of December
31, 1998, 16 apartment units were under lease (76%) at monthly rental
rates ranging from $425 to $610. All leases are renewable, one-year
leases. The occupancy for the previous four years was 92% for 1997,
78% for 1996, 90% for 1995 and 85% for 1994. The monthly rental range
has been approximately the same since 1994. For tax purposes, this
property has a basis of $1,478,232 and is depreciated using the
straight-line method with a useful life of 27.5 years. The annual
real estate taxes are $14,361 which is based on an assessed value of
$42,700 taxed at a rate of $31.35 per $100. No one tenant occupies
ten percent or more of the building. It is the opinion of the
management of the Registrant that the property is adequately covered
by insurance.
Item 3. Legal Proceedings
a. For a description of legal proceedings involving
Registrant's properties, see Part I, Item 2 and Part II, Item 7.
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.
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 60 units were sold
or exchanged of record in 1998.
b. As of December 31, 1998, there were 1,348 record
holders of Units.
c. Registrant did not declare any cash dividends in
1998 or 1997.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1998. The data should be read in conjunction
with the consolidated financial statements included elsewhere herein.
This data is not covered by the independent auditors' report.
1998 1997 1996 1995 1994
Rental income $ 121,383 $ 120,685 $ 767,508 $1,205,122 $1,162,137
Hotel income 1,131,690 1,755,787 2,387,200 2,548,434 2,442,274
Interest income 2,295 17,449 7,024 4,576 3,218
Net loss (2,777,858) (2,211,312) (607,725) (712,598) (827,606)
Net loss per Unit (246.82) (196.48) (54.00) (63.32) (73.54)
Total assets (net of
depreciation and
amortization) 6,764,832 7,964,174 9,046,109 13,517,285 14,035,936
Debt obligations 7,566,974 6,804,113 6,163,254 10,436,965 10,366,177
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Liquidity
As of December 31, 1998, Registrant had cash of
$13,986. Such funds are expected to be used to pay liabilities and
general and administrative expenses of Registrant, and to fund cash
deficits of the properties. Cash generated from operations is used
primarily to fund operating expenses and debt service. If cash flow
proves to be insufficient, the Registrant will attempt to negotiate
loan modifications with the various lenders in order to remain current
on all obligations. The Registrant is not aware of any additional
sources of liquidity.
As of December 31, 1998, Registrant had restricted
cash of $263,862 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.
(2) Capital Resources
Any capital expenditures needed are generally
replacement items and are funded out of cash from operations or
replacement reserves, if any. The Registrant is not aware of any
factors which would cause historical capital expenditure levels not to
be indicative of capital requirements in the future and accordingly,
does not believe that it will have to commit material resources to
capital investment for the foreseeable future. However, in 1998 at
the Redick Plaza Hotel, the Registrant obtained a loan for $500,000 to
fund capital improvements at the property in order to improve the
competitive position of the property. Except for the Redick Plaza
Hotel improvement program, which was completed in the first quarter of
1999.
(3) Results of Operations
During 1998, Registrant incurred a net loss of
$2,777,858 ($246.82 per limited partnership unit) compared to a net
loss of $2,211,312 ($196.48 per limited partnership unit) in 1997 and
a net loss of $607,725 ($54.00 per limited partnership unit) in 1996.
Rental and hotel income combined decreased from
$3,154,708 in 1996 to $1,876,472 in 1997 to $1,253,073 in 1998. The
decrease from 1997 to 1998 is the result of a decrease in hotel income
of $624,000 and an increase in rental income of $1,000. The decrease
in hotel income is due to a decrease in the average occupancy (53% to
39%) and a decrease in the average nightly room rate ($91.88 to
$82.16) at the Redick Plaza Hotel. The increase in rental income is
due to a new commercial tenant that operates as a barber shop. The
decrease from 1996 to 1997 is the result of a decrease in rental
income of $647,000 and a decrease of $631,000 in hotel income. The
decrease in rental income is mainly attributable to the sale in 1996
of one of the Registrant's rental properties partially offset by an
increase in rental income at the Lofts at Red Hill due to an increase
in the average occupancy. The decrease in hotel income is due to a
decrease in the average occupancy (73% to 53%) and a decrease in the
average nightly room rate ($92.15 to $91.88) at the Redick Plaza
Hotel.
Expense for rental operations decreased from
$605,294 in 1996 to $196,216 in 1997 and $88,874 in 1998. The
decrease from 1997 to 1998 is due to a decrease in legal fees. Legal
fees were incurred in 1997 related to the bankruptcy proceedings at
the Redick Plaza Hotel. See Item 2.a. The decrease from 1996 to 1997
is due to an overall decrease in operating expenses in 1997 as a
result of the sale of one of the Registrant's rental properties.
Hotel operations expense decreased from $2,237,857 in 1996 to
$1,828,128 in 1997 to $1,607,056 in 1998. The decrease from 1996 to
1997 and the decrease from 1997 to 1998 is due to an overall decrease
in operating expenses due to the decrease in average occupancy.
General and administrative expenses increased from
$98,859 in 1996 to $548,996 in 1997 and decreased to $63,996 in 1998.
The decrease from 1997 to 1998 is due to a decrease in administrative
fees charged due to the sale of St. Mary's Market in 1996 and a
decrease in fees incurred in connection with the bankruptcy at the
Redick Plaza Hotel. The increase from 1996 to 1997 and the decrease
from 1997 to 1998 is the result of administrative fees incurred in the
third quarter of 1997 in connection with the bankruptcy and subsequent
negotiations with the new mortgage holder at the Redick Plaza Hotel.
Interest expense increased from $662,031 in 1996
to $989,390 in 1997 to $1,011,704 in 1998. The increase from 1997 to
1998 is due to the Lofts at Red Hill having twelve month's interest
expense on the mortgage financing incurred in September 1997 in 1998
compared to having only four months of interest expense in 1997. The
increase from 1996 to 1997 is the result of an increase in the
interest rate on the financing with respect to the Redick Plaza Hotel
and the commencement of interest expense at the Lofts at Red Hill due
to the new loan partially offset by the sale of one of the
Registrant's rental properties and consequent discharge of the related
financing.
Depreciation and amortization expense decreased
from $820,712 in 1996 to $542,504 in 1997 and increased to $584,544 in
1998. The increase from 1997 to 1998 is due to twelve months of
amortization of loan costs in 1998 at both the Redick Plaza Hotel and
the Lofts at Red Hill compared to partial years of amortization
expense in 1997. The decrease from 1996 to 1997 is the result of the
sale of one of the Registrant's rental properties and loan costs at
the Redick Plaza Hotel becoming fully amortized in November 1996
partially offset by the amortization of loan fees incurred in
connection with refinancing of the Redick Plaza Hotel.
Impairment loss increased from $0 in 1996 and 1997
to $677,052 in 1998. During 1998, the Redick Plaza Hotel was deemed
to be impaired and was written down to its fair value. Fair value,
which was determined by reference to the present value of the
estimated future cash inflows exceeded the carrying value by $677,052.
An impairment loss of that amount (included in other expenses) has
been charged to operations in 1998.
Of the total 1998 loss, a loss of approximately
$1,962,000 was incurred at the Registrant's three properties compared
to a loss of approximately $1,561,000 in 1997 and $501,000 in 1996. A
discussion of property operations/activities follows.
In 1998, Registrant incurred a loss of $1,888,000
at the Redick Plaza Hotel, including $462,000 of depreciation and
amortization expense, compared to a loss of $1,506,000, including
$453,000 of depreciation and amortization expense, in 1997 and a loss
of $782,000, including $574,000 of depreciation expense, in 1996. The
increase in the loss from 1997 to 1998 is the result of a decrease in
hotel income due to a decrease in the average occupancy (53% to 39%)
partially offset by an overall decrease in operating expenses due to
the decrease in occupancy. The occupancy decreased due to the
conversion to an independent hotel from an affiliation with the
Radisson chain of hotels. The Registrant is in the process of
negotiating with a major chain of hotels to increase occupancy. The
increase in the loss from 1996 to 1997 is mainly due to decrease in
hotel income due to a decrease in the average occupancy (73% to 53%)
and an increase in interest expense as a result of the increase in the
interest rate of the first mortgage. The decrease is partially offset
by an overall decrease in operating expenses due to the decrease in
the average occupancy. The occupancy decreased due to the conversion
to an independent hotel from an affiliation with the Radisson chain of
hotels.
In 1997, Registrant incurred a loss of $25,000
with respect to accounts receivable balances held in connection with a
property that it sold in 1996. These balances were deemed
uncollectable In 1996, the Registrant has recorded income of $319,000,
including $189,000 of depreciation expense and included in income in
1996 is a gain of $586,000 related to the sale of the building.
In 1998, Registrant incurred a loss of $74,000 at
the Lofts at Red Hill including $61,000 of depreciation and
amortization expense compared to a loss of $30,000 including $59,000
of depreciation expense in 1996 and a loss of $38,000 including
$58,000 of depreciation expense in 1996. The increase in the loss
from 1997 to 1998 is due to the Lofts at Red Hill having twelve
month's interest expense on the mortgage financing incurred in
September 1997 in 1998 compared to having only four months of interest
expense in 1997. The decrease in the loss from 1996 to 1997 is due to
an increase in rental income due to an increase in the average
occupancy (78% to 92%) partially offset by an increase in interest
expense due to the new note (See Part 2. Properties.)
Item7A. Quantitative and Qualitative Disclosures about Market
Risk
Not applicable.
Item 8. Financial Statement and Supplementary Data
Registrant is not required to furnish the supplementary
financial information referred to in Item 302 of Regulations S-K.
Independent Auditor's Report
To the Partners
Diversified Historic Investors V
We have audited the accompanying consolidated balance sheet of
Diversified Historic Investors V (a Pennsylvania Limited Partnership)
and subsidiaries as of December 31, 1998 and 1997 and the related
statements of operations and changes in partners' equity and cash
flows for the years ended December 31, 1998, 1997 and 1996. These
consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the 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 audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Diversified Historic Investors V as of December 31, 1998 and 1997,
and the results of operations and cash flows for the years ended
December 31, 1998, 1997 and 1996 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedule of Real
Estate and Accumulated Depreciation on page 21 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.
The accompanying financial statements have been prepared assuming that
the partnership will continue as a going concern. In recent years,
the partnership has incurred significant losses from operations, which
raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
February 19, 1999
DIVERSIFIED HISTORIC INVESTORS V
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1998 and 1997 11
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996 12
Consolidated Statements of Changes in Partners' Equity for
the Years Ended December 31, 1998, 1997, and 1996 13
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996 14
Notes to consolidated financial statements 15-19
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 21
Notes to Schedule XI 22
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
DIVERSIFIED HISTORIC INVESTORS V
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
Assets
1998 1997
Rental properties at cost:
Land $ 347,955 $ 347,955
Buildings and improvements 10,322,476 10,976,514
Furniture and fixtures 1,121,539 1,175,768
---------- ----------
11,791,970 12,500,237
Less - accumulated depreciation (5,752,945) (5,284,345)
---------- ----------
6,039,025 7,215,892
Cash and cash equivalents 13,986 57,736
Restricted cash 263,862 176,129
Accounts and notes receivable 99,954 117,468
Other assets (net of amortization
of $365,187 and $319,567, respectively) 348,005 396,949
---------- ----------
Total $ 6,764,832 $ 7,964,174
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 7,566,974 $ 6,804,113
Accounts payable:
Trade 578,973 385,613
Related parties 33,656 55,000
Taxes 95,258 35,123
Interest payable 1,498,851 869,660
Accrued liabilities 33,447 77,899
Tenant security deposits 8,145 9,380
---------- ----------
Total liabilities 9,815,304 8,236,788
---------- ----------
Partners' equity (3,050,472) (272,614)
---------- ----------
Total $ 6,764,832 $ 7,964,174
========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS V
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
Revenues:
Rental income $ 121,383 $ 120,685 $ 767,508
Hotel income 1,131,690 1,755,787 2,387,200
Interest income 2,295 17,449 7,024
Gain on sale of property 0 0 655,296
--------- --------- ---------
Total revenues 1,255,368 1,893,921 3,817,028
--------- --------- ---------
Costs and expenses:
Rental operations 88,874 196,215 605,294
Hotel operations 1,607,056 1,828,128 2,237,857
General and administrative 63,996 548,996 98,859
Interest 1,011,704 989,390 662,031
Depreciation and amortization 584,544 542,504 820,712
Impairment loss 677,052 0 0
--------- --------- ---------
Total costs and expenses 4,033,226 4,105,233 4,424,753
--------- --------- ---------
Net loss ($2,777,858) ($2,211,312) ($ 607,725)
========= ========= =========
Net loss per limited partnership unit ($ 246.82) ($ 196.48) ($ 54.00)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS V
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
Dover
Historic Limited
Advisors V (1)Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1995 ($143,689) $2,690,112 $2,546,423
Net loss (6,077) (601,648) (607,725)
------- --------- ---------
Balance at December 31, 1996 (149,766) 2,088,464 1,938,698
Net loss (22,113) (2,189,199) (2,211,312)
------- --------- ---------
Balance at December 31, 1997 (171,879) (100,735) (272,614)
Net loss (27,779) (2,750,079) (2,777,858)
------- --------- ---------
Balance at December 31, 1998 ($199,658) ($2,850,814)($3,050,472)
======= ========= =========
(1) General Partner.
(2) 11,142 limited partnership units outstanding at December 31,
1998, 1997, and 1996.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS V
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net loss ($2,777,858) ($2,211,312) ($ 607,725)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization 584,544 542,504 820,712
Impairment loss 677,052 0 0
Gain on sale 0 0 (655,296)
Changes in assets and liabilities:
(Increase) decrease in restricted cash (87,733) (167,173) 232,280
Decrease (increase) in accounts and notes
receivable 17,514 55,401 (85,222)
(Increase) decrease in other assets (67,000) (400,613) 1,116,709
Increase (decrease) in accounts payable
- trade 193,360 (131,681) 189,190
(Decrease) increase in accounts payable
- related parties (21,344) (75,063) 143,012
Increase (decrease) in accounts payable
- taxes 60,135 (8,961) 3,760
Increase in interest payable 629,191 710,698 152,085
Decrease in accrued liabilities (44,452) (5,130) (57,646)
Decrease in tenant security deposits (1,235) (1,344) (3,667)
Net cash (used by) provided by --------- --------- ---------
operating activities (837,826) (1,692,674) 1,248,192
--------- --------- ---------
Cash flows from investing activities:
Assets disposed of 73,000 0 0
Capital expenditures (41,785) (17,163) (170,375)
Net cash provided by (used in) --------- --------- ---------
investing activities 31,215 (17,163) (170,375)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under debt obligations 762,861 640,862 20,939
Repayments of debt financing 0 0 (12,899)
Net cash provided by financing --------- --------- ---------
activities 762,861 640,862 8,040
--------- --------- ---------
(Decrease) increase in cash and cash
equivalents (43,750) (1,068,975) 1,085,857
Cash and cash equivalents at beginning of year 57,736 1,126,711 40,854
--------- --------- ---------
Cash and cash equivalents at end of year $ 13,986 $ 57,736 $1,126,711
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 382,513 $ 278,692 $ 509,946
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS V
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors V (the "Partnership") is a Pennsylvania
limited partnership formed in July 1987 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 (the
"Code"), or which were eligible for designation of such, and to engage
in any and all activities related or incidental thereto. Any
rehabilitations undertaken by the Partnership were done with a view to
obtaining certification of expenditures therefore as "qualified
rehabilitation expenditures" as defined in the Code.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies 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 a subsidiary partnership (the "Venture"), in which the
Partnership has a 95% equity interest, with appropriate elimination of
inter-partnership transactions and balances. These financial
statements reflect all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of the General Partner,
are necessary for a fair statement of 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.
3. Net Loss Per Limited Partnership Unit
The net loss per limited partnership unit is based on the weighted
average number of limited partnership units outstanding (11,142 in
1998, 1997, and 1996).
4 Income Taxes
Income taxes or credits resulting from earnings or losses are payable
by or accrue to the benefit of the partners; accordingly, no provision
has been made for income taxes in these financial statements.
5. Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased with
a maturity of less than three months to be cash equivalents.
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. Deferred Expenses
Loan fees have been incurred with respect to certain loans. Such fees
were deferred and are being amortized over the term of the related
loans.
9. Rental Properties
Rental properties are stated at cost. A provision for impairment of
value is recorded when a decline in value of property is determined to
be other than temporary as a result of one or more of the following:
(1) a property is offered for sale at a price below its current
carrying value, (2) a property has significant balloon payments due
within the foreseeable future for which the Partnership does not have
the resources to meet, and anticipates it will be unable to obtain
replacement financing or debt modification sufficient to allow it to
continue to hold 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 it to continue to hold 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.
11. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
NOTE C - IMPAIRMENT LOSS
During 1998, the Redick Plaza Hotel was deemed to be impaired and was
written down to its fair value. Fair value, which was determined by
reference to the present value of the estimated future cash inflows
exceeded the carrying value by $677,052. An impairment loss of that
amount (included in other expenses) has been charged to operations in
1998.
NOTE D - PARTNERSHIP AGREEMENT
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 11,142 limited partnership units were sold. After payment of costs
of issuance as provided for in the Agreement and the withdrawal of the
initial limited partner, initial Partnership capital was $9,722,760
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 the additional limited partners, all distributable cash from
operations (as defined) will be distributed 99% to the limited
partners and 1% to the General Partner. The General Partner also
receives an incentive management fee equal to 4% of available cash (as
defined).
All distributable cash from sales or dispositions (as defined) will be
distributed to the limited partners equal to their adjusted invested
capital (as defined) 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 (as defined), less amounts previously
distributed (as defined); thereafter, after receipt by the General
Partner or its affiliates of any accrued but unpaid real estate
brokerage commissions, the balance will be distributed 15% to the
General Partner and 85% to the limited partners.
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.
The Agreement provides that the fiscal year of the Partnership will be
the calendar year and that the partnership shall continue until
December 31, 2037, unless sooner terminated upon the occurrence of
certain events.
NOTE E - ACQUISITIONS
The Partnership acquired two properties and one general partnership
interest in a Venture during December 1987, as discussed below.
The Partnership purchased a four-story building located in
Pennsylvania for an acquisition and rehabilitation price of
$1,325,000.
The Partnership purchased an 89-room hotel located in Nebraska. The
acquisition and rehabilitation price of this property was $9,500,000.
The Partnership was admitted, with a 95% general partner interest, to
a Pennsylvania limited partnership which owned a building located in
Louisiana consisting of 105 units and 6,900 square feet of commercial
space, for a cash contribution of $3,450,000. This property was sold
in October 1996.
NOTE F- DEBT OBLIGATIONS
Debt obligations consist of the following:
December 31,
1998 1997
Variable rate insured Industrial Development Bonds due $6,659,990 $6,404,574
September 30, 2002; interest only payable monthly to
the extent of net operating income; collateralized by
the related property.
Note payable, interest accrues at 10%; principal due 500,000 0
March 29, 1999
Note payable, interest accrues at 14%; payable at 10%
monthly; principal due October 1, 2002. 406,984 399,539
--------- ---------
$7,566,974 $6,804,113
========= =========
Annual principal payments of debt obligations are as follows:
Year Ending December 31,
1999 $ 500,000
2000 0
2001 0
2002 7,056,974
2003 0
---------
$7,566,974
=========
NOTE G - COMMITMENTS AND CONTINGENCIES
In October 1996, a property owned by the Partnership, Redick Plaza
Hotel, was transferred to 1504 Harney Street Associates ("HSA") a
limited partnership in which the Partnership owns a 99% interest. HSA
was unable to pay the bonds as they became due, and on October 28,
1996, HSA filed a reorganization petition pursuant to Chapter 11 of
the U.S. Bankruptcy Code. In July 1997, the loan was sold and the
bankruptcy dismissed. The Partnership entered into an agreement with
the new note holder of the note whereby monthly payments of interest
are to be made to the new note holder in an amount equal to net
operating income.
NOTE H - SALE OF ST. MARY'S MARKET
On October 10, 1996, a property held by the Registrant through a
partnership sold its property to Residence Inn by Marriott, Inc for
$6,270,000. After payment of the existing first mortgage loan balance
of $4,432,356 and other selling costs, the net proceeds of the sale
were approximately $1,171,000.
NOTE I - TRANSACTIONS WITH RELATED PARTIES
Included in Accounts Payable - Related Parties was $33,656 at December
31, 1998 and 1997 owed to the co-general partners of one of the
Partnerships Ventures, for amounts owed in connection with the sale of
St. Mary's Market.
Included in Accounts Payable - Related Parties was $O and $16,344 at
December 31, 1998 and 1997, respectively, owed to the guarantor of the
bonds at one of the Partnerships properties.
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. A reconciliation of the
results of operations follows:
For the Years Ended December 31,
1998 1997 1996
Net loss - book ($2,777,858) ($2,211,312) ($607,725)
Excess of book over tax depreciation 98,002 85,758 12,815
Minority interest - tax only (18,126) (14,399) (122,089)
Impairment loss 677,052 0 0
Gain on sale 0 0 240,055
--------- --------- -------
Net loss - tax ($2,020,930) ($2,139,953) ($476,944)
========= ========= =======
Partners' equity - book ($3,050,472) ($ 272,614) $1,938,698
Costs of issuance 1,419,240 1,419,240 1,419,240
Cumulative book over tax loss 1,930,232 1,173,304 1,101,945
Facade easement donation (tax only) (612,750) (612,750) (612,750)
--------- --------- ---------
Partners' equity - tax ($ 313,750) $1,707,180 $3,847,133
========= ========= =========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS V
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
Initial Cost to
Partnership
Buildings
and Date of Date
Description (a) Encumbrances Land Improvements Constr. (a) Acquired
(e)
21 unit condominium
Complex in Red Hill, $ 406,984 $ 61,046 $ 1,461,413 1987 12/31/87
PA
105 apartment units
and
6,900 square feet of
commercial space in
New Orleans, LA - - - 1988 12/30/87
89 room hotel in
Omaha, NE 7,159,990 286,909 10,166,705 1986-1987 12/28/87
--------- ------- ----------
$7,566,974 $347,955 $11,628,118
========= ======= ==========
Costs Gross Amount at which Carried
Capitalized at December 31, 1998
Subsequent
to
Acquisition
Buildings
and Accumulated
Description (a) Improvements Land Improvements Total Depr.
(b)(c) (c) (d)
21 unit condominium
complex in Red Hill, - $61,046 $ 1,463,562 $ 1,524,608 $ 652,895
PA
105 apartment units
and
6,900 square feet of
commercial space in
New Orleans, LA - - 67,312 67,312
89 room hotel in
Omaha, NE 116,598 286,909 9,913,141 10,200,050 5,100,050
------- ------- ---------- ---------- ---------
$116,598 $347,955 $11,444,015 $11,791,970 $5,752,945
======= ======= ========== ========== =========
DIVERSIFIED HISTORIC INVESTORS V
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1998
(A) All properties are certified historic structures as defined in
the Internal Revenue Code of 1986, or are eligible for
designation as such. The "date of construction" refers to the
period in which such properties are rehabilitated.
(B) The cost of real estate owned at December 31, 1998, for Federal
income tax purposes was approximately $12,104,924. However,
the depreciable basis of buildings and improvements for the
Omaha and Red Hill properties was reduced for Federal income
tax purposes by 50% of the historic rehabilitation credit
obtained.
(C) Reconciliation of land, buildings and improvements:
1998 1997 1996
Balance at beginning of year $12,500,237 $12,483,074 $19,507,622
Additions during the year:
Improvements 41,785 17,163 170,375
Deductions during the year:
Impairment loss (677,052) 0 0
Sale of property (73,000) 0 (7,194,923)
---------- ---------- ----------
Balance at end of year $11,791,970 $12,500,237 $12,483,074
========== ========== ==========
Reconciliation of accumulated depreciation:
1998 1997 1996
Balance at beginning of year $ 5,284,345 $ 4,777,178 $ 6,514,441
Depreciation expense for the year 468,600 507,167 695,508
Deductions during the year 0 0 (2,432,771)
---------- ---------- ----------
Balance at end of year $ 5,752,945 $ 5,284,345 $ 4,777,178
========== ========== ==========
(D) See Note B to the consolidated financial statements for
depreciation method and lives.
(E) See Note E to the consolidated financial statements for further
information.
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 V (DoHA-V), a Pennsylvania general partnership. The
partners of DoHA-V are as follows:
Name Age Position Term of Office Period Served
SWDHA, Inc. -- Partner in DoHA-V No fixed term Since May 1997
EPK, Inc. -- Partner in DoHA-V No fixed term Since May 1997
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 a property management and partnership
administration firm engaged by the Registrant.
d. Family Relationships. There is no family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DoHA-V is a general
partnership formed in 1988. The General Partner is responsible for
management and control of Registrant's affairs and will have general
responsibility and authority in conducting its operations. The
General Partner may retain its affiliates to manage certain of the
Properties.
On May 13, 1997, SWDHA, Inc. replaced Gerald
Katzoff and EPK, Inc. replaced DHP, Inc. as partners of DoHA-V.
Spencer Wertheimer, the President of SWDHA, Inc., is an attorney with
extensive experience in real estate activities ventures.
EPK, Inc. is a Delaware corporation formed for the
purpose of managing properties or interests therein. EPK, Inc. is a
wholly-owned subsidiary of D, LTD, an entity formed in 1985 to act as
the holding company for various corporations engaged in the
development and management of historically certified properties and
conventional real estate as well as a provider of financial (non-
banking) services. EPK, Inc. is an affiliate of DoHA-V.
The officers and directors of EPK, Inc. are
described below.
Spencer Wertheimer was appointed on May 13, 1997
as President, Treasurer and Sole Director of EPK, Inc. Mr. Wertheimer
is an attorney with extensive experience in real estate activities
ventures.
Donna M. Zanghi (age 41) was appointed on May 13,
1997 as Vice President and Secretary of EPK, Inc. Ms. Zanghi
previously served as Secretary and Treasurer of DHP, Inc. since June
14, 1993 and as a Director and Secretary/Treasurer of D, LTD. She was
associated with DHP, Inc. and its affiliates since 1984 except for the
period from December 1986 to June 1989 and the period from November 1,
1992 to June 14, 1993.
Michele F. Rudoi (age 33) was appointed on May 13,
1997 as Assistant Secretary of EPK, Inc. Ms. Rudoi previously served
as Assistant Secretary and Director of both D, LTD and DHP, Inc. since
January 27, 1993.
Item 11. Executive Compensation
a. Cash Compensation - During 1998, Registrant has
paid no cash compensation to DoHA-V, any partner therein or any person
named in paragraph c. of Item 10.
b. Compensation Pursuant to Plans - Registrant has no
plan pursuant to which compensation was paid or distributed during
1998, or is proposed to be paid or distributed in the future, to DoHA-
V, 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 1998 to DoHA-V, any partner therein, or any person
named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no
directors.
e. Termination of Employment and Change of Control
Arrangement -
Registrant has no compensatory plan or arrangement, with respect to
any individual, which results or will result from the resignation or
retirement of any individual, or any termination of such individual's
employment with Registrant or from a change in control of Registrant,
or a change in such individual's responsibilities following such a
change in control.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a. Security Ownership of Certain Beneficial Owners -
No person is known to Registrant to be the beneficial owner of more
than five percent of the issued and outstanding Units.
b. Security Ownership of Management - No equity
securities of Registrant are beneficially owned by any person named in
paragraph c. of Item 10.
c. Changes in Control - Registrant does not know of
any arrangement, the operation of which may at a subsequent date
result in a change in control of Registrant.
Item 13. Certain Relationships and Related Transactions
a. Pursuant to Registrant's Amended and Restated
Agreement of Limited Partnership, DoHA-V is entitled to 10% of
Registrant's distributable cash from operations in each year. There
was no such share allocable to DoHA-V for fiscal years 1996 through
1998.
b. Certain Business Relationships - Registrant has no
directors.
c. Indebtedness of Management - No 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.
PART V
Item 14. (A) Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1998
and 1997.
b. Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996.
c. Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1998, 1997 and 1996.
d. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996.
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI - Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(a) Exhibit Number Document
3 Registrant's Amended and Restated
Certificate of Limited Partnership and
Agreement of Limited Partnership,
previously filed as part of Amendment
No. 2 of Registrant's Registration
Statement on Form S-11, are
incorporated herein by reference.
21 Subsidiaries of the Registrant are
listed in Item 2. Properties of this
Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the
quarter ended December 31, 1998.
(c) Exhibits:
See Item 14(A)(3) above.
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 V
Date: April 26, 1998 By: Dover Historic Advisors V, General Partner
--------------
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi
-----------------------
MICHELE F. RUDOI,
Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
DOVER HISTORIC ADVISORS V General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer April 26, 1998
------------------------ --------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi April 26, 1998
------------------------- --------------
MICHELE F. RUDOI,
Assistant Secretary