Item 1. Business
a. General Development of Business
Diversified Historic Investors VII ("Registrant") is a limited partnership formed in 1988 under the Pennsylvania Uniform Limited Partnership Act. As of December 31, 1996, Registrant had outstanding 17,839 units of limited partnership interest (the "Units").
Registrant is presently in its operating stage. It originally owned seven properties or interests therein. Interests in two properties have been lost through foreclosure of the properties, and interests in two others have been reduced substantially. See Item 2.
Item 2.c. Properties for a description of the Amended Plan. Due to insufficient cash flow generated by the property, SSJV ceased making debt service payments in January 1995. The loan was declared in default by the lender and, on March 30, 1995, the deed to the property, which was held in escrow pursuant to the Amended Plan, was delivered to the first mortgage holder.
On August 14, 1992, Commercial Federal Realty Investors Corporation ("CFRIC"), the owner of a 2% interest in the Hill Hotel Apartments Joint Venture ("HHAJV") (the partnership which owns Kensington Tower) filed an action in the District Court of Douglas County, Nebraska seeking damages of $225,000 plus interest alleged to be due under the terms of various agreements between parties which were executed in connection with the establishment of the joint venture. The Registrant denied liability and filed a counterclaim seeking declaratory judgment and money damages for breach of contract and breach of fiduciary duty. On June 1, 1993, a settlement agreement was reached and an Amended and Restated Joint Venture Agreement was reached whereby the Registrant was entitled to retain all funds held in escrow ($275,000) pursuant to the original joint venture agreement. In return, CFRIC agreed to convert $1,319,000 in amounts owed to it by HHAJV to a capital contribution, (increasing its ownership in HHAJV to 70%) and will receive 100% of future income, losses and tax credits for tax purposes until such time as it recovers $319,000 of the capital contribution, any advances it must make on behalf of the property in the form of loan reduction and cash flow shortfalls (with interest at 10%), and any amounts resulting from any recapture of tax credits. Thereafter, future income and losses for both book and tax purposes will be allocated 70% to CFRIC and 30% to the Registrant.
b. Financial Information about Industry Segments
The Registrant operates in one industry segment.
c. Narrative Description of Business
Registrant is in the business of operating, holding, selling, exchanging and otherwise dealing in and with real properties containing improvements which are "Certified Historic Structures," as such term is defined in the Internal Revenue Code (the "Code"), or which are eligible for designation as such, for use as apartments, offices, hotels and commercial spaces, or any combination thereof, or low income housing eligible for the tax credit provided by Section 42 of the Code, and such other uses as the Registrant's general partner may deem appropriate.
Since the Registrant's inception, all the properties acquired either by the Registrant, or the subsidiary partnerships in which it has an interest, except for one (Northern Liberties), have been rehabilitated and certified as Historic Structures and have received the related Investment Tax Credit. In addition, three properties (Flint Goodridge, Kensington Tower and Robidoux) are low-income housing structures which qualify for, have received, and will continue to receive, the Low Income Tax Credits. Four properties currently held by the Registrant are held for rental operations and one property's final use has not yet been determined. At this time it is anticipated that all the properties, except the undeveloped property, will continue to be held for this purpose. At such time as real property values begin to increase, the Registrant will re-evaluate its investment strategy regarding the properties.
As of December 31, 1996, Registrant owned interests in five properties located in Nebraska (one), Missouri (one), Pennsylvania (one), and Louisiana (two). In total, the properties in which the Registrant has a controlling interest (Flint- Goodridge and Robidoux) contain 153 apartment units. As of December 31, 1996, 145 apartment units were under lease at monthly rental rates ranging from $195 to $596. For a further discussion of the properties, see Item 2. Properties.
The Registrant is affected by and subject to the general competitive conditions of the residential real estate industry. Due to the overbuilding that occurred in the 1980's, the competition for moderate-to-low income residential tenants in the local markets where the Registrant's properties are located is generally strong. As a result, the Registrant is forced to keep its rent levels competitively low in order to maintain moderate to high occupancy levels. In each market (New Orleans, Louisiana, Omaha, Nebraska, and St. Joseph's, Missouri), there are several similar historically-certified rehabilitated buildings that are available to tenants who fall within certain income restrictions. However, there is no organization which holds a dominant position in the residential housing in any of the geographic areas in which Registrant's properties are located.
Registrant has no employees. Registrant's activities are overseen by Brandywine Construction & Management, Inc. ("BCMI"), a real estate management firm.
d. Financial Information about Foreign and Domestic Operations and Export Sales.
See Item 8. Financial Statements and Supplementary Data
Item 2. Properties
As of December 31, 1996, Registrant owned controlling interests in three partnerships which each own one property and minority interests in two additional partnerships which each own one property. A summary description of each property is given below.
a. Flint-Goodridge Apartments - consists of a 93 unit low income housing facility at 2425 Louisiana Avenue in New Orleans, Louisiana. In July 1989, Registrant acquired a 90% interest in Flint- Goodridge General Partnership ("FGGP"), a general partnership which owns Flint-Goodridge Apartments, for a cash contribution of $2,808,000. Registrant subsequently capitalized $574,000 in acquisition costs related to the investment. FGGP acquired and rehabilitated the buildings for $5,108,022 ($100.99 per sf), including a mortgage note payable of $2,427,000. The note bears interest at 10% and both principal (based on a 30-year amortization) and interest are payable monthly until June 2020. The principal balance at December 31, 1996 was $2,257,650. In addition, FGGP entered into a 45-year ground lease for the land on which the buildings are located for a lump sum rent of $90,000 payable at the inception of the lease. The property is managed by a property management firm which is an affiliate of the Registrant's co-general partner in FGGP. As of December 31, 1996, 86 units were under lease (92%) with monthly rents ranging from $404 to $560. All leases are renewable, one-year leases. The occupancy rate has been 99% for 1995, 96% for 1994, 96% for 1993 and 92% for 1992. The monthly rental range has been approximately the same since 1992. For tax purposes, this property has a federal tax basis of $4,082,816 and is depreciated using the straight-line method of depreciation with a useful life of 27.5 years. The annual real estate taxes are $2,953 which is based on an assessed value of $18,300 taxed at a rate of $161.37 per $1,000. No one tenant occupies ten percent or more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
b. Robidoux School Apartments - consists of a 60 unit low income housing facility at 201 South 10th Street in St. Joseph, Missouri. In September 1989, Registrant acquired a 99% general partnership interest in Robidoux Redevelopment Joint Venture ("RRJV"), a Missouri general partnership which owns the property, for a cash capital contribution of $2,400,000. Registrant subsequently capitalized $446,000 in acquisition costs relating to the investment. The cost to acquire and rehabilitate the property was $3,641,993 ($99.52 sf) including a construction note payable of $1,450,000, a Community Development Block Grant ("CDBG") loan of $74,000 (principal balance at December 31, 1996 of $27,675), and a CDBG grant of $38,500. The construction loan's maturity was first extended from November 30, 1992 to May 15, 1993, by reducing the principal balance by $200,000 and then extended again until September 15, 1994 by reducing the principal balance by $200,000, payable $100,000 on June 17, 1993, $50,000 on September 14, 1993 and $50,000 on March 15, 1994. The loan was further extended to March 15, 1995 by paying an extension fee equal to one-half (1/2) percent of the principal balance and again until June 15, 1995. On October 30, 1995, the construction loan was repaid with two new loans, one for $850,000 (principal balance of $831,099 at December 31, 1996) and the other for $200,000 (principal balance of $0 at December 31, 1996.) The first loan bears interest at 9% with monthly principal and interest payments based on a 30 year amortization, principal balance due in October 2005. The second loan has an interest rate of 8.75% and was due in March 1996. This note was repaid by an advance in March 1996 from David E. Slattery, an affiliate of the Registrant's co-general partner. The advance will be repaid out of available cash flow and is non-interest bearing. The amounts repaid on the construction loan from the period November 1992 to June 1995 were funded by a line of credit extended by another lender ($489,539 principal outstanding at December 31, 1996) which bears interest at prime plus 1% (9.25% and 9.5% at December 31, 1996 and 1995, respectively) and is due July 2000. The CDBG loan bears interest at 1% and both principal and interest are payable monthly until September 2000. The property is managed by a property management firm which is an affiliate of the Registrant's co-general partner of RRJV. As of December 31, 1996, 59 of the 60 apartment units were under lease (98%), with monthly rents ranging from $195 to $596. All leases are renewable, one-year leases. The occupancy rate has been 92% for 1995, 87% for 1994, 97% for 1993 and 93% for 1992. The monthly rental range has been approximately the same since 1992. For tax purposes, this property has a federal tax basis of $4,317,625 and is depreciated using the straight-line method of depreciation with a useful life of 27.5 years. The annual real estate taxes are $1,115 which is based on an assessed value of $13,840 taxed at a rate of $80.56 per $1,000. No one tenant occupies ten percent or more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
c. The Bakery Apartments - consists of 68 apartment units at 1111 South Peter Street in New Orleans, Louisiana. In March 1991, Registrant acquired a 16.83% general partnership interest in The Bakery Apartments General Partnership ("BAGP"), a Louisiana general partnership which owns the property, for a cash contribution of $300,000. Certain affiliates of the Registrant simultaneously acquired 82.17% of the general partnership interests in the same Louisiana general partnership for an aggregate cash contribution of $1,400,000. BAGP acquired and rehabilitated the property for $5,029,000 ($65.18 per sf). The rehabilitation of the property was financed in part with two loans, one for $3,135,000 (principal balance of $3,018,994 at December 31, 1996) and the other for $201,500 (principal balance of $194,924 at December 31, 1996). The first loan bears interest at 8.25%, with monthly principal and interest payments based on a 30 year amortization schedule and is due in 1999. The second loan is from the general partner of BAGP and has the same terms as the first loan. In March 1991, a $175,000 collateral mortgage note (principal balance of $169,385 at December 31, 1996) was issued to the developer/partner for working capital advances. This note bears interest at 9% with payments based on available positive cash flow of the property. In order to satisfy certain credit requirements of the lender, the Registrant exchanged its general partnership interest for a limited partnership interest in a reconstituted partnership. However, the Registrant retained substantially the same rights and privileges as it had as a general partner. The property is managed by a property management firm which is an affiliate of the general partner of BAGP. As of December 31, 1996, 65 units are under lease (96%) with monthly rents ranging from $460 to $1,900. All leases are renewable, one year leases. The occupancy rates have been 100% for 1995, 93% for 1994, 92% for 1993 and 93% for 1992. The monthly rental range has been approximately the same since 1992. For tax purposes, this property has a federal tax basis of $3,381,856, and is depreciated using the straight-line method of depreciation with a useful life of 27.5 years. The annual real estate taxes are $11,708 which is based on an assessed value of $65,700 taxed at a rate of $17.82 per $100. No one tenant occupies ten percent or more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
d. Kensington Tower ("Hill Hotel")- consists of a 65 unit low income housing facility and 3,550 sf of commercial space at 505 South 16th Street in Omaha, Nebraska. In June 1989, Registrant acquired a 98% general partnership interest in Hill Hotel Apartments Joint Venture ("HHAJV"), a Nebraska general partnership which owns the property for a cash contribution of $2,350,000. HHAJV acquired and rehabilitated the property for $4,369,249 ($105.93 sf), including a construction note payable of $2,700,000. The note was originally due in April 1992. During 1990 and 1991, this note was partially refinanced with $400,000 of a $600,000 Community Development Block Grant ("CDBG") loan (principal balance at December 31, 1996 of $600,000), a $500,000 Tax Increment Financing ("TIF") Loan (principal balance at December 31, 1996 of $221,764) and a $1,100,000 subordinated note payable to the co-general partner. In 1992, the remaining $200,000 of the CDBG Loan was applied to the construction loan ($60,000) and to the TIF Loan ($140,000), in order to extend the date of the construction loan's maturity from April 1992 to June 1993. The construction loan balance was $1,030,591 at December 31, 1993. In March 1994, the construction loan was repaid with a $665,000 (principal balance of $581,875 at December 31, 1996), 15-year permanent loan with an interest rate of 8-3/8% and a $365,000 equity contribution from Commercial Federal Realty Investors Corporation, the Registrant's co-general partner. On June 1, 1993, an amended and restated joint venture agreement was reached whereby the Registrant's interest was reduced to a 30% interest. See Item 1.a. for additional information The property is managed by an independent property management firm. As of December 31, 1996, 61 units are under lease (94%) with monthly rents ranging from $300 to $445. All leases are renewable, one-year leases. The occupancy rates have been 94% for 1995, 89% for 1994, 92% for 1993 and 89% for 1992. The monthly rental range has been approximately the same since 1992. For tax purposes, this property has a federal tax basis of $5,323,340, and is depreciated using the straight-line method of depreciation with a useful life of 27.5 years. The annual real estate taxes are $55,283 which is based on an assessed value of $2,045,900 taxed at a rate of $27.02 per $1,000. No one tenant occupies ten percent or more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
Item 3.
Item 3. Legal Proceedings
a. To the best of its knowledge, Registrant is not party to, nor is any of its property the subject of any pending material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fiscal year covered by this report to a vote of security holders.
PART II
Item 5.
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 of record were sold or exchanged in 1996.
b. As of December 31, 1996, there were 1,717 record holders of Units.
c. Registrant has not declared any cash dividends in 1996 or 1995.
Item 6.
Item 6. Selected Financial Data
The following selected financial data are for the five years ended December 31, 1996. 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.
1996 1995 1994 1993 1992
Rental income $ 713,215 $ 829,061 $ 1,271,400 $ 1,323,950 $ 1,135,053 Interest income 1,742 1,591 1,851 16,010 42,911 Net loss 708,659 1,482,456 3,783,580 1,982,140 1,341,756 Net loss per Unit 39.33 82.28 209.97 110.00 74.46 Total assets (net of depreciation and amortization) 9,929,110 10,194,943 15,894,832 19,711,424 24,851,148 Debt obligations 3,605,963 3,858,348 7,197,834 9,087,050 7,184,570
Note: See Part II, Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
(1) Liquidity
As of December 31, 1996 Registrant had total unrestricted cash of $66,639. Such funds are expected to be used to pay liabilities and general and administrative expenses of the Registrant, and to fund cash deficits of the properties. Cash generated from operations is used primarily to fund operating expenses and debt service. If cash flow proves to be insufficient, the Registrant will attempt to negotiate loan modifications with the various lenders in order to remain current on all obligations. The Registrant is not aware of any additional sources of liquidity.
As of December 31, 1996, Registrant had restricted cash of $94,758 consisting primarily of funds held as security deposits, replacement reserves and escrows for taxes and insurance. As a consequence of these restrictions as to use, Registrant does not deem these funds to be a source of liquidity.
In recent years the Registrant has realized significant losses, including the foreclosure of two properties. At the present time, with the exception of Northern Liberty, the remaining properties are able to generate enough cash flow to cover their operating expenses and debt service, but there is no additional cash available to the Registrant to pay its general and administrative expenses.
It is the Registrant's intention to continue to hold the properties until they can no longer meet the debt service requirements and the properties (or its interests therein) are foreclosed, or the market value of the properties increases to a point where they can be sold at a price which is sufficient to repay the underlying indebtedness. With respect to Northern Liberty, any development of the remaining lot and building will require additional funding of capital. The Registrant has not yet identified any sources for this funding.
The legal proceedings in which the Registrant has been involved over the last several years has only affected the Registrant's liquidity to the extent that legal fees were required to be paid, as none of the properties or interests that were ultimately lost had previously generated any positive cash flow.
(2) Capital Resources
Due to the relatively recent rehabilitations of the properties, any capital expenditures needed are generally replacement items and are funded out of cash from operations or replacement reserves, if any. The Registrant is not aware of any factors which would cause historical capital expenditure levels not to be indicative of capital requirements in the future, and accordingly, does not believe that it will have to commit material resources to capital investment for the foreseeable future.
(3) Results of Operations
During 1996, the Registrant incurred a net loss of $708,659 ($39.33 per limited partnership unit), compared to a net loss of $1,482,456 ($82.28 per limited partnership unit) in 1995, and a net loss of $3,783,580 ($209.97 per limited partnership unit) in 1994. Included in the 1994 loss is $2,830,664 of extraordinary loss relating to the donation of the property owned by Northern Liberty Development Associates. Included in the loss for 1995 is $697,082 of extraordinary loss relating to the foreclosure of Shriver Square.
Rental income decreased from $1,271,400 in 1994 to $829,061 in 1995 to $713,215 in 1996. The decrease from 1995 to 1996 and 1994 to 1995 is mainly due to the foreclosure of Shriver Square on March 30, 1995. The decrease from 1995 to 1996 is partially offset by an increase in rental income at Flint Goodridge due to higher average rental rates. In addition, the decrease from 1994 to 1995 is due to a decrease at Robidoux due to a gradual decrease in rents charged by the property (as discussed below) partially offset by an increase in rental income at Flint Goodridge due to an increase in the average occupancy at the property.
Operating expenses decreased from $650,715 in 1994 to $475,921 in 1995 to $426,718 in 1995. The decrease from 1995 to 1996 and from 1994 to 1995 is mainly due to the foreclosure of Shriver Square on March 30, 1995. The decrease from 1995 to 1996 is also the result of a decrease in maintenance expense at Robidoux due to operational efficiencies achieved at the property partially offset by an increase in maintenance expense at Flint Goodridge due to deferred maintenance performed in 1996 and increase in wages and salaries expense at Flint Goodridge due to the fact that employees received cost of living pay increases. The decreased loss from 1995 to 1996 is also due to an overall decrease in rental operations expense at Flint Goodridge due to a decrease in maintenance expense as a result of a reduction in security services, partially offset by an increase in wages and salaries expense (which was due to employees receiving cost of living pay increases as well as higher health and property insurance premiums).
Interest expense decreased from $625,778 in 1994 to $437,942 in 1995 to $355,222 in 1996. The decrease from 1995 to 1996 and 1994 to 1995 is due to the foreclosure of Shriver Square. The decrease from 1995 to 1996 is also due to a decrease in interest expense at Robidoux resulting from a non-interest bearing advance made by the Registrant's co-general partner in order to repay the principal balance of a loan which matured in March 1996. In addition, the decrease from 1994 to 1995 is due to a decrease at Flint Goodridge due to an audit adjustment made in 1994 to accrue interest on a note which was in prior years deemed to be non-interest bearing, partially offset by an increase at Robidoux due to the refinancing of the construction loan which lowered the interest rate.
Depreciation and amortization decreased from $733,184 in 1994 to $494,626 in 1995 to $426,589 in 1996. The decrease from 1995 to 1996 and 1994 to 1995 is due to the foreclosure on Shriver Square. The decrease from 1995 to 1996 is also due to a decrease in depreciation expense at Flint Goodridge due to the fact that all personal property became fully depreciated in the second quarter of 1996 partially offset by an increase in amortization expense at Robidoux due to the amortization of loan costs incurred in the refinancing of the construction loan.
During the year, losses of $363,000 were incurred at Registrant's properties compared to a loss of $711,000 in 1995 and a loss of $627,000 in 1994. A discussion of individual property operations/activities follows:
In 1996, Registrant sustained a loss of $174,000 at Flint-Goodridge including $206,000 of depreciation and amortization expense compared to a loss of $155,000 including $213,000 of depreciation and amortization expense in 1995 and a loss of $209,000 including $227,000 of depreciation and amortization expense in 1994. Since Flint-Goodridge is a low income housing property, rents are fixed in relation to specified income levels of its tenants. As a result, the property experiences high occupancy but rental income remains low. The increase in the loss from 1995 to 1996 is the result of an increase in maintenance and wages and salaries expense partially offset by an increase in rental income and a decrease in depreciation expense. Maintenance expense increased due to deferred maintenance performed in 1996 while wages and salaries expense increased due to the fact that employees received cost of living pay increases. Rental income increased due to an increase in the average rental rates and depreciation decreased due to the fact that personal property became fully depreciated in the second quarter of 1996. The decrease in the loss from 1995 to 1994 is due to an increase in rental income and a decrease in interest and maintenance expense partially offset by an increase in insurance and wage expense. Rental income increased due to higher occupancy levels during the year and interest decreased due to an audit adjustment made in 1994 to accrue interest on a note which was in prior years deemed to be non-interest bearing. Maintenance expense decreased as a result of a reduction in security services, and the increased wages expense is due to the fact that employees received cost of living pay increases. Health and property insurance premiums also increased during 1995.
In 1996, Registrant incurred a loss of $189,000 at Robidoux including $175,000 of depreciation and amortization expense compared to a loss of $211,000 including $173,000 of depreciation and amortization expense in 1995 and a loss of $157,000 including $173,000 of depreciation and amortization expense in 1994. Since Robidoux is a low income housing property, rents are fixed in relation to specified income levels of its tenants. Accordingly, as with Flint Goodridge, the property experiences high occupancy but rental income remains low. The decrease in the loss from 1995 to 1996 is due to a decrease in maintenance and interest expense partially offset by an increase in amortization expense. Maintenance expense decreased due to operational efficiencies achieved at the property while interest expense decreased due to a non-interest bearing advance made by the Registrant's co-general partner in order to repay the principal balance of a loan which matured in March 1996. Amortization expense increased due to the amortization of loan costs incurred in the refinancing of the construction loan. The increase in the loss from 1994 to 1995 is the result of a decrease in rental income combined with an increase in interest expense. Rental income decreased as a result of a turnover from higher rental rate tenants to lower rental rate tenants while interest expense increased due to the refinancing of the construction loan.
In 1996, Registrant incurred a loss of $0 at Shriver Square compared to a loss of $345,000 including $61,000 of depreciation and amortization expense in 1995 and a loss of $261,000 including $246,000 of depreciation and amortization expense in 1994. The 1995 loss without effect of the foreclosure would have been $147,036. The increase in the loss from 1994 to 1995 results mainly from the loss of the property on March 30, 1995 and an increase of legal fees associated with the foreclosure of the property. Included in operations from 1995 is an extraordinary loss of $197,715, representing the difference between the fair market value of the assets foreclosed and the liabilities satisfied.
In 1994, the Registrant was contacted by a local neighborhood that was interested in developing the property owned by Northern Liberty Development Associates ("NLDA") in a way that would rehabilitate the existing historic structure. The Registrant entered into negotiations with the group and in December 1994, the Registrant donated to the neighborhood group all but a 12,247 sf vacant lot. At the time of the donation, there was no outstanding debt on the property. Included in operations for 1994 is an extraordinary loss of $2,830,664 relating to the donation of the property.
Summary of Minority Interest Investments
The Registrant owns a minority interest in the Bakery Apartments which it accounts for on the cost method. The Registrant does not include the assets, liabilities, income or expenses of the Bakery in the consolidated financial statements. The following operating information is provided for the property. In 1996, the Bakery Apartments incurred a loss of $211,000 including $236,000 of depreciation and amortization expense compared to a loss of $180,000 including $252,000 of depreciation and amortization expense in 1995 compared to a loss of $201,000 including $252,000 of depreciation and amortization expense in 1994. The Registrant expects that full occupancy and positive cash flow will continue throughout 1997.
The Registrant owns a minority interest in Kensington Tower which it accounts for on the equity method. The Registrant does not include the assets or liabilities of Kensington Tower in the consolidated financial statements. The following operating information is provided for the property. In 1996, Registrant incurred a loss of $49,000 compared to a loss of $43,000 in 1995, and a loss of $51,000 in 1994. The Registrant expects to achieve in 1997 results comparable to those experienced in 1996.
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.
Item 8. Financial Statements and Supplementary Data
Registrant is not required to furnish the supplementary financial information referred to in Item 302 of Regulation S-K.
Independent Auditor's Report
To the Partners of Diversified Historic Investors VII
We have audited the accompanying consolidated balance sheets of Diversified Historic Investors VII (a Pennsylvania Limited Partnership) and subsidiaries as of December 31, 1996 and 1995 and the related statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1996, 1995 and 1994. These consolidated statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Flint Goodridge General Partnership, which statements reflect total assets of $3,930,967 and $4,096,553 as of December 31, 1996 and 1995, respectively, and total revenues of $528,792 and $514,172, respectively for the years then ended. In addition, we did not audit the financial statements of The Bakery Apartments General Partnership, which statements reflect total assets of $3,943,320 and $4,137,829 as of December 31, 1996 and 1995 respectively, and total revenues of $629,206 and $640,781 respectively for the years then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Flint Goodridge General Partnership and The Bakery Apartments General Partnership, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Diversified Historic Investors VII as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years ended December 31, 1996, 1995 and 1994 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 30 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Gross, Kreger & Passio, L.L.C. Philadelphia, Pennsylvania February 12, 1997
Independent Auditor's Report
To the Partners of Flint Goodridge General Partnership New Orleans, Louisiana:
We have audited the accompanying balance sheets of HUD Project No. 064- 35269-PM of the Flint Goodridge General Partnership, as of December 31, 1996 and 1995, and the related statements of income, changes in partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Flint Goodridge General Partnership, HUD Project No. 064-35269-PM, as of December 31, 1996 and 1995, and the results of its operations, changes in partners' equity, and cash flows for the years then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated January 27, 1997, on our consideration of Flint Goodridge General Partnership's internal control structure and reports dated January 27, 1997, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Affirmative Fair Housing.
Pailet, Meurier and LeBlanc, L.L.P. Metairie, Louisiana January 27, 1997
Independent Auditor's Report
To the Partners of The Bakery Apartments Limited Partnership
We have audited the accompanying balance sheets of The Bakery Apartments Limited Partnership, for December 31, 1996 and 1995 and the related statements of operations, partners' equity and cash flows for the years ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Bakery Apartments Limited Partnership as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
Pailet, Meurier and LeBlanc, L.L.P. Metairie, Louisiana January 17, 1997
DIVERSIFIED HISTORIC INVESTORS VII (a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1996 and 1995 18
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994 19
Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1996, 1995, and 1994 20
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994 21
Notes to consolidated financial statements 22-27
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 29
Notes to Schedule XI 30
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 VII (a limited partnership)
CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995
Assets
1996 1995 Rental properties at cost: Land $ 35,469 $ 35,469 Buildings and improvements 10,520,536 10,517,258 ---------- ---------- 10,556,005 10,552,727 Less - accumulated depreciation (2,826,761) (2,405,790) ---------- ---------- 7,729,244 8,146,937
Cash and cash equivalents 66,639 29,942 Restricted cash 94,758 87,909 Investment in affiliate 1,443,806 1,492,779 Other assets (net of accumulated amortization of $98,531 and $92,912) 594,663 437,376 ---------- ---------- Total $ 9,929,110 $10,194,943 ========== ========== Liabilities and Partners' Equity
Liabilities: Debt obligations $ 3,605,963 $ 3,858,348 Accounts payable: Trade 800,373 380,863 Related parties 360,346 105,369 Interest payable 40,631 53,122 Tenant security deposits 27,352 23,753 Other liabilities 31,502 0 ---------- ---------- Total liabilities 4,866,167 4,421,455 ---------- ---------- Minority interests 250,262 252,148 ---------- ---------- Partners' equity 4,812,681 5,521,340 ---------- ---------- Total $ 9,929,110 $10,194,943 ========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VII (a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues: Rental income $ 713,215 $ 829,061 $1,271,400 Interest income 1,742 1,591 1,851 --------- --------- --------- Total revenues 714,957 830,652 1,273,251 --------- --------- --------- Costs and expenses: Rental operations 426,718 475,921 650,715 General and administrative 168,000 168,000 168,000 Interest 355,222 437,942 625,778 Depreciation and amortization 426,589 494,626 733,184 --------- --------- --------- Total costs and expenses 1,376,529 1,576,489 2,177,677 --------- --------- --------- Loss before minority interests and equity in affiliate (661,572) (745,837) (904,426) Minority interests' portion of loss 1,886 3,444 2,581 Equity in net loss of affiliate (48,973) (42,981) (51,071) --------- --------- --------- Loss before extraordinary item (708,659) (785,374) (952,916) Extraordinary loss 0 (697,082) (2,830,664) --------- --------- --------- Net loss ($ 708,659) ($1,482,456) ($3,783,580) ========= ========= ========= Net loss per limited partnership unit: Loss before minority interests and equity in affiliate ($ 36.71) ($ 41.39) ($ 50.19) Minority interests .10 .19 .14 Equity in net loss of affiliate (2.72) (2.39) (2.83) --------- --------- --------- Loss before extraordinary item (39.33) (43.59) (52.88) Extraordinary item 0 (38.68) (157.09) --------- --------- --------- ($ 39.33) ($ 82.28) ($ 209.97) ========= ========= =========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VII (a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
Dover Historic Advisors Limited VII (1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1993 518,379 10,268,997 10,787,376 Net loss (37,836) (3,745,744) (3,783,580) ------- ---------- ---------- Balance at December 31, 1994 480,543 6,523,253 7,003,796 Net loss (14,824) (1,467,632) (1,482,456) ------- --------- --------- Balance at December 31, 1995 465,719 5,055,621 5,521,340 Net loss (7,087) (701,572) (708,659) ------- --------- --------- Balance at December 31, 1996 $458,632 $4,354,049 $4,812,681 ======= ========= =========
(1) General Partner.
(2) 17,839 limited partnership units outstanding at December 31, 1996, 1995, and 1994.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VII (a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities: Net loss ($708,659) ($1,482,456) ($3,783,580) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 426,589 494,626 733,184 Extraordinary loss 0 697,082 2,830,664 Equity in loss of affiliate 48,973 42,981 51,071 Changes in assets and liabilities: Increase in restricted cash (6,849) (9,743) (48,031) (Increase) decrease in other assets (162,905) (2,831) 17,292 Increase (decrease) in accounts payable - trade 419,510 233,399 (4,435) Increase (decrease) in accounts payable - related parties 254,977 (59,456) (35,946) (Decrease) increase in interest payable (12,491) 46,618 19,385 Increase in tenant security deposits 3,599 1,952 135 Increase in other liabilities 31,502 0 0 Net cash provided by (used in) operating ------- --------- ---------- activities 294,246 (37,828) (220,261) Cash flows from investing activities: ------- --------- --------- Purchase of rental property and improvements (3,278) (12,270) (67,615) ------- --------- --------- Net cash used in investing activities: (3,278) (12,270) (67,615) Cash flows from financing activities: ------- --------- --------- Proceeds from debt financing 0 295,142 65,926 Principal payments (252,385) (224,567) (79,190) Minority interest (1,886) (3,444) (2,581) Net cash (used in) provided by financing ------- --------- --------- activities (254,271) 67,131 (15,845) Net increase (decrease) in cash and cash ------- --------- --------- equivalents 36,697 17,033 (303,721) ------- --------- --------- Cash and cash equivalents at beginning of year 29,942 12,909 316,630 ------- --------- --------- Cash and cash equivalents at end of year $ 66,639 $ 29,942 $ 12,909 ======= ========= ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $379,053 $ 426,051 $ 602,291
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VII (a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors VII (the "Partnership") was formed in December 1988 with Dover Historic Advisors VII (a general partnership whose partners are Mr. Gerald Katzoff and Dover Historic Advisors, Inc.) as the General Partner. Upon the admittance of additional limited partners, the initial limited partner withdrew.
The Partnership was organized to acquire, rehabilitate, and manage real properties containing improvements which are Certified Historic Structures, as defined in the Internal Revenue Code of 1986 ("the Code"), or which may also be (but are not required to be) eligible for low income housing tax credits as provided by Section 42 of the Code, and such other uses as Dover Historic Advisors VII (the "General Partner") deems appropriate, and to engage in any and all activities related or incidental thereto.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.
1. Principles of Consolidation
The accompanying financial statements of the Partnership include the accounts of three subsidiary partnerships (the "Ventures"), in which the Partnership has controlling interests, with appropriate elimination of inter-partnership transactions and balances. In addition, the Partnership owns a minority interest of 16.83% in one partnership, which it accounts for on the cost method, and a minority interest of 30% in one partnership, which it accounts for on the equity method. These financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of the General Partner, are necessary for a fair statement of results for those years.
2. Deferred Expenses
Loan fees have been incurred with respect to certain loans. Such fees were deferred and are being amortized over the term of the related loans.
The Partnership prepaid all amounts due under a ground lease for one of its properties. Such prepayments have been deferred and are being amortized over the term of the lease (45 years).
3. Net Loss per Limited Partnership Unit
The net loss per limited partnership unit is based on the weighted average number of limited partnership units outstanding during the period (17,839 in 1996, 1995, and 1994).
4. Cash and Cash Equivalents
The Partnership considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
5. Restricted Cash
Restricted cash includes amounts held for tenant security deposits, real estate tax reserves and other cash restricted as to use.
6. Depreciation
Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over 25 years and furniture and fixtures over five years.
7. Income Taxes
Federal and state income taxes are payable by the individual partners; accordingly, no provision or liability for income taxes is reflected in the financial statements.
8. Revenue Recognition
Revenues are recognized when rental payments are due on a straight-line basis. Rental payments received in advance are deferred until earned.
9. Rental Properties
Rental properties are stated at cost. A provision for impairment of value is recorded when a decline in value of property is determined to be other than temporary as a result of one or more of the following: (1) a property is offered for sale at a price below its current carrying value, (2) a property has significant balloon payments due within the foreseeable future for which the Partnership does no have the resources to meet, and anticipates it will be unable to obtain replacement financing or debtmodification sufficient to allow a continued hold of the property over a reasonable period of time, (3) a property has been, and is expected to continue, generating significant operating deficits and the Partnership is unable or unwilling to sustain such deficit results of operations, and has been unable to, or anticipates it will be unable to, obtain debt modification, financing or refinancing sufficient to allow a continued hold of the property for a reasonable period of time or, (4) a property's value has declined based on management's expectations with respect to projected future operational cash flows and prevailing economic conditions. An impairment loss is indicated when the undiscounted, sum of estimated future cash flows from an asset, including estimated sales proceeds, and assuming a reasonable period of ownership up to 5 years, is less than the carrying amount of the asset. The impairment loss is measured as the difference between the estimated fair value and the carrying amount of the asset. In the absence of the above circumstances, properties and improvements are stated at cost. An analysis is done on an annual basis at December 31.
10. 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 - PARTNERSHIP AGREEMENTS
The significant terms of the Agreement of Limited Partnership (the "Agreement"), as they relate to the financial statements, follow:
All distributable cash from operations (as defined in the Agreement of Limited Partnership) will be distributed 1% to the General Partner and 99% to the limited partners.
All distributable cash from sales or dispositions (as defined) will be distributed to the limited partners up to their adjusted invested capital (as defined) plus an amount equal to the sum of the greater of an 8.5% cumulative, noncompounded annual return on the average after-credit invested capital (as defined), less amounts previously distributed (as defined); thereafter, after receipt by the General Partner or its affiliates of any accrued but unpaid real estate brokerage commissions, the balance will be distributed 15% to the General Partner and 85% to the limited partners.
Net income or loss from operations of the Partnership is allocated 1% to the General Partner and 99% to the limited partners.
NOTE D - ACQUISITIONS
The Partnership acquired controlling general or limited partnership interests in Ventures and minority interests in partnerships during the period from June 1989 to March 1991, as discussed below.
In June 1989, the Partnership was admitted, with a 98% general partner interest, to a Nebraska general partnership which owns a building located in Nebraska, consisting of 65 apartment units and 3,550 square feet of commercial space, for a cash capital contribution of $2,350,000. In addition, $3,000,000 of rehabilitation costs relating to the investment have been capitalized as part of the building and improvements. These capitalized costs have been removed from the balance sheet. Pursuant to the June 1993 Amended and Restated Joint Venture Agreement, the Partnership's interest was reduced to 30%.
In July 1989, the Partnership was admitted, with a 90% general partner nterest, to a Pennsylvania general partnership which owns two buildings located in Louisiana, consisting of 93 apartments units, for a cash capital contribution of $2,808,000.
In September 1989, the Partnership was admitted, with a 99% general partner interest, to a Missouri general partnership which owns a building located in Missouri, consisting of 60 apartment units, for a cash capital contribution of $2,400,000. In addition, $2,300,000 of rehabilitation costs relating to the investment have been capitalized as part of the building and improvements.
In December 1989, the Partnership was admitted, with a 98% general partner interest, to a Nebraska general partnership which owns property located in South Dakota, consisting of 58,793 square feet of commercial space, for a cash capital contribution of $1,350,000. In addition, $3,400,000 of acquisition costs relating to the investment have been capitalized as part of the building and improvements. In March 1995, the deed to the property, which was held in escrow, was delivered to the first mortgage holder.
In February 1990, the Partnership was admitted, with a 99% general partner interest, to a Pennsylvania general partnership, which owned a property which was originally intended to be rehabilitated into 250,000 square feet of residential and commercial space located in Pennsylvania, for a cash contribution of $2,000,000. In December 1994, the Partnership donated to a neighborhood group all but a 12,247 sf vacant lot.
In September 1990, the Partnership purchased 19% interest of a Washington, D.C. general partnership which owned a building located in Washington, D.C., consisting of 54 hotel rooms, for a cash capital contribution of $550,000. In February 1993, a party holding a mortgage on the property, with permission of the bankruptcy court, foreclosed on the property.
In March 1991, the Partnership purchased 16.83% interest of a Pennsylvania general partnership which owns a building located in Louisiana, consisting of 68 units, for $300,000.
NOTE E - DEBT OBLIGATIONS
Debt obligations are as follows: December 31, 1995 1994 ------ ------ Mortgage payable, interest at 10%; payable in monthly $2,257,650 $2,280,454 installments of principal and interest of $20,819, with maturity in June 2020; collateralized by related rental property.
Note payable, interest at 9%; principal and interest 831,099 847,273 payments of $7,648 due monthly; with maturity at October 2005; collateralized by related rental property.
Note payable, interest at 8.75%; equal monthly installments 0 198,058 of $50,000 beginning December 15, 1995; with balance of principal and accrued interest due March 1996.
Note payable, interest only at prime plus 1% (effective 489,539 497,108 rate of 9.25% and 9.5% at December 31, 1996 and 1995, respectively); payable in monthly payments of principal of $5,300 and interest; remaining principal balance due July 2000; collateralized by related rental property.
Note payable, interest at 1%; principal and interest payments of $648 due monthly; remaining principal due September 2000; collateralized by related rental property. 27,675 35,455 --------- --------- $3,605,963 $3,858,348 ========= ========= Maturities of debt obligations at December 31, 1996, are as follows:
Year Ending December 31,
1997 $ 90,888 1998 90,419 1999 89,384 2000 445,614 2001 62,844 Thereafter 2,826,815 --------- $3,605,963 ========= NOTE F - RELATED PARTY TRANSACTIONS
Included in Accounts Payable - Related Party is $311,030 and $55,674 at December 31, 1996 and 1995, respectively, owed to an affiliate of the General Partner, by one of the Partnership's Ventures, for additional amounts advanced for working capital needs. These advances are non-interest bearing and will be paid out of available cash flow.
Included in Accounts Payable - Related Party is $49,316 and $49,695 at December 31, 1996 and 1995, respectively, owed to the co - general partner, by one of the Partnership's Ventures, for additional amounts advanced for working capital needs. These advances are non-interest bearing and will be paid out of available cash flow.
NOTE G - COMMITMENTS AND CONTINGENCIES
In 1994, the Registrant was contacted by a local neighborhood group that was interested in developing the property located in the Northern Liberties section of Philadelphia, Pennsylvania in a way that would rehabilitate the existing historic structure. The Registrant entered into negotiations with the group and in December 1994, the Registrant donated to the neighborhood group all but a 12,247 sf vacant lot. At the time of the donation, there was no outstanding debt on the property.
On March 1, 1993, Shriver Square Joint Venture ("SSJV") filed a reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. On September 10, 1993, SSJV filed the Third Amended Plan of Reorganization (the "Plan"). The Plan was confirmed in October 1993. Due to insufficient cash flow generated by the property, SSJV ceased making debt service payments in January 1995. The loan was declared in default by the lender and on March 30, 1995, the deed to the property, which was held in escrow pursuant to the Amended Plan, was delivered to the first mortgage holder. The Partnership recognized an extraordinary loss of $697,082 in 1995 for the difference between the book value of the property (which approximated fair value) and the extinguished debt.
NOTE H - SUBSEQUENT EVENTS
A property owned by Robidoux Redevelopment Joint Venture ("RRJV"), a limited partnership in which the Partnership owns a 99% interest, has historically been unable, from its own revenues, to meet its operating expenses and required debt service payments, the Developer/Operating General Partner has provided the necessary funds. Through 1992, these funds were provided pursuant to legal obligations, thereafter, the Registrant was able to prevail upon the Developer to continue such funding on a voluntary basis. In 1996, the Developer reported that it was no longer able nor willing to make such advances. To avoid loss of RRJV's property, either through foreclosure or a forced sale at depressed values, in January 1997 the Partnership has sold approximately 20% of its interest in RRJV. Simultaneously with the sale, the Partnership Agreement was amended to allocate Low Income Housing Tax Credits in the amount of $1,081,930 over the next nine years to the purchaser. The proceeds from the sale were sufficient to satisfy outstanding obligations and should enable RRJV to continue to operate in the foreseeable future.
NOTE I - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of operations in different time period for financial reporting ("book") purposes and for income tax ("tax") purposes. A reconciliation follows:
For the Years Ended December 31,
1996 1995 1994 ------ ------ ------ Net loss - book ($708,659)($1,482,456)($3,783,580) Legal fees 0 0 (312,280) Loss on foreclosure 0 1,865,551 349,994 Loss on donation (325,907) 0 0 Other timing differences 370 (22,453) (50,366) Minority interest 16,651 17,795 40,559 Excess of book over tax depreciation 163,237 203,405 224,885 --------- --------- --------- Net income (loss) - tax ($ 854,308) $ 581,842 ($3,530,788) ========= ========= =========
Partners' equity - book $4,812,681 $5,521,340 $7,003,796 Distribution to limited partners 33,861 33,861 33,861 Costs of issuance 2,288,270 2,288,270 2,288,270 Basis reduction due to Investment Tax Credit (3,790,041) (3,790,041) (3,790,041) Cumulative tax under book loss 3,432,945 3,578,594 627,138 Capital contributions (641,684) (641,684) (641,684) --------- --------- --------- Partner's equity - tax $6,136,032 $6,990,340 $5,521,340 ========= ========= =========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS VII (a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
Initial Cost to Costs Partnership Capitalized (b) Subsequent to Acquisition
Buildings and Description(a) Encumbrances Land (b) Improvements Improvements (d)
93 unit apartments in New Orleans, LA $2,257,650 $17,182 $4,667,050 $969,253
60 unit apartments in St. Joseph, MO 1,348,314 1,500 2,482,287 2,272,024
250,000 square feet of residential and commercial space in Philadelphia, PA - 16,787 1,792,112 193,190 --------- ------ --------- --------- $3,605,964 $35,469 $8,941,449 $3,434,467 ========= ====== ========= =========
Gross Amount at which Carried at December 31, 1996
Buildings and Accumulated Date of Date Description (a) Land Improvements Total Depreciation Construct Acquired (b) (b)(c) (c)(e) 93 unit apartments in New Orleans, LA $17,182 $5,655,494 $5,672,676 $1,594,330 1989 7/89
60 unit apartments in St. Joseph, MO 1,500 4,763,339 4,764,839 1,203,953 1989 9/89
250,000 square feet of residential and commercial space in Philadelphia,PA 16,787 101,703 118,490 28,478 (a) 2/90 ------ ---------- ---------- --------- $35,469 $10,520,536 $10,556,005 $2,826,761 ====== ========== ========== =========
DIVERSIFIED HISTORIC INVESTORS VII (a limited partnership)
NOTES TO SCHEDULE XI
DECEMBER 31, 1996
(A) All properties are certified historic structures as defined in the Internal Revenue Code of 1986, or are eligible for designations as such. The "date of construction" refers to the period in which such properties were rehabilitated.
(B) The cost of real estate owned at December 31, 1996, for Federal income tax purposes was approximately $8,589,192. The depreciable basis of the building and improvements of the properties has been reduced for Federal income tax purposes by the historic rehabilitation credit.
(C) Reconciliation of real estate:
1996 1995 1994 Balance at beginning of year $10,552,727 $16,826,909 $19,702,935 Additions during this year: Improvements 3,278 12,270 22,284 Deductions during the year: Retirements 0 (6,286,452) (2,898,310) ---------- ---------- ---------- Balance at end of year $10,556,005 $10,552,727 $16,826,909 ========== ========== ========== Reconciliation of accumulated depreciation: 1996 1995 1994 Balance at beginning of year $2,405,790 $3,007,245 $2,412,417 Depreciation expense for the year 420,971 422,396 716,497 Deductions during the year: Retirements 0 (1,043,851) (121,669) --------- --------- --------- Balance at end of year $2,826,761 $2,405,790 $3,007,245 ========= ========= ========= (D) See Note E to the consolidated financial statements for further information.
(E) See Note B to the consolidated financial statements for depreciation method and lives.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of Registrant
a. Identification of Directors - Registrant has no directors.
b. Identification of Executive Officers
The General Partner of the Registrant is Dover Historic Advisors VII (DoHA-VII), a Pennsylvania general partnership. The partners of DoHA-VII are as follows:
Name Age Position Term of Office Period Served
Gerald Katzoff 49 Partner in DoHA-VII No fixed term December 1988- May 1997
Dover Historic -- Partner in DoHA-VII No fixed term December 1988 - Advisors, Inc. May 1997 ("Dover Advisors") SWDHA, Inc. -- Partner in DoHA-VII No fixed term Since May 1997
EPK, Inc. -- Partner in DoHA-VII No fixed term Since May 1997
For further description of Dover Advisors, see paragraph e. of this Item. There is no arrangement or understanding between either person named above and any other person pursuant to which any person was or is to be selected as an officer.
c. Identification of Certain Significant Employees. Registrant has no employees. Its administrative and operational functions are carried out by a property management and partnership administration firm engaged by the Registrant.
d. Family Relationships. There is no family relationship between or among the executive officers and/or any person nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DoHA-VII is a general partnership formed in 1988. The General Partner is responsible for management and control of Registrant's affairs and will have general responsibility and authority in conducting its operations. The General Partner may retain its affiliates to manage certain of the Properties.
On May 13, 1997, SWDHA, Inc. replaced Gerald Katzoff and EPK, Inc. replaced DHP, Inc. as partners of DoHA-VII. Spencer Wertheimer, the President of SWDHA, Inc., is an attorney with extensive experience in real estate activities ventures.
EPK, Inc. is a Delaware corporation formed for the purpose of managing properties or interests therein. EPK, Inc. is a wholly-owned subsidiary of D, LTD, an entity formed in 1985 to act as the holding company for various corporations engaged in the development and management of historically certified properties and conventional real estate as well as a provider of financial (non-banking) services. EPK, Inc. is an affiliate of DoHA-VII.
The officers and directors of EPK, Inc. are described below.
Donna M. Zanghi (age 40) was appointed on May 13, 1997 as Secretary and Treasurer of EPK, Inc. Ms. Zanghi previously served as Secretary and Treasurer of DHP, Inc. since June 14, 1993 and as a Director and Secretary/Treasurer of D, LTD. She was associated with DHP, Inc. and its affiliates since 1984 except for the period from December 1986 to June 1989 and the period from November 1, 1992 to June 14, 1993.
Michele F. Rudoi (age 32) was appointed on May 13, 1997 as Assistant Secretary and Director 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.
Item 11. Executive Compensation
a. Cash Compensation - During 1996, Registrant paid no cash compensation to DoHA-VII, any partner therein or any person named in paragraph c. of Item 10.
b. Compensation Pursuant to Plans - Registrant has no plan pursuant to which compensation was paid or distributed during 1996, or is proposed to be paid or distributed in the future, to DoHA-VII, any partner therein, or any person named in paragraph c. of Item 10.
c. Other Compensation - No compensation not referred to in paragraph a. or paragraph b. of this Item was paid or distributed during 1996 to Dover Advisors, DoHA-VII, any partner therein, or any person named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no directors.
e. Termination of Employment and Change of Control Arrangement - Registrant has no compensatory plan or arrangement, with respect to any individual, which results or will result from the resignation or retirement of any individual, or any termination of such individual's employment with Registrant or from a change in control of Registrant or a change in such individual's responsibilities following such a change in control.
Item 12.
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.
Item 13. Certain Relationships and Related Transactions
a. Pursuant to Registrant's Amended and Restated Agreement of Limited Partnership, DoHA-VII is entitled to 10% of Registrant's distributable cash from operations in each year. There was no such share allocable to DoHA-VII for fiscal years 1994 through 1996.
b. Certain Business Relationships - Registrant has no directors.
c. Indebtedness of Management - No executive officer or significant employee of Registrant, Registrant's general partner (or any employee thereof), or any affiliate of any such person, is or has at any time been indebted to Registrant.
PART IV
Item 14.
Item 14. (A) Exhibits, Financial Statement Schedules and Reports on Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1996 and 1995.
b. Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.
c. Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1996, 1995 and 1994.
d. Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.
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 Document Number 3 Registrant's Amended and Restated Certificate of Limited Partnership and Agreement of Limited Partnership, previously filed as part of Amendment No. 2 of Registrant's Registration Statement on Form S-11, are incorporated herein by reference.
21 Subsidiaries of the Registrant are listed in Item 2. Properties 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, 1996.
(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 VII
Date: October 10, 1997 By: Dover Historic Advisors, VII General Partner
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi DONNA M. ZANGHI, Secretary and Treasurer
By: /s/ Michele F. Rudoi MICHELE F. RUDOI, Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
DOVER HISTORIC ADVISORS VII General Partner
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi October 10, 1997 DONNA M. ZANGHI, Secretary and Treasurer
By: /s/ Michele F. Rudoi October 10, 1997 MICHELE F. RUDOI, Assistant Secretary