Item 1. Business
a. General Development of Business
Diversified Historic Investors V ("Registrant") is a limited partnership formed in 1987 under the Pennsylvania Uniform Limited Partnership Act. As of December 31, 1997, 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.
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, 1997 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 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, 1997 of $6,404,574 including advances for legal fees and prepetition trade payables). On February 9, 1995, the Registrant refinanced the outstanding bonds which lowered the interest rate from 7.75% to a variable rate, giving due regard to prevailing financial market conditions, but in no event may the variable rate exceed 7.75%. The average interest rate on the bonds was 4.59% for the year ended December 31, 1996. 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. The property was transferred so that it would be held by the Registrant in a manner similar to the other properties held by the Registrant. 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.
The property is managed by BCMI. Average occupancy was 53% in 1997 at an average room rate of $91.88. The occupancy for the previous four years has been 73% for 1996, 83% for 1995, 72% for 1994 and 73% for 1993. The average room rates have been $92.15 for 1996, $94.24 for 1995, $90.84 for 1994 and $79.66 for 1993. For tax purposes, this property has a basis of $10,621,408 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 $399,539 at December 31, 1997). The note accrues interest at 14% and is payable at 10% 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, 1997, 18 apartment units were under lease (86%) at monthly rental rates ranging from $390 to $585. All leases are renewable, one-year leases. The occupancy for the previous four years was 78% for 1996, 90% for 1995, 85% for 1994 and 81% for 1993. The monthly rental range has been approximately the same since 1993. 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.
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.
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.
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 118 units were sold or exchanged of record in 1997.
b. As of December 31, 1997, there were 1,345 record holders of Units.
c. Registrant did not declare any cash dividends in 1997 or 1996.
Item 6.
Item 6. Selected Financial Data
The following selected financial data are for the five years ended December 31, 1997. 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.
1997 1996 1995 1994 1993
Rental income $ 120,685 $ 767,508 $1,205,122 $1,162,137 $1,093,652 Hotel income 1,755,787 2,387,200 2,548,434 2,442,274 2,307,827 Interest income 17,449 7,024 4,576 3,218 8,716 Net loss (2,211,312) (607,725) (712,598) (827,606) (808,627) Net loss per Unit (196.48) (54.00) (63.32) (73.54) (71.85) Total assets (net of depreciation and amortization) 7,964,174 9,046,109 13,517,285 14,035,936 14,927,634 Debt obligations 6,804,113 6,163,254 10,436,965 10,366,177 10,322,192
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
(1) Liquidity
As of December 31, 1997, Registrant had cash of $57,736. 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, 1997, Registrant had restricted cash of $176,129 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
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 1997, Registrant incurred a net loss of $2,211,312 ($196.48 per limited partnership unit) compared to a net loss of $607,725 ($54.00 per limited partnership unit) in 1996 and a net loss of $712,598 ($63.32 per limited partnership unit) in 1995.
Rental and hotel income combined decreased from $3,753,556 in 1995 to $3,154,708 in 1996 and to $1,876,472 in 1997. 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 an overall decrease in occupancy at St. Mary's Market due to the sale of the property 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. The decrease from 1995 to 1996 is the result of a decrease in rental income of $438,000 and a decrease of $161,000 in hotel income. The decrease in rental income is mainly attributable to an overall decrease in occupancy at St. Mary's Market due to the sale of the property and the vacating of units as leases expired in anticipation of the sale of the property. The decrease in hotel income is due to a decrease in the average occupancy (83% to 73%) and a decrease in the average nightly room rate ($94.24 to $92.15) at the Redick Plaza Hotel.
Expense for rental operations decreased from $746,877 in 1995 to $605,294 in 1996 and to $196,216 in 1997. The decrease from 1995 to 1996 and from 1996 to 1997 is due to an overall decrease in operating expenses at St. Mary's Market, as discussed below, as well as a decrease in real estate taxes at Lofts at Red Hill from 1995 to 1996 due to a reduction in the assessed value of the property. Hotel operations expense increased from $2,036,995 in 1995 to $2,237,857 in 1996 and decreased to $1,828,128 in 1997. The decrease from 1996 to 1997 is due to an overall decrease in operating expenses due to the decrease in average occupancy. The increase from 1996 to 1997 is due to an increase in rooms expense, professional and legal fees and wages and salaries expense as discussed below.
General and administrative expenses increased from $96,000 in 1995 to $98,859 in 1996 to $548,996 in 1997. The increase from 1996 to 1997 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 decreased from $765,349 in 1995 to $662,031 in 1996 and increased to $989,390 in 1997. The increase from 1996 to 1997 is the result of an increase in the interest rate at the Redick Plaza Hotel and interest expense at the Lofts at Red Hill due to the new loan partially offset by the sale of the St. Mary's Market. The decrease from 1995 to 1996 is due to the sale of St. Mary's Market in October 1996.
Depreciation and amortization expense decreased from $825,509 in 1995 to $820,712 in 1996 and to $542,504 in 1997. The decrease from 1996 to 1997 is the result of the sale of the St. Mary's Market 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. The decrease from 1995 to 1996 is due to the sale of St. Mary's Market in October 1996 partially offset by the depreciation of additional personal property purchased in 1996 at Redick Plaza Hotel.
Of the total 1997 loss, a loss of approximately $1,561,000 was incurred at the Registrant's three properties compared to a loss of approximately $501,000 in 1996 and $603,000 in 1995. A discussion of property operations/activities follows.
In 1997, Registrant incurred a loss of $1,506,000 at the Redick Plaza Hotel including $453,000 of depreciation and amortization expense compared to a loss of $782,000 including $574,000 of depreciation and amortization expense in 1996 and a loss of $341,000 including $525,000 of depreciation expense in 1995. The increase in the loss from 1996 to 1997 is mainly due to decrease in rental 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. The increased loss from 1995 to 1996 is due to a decrease in rooms revenue and an increase in rooms expense, professional and legal fees, wages and salaries and depreciation expense. Rooms revenue decreased due to a decrease in the average occupancy (83% to 73%) and a decrease in the average nightly room rate ($92.15 to $94.24) resulting from the opening of a new hotel in the area served by the Registrant and, accordingly, an increase in competition. Rooms expense increased due to an increase in commissions expense in an effort to increase occupancy, professional fees increased due to fees paid to a consulting firm in an effort to compete with the new hotel, legal fees increased due to fees incurred in connection with the bankruptcy filing and wages and salaries increased due to cost of living increases given to employees. Depreciation expense increased due to the depreciation of additional personal property purchased in 1996.
In 1997, Registrant incurred a loss of $25,000 at the St. Mary's Market compared to income of $319,000 including $189,000 of depreciation expense in 1996 and a loss of $206,000 including $242,000 of depreciation expense in 1995. The loss in 1997 relates to the write off of accounts receivable balances which were deemed uncollectable. Included in income in 1996 is a gain of $586,000 related to the sale of the building. Overall, exclusive of the gain resulting from the sale of the building, the loss increased from $206,000 in 1995 to $267,000 in 1996. The increase in the loss from 1995 to 1996 is due to a decrease in occupancy and an overall decrease in operating expenses due to the vacating of the units as leases expired in anticipation of the sale of the property.
In 1997, Registrant incurred a loss of $30,000 at the Lofts at Red Hill including $59,000 of depreciation and amortization expense compared to a loss of $38,000 including $58,000 of depreciation expense in 1996 and a loss of $56,000 including $58,000 of depreciation expense in 1995. 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.) The decrease in the loss from 1996 to 1995 is mainly the result of a decrease in real estate tax expense due to a reduction in the assessed value of the property.
Item 8.
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 sheets of Diversified Historic Investors V (a Pennsylvania Limited Partnership) and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1997, 1996 and 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Diversified Historic Investors V and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997, 1996 and 1995 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 22 is presented for the purposes of additional analysis and is not a required part 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 March 12, 1998
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, 1997 and 1996 12
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996, and 1995 13
Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1997, 1996, and 1995 14
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995 15
Notes to consolidated financial statements 16-20
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 22
Notes to Schedule XI 23
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, 1997 and 1996
Assets
1997 1996 Rental properties at cost: Land $ 347,955 $ 347,955 Buildings and improvements 10,976,514 10,976,514 Furniture and fixtures 1,175,768 1,158,605 ---------- ---------- 12,500,237 12,483,074 Less - accumulated depreciation (5,284,345) (4,777,178) ---------- ---------- 7,215,892 7,705,896
Cash and cash equivalents 57,736 1,126,711 Restricted cash 176,129 8,956 Accounts and notes receivable 117,468 172,869 Other assets (net of amortization of $190,812 and $65,610, respectively) 396,949 31,677 ---------- ---------- Total $ 7,964,174 $ 9,046,109 ========== ==========
Liabilities and Partners' Equity
Liabilities: Debt obligations $ 6,804,113 $ 6,163,254 Accounts payable: Trade 385,613 517,295 Related parties 55,000 130,063 Taxes 35,123 44,084 Interest payable 869,660 158,962 Accrued liabilities 77,899 79,243 Tenant security deposits 9,380 14,510 ---------- ---------- Total liabilities 8,236,788 7,107,411 ---------- ---------- Partners' equity (272,614) 1,938,698 ---------- ---------- Total $ 7,964,174 $ 9,046,109 ========== ==========
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, 1997, 1996 and 1995
1997 1996 1995
Revenues: Rental income $ 120,685 $ 767,508 $1,205,122 Hotel income 1,755,787 2,387,200 2,548,434 Interest income 17,449 7,024 4,576 Gain on sale of property 0 655,296 0 --------- --------- --------- Total revenues 1,893,921 3,817,028 3,758,132 --------- --------- --------- Costs and expenses: Rental operations 196,215 605,294 746,877 Hotel operations 1,828,128 2,237,857 2,036,995 General and administrative 548,996 98,859 96,000 Interest 989,390 662,031 765,349 Depreciation and amortization 542,504 820,712 825,509 --------- --------- --------- Total costs and expenses 4,105,233 4,424,753 4,470,730 --------- --------- --------- Net loss ($2,211,312) ($ 607,725) ($ 712,598) ========= ========= =========
Net loss per limited partnership unit ($ 196.48) ($ 54.00) ($ 63.32) ========= ========= =========
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, 1997, 1996 and 1995
Dover Historic Limited Advisors V (1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1994 ($136,563) $3,395,584 $3,259,021 Net loss (7,126) (705,472) (712,598) ------- --------- --------- 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) ======= ========= =========
(1) General Partner.
(2) 11,142 limited partnership units outstanding at December 31, 1997, 1996, and 1995.
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, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities: Net loss ($2,211,312) ($ 607,725) ($ 712,598) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 542,504 820,712 825,509 Gain on sale 0 (655,296) 0 Changes in assets and liabilities: (Increase) decrease in restricted cash (167,173) 232,280 7,310 Decrease (increase) in accounts and notes receivable 55,401 (85,222) (12,012) (Increase) decrease in other assets (400,613) 1,116,709 (241,543) (Decrease) increase in accounts payable - trade (131,681) 189,190 113,322 (Decrease) increase in accounts payable - related (75,063) 143,012 460 (Decrease) increase in accounts payable - taxes (8,961) 3,760 (2,773) Increase (decrease) in interest payable 710,698 152,085 (31,904) Decrease in accrued liabilities (5,130) (57,646) (17,805) Decrease in tenant security deposits (1,344) (3,667) (2,759) Net cash (used by) provided by --------- -------- --------- operating activities (1,692,674) 1,248,192 (74,793) --------- --------- --------- Cash flows from investing activities: Capital expenditures (17,163) (170,375) (104,401) --------- --------- --------- Net cash used in investing activities (17,163) (170,375) (104,401) --------- --------- --------- Cash flows from financing activities: Borrowings under debt obligations 640,862 20,939 221,555 Repayments of debt financing 0 (12,899) (86,150) --------- --------- --------- Net cash provided by financing activities 640,862 8,040 135,405 --------- --------- --------- (Decrease) increase in cash and cash equivalents (1,068,975) 1,085,857 (43,789) Cash and cash equivalents at beginning of year 1,126,711 40,854 84,643 --------- --------- --------- Cash and cash equivalents at end of year $ 57,736 $1,126,711 $ 40,854 ========= ========= ========= Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest $ 278,692 $ 509,946 $ 758,473
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 are 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 consistently applied in the preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The accompanying financial statements include the accounts of the Partnership and 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 1997, 1996, and 1995).
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 a continued hold of the property over a reasonable period of time, (3) a property has been, and is expected to continue, generating significant operating deficits and the Partnership is unable or unwilling to sustain such deficit results of operations, and has been unable to, or anticipates it will be unable to, obtain debt modification, financing or refinancing sufficient to allow a continued hold of the property for a reasonable period of time or, (4) a property's value has declined based on management's expectations with respect to projected future operational cash flows and prevailing economic conditions. An impairment loss is indicated when the undiscounted sum of estimated future cash flows from an asset, including estimated sales proceeds, and assuming a reasonable period of ownership up to 5 years, is less than the carrying amount of the asset. The impairment loss is measured as the difference between the estimated fair value and the carrying amount of the asset. In the absence of the above circumstances, properties and improvements are stated at cost. An analysis is done on an annual basis at December 31 of each year.
NOTE C - 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 D - 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 E- DEBT OBLIGATIONS
Debt obligations consist of the following: December 31, 1997 1996 ------ ------ Variable rate insured Industrial Development Bonds due $6,404,574 $6,005,000 September 30, 2002; interest only payable monthly to the extent of net operating income; collateralized by the related property.
Note payable, interest at 13%; principal and interest 0 158,254 due monthly; principal due December 1, 1996.
Note payable, interest accrues at 14%; payable at 10% monthly; principal due October 1, 2002. 399,539 0 --------- --------- $6,804,113 $6,163,254 ========= ========= Annual principal payments of debt obligations are as follows:
Year Ending December 31, 1998 $ 0 1999 0 2000 0 2001 0 2002 6,804,113 --------- $6,804,113 =========
NOTE F - 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. The property was transferred so that it would be held by the Partnership in a manner similar to the other properties held by the Partnership. 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 G - SALE OF ST. MARY'S MARKET
On October 10, 1996, one of the Registrant's Ventures, St. Mary's Market Partnership sold its property to Residence Inn by Marriott, Inc. The property was sold 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 H - 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, 1997 1996 1995 ------ ------ ------ Net loss - book ($2,211,312) ($ 607,725) ($ 712,598) Excess of book over tax depreciation 85,758 12,815 57,160 Minority interest - tax only (14,399) (122,089) 7,881 Gain on foreclosure 0 240,055 0 Audit adjustments 0 0 (238) --------- --------- --------- Net loss - tax ($2,139,953) ($ 476,944) ($ 647,795) ========= ========= ========= Partners' equity - book ($ 272,613) $1,938,698 $2,546,423 Costs of issuance 1,419,240 1,419,240 1,419,240 Cumulative book over tax loss 1,173,303 1,101,945 971,163 Facade easement donation (tax only) (612,750) (612,750) (612,750) --------- --------- --------- Partners' equity - tax $1,707,180 $3,847,133 $4,324,076 ========= ========= =========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS V (a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
Initial Cost to Partnership
Buildings and Date of Date Description (a) Encumbrances Land Improvements Constr. Acquir. (e) (a)
21 unit condominium complex in Red Hill, PA $ 399,539 $ 61,046 $ 1,461,413 1987 12/31/87
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 6,404,574 286,909 10,166,705 86-87 12/28/87 --------- ------- ---------- $6,804,113 $347,955 $11,628,118 ========= ======= ==========
Costs Gross Amount at which Carried Capitalized at December 31, 1997 Subsequent to Acquisition
Buildings and Accumulated Description (a) Improvements Land Improvements Total Depr. (b)(c) (c)(d)
21 unit condominium complex in Red Hill, PA - $ 61,046 $1,463,562 $1,524,608 $ 594,811
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 10,621,408 10,908,317 4,689,534 ------- ------- ---------- ---------- --------- $116,598 $347,955 $12,152,282 $12,500,237 $5,284,345 ======= ======= ========== ========== =========
DIVERSIFIED HISTORIC INVESTORS V (a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1997
(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, 1997, for Federal income tax purposes was approximately $12,166,951. 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 real estate:
1997 1996 1995 ------ ------ ------ Balance at beginning of year $12,483,074 $19,507,622 $19,403,221 Additions during the year: Improvements 17,163 170,375 104,401 Deductions during the year: Sale of property 0 (7,194,923) 0 ---------- ---------- ---------- Balance at end of year $12,500,237 $12,483,074 $19,507,622 ========== ========== ========== Reconciliation of accumulated depreciation: 1997 1996 1995 ------ ------ ------ Balance at beginning of year $ 4,777,178 $ 6,514,441 $ 5,814,124 Depreciation expense for the year 507,167 695,508 700,317 Deductions during the year 0 (2,432,771) 0 ---------- ---------- ---------- Balance at end of year $ 5,284,345 $ 4,777,178 $ 6,514,441 ========== ========== ==========
(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.
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 V (DoHA-V), a Pennsylvania general partnership. The partners of DoHA-V are as follows:
Name Age Position Term of Office Period Served
Gerald Katzoff 49 Partner in DoHA-V No fixed term July 1987-May 1997
DHP, Inc. -- Partner in DoHA-V No fixed term July 1987-May 1997 (Formerly Dover Historic Properties, Inc.)
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 40) 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 32) 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.
Item 11. Executive Compensation
a. Cash Compensation - During 1997, 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 1997, 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 1997 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.
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-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 1995 through 1997.
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.
Item 14. (A) Exhibits, Financial Statement Schedules and Reports on Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1997 and 1996.
b. Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995.
c. Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1997, 1996 and 1995.
d. Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.
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, 1997.
(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
Date: August 11, 1997 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 15, 1998 ----------------------- -------------- SPENCER WERTHEIMER President and Treasurer
By: /s/ Michele F. Rudoi April 15, 1998 ----------------------- -------------- MICHELE F. RUDOI, Assistant Secretary