Item 1. Business
a. General Development of Business
Diversified Historic Investors V ("Registrant") is a limited partnership formed in 1987 under Pennsylvania Law. As of December 31, 1999, 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 and effective as of January 1999, its interest in another was foreclosed. It currently owns one property. See Item 2.
Item 2. Properties
As of the date hereof, Registrant owned one property. A summary description of that property is given below.
The Lofts at Red Hill is a 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 square foot) ("sf"). In September 1997, a mortgage was placed on the property in the amount of $400,000 (principal balance of $417,399 at December 31, 1999). The note accrues interest at 14% and is payable at 10%, 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, 1999, 18 apartment units were under lease (86%) at monthly rental rates ranging from $445 to $645. All leases are renewable, one- year leases. The occupancy for the previous four years was 76% for 1998, 92% for 1997, 78% for 1996, and 90% for 1995. The monthly rental range has been approximately the same since 1995. 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 $15,023 is based on an assessed value of $803,520 taxed at a rate of $18.697 per $1,000 of assessed value. 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
To the best of its knowledge, as of December 31, 1999, Registrant was not a party to, nor was 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 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 71 units were sold or exchanged of record in 1999.
b. As of December 31, 1999, there were 1,347 record holders of Units.
c. Registrant did not declare any cash dividends in 1999 or 1998.
Item 6.
Item 6. Selected Financial Data
The following selected financial data are for the five years ended December 31, 1999. 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.
1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ Rental income $ 110,807 $ 121,383 $ 120,685 $ 767,508 $ 1,205,122 Hotel income 18,181 1,131,690 1,755,787 2,387,200 2,548,434 Interest income 2,746 2,295 17,449 7,024 4,576 Net income (loss) 3,630,276 (2,777,858) (2,211,312) (607,725) (712,598) Net income (loss) per Unit 322.56 (246.82) (196.48) (54.00) (63.32) Total assets (net of depreciation and amortization) 1,179,580 6,764,832 7,964,174 9,046,109 13,517,285 Debt obligations 417,399 7,566,974 6,804,113 6,163,254 10,436,965
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
(1) Liquidity
As of December 31, 1999, Registrant had cash of $3,951. Such funds are expected to be used to pay liabilities and general and administrative expenses of Registrant, and to fund cash deficits of the property. 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 lender in order to remain current on all obligations. The Registrant is not aware of any additional sources of liquidity.
As of December 31, 1999, Registrant had restricted cash of $116,039 consisting primarily of funds held as security deposits and escrows for real estate taxes. As a consequence of these restrictions as to use, Registrant does not deem these funds to be a source of liquidity.
(2) Capital Resources
Any capital expenditures needed are generally replacement items and are funded out of cash from operations or replacement reserves, if any. The Registrant is not aware of any factors which would cause historical capital expenditure levels not to be indicative of capital requirements in the future and, accordingly, does not believe that it will have to commit material resources to capital investment for the foreseeable future.
(3) Results of Operations
During 1999, Registrant recognized net income of $3,630,276 ($322.56 per limited partnership unit) compared to a net loss of $2,777,858 ($246.82 per limited partnership unit) in 1998 and a net loss of $2,211,312 ($196.48 per limited partnership unit) in 1997.
Rental and hotel income combined decreased from $1,876,472 in 1997 to $1,253,073 in 1998 to $128,988 in 1999. The decrease from 1998 to 1999 is the result of a decrease in hotel income of $1,114,000 and a decrease in rental income of $11,000. The decrease in hotel income is due to the foreclosure of the Redick Plaza Hotel effective as of January 1999. The decrease in rental income is due to a decrease in the average occupancy (87% to 82%) at the Lofts at Red Hill. The decrease from 1997 to 1998 is the result of a decrease in hotel income of $624,000 and an increase in rental income of $1,000. The decrease in hotel income is due to a decrease in the average occupancy (53% to 39%) and a decrease in the average nightly room rate ($91.88 to $82.16) at the Redick Plaza Hotel. The increase in rental income was due to a new commercial tenant that operates as a barber shop.
Expense for rental operations decreased from $196,215 in 1997 to $88,874 in 1998 and increased to $93,204 in 1999. The increase from 1998 to 1999 is due to an increase in maintenance expense at the Lofts at Red Hill due to painting and plumbing repairs made at the property throughout the year. The decrease from 1997 to 1998 is due to a decrease in legal fees. Legal fees were incurred in 1997 for the bankruptcy proceedings at the Redick Plaza Hotel. Hotel operations expense decreased from $1,828,128 in 1997 to $1,607,056 in 1998 and to $96,317 in 1999. The decrease from 1998 to 1999 is due to the foreclosure of the Redick Plaza Hotel effective as of January 1999 and the decrease from 1997 to 1998 is due to an overall decrease in operating expenses due to the decrease in average occupancy.
General and administrative expenses decreased from $548,996 in 1997 to $63,996 in 1998 to and remained constant at $63,996 in 1999. The decrease from 1997 to 1998 is due to a decrease in administrative fees charged due to the sale of St. Mary's Market in 1996 and a decrease in fees incurred in connection with the bankruptcy at the Redick Plaza Hotel during 1998.
Interest expense increased from $989,390 in 1997 to $1,011,704 in 1998 and decreased to $100,735 in 1999. The decrease in interest expense from 1998 to 1999 is due to the foreclosure of Redick Plaza Hotel effective as of January 1999. The increase from 1997 to 1998 is due to the Lofts at Red Hill having a full year of interest expense in 1998 on the mortgage financing that occurred in September 1997 compared to four months of interest expense in 1997.
Depreciation and amortization expense increased from $542,504 in 1997 and to $584,544 in 1998 and decreased to $141,961 in 1999. The decrease from 1998 to 1999 is due to the foreclosure of Redick Plaza Hotel effective as of January 1999. The increase from 1997 to 1998 is due to a full year of amortization of loan costs in 1998 at both the Redick Plaza Hotel and the Lofts at Red Hill compared to a partial year of amortization expense in 1997.
A nonrecurring impairment loss of $677,052 was recognized in 1998. During 1998, the value of the Redick Plaza Hotel was deemed to be impaired and it was written down to its fair value. Fair value, which was determined by reference to the present value of the estimated future cash flows, exceeded the carrying value by $677,052.
Effective as of January 1999 the Redick Plaza Hotel was foreclosed by the second mortgage lender, with the consent of the first mortgage lender, by recordation of a deed in lieu of foreclosure. The deed was recorded in June 1999 to be effective as of January 15, 1999. As a result, the Registrant realized an extraordinary gain on forgiveness of indebtedness in the amount of $3,994,755, which is the difference between the debt of the hotel and the net book value of its assets.
During the year, income of approximately $3,765,000 was recognized at the Registrant's two properties that were owned during all or a portion of the year compared to a loss of approximately $1,962,000 in 1998 and $1,561,000 in 1997. Included in income for 1999 is extraordinary income of $3,994,755 related to the foreclosure of the Redick Plaza Hotel effective as of January 1999. A discussion of property operations/activities follows.
In 1999, Registrant recognized income of $3,855,000 at the Redick Plaza Hotel, including $19,000 of depreciation and amortization expense, compared to a loss of $1,888,000, including $462,000 of depreciation and amortization expense, in 1998 and a loss of $1,506,000, including $453,000 of depreciation expense, in 1997. Included in the income for 1999 is extraordinary income of $3,995,000 related to the foreclosure of the Redick Plaza Hotel effective as of January 1999. The increase in the loss from 1997 to 1998 is the result of a decrease in hotel income due to a decrease in the average occupancy (53% to 39%) partially offset by an overall decrease in operating expenses due to the decrease in occupancy. The occupancy decreased due to the conversion to an independent hotel from an affiliation with the Radisson chain of hotels.
In 1999, Registrant incurred a loss of $90,000 at the Lofts at Red Hill including $61,000 of depreciation and amortization expense compared to a loss of $74,000 including $61,000 of depreciation expense in 1998 and a loss of $30,000 including $59,000 of depreciation expense in 1997. The increase in the loss from 1998 to 1999 is due to a decrease in rental income combined with an increase in maintenance expense. The decrease in rental income is due to the decrease in average occupancy (87% to 82%). Maintenance expense increased due to painting and plumbing repairs made at the property. The increase in the loss from 1997 to 1998 is due to a full year of interest expense in 1998 on the mortgage financing incurred in September 1997 compared to four months of interest expense in 1997.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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 sheet of Diversified Historic Investors V (a Pennsylvania Limited Partnership) and subsidiaries as of December 31, 1999 and 1998 and the related statements of operations and changes in partners' equity and cash flows for the years ended December 31, 1999, 1998 and 1997. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Diversified Historic Investors V as of December 31, 1999 and 1998, and the results of operations and cash flows for the years ended December 31, 1999, 1998 and 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule of Real Estate and Accumulated Depreciation on page 21 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
The accompanying financial statements have been prepared assuming that the partnership will continue as a going concern. In recent years, the partnership has incurred significant losses from operations, which raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Gross, Kreger & Passio, L.L.C. Philadelphia, Pennsylvania February 16, 2000
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, 1999 and 1998 10
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998, and 1997 11
Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1999, 1998, 12 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997 13
Notes to consolidated financial statements 14-18
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 20
Notes to Schedule XI 21
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, 1999 and 1998
Assets
1999 1998 ------ ------ Rental properties at cost: Land $ 61,046 $ 347,955 Buildings and improvements 1,445,431 10,322,476 Furniture and fixtures 86,863 1,121,539 ---------- ----------- 1,593,340 11,791,970 Less - accumulated depreciation (711,121) (5,752,945) ---------- ----------- 882,219 6,039,025
Cash and cash equivalents 3,951 13,986 Restricted cash 116,039 263,862 Accounts and notes receivable 150 99,954 Other assets (net of amortization of $160,475 and $365,187, respectively) 177,221 348,005 ---------- ----------- Total $1,179,580 $ 6,764,832 ========== ===========
Liabilities and Partners' Equity
Liabilities: Debt obligations $ 417,399 $ 7,566,974 Accounts payable: Trade 111,524 578,973 Related parties 33,656 33,656 Taxes 13,693 95,258 Interest payable 0 1,498,851 Accrued liabilities 14,160 33,447 Tenant security deposits 9,344 8,145 ---------- ----------- Total liabilities 599,776 9,815,304
Partners' equity (deficit) 579,804 (3,050,472) ---------- ----------- Total $1,179,580 $ 6,764,832 ========== ===========
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, 1999, 1998 and 1997
1999 1998 1997 ------ ------ ------ Revenues: Rental income $ 110,807 $ 121,383 $ 120,685 Hotel income 18,181 1,131,690 1,755,787 Interest income 2,746 2,295 17,449 ---------- ---------- ---------- Total revenues 131,734 1,255,368 1,893,921 ---------- ---------- ---------- Costs and expenses: Rental operations 93,204 88,874 196,215 Hotel operations 96,317 1,607,056 1,828,128 General and administrative 63,996 63,996 548,996 Interest 100,735 1,011,704 989,390 Depreciation and amortization 141,961 584,544 542,504 Impairment loss 0 677,052 0 ---------- ---------- ---------- Total costs and expenses 496,213 4,033,226 4,105,233 ---------- ---------- ---------- Loss before extraordinary item (364,479) (2,777,858) (2,211,312) Extraordinary gain on extinguishment of debt 3,994,755 0 0 ---------- ---------- ---------- Net income (loss) $3,630,276 ($2,777,858) ($2,211,312) ========== ========== ==========
Net income (loss)per limited partnership unit
Loss before extraordinary item (32.39) (246.82) (196.48) Extraordinary item 354.95 0 0 ---------- ---------- ---------- $ 322.56 ($ 246.82) ($ 196.48) ========== ========== ==========
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, 1999, 1998 and 1997
Dover Historic Limited Advisors V Partners (1) (2) Total -------- -------- --------- Percentage participation in profit or loss 1% 99% 100% == === ====
Balance at December 31, 1996 ($149,766) $2,088,464 $1,938,698 Net loss (22,113) (2,189,199) (2,211,312) -------- ---------- ---------- Balance at December 31, 1997 (171,879) (100,735) (272,614) Net loss (27,779) (2,750,079) (2,777,858) -------- ---------- ---------- Balance at December 31, 1998 (199,658) (2,850,814) (3,050,472) Net income 36,303 3,593,973 3,630,276 -------- ---------- ---------- Balance at December 31, 1999 ($163,355) $ 743,159 $ 579,804 ======== ========== ==========
(1) General Partner.
(2) 11,142 limited partnership units outstanding at December 31, 1999, 1998, and 1997.
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, 1999, 1998 and 1997
1999 1998 1997 ------ ------ ------ Cash flows from operating activities: Net income (loss) $3,630,276 ($2,777,858)($2,211,312) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 141,961 584,544 542,504 Extraordinary gain on extinguishment of debt (3,994,755) 0 0 Impairment loss 0 677,052 0 Changes in assets and liabilities: Increase in restricted cash (3,612) (87,733) (167,173) (Increase) decrease in accounts and notes receivable (90) 17,514 55,401 Increase in other assets 0 (67,000) (400,613) Increase (decrease) in accounts payable - trade 114,167 193,360 (131,681) Decrease in accounts payable - related parties 0 (21,344) (75,063) Increase (decrease) in accounts payable - taxes 57,756 60,135 (8,961) Increase in interest payable 42,320 629,191 710,698 Increase (decrease) in accrued liabilities 153 (44,452) (5,130) Increase (decrease) in tenant security deposits 1,199 (1,235) (1,344) ---------- ---------- ---------- Net cash used in operating activities (10,625) (837,826) (1,692,674) ---------- ---------- ---------- Cash flows from investing activities: Assets disposed of 0 73,000 0 Capital expenditures (1,420) (41,785) (17,163) ---------- ---------- ---------- Net cash (used in) provided by investing activities (1,420) 31,215 (17,163) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from debt financings 10,414 762,861 640,862 Repayments of debt financing (8,404) 0 0 ---------- ---------- ---------- Net cash provided by financing activities 2,010 762,861 640,862 ---------- ---------- ---------- Decrease in cash and cash equivalents (10,035) (43,750) (1,068,975) Cash and cash equivalents at beginning of year 13,986 57,736 1,126,711 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 3,951 $ 13,986 $ 57,736 ========== ========== ========== Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest $ 48,000 $ 382,513 $ 278,692
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 as such, and to engage in any and all activities related or incidental thereto. Any rehabilitations undertaken by the Partnership were done with a view to obtaining certification of expenditures as "qualified rehabilitation expenditures" as defined in the Code.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The accompanying financial statements include the accounts of the Partnership and a subsidiary partnership, 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 1999, 1998, and 1997).
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 a property is determined to be other than temporary as a result of one or more of the following: (1) a property is offered for sale at a price below its current carrying value, (2) a property has significant balloon payments due within the foreseeable future for which the Partnership does not have the resources to meet, and anticipates it will be unable to obtain replacement financing or debt modification sufficient to allow it to continue to hold the property over a reasonable period of time, (3) a property has been, and is expected to continue, generating significant operating deficits and the Partnership is unable or unwilling to sustain such deficit results of operations, and has been unable to, or anticipates it will be unable to, obtain debt modification, financing or refinancing sufficient to allow it to continue to hold the property for a reasonable period of time or, (4) a property's value has declined based on management's expectations with respect to projected future operational cash flows and prevailing economic conditions. An impairment loss is indicated when the undiscounted sum of estimated future cash flows from an asset, including estimated sales proceeds, and assuming a reasonable period of ownership up to 5 years, is less than the carrying amount of the asset. The impairment loss is measured as the difference between the estimated fair value and the carrying amount of the asset. In the absence of the above circumstances, properties and improvements are stated at cost. An analysis is done on an annual basis at December 31 of each year.
11. Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
NOTE C - 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 will be distributed to the limited partners in an amount equal to their adjusted invested capital plus an amount equal to the greater of an 8.5% cumulative, non-compounded annual return on the average after-credit invested capital or a 6% cumulative, non-compounded annual return on average adjusted invested capital, less amounts previously distributed. Thereafter, after receipt by the General Partner or its affiliates of any accrued but unpaid real estate brokerage commissions, the balance will be distributed 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 a general partnership interest in a partnership which acquired a property in 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. This property was foreclosed effective as of January 1999.
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, 1999 1998 ----- ------ Variable rate insured Industrial $ 0 $6,659,990 Development Bonds due September 30, 2002; interest only payable monthly to the extent of net operating income; collateralized by the related property. (A)
Note payable, interest accrues at 10%; $ 0 500,000 principal due March 29,1999; collateralized by the related property. (A)
Note payable, interest accrues at 14%; 417,399 406,984 payable at 10%; principal due October 1, -------- ---------- 2002. $417,399 $7,566,974 ======== ==========
Annual principal payments of debt obligations are as follows:
Year ending December 31, ------------------------ 2000 0 2001 0 2002 $417,399 2003 0 2004 0 -------- $417,399 ========
(A) This property was foreclosed effective as of January 1999.
NOTE F - TRANSACTIONS WITH RELATED PARTIES
Included in Accounts Payable - Related Parties was $33,656 and $33,656 at December 31, 1999 and 1998 owed to the co-general partner in the partnership referred to in Note D, for amounts owed in connection with the sale of such partnership's property.
NOTE G - IMPAIRMENT LOSS
During 1998, the Redick Plaza Hotel was deemed to be impaired and was written down to its fair value. Fair value, which was determined by reference to the present value of the estimated future cash flow, exceeded the carrying value by $677,052. An impairment loss of that amount has been charged to operations in 1998.
NOTE H - EXTRAORDINARY GAIN
Effective as of January 1999 the Redick Plaza Hotel was foreclosed by the second mortgage lender, with the consent of the first mortgage lender, by recordation of deed in lieu of foreclosure. As a result, the Registrant realized an extraordinary gain on forgiveness of indebtedness in the amount of $3,994,755, which is the difference between the debt of the hotel and the net book value of its assets.
NOTE I - 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, 1999 1998 1997 ------ ------ ------ Net income (loss) - book $3,630,276 ($2,777,858) ($2,211,312) Excess of book over tax depreciation 6,033 98,002 85,758 Minority interest - tax only (17,168) (18,126) (14,399) Impairment loss 0 677,052 0 Extraordinary gain on debt extinguishment (946,522) 0 0 ---------- ---------- ---------- Net income (loss) - tax $2,672,619 ($2,020,930) ($2,139,953) ========== ========== ==========
Partners' equity - book $ 579,804 ($3,050,472) ($ 272,614) Costs of issuance 1,419,240 1,419,240 1,419,240 Cumulative book over tax loss 972,575 1,930,232 1,173,304 Facade easement donation (tax only) (612,750) (612,750) (612,750) ---------- ---------- ---------- Partners' equity - tax $2,358,869 ($ 313,750) $1,707,180 ========== ========== ==========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS V (a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999
Cost Capitalized Initial Cost Subsequent to to Partnership Acquisition
Buildings Date of Date Encumbrances and Constr. Acqu- Description(a) (e) Land Improvements Improvements (a) ired
21 unit condominium Complex in Red Hill, PA $417,399 $61,046 $1,461,413 $ 3,569 1987 12/31/87
105 apartment units and 6,900 square feet of commercial space in New Orleans, LA 0 0 0 67,312 1988 12/30/87 -------- ------- ---------- ------- $417,399 $61,046 $1,461,413 $70,881 ======== ======= ========== =======
Gross Amount at which Carried at December 31, 1999
Buildings and Total Accumulated Description(a) Land Improvements (b) (c) Depr.(c)(d)
21 unit condominium complex in Red Hill, PA $61,046 $1,464,982 $1,526,028 $711,121
105 apartment units and 6,900 square feet of commercial space in New Orleans, LA 0 67,312 67,312 0 ------- ---------- ---------- -------- $61,046 $1,532,294 $1,593,340 $711,121 ======= ========== ========== ========
DIVERSIFIED HISTORIC INVESTORS V (a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1999
(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, 1999, for Federal income tax purposes was approximately $1,478,232. The depreciable basis of buildings and improvements was reduced for Federal income tax purposes by 50% of the historic rehabilitation credit obtained.
(C) Reconciliation of land, buildings and improvements:
1999 1998 1997 ------ ------ ------ Balance at beginning of year $11,791,970 $12,500,237 $12,483,074 Additions during the year: Improvements 1,420 41,785 17,163 Deductions during the year: Impairment loss 0 (677,052) 0 Foreclosure of property (10,200,050) (73,000) 0 ----------- ----------- ----------- Balance at end of year $ 1,593,340 $11,791,970 $12,500,237 =========== =========== ===========
Reconciliation of accumulated depreciation: 1999 1998 1997 ------ ------ ------ Balance at beginning of year $ 5,752,945 $ 5,284,345 $ 4,777,178 Depreciation expense for the year 76,892 468,600 507,167 Deductions during the year (5,118,716) 0 0 ----------- ----------- ----------- Balance at end of year $ 711,121 $ 5,752,945 $ 5,284,345 =========== =========== ===========
(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 Period Served Office
SWDHA, Inc. -- Partner in No fixed Since May 1997 DoHA-V term
EPK, Inc. -- Partner in No fixed Since May 1997 DoHA-V term
For further description of DoHA-V, 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 42) 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., a subsidiary of D, LTD, since June 14, 1993 and as a Director and Secretary/Treasurer of D, LTD. She has been associated with DHP, Inc. and its affiliates since 1984 except for the period from December 1986 to June 1989 and the period from November 1, 1992 to June 14, 1993.
Michele F. Rudoi (age 34) was appointed on May 13, 1997 as Assistant Secretary of EPK, Inc. Ms. Rudoi has 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 1999, Registrant 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 1999, 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 1999 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 - None.
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 1997 through 1999.
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, 1999 and 1998.
b. Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997.
c. Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1999, 1998 and 1997.
d. Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.
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.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended December 31, 1999.
(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: November 20, 2000 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 November 20, 2000 ---------------------- ----------------- SPENCER WERTHEIMER President and Treasurer
By: /s/ Michele F. Rudoi November 20, 2000 ----------------------- ----------------- MICHELE F. RUDOI Assistant Secretary