Item 1. Business
a. General Development of Business
Diversified Historic Investors VI ("Registrant") is a limited partnership formed in 1988 under Pennsylvania law. As of December 31, 1998, Registrant had outstanding 25,461 units of limited partnership interest (the "Units").
Registrant is presently in its operating stage. It originally owned eight properties or interests therein. Interest in two properties have been lost through foreclosure, one of which was foreclosed in March 1997, and an interest in a third property has been reduced substantially. See Item 2.
Item 2. Properties
As of December 31, 1998, Registrant owned interests in five partnerships which each own one property and a minority interest in an additional partnership which owns one property. A summary description of each property is given below.
a. Firehouse Square - consists of 31,431 sf of commercial space at 902-910 King Street in Alexandria, Virginia. In December 1988, Registrant was admitted, with a 90% general partner interest, to Firehouse Square General Partnership ("FSGP"), a Virginia general partnership, for a cash capital contribution of $1,750,000. FSGP acquired and rehabilitated the property for $5,660,000 ($151.51 per sf), funded by the equity contribution and a mortgage note payable of $4,207,000. On June 1, 1993, the first mortgage was modified. The terms of the modification include the addition of all accrued and unpaid interest ($218,728) to the principal balance and revision of the payment terms. The lender also advanced $40,711 for real estate taxes and $33,627 for tenant improvements. Monthly payments of interest to the new note holder were to be made in an amount equal to net operating income. The note accrued interest at prime plus 1/2%. On November 16, 1994, the new first mortgage holder foreclosed upon its mortgage. By "credit bidding" its mortgage, the mortgage holder became the successful bidder at sale. The first mortgage holder sold its successful bid to a partnership known as 901 King Street Associates ("KSA"). KSA is a general partnership owned 90% by DHI-VI. The selling price of the mortgage was the amount that the mortgage had been immediately prior to foreclosure. The obligation has terms materially the same as the original mortgage loan and is secured by a new mortgage on the Property. Therefore, after the sale, the Registrant's interest in the Property was unchanged. The principal balance of the mortgage at December 31, 1997 was $4,304,188. The note accrued interest at prime plus 1/2% and the entire principal balance was due October 1998. In June 1995, the Registrant refinanced $900,000 of the first mortgage (principal balance of $876,936 at December 31, 1997). This loan bore interest at 9.75%, was payable in monthly installments of principal and interest of $8,021 and was due in June 2005. In November 1998, both mortgages were refinanced. The first mortgage was refinanced with a $1,937,000 mortgage (principal balance of $1,937,000 at December 31, 1998) which bears interest at 7.08%, is payable in monthly installments of principal and interest of $13,789 and is due in November 2008. The second mortgage was refinanced with a $4,330,107 mortgage (principal balance of $4,355,866 at December 31, 1998 including accrued but unpaid interest) which bears interest at 7%, is due in to December 2008 and monthly payments of interest are to be made in an amount equal to net operating income. Proceeds from the refinancing of the first mortgage were used to reduce the second mortgage principal.
The property is managed by BCMI. As of December 31, 1998, all 31,431 sf of space was under lease (100%) at annual rates ranging from $7.12 to $20.89 per sf. The occupancy for the previous four years was 94% for 1997, 82% for 1996, 89% for 1995 and 88% for 1994. The average annual rent has been $7.12 to 20.89 per sf for 1997, $7.00 to $20.55 per sf for 1996, $6.57 to $26.96 per sf for 1995 and $6.50 to $19.29 per sf for 1994. There are three tenants who each occupy ten percent or more of the rentable square footage. They operate principally as a law firm, an architectural firm and an computer company. All leases are operating leases and the minimum future rentals on the noncancelable leases as of December 31, 1998 are $594,258. There are no contingent liabilities included in income for the years ended December 31, 1998, 1997 and 1996. The following is a table showing commercial lease expirations at Firehouse Square for the next five years.
Total annual % of gross Number of Total sf of rental covered by annual rental leases expiring expiring leases expiring leases from property
1999 1 5,599 $103,594 17% 2000 3 10,891 282,969 48% 2001 1 2,574 42,499 7% 2002 3 5,663 69,099 12% 2003 4 6,704 96,187 16%
Although no firm commitments have been made, the Registrant anticipates the one lease which is scheduled to expire in December 1998 will be extended for at least an additional year, due to the availability of a renewal option.
For tax purposes, this property has a basis of $3,641,047 and is depreciated using the straight-line method with a useful life of 39 years. The annual real estate taxes are $31,031 which is based on an assessed value of $2,900,100 taxed at a rate of $1.07 per $100. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
b. Roseland - consists of 17 low-income apartments and 3,100 sf of retail space at 4932 South 24th Street in South Omaha, Nebraska. In July 1988, Registrant was admitted with a 98% general partner interest and a 1% limited partner interest to Roseland Redevelopment Partners ("RRP"), a Nebraska limited partnership, for a cash capital contribution of $700,000. RRP acquired and rehabilitated the property for $1,680,000 ($70.29 per sf), funded by the equity contribution and three notes payable. The first note payable of $500,000 is non-interest bearing, principal due upon sale of the property; the second note payable of $63,313 bears interest at 9.16%, interest adjusting every three years based on the three-year Treasury Bill rate plus 250 basis points, payable in semi-annual installments of principal and interest of $4,856, due in November 2001 (principal balance at December 31, 1998 of $25,071); the third note payable of $370,000 (principal balance of $349,195 at December 31, 1998) bears interest at 8% and is payable in monthly installments of principal and interest of $3,083.
The property is managed by an independent property management firm. On December 31, 1998, 14 of the units were leased (82%) at monthly rents of $246 to $450 and 3,100 sf of commercial space (100%) was leased at annual rents ranging from $3.13 to $5.50 per sf. All residential leases are renewable, one-year leases. The occupancy for the residential units for the previous four years was 92% for 1997, 88% for 1996, 94% for 1995 and 87% for 1994. The monthly rental range has been approximately the same since 1994. The commercial space has been 100% occupied since 1994. The range for annual rents has been $3.13 to $5.50 per sf for 1997, $3.00 to $4.29 per sf for 1996, $3.00 to $3.43 per sf for 1995 and $2.75 per sf for 1994. There is one tenant who occupies ten percent or more of the rentable square footage. It principally functions as a counseling center. All commercial leases are operating leases and the minimum future rentals on the noncancelable leases as of December 31, 1998 are $10,800. There are no contingent liabilities included in income for the years ended December 31, 1998, 1997 and 1996.
The following is a table showing commercial lease expirations at Roseland for the next five years:
Total annual Number of Total sf of rental covered by % of gross leases expiring expiring leases expiring leases annual rental
1999 0 0 0 0 2000 2 3,100 $10,800 14% 2001 0 0 0 0 2002 0 0 0 0 2003 0 0 0 0
For tax purposes, this property has a basis of $1,677,060 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $8,659 which is based on an assessed value of $360,300 taxed at a rate of $2.40320 per $100. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
c. Mater Dolorosa Apartments - consists of 68 low income apartments located at 1265 South Carrollton Avenue in New Orleans, Louisiana. In July 1988, Registrant was admitted with a 90% general partnership interest to Mater Dolorosa General Partnership ("MDGP") a Pennsylvania general partnership, for a cash contribution of $1,519,000. MDGP acquired and rehabilitated the property for $3,149,000 ($59.39 per sf), funded by the equity contribution and a note payable of $1,790,000. The note payable bears interest at 8.5%, is payable monthly in principal and interest payments of $17,627, and is due in April 2005 (principal balance at December 31, 1998 of $1,033,150).
The property is managed by a property management firm which is an affiliate of the Registrant's co-general partner of MDGP. At December 31, 1998, 66 of the units were rented (97%) at monthly rents of $486 to $571. All leases are renewable, one-year leases. The occupancy for the previous four years was 97% for 1997, 99% for 1996, 100% for 1995 and 99% for 1994. The monthly rental range has been approximately the same since 1994. For tax purposes, this property has a basis of $3,178,476 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $5,248 which is based on an assessed value of $32,530 taxed at a rate of $16.1328 per $100. There is no one tenant who occupies ten percent or more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
d. Strehlow Terrace Apartments - consists of 70 low income apartment units located at 2024 North 16th Street, Omaha, Nebraska. In January 1989, Registrant was admitted with a 98% general partner interest to Strehlow Terrace Apartments Limited Partnership ("STALP"), a Nebraska limited partnership, for a cash capital contribution of $2,250,000. STALP acquired and rehabilitated the property for $5,817,000 ($52.02 per sf) funded by the equity contribution and three mortgage loans. The first loan, financed through the Governmental National Mortgage Association ("GNMA") is for $1,789,000 (principal balance at December 31, 1998 of $1,775,053), bears interest at 10-1/4%, is payable in monthly installments of principal and interest of $15,540, and is due in 2030. In August 1993, six units were damaged by a fire at Strehlow Terrace. Due to the financial difficulties caused by the fire, STALP fell behind on its monthly debt service by several months. Although the property was able to reduce the arrearage by 50% and commenced regular, monthly payments by May 1994, the loan was declared in default and was assigned by GNMA to the Federal Housing Administration/Housing and Urban Development ("FHA/HUD") on June 24, 1994. At December 31, 1998, the Registrant and HUD were in the process of attempting a workout agreement on the loan. The other two loans were made by the City of Omaha. One, in the amount of $1,700,000, bears interest at 1%, and the other, in the amount of $75,000, is non-interest bearing. The principal and interest (if any) on both City of Omaha loans is due upon the sale of the property or in the year 2030, whichever is earlier.
The property is managed by an independent property management firm. On December 31, 1998, 68 of the apartments were leased (97%) at monthly rents ranging from $397 to $600. All leases are renewable, one-year leases. The occupancy for the previous four years was 97% for 1997, 96% for 1996, 87% for 1995 and 91% for 1994. The monthly rental range has been approximately the same since 1994. For tax purposes, this property has a basis of $5,926,695 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $16,284 which is based on an assessed value of $575,500 taxed at a rate of $2.81991 per $100. No one tenant occupies ten percent of more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
e. Canal House - consists of 71 residential condominium units and 8,471 sf of commercial condominium space located at 4250-4312 Main Street, Manayunk, Pennsylvania. In February 1989, Registrant was admitted to Canal House Historic Associates ("CHHA"), a Pennsylvania limited partnership with a 99% general partner interest for a cash contribution of $6,000,000. During 1990, Registrant made an additional cash contribution of $200,000. (The 1% limited partnership interest is also controlled by Registrant; it is held by a Pennsylvania corporation whose stock is owned by Registrant). CHHA acquired and rehabilitated the property for $9,700,000 ($94.41 per sf) which was funded by the equity contribution and a loan of $4,000,000 with interest at 7.75% and monthly principal (based on a 30-year amortization) and interest payments. In October 1995, the Registrant ceased making debt service payments. The loan was sold in December 1995. The Registrant entered into an agreement with the new holder of the note (principal balance of $1,503,655 at December 31, 1998) whereby the maturity of the loan was extended to December 2000 and monthly payments of interest are to be made to the new note holder in an amount equal to net operating income. In April 1996, the Registrant refinanced $3,216,000 of the first mortgage. This new loan was a first mortgage which bore interest at 8.75%, payable in monthly installments of principal and interest of $25,300 and was due in April 2003. In September 1998, the second mortgage lender advanced the property $3,907,200 to repay the first mortgage with the intention of refinancing the first mortgage at a lower interest rate. This refinancing was completed in January 1999 with a $4,000,000 mortgage loan which bears interest at 7.22%, is payable in monthly payments of principal and interest of $27,206 and is due in January 2009.
The property is managed by BCMI. At December 31, 1998, 65 of the residential units were under lease (92%) at monthly rents of $670 to $1,500, and all of the commercial space was under lease (100%) at annual rents ranging from $19.00 to $24.14 per sf. All residential leases are renewable, one-year leases. The occupancy for the residential units for the previous four years was 94% for 1997, 93% for 1996, 88% for 1995 and 90% for 1994. The monthly rental range has been approximately the same since 1994. The occupancy for the commercial space was 90% for 1997, 88% for 1996, 94% for 1995 and 88% for 1994. The range for annual rents has been $19.00 to $23.11 per sf for 1997, $19.00 to $22.61 per sf for 1996, $18.86 to $19.52 per sf for 1995 and $17.00 to $19.00 per sf for 1994. There are no tenants who occupy ten percent or more of the rentable square footage. All leases are operating leases and the minimum future rentals on the noncancelable leases as of December 31, 1998 are $179,893. There are no contingent liabilities included in income for the years ended December 31, 1998, 1997 and 1996.
The following is a table showing commercial lease expirations at Canal House for the next five years.
Total annual Number of Total sf of rental covered by % of gross leases expiring expiring leases expiring leases annual rental
1999 1 850 19,200 2% 2000 1 2,426 46,094 5% 2001 2 5,065 114,599 12% 2002 0 0 0 0 2003 0 0 0 0
Although there have not been any discussions, the Registrant anticipates that the one lease which is scheduled to expire in September 1998, will be extended for at least an additional year at current market rates.
For tax purposes, this property has a basis of $9,282,138 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $87,863 which is based on an assessed value of $1,063,200 taxed at a rate of $8.264 per $100. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
f. Saunders Apartments - consists of 23 low-income apartments at 415 North 41st Avenue in Omaha, Nebraska. Registrant acquired a 99% joint venture interest in Saunders Apartments Joint Venture ("SAJV"), a Nebraska Joint Venture, for a cash capital contribution of $875,000. SAJV acquired and rehabilitated the property for $1,815,000 ($79.96 per sf), funded by the equity contribution and a mortgage payable of $675,000. The note was retired with $285,000 advanced from Registrant's co-general partner, and a mortgage note payable of $395,000 (principal balance at December 31, 1998 of $282,396). The mortgage note bears interest at 10.87%, is payable in monthly installments of $3,723 and matures in May 1997. On June 1, 1993 an amended and restated joint venture agreement was reached whereby the Registrant's interest was reduced to a 30% interest.
The property is managed by an independent property management firm. As of December 31, 1998, all 23 units were under lease (100%) with rents ranging from $385 to $430. All leases are renewable, one-year leases. The occupancy for the previous four years was 93% for 1997, 87% for 1996, 83% for 1995 and 78% for 1994. The monthly rental range has been approximately the same since 1994. For tax purposes, this property has a basis of $1,947,071 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $9,901 which is based on an assessed value of $382,700 taxed at a rate of $2.5873 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. 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 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 286 units were sold or exchanged of record in 1998.
b. As of December 31, 1998, there were 2,801 record holders of Units.
c. Registrant did not declare any cash dividends in 1998 or 1997.
Item 6.
Item 6. Selected Financial Data
The following selected financial data are for the five years ended December 31, 1998. This data should be read in conjunction with the consolidated financial statements included elsewhere herein. This data is not covered by the independent auditors' report.
1998 1997 1996 1995 1994
Rental income $ 2,295,927 $ 2,332,312 $ 2,622,418 $ 2,516,916 $ 2,976,153 Interest income 2,783 949 1,229 3,330 5,864 Net loss 2,447,292 2,016,133 2,114,935 2,497,861 816,728 Net loss per Unit 95.16 78.40 82.24 97.13 31.75 Total assets (net of depreciation and amortization) 18,878,736 19,709,306 25,557,744 26,767,721 26,779,880 Debt obligations 17,161,190 15,451,686 19,353,961 19,141,915 17,026,650
Note: See Part II, Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
(1) Liquidity
At December 31, 1998, Registrant had total unrestricted cash of $28,064. Cash generated from operations is used primarily to fund operating expenses and debt service. If cash flow proves to be insufficient, the Registrant will attempt to negotiate loan modifications with the various lenders in order to remain current on all obligations. The Registrant is not aware of any additional sources of liquidity.
As of December 31, 1998, Registrant had restricted cash of $280,896 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 and a substantial reduction of interest in a third property. At the present time, all remaining properties are able to pay their operating expenses and debt service including two of the six properties where the mortgages are basically "cash-flow" mortgages, requiring all available cash after payment of operating expenses to be paid to the first mortgage holder. None of the properties is currently producing a material amount of revenues in excess of operating expenses and debt service. Therefore, it is unlikely that any cash will be available to the Registrant to pay its general and administrative expenses.
It is the Registrant's intention to continue to hold the properties until they can no longer meet the debt service requirements and the properties are foreclosed, or the market value of the properties increases to a point where they can be sold at a price which is sufficient to repay the underlying indebtedness (principal plus accrued interest).
(2) Capital Resources
Any capital expenditures needed are generally replacement items and are funded out of cash from operations or replacement reserves, if any. The Registrant is not aware of any factors which would cause historical capital expenditures levels not to be indicative of capital requirements in the future and accordingly, does not believe that it will have to commit material resources to capital investments for the foreseeable future.
(3) Results of Operations
During 1998, Registrant incurred a net loss of $2,447,292 ($95.16 per limited partnership unit) compared to a net loss of $2,016,133 ($78.40 per limited partnership unit) in 1997 and a net loss of $2,114,935 ($82.24 per limited partnership unit) in 1996. Included in the 1997 loss is $769,620 of extraordinary loss relating to the foreclosure of Locke Mill Plaza.
Rental income decreased from $2,622,418 in 1996 to $2,332,312 in 1997 to $2,295,927 in 1998. The decrease from 1997 to 1998 is the result of the loss of Locke Mill in March 1997 partially offset by increases at Canal House, Firehouse Square, Mater Dolorosa and Roseland due to increases in the average rental rates. The decrease from 1996 to 1997 is mainly due to the loss of Locke Mill in March 1997 combined with a decrease at Strehlow Terrace partially offset by increases at Canal House and Firehouse Square.
Rental operations expense decreased from $1,373,076 in 1996 to $1,045,979 in 1997 and increased to $1,076,819 in 1998. The increase from 1997 to 1998 is the result of an increase in maintenance expense at Mater Dolorosa and Canal House, an increase in wages and salaries at Mater Dolorosa and Strehlow Terrace and an increase in management fees and commissions expense at Canal House partially offset by the loss of Locke Mill in March 1997. The decrease from 1996 to 1997 is mainly due to the loss of Locke Mill in March 1997 combined with a decrease in legal fees at Canal House partially offset by an increase in maintenance expense at Mater Dolorosa.
Interest expense decreased from $1,773,685 in 1996 to $1,313,837 in 1997 and increased to $2,189,165 in 1998. The increase from 1997 to 1998 is mainly the result of increases at Canal House and Firehouse Square due to prepayment penalties paid in connection with the refinancings. The decrease from 1996 to 1997 is mainly due to the loss of Locke Mill in March 1997 combined with a decrease at Canal House partially offset by increases at Mater Dolorosa and Firehouse Square.
Depreciation and amortization expense decreased from $1,397,601 in 1996 to $1,162,964 in 1997 and increased to $1,211,249 in 1998. The increase from 1997 to 1998 is due to increases in depreciation expense at Canal House, Firehouse Square, Roseland and Strehlow due to the depreciation of additions in 1997. Amortization expense increased at Firehouse Square due to the amortization of loan costs incurred in connection with the refinancing of the first mortgage. The decrease from 1996 to 1997 is mainly due to the loss of Locke Mill in March 1997 combined with decreases at Firehouse Square and Roseland partially offset by an increase at Strehlow Terrace.
In 1998, losses of $2,101,000 were incurred at Registrant's Properties compared to a loss of $1,834,000 in 1997 and $1,845,000 in 1996. A discussion of property operations/activities follows:
In 1997, Registrant sustained a loss of $852,000 at Locke Mill Plaza including $63,000 of depreciation and amortization expense, compared to a loss of $481,000 including $251,000 of depreciation and amortization expense in 1996. The 1997 loss without the effect of the foreclosure would have been $119,000. Included in operations for 1997 is an extraordinary loss of $733,000 representing the excess of the fair market value of the Locke Mill Plaza property over the liabilities satisfied in the foreclosure. The decrease in the loss from 1996 to 1997 is due to the loss of the property in March 1997.
In 1998, Registrant incurred losses of $52,000 at Roseland including $68,000 of depreciation expense compared to a loss of $56,000 including $62,000 of depreciation expense in 1997 and a loss of $71,000 including $73,000 of depreciation expense in 1996. Since Roseland is a low income housing property, rents are fixed in relation to specified income levels. As a result, similar to Mater Dolorosa and Strehlow Terrace discussed below, the property experiences high occupancy but rental income remains low. The decrease in the loss from 1997 to 1998 is due to an increase in rental income due to an increase in the average rental rates partially offset by an increase in depreciation expense. Depreciation expense increased due to depreciation expense on improvements to the property. The decrease in the loss from 1996 to 1997 is due to a decrease in depreciation expense resulting from personal property becoming fully depreciated in 1997.
In 1998, Registrant incurred a loss of $839,000 at Firehouse Square including $328,000 of depreciation and amortization expense compared to a loss of $511,000 including $235,000 of depreciation and amortization expense in 1997 and a loss of $594,000 including $267,000 of depreciation and amortization expense in 1996. The increase in the loss from 1997 to 1998 is due to an increase in interest, depreciation and amortization expense partially offset by an increase in rental income. Interest expense increased due to a prepayment penalty paid to refinance the first mortgage. Depreciation expense increased due to depreciation expense on improvements to the property. Amortization expense increased due to the amortization of loan costs incurred in connection with the refinancing of the first mortgage. Rental income increased due to an increase in the average rental rates. 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 (86% to 94%) and a decrease in amortization expense partially offset by an increase in interest expense. Amortization expense decreased due to the amortization of leasing commissions for tenants who vacated in 1997. Interest expense increased due to an increase in principal balance upon which interest is accrued as a result of advances from the first mortgage holder to pay for tenant improvements.
In 1998, Registrant incurred a loss of $26,000 at Mater Dolorosa including depreciation expense of $127,000 compared to a loss of $31,000 including depreciation expense of $127,000 in 1997 and a loss of $6,000 including depreciation expense of $127,000 in 1996. Since Mater Dolorosa is a low income housing property, rents are fixed in relation to specified income levels. As a result, similar to Roseland and Strehlow Terrace, the property experiences high occupancy but rental income remains low. The decrease in the loss from 1997 to 1998 is due to an increase in rental income and a decrease in interest expense partially offset by an increase in maintenance and wages and salaries expense. Rental income increased due to an increase in the average rental rates. Interest expense decreased due to a correction in 1997 of how interest is calculated on the mortgage loan costs. Maintenance expense increased due to the replacement of carpeting and the painting of several units in 1998. Wages and salaries expense increased due to cost of living increases given to employees. The increase in the loss from 1996 to 1997 is due to an increase in maintenance expense due to deferred maintenance performed at the property in 1997 and an increase in interest expense due to the correction of the interest calculation in 1997.
In 1998, Registrant incurred a loss of $270,000 at Strehlow Terrace Apartments, including $237,000 of depreciation expense compared to a loss of $254,000 including $232,000 of depreciation expense in 1997 and a loss of $213,000 including $228,000 of depreciation expense in 1996. Since Strehlow is a low income housing property, rents are fixed in relation to specified income levels. As a result, similar to Registrant's other low-income properties, the property experiences high occupancy but rental income remains low. The increase in the loss from 1997 to 1998 is the result of an increase in wages and salaries and depreciation expense. Wages and salaries expense increased due to a change in the management company. Depreciation expense increased due to depreciation of improvements to the property. The increase in the loss from 1996 to 1997 is the result of a decrease in rental income due to the lump sum payment received in 1996 combined with an increase in depreciation expense due to the depreciation of improvements to the property.
In 1998, Registrant incurred a loss of $914,000 at Canal House, including $374,000 of depreciation expense compared to a loss of $130,000 including depreciation and amortization expense of $368,000 in 1997 and a loss of $480,000 including depreciation and amortization expense of $377,000 in 1996. The increase in the loss from 1997 to 1998 is due to an increase in interest, maintenance, management fees, commissions and depreciation expense partially offset by an increase in rental income. Interest expense increased due to a prepayment payment incurred in connection with the refinancing of the first mortgage. Maintenance and commissions expense increased due to a higher turnover of apartment units in 1998 as compared to 1997. Management fee expense increased due to an increase in rental income. Depreciation expense increased due to the depreciation of improvements made at the property. Rental income increased due to an increase in the average rental rates. The decrease in the loss from 1996 to 1997 is the result of an increase in rental income combined with a decrease in legal fees and interest expense. Rental income increased due to an increase in the average rental rates and legal fees decreased to more normal levels in 1997 as compared to the level in 1996 which reflected legal fees incurred in connection with a debt restructuring in 1996. Interest expense decreased due to a scheduled reduction in the interest rate on the loan.
Summary of Minority Interest Investments
In 1998, Registrant incurred losses of $15,000 at Saunders Apartments compared to a loss of $22,000 in 1997 and a loss of $17,000 in 1996. The decrease in the loss from 1997 to 1998 is due to a increase in rental income due to an increase in the average rental rates. The Registrant expects to achieve in 1998 results comparable to those experienced in 1997.
Item7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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 Regulations S-K.
Independent Auditor's Report
To the Partners of Diversified Historic Investors VI
We have audited the accompanying consolidated balance sheet of Diversified Historic Investors VI (a Pennsylvania Limited Partnership) and subsidiaries as of December 31, 1998 and 1997 and the related statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1998, 1997 and 1996. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Strehlow Terrace Apartments Limited Partnership, which reflect total assets of $3,802,520 and $4,005,740 as of December 31, 1998 and 1997 and total revenues of $361,035 and $364,016, respectively for the years then ended. In addition, we did not audit the financial statements of Mater Dolorosa General Partnership which reflect assets of $1,874,341 and $2,014,364 as of December 31, 1998 and 1997 and total revenues of $421,239 and $398,560, respectively for the years then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included Strehlow Terrace Apartments Limited Partnership and Mater Dolorosa General Partnership, is based solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards. These 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, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Diversified Historic Investors VI as of December 31, 1998 and 1997, and the results of operations and cash flows for the years ended December 31, 1998, 1997 and 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The Schedule of Real Estate and Accumulated Depreciation on page 35 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 consolidated financial statements and, in our opinion, which insofar as it relates to Strehlow Terrace Apartments Limited Partnership and Mater Dolorosa General Partnership is based on the report of other auditors, such information 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 March 9, 1999
Independent Auditor's Report
To the Partners of Strehlow Terrace Apartments Limited Partnership
We have audited the accompanying balance sheets of Strehlow Terrace Apartments Limited Partnership, (a Nebraska limited partnership), FHA Project No. 103-94006, as of December 31, 1998 and 1997, and the related statements of operations, partners' deficit, 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, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the Guide) issued by the Department of Housing and Urban Development, Office of the Inspector General. Those standards and that guide 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 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 financial statements referred to above present fairly, in all material respects, the financial position of Strehlow Terrace Apartments Limited Partnership at December 31, 1998 and 1997, and the results of its operations, changes in partners' deficit and cash flows for the years then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note F to the financial statements, the Partnership has incurred significant losses since its formation to operate Strehlow Terrace Apartments beginning in 1990. The Partnership has experienced a deficiency in cash flows resulting in past due mortgage principal, interest and escrow payments. In addition, work-out opportunities with the Department of Housing and Urban Development (HUD) have been suspended. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note F. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs, we have also issued a report dated January 20, 1999 on our consideration of the Partnership's internal control structure and reports dated January 20, 1999 on its compliance with specific requirements applicable to Fair Housing and Non-discrimination, and specific requirements applicable to its major HUD program and its non-major HUD program transactions.
Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary information 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 audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Blackman & Associates, P.C. Omaha, Nebraska January 20, 1999
Independent Auditor's Report
To the Partners of Mater Dolorosa General Partnership
We have audited the accompanying balance sheets of Mater Dolorosa General Partnership, for December 31, 1998 and 1997 and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the 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 financial statements referred to above present fairly, in all material respects, the financial position of Mater Dolorosa General Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
Pailet, Meunier and LeBlanc, L.L.P. Metairie, Louisiana February 5, 1999
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1998 and 1997 21
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996 22
Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1998, 1997, and 1996 23
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 24
Notes to consolidated financial statements 25-33
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 35
Notes to Schedule XI 36
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 VI (a limited partnership)
CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
Assets
1998 1997 Rental properties at cost: Land $ 950,238 $ 950,238 Buildings and improvements 27,176,328 27,138,941 Furniture and fixtures 858,106 845,914 ---------- ---------- 28,984,672 28,935,093 Less - accumulated depreciation (11,038,617) (9,949,357) ---------- ---------- 17,946,055 18,985,736
Cash and cash equivalents 28,064 23,036 Restricted cash 280,896 334,180 Investment in affiliate (8,971) 5,748 Other assets (net of accumulated amortization of $548,506 and $426,518) 632,692 360,606 ---------- ---------- Total $18,878,736 $19,709,306 ========== ==========
Liabilities and Partners' Equity Liabilities: Debt obligations $17,161,190 $15,451,686 Accounts payable: Trade 1,081,777 872,625 Taxes 20,492 20,004 Related parties 396,529 308,474 Other 27,039 1,026 Interest payable 870,643 1,292,641 Tenant security deposits 129,858 124,350 ---------- ---------- Total liabilities 19,687,528 18,070,806 ---------- ---------- Partners' equity (808,792) 1,638,500 ---------- ---------- Total $18,878,736 $19,709,306 ========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
Revenues: Rental income $2,295,927 $2,332,312 $2,622,418 Other income 0 218,350 0 Interest income 2,783 949 1,229 --------- --------- --------- Total revenues 2,298,710 2,551,611 2,623,647 --------- --------- --------- Costs and expenses: Rental operations 1,076,819 1,045,979 1,373,076 General and administrative 254,050 253,791 176,949 Interest 2,189,165 1,313,837 1,773,685 Depreciation and amortization 1,211,249 1,162,964 1,397,601 --------- --------- --------- Total costs and expenses 4,731,283 3,776,571 4,721,311 --------- --------- --------- Loss before minority interests and equity in affiliate (2,432,573) (1,224,960) (2,097,664) Equity in net loss of affiliate (14,719) (21,553) (17,271) --------- --------- --------- Loss before extraordinary item (2,447,292) (1,246,513) (2,114,935) Extraordinary loss 0 (769,620) 0 --------- --------- --------- Net loss ($2,447,292) ($2,016,133) ($2,114,935) ========= ========= =========
Net loss per limited partnership unit: Loss before minority interests and equity in affiliate ($ 94.59) ($ 47.63) ($ 81.57) Equity in net loss of affiliate (.57) (.84) (.67) --------- -------- --------- Loss before extraordinary item (95.16) (48.47) (82.24) Extraordinary item 0 (29.93) 0 --------- -------- --------- ($ 95.16) ($ 78.40) ($ 82.24) ========= ======== =========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
Dover Historic Advisors Limited VI (1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1995 ($152,964) $5,922,532 $5,769,568 Net loss (21,149) (2,093,786) (2,114,935) ------- --------- --------- Balance at December 31, 1996 (174,113) 3,828,746 3,654,633 Net loss (20,161) (1,995,972) (2,016,133) ------- --------- --------- Balance at December 31, 1997 (194,274) 1,832,774 1,638,500 Net loss (24,473) (2,422,819) (2,447,292) ------- --------- --------- Balance at December 31, 1998 ($218,747) ($ 590,045) ($ 808,792) ======= ========= =========
(1) General Partner.
(2) 25,461 limited partnership units outstanding at December 31, 1998, 1997, and 1996.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 Cash flows from operating activities: Net loss ($2,447,292) ($2,016,133) ($2,114,935) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 1,211,249 1,162,964 1,397,601 Extraordinary loss 0 769,620 0 Equity in loss of affiliate 14,719 21,553 17,271 Changes in assets and liabilities: Decrease (increase) in restricted cash 53,284 5,542 (65,045) Increase in other assets (394,075) (97,661) (108,436) Increase in accounts payable - trade 209,152 230,341 115,195 Increase (decrease) in accounts payable - taxes 488 (1,826) (27,584) Increase (decrease) in accounts payable - related party 88,055 45,714 (23,406) Increase (decrease) in accounts payable - other 26,013 (64,825) 31,616 (Decrease) increase in interest payable (421,998) 261,583 599,439 Increase (decrease) in tenant security deposits 5,508 1,187 (2,347) Net cash (used in) provided by --------- --------- --------- operating activities (1,654,897) 318,059 (180,631) --------- --------- --------- Cash flows from investing activities: Purchase of rental property and improvements (49,579) (103,135) (44,476) --------- --------- --------- Net cash used in investing activities(49,579) (103,135) (44,476) --------- --------- --------- Cash flows from financing activities Proceeds from debt financing 10,200,066 67,967 360,704 Principal payments (8,490,562) (319,189) (148,658) ---------- --------- --------- Net cash provided by (used in) financing activities 1,709,504 (251,222) 212,046 ---------- --------- --------- Increase (decrease) in cash and cash equivalents 5,028 (36,298) (13,061) Cash and cash equivalents at beginning of year 23,036 59,334 72,395 ---------- --------- --------- Cash and cash equivalents at end of year $ 28,064 $ 23,036 $ 59,334 ========== ========= ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 1,106,280 $1,275,532 $1,174,246 Supplemental Schedule of Non-Cash Investing and Financing Activities: Net assets transferred for liability reduction*: Net assets transferred 0 $4,815,026 0 Liability reduction 0 $4,081,547 0 * As a result of foreclosures on properties owned by the Partnership.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors VI (the "Partnership"), a limited partnership, was formed in January 1988 to acquire, rehabilitate, renovate, manage, operate, hold, sell, exchange, and otherwise deal in and with real properties containing improvements which are "certified historic structures" as defined in the Internal Revenue Code of 1986 (the "Code"), or which are eligible for the tax credit provided by Section 42 of the Code, and such other uses as Dover Historic Advisors VI (the "General Partner") deems appropriate, and to engage in any and all activities related or incidental thereto. Rehabilitations undertaken by the Partnership were done with a view to obtaining certification of expenditures therefor as "qualified rehabilitation expenditures" as defined in the Code.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The accompanying financial statements include the accounts of the Partnership and five subsidiary partnerships ("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 30% in one partnership, which it accounts for on the equity method. Allocations of income and loss to the minority owners of the Ventures will be made until and unless the cumulative losses applicable to the minority interests exceed the minority interests in the equity capital of the Ventures. These financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of the Partnership's General partner, are necessary for a fair statement of the results for those years.
2. Depreciation
Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over 25 years and furniture and fixtures over five years.
3. Net Loss Per Partnership Unit
The net loss per limited partnership unit is based on the weighted average number of limited partnership units outstanding (25,461 in 1998, 1997 and 1996). 3. Costs of Issuance
Costs incurred in connection with the offering and sale of limited partnership units were charged against partners' equity as incurred.
4. Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents.
5. Income Taxes
Income taxes or credits resulting from earnings or losses are payable by or accrue to the benefits of the partners; accordingly, no provision has been made for income taxes in these financial statements.
6. Restricted Cash
Restricted cash includes amounts held for tenant security deposits and real estate tax reserves.
7. Revenue Recognition
Revenues are recognized when rental payments are due on a straight- line basis. Rental payments received in advance are deferred until earned.
8. Rental Properties
Rental properties are stated at cost. A provision for impairment of value is recorded when a decline in value of property is determined to be other than temporary as a result of one or more of the following: (1) a property is offered for sale at a price below its current carrying value, (2) a property has significant balloon payments due within the foreseeable future which the Partnership does not have the resources to meet, and 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.
9. 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 - LEASES
The Partnership's leases with commercial tenants are classified as operating leases. Leases are generally for a period of three to five years and provide for a fixed base rent plus contingent rents based on level of sales and sharing of certain operating costs.
Minimum future commercial rentals on operating leases as of December 31, 1998 are as follows:
1999 $784,951 2000 662,157 2001 322,294 2002 165,196 2003 96,187
NOTE D - PARTNERSHIP AGREEMENT
The significant terms of the amended and restated Agreement of Limited Partnership (the "Agreement"), as they relate to the financial statements, follow:
1. Capital Contributions
The partnership offered investors limited partnership units at $1,000 per unit; the minimum purchase per investor was three units. A total of 25,461 limited partnership units was sold. After payment of costs of issuance as provided for in the Agreement and the withdrawal of the initial limited partner, initial partnership capital net of costs of issuance was $22,181,070 from limited partners and $9,900 from the General Partner.
2. Distributions from Operations
The Agreement provides that, beginning with the date of the admission of subscribers as limited partners, all distributable cash from operations (as defined) will be distributed 99% to the limited partners and 1% to the General Partner. After cash flows from operations are positive, the General Partner shall also receive 4% of such cash flows exclusive of interest earned on investments.
All distributable cash from sales or dispositions will be distributed to the limited partners up to their adjusted invested capital plus an amount equal to the sum of the greater of an 8.5% cumulative, non- compounded annual return on the average after-credit invested capital or a 6% cumulative, non-compounded annual return on the average adjusted invested capital, plus an early investor incentive, less amounts previously distributed; thereafter, after receipt by the General Partner or its affiliates of any accrued but unpaid real estate brokerage commissions, the balance will be distributed 85% to the limited partners and 15% to the General Partner. Terms used throughout this paragraph are as defined under the Agreement.
3. Allocation of Net Income and Net Losses from Operations
Net income and net loss (as defined) will be allocated 99% to the limited partners and 1% to the General Partner with certain exceptions as defined in the Agreement.
The Agreement provides that the fiscal year of the Partnership will be the calendar year and that the Partnership shall continue until December 31, 2038, unless sooner terminated upon the occurrence of certain events.
NOTE E - ACQUISITIONS
The Partnership acquired one property and five general or limited partnership interests in Ventures during the period from January 7, 1988, to December 1988, and one general and one limited partnership interest in Ventures in 1989, as discussed below.
In July 1988, the Partnership was admitted, with a 98% general partner and a 1% limited partner interest, to a Nebraska limited partnership which owns a building located in Omaha, Nebraska, consisting of 17 apartment units, for a cash capital contribution of $700,000. In addition, $128,284 in acquisition costs relating to the investment have been capitalized as part of buildings and improvements.
In July 1988, the Partnership was admitted, with a 90% general partner interest, to a Louisiana general partnership which owns a building located in New Orleans, Louisiana, consisting of 68 apartment units, for a cash capital contribution of $1,519,000. In addition, $241,173 of acquisition costs relating to the investment have been capitalized as part of buildings and improvements. During 1990, as permanent financing was obtained, $60,000 of the capital contribution was returned to the Partnership.
In December 1988, the Partnership acquired a 99% joint venture interest in a Nebraska joint venture which owns a building located in Omaha, Nebraska, consisting of 23 apartment units, for a cash capital contribution of $875,000. In addition, $153,940 in acquisition costs relating to the investment have been capitalized as part of buildings and improvements. These capitalized costs have been removed from the balance sheet. Pursuant to the June 1993 Amended and Restated Joint Venture Agreement, the Partnership's interest was reduced to 30%.
In December 1988, the Partnership was admitted, with a 97% general partner and a 1% limited partner interest, to a West Virginia limited partnership which owned a building located in Huntington, West Virginia, consisting of 53 apartment units and 41,590 square feet of commercial space, for a general partner cash capital contribution of $1,470,000 and limited partner cash capital contribution of $10,000. In addition, $492,609 of acquisition costs relating to the investment were capitalized as part of building and improvements. The lender foreclosed on the property in October 1994.
In December 1988, the Partnership was admitted, with a 90% general partner interest, to a Virginia general partnership which owns a building located in Alexandria, Virginia, consisting of 32,544 square feet of commercial space, for a cash capital contribution of $1,750,000. In addition, $436,164 in acquisition costs relating to the investment have been capitalized as part of buildings and improvements. In 1990, the Partnership made an additional cash contribution of $196,621 pursuant to an agreement with the co-general partner.
In December 1988, the Partnership purchased 78 condominium units and 6,700 square feet of commercial space located in North Carolina for $5,042,000. In addition, $774,258 of acquisition costs relating to the property were capitalized as part of buildings and improvements. On January 21, 1994, the property was transferred to a Pennsylvania limited partnership in which the partnership owns a 99% interest. On March 14, 1997, the Registrant was declared in default on the first mortgage for failure to make the minimum monthly payment. On March 31, 1997, a settlement agreement was reached whereby the Registrant has agreed to relinquish its partnership interests in the limited partnership in lieu of foreclosure.
In January 1989, the Partnership was admitted, with a 98% general partner interest, to a Nebraska general partnership which owns a building located in Omaha, Nebraska, consisting of 70 apartments units, for a cash capital contribution of $2,250,000. In addition, $448,993 of acquisition costs relating to the investment have been capitalized as part of buildings and improvements.
In February 1989, the Partnership was admitted, with a 99% general partner interest, to a Pennsylvania limited partnership which owns a building located in Manayunk, Pennsylvania, consisting of 73 apartment units and 8,471 square feet of commercial space, for a total cash capital contribution of $6,000,000, less funds advanced prior to admittance ($2,431,552 at December 31, 1988). In addition, $664,509 of acquisition costs relating to the investment have been capitalized as part of buildings and improvements. The building was subsequently converted to a condominium, with the Partnership retaining title to all property. During 1990, the Partnership made additional cash contributions of $220,000.
NOTE F - DEBT OBLIGATIONS
Debt obligations were as follows: December 31, 1998 1997 Note payable, non-interest bearing; principal due upon $ 500,000 $ 500,000 of property; collateralized by related rental property.
Note payable, interest at 9.16% at December 31, 1998 and 25,071 32,506 1997, adjusted every three years, based upon the three-year Treasury Bill rate plus 250 basis points, payable in semi-annual installments of principal and interest of $4,856 (payment adjusted in accordance with interest rate changes); due in November 2001; collateralized by related rental property.
Note payable, interest at 8% and 8.01% at December 31, 1998 349,195 357,849 and 1997, respectively; payable in monthly installments of principal and interest of $3,083; due in August 2006; collateralized by related rental property.
Note payable, interest at 9.16% at December 31, 1997; 0 5,979 payable in monthly installments of principal and interest of $776; repaid in August 1998.
Note payable, interest at 8.5%, payable in monthly 1,033,150 1,151,343 installments of principal and interest of $17,627, due in April 2005; collateralized by related rental property.
Mortgage loan, interest accrues at 7%, interest only 4,355,866 0 payable monthly to the extent of net operating income; due in December 2008; collateralized by the related rental property (A)
Mortgage loan, interest accrues at prime plus .5% 0 4,304,188 (effective rate of 9% at December 31, 1997), interest only payable monthly to the extent of net operating income; principal due October 1998; collateralized by related rental property. (A)
Mortgage loan, interest at 7.08%, payable in monthly 1,937,000 0 installments of principal and interest of $13,789; principal due December 2008; collateralized by the related rental property. (A)
Mortgage loan, interest at 9.75%, payable in monthly 0 876,936 installments of principal and interest of $8,021; principal due June 2005; collateralized by related rental property. (A)
Note payable, non-interest bearing; principal due upon 75,000 75,000 sale of property; collateralized by related rental property.
Note payable, interest at 10.25%; payable in monthly 1,775,053 1,775,053 installments of principal and interest of $15,540, with maturity in March 2030; collateralized by related rental property.
Note payable, interest at 1%, accruing to principal; 1,700,000 1,700,000 unpaid principal and interest are due upon sale or in January 2030; collateralized by related rental property.
Note payable, interest at 7.75%; interest only 1,503,655 1,496,518 payable monthly to the extent of net operating income; due December 2000; collateralized by related rental property. (B)
Note payable, interest at 10.5%; interest only payable 3,907,200 0 monthly in the amount of $25,300, collateralized by the related rental property. (B)
Mortgage loan, interest at 8.75%, payable in monthly installments of principal and interest of $25,300; principal due April 2003; collateralized by related rental property. 0 3,176,314 ---------- ---------- $17,161,190 $15,451,686 ========== ========== (A) In November 1998, the mortgage loans at Firehouse Square were refinanced.
(B) In September 1998, the second mortgage lender advanced the property $3,907,200 to repay the first mortgage with intention of refinancing the first mortgage at a lower interest rate. This refinancing was complete in January 1999 with a $4,000,000 mortgage loan which bears interest at 7.22%, is payable in monthly payments of principal and interest of $27,206 and is due in January 2009.
Maturities of debt obligation at December 31, 1998 were as follows:
Year Ending December 31,
1999 $ 4,119,487 2000 197,461 2001 212,189 2002 222,448 2003 241,807 Thereafter 12,167,798 ---------- $17,161,190 ==========
NOTE G - RELATED PARTIES
In June 1998, the General Partner advanced the Partnership $77,975 to pay certain outstanding liabilities of the Partnership. The advance is non-interest bearing and will be paid out of available cash flow.
Included in Accounts Payable - Related Party is $115,495 at December 31, 1998 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.
Included in Accounts Payable - Related Party is $132,174 at December 31, 1998 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.
Included in Accounts Payable - Related Party is $33,614 at December 31, 1998 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.
Included in Accounts Payable - Related Party is $25,000 at December 31, 1998 owed to 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 $12,271 at December 31, 1998 owed to 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.
NOTE H - GOING CONCERN
Since the formation of Strehlow Terrace Limited Partnership ("STLP", one of the Partnership's ventures) in 1990, STLP has incurred significant losses. In addition, at December 31, 1998, current liabilities exceed current assets. During 1998 the Partnership was delinquent in payments on the mortgage and has outstanding interest payable of $288,503. These factors raise substantial doubt about the STLP's ability to continue as a going concern. The financial statements were prepared assuming that STLP will continue as a going concern and does not include any adjustments that might result from the outcome of this uncertainty.
NOTE I - EXTRAORDINARY GAINS/LOSSES
On February 14, 1994, Locke Mill Partners, a limited partnership in which the Partnership owns a 99% interest, filed a reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. On June 6, 1995, LMP filed the Second Plan of Reorganization (the "Plan") and the Plan was confirmed in August 1995. The Plan provides for the following : (1) the sale of some or all of the units in order to satisfy the claims of its creditors; and (2) an extension of the maturity date of the notes payable for three years, with the option to extend for an additional two years if fifty percent (50%) of the principal amount of the debt had been retired at that time. The net proceeds of the sales were to be used to retire the principal balance of the debt. The Partnership entered into an agreement with a new lender who agreed to fund necessary marketing costs and costs for any improvements to the units in return for a wrap mortgage on the property in the amount of $3,500,000. Monthly payments of interest to the new lender were to be made in an amount equal to net operating income, with a minimum of $25,000 per month. The note accrued interest at 12% and was due in August 2000. On March 14, 1997, the Partnership was declared in default on the first mortgage for failure to make the minimum monthly payment. On March 31, 1997, a settlement agreement was reached whereby the Partnership agreed to relinquish its partnership interests in LMP. The Partnership recognized an extraordinary loss of $770,000 in 1997 for the difference between the book value of the property (which approximated fair value) and the extinguished debt.
NOTE J - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of operations in different time periods for financial reporting ("book") purposes and for income tax ("tax") purposes. Reconciliations of net loss and partners' equity follow:
For the Years Ended December 31, 1998 1997 1996 Net loss - book ($2,447,292) ($2,016,133) ($2,114,935) Excess of tax under book depreciation 459,534 328,246 403,406 Interest 85,844 78,066 (618,142) Loss on foreclosure 0 399,505 0 Gain on sale 0 (205,643) 0 Administrative expenses 0 (118,750) 0 Other timing differences 14,718 0 22,804 Minority interest - tax only 245,961 211,654 53,507 --------- --------- --------- Net loss - tax ($1,641,235) ($1,323,055) ($2,253,360) ========= ========= ========= Partners' equity - book ($ 808,792) $1,638,500 $3,654,633 Costs of issuance 3,279,930 3,279,930 3,279,930 Cumulative tax under book loss 4,901,802 4,095,745 3,402,667 Investment credit recapture 9,900 9,900 9,900 Rehabilitation credit (251,117) (251,117 (251,117) --------- --------- ---------- Partner's equity - tax $7,131,723 $8,772,958 $10,096,013 ========= ========= ==========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
Costs Capitalized Initial Cost Subsequent to to Partnership Acquisition (b)
Buildings and Description (a) Encumbrances(e) Land (b) Improvements Improvements
17 unit apartments and 3,100 square feet of retail space in Omaha, NE $874,266 $10,000 $1,774,986 $33,364
68 apartment units in New Orleans, LA 1,033,150 - 2,948,634 471,015
32,500 square feet of commercial space in Alexandria, VA 6,292,866 540,238 5,014,827 1,290,152
70 apartment units in Omaha, NE 3,550,053 - 448,993 5,926,320
71 unit apartments and 8,500 square feet of commercial space in Manayunk, PA 5,410,855 400,000 664,508 9,461,635 ---------- ------- ---------- ---------- $17,161,190 $950,238 $10,851,948 $17,182,486 ========== ======= ========== ==========
Gross Amount at which Carried at December 31,
Buildings and Accum. Date of Date Description (a) Land Improvements Total Depr. Constr. Acq. (c)(d) (d)(e) (a) 17 unit apartments and 3,100 square feet of retail space in Omaha, NE $10,000 $1,808,350 $1,818,350 $ 759,194 1988 7/88
68 unit apartments in New Orleans, LA - 3,419,649 3,419,649 1,472,363 1988 7/88
32,500 square feet of commercial space in 540,238 6,304,979 6,845,217 2,396,986 1988 12/88 Alexandria, VA
70 apartment units in - 6,375,313 6,375,313 2,362,972 1989 1/89 Omaha, NE
71 unit apartments and 8,500 square feet of commercial space in Manayunk, PA 400,000 10,126,143 10,526,143 4,047,102 1989 2/89 ------- ---------- ---------- --------- $950,238 $28,034,434 $28,984,672 $11,038,617 ======= ========== ========== ==========
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
NOTES TO SCHEDULE XI
DECEMBER 31, 1998
(A) All properties are certified historic structures as defined in the Internal Revenue Code of 1986. The "date of construction" refers to the period in which such properties were rehabilitated.
(B) Represents costs of a parcel of land with historic building located thereon. Amounts do not include any development/rehabilitation costs incurred pursuant to a turnkey development agreement entered into when the property was purchased.
(C) The cost of real estate owned at December 31, 1998, for Federal income tax purposes was approximately $25,652,487. The depreciable basis of the building and improvements of the properties has been reduced for Federal income tax purposes by the historic rehabilitation credit.
(D) Reconciliation of real estate:
1998 1997 1996 Balance at beginning of year $28,935,093 $35,656,555 $35,612,079 Additions during this year: Improvements 49,579 103,135 44,476 Deductions during the year: Retirements 0 (6,824,597) 0 ---------- ---------- ---------- Balance at end of year $28,984,672 $28,935,093 $35,656,555 ========== ========== ========== Reconciliation of accumulated depreciation: 1998 1997 1996 Balance at beginning of year $ 9,949,357 $10,933,587 $ 9,605,719 Depreciation expense for the year 1,089,260 1,105,796 1,327,868 Retirements 0 (2,090,026) 0 ---------- ---------- ---------- Balance at end of year $11,038,617 $ 9,949,357 $10,933,587 ========== ========== ==========
(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 VI (DoHA-VI), a Pennsylvania general partnership. The partners of DoHA-VI are as follows:
Name Age Position Term of Office Period Served
SWDHA, Inc. -- Partner in DoHA- No fixed term Since May 1997 VI
EPK, Inc. -- Partner in DoHA- No fixed term Since May 1997 VI
For further description of DHP, Inc., see paragraph e. of this Item. There is no arrangement or understanding between either person named above and any other person pursuant to which any person was or is to be selected as an officer.
c. Identification of Certain Significant Employees. Registrant has no employees. Its administrative and operational functions are carried out by property management and partnership administration firm engaged by the Registrant.
d. Family Relationships. There is no family relationship between or among the executive officers and/or any person nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DoHA-VI is a general partnership formed in 1987. 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-VI. Spencer Wertheimer, the President and Sole Director 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-VI.
The officers and directors of EPK, Inc. are described below.
Spencer Wertheimer was appointed 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 1998, Registrant paid no cash compensation to DoHA-VI, any partner therein or any person named in paragraph c. of Item 10.
b. Compensation Pursuant to Plans - Registrant has no plan pursuant to which compensation was paid or distributed during 1998, or is proposed to be paid or distributed in the future, to DoHA- VI, any partner therein, or any person named in paragraph c. of Item 10 of this report.
c. Other Compensation - No compensation not referred to in paragraph a. or paragraph b. of this Item was paid or distributed during 1998 to DoHA-VI, 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-VI is entitled to 10% of Registrant's distributable cash from operations in each year. There was no such share allocable to DoHA-VI for fiscal years 1996 through 1998.
b. Certain Business Relationships - Registrant has no directors. For a description of business relationships between Registrant and certain affiliated persons, see paragraph a. of this Item.
c. Indebtedness of Management - No executive officer or significant employee of Registrant, Registrant's general partner (or any employee thereof), or any affiliate of any such person, is or has at any time been indebted to Registrant.
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, 1998 and 1997.
b. Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996
c. Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1998, 1997 and 1996.
d. Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI - Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(a) Exhibit Number Document
3 Registrant's Amended and Restated Certificate of Limited Partnership and Agreement of Limited Partnership, previously filed as part of Amendment No. 2 of Registrant's Registration Statement on Form S-11, are incorporated herein by reference.
21 Subsidiaries of the Registrant are listed in Item 2. Properties of this Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended December 31, 1998.
(c) Exhibits:
See Item 14 (A) (3) above.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIVERSIFIED HISTORIC INVESTORS VI
Date: April 26, 1999 By: Dover Historic Advisors VI, 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 VI General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer April 26, 1999 ------------------------ -------------- SPENCER WERTHEIMER President and Treasurer
By: /s/ Michele F. Rudoi April 26, 1999 ------------------------ -------------- MICHELE F. RUDOI, Assistant Secretary