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, 2002, 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. Interests in three properties have been lost through foreclosure and an interest in a third property was reduced substantially and subsequently sold. In 2002, an additional property was purchased. See Item 2.
Item 2. Properties
As of December 31, 2002, Registrant owned interests in five partnerships that each owns one property. A summary description of each property is given below.
a. Firehouse Square - consists of 31,507 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 included 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 the Registrant. 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. 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 $1,849,227 at December 31, 2001) 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 which bears interest at 7%, is due in December 2008 with monthly payments of interest 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.
On September 26, 2002, the Firehouse Square first mortgage was refinanced with a temporary bridge loan and the net proceeds were used to partially repay the second mortgage on the property. The principal balance of the first mortgage was increased to $3,520,000 and the net proceeds were used to reduce the second mortgage. In exchange for a 20% ownership interest in and a preferred return from KSA, the second mortgage holder converted the balance of its outstanding debt to equity and cancelled its loan. The permanent financing closed January 31, 2003. The new first mortgage bears interest at 6.75 % and is due March 1, 2013.
The property is managed by BCMI. As of December 31, 2002, 31,507 sf of space were under lease (100%) at annual rates ranging from $9.12 to $26.50 per sf. The occupancy for the previous four years was 100% for 2001, 2000, 1999 and 1998. The average annual rent was $ 7.56 to $ 22.18 for 2001, $7.34 to $21.53 for 2000, and $7.12 to $20.89 for 1999 and 1998. 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 a computer company. All leases are operating leases and the minimum future rentals on the non-cancelable leases as of December 31, 2002 are $1,848,832. The following is a table showing commercial lease expirations at Firehouse Square for the next five years.
Total annual Number of Total sf of rental covered % of gross leases expiring by expiring annual rental Year expiring leases leases from property
2003 2 9,623 $194,866 34 % 2004 2 4,241 $ 58,975 10 % 2005 2 2,994 $ 67,895 12 % 2006 1 2,574 $ 49,800 9 % 2007 2 6,862 $ 145,304 25 %
For tax purposes, this property has a basis of $4,260,797 and is depreciated using the straight-line method with a useful life of 39 years. The annual real estate taxes are $40,943. 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 3,000 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 with principal due upon sale of the property; the second note payable of $63,313 bore interest at 9.16%, with interest adjusting every three years based on the three-year Treasury Bill rate plus 250 basis points, was payable in semi-annual installments of principal and interest of $4,856 and was due in November 2001. The third note payable of $370,000 (principal balance of $313,808 at December 31, 2002) bears interest at 8%, is payable in monthly installments of principal and interest of $3,083 and is due in August 2006.
The property is managed by an independent property management firm. On December 31, 2002, 11 of the units were leased (65%) at monthly rents of $111 to $535 and 3,000 sf of commercial space (100%) was leased at annual rents ranging from $3.00 to $8.00 per sf. All residential leases are renewable, one-year leases. The occupancy for the residential units for the previous four years was 71% for 2001, 80% for 2000, 80% for 1999 and 82% for 1998. The monthly rental range has been approximately the same since 1998. The commercial space has been 100% occupied since 1998. The range for annual rents has been $3.00 to $8.00 for 2001 and 2000 and $3.13 to $5.00 per sf for 1999 and 1998. There is one tenant who occupies ten percent or more of the rentable square footage. It principally functions as a tax counseling provider. All commercial leases are operating leases and the minimum future rentals on the noncancelable leases as of December 31, 2002 are $4,800.
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 leases expiring by expiring % of gross Year expiring leases leases annual rental
2003 1 600 $4,800 7% 2004 0 0 0 0 2005 0 0 0 0 2006 0 0 0 0 2007 0 0 0 0
For tax purposes, this property has a basis of $1,729,289 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $1,314. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
c. Mater Dolorosa Apartments - consists of 66 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 in monthly installments of principal and interest of $17,627, and is due in April 2005 (principal balance at December 31, 2002 of $446,261).
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, 2001, 64 of the units were rented (97%) at monthly rents of $533 to $629. All leases are renewable, one-year leases. The occupancy for the previous four years was 100% for 2001 and 2000 and 97% for 1999 and 1998. The monthly rental range has been approximately the same since 1998. 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 $5,531. 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. Canal House - consists of 71 residential condominium units and 8,341sf 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 and interest payments (based on a 30-year amortization schedule) note (principal balance of $1,520,117 at December 31, 2002). 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 whereby the maturity of the loan was extended to December 2004 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, 2002, 66 of the residential units were under lease (93%) at monthly rents of $750 to $1,630, and 8,341 sf of commercial space was under lease (100%) at annual rents ranging from $16.23 to $26.12 per sf. All residential leases are renewable, one-year leases. The occupancy for the residential units for the previous four years was 97% for 2001, 96% for 2000, 93% for 1999 and 92% for 1998. The monthly rental range has been approximately the same since 1998. The occupancy for the commercial space was 88% for 2001, 100% for 2000, 1999, and 1998. The range for annual rents was $22.80 to $26.87 for 2001, $22.47 to $23.22 for 2000, $7.12 to $20.89 for 1999 and $19.00 to $24.14 per sf for 1998. There are four tenants who each occupy ten percent or more of the rentable square footage. They operate principally as a bank, a furniture store and two restaurants. All leases are operating leases and the minimum future rentals on the noncancelable leases as of December 31, 2002 are $146,223.
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 leases expiring by expiring % of gross Year expiring leases leases annual rental
2003 3 1,885 $39,000 21 % 2004 0 0 0 0 % 2005 1 2,426 $55,313 10 % 2006 0 0 0 0 % 2007 0 0 0 0 %
For tax purposes, this property has a basis of $9,808,472 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $94,210. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
e. 4258 Main Street - consists of 10,200 sf of commercial space located at 4258-4264 Main Street, Manayunk, Pennsylvania. The property is contiguous to Canal House. In October 2002, Registrant was admitted to 4258 Main Street Associates LP, a Pennsylvania limited partnership, with a 99% general partner interest. The 1% limited partnership interest is also controlled by Registrant; it is held by a Pennsylvania limited liability corporation whose stock is owned by Registrant. The purchase was closed with 100% of the proceeds from a first mortgage of $1,410,000 on the property.
The property is managed by BCMI. As of December 31, 2002, 10,200 sf of space were under lease (100%) at annual rates ranging from $9.84 to $14.82 per sf. There are two tenants who each occupy ten percent or more of the rentable square footage. They operate principally as a restaurant and a billiards hall. All leases are operating leases and the minimum future rentals on the non-cancelable leases as of December 31, 2002 are $377,784.
Total annual Number of Total sf of rental covered leases expiring by expiring % of gross Year expiring leases leases annual rental
2003 0 0 0 0 % 2004 1 4,100 $62,136 51 % 2005 0 0 0 0 % 2006 0 0 0 0 % 2007 0 0 0 0 %
Item 3.
Item 3. Legal Proceedings
To the best of its knowledge, Registrant is not party to, nor are any of its properties 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 147 units were sold or exchanged of record in 2002.
b. As of December 31, 2002, there were 2,827 record holders of Units.
c. Registrant did not declare any cash dividends in 2002 or 2001. Item 6.
Item 6. Selected Financial Data
The following selected financial data are for the five years ended December 31, 2002. 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.
2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Rental income $ 2,301,046 $ 2,434,782 $ 2,445,698 $ 2,373,232 $ 2,295,927 Interest income 4,298 4,681 6,966 3,677 2,783 Net loss 170,867 1,395,838 1,338,104 1,650,894 2,447,292 Net loss per Unit 6.64 54.27 52.03 64.19 95.16 Total assets (net of depreciation and amortization) 12,960,214 15,571,065 16,646,793 17,740,808 18,878,736 Debt obligations 11,559,933 16,616,789 16,857,962 17,077,741 17,161,190
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, 2002, Registrant had unrestricted cash of $52,278. 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, 2002, Registrant had restricted cash of $275,856 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 three 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 one of the properties where the mortgage is a cash-flow mortgage, 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).
Strehlow Terrace Apartments was foreclosed by the Department of Housing and Urban Development, the guarantor of the first mortgage, on April 30, 2002. On June 30, 2002, the Registrant's investment in Saunders Apartments was sold for $25,000. The proceeds of the sale were used to pay the accrued expenses of the Registrant.
(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 2002, Registrant incurred a net loss of $170,867 ($6.64 per limited partnership unit) compared to a net loss of $1,395,838 ($54.27 per limited partnership unit) in 2001 and a net loss of $1,338,104 ($52.03 per limited partnership unit) in 2000. Included in the net loss for 2002 is a gain of $84,113 on the sale of the investment in Saunders Apartments and an extraordinary gain of $1,067,620 on the foreclosure of Strehlow Terrace Apartments.
Rental income decreased from $2,445,698 in 2000 to $2,434,782 in 2001 and $2,301,046 in 2002. The decrease from 2001 to 2002 is due to the foreclosure of Strehlow partially offset by an increase in occupancy and average rental rates at Canal House and Firehouse Square and the addition of 4258 Main Street to the portfolio. The decrease from 2000 to 2001 is due to a decrease in average occupancy at Strehlow, partially offset by an increase in the average rental rates at Canal House and Firehouse Square.
Rental operations expense increased from $1,192,754 in 2000 to $1,247,800 in 2001 and decreased to $1,123,519 in 2002. The decrease from 2001 to 2002 is due to the foreclosure of Strehlow partially offset by increases in insurance expense at Canal House, 4258 Main Street, Firehouse Square and Mater Dolorosa. The increase from 2000 to 2001 is due to an increase in maintenance expense at Canal House, Mater Dolorosa and Roseland, an increase in utilities expense at Strehlow and Roseland, and an increase in insurance expense at Canal House and Mater Dolorosa.
Interest expense decreased from $1,398,919 in 2000 to $1,397,720 in 2001 and increased to $1,539,717 in 2002. The increase from 2001 to 2002 is due to a prepayment penalty incurred upon the refinance of the first mortgage at Firehouse Square. The decrease from 2000 to 2001 is due to a decrease in the principal balance on which interest is calculated.
Depreciation and amortization expense increased from $1,178,867 in 2000 to $1,190,197 in 2001 and decreased to 1,020,938 in 2002. The decrease from 2001 to 2002 is due to the foreclosure of Strehlow.
In 2002, income of $5,000 was recognized at Registrant's properties compared to losses of $ 1,293,000 in 2001 and $ 1,227,000 in 2000. . Included in the income for 2002 is a gain of $84,113 on the sale of the investment in Saunders Apartments and an extraordinary gain of $1,067,620 on the foreclosure of Strehlow Terrace Apartments. A discussion of property operations/activities follows:
In 2002, Registrant incurred a loss of $102,000 at Roseland, including $70,000 of depreciation and amortization expense, compared to a loss of $86,000, including $69,000 of depreciation and amortization expense, in 2001 and a loss of $79,000, including $70,000 of depreciation an amortization expense, in 2000. 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 levels but rental income remains low. The increase in loss from 2001 to 2002 is due to a decrease in occupancy. The increase in loss from 2000 to 2001 is due to an increase in utilities expense and maintenance expense. The increase in utilities expense is due to an increase in electricity expense and the increase in maintenance expense is due to an increase in apartment preparation expenses.
In 2002, Registrant incurred a loss of $841,000 at Firehouse Square, including $341,000 of depreciation and amortization expense, compared to a loss of $460,000, including $276,000 of depreciation and amortization expense, in 2001 and a loss of $499,000, including $268,000 of depreciation and amortization expense, in 2000. The increase in loss from 2001 to 2002 is due to increases in interest expense and insurance expense. The increase in interest expense is due to a prepayment penalty incurred upon the refinance of the first mortgage. The decrease in loss from 2000 to 2001 is due to an increase in rental income, partially offset by an increase in depreciation and interest expense. The increase in rental income is due to an increase in average rental rates.
In 2002, Registrant recognized income of $13,000 at Mater Dolorosa, including $126,000 of depreciation and amortization expense, compared to income of $16,000, including $126,000 of depreciation and amortization expense, in 2001 and income of $21,000, including $126,000 of depreciation and amortization expense, in 2000. 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 levels but rental income remains low. The decrease in income from 2001 to 2002 is due to a decrease in rental income partially offset by a decrease in maintenance expense. The decrease in rental income is due to a decrease in occupancy. The decrease in maintenance is due to a decrease in repairs expense. The decrease in income from 2000 to 2001 is due to an increase in insurance expense and maintenance expense. The increase in maintenance expense is due to an increase in repairs expense.
In 2002, Registrant recognized income of $1,282,000 at Strehlow Terrace Apartments, including $0 of depreciation and amortization expense, compared to a loss of $449,000, including $242,000 of depreciation and amortization expense, in 2001 and a loss of $325,000, including $240,000 of depreciation and amortization expense, in 2000. Included in income for 2002 is an extraordinary gain on the extinguishment of debt of $1,067,620. 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 levels but rental income remains low. The increase in income from 2001 to 2002 is due to an extraodinary gain from the foreclosure of the property. The increase in loss from 2000 to 2001 is due to an increase in operating expenses and a decrease in rental income. The decrease in rental income is due to a decrease in average occupancy and the increase in operating expense is due to an increase in utilities expense and management fees.
Strehlow Terrace Apartments was foreclosed by the Department of Housing and Urban Development, the guarantor of the first mortgage, on April 30, 2002.
In 2002, Registrant incurred a loss of $323,000 at Canal House, including $403,000 of depreciation and amortization expense compared to a loss of $314,000 including depreciation and amortization expense of $400,000 in 2001 and a loss of $344,000 including depreciation and amortization expense of $396,000 in 2000. The increase in loss from 2001 to 2002 is due to an increase in operating expenses partially offset by an increase in rental income. The increase in operating expenses is due to increases in insurance, maintenance and advertising expenses. The increase in rental income is due to an increase in commercial occupancy. The decrease in loss from 2000 to 2001 is due to an increase in rental income, partially offset by an increase in operating expense. The increase in rental income is due to an increase in average rental rates and the increase in operating expense is due to an increase in commissions expense and real estate tax expense.
In 2002, Registrant incurred a loss of $24,000 at 4258 Main Street, including $21,000 of depreciation and amortization expense. The registrant purchased the property on October 1, 2002.
Summary of Equity Method Investments
In 2002, Registrant recognized income of $84,000 at Saunders Apartments compared to a loss of $11,000 in 2001 and a loss of $20,000 in 2000. The increase in income from 2001 to 2002 is due to the sale of the Registrant's interest in the property. The decrease in loss from 2000 to 2001 is due to an increase in rental income and a decrease in maintenance expense. The increase in rental income is due to an increase in occupancy and the decrease in maintenance expense is due to a decrease in apartment preparation expenses and repairs expense.
On June 30, 2002, the Registrant sold its investment in Saunders Apartments for $25,000. The proceeds of the sale were used to pay the accrued expenses of the partnership.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
All of our assets and liabilities are denominated in U.S. dollars, and as a result, we do not have exposure to currency exchange risks.
We do not engage in any interest rate, foreign currency exchange rate or commodity price-hedging transactions, and as a result, we do not have exposure to derivatives risk.
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, 2002 and 2001 and the related statements of operations, changes in partners' equity and cash flows for the years ended December 31, 2002, 2001 and 2000. 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 $3,344,968 and $3,336,607 as of December 31, 2001 and 2000 and total revenues of $262,574 and $364,615, respectively, for the years then ended. In addition, we did not audit the financial statements of Mater Dolorosa General Partnership which reflect assets of $1,385,658 and $1,509,658 as of December 31, 2002 and 2002 and total revenues of $404,964 and $426,567, respectively, for the years then ended. The statements of Mater Dolorosa were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Mater Dolorosa General Partnership, is based solely on the report of the other auditors.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the results of operations and cash flows for the years ended December 31, 2002, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America.
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 33 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 June 10, 2004
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, 2002 and 2001 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Pailet, Meunier and LeBlanc, L.L.P. Metairie, Louisiana January 28, 2003
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, 2002 and 2001 17
Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001, and 2000 18
Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 2002, 2001,and 2000 19
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001, and 2000 20
Notes to consolidated financial statements 21-28
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 30
Notes to Schedule XI 31
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, 2002 and 2001
Assets
2002 2001 ---- ---- Rental properties at cost: Land $ 1,086,228 $ 950,238 Buildings and improvements 22,116,796 27,280,952 Furniture and fixtures 1,009,816 970,440 ----------- ----------- 24,212,840 29,201,630 Less - accumulated depreciation (12,108,643) (14,365,627) ----------- ----------- 12,104,197 14,836,003 Cash and cash equivalents 52,278 38,973 Restricted cash 276,856 305,995 Accounts receivable 66,929 54,382 Investment in affiliate 0 (59,113) Other assets (net of accumulated amortization of $768,380 and $819,993) 459,954 394,825 ----------- ----------- Total $12,960,214 $15,571,065 =========== ===========
Liabilities and Partners' Equity Liabilities: Debt obligations $11,559,934 $16,616,789 Accounts payable: Trade 1,383,672 1,423,037 Taxes 8,114 21,780 Related parties 446,907 481,605 Other 65,113 28,717 Interest payable 992,358 2,022,602 Tenant security deposits 159,235 134,443 Advances 0 35,720 ----------- ----------- Total liabilities 14,615,333 20,764,693 Minority interest 3,709,376 0 Partners' deficit (5,364,495) (5,193,628) ----------- ----------- Total $12,960,214 $15,571,065 =========== ===========
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, 2002, 2001 and 2000
2002 2001 2000 ---- ---- ----
Revenues: Rental income $2,301,046 $2,434,782 $2,445,698 Other income 15,928 11,523 0 Interest income 4,298 4,681 6,966 Gain on sale of investement 84,113 0 0 ---------- ---------- ---------- Total revenues 2,405,385 2,450,986 2,452,664 ---------- ---------- ---------- Costs and expenses: Rental operations 1,123,519 1,247,800 1,192,754 General and administrative 1,152 0 0 Interest 1,539,717 1,397,720 1,398,919 Bad debt 3,250 0 0 Depreciation and amortization 1,020,938 1,190,197 1,178,867 ---------- ---------- ---------- Total costs and expenses 3,688,576 3,835,717 3,770,540 ---------- ---------- ---------- Loss before minority interest and equity in affiliate (1,283,191) (1,384,731) (1,317,876) Minority interest 44,704 0 0 Equity in net loss of affiliate 0 (11,107) (20,228) ---------- ---------- ---------- Net loss before extraordinary item (1,238,487) (1,395,838) (1,338,104) Extraordinary gain on extinguishment of debt 1,067,620 0 0 ---------- ---------- ---------- Net loss ($ 170,867) ($1,395,838) ($1,338,104) ========== ========== ==========
Net loss per limited partnership unit: Loss before minority interest and equity in affiliate ($ 49.89) ($ 53.84) ($ 51.24) Minority Interest 1.74 0.00 0.00 Equity in net loss of affiliate 0.00 (0.43) (0.79) Extraordinary gain 41.51 0.00 0.00 ---------- ---------- ---------- Net loss ($ 6.64) ($ 54.27) ($ 52.03) ========== ========== ==========
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, 2002, 2001 and 2000
Dover Historic Limited Advisors Partners VI (1) (2) Total -------- -------- ----- Percentage participation in profit or loss 1% 99% 100% == === ====
Balance at December 31, 1999 ($235,256) ($2,224,430) ($2,459,686) Net loss (13,381) (1,324,723) (1,338,104) -------- ---------- ---------- Balance at December 31, 2000 (248,637) (3,549,153) (3,797,790) Net loss (13,958) (1,381,880) (1,395,838) -------- ---------- ---------- Balance at December 31, 2001 (262,595) (4,931,033) (5,193,628) Net loss (1,709) (169,158) (170,867) -------- ---------- ---------- Balance at December 31, 2002 ($264,304) ($5,100,191) ($5,364,495) ======== ========== ==========
(1) General Partner.
(2) 25,461 limited partnership units outstanding at December 31, 2002, 2001 and 2000.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
For the years ended December 31, 2002, 2001 and 2000
2002 2001 2000 ---- ---- ----
Cash flows from operating activities: Net loss ($ 170,867) ($1,395,838) ($1,338,104) Adjustments to reconcile net loss to net cash provided by operatingactivities: Depreciation and amortization 1,020,938 1,190,197 1,178,867 Gain on sale of investment (84,113) 0 0 Extraordinary gain on extinguishment of debt (1,067,620) 0 0 Equity in loss of affiliate 0 11,107 20,228 Minority interest (44,704) 0 0 Changes in assets and liabilities: Decrease (increase) in restricted cash 9,945 71,541 (175) Increase in other assets (236,735) (102,659) (9,447) Increase (decrease) in accounts payable - trade 16,116 101,098 (1,237) Increase in accounts payable - taxes 1,316 1,315 1,668 Increase in accounts payable - related party 135,176 35,403 29,693 Increase (decrease) in accounts payable - other 42,042 17,893 (40,283) (Decrease) increase in interest payable (429,974) 403,960 443,163 Increase (decrease) in tenant security deposits 25,691 (34,107) 30,866 (Decrease) increase in advances (34,521) 35,720 0 ---------- ---------- ---------- Net cash (used in) provided by operating activities (817,310) 335,630 315,239 ---------- ---------- ---------- Cash flows from investing activities: Cash proceeds from sale of Saunders Apartments 25,000 0 0 Capital expenditures (1,440,030) (101,699) (89,844) ---------- ---------- ---------- Net cash used in investing activities (1,415,030) (101,699) (89,844) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from debt financing 4,930,000 0 0 Principal payments (2,645,885) (241,173) (219,779) Distributions to minority interest (38,470) 0 0 ---------- ---------- ---------- Net cash provided by (used in) financing activities 2,245,645 (241,173) (219,779) ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents 13,305 (7,242) 5,616 Cash and cash equivalents at beginning of year 38,973 46,215 40,599 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 52,278 $ 38,973 $ 46,215 ========== ========== ==========
Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $1,539,717 $1,397,720 $1,398,919
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 owned 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 units in 2002, 2001 and 2000). 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 the 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 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, 2002 are as follows: 2003 $638,780 2004 552,469 2005 474,160 2006 369,983 2007 342,256
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, one general and one limited partnership interest in Ventures in 1989 and one general partnership interest in ventures in October 2002, 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 were 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 were 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 were 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%. This interest was sold in June 2002.
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 September 2002, the second mortgage lender contributed its note to capital in exchange for a 20% interest in the property, decreasing the partnership's ownership to 72%.
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 were capitalized as part of buildings and improvements. The guarantor of the first mortgage foreclosed on this property in April 2002.
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 were 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.
In October 2002, 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 10,200 sf of commercial space. The purchase was closed with 100% of the proceeds from a first mortgage on the property. The property is contiguous to the partnership's other location in Manayunk, PA.
NOTE F - DEBT OBLIGATIONS
Debt obligations were as follows: December 31, 2002 2001 ---- ----
Note payable, non-interest bearing; $ 500,000 $ 500,000 principal due upon sale of property; collateralized by related rental property.
Note payable, interest at 7.75% at 313,808 323,279 December 31, 2001 and 2000, 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 8.5%; payable 446,261 612,116 in monthly installments of principal and interest of $17,627; due in April 2005; collateralized by related rental property.
Mortgage loan, interest accrues at 7%; 0 4,367,913 interest only payable monthly to the extent of net operating income; due in December 2008; collateralized by the related rental property
Mortgage loan, interest at 7.08%; payable 0 1,849,227 in monthly installments of principal and interest of $21,471; due in November 2008; collateralized by the related rental property.
Mortgage loan, interest at 6.75%; payable 3,520,000 0 in monthly installments of principal and interest of $22,831; due in March 2013; collateralized by the related rental property.
Note payable, non-interest bearing; due 0 75,000 upon sale of property; collateralized by related rental property.
Note payable, interest at 10.25%; payable 0 1,775,053 in monthly installments of principal and interest of $15,540; due in March 2030; collateralized by related rental property.
Note payable, interest at 1% accruing to 0 1,700,000 principal; unpaid principal and interest are due upon sale of property or in January 2030; collateralized by related rental property.
Note payable, interest at 18%; interest 1,520,117 1,520,117 only payable monthly to the extent of net operating income; due December 2004; collateralized by related rental property. (A) Note payable, interest at 7.22%; payable in monthly installments of principal and interest of $27,206; due January 2009; 3,851,241 3,894,084 collateralized by related rental property.
Note payable, interest at 10.00%; payable in monthly installments of principal and interest of $12,374; due October 2004; collateralized by related rental property. 1,408,507 0 ----------- ----------- $11,559,934 $16,616,789 =========== ===========
Maturities of debt obligation at December 31, 2002 were as follows: Year ending December 31, 2003 $ 214,513 2004 3,143,137 2005 119,229 2006 309,910 2007 24,524 Thereafter 7,748,621 ----------- $11,559,934 ===========
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 $296,638 at December 31, 2002 owed to the co - general partner, by three 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 $37,271 at December 31, 2002 owed to the general partner, by two of the Partnership's Ventures, for additional amounts advanced for working capital needs. These advances are non-interest bearing and will be paid out of available cash flow.
NOTE H - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of operations in different time periods for financial reporting ("book") purposes and for income tax ("tax") purposes. Reconciliations of net loss and partners' equity follow:
For the years ended December 31,
2002 2001 2000 ---- ---- ---- Net loss - book ($ 170,867) ($1,395,838) ($1,338,104) Excess of tax under book depreciation 249,017 405,107 283,161 Interest 125,524 114,148 103,804 Excess of book over tax - extra- ordinary gain on extinguishment of debt 118,144 0 0 Excess of tax over book - gain on sale of investment (88,510) 0 0 Minority interest - book (44,704) 0 0 Other timing differences 0 3,492 20,228 Minority interest - tax only (429,376) 95,976 86,705 ---------- ---------- ---------- Net loss - tax ($ 240,772) ($ 777,115) ($ 844,206) ========== ========== ==========
Partners' equity - book ($5,364,495) ($5,193,628) ($3,797,789) Costs of issuance 3,279,930 3,279,930 3,279,930 Cumulative tax under book loss 6,735,293 6,805,198 6,186,474 Investment credit recapture 9,900 9,900 9,900 Rehabilitation credit (251,117) (251,117) (251,117) ---------- ---------- ---------- Partner's equity - tax $4,409,511 $4,650,283 $5,427,398 ========== ========== ==========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION ------------------------------------------------------
DECEMBER 31, 2002
Cost Capitalized Initial Cost Subsequent to Partnership to (b) Acquisition
Buildings and Date Date Encum- Improve- Improve- of Ac- Description brances Land ments ments Constr. quired - ----------- ------- ---- --------- -------- ------- ------ (a) (e) (b) (a)
17 unit apartments and 3,000 square feet of retail space in Omaha, NE $ 823,808 $ 10,000 $ 1,774,986 $ 72,587 1988 7/88
68 unit apartments in New Orleans, LA 446,261 - 2,948,634 471,015 1988 7/88
32,500 square feet of commercial space in Alexandria, VA 3,520,000 540,238 5,014,827 1,368,178 1988 12/88
71 unit apartments and 8,500 square feet of commercial space in Manayunk, PA 5,371,358 400,000 664,508 9,587,970 1989 2/89
10,200 square feet of commercial space in Manayunk, PA 1,408,507 135,990 1,223,906 0 N/A 10/02 ----------- ---------- ----------- ----------- $11,559,934 $1,086,228 $11,626,861 $11,499,750 =========== ========== =========== ===========
Gross Amount at which Carried at December 31, 2002
Buildings and Accumu- Description Improve- Total lated (a) Land ments (c)(d) Depr.(d)(e) - ----------- ---- --------- ------- ----------- 17 unit apartments and 3,000 square feet of retail space in Omaha, NE $ 10,000 $ 1,847,574 $ 1,857,573 $ 987,890
68 unit apartments in New Orleans, LA - 3,419,649 3,419,649 1,860,875
32,500 square feet of commercial space in Alexandria, VA 540,238 6,383,005 6,923,243 3,209,767
71 unit apartments and 8,500 square feet of commercial space in Manayunk, PA 400,000 10,252,478 10,652,478 5,256,375
10,200 square feet of commercial space in Manayunk, PA 135,990 1,223,906 1,359,896 12,239 ---------- ----------- ----------- ----------- $1,086,228 $23,126,612 $24,212,839 $11,327,146 ========== =========== =========== ===========
DIVERSIFIED HISTORIC INVESTORS VI (a limited partnership)
NOTES TO SCHEDULE XI --------------------
DECEMBER 31, 2002
(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, 2002, for Federal income tax purposes was approximately $19,054,515. 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:
2002 2001 2000 ---- ---- ---- Balance at beginning of year $29,201,630 $29,099,931 $29,010,088 Additions during this year: Improvements & purchases 1,440,030 101,699 89,843 Deductions during the year: Foreclosure of Strehlow (6,428,821) 0 0 ----------- ----------- ----------- Balance at end of year $24,212,839 $29,201,630 $29,099,931 =========== =========== ===========
Reconciliation of accumulated depreciation: 2002 2001 2000 ---- ---- ---- Balance at beginning of year $14,356,627 $13,234,935 $12,134,403 Depreciation expense for the year 881,247 1,121,692 1,109,532 Foreclosure of Strehlow (3,129,231) 0 0 ----------- ----------- ----------- Balance at end of year $12,108,643 $14,356,627 $13,243,935 =========== =========== ===========
(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.
Item 9A.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our managing partner's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of our managing partner's principal executive officer and principal financial officer we have carried out an evaluation of the effectiveness of our adopted disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our managing partner's president and treasurer concluded that our disclosure controls and procedures are effective.
There have been no significant changes in our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during our most recent fiscal quarter.
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-VI No fixed term Since May 1997
EPK, Inc. -- Partner in DoHA-VI No fixed term Since May 1997
For further description of DoHA - VI, 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 44) 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 36) 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 2002, 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 2002, 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 2002 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 - 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-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 1998 through 2002.
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 15. (A) Exhibits, Financial Statement Schedules and Reports on Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 2002 and 2001.
b. Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000.
c. Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 2002, 2001 and 2000.
d. Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000.
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.
31 General Partners Opinion Certification
32 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended December 31, 2002.
(c) Exhibits:
See Item 14