UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 0-14934
DIVERSIFIED HISTORIC INVESTORS
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2312037
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Suite 500, 1521 Locust Street, Philadelphia, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 735-5001
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N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 1996 (unaudited) and December
31, 1995
Consolidated Statements of Operations - Three Months and Six Months
Ended June 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996
and 1995 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
At June 30, 1996, Registrant had cash of approximately $1,117. Such
funds are expected to be used to pay liabilities of Registrant and to fund cash
deficits of the properties. Cash generated from operations is used primarily to
fund operating expenses and debt service. If cash flow proves to be
insufficient, the Registrant will attempt to negotiate 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 June 30, 1996, Registrant had restricted cash of $56,299
consisting primarily of funds held as security deposits, replacement reserves
and escrows for taxes. As a consequence of these restrictions as to use,
Registrant does not deem these funds to be a source of liquidity. Should the
first mortgage holder of the eleven units at Smythe Stores be successful in its
attempts to foreclose, it is not expected to have a significant impact on the
Registrant's liquidity, as these units have generated little or no positive cash
flow. See Part II, Item 1 for additional information.
In recent years the Registrant has realized significant losses,
including the foreclosure of five properties, due to the properties' inability
to generate sufficient cash flow to pay their operating expenses and debt
service. At the present time, with the exception of the eleven units at Smythe
Stores, where the Registrant will either be able to negotiate a loan
modification or the units will be foreclosed, the Registrant has feasible loan
modifications in place. However, in all three cases, the mortgages are basically
"cash-flow" mortgages, requiring all available cash after payment of operating
expenses to be paid to the first mortgage holder. Therefore it is unlikely that
any cash will be available to the Registrant to pay its general and
administrative expenses. See Accountant's Report with respect to financial
statements included in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
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<PAGE>
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.
(2) Capital Resources
Due to the relatively recent rehabilitations of the properties, any
capital expenditures needed are generally replacement items and are funded out
of cash from operations or replacement reserves, if any. The Registrant is not
aware of any factors which would cause historical capital 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 investment
for the foreseeable future. If the need for capital expenditures does arise, the
first mortgage holder for Third Quarter and Wistar Alley and nine units at
Smythe Stores has agreed to fund capital expenditures at terms similar to the
first mortgage. The mortgagee funded $954 and $27,068 during the second quarter
of 1996 at Third Quarter and Wistar Alley, respectively.
(3) Results of Operations
During the second quarter of 1996, Registrant incurred a net loss of
$829,107 ($70.70 per limited partnership unit) compared to a net loss of
$213,923 ($18.24 per limited partnership unit) for the same period in 1995. For
the first six months of 1996, the Registrant incurred a net loss of $1,112,896
($94.90 per limited partnership unit) compared to a net loss of $605,634 ($51.64
per limited partnership unit) for the same period in 1995.
Rental income decreased $55,351 from $179,697 in the second quarter of
1995 to $124,346 in the same period in 1996. The decrease resulted from the
foreclosure of one of the Registrant's properties ("Centre Park") in July 1995
partially offset by an increase in rental income at Third Quarter due to a
increase in average occupancy (86% to 94%) and an increase at Wistar Alley due
to an increase in average occupancy (83% to 93%)
Rental income decreased $137,867 from $368,663 for the first six months
of 1995 to $230,796 for the same period in 1996. The decrease resulted from the
foreclosure of one of the Registrant's properties ("Centre Park") in July 1995
combined with a decrease in rental income at Wistar Alley due to a decrease in
average occupancy (89% to 83%) partially offset by an increase at Third Quarter
due to an increase in average occupancy (87% to 90%)
Expense for rental operations decreased by $28,213 from $119,628 in the
second quarter of 1995 to $91,415 in the same period in 1996 and decreased by
$72,852 from $316,243 for the first six months of 1995 to $243,391 for the same
period in 1996. Expenses for rental operations decreased for both the second
quarter and the first six months to the same periods in 1995 due to the
foreclosure of Centre Park in July 1995 partially offset by an increase in
maintenance and commissions expense. Maintenance expense at both Third Quarter
and Wistar Alley increased pursuant to a change in the management contract which
increased the hourly rates charged for maintenance personnel while maintenance
expense increased at Smythe Stores due to expenditures for certain deferred
maintenance items. Commissions expense increased at both Third Quarter and
Wistar Alley due to a higher turnover of units.
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<PAGE>
Depreciation and amortization expense decreased $34,301 from $113,448
in the second quarter of 1995 to $79,147 in the same period in 1996 and
decreased $66,703 from $225,155 for the first six months of 1995 to $158,452 in
the same period in 1996. The decreases are the result of the foreclosure of
Centre Park in July 1995.
Interest expense increased by $622,302 from $120,176 in the second
quarter of 1995 to $742,478 in the same period in 1996 and increased by $508,819
from $352,202 for the first six months of 1995 to $861,021 in the same period in
1996. The increase for both the second quarter and the first six months to the
same periods in 1995 is the result of the accrual of default interest in the
second quarter of 1996 of interest that should have been accrued in prior years
at Smythe Stores, partially offset by the foreclosure of Centre Park in July
1995.
Losses incurred during the second quarter at the Registrant's
properties amounted to $787,000, compared to a loss of approximately $229,000
for the same period in 1995. For the first six months of 1996 the Registrant's
properties recognized a loss of $1,028,000 compared to approximately $547,000
for the same period in 1995.
In the second quarter of 1996, Registrant incurred a loss of $714,000
at the Smythe Stores Condominium complex including $40,000 of depreciation and
amortization expense, compared to a loss of $73,000 in the second quarter of
1995, including $40,000 of depreciation expense and for the first six months of
1996, Registrant incurred a loss of $825,000 including $81,000 of depreciation
and amortization expense, compared to a loss of $184,000 for the same period in
1995, including $83,000 of depreciation expense. The increase in the loss for
both the second quarter and the first six months of 1995 to the same periods in
1996 is mainly the result of an increase in interest expense combined with an
increase in maintenance expense. Interest expense increased due the accrual in
the second quarter of 1996 of default interest that should have been accrued in
prior years due to the modification of 9 of the 20 mortgage loans. Maintenance
expense increased due to expenditures for certain deferred maintenance items. In
addition, rental income decreased in the first six months of 1996 compared to
the same period in 1995 due a decrease in the average occupancy (89% to 62%).
In the second quarter of 1996, Registrant incurred a loss of $39,000 at
Third Quarter Apartments, including $18,000 of depreciation expense, compared to
a loss of $29,000 including $18,000 of depreciation expense in the second
quarter of 1995 and for the first six months of 1996, Registrant incurred a loss
of $107,000, including $35,000 of depreciation and amortization expense,
compared to a loss of $88,000 for the same period in 1995, including $35,000 of
depreciation expense. The increase in the loss from the first quarter and the
first six months of 1995 to the same periods in 1996 is the result of an
increase in maintenance and commissions expense partially offset by an increase
in rental income. Maintenance expense increased pursuant to a change in the
management contract which increased the hourly rates charged for maintenance
personnel and commissions expense increased due to a higher turnover of units.
Rental income increased due to an increase in the average occupancy in the
second quarter (86% to 94%) and for the first six months (87% to 90%).
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<PAGE>
In the second quarter of 1996, Registrant incurred a loss of $34,000 at
Wistar Alley, including $21,000 of depreciation expense, compared to a loss of
$26,000 including $21,000 of depreciation expense in the second quarter of 1995.
The increase in the loss from the second quarter and the first six months of
1995 to the same periods in 1996 is due to an increase in management fee and
commissions expense partially offset by an increase in rental income.
Maintenance expense increased pursuant to a change in the management contract
which increased the hourly rates charged for maintenance personnel and
commissions expense increased due to a higher turnover of units. In addition, in
the second quarter of 1996 as compared to the second quarter of 1995, rental
income increased due to an increase in average occupancy (83% to 93%) while
rental income decreased for the first six months of 1996 as compared to the same
period in 1995 due to a decrease in average occupancy (89% to 83%) and the loss
of one commercial tenant.
In the second quarter of 1996, Registrant incurred a loss of $0 at
Centre Park Place, compared to a loss of $101,000 including $32,000 of
depreciation expense in the second quarter of 1995 and for the first six months
of 1996, Registrant incurred a loss of $0 compared to a loss of $212,000 for the
same period in 1995, including $65,000 of depreciation expense. The decrease in
the loss from the second quarter and the first six months of 1995 to the same
periods in 1996 is due to the fact that the property was foreclosed by the
lender in July 1995.
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<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
June 30, 1996 December 31, 1995
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(Unaudited)
Rental properties, at cost:
Land $ 331,362 $ 331,362
Buildings and improvements 7,924,100 7,896,078
Furniture and fixtures 149,151 149,151
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8,404,613 8,376,591
Less - Accumulated depreciation (3,771,612) (3,614,119)
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4,633,001 4,762,472
Cash and cash equivalents 1,117 4,571
Restricted cash 56,299 40,882
Accounts receivable 92,231 93,259
Other assets (net of amortization of
$55,379 and $54,420 at June 30, 1996 and
December 31, 1995, respectively)
43,921 44,880
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Total $ 4,826,569 $ 4,946,064
=========== ===========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 6,934,148 $ 5,607,067
Accounts payable:
Trade 434,248 491,919
Related parties 295,667 94,540
Taxes 338,425 313,032
Interest payable 1,626,265 2,140,747
Accrued liabilities 18,933 19,687
Tenant security deposits 51,643 38,938
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Total liabilities 9,699,329 8,705,930
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Partners' equity (4,872,760) (3,759,866)
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Total $ 4,826,569 $ 4,946,064
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The accompanying notes are an integral part of these financial statements.
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<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30,
1996 and 1995
(Unaudited)
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues:
Rental income $ 124,346 $ 179,697 $ 230,796 $ 368,663
Interest income 87 132 172 303
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Total revenues 124,433 179,829 230,968 368,966
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Costs and expenses:
Rental operations 91,415 119,628 243,391 316,243
General and
administrative 40,500 40,500 81,000 81,000
Interest 742,478 120,176 861,021 352,202
Depreciation and
amortization 79,147 113,448 158,452 225,155
----------- ----------- ----------- -----------
Total costs and
expenses 953,540 393,752 1,343,864 974,600
----------- ----------- ----------- -----------
Net loss ($ 829,107) ($ 213,923) ($1,112,896) ($ 605,634)
=========== =========== =========== ===========
Net loss per limited
partnership unit ($ 70.70) ($ 18.24) ($ 94.90) ($ 51.64)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
Six months ended
June 30,
1996 1995
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Cash flows from operating activities:
Net loss ($1,112,896) ($605,634)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 158,452 225,155
Changes in assets and liabilities:
(Increase) decrease in restricted cash (15,417) 12,377
Decrease (increase) in accounts receivable 1,028 (14,733)
(Decrease) increase in accounts payable -
trade (57,671) 80,166
Increase (decrease) in accounts payable -
related parties 201,127 (7,263)
Increase in accounts payable - taxes 25,393 34,042
(Decrease) increase in interest payable (514,482) 247,087
(Decrease) increase in accrued liabilities (752) 17,764
Increase in tenant security deposits 12,705 4,887
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Net cash used in operating activities (1,302,513) (6,152)
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Cash flows from investing activities:
Capital expenditures (28,022) (11,347)
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Net cash used in investing activities (28,022) (11,347)
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Cash flows from financing activities:
Proceeds from debt financing 1,327,081 19,205
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Net cash provided by financing activities 1,327,081 19,205
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(Decrease) increase in cash and cash equivalents (3,454) 1,706
Cash and cash equivalents at beginning of period 4,571 7,789
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Cash and cash equivalents at end of period $ 1,117 $ 9,495
=========== =========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified Historic
Investors (the "Registrant") and related notes have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
accompanying consolidated financial statements and related notes should be read
in conjunction with the audited financial statements in Form 10-K of the
Registrant, and notes thereto, for the year ended December 31, 1995.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Due to insufficient cash flow at Smythe Stores, the Registrant ceased
making debt service payments. In 1990, the lender was placed in receivership by
the Resolution Trust Corporation ("RTC"). The entities which purchased the
mortgages from the RTC each filed complaints for foreclosure due to non-payment;
foreclosure proceedings on nine units were filed in the Court of Common Pleas,
Philadelphia County in the matters of Bruin Holdings, Inc. ("Bruin") v,
Diversified Historic Investors and foreclosure proceedings on eleven units were
filed in the Court of Common Pleas, Philadelphia County in the matters of EMC
Mortgage Corporation v. Diversified Historic Investors. In March 1996, the Bruin
cases were settled and the nine mortgages were sold. The Registrant is in the
process of negotiating a modification with the new holder of the mortgage. It is
anticipated that the new terms will call for monthly payments of interest in an
amount equal to net operating income, with a minimum monthly payment. A hearing
occurred in early May where EMC's motion to have a receiver appointed was
denied. The next hearing date has not yet been set. The Registrant is pursuing
settlement negotiations; however if no settlement is reached it is expected that
the eleven associated units will be foreclosed by the lender.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by this report to a
vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(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 on Form 10-K, previously filed and
incorporated herein by reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended June 30,
1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date: July 24, 1996 DIVERSIFIED HISTORIC INVESTORS
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By: Diversified Historic Advisors, General Partner
By: Diversified Historic Properties, Inc., Partner
By: /s/ Donna M. Zanghi
------------------------------
DONNA M. ZANGHI,
Secretary and Treasurer
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<ARTICLE> 5
<CIK> 0000745143
<NAME> Diversified Historic Investors
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,117
<SECURITIES> 0
<RECEIVABLES> 92,231
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,921
<PP&E> 8,404,613
<DEPRECIATION> 3,771,612
<TOTAL-ASSETS> 4,826,569
<CURRENT-LIABILITIES> 1,068,340
<BONDS> 6,934,148
0
0
<COMMON> 0
<OTHER-SE> (4,872,760)
<TOTAL-LIABILITY-AND-EQUITY> 4,826,569
<SALES> 0
<TOTAL-REVENUES> 230,968
<CGS> 0
<TOTAL-COSTS> 324,391
<OTHER-EXPENSES> 158,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 861,021
<INCOME-PRETAX> (1,112,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,112,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,112,896)
<EPS-PRIMARY> (94.90)
<EPS-DILUTED> 0.00
</TABLE>
