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 March 31, 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________________________
Commission file number 0-14934
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DIVERSIFIED HISTORIC INVESTORS
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(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
-----------------------------
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 - March 31, 1996 (unaudited) and December
31, 1995 Consolidated Statements of Operations - Three Months Ended
March 31, 1996 and 1995 (unaudited) Consolidated Statements of Cash
Flows - Three Months Ended March 31, 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 March 31, 1996, Registrant had cash of approximately $2,428.
Such funds are expected to be used to pay liabilities and general and
administrative expenses of Registrant and to fund cash deficits of the
properties. Cash generated from operations is used primarily to fund operating
expenses and debt service. If cash flow proves to be insufficient, the
Registrant will attempt to negotiate 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 March 31, 1996, Registrant had restricted cash of $30,793
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.
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.
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<PAGE>
(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.
(3) Results of Operations
During the first quarter of 1996, Registrant incurred a net
loss of $283,789 ($24.30 per limited partnership unit) compared to a net loss of
$391,711 ($33.40 per limited partnership unit) for the same period in 1995.
Rental income decreased $82,516 from $188,966 in the first
quarter of 1995 to $106,450 in 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 (94% to 68%) and the loss of one commercial
tenant, and a decrease at Smythe Stores due to a decrease in average occupancy
(94% to 76%)
Expense for rental operations decreased by $38,132 from
$196,615 in the first quarter of 1995 to $158,483 in the same period in 1996.
Expenses for rental operations decreased due to the foreclosure of Centre Park
in July 1995 combined with an decrease in management fees at Smythe Stores due
to the lower occupancy partially offset by an increase in maintenance expense at
both Third Quarter and Wistar Alley pursuant to a change in the management
contract which increased the hourly rates charged for maintenance personnel.
Depreciation and amortization expense decreased $32,402 from
$111,707 in the first quarter of 1995 to $79,395 in the same period in 1996. The
decrease is the result of the foreclosure of Centre Park in July 1995.
Interest expense decreased by $113,483 from $232,026 in the
first quarter of 1995 to $118,543 in the same period in 1996. The decrease is
the result of foreclosure of Centre Park in July 1995.
Losses incurred during the quarter at the Registrant's three
properties amounted to $242,000, compared to a loss of approximately $319,000
for the same period in 1995.
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<PAGE>
In the first quarter of 1996, Registrant incurred a loss of
$112,000 at the Smythe Stores Condominium complex including $40,000 of
depreciation and amortization expense, compared to a loss of $111,000 in the
first quarter of 1995, including $40,000 of depreciation expense. The increase
in the loss from the first quarter of 1995 to the same period in 1996 is due to
a decrease in average occupancy (94% to 76%) due to a higher turnover of units
partially offset by an decrease in management fees due to the lower occupancy.
Registrant is striving to increase occupancy and thus operating results in the
following quarters.
In the first quarter of 1996, Registrant incurred a loss of
$68,000 at Third Quarter Apartments, including $17,000 of depreciation expense,
compared to a loss of $59,000 including $17,000 of depreciation expense in the
first quarter of 1995. The increase in the loss from the first quarter of 1995
to the same period in 1996 is the result of an increase in maintenance expense
pursuant to a change in the management contract which increased the hourly rates
charged for maintenance personnel. Registrant anticipates that operating results
in the following quarters will be similar to those experienced in the first
quarter of 1996.
In the first quarter of 1996, Registrant incurred a loss of
$62,000 at Wistar Alley, including $21,000 of depreciation expense, compared to
a loss of $37,000 including $21,000 of depreciation expense in the first quarter
of 1995. The increase in the loss from the first quarter of 1995 to the same
period in 1996 is mainly the result of a decrease in rental income due to a
decrease in average occupancy (94% to 68%) due to higher turnover and the loss
of one commercial tenant. In addition, maintenance expense increased pursuant to
a change in the management contract which increased the hourly rates charged for
maintenance personnel. Registrant is striving to increase occupancy and thus
operating results in the following quarters.
In the first quarter of 1996, Registrant incurred a loss of $0
at Centre Park Place, compared to a loss of $112,000 including $32,000 of
depreciation expense in the first quarter of 1995. The decrease in the loss from
the first quarter of 1995 to the same period 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
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Assets
------
March 31, 1996 December 31, 1995
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(Unaudited)
Rental properties, at cost:
Land $ 331,362 $ 331,362
Buildings and improvements 7,903,534 7,896,078
Furniture and fixtures 149,151 149,151
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8,384,047 8,376,591
Less - Accumulated depreciation (3,692,866) (3,614,119)
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4,691,181 4,762,472
Cash and cash equivalents 2,428 4,571
Restricted cash 30,793 40,882
Accounts receivable 90,992 93,259
Other assets (net of amortization
of $54,978 and $54,420 at March 31,
1996 and December 31, 1995,
respectively) 44,322 44,880
----------- -----------
Total $ 4,859,716 $ 4,946,064
=========== ===========
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Debt obligations $ 5,614,523 $ 5,607,067
Accounts payable:
Trade 375,815 491,919
Related parties 294,048 94,540
Taxes 338,425 313,032
Interest payable 2,221,206 2,140,747
Accrued liabilities 20,416 19,687
Tenant security deposits 38,938 38,938
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Total liabilities 8,903,371 8,705,930
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Partners' equity (4,043,655) (3,759,866)
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Total $ 4,859,716 $ 4,946,064
=========== ===========
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 Ended March 31, 1996 and 1995
(Unaudited)
Three months Three months
ended ended
March 31, March 31,
1996 1995
---- ----
Revenues:
Rental income $ 106,450 $ 188,966
Interest income 85 171
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Total revenues 106,535 189,137
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Costs and expenses:
Rental operations 151,976 196,615
General and administrative 40,500 40,500
Interest 118,543 232,026
Depreciation and amortization 79,305 111,707
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Total costs and expenses 390,324 511,148
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Net loss ($283,789) ($391,711)
========= =========
Net loss per limited partnership unit ($ 24.20) ($ 33.40)
========= =========
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 Three Months Ended March 31, 1996 and 1995
(Unaudited)
Three months ended
March 31,
1996 1995
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Cash flows from operating activities:
Net loss ($283,789) ($391,711)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 79,305 111,707
Changes in assets and liabilities:
Decrease in restricted cash 10,089 25,396
Decrease in accounts receivable 2,267 56,599
(Decrease) increase in accounts payable -
trade (116,104) 39,838
Increase (decrease) in accounts payable -
related parties 199,508 (18,511)
Increase in accounts payable - taxes 25,393 26,468
Increase in interest payable 80,459 121,651
Increase in accrued liabilities 729 18,099
Increase in tenant security deposits 0 428
--------- ---------
Net cash used in operating activities (2,143) (10,036)
--------- ---------
Cash flows from investing activities:
Capital expenditures (7,456) (1,760)
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Net cash used in investing activities (7,456) (1,760)
--------- ---------
Cash flows from financing activities:
Proceeds from debt financing 7,456 9,892
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Net cash provided by financing activities 7,456 9,892
--------- ---------
Decrease in cash and cash equivalents (2,143) (1,904)
Cash and cash equivalents at beginning of period 4,571 7,789
--------- ---------
Cash and cash equivalents at end of period $ 2,428 $ 5,885
========= =========
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.
<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 March 31, 1996.
-9-
<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: May 13, 1996 DIVERSIFIED HISTORIC INVESTORS
------------
By: Diversified Historic Advisors, General Partner
By: Diversified Historic Properties, Inc.,
Partner
By: /s/ Donna M. Zanghi
------------------------------------
DONNA M. ZANGHI,
Secretary and Treasurer
-10-
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<MULTIPLIER> 1
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,428
<SECURITIES> 0
<RECEIVABLES> 90,992
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0
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<INCOME-PRETAX> (283,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (283,789)
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