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, 1997
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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
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2312037
- ------------------------------- -------------------
(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
- ----------------------------------------------------------------------
(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 X No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 1997 (unaudited)
and December 31, 1996
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1997 and 1996 (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, 1997, Registrant had cash of
approximately $2,910. 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, 1997, Registrant had restricted
cash of $52,683 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.
In recent years the Registrant has realized
significant losses, including the foreclosure of five properties and a
portion of a sixth property, due to the properties' inability to
generate sufficient cash flow to pay their operating expenses and debt
service. At the present time, the Registrant has feasible loan
modifications in place for its remaining properties. 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, 1996.
It is the Registrant's intention to continue to
hold the properties until they can no longer meet the debt service
requirements and the properties are foreclosed, or the market value of
the properties increases to a point where they can be sold at a price
which is sufficient to repay the underlying indebtedness (principal
plus accrued interest).
(2) Capital Resources
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 $2,098 and $369 during the second
quarter and the first six months of 1997 at Smythe Stores and Wistar
Alley, respectively.
(3) Results of Operations
During the second quarter of 1997, Registrant
incurred a net loss of $193,751 ($16.53 per limited partnership unit)
compared to a net loss of $829,107 ($70.70 per limited partnership
unit) for the same period in 1996. For the first six months of 1997,
the Registrant incurred a net loss of $432,089 ($36.85 per limited
partnership unit) compared to a net loss of $1,112,896 ($94.90 per
limited partnership unit) for the same period in 1996.
Rental income decreased $17,420 from $124,346 in
the second quarter of 1996 to $106,926 in the same period in 1997.
The decrease resulted from the foreclosure of eleven of the units at
one of the Registrant's properties ("Smythe Stores") in December 1996
combined with a decrease in rental income at Wistar Alley due to a
decrease in the average occupancy (93% to 85%) partially offset by an
increase in rental income at Third Quarter due to an increase in the
average rental rates.
Rental income decreased $22,259 from $230,796 for
the first six months of 1996 to $208,537 for the same period in 1997.
The decrease resulted from the foreclosure of eleven of the units at
one of the Registrant's properties ("Smythe Stores") in December 1996
partially offset by an increase in rental income at Wistar Alley due
to an increase in the average occupancy (83% to 86%) and Third Quarter
due to an increase in the average occupancy (90% to 95%).
Expense for rental operations decreased by $23,019
from $91,415 in the second quarter of 1996 to $68,396 in the same
period in 1997. The decrease resulted from the foreclosure of the
eleven units at Smythe Stores in December 1996 combined with a
decrease in commissions expense at Third Quarter due to a lower
turnover of apartment units and a decrease in management fees expense
at Wistar Alley due to the decrease in rental income.
Expense for rental operations decreased by $66,762
from $243,391 for the first six months of 1996 to $176,629 for the
same period in 1997. The decrease resulted from the foreclosure of
the eleven units at Smythe Stores in December 1996 combined with a
decrease in real estate taxes at Third Quarter due to a decrease in
the assessed value of the property.
Depreciation and amortization expense decreased
$21,936 from $79,147 in the second quarter of 1996 to $57,211 in the
same period in 1997 and decreased $44,031 from $158,452 for the first
six months of 1996 to $114,421 in the same period in 1997. The
decreases are the result of the foreclosure of the eleven units at
Smythe Stores in December 1996.
Interest expense decreased by $584,781 from
$742,478 in the second quarter of 1996 to $157,697 in the same period
in 1997 and decreased by $546,133 from $861,021 for the first six
months of 1996 to $314,888 in the same period in 1997. The decrease
for both the second quarter and the first six months to the same
periods in 1997 is the result of the one-time accrual of default
interest in the second quarter of 1996 of interest that should have
been accrued in prior years at Smythe Stores, (which was not repeated
in 1997).
Losses incurred during the second quarter at the
Registrant's properties amounted to $167,000, compared to a loss of
approximately $787,000 for the same period in 1996. For the first six
months of 1997 the Registrant's properties incurred a loss of $377,000
compared to approximately $1,028,000 for the same period in 1995.
In the second quarter of 1997, Registrant incurred
a loss of $96,000 at the Smythe Stores Condominium complex including
$18,000 of depreciation and amortization expense, compared to a loss
of $714,000 in the second quarter of 1996, including $40,000 of
depreciation expense and for the first six months of 1997, Registrant
incurred a loss of $201,000 including $36,000 of depreciation and
amortization expense, compared to a loss of $825,000 for the same
period in 1996, including $81,000 of depreciation expense. The
decrease in the loss for both the second quarter and the first six
months of 1996 to the same periods in 1997 is mainly the result of the
loss of the eleven units in December 1996 combined with an increase in
interest expense due to 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.
In the second quarter of 1997, Registrant incurred
a loss of $36,000 at Third Quarter Apartments, including $18,000 of
depreciation expense, compared to a loss of $39,000 including $18,000
of depreciation expense in the second quarter of 1996. The decrease
in the loss from the second quarter of 1996 to the same period in 1997
is the result of an increase in rental income due to an increase in
the average rental rates and a decrease in commissions expense due to
a lower turnover of apartment units.
For the first six months of 1997, Registrant
incurred a loss of $91,000 at Third Quarter Apartments, including
$35,000 of depreciation and amortization expense, compared to a loss
of $107,000 for the same period in 1996, including $35,000 of
depreciation expense. The decrease in the loss from the first six
months of 1996 to the same period in 1997 is the result of an increase
in rental income due to an increase in average occupancy (90% to 95%)
and a decrease in real estate taxes due to a decrease in the assessed
value of the property.
In the second quarter of 1997, Registrant incurred
a loss of $35,000 at Wistar Alley, including $22,000 of depreciation
expense, compared to a loss of $34,000 including $21,000 of
depreciation expense in the second quarter of 1996. The increase in
the loss from the second quarter to the same period in 1997 is due to
a decrease in rental income due to a decrease in the average occupancy
(93% to 85%) partially offset by a decrease in management fees expense
due to the decrease in the average occupancy.
For the first six months of 1997, Registrant
incurred a loss of $85,000 at Wistar Alley, including $43,000 of
depreciation expense, compared to a loss of $96,000 including $43,000
of depreciation expense for the same period in 1996. The decrease in
the loss from the first six months of 1996 to the same period in 1997
is due to an increase in rental income due to an increase in the
average occupancy (83% to 86%).
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
June 30, 1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 310,833 $ 310,833
Buildings and improvements 5,733,099 5,721,048
Furniture and fixtures 113,742 113,742
--------- ---------
6,157,674 6,145,623
Less - Accumulated depreciation (2,937,313) (2,822,893)
--------- ---------
3,220,361 3,322,730
Cash and cash equivalents 2,910 4,017
Restricted cash 52,683 68,063
Accounts receivable 12,648 58,582
Other assets (net of amortization of
$30,510 at June 30, 1997 and December
31, 1996, respectively) 0 0
--------- ---------
Total $ 3,288,602 $ 3,453,392
========= =========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 5,864,449 $ 5,834,574
Accounts payable:
Trade 311,405 264,967
Related parties 341,719 323,640
Interest payable 1,049,830 874,307
Accrued liabilities 780 2,975
Tenant security deposits 39,808 40,229
--------- ---------
Total liabilities 7,607,991 7,340,692
--------- ---------
Partners' equity (4,319,389) (3,887,300)
--------- ---------
Total $ 3,288,602 $ 3,453,392
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 1997 and 1996
(Unaudited)
Three months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
Revenues:
Rental income $106,926 $124,346 $208,537 $ 230,796
Interest income 87 87 232 172
------- ------- ------- -------
Total revenues 107,013 124,433 208,769 230,968
------- ------- ------- -------
Costs and expenses:
Rental operations 68,396 91,415 176,629 243,391
General and
administrative 17,460 40,500 34,920 81,000
Interest 157,697 742,478 314,888 861,021
Depreciation and
amortization 57,211 79,147 114,421 158,452
------- ------- ------- -------
Total costs and
expenses 300,764 953,540 640,858 1,343,864
------- ------- ------- ---------
Net loss ($193,751) ($829,107) ($432,089) ($1,112,896)
======= ======= ======= =========
Net loss per limited
partnership unit ($ 16.53) ($ 70.70) ($ 36.85) ($ 94.90)
======= ======= ======= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
Six months ended
June 30,
1997 1996
Cash flows from operating activities:
Net loss ($432,089) ($1,112,896)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 114,421 158,452
Changes in assets and liabilities:
Decrease (increase) in restricted cash 15,380 (15,417)
Decrease in accounts receivable 45,934 1,028
Increase (decrease) in accounts payable - trade 46,437 (57,671)
Increase in accounts payable - related parties 18,079 201,127
Increase in accounts payable - taxes 0 25,393
Increase (decrease) in interest payable 175,523 (514,482)
Decrease in accrued liabilities (2,195) (752)
(Decrease) increase in tenant security deposits (421) 12,705
------- ---------
Net cash used in operating activities (18,931) (1,302,513)
------- ---------
Cash flows from investing activities:
Capital expenditures (12,051) (28,022)
------- ---------
Net cash used in investing activities (12,051) (28,022)
------- ---------
Cash flows from financing activities:
Proceeds from debt financing 29,875 1,327,081
------- ---------
Net cash provided by financing activities 29,875 1,327,081
------- ---------
Decrease in cash and cash equivalents (1,107) (3,454)
Cash and cash equivalents at beginning of period 4,017 4,571
------- ---------
Cash and cash equivalents at end of period $ 2,910 $ 1,117
======= =========
The accomanying notes are an integral part of these financial statements.
<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 and
notes thereto, in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
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
To the best of its knowledge, Registrant is not party
to, nor is any of its property the subject of, any pending material
legal proceedings.
Item 4. 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, 1997.
<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: August 25, 1997 DIVERSIFIED HISTORIC INVESTORS
By: Diversified Historic Advisors, General Partner
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi
-----------------------
DONNA M. ZANGHI,
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,910
<SECURITIES> 0
<RECEIVABLES> 12,648
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,157,674
<DEPRECIATION> 2,937,313
<TOTAL-ASSETS> 3,288,602
<CURRENT-LIABILITIES> 653,124
<BONDS> 5,864,449
0
0
<COMMON> 0
<OTHER-SE> (4,319,389)
<TOTAL-LIABILITY-AND-EQUITY> 3,288,602
<SALES> 0
<TOTAL-REVENUES> 208,769
<CGS> 0
<TOTAL-COSTS> 176,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314,888
<INCOME-PRETAX> (432,089)
<INCOME-TAX> 0
<INCOME-CONTINUING> (432,089)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (432,089)
<EPS-PRIMARY> (36.85)
<EPS-DILUTED> 0
</TABLE>
