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 September 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
- ----------------------------------------------------------------------
(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 - September 30, 1997
(unaudited) and December 31, 1996
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended
September 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 September 30, 1997, Registrant had cash of
approximately $4,127. 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 September 30, 1997, Registrant had
restricted cash of $57,693 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 three 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.
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 each of the Registrant's three properties (Third Quarter, Wistar
Alley and the nine units at Smythe Stores) has agreed to fund capital
expenditures at terms similar to the first mortgage. The mortgagee
did not fund any capital expenditures during the third quarter of
1997.
(3) Results of Operations
During the third quarter of 1997, Registrant
incurred a net loss of $181,338 ($15.46 per limited partnership unit)
compared to a loss of $284,767 ($24.28 per limited partnership unit)
for the same period in 1996. For the first nine months of 1997, the
Registrant incurred a net loss of $613,427 ($52.31 per limited
partnership unit) compared to a loss of $1,397,663 ($119.18 per
limited partnership unit) for the same period in 1996.
Rental income decreased $29,991 from $138,777 in
the third quarter of 1996 to $108,786 in the same period in 1997. The
decrease resulted from the foreclosure of eleven of the units at
Smythe Stores in December 1996 combined with a decrease in rental
income at Third Quarter due to a decrease in the average occupancy
(99% to 85%) partially offset by an increase in rental income at
Wistar Alley due to an increase in the average rental rates.
Rental income decreased $52,250 from $369,573 for
the first nine months of 1996 to $317,323 for the same period in 1997.
The decrease resulted from the foreclosure of eleven of the units at
Smythe Stores in December 1996 partially offset by increases in rental
income at Wistar Alley due to an increase in the average occupancy
(86% to 88%) and Third Quarter due to an increase in the average
rental rates.
Expense for rental operations decreased by $32,449
from $86,365 in the third quarter of 1996 to $53,916 in the same
period in 1997. Expenses for rental operations decreased due to the
foreclosure of the eleven units at Smythe Stores in December 1996
partially offset by an overall increase in rental operations expense
at Wistar Alley due to an overall increase in average occupancy and an
increase in commissions expense due to a higher turnover of units at
Third Quarter.
Expense for rental operations decreased by $99,211
from $329,756 for the first nine months of 1996 to $230,545 for the
same period in 1997. Expenses for rental operations decreased due to
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
$21,685 from $78,895 in the third quarter of 1996 to $57,210 in the
same period in 1997 and decreased $65,716 from $237,347 for the first
nine months of 1996 to $171,631 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 $56,241 from $217,961
in the third quarter of 1996 to $161,720 in the same period in 1997
and decreased $602,374 from $1,078,982 for the first nine months of
1996 to $476,608 in the same period in 1997. The decrease for both
the third quarter and the first nine 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 third quarter at the
Registrant's properties amounted to $153,000, compared to a loss of
approximately $225,000 for the same period in 1995. For the first
nine months of 1997 the Registrant's properties recognized a loss of
$530,000 compared to a loss of approximately $1,254,000 for the same
period in 1995.
In the third quarter of 1997, Registrant incurred
a loss of $84,000 at the Smythe Stores Condominium complex including
$19,000 of depreciation expense, compared to a loss of $168,000 in the
third quarter of 1996, including $40,000 of depreciation expense and
for the first nine months of 1997, Registrant incurred a loss of
$285,000 including $55,000 of depreciation expense, compared to a loss
of $994,000 for the same period in 1996, including $121,000 of
depreciation expense. The decrease in the loss for both the third
quarter and the first nine 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 a decrease 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 third quarter of 1997, Registrant incurred
a loss of $39,000 at Third Quarter Apartments, including $18,000 of
depreciation expense, compared to a loss of $33,000 including $17,000
of depreciation expense in the third quarter of 1996. The increase in
the loss from the third quarter of 1996 to the same period in 1997 is
the result of a decrease in rental income due to a decrease in average
occupancy (99% to 85%) combined with an increase in commissions
expense due to a higher turnover of units.
For the first nine months of 1997, Registrant
incurred a loss of $130,000 at Third Quarter Apartments, including
$53,000 of depreciation expense, compared to a loss of $140,000 for
the same period in 1996, including $52,000 of depreciation expense.
The decrease in the loss from the first nine months of 1996 to the
same period in 1997 is the result of an increase in rental income due
to an increase in average rental rates combined with a decrease in
real estate taxes due to a decrease in the assessed value of the
property.
In the third quarter of 1997, Registrant incurred
a loss of $30,000 at Wistar Alley, including $21,000 of depreciation
expense, compared to a loss of $24,000 including $21,000 of
depreciation expense in the third quarter of 1996. The increase in
the loss from the third quarter of 1996 to the same period in 1997 is
due to an overall increase in rental operations expense due to the
increase in average occupancy partially offset by an increase in the
average rental rates.
For the first nine months of 1997, Registrant
incurred a loss of $115,000 at Wistar Alley, including $64,000 of
depreciation expense, compared to a loss of $120,000 for the same
period in 1996, including $64,000 of depreciation expense. The
decrease in the loss from the first nine 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 (86% to 88%).
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30, 1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 310,833 $ 310,833
Buildings and improvements 5,739,078 5,721,048
Furniture and fixtures 113,742 113,742
---------- ----------
6,163,653 6,145,623
Less - Accumulated depreciation (2,994,523) (2,822,893)
---------- ----------
3,169,130 3,322,730
Cash and cash equivalents 4,127 4,017
Restricted cash 57,693 68,063
Accounts receivable 12,740 58,582
Other assets (net of amortization of
$30,510 at September 30, 1997 and
December 31, 1996) 0 0
---------- ----------
Total $ 3,243,690 $ 3,453,392
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 5,870,938 $ 5,834,574
Accounts payable:
Trade 342,477 264,967
Related parties 353,461 323,640
Interest payable 1,132,445 874,307
Accrued liabilities 3,351 2,975
Tenant security deposits 41,745 40,229
---------- ----------
Total liabilities 7,744,417 7,340,692
---------- ----------
Partners' equity (4,500,727) (3,887,300)
---------- ----------
Total $ 3,243,690 $ 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 Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Three months Nine months
ended September 30, ended September 30,
1997 1996 1997 1996
------ ------ ------ ------
Revenues:
Rental income $ 108,786 $ 138,777 $ 317,323 $ 369,573
Interest income 182 177 414 349
------- ------- ------- -------
Total revenues 108,968 138,954 317,737 369,922
------- ------- ------- -------
Costs and expenses:
Rental operations 53,916 86,365 230,545 329,756
General and administrative 17,460 40,500 52,380 121,500
Interest 161,720 217,961 476,608 1,078,982
Depreciation and
amortization 57,210 78,895 171,631 237,347
------- ------- ------- ---------
Total costs and expenses 290,306 423,721 931,164 1,767,585
------- ------- ------- ---------
Net loss ($ 181,338) ($ 284,767) ($ 613,427)($1,397,663)
======= ======= ======= =========
Net loss per limited partnership
unit ($ 15.46) ($ 24.28) ($ 52.31)($ 119.18)
======= ======= ======= =========
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 Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Nine months ended
September 30,
1997 1996
Cash flows from operating activities:
Net loss ($613,427) ($1,397,663)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 171,631 237,347
Changes in assets and liabilities:
Decrease (increase) in restricted cash 10,370 (34,921)
Decrease in accounts receivable 45,842 6,460
Increase (decrease) in accounts payable - trade 77,509 (15,682)
Increase in accounts payable - related parties 29,821 238,572
Decrease in accounts payable - taxes 0 (174,513)
Increase (decrease) in interest payable 258,138 (365,492)
Increase (decrease) in accrued liabilities 376 (18,287)
Increase in tenant security deposits 1,516 14,483
------- ---------
Net cash used in operating activities (18,224) (1,509,696)
------- ---------
Cash flows from investing activities:
Capital expenditures (18,030) (28,022)
------- ---------
Net cash used in investing activities (18,030) (28,022)
------- ---------
Cash flows from financing activities:
Proceeds from debt financing 36,364 1,536,716
------- ---------
Net cash provided by financing activities 36,364 1,536,716
------- ---------
Increase (decrease) in cash and cash equivalents 110 (1,002)
Cash and cash equivalents at beginning of period 4,017 4,571
------- ---------
Cash and cash equivalents at end of period $ 4,127 $ 3,569
======= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $188,649 $ 124,431
The accompanying 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 of the
Registrant, and notes thereto, 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.
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 September 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: November 14, 1997 DIVERSIFIED HISTORIC INVESTORS
-----------------
By: Diversified Historic Advisors, General Partner
By: EPK, Partner
By: /s/ Donna M. Zanghi
----------------------------
DONNA M. ZANGHI,
Vice President and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,127
<SECURITIES> 0
<RECEIVABLES> 12,740
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,163,653
<DEPRECIATION> 2,994,523
<TOTAL-ASSETS> 3,243,690
<CURRENT-LIABILITIES> 695,938
<BONDS> 5,870,938
0
0
<COMMON> 0
<OTHER-SE> (4,500,727)
<TOTAL-LIABILITY-AND-EQUITY> 3,243,690
<SALES> 0
<TOTAL-REVENUES> 317,737
<CGS> 0
<TOTAL-COSTS> 230,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 476,608
<INCOME-PRETAX> (613,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (613,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (613,427)
<EPS-PRIMARY> (52.31)
<EPS-DILUTED> 0
</TABLE>
