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, 1998
---------------------------------------
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
-----------------------------------------------
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.)
1609 Walnut Street, Philadelphia, PA 19103
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
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, 1998 (unaudited)
and December 31, 1997
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1998 and 1997 (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, 1998, Registrant had cash of
approximately $6,233. 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, 1998, Registrant had restricted
cash of $60,158 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. The Registrant has first mortgages in place in each of its
remaining three properties that 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, to pay debt service on the past-due
subordinate mortgage with respect to the Third Quarter or to pay any
debt service on the two accrual mortgages with respect to Wistar
Alley.
It is the Registrant's intention to continue to
hold the properties until they can no longer meet the debt service
requirements (or with respect to the Third Quarter and Wistar Alley,
the lender seeks payment on the past due mortgage) 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, Wistar Alley and Smythe Stores has agreed to fund
capital expenditures at terms similar to the first mortgage.
The Registrant will seek to refinance the
outstanding mortgages on Third Quarter and Wistar Alley which are
scheduled to mature in October 1998. There can be no assurances that
such financing will be available and, if not, the properties will be
marketed for sale. Failure to obtain refinancing could result in
foreclosure on and loss of these properties.
(3) Results of Operations
During the second quarter of 1998, Registrant
incurred a net loss of $176,022 ($15.01 per limited partnership unit)
compared to a net loss of $193,751 ($16.53 per limited partnership
unit) for the same period in 1997. For the first six months of 1998,
the Registrant incurred a net loss of $395,400 ($33.72 per limited
partnership unit) compared to a net loss of $432,089 ($36.85 per
limited partnership unit) for the same period in 1997.
Rental income increased $13,042 from $106,926 in
the second quarter of 1997 to $119,967 in the same period in 1998.
The increase resulted from an increase in rental income at Wistar
Alley due to an increase in average occupancy (85% to 95%) and
increases at Smythe Stores and Third Quarter due to increases in the
average rental rates.
Rental income increased $28,108 from $208,537 for
the first six months of 1997 to $236,645 for the same period in 1998.
The increase resulted from an increase in rental income at Wistar
Alley due to an increase in average occupancy (86% to 94%) and
increases at Smythe Stores and Third Quarter due to increases in the
average rental rates.
Expense for rental operations decreased by $6,573
from $68,396 in the second quarter of 1997 to $61,823 in the same
period in 1998 and decreased by $13,133 from $176,629 for the first
six months of 1997 to $163,496 for the same period in 1998. The
decrease in the loss for the second quarter of 1997 to the same period
in 1998 is due to a decrease in condominium fees due to a special
assessment charged by the condominium association in 1997 for capital
improvements to the building at Smythe Stores partially offset by an
increase in maintenance expense due to a higher turnover of apartments
units in 1998 at both Smythe Stores and Third Quarter.
Losses incurred during the second quarter at the
Registrant's properties amounted to $150,000, compared to a loss of
approximately $167,000 for the same period in 1997. For the first six
months of 1998 the Registrant's properties incurred a loss of $343,000
compared to approximately $377,000 for the same period in 1997.
In the second quarter of 1998, Registrant incurred
a loss of $91,000 at the Smythe Stores Condominium complex including
$18,000 of depreciation expense, compared to a loss of $96,000 in the
second quarter of 1997, including $18,000 of depreciation expense.
The decrease in the loss for the second quarter of 1997 to the same
period in 1998 is due to a decrease in condominium fees due to a
special assessment charged by the condominium association in 1997 for
capital improvements to the building partially offset by an increase
in maintenance expense due to a higher turnover of apartments units in
1998.
For the first six months of 1998, Registrant incurred a
loss of $186,000 at the Smythe Stores Condominium complex including
$37,000 of depreciation expense, compared to a loss of $201,000 for
the same period in 1997, including $36,000 of depreciation expense.
The decrease in the loss for the first six months of 1997 to the same
periods in 1998 is due to an increase in rental income due to an
increase in the average rental rates combined with a decrease in
condominium fees partially offset by an increase in maintenance
expense. Condominium fees decreased due to a special assessment
charged by the condominium association in 1996 for capital
improvements to the building and maintenance expense increased due to
a higher turnover of apartments units in the first six months of 1998.
In the second quarter of 1998, Registrant incurred
a loss of $38,000 at Third Quarter Apartments, including $18,000 of
depreciation expense, compared to a loss of $36,000 including $18,000
of depreciation expense in the second quarter of 1997 and for the
first six months of 1998, Registrant incurred a loss of $93,000,
including $36,000 of depreciation expense, compared to a loss of
$91,000 for the same period in 1997, including $35,000 of depreciation
expense. The increase in the loss for both the second quarter and the
first six months of 1997 to the same periods in 1998 is the result of
an increase in maintenance expense due to a higher turnover of
apartment units partially offset by an increase in rental income due
to an increase in the average rental rates.
In the second quarter of 1998, Registrant incurred
a loss of $21,000 at Wistar Alley, including $22,000 of depreciation
expense, compared to a loss of $35,000 including $22,000 of
depreciation expense in the second quarter of 1997 and for the first
six months of 1998, Registrant incurred a loss of $64,000, including
$44,000 of depreciation expense, compared to a loss of $85,000
including $43,000 of depreciation expense for the same period in 1997.
The decrease in the loss for both the second quarter and the first six
months of 1997 to the same periods in 1998 is due to an increase in
rental income due to an increase in the average occupancy (85% to 95%)
for the second quarter and (86% to 94%) for the first six months
combined with an increase in the average rental rates.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
June 30, 1998 December 31, 1997
(Unaudited)
Rental properties, at cost:
Land $ 310,833 $ 310,833
Buildings and improvements 5,721,049 5,721,048
Furniture and fixtures 128,329 128,329
6,160,211 6,160,210
---------- ----------
Less - Accumulated depreciation (3,172,808) (3,056,549)
---------- ----------
2,987,403 3,103,661
Cash and cash equivalents 6,233 710
Restricted cash 60,158 68,887
Accounts receivable 14,325 12,469
Other assets (net of amortization of
$30,510 at June 30, 1998 and December 31,
1997) 0 0
---------- ----------
Total $ 3,068,119 $ 3,185,727
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 5,877,928 $ 5,877,215
Accounts payable:
Trade 445,342 373,122
Related parties 380,992 362,739
Interest payable 1,408,909 1,230,141
Tenant security deposits 43,273 37,948
Other liabilities 5,050 2,537
---------- ----------
Total liabilities 8,161,494 7,883,702
---------- ----------
Partners' equity (5,093,375) (4,697,975)
---------- ----------
Total $ 3,068,119 $ 3,185,727
========== ==========
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, 1998 and 1997
(Unaudited)
Three months Six months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Revenues:
Rental income $119,968 $106,926 $236,645 $208,537
Interest income 467 87 707 232
------- ------- ------- -------
Total revenues 120,435 107,013 237,352 208,769
------- ------- ------- -------
Costs and expenses:
Rental operations 61,823 68,396 163,496 176,629
General and
Administrative 17,460 17,460 34,920 34,920
Interest 159,044 157,697 318,077 314,888
Depreciation and
Amortization 58,130 57,211 116,259 114,421
------- ------- ------- -------
Total costs and
Expenses 296,457 300,764 632,752 640,858
------- ------- ------- -------
Net loss ($176,022) ($193,751) ($395,400) ($432,089)
======= ======= ======= =======
Net loss per limited
partnership unit ($ 15.01) ($ 16.53) ($ 33.72) ($ 36.85)
======= ======= ======= =======
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, 1998 and 1997
(Unaudited)
Six months ended
June 30,
1998 1997
Cash flows from operating activities:
Net loss ($395,400) ($432,089)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 116,259 114,421
Changes in assets and liabilities:
Decrease in restricted cash 8,729 15,380
(Increase) decrease in accounts receivable (1,856) 45,934
Increase in accounts payable - trade 72,222 46,437
Increase in accounts payable - related parties 18,253 18,079
Increase in interest payable 178,768 175,523
Increase (decrease) in accrued liabilities 2,513 (2,195)
Increase (decrease) increase in tenant security deposits 5,325 (421)
------- -------
Net cash provided by (used in) operating activities 4,813 (18,931)
------- -------
Cash flows from investing activities:
Capital expenditures 0 (12,051)
------- -------
Net cash used in investing activities 0 (12,051)
------- -------
Cash flows from financing activities:
Proceeds from debt financing 710 29,875
------- -------
Net cash provided by financing activities 710 29,875
------- -------
Increase (decrease) in cash and cash equivalents 5,523 (1,107)
Cash and cash equivalents at beginning of period 710 4,017
------- -------
Cash and cash equivalents at end of period $ 6,233 $ 2,910
======= =======
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 and
notes thereto, in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997.
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 Document
Number
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, 1998.
<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 20, 1998 DIVERSIFIED HISTORIC INVESTORS
---------------
By: Diversified Historic Advisors, General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,233
<SECURITIES> 0
<RECEIVABLES> 14,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,160,211
<DEPRECIATION> 3,172,808
<TOTAL-ASSETS> 3,068,119
<CURRENT-LIABILITIES> 826,334
<BONDS> 5,877,928
0
0
<COMMON> 0
<OTHER-SE> (5,093,375)
<TOTAL-LIABILITY-AND-EQUITY> 3,068,119
<SALES> 0
<TOTAL-REVENUES> 236,645
<CGS> 0
<TOTAL-COSTS> 163,496
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 318,077
<INCOME-PRETAX> (395,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (395,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (395,400)
<EPS-PRIMARY> 0
<EPS-DILUTED> (33.72)
</TABLE>
