UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file 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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 11,609.6 Units
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
* Securities not quoted in any trading market to Registrant's
knowledge.
<PAGE>
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors ("Registrant") is a
limited partnership formed in 1984 under the Pennsylvania Uniform
Limited Partnership Act. As of December 31, 1997, Registrant had
outstanding 11,609.6 units of limited partnership interest (the
"Units").
Registrant is presently in its operating stage. It
originally owned eight properties or interests therein. Partial or
complete interests in six properties have been lost through
foreclosure. See Item 2. Properties, for a description thereof. It
currently owns two properties and a portion of its original interest
in one property. For a discussion of the operations of the
Registrant, See Part II, Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
b. Financial Information about Industry Segments
The Registrant operates in one industry segment.
c. Narrative Description of Business
Registrant is in the business of operating,
holding, selling, exchanging and otherwise dealing in and with real
properties containing improvements which are "Certified Historic
Structures," as such term is defined in the Internal Revenue Code (the
"Code"), for use as apartments, offices, hotels and commercial spaces,
or any combination thereof, or low income housing eligible for the tax
credit provided by Section 42 of the Code, and such other uses as the
Registrant's general partner may deem appropriate.
Since the Registrant's inception, all the
properties acquired either by the Registrant, or the subsidiary
partnerships in which it has an interest, have been rehabilitated and
certified as historic structures and have received the related
investment tax credit. Each of the three properties currently owned
by the Registrant are held for rental operations. At this time it is
anticipated that all the properties will continue to be held for this
purpose. At such time as real property values begin to increase, the
Registrant will re-evaluate its investment strategy regarding the
properties.
As of December 31, 1997, Registrant owned three
properties located in Pennsylvania. In total, the three properties
contain 44 apartment units and 6,188 square feet ("sf") of commercial
space. As of December 31, 1997, 39 of the apartment units were under
lease at monthly rental rates ranging from $625 to $1,350. In
addition, 5,188 sf of the commercial space was under lease at annual
rates ranging from $6.00 to $10.16 per sf. Rental of the apartments
and commercial space is not expected to be seasonal. For further
discussion of the properties, see Item 2. Properties.
The Registrant is affected by and subject to the
general competitive conditions of the residential and commercial real
estate industries. As a result of the overbuilding that occurred in
the 1980's, the competition for both residential and commercial
tenants in the local market where the Registrant's properties are
located is generally strong. As a result, the Registrant is forced to
keep its rent levels competitively low in order to maintain moderate
to high occupancy levels. The properties currently owned by the
Registrant are all located in the Olde City Historic District (the
"District") in Philadelphia, Pennsylvania in which there are several
similar historically certified rehabilitated buildings. The
Registrant's main competitor in this market is Historic Landmarks for
Living which owns several similar residential buildings in the
District. In the District, the apartment and commercial market
remains stable and new construction remains virtually nonexistent
although the availability of favorable home financing has placed
pressure on the rental tenant base.
Registrant has no employees. Registrant's
activities are overseen by Brandywine Construction & Management, Inc.,
("BCMI"), a real estate management firm.
d. Financial Information About Foreign and Domestic
Operations and Export Sales.
See Item 8. Financial Statements and Supplementary
Data.
Item 2. Properties
As of the date hereof, Registrant owned three
properties, or interests therein. A summary description of each
property held at December 31, 1997 is given below.
a. The Smythe Stores Condominium Complex - consists
of five adjoining buildings located at 101-111 Arch Street, in the
Olde City Historic District (the "District") of Philadelphia,
Pennsylvania. In November, 1984, the Registrant acquired 20
residential units of the complex's 49 units as the 100% equity owner
of these units. The acquisition and rehabilitation cost was
$4,056,375 ($171 per sf) funded by an equity contribution and a series
of condominium mortgages with an original combined principal balance
of $2,440,000. The combined principal balance at December 31, 1997 is
$2,634,865. Each mortgage bears interest at 12%. Scheduled interest
payments were made through April 1, 1988. At that time, due to
insufficient cash flow, the Registrant ceased making payments. In
1990, the lender was placed in receivership by the Resolution Trust
Corporation ("RTC"). The two entities which purchased the mortgages
from the RTC each filed complaints for foreclosure due to nonpayment.
Foreclosure proceedings on nine units were filed in the Court of
Common Pleas, Philadelphia County in the matter 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 matter of EMC Mortgage Corporation ("EMC")
v. Diversified Historic Investors. In March 1996, the Bruin cases
were settled and the nine mortgages were sold. The Registrant entered
into an agreement with the new holder of the mortgages whereby monthly
payments of interest are to be made in an amount equal to net
operating income. In December 1996, the eleven units associated with
the EMC cases were foreclosed by the lender.
The remaining nine units are managed by BCMI. As
of December 31, 1997, 8 apartment units were under lease (89%) at
monthly rental rates ranging from $715 to $1,350. All leases are
renewable, one-year leases. The occupancy for the previous four years
was 78% for 1996, 85% for 1995, 82% for 1994 and 74% for 1993. The
monthly rental range has been approximately the same since 1993. For
tax purposes, this property has a federal tax basis of $1,856,464 and
is depreciated using the straight-line method with a useful life of
27.5 years. The annual real estate taxes are $11,440 which is based
on an assessed value of $138,432 taxed at a rate of $8.264 per $100.
No one tenant occupies ten percent or more of the Registrant's units.
It is the opinion of the management of the Registrant that the
property is adequately covered by insurance.
b. The Third Quarter Apartments - consists of 17
apartments and 1,000 square feet of commercial space located in the
District at 47 North Third Street. In November, 1984, the Registrant
acquired the building and is the 100% equity owner of the property.
The property was acquired and rehabilitated for $1,725,000 ($102 per
sf), funded by an equity contribution and two mortgage loans of
$860,000 and $140,000. On June 1, 1993, the first mortgage was
modified. The terms of the modification include the addition of all
accrued and unpaid interest to the principal balance, changing the due
date to October 1998 and revising the payment terms. The first
mortgage has a principal balance at December 31, 1997 of $1,213,303
and bears interest at 12%. The new payment terms require monthly
payments of interest equal to net operating income, with a minimum of
$6,833 per month. The property has been making payments of at least
the minimum amount of $6,833 per month in order to keep the loan
current. The second note has a principal balance of $138,444, bears
interest at 15%, and was due in 1992. In 1991, the Registrant stopped
making scheduled mortgage payments. No notice of default has yet been
received from the lender.
The property is managed by BCMI. As of December
31, 1997, 13 of the units were under lease (76%) at monthly rental
rates ranging from $625 to $1,030 and none of the commercial space was
under lease. All residential leases are renewable, one-year leases.
The occupancy for the previous four years was 93% for 1996, 87% for
1995, 95% for 1994 and 86% for 1993. The monthly rental range has
been approximately the same since 1993. The occupancy for the
commercial space has been 100% for the previous four years. The
annual rental rate has been $8.40 per sf for the previous four years.
For tax purposes, this property has a federal tax basis of $1,795,604
and is depreciated using the straight-line method with a useful life
of 27.5 years. The annual real estate taxes are $17,454 which is
based on an assessed value of $211,200 taxed at a rate of $8.264 per
$100. It is the opinion of the management of the Registrant that the
property is adequately covered by insurance.
c. Wistar Alley - located in the District at 30-32
North Third Street, in Philadelphia, Pennsylvania, consists of two
adjoining buildings which contain 18 residential units and 5,188 sf of
commercial area. The Registrant acquired the buildings in December
1984 and is the 100% equity owner of the property. The property was
acquired and rehabilitated for $2,230,000 ($101 per sf), funded by an
equity contribution and three mortgage loans aggregating $1,400,000.
On June 1, 1993, the first mortgage was modified. The terms of the
modification include the addition of all accrued and unpaid interest
to the principal balance, changing the due date to October 1998 and
revising the payment terms. The first mortgage has a principal
balance at December 31, 1997 of $1,413,800 and bears interest at 2
1/2% over the Federal Home Bank Board Cost of Funds Index with a
maximum of 14 1/2% and a minimum of 8 1/2%. The rate was 8 1/2% at
December 31, 1997. The new payment terms require monthly payments of
interest equal to net operating income, with a minimum of $9,000 per
month. The property has not generated sufficient cash flow to satisfy
the minimum requirement; however, the loan has not been declared in
default. The second and third notes have principal balances at
December 31, 1997 of $380,114, and $96,689. The notes bear interest
at 11%, and prime plus 1 1/2%, therefore 10% at December 31, 1997,
respectively, and are due at the earlier of the sale of the Property
or the year 2009.
The property is managed by BCMI. As of December
31, 1997, all 18 residential units were under lease (100%) at monthly
rents ranging from $650 to $1,100 and 5,188 sf of commercial space
were under lease (100%) at an annual rental rates ranging from $6.00
to $10.16 per sf. All residential leases are renewable, one-year
leases. The occupancy for the residential units for the previous four
years was 88% for 1996, 83% for 1995, 86% for 1994 and 88% for 1993.
The monthly rental range has been approximately the same since 1993.
The occupancy for the commercial space for the previous four years has
been 100% for 1996, 38% for 1995, 100% for 1994 and 100% for 1993.
The average annual rental rate has been $5.14 to $13.85 per sf in
1996, $13.85 per sf for 1995, $9.28 per sf to $13.45 per sf for 1994
and $10.85 per sf for 1993.
The following is a table showing commercial lease
expirations at Wistar Alley for the next five years.
Total annual % of gross
Number of Total sf of Rental covered annual rental
Years leases expiring Expiring leases by expiring leases from property
1998 0 0 0 0%
1999 1 2,388 24,252 13%
2000 0 0 0 0%
2001 1 2,800 16,800 9%
2002 0 0 0 0%
For tax purposes, this property has federal tax basis
of $2,197,309 and is depreciated using the straight-line method with a
useful life of 27.5 years. The annual real estate taxes are $23,139
which is based on an assessed value of $280,000 taxed at a rate of
$8.264 per $100. It is the opinion of the management of the
Registrant that the property is adequately covered by insurance.
Item 3. Legal Proceedings
a. 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 fiscal years covered
by this report to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
a. There is no established public trading market for
the Units. Registrant does not anticipate any such market will
develop. Trading in the Units occurs solely through private
transactions. The Registrant is not aware of the prices at which
trades occur. Registrant's records indicate that 28 Units of record
were sold or exchanged in 1997.
b. As of December 31, 1997, there were 1,233 record
holders of Units.
c. Registrant did not declare any cash dividends in
1997 or 1996.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1997. The data should be read in conjunction
with the consolidated financial statements included elsewhere herein.
This data is not covered by the independent auditors' report.
1997 1996 1995 1994 1993
Rental income $ 420,903 $ 480,731 $ 634,710 $ 795,515 $ 797,966
Interest income 620 623 527 5,332 10,557
Net loss (810,675) (127,434) (178,506) (966,711) (279,965)
Net loss per Unit (69.13) (10.86) (15.22) (82.44) (23.87)
Total assets (net of3,185,727 3,453,392 4,946,064 7,528,198 7,995,509
depreciation and
amortization)
Debt obligations 5,877,215 5,834,574 5,607,067 7,910,843 7,874,669
Note: See Part II, Item 7.3 Results of Operations for a discussion of
factors which materially affect the comparability of the information
reflected in the above table.
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
(1) Liquidity
At December 31, 1997, Registrant had cash of
approximately $710. 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 December 31, 1997, Registrant had restricted
cash of $68,887 consisting primarily of funds held as security
deposits 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 on each of its
remaining 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 debt service
requirements (or with respect to Third Quarter, 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.
Since the lenders have agreed either to forebear
from taking any foreclosure action as long as cash flow payments are
made, to accrue all debt service in lieu of payment, or have (in the
case of Third Quarter) not moved to declare a default for a
substantial period of time after the mortgage due date, the Registrant
believes it is appropriate to continue presenting the financial
statements on a going concern basis.
(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. The mortgagee funded $0, $2,809 and $2,855,
respectively during 1997 for capital expenditures.
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.
(3) Results of Operations
During 1997, Registrant incurred a net loss of
$810,675 ($69.13 per limited partnership unit) compared to a net loss
of $127,434 ($10.86 per limited partnership unit) in 1996 and a net
loss of $178,506 ($15.22 per limited partnership unit) in 1995.
Rental income decreased from $634,710 in 1995 to
$480,731 in 1996 to $420,903 in 1997. The decrease from 1996 to 1997
is mainly the result of the foreclosure of the eleven units in 1996 at
Smythe Stores partially offset by an increase at Wistar Alley due to
an increase in average occupancy (88% to 90%) and an increase in the
average monthly rental rates and an increase at Third Quarter due to
an increase in the average monthly rental rates. The decrease from
1995 to 1996 is mainly the result of the loss through foreclosure of
Centre Park in 1995 and is also due to a decrease in rental income at
Smythe Stores due a decrease in average occupancy (89% to 84%) and the
foreclosure of the eleven units in December 1996 partially offset by
an increase at Third Quarter due to an increase in average occupancy
(75% to 93%).
Other income increased from $0 in 1995 to $166,277
in 1996 and decreased to $0 in 1997. The decrease from 1996 to 1997
and the increase from 1995 to 1996 is the result of the write-off of
accounts payable in 1996 due to a recalculation and subsequent
forgiveness of a portion of the administrative fees charged by BCMI to
the Registrant.
Rental operations expenses decreased from $535,597
in 1995 to $395,732 in 1996 to $289,820 in 1997. The decrease from
1996 to 1997 resulted mainly from the loss of the eleven units at
Smythe Stores in 1996 and a decrease in condominium fees at Smythe
Stores following an increase in those fees in 1996 due to a special
assessment charged by the condominium association that year for
capital improvements to the building. There was also a decrease in
property tax expense at Third Quarter due to a successful appeal to
reduce the assessed value. The overall decrease from 1995 to 1996
resulted mainly from the loss of Centre Park in July 1995. The loss
from 1995 to 1996 also included an increase in legal fees due to the
modification of 9 of the 20 mortgage loans at Smythe Stores and an
increase in condominium fees at Smythe Stores due to the special
assessment referred to above. There was also an increase in
commissions expense at Wistar Alley due to a higher turnover of units
in 1996.
General and administrative expenses decreased from
$162,000 in 1995 to $80,048 in 1996 to $69,830 in 1997. The decrease
from 1995 to 1996 and from 1996 to 1997 is the result of a reduction
in the administrative fee charged due to the foreclosure of several
properties owned by the Registrant.
Interest expense increased from $618,991 in 1995
to $1,283,218 in 1996 and decreased to $638,892 in 1997. The increase
from 1995 to 1996 and the decrease from 1996 to 1997 is mainly due to
an increase in the principal balance of the mortgage at Smythe Stores
in 1996, due to the capitalization of past due interest partially
offset by the foreclosure of Centre Park in July 1995. In addition,
interest expense at Wistar Alley increased from 1996 to 1997 due to an
increase in the principal balance of the first mortgage due to
advances made by the first mortgage holder partially offset by a
decrease in interest expense at Third Quarter due to a decrease in
interest incurred on past due real estate taxes paid in 1996.
Depreciation and amortization decreased from
$396,536 in 1995 to $308,684 in 1996 to $233,656 in 1997. The
decrease from 1996 to 1997 results mainly from the loss of the eleven
units at Smythe Stores. The decrease from 1995 to 1996 results mainly
from the loss of Centre Park in 1995.
In 1997, a loss of $686,000 was incurred at the
Registrant's three properties compared to a loss of $168,000 in 1995
and income of $140,000 in 1995. A discussion of property
operations/activities follows:
In 1997, Registrant incurred a loss of $370,000 at
the nine units owned at the Smythe Stores Condominium complex
including $75,000 of depreciation expense compared to income of
$163,000 including $154,000 of depreciation expense in 1996 and a loss
of $334,000 including $165,000 of depreciation expense in 1995.
Included in operations in 1996 is an extraordinary gain of $1,293,000
representing the excess of the liabilities satisfied in the
foreclosure over the fair market value of the assets. The 1996 loss
without the effect of the foreclosure would have been $1,130,000. The
decrease in the loss from 1996 to 1997 is mainly due to the loss of 11
of the condominium units and a corresponding decrease in the rental
income, operating expenses and depreciation. Condominium fees also
decreased due to a special assessment charged by the condominium
association that year for capital improvements to the building. The
increase in the loss from 1995 to 1996 results mainly from an increase
in interest expense, legal and condominium fees and a decrease in
rental income partially offset by a decrease in depreciation expense.
Interest expense increased due to an increase in the principal balance
upon which interest is accrued and legal fees increased due to the
modification of 9 of the 20 mortgage loans. Condominium fees
increased due to a special assessment charged by the condominium
association for capital improvements of the building. Rental income
decreased due to a decrease in the average occupancy (89% to 84%)
while depreciation expense decreased due to the foreclosure of the
eleven units in December 1996.
On June 30, 1992 Diversified Historic Properties,
Inc., co-partner of the Registrant's general partner, assigned to D,
LTD (its parent) a note receivable from the Registrant in the amount
of $127,418 which bears interest at 10% with the entire principal and
accrued interest due on June 30, 1997. On October 8, 1993 D, LTD
obtained a judgment in the amount of $156,873 on this note in Common
Pleas Court for Philadelphia County, Pennsylvania. The judgment
accrues interest at 15%. Interest accrued was $6,713 during both 1996
and 1997. Payments on the judgment are to be made from available cash
flow and before any distribution can be made to the Registrant's
limited partners. The balance of the note at December 31, 1997 was
$65,405.
In 1997, Registrant sustained a loss of $174,000
at the Third Quarter Apartments including $72,000 of depreciation and
amortization expense compared to a loss of $190,000 including $70,000
of depreciation and amortization expense in 1996 and a loss of
$190,000 including $71,000 of depreciation and amortization expense in
1995. The decrease in the loss from 1996 to 1997 is due mainly to a
decrease in interest incurred on past due real estate taxes and a
decrease in real estate taxes due to a successful appeal to reduce the
assessed value partially offset by an increase in rental income due to
an increase in the average rental rates. Although there was no
material overall change in the loss from 1995 to 1996, there was an
increase in rental income partially offset by an increase in interest
expense. Rental income increased due to an increase in the average
occupancy (75% to 93%) while interest expense increased due to
interest incurred on past due real estate taxes.
In 1997, Registrant sustained a loss of $142,000
at Wistar Alley including $87,000 of depreciation and amortization
expense compared to a loss of $141,000 including $85,000 of
depreciation and amortization expense in 1996 and a loss of $131,000
including $85,000 of depreciation and amortization expense in 1995.
Although there was no material overall change in the loss from 1996 to
1997, there was an increase in rental income partially offset by an
increase in interest and maintenance expense. Rental income increased
due to an increase in the average occupancy (88% to 90%) and an
increase in the average rental rates while interest expense increased
due to an increase in the principal balance upon which interest is
accrued. See Item 2.c, above. Maintenance expense increased due to
deferred maintenance performed at the property The increased loss
from 1995 to 1996 is due mainly to an increase in commissions expense
due to a higher turnover of units.
In 1996, Registrant recognized income of $0 at
Centre Park Place compared to income of $0 in 1996 and income of
$795,000 in 1995 including $76,000 of depreciation expense in 1994.
The decrease in the income from 1995 to 1996 and 1997 is due to the
loss of the property in July 1995. The 1995 loss without the effect
of the foreclosure would have been $271,000. Included in operations
from 1995 is an extraordinary gain of $899,000 representing the
representing the excess of the liabilities satisfied in the
foreclosure over the fair market value of the Centre Park Property.
On May 3, 1993 a contractor who had performed
services at Centre Park Place obtained and executed a judgment (due to
non-payment) in the amount of $26,028 against Centre Park Associates,
a partnership wholly-owned by the Registrant that owned Centre Park
Place, and garnished certain partnership bank accounts. The
contractor collected $7,226 on his judgment. The balance of the
judgment at the date of foreclosure of the property was $18,802.
On June 30, 1992 Diversified Historic Properties,
Inc., co-partner of the Registrant's general partner, assigned to D,
LTD (its parent) a note receivable, from CPA to the Registrant, that
had been assigned to it, in the amount of $246,491 which bears
interest at 10% with the entire principal and accrued interest due on
June 30, 1997. On October 8, 1993 D, LTD obtained a judgment in the
amount of $299,651 on this note in Common Pleas Court for Philadelphia
County, Pennsylvania. The judgment accrues interest at 15%. Interest
accrued in 1995 was $20,950. Payments on the judgment were to be made
out of available cash flow from CPA. The balance of the judgment at
the date of foreclosure was $155,239. Due to the foreclosure of the
property, no additional payments will be made to D, LTD on account of
the note from CPA.
Item 8. Financial Statements and Supplementary Data
Registrant is not required to furnish the supplementary
financial information referred to in Item 302 of Regulations S-K.
Independent Auditor's Report
<PAGE>
To the Partners of
Diversified Historic Investors
We have audited the accompanying consolidated balance sheets of
Diversified Historic Investors (a Pennsylvania Limited Partnership)
and its subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, changes in partners' equity and
cash flows for the years ended December 31, 1997, 1996 and 1995.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in
the first paragraph present fairly, in all material respects, the
financial position of Diversified Historic Investors and subsidiaries
as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for the years ended December 31, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedule of Real
Estate and Accumulated Depreciation on page 27 is presented for the
purposes of additional analysis and is not a required part of the
basic financial statements and, in our opinion, is fairly stated in
all material respects in relation to the basic financial statements
taken as a whole.
The accompanying financial statements have been prepared assuming that
the Partnership will continue as a going concern. In recent years,
the Partnership has incurred significant losses from operations, which
raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
February 11, 1998
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1997 and 1996 14
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995 15
Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1997, 1996, and 1995 16
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 17
Notes to consolidated financial statements 18-25
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 27
Notes to Schedule XI 28
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
Assets
1997 1996
Rental properties at cost:
Land $ 310,833 $ 310,833
Buildings and improvements 5,721,048 5,721,048
Furniture and fixtures 128,329 113,742
--------- ---------
6,160,210 6,145,623
Less - accumulated depreciation (3,056,549) (2,822,893)
--------- ---------
3,103,661 3,322,730
Cash and cash equivalents 710 4,017
Restricted cash 68,887 68,063
Accounts receivable 12,469 58,582
Other assets (net of accumulated
amortization of $ $30,510) 0 0
--------- ---------
Total $3,185,727 $3,453,392
========= =========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $5,877,215 $5,834,574
Accounts payable:
Trade 373,122 264,967
Related parties 362,739 323,640
Interest payable 1,230,141 874,307
Tenant security deposits 37,948 40,229
Other liabilities 2,537 2,975
--------- ---------
Total liabilities 7,883,702 7,340,692
Partners' equity (4,697,975) (3,887,300)
--------- ---------
Total $3,185,727 $3,453,392
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Rental income $ 420,903 $ 480,731 $ 634,710
Other income 0 166,277 0
Interest income 620 623 527
--------- --------- ---------
Total revenues 421,523 647,631 635,237
--------- --------- ---------
Costs and expenses:
Rental operations 289,820 395,732 535,597
General and administrative 69,830 80,048 162,000
Interest 638,892 1,283,218 618,991
Depreciation and amortization 233,656 308,684 396,536
--------- --------- ---------
Total costs and expenses 1,232,198 2,067,682 1,713,124
--------- --------- ---------
Loss before extraordinary item (810,675) (1,420,051) (1,077,887)
Extraordinary gain on extinguishment of debt 0 1,292,617 899,381
--------- --------- ---------
Net loss ($ 810,675)($ 127,434)($ 178,506)
========= ========= =========
Net loss per limited partnership unit:
Loss before extraordinary item (69.13) (121.09) (91.91)
Extraordinary item 0 110.23 76.69
--------- -------- ---------
($ 69.13) ($ 10.86)($ 15.22)
========= ======== =========
The accompanying notes are an integral part of these financial statements.
<PART>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
Diversified
Historic Limited
Advisors (1) Partners (2) Total
------------ ----------- ---------
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1994 ($127,679) ($3,453,681) ($3,581,360)
Net loss (1,785) (176,721) (178,506)
------- --------- ---------
Balance at December 31, 1995 (129,464) (3,630,402) (3,759,866)
Net loss (1,274) (126,160) (127,434)
------- --------- ---------
Balance at December 31, 1996 (130,738) (3,756,562) (3,887,300)
Net loss (8,107) (802,568) (810,675)
------- --------- ---------
Balance at December 31, 1997 ($138,845) ($4,559,130) ($4,697,975)
======= ========= =========
(1) General Partner.
(2) 11,609.6 limited partnership units outstanding at December 31,
1997, 1996, and 1995.
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities:
Net loss ($ 810,675) ($ 127,436) ($ 178,506)
Adjustments to reconcile net loss to
net cash used in operating activities:
Extraordinary gain on extinguishment of debt 0 (1,292,617) (899,381)
Depreciation and amortization 233,656 308,684 396,536
Minority interest 0 0 (11,504)
Changes in assets and liabilities,
net of disposals due to foreclosure:
(Increase) decrease in restricted cash (824) (27,241) 38,711
Decrease (increase) in accounts receivable 46,113 34,677 (22,680)
Increase (decrease) in accounts payable
- trade 108,151 (226,953) 221,557
Increase (decrease) in accounts
payable - related parties 39,099 229,100 (1,026)
(Decrease) increase in accounts payable-taxes 0 (174,514) 16,542
Increase (decrease) in interest payable 355,834 (246,991) 430,573
(Decrease) increase in tenant security
deposits (2,281) 1,291 (31,223)
(Decrease) increase in other liabilities (434) (16,710) 16,095
-------- --------- --------
Net cash used in operating activities: (31,361) (1,538,710) (24,306)
-------- --------- --------
Cash flows from investing activities:
Capital expenditures (14,587) (41,353) (41,507)
-------- --------- --------
Net cash used in investing activities: (14,587) (41,353) (41,507)
-------- --------- --------
Cash flows from financing activities:
Borrowings under debt obligations 42,641 1,579,509 63,159
Payments of principal under debt obligations 0 0 (564)
-------- --------- --------
Net cash provided by financing activities:42,641 1,579,509 62,595
-------- --------- --------
Decrease in cash and cash equivalents (3,307) (554) (3,218)
Cash and cash equivalents at beginning of year 4,017 4,571 7,789
-------- --------- --------
Cash and cash equivalents at end of year $ 710 $ 4,017 $ 4,571
======== ========= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 238,058 $ 179,626 $ 157,394
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Net assets transferred for liability reduction*:
Net assets transferred $0 $2,341,111 $3,549,860
Liability reduction $0 3,627,488 $4,615,984
* As a result of foreclosures on properties owned by the Partnership.
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors (the "Partnership") was formed in March
1984, with Diversified Historic Advisors as the General Partner. Upon
the admittance of additional limited partners, the initial limited
partner withdrew.
The Partnership was formed to acquire, rehabilitate, and manage real
properties which are certified historic structures as defined in the
Internal Revenue Code (the "Code"), or which were eligible for
designation as such, utilizing the mortgage financing and the net
proceeds from the sale of limited partnership units. Any
rehabilitations undertaken by the Partnership were done with a view to
obtaining certification of expenditures therefore as "qualified
rehabilitation expenditures" as defined in the Code.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
These financial statements reflect all adjustments (consisting only of
normal recurring adjustments) which, in the opinion of the
Partnership's General Partner, are necessary for a fair statement of
the results for those years.
2. Depreciation
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Buildings and improvements are
depreciated over 25 years and furniture and fixtures over five years.
3. Costs of Issuance
Costs incurred in connection with the offering and sale of limited
partnership units were charged against partners' equity as incurred.
4. Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased with
a maturity of less than three months to be cash equivalents.
5. Net Loss Per Limited Partnership Unit
The net loss per limited partnership unit is based on the weighted
average number of limited partnership units outstanding during the
period (11,609.6 in 1997, 1996, and 1995).
6. Income Taxes
Income taxes or credits resulting from earnings or losses are payable
by or accrue to the benefits of the partners; accordingly, no
provision has been made for income taxes in these financial
statements.
7. Restricted Cash
Restricted cash includes amounts held for tenant security deposits and
real estate tax reserves.
8. Revenue Recognition
Revenues are recognized when rental payments are due on a straight-
line basis. Rental payments received in advance are deferred until
earned.
9. Rental Properties
Rental properties are stated at cost. A provision for impairment of
value is recorded when a decline in value of property is determined to
be other than temporary as a result of one or more of the following:
(1) a property is offered for sale at a price below its current
carrying value, (2) a property has significant balloon payments due
within the foreseeable future for which the Partnership does not have
the resources to meet, and anticipates it will be unable to obtain
replacement financing or debt modification sufficient to allow a
continued hold of the property over a reasonable period of time, (3) a
property has been, and is expected to continue, generating significant
operating deficits and the Partnership is unable or unwilling to
sustain such deficit results of operations, and has been unable to, or
anticipates it will be unable to, obtain debt modification, financing
or refinancing sufficient to allow a continued hold of the property
for a reasonable period of time or, (4) a property's value has
declined based on management's expectations with respect to projected
future operational cash flows and prevailing economic conditions. An
impairment loss is indicated when the undiscounted sum of estimated
future cash flows from an asset, including estimated sales proceeds,
and assuming a reasonable period of ownership up to 5 years, is less
than the carrying amount of the asset. The impairment loss is
measured as the difference between the estimated fair value and the
carrying amount of the asset. In the absence of the above
circumstances, properties and improvements are stated at cost. An
analysis is done on an annual basis at December 31 of each year.
10. Other Income
Other income is comprised of a write-off of accounts payable in 1996
due to a recalculation and subsequent forgiveness of a portion of the
administrative fees charged by BCMI to the Partnership.
NOTE C - GOING CONCERN
In recent years the Partnership 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
Partnership has first mortgages in place on each of its remaining
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 Partnership 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 Partnership's intention to continue to hold the properties
until they can no longer meet debt service requirements (or with
respect to Third Quarter, 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.
Since the lenders have agreed either to forebear from taking any
foreclosure action as long as cash flow payments are made, to accrue
all debt service in lieu of payment, or have (in the case of Third
Quarter) not moved to declare a default for a substantial period of
time after the mortgage due date, the Partnership believes it is
appropriate to continue presenting the financial statements on a going
concern basis.
NOTE D - PARTNERSHIP AGREEMENT
The significant terms of the amended and restated Agreement of Limited
Partnership (the "Agreement"), as they relate to the financial
statements, follow:
Distributions from Operations
The Agreement provides that, beginning with the date of the admission
of subscribers as limited partners, all distributable cash from
operations (as defined) will be distributed 90% to the limited
partners and 10% to the General Partner.
All distributable cash from sales or refinancing will be distributed
to the limited partners equal to their Original Capital Contribution
plus an amount equal to 6% of their Original Capital Contribution per
annum on a cumulative basis less the sum of all prior distributions
and, thereafter, after receipts by certain affiliates of the General
partner of their subordinated real estate commissions, the limited
partners will receive 85% of cash from sales or refinancings.
NOTE E - ACQUISITIONS
The Partnership acquired six properties and two general or limited
partnership interests during the period November 1984 to December
1986, as discussed below.
In November 1984, the Partnership purchased 20 residential apartments
located in Philadelphia, Pennsylvania for a cash capital contribution
of $4,056,475. The lender on eleven of the apartments foreclosed in
December 1996.
Also in November 1984, the Partnership purchased a building located in
Philadelphia, Pennsylvania, consisting of 17 units and 1,000 square
feet of commercial space, for a cash capital contribution of
$1,725,000.
In December 1984, the Partnership purchased two adjoining buildings
located in Philadelphia, Pennsylvania, consisting of 18 residential
units and 4,500 square feet of commercial space, for a cash
contribution of $405,000.
In December 1984, the Partnership purchased a four-story building
located in Philadelphia, Pennsylvania, consisting of 22,200 square
feet of commercial space, for a cash capital contribution of $465,000.
The lender on the property foreclosed in 1992.
Also in December 1984, the Partnership acquired a building located in
Philadelphia, Pennsylvania, consisting of 14 residential units, for a
cash capital contribution of $160,000. The lender on the property
foreclosed in 1993.
In February 1985, the Partnership was admitted, with a 99% general
partner interest, to a Pennsylvania general partnership which owns 21
residential units located in East Greenwich, Rhode Island, for a cash
capital contribution of $3,600,000. The lender on the property
foreclosed in 1993.
In June 1985, the Partnership was admitted, with a 99.5% general
partner interest, to a Pennsylvania general partnership which owns a
building consisting of 50 residential units located in Reading,
Pennsylvania, for a cash capital contribution of $2,650,000. The
lender on the property foreclosed in 1995.
In December 1986, the Partnership acquired a building located in
Savannah, Georgia, consisting of 13 apartments and 7,820 square feet
of commercial space, for a cash capital contribution of $812,916. The
lender on the property foreclosed in 1993.
NOTE F- DEBT OBLIGATIONS
Debt obligations are as follows:
December 31,
1997 1996
------ ------
Mortgage loans, interest accrues at 12%, interest $2,634,865 $2,612,620
only monthly to the extent of net operating income;
principal due 2015; collateralized by the related
rental properties (A)
Mortgage loan, interest accrues at 12%, interest only 1,213,303 1,213,303
payable monthly to the extent of net operating income
with a minimum of $6,833; principal due October 31, 1998;
collateralized by the related rental property
Mortgage loan, interest at 15%, payable in equal monthly 138,444 138,444
installments of $1,770 (including interest); due in 1992;
collateralized by the related rental property (B)
Mortgage loan, interest accrues at 2 1/2% over the 1,413,800 1,393,404
Federal Home Bank Board Cost of Funds Index with a
maximum of 14 1/2% and a minimum of 8 1/2%; therefore
8 1/2% at December 31, 1997 and 1996, interest only
payable monthly to the extent of net operating income
with a minimum of $9,000; principal due October 31, 1998;
collateralized by the related rental property
Notes payable, interest at 11% and is payable monthly 380,114 380,114
based on the lesser of 75% of cash flow from the operation
of the properties or certain stated amounts; principal and
all accrued interest is due at the earlier of sale of the
related properties or 2009; collateralized by the related
rental property (C)
Notes payable, interest at prime plus 1 1/2% (10% and 9.75%
at December 31, 1997 and 1996, respectively); principal
and interest due upon sale of the related property;
collateralized by the related rental property (D) 96,689 96,689
--------- ---------
$5,877,215 $5,834,574
========= =========
(A) Due to insufficient cash flow at Smythe Stores Condominium
Complex, the Partnership ceased making interest payments in May
1988. In 1990, the lender was placed in receivership by the
Resolution Trust Corporation ("RTC"). The two entities which
purchased the mortgages from the RTC each filed complaints for
foreclosure due to nonpayment. Foreclosure proceedings on nine
units were filed in the Court of Common Pleas, Philadelphia
County in the matter 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 matter of EMC Mortgage Corporation
("EMC") v. Diversified Historic Investors. In March 1996, the
Bruin cases were settled and the nine mortgages were sold. The
Partnership entered into an agreement with the new holder of
the mortgages whereby monthly payments of interest are to be
made in an amount equal to net operating income. In December
1996, the eleven units associated with the EMC cases were
foreclosed by the lender.
(B) In 1991, the Partnership stopped making scheduled mortgage
payments. No notice of default has yet been received from the
lender. The interest in arrears amounts to $134,983 at
December 31, 1997 which includes $20,767 for each of 1997, 1996
and 1995.
(C) Interest is no longer being accrued on these notes, since the
first mortgage is a cash flow mortgage and is not being
serviced to the extent of total interest due. The interest in
arrears amounts to $271,782 at December 31, 1997 which includes
$41,813 for each of 1997, 1996 and 1995.
(D) This note represents amounts owed to developers pursuant to
negative cash flow guarantees. Interest is no longer being
accrued on the remaining note, since the first mortgage is a
cash flow mortgage and is not being serviced to the extent of
total interest due. The interest in arrears amounts to $57,012
at December 31, 1997 which includes $9,613, $9,526 and $10,070
for 1997, 1996 and 1995, respectively.
Approximate maturities of the mortgage loan obligations at December
31, 1997, for each of the succeeding five years are as follows:
1998 $3,242,350
1999 0
2000 0
2001 0
2002 0
Thereafter 2,634,865
---------
$5,877,215
=========
NOTE G - TRANSACTIONS WITH RELATED PARTIES
On June 30, 1992 Diversified Historic Properties, Inc., co-partner of
the Partnership's general partner, assigned to D, LTD (its parent) a
note receivable from the Partnership in the amount of $127,418 which
bears interest at 10% with the entire principal and accrued interest
due on June 30, 1997. On October 8, 1993 D, LTD obtained a judgment
in the amount of $156,873 on this note in Common Pleas Court for
Philadelphia County, Pennsylvania. The judgment accrues interest at
15%. Interest accrued was $6,713 during both 1996 and 1997. Payments
on the judgment are to be made from available cash flow and before any
distribution can be made to the Partnership's limited partners. The
balance of the note at December 31, 1997 is $65,405.
On June 30, 1992 Diversified Historic Properties, Inc. co-partner of
the Partnership's general partner, assigned to D, LTD (its parent) a
note receivable, from Centre Park Associates to the Partnership, that
had been assigned to it, in the amount of $246,491 which bears
interest at 10% with the entire principal and accrued interest due on
June 30, 1997. On October 8, 1993 D, LTD obtained a judgment in the
amount of $299,651 on this note in Common Pleas Court for Philadelphia
County, Pennsylvania. The judgment accrued interest at 15%. Interest
accrued in 1995 was $20,950. Payments on the judgment were to be made
out of available cash flow from CPA. The balance of the judgment at
the date of foreclosure was $155,239. Due to the foreclosure of the
property, no additional payments will be made to D, LTD on account of
the note from CPA.
NOTE H - COMMITMENTS AND CONTINGENCIES
On May 3, 1993, a contractor who had performed services at Centre Park
Place obtained and executed a judgment (due to non-payment of fees for
services) in the amount of $26,028 against Centre Park Associates and
garnished certain Partnership bank accounts. The contractor collected
$7,226 on his judgment. The balance of the judgment at the date of
foreclosure of the property was $18,802 Due to the foreclosure of the
property, no additional payments will be made to the contractor on
account of his judgment.
NOTE I - EXTRAORDINARY GAINS/ LOSSES
Due to insufficient cash flow at Smythe Stores, the Partnership ceased
making debt service payments in 1988. 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 ("EMC") v. Diversified Historic Investors.
In March 1996, the Bruin cases were settled and the nine mortgages
were sold. The new payment terms require monthly payments of interest
in an amount equal to net operating income. In December 1996, the
eleven units associated with the EMC cases were foreclosed by the
lender. The Partnership recognized an extraordinary gain of
$1,292,617 during 1996 for the difference between the book value of
the property (which approximated fair value) and the extinguished
debt.
Due to insufficient cash flow at Centre Park Associates ("CPA") and
the utilization of all remaining cash reserves on June 1, 1994, the
Partnership ceased making debt service payments. As a result, the
guarantor of the bonds had to fund interest and principal payments in
the amount of $35,451. The guarantor declared an Event of Default
under the loan documents and on August 19, 1994, the guarantor
exercised its option to purchase the bonds and in accordance with the
guaranty agreement, raised the interest rate on such bonds to prime
plus 2% (therefore, 10.5% at December 31, 1994). On October 31, 1994,
the guarantor instituted legal proceedings against CPA. The
Partnership's attempts to negotiate the terms of the loan were
unsuccessful and on July 11, 1995, CPA filed a reorganization petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code. After determining
that reorganization was not feasible for CPA, the bankruptcy was
dismissed and, on July 28, 1995, the lender foreclosed on the
property. The Partnership recognized an extraordinary gain of
$899,381 during 1995 for the difference between the book value of the
property (which approximated fair value) and the extinguished debt.
NOTE J - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time periods for financial reporting ("book")
purposes and for income tax ("tax") purposes. Reconciliations of net
loss and partners' equity follow:
For the Years Ended December 31,
1997 1996 1995
------ ------ ------
Net loss - book ($ 810,675) ($ 127,434) ($ 178,506)
Excess of book over tax depreciation 11,092 88,563 (21,200)
Interest 0 0 195,204
Extraordinary gain on foreclosure 0 (920,733) (165,716)
Minority interest - tax only 0 0 (4,636)
--------- --------- ---------
Net loss - tax ($ 799,583) ($ 959,604) ($ 174,854)
========= ========= =========
Partners' equity - book ($4,697,975) ($3,887,300) ($3,759,866)
Costs of issuance 1,393,762 1,393,762 1,393,762
Cumulative tax (under) over book loss (726,480) (737,572) 94,598
--------- --------- ---------
Partners' equity - tax ($4,030,693) ($3,231,110) ($2,271,506)
========= ========= =========
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Cost
Capitalized
Initial Cost to Partnership (b) Subsequent to
Acquisition
Buildings
and Date of Date
Description (a) Encumbrances Land Improvements Improvements Constr. Acquir
(g) (a)(d)
9 condominium
apartment units in ($106,626)(h)
Philadelphia, PA $2,634,865 $16,833 $1,944,427 14,569 1984 12/28/94
17 apartment units
and 1,000 square
feet of commercial
space in
Philadelphia, PA 1,351,747 120,000 1,744,097 45,408 1984 11/14/84
18 apartment units
and 5,188 square
feet of commercial
space in (45,079) (h)
Philadelphia, PA 1,890,603 174,000 2,188,961 17,843 1984-1985 12/14/84
--------- ------- --------- -------
TOTAL $5,877,215$310,833 $5,877,485 ($73,885)
Gross Amount at which Carried at
December 31, 1997
Buildings
and Accumulated
Description Land Improvements Total (c)(e) Depreciation
(e)(f)
20 condominium
apartment units in
Philadelphia, PA $16,833 $1,856,465 $1,873,298 $981,585
17 apartment units
and 1,000 square
feet of commercial
space in
Philadelphia, PA 120,000 1,795,604 1,915,604 936,217
18 apartment units
and 4,500 square
feet of commercial
space in
Philadelphia, PA 174,000 2,197,308 2,371,308 1,138,747
------- --------- --------- ---------
TOTAL $310,833 $5,849,377 $6,160,210 $3,056,549
======= ========= ========= =========
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1997
(A) All properties are certified historic structures as defined in
the Internal Revenue Code, or are eligible for designation as
such. The "date of construction" refers to the period in which
such properties are rehabilitated.
(B) Includes development/rehabilitation costs incurred pursuant to
development agreements entered into when the properties are
acquired.
(C) The aggregate cost of real estate owned at December 31, 1997,
for Federal income tax purposes is approximately $5,849,377.
However, the depreciable basis of buildings and improvements is
reduced for Federal income tax purposes by the investment tax
credit and the historic rehabilitation credit obtained.
(D) Development /rehabilitation was completed during 1986.
(E) Reconciliation of real estate:
1997 1996 1995
Balance at beginning of year $6,145,623 $ 8,376,591 $11,866,746
Additions during the year:
Improvements 14,587 41,353 41,507
--------- --------- ----------
6,160,210 8,417,944 11,908,253
Deductions during the year:
Retirements 0 (2,272,321) (3,531,662)
--------- ---------- ----------
Balance at end of year $6,160,210 $ 6,145,623 $ 8,376,591
========= ========== ==========
Reconciliation of accumulated depreciation:
1997 1996 1995
Balance at beginning of year $2,822,893 $ 3,614,119 $ 4,565,332
Depreciation expense for the year 233,656 308,684 390,791
Retirements 0 (1,099,910) (1,342,004)
--------- ---------- ----------
Balance at end of year $3,056,549 $ 2,822,893 $ 3,614,119
========= ========== ==========
(F) See Note B to the financial statements for depreciation method
and lives.
(G) See Note F to the financial statements for further information.
(H) In connection with the purchase of certain of the properties,
the sellers agreed to reimburse the Partnership for cash flow
deficits, as defined, of these properties. Such reimbursements
were treated as a reduction of buildings and improvements.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
a. Identification of Directors - Registrant has no
directors.
b. Identification of Executive Officers
The General Partner of the Registrant is
Diversified Historic Advisors (DHA), a Pennsylvania general
partnership. The partners of DHA are as follows:
Name Age Position Term of Office Period Served
Gerald Katzoff 49 Partner in DHA No fixed term March 1984 -
May 1997
Diversified Historic -- Partner in DHA Partner in DHA March 1984 -
Properties, Inc. May 1997
("Diversified")
SWDHA, Inc. -- Partner in DHA Partner in DHA Since May 1997
EPK, Inc. -- Partner in DHA Partner in DHA Since May 1997
For further description of Diversified, see paragraph
e. of this Item. There is no arrangement or understanding between
either person names above and any other person pursuant to which any
person was or is to be selected as an officer.
c. Identification of Certain Significant Employees.
Registrant has no employees. Its administrative and operational
functions are carried out by an separate property management and
partnership administration firm engaged by the Registrant.
d. Family Relationships. There is no family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DHA is a general partnership
formed in March 1984. The General Partner is responsible for the
management and control of the Registrant's affairs and will have
general responsibility and authority in conducting its operations.
On May 13, 1997, SWDHA, Inc. replaced Gerald Katzoff and
EPK, Inc. replaced DHP, Inc. as partners of Diversified. Spencer
Wertheimer, the President of SWDHA, Inc., is an attorney with
extensive experience in real estate activities ventures.
EPK, Inc. is a Delaware corporation formed for the
purpose of managing properties or interests therein. EPK, Inc. is a
wholly-owned subsidiary of D, LTD, an entity formed in 1985 to act as
the holding company for various corporations engaged in the
development and management of historically certified properties and
conventional real estate as well as a provider of financial (non-
banking) services. EPK, Inc. is an affiliate of Diversified.
The officers and directors of EPK, Inc. are described
below.
Spencer Wertheimer was appointed on May 13, 1997 as
President, Treasurer and Sole Director of EPK, Inc. Mr. Wertheimer is
an attorney with extensive experience in real estate activities
ventures.
Donna M. Zanghi (age 40) was appointed on May 13, 1997 as
Vice President and Secretary of EPK, Inc. Ms. Zanghi previously
served as Secretary and Treasurer of DHP, Inc. since June 14, 1993
and as a Director and Secretary/Treasurer of D, LTD. She was
associated with DHP, Inc. and its affiliates since 1984 except for the
period from December 1986 to June 1989 and the period from November 1,
1992 to June 14, 1993.
Michele F. Rudoi (age 32) was appointed on May 13, 1997
as Assistant Secretary of EPK, Inc. Ms. Rudoi previously served as
Assistant Secretary and Director of both D, LTD and DHP, Inc. since
January 27, 1993.
Item 11. Executive Compensation
a. Cash Compensation - During 1997, Registrant has
paid no cash compensation to DHA, any partner therein or any person
named in paragraph c. of Item 10.
b. Compensation Pursuant to Plans - Registrant has no
plan pursuant to which compensation was paid or distributed during
1997, or is proposed to be paid or distributed in the future, to DHA,
any partner therein, or any person named in paragraph c. of Item 10 of
this report.
c. Other Compensation - No compensation not referred
to in paragraph a. or paragraph b. of this Item was paid or
distributed during 1997 to DHA, any partner therein, or any person
named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no
directors.
e. Termination of Employment and Change of Control
Arrangement - Registrant has no compensatory plan or arrangement, with
respect to any individual, which results or will result from the
resignation or retirement of any individual, or any termination of
such individual's employment with Registrant or from a change in
control of Registrant or a change in such individual's
responsibilities following such a change in control.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a. Security Ownership of Certain Beneficial Owners -
No person is known to Registrant to be the beneficial owner of more
than five percent of the issued and outstanding Units.
b. Security Ownership of Management - No equity
securities of Registrant are beneficially owned by any person named in
paragraph c. of Item 10.
c. Changes in Control - Registrant does not know of
any arrangement, the operation of which may at a subsequent date
result in a change in control of Registrant.
Item 13. Certain Relationships and Related Transactions
Pursuant to Registrant's Amended and Restated Agreement
of Limited Partnership, DHA is entitled to 10% of Registrant's
distributable cash from operations in each year. There was no such
share allocable to DHA for fiscal years 1995 through 1997.
a. Certain Business Relationships - Registrant has no
directors.
b. Indebtedness of Management - No executive officer
or significant employee of Registrant, Registrant's general partner
(or any employee thereof), or any affiliate of any such person, is or
has at any time been indebted to Registrant.
<PAGE>
PART IV
Item 14. (A) Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1997
and 1996.
b. Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995.
c. Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 1997, 1996
and 1995.
d. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995.
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI - Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(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 of this
Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the
quarter ended December 31, 1997.
(c) Exhibits:
See Item 14(A)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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.
DIVERSIFIED HISTORIC INVESTORS
Date: April 15, 1998 By: Diversified Historic Advisors, General Partner
--------------
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
-----------------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi
-----------------------
MICHELE F. RUDOI,
Assistant Secretary
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of Registrant and in the capacities and on the dates
indicated.
Signature Capacity Date
DIVERSIFIED HISTORIC ADVISORS General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer April 15, 1998
----------------------- --------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi April 15, 1998
---------------------- --------------
MICHELE F. RUDOI,
Assistant Secretary
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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