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, 1998
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________
Commission file number 0-14934
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DIVERSIFIED HISTORIC INVESTORS
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2312037
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1609 Walnut Street, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - September 30, 1998
(unaudited) and December 31, 1997
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended
September 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 September 30, 1998, Registrant had cash of
approximately $12,146. 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, 1998, Registrant had
restricted cash of $72,972 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 lenders on the past due subordinate mortgages seek payment) 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.
(3) Results of Operations
During the third quarter of 1998, Registrant
incurred a net loss of $159,263 ($13.58 per limited partnership unit)
compared to a net loss of $181,338 ($15.46 per limited partnership
unit) for the same period in 1997. For the first nine months of 1998,
the Registrant incurred a net loss of $554,666 ($47.30 per limited
partnership unit) compared to a net loss of $613,427 ($52.31 per
limited partnership unit) for the same period in 1997.
Rental income increased $16,546 from $108,786 in
the third quarter of 1997 to $125,332 in the same period in 1998. The
increase resulted from increases in rental income at Wistar Alley,
Third Quarter and Smythe Stores due to increases in the average
occupancy and increases in the average rental rates at Third Quarter
and Wistar Alley.
Rental income increased $44,654 from $317,323 for
the first nine months of 1997 to $361,977 for the same period in 1998.
The increase resulted from increases in rental income at Wistar Alley,
Third Quarter and Smythe Stores due to increases in the average
occupancy and increases in the average rental rates.
Expense for rental operations decreased by $3,698
from $53,916 in the third quarter of 1997 to $50,218 in the same
period in 1998. The decrease in the loss from the third quarter of
1997 to the same period in 1998 is due to a decrease in commissions
expense at Wistar Alley due to a lower turnover of apartment units
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.
Expense for rental operations decreased by $16,831
from $230,545 for the first nine months of 1997 to $213,714 for the
same period in 1998. The decrease in the expense from the first nine
months 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 (which was not repeated in 1998) 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. The
decrease was also the result of a decrease in commissions expense at
Wistar Alley due to a lower turnover of apartment units.
Losses incurred during the third quarter at the
Registrant's properties amounted to $133,000, compared to a loss of
approximately $153,000 for the same period in 1997. For the first
nine months of 1998 the Registrant's properties incurred a loss of
$476,000 compared to approximately $530,000 for the same period in
1997.
In the third quarter of 1998, Registrant incurred
a loss of $84,000 at the Smythe Stores Condominium complex including
$18,000 of depreciation expense, compared to a loss of $84,000 in the
third quarter of 1997, including $18,000 of depreciation expense.
Although there was no overall change in the loss from the third
quarter of 1997 to the same period in 1998, there was in an increase
in rental income due to an increase in the average occupancy (89% to
97%) partially offset by an increase in maintenance expense due to a
higher turnover of apartments units in 1998.
For the first nine months of 1998, Registrant incurred
a loss of $270,000 at the Smythe Stores Condominium complex including
$55,000 of depreciation expense, compared to a loss of $285,000 for
the same period in 1997, including $55,000 of depreciation expense.
The decrease in the loss for the first nine months of 1997 to the same
periods in 1998 is the result of 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 1997 for capital
improvements to the building and maintenance expense increased due to
a higher turnover of apartments units in the first nine months of
1998.
In the third quarter of 1998, Registrant incurred
a loss of $33,000 at Third Quarter Apartments, including $18,000 of
depreciation expense, compared to a loss of $39,000 including $18,000
of depreciation expense in the third quarter of 1997 and for the first
nine months of 1998, Registrant incurred a loss of $126,000, including
$54,000 of depreciation expense, compared to a loss of $130,000 for
the same period in 1997, including $54,000 of depreciation expense.
The decrease in the loss for both the third quarter and the first nine
months of 1997 to the same periods in 1998 is the result of an
increase in rental income partially offset by an increase in
maintenance expense due to a higher turnover of apartment units.
Rental income increased due to an increase in the average occupancy
(82% to 92%) for the third quarter and (82% to 95%) for the first nine
months combined with an increase in the average rental rates.
In the third quarter of 1998, Registrant incurred
a loss of $16,000 at Wistar Alley, including $22,000 of depreciation
expense, compared to a loss of $30,000 including $21,000 of
depreciation expense in the third quarter of 1997 and for the first
nine months of 1998, Registrant incurred a loss of $80,000, including
$66,000 of depreciation expense, compared to a loss of $115,000
including $64,000 of depreciation expense for the same period in 1997.
The decrease in the loss for both the third quarter and the first nine
months of 1997 to the same periods in 1998 is the result of an
increase in rental income due to an increase in the average occupancy
(85% to 96%) for the third quarter and (87% to 95%) for the first nine
months and an increase in the average rental rates combined with a
decrease in commissions expense due to a lower turnover of apartment
units.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 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 (3,230,937) (3,056,549)
--------- ---------
2,929,274 3,103,661
Cash and cash equivalents 12,146 710
Restricted cash 72,972 68,887
Accounts receivable 15,907 12,469
Other assets (net of amortization of
$30,510 at September 30, 1998 and December
31, 1997) 0 0
--------- ---------
Total $3,030,299 $3,185,727
========= =========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $5,877,928 $5,877,215
Accounts payable:
Trade 468,730 373,122
Related parties 390,270 362,739
Interest payable 1,493,000 1,230,141
Tenant security deposits 41,893 37,948
Other liabilities 11,119 2,537
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Total liabilities 8,282,940 7,883,702
--------- ---------
Partners' equity (5,252,641) (4,697,975)
--------- ---------
Total $3,030,299 $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 Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Three months Nine months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Rental income $125,332 $108,786 $361,977 $317,323
Interest income 220 182 924 414
------- ------- ------- -------
Total revenues 125,552 108,968 362,901 317,737
------- ------- ------- -------
Costs and expenses:
Rental operations 50,218 53,916 213,714 230,545
General and administrative 17,460 17,460 52,380 52,380
Interest 159,008 161,720 477,085 476,608
Depreciation and
Amortization 58,129 57,210 174,388 171,631
------- ------- ------- -------
Total costs and expenses 284,815 290,306 917,567 931,164
------- ------- ------- -------
Net loss ($159,263) ($181,338) ($554,666) ($613,427)
======= ======= ======= =======
Net loss per limited
partnership unit ($ 13.58) ($ 15.46) ($ 47.30) ($ 52.31)
======= ======= ======= =======
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, 1998 and 1997
(Unaudited)
Nine months ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss ($554,666) ($613,427)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 174,388 171,631
Changes in assets and liabilities:
(Increase) decrease in restricted cash (4,085) 10,370
(Increase) decrease in accounts receivable (3,438) 45,842
Increase in accounts payable - trade 95,607 77,509
Increase in accounts payable - related parties 27,531 29,821
Increase in interest payable 262,859 258,138
Increase in accrued liabilities 8,582 376
Increase in tenant security deposits 3,945 1,516
------- -------
Net cash provided by (used in) operating activities 10,723 (18,224)
------- -------
Cash flows from investing activities:
Capital expenditures 0 (18,030)
------- -------
Net cash used in investing activities 0 (18,030)
------- -------
Cash flows from financing activities:
Proceeds from debt financing 713 36,364
------- -------
Net cash provided by financing activities 713 36,364
------- -------
Increase in cash and cash equivalents 11,436 110
Cash and cash equivalents at beginning of period 710 4,017
------- -------
Cash and cash equivalents at end of period $ 12,146 $ 4,127
======= =======
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 September 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: November 30, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,146
<SECURITIES> 0
<RECEIVABLES> 15,907
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,160,211
<DEPRECIATION> 3,230,937
<TOTAL-ASSETS> 3,030,299
<CURRENT-LIABILITIES> 859,000
<BONDS> 5,877,928
0
0
<COMMON> 0
<OTHER-SE> (5,252,641)
<TOTAL-LIABILITY-AND-EQUITY> 3,030,299
<SALES> 361,977
<TOTAL-REVENUES> 362,901
<CGS> 213,714
<TOTAL-COSTS> 213,714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477,085
<INCOME-PRETAX> (554,666)
<INCOME-TAX> 0
<INCOME-CONTINUING> (554,666)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (554,666)
<EPS-PRIMARY> (47.30)
<EPS-DILUTED> 0
</TABLE>
