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, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________
Commission file number 0-14934
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DIVERSIFIED HISTORIC INVESTORS
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2312037
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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, 1999 (unaudited) and
December 31, 1998
Consolidated Statements of Operations - Three Months and Nine
Months Ended September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended September
30, 1999 and 1998 (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, 1999, Registrant had cash of approximately
$10,467. 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, 1999, Registrant had restricted cash
of $70,260 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.
(3) Results of Operations
During the third quarter of 1999, Registrant incurred a net loss
of $135,695 ($11.57 limited partnership unit) compared to a net loss of
$159,263 ($13.58 per limited partnership unit) for the same period in 1998.
For the first nine months of 1999, the Registrant incurred a net loss of
$49,470 ($4.21 per limited partnership unit) compared to a net loss of
$554,666 ($47.30 per limited partnership unit) for the same period in
1998. Included in the loss for the first nine months of 1999 is a gain
of $466,918 relating to the sale of one condominium unit at Smythe Stores
in July 1999.
Rental income decreased $2,352 from $125,332 in the third
quarter of 1998 to $122,980 in the same period in 1999. The decrease
resulted from the sale of one condominium unit at Smythe Stores
partially offset by an increase at Third Quarter due to an increase in the
average occupancy (95% to 99%).
Rental income increased $9,585 from $361,977 for the first
nine months of 1998 to $371,562 for the same period in 1999. The increase
resulted from increases in average rental rates at both Third Quarter
and Wistar Alley and an increase in the average occupancy at Third
Quarter (92% to 96%) partially offset by a decrease at Smythe Stores due to
the sale of the condominium unit.
Expenses for rental operations decreased by $1,272 from $49,897
in the third quarter of 1998 to $48,625 in the same period in 1999 and
increased by $6,952 from $213,714 for the first nine months of 1998 to
$220,666 for the same period in 1999. The increase in the expense from the
first nine months of 1998 to the same period in 1999 is due to an increase in
commissions expense at Third Quarter and an increase in maintenance
expense at Wistar Alley due to increases in the turnover of apartment units.
Interest expense decreased $24,725 from $159,008 in the
third quarter of 1998 to $134,283 in the same period in 1999 and decreased
$37,042 from $477,085 for the first nine months of 1998 to $440,043 for the
same period in 1999. The decrease in interest expense is due to the
sale of the condominium unit at Smythe Stores and consequent reduction of
outstanding debt.
Losses incurred during the third quarter at the Registrant's
properties amounted to $109,000, compared to a loss of approximately $132,000
for the same period in 1998. For the first nine months of 1999 the Registrant's
properties recognized income of $31,000 compared to a loss of approximately
$476,000 for the same period in 1998.
In the third quarter of 1999, Registrant incurred a loss of
$65,000 at the Smythe Stores Condominium complex including $19,000 of
depreciation expense, compared to a loss of $84,000 in the third quarter
of 1998, including $18,000 of depreciation expense and for the first
nine months of 1999, Registrant recognized income of $229,000 including
$56,000 depreciation expense, compared to a loss of $270,000 for the same
period in 1998, including $55,000 of depreciation expense. Included in
income in the first nine months of 1999 is a gain of $467,000 related to
the sale of a condominium unit. Overall, exclusive of the gain the
property would have recognized a loss of $238,000 for the first nine
months of 1999 compared to a loss of $270,000 for the same period in 1998.
The decrease in the loss for both the third quarter and the first nine
months of 1998 to the same periods in 1999 is a result of a decrease in
interest expense partially offset by a decrease in rental income due
to the sale of the condominium unit.
In the third quarter of 1999, Registrant incurred a loss
of $27,000 at Third Quarter Apartments, including $18,000 of depreciation
expense, compared to a loss of $33,000 including $18,000 of depreciation
expense in the third quarter of 1998 and for the first nine months of 1999,
Registrant incurred a loss of $118,000, including $54,000 of depreciation
expense, compared to a loss of $126,000 for the same period in 1998,
including $54,000 of depreciation expense. The decrease in the loss for
both the third quarter and the first nine months of 1998 to the same periods
in 1999 is the result of an increase in rental income partially offset
by an increase in commissions expense due to an increase in the turnover of
apartment units. Rental income increased due to an increase in the average
occupancy (95% to 99%) for the third quarter and (92% to 96%) for the first
nine months combined with an increase in the average rental rates.
In the third quarter of 1999, Registrant incurred a loss of
$17,000 at Wistar Alley, including $22,000 of depreciation expense,
compared to a loss of $15,000 including $22,000 of depreciation expense
in the third quarter of 1998. The increase in the loss from the third
quarter 1998 to the same period in 1999 is the result of an increase in
maintenance expense due to an increase in the turnover of apartment units.
For the first nine months of 1999, Registrant incurred a loss of
$80,000 at Wistar Alley, including $66,000 of depreciation expense, compared
to a loss of $80,000 including $66,000 of depreciation expense for the
same period in 1998. Although there was no overall change from the first
nine months of 1998 to the same period in 1999, there was an increase in
rental income due to an increase in the average rental rates partially
offset by an increase in maintenance expense due to an increase in the
turnover of apartment units.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
Rental properties, at cost:
Land $ 308,963 $ 310,833
Buildings and improvements 5,518,456 5,721,049
Furniture and fixtures 135,121 139,377
--------- ---------
5,962,540 6,171,259
Less - Accumulated depreciation (3,346,460) (3,290,172)
--------- ---------
2,616,080 2,881,087
Cash and cash equivalents 10,467 12,884
Restricted cash 70,260 73,440
Accounts receivable 15,873 16,782
Other assets (net of amortization
of $30,510 at September 30,
1999 and December 31, 1998) 1,623 0
--------- ---------
Total $2,714,303 $2,984,193
========= =========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $5,329,658 $5,879,538
Accounts payable:
Trade 582,130 507,524
Related parties 427,079 399,548
Interest payable 1,806,196 1,573,798
Tenant security deposits 43,653 43,998
Other liabilities 9,613 14,343
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Total liabilities 8,198,329 8,418,749
--------- ---------
Partners' equity (5,484,026) (5,434,556)
--------- ---------
Total $2,714,303 $2,984,193
========= =========
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, 1999 and 1998
(Unaudited)
Three months Nine months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Revenues:
Rental income $122,980 $125,332 $371,562 $361,977
Interest income 375 220 1,182 924
Gain on sale of units 0 0 466,918 0
------- ------- ------- -------
Total revenues 123,355 125,552 839,662 362,901
------- ------- ------- -------
Costs and expenses:
Rental operations 48,625 50,218 220,664 213,714
General and 17,460 17,460 52,380 52,380
administrative
Interest 134,283 159,008 440,043 477,085
Depreciation and
amortization 58,682 58,129 176,045 174,388
------- ------- ------- -------
Total costs and 259,050 284,815 889,132 917,567
expenses ------- ------- ------- -------
Net loss ($135,695) ($159,263) ($ 49,470) ($554,666)
======= ======= ======= =======
Net loss per limited
Partnership unit ($ 11.57) ($ 13.58) ($ 4.21) ($ 47.30)
======= ======= ======= =======
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, 1999 and 1998
(Unaudited)
Nine months ended
September 30,
1999 1998
Cash flows from operating activities:
Net loss ($ 49,470) ($554,666)
Gain from sale of unit (466,918) 0
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization 176,045 174,388
Changes in assets and liabilities:
Decrease (increase) in restricted cash 3,180 (4,085)
Decrease (increase) in accounts receivable 909 (3,438)
Increase in other assets (1,623) 0
Increase in accounts payable - trade 74,604 95,607
Increase in accounts payable - 27,531 27,531
related parties
Increase in interest payable 232,398 262,859
(Decrease) increase in accrued liabilities (4,728) 8,582
(Decrease) increase in tenant (345) 3,945
security deposits
------- -------
Net cash (used in) provided by operating (8,417) 10,723
activities ------- -------
Cash flows from investing activities:
Capital expenditures 0 0
------- -------
Net cash used in investing activities 0 0
------- -------
Cash flows from financing activities:
Proceeds from debt financing 6,000 713
------- -------
Net cash provided by financing activities 6,000 713
------- -------
(Decrease) increase in cash and cash (2,417) 11,436
equivalents
Cash and cash equivalents at beginning 12,884 710
of period ------- -------
Cash and cash equivalents at end of period $ 10,467 $ 12,146
======= =======
The accompanying notes are an intergral 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,
1998.
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, 1999.
<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: December 7, 1999 DIVERSIFIED HISTORIC INVESTORS
----------------
By: Diversified Historic Advisors, General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
-----------------------
SPENCER WERTHEIMER
President and Treasurer
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,467
<SECURITIES> 0
<RECEIVABLES> 15,873
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,962,540
<DEPRECIATION> 3,346,460
<TOTAL-ASSETS> 2,714,303
<CURRENT-LIABILITIES> 582,130
<BONDS> 5,329,658
0
0
<COMMON> 0
<OTHER-SE> (5,484,026)
<TOTAL-LIABILITY-AND-EQUITY> 2,714,303
<SALES> 0
<TOTAL-REVENUES> 371,562
<CGS> 0
<TOTAL-COSTS> 220,664
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440,043
<INCOME-PRETAX> (49,470)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,470)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,470)
<EPS-BASIC> 0
<EPS-DILUTED> (4.21)
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