UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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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
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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
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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
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 2000 (unaudited)
and December 31, 1999
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
At June 30, 2000, Registrant had cash of
approximately $7,100. Cash generated from operations is used
primarily to fund operating expenses and debt service. If cash
flow proves to be insufficient, the Registrant will attempt to
negotiate with the various lenders in order to remain current on
all obligations. The Registrant is not aware of any additional
sources of liquidity.
As of June 30, 2000, Registrant had restricted cash
of $55,065 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 cash-
flow mortgages, requiring all available cash after payment of
operating expenses to be paid to the first mortgage holder.
Therefore it is unlikely that any cash will be available to the
Registrant to pay its general and administrative expenses, to pay
debt service on the past-due subordinate mortgage with respect to
the Third Quarter or to pay any debt service on the two accrual
mortgages with respect to Wistar Alley.
It is the Registrant's intention to continue to hold
the properties until they can no longer meet the debt service
requirements (or with respect to the Third Quarter and Wistar
Alley, the lender seeks payment on the past due mortgage) and the
properties are foreclosed, or the market value of the properties
increases to a point where they can be sold at a price which is
sufficient to repay the underlying indebtedness.
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 its
financial statements on a going concern basis.
(2) Capital Resources
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 second quarter of 2000, Registrant
recognized net income of $213,721 ($18.23 per limited partnership
unit) compared to a net income of $303,094 ($25.85 per limited
partnership unit) for the same period in 1999. For the first six
months of 2000, the Registrant recognized income of $282,958
($24.13 per limited partnership unit) compared to a net loss of
$86,224 ($7.36 per limited partnership unit) for the same period
in 1999.
Rental income decreased $718 from $122,578 in the
second quarter of 1999 to $121,860 in the same period in 2000.
The decrease resulted from the sale of condominium units at
Smythe Stores combined with a decrease in average occupancy at
Wistar Alley (96% to 93%), partially offset by an increase in
rental income at Third Quarter Apartments due to an increase in
average occupancy (96% to 98%).
Rental income decreased $6,876 from $248,582 for the
first six months of 1999 to $241,706 for the same period in 2000.
The decrease in rental income is due to the sale of two
condominium units at Smythe Stores, partially offset by an
increase in rental income at Third Quarter Apartments due to an
increase in average occupancy (95% to 99%).
Expenses for rental operations increased by $44,120
from $63,082 in the second quarter of 1999 to $107,202 in the
same period in 2000. The increase in rental operations expense
for the second quarter of 2000 is due to an increase in
maintenance expense at Third Quarter Apartments combined with an
increase in maintenance and commissions expense at Wistar Alley.
Maintenance expense increased at Third Quarter Apartments due to
painting and plumbing repairs. The increase in maintenance and
commissions expense at Wistar Alley is the result of the
preparation and leasing of apartment units due to increased
turnover due to the decrease in occupancy (96% to 93%).
Expenses for rental operations increased by $52,334
from $172,040 for the first six months of 1999 to $224,374 for
the same period in 2000. The increase in rental operations
expense for the first six months of 2000 as compared to the same
period in 1999 is due to an increase in maintenance expense at
Smythe Stores, Third Quarter Apartments and Wistar Alley,
combined with an increase in commissions expense at Wistar Alley.
Maintenance expense increased at Smythe Stores as a result of
preparing for sale the two condominium units sold during the
first six months. At Third Quarter Apartments, the maintenance
expense increased due to painting and plumbing repairs. The
increase in maintenance and commissions expense at Wistar Alley
is the result of the preparation and leasing of apartment units
due to increased turnover due to the decrease in occupancy (96%
to 93%).
Interest expense decreased $28,611 from $147,352 in
the second quarter of 1999 to $118,741 in the same period in 2000
and decreased by $78,640 from $305,760 for the first six months
of 1999 to $227,120 for the same period in 2000. The decrease in
interest expense is due to the sale of condominium units at
Smythe Stores, the net proceeds of which were used to pay down
the first mortgage.
Income recognized during the second quarter at the
Registrant's properties was approximately $240,000, compared to
income of approximately $329,000 for the same period in 1999.
For the first six months of 2000, the Registrant's properties
recognized income of approximately $336,000 compared to income of
approximately $139,000 for the same period in 1999.
In the second quarter of 2000, Registrant recognized
income of $309,000 at the Smythe Stores Condominium complex
including $19,000 of depreciation expense, compared to income of
$385,000 in the second quarter of 1999, including $18,000 of
depreciation expense. Included in income in the second quarter
of 2000 is a gain of $100,305 related to the sale of a
condominium unit compared to $51,956 for the same period in 1999.
An extraordinary gain of $293,501 for the second quarter of 2000
compared to $414,962 for the same period in 1999 was recognized
for the extinguishment of debt related to those sales. The
extraordinary gain represents the excess of the debt extinguished
by the sales of the condominium units over the fair market value
of the units. Overall, exclusive of the gain, the property would
have recognized a loss of $83,000 for the second quarter of 2000
compared to a loss of $82,000 for the second quarter of 1999.
The increase in loss during the second quarter is the result of a
decrease in rental income partially offset by a decrease in
interest expense. Rental income decreased due to the sale of
condominium units. The decrease in interest expense is due to
the sale of condominium units, the net proceeds of which were
used to pay down the first mortgage.
In the first six months of 2000, Registrant
recognized income of $507,000 including $38,000 of depreciation
expense, compared to income of $294,000 for the same period in
1999, including $37,000 of depreciation expense. Included in
income in the first six months of 2000 is a gain of $139,633
related to the sale of two condominium units compared to a gain
of $51,956 related to the sale of one condominium unit which was
included in income for the first six months of 1999. An
extraordinary gain of $504,638 for the first six months of 2000
compared to $414,962 for the same period in 1999 was recognized
for the extinguishment of debt related to those sales. The
extraordinary gain represents the excess of the debt extinguished
by the sales of the condominium units over the fair market value
of the units. Overall, exclusive of the gain, the property would
have recognized a loss of $135,000 for the first six months of
2000 compared to a loss of $173,000 for the same period in 1999.
The decrease in loss for the first six months is a result of a
decrease in interest and condominium fee expenses partially
offset by a decrease in rental income and an increase in
maintenance expense all due to the sale of condominium units.
In the second quarter of 2000, Registrant incurred a
loss of $35,000 at Third Quarter Apartments, including $18,000 of
depreciation expense, compared to a loss of $36,000 including
$18,000 of depreciation expense in the second quarter of 1999.
The decrease in the loss is the result of an increase in rental
income due to an increase in average occupancy (96% to 98%). For
the first six months of 2000, Registrant incurred a loss of
$85,000, including $36,000 of depreciation expense, compared to a
loss of $91,000 for the same period of 1999, including $36,000 of
depreciation expense. The decrease in the loss is the result of
an increase in rental income due to an increase in average
occupancy (95% to 99%).
In the second quarter of 2000, Registrant incurred a
loss of $33,000 at Wistar Alley, including $22,000 of
depreciation expense, compared to a loss of $20,000, including
$22,000 of depreciation expense, in the second quarter of 1999.
For the first six months of 2000, Registrant incurred a loss of
$86,000, including $44,000 of depreciation expense, compared to a
loss of $64,000, including $44,000 of depreciation expense, for
the same period in 1999. The increase in the loss for both the
second quarter and the first six months is due to an increase in
maintenance and commissions expense as a result of the
preparation and leasing of apartment units due to increased
turnover resulting from a decrease in average occupancy for the
first six months of 2000 (96% to 93%).
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
June 30, 2000 December 31, 1999
(Unaudited)
Rental properties, at cost:
Land $ 301,483 $ 305,223
Buildings and improvements 4,708,084 5,113,269
Furniture and fixtures 120,821 127,333
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5,130,388 5,545,825
Less - accumulated depreication (2,927,732) (3,158,976)
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2,202,656 2,386,849
Cash and cash equivalents 7,100 11,813
Restricted cash 55,065 74,163
Accounts receivable 7,858 16,969
Other assets(net of
amortization of $30,510) 6,033 1,623
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Total $2,278,712 $2,491,417
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $3,882,467 $4,586,076
Accounts payable:
Trade 661,496 596,181
Related parties 454,610 436,357
Interest payable 1,975,013 1,863,947
Tenant security deposits 43,683 38,318
Other liabilities 16,568 8,619
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Total liabilities 7,033,837 7,529,498
Partners' deficit (4,755,125) (5,038,081)
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Total $2,278,712 $2,491,417
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The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Six months
ended June 30, ended June 30,
2000 1999 2000 1999
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Revenues:
Rental income $121,860 $122,578 $241,706 $248,582
Gain on sale of
units 100,305 51,956 139,633 51,956
Interest income 164 173 919 807
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Total revenues 222,329 174,707 382,258 301,345
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Costs and expenses:
Rental operations 107,202 63,082 224,374 172,040
General and
administrative 17,460 17,460 34,920 34,920
Interest 118,741 147,352 227,120 305,760
Depreciation
and amortization 58,706 58,681 117,524 117,363
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Total costs and
expenses 302,109 286,575 603,938 630,083
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Loss before
extraordinary item ($79,780) ($111,868) ($221,680) ($328,738)
Extraordinary gain
from extinguishment
of debt 293,501 414,962 504,638 414,962
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Net income $213,721 $303,094 $282,958 $ 86,224
======== ======== ======== ========
Net income (loss)
per limited
partnership unit:
Loss before
extraordinary item ($ 6.80) ($ 9.54) ($ 18.90) ($ 28.03)
Extraordinary gain 25.03 35.39 43.03 35.39
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$ 18.23 $ 25.85 $ 24.13 $ 7.36
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
2000 1999
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Cash flows from operating activities:
Net income $282,958 $ 86,224
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Gain on sale of units (139,633) (51,956)
Extraordinary gain on extinguishment of debt (504,638) (414,962)
Depreciation and amortization 117,524 117,363
Changes in assets and liabilities:
Decrease in restricted cash 19,098 15,036
Decrease in accounts receivable 9,111 3,742
Increase in other assets (4,410) 0
Increase in accounts payable - trade 65,314 61,150
Increase in accounts payable -
related parties 18,253 18,253
Increase in interest payable 111,064 164,231
Increase in accrued liabilities 7,949 531
Increase in tenant security deposits 5,365 950
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Net cash (used in) provided by
operating activities (12,045) 562
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Cash flows from investing activities:
Proceeds from sale of units 710,941 555,880
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Net cash provided by investing activities 710,941 555,880
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Cash flows from financing activities:
Repayment of debt (710,941) (555,880)
Borrowings under debt obligations 7,332 0
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Net cash used in financing activities (703,609) (555,880)
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(Decrease) increase in cash and cash
equivalents (4,713) 562
Cash and cash equivalents at
beginning of period 11,813 12,884
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Cash and cash equivalents at end of period $ 7,100 $ 13,446
======== ========
The accompaying 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 of the
Registrant for the year ended December 31, 1999.
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 a party
to, nor is any of its property the subject of, any pending
material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by
this report to a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibit Number Document
3 Registrant's Amended and
Restated Certificate of Limited
Partnership and Agreement of
Limited Partnership, previously
filed as part of Amendment No.
2 of Registrant's Registration
Statement on Form S-11, are
incorporated herein by
reference.
21 Subsidiaries of the Registrant
are listed in Item 2.
Properties on Form 10-K,
previously filed and
incorporated herein by
reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
ended June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: November 20, 2000 DIVERSIFIED HISTORIC INVESTORS
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By: Diversified Historic Advisors,
General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
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SPENCER WERTHEIMER
President and Treasurer
<PAGE>
