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
For the fiscal year ended December 31, 1999
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[ ] 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 0-14645
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DIVERSIFIED HISTORIC INVESTORS II
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2361261
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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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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: 20,593.3 Units
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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
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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. [X]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
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* 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 II ("Registrant") is a
limited partnership formed in 1984 under Pennsylvania law. As of
December 31, 1999, Registrant had outstanding 20,593.3 units of
limited partnership interest (the "Units").
Registrant is presently in its operating stage. It
originally owned four properties or interests therein. Its
interest in one property has been lost through foreclosure. It
currently owns three properties or interests therein. See Item
2. Properties, for a description thereof. 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"), or which are eligible for designation as such, 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. Two of the properties are held for rental
operations and one is operated as a hotel. As of the date hereof
it is anticipated that all the properties will continue to be
held for these purposes. 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, 1999, Registrant owned three
properties (or interests therein), one each located in
Pennsylvania, Maryland, and Georgia. In total, the three
properties contain 269 apartment units, 73,366 square feet ("sf")
of commercial/retail space and 44 hotel rooms. As of December
31, 1999, 263 of the apartment units were under lease at monthly
rental rates ranging from $677 to $1,815 and approximately 65,696
sf of commercial space was under lease at annual rental rates
ranging from $5.33 per sf to $26.83 per sf. Throughout 1999, all
of the hotel rooms were available for use. During 1999, the
hotel maintained an average nightly room rate of $126.45 and
average occupancy of 66%. Rental of the apartments and
commercial space is not expected to be seasonal. However, the
hotel does experience seasonal changes, with the busiest months
being February, March and April and the slowest months being
August and December. 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 industry. As a result of the overbuilding that
occurred in the 1980's, the competition in the local markets
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. One residential property is located in the
suburbs of Philadelphia and the other is located in the Historic
District of the Inner Harbor in Baltimore. In both locations the
competition for tenants remains stiff and several similar
buildings exist. The apartment market remains stable and new
construction remains virtually nonexistent although the
availability of favorable home financing has placed pressure on
the rental tenant base.
The hotel is located in Savannah, Georgia and is one
of several historic buildings which have been converted into
hotels and inns. The hotel relies heavily on the tourist trade
which is on the upswing in Savannah. The hotel is generally
considered to be a market leader, due to its location on River
Street, the main shopping and entertainment area on the river,
and the fact that it provides a full array of hotel amenities,
not just a bed and breakfast atmosphere.
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, 1999 is given below.
a. Tindeco Wharf - consists of 240 apartment units and
approximately 41,307 sf of commercial space located at 2809
Boston Street in the Fell's Point-Canton Historic District of
Baltimore, Maryland. In October 1985, Registrant was admitted
with an 85% interest, to Tindeco Wharf Partnership ("TWP"), a
Maryland general partnership, for a cash contribution of
$7,271,300. Registrant subsequently increased its ownership
interest in TWP to 90% by purchasing an additional 5% interest
for $262,500. TWP acquired and rehabilitated this Property at an
approximate cost of $28,600,000 ($66 per sf), funded by the
equity contribution and mortgage financing of $21,869,600. The
mortgage financing is comprised of mortgage revenue bonds and a
Urban Development Action Grant ("UDAG") loan. Other financing
includes a loan from the developer of $2,300,000 and operating
deficit loans from both the property manager and D, LTD in the
original principal amounts of $300,000 and $200,000 respectively.
The operating deficit loans were repaid during 1999. The excess
of equity and mortgage financing over the acquisition and
rehabilitation costs was utilized to provide various escrow
deposits and required reserves.
The City of Baltimore issued mortgage revenue
refunding bonds, Series 1992, (GNMA collateralized) for the
purpose of providing permanent financing for TWP. The bonds are
backed by a HUD-insured mortgage ("the note"). The note, held by
GNMA as lender, bears interest at a rate of 9.75% per annum and
is secured by a first mortgage on the property. Principal and
interest is payable in monthly installments of $143,801. The
note matures December 2028. The refunding issue bears interest
at an average rate of 6.62%. The difference in the interest on
the mortgage and the refunding bonds is returned to TWP for
operations.
The principal balance of the bonds was $16,639,455
at December 31, 1999. The bonds are comprised of both serial and
term bonds. The serial bonds bear interest at rates ranging from
4.6% to 6.1% and mature semi-annually from June 1999 through
December 2006. The term bonds bear interest at rates ranging
from 6.5% to 6.7% and mature in 2012, 2024, and 2028. The UDAG
loan (which has a balance of $4,953,471 at December 31, 1999)
bore interest at 4% through August 1994 and at 7 1/2% thereafter.
This loan is due in 2004. The developer's loan (principal
balance of $2,300,000 at December 31, 1999) bears interest at 12%
and are payable on a pro-rata basis out of cash flow from the
property. The developer's loan is due in 2005, or upon earlier
sale or refinancing of the property.
The property is managed by BCMI. As of December 31,
1999, 229 apartment units (96%) and 40,852 sf of commercial space
(98%) were under lease. Monthly rental rates range from $810 to
$1,815 for apartments and annual rental rates range from $5.33 to
$20.55 per sf for commercial space. All residential leases are
renewable, one-year leases. The occupancy for the residential
units for the previous four years was 98% for 1998, 98% for 1997,
95% for 1996, and 97% for 1995. The monthly rental range has
been approximately the same since 1995. The occupancy for the
commercial space for the previous four years has been 97% for
1998, 100% for 1997, 100% for 1996, and 85% for 1995. The range
for annual rents has been $5.33 to $25.34 per sf for 1998, $5.33
to $19.47 per sf for 1997, $5.33 to $19.47 per sf for 1996, $5.33
to $18.54 per sf for 1995. There are four tenants who each
occupy ten percent or more of the commercial rentable square
footage. They operate principally as a medical office, a
restaurant, a fitness club and a travel agency.
The following is a table showing commercial lease
expirations at Tindeco Wharf for the next five years.
Total annual
Number of Total sf of rental covered % of gross
leases expiring by expiring annual rental
Year expiring leases leases from property
------ --------- ----------- ------------ -------------
2000 2 5,619 63,338 2%
2001 2 6,139 35,783 1%
2002 1 1,944 26,730 1%
2003 1 5,600 115,061 3%
2004 0 0 0 0%
Thereafter 2 21,550 151,385 4%
For tax purposes, this property has a federal tax
basis of $29,933,217 and is depreciated using the straight-line
method with a useful life of 27.5 years. The annual real estate
taxes are $420,795 which is based on an assessed value of
$17,359,517, taxed at a rate of $6.06 per $100. It is the
opinion of the management of the Registrant that the property is
adequately covered by insurance.
b. River Street Inn/Factor's Walk - consists of 44
hotel rooms and 22,559 sf of commercial space located at 115 E.
River Street in Savannah, Georgia. In August 1985, Registrant
was admitted with a 99% interest in Factor's Walk Partners
("FWP") a Georgia general partnership, for $3,600,409. FWP
acquired and rehabilitated the property for $8,900,409 ($127 per
sf), including financing through an issuance by a governmental
agency of tax-exempt bonds in the principal amount of $5,800,000.
The excess of equity and mortgage financing over the acquisition
and rehabilitation costs was utilized to provide working capital
reserves of $500,000. The bonds bore interest at TENR (a rate
based on yields of high quality, short-term tax exempt
obligations) plus 0.5% until December 30, 1996 and were
guaranteed by a private corporation. On December 30, 1996, both
the bonds and the guarantee were sold. The new holder of the
bonds exercised its right to convert the interest rate from the
variable rate to 14% due to the credit rating of the new
guarantor. The principal balance of the bonds at December 31,
1999 was $6,531,626 and are due on December 31, 2015.
The property is managed by BCMI. As of December 31,
1999, 16,652 sf of the commercial space (74%) was under lease at
annual rental rates ranging from $7.89 to $26.83 per sf. The
property also maintains 44 operating hotel rooms at an average
nightly rate of $126.45; average occupancy for 1999 was
approximately 66%. The hotel occupancy rate for the previous
four years was 75% for 1998, 74% for 1997, 77% for 1996, and 78%
for 1995. The average room rates were $128.06 for 1998, $106.06
for 1997, $100.92 for 1996, $94.54 for 1995 and $90.18 for 1994.
The occupancy for the commercial space was 74% for 1999, 74% for
1998, 96% for 1997, and 97% for 1996. The range for annual rents
was $7.89 to $26.83 per sf for 1999, $7.11 to $26.26 per sf for
1998, $7.11 to $25.82 per sf for 1997, and $5.53 to $25.27 per sf
for 1996. There are two tenants who each occupy ten percent or
more of the rentable square footage. They operate principally as
a restaurant and a retail store.
The following is a table showing commercial lease
expirations at Factor's Walk for the next five years.
Total annual
Number of Total sf of rental covered % of gross
leases expiring by expiring annual rental
Year expiring leases leases from property
------ --------- ----------- ------------ -------------
2000 2 1,820 24,462 7%
2001 4 5,334 48,780 13%
2002 1 400 2,100 <1%
2003 3 2,640 25,373 7%
2004 0 0 0 0%
Thereafter 4 6,458 50,337 14%
For tax purposes, this property has a federal tax
basis of $10,179,661 and is depreciated using the straight-line
method with a useful life of 27.5 years. The annual real estate
taxes are $67,506 which is based on an assessed value of
$3,343,870, taxed at a rate of $3.40 per $100. It is the opinion
of the management of the Registrant that the property is
adequately covered by insurance.
c. Washington Square - consists of 9,500 sf of
commercial space and 29 residential units located at 320 N.
Church Street, West Chester, Pennsylvania. In October 1985,
Registrant acquired and rehabilitated the Property for $2,750,000
($79 per sf; such amount is exclusive of $170,883 of capitalized
fees incurred which were funded by Registrant's equity
contributions), including mortgage financing of $1,600,000. The
mortgage loan (principal balance of $1,081,669 at December 31,
1999) bears interest at the Federal Reserve discount rate plus 2%
with a minimum of 7% and a maximum of 15% (7% at December 31,
1999) and is due in October 2005.
The property is managed by BCMI. As of December 31,
1999, 8,296 sf of commercial space (88%) was rented at annual
rates ranging from $8.00 per sf to $14.00 per sf. At December
31, 1999, 34 of the residential units (95%) were under lease at
monthly rental rates ranging from $677 to $1,125. All
residential leases are renewable, one-year leases. The occupancy
for the residential units for the previous four years was 97% for
1998, 86% for 1997, 100% for 1996, and 97% for 1995. The monthly
rental range has been approximately the same since 1996. The
occupancy for the commercial space for the previous four years
was 83% for 1998, 87% for 1997, 86% for 1996, and 97% for 1995.
The range for annual rents has been $7.56 to 12.60 per sf for
1998, $8.00 to $13.00 per sf for 1997, $6.00 to $13.00 per sf for
1996, and $6.00 to $12.00 per sf for 1995.
The following is a table showing commercial lease
expirations at Washington Square for the next five years.
Total annual
Number of Total sf of rental covered % of gross
leases expiring by expiring annual rental
Year expiring leases leases from property
------ --------- ----------- ------------ -------------
2000 0 0 0 0%
2001 4 8,296 62,902 20%
2002 0 0 0 0%
2003 0 0 0 0%
2004 0 0 0 0%
Thereafter 0 0 0 0%
For tax purposes, this property has a federal tax
basis of $2,945,074 and is depreciated using the straight-line
method with a useful life of 27.5 years. The annual real estate
taxes are $29,059 which is based on an assessed value of $119,610
taxed at a rate of $24.295 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. For a description of legal proceedings involving
Registrant's properties, see Part II, Item 7. River Street
Inn/Factor's Walk Partners.
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 96 Units of
record were sold or exchanged in 1999.
b. As of December 31, 1999, there are 2,563 record
holders of Units.
c. Registrant did not declare any cash dividends in
1999 or 1998.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1999. 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.
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Rental income $ 5,015,476 $ 4,623,527 $ 4,463,462 $ 4,303,963 $ 4,103,099
Hotel revenues 1,384,057 1,582,824 1,282,525 1,282,662 1,230,057
Interest income 23,336 35,575 29,639 18,654 28,988
Net loss (4,292,936) (2,980,282) (3,457,494) (2,262,184) (2,426,416)
Net loss per
Unit (206.38) (143.27) (166.22) (108.75) (116.65)
Total assets
(net of depreci-
ation and
amortization) 25,880,800 26,503,288 27,143,753 28,633,916 29,418,648
Debt
obligations 33,306,221 32,808,014 32,712,165 33,087,679 33,161,299
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Liquidity
At December 31, 1999, Registrant had cash of
$38,110. 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 loan
modifications with the various lenders in order to remain current
on all obligations and to defer administrative costs. The
Registrant is not aware of any additional sources of liquidity.
As of December 31, 1999, Registrant had restricted
cash of $1,508,524 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 one property,
due to the properties' inability to generate sufficient cash flow
to pay their operating expenses and debt service. At the present
time, all three remaining properties are able to pay their
operating expenses and debt service but it is unlikely that any
cash will be available to the Registrant to pay its general and
administrative expenses. In the legal proceeding involving the
Morrison Clark Inn (see "Results of Operations" below in this
Item 7), a property formerly owned by the Registrant, if Capital
Bank executes upon its $1,800,000 judgment with respect to the
Registrant, it is expected to have significant adverse impact on
the Registrant since there is insufficient available cash to pay
the judgment. Any such execution could result in a forced sale
of the Registrant's remaining properties. However, the
Registrant has in the past been able to obtain forbearance on
execution for several years upon payment of a $20,000 fee to the
judgment creditor and believes it may be able to do so when the
current forbearance period ends in July 2000.
It is the Registrant's intention to continue to hold
the properties until they can no longer meet their debt service
requirements 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 (principal plus accrued interest).
(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.
(3) Results of Operations
During 1999, Registrant incurred a net loss of
$4,292,936 ($206.38 per limited partnership unit), compared to a
net loss of $2,980,282 ($143.27 per limited partnership unit), in
1998 and a net loss of $3,457,494 ($166.22 per limited
partnership unit), in 1997.
Rental and hotel income increased from $5,745,987 in
1997 to $6,206,351 in 1998 to $6,399,533 in 1999. The increase
from 1998 to 1999 is due to an increase in residential rental
income at Tindeco Wharf, offset by a decrease at Washington
Square. The increase in rental income at Tindeco Wharf is due to
an increase in average occupancy (64% to 80%). Washington Square
reflected a decrease in rental income due to a decrease in
occupancy rates (97% to 95%). The increase from 1997 to 1998 is
due to an increase in residential rental income at both
Washington Square and Tindeco Wharf due to an increase in the
average rental rates combined with an increase in hotel income
due to an increase in the average nightly rate ($106.06 to
$128.06) at the River Street Inn.
Interest income increased from $29,639 in 1997 to
$35,575 in 1998 and decreased to $23,336 in 1999. The decrease
from 1998 to 1999 is the result of a decrease in the interest
bearing restricted cash balance at Tindeco Wharf. The increase
from 1997 to 1998 resulted from an increase in that balance.
Rental operations expenses decreased from $1,858,158
in 1997 to $1,850,883 in 1998 and increased to $3,389,492 in
1999. The increase in rental operations expenses from 1998 to
1999 is due to an increase in maintenance expense at Washington
Square and Tindeco Wharf. Maintenance expense increased at
Washington Square due to an increase in apartment preparation
expense caused by a higher turnover of apartment units. The
increase in maintenance expense at Tindeco Wharf is due to
planned repairs at the property including roof repairs,
electrical and plumbing repairs, and painting. The decrease from
1997 to 1998 resulted mainly from a decrease in maintenance
expense due to a lower turnover of apartment units in 1998 as
compared to 1997 at Washington Square and a decrease in legal
fees at Tindeco Wharf due to nonrecurring fees incurred in 1997
in connection with a review of the loan documents pertaining to
the financing of the property.
Hotel operations expense increased from $1,385,410
in 1997 to $1,423,018 in 1998 and decreased to $1,215,631 in
1999. The decrease from 1998 to 1999 is due to a decrease in
food and maintenance expense as a result of a decrease in
occupancy throughout the year. The increase from 1997 to 1998 is
due to an increase in legal fees partially offset by a decrease
in administrative expenses. Legal fees increased due to fees
paid in connection with a settlement agreement with the previous
loan guarantor in 1998. Administrative expenses increased due to
a misclassification of payments on a note payable where the
payments should have been classified as administrative expenses.
Partnership administrative fees incurred in the
amount of $1,333,786 during 1999 are the result of the
termination of the management agreement with Signature Management
Services at Tindeco Wharf.
Interest expense increased from $3,975,462 in 1997
to $4,007,500 in 1998 to $4,122,243 in 1999. The increase from
1998 to 1999 is due to an increase in interest expense at the
River Street Inn and Tindeco Wharf. The increase in interest
expense at the River Street Inn is due to an increase in the
principal balance due to advances made by the first mortgage
holder to fund building renovations. Interest expense increased
at Tindeco Wharf due to the accrual of interest on a higher
average balance on the second mortgage. The balance increased
due to the capitalization of interest accrued but not paid on
certain loans, as described below.
Depreciation and amortization increased from
$1,714,090 in 1997 to $1,742,807 in 1998 and increased to
$1,790,439 in 1999. The increase from 1998 to 1999 and from 1997
to 1998 is due to an increase at the River Street Inn and Tindeco
Wharf due to the depreciation of fixed asset additions.
In 1999, losses of $3,768,069 were incurred at the
Registrant's three properties compared to $2,456,000 in 1998 and
$2,711,000 in 1997. A discussion of property
operations/activities follows:
In 1999, Tindeco Wharf sustained a loss of
$2,824,155 including $1,233,000 of depreciation and amortization
expense and $904,000 of deferred interest (reflecting interest
accrued but not paid on the developer's and operating deficit
loans) compared to a loss of $1,559,000 including $1,201,000 of
depreciation and amortization expense and $1,094,000 of deferred
interest in 1998 and a loss of $1,642,000, including $1,175,000
of depreciation and amortization expense and $708,000 of deferred
interest in 1997. The increase in the loss from 1998 to 1999 is
the result of the partnership administrative fee, referred to
above, and an increase in maintenance, interest and depreciation
expense combined with a decrease in interest income, partially
offset by an increase in rental income. The increase in
maintenance expense is due to planned repairs at the property
including roof, electrical and plumbing repairs and painting.
Interest expense increased due to the accrual of interest on a
higher average balance on the second mortgage. Depreciation
expense increased due to the depreciation of fixed asset
additions. Partnership administrative fees incurred in the
amount of $1,333,786 during 1999 are the result of the
termination of the management agreement with Signature Management
Services. The decrease in interest income is due to the decrease
in the interest bearing restricted cash balance. Rental income
increased due to an increase in average rental rates and
occupancy (75% to 90%). The decrease in the loss from 1997 to
1998 is the result of an increase in residential rental income
and interest income combined with a decrease in legal fees
partially offset by an increase in interest and depreciation
expense. Residential rental income increased due to an increase
in the average rental rates and interest income increased due to
an increase in the balance of the interest bearing restricted
cash. Legal fees decreased due to nonrecurring fees incurred in
1997 in connection with a review of the loan documents pertaining
to the financing of the property. Interest expense increased due
to an increase in the principal balance upon which interest is
calculated. Depreciation expense increased due to the
depreciation of fixed asset additions.
In 1999, the River Street Inn sustained a loss of
$936,000 including $382,000 of depreciation and amortization
expense compared to a loss of $907,000 including $371,000 of
depreciation and amortization expense in 1998 and a loss of
$1,038,000, including $372,000 of depreciation expense in 1997.
The increase in the loss from 1998 to 1999 is due to a decrease
in hotel income combined with an increase in interest and
depreciation expense, offset by a decrease in food and
maintenance expense. The decrease in hotel income is due to a
decrease in occupancy (80% to 64%). Interest expense increased
due to an increase in principal balance upon which interest is
accrued due to advances made by the first mortgage holder to fund
building repairs. Depreciation expense increased due to the
depreciation of fixed asset additions. The decrease in food and
maintenance expense is a result of a decrease in occupancy
throughout the year. The decrease in the loss from 1997 to 1998
is due to an increase in hotel income combined with a decrease in
administrative expenses partially offset by an increase in legal
fees. Hotel income increased due to an increase in the average
nightly rate ($106.06 to $128.06). Administrative expense
increased due to a misclassification of payments on a note
payable where the payments should have been classified as
administrative expenses. Legal fees increased due to fees paid
in connection with obtaining a settlement agreement with the
previous loan guarantor in 1998.
FWP is involved in one legal proceeding as discussed
below:
J. A. Jones Construction Company ("Jones")
contracted with FWP for the renovation of what was originally a
warehouse into the River Street Inn/Factor's Walk. During
construction, numerous disputes arose between the parties. As a
result of those disputes, Jones abandoned the project prior to
completion and filed suit in the matter of J.A. Jones
Construction Company v. Factor's Walk Partners in the United
States District Court for the Northern District of Georgia. On
January 1, 1994, the court entered a judgment in favor of Jones
and against FWP in the amount of $1,069,017. The judgment
accrued interest at 9.5% and $62,562 of interest was accrued in
both 1994 and 1995. FWP filed an appeal and this appeal was held
in abeyance while FWP and Jones participated in a court sponsored
settlement program. On November 8, 1996, a settlement agreement
was reached whereby a note in the amount of $1,000,000 was
issued. The note calls for 6% interest until September 1, 1997,
with the rate increasing .5% on each August 1 thereafter to a
maximum rate of prime plus 2% (therefore, 7.5% at December 31,
1999) and is due on October 1, 2011. Interest is due quarterly.
On June 30, 1992, DHP, Inc. assigned to D, LTD a
note receivable, from FWP to the Registrant, that had been
assigned to DHP, Inc. The note was in the stated amount of
$55,951 and bore interest at 10%; the note was due on June 30,
1997. On January 13, 1994 D, LTD obtained a judgment on this
note in the amount of $73,184 in Common Pleas Court for
Philadelphia County, Pennsylvania. The judgment accrues interest
at 15%. The judgment provided that all future distributions, in
any form, due to the Registrant on account of its ownership
interest in FWP be immediately delivered to D, LTD. Interest
accrued during 1999 was $24,665. The balance of the note at
December 31, 1999 was $178,100.
In 1999, Washington Square incurred a loss of $8,000
including $122,000 of depreciation expense compared to income of
$10,000 including $117,000 of depreciation expense in 1998 and a
loss of $31,000 including $113,000 of depreciation expense in
1997. The loss in 1999 is due to a decrease in rental income
combined with an increase in maintenance expense. The decrease in
rental income is due to a decrease in rental occupancy rates (97%
to 95%). The increase in maintenance expense is due to an
increase in apartment preparation expense caused by a higher
turnover of apartment units. The decrease in the loss from 1997
to 1998 resulted mainly from an increase in rental income due to
an increase in the average rental rates combined with a decrease
in maintenance expense. Maintenance expense decreased due to a
lower turnover of apartment units in 1998 as compared to 1997.
On June 30, 1992, DHP, Inc. assigned to D, LTD a
note receivable from the Registrant in the stated amount of
$404,046. The note bore interest at 10% and was due on June 30,
1997. On March 23, 1993 D, LTD obtained a judgment on this note
in the amount of $454,299 in Common Pleas Court for Philadelphia
County, Pennsylvania. The judgment accrues interest at 15%.
Interest accrued during 1999 and 1998 was $155,167 and $147,747,
respectively. Payments on the judgment are to be made from
available cash flow from Washington Square and before any
distribution can be made to the Registrant's limited partners.
The balance of the note at December 31, 1999 is $1,048,973.
The seller of Washington Square agreed to lend funds
to the Partnership to cover cash flow deficits for a five-year
period expiring in 1990. The Partnership borrowed $97,008
through December 1988. The loan bears interest at 12%, with
principal and interest payments out of cash flow. Interest
accrued during both 1999 and 1998 was $11,641. The balance of
the note at December 31, 1999 was $236,700.
In February 1993, one of the Registrant's
properties, the Morrison-Clark Inn, was foreclosed by the lender.
In November 1993, the lender obtained a judgment in the matter of
Capital Bank, N.A. v. Diversified Historic Investors II in the
amount of $1,800,000. In return for payment of $20,000, Capital
Bank has agreed to forbear from executing on the judgment until
July 6, 2000. Although there have been no discussions, the
Registrant anticipates that it will be able to extend the
forbearance agreement for several more years for similar
consideration.
Item7A. Quantitative and Qualitative Disclosures about Market
Risk
Not applicable.
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.
<PAGE>
Independent Auditor's Report
To the Partners of
Diversified Historic Investors II
We have audited the accompanying consolidated balance sheet of
Diversified Historic Investors II (a Pennsylvania limited
partnership) and subsidiaries as of December 31, 1999 and 1998
and the related statements of operations and changes in partners'
equity and cash flows for the years ended December 31, 1999, 1998
and 1997. 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 audit. We did not audit the
financial statements of Tindeco Wharf Partnership, which
statements reflect total assets of $18,324,708 and $19,072,099 as
of December 31, 1999 and 1998, respectively, and total revenues
of $4,306,834 and $3,954,174, respectively for the years then
ended. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Tindeco Wharf Partnership, is
based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above
presents fairly, in all material respects, the financial position
of Diversified Historic Investors II and subsidiaries as of
December 31, 1999 and 1998, and the results of operations and
cash flows for the years ended December 31, 1999, 1998 and 1997
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 28 is presented
for the purposes of additional analysis and is not a required
part of the basic financial statements. Such information has
been subjected to the auditing procedures applied in the audit of
the consolidated financial statements and, in our opinion, which
insofar as it relates to Tindeco Wharf Partnership is based
solely on the report of other auditors, such information is
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
As discussed in Note C of the financial statements, Diversified
Historic Investors II is liable for payment of a $1,800,000
guarantee resulting from the foreclosure on a property in 1993.
In the past the partnership has been able to continue the
forebearance when the period ends in July, 2000. If the lender
executes judgment it is expected to have significant adverse
impact on the partnership and could result in a forced sale of
the remaining properties.
Gross, Kreger & Passio
Philadelphia, Pennsylvania
April 5, 2000
<PAGE>
Independent Auditor's Report
To the Partners of
Tindeco Wharf Partnership
We have audited the accompanying balance sheet of Tindeco Wharf
Partnership as of December 31, 1999, and the related statements
of profit and loss, partners' deficit and cash flows for the year
then ended. The financial statements are the responsibility of
the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards and Government Auditing Standards, issued by
the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
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 audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Tindeco Wharf Partnership as of December 31, 1999, and the
results of its operations, the changes in partners' deficit and
its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Grant Thorton
Philadelphia, Pennsylvania
April 3, 2000
<PAGE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1999 and 17
1998
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998, and 1997 18
Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 1999, 1998, and 1997 19
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998, and 1997 20
Notes to consolidated financial statements 21-27
Financial statement schedules:
Schedule XI - Real Estate and Accumulated
Depreciation 29
Notes to Schedule XI 30
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 II
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
Assets
1999 1998
------ ------
Rental properties at cost:
Land $ 934,582 $ 934,582
Buildings and improvements 41,139,001 40,542,742
Furniture and fixtures 3,324,505 3,026,576
----------- -----------
45,398,088 44,503,900
Less - accumulated depreciation (22,962,044) (21,218,232)
----------- -----------
22,436,044 23,285,668
Cash and cash equivalents 38,110 219,254
Restricted cash 1,508,524 1,095,373
Accounts receivable 133,272 71,582
Other assets (net of accumulated
amortization of $398,407 and $351,780) 1,764,850 1,831,411
----------- -----------
Total $25,880,800 $26,503,288
=========== ===========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $33,306,221 $32,808,014
Accounts payable:
Trade 3,241,235 2,827,452
Related parties 2,963,434 1,521,734
Interest payable 12,453,362 11,343,408
Tenant security deposits 249,938 249,134
Other liabilities 1,499,221 1,293,221
----------- -----------
Total liabilities 53,713,411 50,042,963
----------- -----------
Partners' deficit (27,832,611) (23,539,675)
----------- -----------
Total $25,880,800 $26,503,288
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------ ------ ------
Revenues:
Rental income $ 5,015,476 $4,623,527 $4,463,462
Hotel income 1,384,057 1,582,824 1,282,525
Interest income 23,336 35,575 29,639
----------- ---------- ----------
Total revenues 6,422,869 6,241,926 5,775,626
----------- ---------- ----------
Costs and expenses:
Rental operations 2,055,706 1,850,883 1,858,158
Hotel operations 1,215,631 1,423,018 1,385,410
General and administrative 198,000 198,000 300,000
Partnership administrative fee 1,333,786 0 0
Interest 4,122,243 4,007,500 3,975,462
Depreciation and amortization 1,790,439 1,742,807 1,714,090
----------- ---------- ----------
Total costs and expenses 10,715,805 9,222,208 9,233,120
----------- ---------- ----------
Net loss ($ 4,292,936)($2,980,282)($3,457,494)
=========== ========== ==========
Net loss per limited
partnership unit ($ 206.38)($ 143.27) ($ 166.22)
=========== ========= ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Dover
Historic Limited
Advisors Partners
(1) (2) Total
-------- -------- ---------
Percentage participation in
profit or loss 1% 99% 100%
== === ====
Balance at December 31, 1996 ($342,439) ($16,759,460) ($17,101,899)
Net loss (34,575) (3,422,919) (3,457,494)
-------- ----------- -----------
Balance at December 31, 1997 (377,014) (20,182,379) (20,559,393)
Net Loss (29,803) (2,950,479) (2,980,282)
-------- ------------ -----------
Balance at December 31, 1998 (406,817) (23,132,858) (23,539,675)
Net Loss (42,929) (4,250,007) (4,292,936)
-------- ----------- -----------
Balance at December 31, 1999 ($449,746) ($27,382,865) ($27,832,611)
======== =========== ===========
(1) General Partner.
(2) 20,593.3 limited partnership units outstanding at December 31, 1999,
1998, and 1997.
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------ ------ ------
Cash flows from operating
activities:
Net loss ($4,292,936) ($2,980,282) ($3,457,494)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization 1,790,439 1,742,807 1,714,090
Changes in assets and liabilities,
net of disposals due to foreclosure:
(Increase) decrease in restricted
cash (413,151) 198,498 6,896
(Increase) decrease in accounts
receivable (61,690) (22,671) (1,414)
Decrease (increase) in other assets 19,934 (94,299) (22,207)
Increase in accounts payable -
trade 413,783 261,649 357,244
Increase (decrease) in accounts
payable - related parties 1,441,700 25,331 (265,640)
Increase in interest payable 1,109,954 1,767,006 1,263,277
Increase in tenant security
deposit 804 6,447 6,010
Increase in other liabilities 206,000 183,535 981,954
---------- ---------- ----------
Net cash provided by operating
activities 214,837 1,088,021 582,716
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (894,188) (1,035,729) (215,746)
---------- ---------- ----------
Net cash used in investing
activities (894,188) (1,035,729) (215,746)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings under debt obligations 1,387,108 182,998 0
Payments of principal under debt
obligations (888,901) (87,059) (375,514)
---------- ---------- ----------
Net cash provided by (used in)
financing activities 498,207 95,939 (375,514)
---------- ---------- ----------
Increase (decrease) in cash and
cash equivalents (181,144) 148,231 (8,544)
Cash and cash equivalents at
beginning of year 219,254 71,023 79,567
---------- ---------- ----------
Cash and cash equivalents at
end of year $ 38,110 $ 219,254 $ 71,023
========== ========== ==========
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the year
for interest $3,012,289 $2,240,494 $2,712,185
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
NOTE A - ORGANIZATION
Diversified Historic Investors II (the "Partnership") was formed
in December 1984 to acquire, rehabilitate, and manage real
properties which are certified historic structures as defined in
the Internal Revenue Code (the "Code"), or which are eligible for
designation as such, utilizing mortgage financing and the net
proceeds from the sale of limited partnership units.
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.
The General Partner, Dover Historic Advisors, has the exclusive
responsibility for all aspects of the Partnership's operations
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements
follows:
1. Principles of Consolidation
The accompanying consolidated financial statements of the
Partnership include the accounts of two subsidiary partnerships
(the "Ventures"), in which the Partnership has controlling
interests, with appropriate elimination of inter-partnership
transactions and balances. 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 the years
presented.
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. Finance Costs
Loan fees have been incurred with respect to certain loans. Such
fees are being amortized over the terms of the related loans (18
to 40 years) and being charged to amortization expense.
The Partnership prepaid all amounts due under a ground lease for
one of its properties. Such prepayment is being amortized over
the term of the lease (75 years) and being charged to
amortization expense.
Tindeco Wharf Partnership ("TWP") incurred $791,054 of settlement
fees in conjunction with a bond refinancing. These settlement
fees are included in other assets and are being amortized over
the term of the bond issue. Accumulated amortization was
$165,544 and $143,351 at December 31, 1999 and 1998,
respectively.
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 Income Per Limited Partnership Unit
The net income per limited partnership unit is based on the
weighted average number of limited partnership units outstanding
during the period (20,593.3 in 1999, 1998 and 1997).
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, insurance 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 a 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 sufficient resources, and anticipates
it will be unable to obtain replacement financing or debt
modification sufficient to allow it to continue to hold 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 deficits and has been unable, or anticipates it will
be unable, to obtain debt modification, financing or refinancing
sufficient to allow it to continue to hold 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 of each year.
10. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
NOTE C - DEBT OBLIGATIONS
Debt obligations were as follows:
December 31,
1999 1998
------ ------
Mortgage loan, interest only at 14%; $ 6,531,626 $ 5,920,572
principal due December 31, 2015,
collateralized by the related rental
property
Mortgage loan, interest at 12%, due 1,800,000 1,800,000
January 1, 1992, collateralized by the
related rental property (A)
Mortgage loans, interest at the Federal 1,081,669 1,080,615
Reserve Discount rate plus 2% with a
minimum of 7% and a maximum of 15% (7% at
December 31, 1999 and 1998), principal
and interest payable monthly based on a
20-year amortization schedule; principal
due October 1, 2005; collateralized by
the related rental property
Mortgage revenue bonds comprised of the 16,639,455 16,737,463
following: $1,440,000 of Serial Bonds,
interest rates ranging from 4.6% to 6.1%,
maturing semi-annually from June 20,
2000, to December 20, 2006; $1,650,000 of
Term Bonds, interest at 6.5%, maturing
December 20, 2012; $8,260,000 of Term
Bonds, interest at 6.6%, maturing
December 20, 2024; $5,605,000 of Term
Bonds, interest at 6.7%, maturing
December 20, 2028; collateralized by the
related rental property
Notes payable to a property management 0 15,893
company, bearing interest at 12% per
annum; principal and interest to be
repaid from the earliest positive cash
flow from operations or capital
transactions, or within 90 days of
termination of the management agreement;
unpaid principal and interest due upon
the earlier of sale or refinance of the
property or December 1, 2007
Second mortgage loan, principal and 4,953,471 4,953,471
interest at 7.5%, payable in monthly
installments of $36,606 to July 2005
based upon available cash flow, at which
time the balance is due; collateralized
by the related rental property (B)
Note payable to a developer, interest
accrues at 12%, of which 6% interest is
payable annually; deferred interest is
payable out of cash flow after a
preference return to the Partnership with
interest accruing on the unpaid amount;
principal and unpaid interest due at the
earlier of sale or refinancing of the
property or 2005; unsecured 2,300,000 2,300,000
----------- -----------
$33,306,221 $32,808,014
=========== ===========
(A) Interest payments were not made after August 1991. Lender
declared default and accelerated payment of the note in
February 1992. The partnership which owns the property
filed a petition of reorganization in May 1992. In November
1992, the automatic stay was lifted and the property which
collateralizes this loan was foreclosed by the lender in
February 1993. However, the partnership guaranteed
$1,800,000 of the original note balance, which is included
in debt obligations.
(B) Interest and principal after August 1, 1990 due only to the
extent of available cash flow. Any unpaid principal and
interest is deferred. Additional interest equal to 20% of
net cash flow from operations, as defined, in excess of
$1,075,000 is payable annually. The lender is also entitled
to receive 10% of the net proceeds from the sale of the
property as defined. No interest was paid during 1999, 1998
or 1997.
Approximate maturities of mortgage loan obligations, at December
31, 1999, for each of the succeeding five years are as follows:
Year Ending December 31,
2000 $ 408,003
2001 119,017
2002 131,154
2003 144,528
2004 159,267
Thereafter 32,344,252
-----------
$33,306,221
===========
NOTE E - ACQUISITIONS
The Partnership acquired one property and three general
partnership interests in Ventures during the period August 1985
to October 1985, as discussed below.
In August 1985, the Partnership was admitted, with a 99% general
partner interest, to a Pennsylvania general partnership, which
owns a building located in Savannah, Georgia, consisting of
22,559 commercial square feet and a 44 room hotel, for a cash
capital contribution of $3,600,409.
In October 1985, the Partnership was admitted, with an 85%
general partner interest, to a Pennsylvania general partnership,
which owned a 54-room hotel located in Washington, D.C., for a
cash capital contribution of $1,820,100. The Partnership's
interest was subsequently reduced to 69% when an affiliate of the
Partnership acquired a 19% interest. The lender foreclosed in
1993.
In October 1985, the Partnership purchased a three-story
building, consisting of 29 residential apartments and 9,500
square feet of commercial space, for a cash consideration of
$1,320,883.
In October 1985, the Partnership was admitted, with an 85%
general partner interest, to a Maryland general partnership,
which owns a building located in Baltimore, Maryland, consisting
of 240 residential units and 41,307 square feet of commercial
space, for a cash capital contribution of $7,271,300. The
Partnership subsequently purchased an additional 5% interest for
$262,500.
NOTE F- COMMITMENTS AND CONTINGENCIES
Pursuant to certain agreements, the developers of and lenders to
the properties are entitled to share in the following:
1. 15% of net cash flow from operations (one property), and 15%
to 50% of net cash flow from operations above certain
specified amounts (two properties);
2. 10% to 45% of the net proceeds, as defined, of the sale of
the respective properties (three properties). Generally,
the Partnership is entitled to a priority distribution of
the net proceeds of sale prior to any payments to
developers.
J. A. Jones Construction Company ("Jones") contracted with
Factor's Walk Partners ("FWP"), a subsidiary of the Partnership,
for the renovation of what was originally a warehouse, into the
River Street Inn/Factor's Walk. During construction, numerous
disputes arose between the parties. As a result of those
disputes, Jones abandoned the project prior to completion and
filed suit in the matter of J.A. Jones Construction Company v.
Factor's Walk Partners in the United States District Court for
the Northern District of Georgia. On January 1, 1994, the court
entered a judgment in favor of Jones and against FWP in the
amount of $1,069,017. The judgment accrued interest at 9.5% and
$62,562 of interest was accrued in both 1995 and 1994. FWP filed
an appeal which was held in abeyance while FWP and Jones
participated in a court sponsored settlement program. On
November 8, 1996, a settlement agreement was reached whereby a
note in the amount of $1,000,000 was issued. The note calls for
6% interest until September 1, 1997, with the rate increasing .5%
on each August 1 thereafter to a maximum of prime plus 2%
(therefore, 7% at December 31, 1999) and is due on October 1,
2011. Interest is due quarterly with the first payment due
September 1, 1997.
NOTE G - RELATED PARTY TRANSACTIONS
On June 30, 1992, DHP, Inc. assigned to D, LTD a note receivable,
from FWP to the Partnership, that had been assigned to DHP, Inc.
The note was in the stated amount of $55,951 and bore interest at
10%; the note was due on June 30, 1997. On January 13, 1994 D,
LTD obtained a judgment on this note in the amount of $73,184 in
Common Pleas Court for Philadelphia County, Pennsylvania. The
judgment accrues interest at 15%. The judgment provides that all
future distributions, in any form, due to the Partnership on
account of its ownership interest in FWP, be immediately
delivered to D, LTD. Interest accrued during 1999 and 1998 was
$24,665 and $21,249, respectively. The balance of the note at
December 31, 1999 was $178,100.
On June 30, 1992, DHP, Inc. assigned to D, LTD a note receivable
from the Partnership in the stated amount of $404,046. The note
bore interest at 10% and was due on June 30, 1997. On March 23,
1993, D, LTD obtained a judgment on this note in the amount of
$454,299 in Common Pleas Court for Philadelphia County,
Pennsylvania. The judgment accrues interest at 15%. Interest
accrued during 1999 and 1998 was $155,167 and $147,747,
respectively. 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, 1999 was $1,048,973.
The seller of Washington Square agreed to lend funds to the
Partnership to cover cash flow deficits for a five-year period
expiring in 1990. The Partnership borrowed $97,008 through
December 1988. The loan bears interest at 12%, with principal
and interest payments out of cash flow. Interest accrued during
both 1999 and 1998 was $11,641. The balance of the note at
December 31, 1999 was $236,700.
NOTE H - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time periods for financial reporting
("book") purposes and for income tax ("tax") purposes.
Reconciliations of net loss and partners' equity follows:
For the Years Ended December 31,
1999 1998 1997
------ ------ ------
Net loss - book ($ 4,292,936) ($ 2,980,282) ($ 3,457,494)
Depreciation (79,205) 147,722 (86,047)
Interest 818,633 1,103,722 1,277,877
Guarantor fees 121,800 121,800 121,800
Investor service fee 20,000 20,000 (200,000)
Partnership administrative fee 1,333,786 0 342,000
Other 0 0 (1,191)
Minority interest - tax only 124,189 179,674 147,592
----------- ----------- -----------
Net loss - tax ($ 1,953,733) ($ 1,407,364) ($ 1,855,463)
=========== =========== ===========
Partners' equity - book ($27,832,611) ($23,539,675) ($20,559,393)
Costs of issuance 2,471,196 2,471,196 2,471,196
Cumulative tax over (under)
book loss 8,914,091 6,947,522 6,376,859
Facade easement donation (tax only) 203,778 203,778 203,778
Prior period adjustment 48,071 48,071 48,071
Capital adjustments (tax only) (324,580) (324,580) (324,580)
----------- ----------- -----------
Partners' equity - tax ($16,520,055) ($14,193,688) ($11,784,069)
=========== =========== ===========
NOTE I - TERMINATION OF MANAGEMENT AGREEMENT
During the year TWP terminated its management agreement with
Signature Management Services. The termination agreement
requires a buyout totalling $1,350,000 of which $1,333,786 is
included under the caption "Partnership Administration Fee" in
the Consolidated Statements of Operations and $16,214 of which
was utilized to repay outstanding advances.
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
DIVERSIFIED HISTORIC INVESTORS II
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Cost
Capitalized
Initial Cost Subsequent to
to Partnership (b) Acquisition
Buildings
and
Description (a) Encumbrances Land Improvements Improvements
44 room hotel
with 21,500 square
feet of commer-
cial space in
Savannah, GA $ 5,920,572 $200,000 $ 9,178,160 $ 854,407
29 apartment
units and 9,500
square feet of
commercial space in
West Chester, PA 1,080,614 87,500 2,833,383 93,424
262 apartment units
and 39,000 square
feet of commercial
space in
Baltimore, MD 24,006,827 647,082 2,000,000 28,609,944
----------- -------- ----------- -----------
$31,008,013 $934,582 $14,011,543 $29,557,775
=========== ======== =========== ===========
Gross Amount at which Carried at
December 31, 1999
Buildings Date
and Total Accumulated Date of Ac-
Description(a) Land Improvements (c) (d) Depr.(d)(e) Constr.(a) quired
44 room hotel
with 21,500 square
feet of commercial
space in 1985-
Savannah, GA $200,000 $10,236,661 $10,436,661 $ 5,416,269 1986 8/9/95
29 apartment
units and 9,500
square feet of
commercial space
space in
West Chester, PA 87,500 2,945,073 3,032,573 1,654,760 1985 10/1/85
262 apartment
units and 39,000
square feet of
commercial space 1985-
in Baltimore, MD 647,082 31,281,772 31,928,854 15,891,015 1988 10/15/85
-------- ----------- ----------- -----------
$934,582 $44,463,506 $45,398,088 $22,962,044
======== =========== =========== ===========
<PAGE>
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1999
(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 were rehabilitated.
(B) Includes development/rehabilitation costs incurred pursuant
to development agreements entered into when the properties
were acquired.
(C) The aggregate cost of real estate owned at December 31,
1999, for Federal income tax purposes is $42,073,583.
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) Reconciliation of real estate:
1999 1998 1997
------ ------ ------
Balance at beginning of year $44,503,900 $43,468,171 $43,252,425
Additions during the year:
Improvements 894,188 1,035,729 215,746
----------- ----------- -----------
Balance at end of year $45,398,088 $44,503,900 $43,468,171
=========== ============ ===========
Reconciliation of accumulated depreciation:
1999 1998 1997
------ ------ ------
Balance at beginning of year $21,218,232 $19,522,725 $17,857,486
Depreciation expense for the year 1,743,812 1,695,507 1,665,239
----------- ----------- -----------
Balance at end of year $22,962,044 $21,218,232 $19,522,725
=========== =========== ===========
(E) See Note B to the financial statements for depreciation
method and lives.
(F) See Note F to the financial statements for information
regarding certain contingencies.
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 Dover
Historic Advisors (DoHA), a Pennsylvania general partnership.
The partners of DoHA are as follows:
Name Age Position Term in Office Period Served
SWDHA, Inc. -- Partner in DoHA No fixed term Since May 1997
EPK, Inc. -- Partner in DoHA No fixed term Since May 1997
c. Identification of Certain Significant Employees.
Registrant has no employees. Its administrative and operational
functions are carried out by a property management and partnership
administration firm engaged by the Registrant.
d. Family Relationships. None
e. Business Experience. DoHA is a general partnership
formed in August 1985. 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. and EPK, Inc. were
appointed partners of DoHA. Spencer Wertheimer, the President
and Sole Director 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 a partner of
DoHA.
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 41) 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 33) 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 1999, Registrant has paid
no cash compensation to DoHA, any partner therein or any person
named in paragraph c. of Item 10. Certain fees have been paid to
DHP, Inc. by Registrant.
b. Compensation Pursuant to Plans - Registrant has no
plan pursuant to which compensation was paid or distributed
during 1999, or is proposed to be paid or distributed in the
future, to DoHA, 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 1999 to DoHA, 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 - None.
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, DoHA is entitled to 10% of Registrant's
distributable cash from operations in each year. There was no
such share allocable to DoHA for fiscal years 1997 through 1999.
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, 1999 and 1998.
b. Consolidated Statements of
Operations for the Years Ended December 31,
1999, 1998 and 1997.
c. Consolidated Statements of
Changes in Partners' Equity for the Years Ended
December 31, 1999, 1998 and 1997.
d. Consolidated Statements of Cash
Flows for the Years Ended December 31, 1999,
1998 and 1997.
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, 1999.
(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 II
Date: October 27, 2000 By: Dover 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
DOVER HISTORIC ADVISORS General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer October 27, 2000
----------------------- ----------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi October 27, 2000
--------------------- ----------------
MICHELE F. RUDOI
Assistant Secretary
<PAGE>
