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 March 31, 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 0-15843
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DIVERSIFIED HISTORIC INVESTORS III
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2391927
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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 - March 31, 1999 (unaudited)
and December 31, 1998
Consolidated Statements of Operations - Three Months
Ended March 31, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 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
As of March 31, 1999, Registrant had cash of
$44,178. 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. The Registrant is not aware of any additional
sources of liquidity.
As of March 31, 1999, Registrant had restricted
cash of $141,321 consisting primarily of funds held as security
deposits, replacement reserves and escrows for taxes and insurance.
As a consequence of the 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 inability of the properties owned by the Registrant to generate
sufficient cash flow to pay their operating expenses and debt service.
At the present time Registrant has feasible loan modifications in
place for its three properties: Lincoln Court, Green Street and the
Loewy Building. However, in all three cases, the mortgages 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.
It is the Registrant's intention to continue to
hold the properties until they can no longer meet the 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 in the foreseeable future. If the need for capital
expenditures does arise, the first mortgage holder for Lincoln Court,
Green Street and the Loewy Building has agreed to fund capital
expenditures at terms similar to the first mortgage.
(3) Results of Operations
During the first quarter of 1999, Registrant
incurred a net loss of $292,807 ($20.60 per limited partnership unit)
compared to a net loss of $251,297 ($17.79 per limited partnership
unit) for the same period in 1998.
Rental income increased $626 from $304,913 in the
first quarter of 1998 to $305,539 in the same period in 1999. The
increase from the first quarter of 1998 to the same period in 1999 is
the result of an increase in the average rental rates at the Loewy
Building partially offset by a decrease at the Lincoln Court due to a
decrease in the average occupancy (91% to 88%) and a decrease in the
other income at Green Street Apartments.
Expense for rental operations decreased by $2,715
from $176,442 in the first quarter of 1998 to $173,732 in the same
period in 1999. The decrease from the first quarter of 1998 to the
same period in 1999 is mainly the result of a decrease in commissions
expense at Lincoln Court due to a lower turnover of apartment units.
Interest expense increased by $51,805 from
$215,855 in the first quarter of 1998 to $267,660 in the same period
in 1999. The increase is due to an adjustment made to properly
calculate interest on the mortgage loan at the Loewy Building in 1998
combined with an increase at Lincoln Court due to an increase in the
interest rate.
Depreciation and amortization expense decreased
$4,265 from $131,106 in the first quarter of 1998 to $126,841 in the
same period in 1999. The decrease from the first quarter of 1998 to
the same period in 1999 is due to the amortization of leasing
commissions incurred during 1998 at the Loewy Building.
Losses incurred during the quarter at the
Registrant's properties amounted to $247,000, compared to a loss of
approximately $203,000 for the same period in 1998.
In the first quarter of 1999, Registrant incurred
a loss of $138,000 at Lincoln Court including $40,000 of depreciation
and amortization expense, compared to a loss of $70,000 in the first
quarter of 1998, including $40,000 of depreciation expense. The
increase in the loss from the first quarter of 1998 to the same period
in 1999 is the result of a decrease in rental income due to an
decrease in the average occupancy (91% to 88%) combined with an
increase in commissions and interest expense. Commissions expense
increased due to a higher turnover of apartment units and commissions
for future leases. Interest expense increased due to an increase in
the interest rate on the second mortgage.
In the first quarter of 1999, Registrant incurred
a loss of $46,000 at the Green Street Apartments, including $15,000 of
depreciation expense, compared to a loss of $44,000 including $15,000
of depreciation expense in the first quarter of 1998. The increased
loss is the result of a decrease in other income such as parking fees
and late fees from the first quarter of 1998 to the same period in
1999.
In the first quarter of 1999, Registrant incurred
a loss of $63,000 at the Loewy Building, including $69,000 of
depreciation and amortization expense, compared to a loss of $89,000
including $72,000 of depreciation expense in the first quarter of
1998. The decreased loss from the first quarter of 1998 to the same
period in 1999 is the result of an increase in rental income due to an
increase in the average rental rates combined with a decrease in
amortization expense partially offset by an increase in interest
expense. Interest expense increased due to an adjustment made to
property calculate interest on the mortgage loan in 1998.
Summary of Minority Interests
In the first quarter of 1999, the Registrant
incurred no loss at Magazine Place compared to a loss of $1,537 in the
first quarter of 1998. The Registrant accounts for this investment on
the equity method. The difference from the first quarter of 1998 to
the same period in 1999 is due to an increase in rental income due to
an increase in the average rental rates.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
March 31, 1999 December 31, 1998
(Unaudited)
Rental properties, at cost:
Land $ 465,454 $ 465,454
Buildings and improvements 12,006,574 12,006,574
Furniture and fixtures 98,729 98,729
---------- ----------
12,570,757 12,570,757
Less - accumulated depreciation (5,564,379) (5,442,634)
---------- ----------
7,006,378 7,128,123
Cash and cash equivalents 44,178 31,981
Restricted cash 141,321 168,344
Accounts and notes receivable 27,269 25,307
Investment in affiliate 181,206 181,206
Other assets (net of amortization of
$215,033 and $209,937 at March 31, 1999
and December 31, 1998, respectively)
217,957 223,627
---------- ----------
Total $ 7,618,309 $ 7,758,588
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 8,966,681 $ 8,970,613
Accounts payable:
Trade 1,025,379 996,758
Related parties 747,883 736,458
Interest payable 1,380,243 1,290,951
Other liabilities 59,097 45,773
Tenant security deposits 48,357 34,553
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Total liabilities 12,227,640 12,075,106
---------- ----------
Partners' equity (4,609,331) (4,316,518)
---------- ----------
Total $ 7,618,309 $ 7,758,588
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
Three months Three months
Ended Ended
March 31, March 31,
1999 1998
Revenues:
Rental income $ 305,539 $ 304,913
Interest income 1,386 230
-------- --------
Total revenues 306,925 305,143
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Costs and expenses:
Rental operations 173,737 176,442
General and administrative 31,500 31,500
Interest 267,660 215,855
Depreciation and amortization 126,841 131,106
-------- --------
Total costs and expenses 599,738 554,903
-------- --------
Loss before equity in affiliate (292,813) (249,760)
Equity in (loss) income of affiliate 0 (1,537)
-------- --------
Net loss ($ 292,813) ($ 251,297)
======== ========
Net loss per limited partnership unit:
Loss before equity in affiliate ($ 20.60) ($ 17.68)
Equity in (loss) income of affiliate (0) (.11)
-------- --------
Net loss ($ 20.60) ($ 17.79)
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
Three months ended
March 31,
1999 1998
Cash flows from operating activities:
Net loss ($ 292,813) ($ 251,297)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 126,841 131,106
Equity in loss of affiliate 0 1,537
Changes in assets and liabilities:
Decrease in restricted cash 27,023 45,794
Increase in accounts receivable (1,962) (10,852)
Decrease in other assets 574 1,117
Increase in accounts payable - trade 28,621 21,897
Increase in accounts payable - related parties 11,425 11,425
Increase in interest payable 89,292 57,624
Increase (decrease) in accrued liabilities 13,324 (1,465)
Increase in tenant security deposits 13,804 4,852
-------- --------
Net cash provided by operating activities 16,129 11,738
-------- --------
Cash flows from investing activities:
Capital expenditures 0 (16,250)
-------- --------
Net cash used in investing activities 0 (16,250)
-------- --------
Cash flows from financing activities:
Proceeds from debt financing 0 15,833
Principal payments (3,932) (4,845)
-------- --------
Net cash (used in) provided by financing activities (3,932) 10,988
-------- --------
Increase in cash and cash equivalents 12,197 6,476
Cash and cash equivalents at beginning of period 31,981 308
-------- --------
Cash and cash equivalents at end of period $ 44,178 $ 6,784
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified
Historic Investors III (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 of the
Registrant, and notes thereto, 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 March 31, 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: June 4, 1999 DIVERSIFIED HISTORIC INVESTORS III
------------
By: Dover Historic Advisors II, General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President and Treasurer
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 44,178
<SECURITIES> 0
<RECEIVABLES> 27,269
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,570,757
<DEPRECIATION> 5,564,379
<TOTAL-ASSETS> 7,618,309
<CURRENT-LIABILITIES> 1,025,379
<BONDS> 8,966,681
0
0
<COMMON> 0
<OTHER-SE> (4,609,331)
<TOTAL-LIABILITY-AND-EQUITY> 7,618,309
<SALES> 0
<TOTAL-REVENUES> 305,539
<CGS> 0
<TOTAL-COSTS> 173,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 267,660
<INCOME-PRETAX> (292,813)
<INCOME-TAX> 0
<INCOME-CONTINUING> (292,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (292,813)
<EPS-BASIC> (20.60)
<EPS-DILUTED> 0
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