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 0-15843
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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
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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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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
As of June 30, 2000, Registrant had cash of $29,732.
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 June 30, 2000, Registrant had restricted cash
of $165,986 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 properties' inability to generate sufficient cash flow
to pay their operating expenses and debt service. At the present
time, the Registrant has feasible loan modifications in place at
Lincoln Court, Green Street and the Loewy Building. However, in
all three cases, the mortgages 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.
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).
Since the lenders have agreed to forebear from
taking any foreclosure action as long as cash flow payments are
made, the Registrant believes it is appropriate to continue
presenting the 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 expenditure 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
holders for Lincoln Court, Loewy Building and Green Street
Apartments have agreed to fund capital expenditures at terms
similar to the first mortgage.
(3) Results of Operations
During the second quarter of 2000, Registrant
incurred a net loss of $340,159 ($24.09 per limited partnership
unit) compared to a net loss of $273,989 ($19.54 per limited
partnership unit) for the same period in 1999. For the first six
months of 2000, the Registrant incurred a net loss of $698,192
($49.43 per limited partnership unit) compared to a net loss of
$567,315 ($40.19 per limited partnership unit) for the same
period in 1999.
Rental income decreased $74,064 from $301,116 in the
second quarter of 1999 to $227,052 in the same period of 2000 and
decreased $139,601 from $606,655 in the first six months of 1999
to $467,054 in the same period of 2000. The decrease in rental
income for both the second quarter and the first six months of
2000 is due to a decrease in rental income at the Loewy Building
due to decrease in average occupancy (78% to 69%), partially
offset by an increase in rental income at Lincoln Court and Green
Street. The increase in rental income is due to an increase in
average occupancy at Lincoln Court (85% to 88%) and Green Street
Apartments (93% to 94%).
Expense for rental operations increased by $15,155
from $134,797 in the second quarter of 1999 to $149,952 in the
same period in 2000. The increase in rental operations expense
for the second quarter in 2000 is due to an increase in
maintenance expense at the Loewy Building due to preparation of
commercial space due to the increased turnover due to the
decrease in average occupancy.
Expense for rental operations decreased by $354 from
$308,534 for the first six months of 1999 to $308,180 in the same
period in 2000. The decrease is due to a decrease in the
management fees at the Loewy Building as a result of a decrease
in average occupancy, partially offset by an increase in
utilities expense at Lincoln Court due to an increase in average
occupancy.
Interest expense decreased by $6,700 from $267,660
in the second quarter of 1999 to $260,960 in the same period in
2000 and decreased $897 from $535,833 for the first six months of
1999 to $534,936 in the same period in 2000. The decrease for
both periods is due to the decrease in interest expense at
Lincoln Court due to a decrease in the principal balance of the
first mortgage.
Depreciation and amortization expense increased
$1,168 from $126,840 in the second quarter of 1999 to $128,008 in
the same period in 2000 and increased $2,334 from $253,681 for
the first six months of 1999 to $256,015 in the same period in
2000. The increase for both the second quarter and the first six
months is due to the amortization of additional leasing
commissions incurred during 2000 at the Loewy Building.
Losses incurred during the quarter at the
Registrant's properties were approximately $296,000 compared to a
loss of approximately $214,000 for the same period in 1999. For
the first six months of 2000, the Registrant's properties
recognized a loss of $599,000 compared to approximately $459,000
for the same period in 1999.
In the second quarter of 2000, Registrant incurred a
loss of $82,000 at Lincoln Court including $40,000 of
depreciation and amortization expense, compared to a loss of
$113,000 in the second quarter of 1999, including $40,000 of
depreciation and amortization expense. For the first six months
of 2000, Registrant incurred a loss of $188,000 at Lincoln Court
including $80,000 of depreciation and amortization expense,
compared to a loss of $250,000 for the same period in 1999,
including $80,000 of depreciation and amortization expense. The
decrease in the loss for both the second quarter and the first
six months is due to an increase in rental income combined with a
decrease in interest expense, partially offset by an increase in
utilities expense. The increase in rental income is due to an
increase in average occupancy for the second quarter (82% to 85%)
and for the first six months (85% to 88%). Interest expense
decreased due to a decrease in principal balance of the first
mortgage. Utilities expense increased as a result of the
increase in average occupancy.
In the second quarter of 2000, Registrant incurred a
loss of $29,000 at the Green Street Apartments including $15,000
of depreciation expense, compared to a loss of $31,000 including
$15,000 of depreciation expense in the second quarter of 1999.
For the first six months of 2000, Registrant incurred a loss of
$72,000 including $29,000 of depreciation expense, compared to a
loss of $77,000 for the same period in 1999 including $29,000 of
depreciation expense. The decrease in the loss from the second
quarter and the first six months of 1999 to the same periods in
2000 is the result of an increase in rental income due to an
increase in average occupancy in the second quarter (91% to 94%)
and for the first six months (93% to 94%).
In the second quarter of 2000, Registrant incurred a
loss of $185,000 at the Loewy Building, including $69,000 of
depreciation and amortization expense, compared to a loss of
$70,000 including $69,000 of depreciation and amortization
expense in the second quarter of 1999. The increase in the loss
from the second quarter of 1999 to the same period in 2000 is the
result of a decrease in rental income combined with an increase
in maintenance expense. Rental income decreased due to a
decrease in average occupancy (78% to 69%). The increase in
maintenance expense is due to preparation of commercial space due
to the increased turnover due to the decrease in average
occupancy.
For the first six months of 2000, Registrant
incurred a loss of $340,000 at the Loewy Building including
$139,000 of depreciation and amortization expense, compared to a
loss of $132,000 for the same period in 1999, including $137,000
of depreciation and amortization expense. The increased loss
from the first six months of 1999 to the same period in 2000 is
the result of a decrease in rental income combined with an
increase in interest and amortization expense, partially offset
by a decrease in management fees. Rental income decreased due to
a decrease in average occupancy (78% to 69%). Interest expense
increased due to an increase in principle balance of the first
mortgage. The increase in amortization expense is due to the
amortization of the additional leasing commissions incurred
during 2000. Management fees decreased as a result of the
decrease in rental income.
Summary of Minority Interests
In the second quarter of 2000, the Registrant
recognized income of $2,202 at Magazine Place compared to a loss
of $15,011 in the second quarter of 1999 and for the first six
months of 2000, the Registrant incurred a loss of $5,420 compared
to a loss of $19,889 for the same period in 1999. The Registrant
accounts for this investment on the equity method. The decrease
in the loss from the second quarter and the first six months of
1999 to the same periods in 2000 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
June 30, 2000 December 31, 1999
(Unaudited)
Rental properties, at cost:
Land $ 465,454 $ 465,454
Buildings and improvements 12,006,574 12,006,574
Furniture and fixtures 118,363 118,363
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12,590,391 12,590,391
Less - Accumulated depreciation (6,176,049) (5,931,577)
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6,414,342 6,658,814
Cash and cash equivalents 29,732 54,242
Restricted cash 165,986 172,010
Accounts and notes receivable 65,398 62,239
Investment in affiliate 141,822 147,242
Other assets (net of amortization
of $252,192 and $240,649 at
June 30, 2000 and December 31,
1999, respectively) 196,784 212,885
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Total $ 7,014,064 $ 7,307,432
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 8,962,000 $ 8,966,573
Accounts payable:
Trade 1,255,559 1,161,622
Related parties 805,007 782,157
Interest payable 1,979,608 1,682,961
Other liabilities 38,008 45,656
Tenant security deposits 59,493 55,884
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Total liabilities 13,099,675 12,694,853
Partners' deficit (6,085,611) (5,387,421)
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Total $ 7,014,064 $ 7,307,432
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The accompanying notes are an integral part of these financial statements.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS III
(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 $227,052 $301,116 $ 467,054 $ 606,655
Interest income 1,007 703 2,305 2,089
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Total revenues 228,059 301,819 469,359 608,744
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Costs and expenses:
Rental operations 149,952 134,797 308,180 308,534
General and
administrative 31,500 31,500 63,000 63,000
Interest 260,960 267,660 534,936 535,833
Depreciation and
amortization 128,008 126,840 256,015 253,681
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Total costs and expenses 570,420 560,797 1,162,131 1,161,048
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Loss before equity in
affiliate (342,361) (258,978) (692,772) (552,304)
Equity in income (loss)
of affiliate 2,202 (15,011) (5,420) (15,011)
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Net loss ($340,159) ($273,989) ($ 698,192)($ 567,315)
======== ======== ========== ==========
Net loss per limited
partnership Unit:
Loss before equity in
affiliate ($ 24.24) ($ 18.48) ($ 49.05)($ 39.13)
Equity in income (loss)
of affiliate .15 (1.06) (.38) (1.06)
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Net loss ($ 24.09) ($ 19.54) ($ 49.43)($ 40.19)
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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
(Unaudited)
Six months ended
June 30,
2000 1999
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Cash flows from operating activities:
Net loss ($698,191) ($567,315)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 256,015 253,681
Equity in loss of affiliate 5,420 15,011
Changes in assets and liabilities:
Decrease in restricted cash 6,024 13,468
Increase in accounts receivable (3,159) (15,859)
Decrease (Increase) in other assets 4,559 (15,180)
Increase in accounts payable - trade 93,945 84,995
Increase in accounts payable - 22,850 22,850
related parties
Increase in interest payable 296,640 196,617
Increase in tenant security deposits (7,648) 15,576
(Decrease) increase in accrued liabilities 3,609 4,715
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Net cash provided by operating activities (19,936) 8,559
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Cash flows from financing activities:
Principal payments (4,573) (7,352)
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Net cash (used in) provided by
financing activities (4,573) (7,352)
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(Decrease) increase in cash and cash
equivalents (24,509) 1,207
Cash and cash equivalents at
beginning of period 54,241 31,981
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Cash and cash equivalents at end of period $ 29,732 $ 33,188
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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 and notes thereto, in the
Registrant's Annual Report on Form 10-K 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 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 27, 2000 DIVERSIFIED HISTORIC INVESTORS III
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By: Dover Historic Advisors II,
General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
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SPENCER WERTHEIMER
President and Treasurer
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