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, 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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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - March 31, 2000(unaudited)
and December 31, 1999
Consolidated Statements of Operations - Three Months
Ended March 31, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 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 March 31, 2000, Registrant had cash of
$32,264. 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, 2000, Registrant had restricted cash
of $150,617 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 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 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 2000, Registrant
incurred a net loss of $358,033 ($25.35 per limited partnership
unit) compared to a net loss of $292,813 ($20.73 per limited
partnership unit) for the same period in 1999.
Rental income decreased $65,537 from $305,539 in the
first quarter of 1999 to $240,002 in the same period in 2000. The
decrease from the first quarter of 1999 to the same period in
2000 is the result of a decrease in rental income at the Loewy
Building, partially offset by an increase in rental income at
both the Lincoln Court and Greene Street Apartments. The
decrease in rental income at the Loewy Building is the result of
a decrease in average occupancy (78% to 69%). Rental income
increased at Lincoln Court due to the increase in average
occupancy (88% to 91%). The increase in rental income at Greene
Street Apartments is due to an increase in average rental rates.
Expense for rental operations decreased by $15,509
from $173,737 in the first quarter of 1999 to $158,228 in the
same period in 2000. The decrease from the first quarter of 1999
to the same period in 2000 is due to a decrease in maintenance
expense at Lincoln Court and management fees at the Loewy
Building. Maintenance expense decreased at Lincoln Court due to
less turnover preparation of apartment units as a result of the
increase in average occupancy. Management fees decreased as a
result of a decrease in occupancy at the Loewy Building.
Interest expense increased by $6,316 from $267,660
in the first quarter of 1999 to $273,976 in the same period in
2000. The increase is due to an increased principal balance upon
which interest is calculated at Lincoln Court.
Depreciation and amortization expense increased
$1,166 from $126,841 in the first quarter of 1999 to $128,007 in
the same period in 2000. The increase from the first quarter of
1999 to the same period in 2000 is due to the amortization of
leasing commissions incurred during 2000 at the Loewy Building
and capital expenditures in 1999 at Lincoln Court .
Losses incurred during the quarter at the
Registrant's properties were approximately $304,000, compared to
losses of approximately $247,000 for the same period in 1999.
In the first quarter of 2000, Registrant incurred a
loss of $106,000 at Lincoln Court including $40,000 of
depreciation and amortization expense, compared to a loss of
$138,000 in the first quarter of 1999, including $40,000 of
depreciation and amortization expense. The decrease in the loss
from the first quarter of 1999 to the same period in 2000 is the
result of an increase in rental income due to an increase in the
average occupancy (88% to 91%) combined with a decrease in
maintenance expense partially offset by an increase in interest
and depreciation expense. Maintenance expense decreased due to
less turnover preparation of apartment units as a result of the
increase in occupancy.The increase in interest expense is due to
the increase in the principal balance upon which interest is
calculated. Depreciation expense increased due to capital
expenditures in 1999.
In the first quarter of 2000, Registrant incurred a
loss of $43,000 at the Green Street Apartments, including $15,000
of depreciation expense, compared to a loss of $46,000 including
$15,000 of depreciation expense in the first quarter of 1999.
The decreased loss is the result of an increase in rental income
due to an increase in average rental rates.
In the first quarter of 2000, Registrant incurred a
loss of $155,000 at the Loewy Building, including $69,000 of
depreciation and amortization expense, compared to a loss of
$63,000 including $69,000 of depreciation expense in the first
quarter of 1999. The increased loss from the first quarter of
1999 to the same period in 2000 is primarily the result of a
decrease in rental income due to a decrease in the average rental
occupancy (78% to 69%), partially offset by a decrease in
management fees as a result of the decrease in rental income.
Summary of Minority Interests
In the first quarter of 2000, the Registrant
incurred a loss of $7,622 at Magazine Place compared to break
even in the first quarter of 1999. The Registrant accounts for
this investment on the equity method. The difference from the
first quarter of 1999 to the same period in 2000 is due to an
increase in rental operations expense as a result of repairs made
to the property.
<PAGE>
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
March 31, 2000 December 31, 1999
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(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 (6,053,813) (5,931,577)
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6,536,578 6,658,814
Cash and cash equivalents 32,264 54,242
Restricted cash 150,617 172,010
Accounts and notes receivable 56,643 62,239
Investment in affiliate 139,620 147,242
Other assets (net of amortization
of $246,421 and $240,649 at
March 31, 2000 and December 31,
1999, respectively) 202,112 212,885
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Total $ 7,117,834 $ 7,307,432
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 8,965,677 $ 8,966,573
Accounts payable:
Trade 1,195,608 1,161,622
Related parties 793,582 782,157
Interest payable 1,818,412 1,682,961
Other liabilities 54,719 55,884
Tenant security deposits 35,290 45,656
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Total liabilities 12,863,288 12,694,853
Partners' deficit (5,745,454) (5,387,421)
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Total $ 7,117,834 $ 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 ended
March 31,
2000 1999
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Revenues:
Rental income $240,002 $305,539
Interest income 1,298 1,386
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Total revenues 241,300 306,925
Costs and expenses:
Rental operations 158,228 173,737
General and administrative 31,500 31,500
Interest 273,976 267,660
Depreciation and amortization 128,007 126,841
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Total costs and expenses 591,711 599,738
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Loss before equity in affiliate (350,411) (292,813)
Equity in loss of affiliate (7,622) 0
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Net loss ($358,033) ($292,813)
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Net loss per limited
partnership unit:
Loss before equity in affiliate ($ 24.81) ($ 20.73)
Equity in loss of affiliate (.54) 0
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Net loss ($ 25.35) ($ 20.73)
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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)
Three months ended
March 31,
2000 1999
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Cash flows from operating activities:
Net loss ($358,033) ($292,813)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 128,007 126,841
Equity in loss of affiliate 7,622 0
Changes in assets and liabilities:
Decrease in restricted cash 21,393 27,023
Decrease (increase) in accounts
receivable 5,596 (1,962)
Decrease in other assets 5,002 574
Increase in accounts payable - trade 33,986 28,621
Increase in accounts payable -
related parties 11,425 11,425
Increase in interest payable 135,451 89,292
(Decrease) increase in accrued
liabilities (1,165) 13,324
(Decrease) increase in tenant
security deposits (10,366) 13,804
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Net cash (used in) provided by
operating activities (21,082) 16,129
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Cash flows from financing activities:
Principal repayments (896) (3,932)
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Net cash used in financing activities (896) (3,932)
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(Decrease) increase in cash and cash
equivalents (21,978) 12,197
Cash and cash equivalents at beginning
of period 54,242 31,981
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Cash and cash equivalents at end of period $ 32,264 $ 44,178
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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 in Form 10-K of the Registrant,
and notes thereto, for the year ended December 31, 1999.
The information furnished reflects, in the opinion of management,
all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of the interim
periods presented.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is not a party
to, nor is any of its property the subject of, any pending
material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by
this report to a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibit Number Document
3 Registrant's Amended and
Restated Certificate of Limited
Partnership and Agreement of
Limited Partnership, previously
filed as part of Amendment No.
2 of Registrant's Registration
Statement on Form S-11, are
incorporated herein by
reference.
21 Subsidiaries of the Registrant
are listed in Item 2.
Properties on Form 10-K,
previously filed and
incorporated herein by
reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
ended March 31, 2000.
<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: October 25, 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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