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, 2001
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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 0-14934
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DIVERSIFIED HISTORIC INVESTORS
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2312037
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1521 Locust Street, Philadelphia, PA 19102
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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 - March 31, 2001 (unaudited)
and December 31, 2000
Consolidated Statements of Operations - Three Months
Ended March 31, 2001 and 2000 (unaudited)
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2000 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(1) Liquidity
At March 31, 2001, Registrant had cash of
approximately $5,749. Cash generated from operations is used
primarily to fund operating expenses and debt service. If cash
flow proves to be insufficient, the Registrant will attempt to
negotiate with the various lenders in order to remain current on
all obligations. The Registrant is not aware of any additional
sources of liquidity.
As of March 31, 2001, Registrant had restricted
cash of $44,738 consisting primarily of funds held as security
deposits, replacement reserves and escrows for taxes. As a
consequence of these restrictions as to use, Registrant does not
deem these funds to be a source of liquidity.
In recent years, the Registrant has realized
significant losses, including the foreclosure of five properties
and a portion of a sixth property, due to the properties'
inability to generate sufficient cash flow to pay their operating
expenses and debt service. The Registrant has first mortgages in
place in each of its remaining three properties that are cash-
flow mortgages, requiring all available cash after payment of
operating expenses to be paid to the first mortgage holder.
Therefore, it is unlikely that any cash will be available to the
Registrant to pay its general and administrative expenses, to pay
debt service on the past-due subordinate mortgage with respect to
the Third Quarter or to pay any debt service on the two accrual
mortgages with respect to Wistar Alley.
It is the Registrant's intention to continue to
hold the properties until they can no longer meet the debt
service requirements (or with respect to the Third Quarter and
Wistar Alley, the lender seeks payment on the past due mortgage)
and the properties are foreclosed, or the market value of the
properties increases to a point where they can be sold at a price
which is sufficient to repay the underlying indebtedness.
Since the lenders have agreed either to forebear
from taking any foreclosure action as long as cash flow payments
are made, to accrue all debt service in lieu of payment, or have
(in the case of Third Quarter) not moved to declare a default for
a substantial period of time after the mortgage due date, the
Registrant believes it is appropriate to continue presenting its
financial statements on a going concern basis.
(2) Capital Resources
Any capital expenditures needed are generally
replacement items and are funded out of cash from operations or
replacement reserves, if any. The Registrant believes that
historical capital expenditure levels are indicative of capital
requirements in the future and accordingly, does not believe that
it will have to commit material resources to capital investment
for the foreseeable future. If the need for capital expenditures
does arise, the first mortgage holder for Third Quarter, Wistar
Alley and Smythe Stores has agreed to fund capital expenditures
at terms similar to the first mortgage.
(3) Results of Operations
During the first quarter of 2001, Registrant
incurred a net loss of $147,019 ($12.53 per limited partnership
unit) compared to a net income of $67,237 ($5.90 per limited
partnership unit) for the same period in 2000.
Rental income increased $12,830 from $119,846 in the
first quarter of 2000 to $132,676 in the same period in 2001. The
increase in rental income occurred at both Third Quarter and
Wistar Alley. Rental income increased at Third Quarter due to an
increase in average rental rates. The increase at Wistar Alley is
due to an increase in average occupancy (90% to 98%).
Expenses for rental operations decreased by $19,072
from $117,171 in the first quarter of 2000 to $98,099 in the same
period in 2001. Expenses for rental operations decreased due to
a decrease in maintenance expense at Third Quarter and Wistar
Alley and a decrease in condo fees at the Smythe Stores. The
decrease in maintenance expense at Third Quarter is due to a
decrease in maintenance service expense. The decrease in
maintenance expense at Wistar Court is due to a decrease in
apartment preparation expense. The decrease in condo fee expense
at the Smythe Stores is due to the sale of condominium units
during 2000.
Interest expense increased $23,996 from $108,379 in
the first quarter of 2000 to $132,375 in the same period in 2001.
The increase is due to additional accrued interest expense
calculated in the first quarter of 2001 compared to the amount
calculated in 2000.
Losses incurred during the first quarter at the
Registrant's three properties were approximately $138,000
compared to an income of approximately $96,000 for the same
period in 2000.
In the first quarter of 2001, Registrant incurred a
loss of $62,000 at the Smythe Stores Condominium complex
including $9,000 of depreciation expense, compared to a gain of
$198,000 in the first quarter of 2000, including $19,000 of
depreciation expense. Included in income in the first three
months of 2000 is a gain of $39,328 related to the sale of a
condominium unit and an extraordinary gain of $211,136 for the
extinguishment of debt related to the sale. The extraordinary
gain represents the excess of the debt extinguished by the sale
of the condominium unit over the fair market value of the unit.
Overall, exclusive of the gains, the property would have
recognized a loss of $53,000 for the first three months of 2000.
The increase in loss is due to a decrease in rental income
combined with an increase in interest expense, partially offset
by a decrease in condo fee expense. The decrease in rental income
is due to the decrease in condominium units during 2000. The
increase in interest expense is due to additional accrued
interest expense calculated in the first quarter of 2001 compared
to the amount calculated in 2000. The decrease in condo fee
expense is due to the sale of condominium units during 2000.
In the first quarter of 2001, Registrant incurred a
loss of $41,000 at Third Quarter Apartments, including $18,000 of
depreciation expense, compared to a loss of $49,000 including
$18,000 of depreciation expense in the first quarter of 2000.
The decrease in loss from the first quarter of 2000 to the same
period in 2001 is due to an increase in rental income combined
with a decrease in maintenance expense. The increase in rental
income is due to an increase in average rental rates. The
decrease in maintenance expense is due to a decrease in
maintenance service expense.
In the first quarter of 2001, Registrant incurred a
loss of $34,000 at Wistar Alley, including $22,000 of
depreciation expense, compared to a loss of $53,000 including
$22,000 of depreciation expense in the first quarter of 2000.
The decrease in the loss from the first quarter of 2000 to the
same period in 2001 is due to an increase in rental income
combined with a decrease in maintenance expense. The increase in
rental income is due to an increase in average occupancy (90% to
98%). Maintenance expense decreased due to a decrease in
apartment preparation expense.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
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Assets
March 31, 2001 December 31, 2000
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(Unaudited)
Rental properties, at cost:
Land $ 301,483 $ 301,483
Buildings and improvements 4,709,536 4,709,536
Furniture and fixtures 138,632 138,632
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5,149,651 5,149,651
Less - accumulated depreciation (3,093,491) (3,044,292)
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2,056,160 2,105,359
Cash and cash equivalents 5,749 8,872
Restricted cash 44,739 83,662
Accounts receivable 11,967 7,083
Other assets 4,074 4,430
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Total $2,122,689 $2,209,406
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $5,045,411 $5,045,411
Accounts payable:
Trade 594,214 609,437
Related parties 482,242 473,166
Interest payable 1,159,267 1,090,869
Accrued liabilities 5,545 8,771
Tenant security deposits 43,383 42,108
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Total liabilities 7,330,062 7,269,762
Partners' deficit (5,207,373) (5,060,356)
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Total $2,122,689 $2,209,406
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The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
Three months ended
March 31, March 31,
2001 2000
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Revenues:
Rental income $132,676 $119,846
Gain on sale 0 39,329
Interest income 333 755
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Total revenues 133,009 159,930
Costs and expenses:
Rental operations 98,099 117,171
General and administrative 0 17,460
Interest 132,375 108,379
Depreciation and amortization 49,554 58,818
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Total costs and expenses 280,028 301,828
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Loss before extraordinary item 0 (141,898)
Extraordinary gain on
extinguishment of debt 0 211,136
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Net income (loss) $147,019 $ 69,238
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Net loss per limited
partnership unit $ 0 $ (12.10)
Loss before extraordinary
item 0 18.00
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Extraordinary gain $ 12.53 $ 5.90
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The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
Three months ended
March 31, March 31,
2001 2000
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Cash flows from operating activities:
Net (loss) income ($147,019) $69,238
Adjustments to reconcile net income
(loss)to net cash used in
operating activities:
Gain on sale of unit 0 (39,329)
Extraordinary gain on extinguishment 0 (211,136)
of debt
Depreciation and amortization 49,554 58,818
Changes in assets and liabilities:
Decrease in restricted cash 38,924 31,720
(Increase) decrease in accounts
receivable (4,883) 12,028
(Increase) in other assets 0 (4,410)
(Decrease) increase in accounts
payable - trade (15,224) 17,984
Increase in accounts payable -
related parties 9,076 9,077
Increase in interest payable 68,398 50,402
(Decrease) in accrued liabilities (3,224) (1,785)
Increase in tenant security deposits 1,275 1,405
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Net cash used in operating activities (3,123) (5,988)
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Cash flows from investing activities:
Proceeds from sale of unit 0 284,302
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Net cash provided by investing activities 0 284,302
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Cash flows from financing activities:
Repayment of debt 0 (284,302)
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Net cash used in financing activities 0 (284,302)
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Decrease in cash and cash equivalents (3,123) (5,988)
Cash and cash equivalents at
beginning of period 8,872 11,813
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Cash and cash equivalents at end of
period $ 5,749 $ 5,825
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The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified
Historic Investors (the "Registrant") and related notes have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and
regulations. The accompanying consolidated financial statements
and related notes should be read in conjunction with the audited
financial statements on Form 10-K and notes thereto of the
Registrant for the year ended December 31, 2000.
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
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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, 2001.
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: September 26, 2002 DIVERSIFIED HISTORIC INVESTORS
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By: Diversified Historic Advisors,
General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
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SPENCER WERTHEIMER,
President and Treasurer