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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, 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 - June 30, 2001 (unaudited)
and December 31, 2000
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 2001 and 2000 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 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 June 30, 2001, Registrant had cash of
approximately $858. 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 June 30, 2001, Registrant had restricted cash
of $63,068 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 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. 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 second quarter of 2001, Registrant
recognized a net income of $116,357 ($9.92 per limited
partnership unit) compared to a net income of $213,721 ($18.23
per limited partnership unit) for the same period in 2000. For
the first six months of 2001, the Registrant incurred a loss of
$30,662 ($2.61 per limited partnership unit) compared to a net
income of $282,958 ($24.13 per limited partnership unit) for the
same period in 2000.
Rental income increased $9,989 from $121,860 in the
second quarter of 2000 to $131,849 in the same period in 2001.
The increase in rental income is due to an increase in average
occupancy (96% to 98%) at Wistar Alley and an increase in average
rental rates at the Third Quarter Apartments.
Rental income increased $22,818 from $241,706 for
the first six months of 2000 to $264,524 for the same period in
2001. The increase in rental income is due to an increase in
average occupancy (93% to 98%) at Wistar Alley and an increase in
average rental rates at the Third Quarter Apartments.
Expenses for rental operations decreased by $39,173
from $107,202 in the second quarter of 2000 to $68,029 in the
same period in 2001 and for the first six months of 2001
decreased $58,247 from $224,374 during the first six months of
2000 to $166,127 for the same period in 2001. The decrease in
rental operations expense for the second quarter and the first
half of 2001 is due to a decrease in maintenance expense at
Wistar Alley, Third Quarter, and the Smythe Stores combined with
a decrease in miscellaneous tax and license expense at the Smythe
Stores. The decrease in maintenance expense at Wistar Alley is
due to a decrease in apartment preparations expense. The decrease
in maintenance expense at the Third Quarter Apartments is due to
a decrease in ground maintenance and cleaning service. The
decrease in maintenance expense at the Smythe Stores is due to
the sale of a condominium unit during the second quarter of 2001.
The decrease in miscellaneous tax and license expense at the
Smythe Stores is due to a decrease in the Net Profit Tax owed by
property in the second quarter of 2001 compared to the same
period in 2000.
Interest expense increased $12,081 from $118,741 in
the second quarter of 2000 to $130,822 in the same period in 2001
and increased by $36,077 from $227,120 for the first six months
of 2000 to $263,197 for the same period in 2001. The increase in
interest expense is due to an increase in the amount of interest
expense accrued at the Smythe Stores during the second quarter
and the first six months of 2001 compared to the same period in
2000.
Income recognized during the second quarter at the
Registrant's properties was approximately $126,000, compared to
income of approximately $240,000 for the same period in 2000.
For the first six months of 2001, the Registrant's properties
incurred a net loss of approximately $12,000 compared to income
of approximately $336,000 for the same period in 2000.
In the second quarter of 2001, Registrant recognized
income of $176,000 at the Smythe Stores Condominium complex
including $19,000 of depreciation expense, compared to income of
$309,000 in the second quarter of 2000, including $19,000 of
depreciation expense. Included in income in the second quarter
of 2001 is a gain of $27,811 related to the sale of a condominium
unit compared to $100,304 for the same period in 2000. An
extraordinary gain of $214,985 for the second quarter of 2001
compared to $293,501 for the same period in 2000 was recognized
for the extinguishment of debt related to those sales. The
extraordinary gain represents the excess of the debt extinguished
by the sale of the condominium units over the fair market value
of the units. Overall, exclusive of the gain, the property would
have incurred a loss of $69,000 for the second quarter of 2001
compared to a loss of $83,000 for the second quarter of 2000. The
decrease in loss is due to a decrease in maintenance expense and
miscellaneous tax and license expense, partially offset by an
increase in interest expense. The decrease in maintenance expense
is due to the sale of a condominium unit during the second
quarter 2001, and the decrease in miscellaneous tax and license
expense is due to a decrease in the Net Profit Tax owed by the
property in 2001 compared to the same period in 2000. The
increase in interest expense is due to the increase in accrued
interest recorded in the second quarter of 2001 compared to the
same period in 2000.
In the first six months of 2001, Registrant
recognized income of $114,000 including $27,000 of depreciation
expense, compared to income of $507,000 for the same period in
2000, including $38,000 of depreciation expense. Included in
income in the first six months of 2001 is a gain of $27,811
related to the sale of a condominium unit compared to a gain of
$139,633 related to the sale of two condominium units which was
included in income for the first six months of 2000. An
extraordinary gain of $214,985 for the first six months of 2001
compared to $504,638 for the same period in 2000 was recognized
for the extinguishment of debt related to those sales. The
extraordinary gain represents the excess of the debt extinguished
by the sales of the condominium units over the fair market value
of the units. Overall, exclusive of the gain, the property would
have incurred a loss of $129,000 for the first six months of 2001
compared to a loss of $135,000 for the same period in 2000. The
decrease in loss is due to a decrease in miscellaneous tax and
license expense and a decrease in depreciation expense, partially
offset by an increase in interest expense. The decrease in
maintenance expense and depreciation expense is due to the sale
of a condominium unit during the second quarter of 2001, and the
decrease in miscellaneous tax and license expense is due to a
decrease in the Net Profit Tax payment. The increase in interest
expense is due to the increase in accrued interest recorded for
the second quarter of 2001 compared to the same period in 2000.
In the second quarter of 2001, Registrant incurred a
loss of $36,000 at Third Quarter Apartments, including $18,000 of
depreciation expense, compared to a loss of $35,000 including
$18,000 of depreciation expense in the second quarter of 2000.
The increase in the loss for the second quarter is due to an
increase in miscellaneous operating expense due to general
expenses incurred at the property. For the first six months of
2001, Registrant incurred a loss of $77,000, including $37,000 of
depreciation expense, compared to a loss of $85,000 for the same
period of 2000, including $36,000 of depreciation expense. The
decrease in loss for the first six months is due to an increase
in rental income and a decrease in maintenance expense. The
increase in rental income is due to an increase in average rental
rates and the decrease in maintenance expense is due to a
decrease in ground maintenance and cleaning service expense.
In the second quarter of 2001, Registrant incurred a
loss of $15,000 at Wistar Alley, including $22,000 of
depreciation expense, compared to a loss of $33,000, including
$22,000 of depreciation expense, in the second quarter of 2000.
For the first six months of 2001, Registrant incurred a loss of
$49,000, including $45,000 of depreciation expense, compared to a
loss of $86,000, including $44,000 of depreciation expense, for
the same period in 2000. The decrease in the loss for both the
second quarter and the first six months of 2001 compared to the
same period in 2000 is due to an increase rental income and a
decrease in maintenance expense. The increase in rental income is
due to an increase in average occupancy (93% to 98%) for the
first six months. The decrease in maintenance expense is due to a
decrease in apartment preparation expense during the third
quarter.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
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Assets
June 30, 2001 December 31, 2000
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(Unaudited)
Rental properties, at cost:
Land $ 299,612 $ 301,483
Buildings and improvements 4,506,943 4,709,536
Furniture and fixtures 134,376 138,632
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4,940,931 5,149,651
Less - accumulated depreciation (3,026,337) (3,044,292)
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1,914,594 2,105,359
Cash and cash equivalents 858 8,872
Restricted cash 63,068 83,662
Accounts receivable 9,887 7,083
Other assets (net of
amortization of
$32,825 and $32,113) 3,719 4,430
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Total $1,992,126 $2,209,406
========== ==========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $4,899,659 $5,045,411
Accounts payable:
Trade 589,988 609,437
Related parties 491,419 473,166
Interest payable 1,049,806 1,090,869
Tenant security deposits 49,673 42,108
Other liabilities 2,598 8,771
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Total liabilities 7,083,143 7,269,762
Partners' deficit (5,091,017) (5,060,356)
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Total $1,992,126 $2,209,406
========== ==========
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 Six months
ended June 30, ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Rental income $131,849 $121,860 $264,524 $241,706
Gain on sale of
units 27,811 100,305 27,811 139,633
Other income 90 0 90 0
Interest income 231 164 564 919
-------- -------- -------- --------
Total revenues 159,981 222,329 292,989 382,258
-------- -------- -------- --------
Costs and expenses:
Rental operations 68,028 107,202 166,126 224,374
General and
administrative 0 17,460 0 34,920
Interest 130,822 118,741 263,197 227,120
Depreciation and
amortization 59,759 58,706 109,313 117,524
-------- -------- -------- --------
Total costs and
expenses 258,609 302,109 538,636 603,938
Loss before
extraordinary item (98,628) (79,780) (245,647) (221,680)
Extraordinary gain
from extinguishment
of debt 214,985 293,501 214,985 504,638
-------- -------- -------- --------
Net income/loss $116,357 $213,721 ($ 30,662) ($282,958)
======== ======== ======== ========
Net income (loss)
per limited
partnership unit:
Loss before
extraordinary
item ($ 8.41) ($ 6.80) ($ 20.94) ($ 18.90)
Extraordinary gain 18.33 25.03 18.33 43.03
-------- -------- -------- --------
$ 9.92 $ 18.23 ($ 2.61) $ 24.13
======== ======== ======== ========
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)
Six months ended
June 30,
2001 2000
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Cash flows from operating activities:
Net income $212,134 $282,958
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Gain on sale of units (27,811) (139,633)
Extraordinary gain on extinguishment
on debt (214,985) (504,638)
Depreciation and amortization 109,313 117,524
Changes in assets and liabilities:
Decrease in restricted cash 20,595 19,098
(Increase) decrease in accounts
receivable (2,803) 9,111
Increase in other assets 0 (4,410)
(Decrease) increase in accounts
payable - trade (19,450) 65,314
Increase in accounts payable -
related parties 18,253 18,253
(Decrease) increase in interest
payable (41,063) 111,064
(Decrease) increase in accrued
liabilities (6,173) 7,949
Increase in tenant security deposits 7,565 5,365
-------- --------
Net cash (used in) provided by
operating activities 55,575 (12,045)
-------- --------
Cash flows from investing activities:
Proceeds from sale of units 82,163 710,941
-------- --------
Net cash provided by investing
activities 82,163 710,941
-------- --------
Cash flows from financing activities:
Repayment of debt (145,752) (710,941)
Borrowings under debt obligations 0 7,332
-------- --------
Net cash used in financing activities (145,752) (703,609)
-------- --------
Decrease) increase in cash and cash
equivalents (8,014) (4,713)
Cash and cash equivalents at
beginning of period 8,872 11,813
-------- --------
Cash and cash equivalents at end of
period $ 858 $ 7,100
======== ========
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 in 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 June 30, 2001.
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: September 30, 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