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 September 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 - September 30, 2001
(unaudited) and December 31, 2000
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 2001 and 2000
(unaudited)
Consolidated Statements of Cash Flows - Nine Months
Ended September 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
As of September 30, 2001, Registrant had cash of
approximately $8,109. 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 September 30, 2001, Registrant had restricted
cash of $68,761 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 lenders on the past due subordinate mortgages seek
payment) 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
Due to the relatively recent rehabilitations of the
properties, 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.
(3) Results of Operations
During the third quarter of 2001, Registrant
incurred a net loss of $106,003 ($9.03 per limited partnership
unit) compared to a net loss of $281,241 ($23.98 per limited
partnership unit) for the same period in 2000. For the first
nine months of 2001, the Registrant incurred a net loss of
$136,664 ($11.65 per limited partnership unit) compared to a net
income of $1,717 ($0.15 per limited partnership unit) for the
same period in 2000.
Rental income increased $12,032 from $124,146 in the
third quarter of 2000 to $136,178 in the same period in 2001 and
for the first nine months of 2001 increased $34,850 from $365,852
for the first nine months of 2000 to $400,702 for the same period
in 2001. The increase in rental income is due to an increase in
rental rates at Wister Alley, Third Quarter and the Smythe
Stores.
Rental operations expense decreased by $6,732 from
$61,705 in the third quarter of 2000 to $54,973 in the same
period in 2001 and decreased by $64,979 from $286,079 for the
first nine months of 2000 to $221,100 for the same period in
2001. The decrease in rental operations expense is due to a
decrease in maintenance expense at Wister Alley, Third Quarter,
and the Smythe Stores. The decrease at Wister Alley is due to a
decrease in apartment preparation expenses. The decrease at Third
Quarter is due to a decrease in grounds maintenance and cleaning
service expense, and the decrease at the Smythe Stores is due to
a decrease in maintenance service expense and a decrease in HVAC
service and repairs.
Interest expense decreased $139,880 from $267,714 in
the third quarter of 2000 to $127,834 in the same period in 2001
and decreased $103,803 from $494,834 for the first nine months of
2000 to $391,031 for the same period in 2001. The decrease in
interest expense for both the third quarter and first nine months
of 2001 is due to a decrease in principal balance in which the
interest in calculated. The decrease in principal balance is due
to the sale of a condominium unit at the Smythe Stores during the
second quarter of 2001.
Losses incurred during the third quarter at the
Registrant's properties were approximately $97,000, compared to a
loss of approximately $255,000 for the same period in 2000. For
the first nine months of 2001 the Registrant's properties
incurred a net loss of approximately $109,000 compared to income
of approximately $81,000 for the same period in 2000.
In the third quarter of 2001, Registrant incurred a
loss of $64,000 at the Smythe Stores condominium complex
including $19,000 of depreciation expense, compared to a loss of
$203,000, including $19,000 of depreciation expense, in the third
quarter of 2000. The decrease in loss for the third quarter is
due to an increase in rental income combined with a decrease in
interest expense. The increase in rental income is due to an
increase in average rental rates. The decrease in interest
expense is due to a decrease in principal balance in which the
interest is calculated. The decrease in principal balance is due
to the sale of a condominium unit at the Smythe Stores during the
second quarter of 2001.
In the first nine months of 2001, Registrant
recognized income of $50,000, including $46,000 of depreciation
expense, compared to income of $303,000, including $56,000 of
depreciation expense, for the same period in 2000, at the Smythe
Stores condominium complex. Included in income in the first nine
months of 2001 is a gain of $27,811 related to the sale of a
condominium unit compared to $139,633 for the sale of two
condominium units for the same period in 2000. An extraordinary
gain of $214,985 was recognized for the first nine months of 2001
compared to $504,638 for the same period in 2000 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 $192,000 for the first nine months of 2001 compared to a
loss of $341,000 for the same period in 2000. The decrease in
loss for first nine months is due to an increase in rental income
and a decrease in maintenance expense and interest 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 and HVAC service and repairs, and
the decrease in interest expense is due to a decrease in
principal balance in which the interest is calculated.
In the third quarter of 2001, Registrant incurred a
loss of $26,000 at the Third Quarter Apartments, including
$18,000 of depreciation expense, compared to a loss of $31,000,
including $18,000 of depreciation expense, in the third quarter
of 2000 and for the first nine months of 2001 incurred a loss of
$104,000 including 55,000 in depreciation expense, compared to a
loss of $116,000 including $54,000 in depreciation expense during
2000. The decrease in loss for the third quarter and the first
nine months is due to an increase in rental income and a decrease
in maintenance expense, partially offset by an increase in
leasing commission expense. The decrease in maintenance expense
is due to a decrease in grounds maintenance and cleaning service
expense. The increase in leasing commission expense is due to the
increase in the turnover of apartment units.
In the third quarter of 2001, Registrant incurred a
loss of $7,000 including $22,000 of depreciation expense, at
Wistar Alley compared to a loss of $20,000, including $22,000 of
depreciation expense, in the third quarter of 2000 and for the
first nine months of 2001, Registrant incurred a loss of $56,000,
including $67,000 of depreciation expense, compared to a loss of
$106,000, including $66,000 of depreciation expense for the same
period in 2000. The decrease in loss for both the third quarter
and the first nine 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. 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
September 30, December 31,
2001 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(3,085,740) (3,044,292)
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1,855,191 2,105,359
Cash and cash equivalents 8,109 8,872
Restricted cash 68,761 83,662
Accounts receivable 12,935 7,083
Other assets (net of
amortization of
$33,181 and $32,113) 3,364 4,430
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Total $1,948,360 $2,209,406
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $4,899,659 $5,045,411
Accounts payable:
Trade 580,778 609,437
Related parties 500,697 473,166
Interest payable 1,115,462 1,090,869
Tenant security deposits 45,390 42,108
Other liabilities 3,394 8,771
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Total liabilities 7,145,380 7,269,762
Partners' deficit (5,197,020) (5,060,356)
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Total $1,948,360 $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 Nine months
ended September 30, ended September 30,
2001 2000 2001 2000
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Revenues:
Rental income $136,178 $124,146 $400,702 $ 365,852
Gain on sale of
units 0 0 27,811 139,633
Other Income 0 0 90 0
Interest income 386 199 950 1,118
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Total revenues 136,564 124,345 429,553 506,603
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Costs and expenses:
Rental operations 54,973 61,705 221,100 286,079
General and
administrative 0 17,460 0 52,380
Interest 127,834 267,714 391,031 494,834
Depreciation and
amortization 59,760 58,707 169,071 176,231
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Total costs and
expenses 242,567 405,586 781,202 1,009,524
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Loss before
extraordinary item (106,003) (281,241) (351,649) (502,921)
Extraordinary gain
from extinguishment of
debt 0 0 214,985 504,638
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Net income(loss) ($106,003) ($281,241) ($136,664) $ 1,717
======== ======== ======== ==========
Net income (loss) per
limited partnership
unit:
Loss before
extraordinary item ($ 9.03) ($ 23.98) ($ 29.98)($ 42.88)
Extraordinary gain 0 0 18.33 43.03
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($ 9.03) ($ 23.98) ($ 11.65) $ 0.15
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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)
Nine months ended
September 30,
2001 2000
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Cash flows from operating activities:
Net Income (loss) $106,132 $ 1,717
Gain on sale of units (27,811) (139,633)
Extraordinary gain on extinguishment
on debt (214,985) (504,638)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 169,072 176,231
Changes in assets and liabilities:
Decrease in restricted cash 14,901 8,378
(Increase) decrease in accounts
receivable (5,851) 9,329
Increase in other assets 0 (4,410)
(Decrease) increase in accounts
payable - trade (28,660) 80,851
Increase in accounts payable -
related parties 27,531 27,531
Increase in interest payable 24,593 318,066
(Decrease) increase in accrued
liabilities (5,378) 2,146
Increase (decrease)in tenant security
deposits 3,282 4,075
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Net cash (used in) provided by
operating activities 62,826 (20,357)
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Cash flows from investing activities:
Proceeds from sale of units 82,163 0
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Net cash provided by investing
activities 82,163 0
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Cash flows from financing activities:
Proceeds from debt financing (145,752) 12,408
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Net cash provided by financing activites (145,752) 12,408
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Decrease in cash and cash equivalents (763) (7,949)
Cash and cash equivalents at
beginning of period 8,872 11,813
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Cash and cash equivalents at end of
period $ 8,109 $ 3,864
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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 in Form 10-K and notes thereto, in the
Registrant's Annual Report on Form 10-K 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 a 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
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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 September 30, 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 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