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, 2002
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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, 2002 (unaudited)
and December 31, 2001
Consolidated Statements of Operations - Three Months
Ended March 31, 2002 and 2001 (unaudited)
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2002 and 2001 (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, 2002, Registrant had cash of
approximately $3,528. 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, 2002, Registrant had restricted
cash of $55,107 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 and
debt service 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 2002, Registrant
incurred a net loss of $140,682 ($12.00 per limited partnership
unit) compared to a net loss of $147,019 ($12.53 per limited
partnership unit) for the same period in 2001.
Rental income increased $7,136 from $132,676 in the
first quarter of 2001 to $139,812 in the same period in 2002. The
increase in rental income occurred at the Smythe Stores and
Wistar Alley, partially offset by a decrease in rental income at
the Third Quarter Apartments. The increase in rental income at
the Smythe Stores and Wistar Alley is due to increases in average
rental rates. The decrease in rental income at Third Quarter is
due to a decrease in average occupancy (95% to 93%).
Rental operations expense increased $404 from
$98,099 in the first quarter of 2001 to $98,503 in the same
period in 2002. Rental operations expense increased due to an
increase in insurance expense, partially offset by a decrease in
maintenance expense and tax and license expense. The increase in
insurance expense occurred at all three properties due to an
increase in monthly premiums. The decrease in maintenance expense
occurred at Third Quarter due to a decrease in plumbing and
electrical expense. The decrease in tax and license expense
occurred at all three properties due to a decrease in
miscellaneous fees.
Interest expense increased $1,230 from $132,375 in
the first quarter of 2001 to $133,605 in the same period in 2002.
The increase in interest expense occurred at Third Quarter and
Wistar Alley due to an increase in principal balance upon which
the interest is calculated, partially offset by a decrease in
interest expense at the Smythe Stores. The decrease in interest
expense at the Smythe Stores is due to a decrease in principal
balance due to the extinguishment of debt as a result of the sale
of a condominium unit during 2001.
Losses incurred during the first quarter at the
Registrant's three properties were approximately $132,000
compared to a loss of approximately $138,000 for the same period
in 2001.
In the first quarter of 2002, Registrant incurred a
loss of $51,000 at the Smythe Stores Condominium complex
including $7,000 of depreciation expense, compared to a loss of
$62,000 in the first quarter of 2001, including $9,000 of
depreciation expense. The decrease in loss is due to an increase
in rental income and a decrease in interest expense, real estate
taxes, and depreciation expense. The increase in rental income is
due to an increase in monthly rental rates. The decrease in
interest expense, depreciation expense and real estate tax
expense are due to the sale of a condominium unit which occurred
during 2001.
In the first quarter of 2002, Registrant incurred a
loss of $47,000 at the Third Quarter Apartments, including
$19,000 of depreciation expense, compared to a loss of $41,000
including $18,000 of depreciation expense in the first quarter of
2001. 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 maintenance expense. The decrease in rental
income is due to a decrease in average occupancy (95% to 93%).
The increase in interest expense is due to an increase in the
principal balance upon which the interest in calculated combined
with a decrease in monthly payment amounts during the first
quarter of 2002. The decrease in maintenance expense is due to a
decrease in plumbing and electrical expense due to a decrease in
average occupancy (95% to 93%).
In the first quarter of 2002, Registrant incurred a
loss of $34,000 at Wistar Alley, including $23,000 of
depreciation expense, compared to a loss of $34,000 including
$22,000 of depreciation expense in the first quarter of 2001. The
reported net loss of the property remained the same in the first
quarter of 2001 and 2002. During the first quarter of 2002 an
increase in rental income, offset by an increase in interest
expense occurred at the property. The increase in rental income
is due to an increase in average rental rates. The increase in
interest expense is due to the increase in principal balance upon
which the interest is calculated.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
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Assets
March 31, 2002 December 31, 2001
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(Unaudited)
Rental properties, at cost:
Land $ 299,612 $ 299,612
Buildings and improvements 4,506,943 4,506,943
Furniture and fixtures 174,029 174,029
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4,980,584 4,980,584
Less - accumulated depreciation (3,162,125) (3,113,769)
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1,818,459 1,866,815
Cash and cash equivalents 3,528 12,266
Restricted cash 55,107 81,478
Accounts receivable 14,563 12,230
Other assets 7,778 3,007
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Total $1,899,435 $1,975,796
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $5,146,354 $5,146,354
Accounts payable:
Trade 391,754 394,991
Related parties 519,051 509,975
Interest payable 1,234,270 1,181,241
Accrued liabilities 3,422 2,863
Tenant security deposits 49,635 44,740
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Total liabilities 7,344,486 7,280,164
Partners' deficit (5,445,051) (5,304,368)
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Total $1,899,435 $1,975,796
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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,
2002 2001
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Revenues:
Rental income $139,812 $132,676
Interest income 282 333
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Total revenues 140,094 133,009
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Costs and expenses:
Rental operations 98,503 98,099
Interest 133,605 132,375
Depreciation and amortization 48,667 49,554
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Total costs and expenses 280,775 280,028
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Net income (loss) ($140,681) ($147,019)
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Net loss per limited
partnership unit ($ 12.00) ($ 12.53)
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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,
2002 2001
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Cash flows from operating activities:
Net (loss) income ($140,833) ($147,019)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 48,666 49,554
Changes in assets and liabilities:
Decrease in restricted cash 26,372 38,924
Increase in accounts receivable (2,333) (4,883)
Increase in other assets (5,082) 0
Decrease in accounts payable - trade (3,237) (15,224)
Increase in accounts payable -
related parties 9,227 9,076
Increase in interest payable 53,029 68,398
Increase (decrease) in accrued
liabilities 558 (3,224)
Increase in tenant security deposits 4,895 1,275
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Net cash used in operating activities (8,738) (3,123)
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Net cash provided by investing
activities 0 0
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Net cash used in financing activities 0 0
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Decrease in cash and cash equivalents (8,738) (3,123)
Cash and cash equivalents at
beginning of period 12,266 8,872
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Cash and cash equivalents at end of
period $ 3,528 $ 5,749
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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, 2001.
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, 2002.
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: June 2, 2003 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