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, 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 - June 30, 2002 (unaudited)
and December 31, 2001
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 2002 and 2001 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 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
As of June 30, 2002, Registrant had cash of
approximately $4,633. 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, 2002, Registrant had restricted cash
of $78,760 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 2002, Registrant
incurred a net loss of $101,770 ($8.67 per limited partnership
unit) compared to a net income of $116,357 ($9.92 per limited
partnership unit) for the same period in 2001. For the first six
months of 2002, the Registrant incurred a net loss of $242,452
($20.67 per limited partnership unit) compared to a net loss of
$30,662 ($2.61 per limited partnership unit) for the same period
in 2001.
Rental income increased $13,467 from $131,849 in the
second quarter of 2001 to $145,316 in the same period in 2002.
The increase in rental income is due to an increase in average
occupancy the Third Quarter Apartments (95% to 100%). The
increase in rental income at the Smythe Stores and Wistar Alley
is due to an increase in average rental rates.
Rental income increased $20,604 from $264,524 for
the first six months of 2001 to $285,128 for the same period in
2002. The increase in rental income is due to an increase in
average occupancy at the Third Quarter Apartments (95% to 97%).
The increase in rental income at the Smythe Stores Condos and
Wistar Alley is due to an increase in average rental rates.
Rental operations expense decreased $2,620 from
$68,028 in the second quarter of 2001 to $65,408 in the same
period in 2002 and for the first six months decreased $2,215 from
$166,126 during the first six months of 2001 to $163,911 for the
same period in 2002. The decrease in rental operations expense
from the second quarter and the first six month of 2001 to the
same period in 2002 is due to a decrease in maintenance expense,
partially offset by a bad debt expense incurred during the year.
The decrease in maintenance expense at Wistar Alley and the Third
Quarter Apartments is due to a decrease in apartment preparation
expenses due to a decrease in the turnover of apartment units.
The decrease in maintenance expense at the Smythe Stores is due
to the sale of a condominium unit during 2001. The bad debt
expense incurred at both Wistar Alley and the Third Quarter
Apartments and is due to uncollectible tenant debts that were
written off during the year.
Interest expense increased $2,384 from $130,822 in
the second quarter of 2001 to $133,206 in the same period in 2002
and increased by $3,614 from $263,197 for the first six months of
2001 to $266,811 for the same period in 2002. The increase in
interest expense occurred at both Wistar Alley and the Third
Quarter Apartments and is due to an increase in the principal
amount upon which the interest is calculated, partially offset by
a decrease at the Smythe Stores due to the extinguishment of debt
related to the sale of a condominium unit during the second
quarter of 2001.
A loss incurred during the second quarter at the
Registrant's properties was approximately $93,000, compared to
income of approximately $126,000 for the same period in 2001. For
the first six months of 2002, the Registrant's properties
incurred a net loss of approximately $224,000 compared to a net
income of approximately $12,000 for the same period in 2001.
In the second quarter of 2002, Registrant incurred a
loss of $51,000 at the Smythe Stores Condominium complex
including $7,000 of depreciation expense, compared to income of
$176,000 in the second quarter of 2001, including $19,000 of
depreciation expense. Included in income during the second
quarter of 2001 is a gain of $27,811 related to the sale of a
condominium unit. An extraordinary gain of $214,985 for the
second quarter of 2001 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. The decrease in
loss from the second quarter of 2001 to the same period in 2002
is due to a decrease in interest expense and depreciation
expense. The decrease in interest expense is a result of the
extinguishment of debt due to the sale of a condominium unit
during the second quarter of 2001. The decrease in depreciation
expense is due to the sale of a condominium unit during the
second quarter of 2001 which decreased the depreciable basis of
the fixed assets.
In the first six months of 2002, Registrant incurred
a loss of $101,000 including $13,000 of depreciation expense,
compared to income of $114,000 including $27,000 of depreciation
expense for the same period in 2001. Included in income during
the first six months of 2001 is a gain of $27,811 related to the
sale of a condominium unit. An extraordinary gain of $214,985 was
recognized for the first six months of 2001. 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. As with the
second quarter, the decrease in loss from the first six months of
2001 to the same period in 2002 is due to a decrease in interest
expense and depreciation expense. The decrease in interest
expense is a result of the extinguishment of debt due to the sale
of a condominium unit during the second quarter of 2001. The
decrease in depreciation expense is due to the sale of a
condominium unit during the first six months of 2001 which
decreased the depreciable basis of the fixed assets.
In the second quarter of 2002, Registrant incurred a
loss of $29,000 at the Third Quarter Apartments, including
$19,000 of depreciation expense, compared to a loss of $36,000
including $18,000 of depreciation expense in the second quarter
of 2001. For the first six months of 2002, Registrant incurred a
loss of $76,000, including $38,000 of depreciation expense
compared to a loss of $77,000 including $37,000 of depreciation
expense for the first six months of 2001. The decrease in loss
from the second quarter and the first six months of 2001 to the
same period in 2002 is due to an increase in rental income and a
decrease in maintenance expense, partially offset by an increase
in interest expense and a bad debt expense incurred during the
year. The increase in rental income is due to an increase in
average occupancy for the first six months (95% to 97%) and for
the second quarter (95% to 100%). The decrease in maintenance
expense is due to a decrease in apartment preparation expenses
due to a decrease in the turnover of apartment units. The
increase in interest expense is due to an increase in principal
balance upon which the interest is calculated. The bad debt
expense incurred at the Third Quarter Apartments is due to
uncollectible tenant debts that were written off during the year.
In the second quarter of 2002, Registrant incurred a
loss of $13,000 at Wistar Alley, including $23,000 of
depreciation expense, compared to a loss of $15,000, including
$22,000 of depreciation expense, in the second quarter of 2001.
For the first six months of 2002, Registrant incurred a loss of
$47,000, including $45,000 of depreciation expense, compared to a
loss of $49,000, including $45,000 of depreciation expense, for
the same period in 2001. The decrease in loss from the second
quarter and the first six months of 2001 to the same period in
2002 is due to an increase in rental income and a decrease in
maintenance expense, partially offset by an increase in interest
expense and a bad debt expense incurred during the year. 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 apartment preparation expenses due to a decrease in the
turnover of apartment units. The increase in interest expense is
due to an increase in principal balance upon which the interest
is calculated. The bad debt expense incurred at Wistar Alley is
due to uncollectible tenant debts that were written off during
the year.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
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Assets
June 30, 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 (3,210,480) (3,113,769)
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1,770,104 1,866,815
Cash and cash equivalents 4,633 12,266
Restricted cash 78,760 81,478
Accounts receivable 7,804 12,230
Other assets (net of
amortization of
$34,158 and $33,536) 7,467 3,007
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Total $1,868,768 $1,975,796
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $5,146,354 $5,146,354
Accounts payable:
Trade 394,768 394,991
Related parties 528,228 509,975
Interest payable 1,288,198 1,181,241
Tenant security deposits 53,745 44,740
Other liabilities 4,295 2,863
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Total liabilities 7,415,588 7,280,164
Partners' deficit (5,546,820) (5,304,368)
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Total $1,868,768 $1,975,796
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The accompanying notes are an itegral 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,
2002 2001 2002 2001
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Revenues:
Rental income $145,316 $131,849 $285,128 $264,524
Gain on sale of
units 0 27,811 0 27,811
Other income 0 90 0 90
Interest income 194 231 475 564
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Total revenues 145,510 159,981 285,603 292,989
Costs and expenses:
Rental operations 65,408 68,028 163,911 166,126
Interest 133,206 130,822 266,811 263,197
Depreciation and
amortization 48,666 59,759 97,333 109,313
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Total costs and
expenses 247,280 258,609 528,055 538,636
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Loss before
extraordinary
item ($101,770) ($ 98,628) ($242,452) ($245,647)
Extraordinary gain
from extinguish-
ment of debt 0 214,985 0 214,985
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Net income/loss ($101,770) $116,357 ($242,452) ($ 30,662)
======== ======== ======== ========
Net income (loss)
per limited
partnership unit: ($ 8.67) ($ 8.41) ($ 20.67) ($ 20.94)
Loss before
extraordinary
item 0 18.33 0 18.33
------- --------- -------- --------
Extraordinary gain ($ 8.67) $ 9.92 ($ 20.67) ($ 2.61)
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The accompanying notes are an itegral 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,
2002 2001
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Cash flows from operating activities:
Net (loss) income ($242,452) $212,134
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Gain on sale of units 0 (27,811)
Extraordinary gain on extinguishment
on debt 0 (214,985)
Depreciation and amortization 97,333 109,313
Changes in assets and liabilities:
Decrease in restricted cash 2,719 20,595
Decrease (increase) in accounts
receivable 4,427 (2,803)
(Increase) in other assets (5,082) 0
(Decrease) in accounts payable -
trade (224) (19,450)
Increase in accounts payable -
related parties 18,253 18,253
Increase (decrease) in interest
payable 106,956 (41,063)
Increase (decrease) in accrued
liabilities 1,432 (6,173)
Increase in tenant security deposits 9,005 7,565
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Net cash (used in) provided by
operating activities (7,633) 55,575
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Cash flows from investing activities:
Proceeds from sale of units 0 82,163
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Net cash provided by investing
activites 0 82,163
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Cash flows from financing activities:
Repayment of debt 0 (145,752)
Borrowings under debt obligations 0 0
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Net cash used in financing activities 0 (145,752)
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(Decrease) increase in cash and cash
equivalents (7,633) (8,014)
Cash and cash equivalents at
beginning of period 12,266 8,872
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Cash and cash equivalents at end of
period $ 4,633 $ 858
======== ========
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, 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 June 30, 2002.
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: June 23, 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