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, 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 - September 30, 2002
(unaudited) and December 31, 2001
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 2002 and 2001
(unaudited)
Consolidated Statements of Cash Flows - Nine Months
Ended September 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 September 30, 2002, Registrant had cash of
approximately $4,186. 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, 2002, Registrant had restricted
cash of $86,895 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 2002, Registrant
incurred a net loss of $103,554 ($8.83 per limited partnership
unit) compared to a net loss of $106,003 ($9.03 per limited
partnership unit) for the same period in 2001. For the first
nine months of 2002, the Registrant incurred a net loss of
$346,006 ($29.50 per limited partnership unit) compared to a net
loss of $136,664 ($11.65 per limited partnership unit) for the
same period in 2001.
Rental income increased $4,732 from $136,178 in the
third quarter of 2001 to $140,910 in the same period in 2002 and
for the first nine months of 2002 increased $25,335 from $400,702
for the first nine months of 2001 to $426,037 for the same period
in 2002. The increase in rental income from the third quarter of
2001 to the same period in 2002 is due to an increase in average
rental rates at the Smythe Stores, the Third Quarter Apartments,
and Wistar Alley. The increase in rental income from the first
nine months of 2001 to the same period in 2002 is due to an
increase in average occupancy at the Smythe Stores (96% to 98%)
and the Third Quarter Apartments (95% to 96%).
Rental operations expense increased $6,853 from
$54,973 in the third quarter of 2001 to $61,826 in the same
period in 2002. The increase in rental operations expense from
the third quarter of 2001 to the same period in 2002 is due to an
increase in insurance expense, maintenance expense, and leasing
commission expense. The increase in insurance expense occurred at
the Third Quarter Apartments and Wistar Alley and is due to an
increase in monthly premiums. The increase in maintenance expense
and leasing commission expense at Wistar Alley is due to an
increase in the turnover of apartment units.
Rental operations expense decreased $188 from
$221,100 for the first nine months of 2001 to $220,912 for the
same period in 2002. The decrease in rental operations expense
from the first nine months of 2001 to the same period in 2002 is
due to a decrease in maintenance expense, partially offset by an
increase in insurance expense. The decrease in maintenance
expense occurred at the Third Quarter Apartments and is due to a
decrease in apartment preparation expenses. The increase in
insurance expense occurred at the Third Quarter Apartments and
Wistar Alley and is due to an increase in monthly premiums.
Interest expense increased $5,010 from $127,834 in
the third quarter of 2001 to $132,844 in the same period in 2002
and increased $8,624 from $391,031 for the first nine months of
2001 to $399,655 for the same period in 2002. The increase in
interest expense from the third quarter of 2001 to the same
period in 2002 is due to an increase in principal balance upon
which the interest is calculated at both the Third Quarter
Apartments and Wistar Alley. The increase from the first nine
months of 2001 to the same period in 2002 is also due to an
increase in principal balance at the Third Quarter and Wistar
Alley, 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 combined with an
increase in monthly payments. The decrease in principal balance
is due to the extinguishment of debt related to the sale of a
condominium unit during 2001.
Losses incurred during the third quarter at the
Registrant's three properties were approximately $94,000,
compared to a loss of approximately $97,000 for the same period
in 2001. For the first nine months of 2002 the Registrant's three
properties incurred a net loss of approximately $318,000 compared
to a net loss of approximately $109,000 for the same period in
2001.
In the third quarter of 2002, Registrant incurred a
loss of $48,000 at the Smythe Stores condominium complex
including $7,000 of depreciation expense, compared to a loss of
$64,000, including $19,000 of depreciation expense, in the third
quarter of 2001. The decrease in loss from the third quarter of
2001 to the same period in 2002 is due to an increase in rental
income combined with a decrease in rental operations expense and
depreciation expense. The increase in rental income is due to an
increase in average rental rates. The decrease in rental
operations expense is due to a decrease in maintenance expense
and legal and accounting expense. The decrease in depreciation
expense is due to the sale of a condominium unit during 2001
which decreased the depreciable basis of the fixed assets.
In the first nine months of 2002, Registrant
incurred a loss of $150,000, including $20,000 of depreciation
expense, compared to income of $50,000, including $46,000 of
depreciation expense, for the same period in 2001, at the Smythe
Stores condominium complex. Included in income during the first
nine 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 during the first nine months of 2001 for the
extinguishment of debt related to the sale. 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. The decrease
in loss from the first nine months of 2001 to the same period in
2002 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 occupancy (96% to 98%).
The decrease in maintenance expense is due to a decrease in HVAC
service and repairs. The decrease in interest expense is due to a
decrease in principal balance upon which the interest is
calculated due to the extinguishment of debt related to the sale
of a condominium unit during 2001.
In the third quarter of 2002, Registrant incurred a
loss of $26,000 at the Third Quarter Apartments, including
$21,000 of depreciation expense, compared to a loss of $26,000,
including $18,000 of depreciation expense, in the third quarter
of 2001 and for the first nine months of 2002, Registrant
incurred a loss of $102,000 including $59,000 of depreciation
expense, compared to a loss of $104,000 including $55,000 in
depreciation expense during 2001. The loss for the third quarter
remained the same for both 2001 and 2002. The decrease in loss
from the first nine months of 2001 to the same period in 2002 is
due to an increase in rental income and a decrease in rental
operations expense, partially offset by an increase in interest
expense. The increase in rental income is due to an increase in
average occupancy (95% to 96%). The decrease in rental operations
expense is due to a decrease in maintenance expense, partially
offset by an increase in insurance expense. The decrease in
maintenance expense is due to a decrease in apartment
preparations expense and capital improvements made during the
third quarter and the increase in insurance expense is due to an
increase in monthly premiums. The increase in interest expense is
due to an increase in principal balance upon which the interest
is calculated.
In the third quarter of 2002, Registrant incurred a
loss of $19,000 including $23,000 of depreciation expense, at
Wistar Alley compared to a loss of $7,000, including $22,000 of
depreciation expense in the third quarter of 2001, and for the
first nine months of 2002, Registrant incurred a loss of $66,000,
including $68,000 of depreciation expense, compared to a loss of
$56,000, including $67,000 of depreciation expense for the same
period in 2001. The increase in loss from both the third quarter
and the first nine months of 2001 to the same period in 2002 is
due to an increase in rental operations expense and interest
expense, partially offset by an increase in rental income. The
increase in rental operations expense is due to an increase in
maintenance expense and leasing commission expense which are both
due to the increase in turnover of apartment units. The increase
in insurance expense is due to an increase in monthly premiums.
The increase in interest expense is due to an increase in
principal balance upon which the interest is calculated. The
increase in rental income is due to an increase in monthly rental
rates.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
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Assets
September 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 (3,260,449) (3,113,769)
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1,720,135 1,866,815
Cash and cash equivalents 4,186 12,266
Restricted cash 86,895 81,478
Accounts receivable 10,106 12,230
Other assets (net of amortization
of $34,468 and $33,536) 7,156 3,007
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Total $1,828,478 $1,975,796
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $5,146,354 $5,146,354
Accounts payable:
Trade 442,280 394,991
Related parties 493,682 509,975
Interest payable 1,341,314 1,181,241
Tenant security deposits 49,325 44,740
Other liabilities 5,897 2,863
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Total liabilities 7,478,852 7,280,164
Partners' deficit (5,650,374) (5,304,368)
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Total $1,828,478 $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 Nine months
ended September 30, ended September 30,
2002 2001 2002 2001
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Revenues:
Rental income $140,910 $136,178 $426,037 $400,702
Gain on sale of units 0 0 0 27,811
Other Income 0 0 0 90
Interest income 485 386 961 950
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Total revenues 141,395 136,564 426,998 429,553
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Costs and expenses:
Rental operations 61,826 54,973 220,912 221,100
Interest 132,844 127,834 399,655 391,031
Bad debt expense 0 0 4,825 0
Depreciation and
amortization 50,279 59,760 147,612 169,071
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Total costs and
expenses 244,949 242,567 773,004 781,202
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Loss before
extraordinary item ($103,554) ($106,003) ($346,006) ($351,649)
Extraordinary gain
from extinguishment
of debt 0 0 0 214,985
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Net income(loss) ($103,554) ($106,003) ($346,006) ($136,664)
======== ======== ======== ========
Net income (loss) per
limited partnership
unit:
Loss before
extraordinary item ($ 8.83) ($ 9.03) ($ 29.50) ($ 29.98)
Extraordinary gain 0 0 0 18.33
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($ 8.83) ($ 9.03) ($ 29.50) ($ 11.65)
======== ======== ======== ========
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,
2002 2001
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Cash flows from operating activities:
Net Income (loss) ($346,006) $106,132
Gain on sale of units 0 (27,811)
Extraordinary gain on extinguishment
of debt 0 (214,985)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 147,612 169,072
Changes in assets and liabilities:
(Increase) decrease in restricted cash (5,415) 14,901
Decrease (increase) in accounts
receivable 2,125 (5,851)
(Increase) in other assets (5,082) 0
Increase (decrease) in accounts
payable - trade 47,288 (28,660)
(Decrease) increase in accounts
payable - related parties (16,293) 27,531
Increase in interest payable 160,073 24,593
Increase (decrease) in accrued
liabilities 3,033 (5,378)
Increase in tenant security deposits 4,585 3,282
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Net cash (used in) provided by
operating activities (8,080) 62,826
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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
activities 0 82,163
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Cash flows from financing activities:
Proceeds from debt financing 0 (145,752)
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Net cash provided by financing
activities 0 (145,752)
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Decrease in cash and cash equivalents (8,080) (763)
Cash and cash equivalents at beginning
of period 12,266 8,872
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Cash and cash equivalents at end of
period $ 4,186 $ 8,109
======== ========
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, 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 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, 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 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