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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0 - 15843
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DIVERSIFIED HISTORIC INVESTORS III
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2391927
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1609 WALNUT STREET, PHILADELPHIA, PA 19103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 13,981.5 Units
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of Class)
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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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or anyamendment to this Form 10-K. [ ]
Aggregate market value of Units held by non-affiliates of the Registrant:
Not Applicable*
* Securities not quoted in any trading market to Registrant's knowledge.
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors III
("Registrant") is a limited partnership formed
in 1986 under Pennsylvania Law. As of December
31, 1999, Registrant had outstanding 13,981.5
units of limited partnership interest (the
"Units").
Registrant is presently in its
operating stage. It originally owned five
properties or interests therein. One property
has been lost through foreclosure. See Item 2.
Properties, for a description thereof. It
currently owns four properties or interests
therein. For a discussion of the operations of
the Registrant, See Part II, Item 7.
Management's Discussion and Analysis of
Financial Condition and Results of Operations.
b. Financial Information about
Industry Segments
The Registrant operates in one
industry segment.
c. Narrative Description of Business
Registrant is in the business of
operating, holding, selling, exchanging and
otherwise dealing in and with real properties
containing improvements which are "Certified
Historic Structures," as such term is defined
in the Internal Revenue Code (the "Code"), for
use as apartments, offices, hotels and
commercial spaces, or any combination thereof,
or low income housing eligible for the tax
credit provided by Section 42 of the Code, and
such other uses as the Registrant's general
partner may deem appropriate.
Since the Registrant's inception,
all the properties acquired either by the
Registrant, or the subsidiary partnerships in
which it has an interest, have been
rehabilitated and certified as historic
structures and have received the related
investment tax credit. All four properties are
held for rental operations. At this time it is
anticipated that all the properties will
continue to be held for this purpose. At such
time as real property values begin to increase,
the Registrant will re-evaluate its investment
strategy regarding the properties.
As of December 31, 1999,
Registrant owned four properties (or interests
therein), located in Pennsylvania (two),
Louisiana (one), and North Carolina (one).
Three properties are operating as apartment
buildings and one property is operating as a
commercial/office building. In total, the four
properties contain 133 apartment units and
62,091 square feet ("sf") of commercial/retail
space. As of December 31, 1999, 124 of the
apartment units were under lease at monthly
rental rates ranging from $460 to $1,565. In
addition, 24,925 sf of the commercial space was
under lease at annual rates ranging from $6.00
per sf to $13.41 per sf. Rental of the
apartments and commercial space is not expected
to be seasonal. For further discussion of the
properties, see Item 2. Properties.
The Registrant is affected by and
subject to the general competitive conditions
of the residential and commercial real estate
industries. As a result of the overbuilding
that occurred in the 1980's, the competition
for both residential and commercial tenants in
the local markets where the Registrant's
properties are located is generally strong. As
a result, the Registrant is forced to keep its
rent levels competitively low in order to
maintain moderate to high occupancy levels.
Two of the residential properties are located
in Philadelphia, PA and the other is located in
the Warehouse District of New Orleans, LA. The
commercial/office building is located in
Winston-Salem, NC. One of the Philadelphia
properties is located very close to the "city
line," ie. the boundary between Philadelphia
and a neighboring suburb. Many potential
residents would prefer to live on the non-city
side, to avoid paying the city wage tax. The
Registrant attempts to keep its rents at a
level that is low enough to offset the
difference. In all the locations, the
competition for tenants remains stiff and
several similar buildings exist. The apartment
and commercial market remains stable and new
construction remains virtually nonexistent
although the availability of favorable home
financing has placed pressure on the rental
tenant base.
Registrant has no employees.
Registrant's activities are overseen by
Brandywine Construction & Management, Inc.,
("BCMI"), a real estate management firm.
d. Financial Information About
Foreign and Domestic Operations and Export
Sales.
See Item 8. Financial Statements
and Supplementary Data.
Item 2. Properties
As of the date hereof, Registrant
owned four properties, or interests therein. A
summary description of each property held at
December 31, 1999 is given below.
a. Lincoln Court - consists of 58
apartment units in three buildings located at
5351 Overbrook Avenue in Philadelphia,
Pennsylvania. In March 1987, the Registrant
acquired the buildings and is the 100% equity
owner of this property. Registrant acquired
and rehabilitated the Property for $3,417,640
($64 per sf) (such amount is exclusive of
$158,985 of capitalized fees incurred, which
were funded by Registrant's equity
contributions), including mortgage financing of
$1,730,000 and a note payable of $10,000 (total
balance due of $10,000 at December 31, 1999).
The note payable bears interest at 10% payable
interest only on a quarterly basis; the
principal was due in 1994. In 1988, a $95,000
second mortgage loan was obtained. In 1991, an
$100,000 third mortgage loan was obtained which
was due in 1994. Due to decreased cash flow,
the Registrant stopped making scheduled debt
service payments to the holder of the first,
second and third mortgages. Notice of default
was received from the lender on November 29,
1993. The Registrant pursued settlement
discussions with the lender; however, in
December 1994 the mortgage notes were sold.
The Registrant entered into an agreement with
the new holder of the mortgages whereby the
maturities of the notes were extended to 1999
and monthly payments of interest are to be made
to the new note holder in an amount equal to
net operating income. In June 1996, the
Registrant refinanced $1,268,000 of the first
mortgage. In November 1998, the Registrant
restructured the mortgage notes. The first
mortgage was refinanced with a $1,540,000
mortgage ($1,525,333 principal balance at
December 31, 1999) which bears interest at
6.83%, is payable in monthly installments of
principal and interest of $10,070 and is due in
November 2008. The three mortgage notes were
consolidated and a new note (principal balance
of $1,942,681 at December 31, 1999 including
accrued but unpaid interest) was structured
which extends the maturity date to December 2,
2008, bears interest at 15% and monthly
payments of interest are to be made in an
amount equal to net operating income.
The property is managed by BCMI. As
of December 31, 1999, 51 residential units were
under lease (93%) at monthly rents ranging from
$460 to $1,565. All leases are renewable, one-
year leases. The occupancy for the previous
four years was 100% for 1998, 87% for 1997 84%
for 1996, and 81% for 1995. The monthly rental
range has been approximately the same since
1995. For tax purposes, this property has a
federal tax basis of $3,759,546 and is
depreciated using the straight-line method with
a useful life of 27.5 years. The annual real
estate taxes are $30,226 which is based on
assessed value of $365,760 taxed at a rate of
$8.264 per $100. No one tenant occupies ten
percent or more of the building. It is the
opinion of the management of the Registrant
that the property is adequately covered by
insurance.
b. The Green Street Apartments -
consists of 18 apartment units in three
adjoining buildings located at 1826-1828-1830
Green Street in Philadelphia, Pennsylvania. In
July 1987, Registrant acquired its interest in
this property by purchasing a 99% general
partnership interest in 18th & Green Associates
General Partnership ("18th & Green"), a
Pennsylvania general partnership, for $800,000.
18th & Green contracted to acquire and
rehabilitate the Property for $1,600,000 ($100
per sf). Additionally, $100,000 of
cash/marketing reserves were provided. The
total cost of the project was funded by
Registrant's equity contribution and mortgage
financing of $900,000 (principal balance of
$1,318,119 at December 31, 1999) which bears
interest at 12%. During 1990, Registrant
defaulted on its mortgage loan and the lender
obtained a confession of judgment pursuant to
the loan documents. Registrant petitioned the
court to open the judgment and negotiated a
settlement with the lender. The settlement
required the Registrant to make payments toward
delinquent interest in December 1990 and April
1991. Registrant did not make the April 1991
payment; however, no notice of default was
received from the lender. In 1992, the
Resolution Trust Corporation ("RTC") took over
control of the lender. The Registrant received
notice in 1993 that the RTC had sold the loan.
The purchaser of the note contacted the
Registrant who attempted to negotiate a loan
modification. In September 1994, the mortgage
note was sold again. The Registrant entered
into an agreement with the new holder of the
mortgage whereby the note maturity was extended
through July 2009 with monthly payments of
interest to be made in an amount equal to net
operating income, with a minimum of $5,750 per
month. The property is managed by BCMI.
As of December 31, 1999, 17
apartments were under lease (83%) at monthly
rents ranging from $495 to $725. All leases
are renewable, one-year leases. The occupancy
for the previous four years was 94% for 1998,
94% for 1997, 92% for 1996 and 92% for 1995.
The monthly rental range has been approximately
the same since 1995. For tax purposes, this
property has a federal tax basis of $1,480,897
and is depreciated using the straight-line
method with a useful life of 27.5 years. The
annual real estate taxes are $15,470 which is
based on assessed value of $187,200 taxed at a
rate of $8.264 per $100. No one tenant
occupies ten percent or more of the building.
It is the opinion of the management of the
Registrant that the property is adequately
covered by insurance.
c. The Loewy Building - consists of
two adjoining buildings located at 505 West
Fourth Street in Winston-Salem, North Carolina.
The buildings consist of 62,091 sf of
commercial space. In November 1986, the
Registrant acquired its interest in this
Property by purchasing a 99% interest in Triad
Properties General Partnership ("Triad"), a
Pennsylvania general partnership, for a cash
contribution of $2,250,000. Triad contracted
to acquire and rehabilitate the Property for
$5,690,000 ($88 per sf). Additionally,
$560,000 of working capital/marketing reserves
were provided. The total cost of the project
was funded by Registrant's equity contribution,
mortgage financing of $3,560,000 (principal
balance of $3,811,828 at December 31, 1999) and
a $500,000 note payable to the Developer (Cwood
Properties, Inc., Thomas L. Kummer and Gail R.
Citron; all of whom are general partners of
Triad). The first mortgage bears interest at
11.5% and is due in January 2012. The note was
sold in September 1997. The Registrant entered
into an agreement with the new holder of the
note whereby monthly payments of interest are
to be made to the new note holder in an amount
equal to net operating income with a minimum
monthly payment of $27,500. Triad obtained
$200,000 of additional financing in 1987 to
fund cost overruns resulting from delays and
changes in rehabilitation and construction
plans, (principal balance due of $200,000 at
December 31, 1999) and interest at prime with a
minimum of 6% and a maximum of 8% adjusting
annually on January 2, (the rate was 8% at
December 31, 1999 and 1998) and the Registrant
advanced an additional $1,098,000. The
property is managed by BCMI.
As of December 31, 1999, 24,925 sf
were rented (41%) at annual rates ranging from
$6.00 to $13.41 per sf. The occupancy for the
previous four years has been 98% for 1998, 88%
for 1997, 88% for 1996 and 95% for 1995. The
significant drop in occupancy as of December
31, 1999 as compared to 1998 is the result of
the expiration of a tenant lease on December
31, 1999 for 33,121 sf. The range for annual
rents has been $6.00 to $16.44 per sf for 1998,
$6.00 to $16.21 per sf for 1997, $6.00 to
$14.16 per sf for 1996 and $6.00 to $12.93 per
sf for 1995. There are two tenants who each
occupy ten percent or more of the rentable
square footage. Both tenants operate
principally as law firms.
The following is a table showing
commercial lease expirations at Loewy Building
for the next five years.
Total annual % of gross
Number of Total sf of rental covered annual rental
Years leases expiring Expiring leases by expiring leases from property
2000 5 14,169 $170,571 57%
2001 0 0 0 0%
2002 2 10,756 130,464 43%
2003 0 0 0 0%
2004 0 0 0 0%
There are 5 commercial leases which
expire in 2000. The first lease is for 15 sf
and, although no negotiations have taken place,
the Registrant expects the tenant to renew at
current rental rates. The second lease is for
3,508 sf and the Registrant expects the tenant
to exercise the renewal option in its lease.
The third lease is for 2,800 sf and the
Registrant expects the tenant to renew at
current market rates. The fourth and fifth
leases (6,496 sf) are with the same tenant and
expire May 31, 2000. The Registrant is in the
process of negotiating a lease extension and
does not expect the tenant to renew at current
market rates. For tax purposes of
depreciation, this property has federal tax
basis of $6,155,916 and is depreciated using
the straight-line method with a useful life of
27.5 years. The annual real estate taxes are
$19,776 which is based on an assessed value of
$1,680,900 taxed at a rate of $1.1765 per $100.
It is of the opinion of the management of the
Registrant that the property is adequately
covered by insurance.
d. Magazine Place - is a four story
building consisting of 57 apartment units
located at 730 Magazine Street in New Orleans,
Louisiana. In October 1986, the Registrant was
admitted with a 60% general partnership
interest in Magazine Place Limited Partnership
("MPP"), a Louisiana partnership, for a cash
contribution of $600,000. Registrant believes
that its acquisition of a majority general
partnership interest in MPP, though technically
non-compliant with the provisions of
Registrant's partnership agreement disapproving
of investments in limited partnerships, will
have no material adverse impact on Registrant's
limited partners. Registrant subsequently made
an additional equity contribution of $142,393
to fund certain fees incurred by MPP. MPP
acquired and rehabilitated the property for
$4,091,393 ($51 per sf), including mortgage
financing of $3,050,000 and cash contributions
by limited partners of $344,000. The mortgage
note bore interest at 10%, was payable in
monthly installments of principal and interest
of $26,766, and was due in 1999. The excess
proceeds from equity investments and mortgage
financing over the acquisition and
rehabilitation costs were utilized to provide
working capital reserves. The mortgage
($2,798,832 principal at September 27, 1999)
was refinanced in 1999 with a $2,870,000
mortgage which bears interest at 7.91%, is
payable in monthly installments of principal
and interest of $20,879 and is due in September
of 2009. In 1987, Registrant made an equity
contribution of $7,000 (MPP's other partners
contributed cash in the amount of $28,000 in
1987) to fund operating deficits incurred
during the lease-up period. According to the
Amended and Restated Partnership Agreement, the
Registrant's interest in MPP will be reduced
from 60% to 40% as of the First Conversion
Date. The First Conversion Date is the date on
which the Registrant will have received a
return of its initial capital contribution.
For purposes of determining the First
Conversion Date, the Registrant will be deemed
to have received a return of its initial
capital contribution when the sum of the
following amounts equals $600,000: (i) cash
distributions from MPP; (ii) investment tax
credit allocable to the Registrant; and (iii)
50% of the aggregate of MPP's net losses and
deductions allocable to the Registrant. As of
December 31, 1994, the Registrant had received
a return of its initial capital and the
Registrant's interest in the MPP was reduced to
40%. Since that date, the Registrant has
accounted for its investment in MPP on the
equity basis.
The property is managed by an
independent property management firm. As of
December 31, 1999, 57 residential units were
under lease (100%) at monthly rents ranging
from $620 to $1,300. All leases are renewable,
one-year leases. The occupancy for the
previous four years was 89% for 1998, 91% for
1997, 96% for 1996 and 91% for 1995. The
monthly rental range has been approximately the
same since 1995. For tax purposes, this
property has a federal tax basis of $2,500,448
and is depreciated using the straight-line
method with a useful life of 27.5 years. The
annual real estate taxes are $14,077 which is
based on assessed value of $79,000 taxed at a
rate of $17.819 per $100. No one tenant
occupies ten percent or more of the building.
It is the opinion of the management of the
Registrant that the property is adequately
covered by insurance.
Item 3. Legal Proceedings
To the best of its knowledge,
Registrant is 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
fiscal years covered by this report to a vote
of security holders.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
a. There is no established public
trading market for the Units. Registrant does
not anticipate any such market will develop.
Trading in the Units occurs solely through
private transactions. The Registrant is not
aware of the prices at which trades occur.
Registrant's records indicate that 111 Units of
record were sold or exchanged in 1999.
b. As of December 31, 1999, there
were 1,578 record holders of Units.
c. Registrant did not declare any
cash dividends in 1999 or 1998.
Item 6. Selected Financial Data
The following selected financial data
are for the five years ended December 31, 1998.
The data should be read in conjunction with the
consolidated financial statements included
elsewhere herein. This data is not covered by
the independent auditors' report.
1999 1998 1997 1996 1995
Rental income $1,257,195 $1,251,911 $1,251,764 $1,658,031 $1,658,031
Interest income 3,866 2,113 441 840 840
Net loss (1,070,903) (1,297,537) (1,017,497) (533,933) (533,933)
Net loss per Unit (75.83) (91.88) (72.05) (37.80) (37.80)
Total assets (net 7,307,432 7,758,588 8,196,299 8,887,472 8,887,472
of depreciation
and amortization)
Debt obligations 8,966,573 8,970,613 8,418,142 7,776,693 7,776,693
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
(1) Liquidity
At December 31, 1999, Registrant
had cash of approximately $54,242. 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 December 31, 1999,
Registrant had restricted cash of $172,010
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 one property, due to the
properties' inability to generate sufficient
cash flow to pay their operating expenses and
debt service. At the present time Registrant
has feasible loan modifications in place at
Lincoln Court, Green Street and the Loewy
Building. However, in all three cases, the
mortgages are basically "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.
It is the Registrant's intention
to continue to hold the properties until they
can no longer meet the debt service
requirements 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 (principal plus accrued interest).
Since the lenders have agreed to
forebear from taking any foreclosure action as
long as cash flow payments are made, the
Registrant believes it is appropriate to
continue presenting the 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 in the foreseeable future.
If the need for capital expenditures does
arise, the first mortgage holder for Lincoln
Court, Loewy Building and 18th and Green has
agreed to fund capital expenditures at terms
similar to the first mortgage.
Results of Operations
During 1999, Registrant incurred a
net loss of $1,070,903 ($75.83 per limited
partnership unit), compared to a net loss of
$1,297,537 ($91.88 per limited partnership
unit) in 1998 and a net loss of $1,017,497
($72.05 per limited partnership unit) in 1997.
Rental income increased from
$1,251,764 in 1997 to $1,251,911 in 1998 to
$1,257,195 in 1999. The increase from 1998 to
1999 is due to an increase at the Lincoln Court
Apartments due to an increase in the average
occupancy and an increase in the average rental
rates partially offset by a decrease at Green
Street Apartments due to a decrease in the
average occupancy. The increase from 1997 to
1998 is due to an increase at the Green Street
Apartments due to an increase in the average
occupancy and an increase in the average rental
rates partially offset by a decrease at Lincoln
Court due to a decrease in the average
occupancy.
Rental operations expenses
increased from $614,679 in 1997 to $627,719 in
1998 and decreased to $585,564 in 1999. The
decrease from 1998 to 1999 is due to a decrease
in maintenance expense at the Loewy Building
combined with a decrease in commissions expense
at the Green Street Apartments, partially
offset by an increase in maintenance expense at
the Lincoln Court. Maintenance expense
decreased at the Loewy Building due to repairs
made to the air conditioning system in 1998
which did not recur in 1999. The decrease in
commissions expense at the Green Street
Apartments is due to the decrease in the
turnover of apartment units. Maintenance
expense at Lincoln Court increased due to
recarpeting and painting of apartment units.
The increase from 1997 to 1998 is due to an
increase in maintenance expense at the Loewy
Building due to extraordinary repairs made to
the heating system.
Interest expense increased from
$968,397 in 1997 to $1,162,024 in 1998 and
decreased to $1,066,780 in 1999. The decrease
from 1998 to 1999 is due to a decrease in
interest expense at Lincoln Court due to a
prepayment penalty incurred in the refinancing
of the mortgage notes in 1998 partially offset
by an increase at the Loewy Building due to an
adjustment made in the calcualtion of the
interest accruing on the mortgage loan in 1997.
The increase from 1997 to 1998 is due to an
increase in interest expense at Lincoln Court
due to a prepayment penalty incurred for the
refinancing of the mortgage notes partially
offset by a decrease at the Loewy Building.
Depreciation and amortization
increased from $531,057 in 1997 and to $581,834
in 1998 and decreased to $519,656 in 1999. The
decrease from 1998 to 1999 and the increase
from 1997 to 1998 is due to the amortization of
loan costs in connection with the refinancing
in 1998 of the mortgages at Lincoln Court.
In 1999, a loss of $839,000 was
incurred at the Registrant's four properties or
interests therein compared to a loss of
$1,046,000 in 1998 and a loss of $792,000 in
1997. A discussion of property
operations/activities follows:
In 1999, Registrant sustained a
loss of $375,000 at Lincoln Court including
$161,000 of depreciation and amortization
expense compared to a loss of $562,000
including $220,000 of depreciation expense in
1998 and a loss of $288,000 including $167,000
of depreciation expense in 1997. The decrease
in the loss from 1998 to 1999 is due to the
increase in rental income combined with a
decrease in interest and amortization expense
partialy offset by an increase in maintenance
expense. The increase in rental income is due
to the increase in the average occupancy (87%
to 88%) and the average rental rates. Interest
expense decreased due to the prepayment penalty
incurred in 1998 in connection with the
refinancing of the mortgages and the decrease
in amortization expense is due to the
amortization in 1998 of the loan costs from the
refinanced loan. Maintenance expense increased
due to both the recarpeting and painting of
apartment units due to the increase in the
turnover of apartment units. The increase in
the loss from 1997 to 1998 is mainly the result
of the refinancing of the mortgages combined
with a decrease in rental income. The
refinancing resulted in an increase in interest
expense due to a prepayment penalty incurred in
connection with the refinancing and an increase
in amortization expense due to the amortization
of the loan costs from the refinanced loan.
Rental income decreased due to a decrease in
the average occupancy (87% to 85%).
On June 30, 1992 Diversified
Historic Properties, Inc. ("DHP, Inc."), a co-
partner of the Registrant's general partner,
assigned to D, LTD (its parent) a note
receivable from the Registrant in the amount of
$432,103 which bears interest at 10% with the
entire principal and accrued interest due on
June 30, 1997. Interest accrued was $45,703
during both 1998 and 1999. Payments on the
note are to be made from available cash flow
and before any distribution can be made to the
Registrant's limited partners. The balance of
the note (including accrued but unpaid
interest) at December 31, 1999 was $716,007.
In 1999, the Green Street
Apartments sustained a loss of $147,000
including $59,000 of depreciation expense
compared to a loss of $141,000 in 1998
including $59,000 of depreciation expense and a
loss of $146,000 in 1997 including $59,000 of
depreciation expense. The increase in the loss
from 1998 to 1999 is due to the decrease in
rental income partially offset by a decrease in
commissions expense. The decrease in rental
income is due to a decrease in occupancy (95%
to 88%). Commissions expense decreased as a
result of a decrease in the turnover of
apartment units. The decrease in the loss from
1997 to 1998 is due to an increase in rental
income due to an increase in the average
occupancy (94% to 95%) and an increase in the
average rental rates.
On June 30, 1992, DHP, Inc.
assigned to D, LTD a note receivable from 18th
and Green to the Registrant, that had been
assigned to it, in the amount of $63,493 which
bears interest at 10% with the entire principal
and accrued interest due on June 30, 1997. On
December 6, 1993 D, LTD obtained a judgment in
the amount of $78,171 on this note in Common
Pleas Court for Philadelphia County. The
judgment accrues interest at 15%. Interest
accrued was $5,055 during 1998 and 1999.
Payments on the judgment are to be made from
available cash flow from 18th and Green. The
balance of the note at December 31, 1999 was
$60,234.
In 1999, the Loewy Building
sustained a loss of $317,000 including $285,000
of depreciation and amortization expense
compared to a loss of $343,000 including
$288,000 of depreciation expense in 1998 and a
loss of $358,000 including $290,000 of
depreciation expense in 1997. The decrease in
the loss from 1998 to 1999 is due to a decrease
in maintenance and utility expense partially
offset by an increase in interest expense. The
decrease in maintenance expense is due to
repairs made to the air conditioning systems in
the second quarter of 1998, which did not recur
in 1999. Utilities expense decreased as a
result of the decrease in average occupancy
(98% to 78%). The increase in interest expense
is due to an adjustment made in the calculation
of the interest accruing on the mortgage loan
in 1997. The decrease in the loss from 1997 to
1998 is due to a decrease in interest expense
partially offset by an increase in maintenance
expense due to extraordinary repairs made to
the heating system.
Summary of Minority Interests
In 1999, the Registrant incurred a
net loss of $34,000 at Magazine Place compared
to a loss of $54,000 in 1998 compared to
$30,000 in 1997. This investment is accounted
for by the equity method. The decrease from
1998 to 1999 is due to an increase in rental
income due to an increase in the average
occupancy (89% to 97%) and an increase in the
average rental rates, partially offset by an
increase in maintenance expense as a result of
an increase in the preparation of apartment
units due to the increase in the average
occupancy. The decrease from 1997 to 1998 is
due to a decrease in rental income due to a
decrease in the average occupancy (91% to 89%)
and a decrease in the average rental rates and
an increase in legal fees due to legal fees
incurred in connection with a refinancing of
the first mortgage debt.
Item 7A. Quantitative and Qualitative
Disclosures about Market Risk
Not applicable.
Item 8. Financial Statements and
Supplementary Data
Registrant is not required to furnish
the supplementary financial information
referred to in Item 302 of Regulations S-K.
Independent Auditor's Report
To the Partners of
Diversified Historic Investors III
We have audited the accompanying consolidated
balance sheet of Diversified Historic Investors
III (a Pennsylvania Limited Partnership) and
subsidiaries as of December 31, 1999 and 1998
and the related statements of operations,
changes in partners' equity and cash flows for
the years ended December 31, 1999, 1998 and
1997. These consolidated statements are the
responsibility of the Partnership's management.
Our responsibility is to express an opinion on
these consolidated financial statements based
on our audits.
We conducted our audit in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the consolidated financial statements
are free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
consolidated financial statements. An audit
also includes assessing the accounting
principles used and significant estimates made
by management, as well as evaluating the
overall financial statement presentation. We
believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements referred to above presents fairly,
in all material respects, the financial
position of Diversified Historic Investors III
and subsidiaries as of December 31, 1999 and
1998, and the results of operations and cash
flows for the years ended December 31, 1999,
1998 and 1997, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming
an opinion on the basic financial statements
taken as a whole. The Schedule of Real Estate
and Accumulated Depreciation on page 26 is
presented for the purposes of additional
analysis and is not a required part of the
basic financial statements. Such information
has been subjected to the auditing procedures
applied in the audit of the basic financial
statements and, in our opinion, is fairly
stated in all material respects in relation to
the basic financial statements taken as a
whole.
Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
February 10, 2000
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1999 and 1998 14
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998, and 1997 15
Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1999, 1998, and 1997 16
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998, and 1997 17
Notes to consolidated financial statements 18-24
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 26
Notes to Schedule XI 27
All other schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
Assets
1999 1998
Rental properties at cost:
Land $ 465,454 $ 465,454
Buildings and improvements 12,006,574 12,006,574
Furniture and fixtures 118,363 98,729
----------- -----------
12,590,391 12,570,757
Less - accumulated depreciation (5,931,577) (5,442,634)
----------- -----------
6,658,814 7,128,123
Cash and cash equivalents 54,242 31,981
Restricted cash 172,010 168,344
Accounts receivable 62,239 25,307
Investment in affiliate 147,242 181,206
Other assets (net of accumulated Amort-
ization of $240,649 and $209,937) 212,885 223,627
----------- -----------
Total $ 7,307,432 $ 7,758,588
=========== ===========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 8,966,573 $ 8,970,613
Accounts payable:
Trade 1,161,622 996,758
Related parties 782,157 736,458
Interest payable 1,682,961 1,290,951
Tenant security deposits 55,884 45,773
Other liabilities 45,656 34,553
----------- -----------
Total liabilities $12,694,853 $12,075,106
----------- -----------
Partners' deficit (5,387,421) (4,316,518)
----------- -----------
Total $ 7,307,432 $ 7,758,588
=========== ===========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Revenues:
Rental income $1,257,195 $1,251,911 $1,251,764
Interest income 3,866 2,113 441
---------- ---------- ----------
Total revenues 1,261,061 1,254,024 1,252,205
Costs and expenses:
Rental operations 585,564 627,719 614,679
General and administrative 126,000 126,000 126,000
Interest 1,066,780 1,162,024 968,397
Depreciation and amortization 519,656 581,834 531,057
---------- ---------- ----------
Total costs and expenses 2,298,000 2,497,577 2,240,133
Loss before equity in affiliate (1,036,939) (1,243,553) (987,928)
Equity in net loss of affiliate (33,964) (53,984) (29,569)
---------- ---------- ----------
Net loss ($1,070,903) ($1,297,537) ($1,017,497)
========== ========== ----------
Net loss per limited partnership unit:
Loss before equity in affiliate ($ 73.42) ($ 88.06) ($ 69.96)
Equity in net loss of affiliate (2.41) (3.82) (2.09)
---------- ---------- ----------
($ 75.83) ($ 91.88) ($ 72.05)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Dover
Historic Advisors Limited
II(1) Partners(2) Total
Percentage participation in 1% 99% 100%
profit or loss
Balance at December 31, 1996 ($133,054) ($1,868,430) ($2,001,484)
Net loss (10,175) (1,007,322) (1,017,497)
-------- ---------- ----------
Balance at December 31, 1997 (143,229) (2,875,752) (3,018,981)
Net loss (12,975) (1,284,562) (1,297,537)
-------- ---------- ----------
Balance at December 31, 1998 (156,204) (4,160,314) (4,316,518)
Net loss (10,709) (1,060,194) (1,070,903)
-------- ---------- ----------
Balance at December 31, 1999 ($166,913) ($5,220,508) ($5,387,421)
======== ========== ==========
(1) General Partner.
(2) 13,981.5 limited partnership units outstanding at December 31,
1999, 1998, and 1997.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Cash flows from operating activities:
Net loss ($1,070,903) ($1,297,537) ($1,017,497)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 519,656 581,834 531,057
Equity in loss of affiliate 33,964 53,984 29,569
Changes in assets and liabilities:
(Increase) decrease in restricted cash (3,666) (41,660) 77,112
Increase in accounts receivable (36,932) (8,641) (8,608)
Increase in other assets (19,971) (91,951) (108,765)
Increase in accounts payable - trade 164,864 122,746 121,755
Increase in accounts payable -
related parties 45,699 111,852 45,703
Increase in interest payable 392,010 51,375 350,712
Increase (decrease) in tenant
security deposits 10,111 (5,256) (1,477)
Increase (decrease) in other
liabilities 11,103 26,638 (18,109)
---------- ---------- ----------
Net cash provided by (used in)
operating activities: 45,935 (496,616) 1,452
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (19,634) (24,182) (25,247)
---------- ---------- ----------
Net cash used in investing
activities: (19,634) (24,182) (25,247)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from debt obligations 10,627 1,540,000 0
Payments of principal under debt
obligations (14,667) (987,529) 3,241
---------- ---------- ----------
Net cash (used in) provided by
financing activities: (4,040) 552,471 3,241
---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents 22,261 31,673 (20,554)
Cash and cash equivalents at
beginning of year 31,981 308 20,862
---------- ---------- ----------
Cash and cash equivalents at end
of year $ 54,242 $ 31,981 $ 308
========== ========== ==========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for
interest $674,770 $1,221,356 $ 617,685
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors III (the
"Partnership") was formed in February 1986
under the laws of the Commonwealth of
Pennsylvania. The Partnership was formed to
acquire, rehabilitate, and manage real
properties which were certified historic
structures as defined in the Internal Revenue
Code of 1986 (the "Code"), or which were
eligible for designation as such, utilizing
mortgage financing and the net proceeds from
the sale of limited partnership units. Any
rehabilitations undertaken by the Partnership
were done with a view to obtaining
certification of expenditures therefore as
"qualified rehabilitations expenditures" as
defined in the Code.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting
policies applied in the preparation of the
accompanying consolidated financial statements
follows:
1. Principles of Consolidation
The accompanying financial statements of the
Partnership include the accounts of three
subsidiary partnerships (the "Ventures"), in
which the Partnership has a controlling
interest with appropriate elimination of inter-
partnership transactions and balances. In
addition, the Partnership owns a minority
interest of 40% in one partnership which it
accounts for on the equity method. These
financial statements reflect all adjustments
(consisting only of normal recurring
adjustments) which, in the opinion of the
Partnership's General Partner, are necessary
for a fair statement of the results for those
years.
2. Depreciation
Depreciation is computed using the straight-
line method over the estimated useful lives of
the assets. Buildings and improvements are
depreciated over 25 years and furniture and
fixtures over five years.
3. Costs of Issuance
Costs incurred in connection with the offering
and sale of limited partnership units were
charged against partners' equity as incurred.
4. Cash and Cash Equivalents
The Partnership considers all highly liquid
instruments purchased with a maturity of less
than three months to be cash equivalents.
5. Interest Payable
Interest payable includes all accrued and
unpaid interest on the debt obligations, as
well as interest in arrears.
6. Net Loss Per Limited Partnership Unit
The net loss per limited partnership unit is
based on the weighted average number of limited
partnership units outstanding during the period
(13,891.5 in 1999, 1998, and 1997).
7. Income Taxes
Federal and state income taxes are payable by
the individual partners; accordingly, no
provision or liability for income taxes is
reflected in the annual financial statements.
8. Restricted Cash
Restricted cash includes amounts held for
tenant security deposits, real estate tax
reserves and other cash restricted as to use.
9. Revenue Recognition
Revenues are recognized when rental payments
are due on a straight-line basis. Rental
payments received in advance are deferred until
earned.
10. Rental Properties
Rental properties are stated at cost. A
provision for impairment of value is recorded
when a decline in value of property is
determined to be other than temporary as a
result of one or more of the following: (1) a
property is offered for sale at a price below
its current carrying value, (2) a mortgage loan
on a property has significant balloon payments
due within the foreseeable future which the
Partnership does not have the resources to
meet, and anticipates it will be unable to
obtain replacement financing or debt
modification sufficient to allow it to continue
to hold the property over a reasonable period
of time, (3) a property has been, and is
expected to continue, generating significant
operating deficits and the Partnership is
unable or unwilling to sustain such deficit
results of operations, and has been unable, or
anticipates it will be unable, to obtain debt
modification, financing or refinancing
sufficient to allow it to continue to hold the
property for a reasonable period of time or (4)
a property's value has declined based on
management's expectations with respect to
projected future operational cash flows and
prevailing economic conditions. An impairment
loss is indicated when the undiscounted sum of
estimated future cash flows from an asset,
including estimated sales proceeds, and
assuming a reasonable period of ownership up to
5 years, is less than the carrying amount of
the asset. The impairment loss is measured as
the difference between the estimated fair value
and the carrying amount of the asset. In the
absence of the above circumstances, properties
and improvements are stated at cost. An
analysis is done on an annual basis at December
31 of each year.
11. Use of Estimates
The preparation of the financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
amounts reported in the financial statements
and accompanying notes. Actual results could
differ from those estimates.
NOTE C - GOING CONCERN
In recent years the Partnership has realized
significant losses, including the foreclosure
of one property, due to the properties'
inability to generate sufficient cash flow to
pay their operating expenses and debt service.
At the present time, the Partnership has
feasible loan modifications in place at Lincoln
Court, Green Street and Loewy Building.
However, in all three cases, the mortgages are
basically "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 Partnership to
pay its general and administrative expenses.
It is the Partnership's intention to continue
to hold the properties until they can no longer
meet the debt service requirements 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 (principal
plus accrued interest).
Since the lenders have agreed to forebear from
taking any foreclosure action as long as cash
flow payments are made, the Partnership
believes it is appropriate to continue
presenting the financial statements on a going
concern basis.
NOTE D - PARTNERSHIP AGREEMENT
The significant terms of the Agreement of
Limited Partnership (the "Agreement"), as they
relate to the financial statements, follow:
All distributable cash from operations (as
defined in the Agreement of Limited
Partnership) will be distributed 90% to the
limited partners and 10% to the General
Partner.
All distributable cash from sales or
dispositions (as defined) will be distributed
to the limited partners up to their adjusted
invested capital (as defined) plus an amount
equal to the sum of the greater of a 6%
cumulative, noncompounded annual return on the
average after-credit invested capital, less
amounts previously distributed (as defined);
thereafter, after receipt by the General
Partner or its affiliates of any accrued but
unpaid real estate brokerage commissions, the
balance will be distributed 15% to the General
Partner and 85% to the limited partners.
Net income or loss from operations of the
Partnership is allocated 1% to the General
Partner and 99% to the limited partners.
NOTE E - ACQUISITIONS
The Partnership acquired five controlling or
limited partnership interests in Ventures
during the period October 1986 to July 1987, as
discussed below.
In October 1986, the Partnership was admitted,
with a 60% general partnership interest, to a
Louisiana limited partnership which owns a
building located in Louisiana consisting of 57
residential units, for a cash capital
contribution of $600,000. Pursuant to the
Amended and Restated Partnership Agreement, the
Partnership's interest was reduced to 40%
effective January 1, 1995.
In November 1986, the Partnership was admitted,
with a 99% general partnership interest, to a
Pennsylvania general partnership which owns a
building located in North Carolina consisting
of 64,000 square feet of commercial space, for
a cash contribution of $2,450,000.
In December 1986, the Partnership was admitted,
with a 99% general partnership interest, to a
Maryland general partnership which owned a
property located in Maryland consisting of 55
residential units and 14,800 square feet of
commercial space, for a cash contribution of
$3,508,700. The lender on the property
foreclosed in January 1996.
In March 1987, the Partnership purchased a
property consisting of three buildings (58
residential units) located in Pennsylvania for
a cash capital contribution of $500,000.
In July 1987, the Partnership was admitted,
with a 99% general partnership interest, to a
Pennsylvania general partnership which owns a
building located in Pennsylvania consisting of
18 residential units, for a cash capital
contribution of $800,000.
NOTE F- DEBT OBLIGATIONS
Debt obligations are as follows:
December 31,
1999 1998
Mortgage loan, interest accrues at 11 1/2%, $3,811,828 $3,811,828
interest only payable monthly to the
extent of net operating income; principal
due January 2012; collateralized by the
related rental property
Note, interest payable monthly at prime, 200,000 200,000
with a minimum of 6% and a maximum of 8%,
adjusting annually on January 2 (8% at
December 31, 1999 and 1998); due in 1997;
collateralized by the related rental
property (A)
Allowed unsecured claims in the amount of 158,612 158,612
$268,042; non-interest bearing
Note payable, interest only at 10%, 10,000 10,000
payable quarterly; principal due in 1994
(A)
Mortgage loan, interest at 6.83%, payable 1,525,333 1,540,000
in monthly principal and interest
installments of $10,071; principal due in
November 2008; collateralized by the
related rental property
Mortgage loan, interest accrues at 15%, 1,942,681 1,935,993
interest only payable monthly to the
extent of net operating income; principal
due December 2008; collateralized by the
related rental property
Mortgage loan, interest at 12%; payable
interest only to the extent of net
operating income with a minimum monthly
payment of $5,750; principal due in July
2009; collateralized by the related
rental property 1,318,119 1,314,180
---------- ----------
$8,966,573 $8,970,613
========== ==========
(A) Although this obligation has matured, the
lenders have not made any demand for payment.
Approximate maturities of the mortgage loan
obligations at December 31, 1999, for each of
the succeeding five years are as follows:
2000 $ 387,317
2001 20,042
2002 21,475
2003 23,010
2004 24,646
Thereafter 8,490,083
----------
$8,966,573
==========
NOTE G - COMMITMENTS AND CONTINGENCIES
Pursuant to certain agreements, the developers
of the properties and limited partners in the
Ventures are entitled to share in the
following:
a. 15% to 50% of net cash flow from
operations above certain specified amounts
(three properties)
b. 30% of the net proceeds, as defined, from
the sale or refinancing of one property. The
Partnership is entitled to a priority
distribution of such proceeds prior to any
payment to the developer.
According to the Amended and Restated
Partnership Agreement, the Partnership's
interest in Magazine Place Limited Partnership
("MPP") was reduced from 60% to 40% as of the
First Conversion Date. The First Conversion
Date was the date on which the Partnership
received a return of its initial capital
contribution as referred to in the Partnership
Agreement. For purposes of determining the
First Conversion Date, the Partnership was
deemed to have received a return of its initial
capital contribution when the sum of the
following amounts equalled $600,000: (i) cash
distributions to the Partnership from MPP; (ii)
investment tax credit allocable to the
Partnership; and (iii) 50% of the aggregate of
MPP's net losses and deductions allocable to
the Partnership. As of December 31, 1994, the
Partnership had received a return of its
initial capital and the Partnership's interest
in the MPP was reduced to 40%. Since that
date, the Partnership has accounted for its
investment in MPP on the equity basis.
NOTE H - TRANSACTIONS WITH RELATED PARTIES
Included in debt obligations for 1999, 1998 and
1997 is $140,000 owed to an affiliate of the
General Partner by one of the Partnership's
Ventures for additional amounts advanced for
working capital needs.
On June 30, 1992 DHP, Inc. assigned to D, LTD a
note receivable from the Partnership in the
amount of $432,103 which bears interest at 10%
with the entire principal and accrued interest
which was due on June 30, 1997. Interest
accrued was $45,703 during both 1998 and 1999.
Payments on the note are to be made from
available cash flow and before any distribution
can be made to the Partnership's limited
partners. The balance of the note at December
31, 1999 was $716,007.
On June 30, 1992 DHP, Inc. assigned to D, LTD a
note receivable, from 18th and Green to the
Partnership, that had been assigned to it, in
the amount of $63,493 which bears interest at
10% with the entire principal and accrued
interest which was due on June 30, 1997. On
December 6, 1993 D, LTD confessed judgment in
the amount of $78,171 against 18th and Green in
Common Pleas Court for Philadelphia County.
The judgment accrues interest at 15%. Interest
accrued was $5,055 during both 1998 and 1999.
Payments on the judgment are to be made from
available cash flow from 18th and Green. The
balance of the judgment at December 31, 1999
was $60,234.
In June 1998, the General Partner advanced the
Partnership $66,150 to pay certain outstanding
liabilities of the Partnership. The advance is
non-interest bearing and will be paid out of
available cash flow.
NOTE I - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of
the results of operations in different time
periods for financial reporting ("book")
purposes and for income tax ("tax") purposes.
Reconciliations of net loss and partners'
equity follow:
For the Years Ended December 31,
1999 1998 1997
Net loss - book ($1,070,903) ($1,297,537) ($1,017,497)
Excess of book over tax depreciation 153,257 138,784 108,515
Other timing differences 0 0 (207)
Minority interest (51,133) (84,494) (5,094)
---------- ---------- ----------
Net loss - tax ($ 968,779) ($1,243,247) (914,283)
========== ========== ==========
Partners' equity - book ($5,387,421) ($4,316,518) ($3,018,981)
1987 distribution of interest on (39,576) (39,576) (39,576)
escrow deposits to limited
partners
Costs of issuance 1,697,342 1,697,342 1,697,342
Cumulative tax under book loss 507,857 405,733 351,443
---------- ---------- ----------
Partners' equity - tax ($3,221,798) ($2,253,019) ($1,009,772)
========== ========== ==========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Cost
Capitalized
Initial Cost to Partnership (b) Subsequent to
Acquisition
Buildings
And Improve- Date of Date
Description (a) Encumbrances Land Improvements ments Constr. Acquired
(a)
64,000 square
feet of commercial
space in 1986-
Winston-Salem,NC $4,170,440 $308,624 $ 6,290,125 $476,976 1988 11/14/86
58 apartment
units in 1986-
Philadelphia,PA 3,478,014 86,187 3,490,437 - 1987 9/9/86
18 apartment
units in
Philadelphia,PA 1,318,119 70,643 1,559,017 0 1987 2/27/87
---------- -------- ----------- --------
TOTAL $8,966,573 $465,454 $11,339,579 $476,976
========== ======== =========== ========
Gross Amount at which Carried at
December 31, 1999
Buildings
and Accumulated
Description Land Improvements Total (c) (d) Depreciation
64,000 square feet
of commercial space
in Winston-Salem, NC $308,624 $ 6,799,879 $ 7,108,503 $3,317,779
58 apartment
units in
Philadelphia, PA 86,187 3,758,958 3,845,145 1,871,256
18 apartment
units in
Philadelphia,PA 70,643 1,566,100 1,636,743 742,542
-------- ----------- ----------- ----------
TOTAL
$465,454 $12,124,937 $12,590,391 $5,931,577
======== =========== =========== ==========
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1999
(A) All properties are certified historic
structures as defined in the Internal
Revenue Code. The "date of construction"
refers to the period in which such
properties were rehabilitated.
(B) Includes development/rehabilitation costs
incurred pursuant to turnkey development
agreements entered into when the
properties were acquired.
(C) The aggregate cost of real estate owned at
December 31, 1999, for Federal income tax
purposes is approximately $13,896,807.
However, the depreciable basis of
buildings and improvements is reduced for
Federal income tax purposes by the
investment tax credit and the historic
rehabilitation credit obtained.
(D) Reconciliation of real estate:
1999 1998 1997
------ ------ ------
Balance at beginning of year: $12,570,757 $12,546,575 $12,521,328
Additions during the year:
Improvements
19,634 24,182 25,247
----------- ----------- -----------
Balance at end of year $12,590,391 $12,570,757 $12,546,575
=========== =========== ===========
Reconciliation of accumulated depreciation:
1999 1998 1997
------ ------ ------
Balance at beginning of year $5,442,634 $4,956,401 $4,461,992
Depreciation expense for the year 488,943 486,233 494,409
---------- ---------- ----------
Balance at end of year $5,931,577 $5,442,634 $4,956,401
========== ========== ==========
(E) See Note B to the financial statements for
depreciation method and lives.
(F) See Note E to the financial statements for
further information.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of
the Registrant
a. Identification of Directors -
Registrant has no directors.
b. Identification of Executive
Officers
The General Partner of the
Registrant is Dover Historic Advisors II (DoHA-
II), a Pennsylvania general partnership. The
partners of DoHA-II are as follows:
Name Age Position Term of Office Period Served
SWDHA, Inc. -- Partner in DoHA-II No fixed term Since May 1997
EPK, Inc. -- Partner in DoHA-II No fixed term Since May 1997
For further description of DoHA-II,
see paragraph e. of this Item. There is no
arrangement or understanding between either
person named above and any other person
pursuant to which any person was or is to be
selected as an officer.
c. Identification of Certain
Significant Employees. Registrant has no
employees. Its administrative and operational
functions are carried out by a property
management and partnership administration firm
engaged by the Registrant.
d. Family Relationships. None.
e. Business Experience. DoHA-II is a
general partnership formed in February 1986.
The partners of DoHA-II are EPK, Inc. and
SWDHA, Inc. The General Partner is responsible
for the management and control of the
Registrant's affairs and has general
responsibility and authority in conducting its
operations.
On May 13, 1997, SWDHA, Inc. replaced
Gerald Katzoff and EPK, Inc. replaced DHP, Inc.
as partners of DoHA-II. Spencer Wertheimer,
the President of SWDHA, Inc., is an attorney
with extensive experience in real estate
activities ventures.
EPK, Inc. is a Delaware corporation
formed for the purpose of managing properties
or interests therein. EPK, Inc. is a wholly-
owned subsidiary of D, LTD, an entity formed in
1985 to act as the holding company for various
corporations engaged in the development and
management of historically certified properties
and conventional real estate as well as a
provider of financial (non-banking) services.
The officers and directors of EPK,
Inc. are described below.
Spencer Wertheimer was appointed on
May 13, 1997 as President, Treasurer and Sole
Director of EPK, Inc. Mr. Wertheimer is an
attorney with extensive experience in real
estate activities ventures.
Donna M. Zanghi (age 42) was
appointed on May 13, 1997 as Vice President and
Secretary of EPK, Inc. Ms. Zanghi had
previously served as Secretary and Treasurer of
DHP, Inc. since June 14, 1993 and as a
Director and Secretary/Treasurer of D, LTD.
She was associated with DHP, Inc. and its
affiliates since 1984 except for the period
from December 1986 to June 1989 and the period
from November 1, 1992 to June 14, 1993.
Michele F. Rudoi (age 34) was
appointed on May 13, 1997 as Assistant
Secretary of EPK, Inc. Ms. Rudoi previously
served as Assistant Secretary and Director of
both D, LTD and DHP, Inc. since January 27,
1993.
Item 11. Executive Compensation
a. Cash Compensation - During 1999,
Registrant has paid no cash compensation to
DoHA-II, any partner therein or any person
named in paragraph c. of Item 10. Certain fees
have been paid to DHP, Inc. by Registrant.
b. Compensation Pursuant to Plans -
Registrant has no plan pursuant to which
compensation was paid or distributed during
1999 or is proposed to be paid or distributed
in the future, to DoHA-II, any partner therein,
or any person named in paragraph c. of Item 10
of this report.
c. Other Compensation - No
compensation not referred to in paragraph a. or
paragraph b. of this Item was paid or
distributed during 1999 to DoHA-II, any partner
therein, or any person named in paragraph c. of
Item 10.
d. Compensation of Directors -
Registrant has no directors.
e. Termination of Employment and
Change of Control Arrangement - Registrant has
no compensatory plan or arrangement, with
respect to any individual, which results or
will result from the resignation or retirement
of any individual, or any termination of such
individual's employment with Registrant or from
a change in control of Registrant or a change
in such individual's responsibilities following
such a change in control.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
a. Security Ownership of Certain
Beneficial Owners - No person is known to
Registrant to be the beneficial owner of more
than five percent of the issued and outstanding
Units.
b. Security Ownership of Management -
No equity securities of Registrant are
beneficially owned by any person named in
paragraph c. of Item 10.
c. Changes in Control - Registrant
does not know of any arrangement, the operation
of which may at a subsequent date result in a
change in control of Registrant.
Item 13. Certain Relationships and Related
Transactions
Pursuant to Registrant's Amended and
Restated Agreement of Limited Partnership, DoHA-
II is entitled to 10% of Registrant's
distributable cash from operations in each
year. There was no such share allocable to
DoHA-II for fiscal years 1997 through 1999.
a. Certain Business Relationships -
Registrant has no directors.
b. Indebtedness of Management - No
executive officer or significant employee of
Registrant, Registrant's general partner (or
any employee thereof), or any affiliate of any
such person, is or has at any time been
indebted to Registrant.
PART IV
Item 14.(A) Exhibits, Financial Statement Schedules and Reports on Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1999 and 1998.
b. Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997.
c. Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1999, 1998 and 1997.
d. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI-Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(a) Exhibit Number Document
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 of this
Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the
quarter ended December 31, 1999.
(c) Exhibits:
See Item 14(A)(3) above.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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: August 24, 2000 DIVERSIFIED HISTORIC INVESTORS III
---------------
By: Dover Historic Advisors II, General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi
----------------------
MICHELE F. RUDOI
Assistant Secretary
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report
has been signed below by the following persons
on behalf of Registrant and in the capacities
and on the dates indicated.
Signature Capacity Date
DOVER HISTORIC ADVISORS II General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi
----------------------
MICHELE F. RUDOI
Assistant Secretary