UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
----------------------------------
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 0-15843
-----------------------------------------
DIVERSIFIED HISTORIC INVESTORS III
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2391927
- -------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1521 Locust Street, Philadelphia, PA 19102
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
--------------
N/A
- -----------------------------------------------------------------
(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
------ ------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - March 31, 2001(unaudited)
and December 31, 2000
Consolidated Statements of Operations - Three Months
Ended March 31, 2001 and 2000 (unaudited)
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2000 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
As of March 31, 2001, Registrant had cash of
$23,779. 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 loan
modifications with the various lenders in order to remain current
on all obligations. The Registrant is not aware of any
additional sources of liquidity.
As of March 31, 2001, Registrant had restricted cash
of $109,280 consisting primarily of funds held as security
deposits, replacement reserves and escrows for taxes and
insurance. As a consequence of the 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 inability of the properties owned by the Registrant to
generate sufficient cash flow to pay their operating expenses and
debt service. At the present time Registrant has feasible loan
modifications in place for two of its properties: Lincoln Court
and the Green Street Apartments. However, in all three cases,
the mortgages 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.
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, Green Street and the Loewy Building has
agreed to fund capital expenditures at terms similar to the first
mortgage.
(3) Results of Operations
During the first quarter of 2001, Registrant
incurred a net loss of $299,583 ($21.21 per limited partnership
unit) compared to a net loss of $358,033 ($25.35 per limited
partnership unit) for the same period in 2000.
Rental income increased $13,713 from $240,002 in the
first quarter of 2000 to $253,715 in the same period in 2001. The
increase from the first quarter of 2000 to the same period in
2001 is due to an increase in rental income at Lincoln Court,
Green Street, and the Loewy Building. Rental income increased at
Lincoln Court due to an increase in average occupancy (90% to
92%). Rental income increased at Green Street due to past due
rents from 2000 received during the first quarter of 2001. The
increase in rental income at the Loewy Building is due to penalty
charges collected from a tenant due to a violation of their
lease. The tenant violated their lease by occupying space during
the quarter in which their lease had previously expired in 2000.
Expense for rental operations increased by $20,650
from $158,228 in the first quarter of 2000 to $178,878 in the
same period in 2001. The increase from the first quarter of 2000
to the same period in 2001 is due to an increase in maintenance
expense at Lincoln Court, Green Street, and the Loewy Building.
Maintenance expense increased at Lincoln Court due to an increase
in apartment preparation expense. The increase at Green Street is
due to an increase in trash removal services, and the increase at
the Loewy Building is due to increases in both maintenance and
cleaning service expense at the property.
Interest expense decreased by $8,265 from $273,976
in the first quarter of 2000 to $265,711 in the same period in
2001. The decrease in interest expense is due to a decrease in
interest payments made at Lincoln Court, partially offset by
increases in interest expense at Green Street and the Loewy
Building. The increase in interest expense at Green Street is due
to an increase in interest payments made during the quarter. The
increase in interest expense at the Loewy Building is due to an
increase in the principal balance upon which the interest is
calculated.
Losses incurred at the Registrants properties during
the first quarter of 2001 were approximately $298,000 compared to
losses of $304,000 during the same period in 2000.
In the first quarter of 2001, Registrant incurred a
loss of $92,000 at Lincoln Court including $40,000 of
depreciation and amortization expense, compared to a loss of
$106,000 in the first quarter of 2000, including $40,000 of
depreciation and amortization expense. The decrease in loss from
the first quarter of 2000 to the same period in 2001 is due to an
increase in rental income combined with a decrease in accounting
expense and interest expense. The increase in rental income is
due to an increase in average occupancy (90% to 92%). The
decrease in accounting expense is due to a decrease in accounting
services rendered. The decrease in interest expense is due to a
decrease in interest payments made during the quarter.
In the first quarter of 2001, Registrant incurred a
loss of $47,000 at the Green Street Apartments, including $15,000
of depreciation expense, compared to a loss of $43,000 including
$15,000 of depreciation expense in the first quarter of 2000.
The increase in loss is due to an increase in commission expense
and interest expense, partially offset by an increase in rental
income. The increase in commission expense is due to the increase
in the turnover of apartments. The increase in rental income is
due to past due rents received from 1999.
In the first quarter of 2001, Registrant incurred a
loss of $159,000 at the Loewy Building, including $64,000 of
depreciation and amortization expense, compared to a loss of
$155,000 including $69,000 of depreciation expense in the first
quarter of 2000. The increase in loss from the first quarter of
2000 to the same period in 2001 is due to an increase in
maintenance expense and parking expense, partially offset by an
increase in rental income and a decrease in depreciation expense.
The increase in maintenance expense is due to an increase in
maintenance and cleaning services. The increase in parking
expense is due to an additional parking tenant in the first
quarter of 2001. The increase in rental income at the Loewy
Building is due to penalty charges collected from a tenant due to
a violation of their lease. The tenant violated their lease by
occupying space during the quarter in which their lease had
previously expired in 2000. The decrease in depreciation expense
is due to the impairment loss taken in the fourth quarter of
2000, which decreased the depreciable basis of the building.
Summary of Minority Interests
In the first quarter of 2001, the Registrant
recognized a net income of $14,001 at Magazine Place compared to
a net loss 7,622 in the first quarter of 2000. The Registrant
accounts for this investment on the equity method. The increase
in net income from the first quarter of 2000 to the same period
in 2001 is due to an increase in rental income and a decrease in
rental operating expense.
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
Assets
March 31, 2001 December 31, 2000
-------------- -----------------
(Unaudited)
Rental properties, at cost:
Land $ 465,454 $ 465,454
Buildings and improvements 11,170,423 11,170,423
Furniture and fixtures 157,259 157,259
----------- -----------
11,793,136 11,793,136
Less - accumulated
depreciation (6,540,888) (6,424,759)
----------- -----------
5,252,248 5,368,377
Cash and cash equivalents 23,779 28,338
Restricted cash 109,280 181,556
Accounts and notes receivable 95,520 90,688
Investment in affiliate 177,247 163,246
Other assets (net of
amortization of
$237,829 and $230,421 at
March 31, 2001 and December 31,
2000, respectively) 188,022 191,837
----------- -----------
Total $ 5,846,096 $ 6,024,042
=========== ===========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 8,968,150 $ 8,972,599
Accounts payable:
Trade 1,163,125 1,180,280
Related parties 839,286 827,860
Interest payable 2,463,037 2,345,061
Other liabilities 38,924 34,729
Tenant security deposits 67,529 57,884
----------- -----------
Total liabilities 13,540,051 13,418,413
Partners' deficit (7,693,955) (7,394,371)
----------- -----------
Total $ 5,846,096 $ 6,024,042
=========== ===========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
Three months ended
March 31,
2001 2000
Revenues: ---- ----
Rental income $253,715 $240,002
Interest income 827 1,298
-------- --------
Total revenues 254,542 241,300
-------- --------
Costs and expenses:
Rental operations 178,878 158,228
General and administrative 0 31,500
Interest 265,711 273,976
Depreciation and amortization 123,537 128,007
-------- --------
Total costs and expenses 568,126 591,711
-------- --------
Loss before equity in affiliate (313,584) (350,411)
Equity in income of affiliate 14,001 (7,622)
-------- --------
Net loss ($299,583) ($358,033)
======== ========
Net loss per limited
partnership unit:
Loss before equity in affiliate ($ 22.20) ($ 24.82)
Equity in income of affiliate .99 (.53)
-------- --------
Net loss ($ 21.21) ($ 25.35)
======== ========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Three months ended
March 31,
2001 2000
---- ----
Cash flows from operating activities:
Net loss ($299,583) ($358,033)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 123,537 128,007
Equity in income/(loss) of affiliate (14,001) 7,622
Changes in assets and liabilities:
Decrease in restricted cash 72,275 21,393
(Increase) decrease in accounts
receivable (4,832) 5,596
(Increase) decrease in other assets (3,593) 5,002
(Decrease) increase in accounts
payable - trade (17,154) 33,986
Increase in accounts payable -
related parties 11,425 11,425
Increase in interest payable 117,976 135,451
Increase (decrease) in accrued
liabilities 4,195 (1,165)
Increase (decrease) in tenant
security deposits 9,645 (10,366)
-------- --------
Net cash (used in) provided by
operating activities (110) (21,082)
-------- --------
Cash flows from financing activities:
Principal repayments (4,449) (896)
-------- --------
Net cash used in financing activities (4,449) (896)
-------- --------
Decrease) increase in cash and cash
equivalents (4,559) (21,978)
Cash and cash equivalents at beginning
of period 28,338 54,242
-------- --------
Cash and cash equivalents at end of
period $ 23,779 $ 32,264
======== ========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS III
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified
Historic Investors III (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 of the Registrant,
and notes thereto, for the year ended December 31, 2000.
The information furnished reflects, in the opinion of management,
all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of the interim
periods presented.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is 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
-------------- --------
3 Registrant's Amended and
Restated Certificate of Limited
Partnership and Agreement of
Limited Partnership, previously
filed as part of Amendment No.
2 of Registrant's Registration
Statement on Form S-11, are
incorporated herein by
reference.
21 Subsidiaries of the Registrant
are listed in Item 2.
Properties on Form 10-K,
previously filed and
incorporated herein by
reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: November 4, 2002 DIVERSIFIED HISTORIC INVESTORS III
----------------
By: Dover Historic Advisors II,
General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President and Treasurer