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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, 2001
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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 _______________
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.)
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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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: 13,981.5 Units
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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 any amendment to this
Form 10-K. [ ]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
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* 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, 2001, 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 that
Registrant owns or in which it has interest are held for rental
operations. Registrant anticipates that all the properties will
continue to be held for this purpose. As real property values
increase, the Registrant will re-evaluate its investment strategy
regarding the properties.
As of December 31, 2001, Registrant owned four
properties (or interests therein), located in Pennsylvania (two),
Louisiana (one), and North Carolina (one). Three properties are
apartment buildings and one is a commercial/office building. In
total, the four properties contain 133 apartment units and 62,146
rentable square feet ("sf") of commercial space. As of December
31, 2001, 124 apartment units were under lease at monthly rental
rates ranging from $471 to $1,700. In addition, 22,354 sf of the
commercial space was under lease at annual rates ranging from
$6.00 per sf to $14.28 per sf. Rental of the apartments and
commercial space is not 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. 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,
Louisiana. The commercial/office building is located in Winston-
Salem, North Carolina. 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, 2001 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, 2001). The note payable bears interest at 10%. It
is 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, and $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 were 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
($1,493,104 principal balance at December 31, 2001) 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 portion of the first mortgage that was not refinanced plus
the second and third mortgage notes were consolidated and a new
note (principal balance of $1,942,681 at December 31, 2001
including accrued but unpaid interest) was structured which
extends the maturity date to December 2, 2008, bears interest at
15% with monthly payments of interest to be made in an amount
equal to net operating income.
The property is managed by BCMI. As of December 31,
2001, 57 residential units (98%) were under lease at monthly
rents ranging from $471 to $1,700. All leases are renewable, one-
year leases. The occupancy for the previous four years was 86%
for 2000, 88% for 1999, 88% for 1998, and 87% for 1997. The
monthly rental ranges for the previous four years were $460 to
$1,700 during 2000, $460 to $1,565 during 1999 and 1998, and $375
to $1,450 during 1997. For tax purposes, this property has a
federal tax basis of $3,336,188 and is depreciated using the
straight-line method with a useful life of 27.5 years. The
annual real estate taxes are $29,924 which is based on an
assessed value of $365,760 taxed at a rate of $6.90 per $100. No
one tenant occupies ten percent or more of the building. The
Registrant believes 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, 2001) 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, 2001, 18 apartments (100%) were
under lease at monthly rents ranging from $540 to $725. All
leases are renewable, one-year leases. The occupancy for the
previous four years was 94% for 2000, 83% for 1999, 94% for 1998,
and 94% for 1997. The monthly rental range has been
approximately the same since 1997. 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 $15,316, which is based on
assessed value of $187,200 taxed at a rate of $8.18 per $100. No
one tenant occupies ten percent or more of the building.
Registrant believes 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 62,146 rentable
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 $3,873,752
at December 31, 2001) 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
developers 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 in an amount equal to
net operating income with a minimum monthly payment of $27,500.
The Registrant advanced an additional $1,098,000 and Triad
obtained $200,000 of additional financing in 1987 (principal
balance due of $200,000 at December 31, 2001) to fund cost
overruns resulting from delays and changes in rehabilitation and
construction plans. The additional financing bears interest at
the prime rate with a minimum of 6% and a maximum of 8% adjusting
annually on January 2, (6% at December 31, 2001 and 8% at
December 31, 2000). The property is managed by BCMI.
As of December 31, 2001, 22,369 sf were rented (36%)
at annual rates ranging from $6.00 to $14.28 per sf. The
occupancy at year end for the previous four years has been 36%
for 2000, 41% for 1999, 98% for 1998, and 88% for 1997. The
significant drop in occupancy as of December 31, 1999 as compared
to 1998 is the result of the expiration of a tenant lease for
33,121 sf on December 31, 1999. The range for annual rents has
been $6.00 to $13.41 per sf for 2000, $6.00 to $13.41 per sf for
1999, $6.00 to $16.44 per sf for 1998, and $6.00 to $16.21 per sf
for 1997. 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
Number of Total sf of rental covered % of gross
Years leases expiring by expiring annual rental
expiring leases leases from property
2002 1 3,261 $ 47,000 17%
2003 0 0 0 0%
2004 0 0 0 0%
2005 1 2,800 $ 35,000 13%
2006 3 16,308 $197,000 70%
No commercial leases expired during 2001. For tax
purposes, this property has a basis of $5,457,427 and is
depreciated using the straight-line method with a useful life of
39 years. The annual real estate taxes are $21,174 which is based
on an assessed value of $5,414,779 taxed at a rate of $.39 per
$100. Registrant believes 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 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 credits 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 a New Orleans property
management firm not affiliated with BCMI. As of December 31,
2001, 49 residential units were under lease (86%) at monthly
rents ranging from $634 to $1,485. All leases are renewable, one-
year leases. The occupancy for the previous four years was 100%
for 2000, 98% for 1999, 89% for 1998 and 91% for 1997. The
monthly rental ranges for the previous four years were $634 to
$1,485 during 2000, $620 to $1,250 during 1999, $620 to $1,300
during 1998, and $610 to $1,240 during 1997. For tax purposes,
this property has a basis of $2,527,541 and is depreciated using
the straight-line method with a useful life of 27.5 years. The
annual real estate taxes are $52,063, which is based on assessed
value of $280,000 taxed at a rate of $18.59 per $100. No one
tenant occupies ten percent or more of the building. Registrant
believes 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 year
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 73 Units of
record were sold or exchanged in 2001.
b. As of December 31, 2001, there were 1,583 record
holders of Units.
c. Registrant did not declare any cash dividends
in 2001 or 2000.
Item 6. Selected Financial Data
The following selected financial data are for the
five years ended December 31, 2001. 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.
2001 2000 1999 1998 1997
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Rental income $ 931,137 $ 936,392 $1,257,195 $1,251,911 $1,251,764
Interest
income 2,414 4,397 3,866 2,113 441
Net loss (3,444,268) (2,006,951)(1,070,903)(1,297,537)(1,017,497)
Net loss per
Unit (243.88) (142.11) (75.83) (91.88) (72.05)
Total assets
(net of depreciation
and
amortization) 3,348,854 6,024,542 7,307,432 7,758,588 8,196,299
Debt
obligations 8,996,269 8,972,599 8,966,573 8,970,613 8,418,142
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Liquidity
At December 31, 2001, Registrant had cash of
approximately $24,568. Registrant uses cash generated from
operations primarily to fund operating expenses and debt service.
In recent years the Registrant has realized significant losses,
including the threatened 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 and Green Street. At Lincoln Court, Green Street, and the
Loewy Building, 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. The Registrant is not aware of any
additional sources of liquidity.
As of December 31, 2001, Registrant had restricted
cash of $125,704 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.
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 expenditure 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
mortgages.
Results of Operations
During 2001, Registrant incurred a net loss of
$3,444,268 ($243.88 per limited partnership unit), compared to a
net loss of $2,006,951 ($142.11 per limited partnership unit) in
2000, and a net loss of $1,070,903 ($75.83 per limited
partnership unit) in 1999.
Rental income was $931,137 in 2001, $936,392 in
2000, and $1,257,195 in 1999. The decrease in rental income from
2000 to 2001 is due to a decrease at the Loewy Building and the
Green Street Apartments, partially offset by an increase at
Lincoln Court. The decrease in rental income at the Loewy
Building is due a decrease in average occupancy (38% to 36%). The
decrease at the Green Street Apartments is due to a decrease in
average occupancy (98% to 86%). The increase at the Lincoln Court
is due to an increase in average occupancy (86% to 95%). The
decrease in rental income from 1999 to 2000 is due to a decrease
at the Loewy Building partially offset by increases at Lincoln
Court and Green Street Apartments. The decrease in occupancy at
the Loewy Building is due to the decrease in average occupancy
(78% to 38%). The increase in rental income at the Lincoln Court
Apartments is due to an increase in average rental rates from
$460 to $1,565 during 1999 to $460 to $1,700 during 2000. The
increase at the Green Street Apartments is due to an increase in
average occupancy (83% to 94%).
Rental operations expense was $567,914 in 2001,
$552,505 in 2000, and $585,564 in 1999. The increase from 2000 to
2001 is due to an increase in commission expense at Lincoln Court
and the Green Street Apartments, partially offset by a decrease
in legal and accounting expense at the Loewy Building. The
increase in commission expense at Lincoln Court and the Green
Street Apartments is due to an increase in the turnover of
apartment units. The decrease in legal expenses at the Loewy
Building is due to a decrease in professional services rendered
during 2001. The decrease from 1999 to 2000 was due to a decrease
in maintenance expense at the Lincoln Court Apartments.
Maintenance expense decreased at Lincoln Court due to a decrease
in apartment preparation expenses and maintenance services.
General and administrative expense was $0 in both
2000 and 2001, and $126,000 in 1999. The Registrant ceased
accruing partnership administration fees in 2000. The cash flow
and debt of the Registrant make it unlikely that these fees will
be paid.
Interest expense was $1,068,080 in 2001, $1,068,425
in 2000, and $1,066,780 in 1999. The increase in interest
expense from 1999 to 2000 is due to an increase at the Loewy
Building due to an increase in principal balance as a result of
principal additions made during the year.
Depreciation and amortization was $495,581 in 2001,
$522,814 in 2000 and $519,656 in 1999. The decrease from 2000 to
2001 is due to a decrease in depreciation expense at the Loewy
Building due to the impairment loss taken during the fourth
quarter of 2001 which decreased the depreciable basis of the
building. The increase from 1999 to 2000 is due to asset
additions at Lincoln Court and the Loewy Building.
During 2001, the Registrant incurred an impairment
loss of $2,264,000. The Loewy Building was deemed to be impaired
and was written down to its fair market value. Fair value, which
was determined by reference to the present value of the estimated
future cash inflows, exceeded the carrying value by $2,264,000.
An impairment loss of that amount has been charged to operations
in 2001.
During 2000, the Registrant incurred an impairment
loss of $820,000. The Loewy Building was deemed to be impaired
and was written down to its fair market value. Fair value, which
was determined by reference to the present value of the estimated
future cash inflows, exceeded the carrying value by $820,000. An
impairment loss of that amount has been charged to operations in
2000.
In 2001, a loss of approximately $1,140,000 was
incurred at the Registrant's four properties compared to a loss
of $1,115,000 in 2000 and a loss of $873,000 in 1999. A
discussion of property operations/activities follows:
During 2001, the Registrant sustained a loss of
$269,000 at Lincoln Court including $165,000 of depreciation and
amortization expense. In 2000, Registrant sustained a loss of
$349,000 including $163,000 of depreciation and amortization
expense compared to a loss of $375,000 including $161,000 of
depreciation expense in 1999. The decrease in loss from 2000 to
2001 is due to an increase in rental income and a decrease in
maintenance expense, partially offset by an increase in
commission expense. The increase in rental income is due to an
increase in average occupancy (86% to 95%). The decrease in
maintenance expense is due to a decrease in maintenance service
expense. The increase in commission expense is due to an increase
in the turnover of apartment units. The decrease in loss from
1999 to 2000 is due to an increase in rental income and a
decrease in maintenance expense. The decrease in maintenance
expense is due to a decrease in apartment preparation expense and
maintenance service expense.
On June 30, 1992 Diversified Historic Properties,
Inc. ("DHP"), a 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 2001 and 2000.
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, 2001 was $807,417.
In 2001 Green Street apartments sustained a loss
of $145,000 including $59,000 in depreciation expense compared to
a loss of $132,000 including $59,000 of depreciation expense in
2000, and a loss of $147,000 in 1999 including $59,000 of
depreciation expense. The increase in loss from 2000 to 2001 is
due to a decrease in rental income and an increase in commission
expense. The decrease in rental income is due to a decrease in
average occupancy (98% to 86%). The increase in commission
expense is due to an increase in the turnover of apartment units.
The decrease in the loss from 1999 to 2000 is due to an increase
in rental income due to an increase in average occupancy (83% to
94%).
On June 30, 1992, DHP 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 2000 and 2001. Payments on
the judgment are to be made from available cash flow from 18th
and Green. The balance of the note at December 31, 2001 was
$70,343.
In 2001, the Loewy Building sustained a loss
(exclusive of the impairment loss) of $745,000 including $290,000
of depreciation and amortization expenses compared to a loss of
$650,000 including $286,000 of depreciation and amortization
expense during 2000 and to a loss of $317,000 including $285,000
of depreciation and amortization expense in 1999. The decrease in
loss from 2000 to 2001 is due to a decrease in rental income and
an increase in maintenance expense. The decrease in rental income
at the Loewy Building is due to a decrease in average occupancy
(38% to 36%). The increase in maintenance expense is due to an
increase in cleaning and maintenance service. The increase in
loss from 1999 to 2000 is due to a decrease in rental income due
to a decrease in average occupancy (78% to 38%).
Summary of Minority Interests
In 2001, the Registrant recognized net income of
$18,000 at Magazine Place compared to an income of $16,000 in
2000 and a loss $34,000 in 1999. This investment is accounted for
by the equity method. The increase in net income from 2000 to
2001 is due to a decrease in rental operating expenses. The net
income in 2000 versus a loss in 1999 is due to an increase
average rental rates from a range of $620 to $1,300 during 1999
to a range of $634 to $1,485 during 2000.
Item7A. 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, 2001 and 2000
and the related statements of operations, changes in partners'
equity and cash flows for the years ended December 31, 2001, 2000
and 1999. 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 auditing standards
generally accepted in the United States of America. 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, 2001 and 2000, and the results of operations
and cash flows for the years ended December 31, 2001, 2000 and
1999, in conformity with accounting principles generally accepted
in the United States of America.
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.
The accompanying financial statements have been prepared assuming
that the partnership will continue as a going concern. In recent
years, the partnership had incurred significant losses from
operations, which raise substantial doubt about its ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
March 20, 2002
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, 2001 and
2000 14
Consolidated Statements of Operations for the Years
Ended December 31, 2001, 2000, and 1999 15
Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 2001, 2000,
and 1999 16
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000, and 1999 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, 2001 and 2000
Assets
2001 2000
Rental properties at cost: ---- ----
Land $ 465,454 $ 465,454
Buildings and improvements 8,941,775 11,170,423
Furniture and fixtures 170,548 157,259
----------- -----------
9,577,777 11,793,136
Less - accumulated depreciation (6,891,195) (6,424,759)
----------- -----------
2,686,582 5,368,377
Cash and cash equivalents 24,568 28,338
Restricted cash 125,703 181,556
Accounts receivable 103,775 90,688
Investment in affiliate 181,003 163,246
Other assets (net of accumulated
amortization of $259,565 and
$230,421) 227,223 191,837
----------- -----------
Total $ 3,348,854 $ 6,024,042
=========== ===========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 8,996,269 $ 8,972,599
Accounts payable:
Trade 1,208,816 1,180,280
Related parties 873,567 827,860
Real Estate Taxes 21,174
Interest payable 2,994,518 2,345,061
Tenant security deposits 62,468 57,885
Other liabilities 30,681 34,729
----------- -----------
Total liabilities 14,187,493 13,418,414
Partners' deficit (10,838,639) (7,394,372)
----------- -----------
Total $ 3,348,854 $ 6,024,042
=========== ===========
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, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Revenues:
Rental income $ 931,137 $ 936,392 $1,257,195
Interest income 2,414 4,397 3,866
---------- ---------- ----------
Total revenues 933,551 940,789 1,261,061
---------- ---------- ----------
Costs and expenses:
Rental operations 567,915 552,505 585,564
General and administrative 0 0 126,000
Interest 1,068,080 1,068,425 1,066,780
Depreciation and amortization 495,581 522,814 519,656
Impairment loss 2,264,000 820,000 0
---------- ---------- ----------
Total costs and expenses 4,395,576 2,963,744 2,298,000
---------- ---------- ----------
Loss before equity in affiliate (3,462,025) (2,022,955) (1,036,939)
Equity in net income (loss) of
affiliate 17,757 16,004 (33,964)
---------- ---------- ----------
Net loss ($3,444,268) ($2,006,951) ($1,070,903)
========== ========== ==========
Net loss per limited partnership
unit:
Loss before equity in affiliate ($ 245.14) ($ 143.24) ($ 73.42)
Equity in net income (loss)
of affiliate 1.26 1.13 (2.41)
---------- ---------- ----------
($ 243.88) ($ 142.11) ($ 75.83)
========== ========== ==========
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, 2001, 2000 and 1999
Dover
Historic Limited
Advisors Partners
II(1) (2) Total
-------- -------- -----
Percentage participation in
profit or loss 1% 99% 100%
== === ====
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)
Net loss (20,070) (1,986,881) (2,006,951)
-------- ---------- -----------
Balance at December 31, 2000 ($186,983) ($7,207,389) ($ 7,394,372)
Net loss (34,443) (3,409,825) (3,444,267)
-------- ---------- -----------
Balance at December 31, 2001 ($221,426) ($10,617,214) ($10,838,639)
======== =========== ===========
(1) General Partner.
(2) 13,981.5 limited partnership units outstanding at December
31, 2001, 2000, and 1999.
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, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating
activities:
Net loss ($3,444,268)($2,006,951)($1,070,903)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 495,581 522,814 519,656
Impairment loss 2,264,000 820,000 0
Equity in (income) loss of
affiliate (17,757) (16,004) 33,964
Changes in assets and liabilities:
Decrease (increase) in restricted
cash 55,852 (9,546) (3,666)
Increase in accounts receivable (13,087) (28,449) (36,932)
Increase in other assets (64,530) (8,585) (19,971)
Increase in accounts payable -
trade 28,536 18,658 164,864
Increase in accounts payable -
related parties 45,707 45,703 45,699
Increase in accounts payable -
real estate 21,174 0 0
Increase in interest payable 649,457 662,100 392,010
Increase in tenant security
deposits 4,584 2,001 10,111
(Decrease) increase in other
liabilities (4,049) (10,927) 11,103
---------- ---------- ----------
Net cash provided by (used in)
operating activities 21,200 (9,186) 45,935
---------- ---------- ----------
Cash flows from investing
activities:
Capital expenditures (48,641) (22,744) (19,634)
---------- ---------- ----------
Net cash used in investing
activities (48,641) (22,744) (19,634)
---------- ---------- ----------
Cash flows from financing
activities:
Proceeds from debt obligations 40,487 21,437 10,627
Payments of principal under debt
obligations (16,816) (15,411) (14,667)
---------- ---------- ----------
Net cash provided by (used in)
financing activities 23,671 6,026 (4,040)
---------- ---------- ----------
(Decrease) increase in cash and
cash equivalents (3,770) (25,904) 22,261
Cash and cash equivalents at
beginning of year 28,338 54,242 31,981
---------- ---------- ----------
Cash and cash equivalents at
end of year $ 24,568 $ 28,338 $ 54,242
========== ========== ==========
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the year for
interest $ 418,623 $ 406,325 $ 674,770
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 (13,981.5 in 2001, 2000, and 1999).
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 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 a 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 deficits, 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 and
Green Street. However, in all three properties, Lincoln Court,
Green Street, and the Loewy Building, 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
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 - IMPAIRMENT LOSS
During 2001, the Loewy Building was deemed to be impaired and was
written down to its fair value. The value, which was determined
by reference to the present value of the estimated future cash
inflows, exceeded the carrying value by $2,264,000. An impairment
loss of that amount has been charged to operations in 2001.
During 2000, the Registrant incurred an impairment loss of
$820,000. The Loewy Building was deemed to be impaired and was
written down to its fair market value. Fair value, which was
determined by reference to the present value of the estimated
future cash inflows, exceeded the carrying value by $820,000. An
impairment loss of that amount has been charged to operations in
2000.
NOTE E - PARTNERSHIP AGREEMENT
The significant terms of the Agreement of Limited Partnership, 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 F - 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 G- DEBT OBLIGATIONS
Debt obligations are as follows: December 31,
2001 2000
---- ----
Mortgage loan, interest accrues at 11 1/2%, $3,873,752 $3,833,265
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, 2000 and 1999); 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 1,493,105 1,509,922
in monthly principal and interest
installments of $10,070; principal due
November 2008; collateralized by the
related rental property
Mortgage loan, interest accrues at 15%, 1,942,681 1,942,681
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%; interest
only payable 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 1,318,119
---------- ----------
$8,996,269 $8,972,599
========== ==========
(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, 2001, for each of the succeeding five years are as
follows:
2002 $ 368,612
2003 19,319
2004 20,408
2005 22,159
2006 23,743
Thereafter 8,542,028
----------
$8,996,269
==========
NOTE H - 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 I - TRANSACTIONS WITH RELATED PARTIES
Included in debt obligations for 2001, 2000 and 1999 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
due on June 30, 1997. Interest accrued was $45,703 during both
2000 and 2001. 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, 2001 was $807,417. Although this obligation has
matured, the lender has made no demand for payment.
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 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 2000 and 2001. Payments
on the judgment are to be made from available cash flow from 18th
and Green. The balance of the judgment at December 31, 2001 was
$70,343.
In June 1998, the General Partner advanced the Partnership
$66,150 to pay certain outstanding liabilities of the
Partnership. The advance is non-interest bearing and will be
paid out of available cash flow.
NOTE J - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time periods for financial reporting
("book") purposes and for income tax ("tax") purposes.
Reconciliations of net loss and partners' equity follow:
For the Years Ended December 31,
2001 2000 1999
---- ---- ----
Net loss - book ($ 3,444,268)($2,006,951)($1,070,903)
Excess of book over tax
depreciation 67,753 98,882 153,257
Minority interest 7,047 6,078 (51,133)
Impairment Loss 2,264,000 820,000 0
----------- ---------- ----------
Net loss - tax ($ 1,105,468)($1,081,991)($ 968,779)
=========== ========== ==========
Partners' equity - book ($10,838,639)($7,394,371)($5,387,421)
1987 distribution of interest
on escrow deposits to
limited partners (39,576) (39,576) (39,576)
Costs of issuance 1,697,342 1,697,342 1,697,342
Cumulative tax under book loss 3,771,616 1,432,816 507,857
----------- ---------- ----------
Partners' equity - tax ($ 5,409,257)($4,303,789)($3,221,798)
=========== ========== ==========
NOTE K - SUBSEQUENT EVENTS
Green Street Apartments was foreclosed by the first mortgage
lender on October 1, 2002. Magazine Place was sold on June 26,
2002. The net proceeds received by the partnership were used to
pay outstanding debts.
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
Cost
Capitalized
Initial Cost Subsequent
to Partnership to
(b) Acquisition
Buildings
and Date Date
Encum- Improve- Improve- of Acquir-
Description brances Land ments ments Constr. ed
- ----------- ------- ---- --------- -------- ------ -------
(a) (c) (a)
64,000
square feet
of
commercial
space in
Winston 1986-
Salem, NC $4,232,365 $308,624 $6,290,125 ($415,244) 1988 11/14/86
Impairment
Loss (2,668,756) (415,244)
58 apartment
units in
Philadelphia, 1986-
PA 3,445,785 86,187 3,490,437 392,511 1987 9/9/86
18 apartment
units
in
Philadelphia,
PA 1,318,119 70,643 1,559,017 48,989 1987 2/27/87
---------- -------- ---------- --------
TOTAL $8,996,269 $465,454 $8,670,823 $441,500
========== ======== ========== ========
Gross Amount at which Carried
at December 31, 2001
Buildings
and
Improve- Accumulated
Description Land ments Total Depreciation
- ----------- ---- --------- ----- ------------
(d)(e) (e)(f)
64,000
square feet
of
commercial
space
in Winston-
Salem, NC $308,624 $3,847,092 $4,155,716 $3,810,535
58 apartment
units in
Philadelphia,
PA 86,187 3,770,086 3,856,273 2,220,855
18 apartment
units
in
Philadelphia,
PA 70,643 1,495,145 1,565,788 859,798
-------- ---------- ---------- ----------
TOTAL $465,454 $9,112,323 $9,577,777 $6,891,188
======== ========== ========== ==========
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 2001
(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) See Note E to the financial statements for further
information
(D) The aggregate cost of real estate owned at December 31,
2001, for federal income tax purposes is approximately
$10,274,512. 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.
(E) Reconciliation of real estate:
2001 2000 1999
---- ---- ----
Balance at beginning of year: $12,613,136 $12,590,391 $12,570,757
Additions during the year:
Improvements 48,641 22,745 19,634
----------- ----------- -----------
Balance at end of year $12,661,777 $12,613,136 $12,590,391
=========== =========== ===========
Reconciliation of accumulated depreciation:
2001 2000 1999
---- ---- ----
Balance at beginning of year $ 6,424,759 $ 5,931,577 $ 5,442,634
Depreciation expense for the year 466,437 493,182 488,943
----------- ----------- -----------
Balance at end of year $ 6,891,196 $ 6,424,759 $ 5,931,577
=========== =========== ===========
(F) See Note B to the financial statements for depreciation
method and lives.
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 and 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 and ventures.
Donna M. Zanghi (age 44) 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 36) 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 2001, Registrant paid
no cash compensation to DoHA-II, any partner therein or any person
named in paragraph c. of Item 10.
b. Compensation Pursuant to Plans - Registrant
has no plan pursuant to which compensation was paid or
distributed during 2001 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 2001 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
1999 through 2001.
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, 2001 and 2000.
b. Consolidated Statements of
Operations for the Years Ended December 31,
2001, 2000 and 1999.
c. Consolidated Statements of
Changes in Partners' Equity for the Years Ended
December 31, 2001, 2000 and 1999.
d. Consolidated Statements of Cash
Flows for the Years Ended December 31, 2001,
2000 and 1999.
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, 2001.
(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.
DIVERSIFIED HISTORIC INVESTORS III
Date: May 28, 2003 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 May 28, 2003
---------------------- ------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi May 28, 2003
---------------------- ------------
MICHELE F. RUDOI,
Assistant Secretary