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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file 0-14934
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DIVERSIFIED HISTORIC INVESTORS
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2312037
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 500, 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) 735-5001
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 11,609.6 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 any amendment 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 ("Registrant") is a
limited partnership formed in 1984 under the Pennsylvania Uniform
Limited Partnership Act. As of December 31, 1996, Registrant had
outstanding 11,609.6 units of limited partnership interest (the
"Units").
Registrant is presently in its operating stage. It
originally owned eight properties or interests therein. Partial or
complete interests in six properties have been lost through
foreclosure. See Item 2. Properties, for a description thereof. It
currently owns two properties and a portion of its original interest
in one property. 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.
The following is a summary of significant transactions
involving the Registrant's interests:
Due to insufficient cash flow at Smythe Stores
Condominium Complex, the Registrant ceased making interest payments in
May 1988. In 1990, the lender was placed in receivership by the
Resolution Trust Corporation ("RTC"). The two entities which
purchased the mortgages from the RTC each filed complaints for
foreclosure due to nonpayment. Foreclosure proceedings on nine units
were filed in the Court of Common Pleas, Philadelphia County in the
matter of Bruin Holdings, Inc. ("Bruin") v. Diversified Historic
Investors and foreclosure proceedings on eleven units were filed in
the Court of Common Pleas, Philadelphia County in the matter of EMC
Mortgage Corporation ("EMC") v. Diversified Historic Investors. In
March 1996, the Bruin cases were settled and the nine mortgages were
sold. The Registrant entered into an agreement with the new holder of
the mortgages whereby monthly payments of interest are to be made in
an amount equal to net operating income. In December 1996, the eleven
units associated with the EMC cases were foreclosed by the lender.
Due to insufficient cash flow at Centre Park Associates
("CPA") from the property and the utilization of all remaining cash
reserves, on June 1, 1994 the Registrant ceased making debt service
payments on the revenue bonds. As a result, the guarantor of the
bonds had to fund interest and principal payments in the amount of
$35,451. The guarantor declared an Event of Default under the loan
documents and on August 19, 1994, the guarantor exercised its option
to purchase the bonds and in accordance with the guarantor agreement,
raised the interest rate on such bonds to prime plus 2%. On October
31, 1994, the guarantor instituted legal proceedings against CPA. The
Registrant's attempt to negotiate the terms of the loan were
unsuccessful and on July 11, 1995, CPA filed a reorganization petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code. After determining
that reorganization was not feasible for CPA, the bankruptcy was
dismissed and, on July 28, 1995, the lender foreclosed on the
property.
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. Each of the three properties currently owned
by the Registrant 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, 1996, Registrant owned three
properties located in Pennsylvania. In total, the three properties
contain 44 apartment units and 5,500 square feet ("sf") of commercial
space. As of December 31, 1996, 41 of the apartment units were under
lease at monthly rental rates ranging from $825 to $1,073. In
addition, 5,500 sf of the commercial space was under lease at annual
rates ranging from $5.14 to $13.85 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 market 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. The properties currently owned by the
Registrant are all located in the Olde City Historic District (the
"District") in Philadelphia, Pennsylvania in which there are several
similar historically certified rehabilitated buildings. The
Registrant's main competitor in this market is Historic Landmarks for
Living which owns several similar residential buildings in the
District. In the District, 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 three
properties, or interests therein. A summary description of each
property held at December 31, 1996 is given below.
a. The Smythe Stores Condominium Complex - consists
of five adjoining buildings located at 101-111 Arch Street, in the
Olde City Historic District (the "District") of Philadelphia,
Pennsylvania. In November, 1984, the Registrant acquired 20
residential units of the complex's 49 units as the 100% equity owner
of these units. The acquisition and rehabilitation cost was
$4,056,375 ($171 per sf) funded by an equity contribution and a series
of condominium mortgages with an original combined principal balance
of $2,440,000. The combined principal balance at December 31, 1996 is
$2,612,620. Each mortgage bears interest at 12%. Scheduled interest
payments were made through April 1, 1988. At that time, due to
insufficient cash flow, the Registrant ceased making payments. In
1990, the lender was placed in receivership by the Resolution Trust
Corporation ("RTC"). The two entities which purchased the mortgages
from the RTC each filed complaints for foreclosure (see Item 1.a.,
above). In March 1996, the Bruin cases were settled and the nine
mortgages were sold. The Registrant entered into an agreement with the
new holder of the mortgages whereby monthly payments of interest are
to be made in an amount equal to net operating income. In December
1996, the eleven units associated with the EMC cases were foreclosed
by the lender. The remaining nine units are managed by BCMI. As of
December 31, 1996, all 9 apartment units were under lease (100%) at
monthly rental rates ranging from $825 to $1,073.
All leases are renewable, one-year leases. The
occupancy for the previous four years was 85% for 1995, 82% for 1994,
74% for 1993 and 77% for 1992. The monthly rental range has been
approximately the same since 1992. For tax purposes, this property
has a federal tax basis of $1,852,369 and is depreciated using the
straight-line method with a useful life of 27.5 years. The annual
real estate taxes are $11,440 which is based on an assessed value of
$138,432 taxed at a rate of $8.264 per $100. No one tenant occupies
ten percent or more of the Registrant's units. It is the opinion of
the management of the Registrant that the property is adequately
covered by insurance.
b. The Third Quarter Apartments - consists of 17
apartments and 1,000 square feet of commercial space located in the
District at 47 North Third Street. In November, 1984, the Registrant
acquired the building and is the 100% equity owner of the property.
The property was acquired and rehabilitated for $1,725,000 ($102 per
sf), funded by an equity contribution and two mortgage loans of
$860,000 and $140,000. On June 1, 1993, the first mortgage was
modified. The terms of the modification include the addition of all
accrued and unpaid interest to the principal balance, changing the due
date to 1998 and revising the payment terms. The first mortgage has a
principal balance at December 31, 1996 of $1,213,303 and bears
interest at 12%. The new payment terms require monthly payments of
interest equal to net operating income, with a minimum of $6,833 per
month. The property has been making payments of at least the minimum
amount of $6,833 per month in order to keep the loan current. The
second note has a principal balance of $138,444, bears interest at
15%, and was due in 1992. In 1991, the Registrant stopped making
scheduled mortgage payments. No notice of default has yet been
received from the lender. The property is managed by BCMI. As of
December 31, 1996, 16 of the units were under lease (94%) at monthly
rental rates ranging from $560 to $995 and 1,000 sf of commercial
space was under lease (100%) at an annual rental rate of $9.90 per sf.
All residential leases are renewable, one-year
leases. The occupancy for the previous four years was 87% for 1995,
95% for 1994, 86% for 1993 and 77% for 1992. The monthly rental range
has been approximately the same since 1992. The occupancy for the
commercial space has been 100% for the previous four years. The
annual rental rate has been $8.40 per sf for the previous four years.
The one commercial tenant, a financial institution, leases a total of
1,700 sf under a lease expiring in December 1997. The total annual
rental under this lease is $10,380 which represents 8% of the total
gross annual rental.
For tax purposes, this property has a federal tax
basis of $1,789,505 and is depreciated using the straight-line method
with a useful life of 27.5 years. The annual real estate taxes are
$17,454 which is based on an assessed value of $211,200 taxed at a
rate of $8.264 per $100. It is the opinion of the management of the
Registrant that the property is adequately covered by insurance.
c. Wistar Alley - located in the District at 30-32
North Third Street, in Philadelphia, Pennsylvania, consists of two
adjoining buildings which contain 18 residential units and 4,500 sf of
commercial area. The Registrant acquired the buildings in December
1984 and is the 100% equity owner of the property. The property was
acquired and rehabilitated for $2,230,000 ($101 per sf), funded by an
equity contribution and three mortgage loans of $1,400,000. On June
1, 1993, the first mortgage was modified. The terms of the
modification include the addition of all accrued and unpaid interest
to the principal balance, changing the due date to 1998 and revising
the payment terms. The first mortgage has a principal balance at
December 31, 1996 of $1,393,404 and bears interest at 2-1/2% over the
Federal Home Bank Board Cost of Funds Index with a maximum of 14-1/2%
and a minimum of 8-1/2%. The rate was 8-1/2% at December 31, 1996.
The new payment terms require monthly payments of interest equal to
net operating income, with a minimum of $9,000 per month. The
property has not generated sufficient cash flow to satisfy the minimum
requirement; however, the loan has not been declared in default. The
second and third notes have principal balances at December 31, 1996 of
$380,114, and $96,689. The notes bear interest at 11%, and prime plus
1 1/2%, therefore 9.75% at December 31, 1996, respectively, and are
due at the earlier of the sale of the Property or the year 2009. The
property is managed by BCMI. As of December 31, 1996, 16 residential
units were under lease (89%) at monthly rents ranging from $675 to
$920 and 4,500 sf of commercial space were under lease (100%) at an
annual rental rates ranging from $5.14 to $13.85 per sf.
All residential leases are renewable, one-year leases.
The occupancy for the residential units for the previous four years
was 83% for 1995, 86% for 1994, 88% for 1993 and 84% for 1992. The
monthly rental range has been approximately the same since 1992. The
occupancy for the commercial space for the previous four years has
been 38% for 1995, 100% for 1994, 100% for 1993 and 100% for 1992.
The average annual rental rate has been $13.85 per sf for 1995, $9.28
per sf to $13.45 per sf for 1994, $10.85 per sf for 1993 and $11.18
per sf for 1992.
The following is a table showing commercial lease
expirations at Wistar Alley 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
1997 0 0 $ 0 0%
1998 0 0 0 0%
1999 1 1,700 23,544 14%
2000 0 0 0 0%
2001 1 2,800 14,400 8%
For tax purposes, this property has federal tax basis
of $2,192,915 and is depreciated using the straight-line method with a
useful life of 27.5 years. The annual real estate taxes are $23,139
which is based on an assessed value of $280,000 taxed at a rate of
$8.264 per $100. It is the opinion of the management of the
Registrant that the property is adequately covered by insurance.
Item 3. Legal Proceedings
a. For a description of legal proceedings involving
Registrant's properties, see Part I, Item 2 and Part II, Item 7.
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 127 Units of record
were sold or exchanged in 1996.
b. As of December 31, 1996, there were 1,233 record
holders of Units.
c. Registrant did not declare any cash dividends in
1996 or 1995.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1996. 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.
1996 1995 1994 1993 1992
Rental income $ 480,731 $ 634,710 $ 795,515 $ 797,966 $ 994,636
Interest income 623 527 5,332 10,557 23,889
Net loss (127,434) (178,506) (966,711) (279,965) (1,534,295)
Net loss per Unit (10.86) (15.22) (82.44) (23.87) (130.84)
Total assets (net 3,453,392 4,946,064 7,528,198 7,995,509 12,711,570
of depreciation
and amortization)
Debt obligations 5,834,574 5,607,067 7,910,843 7,874,669 11,125,799
Note: See Part II, Item 7.2 Results of Operations for a discussion of
factors which materially affect the comparability of the information
reflected in the above table.
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
(1) Liquidity
At December 31, 1996, Registrant had cash of
approximately $4,017. Such funds are expected to be used to pay
liabilities and general and administrative expenses of Registrant and
to fund cash deficits of the properties. 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, 1996, Registrant had restricted
cash of $68,063 consisting primarily of funds held as security
deposits and escrows for taxes. As a consequence of these
restrictions as to use, Registrant does not deem these funds to be a
source of liquidity.
In recent years the Registrant has realized
significant losses, including the foreclosure of five properties and a
portion of a sixth property, due to the properties' inability to
generate sufficient cash flow to pay their operating expenses and debt
service. At the present time, the Registrant has feasible loan
modifications in place. 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.
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
Due to the relatively recent rehabilitations of
the properties, any capital expenditures needed are generally
replacement items and are funded out of cash from operations or
replacement reserves, if any. The Registrant is not aware of any
factors which would cause historical capital expenditures levels not
to be indicative of capital requirements in the future and
accordingly, does not believe that it will have to commit material
resources to capital investment for the foreseeable future. If the
need for capital expenditures does arise, the first mortgage holder
for Third Quarter, Wistar Alley and Smythe Stores has agreed to fund
capital expenditures. The mortgagee funded $2,136, $30,330 and $0,
respectively during 1996 for capital expenditures.
Results of Operations
During 1996, Registrant incurred a net loss of
$127,434 ($10.86 per limited partnership unit) compared to a net loss
of $178,506 ($15.22 per limited partnership unit) in 1995 and a net
loss of $966,711 ($82.44 per limited partnership unit) in 1994.
Rental income decreased from $795,515 in 1994 to
$634,710 in 1995 to $480,731 in 1996. The decrease from 1994 to 1995
and 1995 to 1996 is mainly the result of the loss of Centre Park in
1995. The decrease from 1995 to 1996 is also due to a decrease in
rental income at Smythe Stores due a decrease in average occupancy
(89% to 84%) and the foreclosure of the eleven units in December 1996
partially offset by an increase at Third Quarter due to an increase in
average occupancy (75% to 93%). Additionally, from 1994 to 1995,
rental income decreased at Third Quarter and Wistar Alley due to
decreases in the average occupancy (95% to 75%) and (86% to 83%),
respectively, and the loss of one commercial tenant at Wistar Alley.
Rental income also decreased at Smythe Stores due to a decrease in the
occupancy of some higher priced units while overall occupancy
increased slightly.
Other income increased from $0 in 1994 and 1995 to
$166,277 in 1996. The increase is the result of the write-off of
accounts payable in 1996 due to a recalculation and subsequent
forgiveness of a portion of the administrative fees charged by BCMI to
the Registrant.
As a result of a decrease in the amount of cash
held by the Registrant, interest income declined from $5,332 in 1994
to $527 in 1995 and to $623 in 1996.
Rental operations expenses decreased from $584,003
in 1994 to $535,597 in 1995 and to $395,732 in 1996. The overall
decrease from 1995 to 1996 and from 1994 to 1995 resulted mainly from
the loss of Centre Park in July 1995. The loss from 1995 to 1996 also
included an increase in legal fees due to the modification of 9 of the
20 mortgage loans at Smythe Stores and an increase in condominium fees
at Smythe Stores due to a special assessment charged by the
condominium association for capital improvements for the building.
There was also an increase in commissions expense at Wistar Alley due
to a higher turnover of units in 1996. The loss from 1994 to 1995
included a decrease in real estate taxes at Smythe Stores partially
offset by certain operating expense increases at all properties, such
as maintenance, condominium fees, insurance and commissions.
Maintenance and commissions increased pursuant to a change in the
management contract which increased the hourly rates charged for
maintenance personnel and allowed the accrual of commissions for
properties where the mortgage is a cash flow mortgage. The increase
in condominium fees relates to a one time decrease in 1994 based on a
recalculation of condominium fees by the condominium association for
all previous years at Smythe Stores. Insurance increased at Smythe
Stores due to a reallocation of the premium between the owner and the
condominium association to better reflect the coverage provided. Real
estate taxes decreased at Smythe Stores due to a decrease in the
assessed value.
General and administrative expenses decreased from
$162,000 in 1994 and 1995 to $80,048 in 1996. The decrease from 1995
to 1996 is the result of a reduction in the administrative fee charged
due to the foreclosure of several properties owned by the Registrant
in the last several years.
Interest expense increased from $572,350 in 1994
to $618,991 in 1995 and to $1,283,218 in 1996. The increase from 1995
to 1996 is due to an increase in the principal balance, due to the
capitalization of past due interest by the mortgage holder, upon which
interest is accrued at Smythe Stores, partially offset by the
foreclosure of Centre Park in July 1995. The increase from 1994 to
1995 resulted mainly from a contractual increase in the interest rate
at Centre Park and an increase in the principal balance upon which
interest is accrued at Third Quarter.
Depreciation and amortization decreased from
$449,205 in 1994 to $396,536 in 1995 and to $308,684 in 1996. The
decrease from 1994 to 1995 and 1995 to 1996 results mainly from the
loss of Centre Park in 1995.
In 1996, a loss of $168,000 was incurred at the
Registrant's three properties compared to income of $141,000 in 1995
and a loss of $869,000 in 1994. A discussion of property
operations/activities follows:
In 1996, Registrant recognized income of $163,000
at the twenty units owned at the Smythe Stores Condominium complex
including $154,000 of depreciation expense compared to a loss of
$334,000 including $165,000 of depreciation expense in 1995 and a loss
of $306,000 including $164,000 of depreciation expense in 1994.
Included in operations in 1996 is an extraordinary gain of $1,292,617
representing the excess of the liabilities satisfied in the
foreclosure over the fair market value of the assets. The 1996 loss
without the effect of the foreclosure would have been $1,130,000. The
increase in the loss from 1995 to 1996 results mainly from an increase
in interest expense, legal and condominium fees and a decrease in
rental income partially offset by a decrease in depreciation expense.
Interest expense increased due to an increase in the principal balance
upon which interest is accrued and legal fees increased due to the
modification of 9 of the 20 mortgage loans. Condominium fees
increased due to a special assessment charged by the condominium
association for capital improvements of the building. Rental income
decreased due to a decrease in the average occupancy (89% to 84%)
while depreciation expense decreased due to the foreclosure of the
eleven units in December 1996.. The increased loss from 1994 to 1995
is due to a decrease in rental income, increases in certain operating
expenses (such as insurance, maintenance and condominium fees)
partially offset by a decrease in real estate taxes. Rental income
decreased due to a decrease in the occupancy of some higher priced
units, although overall occupancy increased slightly. Maintenance
increased pursuant to a change in the management contract which
increased the hourly rates charged for maintenance personnel.
Condominium fees increased due to a one time decrease in 1994 due to a
recalculation of condominium fees by the condominium association for
all previous years at Smythe Stores. Insurance increased at Smythe
Stores due to a reallocation of the premium between the owner and the
condominium association to better reflect the coverage provided. Real
estate taxes decreased at Smythe Stores due to a decrease in the
assessed value.
On June 30, 1992 Diversified Historic Properties,
Inc., co-partner of the Registrant's general partner, assigned to D,
LTD (its parent) a note receivable from the Registrant in the amount
of $127,418 which bears interest at 10% with the entire principal and
accrued interest due on June 30, 1997. On October 8, 1993 D, LTD
obtained a judgment in the amount of $156,873 on this note in Common
Pleas Court for Philadelphia County, Pennsylvania. The judgment
accrues interest at 15%. Interest accrued was $6,474 during both 1995
and 1996. Payments on the judgment 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 at December 31, 1996 is
$57,191.
In 1996, Registrant sustained a loss of $190,000
at the Third Quarter Apartments including $70,000 of depreciation and
amortization expense compared to a loss of $189,000 including $71,000
of depreciation and amortization expense in 1995 and a loss of
$141,000 including $70,000 of depreciation and amortization expense in
1994. Although there was no material overall change in the loss from
1995 to 1996, there was an increase in rental income partially offset
by an increase in interest expense. Rental income increased due to an
increase in the average occupancy (75% to 93%) while interest expense
increased due to interest incurred on past due real estate taxes. The
increased loss from 1994 to 1995 is due to a decrease of rental income
and increases in certain operating expenses (such as maintenance,
commissions and interest). Rental income decreased due to a decrease
in the average occupancy from 1994 to 1995 (95% to 75%). Maintenance
and commissions increased pursuant to a change in the management
contract which increased the hourly rates charged for maintenance
personnel and allowed the accrual of commissions for properties where
the mortgage is a cash flow mortgage. Interest increased due to an
increase in the principal balance upon which interest is accrued.
In 1996, Registrant sustained a loss of $141,000
at Wistar Alley including $85,000 of depreciation and amortization
expense compared to a loss of $131,000 including $85,000 of
depreciation and amortization expense in 1995 and a loss of $97,000
including $85,000 of depreciation and amortization expense in 1994.
The increased loss from 1995 to 1996 is due mainly to an increase in
commissions expense due to a higher turnover of units. The increased
loss from 1994 to 1995 is due to the combination of a decrease in
rental income and increases in certain operating expenses (such as
maintenance and commissions). Rental income decreased due to a
decrease in the average occupancy from 1994 to 1995 (86% to 83%) and
the loss of one commercial tenant. Maintenance and commissions
increased pursuant to a change in the management contract which
increased the hourly rates charged for maintenance personnel and
allowed the accrual of commissions for properties where the mortgage
is a cash flow mortgage.
In 1996, Registrant recognized income of $0 at
Centre Park Place compared to income of $795,000 including $76,000 of
depreciation expense in 1995 and a loss of $325,000 including $130,000
of depreciation expense in 1994. The 1995 loss without the effect of
the foreclosure would have been $271,000. The decrease in the loss
from 1994 to 1995 results mainly from the loss of the property in July
1995 partially offset by increased legal fees associated with the
foreclosure of the property. Included in operations from 1995 is an
extraordinary gain of $899,381 representing the representing the
excess of the liabilities satisfied in the foreclosure over the fair
market value of the Centre Park Property.
On May 3, 1993 a contractor who had performed
services at Centre Park Place obtained and executed a judgment (due to
non-payment) in the amount of $26,028 against CPA and garnished
certain partnership bank accounts. The contractor collected $7,226 on
his judgment. The balance of the judgment at the date of foreclosure
of the property was $18,802.
On June 30, 1992 Diversified Historic Properties,
Inc., co-partner of the Registrant's general partner, assigned to D,
LTD (its parent) a note receivable, from CPA to the Registrant, that
had been assigned to it, in the amount of $246,491 which bears
interest at 10% with the entire principal and accrued interest due on
June 30, 1997. On October 8, 1993 D, LTD obtained a judgment in the
amount of $299,651 on this note in Common Pleas Court for Philadelphia
County, Pennsylvania. The judgment accrues interest at 15%. Interest
accrued in 1995 was $20,950. Payments on the judgment were to be made
out of available cash flow from CPA. The balance of the judgment at
the date of foreclosure was $155,239. Due to the foreclosure of the
property, no additional payments will be made to D, LTD on account of
the note from CPA.
Effective January 1, 1995, the Partnership adopted
the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long - Lived Assets and for
Long - Lived Assets to be Disposed Of." There was no cumulative
effect of the adoption of SFAS No. 121.
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
We have audited the accompanying consolidated balance sheets of
Diversified Historic Investors (a Pennsylvania Limited Partnership)
and its subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, changes in partners' equity and
cash flows for the years ended December 31, 1996, 1995 and 1994.
These consolidated financial 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits 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 audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in
the first paragraph present fairly, in all material respects, the
financial position of Diversified Historic Investors and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for the years ended December 31, 1996, 1995 and
1994, 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 29 is presented for the
purposes of additional analysis and is not a required part 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 has 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
February 4, 1997
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1996 and 1995 15
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995, and 1994 16
Consolidated Statements of Changes in Partners' Equity for
the Years Ended December 31, 1996, 1995, and 1994 17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 18
Notes to consolidated financial statements 19-27
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 29
Notes to Schedule XI 30
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
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
Assets
1996 1995
Rental properties at cost:
Land $ 310,833 $ 331,362
Buildings and improvements 5,721,048 7,896,078
Furniture and fixtures 113,742 149,151
---------- ----------
6,145,623 8,376,591
Less - accumulated depreciation (2,822,893) (3,614,119)
---------- ----------
3,322,730 4,762,472
Cash and cash equivalents 4,017 4,571
Restricted cash 68,063 40,882
Accounts receivable 58,582 93,259
Other assets (net of accumulated
amortization of $30,510 and $54,420) 0 44,880
--------- ---------
Total $ 3,453,392 $ 4,946,064
========= =========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 5,834,574 $ 5,607,067
Accounts payable:
Trade 264,967 491,919
Related parties 323,640 94,540
Taxes 0 313,032
Interest payable 874,307 2,140,747
Tenant security deposits 40,229 38,938
Other liabilities 2,975 19,687
---------- ----------
Total liabilities 7,340,692 8,705,930
---------- ----------
Partners' equity (3,887,300) (3,759,866)
---------- ----------
Total $ 3,453,392 $ 4,946,064
========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Rental income $ 480,731 $ 634,710 $ 795,515
Other income 166,277 0 0
Interest income 623 527 5,332
--------- --------- --------
Total revenues 647,631 635,237 800,847
--------- --------- --------
Costs and expenses:
Rental operations 395,732 535,597 584,003
General and administrative 80,048 162,000 162,000
Interest 1,283,218 618,991 572,350
Depreciation and amortization 308,684 396,536 449,205
--------- --------- ---------
Total costs and expenses 2,067,682 1,713,124 1,767,558
--------- --------- ---------
Loss before extraordinary item (1,420,051) (1,077,887) (966,711)
Extraordinary gain on extinguishment
of debt 1,292,617 899,381 0
--------- ---------- --------
Net loss ($ 127,434) ($ 178,506) ($ 966,711)
Net loss per limited partnership unit:
Loss before extraordinary item (121.09) (91.91) (82.44)
Extraordinary item 110.23 76.69 0
------ ----- -----
($ 10.86) ($ 15.22) ($ 82.44)
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
Diversified
Historic Limited
Advisors (1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1993 (118,012) (2,496,637) (2,614,649)
Net loss (9,667) (957,044) (966,711)
------- --------- ---------
Balance at December 31, 1994 (127,679) (3,453,681) (3,581,360)
Net loss (1,785) (176,721) (178,506)
------- --------- ---------
Balance at December 31, 1995 (129,464) (3,630,402) (3,759,866)
Net loss (1,274) (126,160) (127,434)
------- --------- ---------
Balance at December 31, 1996 ($130,738) ($3,756,562) ($3,887,300)
======= ========= =========
(1) General Partner.
(2) 11,609.6 limited partnership units outstanding at December 31,
1996, 1995, and 1994.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net loss ($ 127,436) ($ 178,506) ($966,711)
Adjustments to reconcile net loss to net cash
used in operating activities:
Extraordinary gain on extinguishment
of debt, net (1,292,617) (899,381) 0
Depreciation and amortization 308,684 396,536 449,205
Minority interest 0 (11,504) 0
Changes in assets and liabilities,
net of disposals due to foreclosure:
(Increase) decrease in restricted cash (27,241) 38,711 (21,333)
Decrease in marketable securities 0 0 66,133
Decrease (increase) in accounts receivable 34,677 (22,680) (38,767)
Decrease in other assets 0 0 11,354
(Decrease) increase in accounts payable-
trade (226,953) 221,557 213,615
Increase (decrease) in accounts 229,100 (1,026) (151,375)
payable - related parties
(Decrease) increase in accounts payable-
taxes (174,514) 16,542 51,345
(Decrease) increase in interest payable (246,991) 430,573 341,171
Increase (decrease) in tenant security
deposits 1,291 (31,223) 9,555
(Decrease) increase in other liabilities (16,712) 16,095 (1,087)
--------- ------ ------
Net cash used in operating activities: (1,538,710) (24,306) (36,895)
--------- ------ ------
Cash flows from investing activities:
Capital expenditures (41,353) (41,507) (13,625)
--------- ------ ------
Net cash used in investing activities: (41,353) (41,507) (13,625)
--------- ------ ------
Cash flows from financing activities:
Borrowings under debt obligations 1,579,509 63,159 36,174
Payments of principal under debt obligations 0 (564) 0
--------- ------ ------
Net cash provided by financing activities:1,579,509 62,595 36,174
--------- ------ ------
Decrease in cash and cash equivalents (554) (3,218) (14,346)
Cash and cash equivalents at beginning of year 4,571 7,789 22,135
--------- ------ ------
Cash and cash equivalents at end of year $ 4,017 $ 4,571 $ 7,789
========= ====== ======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 179,626 $ 157,394 $ 299,696
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Net assets transferred for liability reduction*:
Net assets transferred $2,341,111 $3,549,860 0
Liability reduction 3,627,488 $4,615,984 0
* As a result of foreclosures on properties owned by the Partnership.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors (the "Partnership") was formed in March
1984, with Diversified Historic Advisors (a general partnership whose
partners are Mr. Gerald Katzoff and Diversified Historic Properties,
Inc. ) as the General Partner. Upon the admittance of additional
limited partners, the initial limited partner withdrew.
The Partnership was formed to acquire, rehabilitate, and manage real
properties which are certified historic structures as defined in the
Internal Revenue Code (the "Code"), or which were eligible for
designation as such, utilizing the 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
rehabilitation expenditures" as defined in the Code.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
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. 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 (11,609.6 in 1996, 1995, and 1994).
6. Income Taxes
Income taxes or credits resulting from earnings or losses are payable
by or accrue to the benefits of the partners; accordingly, no
provision has been made for income taxes in these financial
statements.
7. Restricted Cash
Restricted cash includes amounts held for tenant security deposits and
real estate tax reserves.
8. Revenue Recognition
Revenues are recognized when rental payments are due on a straight-
line basis. Rental payments received in advance are deferred until
earned.
9. 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 property has significant balloon payments due
within the foreseeable future for 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 a
continued hold of 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 to, or
anticipates it will be unable to, obtain debt modification, financing
or refinancing sufficient to allow a continued hold of 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.
10. New Accounting Pronouncement
Effective January 1, 1995, the Partnership adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long - Lived Assets and for Long -
Lived Assets to be Disposed Of." There was no cumulative effect of
the adoption of SFAS No. 121.
11. Other Income
Other income is comprised of a write-off of accounts payable in 1996
due to a recalculation and subsequent forgiveness of a portion of the
administrative fees charged by BCMI to the Partnership.
NOTE C - GOING CONCERN
In recent years the Registrant has realized significant losses,
including the foreclosure of five properties and a portion of a sixth
property, due to the properties' inability to generate sufficient cash
flow to pay their operating expenses and debt service. At the present
time, the Registrant has feasible loan modifications in place.
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.
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 amended and restated Agreement of Limited
Partnership (the "Agreement"), as they relate to the financial
statements, follow:
Distributions from Operations
The Agreement provides that, beginning with the date of the admission
of subscribers as limited partners, all distributable cash from
operations (as defined) will be distributed 90% to the limited
partners and 10% to the General Partner.
All distributable cash from sales or refinancing will be distributed
to the limited partners equal to their Original Capital Contribution
plus an amount equal to 6% of their Original Capital Contribution per
annum on a cumulative basis less the sum of all prior distributions
and, thereafter, after receipts by certain affiliates of the General
partner of their subordinated real estate commissions, the limited
partners will receive 85% of cash from sales or refinancings.
NOTE E - ACQUISITIONS
The Partnership acquired six properties and two general or limited
partnership interests in Ventures during the period November 1984 to
December 1986, as discussed below.
In November 1984, the Partnership purchased 20 residential apartments
located in Philadelphia, Pennsylvania for a cash capital contribution
of $4,056,475. The lender on eleven of the apartments foreclosed in
December 1996.
Also in November 1984, the Partnership purchased a building located in
Philadelphia, Pennsylvania, consisting of 17 units and 1,000 square
feet of commercial space, for a cash capital contribution of
$1,725,000.
In December 1984, the Partnership purchased two adjoining buildings
located in Philadelphia, Pennsylvania, consisting of 18 residential
units and 4,500 square feet of commercial space, for a cash
contribution of $405,000.
In December 1984, the Partnership purchased a four-story building
located in Philadelphia, Pennsylvania, consisting of 22,200 square
feet of commercial space, for a cash capital contribution of $465,000.
The lender on the property foreclosed in 1992.
Also in December 1984, the Partnership acquired a building located in
Philadelphia, Pennsylvania, consisting of 14 residential units, for a
cash capital contribution of $160,000. The lender on the property
foreclosed in 1993.
In February 1985, the Partnership was admitted, with a 99% general
partner interest, to a Pennsylvania general partnership which owns 21
residential units located in East Greenwich, Rhode Island, for a cash
capital contribution of $3,600,000. The lender on the property
foreclosed in 1993.
In June 1985, the Partnership was admitted, with a 99.5% general
partner interest, to a Pennsylvania general partnership which owns a
building consisting of 50 residential units located in Reading,
Pennsylvania, for a cash capital contribution of $2,650,000. The
lender on the property foreclosed in 1995.
In December 1986, the Partnership acquired a building located in
Savannah, Georgia, consisting of 13 apartments and 7,820 square feet
of commercial space, for a cash capital contribution of $812,916. The
lender on the property foreclosed in 1993.
NOTE F- DEBT OBLIGATIONS
Debt obligations are as follows:
December 31,
1996 1995
Mortgage loans, interest accrues at 12%; interest only $2,612,620 $ 2,440,044
payable monthly to the extent of net operating income,
principal due 2015; collateralized by the related rental
properties (A)
Mortgage loan, interest accrues at 12%, interest only payable 1,213,303 1,192,411
monthly to the extent of net operating income with a minimum
of $6,833; principal due October 31, 1998; collateralized by
the related rental property (B)
Mortgage loan, interest at 15%, payable in equal monthly 138,444 138,444
installments of $1,770 (including interest); due in 1992;
collateralized by the related rental property (C)
Mortgage loan, interest accrues at 2 1/2% over the Federal Home 1,393,404 1,359,365
Bank Board Cost of Funds Index with a maximum of 14 1/2% and a
minimum of 8 1/2%; therefore 8 1/2% at December 31, 1996 and
1995, interest only payable monthly to the extent of net
operating income with a minimum of $9,000; principal due
October 31, 1998; collateralized by the related rental
property (D)
Notes payable, interest at 11% and is payable monthly based 380,114 380,114
on the lesser of 75% of cash flow from the operation of the
properties or certain stated amounts; principal and all
accrued interest is due at the earlier of sale of the related
properties or 2009; collateralized by the related rental
property (E)
Notes payable, interest at prime plus 1-1/2% (9.75% and 10%
at December 31, 1996 and 1995, respectively); principal and
interest due upon sale of the related property;
collateralized by the related rental property (F)
96,689 96,689
$5,834,574 $5,607,067
(A) Due to insufficient cash flow at Smythe Stores Condominium
Complex, the Partnership ceased making interest payments in May
1988. In 1990, the lender was placed in receivership by the
Resolution Trust Corporation ("RTC"). The two entities which
purchased the mortgages from the RTC each filed complaints for
foreclosure due to nonpayment. Foreclosure proceedings on nine
units were filed in the Court of Common Pleas, Philadelphia
County in the matter of Bruin Holdings, Inc. ("Bruin") v.
Diversified Historic Investors and foreclosure proceedings on
eleven units were filed in the Court of Common Pleas,
Philadelphia County in the matter of EMC Mortgage Corporation
("EMC") v. Diversified Historic Investors. In March 1996, the
Bruin cases were settled and the nine mortgages were sold. The
Partnership entered into an agreement with the new holder of
the mortgages whereby monthly payments of interest are to be
made in an amount equal to net operating income. In December
1996, the eleven units associated with the EMC cases were
foreclosed by the lender.
(B) On June 1, 1993, the terms of this loan were modified to those
described above. In accordance with Statement of Financial
Accounting Standards No. 15, "Accounting for Debtors and
Creditors for Troubled Debt Restructurings" the effects of the
modification have been and will continue to be accounted for
prospectively from the date of the restructuring with no gain
recognized at that time.
(C) In 1991, the Partnership stopped making scheduled mortgage
payments. No notice of default has yet been received from the
lender. The interest in arrears amounts to $114,216 at
December 31, 1996 which includes $20,767 for each of 1996, 1995
and 1994.
(D) On June 1, 1993, the terms of this loan were modified to those
described above. In accordance with Statement of Financial
Accounting Standards No. 15, "Accounting for Debtors and
Creditors for Troubled Debt Restructurings" the effects of the
modification have been and will continue to be accounted for
prospectively from the date of the restructuring with no gain
recognized at that time.
(E) Interest is no longer being accrued on these notes, since the
first mortgage is a cash flow mortgage and is not being
serviced to the extent of total interest due. The interest in
arrears amounts to $229,969 at December 31, 1996 which includes
$41,813 for each of 1996, 1995 and 1994.
(F) This note represents amounts owed to developers pursuant to
negative cash flow guarantees. Interest is no longer being
accrued on the remaining note, since the first mortgage is a
cash flow mortgage and is not being serviced to the extent of
total interest due. The interest in arrears amounts to $48,840
at December 31, 1996 which includes $10,966, $10,070, and
$8,419 for 1996, 1995 and 1994, respectively.
Approximate maturities of the mortgage loan obligations at December
31, 1996, for each of the succeeding five years are as follows:
1997 $ 138,444
1998 2,606,707
1999 0
2000 0
2001 0
Thereafter 3,089,423
---------
$5,834,574
=========
NOTE G - TRANSACTIONS WITH RELATED PARTIES
On June 30, 1992 Diversified Historic Properties, Inc., co-partner of
the Registrant's general partner, assigned to D, LTD (its parent) a
note receivable from the Registrant in the amount of $127,418 which
bears interest at 10% with the entire principal and accrued interest
due on June 30, 1997. On October 8, 1993 D, LTD obtained a judgment
in the amount of $156,873 on this note in Common Pleas Court for
Philadelphia County, Pennsylvania. The judgment accrues interest at
15%. Interest accrued was $6,474 during both 1995 and 1996. Payments
on the judgment 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 at December 31, 1996 is $57,191.
On June 30, 1992 Diversified Historic Properties, Inc. co-partner of
the Registrant's general partner, assigned to D, LTD (its parent) a
note receivable, from CPA to the Registrant, that had been assigned to
it, in the amount of $246,491 which bears interest at 10% with the
entire principal and accrued interest due on June 30, 1997. On
October 8, 1993 D, LTD obtained a judgment in the amount of $299,651
on this note in Common Pleas Court for Philadelphia County,
Pennsylvania. The judgment accrued interest at 15%. Interest accrued
in 1995 was $20,950. Payments on the judgment were to be made out of
available cash flow from CPA. The balance of the judgment at the date
lance of the judgment at the date
NOTE I - EXTRAORDINARY GAINS/LOSSES
Due to insufficient cash flow at Smythe Stores, the Partnership ceased
making debt service payments. In 1990, the lender was placed in
receivership by the Resolution Trust Corporation ("RTC"). The
entities which purchased the mortgages from the RTC each filed
complaints for foreclosure due to non-payment; foreclosure proceedings
on nine units were filed in the Court of Common Pleas, Philadelphia
County in the matters of Bruin Holdings, Inc. ("Bruin") v, Diversified
Historic Investors and foreclosure proceedings on eleven units were
filed in the Court of Common Pleas, Philadelphia County in the matters
of EMC Mortgage Corporation ("EMC") v. Diversified Historic Investors.
In March 1996, the Bruin cases were settled and the nine mortgages
were sold. The new payment terms require monthly payments of interest
in an amount equal to net operating income. In December 1996, the
eleven units associated with the EMC cases were foreclosed by the
lender. The Partnership recognized an extraordinary gain of $1,292,617
during 1996 for the difference between the book value of the property
(which approximated fair value) and the extinguished debt.
Due to insufficient cash flow at Centre Park Associates and the
utilization of all remaining cash reserves on June 1, 1994, the
Registrant ceased making debt service payments. As a result, the
guarantor of the bonds had to fund interest and principal payments in
the amount of $35,451. The guarantor declared an Event of Default
under the loan documents and on August 19, 1994, the guarantor
exercised its option to purchase the bonds and in accordance with the
guarantor agreement, raised the interest rate on such bonds to prime
plus 2% (therefore, 10.5% at December 31, 1994). On October 31, 1994,
the guarantor instituted legal proceedings against CPA. The
Partnership's attempts to negotiate the terms of the loan were
unsuccessful and on July 11, 1995, CPA filed a reorganization petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code. After determining
that reorganization was not feasible for CPA, the bankruptcy was
dismissed and, on July 28, 1995, the lender foreclosed on the
property. The Partnership recognized an extraordinary gain of
$899,381 during 1995 for the difference between the book value of the
property (which approximated fair value) and the extinguished debt.
NOTE J - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time periods for financial reporting ("book")
purposes and for income tax ("tax") purposes. Reconciliations of net
loss and partners' equity follow:
For the Years Ended December 31,
1996 1995 1994
Net loss - book ($ 127,434) ($ 178,506) ($ 966,711)
Excess of book over tax depreciation 88,563 (21,200) (26,436)
Interest 0 195,204 272,654
Extraordinary gain on foreclosure (920,733) (165,716) 0
Minority interest - tax only 0 (4,636) 1,339
--------- --------- ----------
Net loss - tax ($ 959,604) ($ 174,854) ($ 719,154)
========= ========= ==========
Partners' equity - book ($3,887,300) ($3,759,866) ($3,581,358)
Costs of issuance 1,393,762 1,393,762 1,393,762
Cumulative tax over (under) book loss (737,572) 94,598 (258,764)
--------- --------- ---------
Partners' equity - tax ($3,231,110) ($2,271,506) ($2,446,360)
========= ========= =========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Cost
Capitalized
Initial Cost to Partnership (b) Subsequent to
Acquisition
Buildings
and Date of Date
Description (a) Encumbrances Land Improvements Improvements Constr. Acquired
(g) (a)(d)
20 condominium
apartment units in ($106,626)
Philadelphia, PA $2,612,620 $16,833 $1,944,427 14,569 1984 12/28/94
17 apartment units
and 1,000 square
feet of commercial
space in
Philadelphia, P A 1,351,747 120,000 1,744,097 45,408 1984 11/14/84
18 apartment units
and 4,500 square
feet of commercial
space in (45,079) (h)
Philadelphia, PA 1,870,207 174,000 2,188,961 17,843 1984-1985 12/14/84
--------- ------- --------- -------
TOTAL $5,834,574 $310,833 $8,254,006 ($73,885)
========= ======= ========= ======
Gross Amount at which Carried at
December 31, 1996
Buildings
and Accumulated
Description Land Improvements Total (c) (e) Depreciation
(e)(f)
20 condominium
apartment units in
Philadelphia, PA $16,833 $1,852,370 $1,869,203 $ 907,014
17 apartment units
and 1,000 square
feet of commercial
space in
Philadelphia, PA 120,000 1,789,505 1,909,505 864,251
18 apartment units
and 4,500 square
feet of commercial
space in
Philadelphia, PA 174,000 2,192,915 2,366,915 1,051,628
------- --------- --------- ---------
TOTAL $310,833 $5,834,790 $6,145,623 $2,822,893
======= ========= ========= =========
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1996
(A) All properties are certified historic structures as defined in
the Internal Revenue Code, or are eligible for designation as
such. The "date of construction" refers to the period in which
such properties are rehabilitated.
(B) Includes development/rehabilitation costs incurred pursuant to
development agreements entered into when the properties are
acquired.
(C) The aggregate cost of real estate owned at December 31, 1996,
for Federal income tax purposes is approximately $5,834,789.
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) Development /rehabilitation was completed during 1986.
(E) Reconciliation of real estate:
1996 1995 1994
Balance at beginning of year $ 8,376,591 $11,866,746 $11,853,121
Additions during the year:
Improvements 41,353 41,507 13,625
---------- ---------- ----------
8,417,944 11,908,253 11,866,746
Deductions during the year:
Retirements (2,272,321) (3,531,662) 0
---------- ---------- ----------
Balance at end of year $ 6,145,623 $ 8,376,591 $11,866,746
========== ========== ==========
Reconciliation of accumulated depreciation:
1996 1995 1994
Balance at beginning of year $ 3,614,119 $ 4,565,332 $ 4,120,738
Depreciation expense for the year 308,684 390,791 444,594
Retirements (1,099,910) (1,342,004) 0
---------- ---------- ----------
Balance at end of year $ 2,822,893 $ 3,614,119 $ 4,565,332
========== ========== ==========
(F) See Note B to the financial statements for depreciation method
and lives.
(G) See Note F to the financial statements for further information.
(H) In connection with the purchase of certain of the properties,
the sellers agreed to reimburse the Partnership for cash flow
deficits, as defined, of these properties. Such reimbursements
were treated as a reduction of buildings and improvements.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
a. Identification of Directors - Registrant has no
directors.
b. Identification of Executive Officers
The General Partner of the Registrant is
Diversified Historic Advisors (DHA), a Pennsylvania general
partnership. The partners of DHA are as follows:
Name Age Position Term of Office Period Served
Gerald Katzoff 49 Partner in DHA No fixed term Since March 1984
Diversified Historic -- Partner in DHA No fixed term Since March 1984
Properties, Inc.
("Diversified")
For further description of Diversified, see paragraph
e. of this Item. There is no arrangement or understanding between
either person names 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 an separate property management and
partnership administration which has no affiliation with the
Registrant, except that an employee of the affiliate of the Registrant
is an officer and minority shareholder of such firm. The terms of
service of such firm are believed to be no less favorable to
Registrant than those obtainable from an unaffiliated entity.
d. Family Relationships. There is no family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DHA is a general partnership
formed in March, 1984. The partners of DHA are Diversified and Gerald
Katzoff. 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.
Gerald Katzoff (age 49) has been involved in various
aspects of the real estate industry since 1974. Mr. Katzoff is the
owner of Katzoff Resorts, which controls various hotel and spa resorts
in the United States. Mr. Katzoff is a principal in an entity which
is the owner of a property in Avalon, New Jersey which has filed a
petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. Mr.
Katzoff is a former President and director of D, LTD., (formerly The
Dover Group, Ltd., the corporate parent of Diversified).
Diversified was incorporated in Pennsylvania in April
1983 for the purpose of sponsoring investments in, rehabilitating,
developing and managing historic (and other) properties. Diversified
is a subsidiary of The Dover Group, Ltd., an entity formed in 1985 to
act as the holding company for Diversified and certain other companies
involved in the development and operation of both historic properties
and conventional real estate as well as in financial (non-banking)
services. In February 1992, Dover Group's name was changed to D, LTD.
The executive officers, directors, and key employees of
Diversified are described below.
Michael J. Tuszka (age 50) was appointed Chairman and
Director of both D, LTD and Diversified on January 27, 1993. Mr.
Tuszka resigned as Chairman and Director of both D, LTD and
Diversified. on June 30, 1996.
Donna M. Zanghi (age 40) is Secretary/Treasurer of
Diversified. She is also a Director and Secretary/Treasurer of D,
LTD. She has been associated with Diversified 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 32) was appointed on January 27,
1993 as Assistant Secretary of both D, LTD and Diversified.
Item 11. Executive Compensation
a. Cash Compensation - During 1996, Registrant has
paid no cash compensation to DHA, 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
1996, or is proposed to be paid or distributed in the future, to DHA,
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 1996 to DHA, 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, DHA is entitled to 10% of Registrant's
distributable cash from operations in each year. There was no such
share allocable to DHA for fiscal years 1994 through 1996.
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,
1996 and 1995.
b. Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995 and 1994.
c. Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 1996, 1995
and 1994.
d. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994.
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 Document
Number
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, 1996.
(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
Date: April 4, 1997 By: Diversified Historic Advisors, General Partner
By: Diversified Historic Properties, Inc., Partner
By: /s/ Donna M. Zanghi
DONNA M. ZANGHI,
Secretary 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
DIVERSIFIED HISTORIC ADVISORS General Partner
By: Diversified Historic Properties, Inc.,
Partner
By: /s/ Donna M. Zanghi April 4, 1997
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi April 4, 1997
MICHELE F. RUDOI,
Assistant Secretary