UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ________________
Pennsylvania 23-2312037
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
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Registrant's telephone number, including area code (215) 735-5001
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - September 30, 1997 (unaudited) and December 31, 1996 Consolidated Statements of Operations - Three Months and Nine Months Ended September 30, 1997 and 1996 (unaudited) Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 (unaudited) Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
At September 30, 1997, Registrant had cash of approximately $4,127. Such funds are expected to be used to pay liabilities 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 September 30, 1997, Registrant had restricted cash of $57,693 consisting primarily of funds held as security deposits, replacement reserves and escrows for taxes. As a consequence of these restrictions as to use, Registrant does not deem these funds to be a source of liquidity.
In recent years the Registrant has realized significant losses, including the foreclosure of five properties and a portion of a sixth property, due to the properties' inability to generate sufficient cash flow to pay their operating expenses and debt service. At the present time, the Registrant has feasible loan modifications in place for its remaining three properties. 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.
(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 each of the Registrant's three properties (Third Quarter, Wistar Alley and the nine units at Smythe Stores) has agreed to fund capital expenditures at terms similar to the first mortgage. The mortgagee did not fund any capital expenditures during the third quarter of 1997.
(3) Results of Operations
During the third quarter of 1997, Registrant incurred a net loss of $181,338 ($15.46 per limited partnership unit) compared to a loss of $284,767 ($24.28 per limited partnership unit) for the same period in 1996. For the first nine months of 1997, the Registrant incurred a net loss of $613,427 ($52.31 per limited partnership unit) compared to a loss of $1,397,663 ($119.18 per limited partnership unit) for the same period in 1996.
Rental income decreased $29,991 from $138,777 in the third quarter of 1996 to $108,786 in the same period in 1997. The decrease resulted from the foreclosure of eleven of the units at Smythe Stores in December 1996 combined with a decrease in rental income at Third Quarter due to a decrease in the average occupancy (99% to 85%) partially offset by an increase in rental income at Wistar Alley due to an increase in the average rental rates.
Rental income decreased $52,250 from $369,573 for the first nine months of 1996 to $317,323 for the same period in 1997. The decrease resulted from the foreclosure of eleven of the units at Smythe Stores in December 1996 partially offset by increases in rental income at Wistar Alley due to an increase in the average occupancy (86% to 88%) and Third Quarter due to an increase in the average rental rates.
Expense for rental operations decreased by $32,449 from $86,365 in the third quarter of 1996 to $53,916 in the same period in 1997. Expenses for rental operations decreased due to the foreclosure of the eleven units at Smythe Stores in December 1996 partially offset by an overall increase in rental operations expense at Wistar Alley due to an overall increase in average occupancy and an increase in commissions expense due to a higher turnover of units at Third Quarter.
Expense for rental operations decreased by $99,211 from $329,756 for the first nine months of 1996 to $230,545 for the same period in 1997. Expenses for rental operations decreased due to the foreclosure of the eleven units at Smythe Stores in December 1996 combined with a decrease in real estate taxes at Third Quarter due to a decrease in the assessed value of the property.
Depreciation and amortization expense decreased $21,685 from $78,895 in the third quarter of 1996 to $57,210 in the same period in 1997 and decreased $65,716 from $237,347 for the first nine months of 1996 to $171,631 in the same period in 1997. The decreases are the result of the foreclosure of the eleven units at Smythe Stores in December 1996.
Interest expense decreased $56,241 from $217,961 in the third quarter of 1996 to $161,720 in the same period in 1997 and decreased $602,374 from $1,078,982 for the first nine months of 1996 to $476,608 in the same period in 1997. The decrease for both the third quarter and the first nine months to the same periods in 1997 is the result of the one-time accrual of default interest in the second quarter of 1996 of interest that should have been accrued in prior years at Smythe Stores, (which was not repeated in 1997).
Losses incurred during the third quarter at the Registrant's properties amounted to $153,000, compared to a loss of approximately $225,000 for the same period in 1995. For the first nine months of 1997 the Registrant's properties recognized a loss of $530,000 compared to a loss of approximately $1,254,000 for the same period in 1995.
In the third quarter of 1997, Registrant incurred a loss of $84,000 at the Smythe Stores Condominium complex including $19,000 of depreciation expense, compared to a loss of $168,000 in the third quarter of 1996, including $40,000 of depreciation expense and for the first nine months of 1997, Registrant incurred a loss of $285,000 including $55,000 of depreciation expense, compared to a loss of $994,000 for the same period in 1996, including $121,000 of depreciation expense. The decrease in the loss for both the third quarter and the first nine months of 1996 to the same periods in 1997 is mainly the result of the loss of the eleven units in December 1996 combined with a decrease in interest expense due to the accrual in the second quarter of 1996 of default interest that should have been accrued in prior years due to the modification of 9 of the 20 mortgage loans.
In the third quarter of 1997, Registrant incurred a loss of $39,000 at Third Quarter Apartments, including $18,000 of depreciation expense, compared to a loss of $33,000 including $17,000 of depreciation expense in the third quarter of 1996. The increase in the loss from the third quarter of 1996 to the same period in 1997 is the result of a decrease in rental income due to a decrease in average occupancy (99% to 85%) combined with an increase in commissions expense due to a higher turnover of units.
For the first nine months of 1997, Registrant incurred a loss of $130,000 at Third Quarter Apartments, including $53,000 of depreciation expense, compared to a loss of $140,000 for the same period in 1996, including $52,000 of depreciation expense. The decrease in the loss from the first nine months of 1996 to the same period in 1997 is the result of an increase in rental income due to an increase in average rental rates combined with a decrease in real estate taxes due to a decrease in the assessed value of the property.
In the third quarter of 1997, Registrant incurred a loss of $30,000 at Wistar Alley, including $21,000 of depreciation expense, compared to a loss of $24,000 including $21,000 of depreciation expense in the third quarter of 1996. The increase in the loss from the third quarter of 1996 to the same period in 1997 is due to an overall increase in rental operations expense due to the increase in average occupancy partially offset by an increase in the average rental rates.
For the first nine months of 1997, Registrant incurred a loss of $115,000 at Wistar Alley, including $64,000 of depreciation expense, compared to a loss of $120,000 for the same period in 1996, including $64,000 of depreciation expense. The decrease in the loss from the first nine months of 1996 to the same period in 1997 is due to an increase in rental income due to an increase in the average occupancy (86% to 88%).
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
Assets
September 30, 1997 December 31, 1996
(Unaudited)
Rental properties, at cost:
Land $ 310,833 $ 310,833
Buildings and improvements 5,739,078 5,721,048
Furniture and fixtures 113,742 113,742
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6,163,653 6,145,623
Less - Accumulated depreciation (2,994,523) (2,822,893)
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3,169,130 3,322,730
Cash and cash equivalents 4,127 4,017
Restricted cash 57,693 68,063
Accounts receivable 12,740 58,582
Other assets (net of amortization of
$30,510 at September 30, 1997 and
December 31, 1996) 0 0
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Total $ 3,243,690 $ 3,453,392
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 5,870,938 $ 5,834,574
Accounts payable:
Trade 342,477 264,967
Related parties 353,461 323,640
Interest payable 1,132,445 874,307
Accrued liabilities 3,351 2,975
Tenant security deposits 41,745 40,229
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Total liabilities 7,744,417 7,340,692
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Partners' equity (4,500,727) (3,887,300)
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Total $ 3,243,690 $ 3,453,392
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The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Three months Nine months
ended September 30, ended September 30,
1997 1996 1997 1996
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Revenues:
Rental income $ 108,786 $ 138,777 $ 317,323 $ 369,573
Interest income 182 177 414 349
------- ------- ------- -------
Total revenues 108,968 138,954 317,737 369,922
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Costs and expenses:
Rental operations 53,916 86,365 230,545 329,756
General and administrative 17,460 40,500 52,380 121,500
Interest 161,720 217,961 476,608 1,078,982
Depreciation and
amortization 57,210 78,895 171,631 237,347
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Total costs and expenses 290,306 423,721 931,164 1,767,585
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The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Nine months ended
September 30,
1997 1996
Cash flows from operating activities:
Net loss ($613,427) ($1,397,663)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 171,631 237,347
Changes in assets and liabilities:
Decrease (increase) in restricted cash 10,370 (34,921)
Decrease in accounts receivable 45,842 6,460
Increase (decrease) in accounts payable - trade 77,509 (15,682)
Increase in accounts payable - related parties 29,821 238,572
Decrease in accounts payable - taxes 0 (174,513)
Increase (decrease) in interest payable 258,138 (365,492)
Increase (decrease) in accrued liabilities 376 (18,287)
Increase in tenant security deposits 1,516 14,483
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Net cash used in operating activities (18,224) (1,509,696)
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Cash flows from investing activities:
Capital expenditures (18,030) (28,022)
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Net cash used in investing activities (18,030) (28,022)
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Cash flows from financing activities:
Proceeds from debt financing 36,364 1,536,716
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Net cash provided by financing activities 36,364 1,536,716
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Increase (decrease) in cash and cash equivalents 110 (1,002)
Cash and cash equivalents at beginning of period 4,017 4,571
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Cash and cash equivalents at end of period $ 4,127 $ 3,569
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Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $188,649 $ 124,431
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The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified Historic Investors (the "Registrant") and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying consolidated financial statements and related notes should be read in conjunction with the audited financial statements in Form 10-K of the Registrant, and notes thereto, for the year ended December 31, 1996.
The information furnished reflects, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of the interim periods presented.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is not party to, nor is any of its property the subject of, any pending material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by this report to a vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Number Document
3 Registrant's Amended and Restated Certificate
of Limited Partnership and Agreement of Limited
Partnership, previously filed as part of Amendment
No. 2 of Registrant's Registration Statement on
Form S-11, are incorporated herein by reference.
21 Subsidiaries of the Registrant are listed in
Item 2. Properties on Form 10-K, previously filed
and incorporated herein by reference.
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(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 14, 1997 DIVERSIFIED HISTORIC INVESTORS
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By: Diversified Historic Advisors, General Partner
By: EPK, Partner
By: /s/ Donna M. Zanghi
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DONNA M. ZANGHI,
Vice President and Secretary
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| ARTICLE 5 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD END | SEP 30 1997 |
| CASH | 4,127 |
| SECURITIES | 0 |
| RECEIVABLES | 12,740 |
| ALLOWANCES | 0 |
| INVENTORY | 0 |
| CURRENT ASSETS | 0 |
| PP&E | 6,163,653 |
| DEPRECIATION | 2,994,523 |
| TOTAL ASSETS | 3,243,690 |
| CURRENT LIABILITIES | 695,938 |
| BONDS | 5,870,938 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | (4,500,727) |
| TOTAL LIABILITY AND EQUITY | 3,243,690 |
| SALES | 0 |
| TOTAL REVENUES | 317,737 |
| CGS | 0 |
| TOTAL COSTS | 230,545 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 476,608 |
| INCOME PRETAX | (613,427) |
| INCOME TAX | 0 |
| INCOME CONTINUING | (613,427) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (613,427) |
| EPS PRIMARY | (52.31) |
| EPS DILUTED | 0 |