Item 1. Business
a. General Development of Business
Diversified Historic Investors III ("Registrant") is a limited partnership formed in 1986 under the Pennsylvania Uniform Limited Partnership Act. As of December 31, 1997, 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.
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, 1997 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, (aggregate principal balance of $1,476,212 at December 31, 1997) and a note payable of $10,000 (total balance due of $10,000 at December 31, 1997). The first mortgage loan bears interest at prime plus 1.25% with a minimum of 9.5% and a maximum of 14.5%. The rate was 9.75% and 9.5% at December 31, 1997 and 1996, respectively. The other mortgage loan bears interest at prime plus 1%. The rate was 9.5% and 9.25% at December 31, 1997 and 1996, respectively. Such mortgage is payable interest only in monthly installments, and was due in 1994. The note payable bears interest at 10% payable interest only on a quarterly basis; the principal was due in 1994. All three mortgages are held by the same lender. In 1988, a $95,000 second mortgage loan (principal balance of $100,278 at December 31, 1997) was obtained which bears interest at prime plus 1.25%. The rate was 9.75% and 9.5% at December 31, 1997 and 1996, respectively and was due in 1994. In 1991, an $100,000 third mortgage loan (principal balance of $107,120 at December 31, 1997) was made which bears interest at 11%, principal and interest payable monthly, and was due in 1994. Due to decreased cash flow, the Registrant stopped making scheduled debt service payments to the holder of the first, second and third mortgages. Notice of default was received from the lender on November 29, 1993. The Registrant pursued settlement discussions with the lender; however, in December 1994 the mortgage notes were sold. The Registrant entered into an agreement with the new holder of the mortgages whereby the maturities of the notes were extended to 1999 and monthly payments of interest are to be made to the new note holder in an amount equal to net operating income. In June 1996, the Registrant refinanced $1,268,000 of the first mortgage (principal balance of $1,256,565 at December 31, 1997). The new loan bears interest at 9.125%, is payable in monthly installments of principal and interest of $10,317 and is due in September 2003.
The property is managed by BCMI. As of December 31, 1997, 57 residential units were under lease (98%) at monthly rents ranging from $375 to $1,450. All leases are renewable, one-year leases. The occupancy for the previous four years was 84% for 1996, 81% for 1995, 58% for 1994 and 63% for 1993. The monthly rental range has been approximately the same since 1993. For tax purposes, this property has a federal tax basis of $3,736,630 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $30,226 which is based on assessed value of $365,760 taxed at a rate of $8.264 per $100. No one tenant occupies ten percent or more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
b. The Green Street Apartments - consists of 18 apartment units in three adjoining buildings located at 1826-1828-1830 Green Street in Philadelphia, Pennsylvania. In July 1987, Registrant acquired its interest in this property by purchasing a 99% general partnership interest in 18th & Green Associates General Partnership ("18th & Green"), a Pennsylvania general partnership, for $800,000. 18th & Green contracted to acquire and rehabilitate the Property for $1,600,000 ($100 per sf). Additionally, $100,000 of cash/marketing reserves were provided. The total cost of the project was funded by Registrant's equity contribution and mortgage financing of $900,000 (principal balance of $1,314,181 at December 31, 1997) 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 to 1999 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, 1997, 17 apartments were under lease (94%) at monthly rents ranging from $495 to $705. All leases are renewable, one-year leases. The occupancy for the previous four years was 92% for 1996, 92% for 1995, 99% for 1994 and 98% for 1993. The monthly rental range has been approximately the same since 1993. For tax purposes, this property has a federal tax basis of $1,480,897 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $15,470 which is based on assessed value of $187,200 taxed at a rate of $8.264 per $100. No one tenant occupies ten percent or more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
c. The Loewy Building - consists of two adjoining buildings located at 505 West Fourth Street in Winston-Salem, North Carolina. The buildings consist of 62,076 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 $3,788,541 at December 31, 1997) and a $500,000 note payable to the Developer (Cwood Properties, Inc., Thomas L. Kummer and Gail R. Citron; all of whom are general partners of Triad). The first mortgage bears interest at 11.5% and is due in January 2012. The note was sold in September 1997. The Registrant entered into an agreement with the new holder of the note whereby monthly payments of interest are to be made to the new note holder in an amount equal to net operating income with a minimum monthly payment of $27,500. Triad obtained $200,000 of additional financing in 1987 to fund cost overruns resulting from delays and changes in rehabilitation and construction plans, (principal balance due of $200,000 at December 31, 1997) and interest at prime with a minimum of 6% and a maximum of 8% adjusting annually on January 2, (the rate was 8% at December 31, 1997 and 1996) and the Registrant advanced an additional $1,098,000. The property is managed by BCMI. As of December 31, 1997, 62,076 sf were rented (100%) at annual rates ranging from $6.00 to $16.21 per sf.
The occupancy for the previous four years has been 88% for 1996, 95% for 1995, 93% for 1994 and 93% for 1993. The range for annual rents has been $6.00 to $14.16 per sf for 1996, $6.00 to $12.93 per sf for 1995, $6.95 to $14.08 per sf for 1994 and $6.95 to $13.41 per sf for 1993. There are three tenants who each occupy ten percent or more of the rentable square footage. They operate principally as a bank, a law firm and a retail store.
The following is a table showing commercial lease expirations at Loewy Building for the next five years.
Total annual % of gross Number of Total sf of rental covered annual rental Years leases expiring Expiring leases by expiring leases from property
1998 5 38,423 432,345 59% 1999 2 8,100 102,494 14% 2000 2 7,858 99,658 14% 2001 0 0 0 0% 2002 1 7,695 87,720 13%
There are five commercial leases which expire in 1998. The first lease is for 200 sf and, although no negotiations have taken place, the Registrant expects the tenant to renew at the current rental rate. The second lease is for 2,800 sf and the Registrant expects the tenant to exercise the renewal option in its lease. The third lease is for 2,302 sf and the Registrant expects the tenant to renew at current market rates. The fourth and fifth leases (33,121 sf) are with the same tenant and expire December 31, 1998. At this time no discussions have taken place but the Registrant expects the tenant to renew at current market rates. For tax purposes of depreciation, this property has federal tax basis of $6,135,016 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $19,776 which is based on an assessed value of $1,680,900 taxed at a rate of $1.1765 per $100. It is of the opinion of the management of the Registrant that the property is adequately covered by insurance.
d. Magazine Place - is a four story building consisting of 57 apartment units located at 730 Magazine Street in New Orleans, Louisiana. In October 1986, the Registrant was admitted with a 60% general partnership interest in Magazine Place Limited Partnership ("MPP"), a Louisiana partnership, for a cash contribution of $600,000. Registrant believes that its acquisition of a majority general partnership interest in MPP, though technically non-compliant with the provisions of Registrant's partnership agreement disapproving of investments in limited partnerships, will have no adverse impact on Registrant's limited partners. Registrant subsequently made an additional equity contribution of $142,393 to fund certain fees incurred by MPP. MPP acquired and rehabilitated the property for $4,091,393 ($51 per sf), including mortgage financing of $3,050,000 (principal balance of $2,846,753 at December 31, 1997) and cash contributions by limited partners of $344,000. The mortgage note bears interest at 10%, is payable in monthly installments of principal and interest of $26,766, and is 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. In 1987, Registrant made an equity contribution of $7,000 (MPP's other partners contributed cash in the amount of $28,000 in 1987) to fund operating deficits incurred during the lease-up period. According to the Amended and Restated Partnership Agreement, the Registrant's interest in MPP will be reduced from 60% to 40% as of the First Conversion Date. The First Conversion Date is the date on which the Registrant will have received a return of its initial capital contribution. For purposes of determining the First Conversion Date, the Registrant will be deemed to have received a return of its initial capital contribution when the sum of the following amounts equals $600,000: (i) cash distributions from MPP; (ii) investment tax credit allocable to the Registrant; and (iii) 50% of the aggregate of MPP's net losses and deductions allocable to the Registrant. As of December 31, 1994, the Registrant had received a return of its initial capital and the Registrant's interest in the MPP was reduced to 40%. Since that date, the Registrant has accounted for its investment in MPP on the equity basis.
The property is managed by an independent property management firm. As of December 31, 1997, 52 residential units were under lease (91%) at monthly rents ranging from $610 to $1,240. All leases are renewable, one-year leases. The occupancy for the previous four years was 96% for 1996, 91% for 1995, 89% for 1994 and 97% for 1993. The monthly rental range has been approximately the same since 1993. For tax purposes, this property has a federal tax basis of $2,500,448 and is depreciated using the straight-line method with a useful life of 27.5 years. The annual real estate taxes are $14,077 which is based on assessed value of $79,000 taxed at a rate of $17.819 per $100. No one tenant occupies ten percent or more of the building. It is the opinion of the management of the Registrant that the property is adequately covered by insurance.
Item 3.
Item 3. Legal Proceedings
a. 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.
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.
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 132 Units of record were sold or exchanged in 1997.
b. As of December 31, 1997, there were 1,582 record holders of Units.
c. Registrant did not declare any cash dividends in 1997 or 1996.
Item 6.
Item 6. Selected Financial Data
The following selected financial data are for the five years ended December 31, 1997. 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.
1997 1996 1995 1994 1993
Rental income $ 1,251,764 $ 1,254,573 $ 1,658,031 $ 2,016,023 $ 1,971,274 Interest income 441 1,229 840 1,005 3,365 Net loss (1,017,497) (1,017,308) (533,933) (1,756,104) (1,719,611) Net loss per Unit (72.05) (72.03) (37.80) (124.35) (121.76) Total assets (net 8,196,299 8,711,971 8,887,472 18,771,092 19,662,834 of depreciation and amortization) Debt obligations 8,418,142 8,414,901 7,776,693 15,216,724 14,642,621
Item 7.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations
(1) Liquidity
At December 31, 1997, Registrant had cash of approximately $308. 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, 1997, Registrant had restricted cash of $126,684 consisting primarily of funds held as security deposits, replacement reserves and escrows for taxes. As a consequence of these restrictions as to use, Registrant does not deem these funds to be a source of liquidity.
In recent years the Registrant has realized significant losses, including the foreclosure of one property, due to the properties' inability to generate sufficient cash flow to pay their operating expenses and debt service. At the present time Registrant has feasible loan modifications in place at Lincoln Court, Green Street and the Loewy Building. However, in all three cases, the mortgages are basically "cash-flow" mortgages, requiring all available cash after payment of operating expenses to be paid to the first mortgage holder. Therefore, it is unlikely that any cash will be available to the Registrant to pay its general and administrative expenses.
It is the Registrant's intention to continue to hold the properties until they can no longer meet the debt service requirements and the properties are foreclosed, or the market value of the properties increases to a point where they can be sold at a price which is sufficient to repay the underlying indebtedness (principal plus accrued interest).
Since the lenders have agreed to forebear from taking any foreclosure action as long as cash flow payments are made, the Registrant believes it is appropriate to continue presenting the financial statements on a going concern basis.
(2) Capital Resources
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 in the foreseeable future. If the need for capital expenditures does arise, the first mortgage holder for Lincoln Court and 18th and Green has agreed to fund capital expenditures at terms similar to the first mortgage. The mortgagee funded $0 and $87,609 during 1997 and 1996, respectively, at Lincoln Court.
Results of Operations
During 1997, Registrant incurred a net loss of $1,017,497 ($72.05 per limited partnership unit), compared to a net loss of $1,017,308 ($72.03 per limited partnership unit) in 1996 and a net loss of $533,993 ($37.80 per limited partnership unit) in 1995. Included in the 1995 loss was an extraordinary gain of $1,316,188 due to the foreclosure of Cathedral Court.
Rental income decreased from $1,658,031 in 1995 to $1,254,573 in 1996 and to $1,251,764 in 1997. The decrease from 1996 to 1997 is the result of a decrease in rental income at Loewy Building due to a decrease in the average rental rates partially offset by an increase in rental income at Lincoln Court due to an increase in the average rental rates. The decrease from 1995 to 1996 is due mainly to the foreclosure of Cathedral Court partially offset by an increase in rental income at Lincoln Court due to an increase in the average occupancy (81% to 96%) and an increase at the Loewy Building due to an increase in the average rental rates.
Rental operations expenses decreased from $1,088,752 in 1995 to $661,589 in 1996 and to $614,679 in 1997. The decrease from 1996 to 1997 is mainly the result of a decrease in maintenance expense at Lincoln Court due to improvements made at the property in 1996 and a decrease in management fees expense at Loewy Building due to the decrease in rental income. The decrease from 1995 to 1996 is mainly the result of the foreclosure of Cathedral Court partially offset by an increase in maintenance expense due to improvements made at Lincoln Court and an increase in management fees and commissions expense at the Loewy Building due to a higher average occupancy.
Interest expense decreased from $1,447,420 in 1995 to $983,145 in 1996 and to $968,397 in 1997. The decrease from 1995 to 1996 is mainly the result of the foreclosure of Cathedral Court partially offset by an increase at Lincoln Court due to a higher average principal balance of the mortgage due to advances for improvements made by the mortgage holder.
Depreciation and amortization decreased from $829,265 in 1995 to $478,758 in 1996 and increased to $531,057 in 1997. The increase from 1996 to 1997 is the result of an increase at Lincoln Court due to the depreciation of the capital improvements made at the property in 1996 and an increase in amortization expense at the Loewy Building due to the amortization of leasing fees incurred in 1996. The decrease from 1995 to 1996 is the result of the foreclosure of Cathedral Court partially offset by an increase in amortization expense at Lincoln Court due to the amortization of loan costs incurred in the refinancing of the first mortgage.
In 1997, a loss of $792,000 was incurred at the Registrant's four properties or interests therein compared to a loss of $812,000 in 1996 and a loss of $149,000 in 1995. A discussion of property operations/activities follows:
In 1997, Registrant sustained a loss of $288,000 at Lincoln Court including $167,000 of depreciation and amortization expense compared to a loss of $366,000 including $144,000 of depreciation expense in 1996 and a loss of $300,000 including $137,000 of depreciation expense in 1995. The decrease in the loss from 1996 to 1997 is the result of an increase in rental income due to an increase in the average rental rates and a decrease in maintenance expense partially offset by an increase in depreciation expense. Maintenance expense decreased due to improvements made at the property in 1996 and depreciation expense increased due to the depreciation of the capital improvements made at the property in 1996. The increase in the loss from 1995 to 1996 is the result of an increase in maintenance, interest, and amortization expense partially offset by an increase in rental income. Maintenance expense increased due to improvements made at the property in order to attract more tenants and interest expense increased due to a higher average principal balance of the mortgage due to advances for improvements made by the mortgage holder. Amortization expense increased due to the amortization of loan costs incurred in the refinancing of the first mortgage. Rental income increased due to an increase in the average occupancy (81% to 96%).
On June 30, 1992 DHP, Inc. assigned to D, LTD 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 1996 and 1997. 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, 1997 was $624,606.
In 1997, the Green Street Apartments sustained a loss of $146,000 including $59,000 of depreciation expense compared to a loss of $146,000 in 1996 including $59,000 of depreciation expense and a loss of $153,000 in 1995 including $59,000 of depreciation expense. The decrease in the loss from 1995 to 1996 is the result of an overall decrease in operating expenses due to operational efficiencies achieved at the property.
On June 30, 1992 DHP, Inc. assigned to D, LTD a note receivable, from 18th and Green to the Registrant, that had been assigned to it, in the amount of $63,493 which bears interest at 10% with the entire principal and accrued interest due on June 30, 1997. On December 6, 1993 D, LTD obtained a judgment in the amount of $78,171 on this note in Common Pleas Court for Philadelphia County. The judgment accrues interest at 15%. Interest accrued was $5,055 during 1996 and 1997. Payments on the judgment are to be made from available cash flow from 18th and Green. The balance of the note at December 31, 1997 was $50,124.
In 1997, the Loewy Building sustained a loss of $358,000 including $290,000 of depreciation and amortization expense compared to a loss of $300,000 including $260,000 of depreciation expense in 1996 and a loss of $332,000 including $260,000 of depreciation expense in 1995. The increase in the loss from 1996 to 1997 is due to a decrease in rental income combined with an increase in interest and amortization expense partially offset by a decrease in management fees expense. The decrease in rental income is due to a decrease in the average rental rates and interest expense increased due to default interest accrued on the loan as a result of non-payment of the minimum monthly payment. Amortization expense increased due to the amortization of leasing fees incurred in 1996 while management fees decreased due to the decrease in rental income. The decreased loss from 1995 to 1996 is mainly due to an increase in rental income due to higher average rental rates partially offset by an increase in commissions and management fee expense. Management fees expense increased due to the higher rental income and commissions expense increased due to a lease extension with the tenant who leases 34% of the building.
In 1997 and 1996, Cathedral Court recognized income of $0 compared to income of $636,000 including $337,000 of depreciation expense in 1995. The 1995 loss without the effect of the foreclosure would have been $850,000. Included in operations from 1995 is an extraordinary gain of $1,316,188 representing the excess of the liabilities satisfied over the fair market value of the Cathedral Court property.
Summary of Minority Interests
In 1997, the Registrant incurred a net loss of $30,000 at Magazine Place compared to a loss of $11,000 in 1996 compared to $19,000 in 1995. This investment is accounted for by the equity method. The increase from 1996 to 1997 is due mainly to an increase in real estate tax expense due to the expiration of the tax abatement period.
Item 8.
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 sheets of Diversified Historic Investors III (a Pennsylvania Limited Partnership) and its subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1997, 1996 and 1995. 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 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 presents fairly, in all material respects, the financial position of Diversified Historic Investors III and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997, 1996 and 1995, 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 27 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 24, 1998
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, 1997 and 1996 14
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996, and 1995 15
Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1997, 1996, and 1995 16
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995 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, 1997 and 1996
Assets
1997 1996 Rental properties at cost: Land $ 465,454 $ 465,454 Buildings and improvements 11,985,674 11,969,523 Furniture and fixtures 95,447 86,351 ---------- ---------- 12,546,575 12,521,328 Less - accumulated depreciation (4,956,401) (4,461,992) ---------- ---------- 7,590,174 8,059,336
Cash and cash equivalents 308 20,862 Restricted cash 126,684 203,796 Accounts receivable 16,666 8,058 Investment in affiliate 235,190 264,762 Other assets (net of accumulated amortization of $114,337 and $77,689) 227,277 155,157 ---------- ---------- Total $ 8,196,299 $ 8,711,971 ========== ==========
Liabilities and Partners' Equity
Liabilities: Debt obligations $ 8,418,142 $ 8,414,901 Accounts payable: Trade 874,012 752,257 Related parties 624,606 578,903 Interest payable 1,239,576 888,864 Tenant security deposits 51,029 52,506 Other liabilities 7,915 26,024 ---------- ---------- Total liabilities 11,215,280 10,713,455 ---------- ---------- Partners' equity (3,018,981) (2,001,484) ---------- ---------- Total $ 8,196,299 $ 8,711,971 ========== ==========
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, 1997, 1996 and 1995
1997 1996 1995
Revenues: Rental income $1,251,764 $1,254,573 $1,658,031 Interest income 441 1,229 840 --------- --------- --------- Total revenues 1,252,205 1,255,802 1,658,871 --------- --------- --------- Costs and expenses: Rental operations 614,679 661,589 1,088,752 General and administrative 126,000 138,200 140,800 Interest 968,397 983,145 1,447,420 Depreciation and amortization 531,057 478,758 829,265 --------- --------- --------- Total costs and expenses 2,240,133 2,261,692 3,506,237 --------- --------- --------- Loss before minority interests and (987,928) (1,005,890) (1,847,366) equity in affiliate Minority interests' portion of loss 0 0 16,365 Equity in net loss of affiliate (29,569) (11,418) (19,120) --------- --------- --------- Loss before extraordinary item (1,017,497) (1,017,308) (1,850,121) Extraordinary gain 0 0 1,316,188 --------- --------- --------- Net loss ($1,017,497)($1,017,308)($ 533,933) ========= ========= ========= Net loss per limited partnership unit: Loss before minority interests and ($ 69.96)($ 71.22)($ 130.81) equity in affiliate Minority interests' portion of loss 0 0 1.16 Equity in net loss of affiliate (2.09) (.81) (1.35) -------- --------- --------- Loss before extraordinary item (72.05) (72.03) (131.00) Extraordinary gain 0 0 93.20 -------- --------- --------- ($ 72.05)($ 72.03)($ 37.80) ======== ========= =========
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, 1997, 1996 and 1995
Dover Historic Limited Advisors II(1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1994 ($117,542) ($ 332,701) ($ 450,243) Net loss (5,339) (528,594) (533,933) ------- --------- --------- Balance at December 31, 1995 (122,881) (861,295) (984,176) Net loss (10,173) (1,007,135) (1,017,308) ------- --------- --------- Balance at December 31, 1996 (133,054) (1,868,430) (2,001,484) Net loss (10,175) (1,007,322) (1,017,497) ------- --------- --------- Balance at December 31, 1997 ($143,229) ($2,875,752) ($3,018,981) ======= ========= =========
(1) General Partner.
(2) 13,981.5 limited partnership units outstanding at December 31, 1997, 1996, and 1995.
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, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities: Net loss ($1,017,497) ($1,017,308) ($ 533,933) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 531,057 478,748 829,265 Extraordinary gain 0 0 (1,316,188) Minority interests 0 0 (16,365) Equity in loss of affiliate 29,569 11,418 19,120 Changes in assets and liabilities: Decrease (increase) in restricted cash 77,112 (95,508) (45,897) (Increase) decrease in accounts receivable (8,608) (673) 7,450 (Increase) decrease in other assets (108,765) (96,087) 1,604 Increase in accounts payable - trade 121,755 172,594 204,853 Increase in accounts payable - related parties 45,703 45,703 33,479 (Decrease) increase in accounts payable - taxes 0 (155,907) 59,277 Increase in interest payable 350,712 132,998 903,426 Decrease in tenant security deposits (1,477) (2,413) (31,928) (Decrease) increase in other liabilities (18,109) 10,625 1,942 --------- --------- ---------- Net cash provided by (used in) operating activities: 1,452 (515,810) 116,105 --------- --------- ---------- Cash flows from investing activities: Capital expenditures (25,247) (112,221) (302,989) --------- --------- ---------- Net cash used in investing activities: (25,247) (112,221) (302,989) --------- --------- ---------- Cash flows from financing activities: Proceeds from debt obligations 0 638,208 196,445 Payments of principal under debt obligations 3,241 0 (30,313) --------- --------- ---------- Net cash provided by financing activities: 3,241 638,208 166,132 --------- --------- ---------- (Decrease) increase in cash and cash equivalents (20,554) 10,177 (20,752) Cash and cash equivalents at beginning of year 20,862 10,685 31,437 --------- --------- ---------- Cash and cash equivalents at end of year $ 308 $ 20,862 $ 10,685 ========= ========= ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 617,685 $ 558,411 $ 491,008
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 are 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 consistently applied in the preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The accompanying financial statements of the Partnership include the accounts of three subsidiary partnerships (the "Ventures"), in which the Partnership has a controlling interest with appropriate elimination of inter-partnership transactions and balances. In addition, the Partnership owns a minority interest of 40% in one partnership which it accounts for on the equity method. These financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of the Partnership's General Partner, are necessary for a fair statement of the results for those years.
2. Depreciation
Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over 25 years and furniture and fixtures over five years.
3. Costs of Issuance
Costs incurred in connection with the offering and sale of limited partnership units were charged against partners' equity as incurred.
4. Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents.
5. Interest Payable
Interest payable includes all accrued and unpaid interest on the debt obligations, as well as interest in arrears.
6. Net Loss Per Limited Partnership Unit
The net loss per limited partnership unit is based on the weighted average number of limited partnership units outstanding during the period (13,891.5 in 1997, 1996, and 1995).
7. Income Taxes
Federal and state income taxes are payable by the individual partners; accordingly, no provision or liability for income taxes is reflected in the annual financial statements.
8. Restricted Cash
Restricted cash includes amounts held for tenant security deposits, real estate tax reserves and other cash restricted as to use.
9. Revenue Recognition
Revenues are recognized when rental payments are due on a straight- line basis. Rental payments received in advance are deferred until earned.
10. Rental Properties
Rental properties are stated at cost. A provision for impairment of value is recorded when a decline in value of property is determined to be other than temporary as a result of one or more of the following: (1) a property is offered for sale at a price below its current carrying value, (2) a 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.
NOTE C - GOING CONCERN
In recent years the Partnership has realized significant losses, including the foreclosure of one property, due to the properties' inability to generate sufficient cash flow to pay their operating expenses and debt service. At the present time, the Partnership has feasible loan modifications in place at Lincoln Court, Green Street and Loewy Building. However, in all three cases, the mortgages are basically "cash-flow" mortgages, requiring all available cash after payment of operating expenses to be paid to the first mortgage holder. Therefore, it is unlikely that any cash will be available to the Partnership to pay its general and administrative expenses.
It is the Partnership's intention to continue to hold the properties until they can no longer meet the debt service requirements and the properties are foreclosed, or the market value of the properties increases to a point where they can be sold at a price which is sufficient to repay the underlying indebtedness (principal plus accrued interest).
Since the lenders have agreed to forebear from taking any foreclosure action as long as cash flow payments are made, the Partnership believes it is appropriate to continue presenting the financial statements on a going concern basis.
NOTE D - PARTNERSHIP AGREEMENT
The significant terms of the Agreement of Limited Partnership (the "Agreement"), as they relate to the financial statements, follow:
All distributable cash from operations (as defined in the Agreement of Limited Partnership) will be distributed 90% to the limited partners and 10% to the General Partner.
All distributable cash from sales or dispositions (as defined) will be distributed to the limited partners up to their adjusted invested capital (as defined) plus an amount equal to the sum of the greater of a 6% cumulative, noncompounded annual return on the average after- credit invested capital, less amounts previously distributed (as defined); thereafter, after receipt by the General Partner or its affiliates of any accrued but unpaid real estate brokerage commissions, the balance will be distributed 15% to the General Partner and 85% to the limited partners.
Net income or loss from operations of the Partnership is allocated 1% to the General Partner and 99% to the limited partners.
NOTE E - ACQUISITIONS
The Partnership acquired five controlling or limited partnership interests in Ventures during the period October 1986 to July 1987, as discussed below.
In October 1986, the Partnership was admitted, with a 60% general partnership interest, to a Louisiana limited partnership which owns a building located in Louisiana consisting of 57 residential units, for a cash capital contribution of $600,000. Pursuant to the Amended and Restated Partnership Agreement, the Partnership's interest was reduced to 40% effective January 1, 1995.
In November 1986, the Partnership was admitted, with a 99% general partnership interest, to a Pennsylvania general partnership which owns a building located in North Carolina consisting of 64,000 square feet of commercial space, for a cash contribution of $2,450,000.
In December 1986, the Partnership was admitted, with a 99% general partnership interest, to a Maryland general partnership which owns a property located in Maryland consisting of 55 residential units and 14,800 square feet of commercial space, for a cash contribution of $3,508,700. The lender on the property foreclosed in January 1996.
In March 1987, the Partnership purchased a property consisting of three buildings (58 residential units) located in Pennsylvania for a cash capital contribution of $500,000.
In July 1987, the Partnership was admitted, with a 99% general partnership interest, to a Pennsylvania general partnership which owns a building located in Pennsylvania consisting of 18 residential units, for a cash capital contribution of $800,000.
NOTE F- DEBT OBLIGATIONS
Debt obligations are as follows: December 31, 1997 1996 ------ ------ Mortgage loan, interest accrues at 11 1/2%, interest $ 3,788,541 $ 3,784,900 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, with a minimum 200,000 200,000 of 6% and a maximum of 8%, adjusting annually on January 2 (8% at December 31, 1997 and 1996); due in 1997; collateralized by the related rental property (A)
Allowed unsecured claims in the amount of $268,042; 165,246 167,812 non-interest bearing
Note payable, interest only at 10%, payable quarterly; 10,000 10,000 principal due in 1994 (A)
Mortgage loan, interest at 9.125%, payable in monthly 1,256,565 1,265,960 principal and interest installments of $10,317; principal due in September 2003; collateralized by the related rental property
Mortgage loan, interest at prime plus 1 1/4% with a 1,476,212 1,468,679 minimum of 9.5% and a maximum of 14 1/2%, 9.75% and 9.5% at December 31, 1997 and 1996, respectively, principal due in 1999; collateralized by the related rental property (B)
Mortgage loan, interest at 11% per annum; principal 107,120 107,120 due in 1999; collateralized by the related rental property (B)
Note, interest at prime plus 1 1/4% (9.75% and 9.5% after 100,278 100,278 December 31, 1997 and 1996, respectively); principal due in 1999; collateralized by the related rental property (B)
Mortgage loan, interest at 12%; payable interest only to the extent of net operating income with a minimum monthly payment of $5,750; principal due in 1999; collateralized by the related rental property 1,314,180 1,310,152 --------- --------- $ 8,418,142 $ 8,414,901 ========= =========
(A) Although this obligation has matured, the lenders have not made any demand for payment.
(B) Monthly payments of interest are to be made, on all three loans combined, in an amount equal to net operating income.
Approximate maturities of the mortgage loan obligations at December 31, 1997, for each of the succeeding five years are as follows:
1998 $ 375,246 1999 2,997,790 2000 0 2001 0 2002 0 Thereafter 5,045,106 --------- $8,418,142 =========
NOTE G - COMMITMENTS AND CONTINGENCIES
Pursuant to certain agreements, the developers of the properties and limited partners in the Ventures are entitled to share in the following:
a. 15% to 50% of net cash flow from operations above certain specified amounts (three properties)
b. 30% of the net proceeds, as defined, from the sale or refinancing of one property. The Partnership is entitled to a priority distribution of such proceeds prior to any payment to the developer.
According to the Amended and Restated Partnership Agreement, the Partnership's interest in Magazine Place Limited Partnership ("MPP") was reduced from 60% to 40% as of the First Conversion Date. The First Conversion Date is the date on which the Registrant will have received a return of its initial capital contribution. For purposes of determining the First Conversion Date, the Registrant will be deemed to have received a return of its initial capital contribution when the sum of the following amounts equals $600,000: (i) cash distributions from MPP; (ii) investment tax credit allocable to the Registrant; and (iii) 50% of the aggregate of MPP's net losses and deductions allocable to the Registrant. As of December 31, 1994, the Registrant had received a return of its initial capital and the Registrant's interest in the MPP was reduced to 40%. Since that date, the Registrant has accounted for its investment in MPP on the equity basis.
NOTE H - EXTRAORDINARY GAINS
Cathedral Court General Partnership ("CCGP") ceased making debt service payments in 1989. In January 1990, CCGP filed a reorganization petition pursuant to Chapter 11 of the U.S. Bankruptcy Code. Although a plan of reorganization was filed, it was not approved. Pursuant to a settlement agreement reached with the first mortgage holder on July 31, 1993 the bankruptcy was dismissed. The terms of the settlement agreement called for payment to the first mortgage holder by CCGP of certain monies held, and for CCGP to continue to control the property. In September 1994, due to the inability of the first mortgage holder and CCGP to reach an agreement regarding CCGP's purchase of the loan, the first mortgage holder petitioned the Circuit Court for the City of Baltimore in the matter of Harrington v. Cathedral Court General Partnership, Case No. 89340045/CE 106281, to have a receiver appointed, and such petition was granted. Pursuant to the appointment of the receiver, CCGP was directed to deliver immediate possession of any and all property connected with and used in the current operation of the property to the receiver and on January 22, 1996 the lender foreclosed on the property. The Partnership accounted for the foreclosure of the property as of December 31, 1995. The Partnership has recognized an extraordinary gain of $1,316,188 for the difference between the book value of the property (which approximates fair value) and the extinguished debt.
NOTE I - TRANSACTIONS WITH RELATED PARTIES
Included in debt obligations for 1997, 1996 and 1995 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 1996 and 1997. 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, 1997 was $624,606.
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 1996 and 1997. Payments on the judgment are to be made from available cash flow from 18th and Green. The balance of the note at December 31, 1997 was $50,124.
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,
1997 1996 1995 ------ ------ ------ Net loss - book ($1,017,497) ($1,019,509) ($ 550,993) Excess of tax over book depreciation 108,515 89,414 166,823 Interest 0 0 793,672 Gain on foreclosure 0 0 216,411 Other timing differences (207) 23,940 (2,746) Minority interest (5,094) (21,859) (19,675) --------- --------- ---------- Net loss - tax ($ 914,283) ($ 928,014) $ 603,492
Partners' equity - book ($3,018,981) ($2,001,484) ($ 984,176) 1987 distribution of interest on (39,576) (39,576) (39,576) escrow deposits to limited partners Costs of issuance 1,697,342 1,697,342 1,697,342 Cumulative tax over (under) book loss 351,443 248,230 158,936 --------- --------- --------- Partners' equity - tax ($1,009,772) ($ 95,488) $ 832,526 ========= ========= =========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS III (a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
Costs Capitalized Initial Cost to Subsequent to to Partnership (b) Acquisition
Buildings and Date of Date Description (a) Encumbrances Land Improvements Improvements Constr. Acquired (f) (a)
64,000 square feet of commercial space in Winston-Salem, NC $4,153,787 $308,624 $6,290,125 $476,976 1986-1988 11/14/86
58 apartment units in Philadelphia, PA 2,950,175 86,187 3,490,437 - 1986-1987 9/9/86
18 apartment units in Philadelphia, PA 1,314,180 70,643 1,559,017 - 1987 --------- ------- ---------- ------- TOTAL $8,418,142 $465,454 $11,339,579 $476,976 ========= ======= ========== =======
Gross Amount at which Carried at December 31, 1997 Buildings and Accumulated Description Land Improvements Total (c)(d) Depreciation (d)(e) 64,000 square feet of commercial space in Winston-Salem, NC $308,624 $6,786,062 $7,094,686 $2,730,751
58 apartment units in Philadelphia, PA 86,187 3,736,042 3,822,229 1,571,066
18 apartment units in Philadelphia, PA 70,643 1,559,017 1,629,660 654,584 ------- --------- --------- --------- TOTAL $465,454 $12,081,121 $12,546,575 $4,956,401 ======= ========== ========== =========
DIVERSIFIED HISTORIC INVESTORS III
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1997
(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 are rehabilitated.
(B) Includes development/rehabilitation costs incurred pursuant to turnkey development agreements entered into when the properties are acquired.
(C) The aggregate cost of real estate owned at December 31, 1997, for Federal income tax purposes is approximately $11,352,543. However, the depreciable basis of buildings and improvements is reduced for Federal income tax purposes by the investment tax credit and the historic rehabilitation credit obtained.
(D) Reconciliation of real estate:
1997 1996 1995 ------ ------ ------ Balance at beginning of year: $12,521,328 $12,409,107 $25,570,608 Additions during the year: Improvements 25,247 112,221 297,731 ---------- ---------- ---------- 12,546,575 12,521,328 25,868,339 Deductions during the year: Retirements 0 0 (9,253,739) Deconsolidated subsidiary 0 0 (4,205,493) ---------- ---------- ----------
Balance at end of year $12,546,575 $12,521,328 $12,409,107 ========== ========== ========== Reconciliation of accumulated depreciation: 1997 1996 1995 ------ ------ ------ Balance at beginning of year $4,461,992 $3,991,148 $7,035,889 Depreciation expense for the year 494,409 470,844 829,265 Retirements 0 0 (2,833,686) Deconsolidated subsidiary 0 0 (1,040,320) --------- --------- --------- Balance at end of year $4,956,401 $4,461,992 $3,991,148 ========= ========= =========
(E) See Note B to the financial statements for depreciation method and lives.
(F) See Note E to the financial statements for further information.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
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 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
Gerald Katzoff 49 Partner in DoHA-II No fixed term February 1986 - May 1997
DHP, Inc. -- Partner in DoHA-II No fixed term February 1986 - ("Formerly Dover May 1997 Historic Properties, Inc.")
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 DHP, Inc., 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. 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. DoHA-II is a general partnership formed in February 1986. The partners of DoHA-II are EPK, Inc. and SWDHA, Inc. The General Partner is responsible for the management and control of the Registrant's affairs and has general responsibility and authority in conducting its operations.
On May 13, 1997, SWDHA, Inc. replaced Gerald Katzoff and EPK, Inc. replaced DHP, Inc. as partners of DoHA-II. Spencer Wertheimer, the President of SWDHA, Inc., is an attorney with extensive experience in real estate activities ventures.
EPK, Inc. is a Delaware corporation formed for the purpose of managing properties or interests therein. EPK, Inc. is a wholly-owned subsidiary of D, LTD, an entity formed in 1985 to act as the holding company for various corporations engaged in the development and management of historically certified properties and conventional real estate as well as a provider of financial (non- banking) services. EPK, Inc. is an affiliate of DoHA-II.
The officers and directors of EPK, Inc. are described below.
Spencer Wertheimer was appointed on May 13, 1997 as President, Treasurer and Sole Director of EPK, Inc. Mr. Wertheimer is an attorney with extensive experience in real estate activities ventures.
Donna M. Zanghi (age 40) was appointed on May 13, 1997 as Vice President and Secretary of EPK, Inc. Ms. Zanghi 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 32) 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.
Item 11. Executive Compensation
a. Cash Compensation - During 1997, Registrant has paid no cash compensation to DoHA-II, any partner therein or any person named in paragraph c. of Item 10. Certain fees have been paid to DHP, Inc. by Registrant.
b. Compensation Pursuant to Plans - Registrant has no plan pursuant to which compensation was paid or distributed during 1996, 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 1997 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.
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 security 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.
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 1996 through 1997.
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.
Item 14. (A) Exhibits, Financial Statement Schedules and Reports on Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1997 and 1996.
b. Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995.
c. Consolidated Statements of Changes in Partners' Equity for the Years Ended December 31, 1997, 1996 and 1995.
d. Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.
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, 1997.
(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: April 15, 1998 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 April 15, 1998 ----------------------- -------------- SPENCER WERTHEIMER President and Treasurer
By: /s/ Michele F. Rudoi April 15, 1998 ------------------------ -------------- MICHELE F. RUDOI, Assistant Secretary