-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NkFp46RGxjc7wrS1Bf7K/lVxcTWImLVG+ga0Z/0X/cmZKQh9xFmqV2smL/j/ZCH9 4IsQxtoCp2FIOIeU3LBTTg== 0000702117-96-000005.txt : 19960402 0000702117-96-000005.hdr.sgml : 19960402 ACCESSION NUMBER: 0000702117-96-000005 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP REALTY FUND LTD III CENTRAL INDEX KEY: 0000702117 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042763323 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-11210 FILM NUMBER: 96542824 BUSINESS ADDRESS: STREET 1: C/O BERKSHIRES REALTY AFFILIATES STREET 2: 470 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVENUE STREET 2: C/O BERKSHIRE REALTY AFFILIATES CITY: BOSTON STATE: MA ZIP: 02210 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K 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, 1995 OR 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 Commission file number 0-11210 Krupp Realty Fund, Ltd.-III (Exact name of registrant as specified in its charter) Massachusetts 04-2763323 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 423-2233 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Investor Limited Partner Interest 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 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 voting securities held by non-affiliates: Not applicable, since securities are non-voting. Documents incorporated by reference: Part IV, Item 14. The exhibit index is located on pages 9-11. PART I ITEM 1. BUSINESS Krupp Realty Fund, Ltd.-III (the "Partnership") is a limited partnership formed on April 23, 1982 with The Krupp Company and The Krupp Corporation as the General Partners. The Partnership issued all of the Original Limited Partner Interests to The Krupp Company (See Note A to Consolidated Financial Statements included in Item 8 (Appendix A) of this report for additional information). The primary business of the Partnership is to invest in, operate, refinance and ultimately dispose of properties and related assets of the Partnership. The Partnership considers itself to be engaged only in the industry segment of investment in real estate. The Partnership's real estate investments are subject to some seasonal fluctuations due to changes in utility consumption and seasonal maintenance expenditures. However, the future performance of the Partnership will depend upon factors which cannot be predicted. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's investments are located, real estate tax rates, operating expenses, energy costs, government regulations, and federal and state income tax laws. The requirements for compliance with federal, state and local regulations to date have not had an adverse effect on the Partnership's operations, and no adverse effect is anticipated in the future. The Partnership's investments in real estate are also subject to such risks as (i) competition from existing and future projects held by other owners in the areas of the Partnership's properties, (ii) possible reduction in rental income due to an inability to maintain high occupancy levels, (iii) possible adverse changes in mortgage interest rates, (iv) possible adverse changes in general economic and local conditions, such as competitive over-building, increased unemployment or adverse changes in real estate zoning laws, and the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (v) other circumstances over which the Partnership may have little or no control. As of December 31, 1995, there were 26 full and part-time on-site personnel employed by the Partnership. ITEM 2. PROPERTIES As of December 31, 1995, the Partnership had leveraged investments in three apartment complexes having an aggregate of 990 units. A summary of the Partnership's real estate investments is presented below.
Average Occupancy Year December 31, Description Acquired Total Units 1995 1994 1993 1992 1991 Brookeville Apartments Columbus, Ohio 1983 424 Units 94% 94% 93% 95% 94% Hannibal Grove Apartments Columbia, Maryland 1983 316 Units 93% 94% 88% 86% 89% Dorsey's Forge Apartments and Oakland Meadows Columbia, Maryland 1983 250 Units 94% 95% 92% 93% 89%
In July 1993, in conjunction with the refinancing of Brookeville Apartments with the Department of Housing and Urban Development ("HUD"), the General Partners of the Partnership created Brookeville Apartments Limited Partnership ("Brookeville L.P."). The property was subsequently transferred to Brookeville L.P., with the Partnership retaining a 100% interest in Brookeville L.P.. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The transfer of units of Limited Partner Interest (the "Units") is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop. The number of Investor Limited Partners as of December 31, 1995 was approximately 1,700. One of the objectives of the Partnership is to generate cash available for distribution, however, there is no assurance that future operations will generate cash available for distribution. The Partnership discontinued distributions during 1990 because of insufficient operating cash flow. Subsequently, property operations improved and distributions were reinstituted and paid in August, 1994. The Partnership anticipates that distributions will continue and be paid semi-annually. The Partnership made the following distributions to its Partners during the years ended December 31, 1995 and 1994:
Year Ended December 31, 1995 1994 Amount Per Unit Amount Per Unit Limited Partners: Investor Limited Partner Interest (25,000 Units outstanding) $297,495 $11.90 $ 99,132 $3.97 Original Limited Partner 12,526 4,174 General Partners 3,132 1,043 $313,153 $104,349
ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements which are included in Items 7 and 8 of this report, respectively.
Year Ended December 31, 1995 1994 1993 1992 1991 Revenue from Operations $ 6,352,337 $ 6,215,466 $ 5,757,960 $ 6,023,650 $10,689,462 Gain on sale of property - - - 222,388 9,675,156 Total Revenue $ 6,352,337 $ 6,215,466 $ 5,757,960 $ 6,246,038 $20,364,618 Net income (loss) $ (547,893) $ (453,031) $(1,521,667) $ (898,682) $ 6,890,572 Net income (loss) allocated to Partners: Investor Limited Partners (520,498) (430,380) (1,445,583) (853,748) 6,546,043 Per Unit (20.82) (17.22) (57.82) (34.15) 261.84 Original Limited Partner - (18,121) (60,867) (35,947) 275,623 General Partners (27,395) (4,530) (15,217) (8,987) 68,906 Total assets at December 31 14,384,144 15,702,150 16,561,486 16,366,735 17,901,355 Long-term obligations at December 31 19,491,853 19,827,968 20,133,422 18,676,323 18,856,173 Distributions to Partners: Investor Limited Partners 297,495 99,132 - - - Per Unit 11.90 3.97 - - - Original Limited Partner 12,526 4,174 - - - General Partners 3,132 1,043 - - -
Prior performance of the Partnership is not necessarily indicative of future operations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership's ability to generate cash adequate to meet its needs is dependent primarily upon the operations of its real estate investments. Such ability is also dependent upon the future availability of bank borrowings and the potential refinancing and sale of the Partnership's remaining real estate investments. These sources of liquidity will be used by the Partnership for payment of expenses related to real estate operations, capital expenditures, debt service and expenses. Cash Flow, if any, as calculated under Section 8.2(a) of the Partnership Agreement, will then be available for distribution to the Partners. Due to improvements in the operations of the properties and reduced debt service, the Partnership had sufficient cash flow in 1994 to reinstate distributions at a rate of $3.97 per Unit. In 1995, the distribution rate increased to $11.90 per Unit. In 1996, the distribution rate is scheduled to increase to a rate of $15.86 per Unit. Renovations at the Partnership's properties have resulted in higher occupancies and increased rental revenue through 1994 and into 1995. The Partnership is planning on spending approximately $467,000 on improvements at Brookeville in 1996 including the replacement of cabinets, countertops, carpeting and appliances, of which approximately $125,000 will be funded from the replacement reserve escrow. Dorsey's Forge and Oakland Meadows ("Dorsey's") and Hannibal Grove ("Hannibal") are budgeting $260,000 and $435,000, respectively, in improvements in 1996. Cash Flow Shown below, as required by the Partnership Agreement, is the calculation of Cash Flow of the Partnership for the year ended December 31, 1995. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Cash Flow should not be considered by the reader as a substitute to net income(loss), as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity.
Rounded to $1,000 Net loss for tax purposes $ (200,000) Items not requiring or (requiring) the use of operating funds: Tax basis depreciation and amortization 1,391,000 Principal payments on mortgage notes payable (306,000) Expenditures for capital improvements (1,064,000) Amounts released from working capital reserves 544,000 Cash Flow $ 365,000
Operations 1995 Compared to 1994 In comparing 1995 to 1994, cash flow improved primarily as a result of a reduction in capital expenditures. The increase in rental revenue during 1995 as compared to 1994 is due to increases in rental rates at all the Partnership's properties. The increase in rental rates is related to the capital improvement programs undertaken at the properties. Average occupancy at Hannibal and Dorsey's remained relatively stable during 1995 at 93% and 94%, respectively. Occupancy remained stable at Brookeville despite a fire during 1995. Total expenses of the Partnership, net of depreciation, have decreased slightly in 1995, as compared to 1994. Savings in operating expenses were due to management's efforts in reducing reimbursable costs. These savings were offset by an increase in maintenance expenses due to minor fire damage at Brookeville. Depreciation increased in 1995, as compared to 1994, as a result of capital improvement programs at the properties. The Partnership expects occupancy to remain stable in 1996, with the opportunity for a slight increase. Renovations at Brookeville will take place throughout the year, and the improved physical condition should increase the occupancy level and rental revenue at Brookeville. 1994 Compared to 1993 In comparing 1994 to 1993, the increase in cash flow was primarily due to increased rental revenue and a reduction in interest expense. The increase in rental revenue in 1994, as compared to 1993 is due primarily to an increase in rents across the Partnership's properties. Following the completion of renovations at Hannibal, the property was able to lower concessions and increase occupancy and thereby increase revenues. Average occupancy rates at Hannibal and Dorsey's during 1994 were 94% and 95%, respectively, a significant increase compared to 1993 occupancy of 88% and 92%, respectively. Vacancies have decreased during 1994 compared to 1993 due to improved market conditions and absorption of excess market supply where properties are located. The refinancings of the Partnership's properties in 1993 decreased the effective interest rates the properties were previously paying, thereby decreasing interest expense for 1994 as compared to 1993. General In accordance with Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which is effective for fiscal years beginning after December 15, 1995, the Partnership has implemented policies and practices for assessing impairment of its real estate assets. The investments in properties are carried at cost less accumulated depreciation unless the General Partners believe there is a significant impairment in value, in which case a provision to write down investments in properties to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are significantly impaired. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Appendix A to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to the directors and executive officers of the Krupp Corporation, which is a General Partner of both the Partnership and the Krupp Company, the other General Partner of the Partnership, is as follows: Position with Name and Age The Krupp Corporation Douglas Krupp (49) Co-Chairman of the Board George Krupp (51) Co-Chairman of the Board Laurence Gerber (39) President Robert A. Barrows (38) Senior Vice President and Corporate Controller Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking, healthcare facility ownership and the management of the Company. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of 3,400 are responsible for the more than $4 billion under management for institutional and individual clients. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp is Chairman of the Board and a Director of Berkshire Realty Company, Inc. (NYSE-BRI). George Krupp is Douglas Krupp's brother. George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of 3,400 are responsible for more than $4 billion under management for institutional and individual clients. Mr. Krupp attended the University of Pennsylvania and Harvard University. Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust and as Chairman of the Board and Trustee of Krupp Government Income Trust II. Laurence Gerber is the President and Chief Executive Officer of The Berkshire Group. Prior to becoming President and Chief Executive Officer in 1991, Mr. Gerber held various positions with The Berkshire Group which included overall responsibility at various times for: strategic planning and product development, real estate acquisitions, corporate finance, mortgage banking, syndication and marketing. Before joining The Berkshire Group in 1984, he was a management consultant with Bain & Company, a national consulting firm headquartered in Boston. Prior to that, he was a senior tax accountant with Arthur Andersen & Co., an international accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics from the University of Pennsylvania, Wharton School and an M.B.A. degree with high distinction from Harvard Business School. He is a Certified Public Accountant. Mr. Gerber also serves as President and Director of Berkshire Realty Company, Inc. (NYSE-BRI) and President and Trustee of Krupp Government Income Trust and President and Trustee of Krupp Government Income Trust II. Robert A. Barrows is the Corporate Controller of The Berkshire Group. Mr. Barrows has held several positions within The Berkshire Group since joining the company in 1983 and is currently responsible for accounting and financial reporting, treasury, tax, payroll and office administrative activities. Prior to joining The Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S. degree from Boston College and is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1995, no person of record owned or was known by the General Partners to own beneficially more than 5% of the 25,000 Units of Investor Limited Partner Interests then outstanding. On that date, the General Partners or their affiliates owned 80 Units (.3% of the total outstanding) of the Partnership in addition to their General Partner and Original Limited Partner interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. Additionally, as of December 31, 1995, no person of record owned or was known by the General Partners to own beneficially more than 5% of the Partnership's outstanding Units. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements - see Index to Consolidated Financial Statements and Schedule included under Item 8, Appendix A, on page F-2 to this Report. 2. Consolidated Financial Statement Schedule - see Index to Consolidated Financial Statements and Schedule included under Item 8, Appendix A, on page F-2 to this Report. All other schedules are omitted as they are not applicable, not required or the information is provided in the financial statements or the notes thereto. (b) Exhibits: Number and Description Under Regulation S-K (4) Instruments defining the rights of security holders including indentures: (4.1) Agreement of Limited Partnership dated as of April 23, 1982 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 (File 2-77155)].* (4.2) Amended Certificate of Limited Partnership filed with the Massachusetts Secretary of State on September 29, 1982 [Exhibit 4.2 to Registrant's Report on Form 10-K dated December 31, 1982 (File No. 2-77155)].* (10) Material Contracts: Brookeville Apartments (10.1) Contract of Limited Partnership and Certificate of Limited Partnership of Brookeville Apartments Limited Partnership [Exhibit 10.5 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 0-11210)]* (10.2) Agreement to Hold Title dated July 20, 1993 by and between Brookeville Apartments Limited Partnership and Krupp Realty Fund, Ltd. - III. [Exhibit 10.6 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 0-11210)]* (10.3) Quitclaim deed dated July 20, 1993 between Krupp Realty Fund, Ltd.-III and Brookeville Apartments Limited Partnership. [Exhibit 10.7 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 0-11210)].* (10.4) Open-End Mortgage Note dated July 20, 1993 by and between Brookeville Apartments Limited Partnership and Sussex Mortgage Company. [Exhibit 10.8 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 0-11210)].* (10.5) Open-End Mortgage Deed dated July 20, 1993 by and between Brookeville Apartments Limited Partnership and Sussex Mortgage Company. [Exhibit 10.9 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 0-11210)].* Dorsey's Forge, Oakland Meadows, Hannibal Grove (10.6) Agreements dated as of November 30, 1982, and related supplemental Agreement dated as of November 30, 1982 between George Krupp and Douglas Krupp, on behalf of themselves and others, and Shelter Corporation of Canada, Limited and Metropolitan Properties Co. Limited [Exhibit to Registrant's Report on Form 8-K dated January 10, 1983 (File 2-77155)].* (10.7) Deed dated April 25, 1983 between Dorsey's Properties, Ltd. and D.O.H., Inc. relating to Dorsey's Forge [Exhibit 1 to Registrant's Amendment No. 1 to Form 8-K dated January 18, 1983 (File No. 2-77155)].* (10.8) Deed dated April 25, 1983 between D.O.H., Inc. and Krupp Realty Fund, Ltd.-III relating to Dorsey's Forge [Exhibit 2 to Registrant's Amendment No. 1 to Form 8-K dated January 18, 1983 (File No. 2-77155)].* (10.9) Modification and Restatement of Promissory Note dated April 28, 1993 by and between Krupp Realty Fund - III, Ltd. and John Hancock Mutual Life Insurance Company relating to Dorsey's Forge. [Exhibit 10.1 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1993. (File No. 0-11210)].* (10.10) Modification and Restatement of Indemnity Deed of Trust and Security Agreement dated April 28, 1993 between Krupp Realty Fund, Ltd.-III and John Hancock Mutual Life Insurance Company relating to Dorsey's Forge [Exhibit 10.2 to Registrant's Report on Form 10-Q dated September 30, 1993. (File No. 0-11210)].* (10.11) Management Agreement dated December 19, 1986 between Krupp Realty Fund, Ltd.-III (as "Owner") and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent, relating to Dorsey's Forge [Exhibit 10.15 to Registrant's Annual Report on Form 10-K dated December 31, 1986 (File No. 0-11210)].* (10.12) Management Agreement dated December 19, 1986 between Krupp Realty Fund, Ltd.-III (as "Owner") and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as agent, relating to Oakland Meadows [Exhibit 10.16 to Registrant's Annual Report on Form 10-K dated December 31, 1986 (File No. 0-11210)].* (10.13) Deed dated April 25, 1983 between Dorsey Properties Ltd., and D.O.H., Inc., relating to Oakland Meadows [Exhibit 4 to Registrant's Amendment No. 1 to Form 8-K dated January 18, 1983 (File No. 2-77155)].* (10.14) Deed dated April 25, 1983 between D.O.H., Inc., and Krupp Realty Fund, Ltd.-III relating to Oakland Meadows [Exhibit 5 to Registrant's Amendment No. 1 to Form 8-K dated January 18, 1983 (File No. 2-77155)].* (10.15) Modification and Restatement of Promissory Note dated April 28, 1993 between Krupp Realty Fund, Ltd.-III and John Hancock Mutual Life Insurance Company relating to Hannibal Grove. [Exhibit 10.3 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 0- 11210)].* (10.16) Modification and Restatement of Indemnity Deed of Trust and Security Agreement dated April 28, 1993 between Krupp Realty Fund, Ltd.-III and John Hancock Mutual Life Insurance Company relating to Hannibal Grove [Exhibit 10.4 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1993. (File No. 0-11210)].* (10.17) Management Agreement dated December 19, 1986 between Krupp Realty Fund, Ltd.-III (as "Owner") and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent, relating to Hannibal Grove [Exhibit 10.21 to Registrant's Annual Report on Form 10-K dated December 31, 1986 (File No. 0-11210)].* (10.18) Deed dated April 25, 1983 between Dorsey Properties, Ltd., and D.O.H., Inc., relating to Hannibal Grove [Exhibit 7 to Registrant's Amendment No. 1 to Form 8-K dated January 18, 1983 (File No. 2-77155)].* (10.19) Deed dated April 25, 1983 between D.O.H., Inc., and Krupp Realty Fund, Ltd.-III relating to Hannibal Grove [Exhibit 8 to Registrant's Amendment No. 1 to Form 8-K dated January 18, 1983 (File No. 2-77155)].* * Incorporated by reference. (b) Reports on Form 8-K During the quarter ended December 31, 1995, the Partnership did not file any reports on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 21st day of March, 1996. KRUPP REALTY FUND, LTD.-III By:The Krupp Corporation, a General Partner By: /s/ Douglas Krupp Douglas Krupp, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 21st day of March, 1996. Signatures Titles /s/ Douglas Krupp Co-Chairman (Principal Executive Officer) Douglas Krupp and Director of The Krupp Corporation, a General Partner. /s/ George Krupp Co-Chairman (Principal Executive Officer) George Krupp and Director of The Krupp Corporation, a General Partner. /s/ Laurence Gerber President of The Krupp Corporation, a Laurence Gerber General Partner. /s/Robert A. Barrows Senior Vice President and Corporate Robert A. Barrows Controller of the Krupp Corporation, a General Partner. APPENDIX A KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1995 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-3 Consolidated Balance Sheets for December 31, 1995 and 1994 F-4 Consolidated Statements of Operations For the Years Ended December 31, 1995, 1994 and 1993 F-5 Consolidated Statements of Changes in Partners' Deficit For the Years Ended December 31, 1995, 1994 and 1993 F-6 Consolidated Statements of Cash Flows For the Years Ended December 31, 1995, 1994 and 1993 F-7 Notes to Consolidated Financial Statements F-8 - F-12 Schedule III - Real Estate and Accumulated Depreciation F-13 - F-14 All other schedules are omitted as they are not applicable or not required, or the information is provided in the consolidated financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Realty Fund, Ltd.-III: We have audited the consolidated financial statements and financial statement schedule of Krupp Realty Fund, Ltd.-III and Subsidiary (the "Partnership") listed in the index on page F-2 of this Form 10-K . These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Krupp Realty Fund, Ltd.-III and Subsidiary at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Boston, Massachusetts COOPERS & LYBRAND, L.L.P. February 1, 1996
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 ASSETS 1995 1994 Multi-family apartment complexes, less accumulated depreciation of $16,460,550 and $14,767,489, respectively (Note C) $12,329,503 $12,958,461 Cash and cash equivalents 654,696 836,785 Required repair and replacement reserves (Note C) 202,349 609,608 Cash restricted for tenant security deposits 202,950 194,780 Prepaid expenses and other assets 596,254 658,234 Deferred expenses, net of accumulated amortization of $121,192 and $75,302, respectively (Note E) 398,392 444,282 Total assets $14,384,144 $15,702,150 LIABILITIES AND PARTNERS' DEFICIT Mortgage notes payable (Note C) $19,826,061 $20,131,682 Accounts payable 54,170 244,082 Accrued expenses and other liabilities 654,603 616,030 Total liabilities 20,534,834 20,991,794 Partners' deficit (Note D): Investor Limited Partners (25,000 units outstanding) (4,981,262) (4,163,269) Original Limited Partner (871,828) (859,302) General Partners (297,600) (267,073) Total Partners' deficit (6,150,690) (5,289,644) Total liabilities and Partners' deficit $14,384,144 $15,702,150
The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 Revenue: Rental $6,284,399 $ 6,142,098 $ 5,690,034 Other income 67,938 73,368 67,926 Total revenue 6,352,337 6,215,466 5,757,960 Expenses: Operating (Note E) 1,747,005 1,922,068 1,910,804 Maintenance 672,020 567,972 599,103 Real estate taxes 517,945 506,420 503,602 Management fees to an affiliate (Note E) 315,695 305,599 285,015 Depreciation and amortization 1,738,951 1,452,182 1,501,062 General and administrative (Note E) 145,488 102,925 83,485 Interest (Note C) 1,763,126 1,811,331 2,396,556 Total expenses 6,900,230 6,668,497 7,279,627 Net loss (Note F) $ (547,893) $ (453,031) $(1,521,667) Allocation of net loss (Note D): Investor Limited Partner Interest (25,000 Units outstanding) $ (520,498) $ (430,380) $(1,445,583) Per Unit of Investor Limited Partner Interest $ (20.82) $ (17.22) $ (57.82) Original Limited Partner $ - $ (18,121) $ (60,867) General Partners $ (27,395) $ (4,530) $ (15,217)
The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the Years Ended December 31, 1995, 1994 and 1993
Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1992 $(2,188,174) $(776,140) $(246,283) $(3,210,597) Net loss (1,445,583) (60,867) (15,217) (1,521,667) Balance at December 31, 1993 (3,633,757) (837,007) (261,500) (4,732,264) Net loss (430,380) (18,121) (4,530) (453,031) Distributions (Note D) (99,132) (4,174) (1,043) (104,349) Balance at December 31, 1994 (4,163,269) (859,302) (267,073) (5,289,644) Net loss (Note D) (520,498) - (27,395) (547,893) Distributions (Note D) (297,495) (12,526) (3,132) (313,153) Balance at December 31, 1995 $(4,981,262) $(871,828) $(297,600) $(6,150,690)
The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995, 1994 and 1993 1995 1994 1993 Operating activities: Net loss $ (547,893) $ (453,031) $(1,521,667) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,738,951 1,452,182 1,501,062 Decrease (increase) in cash restricted for tenant security deposits (8,170) (5,129) 2,044 Decrease in prepaid expenses and other assets 61,980 92,566 4,593 Increase (decrease) in accounts payable (189,912) 84,807 4,769 Increase (decrease) in accrued expenses and other liabilities 38,573 (107,275) (103,398) Net cash provided by (used in) operating activities 1,093,529 1,064,120 (112,597) Investing activities: Additions to fixed assets (1,064,103) (1,415,488) (869,565) Decrease (increase) in cash reserved for repair and replacement reserves 407,259 536,014 (1,145,622) Net cash used in investing activities (656,844) (879,474) (2,015,187) Financing activities: Proceeds from mortgage notes payable - - 20,555,000 Repayment of mortgage notes payable and notes payable - - (18,545,646) Deferred expenses - (8,088) (511,496) Principal payments on mortgage notes payable (305,621) (279,488) (194,307) Distributions (313,153) (104,349) - Net cash provided by (used in) financing activities (618,774) (391,925) 1,303,551 Net decrease in cash and cash equivalents (182,089) (207,279) (824,233) Cash and cash equivalents, beginning of the year 836,785 1,044,064 1,868,297 Cash and cash equivalents, end of the year $ 654,696 $ 836,785 $ 1,044,064
The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Organization Krupp Realty Fund, Ltd.-III (the "Partnership") was formed on April 23, 1982 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Partnership terminates on December 31, 2020, unless earlier terminated upon the sale of the last of the Partnership's properties or the occurrence of certain other events as set forth in the Partnership Agreement. The Partnership issued all of the General Partner Interests to The Krupp Company and The Krupp Corporation in exchange for capital contributions aggregating $1,000. Except under certain limited circumstances upon termination of the Partnership, the General Partners are not required to make any additional capital contributions. The Partnership has also issued all of the Original Limited Partner Interests to The Krupp Company in exchange for a capital contribution of $4,000. The Original Limited Partner is not required to make any additional capital contributions to the Partnership. The purchasers of the 25,000 units of Investor Limited Partner Interests ("Units"), at a price of $1,000 per Unit are the Investor Limited Partners. B. Significant Accounting Policies The Partnership uses the following accounting policies for financial reporting purposes, which may differ in certain respects from those used for federal income tax purposes (see Note F). Basis of Presentation The consolidated financial statements present the consolidated assets, liabilities and operations of the Partnership. All intercompany balances and transactions have been eliminated. Risks and Uncertainties The Partnership invests its cash primarily in deposits and money market funds with commercial banks. The Partnership has not experienced any losses to date on its invested cash. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Partnership includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. The cash investments are recorded at cost, which approximates current market values. Rental Revenues Leases require the payment of rent monthly in advance. Rental revenues are recorded on the accrual basis. Depreciation Depreciation is provided for by the use of the straight-line method over estimated useful lives as follows: Buildings and improvements 5 - 25 years Appliances, carpeting and equipment 3-15 years Impairment of Long-Lived Assets In accordance with Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", which is effective for fiscal years beginning after December 15, 1995, the Partnership has implemented policies and practices for assessing impairment of its real estate assets. The investments in properties are carried at cost less accumulated depreciation unless the General Partners believe there is a significant impairment in value, in which case a provision to write down investments in properties to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are significantly impaired. Deferred Expenses The Partnership amortizes costs incurred in connection with obtaining mortgages over the life of the related mortgage using the straight-line method. Income Taxes The Partnership is not liable for federal or state income taxes as Partnership income or loss is allocated to the Partners for income tax purposes. In the event the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and the examination results in a change in Partnership taxable income or loss, such change will be reported to the Partners. Reclassifications Certain prior year balances have been reclassified to conform with current year financial statement presentation. C. Mortgage Notes Payable Mortgage notes payable collateralized by the properties of the Partnership consist of the following at December 31:
1995 1994 Brookeville Apartments $ 8,626,055 $ 8,682,345 Dorsey's Forge Apartments and Oakland Meadows 4,745,765 4,851,414 Hannibal Grove Apartments 6,454,241 6,597,923 $19,826,061 $20,131,682
Brookeville Non-recourse first mortgage note payable in the original amount of $8,755,000 to the Department of Housing and Urban Development ("HUD"). The mortgage note requires monthly payments of $60,600 consisting of principal and interest at the rate of 7.75% per annum. In addition, the Partnership is required to pay a monthly deposit of $5,158 to an escrow account to be used for future property replacements and improvements and a mortgage insurance premium equal to .5% per annum of the outstanding principal balance. The note matures on August 1, 2028. In accordance with HUD regulations, distributions are limited to the extent of Surplus Cash, as defined. The mortgage note payable is collateralized by the property and may not be prepaid for a period of five years and, thereafter, during the next five years beginning August 1, 1998, may be prepaid subject to a declining prepayment penalty of 5% to 1%, respectively. After August 1, 2003, there is no prepayment penalty. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $8,400,000. Hannibal and Dorsey's Non-recourse mortgage notes payable for Hannibal and Dorsey's of $6,800,000 and $5,000,000, respectively, at the rate of 9.25% per annum. Monthly principal and interest payments are $62,333 for Hannibal and $45,833 for Dorsey's. The notes mature on May 3, 2000 at which time all unpaid principal, $5,653,175 (Hannibal) and $4,156,746 (Dorsey's), and any accrued interest are due. The mortgage notes payable are collateralized by the respective properties. The notes may not be prepaid prior to June 1, 1998 and thereafter, may be prepaid subject to a prepayment penalty. The prepayment penalty will be the greater of 1) the principal balance multiplied by the difference between 9.4301% and the yield rate on publicly traded U.S. Treasury Securities having the closest matching maturity date as reported in the Wall Street Journal, or 2) ten percent of the then outstanding principal. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt for Hannibal and Dorsey's is approximately $6,700,000 and $4,900,000, respectively. The annual required principal payments on the mortgage notes payable due in the five years 1996 through 2000 are $334,208, $365,482, $399,694, $437,124 and $10,020,473, respectively. During 1995, 1994 and 1993, the Partnership paid $1,719,579, $1,745,712 and $1,819,273 of interest, respectively, on its mortgage notes. D. Partners' Deficit Under the terms of the Partnership Agreement, profits and losses from operations are allocated 95% to the Investor Limited Partners, 4% to the Original Limited Partner and 1% to the General Partners until such time that the Investor Limited Partners have received a return of their total invested capital plus a 9% per annum Cumulative Return on Investment thereon and thereafter, 65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7% to the General Partners. Also, under the Partnership Agreement, cash distributions from operations are generally made on the same basis as the allocations of profits and losses described above. Net cash proceeds, as determined by the General Partners, resulting from transactions such as refinancing or sale of a property, are to be distributed as follows: 1) to the Investor Limited Partners until they have received a return of their total Invested Capital; 2) to the Investor Limited Partners until they have received an amount equal to their Cumulative Return on Investment in respect of all fiscal years of the Partnership; 3) to the Original Limited Partner and General Partners until they have received a return of their total Invested Capital; 4) to an unaffiliated brokerage firm (the "sales agent") to the extent of any subordinated Financial Consulting Fee then due, and; 5) any remaining Cash Proceeds shall be distributed 65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7% to the General Partners. Notwithstanding anything above, the General Partners shall, under all circumstances, receive at least 1% of all distributions of net cash proceeds from a capital transaction. In general, the allocation of profits and losses are calculated based on the terms of the Partnership Agreement, as described above. However, the Internal Revenue Code contains rules which govern the allocation of tax losses among partners. For 1995, the allocation of tax losses was calculated based on these rules. Under this code, tax losses are not allocated to a limited partner if a general partner bears the economic risk for that loss. Due to operating losses incurred during 1995, the General Partners undertook additional liabilities on behalf of the Partnership. As a result, the Partnership allocated additional tax losses to the General Partners. In conjunction with the tax election referred to above, the consolidated financial statements presented herein reflect the allocation of net loss in accordance with the rules of the Internal Revenue Code. As of December 31, 1995 the following cumulative partner contributions and allocations have been made since the inception of the Partnership:
Investor Original Limited Limited General Partners Partner Partners Total Capital contributions $ 25,000,000 $ 4,000 $ 1,000 $ 25,005,000 Syndication costs (3,486,600) - - (3,486,600) Cash distributions from operations (9,319,121) (392,374) (98,092) (9,809,587) Cash distributions from refinancing proceeds (5,173,000) - (52,252) (5,225,252) Net loss from operations (21,405,208) (879,355) (247,232) (22,531,795) Net income from capital transaction 9,402,667 395,901 98,976 9,897,544 Total $ (4,981,262)$(871,828) $(297,600) $ (6,150,690)
E. Related Party Transactions Commencing with the date of acquisition of the Partnership's properties, the Partnership entered into agreements under which property management fees are paid to an affiliate of the General Partners for services as management agent. Such agreements provide for management fees payable monthly at a rate of 5% of the gross receipts from the properties under management. The Partnership also reimburses affiliates of the General Partners for certain expenses incurred in connection with the operation of the Partnership and its properties including accounting, computer, insurance, travel, legal and payroll; and with the preparation and mailing of reports and other communications to the Limited Partners. Amounts accrued or paid to the General Partners or their affiliates during the years ended December 31, 1995, 1994 and 1993 were as follows:
1995 1994 1993 Management fees $315,695 $305,599 $285,015 Expense reimbursements 156,319 280,198 285,943 Charged to operations $472,014 $585,797 $570,958
Amounts accrued or paid to affiliates of the General Partners relating to refinancing and disposition activities during the years ended December 31, 1995, 1994 and 1993, were $0, $0 and $42,615, respectively. F. Federal Income Taxes For federal income tax purposes, the Partnership is depreciating certain property under the Accelerated Cost Recovery System ("ACRS") for all pre-1986 Tax Reform Act of acquisitions and additions and depreciating all additions subsequent to the act under the Modified Accelerated Cost Recovery System ("MACRS"). The reconciliation of the net loss reported in the accompanying Consolidated Statement of Operations with the net loss reported in the Partnership's 1995, 1994 and 1993 federal income tax returns follows:
1995 1994 1993 Net loss per Consoliddted Statement of Operations $(547,893) $(453,031) $(1,521,667) Add: Difference in book to tax depreciation 347,827 114,104 80,334 Net loss for federal income tax purposes $(200,066) $(338,927) $(1,441,333)
The allocation of the net loss for federal income tax purposes for the year ended December 31, 1995 is as follows:
Portfolio Passive Income Loss Total Investor Limited Partners $63,999 $(254,062) $(190,063) Original Limited Partner - - - General Partners 3,368 (13,371) (10,003) $67,367 $(267,433) $(200,066)
During the years ended December 31, 1995, 1994 and 1993 the per Unit net loss to the Investor Limited Partners for federal income tax purposes was $7.60, $12.88 and $54.77, respectively. KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995 Costs Capitalized Subsequent to Initial Costs to Partnership Acquisition Buildings Buildings and and Description Encumbrances Land Improvements Improvements Brookeville Apts. Columbus, OH $ 8,626,055 $ 623,126 $ 8,312,134 $3,200,774 Hannibal Grove Apartments Columbia, MD 6,454,241 518,519 6,883,945 3,029,630 Dorsey's Forge & Oakland Meadows Apartments Columbia, MD 4,745,765 340,956 4,521,895 1,359,074 TOTAL $19,826,061 $1,482,601 $19,717,974 $7,589,478
Gross Amounts Carried at End of Year Buildings and Accumulated Year Year of Description Land Improvements Total Depreciation Acquired Construction Brookeville Apts Columbus, OH $ 623,126 $11,512,908 $12,136,034 $ 6,511,259 1983 1975 Hannibal Grove Apartments Columbia, MD 518,519 9,913,575 10,432,094 6,264,770 1983 1970 Dorsey's Forge & Oakland Meadows Apartments Columbia, MD 340,956 5,880,969 6,221,925 3,684,521 1983 1970 TOTAL $1,482,601 $27,307,452 $28,790,053 $16,460,550
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued December 31, 1995 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1995: 1995 1994 1993 Real Estate Balance at beginning of year $27,725,950 $26,310,462 $25,440,897 Acquisition and improvements 1,064,103 1,415,488 869,565 Balance at end of year $28,790,053 $27,725,950 $26,310,462 Accumulated Depreciation 1995 1994 1993 Balance at beginning of year $14,767,489 $13,361,312 $12,025,205 Depreciation expense 1,693,061 1,406,177 1,336,107 Balance at end of year $16,460,550 $14,767,489 $13,361,312 The Partnership uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost for federal income tax purposes at December 31, 1995 is $28,793,874. EX-27 2
5 This schedule contains summary financial information extracted from Krupp Realty Fund 3 financial statement for twelve months ended December 31, 1995 and is qualified in it sentirety by references to funds financial statements. 12-MOS DEC-31-1995 DEC-31-1995 1,059,995 0 33,740 0 0 562,514 29,309,637 16,581,742 14,384,144 708,773 19,826,601 0 0 (6,150,690) 0 14,384,144 6,352,337 6,352,337 0 0 5,137,104 0 1,763,126 (547,893) 0 (547,893) 0 0 0 (547,893) 0 0 Includes apartment complexes of $28,790,053 and deferred expenses of $519,584. Includes depreciation of $16,460,550 and amortization of deferred expenses of $121,192. Represents mortgage note payable. Includes operating expeses of $2,880,208, real estate taxes of $17,945 and depreciation/amortization of $1,738,951. Represents total equity of general partners ($297,600) and limited partners ($5,853,090). Net loss allocated (27,395) to general partners (520,498) to limited parnters for the nine months ended 12/31/95. Average net loss (20.82) per unit for 25,000 units outstanding.
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