-----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, E41vBNWPa4/tpH1m0siJ8/EAEfboZI2ldrhypsq7DF6XuEktl3A2WsTpw5FgpvDr F8z5BDN6jv4BklipR5+Mtw== 0000702117-99-000001.txt : 19990402 0000702117-99-000001.hdr.sgml : 19990402 ACCESSION NUMBER: 0000702117-99-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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 SEC ACT: SEC FILE NUMBER: 000-11210 FILM NUMBER: 99581961 BUSINESS ADDRESS: STREET 1: C/O BERKSHIRE 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 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1998 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.) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 523-7722 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 Interests 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. Documents incorporated by reference: Part IV, Item 14. The exhibit index is located on pages 9-12. The total number of pages in this document is 29. PART I This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. ITEM 1. BUSINESS Krupp Realty Fund, Ltd.-III ("KRF-III") was formed on April 23, 1982 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRF-III issued all of the General Partner Interest to two General Partners, The Krupp Company, a Massachusetts limited partnership, and The Krupp Corporation, a Massachusetts corporation. KRF-III also issued all of the Original Limited Partner Interests to The Krupp Company. On June 4, 1982, KRF-III commenced an offering of up to 25,000 units of Investor Limited Partner Interests (the "Units") for $1,000 per Unit. As of September 29, 1982, KRF-III received subscriptions for all 25,000 Units and therefore, the public offering was successfully completed on that date. For details, see Note A to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. The primary business of KRF-III is to acquire, operate, and ultimately dispose of real estate. KRF-III initially acquired five multi-family apartment complexes (Druid Valley, Willow Lake, Brookeville, Dorsey's Forge/Oakland Meadows and Hannibal Grove Apartments) and an office building (Woodlake Office Park). KRF-III considers itself to be engaged in only one industry segment, investment in real estate. KRF-III sold Druid Valley and Willow Lake in 1991 and Woodlake Office Park in 1992. On July, 1, 1993, the General Partners formed Brookeville Apartments Limited Partnership ("Brookeville L.P.") as a prerequisite for the refinancing of Brookeville Apartments ("Brookeville") with the Department of Housing and Urban Development ("HUD"). At the same time, the General Partners transferred ownership of Brookeville to Brookeville L.P. The General Partner of Brookeville L.P. is the Westcop Corporation ("Westcop") and KRF-III is the Limited Partner of Brookeville L.P. Westcop has beneficially assigned its interest in Brookeville L.P. to KRF-III. KRF-III and Brookeville L.P. are collectively known as Krupp Realty Fund, Ltd.-III and Subsidiary (the "Partnership"). 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 therefrom 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, (v) 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 (vi) other circumstances over which the Partnership may have little or no control. As of December 31, 1998, the Partnership did not employ any personnel. ITEM 2. PROPERTIES As of December 31, 1998, 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. Schedule III included in Item 8 (Appendix A) of this report contains additional detailed information with respect to individual properties.
Average Occupancy For the Year Ended Year December 31, Description Acquired Total Units 1998 1997 1996 1995 1994 Brookeville Apartments Columbus, Ohio 1983 424 Units 99% 98% 95% 94% 94% Hannibal Grove Apartments Columbia, Maryland 1983 316 Units 100% 100% 94% 93% 94% Dorsey's Forge and Oakland Meadows Apartments Columbia, Maryland 1983 250 Units 100% 99% 94% 94% 95%
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 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, 1998 was approximately 1,500. 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. In 1994, however, property operations improved and distributions were reinstituted and paid in August, 1994 at a rate of $3.97 per Unit and increased to annual rates of $11.90, $15.86 and $23.79 per Unit in 1995, 1996 and 1998, respectively. Beginning with the distribution payable in February, 1999, the General Partners increased the annual distribution rate to $31.72 per Unit, as a direct result of continued successful operations at the Partnership's properties. The Partnership made the following distributions to its Partners during the years ended December 31, 1998 and 1997:
Year Ended December 31, 1998 1997 Amount Per Unit Amount Per Unit Limited Partners: Investor Limited Partners (25,000 Units outstanding) $594,752 $23.79 $396,500 $15.86 Original Limited Partner 25,045 16,697 General Partners 6,261 4,174 $626,058 $417,371
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.
1998 1997 1996 1995 1994 Total revenue $ 7,608,315 $7,280,181$ 6,628,658$ 6,352,337 $ 6,215,466 Net income (loss) 536,483 (23,224) (446,360) (547,893) (453,031) Net income (loss) allocated to: Investor Limited Partners 509,659 (22,063) (424,042) (520,498) (430,380) Per Unit 20.39 (.88) (16.96) (20.82) (17.22) Original Limited Partner 21,459 (929) - - (18,121) General Partners 5,365 (232) (22,318) (27,395) (4,530) Total assets at December 31 11,982,905 12,354,768 13,224,310 14,384,144 15,702,150 Long-term obligations at December 31 18,289,553 18,726,677 19,126,371 19,491,853 19,827,968 Distributions: Investor Limited Partners 594,752 396,500 396,500 297,495 99,132 Per Unit 23.79 15.86 15.86 11.90 3.97 Original Limited Partner 25,045 16,697 16,697 12,526 4,174 General Partners 6,261 4,174 4,174 3,132 1,043
The per Unit distributions for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 were $23.79, $15.86, $15.86, $11.90 and $3.97, respectively, none of which represented a return of capital. 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 This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management's expectations regarding the future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. 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. In 1994, distributions were reinstituted and paid in August, 1994 at a rate of $3.97 per Unit and increased to an annual rate of $11.90 and $15.86 per Unit in 1995 and 1996, respectively. Thereafter, the Partnership continued semiannual distributions at an annual rate of $15.86 until February, 1998 at which time the Partnership increased the annual distribution rate to $23.79 per Unit. Beginning with the distribution payable in February, 1999, the General Partners increased the annual distribution rate to $31.72 per Unit, as a direct result of continued successful operations at the Partnership's properties. The Partnership is planning to spend approximately $1,062,000 for capital improvements at its properties in 1999. The Partnership believes that the improvements are necessary to compete in its current markets, produce quality rental units and absorb excess market supply at the properties' respective locations and to both maintain and increase current occupancy levels. Renovations include carpeting, appliances, pavement upgrades and both interior and exterior building improvements. The Partnership expects to fund these improvements from established reserves and cash generated from property operations. Financial Accounting Standards Board Statement No. 131 ("FAS 131") "Disclosures about Segments of an Enterprise and Related Information" establishes standards for disclosing measures for profit or loss and total assets for each reportable segment. FAS 131 is effective for fiscal years beginning after December 15, 1997. Financial Accounting Standards Board Statement No. 133 ("FAS 133") "Accounting for Derivatives" is effective for fiscal years beginning after June 15, 1999. FAS 133 establishes standards related to the accounting and disclosure requirements of derivative financial instruments. Emerging Issues Task Force ruling 97-11 ("EITF 97-11") entitled "Accounting For Real Estate Property Acquisitions", is effective March 19, 1998. EITF 97-11 provides that real estate companies must expense, as incurred, the internal costs of identifying and acquiring operating property. The General Partners believe that the implementation of FAS 131 and EITF 97-11 do not have a material impact on the Partnership's financial statements, nor will the implementation of FAS 133. The General Partners of the Partnership have conducted an assessment of the Partnership's core internal and external computer information systems and have taken the further necessary steps to understand the nature and extent of the work required to make its systems Year 2000 ready in those situations in which it is required to do so. The Year 2000 readiness issue concerns the inability of computerized information systems to accurately calculate, store or use a date after 1999. This could result in a system failure or miscalculations causing disruptions of operations. The Year 2000 issue affects virtually all companies and all organizations. In this regard, the General Partners of the Partnership, along with certain affiliates, began a computer systems project in 1997 to significantly upgrade its existing hardware and software. The General Partners completed the testing and conversion of the financial accounting operating systems in February 1998. Costs incurred by the Partnership are not significant to date. There are no other systems or software that the Partnership is using at the present time. The General Partners of the Partnership are currently in the process of identifying, evaluating and remedying the Partnership's Year 2000 compliance issues with respect to its non-financial systems, such as computer controlled elevators, boilers, chillers or other miscellaneous systems. The General Partners are in the process of completing the Partnership's Year 2000 compliance initiatives at its properties. Based on their identification and assessment efforts to date, the General Partners believe that certain of the computer equipment and software the Partnership currently uses will require modification or replacement. However, the General Partners do not believe that the future efforts to achieve the Partnership's Year 2000 compliance initiatives will result in material cost to the Partnership or significantly interrupt services or operations. The General Partners are in the process of evaluating the potential adverse impact that could result from the failure of material third-party service providers (including but not limited to its banks and telecommunications providers) and significant vendors to be Year 2000 ready. No estimate can be made at this time as to the impact of the readiness of such third parties. However, if any of the third party service providers cease to conduct business due to Year 2000 related problems, the General Partners expect to be able to contract with alternate providers without experiencing any material adverse effects on the Partnership's financial condition and results of operations. The Partnership is in the process of coordinating their contingency plan with the property manager, in charge of operations. Operations 1998 compared to 1997 Net income increased in 1998 when compared to 1997, with an increase in total revenue and a decrease in total expenses. Total revenue increased in 1998 when compared to 1997, primarily due to rental rate increases implemented at all of the Partnership's properties. Total expenses decreased in 1998 when compared to 1997, with decreases in operating, general and administrative and depreciation expenses. Operating expenses decreased due to a reduction in liability and workers compensation expense at the Partnership properties, due to lower claims experience. General and administrative expenses decreased as a result of 1997 legal costs relating to the unsolicited tender offers to purchase Partnership Units. Depreciation expense decreased as fixed asset additions purchased in previously years became fully depreciated. 1997 compared to 1996 Net loss decreased in 1997 when compared to 1996, as the increase in total revenue more than offset the increase in total expenses. Rental revenue increased in 1997 when compared to 1996, with substantial increases in average occupancy rates at all the Partnership's properties. Total expenses increased slightly in 1997 as compared to 1996. Maintenance expense increased with landscaping and exterior building repairs completed at Brookeville. Real estate taxes increased due to a rise in the assessed value of Dorsey's Forge in addition to a 1995 real estate tax refund for the property received in 1996. Management fees increased as a result ofthe increases in rental revenue, as discussed above. Depreciation expense increased in conjunction with capital improvement expenditures. 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 (52)President and Co-Chairman of the Board George Krupp (54)Co-Chairman of the Board Wayne H. Zarozny (41)Treasurer Douglas Krupp co-founded and serves as Co- Chairman and Chief Executive Officer of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisition, mortgage banking, investment sponsorship, venture capital investing and financial management. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969 and he has served as the Chief Executive Officer since 1992. Mr. Krupp serves as Chairman of the Board and Director of Berkshire Realty Company, Inc. (NYSE-BRI) and he is also a member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate of Bryant College where he received an honorary Doctor of Science in Business Administration in 1989 and was elected trustee in 1990. George Krupp is the Co-Founder and Co- Chairman of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisition, mortgage banking, investment sponsorship, venture capital investing and financial management. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish High School in Waltham, Massachusetts since September of 1997. Mr. Krupp attended the University of Pennsylvania and Harvard University and holds a Master's Degree in History from Brown University. Wayne H. Zarozny is Vice President of The Berkshire Group. Mr. Zarozny has held several positions within The Berkshire Group since joining the company in 1986 and is currently responsible for asset management, accounting, financial reporting and treasury activities. Prior to joining The Berkshire Group, he was an audit supervisor for Pannell Kerr Forster International and on the audit staff of Deloitte, Haskins and Sells in Boston. He received a B.S. degree from Bryant College, a Master's degree in Business Administration from Clark University 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, 1998, beneficial owners of record owning more than 5% of the Partnership's 25,000 Units of Investor Limited Partner Interests outstanding are as follows: Title Name and Address Amount and Nature Percent of of of of Class Beneficial Owner Beneficial Ownership Class Investor Equity Resource Limited Fund XVI LP Partner 14 Story Street [S] [S] [C] Units Cambridge, MA 02138 916 Units 3.7% Investor Equity Resource Limited Fund XIX LP Partner 14 Story Street Units Cambridge, MA 02138 413 Units 1.6% Investor Equity Resource Limited Cambridge Fund LP Partner 14 Story Street Units Cambridge, MA 02138 95 Units 0.4% Investor Equity Resource Limited General Fund LP Partner 14 Story Street Units Cambridge, MA 02138 40 Units 0.2% Investor Equity Resource Limited Brattle Fund LP Partner 14 Story Street Units Cambridge, MA 02138 30 Units 0.1% Investor Equity Resource Limited Bridge Fund Partner 14 Story Street Units Cambridge, MA 02138 30 Units 0.1% Total 1,524 Units 6.1% [/TABLE] As of December 31, 1998, 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. 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 of 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 of this Report. All other schedules are omitted as they are not applicable, not required or the information is provided in the Consolidated Financial Statements or the Notes thereto. (b) Exhibits: Number and Description Under Regulation S-K The following reflects all applicable Exhibits required under Item 601 of 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) Property Management Agreement dated October 1, 1991 between Brookeville Apartments Limited Partnership, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0- 11210)].* (10.2) 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)].* (10.3) 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)].* (10.4) 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)].* (10.5) 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)].* (10.6) 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 and Hannibal Grove Apartments (10.7)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)].* (10.8) 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)].* (10.9) 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)].* (10.10) 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)].* (10.11) 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)].* (10.12) Property Management Agreement dated, December 19, 1986, between Krupp Realty Fund, Ltd.-III (as "Owner") and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc., 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)].* (10.13) Management Agreement dated December 19, 1986 between Krupp Realty Fund, Ltd.-III (as "Owner") and BRI OP Limited Partnership, formerly known as Berkshire Property Management , a subsidiary of Berkshire Realty Company, Inc., relating to Oakland Meadows [Exhibit 10.16 to Registrant's Annual Report on Form 10-K dated December 31, 1986 (File No. 0- 11210)].* (10.14) 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)].* (10.15) 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)].* (10.16) 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)].* (10.17) 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)].* (10.18) Management Agreement dated December 19, 1986 between Krupp Realty Fund, Ltd.-III (as "Owner") and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc., relating to Hannibal Grove [Exhibit 10.21 to Registrant's Annual Report on Form 10-K dated December 31, 1986 (File No. 0- 11210)].* (10.19) 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)].* (10.20) 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. (c) Reports on Form 8-K During the quarter ended December 31, 1998, 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 30th day of March, 1999. KRUPP REALTY FUND, LTD.-III By: The Krupp Corporation, a General Partner By: /s/ Douglas Krupp Douglas Krupp, President, 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 30th day of March, 1999. Signatures Titles /s/ Douglas Krupp President, Co-Chairman (Principal Executive Douglas Krupp Officer) and Director of The Krupp Corporation, a General Partner. /s/ George Krupp Co-Chairman (Principal Executive Officer) and George Krupp Director of The Krupp Corporation, a General Partner. /s/ Wayne H. Zarozny Treasurer of the Krupp Corporation, a General Wayne H. Zarozny 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, 1998 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, 1998 and December 31, 1997 F-4 Consolidated Statements of Operations For the Years Ended December 31, 1998, 1997 and 1996 F-5 Consolidated Statements of Changes in Partners' Deficit For the Years Ended December 31, 1998, 1997 and 1996 F-6 Consolidated Statements of Cash Flows For the Years Ended December 31, 1998, 1997 and 1996 F-7 Notes to Consolidated Financial StatementsF-8 - F-14 Schedule III - Real Estate and Accumulated Depreciation F-15 - F-16 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 and Subsidiary: In our opinion, the consolidated financial statements and the financial statement schedule listed in the index on page F-2 present fairly, in all material respects, the financial position of Krupp Realty Fund, Ltd.- III and its Subsidiary (the "Partnership") at December 31, 1998 and December 31, 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Boston, Massachusetts /s/ PricewaterhouseCoopers LLP February 10, 1999 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997 ASSETS
1998 1997 Multi-family apartment complexes, net of accumulated depreciation of $21,977,268 and $20,216,642, respectively (Note D) $ 9,784,836$ 10,519,769 Cash and cash equivalents (Note C) 932,065 552,221 Replacement reserve escrow (Note D) 160,954 177,778 Cash restricted for tenant security deposits 229,416 202,691 Prepaid expenses and other assets 614,911 595,696 Deferred expenses, net of accumulated amortization of $258,861 and $212,971, respectively 260,723 306,613 Total assets $ 11,982,905$ 12,354,768 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Note D) $ 18,726,677$ 19,126,371 Accrued expenses and other liabilities (Note E) 601,319 683,413 Due to affiliates (Note G) 199,500 - Total liabilities 19,527,496 19,809,784 Commitment (Note F) Partners' deficit (Note F): Investor Limited Partners (25,000 Units outstanding) (6,305,460)(6,220,367) Original Limited Partner (909,737) (906,151) General Partners (329,394) (328,498) Total Partners' deficit (7,544,591)(7,455,016) Total liabilities and Partners' deficit $ 11,982,905$ 12,354,768
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, 1998, 1997 and 1996
1998 1997 1996 Revenue: Rental $7,541,280$7,224,085 $6,568,309 Other income 67,035 56,096 60,349 Total revenue 7,608,315 7,280,181 6,628,658 Expenses: Operating (Note G) 2,004,219 2,041,820 1,991,923 Maintenance 591,235 578,869 556,909 Real estate taxes 559,440 539,978 504,867 General and administrative (Note G)66,012 101,687 93,995 Management fees (Note G) 376,570 357,766 326,363 Depreciation and amortization 1,806,516 1,980,892 1,866,979 Interest (Note D) 1,667,840 1,702,393 1,733,982 Total expenses 7,071,832 7,303,405 7,075,018 Net income (loss) (Note H) $ 536,483$(23,224) $(446,360) Allocation of net income (loss) (Note F): Investor Limited Partners (25,000 Units outstanding) $ 509,659$(22,063) $(424,042) Investor Limited Partners Per Unit $ 20.39 $ (.88) $ (16.96) Original Limited Partner $ 21,459$ (929) $ - General Partners $ 5,365$ (232) $ (22,318)
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, 1998, 1997 and 1996
Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1995$(4,981,262) $(871,828)$(297,600)$(6,150,690) Net loss (424,042) - (22,318) (446,360) Distributions (396,500) (16,697) (4,174) (417,371) Balance at December 31, 1996 (5,801,804)(888,525) (324,092) (7,014,421) Net loss (22,063) (929) (232) (23,224) Distributions (396,500)(16,697) (4,174) (417,371) Balance at December 31, 1997 (6,220,367) (906,151) (328,498) (7,455,016) Net income (Note F) 509,659 21,459 5,365 536,483 Distributions (Note F) (594,752) (25,045) (6,261) (626,058) Balance at December 31, 1998$(6,305,460)$(909,737)$(329,394) $(7,544,591)
The per Unit distribution for the years ended December 31, 1998, 1997 and 1996 were $23.79, $15.86 and $15.86, respectively, none of which represented a return of capital. 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, 1998, 1997 and 1996
1998 1997 1996 Cash flows from operating activities: Net income (loss) $536,483 $(23,224)$(446,360) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,806,516 1,980,892 1,866,979 Interest earned on replacement reserve escrow (7,392) (4,889) - Changes in assets and liabilities: Decrease (increase) in cash restricted for tenant security deposits (26,725) (18,933) 19,192 Decrease (increase) in prepaid expenses and other assets (19,215) 7,394 (6,836) Increase (decrease) in due to affiliates 199,500 - (10,790) Increase (decrease) in accrued expenses and other liabilities (82,094) (54,465) 39,895 Net cash provided by operating activities 2,407,073 1,886,775 1,462,080 Cash flows from investing activities: Additions to fixed assets (1,025,693)(949,541) (996,817) Increase (decrease) in accrued expenses and other liabilities related to fixed asset additions - (9,000) 9,000 Withdrawals from replacement reserve escrow 86,111 - 153,250 Deposits to replacement reserve escrow(61,895) (61,895) (61,895) Net cash used in investing activities (1,001,477)(1,020,436) (896,462) Cash flows from financing activities: Principal payments on mortgage notes payable (399,694)(365,482) (334,208) Distributions (626,058)(417,371) (417,371) Net cash used in financing activities (1,025,752)(782,853) (751,579) Net increase (decrease) in cash and cash equivalents 379,844 83,486 (185,961) Cash and cash equivalents, beginning of the year 552,221 468,735 654,696 Cash and cash equivalents, end of the year$932,065$552,221$ 468,735
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 ("KRF-III") was formed on April 23, 1982 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRF-III terminates on December 31, 2020, unless earlier terminated upon the sale of the last of KRF-III's properties or the occurrence of certain other events as set forth in the Partnership Agreement. KRF-III issued all of the General Partner Interests to The Krupp Company, a Massachusetts limited partnership, and The Krupp Corporation, a Massachusetts corporation, in exchange for capital contributions aggregating $1,000. Except under certain limited circumstances upon termination of KRF-III, the General Partners are not required to make any additional capital contributions. KRF-III 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 KRF-III. On June 4, 1982, KRF-III commenced an offering of up to 25,000 units of Investor Limited Partner Interests (the "Units") for $1,000 per Unit. As of September 29, 1982, KRF-III received subscriptions for all 25,000 Units and therefore, the public offering was successfully completed on that date. In 1993, the General Partners formed Brookeville Apartments Limited Partnership ("Brookeville L.P.") as a prerequisite for the refinancing of Brookeville Apartments ("Brookeville") with the Department of Housing and Urban Development ("HUD"). At the same time, the General Partners transferred ownership of Brookeville to Brookeville L.P. The General Partner of Brookeville L.P. is the Westcop Corporation ("Westcop") and KRF- III is the Limited Partner in Brookeville L.P. Westcop has beneficially assigned its interest in Brookeville L.P. to KRF- III. KRF-III and Brookeville L.P. are collectively known as Krupp Realty Fund, Ltd.-III and Subsidiary (the "Partnership"). 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 H). 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, contingent assets and liabilities and revenues and expenses during the reporting period. Actual results could differ from those estimates. Continued KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B.Significant Accounting Policies, Continued Cash and 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 to 25 years Appliances, carpeting and equipment 3 to 8 years Impairment of Long-Lived Assets Real estate assets and equipment are stated at depreciated cost. Pursuant to Statement of Financial Accounting Standards Opinion No. 121 "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of", impairment losses are recorded on long-lived assets used in operations on a property by property basis, when events and circumstances indicate that the assets might be impaired and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amount of those assets. Upon determination that an impairment has occurred, those assets shall be reduced to fair value. Deferred Expenses Costs of obtaining and recording mortgages are amortized over the life of the related mortgage notes using the straight-line method which approximates the effective interest 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. Continued KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B. Significant Accounting Policies, Continued Descriptive Information About Reportable Segments During the fourth quarter of 1998, the Partnership adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information ("Statement No. 131"). Statement No. 131 superseded FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise". Statement No. 131 establishes standards for the way that public business enterprises report information regarding reportable operating segments. The adoption of Statement No. 131 did not affect the results of operations or financial position of the Partnership. The Partnership operates and develops apartment communities which generate rental and other income through the leasing of apartment units. The General Partners separately evaluate the performance of each of the Partnership's apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single dominant apartment communities segment. All revenues are from external customers and no revenues are generated from transactions with other segments. There are no tenants which contributed 10% or more of the Partnership's total revenue during 1998, 1997 or 1996. Reclassifications Certain prior year balances have been reclassified to conform with current year consolidated financial statement presentation. C.Cash and Cash Equivalents Cash and cash equivalents consisted of the following:
December 31, 1998 1997 Cash and money market accounts $ 682,656 $ 402,783 Commercial paper 249,409 149,438 $932,065 $ 552,221
Continued KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued D. Mortgage Notes Payable The properties owned by the Partnership are pledged as collateral for the non-recourse mortgage notes outstanding at December 31, 1998 and 1997. Mortgage notes payable consisted of the following:
Annual Principal Interest Property 1998 1997 Rate Maturity Date Brookeville Apartments $ 8,428,579 $ 8,499,549 7.75% August 1, 2028 Dorsey's Forge Apartments and Oakland Meadows Apartments 4,363,601 4,502,891 9.25% May 3, 2000 Hannibal Grove Apartments 5,934,497 6,123,931 9.25% May 3, 2000 Total $18,726,677 $19,126,371
Brookeville Apartments The property is subject to a non-recourse mortgage note in the original amount of $8,755,000, payable 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 fund a monthly deposit of $5,158 to an escrow account to be used for future property replacements and improvements and a mortgage insurance premium deposit 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 by the Regulatory Agreement. The mortgage note payable is collateralized by the property and may be prepaid during the five years beginning August 1, 1998, subject to an annual 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 $9,446,000 at December 31, 1998. At December 31, 1997, the fair market value could not be determined since the mortgage note could not be prepaid. Hannibal Grove Apartments ("Hannibal") and Dorsey's Forge and Oakland Meadows Apartments ("Dorsey's") The properties are subject to non-recourse mortgage notes for Hannibal and Dorsey's in the original amounts of $6,800,000 and $5,000,000, respectively, payable at a 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 and 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) one percent of the then outstanding principal. Continued KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued D.Mortgage Notes Payable, Continued 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 $6,118,000 and $4,449,000, respectively at December 31, 1998. At December 31, 1997, the fair market value could not be determined since the mortgage notes could not be prepaid. Due to restrictions on transfers and prepayment, the Partnership may be unable to refinance certain mortgage notes payable at such calculated fair value. The aggregate scheduled principal amounts of long-term borrowings due during the five years ending December 31, 2003 are $437,124, $10,020,473, $89,480, $96,667 and $104,430. During 1998, 1997 and 1996 the Partnership paid $1,625,506, $1,659,719 and $1,690,992 of interest, respectively, on its mortgage notes. E. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consisted of the following at December 31, 1998 and 1997:
1998 1997 Accounts payable $ 1,016 $ - Accrued real estate taxes 161,258 162,030 Other liabilities 191,934 288,703 Tenant security deposits 219,272 186,065 Prepaid rent 27,839 46,615 $601,319 $683,413
F.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. Continued KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued F.Partners' Deficit, Continued Per the Partnership Agreement, profits from capital transactions are to be allocated to the extent of cash distributions described above, first to the Investor Limited Partners until they have received a return of their total Invested Capital. Losses from capital transactions are to be allocated to the extent of cash distributions described above, first to the Investor Limited Partners until they have received a return of their total Invested Capital plus their Cumulative Return on Investment. Thereafter, profits and losses from capital transactions are to be allocated in accordance with the Partnership Agreement. Notwithstanding anything above, the General Partners shall be allocated, under all circumstances, at least 1% of all profits and losses from capital transactions. For income tax purposes, the allocation of Partnership items is determined according to the Partnership Agreement, to the extent that each allocation has "substantial economic effect" pursuant to the Internal Revenue Code, Section 704. In the event that an allocation does not meet these statutory requirements, Partnership items will be reallocated according to these provisions. For 1996, reallocation was necessary. The consolidated financial statements presented herein reflect the allocation of net loss in accordance with the rules of the Internal Revenue Code for the year ended December 31, 1996. As of December 31, 1998, 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 (10,706,873)(450,813) (112,701) (11,270,387) Cash distributions from refinancing proceeds(5,173,000) - (52,252) (5,225,252) Net loss from operations (21,341,654)(858,825) (264,417) (22,464,896) Net income from capital transaction 9,402,667 395,901 98,976 9,897,544 Balance at December 31, 1998$ (6,305,460)$(909,737)$(329,394)$ (7,544,591)
G.Related Party Transactions The Partnership pays property management fees to an affiliate of the General Partners for management services. Pursuant to the management agreements, management fees are 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 administrative expenses. Continued KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued G. Related Party Transactions, Continued Amounts paid to the General Partners' affiliates during the years ended December 31, 1998, 1997 and 1996 were as follows:
1998 1997 1996 Property management fees $ 376,570$ 357,766 $ 326,363 Expense reimbursements 163,891 179,032 173,132 Charged to operations $ 540,461$ 536,798 $ 499,495
Due to affiliates consisted of expense reimbursements of $199,500 at December 31, 1998. H.Federal Income Taxes For federal income tax purposes, the Partnership is depreciating property under the Accelerated Cost Recovery System ("ACRS") and the Modified Accelerated Cost Recovery System ("MACRS"), depending on which is applicable. The reconciliation of the net income (loss) reported in the accompanying Consolidated Statement of Operations with the net loss reported in the Partnership's 1998, 1997 and 1996 federal income tax returns is as follows: 1998 1997 1996 Net income (loss) per Consolidated [S] [C] [C] [C] Statement of Operations $ 536,483 $(23,224) $(446,360) Difference in book to tax depreciation and amortization 1,164,574 557,885 221,435 Net income (loss) for federal income tax purposes $1,701,057 $534,661 $(224,925) [/TABLE] The allocation of the net income for federal income tax purposes for the year ended December 31, 1998 is as follows:
Portfolio Passive Income Income Total Investor Limited Partners $ 63,141 $1,552,863 $1,616,004 Original Limited Partner 2,658 65,384 68,042 General Partners 665 16,346 17,011 $ 66,464 $1,634,593 $1,701,057
During the years ended December 31, 1998, 1997 and 1996 the per Unit net income (loss) to the Investor Limited Partners for federal income tax purposes was $64.64, $21.17 and $(8.55), respectively. The basis of the Partnership's assets for financial reporting purposes exceeds its tax basis by approximately $2,288,000 and $3,451,000 at December 31, 1998 and 1997, respectively. The tax and book basis of the Partnership's liabilities are the same. KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998 Costs Capitalized Subsequent to Initial Costs to Partnership Acquisition Buildings Buildings and and Depreciable Description Encumbrances Land Improvements Improvements Life
Brookeville Apartments Columbus, OH $8,428,579 $623,126 $8,312,134 $4,158,128 3 to 25 years Hannibal Grove Apartments Columbia, MD 5,934,497 518,519 6,883,945 4,198,244 3 to 25 years Dorsey's Forge & Oakland Meadows Apartments Columbia, MD 4,363,601 340,956 4,521,895 2,205,1573 to 25 years Total $ 18,726,677$ 1,482,601$ 19,717,974$ 10,561,529
Gross Amounts Carried at End of Year Buildings Year and Accumulated Year Construction Description LandImprovements Total Depreciation Acquired Completed
Brookeville Apartments Columbus, OH $ 623,126 $ 12,470,262 $13,093,388 $9,015,376 1983 1975 Hannibal Grove Apartments Columbia, MD 518,519 11,082,189 11,600,708 8,213,191 1983 1970 Dorsey's Forge & Oakland Meadows Apartments Columbia, MD 340,956 6,727,052 7,068,008 4,748,701 1983 1970 Total $1,482,601 $ 30,279,503$31,762,104$21,977,268
Continued KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued December 31, 1998 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1998:
1998 1997 1996 Real Estate Balance at beginning of year$30,736,411 $29,786,870 $28,790,053 Acquisition and improvements1,025,693 949,541 996,817 Balance at end of year $31,762,104 $30,736,411$29,786,870 Accumulated Depreciation 1998 1997 1996 Balance at beginning of year$20,216,642 $18,281,640 $16,460,550 Depreciation expense 1,760,626 1,935,002 1,821,090 Balance at end of year $21,977,268 $20,216,642 18,281,640
Note: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, 1998 is $31,775,676, and the aggregate accumulated depreciation for federal income tax purposes is $24,267,669. EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from Krupp Realty Fund III Financial Statements for the tweleve months ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1998 DEC-31-1998 932,065 0 37,660 0 0 967,621 32,281,688 (22,236,129) 11,982,905 800,819 18,726,677 0 0 (7,544,591) 0 11,982,905 0 7,608,315 0 0 5,403,992 0 1,667,840 0 0 0 0 0 0 536,483 0 0 Includes all receivables grouped in "Prepaid Expenses and Other Assets" on the Balance Sheet. Inclues apartment complexes of $31,762,104 and deferred expenses of $519,584. Includes depreciaton of $21,977,268 and amortization of deferred expenses of $258,861. Represents mortgage note payable Represents total deficit of the General Partners ($329,394) and the Limited Partners ($7,215,197). Includes all revenue of the Partnership. Includes operating expenses of $3,038,036, real estate taxes of $559,440 and depreciation and amortization of $1,086,516. Net Income allocated $5,365 to General Partners and $531,118 to Limited Partners. Net Income of $20.39 per unit on 25,000 units outstanding.
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