-----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, AXk/59xlFBR9EpR/pBj26HytE5XJKWnYzRVr8SNQ0owzeUupT1aZpe6rmT+ijgS7 DptPwPqycnk/KcHFg16udg== 0000702117-00-000002.txt : 20000331 0000702117-00-000002.hdr.sgml : 20000331 ACCESSION NUMBER: 0000702117-00-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: 585266 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 KRUPP REALTY FUND LTD III UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X 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, 1999 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 Identification No.) incorporation or organization) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (617) 523-7722 (Registrant's telephone number, including area code) 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 11-14. The total number of pages in this document is 32. 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, 1999, the Partnership did not employ any personnel. Recent Development On January 28, 2000 KRF3 Acquisition Company, L.L.C. ("KR3"), KRF Company, L.L.C., and The Krupp Family Limited Partnership - 94, affiliates of the General Partner, filed a Transaction Statement on Schedule 13E-3 with the Securities and Exchange Commission (the "SEC") with respect to KR3's proposal to merge KRF-III with and into KR3. Under the terms of the proposed merger, each unitholder of KRF-III other than KR3 and certain unitholders that have agreed to reinvest their units in KR3 will receive $600 in cash for each outstanding investor limited partnership interest owned by it. KR3 was initially organized for the purpose of effecting a tender offer for the units of the Partnership, pursuant to which it acquired 10,304 units, or approximately 41.2% of the outstanding units, for a price of $550 per unit, in June 1999. KR3 later purchased a total of 1,637.5 units, for a price of $600 per unit, from various investment management professionals, increasing its ownership to approximately 47.9% of the outstanding units. The General Partners of the Partnership have filed definitive proxy materials with the SEC with respect to the proposed merger, which is subject to certain conditions, including approval by unitholders of the merger and related amendments to KRF-III's partnership agreement. On March 24, 2000, the proxy statement was mailed to the unitholders of KRF-III. KRF-III estimates that the merger, if approved by unitholders, will be completed in the second quarter of 2000. ITEM 2. PROPERTIES As of December 31, 1999, 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 December 31, Year ---------------------------- Description Acquired Total Units 1999 1998 1997 1996 1995 ----------- -------- ----------- ---- ---- ---- ---- ---- Brookeville Apartments Columbus, Ohio 1983 424 Units 96% 99% 98% 95% 94% Hannibal Grove Apartments Columbia, Maryland 1983 316 Units 97% 100% 100% 94% 93% Dorsey's Forge and Oakland Meadows Apartments Columbia, Maryland 1983 250 Units 97% 100% 99% 94% 94%
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, 1999 was approximately 585. 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, 1999 and 1998:
Year Ended December 31, --------------------------------------- 1999 1998 ------------------ ------------------ Amount Per Unit Amount Per Unit -------- -------- -------- -------- Limited Partners: Investor Limited Partners (25,000 Units outstanding) $793,086 $31.72 $594,752 $23.79 Original Limited Partner 33,391 25,045 General Partners 8,348 6,261 -------- -------- $834,825 $626,058 ======== ========
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.
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Total revenue $ 7,848,536 $ 7,608,315 $ 7,280,181 $ 6,628,658 $ 6,352,337 Net income (loss) 536,168 536,483 (23,224) (446,360) (547,893) Net income (loss) allocated to: Investor Limited Partners 509,360 509,659 (22,063) (424,042) (520,498) Per Unit 20.37 20.39 (.88) (16.96) (20.82) Original Limited Partner 21,447 21,459 (929) - - General Partners 5,361 5,365 (232) (22,318) (27,395) Total assets at December 31 11,216,742 11,982,905 12,354,768 13,224,310 14,384,144 Long-term obligations at December 31 8,269,080 18,289,553 18,726,677 19,126,371 19,491,853 Distributions: Investor Limited Partners 793,086 594,752 396,500 396,500 297,495 Per Unit 31.72 23.79 15.86 15.86 11.90 Original Limited Partner 33,391 25,045 16,697 16,697 12,526 General Partners 8,348 6,261 4,174 4,174 3,132
The per Unit distributions for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 were $31.72, $23.79, $15.86, $15.86, and $11.90, 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 paid 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 $1,900,000 for capital improvements at its properties in 2000. 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 maintain 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 to the extent available. In the event cash flow and reserves are not adequate to fund capital improvements the general partner may suspend distributions and/or increase borrowings. Financial Accounting Standards Board Statement No.137. ("FAS137") "Accounting for Derivative Instruments and Hedging Activities - deferral of the Effective Date of the Statement of Financial Accounting Standards No. 133." FAS 137 amended FAS 133 by deferring the effective date to fiscal quarters of all fiscal years beginning after June 15, 2000. The General Partners believe that the implementation of FAS 137 will not have a material impact on the Partnership's financial statements. Year 2000 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 necessary steps to understand the nature and extent of the work required to make its systems Year 2000 ready. They have evaluated Year 2000 compliance issues with respect to its non-financial systems and have received assurances from third-party service providers (including but not limited to its telecommunications providers and banks) with regard to their Year 2000 readiness. The General Partners completed the testing and conversion of the Partnerships financial accounting operating systems in February 1998. As a result, the General Partners have generated operating efficiencies and believe their financial accounting operating systems are Year 2000 ready. The General Partners incurred hardware costs as well as consulting and other expenses related to the infrastructure and facilities enhancements necessary to complete the upgrade and prepare for the Year 2000. There are no other significant internal systems or software that the Partnership is using at the present time. To date, the Partnership has not incurred, and does not expect to incur, any significant cost associated with being Year 2000 compliant. To date, the Partnership has not had, and does not expect to have, any Year 2000 related problems. Operations 1999 compared to 1998 Net income remained stable in 1999 when compared to 1998, with increases in total revenue offset by increases in total expenses. Total revenue increased in 1999 when compared to 1998, primarily due to rental rate increases implemented at all of the Partnership's properties. Total expenses increased in 1999 when compared to 1998, with increases in operating, maintenance and general and administrative expenses. These increases were partly offset by decreases in depreciation and interest expense. Operating expense increased in 1999 as a result of an increase in workmen's compensation expense over 1998 due to a favorable adjustment in 1998 as a result of favorable claims experience as well as increases in payroll and utility expenses. Maintenance increased due to increases in snow removal expenses at all properties during the first quarter, increases in landscaping expenses at Dorsey's Forge and Brookeville and increases in plumbing expenses at Dorsey's Forge and Hannibal Grove. General and administrative expenses increased as a result of increases in legal costs primarily associated with the Partnership's response to the unsolicited tender offer made by Madison Liquidity Investors 104, LLC to purchase Partnership units. Depreciation expense decreased as fixed assets previously purchased became fully depreciated. Interest expense decreased with the decrease in mortgage principal balances. 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. 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 (53) President and Co-Chairman of the Board George Krupp (55) 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 acquisitions, property management, mortgage banking, property management, 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 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 acquisitions, property management, 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 February 16, 2000, beneficial owners of record owning more than 5% of the Partnership's 25,000 outstanding Units were as follows:
Title Name and Address Amount and Nature Percent of of of of Class Beneficial Owner Beneficial Ownership Class - -------- ------------------------- -------------------- ------- Investor Equity Resource Fund Limited XIX Limited Partnership Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(2) 6.1% Investor Equity Resource Fund Limited XVI Limited Partnership Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(3) 6.1% Investor Equity Resource Cambridge Limited Fund Limited Partnership Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(4) 6.1% Investor Equity Resource General Limited Fund Limited Partnership Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(5) 6.1% Investor Equity Resource Brattle Limited Fund Limited Partnership Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(6) 6.1% Investor Equity Resources Bridge Limited Fund Limited Partnership Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(7) 6.1% Investor Equity Resources Group, Limited Incorporated Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(8) 6.1% Investor Eggert Dagbjartsson Limited Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(9) 6.1% Investor Mark S. Thompson Limited Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(10) 6.1% Investor James E. Brooks Limited Partner 14 Story Street Units Cambridge, MA 02138 1,524 Units(1)(11) 6.1% Investor KRF3 Acquisition Company, L.L.C. Limited Partner One Beacon Street, Suite 1500 Units Boston, MA 02108 11,475.2 Units(1)(12) 45.9% Investor KRF Company, L.L.C. Limited Partner One Beacon Street, Suite 1500 Units Boston, MA 02108 11,475.2 Units(1)(13) 45.9% (1)According to the statement on Schedule 13D originally filed on September 17, 1996 by Equity Resources Group, Incorporated ("Equity Resources"), Equity Resources Fund XVI Limited Partnership, Equity Resources Fund XIX Limited Partnership, Equity Resource General Fund Limited Partnership, Equity Resource Cambridge Fund Limited Partnership, Equity Resource Bridge Fund Limited Partnership, Equity Resource Brattle Fund Limited Partnership (collectively, "Equity"), James E. Brooks, Mark S. Thompson, and Eggert Dagbjartsson, as amended by Amendment No. 1 thereto dated April 14, 1997, Amendment No. 2 thereto, dated January 6, 2000 - Amendment No. 3 thereto dated January 28, 2000 and Amendment No. 4 thereto, dated February 16, 2000, (as amended, the "Equity/Krupp Schedule 13D"), each of Equity Resources, Equity, Mark S. Thompson, Eggert Dagbjartsson, KRF Company, L.L.C. ("KRF"), KRF3 Acquisition Company, L.L.C. ("KRF3"), The Krupp Family Limited Partnership - 94 ("Krupp- 94"), Douglas Krupp and George Krupp (Messrs. Krupp, together with KRF, KRF3 and Krupp-94, the "KRF Affiliates") may be deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act by virtue of the execution of an Investment Agreement, dated as of January 6, 2000, by and among Equity, KRF and KRF3 (the "Investment Agreement") and a Voting Agreement dated as of January 6, 2000 by and among Equity, KRF and KRF3 (the "Voting Agreement"). According to the Equity/Krupp Schedule 13D, Equity, KRF and KRF3 entered into the Investment Agreement and the Voting Agreement for the purpose of facilitating a merger proposal (the "Proposal") made by KRF3 to acquire outstanding units for cash. According to the Equity/Krupp Schedule 13D, completion of the merger is subject to the satisfaction of a number of conditions, including the approval of the merger agreement and necessary amendments to the Amended Agreement of Limited Partnership, dated as of June 1, 1982, of the Partnership (the "Amendments") by the Holders of a majority of Units of the Partnership. According to the Equity/Krupp Schedule 13D, under the terms of the Voting Agreement, Equity has agreed that at any meeting of the partners of the Partnership, however called, and in any action by consent of the limited partners of the Partnership, Equity will vote (or cause to be voted) the units held of record or beneficially owned by it in favor of the Proposal and the Amendments. According to the Equity/Krupp Schedule 13D, the Voting Agreement shall terminate on August 1, 2000 unless extended by agreement of each of the parties. (2) According to the Equity/Krupp Schedule 13D, Equity Resource Fund XIX Limited Partnership has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, Equity Resource Fund XIX Limited Partnership has sole voting and dispositive power with respect to 413 units of the Partnership. (3) According to the Equity/Krupp Schedule 13D, Equity Resource Fund XVI Limited Partnership has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, Equity Resource Fund XVI Limited Partnership has sole voting and dispositive power with respect to 916 units of the Partnership. (4) According to the Equity/Krupp Schedule 13D, Equity Resource Cambridge Fund Limited Partnership has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, Equity Resource Cambridge Fund Limited Partnership has sole voting and dispositive power with respect to 95 units of the Partnership. (5) According to the Equity/Krupp Schedule 13D, Equity Resource General Fund Limited Partnership has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, Equity Resource General Fund Limited Partnership has sole voting and dispositive power with respect to 40 units of the Partnership. (6) According to the Equity/Krupp Schedule 13D, Equity Resource Brattle Fund Limited Partnership has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, Equity Resource General Fund Limited Partnership has sole voting and dispositive power with respect to 30 units of the Partnership. (7) According to the Equity/Krupp Schedule 13D, Equity Resources Bridge Fund Limited Partnership has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, Equity Resource General Fund Limited Partnership has sole voting and dispositive power with respect to 30 units of the Partnership. (8) According to the Equity/Krupp Schedule 13D, Equity Resources Group, Incorporated has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, Equity Resources Group, Incorporated has shared voting and dispositive power with respect to 1,494 units of the Partnership. (9) According to the Equity/Krupp Schedule 13D, Eggert Dagbjartsson has shared voting and dispositive power over 1,524 units of the Partnership. (10) According to the Equity/Krupp Schedule 13D, Mark S. Thompson has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, Mark S. Thompson has shared voting and dispositive power with respect to 165 units of the Partnership. (11) According to the Equity/Krupp Schedule 13D, James E. Brooks has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. Also, according to the Equity/Krupp Schedule 13D, James E. Brooks has shared voting and dispositive power with respect to 1,494 units of the Partnership. (12) According to the Equity/Krupp Schedule 13D, KRF3 has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. According to the Equity/Krupp Schedule 13D, KRF3 has sole voting and dispositive power with respect to 11,991.5 units of the Partnership. As stated in the Equity/Krupp Schedule 13D, KRF3 may be deemed to have acquired beneficial ownership of the 1,524 units reported in the Equity/Krupp Schedule 13D pursuant to the terms of the Voting Agreement and the Investment Agreement. (13) According to the Equity/Krupp Schedule 13D, in its capacity as the sole member of KRF3, KRF has shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger. According to the Equity/Krupp Schedule 13D, KRF has sole voting and dispositive power with respect to 11,991.5 units of the Partnership. As stated in the Equity/Krupp Schedule 13D, KRF may be deemed to have acquired beneficial ownership of the 1,524 units reported in the Equity/Krupp Schedule 13D pursuant to the terms of the Voting Agreement and the Investment Agreement. As stated in the Equity/Krupp Schedule 13D, Krupp-94 is the sole member of KRF, and therefore may also be deemed to (I) have shared voting power over 1,524 units of the Partnership solely with respect to the proposed merger and (ii) sole voting and dispositive power with respect to 11,991.5 units of the Partnership. As stated in the Equity/Krupp Schedule 13D, Douglas Krupp and George Krupp are the general partners of Krupp-94 and in such capacities may also be deemed to (I) share voting and dispositive power over 13,516.5 units of the Partnership solely with respect to the proposed merger and (ii) share voting and dispositive power over 11,992.5 units of the Partnership with respect to all matters other than the proposed merger.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. Please see "Business - Recent Developments" above and Note G to the Consolidated Financial Statements. 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 (AppendixA) 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, 1999, 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, 2000. 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, 2000. 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 (Principal Financial and Accounting Wayne H. Zarozny Officer) 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, 1999 F-1 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, 1999 and December 31, 1998 F-4 Consolidated Statements of Operations For the Years Ended December 31, 1999, 1998 and 1997 F-5 Consolidated Statements of Changes in Partners' Deficit For the Years Ended December 31, 1999, 1998 and 1997 F-6 Consolidated Statements of Cash Flows For the Years Ended December 31, 1999, 1998 and 1997 F-7 Notes to Consolidated Financial Statements F-8 - F-15 Schedule III - Real Estate and Accumulated Depreciation F-16- F-17 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. F-2 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, 1999 and December 31, 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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. /s/ PricewaterhouseCoopers LLP February 25, 2000 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 ASSETS
1999 1998 ------------ ------------ Multi-family apartment complexes, net of accumulated depreciation of $23,674,311 and $21,977,268 respectively (Note D) $ 9,075,632 $ 9,784,836 Cash and cash equivalents (Note C) 722,318 932,065 Replacement reserve escrow (Note D) 231,443 160,954 Cash restricted for tenant security deposits 235,985 229,416 Prepaid expenses and other assets 736,531 614,911 Deferred expenses, net of accumulated amortization of $304,751 and $258,861 respectively 214,833 260,723 ------------ ------------ Total assets $ 11,216,742 $ 11,982,905 ============ ============ LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Note D) $ 18,289,553 $ 18,726,677 Accrued expenses and other liabilities (Note E) 715,397 601,319 Due to affiliates (Note G) 55,040 199,500 ------------ ------------ Total liabilities 19,059,990 19,527,496 ------------ ------------ Commitment (Note F) Partners' deficit (Note F): Investor Limited Partners (25,000 Units outstanding) (6,589,186) (6,305,460) Original Limited Partner (921,681) (909,737) General Partners (332,381) (329,394) ------------ ------------ Total Partners' deficit (7,843,248) (7,544,591) ------------ ------------ Total liabilities and Partners' deficit $ 11,216,742 $ 11,982,905 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-4 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ---------- ---------- ---------- Revenue: Rental $7,779,790 $7,541,280 $7,224,085 Other income 68,746 67,035 56,096 ---------- ---------- ---------- Total revenue 7,848,536 7,608,315 7,280,181 ---------- ---------- ---------- Expenses: Operating (Note G) 2,153,446 2,004,219 2,041,820 Maintenance 666,780 591,235 578,869 Real estate taxes 589,177 559,440 539,978 General and administrative (Note G) 181,608 66,012 101,687 Management fees (Note G) 389,848 376,570 357,766 Depreciation and amortization 1,742,933 1,806,516 1,980,892 Interest (Note D) 1,588,576 1,667,840 1,702,393 ---------- ---------- ---------- Total expenses 7,312,368 7,071,832 7,303,405 ---------- ---------- ---------- Net income (loss) (Note H) $ 536,168 $ 536,483 $ (23,224) ========== ========== ========== Allocation of net income (loss) (Note F): Investor Limited Partners (25,000 Units outstanding) $ 509,360 $ 509,659 $ (22,063) ========== ========== ========== Investor Limited Partners Per Unit $ 20.37 $ 20.39 $ (.88) ========== ========== ========== Original Limited Partner $ 21,447 $ 21,459 $ (929) ========== ========== ========== General Partners $ 5,361 $ 5,365 $ (232) ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-5 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the Years Ended December 31, 1999, 1998 and 1997
Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit ----------- --------- --------- ------------ 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 509,659 21,459 5,365 536,483 Distributions (594,752) (25,045) (6,261) (626,058) ----------- --------- -------- ----------- Balance at December 31, 1998 (6,305,460) (909,737) (329,394) (7,544,591) Net income (Note F) 509,360 21,447 5,361 536,168 Distributions (Note F) (793,086) (33,391) (8,348) (834,825) ----------- --------- --------- ----------- Balance at December 31, 1999 $(6,589,186) $(921,681) $(332,381) $(7,843,248) =========== ========= ========= ===========
The per Unit distribution for the years ended December 31, 1999, 1998 and 1997 were $31.72, $23.79 and $15.86, respectively, none of which represented a return of capital. The accompanying notes are an integral part of the consolidated financial statements. F-6 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) $ 536,168 $ 536,483 $ (23,224) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,742,933 1,806,516 1,980,892 Interest earned on replacement reserve escrow (8,594) (7,392) (4,889) Changes in assets and liabilities: Decrease (increase) in cash restricted for tenant security deposits (6,569) (26,725) (18,933) Decrease (increase) in prepaid expenses and other assets (121,620) (19,215) 7,394 Increase (decrease) in due to affiliates (144,460) 199,500 - Increase (decrease) in accrued expenses and other liabilities 111,791 (82,094) (54,465) ----------- ----------- ------------ Net cash provided by operating activities 2,109,649 2,407,073 1,886,775 ----------- ----------- ----------- Cash flows from investing activities: Additions to fixed assets (987,839) (1,025,693) (949,541) Increase (decrease) in accrued expenses and other liabilities related to fixed asset additions 2,287 - (9,000) Withdrawals from replacement reserve escrow - 86,111 - Deposits to replacement reserve escrow (61,895) (61,895) (61,895) ----------- ----------- ----------- Net cash used in investing activities (1,047,447) (1,001,477) (1,020,436) ----------- ----------- ------------ Cash flows from financing activities: Principal payments on mortgage notes payable (437,124) (399,694) (365,482) Distributions (834,825) (626,058) (417,371) ----------- ----------- ----------- Net cash used in financing activities (1,271,949) (1,025,752) (782,853) ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents (209,747) 379,844 83,486 Cash and cash equivalents, beginning of the year 932,065 552,221 468,735 ----------- ----------- ----------- Cash and cash equivalents, end of the year $ 722,318 $ 932,065 $ 552,221 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-7 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 F-8 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 F-9 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B. Significant Accounting Policies, Continued Descriptive Information About Reportable Segments 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 1999, 1998 or 1997. C. Cash and Cash Equivalents Cash and cash equivalents consisted of the following:
December 31, ----------------------------- 1999 1998 ----------- ----------- Cash and money market accounts $ 373,380 $ 682,656 Commercial paper 348,938 249,409 ----------- ----------- $ 722,318 $ 932,065 =========== ===========
Continued F-10 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, 1999 and 1998. Mortgage notes payable consisted of the following:
Principal Annual ------------------------- Interest Property 1999 1998 Rate Maturity Date ---------------- ----------- ----------- --------- --------------- Brookeville Apartments $ 8,351,909 $ 8,428,579 7.75% August 1, 2028 Dorsey's Forge Apartments and Oakland Meadows Apartments 4,210,866 4,363,601 9.25% May 3, 2000 Hannibal Grove Apartments 5,726,778 5,934,497 9.25% May 3, 2000 ----------- ----------- Total $18,289,553 $18,726,677 =========== ===========
Brookeville Apartments The property is subject to a non-recourse mortgage note in the original amount of $8,755,000, insured by 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 $8,010,000 and $9,446,000 at December 31, 1999 and 1998, respectively. 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 F-11 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 $5,746,000 and $4,225,000 at December 31, 1999 and $6,118,000 and $4,449,000 at December 31, 1998, respectively. 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, 2004 are $10,020,473, $89,480, $96,667 $104,430 and $112,818. During 1999, 1998 and 1997 the Partnership paid $1,588,076, $1,625,506 and $1,659,719 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, 1999 and 1998:
1999 1998 -------- -------- Accounts payable $ 45,864 $ 1,016 Accrued real estate taxes 185,418 161,258 Other liabilities 206,077 191,934 Tenant security deposits 249,710 219,272 Prepaid rent 28,328 27,839 -------- -------- $715,397 $601,319 ======== ========
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 F-12 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, 1999, 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 (11,499,959) (484,204) (121,049) (12,105,212) Cash distributions from refinancing proceeds (5,173,000) - (52,252) (5,225,252) Net loss from operations (20,832,294) (837,378) (259,056) (21,928,728) Net income from capital transaction 9,402,667 395,901 98,976 9,897,544 ------------ --------- --------- ------------ Balance at December 31, 1999 $ (6,589,186) $(921,681) $(332,381) $ (7,843,248) ============ ========= ========= ============
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 F-13 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, 1999, 1998 and 1997 were as follows:
1999 1998 1997 --------- --------- --------- Property management fees $ 389,848 $ 376,570 $ 357,766 Expense reimbursements 163,898 163,891 179,032 --------- --------- --------- Charged to operations $ 553,746 $ 540,461 $ 536,798 ========= ========= =========
Due to affiliates consisted of expense reimbursements of $55,040 and $199,500 at December 31, 1999 and 1998, respectively. 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 1999, 1998 and 1997 federal income tax returns is as follows:
1999 1998 1997 ---------- ---------- ---------- Net income (loss) per Consolidated Statement of Operations $ 536,168 $ 536,483 $ (23,224) Difference in book to tax depreciation and amortization 1,000,678 1,164,574 557,885 ---------- ---------- ---------- Net income (loss) for federal income tax purposes $1,536,846 $1,701,057 $ 534,661 ========== ========== ==========
The allocation of the net income for federal income tax purposes for the year ended December 31, 1999 is as follows:
Portfolio Passive Income Income Total --------- ---------- ---------- Investor Limited Partners $ 64,040 $1,395,964 $1,460,004 Original Limited Partner 2,696 58,778 61,474 General Partners 674 14,694 15,368 --------- ---------- ---------- $ 67,410 $1,469,436 $1,536,846 ========= ========== ==========
During the years ended December 31, 1999, 1998 and 1997 the per Unit net income (loss) to the Investor Limited Partners for federal income tax purposes was $58.40, $64.64 and $21.17, respectively. The basis of the Partnership's assets for financial reporting purposes exceeds its tax basis by approximately $1,287,000 and $2,288,000 at December 31, 1999 and 1998, respectively. The tax and book basis of the Partnership's liabilities are the same at December 31, 1999 and 1998. Continued F-14 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued I. Subsequent Event On January 28, 2000 KRF3 Acquisition Company, L.L.C. ("KR3"), KRF Company, L.L.C., and The Krupp Family Limited Partnership - 94, affiliates of the General Partner, filed a Transaction Statement on Schedule 13E-3 with the Securities and Exchange Commission (the "SEC") with respect to KR3's proposal to merge KRF-III with and into KR3. Under the terms of the proposed merger, each unitholder of KRF-III other than KR3 and certain unitholders that have agreed to reinvest their units in KR3 will receive $600 in cash for each outstanding investor limited partnership interest owned by it. KR3 was initially organized for the purpose of effecting a tender offer for the units of the Partnership, pursuant to which it acquired 10,304 units, or approximately 41.2% of the outstanding units, for a price of $550 per unit, in June 1999. KR3 later purchased a total of 1,637.5 units, for a price of $600 per unit, from various investment management professionals, increasing its ownership to approximately 47.9% of the outstanding units. The General Partners of the Partnership have filed definitive proxy materials with the SEC, which is subject to certain conditions, including approval by unitholders of the merger and related amendments to KRF-III's partnership agreement with respect to the proposed merger. KRF-III estimates that the merger, if approved by unitholders, will be completed in the second quarter of 2000. F-15 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1999
Costs Capitalized Subsequent to Initial Costs to Partnership Acquisition -------------------------- --------- Buildings Buildings and and Depreciable Description Encumbrances Land Improvements Improvements Life - ---------------- ------------ -------- ----------- --------------- -------- Brookeville Apartments Columbus, OH $ 8,351,909 $ 623,126 $ 8,312,134 $ 4,443,689 3 to 25 years Hannibal Grove Apartments Columbia, MD 4,210,866 518,519 6,883,945 4,607,191 3 to 25 years Dorsey's Forge & Oakland Meadows Apartments Columbia, MD 5,726,778 340,956 4,521,895 2,498,488 3 to 25 years ----------- ---------- ----------- ------------ Total $18,289,553 $1,482,601 $19,717,974 $ 11,549,368 =========== ========== =========== ============
Gross Amounts Carried at End of Year ------------------------------- Buildings Year and Accumulated Year Construction Description Land Improvements Total Depreciation Acquired Completed - --------------- -------- ------------ --------- ------------ -------- ---------- Brookeville Apartments Columbus, OH $ 623,126 $12,755,823 $13,378,949 $ 9,760,605 1983 1975 Hannibal Grove Apartments Columbia, MD 518,519 11,491,136 12,009,655 8,788,605 1983 1970 Dorsey's Forge & Oakland Meadows Apartments Columbia, MD 340,956 7,020,383 7,361,339 5,125,101 1983 1970 ---------- ----------- ----------- ----------- Total $1,482,601 $31,267,342 $32,749,943 $23,674,311 ========== =========== =========== ===========
Continued F-16 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued December 31, 1999 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1999:
1999 1998 1997 ----------- ----------- ----------- Real Estate ----------- Balance at beginning of year $31,762,104 $30,736,411 $29,786,870 Acquisition and improvements 987,839 1,025,693 949,541 ----------- ----------- ----------- Balance at end of year $32,749,943 $31,762,104 $30,736,411 =========== =========== ===========
Accumulated Depreciation 1999 1998 1997 ------------------------ ----------- ----------- ----------- Balance at beginning of year $21,977,268 $20,216,642 $18,281,640 Depreciation expense 1,697,043 1,760,626 1,935,002 ----------- ----------- ----------- Balance at end of year $23,674,311 $21,977,268 $20,216,642 =========== =========== ===========
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, 1999 is $32,763,515, and the aggregate accumulated depreciation for federal income tax purposes is $24,966,748. F-17 EX-27 2 FDS --
5 This Schedule contains summary financial information extracted from Krupp Realty Fund III Financial Statements for the twelve months ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 722,318 0 37,746 0 0 1,166,213 33,269,527 (23,979,062) 11,216,742 770,437 18,289,553 0 0 0 (7,843,248) 11,216,742 0 7,848,536 0 0 5,723,792 0 1,588,576 0 0 0 0 0 0 536,168 0 0 Includes all receivables grouped in "Prepaid Expenses and Other Assets" on the Balance Sheet. Includes apartment complexes of $32,749,943 and deferred expenses of $519,584. Includes depreciation of $23,674,311 and amortization of deferred expenses of $304,751. Represents mortgage note payable. Represents total deficit of the General Partners ($332,381) and the Limited Partners ($7,510,867). Includes all revenue of the Partnership. Includes operating expenses of $3,391,682, real estate taxes of $589,177 and depreciation and amortization of $1,742,933. Net Income allocated, $5,361 to General Partners and $530,807 to Limited Partners. Net Income of $20.37 per unit on 25,000 units outstanding.
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