-----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, PDYxA4rMHtfDzoHZSmkkz++xwHhIPLZsTbb0LFe4g3eHaKJA/KiccA+MLrqhqxMS EwnIgrAQXJWSlXfB2O0t6Q== 0000702117-99-000003.txt : 19990817 0000702117-99-000003.hdr.sgml : 19990817 ACCESSION NUMBER: 0000702117-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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-Q SEC ACT: SEC FILE NUMBER: 000-11210 FILM NUMBER: 99690492 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-11210 Krupp Realty Fund, Ltd.-III 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) (617) 523-7722 (Registrant's telephone number, including area code) 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 The total number of pages in this document is 11.PART I. FINANCIAL INFORMATION Item 1. CONSOLIDATED FINANCIAL STATEMENTS This Form 10-Q 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. KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS
(Unaudited) June 30, December 31, 1999 1998 Multi-family apartment complexes, net of accumulated depreciation of $22,810,801 and $21,977,268, respectively$ 9,465,072$ 9,784,836 Cash and cash equivalents 739,243 932,065 Replacement reserve escrow 195,515 160,954 Cash restricted for tenant security deposits 232,775 229,416 Prepaid expenses and other assets 591,429 614,911 Deferred expenses, net of accumulated amortization of $281,806 and $258,861, respectively 237,778 260,723 Total assets $11,461,812$ 11,982,905 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $18,513,006$ 18,726,677 Accrued expenses and other liabilities 652,037 601,319 Due to affiliates (Note 3) 15,855 199,500 Total liabilities 19,180,898 19,527,496 Partners' deficit (Note 2): Investor Limited Partners (25,000 Units outstanding) (6,471,231)(6,305,460) Original Limited Partner (916,716) (909,737) General Partners (331,139) (329,394) Total Partners' deficit (7,719,086)(7,544,591) Total liabilities and Partners' deficit $11,461,812$ 11,982,905
The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Revenue: Rental $1,933,687 $1,875,274 $3,823,403$3,746,410 Other income 16,230 15,578 31,690 30,413 Total revenue 1,949,917 1,890,852 3,855,093 3,776,823 Expenses: Operating (Note 3) 529,005 495,483 1,052,870 1,013,600 Maintenance 208,808 151,299 309,870 237,251 Real estate taxes 145,700 137,738 284,811 277,185 General and administrative (Note 3) 61,796 21,471 95,348 36,188 Management fees (Note 3) 95,712 94,124 192,321 186,940 Depreciation and amortization 444,981 409,113 856,478 820,141 Interest 409,292 415,160 820,477 838,450 Total expenses 1,895,294 1,724,388 3,612,1753,409,755 Net income $ 54,623 $166,464 $242,918 $ 367,068 Allocation of net income (Note 2): Investor Limited Partners (25,000 Units outstanding) $51,892 $158,141 $230,772 $ 348,715 Investor Limited Partners Per Unit $ 2.08 $ 6.33 $ 9.23 $ 13.95 Original Limited Partner $2,185 $ 6,659 $ 9,717 $ 14,683 General Partners $ 546 $ 1,664 $ 2,429 $ 3,670
The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income $ 242,918 $ 367,068 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 856,478 820,141 Interest earned on replacement reserve escrow (3,613) (1,070) Changes in assets and liabilities: Increase in cash restricted for tenant security deposits (3,359) (2,746) Decrease in prepaid expenses and other assets 23,482 52,877 Decrease in due to affiliates (183,645) - Increase (decrease) in accrued expenses and other liabilities 49,356 (91,415) Net cash provided by operating activities 981,617 1,144,855 Cash flows from investing activities: Additions to fixed assets (513,769) (507,669) Deposits to replacement reserve escrow (30,948) (30,948) Withdrawals from replacement reserve escrow - 50,502 Increase in accrued expenses and other liabilities related to fixed asset additions 1,362 708 Net cash used in investing activities (543,355) (487,407) Cash flows from financing activities: Distributions (417,413) (313,028) Principal payments on mortgage notes payable(213,671)(195,376) Net cash used in financing activities (631,084) (508,404) Net increase (decrease) in cash and cash equivalents (192,822) 149,044 Cash and cash equivalents, beginning of period932,065 552,221 Cash and cash equivalents, end of period $ 739,243 $ 701,265
The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1)Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this report on Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. In the opinion of the General Partners of Krupp Realty Fund, Ltd.-III and Subsidiary (the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Consolidated Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1998 for additional information relevant to significant accounting policies followed by the Partnership. In the opinion of the General Partners of the Partnership, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Partnership's consolidated financial position as of June 30, 1999, its results of operations for the three and six months ended June 30, 1999 and 1998, and its cash flows for six months ended June 30, 1999 and 1998. Certain prior period balances have been reclassified to conform with current period consolidated financial statement presentation. The results of operations for the three and six months ended June 30, 1999 are not necessarily indicative of the results which may be expected for the full year. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. (2)Summary of Changes in Partners' Deficit A summary of changes in Partners' deficit for the six months ended June 30, 1999 is as follows:
Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31,1998$(6,305,460)$(909,737)$(329,394)$(7,544,591) Net income 230,772 9,717 2,429 242,918 Distributions (396,543)(16,696) (4,174) (417,413) Balance at June 30, 1999 $(6,471,231)$(916,716)$(331,139)$(7,719,086)
Continued KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (3)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. Amounts accrued or paid to the General Partners' affiliates were as follows:
For the Three Months For the Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Property management fees$95,712 $ 94,124 $192,321$186,940 Expense reimbursements 42,669 41,523 84,239 61,467 Charged to operations $138,381 $135,647 $276,560 $248,407
Due to affiliates consisted of expense reimbursements of $15,855 and $199,500 at June 30, 1999 and December 31, 1998, respectively. (4) Subsequent event On or about July 6, 1999 affiliates of the General Partners and Property Manager acquired 40% of the Investor Limited Partnership Units pursuant to a solicitation offer dated May 14, 1999. KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY Item 2. 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. The semiannual distribution paid in February, 1999 represents an annualized rate of $31.72 per Unit. In the second quarter of 1999, occupancy rates for the Partnership's properties ("Properties") declined from the historically high levels achieved in 1998 of between 99% and 100% as of December 31, 1998 to approximately 97% (in the case of the Hannibal Grove Apartments), 96% (in the case of the Brookeville Apartments) and 95% (in the case of the Dorsey's Forge Apartments) as of June 30, 1999. Moreover, the managing agent for the Properties (an affiliate of the General Partners) ("Property Manager") granted increased rental concessions to tenants in order to achieve these occupancy rates. The Property Manager believes that this decline in occupancy rates is attributable to significantly increased competition resulting from newly constructed or renovated housing entering the markets served by the Properties, a trend that the Property Manager believes is expected to continue over the next several years. In March 1999, the Property Manager prepared a five year capital improvement plan (the "Capital Plan") setting forth capital improvements that it believes a third party purchaser of the Properties would regard as necessary to maintain the Properties' current occupancy and rent levels (subject to inflationary increases), in light of the increased competition in the markets served by the Partnership. The aggregate cost of implementing the Capital Plan is estimated to be approximately $10,000,000. The General Partners are in the process of reviewing the Capital Plan, which may not be practicable for the Partnership to implement promptly and fully because of the possible need for additional investment of capital, additional borrowings and/or the discontinuation of future cash distributions from the Partnership. However, the General Partners believe additional capital improvements will be needed in the future and will be over and above historical levels. Continued KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY Year 2000 The General Partners of the Partnership 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 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 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. 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. The General Partners of the Partnership have evaluated Year 2000 compliance issues with respect to its non-financial systems, such as computer controlled elevators, boilers, chillers and other miscellaneous systems. The General Partners expect all Year 2000 compliance issues identified in its non- financial systems to be resolved by early in the fourth quarter. The General Partners of the Partnership do not believe that future efforts to achieve Year 2000 compliance in non-financial systems will result in material cost to the Partnership. The General Partners of the Partnership surveyed the Partnership's material third- party service providers (including but not limited to its banks and telecommunications providers) and significant vendors and received assurances that such providers and vendors are to be Year 2000 ready. The General Partners do not anticipate any problems with such providers and vendors that would materially impact its results of operations, liquidity or captial resources. Nevertheless, the General Partners are developing contingency plans for all of its mission-critical functions' to insure business continuity. In addition, the Partnership is also subject to external forces that might generally affect industry and commerce, such as utility and transportation company Year 2000 readiness failures and related service interruptions. However, the General Partners do not anticipate these would materially impact its results of operations, liquidity or capital resources. To date, the Partnership has not incurred, and does not expect to incur, any significant cost associated with being Year 2000 ready. Continued KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY Operations Net income decreased for the three and six months ended June 30, 1999, as compared to the three and six months ended June 30, 1998, as the increase in total expenses more than offset the increase in total revenue. While total revenue increased for the three and six months ended June 30, 1999, as compared to the three and six months ended June 30, 1998, primarily due to rental rate increases implemented at all the Partnership's properties, the increases achieved have not been significant, as had been planned. Total expenses increased for the three and six months ended June 30, 1999, as compared to the three and six months ended June 30, 1998 as a result of increases in operating, maintenance, general and administrative and depreciation expenses. Operating expense increased in 1999 as a result of an increase in workmen's compensation expense due to a one-time beneficial adjustment to the workmen's compensation reserve in 1998. Maintenance increased due to landscaping expenditures at Brookeville Apartments during the second quarter. Legal costs primarily associated with the Partnership's response to the tender offer made by Madison Liquidity Investors 104, LLC to purchase Partnership Units during the second quarter resulted in an increase in general and administrative expense. Depreciation expense increased in conjunction with increased capital improvements completed at the Partnership's properties. KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY PART II - OTHER INFORMATION Item 1.Legal Proceedings Response: None Item 2.Changes in Securities Response: None Item 3.Defaults upon Senior Securities Response: None Item 4.Submission of Matters to a Vote of Security Holders Response: None Item 5.Other Information Response: None Item 6.Exhibits and Reports on Form 8-K Response: None SIGNATURE Pursuant to the requirements 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. Krupp Realty Fund, Ltd. - III (Registrant) BY:/s/Wayne H. Zarozny Wayne H. Zarozny Treasurer and Chief Accounting Officer of The Krupp Corporation, a General Partner DATE: August 16, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Krupp Realty Fund III Financial Statements for the six months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1999 JUN-30-1999 739,243 0 25,473 0 0 994,246 32,795,457 (23,092,607) 11,461,812 667,892 18,513,006 0 0 (7,719,086) 0 11,461,812 0 3,855,093 0 0 2,791,698 0 820,477 0 0 0 0 0 0 242,918 0 0 Includes all receivables grouped in "Prepaid Expenses and Other Assets" on the Balance Sheet. Includes apartment complexes of $32,275,873 and deferred expenses of $519,584. Includes depreciation of $22,810,801 and amortization of deferred expenses of $281,806. Represents mortgage note payable. Represents total deficit of the General Partners ($331,139) and the Limited Partners ($7,387,947). Includes all revenue of the Partnership. Includes operating expenses of $1,650,409, real estate taxes of $284,811 and depreciation and amortization of $856,478. Net income allocated $2,429 to General Partners and $240,489 to Limited Partners. Net Income of $9.23 per unit on 25,000 units outstanding.
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