-----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, CkC1s5b86iZIaYZTNQjLBtXtuceT4agCYKXuSOJSo7yhv26v4ShjritmkP23tpri p32PSHiQ7tqNEhlcUDHWMg== 0000710389-01-000002.txt : 20010409 0000710389-01-000002.hdr.sgml : 20010409 ACCESSION NUMBER: 0000710389-01-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP REALTY LTD PARTNERSHIP IV CENTRAL INDEX KEY: 0000710389 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042772783 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11987 FILM NUMBER: 1589179 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: C/O BERKSHIRE REALTY AFFILIATES STREET 2: 470 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02210 10-K 1 0001.txt KRUPP REALTY LTD PARTNERSHIP - IV UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------- FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] X For the fiscal year ended December 31, 2000 ------------------------------------------------ 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 0-11987 --------- Krupp Realty Limited Partnership-IV - -------------------------------------------------------------------------------- Massachusetts 04-2772783 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS employer identification no.) incorporation or organization One Beacon Street, Boston, Massachusetts 02108 - ---------------------------------------- --------------------------------- (Address of principal executive (Zip code) offices) (Registrant's telephone number, including area code) (617) 523-7722 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Investor Limited Partner Interest Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceeding 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 12-14. The total number of pages in this document is 33. 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 Limited Partnership-IV ("KRLP-IV") was formed on December 1, 1982 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Krupp Corporation, a Massachusetts corporation, and The Krupp Company Limited Partnership-II, a Massachusetts limited partnership, are the General Partners of KRLP-IV. KRLP-IV has also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II. On January 18, 1983, KRLP-IV commenced the offering of up to 30,000 units of Investor Limited Partner Interests (the "Units"). As of March 31, 1983, KRLP-IV received subscriptions for all 30,000 Units at $1,000 per Unit 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 KRLP-IV is to acquire, operate and ultimately dispose of real estate. KRLP-IV initially acquired six multi-family apartment complexes (Copper Creek, Walden Pond (formerly Westbridge), Indian Run, Fenland Field, Pavillion and Tilbury Woods Apartments), a retail center (Lakeview Plaza) and invested in a joint venture in Lakeview Tower (the "Joint Venture") with an affiliated limited partnership. KRLP-IV considers itself to be engaged in only one industry segment, investment in real estate. KRLP-IV sold Lakeview Plaza and Tilbury Woods Apartments in 1990 and 1991, respectively. Additionally, KRLP-IV received a terminating capital distribution from the Joint Venture with proceeds from the sale of Lakeview Tower in 1992. In 1990, the General Partners formed three limited partnerships: Pavillion Partners, Ltd., Copper Creek Partners, Ltd. and Westbridge Partners, Ltd. At the same time, the General Partners transferred ownership of Pavillion Apartments to Pavillion Partners, Ltd., Copper Creek Apartments to Copper Creek Partners, Ltd., and Walden Pond Apartments to Westbridge Partners, Ltd. in exchange for a 99% Limited Partner Interest in the new entities. Westcop Corporation, an affiliate of KRLP-IV, contributed a total of $11,216 in exchange for a 1% General Partner Interest in the new entities. KRLP-IV, Pavillion Partners, Ltd., Copper Creek Partners, Ltd. and Westbridge Partners, Ltd., are collectively known as Krupp Realty Limited Partnership-IV and Subsidiaries (collectively referred to herein as the "Partnership"). The Partnership endeavored to renegotiate the debt on these properties, the negotiations were unsuccessful and these partnerships subsequently petitioned for relief under federal bankruptcy laws. On March 31, 1998, the Partnership sold Indian Run Apartments, a 256-unit multi-family apartment complex, located in Abilene, Texas, to an unaffiliated third party (see Note E to Consolidated Financial Statements, included in Item 8 (Appendix A) of this report). The Partnership's real estate investments are subject to some seasonal fluctuations resulting from 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 real estate investments are located, the availability and cost of borrowed funds, 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 locations 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, increases in unemployment, or adverse changes in real estate zoning laws, (v) 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. -2- As of December 31, 2000, the Partnership did not employ any personnel. ITEM 2. PROPERTIES As of December 31, 2000, the Partnership had an aggregate of 1,000 apartment units. A summary of the Partnership's multi-family real estate investments is presented below. Schedule III included in Item 8 (Appendix A) to this report contains additional detailed information with respect to individual properties.
Average Occupancy For the Year Ended December 31, Year of Total ------------------------------------ Description Acquisition Units 2000 1999 1998 1997 1996 - ------------------------- ----------- ----- ------- ------ ------ ------ ------- Fenland Field Apartments Columbia, Maryland 1983 234 95% 97% 99% 100% 98% Pavillion Apartments Garland, Texas 1983 350 94% 95% 96% 95% 95% Walden Pond Apartments Houston, Texas 1983 416 89% 94% 97% 98% 95% ----- 1,000 Units =====
ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or to which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -3- 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, 2000 was approximately 1,634. The Partnership made the following distributions to its Partners during the years ended December 31, 2000 and 1999:
Year Ended December 31, ---------------------------------------------- 2000 1999 ----------------------- -------------------- Amount Per Unit Amount Per Unit ------------- -------- ---------- -------- Limited Partners: Investor Limited Partners (30,000 Units Outstanding) $740,589 $24.69 $740,590 $24.69 Original Limited Partner 31,182 31,183 General Partners 7,796 7,796 ----------- ---------- $779,567 $779,569 =========== ==========
Due to improvements in the operations of the properties and the availability of cash flow, the General Partners reinstated distributions in August, 1994, at a rate of $4.67 per Unit. In 1995 and 1996, the annual distribution rates were increased to $28.00 and $37.33 per Unit, respectively. These semiannual distributions continued in 1997 and the first half of 1998 at an annualized rate of $37.33 per Unit. As a result of the sale of Indian Run Apartments, the General Partners reduced the distribution rate to $9.33 per Unit for the distribution paid in August, 1998. However, the General Partners increased the distribution rate to $24.69 per Unit beginning with the distribution payable in February, 1999 due to improved operations. The Partnership made special capital distributions of $67.12 and $43.33 per Unit during the second quarter of 1998 and the second quarter of 1996, respectively, with the funds received from the sale of Indian Run Apartments in 1998 and the sale of Lakeview Tower Apartments in 1992, respectively. Pursuant to the Partnership Agreement, distributions from capital transactions, such as the sale of a property, are allocated 99% to Investor Limited Partners and 1% to the General Partners. For details, see Note H to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. -4- 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 Financial Statements and Supplementary Data, which are included in Items 7 and 8 of this report, respectively.
2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Total revenue $ 7,290,609 $ 7,052,216 $ 7,169,243 $ 7,721,285 $7,307,643 Income (loss) before gain on sale of property and extra ordinary loss 333,985 464,369 574,090 157,116 (156,880) Gain on sale of property - - 2,960,743 - - Extraordinary loss - - (389,523) - - Net income (loss) 333,985 464,369 3,145,310 157,116 (156,880) Net income (loss) allocated to: Investor Limited Partners 317,286 441,150 3,090,894 149,260 (149,306) Per Unit 10.58 14.71 103.03 4.98 (4.97) Original Limited Partner 13,359 18,575 22,964 6,285 (6,275) General Partners 3,340 4,644 31,452 1,571 (1,569) Total assets at December 31, 12,017,592 12,588,568 13,245,952 16,718,318 17,605,712 Long-term obligations at December 31, 9,363,967 12,496,331 10,552,809 19,544,471 19,429,196 Distributions: Investor Limited Partners 740,589 740,590 2,853,592 1,119,903 2,419,804 Per Unit 24.69 24.69 95.12 37.33 80.66 Original Limited Partner 31,182 31,183 35,369 47,158 47,158 General Partners 7,796 7,796 29,182 11,790 24,920
Operating results for the periods presented are not comparable due to the sale of Indian Run Apartments on March 31, 1998. The per Unit distributions for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 were $24.69, $24.69, $95.12, $37.33 and $80.66, respectively, of which $0, $0, $67.12, $0 and $43.33 represented a return of capital. Prior performance of the Partnership is not necessarily indicative of future operations. -5- 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 remaining real estate investments. Such ability would also be impacted by the future availability of bank borrowings, and upon the future refinancing and sale of the Partnership's real estate investments. These sources of liquidity will be used by the Partnership for payment of expenses related to real estate operations, capital improvements, debt service and other 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. Over the past several years, real estate markets in general have improved, and the General Partners feel it is an opportune time to formulate a liquidation strategy for the Partnership. As such, the General Partners intend to begin the process of more thoroughly assessing the property sales market in the Partnership's market areas and developing a disposition strategy which will yield the highest value to investors through an efficient and orderly liquidation of the Partnership. In keeping with this strategy, the General Partners intend to refinance or extend mortgage loans which mature in the next 6 months with financing that leaves flexibility for the property sales. Assuming market conditions do not change, the assessment of the property sales market is consistent with the General Partners' expectations, and an acceptable disposition plan can be implemented, the General Partners expect to complete the liquidation process over the next 12 months. However, there can be no assurance that such liquidation will occur, or what amounts may be realized by the Partnership. On November 9, 2000, the General Partners signed an agreement extending the mortgage note payable on Walden Pond Apartments until November 1, 2002. The Partnership paid an extension fee of $29,555 for this privilege. The extension terms reduced the interest rate from prime + 0.5% to prime - 0.5%. As of December 31, 2000, the General Partners had signed agreements extending the mortgage note payable on Fenland Field Apartments, under the original terms, until June 1, 2002. The Partnership paid an extension fee of $5,000 for this privilege. The General Partners are currently negotiating an extension of the mortgage note payable on Pavillion Apartments. It is anticipated that the mortgage will be extended under terms that are substantially similar to the current terms. The Partnership funded approximately $992,000 of capital improvements at the properties in 2000 for appliances, carpeting and other interior and exterior building improvements. In an effort to improve the marketability of the Partnerships' properties, the Partnership expects to spend approximately $580,000 for improvements in 2001 consisting of internal enhancements which include the painting and replacement of cabinets at the properties as well as exterior improvements, including entrance rehab, replacement of sewer pipes, new signage, and window replacement at Fenland Field Apartments. The Partnership expects to fund these improvements from established reserves and operations. The General Partners may need to suspend distributions and/or borrow additional funds to pay for future capital expenditures. On March 31, 1998, the Partnership sold Indian Run Apartments to an unaffiliated third party. The Partnership received $5,850,000, less repayment of the mortgage note payable and interest of $2,658,664 and closing costs of $138,518. For further details, see Note E to the Consolidated Financial Statements included in Item 8 (Appendix A) of this report. -6- Due to improvements in the operations of the properties and reduced debt service, the Partnership had sufficient cash flow in 1995 to increase the annual distribution rate to $28.00 per Unit and to $37.33 per Unit in 1996. As a result of the sale of Indian Run Apartments, the General Partners reduced the distribution rate to $9.33 per Unit for the distribution paid in August 1998. However, the General Partners increased the distribution rate to $24.69 per Unit beginning with the distribution payable in February 1999 due to improved operations during the year. The Partnership made special distributions of $2,034,000, $67.12 per Unit, and $1,313,031, $43.33 per Unit, during the second quarter of 1998 and the second quarter of 1996, respectively, based on the remaining proceeds from the sale of Indian Run Apartments in 1998 and Lakeview Tower Apartments in 1992, respectively. Distributions of net cash proceeds from capital transactions are allocated in accordance with the Partnership Agreement (as described in Note H to the Consolidated Financial Statements included in Item 8 (Appendix A) of this report). The General Partners, on an ongoing basis, assess the current and future liquidity needs in determining the levels of working capital reserves the Partnership should maintain. Adjustments to distributions are made when appropriate to reflect such assessments. On July 31, 1997, the General Partners obtained an additional $900,000 note for Walden Pond Apartments. The note bears interest at a rate of 9.5% per annum and matured on February 28, 1999, simultaneous with the first mortgage note. The proceeds from the note were placed in escrow and were used to fund capital improvements at the property. The Partnership paid closing costs of $33,082 to secure the note. (For further details, see Note F to Consolidated Financial Statements included in Item 8 (Appendix A) of this report.) On February 28, 1999 the General Partners refinanced the Walden Pond mortgage notes of $5,500,000 and $900,000 with monthly principal payments of $6,500 and $1,100, respectively, and interest payments at the Contract rate of interest equal to the greater of (a) 0.5% per annum in excess of the prime rate, or (b) 8% per annum. The notes mature on February 28, 2001. The Partnership paid closing costs of $30,450 for the refinancing. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of fFinancial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement will be effective for the Partnership beginning January 1, 2001. The Partnership did not hold any derivative instruments at December 31, 2000, and as such, the Partnership does not expect this pronouncement to have a significant impact on the Partnership's financial statements. Operations The following discussion relates to the operations of the Partnership and its properties (Fenland Field, Walden Pond and Pavillion Apartments) for the years ended December 31, 2000, 1999 and 1998. The sale of Indian Run Apartments in March 1998, significantly impacts the comparability of the Partnership's operations for the years ended December 31, 1999 and 1998. 2000 compared to 1999 Net income decreased during 2000 when compared to 1999 as the increase in total expenses more than offset the increase in total revenue. The increase in total revenue is primarily a result of rental rate increases implemented at all of the Partnership's properties at the end of the first quarter of 2000. Revenue also increased due to increases in interest income resulting from higher average cash and cash equivalent balances available for investment when compared to 1999. -7- Total expenses in 2000 increased when compared to 1999 with increases in real estate tax, depreciation and interest expenses partially offset by a decrease in maintenance expense. Real estate tax expense increased as a result of a reassessment of property values at Walden Pond and Pavillion by the local authority. Depreciation and amortization expense increased in conjunction with increased capital improvements completed at the properties. Interest expense increased as a result of increases in the prime lending rate. Maintenance expense decreased as a result of capital improvements completed during the year. 1999 compared to 1998 Net income, net of Indian Run's activity, decreased during 1999 when compared to 1998 as the increase in total expenses more than offset the increase in total revenue. The increase in total revenue is a result of rental rate increases implemented at all the Partnership's properties at the end of first quarter. Interest income decreased due to lower average cash and cash equivalent balances available for investment in 1999, as a result of the sale of Indian Run Apartments in 1998. Total expenses in 1999, net of Indian Run's activity, increased as compared to 1998 with increases in general and administrative and interest expenses. These increases were partially offset by a decrease in depreciation and amortization expenses. General and administrative expenses increased due to higher expenses incurred in connection with preparation and mailing of Partnership reports and other investor communications. Depreciation and amortization expense decreased as fixed asset additions purchased in previous years became fully depreciated. Interest expense increased with the refinancing of Walden Pond Apartments' mortgage notes payable. For further discussion of this note, see Note F to the Consolidated Financial Statements included in Item 8 (Appendix A) of this report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. The Partnership manages its market risk by matching projected cash inflows from operating activities, investing activities and financing activities with projected cash outflows to fund debt payments, acquisitions, capital expenditures, distributions and other cash requirements. The majority of the Partnership's outstanding debt (maturing at various times through 2002) has a fixed interest rate, which minimizes the interest rate risk. The Partnership has total outstanding debt of approximately $16,225,000 at December 31, 2000, of which approximately $5,903,000, or 36%, is variable rate debt. If market rates of interest on the Partnership's variable rate debt increase by ten percent (or approximately 90 basis points), the increase in interest expense on the Partnership's variable rate debt would decrease future earnings and cash flows by approximately $100,000. If market rates of interest increase by ten percent, the fair value of the Partnership's total outstanding debt would decrease by approximately $51,000. If market rates of interest on the Partnership's variable rate debt decrease by ten percent (or approximately 90 basis points), the decrease in interest expense on the Partnership's variable rate debt would increase future earnings and cash flows by approximately $100,000. If market rates of interest decrease by ten percent, the fair value of the Partnership's total outstanding debt would increase by approximately $51,000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data are listed in the Index to Financial Statements and Financial Statement Schedule appearing on Page F-2 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -8- 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 KRLP-IV, and The Krupp Company Limited Partnership-II, the other General Partner of KRLP-IV, is as follows: Name and Age Position with The Krupp Corporation Douglas Krupp (54) Co-Chairman of the Board George Krupp (56) Co-Chairman of the Board Frank Apeseche (43) President David Quade (57) 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, 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. Frank Apeseche is the President of The Berkshire Group. Mr. Apeseche joined The Berkshire Group in 1986. He served as Chief Financial Officer and Chief Planning Officer from 1992 to 1995. Mr. Apeseche was the founding Managing Partner of BG Affiliates, a private equity investment firm. Prior to joining The Berkshire Group he served as a manager with Andersen Consulting where he specialized in providing technology solutions to Fortune 500 clients. Mr. Apeseche received a BA with distinction from Cornell University and an MBA with Honors from the University of Michigan. David C. Quade is the Treasurer and Executive Vice President of The Berkshire Group. Mr. Quade joined The Berkshire Group in 1998. Prior to joining The Berkshire Group, he was a Principal and Executive V.P./CFO at Leggat McCall Properties for eighteen years. At Leggatt McCall, Mr. Quade had extensive experience in business strategic planning, financial workouts, funds management, and corporate financing regarding asset management. Prior to that, Mr. Quade worked in senior financial capacities for two NYSE companies, North American Mortgage Investors and Equitable Life Mortgage & Realty Investors, and he also worked at Coopers & Lybrand. He has a P.A.P. from the Northwestern University Graduate School of Business, and a B.S. degree and a Master's degree in Business Administration from Central Michigan University. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. -9- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of February 15, 2001, beneficial owners of record owning more than 5% of the Partnership's 30,000 outstanding Units were as follows:
Title Name and Address Amount and Nature Percent of Of of Of Class Beneficial Owner Beneficial Ownership Class ------------- -------------------------- ---------------------- ---------- Investor Madison Avenue Investment 1,671.38 Units (1)(2) 5.60% Limited Partners, LLC Partner Units P.O. Box 7533 Incline Village, NV 89452 Investor First Equity Realty, LLC Limited 555 Fifth Avenue, 9th Floor Partner Units New York, NY 10017 1,671.38 Units (1)(3) 5.60% Investor The Harmony Group II, LLC Limited P.O. Box 7533 Partner Units Incline Village, NV 89452 1,671.38 Units (1)(4) 5.60% Investor Ronald M. Dickerman Limited 555 Fifth Avenue, 9th Floor Partner Units New York, NY 10017 1,671.38 Units (1)(5) 5.60% Investor Bryan E. Gordon Limited P.O. Box 7533 Partner Units Incline Village, NV 89452 1,671.38 Units (1)(6) 5.60% Investor Equity Resources Group, Limited Incorporated Partner Units 14 Story Street Cambridge, MA 02138 1,704.50 Units (7) 5.70% (1) According to the statement on Schedule 13G originally filed on December 6, 1999 by Madison Avenue Investment Partners, LLC("MAIP"), First Equity Realty , LLC ("First Equity"), The Harmony Group II, LLC ("Harmony Group"), Ronald M. Dickerman and Bryan E. Gordon (collectively, the "Reporting Persons"), as amended by Amendment No. 1 thereto dated February 11, 2000 (as amended, the "Madison Schedule 13G"), each of MAIP, First Equity, Harmony Group and Reporting Persons may be deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act. According to the Madison Schedule 13D, MAIP is the controlling person of various entities which are the nominee owners of, or the successors by merger to the assets of nominee owners of, Limited Partner Interest (the "Units") of the Issuer. As stated in the Madison Schedule 13D, these nominees, none of which beneficially own 5% or more of the Units, are ISA Partnership Liquidity Investors, Madison/AG Partnership Value Partners III and Cobble Hill Investments, LP. According to the Madison Schedule 13D, the controlling members of MAIP are The Harmony Group II, LLC, a Delaware limited liability company of which Bryan E. Gordon is the Managing Member, and First Equity Realty, LLC, a New York limited liability company of which Ronald M. Dickerman is the Managing Member. (2) According to the Madison Schedule 13G, Madison Avenue Investment Partners, LLC has sole voting and dispositive power with respect to 1,671.38 units of the Partnership. (3) According to the Madison Schedule 13G, First Equity Realty, LLC has shared voting and dispositive power with respect to 1,671.38 units of the Partnership. (4) According to the Madison Schedule 13G, The Harmony Group II, LLC has shared voting and dispositive power with respect to 1,671.38 units of the Partnership. -10- (5) According to the Madison Schedule 13G, Ronald M. Dickerman has shared voting and dispositive power with respect to 1,671.38 units of the Partnership. (6) According to the Madison Schedule 13G, Bryan E. Gordon has shared voting and dispositive power with respect to 1,671.38 units of the Partnership. (7) According to the statement on Schedule 13D originally filed on December 12, 1996 by Equity Resources Group, Incorporated, Equity Resource Cambridge Fund Limited Partnership, Equity Resource General Fund Limited Partnership, Equity Resource Fund XVI Limited Partnership, Equity Resource Fund XVII Limited Partnership, Equity Resource Fund XIX Limited Partnership, James E. Brooks, Marks S. Thompson and Eggert Dagbjartsson as amended by Amendment No. 1 thereto dated April 14, 1997 (as amended, the "Equity Resources Schedule 13D"), Equity Resources Group, Incorporated, James E. Brooks, Mark S. Thompson and Eggert Dagbjartsson, in their capacities as general partners of each of Equity Resource Cambridge Fund Limited Partnership, Equity Resource General fund Limited Partnership, Equity Resource Fund XVI Limited Partnership, Equity Resource Fund XVII Limited Partnership and Equity Resource Fund XIX Limited Partnership, respectively, share the power to vote or direct the vote and to dispose of or direct the disposition of 1,704.5 units..
The only interests held by management or its affiliates consist of its General Partner and Original Limited Partner Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. Please see Note I to the Consolidated Financial Statements (Appendix A). -11- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page F-2 of this Report. 2. Consolidated Financial Statement Schedule - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page F-2 of this Report. All other schedules are omitted as they are not applicable or 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)Amended Agreement of Limited Partnership dated as of January 12, 1983 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 (File 2-80650)].* (4.2)Amended Certificate of Limited Partnership filed with the Massachusetts Secretary of State on March 31, 1983 [Exhibit 4.2 to Registrant's Annual Report on Form 10-K dated December 31, 1983 (File No. 2-80650)].* (10) Material Contracts Fenland Field Apartments (10.1) Management Agreement dated December 19, 1986 between Krupp Realty Limited Partnership-IV, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.3 to Registrant's Annual Report on Form 10-K dated December 31, 1986 (File No. 0-11987)].* (10.2) Modification and Restatement of Promissory Note dated April 28, 1993 between Krupp Realty Limited Partnership-IV and John Hancock Mutual Life Insurance Company [Exhibit 10.2 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* (10.3) Modification and Restatement of Indemnity Deed of Trust and Security Agreement dated April 28, 1993 between Krupp Realty Limited Partnership-IV and John Hancock Mutual Life Insurance Company [Exhibit 10.3 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* Walden Pond Apartments (10.4) Management Agreement dated June 2, 1983 between Krupp Realty Limited Partnership-IV, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.19 to Registrant's Annual Report on Form 10-K dated December 31, 1983 (File No. 2-80650)].* -12- (10.5) Certificate of Limited Partnership of Westbridge Partners, Ltd., executed March 1, 1990. [Exhibit 19.9 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.6) Westbridge Partners, Ltd. Agreement of Limited Partnership executed March 1, 1990. [Exhibit 20.1 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.7) Bill of Sale Agreement between Krupp Realty Limited Partnership-IV and Westbridge Partners, Ltd., executed March 1, 1990. [Exhibit 20.2 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.8) Westbridge Partners, Ltd. First Amendment to Agreement of Limited Partnership, executed April 9, 1990. [Exhibit 20.3 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.9) Order Granting Motion of First Boston Mortgage Capital Corp. for Relief from the Automatic Stay dated January 28, 1992. [Exhibit C to Registrant's Report on Form 8-K dated March 3, 1992 (File No. 0-11987)].* (10.10) Modification Agreement dated February 28, 1992 between Westbridge Partners, Ltd. and University Mortgage Acquisition Corp. [Exhibit 10.14 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* (10.11) Renewal Multifamily Note dated February 28, 1992 between Westbridge Partners, Ltd. and University Mortgage Acquisition Corp. [Exhibit 10.15 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* (10.12) Renewal Multifamily Deed of Trust, Assignment of Rents and Security Agreement dated February 28, 1992 by Westbridge Partners, Ltd. and John M. Walker, Jr., as Trustee, and University Mortgage Acquisition Corp. [Exhibit 10.16 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* (10.13) First Renewal, Extension and Modification Agreements dated February 28, 1999 between Westbridge Partners, Ltd. and First Trust Savings Bank. [Exhibit 10.1 to Registrant's Report on Form 10-Q dated March 31, 1999 (File No. 0-11987)]. Pavillion Apartments (10.14) Management Agreement dated June 2, 1983 between Krupp Realty Limited Partnership-IV, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.25 to Registrant's Annual Report on Form 10-K dated December 31, 1983 (File No. 2-80650)].* (10.15) Certificate of Limited Partnership of Pavillion Partners, Ltd., executed March 1, 1990. [Exhibit 19.1 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.16) Pavillion Partners, Ltd. Agreement of Limited Partnership executed March 1, 1990. [Exhibit 19.2 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* -13- (10.17) Bill of Sale Agreement between Krupp Realty Limited Partnership-IV and Pavillion Partners, Ltd., executed March 1, 1990. [Exhibit 19.3 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.18) Pavillion Partners, Ltd. First Amendment to Agreement of Limited Partnership, executed April 9, 1990. [Exhibit 19.4 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.19) Pavillion Partners, Ltd. Chapter 11 Voluntary Petition executed June 4, 1990 in The United States Bankruptcy Court for the Northern District of Texas, Dallas Division. [Exhibit 10.51 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-11987)].* (10.20) Pavillion Partners, Ltd., Debtor's First Amended Plan of Reorganization executed January 16, 1991 in The United States Bankruptcy Court for the Northern District of Texas, Dallas Division. [Exhibit 10.52 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-11987)].* (10.21) Promissory Note dated April 13, 1994 by and between Pavillion Partners, Ltd. and Sunlife Insurance Company of America. [Exhibit 10.1 to Registrant's Report on Form 10-Q dated June 30, 1994 (File No. 0-11987)].* (10.22) Deed of Trust and Security Agreement dated April 13, 1994 between Pavillion Partners, Ltd. and Sunlife Insurance Company of America. [Exhibit 10.2 to Registrant's Report on Form 10-Q dated June 30, 1994 (File No. 0-11987)].* * Incorporated by reference. (c) Reports on Form 8-K During the last quarter of the year ended December 31, 2000 the Partnership did not file any reports on Form 8-K. -14- 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, 2001. Krupp Realty Limited Partnership-IV ---------------------------------------- (Registrant) BY: The Krupp Corporation, a General Partner ---------------------------------------- BY: /s/ Douglas Krupp ---------------------------------------- Douglas Krupp Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 30th day of March, 2001. Signatures Titles /s/ Douglas Krupp Co-Chairman (Principal Executive Officer) and - --------------------------- Director of The Krupp Corporation, a General Douglas Krupp Partner. /s/ George Krupp Co-Chairman (Principal Executive Officer) and - --------------------------- Director of the Krupp Corporation, a General George Krupp Partner. /s/ Frank Apeseche President of the Krupp Corporation, a General - --------------------------- Partner. Frank Apeseche /s/ David Quade Treasurer (Principal Financial and Accounting - --------------------------- Officer) of the Krupp Corporation, a General David Quade Partner. -15- APPENDIX A KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES 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, 2000 F-1 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-3 Consolidated Balance Sheets at December 31, 2000 and December 31, 1999 F-4 Consolidated Statements of Operations For the Years Ended December 31, 2000, 1999 and 1998 F-5 - F-6 Consolidated Statements of Changes in Partners' Deficit For the Years Ended December 31, 2000, 1999 and 1998 F-7 Consolidated Statements of Cash Flows For the Years Ended December 31, 2000, 1999 and 1998 F-8 Notes to Consolidated Financial Statements F-9 - F-16 Schedule III - Real Estate and Accumulated Depreciation F-17 - F-18 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. F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Realty Limited Partnership-IV and Subsidiaries: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Krupp Realty Limited Partnership-IV and Subsidiaries (the "Partnership") at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. 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 of America, 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 our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 19, 2001 F-3 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999
ASSETS 2000 1999 -------------- -------------- Multi-family apartment complexes, net of accumulated depreciation of $26,362,441 and $24,736,628, respectively (Note F) $10,139,898 $10,774,104 Cash and cash equivalents (Note C) 740,853 856,738 Real estate tax escrows 723,394 679,584 Prepaid expenses and other assets (Notes B & I) 277,631 221,644 Investment in Securities (Note D) 95,516 - Deferred expenses, net of accumulated amortization of $341,854 and $291,101, respectively 40,300 56,498 -------------- -------------- Total assets $12,017,592 $12,588,568 ============== ============== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Note F) $16,224,646 $16,538,127 Due to affiliates (Note I) - 33,723 Other liabilities (Note G) 1,190,128 968,318 -------------- -------------- Total liabilities 17,414,774 17,540,168 Partners' deficit (Note H): Investor Limited Partners (30,000 Units outstanding) (3,702,397) (3,279,094) Original Limited Partner (1,382,261) (1,364,438) General Partners (312,524) (308,068) -------------- -------------- Total partners' deficit (5,397,182) (4,951,600) -------------- -------------- Total liabilities and partners' deficit $12,017,592 $12,588,568 ============== ==============
The accompanying notes are an integral part of the consolidated financial statements. F-4 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, 2000, 1999, and 1998 -----
2000 1999 1998 -------------- -------------- ------------- Revenue: Rental $7,213,565 $6,989,114 $7,066,401 Interest income (Note C) 77,044 63,102 102,842 -------------- -------------- ------------- Total revenue 7,290,609 7,052,216 7,169,243 -------------- -------------- ------------- Expenses: Operating (Notes E and I) 1,846,098 1,830,422 1,916,491 Maintenance 557,813 594,780 606,271 Real estate taxes 816,275 701,956 724,018 Management fees (Note I) 291,677 271,555 287,049 General and administrative (Note I) 222,339 225,045 138,201 Depreciation and amortization 1,676,566 1,537,145 1,762,642 Interest (Note F) 1,543,174 1,422,506 1,154,453 -------------- -------------- ------------- Total expenses 6,953,942 6,583,409 6,589,125 -------------- -------------- ------------- Income before minority interest, gain on sale of property and extraordinary loss 336,667 468,807 580,118 Minority interest (2,682) (4,438) (6,028) Gain on sale of property (Note E) - - 2,960,743 -------------- --------------- ------------ Income before extraordinary loss 333,985 464,369 3,534,833 Extraordinary loss from early extinguishment of debt (Note E) - - (389,523) -------------- --------------- ------------ Net income (Note J) $333,985 $464,369 $3,145,310 ============== =============== ============ Allocation of net income (Note H): Investor Limited Partners (30,000 Units outstanding): Income before gain on sale of property and extraordinary loss $317,286 $441,150 $545,386 Gain on sale of property - - 2,931,136 Extraordinary loss - - (385,628) -------------- --------------- ------------ Net income $317,286 $441,150 $3,090,894 ============== =============== ============
Continued F-5 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS, Continued For the Year Ended December 31, 2000, 1999, and 1998 -----
2000 1999 1998 -------------- --------------- ------------ Investor Limited Partners, Per Unit: Income before gain on sale of property and extraordinary loss $10.58 $14.71 $18.18 Gain on sale of property - - 97.70 Extraordinary loss - - (12.85) -------------- --------------- ------------ Net income $10.58 $14.71 $103.03 ============== =============== ============ Original Limited Partner: Income before gain on sale of property and extraordinary loss $13,359 $18,575 $22,964 Gain on sale of property - - - Extraordinary loss - - - -------------- --------------- ------------ Net income $13,359 $18,575 $22,964 ============== =============== ============ General Partners: Income before gain on sale of property and extraordinary loss $3,340 $4,644 $5,740 Gain on sale of property - - 29,607 Extraordinary loss - - (3,895) -------------- --------------- ------------ Net income $3,340 $4,644 $31,452 ============== =============== ============
The accompanying notes are an integral part of the consolidated financial statements. F-6 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the Year Ended December 31, 2000, 1999, and 1998 -----
Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit ----------- ------------ ----------- ------------ Balance at $(3,216,956) $(1,339,425) $(307,186) $(4,863,567) December 31, 1997 Net income 3,090,894 22,964 31,452 3,145,310 Distributions (2,853,592) (35,369) (29,182) (2,918,143) Balance at ----------- ------------ ----------- ------------ December 31, 1998 (2,979,654) (1,351,830) (304,916) (4,636,400) Net income 441,150 18,575 4,644 464,369 Distributions (740,590) (31,183) (7,796) (779,569) ----------- ------------ ----------- ------------ Balance at December 31,1999 (3,279,094) (1,364,438) (308,068) (4,951,600) Net income (Note H) 317,286 13,359 3,340 333,985 Distributions (Note H) (740,589) (31,182) (7,796) (779,567) ----------- ------------ ----------- ------------ Balance at December 31, 2000 $(3,702,397) $(1,382,261) $(312,524) $(5,397,182) =========== ============ =========== ============
The per Unit distributions for the years ended December 31, 2000, 1999 and 1998 were $24.69, $24.69 and $95.12, respectively, of which $0, $0 and $67.12 represented a return of capital, respectively. The accompanying notes are an integral part of the consolidated financial statements. F-7 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2000, 1999, and 1998 -----
2000 1999 1998 --------- --------- ---------- Cash flows from operating activities: Net income $ 333,985 $ 464,369 $3,145,310 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,676,566 1,537,145 1,762,642 Interest earned on repair escrow - - (12,898) Gain on sale of property - - (2,960,743) Extraordinary loss from early extinguishment of debt - - 389,523 Changes in assets and liabilities: Decrease (increase) in prepaid expenses and other assets (99,797) (105,521) 23,019 Increase (decrease) in other liabilities 134,187 23,850 (276,153) Increase (decrease) in due to affiliates (33,723) 22,989 (30,837) Releases from real estate tax and insurance escrows due to sale of property - - 33,722 --------- --------- ---------- Net cash provided by operating activities 2,011,218 1,942,832 2,073,585 --------- --------- ---------- Cash flows from investing activities: Deposits to replacement reserve escrow - - (10,769) Withdrawals from replacement reserve escrow - - 315,159 Release from replacement reserve escrows due to sale of property - - 11,493 Additions to fixed assets (991,607) (661,282) (1,085,983) Increase (decrease) in other liabilities for fixed asset additions (7,893) 5,899 1,994 Proceeds from sale of property, net - - 5,711,482 --------- --------- ---------- Net cash (used in) provided by investing activities (999,500) (655,383) 4,943,376 --------- --------- ---------- Cash flows from financing activities: Principal payments on mortgage notes payable (313,481) (394,922) (756,495) Repayment of mortgage notes payable - - (2,638,042) Decrease (increase) in deferred expenses (34,555) (30,450) 3,191 Payment of prepayment premium - - (335,863) Distributions (779,567) (779,569) (2,918,143) --------- --------- ---------- Net cash used in financing activities (1,127,603) (1,204,941) (6,645,352) --------- --------- ---------- Net (decrease) increase in cash and cash equivalents (115,885) 82,508 371,609 Cash and cash equivalents, beginning of the year 856,738 774,230 402,621 --------- --------- ---------- Cash and cash equivalents, end of year $ 740,853 $ 856,738 $ 774,230 ========= ========= ========== Non-cash investing activities: Investment in securities $95,516 - -
The accompanying notes are an integral part of the consolidated financial statements. F-8 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- A. Organization Krupp Realty Limited Partnership-IV ("KRLP-IV") was formed on December 1, 1982 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP-IV terminates on December 31, 2020, unless earlier terminated upon the sale of the last of KRLP-IV and Subsidiaries' properties or the occurrence of certain other events as set forth in the Partnership Agreement. KRLP-IV issued all of the General Partner Interests to The Krupp Corporation, a Massachusetts corporation, and The Krupp Company Limited Partnership-II, a Massachusetts limited partnership, in exchange for capital contributions aggregating $1,000. Except under certain limited circumstances upon termination of KRLP-IV, the General Partners are not required to make any additional capital contributions. KRLP-IV also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II in exchange for a capital contribution of $4,000. The Original Limited Partner is not required to make any additional capital contributions to KRLP-IV. On January 18, 1983, KRLP-IV commenced the offering of up to 30,000 Units of Investor Limited Partner Interests (the "Units"). As of March 31, 1983, KRLP-IV received subscriptions for all 30,000 Units at $1,000 per Unit and therefore, the public offering was successfully completed on that date. In 1990, the General Partners on behalf of KRLP-IV formed three limited partnerships: Pavillion Partners, Ltd., Copper Creek Partners, Ltd. and Westbridge Partners, Ltd. At the same time, the General Partners transferred ownership of Pavillion Apartments to Pavillion Partners, Ltd., Copper Creek Apartments to Copper Creek Partners, Ltd., and Walden Pond Apartments to Westbridge Partners, Ltd. in exchange for KRLP-IV's 99% Limited Partner Interest in the new entities. Westcop Corporation, an affiliate of the General Partners, contributed a total of $11,216 in cash to the entities and is the General Partner in each, with a 1% interest. On March 3, 1992, Copper Creek was foreclosed upon by the holder of the first and second mortgage notes pursuant to an agreement approved by the Bankruptcy Court. KRLP-IV, Pavillion Partners, Ltd., and Westbridge Partners, Ltd. are collectively known as Krupp Realty Limited Partnership-IV and Subsidiaries (collectively the "Partnership"). As of December 31, 2000, the Partnership owned three multi-family apartment complexes. 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 J). Basis of Presentation The consolidated financial statements present the consolidated assets, liabilities and operations of Pavillion Partners, Ltd., Westbridge Partners, Ltd. and KRLP-IV (see Note A). All intercompany balances and transactions have been eliminated. At December 31, 2000 and 1999, minority interest of $8,589 and $11,271, respectively, were included in other assets. 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 accounting principles generally accepted in the United States of America 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-9 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES 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 Revenue Leases require the payment of base rent monthly in advance. Rental revenues are recorded on the accrual basis. Real Estate 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 real estate assets might be impaired and the estimated undiscounted cash flows, without interest charges, 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. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements which improve or extend the useful life of the assets are capitalized. Except for amounts attributed to land, rental property and improvements are depreciated over their estimated useful lives using the straight-line method. The estimated useful lives by asset category are: Buildings and improvements 3 to 25 years Appliances, carpeting and equipment 3 to 8 years The Partnership classifies assets as available for sale upon the General Partners committing to a formal plan of disposal. The Partnership is in the process of determining the marketability of the Partnership's real estate assets but the General Partners have not committed to a formal plan of disposition and therefore no properties have been classified as available for sale. Deferred Expenses Costs of obtaining and recording mortgages on the properties are amortized over the term 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's income or loss is allocated to the Partners for income tax purposes. In the event that 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-10 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES 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 revenue is from external customers and no revenue are generated from transactions with other segments. There are no tenants which contributed 10% or more of the Partnership's total revenue during 2000, 1999 or 1998. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of financial Accounting standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement will be effective for the Partnership beginning January 1, 2001. The Partnership did not hold any derivative instruments at December 31, 2000, and as such, the Partnership does not expect this pronouncement to have a significant impact on the Partnership's financial statements. Investment in Securities The investment in securities is carried at its original issuance valuation as the common stock is not listed or traded on an exchange and is not considered a marketable security pursuant to Statement of Financial Standards Opinion No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115"). C. Cash and Cash Equivalents Cash and cash equivalents consisted of the following:
December 31, December 31, 2000 1999 ----------------- ------------------ Cash and money market accounts $740,853 $856,738 ================= ==================
Continued F-11 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ----- D. Investment in Securities On October 5, 2000, the Partnership, as a member of an alliance of major multifamily real estate companies, executed a master lease agreement ("MLA") with a provider of high-speed internet, video and voice services to multifamily communities. Pursuant to the MLA, the Partnership granted the provider preferred lease, license and access rights to provide data services, consisting of high-speed broadband internet access, and video services, to the residents at some of its multifamily communities for a ten year period. In exchange for these rights, the Partnership received 366,691 shares of common stock which were valued at $.2285 per share or $83,823. In addition, the Partnership will receive 7.5% of the gross revenues that the provider obtains from providing its services as well as a fixed amount for each resident that executes a subscriber agreement. In conjunction with the execution of the MLA, the Partnership made an investment of $8,406 in exchange for 36,785 additional shares of common stock also valued at $.2285 per share. The Partnership incurred approximately $3,287 in closing costs related to the acquisition by the Partnership and the closing costs incurred were recorded as an investment in securities in the financial statements as of December 31, 2000. E. Sale of Indian Run Apartments On March 31, 1998, the Partnership sold Indian Run Apartments ("Indian Run"), a 256-unit multi-family apartment complex, located in Abilene, Texas, to an unaffiliated third party. The Partnership received $5,850,000, less repayment of the mortgage note payable and interest of $2,658,664 and closing costs of $138,518. For financial reporting purposes, the Partnership realized a gain of $2,960,743 on the sale. The gain was calculated as the difference between the property's selling price less net book value of the property and closing costs. In conjunction with the sale of the property on March 31, 1998, the Partnership prepaid the mortgage note. As a result of the retirement of debt, the Partnership incurred a prepayment premium of $335,863. The prepayment premium, as well as unamortized deferred mortgage costs of $53,660, are reported in the Consolidated Statement of Operations as an extraordinary loss from early extinguishment of debt. F. Mortgage Notes Payable The properties owned by the Partnership are pledged as collateral for the respective non-recourse mortgage notes payable outstanding at December 31, 2000 and 1999. Mortgage notes payable consisted of the following:
Principal Annual ----------------------- Interest Property 2000 1999 Rate Maturity Date ----------------------- ------------ ----------- ---------- --------------- Fenland Field Apartments $ 3,720,715 $ 3,873,996 9.25% June 1, 2002 Walden Pond Apartments 5,903,327 5,986,927 See below November 1, 2002 Pavillion Apartments 6,600,604 6,677,204 9.25% May 1, 2001 ----------- ----------- Total $16,224,646 $16,538,127 =========== ===========
Continued F-12 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ----- F. Mortgage Notes Payable, Continued Fenland Field Apartments The property is subject to a non-recourse mortgage note payable, based on a 20-year amortization, in equal monthly installments of principal and interest of $42,167. At maturity, all unpaid principal ($3,824,206) and any accrued and unpaid interest are due. The note may be prepaid subject to certain prepayment premiums. The mortgage note is collateralized by the property. 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 $3,863,000 and $3,903,000 at December 31, 2000 and 1999, respectively. As of December 31, 2000 the General Partners had signed agreements extending the mortgage note payable, under the original terms, until June 1, 2002. The Partnership paid an extension fee of $5,000 for this privilege. Walden Pond Apartments On February 28, 1992, the prior wrap-around mortgage note was modified in bankruptcy court. The modified first mortgage note with a principal balance of $5,500,000, which has a stated rate of 9.5%, is being amortized over a 30-year period and requires monthly payments of $46,247. For financial reporting purposes, generally accepted accounting principles required the Partnership to reduce the outstanding principal balance of the mortgage to the sum of the future cash flow payments required under the terms of the mortgage, including a final payment on February 28, 1999 of approximately $5,200,000. All cash payments made subsequent to the restructure are recorded as a reduction of the principal balance with no interest expense recognized by the Partnership. The note may be prepaid at any time, subject to certain prepayment premiums. On July 31, 1997, the General Partners obtained a $900,000 non-recourse note (the "Note") for Walden Pond Apartments from the same lender that holds the first mortgage note. The Note bears interest at a rate of 9.5% per annum and, commencing September 1, 1997, requires monthly, interest-only payments until the maturity date. The Note matures on February 28, 1999, simultaneous with the first mortgage note, at which time all outstanding principal and any accrued interest are due. The Note may be prepaid in its entirety without penalty, upon 90 days written notice, and simultaneous payment of the first mortgage note. Proceeds from the Note were deposited into an escrow account and will be used to fund capital improvements at the property. The Partnership paid closing costs of $33,082 to obtain the Note. On February 28, 1999 the General Partners refinanced the Walden Pond mortgage notes of $5,500,000 and $900,000 with monthly principal payments of $6,500 and $1,100, respectively, and interest payments at the contract rate of interest equal to the greater of (a) 0.5% per annum in excess of the prime rate, or (b) 8% per annum. The notes mature on February 28, 2001. On November 9, 2000, the General Partners signed an agreement extending the mortgage note payable, until November 1, 2002. Under the terms of the extension agreement the interest rate on the debt is reduced from prime + 0.5% to prime - 0.5%, 9% as of December 31, 2000. The Partnership paid an extension fee of $29,555 for this privilege. Because the interest rate on Walden Pond's debt fluctuates with market rates, the book value of the mortgages approximates fair market value. Continued F-13 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ----- F. Mortgage Notes Payable, Continued Pavillion Apartments The property is subject to a non-recourse mortgage note payable, based on a 30-year amortization, in equal monthly installments of principal and interest of $57,587. At maturity, all unpaid principal ($6,580,326) and any accrued and unpaid interest are due. The note may be prepaid at any time, subject to certain prepayment premiums. 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 $6,654,000 and $6,771,000 at December 31, 2000 and 1999, respectively. The General Partners are currently negotiating an extension of this mortgage note payable. It is anticipated that the mortgage will be extended under terms that are substantially similar to the current terms. 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, 2005 are $6,860,678, $9,363,967, $0, $0, and $0, respectively. The Partnership paid interest on its mortgage notes of $1,542,659, $1,422,506 and $1,154,453 during the years ended December 31, 2000, 1999 and 1998, respectively. G. Other Liabilities Other liabilities consisted of the following at December 31, 2000 and 1999:
2000 1998 ----------------- ----------------- Accounts payable $ 30,998 $ 39,845 Accrued real estate taxes 608,519 523,496 Other liabilities 392,943 255,300 Tenant security deposits 157,668 149,677 ----------------- ----------------- $1,190,128 $ 968,318 ================= =================
H. 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 thereon. Thereafter, profits and losses will be allocated 65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7% to the General Partners. In accordance with the Partnership Agreement, distributions are generally made on the same basis as the allocations of profits and losses described above. Upon the occurrence of a capital transaction, as defined in the Partnership Agreement, proceeds will be applied to the payment of all debts and liabilities of the Partnership then due and then fund any reserves for contingent liabilities. Remaining net cash proceeds will then be distributed 99% to the Investor Limited Partners until they have received a return of their total invested capital and 1% to the General Partners, thereafter net cash proceeds will be distributed in accordance with the Partnership Agreement. Continued F-14 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ----- H. Partners' Deficit, Continued As of December 31, 2000, the following cumulative partner contributions and allocations have been made since inception of KRLP-IV:
Investor Original Total Limited Limited General Partners' Partners Partner Partners (Deficit) ----------- ----------- --------- ----------- Capital contributions $30,000,000 $ 4,000 $ 1,000 $30,005,000 Syndication costs (4,050,000) - - (4,050,000) Distributions: Operations (9,455,227) (398,127) (99,530) (9,952,884) Capital transaction (5,313,560) - (53,673) (5,367,233) Income (loss): Operations (26,706,702 (1,286,056) (282,756) (28,275,514) Capital transaction 11,823,092 297,922 122,435 12,243,449 ----------- ----------- --------- ----------- Balance at December 31, 2000 $(3,702,397) $(1,382,261) $(312,524) $(5,397,182) =========== =========== ========= ===========
I. 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 for the years ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998 ----------- ---------- ----------- Property management fees $291,677 $271,555 $287,049 Expense reimbursements 295,476 269,037 275,788 ----------- ---------- ----------- Charged to operations $587,153 $540,592 $562,837 =========== ========== ===========
Due from affiliates consisted of expense reimbursements of $28,007 and is included in prepaid expenses and other assets at December 31, 2000. Due to affiliates consisted of expense reimbursements of $33,723 at December 31, 1999. Continued F-15 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ----- J. Federal Income Taxes For federal income tax purposes, the Partnership is depreciating property using 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 for each year reported in the accompanying Consolidated Statement of Operations with the net loss reported in the Partnership's federal income tax return for the years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998 ----------- ------------ ----------- Net income per Consolidated Statement of Operations $333,985 $464,369 $3,145,310 Difference in book and tax depreciation for Fenland Field and Indian Run 213,609 172,556 200,671 Difference in Partnership's share of Pavillion Partners net income for tax purposes 289,727 255,803 172,490 Difference in Partnership's share of Westbridge Partners net income for tax purposes 533,554 390,020 (128,156) Difference between book and tax gain on sale of property - - 1,742,577 ----------- ------------ ----------- Net income for federal income tax purposes $1,370,875 $1,282,748 $5,132,892 =========== ============ ===========
The allocation of the net income for federal income tax purposes for 2000 is as follows:
Portfolio Passive Income Income Total ----------- ------------ ----------- Investor Limited Partners $ 72,668 $1,229,663 $1,302,331 Original Limited Partner 3,060 51,775 54,835 General Partners 765 12,944 13,709 ----------- ------------ ----------- $76,493 $1,294,382 $1,370,875 =========== ============ ===========
During the years ended December 31, 2000, 1999 and 1998 the per Unit net income to the Investor Limited Partners for federal income tax purposes was $43.41, $40.62 and $168.82, respectively. The basis of the Partnership's assets for financial reporting purposes exceeded its tax basis by approximately $2,829,000 and $3,594,000 at December 31, 2000 and 1999, respectively. The basis of the Partnership's liabilities for financial reporting purposes is less than its tax basis by approximately $4,492,000 and $5,868,000 at December 31, 2000 and 1999, respectively. F-16 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 -----
Initial Cost to Costs Capitalized Partnership Subsequent to Acquisition ----------------------- ----------------------------- Buildings Buildings Depreciable & & Description Encumbrances Land Improvements Land Improvements Life - ------------ ------------ ---------- ------------ ------- ------------ --------- Fenland Field Apartments Columbia, MD $3,720,715 $ 365,262 $ 4,852,767 $ 407 $3,508,073 3 to 25 yrs Walden Ponds Apartments Houston, TX 5,903,327 906,253 12,040,217 1,211 2,886,938 3 to 25 yrs Pavillion Apartments Garland, TX 6,600,604 680,621 9,042,535 1,199 2,216,856 3 to 25 yrs ------------ ---------- ----------- ------- ---------- Total $16,224,646 $1,952,136 $25,935,519 $2,817 $8,611,867 ============ ========== =========== ======= ==========
Gross Amounts Carried at End of Year ------------------------------------ Buildings Year and Accumulated Construction Year Description Land Improvements Total Depreciation Completed Acquired - ------------ -------- ----------- ----------- ------------ --------- -------- Fenland Field Apartments Columbia, MD $ 365,669 $ 8,360,840 $ 8,726,509 $ 6,313,603 1970 1983 Walden Ponds Apartments Houston, TX 907,464 14,927,155 15,834,619 11,531,153 1982 1983 Pavillion Apartments Garland, TX 681,820 11,259,391 11,941,211 8,517,685 1983 1983 ---------- ----------- ----------- ----------- Total $1,954,953 $34,547,386 $36,502,339 $26,362,441 ========== =========== =========== ===========
Continued F-17 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued December 31, 2000 ----- Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 2000:
2000 1999 1998 ----------- ----------- ----------- Real Estate ----------- Balance at beginning of year $35,510,732 $34,849,450 $41,807,070 Acquisition and improvements 991,607 661,282 1,085,983 Sale of property - - (8,043,603) ----------- ----------- ----------- Balance at end of year $36,502,339 $35,510,732 $34,849,450 =========== =========== =========== 2000 1999 1998 ----------- ----------- ----------- Accumulated Depreciation ------------------------ Balance at beginning of year $24,736,628 $23,263,961 $26,859,567 Depreciation expense 1,625,813 1,472,667 1,697,258 Sale of property - - (5,292,864) ----------- ----------- ----------- Balance at end of year $26,362,441 $24,736,628 $23,263,961 =========== =========== ===========
The Partnership uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost of the Partnership's real estate for federal income tax purposes at December 31, 2000 is $36,507,288 and the aggregate accumulated depreciation for federal income tax purposes is $29,885,169. F-18 -----END PRIVACY-ENHANCED MESSAGE-----