-----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, P10ugMOVz0vpJaoL+uj90BNeM5AstosJxenFJjcvoIQmgYt81iu3mNm17WQLhUPT SUKlpJY5/d4yhP2AZJqAUA== 0000757549-98-000006.txt : 19980416 0000757549-98-000006.hdr.sgml : 19980416 ACCESSION NUMBER: 0000757549-98-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSTITUTIONAL MORTGAGE FUND LTD PARTNERSHIP CENTRAL INDEX KEY: 0000757549 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042860302 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14378 FILM NUMBER: 98594090 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1997 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 0-14378 Krupp Institutional Mortgage Fund Limited Partnership (Exact name of registrant as specified in its charter) Massachusetts 04-2860302 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 423-2233 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partner Interests Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Aggregate market value of voting securities held by non-affiliates: Not applicable. Documents incorporated by reference: Part IV, Item 14. The exhibit index is located on pages 8-9. The total number of pages in this document is 43. 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 Institutional Mortgage Fund Limited Partnership (the "Partnership") was formed on November 15, 1984 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Partnership was formed for the purpose of making participating mortgage loans ("the Participating Notes") to Krupp Equity Limited Partnership ("KELP"), in the amount of up to 95% of the proceeds of the offering of units of limited partner interest (the "Units") (see Note D to the Financial Statements included in Appendix A of this report). The Partnership issued all of the General Partner Interests to The Krupp Corporation ("Krupp Corp.") and The Krupp Company Limited Partnership-III ("Krupp Co.-III"), in exchange for capital contributions aggregating $1,000. The General Partners made additional capital contributions of $4,207,560 which equals fourteen percent of the capital contributions of the Investor Limited Partners. The Partnership used these capital contributions to pay costs incurred in connection with its organization and the public offering of Units. On February 21, 1985, the Partnership commenced the marketing and sale of the Units for $1,000 per Unit. The public offering was closed on December 5, 1985, at which time 30,059 Units had been sold. The primary business of Krupp Institutional Mortgage Fund Limited Partnership (the "Partnership") is making loans evidenced by non-recourse participating promissory notes ("Participating Notes"), collateralized by mortgages on improved, income producing real properties and a Collateral Pledge Agreement dated February 20, 1985 (see Note C to Financial Statements included in Appendix A of this report). The loans have been made to Krupp Equity Limited Partnership ("KELP"), which originally had the same General Partners as the Partnership, under a master loan agreement (the "Master Loan Agreement"). The Partnership considers itself to be engaged in only one industry segment, namely real estate mortgage lending to KELP. KELP's properties began experiencing cash flow difficulties and, beginning with the payment due April 1, 1991, KELP has not been able to fully pay the required quarterly interest payments. The terms of the Master Loan Agreement, which is currently in default, require KELP to pay the Partnership basic interest at a rate of 10% per annum on the Participating Notes. As a result of KELP's difficulties: 1) KELP has remitted to the Partnership all cash flow generated by the properties after operating and administrative expenses and senior mortgage obligations ("KELP Cash Flow") and the Partnership has not exercised its foreclosure rights under the Master Loan Agreements with respect to KELP's defaults; 2) interest and late charges on the Partnership's Participating Notes have continued to accrue, although reserved against; 3) since 1991, as a consequence of the default, the management agent of KELP's properties (an affiliate of its General Partners) has continued to serve even though it is not receiving any payment of property management fees. The General Partners decided in 1991 not to exercise the Partnership's foreclosure remedies under the Master Loan Agreement, as a result of KELP's default, because the severely depressed state of the real estate market in much of the U.S. made it unlikely that KELP would be able to dispose of its properties at other than very unattractive prices at that time. Thus, the General Partners believed that it was in the Partnership's best interest to continue to permit KELP to hold the properties and attempt to increase cash flows and selectively sell the properties, as market values recover. Pursuant to this strategy, in 1996, KELP sold Village Green Apartments ("Village Green") and North Salado Village Shopping Center ("North Salado") to unaffiliated third parties. For details of each transaction, see Note D to the Financial Statements included in Appendix A of this report. On December 2, 1997, Berkshire Realty Enterprise Limited Partnership, an affiliate of the General Partner of KELP, as agent for KELP, entered into an Agreement of Sale to sell KELP's remaining properties (Northeast Plaza Shopping Center and Bell Plaza Shopping Center) to Kejack, Inc. and its permitted assigns, which are unaffiliated third parties. The transaction was consummated subsequent to year end on January 30, 1998 (see Notes D and J to Financial Statements included in Appendix A of this report). At December 31, 1997, the General Partner of KELP recorded a cumulative property valuation provision of $3,995,696 on its real estate investments based on the selling prices of its properties less estimated costs to sell. As of December 31, 1996, the General Partner of KELP recorded a cumulative property valuation provision of $5,000,000 on its real estate investments based on the fair value of its properties considering such factors as tenant turnover, occupancy levels and market conditions. At December 31, 1997, the Partnership recorded recovery of bad debt of approximately $673,000 on the outstanding mortgage notes receivable balance on its related mortgage loans, based on the selling prices less estimated costs to sell KELP's properties (see Note D to the Financial Statements included in Appendix A of this report). The sale of KELP's properties is considered cause for Dissolution, as defined by KELP's Partnership Agreement. Accordingly, KELP's General Partner expects to liquidate and distribute KELP's remaining assets in 1998 (see Note D to the Financial Statements included in Appendix A of this report). KELP will use the net proceeds of the sale to pay down the mortgage notes payable to the Partnership. As a result of the sale of KELP's properties, certain notes totaling $2,790,388, issued by the original General Partners of KELP, which have been pledged to the Partnership under a Collateral Pledge Agreement, will become due and payable. Upon liquidation, the original General Partners will remit proceeds of these notes to KIMF, as payment toward KELP's mortgage notes payable. The sale of KELP's properties and the subsequent pay down of KIMF's mortgage notes receivable, represents an Event Causing Dissolution, as defined by KIMF's Partnership Agreement. Accordingly, the General Partners of KIMF expect to liquidate and distribute the Partnership's remaining assets in 1998. As of December 31, 1997, the Partnership did not employ any personnel. Item 2.PROPERTIES None. ITEM 3.LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY STOCKHOLDER MATTERS The transfer of Units is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop. The number of Limited Partners as of December 31, 1997 was approximately 3,100. The Partnership made the following distributions to its Partners during the fiscal year ended December 31, 1997 and 1996:
Year Ended December 31, 1997 1996 Amount Per Unit Amount Per Unit Limited Partners (30,059 Units) $601,180 $ 20.00 $5,394,087 $179.45 General Partners 6,073 54,486 $ 607,253$5,448,573
As a result of the financial condition of the KELP properties and the reduction in the debt service payments made by KELP to the Partnership, the Partnership has made quarterly distributions at rates that fluctuate from .25% to .625% of the invested proceeds. In 1996, the Partnership made additional distributions totaling $4,841,321 based on the proceeds received from KELP from the sales of Village Green and North Salado. 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 Notes thereto, which are included in Items 7 and 8 (Appendix A) of this report, respectively.
Year Ended December 31, 1997 1996 1995 1994 1993 Total income $1,297,664 $ 576,376 $868,620 $ 1,060,150 $776,804 Net income before provision for credit losses 1,200,374 482,943 765,125 899,420 606,894 Provision for credit losses - - - (4,500,000) - Net income (loss) 1,200,374 482,943 765,125 (3,600,580) 606,894 Net income (loss) allocated to: Limited Partners 1,188,370 478,114 757,474(3,564,574) 600,825 Per Unit 39.53 15.91 25.20 (118.59) 19.99 General Partners 12,004 4,829 7,651 (36,006) 6,069 Total assets at December 31, 8,812,519 8,219,472 13,172,780 13,092,186 17,367,488 Distributions: Limited Partners 601,180 5,394,087 676,327 676,327 601,180 Per Unit 20.00 179.45 22.50 22.50 20.00 General Partners 6,073 54,486 6,832 6,832 6,073
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 Currently, the Partnership has sufficient liquidity to meet its operating needs. The most significant capital need is distributions to investors. However, distributions are currently dependent on cash flow received from KELP's interest payments on the Participating Notes, which are based upon the cash flow of the underlying properties. KELP's properties have not generated cash flow sufficient to meet the terms of their existing obligations. The Partners of KELP have made cumulative capital contributions of approximately $4,673,000 to cover prior operating deficits and have arranged for certain short-term borrowings. Additionally, the affiliated management agent has not received payment of management fees since 1991. Pursuant to its disposition strategy, on March 5, 1996, KELP sold Village Green to an unaffiliated third party for $5,200,000. The buyer assumed the principal outstanding on the first mortgage note payable on the property of $4,633,989, as of the date of sale, which was applied against sale proceeds. As a result of the sale, KELP remitted to the Partnership the available sale proceeds, net of closing costs, of $585,959. On May 16, 1996, KELP sold North Salado to an unaffiliated third party for $7,350,000. The outstanding first mortgage note payable on the property of $2,920,405, was paid at the closing. As a result of the sale, KELP remitted to the Partnership available sale proceeds, net of closing costs, of $4,207,000. The Partnership made an additional distribution in June, 1996 of $4,841,321, utilizing the proceeds received from KELP from the sales of Village Green and North Salado. On December 2, 1997, Berkshire Realty Enterprise Limited Partnership, an affiliate of the General Partners of KELP, as agent for KELP, entered into an Agreement of Sale to sell KELP's remaining properties (Northeast Plaza Shopping Center and Bell Plaza Shopping Center) to Kejack, Inc. and its permitted assigns, which are unaffiliated third parties. The transaction was consummated subsequent to year end on January 30, 1998 (see Notes D and J to Financial Statements, included in Appendix A of this report). KELP will use the net proceeds of the sale to pay down the mortgage notes payable to the Partnership. The sale of KELP's properties is considered cause for Dissolution of KELP, as defined by KELP's Partnership Agreement. Accordingly, KELP's General Partner expects to liquidate and distribute KELP's remaining assets in 1998. (see Note D to Financial Statements included in Appendix A of this report). As a result of the sale of KELP's properties, certain notes totaling $2,790,388, issued by the original General Partners of KELP, which have been pledged to the Partnership under a Collateral Pledge Agreement, will become due and payable. Upon liquidation, the original General Partners will remit proceeds of these notes to KIMF, as payment toward its mortgage notes payable. The sale of KELP's properties and the subsequent pay down of KIMF's mortgage notes receivable, together represent an Event Causing Dissolution, as defined by KIMF's Partnership Agreement. Accordingly, the General Partners of KIMF expect to liquidate and distribute the Partnership's remaining assets in 1998. Operations 1997 compared to 1996 Total income in 1997, net of recovery of bad debt, increased as compared to 1996, due to an increase in interest income on mortgage notes as a result of increased cash flow payments received from KELP's properties. This increase is partially offset by a decrease in interest income as a result of lower cash and cash equivalents available for investment. Total expenses in 1997, as compared to 1996, remained relatively stable. 1996 compared to 1995 Total income in 1996, as compared to 1995, decreased due to a decrease in interest income on mortgage notes as a result of reduced cash flow payments received from KELP's properties. The decrease in cash flow was the result of the sales of Village Green and North Salado in 1996. Total expenses in 1996, as compared to 1995, decreased due to a decrease in expense reimbursements, partially offset by an increase in general and administrative expense. The decrease in expense reimbursements was due to a decrease in charges in connection with the preparation and mailing of reports and other investor communications. KELP's Results of Operations The average occupancy percentages for KELP's properties for the fiscal years ended 1997, 1996, 1995, 1994 and 1993 are as follows:
Current Leasable Square Average Occupancy for the Property Description Footage Years Ended December 31, 1997 1996 1995 1994 1993 Northeast Plaza Commercial 89,224 94% 93% 94% 87% 88% Bell Plaza Commercial 43,842 85% 98% 100% 90% 90%
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Appendix A to this report. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to directors and executive officers of The Krupp Corporation, which is a General Partner of both the Partnership and The Krupp Company Limited Partnership-III, the other General Partner of the Partnership, is as follows: Position with Name and Age The Krupp Corporation Douglas Krupp (51) President and Co-Chairman of the Board George Krupp (53) Co-Chairman of the Board Wayne H. Zarozny (39) Treasurer Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking, healthcare facility ownership and the management of the company. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp is Chairman of the Board and a Director of both Berkshire Realty Company, Inc. (NYSE-BRI) and Harborside Healthcare (NYSE-HBR). Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust and as Chairman of the Board and Trustee of Krupp Government Income Trust II. George Krupp is Douglas Krupp's brother. George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Mr. Krupp received his undergraduate education from the University of Pennsylvania and Harvard University Extension School and holds a Master's Degree in History from Brown University. Wayne H. Zarozny is Vice President of The Berkshire Group. Mr. Zarozny has held several positions within The Berkshire Group since joining the company in 1986 and is currently responsible for accounting and financial reporting, treasury, accounts payable and payroll activities. Prior to joining The Berkshire Group, he was an audit supervisor for Pannell Kerr Forster International and on the audit staff of Deloitte, Haskins and Sells in Boston. He received a B.S. degree from Bryant College, a Master's degree in Business Administration from Clark University and is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1997, no person of record owned, or was known by the General Partners to own, beneficially more than 5% of the Partnership's 30,059 outstanding Units. The only interest held by management or its affiliates consist of its General Partner and Limited Partner Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. Additionally, as of December 31, 1997 no person of record owned, or was known by the General Partners to own, beneficially more than 5% of the Partnership's outstanding Units. PART IV ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements - see Index to Financial Statements included under Item 8, Appendix A on page F-2 of this report. 2.Financial Statement Schedules - All schedules are omitted as they are not applicable, not required or the information is provided in the Financial Statements or the Notes thereto. 3.Separate Financial Statements - as required by Rule 3-09 of Regulation S-X. The Separate Financial Statements and Schedule for Krupp Equity Limited Partnership are included under Item 8 (Appendix A) on pages F-16 to F-33 of this report. (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 Limited Partnership Agreement dated as of February 14, 1985 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 dated February 15, 1985 (File No. 2-94392)].* (4.2) Amended Certificate of Limited Partnership filed with the Massachusetts Secretary of State on December 13, 1985. [Exhibit 4.2 to Registrant's Report on Form 10-K for the year ended October 31, 1985 (File No. 2-94392)].* (10) Material contracts: (10.1) The form of Master Loan Agreement (including the form of Participating Note and Collateral Pledge Agreement) between the Partnership and Krupp Equity Limited Partnership ("KELP") [Exhibit C to Prospectus included in Registrant's Registration Statement on Form S-11 dated February 15, 1985 (File No. 2-94392)].* (10.2) Revised basic form of Mortgage to secure payment of the Loans under the Master Loan Agreement [Exhibit 10.3(a) included in Registrant's Registration Statement on Form S-11 dated February 15, 1985 (File No. 2-94392)].* (10.3) Revised form of Promissory Note as executed by the partners of KELP and pledged under the Collateral Pledge Agreement to secure payment of Loans under the Master Loan Agreement. [Exhibit 10.4(b) included in Registrant's Registration Statement on Form S-11 dated February 15, 1985 (File No. 2-94392)].* Northeast Plaza Shopping Center (10.4) Promissory Note of KELP, dated September 12, 1985, payable to the Partnership. [Exhibit 5 to Registrant's Report on Form 8-K dated September 12, 1985 (File No. 2-94392)].* (10.5) Collateral Mortgage and Collateral Chattel Mortgage Note from KELP dated September 12, 1985. [Exhibit 6 to Registrant's Report on Form 8-K dated September 12, 1985 (File No. 2-94392)].* (10.6) Act of Collateral Mortgage and Collateral Chattel Mortgage by KELP in favor of the Partnership dated September 12, 1985. [Exhibit 7 to Registrant's Report on Form 8-K dated September 12, 1985 (File No. 2-94392)].* (10.7) Act of Pledge and Pawn of Collateral Mortgage and Collateral Chattel Mortgage Note dated September 12, 1985 between KELP and the Partnership. [Exhibit 8 to Registrant's Report on Form 8-K dated September 12, 1985 (File No. 2-94392)].* (10.8) Modification of promissory note dated August 31, 1993 by and between the Partnership and KELP. [Exhibit 10.1 to Registrant's Report on Form 10-Q dated September 30, 1993 (File No. 0- 14378)].* Bell Plaza Shopping Center (10.9) Promissory Note of KELP, dated June 2, 1987, payable to the Partnership [Exhibit 1 to Registrant's Report on Form 8-K dated June 2, 1987 (File No. 0-14378)].* (10.10) Mortgage dated June 2, 1987, from KELP to the Partnership. [Exhibit 2 to Registrant's Report on Form 8-K dated June 2, 1987 (File No. 0-14378)].* *Incorporated by reference. (c) Reports on Form 8-K During the last quarter of the fiscal year ended December 31, 1997, the Partnership did not file any reports on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of April, 1998. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP By: The Krupp Corporation, a General Partner By:/s/ Douglas Krupp Douglas Krupp, President, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 14th day of April, 1998. Signatures Titles /s/ Douglas Krupp President, Co-Chairman (Principal Executive Douglas Krupp Officer) and Director of The Krupp Corporation, a General Partner. /s/ George Krupp Co-Chairman (Principal Executive Officer) and George Krupp Director of The Krupp Corporation, a General Partner. /s/ Wayne H. Zarozny Treasurer of The Krupp Corporation, a General Wayne H. Zarozny Partner. APPENDIX A KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP FINANCIAL STATEMENTS ITEM 8 OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1997 KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS Report of Independent Accountants F-3 Balance Sheets at December 31, 1997 and December 31, 1996 F-4 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 F-5 Statements of Changes in Partners' Equity for the Years Ended December 31, 1997, 1996 and 1995F-6 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 F-7 Notes to Financial Statements F-8 - F-15 Separate Financial Statements - Krupp Equity Limited Partnership F-16 - F-33 All schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Institutional Mortgage Fund Limited Partnership: We have audited the financial statements of Krupp Institutional Mortgage Fund Limited Partnership (the "Partnership") listed in the index on page F-2 of this Form 10-K. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Krupp Institutional Mortgage Fund Limited Partnership as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. As discussed in Note J, Krupp Equity Limited Partnership's remaining properties were sold on January 30, 1998. The sale of KELP's properties and the subsequent pay down of the Partnership's mortgage notes receivable together represent an Event Causing Dissolution, as defined by the Partnership Agreement. As a result, the Partnership will be liquidated in 1998. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 6, 1998 KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP BALANCE SHEETS December 31, 1997 and 1996
ASSETS 1997 1996 Mortgage notes receivable, net of loan loss reserve of $15,851,013 and $16,524,000, respectively (Notes C, D and E) $ 7,614,449 $ 6,973,754 Cash and cash equivalents (Note F) 1,110,110 1,112,524 Accrued interest receivable - mortgage notes, net of reserve for uncollectible interest of $14,638,760 and $12,225,634, respectively (Notes C, D and E) 83,585 115,272 Due from affiliates (Note H) - 16,250 Other assets 4,375 1,672 Total assets $ 8,812,519 $ 8,219,472 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 25,200 $ 25,274 Partners' equity (deficit)(Note G): Limited Partners (30,059 Units outstanding)8,999,051 8,411,861 General Partners (211,732) (217,663) Total Partners' equity 8,787,319 8,194,198 Total liabilities and Partners' equity $ 8,812,519 $ 8,219,472
The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 Interest income: Mortgage notes receivable (Notes C, D and E) $ 551,407 $ 497,376 $ 799,092 Cash equivalents (Note F) 73,270 79,000 69,528 Recovery of bad debt - mortgage notes receivable (Note E) 672,987 - - Total income 1,297,664 576,376 868,620 Expenses: Expense reimbursements (Note H)34,895 33,345 49,689 General and administrative 62,395 60,088 53,806 Total expenses 97,290 93,433 103,495 Net income (Note I) $1,200,374 $ 482,943 $ 765,125 Allocation of net income (Note G): Limited Partners (30,059 Units outstanding) $1,188,370 $ 478,114 $ 757,474 Limited Partners Interest Per Unit $ 39.53 $ 15.91 $ 25.20 General Partners $ 12,004 $ 4,829 $ 7,651
The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the Years Ended December 31, 1997, 1996 and 1995
Total Limited General Partners' Partners Partners Equity Balance at December 31, 1994$13,246,687$(168,825) $13,077,862 Distributions (676,327) (6,832) (683,159) Net income 757,474 7,651 765,125 Balance at December 31, 1995 13,327,834 (168,006) 13,159,828 Distributions (5,394,087) (54,486) (5,448,573) Net income 478,114 4,829 482,943 Balance at December 31, 1996 8,411,861 (217,663) 8,194,198 Distributions (Note G) (601,180) (6,073) (607,253) Net income (Note G) 1,188,370 12,004 1,200,374 Balance at December 31, 1997$ 8,999,051$(211,732) $ 8,787,319
The per Unit distributions for the years ended December 1997, 1996 and 1995 were $20.00, $179.45 and $22.50, respectively, none of which represents a return of capital. The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 Operating activities: Net income $1,200,374 $ 482,943 $ 765,125 Adjustments to reconcile net income to net cash provided by operating activities: Recovery of bad debt - mortgage notes receivable (672,987) - - Changes in assets and liabilities: Decrease (increase) in accrued interest receivable - mortgage notes 31,687 (2,968) 118,812 Decrease (increase) in due from affiliates 16,250 (14,675) 9,159 Decrease (increase) in other assets (2,703) 488 (891) Increase (decrease) in liabilities (74) 12,322 (1,372) Net cash provided by operating activities 572,547 478,110 890,833 Investing activity: Principal collections from mortgage notes receivable 32,292 4,822,189 26,460 Financing activity: Distributions (607,253) (5,448,573) (683,159) Net increase (decrease) in cash and cash equivalents (2,414) (148,274) 234,134 Cash and cash equivalents, beginning of year 1,112,524 1,260,798 1,026,664 Cash and cash equivalents, end of year $1,110,110 $ 1,112,524 $ 1,260,798
The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS A.Organization Krupp Institutional Mortgage Fund Limited Partnership (the "Partnership") was formed on November 15, 1984 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Partnership was formed for the purpose of making participating mortgage loans ("the Participating Notes") to Krupp Equity Limited Partnership ("KELP"), in the amount of up to 95% of the proceeds of the offering of units of limited partner interest (the "Units") (see Note D). The Partnership issued all of the General Partner Interests to The Krupp Corporation ("Krupp Corp.") and The Krupp Company Limited Partnership-III ("Krupp Co.-III"), in exchange for capital contributions aggregating $1,000. The General Partners made additional capital contributions of $4,207,560 which equals fourteen percent of the capital contributions of the Investor Limited Partners. The Partnership used these capital contributions to pay costs incurred in connection with its organization and the public offering of Units. On February 21, 1985, the Partnership commenced the marketing and sale of the Units for $1,000 per Unit. The public offering was closed on December 5, 1985, at which time 30,059 Units had been sold. On December 2, 1997, Berkshire Realty Enterprise Limited Partnership, an affiliate of the General Partner of KELP, as agent for KELP, entered into an Agreement of Sale to sell KELP's remaining properties to Kejack, Inc. and its permitted assigns, which are unaffiliated third parties. KELP's properties were included in a package with twelve other properties owned by affiliates of KELP's General Partner. The transaction was consummated subsequent to year end, on January 30, 1998 (see Note J). The sale is considered cause for Dissolution as defined by KELP's Partnership Agreement. Accordingly, the General Partner of KELP expects to liquidate and distribute KELP's remaining assets in 1998. KELP will use the net proceeds of the sale to pay down the mortgage notes payable to the Partnership. As a result of the sale of KELP's properties, certain notes totaling $2,790,388, issued by the original General Partners of KELP, which have been pledged to the Partnership under a Collateral Pledge Agreement, will become due and payable (see Note D). The sale of KELP's properties and the subsequent pay down of KIMF's mortgage notes receivable, represent an Event Causing Dissolution, as defined by KIMF's Partnership Agreement. Accordingly, the General Partners of KIMF expect to liquidate and distribute the Partnership's remaining net assets in 1998. 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 I). Risks and Uncertainties The Partnership invests its cash primarily in deposits and money market funds with commercial banks. The Partnership has not experienced any losses to date on its invested cash. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the reporting period. Actual results could differ from those estimates. Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO 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. Cash equivalents are recorded at cost, which approximates current market value. Provisions for Credit Losses and Accrued Interest Reserves In accordance with Statement of Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan", and Statement of Financial Accounting Standard No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures", the Partnership has implemented policies and practices for assessing impairment of its mortgage loans and the recognition of income on impaired loans. Mortgage notes receivable are recorded at the lower of cost or estimated net realizable value. At December 31, 1997, the estimated net realizable value of the mortgage loans is based on the selling prices of the underlying properties less estimated costs to sell (see Note E). The Partnership recognizes interest income on its impaired loans based on the expected cash flow payments to be received from KELP. Cash flow payments are determined as all cash flow generated by the properties after operating and administrative expenses and senior mortgage obligations. Unpaid interest and late charges are accrued and reserved against. For financial reporting purposes, the Partnership recognizes sales proceeds received from KELP as repayments of principal on the mortgage notes receivable. Income Taxes The Partnership is not liable for federal or state income taxes as Partnership income or loss is allocated to the Partners for income tax purposes. In the event that the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and such examination results in a change in the Partnership's taxable income or loss, such change will be reported to the Partners. C.Mortgage Notes Receivable The Partnership made loans to KELP, an affiliate of the Partnership, as provided under the Master Loan Agreement and Collateral Pledge Agreement (the "Agreements"). Under the terms of the Master Loan Agreement, basic interest accrued at a rate of 7.6% per annum and was payable quarterly, in arrears, on the unpaid principal balance of the Participating Notes which were due on December 31, 1992, however, the Partnership exercised its option to extend the maturity date to December 29, 1995. KELP's properties began experiencing cash flow deficiencies and, beginning with the payment due April 1, 1991, KELP has not been able to fully pay the required quarterly interest payments. The terms of the Master Loan Agreement required KELP to pay the Partnership adjusted basic interest at a rate of 10% per annum, which accrued and was payable quarterly, in arrears, on the unpaid principal balance of the Participating Notes. The Participating Notes matured December 29, 1995. Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued C. Mortgage Notes Receivable, Continued Pursuant to the Agreements, the mortgage notes receivable are cross collateralized by the KELP properties and promissory notes issued by the original General Partners (see Note A). Mortgage notes receivable consisted of the following as of December 31, 1997 and 1996:
Principal Property 1997 1996 Northeast Plaza Shopping Center $ 6,875,471$ 6,907,763 Bell Plaza Shopping Center 5,300,000 5,300,000 Mortgage notes receivable collateralized by properties 12,175,471 12,207,763 Remaining indebtedness from previously owned KELP properties 11,289,991 16,082,950 Mortgage notes receivable before reserve, recovery of bad debt and sales proceeds received from KELP 23,465,462 28,290,713 Less: Sales proceeds received from KELP - (4,792,959) Less: Loan loss reserve (16,524,000) (16,524,000) Plus: Recovery of bad debt 672,987 - Total mortgage notes receivable $ 7,614,449$ 6,973,754
Northeast Plaza Shopping Center ("Northeast Plaza") Northeast Plaza is an 89,224 square foot shopping plaza located in Baton Rouge, Louisiana. On September 12, 1985, the Partnership loaned KELP $6,000,000 collateralized by a second mortgage on Northeast Plaza and the Collateral Pledge Agreement. The non-recourse first mortgage of $994,873, collateralized by Northeast Plaza, matured in 1993. In 1994, the General Partners used a portion of working capital reserves to purchase the first mortgage note in order to preserve the Partnership's equity in the underlying property and became the first lien holder of the property. The maturity date of the note was extended to December 29, 1995 as evidenced by the modification of the promissory note dated August 31, 1993. The note requires monthly payments of $10,135 consisting of principal and interest at the rate of 10% per annum based on a 25-year amortization schedule. The non- recourse first mortgage note had balances of $875,471 and $907,763 at December 31, 1997 and 1996, respectively. Bell Plaza Shopping Center ("Bell Plaza") Bell Plaza is a 43,842 square foot shopping center located in Oak Lawn, Illinois, a suburb of Chicago. On June 2, 1987, the Partnership loaned KELP $5,300,000 collateralized by a first mortgage evidenced by a deed of trust on Bell Plaza and the Collateral Pledge Agreement. Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued C.Mortgage Notes Receivable, Continued During 1996, KELP sold Village Green Apartments and North Salado Village Shopping Center to unaffiliated third parties. The Partnership applied sales proceeds of $4,792,959 received from KELP against the outstanding mortgage notes receivable (see Notes D and J). The average outstanding balances of the mortgage notes receivable were $23,818,102, $25,908,849 and $28,333,173 at December 31, 1997, 1996 and 1995, respectively. The carrying value of the above mentioned mortgage notes receivable reflected in the accompanying balance sheets at December 31, 1997 and 1996 approximates fair value. For further details regarding the Partnership's policies and provisions for losses related to its mortgage notes receivable, see Notes B and E. D.Krupp Equity Limited Partnership KELP was formed on January 3, 1985 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KELP originally issued all of the General Partner Interests to two General Partners, Krupp Corp. and Krupp Co.-III, and issued all of the Limited Partner Interests to Krupp Co.-III. KELP received capital contributions from the two General Partners, Krupp Corp. and Krupp Co-III, totaling $480,000 which consisted of $204,000 in cash and $276,000 in promissory notes. KELP also received $6,984,086 of Limited Partner capital contributions from Krupp Co.-III consisting of cash, the assumption of a note payable to an affiliate in the amount of $1,550,013, and promissory notes in the amount of $2,514,388. These promissory notes, totaling $2,790,388, are pledged as additional collateral for the Participating Notes under the Master Loan Agreement and the Collateral Pledge Agreement (see Note A). As of June 30, 1997, Krupp Co.-III no longer had an interest in KELP, as discussed below. The purpose of KELP is to acquire, manage, operate and sell real estate and personal property; and to borrow funds from the Partnership and other sources to finance the acquisition, management and operation of real estate and personal property related thereto. Pursuant to KELP's disposition strategy, on March 5, 1996, Village Green was sold to an unaffiliated party for $5,200,000. The sale agreement required the buyer to assume the first mortgage note payable on the property of $4,633,989 and as a result, no prepayment penalty was assessed by the holder of the note. The sale resulted in a gain to KELP of $1,457,889, for financial reporting purposes. On May 16, 1996, North Salado was sold to an unaffiliated third party for $7,350,000. The first mortgage note payable of $2,920,405 was paid at the closing and no prepayment penalty was assessed, under the terms of the mortgage note. The sale of the property resulted in a gain of $121,515 to KELP, for financial reporting purposes. The properties were released as collateral by the Partnership for KELP's secondary mortgage obligations. For KELP's financial reporting purposes, sales proceeds paid to KIMF of $4,792,959 were applied against accrued interest in 1996. In 1995, the General Partners of KELP determined that the carrying value of its retail properties exceeded its net realizable value which resulted in an additional valuation adjustment of $586,000 which was charged against earnings. In 1996, no additional adjustments to KELP's remaining real estate investments were required. In 1997, the General Partners recorded recovery of bad debt of $672,987 on its mortgage notes receivable, based on the selling prices of KELP's remaining properties less estimated costs to sell (see Note E). Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued D.Krupp Equity Limited Partnership, Continued On May 13, 1997, KELP acquired all of the beneficial interests in four Delaware business trusts and a 99% member interest in a limited liability company (collectively referred to as the "Entities") for an aggregate purchase price of $32,025,603. KELP acquired the Entities for cash of $3,309,761, subject to their outstanding mortgage balances as of May 13, 1997, totaling $28,715,842. KELP obtained the cash used in the exchange through the proceeds of a loan made by Krupp Co.-III ("Krupp Co.-III Note"), its general partner and limited partner. Each of the Entities acquired owns real property, which is net leased to a national retail franchise. On June 23, 1997, KELP admitted KGP-II Inc., an affiliate of the general partner, as a limited partner in exchange for a capital contribution of $25,252. Subsequently, on June 23, 1997, KELP distributed its interests in the Entities, the related mortgages and the note payable KELP incurred to obtain the Entities in exchange for Krupp Co.-III's entire partnership interest in KELP. The promissory notes due KIMF from Krupp Co.-III, which total $2,767,388 and are pledged as collateral on the participating promissory notes ("Participating Notes"), remain as an obligation of Krupp Co.-III. As of December 31, 1997, the partners of KELP are KGP-II Inc., with a 50.25% limited partner interest and Krupp Corp., with a 49.75% general partner interest. The above transactions had no impact on KELP's ability to make the required quarterly cash flow payment to KIMF, the holder of its Participating Notes, or its ability to meet other obligations with respect to the Participating Notes. On December 2, 1997, Berkshire Realty Enterprise Limited Partnership, an affiliate of the General Partners of KELP, as agent for KELP, entered into an Agreement of Sale to sell KELP's remaining properties (Northeast Plaza Shopping Center and Bell Plaza Shopping Center) to Kejack, Inc. and its permitted assigns, which are unaffiliated third parties. The transaction was consummated subsequent to year end on January 30, 1998. The sale is considered a Terminating Capital Transaction as defined by KELP's Partnership Agreement. Accordingly, the General Partner of KELP expects to liquidate and distribute KELP's remaining assets in 1998. KELP will use the net proceeds of the sale to pay down the mortgage notes payable to the Partnership. As a result of the sale of KELP's properties, certain notes totaling $2,790,388, issued by the original General Partners of KELP, which have been pledged to the Partnership under a Collateral Pledge Agreement, will become due and payable. Separate financial statements for KELP are included on pages F-16 to F-33 of this report. E.Recovery of Bad Debt, Provision for Credit Losses and Accrued Interest Reserves At December 31, 1997, the General Partners of the Partnership recognized recovery of bad debt on its mortgage notes receivable of $672,987, based on the comparison of the net selling prices of KELP's properties to the carrying values of the loans. At December 31, 1997 and 1996, the General Partners of the Partnership had cumulative provisions for credit losses of $15,851,013 and $16,524,000, respectively, recorded on its mortgage notes receivable. Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued E.Recovery of Bad Debt, Provision for Credit Losses and Accrued Interest Reserves, Continued At December 31, 1997 and 1996, the Partnership had cumulative provisions for uncollectible interest of $14,638,760 and $12,225,634 recorded, respectively. These cumulative provisions were recorded against the carrying value of the assets in order to reflect management's estimates of the underlying property values. F.Cash and Cash Equivalents Cash and cash equivalents at December 31, 1997 and 1996 consisted of the following:
1997 1996 Cash and money market accounts$316,218 $316,317 Commercial paper 793,892 796,207 $1,110,110$1,112,524 G.Partners' Equity
Net profits and losses from Partnership operations, excluding Additional Interest on the Participating Notes, shall be determined as of the end of each fiscal year and are allocated ninety-nine percent (99%) to the class of Limited Partners and one percent (1%) to the class of General Partners. Net profits and losses and Distributable Cash from Operations, as defined by Section 5.01 of the Partnership Agreement, allocated to the Limited Partners have been apportioned in the ratio of the number of Units owned per Limited Partner to the total number of Units outstanding. The General Partners' portion of net profits and losses and distributions of Distributable Cash from Operations, as defined, has been allocated proportionately among the General Partners according to their respective invested capital. Distributable Cash from Operations shall be distributed ninety-nine percent (99%) to the class of Limited Partners and one percent (1%) to the class of General Partners. Surplus Funds received by the Partnership, as defined in the Partnership Agreement, are to be allocated differently than that described above. Under the terms of the Partnership Agreement, upon an Event Causing Dissolution defined in the Partnership Agreement, Surplus Funds received by the Partnership in connection with its dissolution and winding up shall be distributed first, to each class of Partners, the aggregate of the then positive balances in the capital accounts of the Partners of such class, second, to the Limited Partners until such class has received the cumulative return on investment, third, to the Limited Partners until such class has received back its invested capital, fourth, to the General Partners until such class has received the cumulative return on investment, fifth, to the General Partners until such class has received back its invested capital, and sixth, 99% to the Limited Partners and 1% to the General Partners. Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued G. Partners' Equity, Continued As of December 31, 1997, the following cumulative Partner contributions and allocations were made since inception of the Partnership:
Total Limited General Partners' Partners Partners Equity Capital contributions $ 30,059,000 $ 4,208,560$ 34,267,560 Syndication costs - (4,157,560) (4,157,560) Distributions (20,911,491) (211,230) (21,122,721) Net loss (148,458) (51,502) (199,960) Balance at December 31, 1997 $ 8,999,051 $ (211,732)$ 8,787,319
H.Related Party Transactions The Partnership reimburses affiliates of the General Partners for certain expenses incurred in connection with the activities of the Partnership including communications, bookkeeping and clerical work necessary in maintaining relations with Limited Partners, and accounting, tax and computer services necessary for the maintenance of the books and records of the Partnership. Due from affiliates consisted of expense reimbursements of $16,250 at December 31, 1996. I.Federal Income Taxes The reconciliations of the net income reported in the accompanying Statement of Operations with the net income reported in the Partnership's federal income tax return for the years ended December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995 Net income per Statement of Operations $1,200,374 $482,943 $ 765,125 Income (expense) recognized for tax not book (672,987) 1,496,640 (3,998) Net income for federal income tax purposes $ 527,387$1,979,583 $ 761,127 The allocation of net income for federal income tax purposes for 1997 is as follows: Portfolio Portfolio Income Expense Total Limited Partners $ 618,430 $ (96,317) $ 522,113 General Partners 6,247 (973) 5,274 $ 624,677 $ (97,290) $ 527,387
The basis of the Partnership's assets for tax purposes exceeds its assets for financial reporting purposes by approximately $25,000,000 at December 31, 1997 and 1996. The tax and book basis of the Partnership's liabilities are the same. Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued J. Subsequent Events The sale of KELP's remaining properties, as discussed in Note A, was consummated on January 30, 1998. The total selling price of the fourteen properties was $138,000,000, of which KELP received $5,027,200 for the sale of its properties, less its share of the closing costs. KELP will use the net proceeds of the sale to pay down its mortgage notes payable to the Partnership. The sale of KELP's properties and the subsequent pay down of the Partnership's mortgage notes receivable together represent an Event Causing Dissolution, as defined by the Partnership Agreement. Accordingly, the General Partners of Partnership expect to liquidate and distribute the Partnership's remaining assets in 1998. As a result of the sale of KELP's remaining properties on January 30, 1998, the Partnership filed a report on Form 8-K on February 3, 1998. On February 27, 1998, KELP remitted sales proceeds of $4,778,696 from the sale of its properties to the Partnership as payment toward its mortgage notes payable. KRUPP EQUITY LIMITED PARTNERSHIP FINANCIAL STATEMENTS For the Year Ended December 31, 1997 KRUPP EQUITY LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-18 Balance Sheets at December 31, 1997 and December 31, 1996 F-19 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 F-20 Statements of Changes in Partners' Deficit for the Years Ended December 31, 1997, 1996 and 1995 F-21 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 F-22 - F-23 Notes to Financial Statements F-24 - F-31 Schedule III - Real Estate and Accumulated Depreciation F-32 - F-33 All other schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Equity Limited Partnership: We have audited the financial statements and the financial statement schedule of Krupp Equity Limited Partnership ("KELP") listed in the index on page F-17 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the KELP's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Krupp Equity Limited Partnership as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Note M, KELP's remaining properties were sold on January 30, 1998. As a result, KELP will be liquidated in 1998. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 6, 1998 KRUPP EQUITY LIMITED PARTNERSHIP BALANCE SHEETS December 31, 1997 and 1996
ASSETS 1997 1996 Real estate assets (Notes C and K): Retail centers, less accumulated depreciation and valuation provisions of $8,032,249 and $3,795,870 at December 31, 1997 and 1996, respectively $ 4,778,696 $3,920,252 Cash and cash equivalents 172,044 194,656 Tenant accounts receivable 7,551 27,281 Other assets (Note D) 79,153 83,601 Total assets $ 5,037,444 $4,225,790 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable to an affiliate (Notes E and K) $28,258,421'$28,290,713 Note payable to an affiliate (Note F) 300,000 300,000 Accrued interest payable to affiliates (Notes E, F, and K) 10,290,445 7,880,286 Due to affiliates (Note J) 670,367 666,702 Other liabilities (Note G) 315,202 386,781 Total liabilities 39,834,435 37,524,482 Commitments and contingencies (Notes H and L) Partners' deficit (Note H): Limited Partner (27,100,496)(26,415,102) General Partner (7,696,495) (6,883,590) Total Partners' deficit (34,796,991)(33,298,692) Total liabilities and Partners' deficit $ 5,037,444 $4,225,790
The accompanying notes are an integral part of the financial statements. KRUPP EQUITY LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 Revenue: Rental (Note I) $ 1,402,999$ 1,707,698$ 3,462,943 Other income 12,669 30,073 16,319 Total revenue 1,415,668 1,737,771 3,479,262 Expenses: Operating (Note J) 47,765 272,836 593,277 Maintenance 59,622 119,291 294,635 Real estate taxes 197,902 305,247 616,677 General and administrative 33,626 33,652 31,405 Interest (Notes E, F and J) 3,331,599 3,166,463 3,692,639 Depreciation and amortization 417,529 779,841 844,628 Property valuation provision (Note C) (1,004,304) - 586,000 Total expenses 3,083,739 4,677,330 6,659,261 Loss before gain on sale of property (1,668,071) (2,939,559) (3,179,999) Gain on sale of property (Note K) - 1,579,404 - Net loss $(1,668,071)$(1,360,155)$(3,179,999) Allocation of net loss (Note H): Limited Partner $ (838,206)$(1,196,936)$(2,798,399) General Partner $ (829,865)$ (163,219)$ (381,600)
The accompanying notes are an integral part of the financial statements. KRUPP EQUITY LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the Years Ended December 31, 1997, 1996 and 1995
Total Limited General Partners' Partner Partner Deficit Balance at December 31,1994$(22,419,767)$(6,338,771)$(28,758,538) Net loss (2,798,399) (381,600) (3,179,999) Balance at December 31, 1995(25,218,166) (6,720,371) (31,938,537) Net loss (1,196,936) (163,219) (1,360,155) Balance at December 31, 1996(26,415,102)(6,883,590) (33,298,692) Redemption of Partnership interest (Note A) 127,560 16,960 144,520 Capital contribution (Note K) 25,252 - 25,252 Net loss (Note H) (838,206) (829,865) (1,668,071) Balance at December 31,1997$(27,100,496)$(7,696,495)$(34,796,991)
The accompanying notes are an integral part of the financial statements. KRUPP EQUITY LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 Operating activities: Net loss $(1,668,071)$ (1,360,155)$(3,179,999) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Property valuation provision (1,004,304) - 586,000 Gain on sale of property - (1,579,404) - Interest earned on replacement reserve escrow - (206) - Depreciation and amortization 417,529 779,841 844,628 Changes in assets and liabilities: Decrease (increase) in cash restricted for tenant security deposits - 23,676 (1,644) Decrease (increase) in tenant accounts receivable 19,730 127,209 (7,650) Decrease in other assets 4,448 297,459 33,599 Increase (decrease) in accrued interest payable to affiliates 2,410,159 (2,291,497) 2,082,644 Increase in accrued interest on affiliate note 35,808 - - Decrease in other liabilities (71,579) (249,852) (44,677) Increase (decrease) in due to affiliates 3,665 (101,035) 98,264 Net cash provided by (used in) operating activities 147,385 (4,353,964) 411,165 Investing activities: Additions to fixed assets (94,823) (244,243) (299,756) Acquisition of Entities (32,025,603) Deposits to replacement reserve escrow - (4,000) (24,000) Withdrawals from replacement reserve escrow - 14,252 17,954 Net consideration received from sale of property - 7,618,290 - Net cash provided by (used in) investing activities (32,120,426) 7,384,299 (305,802) Financing activities: Proceeds of mortgage note payable 28,715,842 - 2,972,130 Increase in deferred mortgage costs - - (103,019) Capital contribution 25,252 - - Increase in due to affiliate 214,761 - Principal payments on mortgage note payable (68,134) (44,885) (127,252) Principal payments to an affiliate (32,292) (29,230) (26,460) Proceeds of note payable from an affiliate 3,095,000 - - Repayment of mortgage note payable - (2,920,405) (2,922,130) Net cash provided by (used in) financing activities31,950,429 (2,994,520) (206,731) Net increase (decrease) in cash and cash equivalents (22,612) 35,815 (101,368) Cash and cash equivalents, beginning of year 194,656 158,841 260,209 Cash and cash equivalents, end of year$172,044 $ 194,656$ 158,841
Continued KRUPP EQUITY LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS, Continued For the Years Ended December 31, 1997, 1996 and 1995 Supplemental schedules of noncash operating, investing and financing activities: KELP distributed its interests in the Entities to The Krupp Company Limited Partnership-III, the related mortgages and the note payable KELP incurred to obtain the Entities in exchange for its entire partnership interest in KELP (see Note K):
1997 1996 1995 Distribution of note payable and and accrued interest from an affiliate $ 3,130,808 $ - $- Distribution of mortgage notes payable 28,647,708 - - Distribution of amounts due to an affiliate 214,630 Distribution of Entities (31,848,626) - - Redemption of Partnership interest $ 144,520 $ - $ -
KELP sold Village Green Apartments and North Salado Shopping Center on March 5, 1996 and May 16, 1996, respectively, for total net consideration received of $7,618,290 and retirement of debt as shown below:
1997 1996 1995 Sales prices $ - $12,550,000$ - Assumption of first mortgage note payable - Village Green - (4,633,989) - Closing costs - (297,721) - Net consideration received from sale of property $ - $ 7,618,290$ -
The accompanying notes are an integral part of the financial statements. KRUPP EQUITY LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS A.Organization Krupp Equity Limited Partnership ("KELP") was formed on January 3, 1985 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KELP originally issued all of the General Partner Interests to two General Partners, The Krupp Corporation ("Krupp Corp.") and The Krupp Company Limited Partnership-III ("Krupp Co.-III"), in exchange for initial capital contributions of $25,000 and $275,000, respectively. The capital contributions of Krupp Corp. and Krupp Co.-III consisted of $2,000 in cash and $23,000 in promissory notes and $22,000 in cash and $253,000 in promissory notes, respectively. KELP also issued all of the Limited Partner Interests to Krupp Co.-III, in exchange for a capital contribution of $2,200,000 consisting of $176,000 in cash and $2,024,000 in promissory notes. During 1988, KELP received additional cash capital contributions of $15,000 and $165,000 from Krupp Corp. and Krupp Co.-III, respectively, as General Partners. From 1988 through 1993, Krupp Co.-III, as the Limited Partner, has made additional contributions in the form of cash totaling $2,743,685, a promissory note for $490,388, and the assumption of a note payable to an affiliate in the amount of $1,550,013. As of June 30, 1997, Krupp Co.-III no longer had an interest in KELP, as discussed below. On June 23, 1997, KELP admitted KGP-II Inc., an affiliate of the General Partner, as a Limited Partner in exchange for a capital contribution of $25,252. Subsequently, KELP distributed its beneficial interests in four Delaware business trusts and a 99% member interest in a limited liability company (collectively referred to as the "Entities"), which was acquired on May 13, 1997 with the proceeds from a loan made by Krupp Co.-III ("Krupp Co.-III Note"), its general partner and limited partner. The distribution of the interests in the Entities, related mortgages and the note payable KELP incurred to obtain the Entities to Krupp Co.- III was in exchange for its entire partnership interest in KELP (see Note K). As of December 31, 1997, the Partners of KELP are KGP-II Inc., with a 50.25% Limited Partner interest, and Krupp Corp., with a 49.75% General Partner interest. Except under certain circumstances upon termination of KELP, the General Partner is not required to make any additional capital contributions. The purpose of KELP is to acquire, manage, operate and sell real estate and personal property; and to borrow funds from Krupp Institutional Mortgage Fund ("KIMF"), an affiliate of KELP, and other sources to finance the acquisition, management and operation of real estate and personal property related thereto. On December 2, 1997, Berkshire Realty Enterprise Limited Partnership, an affiliate of the General Partner of KELP, as agent for KELP, entered into an Agreement of Sale to sell both of KELP's remaining properties (Northeast Plaza Shopping Center and Bell Plaza Shopping Center) to Kejack, Inc. and its permitted assigns, which are unaffiliated third parties. KELP's properties were included in a package owned by affiliates of KELP's General Partner. The transaction was consummated subsequent to year end on January 30, 1998 (see Note M). The sale of the remaining properties is considered cause for Dissolution of KELP, as defined by KELP's Partnership Agreement. Accordingly, the General Partner of KELP expects to liquidate and distribute KELP's remaining assets in 1998. KELP will use the net proceeds of the sale to pay down its mortgage notes payable to KIMF. Continued KRUPP EQUITY LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued B. Significant Accounting Policies KELP uses the following accounting policies for financial reporting purposes, which differ in certain respects from those used for federal income tax purposes: Risks and Uncertainties KELP invests its cash primarily in deposits and money market funds with commercial banks. KELP has not experienced any losses to date on its invested cash. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents KELP includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. Cash equivalents are recorded at cost, which approximates current market value. Rental Revenues Residential leases and the base rent under commercial leases require the payment of rent monthly in advance. In addition, the commercial leases generally contain percentage rent and other provisions which are billed in arrears. Rental revenues are recorded on the accrual basis. Future minimum rental revenue for long-term commercial leases is recognized on a straight-line basis. Depreciation Depreciation of building and improvements is provided for by the use of the straight-line method over estimated useful lives of 3 to 25 years. Tenant improvements are depreciated over the life of the related lease. Impairment of Long-Lived Assets Real estate assets and equipment are stated at depreciated cost. Pursuant to Statement of Financial Accounting Standards Opinion No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", impairment losses are recorded on long- lived assets used in operations on a property by property basis, when events and circumstances indicate that the assets might be impaired and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amount of those assets. Upon determination that an impairment has occurred, those assets shall be reduced to fair value less estimated costs to sell (see Note C). Income Taxes KELP is not liable for federal or state income taxes because KELP's income or loss is allocated to the Partners for income tax purposes. In the event the KELP's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in KELP's taxable income or loss, such change will be reported to the Partners. Continued KRUPP EQUITY LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued C.Property Northeast Plaza Shopping Center ("Northeast Plaza") Northeast Plaza is an 89,224 square foot shopping plaza located in Baton Rouge, Louisiana. The property is pledged as collateral on a non-recourse first mortgage note of $875,471, evidenced by the modification of the promissory note, and a second mortgage note of $6,000,000, evidenced by the Collateral Pledge Agreement (see Note E). Bell Plaza Shopping Center ("Bell Plaza") Bell Plaza is a 43,842 square foot shopping center located in Oak Lawn, Illinois, a suburb of Chicago. The property is pledged as collateral on a $5,300,000 first mortgage note evidenced by a Deed of Trust on Bell Plaza and the Collateral Pledge Agreement (see Note E). In accordance with Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", at December 31, 1996, KELP recorded a cumulative property valuation provision of $5,000,000 on its real estate assets which represented the difference between carrying value of its properties and estimated fair value less costs to sell. At December 31, 1997, KELP adjusted the cumulative property valuation provision to $3,995,696 based on the selling prices of the properties less estimated costs to sell (see Note M). D.Other Assets Other assets consisted of the following at December 31, 1997 and 1996:
1997 1996 Prepaid rent $ 26,536 $ 43,160 Deferred expenses, net 29,205 40,145 Other assets 23,412 296 $ 79,153 $ 83,601
E. Mortgage Notes Payable to an Affiliate The property owned by KELP is pledged as collateral for several non-recourse participating promissory notes ("Participating Notes") evidencing loans, made by KIMF, to KELP. In addition, KELP executed a Master Loan Agreement and Collateral Pledge Agreement (the "Agreements") in favor of KIMF under which KELP provided, as additional collateral on the Participating Notes, promissory notes totaling $2,790,388 (see Note A). The terms of the Agreements required KELP to pay KIMF basic interest monthly at a rate of 7.6% per annum which was payable quarterly, in arrears, on the unpaid principal balance of the Participating Notes. The Participating Notes were due on December 31, 1992, however, KELP exercised its option to extend the maturity date to December 29, 1995. Upon the extension of the maturity date, the terms of the Master Loan Agreement required payments of adjusted basic interest at a rate of 10% per annum which is payable quarterly, in arrears, on the unpaid principal balance of the Participating Notes. The Participating Notes have technically matured. KELP's properties began experiencing cash flow deficiencies and, beginning with the payment due April 1, 1991, KELP has not been able to fully pay the required quarterly interest payments. Continued KRUPP EQUITY LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued E.Mortgage Notes Payable to an Affiliate, Continued As a result of KELP's difficulties: 1) KELP has remitted to KIMF all cash flow generated by the properties after operating and administrative expenses and senior mortgage obligations, $493,771 and $402,024 in 1997 and 1996, respectively, and KIMF has not exercised its foreclosure remedies under the Master Loan Agreements with respect to KELP's defaults; 2) interest and late charges on KELP's Participating Notes have continued to accrue; 3) since 1991, as a consequence of the default, the management agent of KELP's properties (an affiliate of its General Partner) has continued to serve even though it is not receiving any payment of property management fees; 4) KELP has remitted to KIMF net proceeds of the properties sold, after repayment of senior obligations. KIMF is the holder of a non-recourse first mortgage note on Northeast Plaza. The maturity date was December 29, 1995. The note, which had a balance of $875,471 at December 31, 1997, requires monthly payments of $10,135 consisting of principal and interest at the rate of 10% per annum based on a 25-year amortization schedule. Mortgage notes payable to an affiliate at December 31, 1997 and 1996 consisted of the following:
1997 1996 Northeast Plaza $ 6,875,471$ 6,907,763 Bell Plaza 5,300,000 5,300,000 Mortgage notes payable collateralized by properties 12,175,471 12,207,763 Mortgage notes payable from previously owned properties, cross-collateralized by above properties 16,082,950 16,082,950 Total mortgage notes payable to an affiliate $28,258,421$28,290,713
F.Note Payable to an Affiliate At December 31, 1997 and 1996, affiliated debt consisted of a demand note of $300,000 and accrued interest of $361,070 and $322,350, respectively. The demand note payable to an affiliate had an interest rate of prime rate of an unaffiliated bank (8.5% and 8.25% at December 31, 1997 and 1996, respectively) plus 1% per annum based on a 360-day year. During the years ended December 31, 1997 and 1996, interest expensed on the note payable to an affiliate totaled $28,721 and $28,277, respectively. Continued KRUPP EQUITY LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued G. Other Liabilities Other liabilities consisted of the following at December 31, 1997 and 1996:
1997 1996 Accrued real estate taxes $159,999 $170,000 Tenant security deposits 23,168 24,656 Accrued insurance 106,671 166,484 Other accrued expenses 25,353 25,641 $315,191 $386,781
H. Partners' Deficit Under the terms of KELP's Partnership Agreement, profits and losses from operations and cash distributions are generally allocated in accordance with the General and Limited Partners' respective percentage interests in KELP. At December 31, 1997, 1996 and 1995 the respective percentage interest was 49.75%, 12% and 12%, respectively, to the General Partner and 50.25%, 88% and 88%, respectively, to the Limited Partner. However, in the case of certain events defined in the Partnership Agreement, the allocation of the related profits and losses could be different than described above. Under the terms of KELP's Partnership Agreement, Krupp Co.-III, in its original capacity as sole Limited Partner, agreed to fund cash deficits from the operations of KELP up to $3,200,000, in the form of additional capital contributions. Krupp Co.-III has contributed $4,293,698 to fund cash deficits, including the assumption of a note payable to an affiliate in the amount of $1,550,013. In addition, Krupp Co.-III, in its original capacity as sole Limited Partner, agreed to make additional capital contributions to KELP in the form of additional promissory notes based on a pre-established formula disclosed in KELP's Partnership Agreement, if KELP borrowed in excess of $20,000,000 from KIMF. Accordingly, Krupp Co.-III issued additional promissory notes to KELP totaling $490,388 to bring its total promissory notes as General and Limited Partner in KELP to $2,767,388. The remaining promissory notes of $23,000 are from Krupp Corp. As discussed in Note E, these promissory notes are pledged as additional collateral on the Participating Notes. Under the terms of KELP's Partnership Agreement, upon Dissolution of KELP, the assets shall first be applied to payment of, or the establishment of adequate reserves for the future payment of, the debts of or obligations of KELP, including loans by Partners and Affiliated Persons and accrued interest thereon. The remaining assets of KELP shall then be distributed to the Partners up to the positive balance, if any, in their respective capital accounts, after crediting or charging to such accounts the profits, losses and credits from any Capital Transaction(s) occurring prior to or in connection with such Dissolution. Continued KRUPP EQUITY LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued H. Partners' Deficit, Continued As of December 31, 1997, the following cumulative Partner contributions, distributions and allocations have been made since the inception of KELP:
Limited General Partner Partner Total Capital contributions $ 7,009,338 $ 480,000 $ 7,489,338 Promissory notes receivable(2,514,388) (276,000) (2,790,388) Distributions (271,111) (36,970) (308,081) Redemption of Partnership interest 127,560 16,960 144,520 Net loss from operations (31,451,895) (7,880,485) (39,332,380) Balance at December 31, 1997 $(27,100,496)$(7,696,495)$(34,796,991)
I. Future Base Rents Due Under Commercial Operating Leases As a result of the sale of KELP's properties, subsequent to year end, all commercial property leases were assumed by the buyer (see Note M). J. Related Party Transactions KELP entered into property management agreements with an affiliate of the General Partner which provides for management fees payable monthly at a rate of up to 6% of the gross receipts from commercial properties under management. Since 1991, the management agent has waived its right to payment of management fees. KELP reimburses affiliates of the General Partner for certain expenses incurred in connection with the operation of KELP and its properties, including administrative expenses. During the year ended December 31, 1997, 1996 and 1995 amounts accrued or paid to affiliates of the General Partner were as follows:
1997 1996 1995 Expense reimbursements $ 20,394 $ 55,854 $ 104,731 Interest on note payable to affiliate 28,721 28,277 30,183 Interest on mortgage notes payable to KIMF, including late charges 2,964,533 2,967,594 2,970,364 Charged to operations $3,013,648 $3,051,725 $3,105,278
At December 31, 1997 and 1996, due to affiliates consisted of expense reimbursements of $670,367 and $666,702, respectively. Continued KRUPP EQUITY LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued K. Disposition of Property On March 5, 1996, KELP sold Village Green Apartments to an unaffiliated third party for $5,200,000. The Sale Agreement required the buyer to assume the first mortgage note payable on the property of $4,633,989, and as a result, no prepayment penalty was assessed. KELP remitted $585,959 to KIMF as available sale proceeds, net of closing costs. The sale resulted in a gain to KELP of $1,457,889 for financial reporting purposes. On May 16, 1996, KELP sold North Salado Village Shopping Center to an unaffiliated third party for $7,350,000. The outstanding first mortgage note payable on the property of $2,920,405, was paid at the closing and no prepayment penalty was assessed, under the terms of the mortgage note. As a result of the sale, KELP remitted $4,207,000 to KIMF as sale proceeds, net of closing costs. The sale resulted in a gain of $121,515 to KELP for financial reporting purposes. Subsequent to the sales, the properties were released as collateral by KIMF for KELP's secondary mortgage obligations. Additionally, KELP remitted sales proceeds, net of closing costs, of $4,792,959 to KIMF which KELP applied against the outstanding accrued interest on the Participating Notes. On May 13, 1997, KELP acquired all of the beneficial interests in four Delaware business trusts and a 99% member interest in a limited liability company (collectively referred to as the "Entities") for an aggregate purchase price of $32,025,603. KELP acquired the Entities for cash of $3,309,761, subject to their outstanding mortgage balances as of May 13, 1997, totaling $28,715,842. KELP obtained the cash used in the exchange through the proceeds of a loan made by Krupp Co.-III ("Krupp Co.-III Note"), its General Partner and Limited Partner. Each of the Entities acquired owns real property, which is net leased to a national retail franchise. On June 23, 1997, KELP admitted KGP-II Inc., an affiliate of the General Partner, as a Limited Partner in exchange for a capital contribution of $25,252. Subsequently, on June 23, 1997, KELP distributed its interests in the Entities to Krupp Co.-III and the note payable KELP incurred to obtain the Entities in exchange for its entire partnership interest in KELP. The promissory notes due KIMF from Krupp Co.- III, which total $2,767,388 and are pledged as collateral on the participating promissory notes ("Participating Notes"), remain as an obligation of Krupp Co.-III. The above transactions had no impact on KELP's ability to make the required quarterly cash flow payment to KIMF, the holder of its Participating Notes, or its ability to meet other obligations with respect to the Participating Notes. Subsequent to year end, KELP's remaining properties were sold to unaffiliated third parties (see Note M). Continued KRUPP EQUITY LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued L. Legal Proceeding KELP was named in a lawsuit filed during 1996, in which the plaintiff has stated a claim for a brokerage commission in the amount of $260,000 as a result of the sale of Village Green Apartments. In 1993, the plaintiff fortuitously found a party interested in purchasing Village Green Apartments from the defendant, however, no purchase was ultimately negotiated, as the prospective purchaser would not meet the KELP's asking price. In October, 1995, negotiations were rekindled and KELP entered into a purchase and sale agreement and consummated the sale in March, 1996. The plaintiffs have filed suit seeking a full commission, $260,000, calculated as 5% of the selling price, related to the sale. The plaintiffs did not have a written brokerage agreement and were not the procuring cause of the ultimate sale of the property, however they did introduce the parties to the ultimate transaction. The outcome of this litigation cannot be presently determined and accordingly, no provision for loss has been made in the accompanying financial statements. M. Federal Income Taxes The basis of the KELP's assets for tax purposes exceeds its basis for financial reporting purposes by approximately $33,000,000 and $4,000,000 at December 31, 1997 and 1996, respectively. The basis of the KELP's liabilities for financial reporting purposes exceeds its tax basis by approximately $21,000 and $0 at December 31, 1997 and 1996, respectively. N. Subsequent Events The sale of KELP's remaining two properties, as discussed in Note A, was consummated on January 30, 1998. The total selling price of the fourteen properties in the package was $138,000,000, of which KELP received $5,027,200 for the sale of its properties, less its share of the closing costs. The sale is considered cause for Dissolution of KELP, as defined by KELP's Partnership Agreement. Accordingly, the General Partner expects to liquidate and distribute the remaining assets of KELP in 1998. All distributions of net cash proceeds from the Dissolution shall be governed by Section 9.3 of KELP's Partnership Agreement as discussed above in Note H. On February 27, 1998, KELP remitted net sales proceeds of $4,778,696, from the sale of its properties to KIMF as payment toward its mortgage notes payable. KRUPP EQUITY LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Costs Capitalized Subsequent to Initial Costs to KELP Acquisition Buildings Buildings and and Depreciable Description Encumbrances Land Improvements Improvements Life Northeast Plaza Shopping Center Baton Rouge, LA $6,875,471 $1,673,734 $ 5,083,848 $ 490,240 3 to 25 years Bell Plaza Shopping Center Oak Lawn, IL 5,300,000 1,014,257 4,323,017 225,849 3 to 25 years Total $12,175,471$2,687,991$ 9,406,865 $ 716,089 Gross Amounts Carried at End of Year Accumulated Depreciation Buildings and Year and Valuation Year Construction Description Land Improvements Total Provisions Acquired Completed Northeast Plaza Shopping Center Baton Rouge, LA $1,673,734 $5,574,088 $ 7,247,822 $ 3,778,385 1985 1981 Bell Plaza Shopping Center Oak Lawn, IL 1,014,257 4,548,866 5,563,123 4,253,864 1987 1987 Total $2,687,991 $10,122,954 $12,810,945 $ 8,032,249
Continued KRUPP EQUITY LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued December 31, 1997 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1997:
1997 1996 1995 Real Estate Balance at beginning of year$12,716,122$ 30,939,510 $30,660,597 Acquisition and improvements 94,823 244,243 278,913 Sale of property - (18,467,631) - Balance at end of year $12,810,945 $ 12,716,122 $30,939,510 Accumulated Depreciation and Valuation Provision 1997 1996 1995 Balance at beginning of year$ 3,795,870$ 15,604,605 $ 9,380,069 Property revaluation 3,995,696 5,000,000 5,400,000 Depreciation expense 240,683 400,020 824,536 Sale of property - (17,208,755) - Balance at end of year $ 8,032,249 $ 3,795,870 $15,604,605
Note:KELP uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost for federal income tax purposes at December 31, 1997 is approximately $43,000,000 and the aggregate accumulated depreciation for federal income tax purposes is approximately $6,000,000. EX-27 2
5 This schedule contains summary financial information extracted from Krupp Institutional Mortgage Fund Limited Partnership Financial Statements for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1999 DEC-31-1997 1,110,110 0 24,138,449 (16,524,000) 0 87,960 0 0 8,812,519 25,200 0 0 0 8,787,319 0 8,812,519 0 1,297,664 0 0 97,290 0 0 0 0 0 0 0 0 1,200,374 0 0 Represents Limited Partners equity of $8,999,051 and General Partners deficit of ($211,732), respectively. Net income allocated $12,004 to the General Partners and $1,188,370 to the Limited Partners. Average net income per Unit of Limited Partners interest is $39.53 on 30,059 Units outstanding.
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