-----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, KzFDnRGRJRzavM6Mjte3u1Pd+frDeF57zbGT+j1Lbtdhr4QwQxnQ3xt5tjtyoM0u d/ixExvBu1cOb2lh+heVmQ== 0000805297-00-000007.txt : 20000515 0000805297-00-000007.hdr.sgml : 20000515 ACCESSION NUMBER: 0000805297-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSURED PLUS II LTD PARTNERSHIP CENTRAL INDEX KEY: 0000805297 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 042955007 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16817 FILM NUMBER: 627652 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 KRUPP INSURED PLUS II LIMITED PARTNERSHIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-16817 Krupp Insured Plus-II Limited Partnership Massachusetts 04-2955007 (State or other jurisdiction (IRS employer identification no.) of incorporation or organization) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (617) 523-0066 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP BALANCE SHEETS ASSETS March 31, December 31, 2000 1999 Participating Insured Mortgages ("PIMs") $ 17,730,181 $ 26,224,388 (Note 2) Mortgage-Backed Securities and insured mortgage ("MBS") (Note 3) 21,947,203 22,277,956 Total mortgage investments 39,677,384 48,502,344 Cash and cash equivalents (Note 2) 4,507,483 11,093,183 Interest receivable and other assets 277,636 378,286 Prepaid acquisition fees and expenses, net of accumulated amortization of $667,667 and $1,203,575, respectively 131,810 179,095 Prepaid participation servicing fees, net of accumulated amortization of $0 and $200,032, respectively - 9,085 Total assets $ 44,594,313 $ 60,161,993 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 13,361 $ 19,948 Partners' equity (deficit) (Note 4): Limited Partners (14,655,512 Limited Partner interests outstanding) 44,844,183 60,360,347 General Partners (335,168) (323,383) Accumulated comprehensive income 71,937 105,081 Total Partners' equity 44,580,952 60,142,045 Total liabilities and partners' equity $ 44,954,313 $ 60,161,993 The accompanying notes are an integral part of the financial statements
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Three Months Ended March 31, 2000 1999 Revenues: Interest income - PIMs: Basic interest $ 386,555 $ 1,077,753 Interest income - MBS 428,160 479,477 Other interest income 136,526 212,212 Total revenues 951,241 1,769,442 Expenses: Asset management fee to an affiliate 79,642 144,466 Expense reimbursements to affiliates 27,127 6,365 Amortization of prepaid fees and expenses 56,370 409,754 General and administrative 13,408 21,831 Total expenses 176,547 582,416 Net income 774,694 1,187,026 Other comprehensive income: Net change in unrealized gain on MBS (33,144) 81,829 Total comprehensive income (Note 4): $ 741,550 $ 1,268,855 Allocation of net income (Note 4): Limited Partners $ 751,453 $1,151,415 Average net income per Limited Partner interest (14,655,512 Limited Partner interests outstanding) $ .05 $ .08 General Partners $ 23,241 $ 35,611
The accompanying notes are an integral part of the financial statements
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2000 1999 Operating activities: Net income $ 774,694 $ 1,187,026 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 56,370 409,754 Changes in assets and liabilities: Decrease in interest receivable and other assets 100,650 185,703 (Decrease) increase in liabilities (6,587) 71,048 Net cash provided by operating activities 925,127 1,853,531 Investing activities: Principal collections on PIMs 8,494,207 28,088,174 Principal collections on MBS 297,609 715,974 Net cash provided by investing activities 8,791,816 28,804,148 Financing activities: Quarterly Distributions (1,500,577) (4,179,743) Special Distributions (14,802,066) (28,871,360) Net cash used for financing activities (16,302,643) (33,051,103) Net decrease in cash and cash equivalents (6,585,700) (2,393,424) Cash and cash equivalents, beginning of period 11,093,183 8,758,737 Cash and cash equivalents, end of period $ 4,507,483 $ 6,365,313 Non cash activities: Increase (decrease) in Fair Value of MBS $ (33,144) $ 81,829
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS 1. Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this report on Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of the general partners, Krupp Plus Corporation and Mortgage Services Partners Limited Partnership, (collectively the "General Partners") of Krupp Insured Plus-II Limited Partnership (the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Financial Statements included in the Partnership's Form 10-K for the year ended December 31, 1999 for additional information relevant to significant accounting policies followed by the Partnership. In the opinion of the General Partners of the Partnership, the accompanying unaudited financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Partnership's financial position as of March 31, 2000 and the results of operations and cash flows for the three months ended March 31, 2000 and 1999. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results which may be expected for the full year. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. 2. PIMs On March 30, 2000, the Partnership paid a special distribution of $.58 per Limited Partner interest from the prepayment proceeds received on the Greenhouse Apartments PIM in the amount of $8,428,984 during February 2000. The underlying property was foreclosed on by the first mortgage lender during January 1999. The Partnership continued to receive its full principal and basic interest payments due on the PIM while the underlying mortgage was in default because those payments were guaranteed by GNMA. The Partnership did not receive any participation income from this transaction. On January 11, 2000, the Partnership paid a special distribution of $.43 per Limited Partner interest from the Saratoga Apartment PIM prepayment proceeds in the amount of $6,204,960, received in December 1999. The underlying property value had not increased sufficiently enough to meet the criteria for the Partnership to earn any participation income. At March 31, 2000, the Partnership's two remaining PIMs have a fair market value of $17,527,877 and gross unrealized gains and losses of $15,912 and $218,216, respectively. The Partnership's PIMs have maturities ranging from 2023 to 2024. 3. MBS At March 31, 2000, the Partnership's MBS portfolio has an amortized cost of $10,139,820 and unrealized gains and losses of $225,645 and $153,708, respectively. At March 31, 2000 the Partnership's insured mortgage had an amortized cost of $11,735,446. Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued 4. Changes in Partners' Equity A summary of changes in Partners' Equity for the three months ended March 31, 2000 is as follows: Accumulated Total Limited General Comprehensive Partners' Partners Partners Income Equity Balance at December 31, 1999 $ 60,360,347 $ (323,383) $ 105,081 $ 60,142,045 Net income 751,453 23,241 - 774,694 Quarterly distributions (1,465,551) (35,026) - (1,500,577) Special distributions (14,802,066) - - (14,802,066) Change in unrealized gain on MBS - - (33,144) (33,144) Balance at March 31, 2000 $ 44,844,183 $ (335,168) $ 71,937 $ 44,580,952
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 most significant demands on the Partnership's liquidity are the quarterly distributions paid to investors of approximately $1.5 million. Funds for investor distributions come from the monthly principal and interest payments received on the PIMs and MBS, the principal prepayments of the PIMs and MBS, and interest earned on the Partnership's cash and cash equivalents. In general, the General Partners try to set a distribution rate that provides for level quarterly distributions. To the extent that quarterly distributions do not fully utilize the cash available for distribution and cash balances increase, the General Partners may adjust the distribution rate or distribute such funds through a special distribution. The portion of distributions attributable to the principal collections reduces the capital resources of the Partnership. As the capital resources decrease, the total cash flows to the Partnership also will decrease and over time will result in periodic adjustments to the distributions paid to investors. The General Partners periodically review the distribution rate to determine whether an adjustment is necessary based on projected future cash flows. At this time the General Partners have determined that the Partnership can maintain its current distribution rate of $.40 per Limited Partner interest per year. In addition to providing insured or guaranteed monthly principal and basic interest payments, the Partnership's PIM investments also may provide additional income through its participation feature in the underlying properties if they operate successfully. The Partnership may receive a share in any operating cash flow that exceeds debt service obligations and capital needs or a share in any appreciation in value when the properties are sold or refinanced. However, this participation is neither guaranteed nor insured, and it is dependent upon whether property operations or its terminal value meet certain criteria. On March 30, 2000, the Partnership paid a special distribution of $.58 per Limited Partner interest from the prepayment proceeds received on the Greenhouse Apartments PIM in the amount of $8,428,984 during February 2000. The underlying property was foreclosed on by the first mortgage lender during January 1999. The Partnership continued to receive its full principal and basic interest payments due on the PIM while the underlying mortgage was in default because those payments were guaranteed by GNMA. The Partnership did not receive any participation income from this transaction. On January 11, 2000, the Partnership paid a special distribution of $.43 per Limited Partner interest from the Saratoga Apartment PIM prepayment proceeds in the amount of $6,204,960, received in December 1999. The underlying property value had not increased sufficiently enough to meet the criteria for the Partnership to earn any participation income. The Partnership's only remaining PIM investments are the GNMA securities backed by the first mortgage loans on Denrich Apartments and Richmond Park. Both properties are thirty years old, and as they have aged, rental rate increases have not kept pace with the increasing costs of maintenance, repairs and replacements. Denrich Apartments does not compete successfully in the Philadelphia neighborhood where it is located. Occupancy, which generally fluctuates in the mid 80% range, is adversely affected by cash constraints that have lead to extensive deferred maintenance. Denrich Apartments operates under a long term workout agreement with the Partnership that expires at the end of 2000. The General Partners anticipate the workout will be renegotiated and extended under similar terms. Richmond Park maintains its position in the stable, older Cleveland suburb where it is located. Occupancy generally hovers in the low 90% range, but because the neighborhood does not support significant rental rate increases, the property only generates sufficient cash flow for adequate maintenance and not enough to provide for major capital improvements. Based on these conditions, the General Partners do not expect the Partnership will receive significant participation income from the operations of either of the remaining PIM investments. During the first five years, borrowers are prohibited from prepaying the first mortgage loans underlying the PIMs. During the second five years, borrowers may prepay the loans by incurring a prepayment penalty. The Partnership has the option to call certain PIMs by accelerating their maturity if they are not prepaid by the tenth year after permanent funding. The General Partners will determine the merits of exercising the call option for each PIM as economic conditions warrant. Such factors as the condition of the asset, local market conditions, the interest-rate environment and availability of financing will affect those decisions. Results of Operations The following discussion relates to the operation of the Partnership during the three months ended March 31, 2000 and 1999. Net income decreased by approximately $412,000 during the three months ended March 31, 2000 as compared to the same period ending 1999. This decrease was due primarily to lower basic interest on PIMs, other interest income and interest income on MBS of approximately $691,000, $76,000 and $51,000, respectively. This was partially offset by decreases in asset management fees and amortization expense, of approximately $65,000 and $353,000 respectively. The reduction in basic interest on PIMs is due to the payoff of the Greenhouse Apartments PIM in 2000 and the Saratoga, Carlyle Court, Hillside Court, Stanford Court, Waterford Court, Country Meadows and Le Coeur du Monde PIMs in 1999. Other interest income decreased due to significantly lower average cash balances available for short-term investing in the three month period ending 2000 versus the same period ending 1999. The decrease in MBS interest income was due to the on-going prepayment of the Partnership's single-family MBS. Asset management fees decreased during the first quarter of 2000 as compared to the same period in 1999 due to the prepayments and principal collections reducing the Partnership's mortgage investments. Amortization expense was greater during the first quarter of 1999 as a result of the full amortization of the remaining prepaid fees and expenses of the Carlyle Court, Hillside Court, Stanford Court and Waterford Court PIMs. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by the Government National Mortgage Association ("GNMA"), Fannie Mae, the Federal Home Loan Mortgage Corporation ("FHLMC") or the United States Department of Housing and Urban Development ("HUD") and therefore the certainty of their cash flows and the risk of material loss of the amounts invested depends on the creditworthiness of these entities. Fannie Mae is a federally chartered private corporation that guarantees obligations originated under its programs. FHLMC is a federally chartered corporation that guarantees obligations originated under its programs and is wholly-owned by the twelve Federal Home Loan Banks. These obligations are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA guarantees the full timely payment of principal and basic interest on the securities it issues, which represents interest in pooled mortgages insured by HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by the full faith and credit of the U.S. Government. At March 31, 2000 the Partnership includes in cash and cash equivalents approximately $4.4 million of commercial paper, which is issued by entities with a credit rating equal to one of the top two rating categories of a nationally recognized statistical rating organization. Interest Rate Risk The Partnership's primary market risk exposure is to interest rate risk, which can be defined as the exposure of the Partnership's net income, comprehensive income or financial condition to adverse movements in interest rates. At March 31, 2000, the Partnership's PIMs and MBS comprise the majority of the Partnership's assets. As such, decreases in interest rates may accelerate the prepayment of the Partnership's investments. The Partnership does not utilize any derivatives or other instruments to manage this risk as the Partnership plans to hold all of its investments to expected maturity. The Partnership monitors prepayments and considers prepayment trends, as well as distribution requirements of the Partnership, when setting regular distribution policy. For MBS, the Partnership forecasts prepayments based on trends in similar securities as reported by statistical reporting entities such as Bloomberg. For PIMs, the Partnership incorporates prepayment assumptions into planning as individual properties notify the Partnership of the intent to prepay or as they mature. KRUPP INSURED PLUS-II LIMITED PARTNERSHIP PART II - OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other information Response: None Item 6. Exhibits and Reports on Form 8-K Response: None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Krupp Insured Plus-II Limited Partnership (Registrant) BY: Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp Plus Corporation, a General Partner. Date: April 28, 2000 EX-27 2 FDS--
5 The schedule contains summary financial information extracted from the balance sheet and statement of income and is qualified in its entirety by reference to such financial statements. 0000805297 KRUPP INSURED PLUS-II LIMITED PARTNERSHIP 3-MOS Dec-31-2000 Mar-31-2000 4,507,483 39,677,384 277,636 0 0 131,810 0 0 44,594,313 13,361 0 0 0 44,509,015 71,937 44,594,313 0 951,241 0 0 176,547 0 0 774,694 0 774,694 0 0 0 774,694 0 0 Includes Participating Insured Mortgages ("PIMs") of $17,730,181 and Mortgage-Backed Securities ("MBS") of $21,947,203. Includes prepaid acquisition fees and expenses of $799,477 net of accumulated amortization of $667,667. Represents total equity of General Partners and Limited Partners. General Partners deficit of ($335,168) and Limited Partners equity of $44,844,183. Unrealized gains on MBS. Represents interest income on investments in mortgages and cash. Includes $56,370 of amortization of prepaid fees and expenses. Net income allocated $23,241 to the General Partners and $751,453 to the Limited Partners. Average net income per Limited Partner interest is $.05 on 14,655,512 Limited Partner interests outstanding.
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