-----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, Qurw0KfNunrQpS6hclYvxAn0S9sP2sj8huEvGwg7HWU0wzKwXHUUCTe7HaowDPEX vskaVfKgFJTp2V6tA7oGMA== 0000832091-96-000013.txt : 19961106 0000832091-96-000013.hdr.sgml : 19961106 ACCESSION NUMBER: 0000832091-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961104 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSURED PLUS III LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000832091 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 043007489 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17691 FILM NUMBER: 96653905 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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 0-17691 Krupp Insured Plus-III Limited Partnership Massachusetts 04-3007489 (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) (617) 423-2233 (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-III LIMITED PARTNERSHIP BALANCE SHEETS ASSETS
September 30, December 31, 1996 1995 Participating Insured Mortgages ("PIMs") (Note 2) $139,580,393 $151,465,652 Mortgage-Backed Securities and insured mortgages ("MBS")(Note 3) 33,281,746 36,693,963 Total mortgage investments 172,862,139 188,159,615 Cash and cash equivalents 4,818,146 3,433,885 Interest receivable and other assets 1,182,333 1,924,402 Prepaid acquisition expenses and fees, net of accumulated amortization of $6,443,610 and $6,091,012, respectively 5,032,648 6,240,051 Prepaid participation servicing fees, net of accumulated amortization of $2,186,949 and $2,084,200, respectively 1,616,299 2,002,332 Total assets $185,511,565 $201,760,285 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 13,841 $ 14,756 Partners' equity (deficit) (Note 4): Limited Partners 185,665,224 200,575,459 (12,770,261 Limited Partner interests outstanding) General Partners (134,664) (102,556) Unrealized (loss) gain on MBS (32,836) 1,272,626 Total Partners' equity 185,497,724 201,745,529 Total liabilities and Partners' equity $185,511,565 $201,760,285
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP STATEMENTS OF INCOME
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1996 1995 1996 1995 Revenues: Interest income - PIMs: Base interest $2,754,783 $3,007,345 $ 8,592,781 $ 9,146,674 Participation interest 1,279,146 84,476 1,279,146 519,553 Interest income - MBS 664,957 754,076 2,047,727 2,198,378 Interest income - other 75,429 49,014 177,775 149,347 Total revenues 4,774,315 3,894,911 12,097,429 12,013,952 Expenses: Asset management fee to an affiliate 334,049 355,579 1,027,330 1,058,696 Expense reimbursements to affiliates 46,986 51,402 132,883 152,318 Amortization of prepaid expenses and fees 816,619 405,610 1,593,436 1,216,829 General and administrative 35,725 47,542 96,391 127,365 Total expenses 1,233,379 860,133 2,850,040 2,555,208 Net income $3,540,936 $3,034,778 $ 9,247,389 $ 9,458,744 Allocation of net income (Note 4): Limited Partners $3,434,708 $2,943,735 $ 8,969,967 $ 9,174,982 Average net income per Limited Partner interest (12,770,261 Limited Partner interests outstanding) $ .27 $ .23 $ .70 $ .72 General Partners $ 106,228 $ 91,043 $ 277,422 $ 283,762
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 1995 Operating activities: Net income $ 9,247,389 $ 9,458,744 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid expenses and fees 1,593,436 1,216,829 Prepayment penalty (1,013,411) - Changes in assets and liabilities: Decrease in interest receivable and other assets 742,069 124,250 Decrease in liabilities (915) (6,341) Net cash provided by operating activities 10,568,568 10,793,482 Investing activities: Principal collections on PIMs including prepayment penalty of $1,013,411 12,898,670 674,819 Principal collections on MBS 2,106,755 1,330,207 Investment in MBS - (1,027,567) Net cash provided by investing activities 15,005,425 977,459 Financing activities: Quarterly distributions (11,802,675) (11,810,982) Special distributions (12,387,057) - Net cash used for financing activities (24,189,732) (11,810,982) Net increase (decrease) in cash and cash equivalents 1,384,261 (40,041) Cash and cash equivalents, beginning of period 3,433,885 3,257,180 Cash and cash equivalents, end of period $ 4,818,146 $ 3,217,139
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III 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-III 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, 1995 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 September 30, 1996, its results of operations for the three and nine months ended September 30, 1996 and 1995, and its cash flows for the nine months ended September 30, 1996 and 1995. The results of operations for the three and nine months ended September 30, 1996 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 August 1, 1996, the Partnership received a prepayment of the Friendly Hills PIM. The Partnership received the outstanding principal balance of $11,260,118, a prepayment penalty of $1,013,411 and Minimum Additional and Shared Income Interest of $126,820. As a result of the prepayment, the Partnership fully amortized the remaining prepaid fees and expenses associated with this PIM and retired them. On August 15, 1996, the Partnership made a special distribution of $.97 per Limited Partner interest with the proceeds from this repayment. During May 1996, the Partnership entered into an agreement with the borrower of the Sundance Apartments PIM that reduces the interest paid monthly by the borrower by 1% per annum and modifies the participation features. In addition, under the modified terms, the borrower may prepay the first mortgage loan without incurring any prepayment penalty and will not have to pay any additional interest accumulated prior to the modification date. Under the agreement, the Partnership will be entitled to 25% of the surplus cash generated by the operations of the property on an annual basis beginning with the surplus cash calculation for the year ended December 31, 1997. In the event of a sale or refinancing, the Partnership will be entitled to 25% of the net sale proceeds or, in the case of a refinancing, the greater of: (i) 25% of the net refinancing proceeds or (ii) a payment equal to 1% of the then- outstanding first mortgage loan balance. Net sale proceeds and net refinancing proceeds are net of certain amounts due the borrower or affiliates of the borrower. Upon the maturity or accelerated maturity of the PIM the Partnership will be entitled to 25% of the difference between the value of the property less: (i) the unpaid balance of the first mortgage loan and (ii) certain amounts due the borrower or affiliates of the borrower. At September 30, 1996, the Partnership s PIM portfolio has a fair value of approximately $138,596,000 and gross unrealized gains and losses of approximately $866,000 and $1,850,000, respectively. The PIM portfolio has maturities ranging from 1999 to 2032. 3. MBS At September 30, 1996, the Partnership's MBS portfolio has an amortized cost of approximately $33,314,582 and gross unrealized gains and losses of approximately $469,531 and $502,367, respectively. The Partnership's MBS have maturities ranging from 2010 to 2035. 4. Changes in Partners' Equity A summary of changes in Partners' Equity for the nine months ended September 30, 1996 is as follows:
Total Limited General Unrealized Partners' Partners Partners Gain (Loss) Equity Balance at December 31, 1995 $200,575,459 $(102,556) $1,272,626 $201,745,529 Net income 8,969,967 277,422 - 9,247,389 Quarterly distributions (11,493,145) (309,530) - (11,802,675) Special distributions (12,387,057) - - (12,387,057) Decrease in unrealized gain on MBS - - (1,305,462) (1,305,462) Balance at September 30, 1996 $185,665,224 $(134,664) $ (32,836) $185,497,724
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 demand on the Partnership's liquidity is quarterly distributions paid to investors of approximately $3.8 million. Funds used for investor distributions come from interest received on the PIMs, MBS, cash and cash equivalents net of operating expenses, and principal collections received on the PIMs and MBS. The Partnership funds a portion of the distribution from principal collections causing the capital resources of the Partnership to continually decrease. As the capital resources decrease, the total cash inflows to the Partnership will also decrease which will result in periodic downward adjustments to the quarterly distributions paid to investors. The General Partners periodically review the distribution rate to determine whether an adjustment to the distribution rate is necessary based on projected future cash flows. In general, the General Partners try to set a distribution rate that provides for level quarterly distributions of cash available for distribution. To the extent quarterly distributions differ from the cash available for distribution the General Partners may adjust the distribution rate or distribute funds through a special distribution. During May 1996, the Partnership entered into an agreement with the borrower of the Sundance Apartments PIM that reduces the monthly interest paid by the borrower by 1% per annum and modifies the participation features. The modification will reduce the monthly cash flow of the Partnership, but will not materially affect the Partnership s liquidity. The Partnership s invested assets decreased as a result of the prepayment of the Friendly Hills PIM and the subsequent distribution of those proceeds to investors in August 1996. In addition to the outstanding principal balance of approximately $11.3 million, the Partnership received a prepayment penalty of $1,013,411 and all Shared Income and Minimum Additional Interest due of $126,820. The Partnership used the capital transaction proceeds from this prepayment to fund a special distribution of $.97 per Limited Partner interest in August. During the third quarter, the owner of Paddock Park II, Paddock - Jacksonville and Paddock - Tallahassee Apartments and the owner of Paces Arbor and Paces Forest Apartments notified the Partnership of their intentions to prepay these PIMs in the near future. Upon a payoff, the Partnership will receive the outstanding principal of these PIMs totaling approximately $27 million and $7.6 million, respectively, the greater of a 9% prepayment penalty or Shared Appreciation Interest, and any unpaid Minimum Additional and Shared Income Interest. The Partnership will distribute the capital transaction proceeds from these prepayments to investors through special distributions. The General Partners will be reviewing the anticipated cash flows from the remaining investments to determine whether the current distribution rate will be sustainable or if an adjustment is necessary. If the General Partners determine the distribution rate needs to be adjusted the timing of the adjustment will depend on when these PIMs prepay. For the first five years of the PIMs the borrowers are prohibited from prepaying. For the second five years, the borrower can prepay the loan incurring a prepayment penalty. The Partnership has the option of calling certain PIMs by accelerating their maturity if the loans are not prepaid by the tenth year after permanent funding. The Partnership 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, interest rates and available financing will have an impact on this decision. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by the Federal National Mortgage Association ( FNMA ), the Federal Home Loan Mortgage Corporation ( FHLMC ), the Government National Mortgage Association ( GNMA ) and the 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. FNMA 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 and timely payment of principal and basic interest on the securities it issues, which represent interests 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. Distributable Cash Flow and Net Cash Proceeds from Capital Transactions Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions as defined in Section 17 of the Partnership Agreement and the source of cash distributions for the nine months ended September 30, 1996 and the period from inception through September 30, 1996. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. (Amounts in thousands except per Unit amounts)
Nine Months Ended Inception to September 30, 1996 September 30, 1996 Distributable Cash Flow: Income for tax purposes $ 10,379 $ 107,474 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid expenses, fees and organization costs 1,042 7,111 Acquisition expenses paid from offering proceeds charged to operations - 184 Shared appreciation income/prepayment penalty (1,013) (1,813) Gain on sale of MBS - (253) Total Distributable Cash Flow ("DCF") $ 10,408 $ 112,703 Limited Partners Share of DCF $ 10,096 $ 109,322 Limited Partners Share of DCF per Limited Partner interests ( Unit ) $ .79 8.56 (b) General Partners Share of DCF $ 312 $ 3,381 Net Proceeds from Capital Transactions: Principal collections and prepayments (including any Shared Appreciation Income or prepayment penalty)on PIMs $ 12,899 $ 30,737 Principal collections and sales proceeds on MBS (including gain on sale) 2,107 62,651 Reinvestment of MBS and PIM principal collections - (41,960) Total Net Proceeds from Capital Transactions $ 15,006 $ 51,428 Cash available for distribution (DCF plus proceeds from Capital transactions) $ 25,414 $ 164,131 Distributions: Limited Partners $ 23,881 (a) $ 158,641 (a) Limited Partners Average per Unit $ 1.87 (a) $ 12.42 (a)(b) General Partners $ 312 (a) $ 3,381 (a) Total Distributions $ 24,193 $ 162,022
(a) Includes an estimate of the distribution to be paid in November 1996. (b) Limited Partners average per Unit return of capital as of November 1996 is $3.86 [$12.42 - $8.56]. Return of capital represents that portion of distribution which is not funded from DCF such as proceeds from the sale of assets and substantially all of the principal collections received from MBS and PIMs. Operations The following discussion relates to the operations of the Partnership during the three and nine months ended September 30, 1996 and 1995 (Amounts in thousands):
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1996 1995 1996 1995 Interest income on PIMs: Base interest $2,755 $3,008 $8,593 $9,147 Participation interest 294 85 846 520 Interest income on MBS 665 754 2,048 2,198 Other interest income 76 49 178 149 Partnership expenses (417) (455) (1,257) (1,338) Distributable Cash Flow 3,373 3,441 10,408 10,676 Decrease in accrued participation income (29) - (581) - Prepayment penalty 1,013 - 1,013 - Amortization of prepaid fees and expenses (816) (406) (1,593) (1,217) Net income $3,541 $3,035 $9,247 $9,459
Net income increased by approximately $506,000 for the three months ended September 30, 1996 as compared to the same period in 1995. The prepayment penalty of $1,013,000 and Shared Income and Minimum Additional Interest of $126,000 received from the prepayment of the Friendly Hills PIM increased net income. Base interest income on PIMs decreased by approximately $253,000 in the third quarter of 1996 versus the third quarter of 1995 due primarily to the interest rate reductions on the Royal Palm Apartments PIM and Sundance Apartments PIM, and the prepayment of the Friendly Hills PIM and interest income on MBS decreased $89,000 in the third quarter of 1996 as compared to the third quarter of 1995, because principal collections reduced the outstanding principal balance of the Partnership s MBS investments thereby decreasing net income. Partnership expenses decreased $38,000 during the three months ended September 30, 1996 as compared to the three months ended September 30, 1995 due primarily to lower asset management fees, expense reimbursements to affiliates, and general and administrative expenses thereby increasing net income. Amortization expense increased during the three months ended September 30, 1996 as compared to the three months ended September 30, 1995, because the Partnership fully amortized the remaining balances of prepaid fees and expenses associated with the Friendly Hills PIM thereby decreasing net income. Net income decreased for the nine months ended September 30, 1996 as compared to same period in 1995 due primarily to lower base interest income on PIMs, lower interest income on MBS and higher amortization expense. These decreases were offset in part by an increase in participation interest income and lower Partnership expenses. The decrease in base interest of approximately $554,000 resulted primarily from the interest rate reductions on the Royal Palm Apartments PIM and Sundance Apartments PIM, and the prepayment of the Friendly Hills PIM. Amortization expense increased because the Partnership fully amortized the remaining balances of prepaid fees and expenses associated with the prepayment of the Friendly Hills PIM. KRUPP INSURED PLUS-III 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 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-III Limited Partnership (Registrant) BY:/s/Robert A. Barrows Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp Plus Corporation, a General Partner. DATE: October 28, 1996 EX-27 2
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 0000832091 KRUPP INSURED PLUS III LIMITED PARTNERSHIP 9-MOS DEC-31-1996 SEP-30-1996 4,818,146 172,862,139 1,182,333 0 0 6,648,947 0 0 185,511,565 13,841 0 0 0 185,464,888 32,836 185,511,565 0 12,097,429 0 0 2,850,040 0 0 9,247,389 0 9,247,389 0 0 0 9,247,389 0 0 Includes the following investments: Participating Insured Mortgages ("PIMs") $139,580,393 & Mortgage-Backed Securities ("MBS") $33,281,746 Includes the following prepaid qcquisition fees & expenses of $5,032,648 net of accumulated amortization of $6,443,610 and prepaid participating servicing of $1,616,299 net of accumulated amortization of $2,186,949 Represents total equity of General Partners & Limited Partners of $(134,664) and $185,665,224 Represents interest income on investments in mortgages & cash Includes $1,593,436 of amortization related to prepaid fees & expenses Net income allocated $277,422 to the General Partners & $8,969,967 to the Limited Partners. Average net income per unit of Limited Partners interest is $.70 on 12,770,261 units outstanding.
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