-----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, A8slFqqxgPhF+A6lEg+SQhGI+D8hVcM2HmZxXVqJQbacPMAdwYVdsx5cYJnCmlwt qHquQGgDuleO8FWgJq3w5g== 0000832091-97-000011.txt : 19971114 0000832091-97-000011.hdr.sgml : 19971114 ACCESSION NUMBER: 0000832091-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 000-17691 FILM NUMBER: 97714402 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, 1997 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, 1997 1996 Participating Insured Mortgages ("PIMs")(Note 2) $131,062,351 $139,380,751 Mortgage-Backed Securities and insured mortgages ("MBS")(Note 3) 32,597,453 32,914,934 Total mortgage investments 163,659,804 172,295,685 Cash and cash equivalents 4,436,002 4,666,597 Interest receivable and other assets 1,094,391 1,233,967 Prepaid acquisition expenses and fees, net of accumulated amortization of $7,094,433 and $6,717,429 respectively 3,766,721 4,758,829 Prepaid participation servicing fees, net of accumulated amortization of $2,063,946 and $2,272,992, respectively 1,226,211 1,530,256 Total assets $174,183,129 $184,485,334 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 163,274 $ 18,716 Partners' equity (deficit) (Note 4): Limited Partners 173,154,277 184,524,613 (12,770,261 Limited Partner interests outstanding) General Partners (174,756) (152,612) Unrealized gain on MBS 1,040,334 94,617 Total Partners' equity 174,019,855 184,466,618 Total liabilities and Partners' equity $174,183,129 $184,485,334
The accompanying notes are an integral part of the financial statements -3- KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME For the Three Months For the Nine Months Ended September 30, Ended September 30, 1997 1996 1997 1996 Revenues: Interest income - PIMs: Base interest $2,517,455 $2,754,783 $ 7,720,452 $ 8,592,781 Participation interest (Note 2) 183,527 1,279,146 1,311,716 1,279,146 Interest income - MBS 628,174 664,957 1,913,740 2,047,727 Interest income - other 60,661 75,429 219,775 177,775 Total revenues 3,389,817 4,774,315 11,165,683 12,097,429 Expenses: Asset management fee to an affiliate 308,040 334,049 931,286 1,027,330 Expense reimbursements to affiliates 33,939 46,986 95,410 132,883 Amortization of prepaid expenses and fees 340,752 816,619 1,296,153 1,593,436 General and administrative 35,491 35,725 158,902 96,391 Total expenses 718,222 1,233,379 2,481,751 2,850,040 Net income $2,671,595 $3,540,936 $ 8,683,932 $ 9,247,389 Allocation of net income (Note 4): Limited Partners $2,591,448 $3,434,708 $ 8,423,414 $ 8,969,967 Average net income per Limited Partner interest (12,770,261 Limited Partner interests outstanding) $ .20 $ .27 $ .66 $ .70 General Partners $ 80,147 $ 106,228 $ 260,518 $ 277,422
The accompanying notes are an integral part of the financial statements. -5- KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1997 1996 Operating activities: Net income $ 8,683,932 $ 9,247,389 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid expenses and fees 1,296,153 1,593,436 Prepayment penalty (679,193) (1,013,411) Changes in assets and liabilities: Decrease in interest receivable and other assets 139,576 742,069 Increase (decrease) in liabilities 144,558 (915) Net cash provided by operating activities 9,585,026 10,568,568 Investing activities: Principal collections on PIMs including prepayment penalty of $679,193 and $1,013,411 respectively 8,997,593 12,898,670 Principal collections on MBS 1,263,198 2,106,755 Net cash provided by investing activities 10,260,791 15,005,425 Financing activities: Quarterly distributions (11,775,807) (11,802,675) Special distributions (8,300,605) (12,387,057) Net cash used for financing activities (20,076,412) (24,189,732) Net increase (decrease) in cash and cash equivalents (230,595) 1,384,261 Cash and cash equivalents, beginning of period 4,666,597 3,433,885 Cash and cash equivalents, end of period $ 4,436,002 $ 4,818,146
-6- 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 withgenerally 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, 1996 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, 1997, its results of operations for the three and nine months ended September 30, 1997 and 1996, and its cash flows for the nine months ended September 30, 1997 and 1996. The results of operations for the three and nine months endedSeptember 30, 1997 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 April 25, 1997, the Partnership received a prepayment of the Paces Arbor and Paces Forest Apartment PIMs. The Partnership received the outstanding principal balances of $3,390,705 and $4,155,888, respectively. In addition, the Partnership also received a prepayment penalty of $679,193 and Minimum Additional and Shared Income Interest of $197,939. As a result of the prepayment, the Partnership fully amortized the remaining prepaid fees and expenses associated with this PIM and retired them. On May 23, 1997, the Partnership made a special distribution of $.65 per Limited Partner interest with the proceeds from the outstanding principal proceeds and the prepayment penalty. 3. MBS At September 30, 1997, the Partnership's MBS portfolio has an amortized cost of approximately $31,557,119 and gross unrealized gains and loses of approximately $1,067,225 and $26,891 respectively. The Partnership's MBS have maturities ranging from 2010 to 2035. -8- Continued KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued 4. Changes in Partners' Equity A summary of changes in Partners' Equity for the nine months ended September 30, 1997 is as follows:
Total Limited General Unrealized Partners' Partners Partners Gain (Loss) Equity Balance at December 31, 1996 $184,524,613 $(152,612) $ 94,617 $184,466,618 Net income 8,423,414 260,518 - 8,683,932 Quarterly distributions (11,493,145) (282,662) - (11,775,807) Special distributions (8,300,605) - - (8,300,605) Increase in unrealized gain on MBS - - 945,717 945,717 Balance at September 30, 1997 $173,154,277 $(174,756) $1,040,334 $174,019,855
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 are quarterly distributions paid to investors of approximately $3.9 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 distributions 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 adjustments to the quarterly 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. 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. On April 25, 1997, the Partnership received prepayments of the Paces Arbor and Paces Forest PIMs that included the outstanding first mortgage principal balance, a prepayment penalty and all accrued additional interest earned through the payoff date. The Partnership made a special distribution of the capital proceeds from these transactions, principal and prepayment penalties, of $.65 per limited partner interest in May. The General Partners expect that the Partnership can maintain the current quarterly distribution rate of $.30 per limited partner interest through 1997. However, if additional PIMs are prepaid, the quarterly distribution rate in the future may be adjusted downward to reflect fewer cash inflows from the remaining mortgage investments. In the event additional PIMs are prepaid, the Partnership will make special distributions from the capital proceeds of the prepayments. A number of borrowers have informed the General Partners of their intentions to prepay the Partnership s PIMs. The owner of three properties in the portfolio, the Paddock properties in Florida, expects to payoff each PIM in November 1997 as a result of a merger transaction with a NYSE-listed real estate investment trust. If the Paddocks transaction is finalized as expected, the Partnership will receive a principal repayment totaling approximately $27 million. The borrower on the Meredith Square PIM expects to close a refinance of the property in December 1997 and payoff the outstanding balance on the first mortgage loan. The Partnership will receive a principal repayment of approximately $4.7 million if the Meredith -10- Square transaction is finalized. In addition to the repayment of the principal balances of these four PIMs, the Partnership will also received accrued additional interest earned on each property s operations and either the greater of a 9% prepayment penalty or additional interest earned on the appreciation in each property s value. Three other borrowers have indicated there is a possibility they may payoff the Partnership s PIMs. A sale transaction of Rosewood Apartments fell through earlier in 1997, but the PIM could be prepaid if the borrower is successful in obtaining another purchase offer. The owner of Fourth Ward Square has notified the General Partners of his intention to refinance the property and payoff the Partnership s PIM. The new owner of Sundance Apartments, who purchased the property during the second quarter 1997 and assumed the Partnership s PIM and modified subordinated Promissory Note from the original borrower, has indicated that he may refinance the property and payoff the Partnership s PIM after he stabilizes property operations. If any or all of these transactions occur, the General Partners will review the anticipated cash flows from the remaining mortgage investments to determine whether the current distribution rate would be sustainable or whether an adjustment would be necessary. If the General Partners determine that the distribution rate needs to be adjusted, the timing of the adjustment would 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 to call 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 and 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. Operations The following discussion relates to the operations of the Partnership during the three and nine months ended September 30, 1997 and 1996. Net income decreased by $869,341 for the three months ended September 30, 1997 as compared to the same period in 1996, due primarily to a $1,095,619 reduction in participation income. However, the Partnership did receive $183,527 of participation from three properties during the third quarter of 1997. Base interest income on PIMs decreased by $237,328 in the third quarter of 1997 as compared to the third quarter of 1996 due primarily to the prepayment of the Friendly Hills, Paces Arbor and Paces Forest PIM s. Interest income on MBS decreased by $36,783 in the third quarter of 1997 as compared to the third quarter of 1996, because of principal collections from the Partnership s MBS investments. Amortization expense decreased by $475,867 due to the prepayments of Friendly Hills PIM in August 1996 and Paces Arbor and Paces Forest PIM s in April 1997. Net income decreased by $563,457 for the nine months ended September 30, 1997 as compared to same period in 1996 due primarily to lower base interest income on PIMs and interest income on MBS and higher general and administrative expenses. These decreases were offset in part by increases in participation interest income, interest income on cash and cash equivalents and decreases in asset management fees and amortization of prepaid expense and fees. The decrease in base interest of $872,329 resulted primarily from the prepayments of the Friendly Hills, Paces Arbor and Paces Forest PIM s. In addition, the prepayments the Partnership has experienced also caused decreases in asset managements and amortization of prepaid expense and fees. 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 -12- 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, 1997 -13- 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-31-1997 SEP-30-1997 4,436,002 163,659,804 1,094,391 0 0 4,992,932 0 0 174,183,129 163,274 0 0 0 172,979,521 1,040,334 174,183,129 0 11,165,683 0 0 2,481,751 0 0 8,683,932 0 8,683,932 0 0 0 8,683,932 0 0 Includes Participating Insured Mortgages("PIMs") of $131,062,351 and Mortgage-Backed Securities ("MBS") of $32,597,453. Includes prepaid acquisition fees and expenses of $10,861,154 net of accumulated amortization of $7,094,433 and prepaid participation servicing fees of $3,290,157 net of accumulated amortization of $2,063,946. Represents total equity of General Partners and Limited Partners. General Partners deficit of ($174,756) and Limited Partners equity of $173,154,277. Unrealized gain on MBS. Represents interest income on investments in mortgages and cash. Includes $1,295,153 of amortization of prepaid fees and expenses. Net income allocated $260,518 to the General Partners and $8,423,414 to the Limited Partners. Average net income per Limited Partner interest is $.66 on 12,770,261 Limited Partner interests outstanding.
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