-----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, IVgnFZjNmE7BDp2XJqFH9N5GXP118CQd6ezKYwhuziq9TmcYqFK/v5ldcbiVohRG qSdgF+N2ajP6O1tzRtMGZQ== 0000832095-99-000010.txt : 19991117 0000832095-99-000010.hdr.sgml : 19991117 ACCESSION NUMBER: 0000832095-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000832095 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 043021395 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17690 FILM NUMBER: 99755767 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 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 0-17690 Krupp Insured Mortgage Limited Partnership Massachusetts 04-3021395 (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 MORTGAGE LIMITED PARTNERSHIP BALANCE SHEETS
ASSETS September 30, December 31, 1999 1998 Participating Insured Mortgages ("PIMs") (Note 2) $ 82,887,489 $ 98,950,663 Mortgage-Backed Securities ("MBS") (Note 3) 15,800,538 18,806,870 Total mortgage investments 98,688,027 117,757,533 Cash and cash equivalents 4,626,305 15,117,466 Interest receivable and other assets 663,924 786,165 Prepaid acquisition fees and expenses, net of accumulated amortization of $ 6,670,991 and $ 7,184,808, respectively 469,542 1,167,020 Prepaid participation servicing fees, net of accumulated amortization of $ 1,989,708 and $ 2,170,982, respectively 165,857 385,110 Total assets $ 104,613,655 $ 135,213,294 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 13,500 $ 30,794 Partners' equity (deficit): Limited Partners 104,876,238 134,849,373 (14,956,856 Limited Partner interests outstanding) General Partners (350,694) (312,060) Accumulated comprehensive income 74,611 645,187 Total Partners' equity 104,600,155 135,182,500 Total liabilities and Partners' equity $ 104,613,655 $ 135,213,294
The accompanying notes are an integral part of the financial statements. KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Revenues: Interest income - PIMs: Basic interest $ 1,600,872 $ 2,132,668 $ 4,989,116 $ 6,480,102 Participation interest 51,227 429,504 996,529 499,260 Interest income - MBS 300,315 386,113 961,565 1,234,001 Other interest income 62,712 66,988 378,488 247,670 Total revenues 2,015,126 3,015,273 7,325,698 8,461,033 Expenses: Asset management fee to an affiliate 157,041 222,825 528,046 662,314 Expense reimbursements to affiliates 29,238 24,810 63,408 33,581 Amortization of prepaid fees and expenses 242,892 406,173 916,731 1,038,460 General and administrative expenses 70,656 37,465 173,729 180,021 Total expenses 499,827 691,273 1,681,914 1,914,376 Net income 1,515,299 2,324,000 5,643,784 6,546,657 Other comprehensive income: Net change in unrealized gain on MBS (155,590) 232,671 (570,576) 133,764 Total comprehensive income $ 1,359,709 $ 2,556,671 $ 5,073,208 $ 6,680,421 Allocation of net income (Note 4): Limited Partners $ 1,469,840 $ 2,254,280 $ 5,474,470 $ 6,350,257 Average net income per Limited Partner interest (14,956,856 Limited Partner interests outstanding) $ .10 $ .15 $ .37 $ .42 General Partners $ 45,459 $ 69,720 $ 169,314 $ 196,400
The accompanying notes are an integral part of the financial statements. KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 1998 Operating activities: Net income $ 5,643,784 $ 6,546,657 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 916,731 1,038,460 Shared appreciation income and prepayment premium (703,860) (268,638) Changes in assets and liabilities: Decrease in interest receivable and other assets 122,241 68,212 Decrease in liabilities (17,294) (97,433) Net cash provided by operating activities 5,961,602 7,287,258 Investing activities: Principal collections on PIMs including shared appreciation and prepayment premium income of $703,860 in 1999 and $268,638 in 1998. 16,767,034 4,695,644 Principal collections on MBS 2,435,756 3,571,624 Net cash provided by investing activities 19,202,790 8,267,268 Financing activities: Quarterly distributions (9,630,729) (11,005,126) Special distributions (26,024,824) (20,789,946) Net cash used for financing activities (35,655,553) (31,795,072) Net decrease in cash and cash equivalents (10,491,161) (16,240,546) Cash and cash equivalents, beginning of period 15,117,466 20,480,666 Cash and cash equivalents, end of period $ 4,626,305 $ 4,240,120
The accompanying notes are an integral part of the financial statements. KRUPP INSURED MORTGAGE 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 Mortgage 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, 1998 for additional information relevant to significant accounting policies followed by the Partnership. In the opinion of the General Partners, the accompanying unaudited financial statements reflect all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the Partnership's financial position as of September 30, 1999, its results of operations for the three and nine months ended September 30, 1999 and 1998 and its cash flows for the nine months ended September 30, 1999 and 1998. The results of operations for the three and nine months ended September 30, 1999 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 During March 1999, the Partnership received a payoff of the Remington PIM in the amount of $12,199,298. The payoff was the result of a default on the underlying loan which resulted in the Partnership receiving all of the outstanding principal balance under the insurance feature of the PIM. However, due to the default the Partnership did not receive any participation income from this PIM. During February 1999, the Partnership received a payoff of the Pope Building PIM in the amount of $3,176,761. In addition, the Partnership received $703,860 of Shared Appreciation and prepayment premium income and $218,578 of Shared Income and Minimum Additional Interest upon the payoff of the underlying mortgage. During May 1999, the Partnership paid a special distribution of $1.08 per Limited Partner interest from the principal proceeds, Shared Appreciation and prepayment proceeds received from the Remington and Pope Building PIMs. During January 1999, the Partnership paid a special distribution of $.66 per Limited Partner interest from the principal proceeds and prepayment premium received from the Cross Creek PIM during 1998. At September 30, 1999, the Partnership's PIM portfolio had a fair value of $83,576,850 and gross unrealized gains of $689,361. The Partnership's PIMs have maturities ranging from 2000 to 2032. At September 30, 1999 the Partnership's participating insured mortgage loan was not delinquent of principal or interest. 3. MBS As of September 30, 1999, the Partnership's MBS portfolio had an amortized cost of $15,725,927 and gross unrealized gains and losses of $198,304, and $123,693, respectively. The MBS portfolio has maturity dates ranging from 1999 to 2024. KRUPP INSURED MORTGAGE 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, 1999 is as follows:
Accumulated Total Limited General Comprehensive Partner's Partners Partners Income Equity Balance at December 31, 1998 $ 134,849,373 $ (312,060) $ 645,187 $ 135,182,500 Net income 5,474,470 169,314 - 5,643,784 Quarterly distributions (9,422,781) (207,948) - (9,630,729) Special distributions (26,024,824) - - (26,024,824) Decrease in unrealized gain on MBS - - (570,576) (570,576) Balance at September 30, 1999 $ 104,876,238 $ (350,694) $ 74,611 $ 104,600,155
5. Subsequent Event Valley Manor Apartments PIM The Partnership received a repayment of the Valley Manor PIM in October of $4,425,993. The Partnership will not receive any additional interest from this prepayment because the underlying property's appraised value did not exceed the threshold required to realize additional interest. The Partnership plans on making a fourth quarter distribution of $.30 per Limited Partner Interest. 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. Impact of the Year 2000 Issue The General Partners have conducted an assessment of the Partnership's core internal and external computer information systems and have taken the necessary steps to further understand the nature and extent of the work required to make its systems Year 2000 ready in those situations in which it is required to do so. The Year 2000 readiness issue concerns the inability of computerized information systems to accurately calculate, store or use a date after 1999. This could result in a system failure or miscalculations causing disruptions of operations. The Year 2000 issue affects virtually all companies and all organizations. In this regard, the General Partners, along with certain affiliates, began a computer systems project in 1997 to significantly upgrade its existing hardware and software. The General Partners completed the testing and conversion of the financial accounting operating systems in February 1998. As a result, the General Partners have generated operating efficiencies and believe their financial accounting operating systems are Year 2000 ready. The General Partners incurred hardware costs as well as consulting and other expenses related to the infrastructure and facilities enhancements necessary to complete the upgrade and prepare for the Year 2000. There are no other significant internal systems or software that the Partnership is using at the present time. The General Partners surveyed the Partnership's material third-party service providers (including but not limited to its banks and telecommunications providers) and significant vendors and received assurances that such service providers and vendors are Year 2000 ready. The Partnership does not anticipate any problems that would materially impact its results of operations, liquidity or capital resources. Nevertheless the General Partners are developing contingency plans for all of their "mission-critical functions" to insure business continuity. The Partnership is also subject to external forces that might generally affect industry and commerce, such as utility and transportation company Year 2000 readiness failures and related service interruptions. However, the General Partners do not anticipate any material impact on the Partnership's results of operations, liquidity or capital resources. To date, the Partnership has incurred $13,778 of costs associated with being Year 2000 ready. The Partnership does not expect to incur any additional Year 2000 readiness costs. Liquidity and Capital Resources The most significant demand on the Partnership's liquidity are regular quarterly distributions paid to investors of approximately $3.14 million. Funds used for investor distributions are generated from interest income received on the PIMs, MBS, cash and short-term investments and the principal collections received on the PIMs and MBS. The Partnership funds a portion of the quarterly distribution from principal collections causing the capital resources of the Partnership to continually decrease. As a result of this decrease, the total cash inflows to the Partnership will also decrease, which will result in periodic adjustments to the distributions paid to investors. During January 1999, the Partnership paid a special distribution of $.66 per Limited Partner Interest from the principal proceeds and prepayment premium received from the Cross Creek PIM during 1998. During March 1999, the Partnership received a payoff of the Remington PIM in the amount of $12,199,298. The payoff was the result of a default on the underlying loan which resulted in the Partnership receiving all of the outstanding principal balance under the insurance feature of the PIM. However, due to the default the Partnership did not receive any participation income from this PIM. During February 1999, the Partnership received a payoff of the Pope Building PIM in the amount of $3,176,761. In addition, the Partnership received $703,860 of Shared Appreciation and prepayment premium income and $218,578 of Shared Income and Minimum Additional Interest upon the payoff of the underlying mortgage. During May 1999 the Partnership paid a special distribution of $1.08 per Limited Partner Interest from the principal proceeds, Shared Appreciation and prepayment premium received from Remington and the Pope Building. In October 1999 the Partnership received a repayment of the Valley Manor Apartments PIM of $4,425,993. The Partnership will not receive any Additional Interest as a result of this prepayment because the underlying property's appraised value did not exceed the threshold required to realize additional interest. The Partnership plans on making a fourth quarter distribution of $.30 per Limited Partner Interest. The General Partners estimate that the Partnership can maintain the quarterly distribution rate of $.21 per Limited Partner Interest through February 2000. However, in the event of further PIM prepayments the Partnership would be required to distribute proceeds from such prepayments as a special distribution which may cause an adjustment to the distribution rate to reflect the anticipated future cash inflows from the remaining mortgage investments. The participation features of the PIMs are neither insured nor guaranteed and if repayment of a PIM results from an insurance claim, the Partnership will not receive any participation interest. 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 an impact on this decision. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by Fannie Mae, the Government National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") 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. 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 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. Results of Operations The following discussion relates to the operations of the Partnership during the three and nine months ended September 30, 1999 and 1998. Net income decreased by approximately $809,000 for the three months ended September 30, 1999 as compared to the corresponding period in 1998 due primarily to prepayments of mortgage investments and a decrease in participation interest. Basic interest on PIMs decreased $532,000 during the third quarter of 1999 as compared to the third quarter of 1998 as a result of the payoffs of Remington and Pope Building PIMs during the first quarter of 1999 and the Deering Place PIM and the Cross Creek PIM in the third and fourth quarters of 1998, respectively. Participation interest was higher in the third quarter of 1998 as compared to 1999 due to the receipt of $359,000 in Shared Appeciation income and Minimum Additional interest from the Deering Place PIM payoff during the third quarter of 1998. MBS interest income decreased by $86,000 in 1999 versus 1998 due to the on-going prepayment of the Partnership's single-family MBS. Amortization of prepaid fees and expenses decreased $163,000 as the Partnership had fully amortized the prepaid fees and expenses related to the Remington and Pope Building PIMs in the first quarter of 1999, and the Deering Place and Cross Creek PIMs in the third and fourth quarters of 1998, respectively. Asset management fees to an affiliate decreased $66,000 in 1999 due to prepayments reducing the Partnership's mortgage investments. Net income decreased by approximately $903,000 for the nine months ended September 30, 1999 as compared to the corresponding period in 1998. Basic interest on PIMs decreased $1,491,000 for the nine months ended September 1999 versus the same period in 1998 due to the payoffs of the Remington and Pope Building PIMs in 1999 and the payoffs of the Deering Place and Cross Creek PIMs in the third quarter of 1998. MBS interest income decreased $272,000 due to the on-going prepayment of the Partnership's single-family MBS. The increase in participation interest on PIMs of $497,000 was due primarily to the receipt of $922,000 of participation interest from the Pope Building payoff during the first quarter of 1999 as compared to the $359,000 received in 1998 from the Deering Place PIM payoff. Also, asset management fees decreased $134,000 during 1999 as compared to 1998 due to the prepayments and principal collections reducing the Partnership's mortgage investments. Amortization expense decreased by $122,000 as a result of fully amortizing the remaining prepaid fees and expenses of the Deering Place and Cross Creek PIMs and the Patrician multi-family MBS in 1998. Interest income on PIMs and MBS will continue to decline as principal collections reduce the outstanding balance of the portfolios. The Partnership funds a portion of distributions with MBS and PIM principal collections, which reduces the invested assets generating income for the Partnership. As the invested assets decline, interest income to the Partnership will decline. KRUPP INSURED MORTGAGE 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 Mortgage 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 29, 1999 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. 0000832095 KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP 9-MOS Dec-31-1999 Sep-30-1999 4,626,305 98,688,027 663,924 0 0 635,399 0 0 104,613,655 13,500 0 0 0 104,525,544 74,611 104,613,655 0 7,325,698 0 0 1,681,914 0 0 5,643,784 0 5,643,784 0 0 0 5,643,784 0 0 Includes Participating Insured Mortgages ("PIMs") of $82,887,489 and Mortgage-Backed Securities ("MBS") of $15,800,538. Includes prepaid acquisition fees and expenses of $7,140,533 net of accumulated amortization of $6,670,991 and prepaid participation servicing fees of $2,155,565 net of accumulated amortization of $1,989,708. Represents total equity of General Partners and Limited Partners. General Partners deficit of ($350,694) and Limited Partners equity of $104,876,238. Unrealized gain on MBS. Represents interest income on investments in mortgages and cash. Includes $916,731 of amortization of prepaid fees and expenses. Net income allocated $169,314 to the General Partners and $5,474,470 to the Limited Partners. Average net income per Limited Partner interest is $.37 on 14,956,896 Limited Partner interests outstanding.
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