UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 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 0-11210
Krupp Realty Fund, Ltd.-III
Massachusetts 04-2763323
(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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED 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 REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
Multi-family apartment complexes,
less accumulated depreciation of
$17,796,589 and $16,460,550, respectively $11,685,669 $12,329,503
Cash and cash equivalents 434,138 654,696
Required repair and replacement reserves 208,499 202,349
Cash restricted for tenant security deposits 172,115 202,950
Prepaid expenses and other assets 549,066 596,254
Deferred expenses, net of accumulated
amortization of $155,609 and $121,192,
respectively 363,975 398,392
Total assets $13,413,462 $14,384,144
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable $19,578,227 $19,826,061
Accounts payable 8,215 54,170
Accrued expenses and other liabilities 659,471 654,603
Total liabilities 20,245,913 20,534,834
Partners' deficit (Note 2):
Investor Limited Partners
(25,000 Units outstanding) (5,628,933) (4,981,262)
Original Limited Partner (899,100) (871,828)
General Partners (304,418) (297,600)
Total Partners' deficit (6,832,451) (6,150,690)
Total liabilities and Partners' deficit $13,413,462 $14,384,144
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue:
Rental $1,642,708 $1,555,939 $4,895,567 $4,708,791
Other income 15,061 4,950 46,805 44,704
Total revenue 1,657,769 1,560,889 4,942,372 4,753,495
Expenses:
Operating (Note 3) 516,207 420,282 1,468,038 1,240,487
Maintenance 163,400 147,596 378,602 400,060
General and administrative
(Note 3) 21,236 60,499 59,259 91,699
Real estate taxes 136,452 127,272 383,335 385,744
Management fees (Note 3) 82,819 79,256 243,711 237,497
Depreciation and amortization 477,649 434,880 1,370,456 1,282,763
Interest 432,583 461,835 1,303,361 1,325,039
Total expenses 1,830,346 1,731,620 5,206,762 4,963,289
Net loss $ (172,577) $ (170,731) $ (264,390) $ (209,794)
Allocation of net loss (Note 2):
Investor Limited Partner
(25,000 Units outstanding) $ (163,949) $ (162,195) $ (251,171) $ (199,304)
Per Unit of Investor Limited
Partner Interest $ (6.56) $ (6.48) $ (10.05) $ (7.97)
Original Limited Partner $ (6,902) $ (6,829) $ (10,575) $ (8,392)
General Partners $ (1,726) $ (1,707) $ (2,644) $ (2,098)
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Operating activities:
Net loss $ (264,390) $ (209,794)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,370,456 1,282,763
Decrease (increase) in cash restricted
for tenant security deposits 30,835 (6,627)
Decrease (increase) in prepaid expenses
and other assets 47,188 (44,780)
Decrease in accounts payable (48,699) (21,479)
Increase (decrease) in accrued expenses
and other liabilities 4,868 (35,472)
Net cash provided by operating
activities 1,140,258 964,611
Investing activities:
Additions to fixed assets (692,205) (831,740)
Funding to replacement reserve (6,150) (46,422)
Decrease in required repairs and replacement
reserves - 316,195
Increase in accounts payable related to fixed
asset additions 2,744 -
Net cash used in investing
activities (695,611) (561,967)
Financing activities:
Distributions (417,371) (313,150)
Principal payments on mortgage notes payable (247,834) (226,636)
Net cash used in financing
activities (665,205) (539,786)
Net decrease in cash and cash equivalents (220,558) (137,142)
Cash and cash equivalents, beginning of the period 654,696 836,785
Cash and cash equivalents, end of the period $ 434,138 $ 699,643
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
NOTES TO CONSOLIDATED 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. In the opinion of the General Partners of Krupp
Realty Fund, Ltd.-III, (the "Partnership"), the disclosures contained in
this report are adequate to make the information presented not
misleading. See Notes to Consolidated Financial Statements included in
the Partnership's annual Report on 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 consolidated 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. Certain prior year balances have been
reclassified to conform with the current year consolidated financial
statement presentation.
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) Summary of Changes in Partners' Deficit
A summary of changes in Partners' Deficit for the nine months ended
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 $(4,981,262) $(871,828) $(297,600) $(6,150,690)
Net loss (251,171) (10,575) (2,644) (264,390)
Distributions (396,500) (16,697) (4,174) (417,371)
Balance at
September 30, 1996 $(5,628,933) $(899,100) $(304,418) $(6,832,451)
</TABLE>
Continued
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(3) Related Party Transactions
Commencing with the date of acquisition of the Partnership's properties,
the Partnership entered into agreements under which property management
fees are paid to an affiliate of the General Partners for services as
management agent. Such agreements provide for management fees payable
monthly at a rate of 5% of the gross receipts from the properties under
management. The Partnership also reimburses affiliates of the General
Partners for certain expenses incurred in connection with the operation
of the Partnership and its properties including accounting, computer,
insurance, travel, legal and payroll; and with the preparation and
mailing of reports and other communications to the Limited Partners.
Amounts accrued or paid to the General Partners or their affiliates are
as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Property management fees $ 82,819 $ 79,256 $243,711 $237,497
Expense reimbursements 48,456 41,685 145,936 87,542
Charged to operations $131,275 $120,941 $389,647 $325,039
</TABLE>
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
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
The Partnership's ability to generate cash adequate to meet its needs is
dependent primarily upon the operations of its real estate investments. Such
ability is also dependent upon the future availability of bank borrowings and
the potential refinancing and sale of the Partnership's remaining real estate
investments. These sources of liquidity will be used by the Partnership for
payment of expenses related to real estate operations, capital expenditures,
debt service and expenses. Cash Flow, if any, as calculated under Section
8.2(a) of the Partnership Agreement, will then be available for distribution
to the Partners. Due to improvements in the operations of the properties, the
Partnership has sufficient Cash Flow to increase semi-annual distributions
from an annual rate of $11.90 per Unit in 1995, to an annual rate of $15.86
per Unit in 1996.
The Partnership has spent approximately $692,000 for capital improvements at
its properties to date this year. The Partnership believes that the
improvements are necessary to compete with current market conditions, produce
quality rental units and absorb excess market supply at the properties'
respective locations. Renovations have included the replacement of
countertops, carpeting, appliances, and exterior painting and paving at
Hannibal Grove. Improvements are expected to continue throughout the
remainder of the year.
Cash Flow
Shown below, as required by the Partnership Agreement, is the calculation of
Cash Flow of the Partnership for the nine months ended 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, Cash
Flow should not be considered by the reader as a substitute to net income
(loss), as an indicator of the Partnership's operating performance or to cash
flow as a measure of liquidity.
<TABLE>
<CAPTION>
Rounded to $1,000
<S> <C>
Net income for tax purposes $ 62,000
Items not requiring or (requiring) the use
of operating funds:
Tax basis depreciation and amortization 1,044,000
Principal payments on mortgage notes payable (248,000)
Expenditures for capital improvements (692,000)
Releases from working capital reserves 251,000
Cash Flow $ 417,000
</TABLE>
Continued
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
Operations
Cash Flow, net of working capital reserves, increased during the nine months
ended September 30, 1996 as compared to the nine months ended September 30,
1995, primarily due to a decrease in capital improvement expenditures.
Rental revenue increased for the three and nine months ended September 30,
1996, as compared to the three and nine months ended September 30, 1995, as a
result of increased rental rates at the Partnership's properties. During the
same periods, other income also increased due to higher cash and cash
equivalent balances available for investment.
During the three months ended September 30, 1996, total expenses increased as
compared to the three months ended September 30, 1995, due to increases in
operating and real estate tax expenses, partially offset by a decrease in
general and administrative expense. The increase in operating expense is due
to an adjustment of 1994 reimbursable expenses recorded in 1995, relating to
the operation of the Partnership and its properties. Real estate taxes
increased due to higher property assessments. General and administrative
expense decreased as a result of costs incurred in 1995 relating to the
valuation of the Partnership's properties.
For the nine months ended September 30, 1996, total expenses increased, as
compared to the same period in 1995, due to an increase in operating expense,
partially offset by decreases in both real estate tax and general and
administrative expenses. Operating expense increased due to greater utility
consumption as a result of the unusually harsh winter weather, prior years'
insurance refunds received in 1995, and an increase in reimbursable expenses,
as described above. The decrease in real estate tax expense is the result of
a 1995 real estate tax refund for Dorsey's Forge received in 1996, partially
offset by a rise in property assessments. General and administrative expenses
also decreased as discussed above.
Depreciation expense for the three and nine months ended September 30, 1996,
as compared to the three and nine months ended September 30, 1995, increased
in conjunction with capital improvement expenditures.
General
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",
which is effective for fiscal years beginning after December 15, 1995, the
Partnership has implemented policies and practices for assessing impairment of
its real estate assets.
The investments in properties are carried at cost less accumulated
depreciation unless the General Partners believe there is a significant
impairment in value, in which case a provision to write down investments in
properties to fair value will be charged against income. At this time, the
General Partners do not believe that any assets of the Partnership are
significantly impaired.
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
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
<PAGE>
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 Realty Fund, Ltd. - III
(Registrant)
BY: /s/Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting
Officer of The Krupp Corporation,
a General Partner.
DATE: November 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Krupp
Realty Fund III Financial Statement for the nine months ended September 30, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 814,752
<SECURITIES> 0
<RECEIVABLES> 32,278
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 516,788
<PP&E> 30,001,842<F1>
<DEPRECIATION> 17,952,198<F2>
<TOTAL-ASSETS> 13,413,462
<CURRENT-LIABILITIES> 677,686
<BONDS> 19,578,227<F3>
0
0
<COMMON> (6,832,451)<F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,413,462
<SALES> 4,942,372
<TOTAL-REVENUES> 4,942,372
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,903,401<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,303,361
<INCOME-PRETAX> (264,390)
<INCOME-TAX> 0
<INCOME-CONTINUING> (264,390)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (264,390)
<EPS-PRIMARY> 0<F6>
<EPS-DILUTED> 0<F6>
<FN>
<F1>Includes apartment complexes of $29,482,258 and deferred expenses of
$519,584.
<F2>Includes depreciation of $17,796,589 and amortization of deferred expenses
of $155,609.
<F3>Represents mortgage note payable.
<F4>Represents total equity of general partners ($304,418) and limited partners
($6,528,033).
<F5>Includes operating expenses of $2,149,610, real estate taxes of $383,335
and depreciation/amortization of $1,370,456.
<F6>Net loss allocated ($2,644) to general partners and ($261,746) to limited
partners for the nine months ended 9/30/96. Average net loss ($10.05) per
unit for 25,000 units outstanding.
</FN>
</TABLE>
