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 THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 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 0-11210
Krupp Realty Fund, Ltd.-III
Massachusetts
04-2763323
(State or other jurisdiction of
(IRS employer
incorporation or organization)
identification no.)
One Beacon Street, Boston, Massachusetts
02108
(Address of principal executive offices)
(Zip Code)
(617) 523-7722
(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
The total number of pages in this document is
11.<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>
(Unaudited)
June 30, December 31,
1999 1998
Multi-family apartment complexes,
net of accumulated depreciation of
<S> <C> <C>
$22,810,801 and $21,977,268, respectively$ 9,465,072$ 9,784,836
Cash and cash equivalents 739,243 932,065
Replacement reserve escrow 195,515 160,954
Cash restricted for tenant security deposits 232,775 229,416
Prepaid expenses and other assets 591,429 614,911
Deferred expenses, net of accumulated
amortization of $281,806 and $258,861,
respectively 237,778 260,723
Total assets $11,461,812$ 11,982,905
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $18,513,006$ 18,726,677
Accrued expenses and other liabilities 652,037 601,319
Due to affiliates (Note 3) 15,855 199,500
Total liabilities 19,180,898 19,527,496
Partners' deficit (Note 2):
Investor Limited Partners
(25,000 Units outstanding) (6,471,231)(6,305,460)
Original Limited Partner (916,716) (909,737)
General Partners (331,139) (329,394)
Total Partners' deficit (7,719,086)(7,544,591)
Total liabilities and
Partners' deficit $11,461,812$ 11,982,905
</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
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenue:
<S> <C> <C> <C> <C>
Rental $1,933,687 $1,875,274 $3,823,403$3,746,410
Other income 16,230 15,578 31,690 30,413
Total revenue 1,949,917 1,890,852 3,855,093 3,776,823
Expenses:
Operating (Note 3) 529,005 495,483 1,052,870 1,013,600
Maintenance 208,808 151,299 309,870 237,251
Real estate taxes 145,700 137,738 284,811 277,185
General and administrative
(Note 3) 61,796 21,471 95,348 36,188
Management fees (Note 3) 95,712 94,124 192,321 186,940
Depreciation and
amortization 444,981 409,113 856,478 820,141
Interest 409,292 415,160 820,477 838,450
Total expenses 1,895,294 1,724,388 3,612,1753,409,755
Net income $ 54,623 $166,464 $242,918 $ 367,068
Allocation of net income
(Note 2):
Investor Limited Partners
(25,000 Units
outstanding) $51,892 $158,141 $230,772 $ 348,715
Investor Limited Partners
Per Unit $ 2.08 $ 6.33 $ 9.23 $ 13.95
Original Limited
Partner $2,185 $ 6,659 $ 9,717 $ 14,683
General Partners $ 546 $ 1,664 $ 2,429 $ 3,670
</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>
(Unaudited)
For the Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $ 242,918 $ 367,068
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 856,478 820,141
Interest earned on replacement reserve
escrow (3,613) (1,070)
Changes in assets and liabilities:
Increase in cash restricted
for tenant security deposits (3,359) (2,746)
Decrease in prepaid expenses and
other assets 23,482 52,877
Decrease in due to affiliates (183,645) -
Increase (decrease) in accrued
expenses and other liabilities 49,356 (91,415)
Net cash provided by operating
activities 981,617 1,144,855
Cash flows from investing activities:
Additions to fixed assets (513,769) (507,669)
Deposits to replacement reserve escrow (30,948) (30,948)
Withdrawals from replacement reserve escrow - 50,502
Increase in accrued expenses and other
liabilities related to fixed asset additions 1,362 708
Net cash used in investing
activities (543,355) (487,407)
Cash flows from financing activities:
Distributions (417,413) (313,028)
Principal payments on mortgage notes payable(213,671)(195,376)
Net cash used in financing
activities (631,084) (508,404)
Net increase (decrease) in cash and cash
equivalents (192,822) 149,044
Cash and cash equivalents, beginning of period932,065 552,221
Cash and cash equivalents, end of period $ 739,243 $ 701,265
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
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 and Subsidiary (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, 1998 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 consolidated
financial position as of June 30, 1999, its
results of operations for the three and six
months ended June 30, 1999 and 1998, and its
cash flows for six months ended June 30, 1999
and 1998. Certain prior period balances have
been reclassified to conform with current
period consolidated financial statement
presentation.
The results of operations for the three and
six months ended June 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)Summary of Changes in Partners' Deficit
A summary of changes in Partners' deficit for
the six months ended June 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
Balance at
<S> <C> <C> <C> <C>
December 31,1998$(6,305,460)$(909,737)$(329,394)$(7,544,591)
Net income 230,772 9,717 2,429 242,918
Distributions (396,543)(16,696) (4,174) (417,413)
Balance at
June 30, 1999 $(6,471,231)$(916,716)$(331,139)$(7,719,086)
</TABLE>
Continued<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(3)Related Party Transactions
The Partnership pays property management fees
to an affiliate of the General Partners for
management services. Pursuant to the
management agreements, management fees are
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
administrative expenses.
Amounts accrued or paid to the General
Partners' affiliates were as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C>
Property management fees$95,712 $ 94,124 $192,321$186,940
Expense reimbursements 42,669 41,523 84,239 61,467
Charged to operations $138,381 $135,647 $276,560 $248,407
</TABLE>
Due to affiliates consisted of expense
reimbursements of $15,855 and $199,500 at
June 30, 1999 and December 31, 1998,
respectively.
(4) Subsequent event
On or about July 6, 1999 affiliates of the
General Partners and Property Manager
acquired 40% of the Investor Limited
Partnership Units pursuant to a
solicitation offer dated May 14, 1999.
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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. The
semiannual distribution paid in February, 1999
represents an annualized rate of $31.72 per
Unit.
In the second quarter of 1999, occupancy rates
for the Partnership's properties
("Properties") declined from the historically
high levels achieved in 1998 of between 99%
and 100% as of December 31, 1998 to
approximately 97% (in the case of the Hannibal
Grove Apartments), 96% (in the case of the
Brookeville Apartments) and 95% (in the case
of the Dorsey's Forge Apartments) as of June
30, 1999. Moreover, the managing agent for
the Properties (an affiliate of the General
Partners) ("Property Manager") granted
increased rental concessions to tenants in
order to achieve these occupancy rates.
The Property Manager believes that this
decline in occupancy rates is attributable to
significantly increased competition resulting
from newly constructed or renovated housing
entering the markets served by the Properties,
a trend that the Property Manager believes is
expected to continue over the next several
years.
In March 1999, the Property Manager prepared a
five year capital improvement plan (the
"Capital Plan") setting forth capital
improvements that it believes a third party
purchaser of the Properties would regard as
necessary to maintain the Properties' current
occupancy and rent levels (subject to
inflationary increases), in light of the
increased competition in the markets served by
the Partnership. The aggregate cost of
implementing the Capital Plan is estimated to
be approximately $10,000,000.
The General Partners are in the process of
reviewing the Capital Plan, which may not be
practicable for the Partnership to implement
promptly and fully because of the possible
need for additional investment of capital,
additional borrowings and/or the
discontinuation of future cash distributions
from the Partnership. However, the General
Partners believe additional capital
improvements will be needed in the future and
will be over and above historical levels.
Continued
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
Year 2000
The General Partners of the Partnership
conducted an assessment of the Partnership's
core internal and external computer
information systems and have taken the
necessary steps to 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 organizations.
In this regard, the General Partners of the
Partnership, 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 of the Partnership have
evaluated Year 2000 compliance issues with
respect to its non-financial systems, such as
computer controlled elevators, boilers,
chillers and other miscellaneous systems. The
General Partners expect all Year 2000
compliance issues identified in its non-
financial systems to be resolved by early in
the fourth quarter. The General Partners of
the Partnership do not believe that future
efforts to achieve Year 2000 compliance in
non-financial systems will result in material
cost to the Partnership.
The General Partners of the Partnership
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 providers and
vendors are to be Year 2000 ready. The
General Partners do not anticipate any
problems with such providers and vendors that
would materially impact its results of
operations, liquidity or captial resources.
Nevertheless, the General Partners are
developing contingency plans for all of its
mission-critical functions' to insure business
continuity.
In addition, 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 these would materially impact its
results of operations, liquidity or capital
resources.
To date, the Partnership has not incurred, and
does not expect to incur, any significant cost
associated with being Year 2000 ready.
Continued
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
Operations
Net income decreased for the three and six
months ended June 30, 1999, as compared to the
three and six months ended June 30, 1998, as
the increase in total expenses more than
offset the increase in total revenue.
While total revenue increased for the three
and six months ended June 30, 1999, as
compared to the three and six months ended
June 30, 1998, primarily due to rental rate
increases implemented at all the Partnership's
properties, the increases achieved have not
been significant, as had been planned.
Total expenses increased for the three and six
months ended June 30, 1999, as compared to the
three and six months ended June 30, 1998 as a
result of increases in operating, maintenance,
general and administrative and depreciation
expenses. Operating expense increased in 1999
as a result of an increase in workmen's
compensation expense due to a one-time
beneficial adjustment to the workmen's
compensation reserve in 1998. Maintenance
increased due to landscaping expenditures at
Brookeville Apartments during the second
quarter. Legal costs primarily associated
with the Partnership's response to the tender
offer made by Madison Liquidity Investors 104,
LLC to purchase Partnership Units during the
second quarter resulted in an increase in
general and administrative expense.
Depreciation expense increased in conjunction
with increased capital improvements completed
at the Partnership's properties.
<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/Wayne H. Zarozny
Wayne H. Zarozny
Treasurer and Chief
Accounting Officer of
The Krupp Corporation,
a General Partner
DATE: August 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Krupp
Realty Fund III Financial Statements for the six months ended June 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 739,243
<SECURITIES> 0
<RECEIVABLES> 25,473<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 994,246
<PP&E> 32,795,457<F2>
<DEPRECIATION> (23,092,607)<F3>
<TOTAL-ASSETS> 11,461,812
<CURRENT-LIABILITIES> 667,892
<BONDS> 18,513,006<F4>
0
0
<COMMON> (7,719,086)<F5>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,461,812
<SALES> 0
<TOTAL-REVENUES> 3,855,093<F6>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,791,698<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 820,477
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 242,918<F8>
<EPS-BASIC> 0<F8>
<EPS-DILUTED> 0<F8>
<FN>
<F1>Includes all receivables grouped in "Prepaid Expenses and Other Assets"
on the Balance Sheet.
<F2>Includes apartment complexes of $32,275,873 and deferred expenses of $519,584.
<F3>Includes depreciation of $22,810,801 and amortization of deferred
expenses of $281,806.
<F4>Represents mortgage note payable.
<F5>Represents total deficit of the General Partners ($331,139) and the
Limited Partners ($7,387,947).
<F6>Includes all revenue of the Partnership.
<F7>Includes operating expenses of $1,650,409, real estate taxes of $284,811
and depreciation and amortization of $856,478.
<F8>Net income allocated $2,429 to General Partners and $240,489 to Limited
Partners. Net Income of $9.23 per unit on 25,000 units outstanding.
</FN>
</TABLE>
