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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 September 30, 2000
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 0-15815
Krupp Insured Plus Limited Partnership
Massachusetts 04-2915281
(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
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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 LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
Participating Insured Mortgages ("PIMs")
<S> <C> <C>
(Note 2) $ 18,898,092 $ 19,032,999
Mortgage-Backed Securities and
insured mortgage("MBS") (Note 3) 18,930,343 21,918,397
Total mortgage investments 37,828,435 40,951,396
Cash and cash equivalents 4,260,548 13,002,087
Interest receivable and other assets 192,500 319,994
Prepaid acquisition fees and expenses, net of
accumulated amortization of $705,143 and
$657,985 respectively 139,109 186,267
Prepaid participation servicing fees, net of
accumulated amortization of $252,760 and
$226,219, respectively 78,292 104,833
Total assets $ 42,498,884 $ 54,564,577
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 15,003 $ 19,550
Partners' equity
Limited Partners
(7,500,099 Limited Partner interests
outstanding) 42,533,980 54,522,528
General Partners (251,329) (241,347)
Accumulated Comprehensive Income 201,230 263,846
Total Partners' equity 42,483,881 54,545,027
Total liabilities and Partners' equity $ 42,498,884 $ 54,564,577
</TABLE>
The accompanying notes are an integral
part of the financial statements.
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KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Revenues:
Interest income - PIMs
<S> <C> <C> <C> <C>
Basic interest $ 348,558 $ 534,946 $ 1,067,804 $ 1,608,194
Participation interest - - 10,000 -
Interest income - MBS 382,188 469,560 1,302,183 1,437,736
Other interest income 40,551 46,343 146,322 136,131
Total revenues 771,297 1,050,849 2,526,309 3,182,061
Expenses:
Asset management fee to an affiliate 73,998 96,135 224,516 287,540
Expense reimbursements to affiliates 14,853 13,512 41,163 28,770
Amortization of prepaid fees and expenses 24,951 25,263 73,699 75,793
General and administrative 34,246 28,251 87,304 67,557
Total expenses 148,048 163,161 426,682 459,660
Net income 623,249 887,688 2,099,627 2,722,401
Other comprehensive income:
Net change in unrealized gain on MBS 47,042 (102,487) (62,616) (300,532)
Total comprehensive income $ 670,291 $ 785,201 $ 2,037,011 $ 2,421,869
Allocation of net income (Note 4):
Limited Partners $ 604,551 $ 861,057 $ 2,036,638 $ 2,640,729
Average net income per Limited
Partner interest
(7,500,099 Limited Partner
interests outstanding) $ .08 $ .11 $ .27 $ .35
General Partners $ 18,698 $ 26,631 $ 62,989 $ 81,672
</TABLE>
The accompanying notes are an integral
part of the financial statements.
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KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
2000 1999
Operating activities:
<S> <C> <C>
Net income $ 2,099,627 $ 2,722,401
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 73,699 75,793
Shared Appreciation Interest (10,000) -
Premium amortization 53,923 3,022
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 127,494 19,959
Decrease in liabilities (4,547) (6,697)
Net cash provided by operating activities 2,340,196 2,814,478
Investing activities:
Principal collections on MBS 2,871,515 1,064,155
Principal collections on PIMs including Shared Appreciation
Interest of $10,000 in 2000 144,907 246,172
Net cash provided by investing activities 3,016,422 1,310,327
Financing activities:
Quarterly distributions (4,348,028) (4,360,204)
Special distribution (9,750,129) -
Net cash used for financing activities (14,098,157) (4,360,204)
Net decrease in cash and cash equivalents (8,741,539) (235,399)
Cash and cash equivalents, beginning of period 13,002,087 3,653,130
Cash and cash equivalents, end of period $ 4,260,548 $ 3,417,731
Non cash activities:
Decrease in Fair Value of MBS $ (62,616) $ (300,532)
</TABLE>
The accompanying notes are an integral
part of the financial statements.
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KRUPP INSURED PLUS 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, The Krupp Corporation and The Krupp Company
Limited Partnership-IV (collectively the "General Partners"), of Krupp Insured
Plus 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, 1999 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, 2000, its results of operations for the
three and nine months ended September 30, 2000 and 1999 and its cash flows for
the nine months ended September 30, 2000 and 1999.
The results of operations for the three and nine months ended September 30, 2000
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
At September 30, 2000, the Partnership's PIMs have a fair market value of
$18,639,790 and gross unrealized gains and losses of $41,726, and $300,028
respectively. The PIMs have maturities ranging from 2006 to 2034.
On January 11, 2000, the Partnership paid a special distribution to the
investors of $1.30 per Limited Partner interest from the principal proceeds
received from the payoff of the La Costa PIM in the amount of $9,746,923. The
Borrower defaulted on the first mortgage loan underlying the PIM in June of
1999. The Partnership continued to receive its full principal and basic interest
payments until the default was resolved, because GNMA guaranteed those payments
to the Partnership. Subsequent to the payoff, the Partnership received $10,000
to release the subordinated promissory note. This payment has been classified as
Shared Appreciation Interest.
3. MBS
At September 30, 2000, the Partnership's MBS portfolio has an amortized cost of
$9,648,683 and gross unrealized gains and losses of $207,994 and $6,764,
respectively. The Partnership's insured mortgage has an amortized cost of
$9,080,430. The portfolio has maturities ranging from 2006 to 2032.
The Partnership received a payoff from the Chateau Bijou MBS on September 19,
2000 for $2,266,064. During October The Partnership received a 9% prepayment
premium of $203,946 from this payoff. The Partnership will pay a special
distribution in November of $.33 per Limited Partner interest from the proceeds
received.
Continued
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KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 2000 is as follows:
<TABLE>
<CAPTION>
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 54,522,528 $ (241,347) $ 263,846 $ 54,545,027
Net income 2,036,638 62,989 - 2,099,627
Quarterly distributions (4,275,057) (72,971) - (4,348,028)
Special distribution (9,750,129) - - (9,750,129)
Change in unrealized gain
on MBS - - (62,616) (62,616)
Balance at September 30, 2000 $ 42,533,980 $ (251,329) $ 201,230 $ 42,483,881
</TABLE>
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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
At September 30, 2000 the Partnership had liquidity consisting of cash and cash
equivalents of approximately $4.3 million as well as the cash flow provided by
its investments in PIMs and MBS. The Partnership anticipates that these sources
will be adequate to provide the Partnership with sufficient liquidity to meet
its obligations as well as to provide distributions to its investors.
The most significant demand on the Partnership's liquidity is quarterly
distributions paid to investors of approximately $1.4 million each quarter. The
Partnership currently has a distribution rate of $.19 per Limited Partner
interest per quarter. Funds for the quarterly distributions come from the
monthly principal and interest payments received on the PIMs and MBS, the
principal prepayments of the PIMs and MBS, interest earned on the Partnership's
cash and cash equivalents, and cash reserves. The portion of distributions
attributable to the principal collections and cash reserves reduces the capital
resources of the Partnership. As the capital resources of the Partnership
decrease, the total cash flows to the Partnership also will decrease and over
time will result in periodic adjustments to the 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. Based on current projections, the General
Partners have determined that the Partnership will adjust the current
distribution rate beginning with the distribution payable in February 2001 to
.10 per Limited Partner interest per quarter.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's investments in the PIMs also may provide
additional income through a participation interest in the underlying properties.
However, this payment is neither guaranteed nor insured and depends on the
successful operations of the underlying properties.
On January 11, 2000, the Partnership paid a special distribution to the
investors of $1.30 per Limited Partner interest from the principal proceeds
received from the payoff of the La Costa PIM in the amount of $9,746,923. The
Borrower defaulted on the first mortgage loan underlying the PIM in June of
1999. The Partnership continued to receive its full principal and basic interest
payments until the default was resolved, because GNMA guaranteed those payments
to the Partnership. Subsequent to the payoff, the Partnership received $10,000
to release the subordinated promissory note. This payment has been classified as
Shared Appreciation Interest.
The Partnership received a payoff from the Chateau Bijou MBS on September 19,
2000 for $2,266,064. During October the Partnership received a 9% prepayment
premium of $203,946 from this payoff. The Partnership will pay a special
distribution in November of $.33 per Limited Partner interest from the proceeds
received.
The General Partners currently do not expect either of the remaining PIMs still
held in the Partnership's portfolio to pay off during 2000. Royal Palm Place and
Vista Montana operate under long-term restructure programs. As an ongoing result
of the Partnership's 1995 agreement to modify the payment terms of the Royal
Palm Place PIM, the Partnership will receive basic interest-only payments on the
Fannie Mae MBS at the rate of 7.875% per annum during 2000. Thereafter, the
interest rate will range from 7.875% to 8.775% per annum through the maturity of
the first mortgage loan in 2006. The Partnership also received its share of the
scheduled $250,000 principal payment in January 2000. Although occupancy at
Royal Palm averaged in the low 90% range through 1999, it faces significant
competition from neighboring properties that have changed ownership and
benefited from new capital investment in exterior and interior renovations. The
Partnership agreed in 1993 to change the original participation terms and to
permanently reduce the rate on the Vista Montana first mortgage loan to 7.375%
per annum when construction was significantly delayed. The borrower also raised
additional equity at the time of the modification by selling investment tax
credits, which have been held in escrow and are used to fund operating deficits.
Although the property, located in a suburb of Phoenix, maintains occupancy in
the low to mid 90% range, revenues generally do not cover all operating and
capital costs, and the shortfalls are covered by the escrow.
The Partnership has the option to call certain PIMs by accelerating the maturity
date of the loans if they 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 these decisions.
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Results of Operations
The following discussion relates to the operation of the Partnership during the
three and nine months ended September 30, 2000 and 1999.
Net Income decreased by $264,000 during the three months ended September 30,
2000 compared to the same period in 1999. The decrease is primarily due to the
decrease in PIM basic interest which resulted from the Lacosta PIM payoff and a
decrease in MBS interest income due to the principal collections received on the
Single Family MBS.
Net income decreased by $623,000 during the nine months ended September 30, 2000
compared to the same period in 1999. The decrease is primarily due to the same
reasons discussed above.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by the
Government National Mortgage Association ("GNMA"), Fannie Mae, the Federal Home
Loan Mortgage Corporation ("FHLMC") or the United States 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 represents interest 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.
The Partnership includes in cash and cash equivalents approximately $4.0 million
of commercial paper, which is issued by entities with a credit rating equal to
one of the top two rating categories of a nationally recognized statistical
rating organization.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
September 30, 2000, the Partnership's PIMs and MBS comprise the majority of the
Partnership's assets. As such, decreases in interest rates may accelerate the
prepayment of the Partnership's investments. The Partnership does not utilize
any derivatives or other instruments to manage this risk as the Partnership
plans to hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the fund forecasts prepayments based on trends in similar
securities as reported by statistical reporting entities such as Bloomberg. For
PIMs the Partnership incorporates prepayment assumptions into planning as
individual properties notify the Partnership of the intent to prepay or as they
mature.
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KRUPP INSURED PLUS 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
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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 Limited Partnership
(Registrant)
BY: / s / Robert A. Barrows
Robert A. Barrows
Vice-President (Chief Accounting Officer) of
The Krupp Corporation,
a General Partner of the Registrant.
DATE: November 3, 2000
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