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, 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 0-17691
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
<TABLE>
BALANCE SHEETS
ASSETS
<PAGE>
<CAPTION>
September 30, December 31,
1996 1995
<C> <C> <C>
Participating Insured Mortgages ("PIMs")
(Note 2) $139,580,393 $151,465,652
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 33,281,746 36,693,963
Total mortgage investments 172,862,139 188,159,615
Cash and cash equivalents 4,818,146 3,433,885
Interest receivable and other assets 1,182,333 1,924,402
Prepaid acquisition expenses and fees, net of
accumulated amortization of $6,443,610 and
$6,091,012, respectively 5,032,648 6,240,051
Prepaid participation servicing fees, net of
accumulated amortization of $2,186,949 and
$2,084,200, respectively 1,616,299 2,002,332
Total assets $185,511,565 $201,760,285
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 13,841 $ 14,756
Partners' equity (deficit) (Note 4):
Limited Partners 185,665,224 200,575,459
(12,770,261 Limited Partner interests
outstanding)
General Partners (134,664) (102,556)
Unrealized (loss) gain on MBS (32,836) 1,272,626
Total Partners' equity 185,497,724 201,745,529
Total liabilities and Partners' equity $185,511,565 $201,760,285
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $2,754,783 $3,007,345 $ 8,592,781 $ 9,146,674
Participation interest 1,279,146 84,476 1,279,146 519,553
Interest income - MBS 664,957 754,076 2,047,727 2,198,378
Interest income - other 75,429 49,014 177,775 149,347
Total revenues 4,774,315 3,894,911 12,097,429 12,013,952
Expenses:
Asset management fee to
an affiliate 334,049 355,579 1,027,330 1,058,696
Expense reimbursements to
affiliates 46,986 51,402 132,883 152,318
Amortization of prepaid
<PAGE>
expenses and fees 816,619 405,610 1,593,436 1,216,829
General and administrative 35,725 47,542 96,391 127,365
Total expenses 1,233,379 860,133 2,850,040 2,555,208
Net income $3,540,936 $3,034,778 $ 9,247,389 $ 9,458,744
Allocation of net income (Note 4):
Limited Partners $3,434,708 $2,943,735 $ 8,969,967 $ 9,174,982
Average net income per
Limited Partner interest
(12,770,261 Limited
Partner interests
outstanding) $ .27 $ .23 $ .70 $ .72
General Partners $ 106,228 $ 91,043 $ 277,422 $ 283,762
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months
Ended September 30,
1996 1995
Operating activities:
<S> <C> <C>
Net income $ 9,247,389 $ 9,458,744
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 1,593,436 1,216,829
Prepayment penalty (1,013,411) -
Changes in assets and liabilities:
Decrease in interest receivable and other assets 742,069 124,250
Decrease in liabilities (915) (6,341)
Net cash provided by operating activities 10,568,568 10,793,482
Investing activities:
Principal collections on PIMs including prepayment
penalty of $1,013,411 12,898,670 674,819
Principal collections on MBS 2,106,755 1,330,207
Investment in MBS - (1,027,567)
Net cash provided by investing activities 15,005,425 977,459
Financing activities:
Quarterly distributions (11,802,675) (11,810,982)
Special distributions (12,387,057) -
Net cash used for financing activities (24,189,732) (11,810,982)
Net increase (decrease) in cash and cash equivalents 1,384,261 (40,041)
<PAGE>
Cash and cash equivalents, beginning of period 3,433,885 3,257,180
Cash and cash equivalents, end of period $ 4,818,146 $ 3,217,139
</TABLE>
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 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
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, 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 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.
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. PIMs
On August 1, 1996, the Partnership received a prepayment of the
Friendly Hills PIM. The Partnership received the outstanding principal
balance of $11,260,118, a prepayment penalty of $1,013,411 and Minimum
Additional and Shared Income Interest of $126,820. As a result of the
prepayment, the Partnership fully amortized the remaining prepaid fees
and expenses associated with this PIM and retired them.
On August 15, 1996, the Partnership made a special distribution of $.97
per Limited Partner interest with the proceeds from this repayment.
During May 1996, the Partnership entered into an agreement with the
borrower of the Sundance Apartments PIM that reduces the interest paid
monthly by the borrower by 1% per annum and modifies the participation
features. In addition, under the modified terms, the borrower may
prepay the first mortgage loan without incurring any prepayment penalty
and will not have to pay any additional interest accumulated prior to
the modification date. Under the agreement, the Partnership will be
entitled to 25% of the surplus cash generated by the operations of the
property on an annual basis beginning with the surplus cash calculation
for the year ended December 31, 1997. In the event of a sale or
refinancing, the Partnership will be entitled to 25% of the net sale
proceeds or, in the case of a refinancing, the greater of: (i) 25% of
<PAGE>
the net refinancing proceeds or (ii) a payment equal to 1% of the then-
outstanding first mortgage loan balance. Net sale proceeds and net
refinancing proceeds are net of certain amounts due the borrower or
affiliates of the borrower. Upon the maturity or accelerated maturity
of the PIM the Partnership will be entitled to 25% of the difference
between the value of the property less: (i) the unpaid balance of the
first mortgage loan and (ii) certain amounts due the borrower or
affiliates of the borrower.
At September 30, 1996, the Partnership s PIM portfolio has a fair value
of approximately $138,596,000 and gross unrealized gains and losses of
approximately $866,000 and $1,850,000, respectively. The PIM
portfolio has maturities ranging from 1999 to 2032.
3. MBS
At September 30, 1996, the Partnership's MBS portfolio has an amortized
cost of approximately $33,314,582 and gross unrealized gains and losses
of approximately $469,531 and $502,367, respectively. The
Partnership's MBS have maturities ranging from 2010 to 2035.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Total
Limited General Unrealized Partners'
Partners Partners Gain (Loss) Equity
Balance at December 31,
<C> <C> <C> <C> <C>
1995 $200,575,459 $(102,556) $1,272,626 $201,745,529
Net income 8,969,967 277,422 - 9,247,389
Quarterly distributions (11,493,145) (309,530) - (11,802,675)
Special distributions (12,387,057) - - (12,387,057)
Decrease in unrealized
gain on MBS - - (1,305,462) (1,305,462)
Balance at September 30,
1996 $185,665,224 $(134,664) $ (32,836) $185,497,724
</TABLE>
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 is
quarterly distributions paid to investors of approximately $3.8 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 distribution from principal collections causing the capital
<PAGE>
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 downward adjustments to the
quarterly distributions paid to investors.
The General Partners periodically review the distribution rate
to determine whether an adjustment to the distribution rate 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.
During May 1996, the Partnership entered into an agreement with
the borrower of the Sundance Apartments PIM that reduces the monthly
interest paid by the borrower by 1% per annum and modifies the
participation features. The modification will reduce the monthly cash flow
of the Partnership, but will not materially affect the Partnership s
liquidity.
The Partnership s invested assets decreased as a result of the
prepayment of the Friendly Hills PIM and the subsequent distribution of
those proceeds to investors in August 1996. In addition to the
outstanding principal balance of approximately $11.3 million, the
Partnership received a prepayment penalty of $1,013,411 and all Shared
Income and Minimum Additional Interest due of $126,820. The Partnership
used the capital transaction proceeds from this prepayment to fund a
special distribution of $.97 per Limited Partner interest in August.
During the third quarter, the owner of Paddock Park II,
Paddock - Jacksonville and Paddock - Tallahassee Apartments and the owner
of Paces Arbor and Paces Forest Apartments notified the Partnership of
their intentions to prepay these PIMs in the near future. Upon a payoff,
the Partnership will receive the outstanding principal of these PIMs
totaling approximately $27 million and $7.6 million, respectively, the
greater of a 9% prepayment penalty or Shared Appreciation Interest, and any
unpaid Minimum Additional and Shared Income Interest. The Partnership will
distribute the capital transaction proceeds from these prepayments to
investors
through special distributions. The General Partners will be reviewing the
anticipated cash flows from the remaining investments to determine whether
the current distribution rate will be sustainable or if an adjustment is
necessary. If the General Partners determine the distribution rate needs
to be adjusted the timing of the adjustment will 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 of calling 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 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
<PAGE>
( 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.
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions
Shown below is the calculation of Distributable Cash Flow and
Net Cash Proceeds from Capital Transactions as defined in Section 17 of the
Partnership Agreement and the source of cash distributions for the nine
months ended September 30, 1996 and the period from inception through
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, Distributable Cash Flow and Net Cash
Proceeds from Capital Transactions should not be considered by the reader
as a substitute to net income as an indicator of the Partnership's
operating performance or to cash flows as a measure of liquidity.
<TABLE>
(Amounts in thousands except per
Unit amounts)
<CAPTION>
Nine Months Ended Inception to
September 30, 1996 September 30, 1996
Distributable Cash Flow:
<S> <C> <C>
Income for tax purposes $ 10,379 $ 107,474
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid expenses, fees
and organization costs 1,042 7,111
Acquisition expenses paid from offering
proceeds charged to operations - 184
Shared appreciation income/prepayment
penalty (1,013) (1,813)
Gain on sale of MBS - (253)
Total Distributable Cash Flow ("DCF") $ 10,408 $ 112,703
Limited Partners Share of DCF $ 10,096 $ 109,322
Limited Partners Share of DCF per Limited
Partner interests ( Unit ) $ .79 8.56 (b)
General Partners Share of DCF $ 312 $ 3,381
Net Proceeds from Capital Transactions:
Principal collections and prepayments
(including any Shared Appreciation Income or
<PAGE>
prepayment penalty)on PIMs $ 12,899 $ 30,737
Principal collections and sales proceeds
on MBS (including gain on sale) 2,107 62,651
Reinvestment of MBS and PIM principal
collections - (41,960)
Total Net Proceeds from Capital
Transactions $ 15,006 $ 51,428
Cash available for distribution
(DCF plus proceeds from Capital
transactions) $ 25,414 $ 164,131
Distributions:
Limited Partners $ 23,881 (a) $ 158,641 (a)
Limited Partners Average per Unit $ 1.87 (a) $ 12.42 (a)(b)
General Partners $ 312 (a) $ 3,381 (a)
Total Distributions $ 24,193 $ 162,022
</TABLE>
(a) Includes an estimate of the distribution to be paid in November
1996.
(b) Limited Partners average per Unit return of capital as of
November 1996 is $3.86 [$12.42 - $8.56]. Return of capital
represents that portion of distribution which is not funded from
DCF such as proceeds from the sale of assets and substantially
all of the principal collections received from MBS and PIMs.
Operations
The following discussion relates to the operations of the Partnership
during the three and nine months ended September 30, 1996 and 1995 (Amounts
in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Interest income on PIMs:
<S> <C> <C> <C> <C>
Base interest $2,755 $3,008 $8,593 $9,147
Participation interest 294 85 846 520
Interest income on MBS 665 754 2,048 2,198
Other interest income 76 49 178 149
Partnership expenses (417) (455) (1,257) (1,338)
Distributable Cash Flow 3,373 3,441 10,408 10,676
Decrease in accrued
participation income (29) - (581) -
Prepayment penalty 1,013 - 1,013 -
Amortization of prepaid fees
and expenses (816) (406) (1,593) (1,217)
Net income $3,541 $3,035 $9,247 $9,459
</TABLE>
Net income increased by approximately $506,000 for the three months
ended September 30, 1996 as compared to the same period in 1995. The
prepayment penalty of $1,013,000 and Shared Income and Minimum Additional
Interest of $126,000 received from the prepayment of the Friendly Hills PIM
<PAGE>
increased net income. Base interest income on PIMs decreased by
approximately $253,000 in the third quarter of 1996 versus the third
quarter of 1995 due primarily to the interest rate reductions on the Royal
Palm Apartments PIM and Sundance Apartments PIM, and the prepayment of the
Friendly Hills PIM and interest income on MBS decreased $89,000 in the
third quarter of 1996 as compared to the third quarter of 1995, because
principal collections reduced the outstanding principal balance of the
Partnership s MBS investments thereby decreasing net income. Partnership
expenses decreased $38,000 during the three months ended September 30, 1996
as compared to the three months ended September 30, 1995 due primarily to
lower asset management fees, expense reimbursements to affiliates, and
general and administrative expenses thereby increasing net income.
Amortization expense increased during the three months ended September 30,
1996 as compared to the three months ended September 30, 1995, because the
Partnership fully amortized the remaining balances of prepaid fees and
expenses associated with the Friendly Hills PIM thereby decreasing net
income.
Net income decreased for the nine months ended September 30, 1996 as
compared to same period in 1995 due primarily to lower base interest income
on PIMs, lower interest income on MBS and higher amortization expense.
These decreases were offset in part by an increase in participation
interest income and lower Partnership expenses. The decrease in base
interest of approximately $554,000 resulted primarily from the interest
rate reductions on the Royal Palm Apartments PIM and Sundance Apartments
PIM, and the prepayment of the Friendly Hills PIM. Amortization expense
increased because the Partnership fully amortized the remaining balances of
prepaid fees and expenses associated with the prepayment of the Friendly
Hills PIM.
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
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
<PAGE>
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, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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
</LEGEND>
<CIK> 0000832091
<NAME> KRUPP INSURED PLUS III LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,818,146
<SECURITIES> 172,862,139<F1>
<RECEIVABLES> 1,182,333
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,648,947<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 185,511,565
<CURRENT-LIABILITIES> 13,841
<BONDS> 0
0
0
<COMMON> 185,464,888<F3>
<OTHER-SE> 32,836
<TOTAL-LIABILITY-AND-EQUITY> 185,511,565
<SALES> 0
<TOTAL-REVENUES> 12,097,429<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,850,040<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,247,389
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,247,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,247,389
<EPS-PRIMARY> 0<F6>
<EPS-DILUTED> 0<F6>
<FN>
<F1>Includes the following investments: Participating Insured Mortgages ("PIMs")
$139,580,393 & Mortgage-Backed Securities ("MBS") $33,281,746
<F2>Includes the following prepaid qcquisition fees & expenses of $5,032,648 net of
accumulated amortization of $6,443,610 and prepaid participating servicing of
$1,616,299 net of accumulated amortization of $2,186,949
<F3>Represents total equity of General Partners & Limited Partners of $(134,664)
and $185,665,224
<F4>Represents interest income on investments in mortgages & cash
<F5>Includes $1,593,436 of amortization related to prepaid fees & expenses
<F6>Net income allocated $277,422 to the General Partners & $8,969,967 to the
Limited Partners. Average net income per unit of Limited Partners interest is
$.70 on 12,770,261 units outstanding.
</FN>
</TABLE>
