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 0-17691
Krupp Insured Plus-III Limited Partnership
Massachusetts 04-3007489
(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
<PAGE>
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.
<TABLE>
<CAPTION>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
September 30, December 31,
2000 1999
<S> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $ 34,643,892 $ 34,929,389
Mortgage-Backed Securities and insured
mortgage ("MBS")(Note 3) 12,491,465 12,948,849
Total mortgage investments 47,135,357 47,878,238
Cash and cash equivalents 1,964,829 19,237,377
Interest receivable and other assets 237,151 645,696
Prepaid acquisition fees and expenses, net of
accumulated amortization of $2,648,234 and
$2,431,337, respectively 273,237 490,134
Prepaid participation servicing fees, net of
accumulated amortization of $781,280 and
$713,125, respectively 106,907 175,062
Total assets $ 49,717,481 $ 68,426,507
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 14,661 $ 19,548
Partners' equity (deficit) (Note 4):
Limited Partners
(12,770,261 Limited Partner interests
outstanding) 49,885,026 68,593,209
General Partners (207,376) (187,219)
Accumulated comprehensive income 25,170 969
Total Partners' equity 49,702,820 68,406,959
Total liabilities and Partners' equity $ 49,717,481 $ 68,426,507
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
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 $ 670,005 $ 1,027,725 $ 2,067,562 $ 3,334,814
Participation interest - 574,564 - 574,564
Interest income - MBS 237,738 259,326 730,154 822,374
Other interest income 31,490 99,976 156,920 301,266
Total revenues 939,233 1,961,591 2,954,636 5,033,018
Expenses:
Asset management fee to
an affiliate 89,020 125,279 266,206 400,032
Expense reimbursements to
affiliates 25,686 23,151 72,044 51,311
Amortization of prepaid
fees and expenses 95,017 227,912 285,052 624,939
General and administrative 64,923 53,182 158,982 117,305
Total expenses 274,646 429,524 782,284 1,193,587
Net income
664,587 1,532,067 2,172,352 3,839,431
Other comprehensive income:
Net change in unrealized gain
on MBS 43,634 (62,819) 24,201 (230,060)
Total comprehensive income $ 708,221 $ 1,469,248 $ 2,196,553 $ 3,609,371
Allocation of net income(Note 4):
Limited Partners $ 644,649 $ 1,486,105 $ 2,107,181 $ 3,724,248
Average net income per Limited
Partner interest (12,770,261
Limited Partner interests
outstanding) $ .06 $ .11 $ .17 $ .29
General Partners $ 19,938 $ 45,962 $ 65,171 $ 115,183
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
2000 1999
Operating activities:
<S> <C> <C>
Net income $ 2,172,352 $ 3,839,431
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 285,052 624,939
Shared Appreciation Interest - (402,508)
Changes in assets and liabilities:
Decrease in interest receivable and other assets 408,545 157,033
Decrease in liabilities (4,887) (147,940)
Net cash provided by operating activities 2,861,062 4,070,955
Investing activities:
Principal collections on PIMs including Shared Appreciation Interest of
$402,508 in 1999 285,497 21,431,319
Principal collections on MBS 481,585 1,977,588
Net cash provided by investing activities 767,082 23,408,907
Financing activities:
Special distributions (14,941,089) (21,453,869)
Quarterly distributions (5,959,603) (7,415,416)
Net cash used for financing activities (20,900,692) (28,869,285)
Net decrease in cash and cash equivalents (17,272,548) (1,389,423)
Cash and cash equivalents, beginning of period 19,237,377 6,845,229
Cash and cash equivalents, end of period $ 1,964,829 $ 5,455,806
Non cash activities:
Increase (decrease) in Fair Value of MBS $ 24,201 $ (230,060)
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
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, 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 PIM portfolio has a fair market value
of $34,804,322 and gross unrealized gains of $160,430 respectively. The PIM
portfolio has maturities ranging from 2006 to 2031.
On January 11, 2000, the Partnership paid a special distribution of $1.17 per
Limited Partner interest representing principal proceeds and Shared Appreciation
Interest received of $14,491,746 and $426,321, respectively from the Marina
Shores Apartments PIM payoff in December of 1999.
3. MBS
At September 30, 2000, the Partnership's MBS portfolio has an amortized cost of
$4,469,735 and gross unrealized gains and losses of $73,456 and $48,286,
respectively. At September 30, 2000, the Partnership's insured mortgage loan has
an amortized cost of $7,996,560. The portfolio has maturities ranging from 2016
to 2035.
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 $ 68,593,209 $ (187,219) $ 969 $ 68,406,959
Net income 2,107,181 65,171 - 2,172,352
Special distributions (14,941,089) - - (14,941,089)
Quarterly distributions (5,874,275) (85,328) - (5,959,603)
Change in unrealized
gain on MBS - - 24,201 24,201
Balance at September 30, 2000 $ 49,885,026 $ (207,376) $ 25,170 $ 49,702,820
</TABLE>
<PAGE>
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 demands on the Partnership's liquidity are the regular
quarterly distributions paid to investors, which are approximately $1.0 million
each quarter. Funds for the investor distributions come from the monthly
principal and basic interest payments received on the PIMs and MBS, the
principal prepayments of the PIMs and MBS, and interest earned on the
Partnership's cash and cash equivalents. 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 that quarterly distributions do not
fully utilize the cash available for distributions and cash balances increase,
the General Partners may adjust the distribution rate or distribute such funds
through a special distribution. The portion of distributions attributable to the
principal collections reduces the capital resources of the Partnership. As the
capital resources 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. At this time the General Partners have determined that the
Partnership can maintain its current distribution rate of $.08 per Limited
Partner interest per quarter.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's PIM investments also may provide additional
income through its participation feature in the underlying properties if they
operate successfully. The Partnership may receive a share in any operating cash
flow that exceeds debt service obligations and capital needs or a share in any
appreciation in value when the properties are sold or refinanced. However, this
participation is neither guaranteed nor insured, and it is dependent upon
whether property operations or its terminal value meet certain criteria.
On January 11, 2000, the Partnership paid a special distribution of $1.17 per
Limited Partner interest from the principal proceeds and Shared Appreciation
Interest in the amounts of $14,491,746 and $426,321, respectively from the
Marina Shores Apartments PIM payoff in December of 1999.
The Partnership's only remaining PIM investments are the MBS backed by the first
mortgage loans on Casa Marina, Harbor Club and Royal Palm Place. Presently, the
General Partners do not expect any of these properties to pay the Partnership
any participation interest during 2000. Casa Marina, located in North Miami, is
a forty-year old property where the costs of maintenance, repairs and
replacements have escalated as the property has aged. Occupancy generally hovers
in the 90% range, and the property generates sufficient cash flow for adequate
maintenance but not enough to provide for major capital improvements or any
participation interest. The Borrower informed the Partnership that the property
was marketed for sale during 2000 without success. Harbor Club operates
successfully in Ann Arbor, Michigan, which is a very competitive market with
many newer apartment properties. Although Harbor Club has maintained occupancy
rates in the mid 90% range for the past two years, most cash flow generated by
the property is used for capital replacements and improvements that help it
maintain its strong market position. Royal Palm Place operates under a long-term
restructure program. As an on going 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 in 2006. The
Partnership also received its pro rata share of the January 2000, $250,000
principal payment.
During the first five years, borrowers are prohibited from prepaying the
mortgage loans underlying the PIMs. During the second five years, borrowers may
prepay the loans by incurring a prepayment premium. The Partnership has the
option to call certain PIMs by accelerating their maturity 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, the interest rate environment and availability of financing will
affect those decisions.
<PAGE>
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 $867,000 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 and Participation interest which resulted from the payoffs
of Marina Shores and Mill Pond PIMs.
Net Income decreased by $ 1,667,000 during the nine months ended September 30,
2000 compared to the same period in 1999. The decrease is primarily due to the
decrease in PIM Basic and Participation Interest which resulted from the payoffs
of Windsor Court and the PIMs mentioned 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. 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. These obligations
are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board.
Obligations insured by HUD, an agency of the U.S. Government, are backed by the
full faith and credit of the U.S. Government.
At September 30, 2000 the Partnership includes in cash and cash equivalents
approximately $1.6 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 Partnerships 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 Partnership 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.
<PAGE>
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 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 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: November 3, 2000
<PAGE>
