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 March 31, 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
March 31, December 31,
2000 1999
<S> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $ 34,713,067 $ 34,929,389
Mortgage-Backed Securities and insured
mortgage ("MBS")(Note 3) 12,796,712 12,948,849
Total mortgage investments 47,509,779 47,878,238
Cash and cash equivalents (Note 2) 3,384,201 19,237,377
Interest receivable and other assets 333,662 645,696
Prepaid acquisition fees and expenses, net of
accumulated amortization of $2,503,636 and
$2,431,337, respectively 417,835 490,134
Prepaid participation servicing fees, net of
accumulated amortization of $735,844 and
$713,125, respectively 152,343 175,062
Total assets $ 51,797,820 $ 68,426,507
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 12,858 $ 19,548
Partners' equity (deficit) (Note 4):
Limited Partners
(12,770,261 Limited Partner interests
outstanding) 51,990,985 68,593,209
General Partners (197,947) (187,219)
Accumulated comprehensive income (8,076) 969
Total Partners' equity 51,784,962 68,406,959
Total liabilities and Partners' equity $ 51,797,820 $ 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
Ended March 31,
2000 1999
Revenues:
Interest income - PIMs:
<S> <C> <C>
Basic interest $ 671,341 $ 1,156,883
Interest income - MBS 251,014 288,604
Other Interest income 84,314 126,926
Total revenues 1,006,669 1,572,413
Expenses:
Asset management fee to an affiliate 88,778 137,312
Expense reimbursements to affiliates 20,672 5,009
Amortization of prepaid fees and expenses 95,018 244,205
General and administrative 13,339 16,786
Total expenses 217,807 403,312
Net income 788,862 1,169,101
Comprehensive income:
Net change in unrealized loss/gain on MBS (9,045) (19,064)
Total comprehensive income $ 779,817 $ 1,150,037
Allocation of net income (Note 4):
Limited Partners $ 765,196 $ 1,134,028
Average net income per Limited Partner
interest (12,770,261 Limited Partner
interests outstanding) $ .06 $ .09
General Partners $ 23,666 $ 35,073
</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 Three Months
Ended March 31,
2000 1999
Operating activities:
<S> <C> <C>
Net income $ 788,862 $ 1,169,101
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 95,018 244,205
Changes in assets and liabilities:
Decrease in interest receivable and other assets 312,034 82,981
(Decrease) increase in liabilities (6,690) 143,117
Net cash provided by operating activities 1,189,224 1,639,404
Investing activities:
Principal collections on PIMs 216,322 11,135,262
Principal collections on MBS 143,092 647,923
Net cash provided by investing activities 359,414 11,783,185
Financing activities:
Quarterly distributions (2,460,725) (2,481,622)
Special distributions (14,941,089) (11,237,745)
Net cash used for financing activities (17,401,814) (13,719,367)
Net decrease in cash and cash equivalents (15,853,176) (296,778)
Cash and cash equivalents, beginning of period 19,237,377 6,845,229
Cash and cash equivalents, end of period $ 3,384,201 $ 6,548,451
Non cash activities:
Decrease in Fair Value of MBS $ (9,045) $ (19,064)
</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 March 31, 2000 and its results of operations and cash
flows for the three months ended March 31, 2000 and 1999.
The results of operations for the three months ended March 31, 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
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.
At March 31, 2000, the Partnership?s PIM portfolio has a fair market value of
approximately $34,814,000 and gross unrealized gains of approximately $101,000.
The PIM portfolio has maturities ranging from 2006 to 2031.
3. MBS
At March 31, 2000, the Partnership's MBS portfolio has an amortized cost of
$4,784,478 and gross unrealized gains and losses of $78,173, and $86,249,
respectively. At March 31, 2000, the Partnership's insured mortgage loan has an
amortized cost of $8,020,310. The portfolio has maturities ranging from 2016 to
2035.
4. Changes in Partners' Equity
<TABLE>
<CAPTION>
A summary of changes in Partners' Equity for the three months ended March 31,
2000 is as follows:
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 765,196 23,666 - 788,862
Special distributions (14,941,089) - - (14,941,089)
Quarterly distributions (2,426,331) (34,394) - (2,460,725)
Change in unrealized gain on MBS - - (9,045) (9,045)
Balance at March 31, 2000 $ 51,990,985 $ (197,947) $ (8,076) $ 51,784,962
</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 $2.4 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. Based on current projections, the General Partners believe
the Partnership will need to adjust the current distribution rate beginning with
the August 2000 distribution. The General Partners will determine the new rate
during the second quarter of 2000.
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 has informed the Partnership that the
property will be marketed for sale during 2000. 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 months ended March 31, 2000 and 1999.
Net income decreased by approximately $380,000 during the three months ended
March 31, 2000 as compared to the same period ending 1999, due primarily to
lower basic interest on PIMs, lower interest income on MBS and lower other
interest income in the amounts of approximately $486,000, $38,000 and $43,000,
respectively. This was partially offset by decreases in amortization and
partnership expenses of approximately $149,000 and $36,000 respectively.
The significant decrease in basic interest on PIMs was caused by the prepayments
of the Marina Shores, Windsor Court and Mill Ponds Apartment PIMs in 1999. The
decrease in MBS interest income was due to the on-going prepayment of the
Partnership's single-family MBS. The decrease in other interest income was due
to the Partnership having lower average short-term investment balances during
the three months ended March 31, 2000 when compared to the corresponding period
in 1999.
The decrease in amortization for the first three months in 2000 as compared to
the same period in 1999 was a result of the Partnership fully amortizing the
costs associated with the PIMs that were prepaid in 1999. The decrease in
partnership expenses was primarily due to lower asset management fees which was
due to a reduction of the asset base occurring from the prepayments 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 March 31, 2000 the Partnership includes in cash and cash equivalents
approximately $3.0 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 March
31, 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:
Robert A. Barrows
Treasurer and Chief Accounting Officer of
Krupp Plus Corporation, a General Partner.
DATE: April 28, 2000
<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> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-END> Mar-31-2000
<CASH> 3,384,201
<SECURITIES> 47,509,779<F1>
<RECEIVABLES> 333,662
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 570,178<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,797,820
<CURRENT-LIABILITIES> 12,858
<BONDS> 0
0
0
<COMMON> 51,793,038<F3>
<OTHER-SE> (8,076)<F4>
<TOTAL-LIABILITY-AND-EQUITY> 51,797,820
<SALES> 0
<TOTAL-REVENUES> 1,006,669<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 217,807<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 788,862
<INCOME-TAX> 0
<INCOME-CONTINUING> 788,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 788,862
<EPS-BASIC> 0
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $34,713,067 and
Mortgage-Backed Securities ("MBS") of $12,796,712.
<F2>Includes prepaid acquisition fees and expenses of $2,921,471 net of
accumulated amortization of $2,503,636 and prepaid participation servicing fees
of $888,187 net of accumulated amortization of $735,844.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($197,947) and Limited Partners equity of $51,990,985.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $95,018 of amortization of prepaid fees and expenses.
<F7>Net income allocated $23,666 to the General Partners and $765,196 to the
Limited Partners. Average net income per Limited Partner interest is $.06 on
12,770,261 Limited Partner interests outstanding.
</FN>
</TABLE>
