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 SECURITIESx
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 0-17690
Krupp Insured Mortgage Limited Partnership
Massachusetts 04-3021395
(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 MORTGAGE LIMITED PARTNERSHIP
<TABLE>
BALANCE SHEETS
<PAGE>
ASSETS
<CAPTION>
September 30, December 31,
1996 1995
<C> <C> <C>
Participating Insured Mortgages ("PIMs")
(Note 2) $165,276,769 $190,325,305
Mortgage-Backed Securities ("MBS") (Note 3) 18,032,411 21,126,045
Total mortgage investments 183,309,180 211,451,350
Cash and cash equivalents 6,146,273 5,970,759
Interest receivable and other assets 1,234,404 2,113,378
Prepaid acquisition fees and expenses, net of
accumulated amortization of $7,798,829 and
$7,684,289, respectively 4,871,052 6,789,755
Prepaid participation servicing fees, net of
accumulated amortization of $2,518,096 and
$2,457,959, respectively 1,671,515 2,328,216
Total assets $197,232,424 $228,653,458
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 25,858 $ 14,758
Partners' equity (deficit):
Limited Partners 197,174,172 227,908,288
(14,956,896 Limited Partner interests
outstanding)
General Partners (245,423) (164,638)
Unrealized gain on MBS 277,817 895,050
Total Partners' equity 197,206,566 228,638,700
Total liabilities and Partners' equity $197,232,424 $228,653,458
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE 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
<S> <C> <C> <C> <C>
Revenues:
Interest income - PIMs:
Base interest $3,151,750 $3,643,123 $9,807,527 $10,940,159
Participation interest
(Note 2) 33,158 38,683 1,016,003 507,668
Interest income - MBS 364,119 437,182 1,147,572 1,350,699
Other interest income 82,658 80,329 333,894 233,358
Total revenues 3,631,685 4,199,317 12,304,996 13,031,884
Expenses:
<PAGE>
Asset management fee
to an affiliate 301,428 401,324 1,007,184 1,195,930
Expense reimbursements
to affiliates 59,610 64,227 168,569 192,680
Amortization of prepaid
fees and expenses
(Note 2) 437,728 495,778 2,575,404 1,487,334
General and administrative
expenses 42,239 58,363 148,115 181,153
Total expenses 841,005 1,019,692 3,899,272 3,057,097
Net income $2,790,680 $3,179,625 $8,405,724 $ 9,974,787
Allocation of net income
(Note 4):
Limited Partners $2,706,959 $3,084,236 $8,153,552 $ 9,675,543
Average net income per
Limited Partner interest
(14,956,896 Limited
Partner interests
outstanding) $ .19 $ .21 $ .55 $ .65
General Partners $ 83,721 $ 95,389 $ 252,172 $ 299,244
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months
Ended September 30,
1996 1995
Operating activities:
<S> <C> <C>
Net income $ 8,405,724 $ 9,974,787
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of other investment discount - (8,118)
Amortization of prepaid fees and expenses 2,575,404 1,487,334
Shared appreciation income (982,845) -
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 878,974 237,508
Increase in liabilities 11,100 335
Net cash provided by operating activities 10,888,357 11,691,846
Investing activities:
Principal collections on PIMs including shared
appreciation income of $982,845 26,031,381 989,846
Principal collections on MBS 2,476,401 1,747,729
Other investment - (984,701)
Net cash provided by investing activities 28,507,782 1,752,874
Financing activities:
<PAGE>
Quarterly distributions (13,794,072) (13,806,549)
Special distributions (25,426,553) -
Net cash used for financing activities (39,220,625) (13,806,549)
Net increase (decrease) in cash and cash equivalents 175,514 (361,829)
Cash and cash equivalents, beginning of period 5,970,759 5,064,654
Cash and cash equivalents, end of period $ 6,146,273 $ 4,702,825
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE 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 Mortgage 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 primarily of 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 February 16, 1996, the Partnership received a prepayment of the
Water View Apartments PIM. The Partnership received the outstanding
principal balance of $16,651,149 plus outstanding interest. The
Partnership did not receive any prepayment penalty or participation
income from this PIM. During 1995, the operating performance of
Water View Apartments declined due to insufficient levels of
occupancy and higher maintenance and repair expenses due to
vandalism. As a result, the borrower went into default on the
underlying loan. Normally, a loan like this would eventually be
recovered through an insurance claim process. However, the
Partnership was able to receive its insured proceeds on this loan
<PAGE>
earlier than anticipated due to Bear Stearn s assumption of the
underlying insured mortgage. As a result of the prepayment, the
Partnership fully amortized the remaining prepaid fees and expenses
associated with this PIM.
On February 29, 1996, the Partnership received a prepayment of the
Tarnhill PIM. The Partnership received the outstanding principal
balance of $7,483,000, Shared Appreciation Interest of $982,845 and
Minimum Additional and Shared Income Interest of $223,728. As a
result of the prepayment, the Partnership fully amortized the
remaining prepaid fees and expenses associated with this PIM.
On March 15, 1996, the Partnership made a special distribution of
$1.70 per Limited Partner interest with the proceeds from these
repayments.
At September 30, 1996, the Partnership s PIM portfolio has a fair
value of approximately $163,730,000 and gross unrealized gains and
losses of approximately $270,000 and $1,817,000, respectively. The
Partnership s PIMs have maturities ranging from 1999 to 2032.
3. MBS
As of September 30, 1996, the Partnership s MBS portfolio has an
amortized cost of approximately $17,754,594 and gross unrealized
gains and losses of approximately $513,084 and $235,267,
respectively. The MBS portfolio has maturity dates ranging from 1999
to 2024.
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 Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $227,908,288 $(164,638) $ 895,050 $228,638,700
Net income 8,153,552 252,172 - 8,405,724
Quarterly distributions (13,461,115) (332,957) - (13,794,072)
Special distributions (25,426,553) - - (25,426,553)
Decrease in unrealized gain
on MBS - - (617,233) (617,233)
Balance at September 30, 1996 $197,174,172 $(245,423) $ 277,817 $197,206,566
</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
<PAGE>
The most significant demands on the Partnership's liquidity are regular
quarterly distributions paid to investors of approximately $4.5 million.
Funds used for investor distributions are generated from interest income
received on the PIMs, MBS, cash and short-term investments, and the
principal collections received on the PIMs and MBS. The Partnership funds
a portion of the distribution from principal collections causing the
capital resources of the Partnership to continually decrease. As a result
of this decrease, the total cash inflows to the Partnership will also
decrease, which will result in periodic downward adjustments to the
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.
The Partnership s invested assets decreased significantly during the first
quarter of 1996 as a result of the repayments of the Water View and
Tarnhill Apartments PIMs and the subsequent distribution of the proceeds to
investors. The Partnership received approximately $16.7 million from the
repayment of the Tarnhill Apartments PIM and approximately $8.7 million
from the repayment of Water View Apartments PIM. The Partnership used
these proceeds to make a special distribution to investors of $1.70 per
limited partner interest on March 15, 1996.
During the third quarter, the owner of Paddock Club and Southland Station
II Apartments notified the Partnership of its intention to prepay these
PIMs in the near future. Upon prepayment, the Partnership will receive the
outstanding principal of these PIMs totaling approximately $15.2 million,
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 a special distribution. The General Partners will be
reviewing the anticipated cash flows from the Partnership s remaining
investments to determine if an adjustment to the current distribution rate
will be necessary.
For the first five years of the PIMs the borrowers are prohibited from
prepaying. For the second five years, the borrowers can prepay the loans
and pay the greater of a prepayment penalty or all participation interest.
The participation features of the PIMs are neither insured nor guaranteed
and if repayment of a PIM results from an insurance claim the Partnership
would not receive any prepayment penalty nor participation interest. The
Partnership has the option to call 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 Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") and the 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.
<PAGE>
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 through
September 30, 1996 September 30, 1996
Distributable Cash Flow:
<S> <C> <C>
Income for tax purposes $ 8,800 $117,595
Items not requiring or (not providing)
the use of operating funds:
Shared appreciation income (983) (983)
Participation income received in 1995
but not recognized for tax purposes
until 1996 (17) -
Amortization of prepaid fees and
expenses 2,824 8,892
Remington Place interest rate
reduction collectible in the future (47) (237)
Acquisition expenses paid from
offering proceeds charged to
operations - 184
Gain on sale of MBS - (417)
Total Distributable Cash Flow
("DCF") $10,577 $125,034
Limited Partners Share of DCF $10,260 $121,283
Limited Partners Share of DCF
per Limited Partner interest ( Unit ) $ .69 $ 8.11 (b)
General Partners Share of DCF $ 317 $ 3,751
Net Proceeds from Capital Transactions:
<PAGE>
Principal collection on PIMs including
shared appreciation income 26,031 32,074
Principal collections on MBS 2,476 59,353
Principal collections on
MBS and PIMs reinvested - (14,537)
Gain on sale of MBS - 417
Total Net Proceeds from Capital
Transactions $28,507 $ 77,307
Cash available for distribution
(DCF plus Net Proceeds from
Capital Transactions) $39,084 $202,341
Distributions: (includes special
distribution)
Limited Partners $38,888 (a) $195,641 (a)
Limited Partners Average per Unit $ 2.60 (a) $ 13.08 (a)(b)
General Partners $ 317 (a) $ 3,751 (a)
Total Distributions $39,205 $199,392
</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 $4.97 [$13.08 - $8.11]. Return of capital
represents that portion of distributions which are 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.
<TABLE>
(Amounts in thousands)
<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 $3,152 $3,643 $ 9,808 $10,940
Shared Income and
Minimum Additional
interest 76 39 613 508
Interest income on MBS 365 437 1,148 1,351
Other interest income 83 81 334 233
Partnership expenses (406) (524) (1,326) (1,570)
Distributable Cash Flow 3,270 3,676 10,577 11,462
Decrease in accrued
participation income (42) - (579) -
Shared appreciation income - - 983 -
Amortization of prepaid fees and
expenses (437) (496) (2,575) (1,487)
<PAGE>
Net income $2,791 $3,180 $ 8,406 $ 9,975
</TABLE>
Operations, Continued
Net income decreased $389,000 during the third quarter of 1996 as compared
to the third quarter of 1995 due primarily to lower base interest income on
PIMs. Base interest income on PIMs decreased $491,000 in the third quarter
of 1996 as compared to the third quarter of 1995 due primarily to the
prepayments of the Water View and Tarnhill Apartments PIMs in the first
quarter of 1996. Interest income on MBS decreased $72,000 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. Partnership expenses decreased $118,000 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 to
affiliates. Amortization expense decreased during the three months ended
September 30, 1996 as compared to the three months ended September 30,
1995, because the Partnership fully amortized the prepaid fees and expenses
associated with the Water View and Tarnhill Apartments PIMs during the
first quarter of 1996.
During the first three quarters of 1996 net income decreased approximately
$1,569,000 as compared to the first three quarters of 1995 due primarily to
the prepayments of the Water View Apartments and Tarnhill Apartments PIMs.
As a result of the prepayments, base interest income on PIMs decreased
$1,132,000 and amortization expense increased $1,088,000. Other interest
income and participation interest (including shared appreciation income)
increased $101,000 and $508,000, respectively, during the first nine months
of 1996 as compared to the first nine months of 1995. Amortization expense
increased because the Partnership fully amortized the remaining balance of
the prepaid fees and expenses associated with these PIMs. The significant
increase in participation interest income resulted from shared appreciation
income of approximately $983,000 received from the prepayment of the
Tarnhill Apartments PIM. Other interest income increased due to the short-
term investment of the proceeds from the prepayments until such funds were
ultimately distributed to the investors.
As a result of the special distribution made with the proceeds from the
repayments, the Partnership now has less invested assets to generate income
in the future. In general, the Partnership s base interest income on PIMs
and MBS will decline as principal collections reduce the outstanding
balance of these investments and other interest income will decline as the
principal collections are used to fund quarterly and special distributions.
KRUPP INSURED MORTGAGE 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
<PAGE>
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
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 Mortgage 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 25, 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> 0000832095
<NAME> KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,146,273
<SECURITIES> 183,309,180<F1>
<RECEIVABLES> 1,234,404
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,542,567<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 197,232,424
<CURRENT-LIABILITIES> 25,858
<BONDS> 0
0
0
<COMMON> 196,928,749<F3>
<OTHER-SE> 277,817
<TOTAL-LIABILITY-AND-EQUITY> 197,232,424
<SALES> 0
<TOTAL-REVENUES> 12,304,996<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,899,272<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,405,724
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,405,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,405,724
<EPS-PRIMARY> 0<F6>
<EPS-DILUTED> 0<F6>
<FN>
<F1>Includes the following investments: Participating Insured Mortgages ("PIMs")
$165,276,769 & Mortgage-Backed Securities ("MBS") $18,032,411
<F3>Represents total equity of General Partners & Limited Partners of $(245,423)
and $197,174,172
<F2>Includes the following prepaid acquisiton fees & expenses of $4,871,052 net of
accumulated amortization of $7,798,829 and prepaid participating servicing of
$1,671,515 net of accumulated amortization of $2,518,096
<F4>Represents interest income on investments in mortgages & cash
<F5>Includes $2,575,404 of amortization related to prepaid fees & expenses
<F6>Net income allocated $252,172 to the General Partners & $8,153,552 to the
Limited Partners. Average net income per unit of Limited Partners interest is
$.55 on 14,956,896 units outstanding
</FN>
</TABLE>
