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, 1997
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
<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>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<CAPTION>
BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
<S>
Participating Insured Mortgages ("PIMs")
<S> <C> <C>
(Notes 2 and 5) $137,584,800 $164,942,921
Mortgage-Backed Securities ("MBS") (Note 3) 24,061,493 17,358,307
Total mortgage investments 161,646,293 182,301,228
Cash and cash equivalents 4,961,947 6,057,077
Interest receivable and other assets 1,051,556 1,292,834
Prepaid acquisition fees and expenses, net of
accumulated amortization of $8,079,567 and
$8,125,626, respectively 3,183,465 4,544,255
Prepaid participation servicing fees, net of
accumulated amortization of $2,670,980 and
$2,629,028, respectively 1,053,443 1,560,583
Total assets $171,896,704 $195,755,977
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 113,747 $ 18,973
Partners' equity (deficit)(Note 4):
Limited Partners 171,453,544 195,564,776
(14,956,896 Limited Partner interests
outstanding)
General Partners (281,392) (254,541)
Unrealized gain on MBS 610,805 426,769
Total Partners' equity 171,782,957 195,737,004
Total liabilities and Partners' equity $171,896,704 $195,755,977
</TABLE>
-2-
<PAGE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<CAPTION>
STATEMENTS OF INCOME
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
<S>
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $2,774,416 $3,151,750 $ 8,558,600 $ 9,807,527
Participation interest
(Notes 2 and 5) 943,913 33,158 1,986,597 1,016,003
Interest income - MBS 320,011 364,119 990,704 1,147,572
Other interest income 62,513 82,658 288,368 333,894
Total revenues 4,100,853 3,631,685 11,824,269 12,304,996
Expenses:
Asset management fee
to an affiliate 291,681 301,428 857,262 1,007,184
Expense reimbursements
to affiliates 43,236 59,610 121,577 168,569
Amortization of prepaid
fees and expenses
(Note 2) 436,883 437,728 1,867,930 2,575,404
General and administrative
expenses 41,165 42,239 220,196 148,115
Total expenses 812,965 841,005 3,066,965 3,899,272
Net income $3,287,888 $2,790,680 $ 8,757,304 $ 8,405,724
Allocation of net income
(Note 4):
Limited Partners $3,189,250 $2,706,959 $ 8,494,584 $ 8,153,552
Average net income per
Limited Partner interest
(14,956,896 Limited
Partner interests
outstanding) $ .22 $ .19 $ .57 $ .55
General Partners $ 98,638 $ 83,721 $ 262,720 $ 252,172
</TABLE>
-4-
<PAGE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
1997 1996
<S>
Operating activities:
<S> <C> <C>
Net income $ 8,757,304 $ 8,405,724
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 1,867,930 2,575,404
Shared appreciation income (1,160,075) (982,845)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 241,278 878,974
Increase in liabilities 94,774 11,100
Net cash provided by operating activities 9,801,211 10,888,357
Investing activities:
Principal collections on PIMs including shared
appreciation income of $1,160,075 and $982,845
respectively 20,493,487 26,031,381
Principal collections on MBS 1,505,559 2,476,401
Net cash provided by investing activities 21,999,046 28,507,782
Financing activities:
Quarterly distributions (13,750,688) (13,794,072)
Special distributions (19,144,699) (25,426,553)
Net cash used for financing activities (32,895,387) (39,220,625)
Net increase (decrease) in cash and cash equivalents (1,095,130) 175,514
Cash and cash equivalents, beginning of period 6,057,077 5,970,759
Cash and cash equivalents, end of period $ 4,961,947 $ 6,146,273
Supplemental disclosure of non-cash investing
activities:
Reclassification of investment in PIM to an MBS $ 8,024,709 $ -
</TABLE>
-6-
<PAGE>
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, 1996 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,
1997, its results of operations for the three and nine months ended
September 30, 1997 and 1996 and its cash flows for the nine months ended
September 30, 1997 and 1996.
The results of operations for the three and nine months ended
September 30,1997 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 25, 1997, the Partnership received a prepayment of
the Rock Creek Apartments PIM. The Partnership received the
outstanding principal balance of $11,139,968 plus outstanding interest.
The Partnership did not receive any prepayment penalty or participation
income from this PIM. The borrower of the Rock Creek Springs PIM
defaulted on its debt service obligation during the third quarter of
1996. FNMA, the guarantor of the MBS portion of the PIM, was unable to
negotiate a workout plan with the borrower and exercised its option to
payoff the MBS in February 1997 and pursue a foreclosure. On March 21,
1997, the Partnership made a special distribution of $.75 per Limited
Partner interest with the proceeds from the Rock Creek payoff.
In addition, the Partnership fully amortized the remaining prepaid fees and
expenses associated with this PIM.
During 1997, the Partnership received a prepayment of the Silver
Springs PIM. The Partnership received the outstanding principal
balance of $7,249,479 plus outstanding interest on April 25, 1997, while
on March 31, 1997, the Partnership had received a prepayment penalty
of $652,453 and Minimum Additional and Shared Income Interest of $41,173.
On May 23, 1997 the Partnership made a special distribution of $.53 per
unit to the Limited Partners from the proceeds of the Silver Springs PIM
prepayment.
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<PAGE>
3. MBS
As of September 30, 1997, the Partnership s MBS portfolio has an
amortized cost of $23,450,688 and gross unrealized gains and losses of
$625,266 and $14,461, respectively. The MBS portfolio has maturity dates
ranging from 1999 to 2024.
-9-
<PAGE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
4.Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1997 is as follows:
<TABLE>
Total
<CAPTION>
Limited General Unrealized Partners'
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $195,564,776 $ (254,541) $ 426,769 $ 195,737,004
Net income 8,494,584 262,720 - 8,757,304
Quarterly distributions (13,461,117) (289,571) - (13,750,688)
Special distributions (19,144,699) - - (19,144,699)
Increase in unrealized gain
on MBS - - 184,036 184,036
Balance at September 30, 1997 $171,453,544 $ (281,392) $ 610,805 $ 171,782,957
</TABLE>
5. Subsequent Event
Hampton Ridge Apartment
On October 27, 1997, the Partnership received prepayment of the
Hampton Ridge Apartments PIM. The Partnership received the
outstanding first mortgage principal balance of $9,067,436 plus
outstanding interest. The Partnership also collected a discounted
prepayment penalty of $507,622 and shared interest income of $178,906 during
the third quarter of 1997.
The Partnership will be making a special distribution of $.64 per
unit per Limited Partner interest with the proceeds from this prepayment.
-10-
<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 Partnerships 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 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 owner of two properties in the portfolio, Paddock Club and Southland,
expects to payoff each PIM in November 1997 as a result of a merger
transaction with a NYSE-listed real estate investment trust. If this
transaction is completed as expected, the Partnership will receive
principal repayments totaling approximately $15 million. In addition to
the repayment of the principal balances of these PIMs, the Partnership will
also receive additional interest based on each property s operations and
either the greater of a 9% prepayment penalty or additional interest earned
on the appreciation of each property's value.
On October 27, 1997, the Partnership received prepayment of the Hampton
Ridge Apartments PIM. The Partnership received the outstanding first
mortgage principal balance of $9,067,436 plus outstanding interest. The
Partnership also collected a discounted prepayment penalty of $507,622 and
shared interest income of $178,906 during the third quarter of 1997. The
Partnership will be making a special distribution of $.64 per unit per
Limited Partner interest with the proceeds from this prepayment.
The owner of the Patrician Apartments sold the property during the second
quarter of 1997 and the new owner assumed the first mortgage. In
connection with this transaction, the General Partners agreed to accept a
$100,000 payment from the owner to discharge the loan s participation
features, which converts the Partnership s PIM into an insured mortgage.
-11-
<PAGE>
The Partnership s invested assets decreased significantly during 1997
as a result of the repayments of the Rock Creek and Silver Springs Apartments
PIMs and the subsequent distribution of the proceeds to investors. The
partnership received approximately $11.1 million of principal proceeds from
the repayment of the Rock Creek Apartments PIM and approximately $7.9
million of principal proceeds including the prepayment penalty from the
repayment of the Silver Springs Apartments PIM. The Partnership used these
proceeds to make special distributions to investors of $.75 and $.53 per
limited partner interest on March 21, 1997 and May 23, 1997, respectively.
The General Partners estimate that the Partnership can maintain the current
quarterly distribution rate of $.30 per limited partner interest through
1997. However, if the above mentioned sales take place, the General
Partners will monitor the appropriateness of this distribution rate in the
future and will adjust it as 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 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.
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.
Operations
The following discussion relates to the operations of the Partnership
during the three and nine months ended September 30, 1997 and 1996.
-12-
<PAGE>
Net income increased $497,208 during the third quarter of 1997 as
compared to the third quarter of 1996 due primarily to a prepayment
penalty of $507,622 and participation interest of $178,906 related to the
Hampton Ridge PIM. Base interest income on PIMs decreased $377,334 in the third
quarter of 1997 as compared to the third quarter of 1996 due primarily to
the prepayments of the Rock Creek and Silver Springs PIMs in the first half
of 1997. Interest income on MBS decreased $44,108 in the third quarter of
1997 as compared to the third quarter of 1996, because principal
collections reduced the outstanding principal balance of the Partnership s
MBS investments. In addition, the Partnership collected $257,385 of
participation income from five other PIM s.
Net income increased for the nine months ended September 30, 1997 as
compared to the same period in 1996 by $351,580 due primarily to an
increase in participation interest of $970,594 and decreases in asset
management fees and amortization expense of $149,922 and $707,474,
respectively. As a result of PIM prepayments, base interest income
decreased $1,248,927. Amortization expense decreased because fully
amortized prepaid fees and expenses associated with the Waterview and
Tarnhill PIMs during 1996 exceeded the prepaid fees and expenses the
Partnership fully amortized relating to the Rock Creek and Silver Springs
PIMs through the third quarter of 1997.
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.
-13-
<PAGE>
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
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
-14-
<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 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 28, 1997
-15-
<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 it's 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,961,947
<SECURITIES> 161,646,923<F1>
<RECEIVABLES> 1,051,556
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,236,908<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 171,896,704
<CURRENT-LIABILITIES> 113,747
<BONDS> 0
0
0
<COMMON> 171,172,152<F3>
<OTHER-SE> 610,805<F4>
<TOTAL-LIABILITY-AND-EQUITY> 171,896,704
<SALES> 0
<TOTAL-REVENUES> 11,824,269<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,066,965<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,757,304
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,757,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,757,304
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $137,584,800 and
Mortgage-Backed Securities ("MBS") of $24,061,493.
<F2>Includes prepaid acquisition fees and expenses of $11,263,032 net of
accumulated amortization of $8,079,567 and prepaid participation servicing fees
of $3,724,423 net of accumulated amortization of $2,670,980.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($281,393) and Limited Partners equity of $171,453,545.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $1,867,930 of amortization of prepaid fees and expenses.
<F7>Net income allocated $262,719 to the General Partners and $8,494,585 to the
Limited Partners. Average net income per Limited Partner interest is $.57 on
14,956,896 Limited Partner interests outstanding.
</FN>
</TABLE>
