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 March 31, 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.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<TABLE>
BALANCE SHEETS
<CAPTION>
ASSETS
March 31, December 31,
1997 1996
<S> <C> <C>
Participating Insured Mortgages ("PIMs")
(Note 2) $153,478,463 $164,942,921
Mortgage-Backed Securities ("MBS") (Note 3) 16,675,613 17,358,307
Total mortgage investments 170,154,076 182,301,228
Cash and cash equivalents 6,006,137 6,057,077
Interest receivable and other assets 1,199,946 1,292,834
Prepaid acquisition fees and expenses, net of
accumulated amortization of $8,745,468 and
$8,125,626, respectively 3,924,413 4,544,255
Prepaid participation servicing fees, net of
accumulated amortization of $2,836,858 and
$2,629,028, respectively 1,352,753 1,560,583
Total assets $182,637,325 $195,755,977
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 5,663 $ 18,973
Partners' equity (deficit):
Limited Partners 182,729,826 195,564,776
(14,956,896 Limited Partner interests
outstanding)
General Partners (267,919) (254,541)
Unrealized gain on MBS 169,755 426,769
Total Partners' equity 182,631,662 195,737,004
Total liabilities and Partners' equity $182,637,325 $195,755,977
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
-2-
<PAGE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
For the Three Months
Ended March 31,
1997 1996
Revenues:
<S> <C> <C>
Interest income - PIMs:
Base interest $3,003,906 $3,497,868
Participation interest (Note 2) 743,634 982,845
Interest income - MBS 340,376 400,890
Other interest income 125,585 168,505
Total revenues 4,213,501 5,050,108
Expenses:
Asset management fee to an affiliate 284,360 361,655
Expense reimbursements to affiliates 35,105 59,611
Amortization of prepaid fees and
expenses (Note 2) 827,672 1,699,948
General and administrative expenses 107,926 77,372
Total expenses 1,255,063 2,198,586
Net income $2,958,438 $2,851,522
Allocation of net income (Note 4):
Limited Partners $2,869,685 $2,765,976
Average net income per Limited Partner
interest (14,956,896 Limited Partner
interests outstanding) $ .19 $ .18
General Partners $ 88,753 $ 85,546
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
-3-
<PAGE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months
Ended March 31,
1997 1996
Operating activities:
<S> <C> <C>
Net income $ 2,958,438 $ 2,851,522
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 827,672 1,699,948
Shared appreciation income (652,453) (982,845)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 92,888 641,409
Decrease in liabilities (13,310) (8,788)
Net cash provided by operating activities 3,213,235 4,201,246
Investing activities:
Principal collections on PIMs including shared
appreciation income of $652,453 and $982,845, 12,116,911 25,383,558
respectively
Principal collections on MBS 425,680 924,191
Net cash provided by investing activities 12,542,591 26,307,749
Financing activities:
Quarterly distributions (4,589,169) (4,600,783)
Special distributions (11,217,597) (25,426,553)
Net cash used for financing activities (15,806,766) (30,027,336)
Net increase (decrease) in cash and cash equivalents (50,940) 481,659
Cash and cash equivalents, beginning of period 6,057,077 5,970,759
Cash and cash equivalents, end of period $ 6,006,137 $ 6,452,418
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
-4-
<PAGE>
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 this
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 of only normal recurring accruals) necessary to present
fairly the Partnership's financial position as of March 31, 1997, and
its results of operations and cash flows for the three months ended
March 31, 1997 and 1996.
The results of operations for the three months ended March 31, 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 secured by 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.
During the first quarter, 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.
On March 31, 1997, the Partnership received a prepayment penalty of
$652,453 and Minimum Additional and Shared Income Interest of $41,173
relating to the Silver Springs PIM, with the corresponding prepayment
of the mortgage in the amount of $7,249,479, expected for receipt in
April of 1997. Upon receipt of the mortgage proceeds the
Partnership will pay a special distribution of $.53 per unit to
the Limited Partners. At March 31, 1997, the Partnership s PIM
portfolio has a fair value of $152,418,665 and gross unrealized
gains and losses of $600,703 and $1,660,501, respectively.
The Partnership s PIMs have maturities ranging from 1999 to 2032.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
3. MBS
As of March 31, 1997, the Partnership s MBS portfolio has an
amortized cost of $16,505,858 and gross unrealized gains and losses
of $454,882 and $285,127, 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 three months ended
March 31, 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 2,869,685 88,753 - 2,958,438
Quarterly distributions (4,487,038) (102,131) - (4,589,169)
Special distributions (11,217,597) - - (11,217,597)
Decrease in unrealized gain
on MBS - - (257,014) (257,014)
Balance at March 31, 1997 $182,729,826 $(267,919) $ 169,755 $182,631,662
</TABLE>
-6-
<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 regular
quarterly distributions paid to investors of approximately $4.6 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 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.
During the first quarter of 1997 the Partnership received a payoff of the
Rock Creek Apartments PIM of approximately $11.1 million and subsequently
distributed the proceeds to investors. A special distribution of $.75 per
limited partner interest was paid during the first quarter. In addition,
the Partnership will receive a payoff of the Silver Springs PIM in April
and plans on making a special distribution of $.53 per limited partner
interest shortly thereafter. The General Partners estimate that the
Partnership can maintain the current quarterly distribution rate of $.30
per limited partner interest through 1997. The General Partners will
continue to 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.
-7-
<PAGE>
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.
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 three
months ended March 31, 1997 and the period from inception through March 31,
1997. 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>
Three Months Ended Inception through
March 31, 1997 March 31, 1997
Distributable Cash Flow:
<S> <C> <C>
Income for tax purposes $ 2,943 $123,113
Items not requiring or (not providing)
the use of operating funds:
Shared appreciation income (652) (1,635)
Participation income received but
not recognized for tax purposes - 597
Amortization of prepaid fees and
expenses 843 9,984
Remington Place interest rate
reduction collectible in the future - (253)
Acquisition expenses paid from
offering proceeds charged to
operations - 184
Gain on sale of MBS - (417)
Total Distributable Cash Flow
-8-
("DCF") $ 3,134 $ 131,573
Limited Partners Share of DCF $ 3,040 $ 127,626
Limited Partners Share of DCF
per Limited Partner interest ( Unit ) $ .20 $ 8.53(b)
General Partners Share of DCF $ 94 $ 3,947
Net Proceeds from Capital Transactions:
Principal collection on PIMs including
shared appreciation income 12,117 44,525
Principal collections on MBS 426 60,602
Principal collections on
MBS and PIMs reinvested - (14,537)
Gain on sale of MBS - 417
Total Net Proceeds from Capital
Transactions $ 12,543 $ 91,007
Cash available for distribution
(DCF plus Net Proceeds from
Capital Transactions) $ 15,677 $ 222,580
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions,Continued
Distributions: (includes special
distribution)
Limited Partners $15,704 (a) $215,832 (a)
Limited Partners Average per Unit $ 1.05 (a) $ 14.43 (a)(b)
General Partners $ 94 (a) $ 3,947 (a)
Total Distributions $15,798 $219,779
(a) Includes an estimate of the distribution to be paid in May 1997.
(b) Limited Partners average per Unit return of capital as of May 1997 is $5.90
[$14.43 - $8.53]. Return of capital represents that portion of
distributions 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 months ended March 31, 1997 and 1996.
(Amounts in thousands)
1997 1996
Interest income on PIMs:
Base interest $3,004 $3,498
Shared Income and Minimum Additional
interest 91 381
Interest income on MBS 340 401
Other interest income 126 169
-9-
Partnership expenses (427) (499)
Distributable Cash Flow 3,134 3,950
Decrease in accrued participation income - (381)
Shared appreciation income 652 983
Amortization of prepaid fees and
expenses ( 828) (1,700)
Net income $2,958 $2,852
During the first quarter of 1997 net income increased approximately $106,000 as
compared to the first quarter of 1996 due primarily to a significant decrease in
amortization of prepaid fees and expenses somewhat offset by reductions in base
and participating income on PIMS. During the first quarter of 1996 the
Partnership recorded $1.2 million in amortization related to the Water View
Apartments and Tarnhill PIMs which paid off, while the first quarter of 1997
experienced only one repayment, the Rock Creek Springs Apartment PIM, which
accounted for approximately $400,000 in amortization. The net effect of the
decrease in amortization expense is offset the decrease in base interest income
on PIMs and participation income (including shared appreciation income) derived
from the Rock Creek Springs Apartment PIM repayment versus the Water View
Apartments and Tarnhill Apartments PIMs repayments. The prepayments of
Waterview, Tarnhill and Rock Creek PIMs primarily caused the decrease in base
interest income.
As a result of the special distribution, 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.
</TABLE>
-10-
<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
-11-
<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: April 23, 1997
-12-
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,006,137
<SECURITIES> 170,154,076<F1>
<RECEIVABLES> 1,199,946
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,277,166<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 182,637,325
<CURRENT-LIABILITIES> 5,663
<BONDS> 0
0
0
<COMMON> 182,461,907<F3>
<OTHER-SE> 169,755<F4>
<TOTAL-LIABILITY-AND-EQUITY> 182,637,325
<SALES> 0
<TOTAL-REVENUES> 4,213,501<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,255,063<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,958,438
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,958,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,958,438
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $153,478,463 and
Mortgage-Backed Securities ("MBS") of $16,675,613.
<F2>Includes prepaid acquisition fees and expenses of $12,669,881 net of
accumulated amortization of $8,745,468 and prepaid participation servicing fees
of $4,189,611 net of accumulated amortization of $2,836,858.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($267,919) and Limited Partners equity of $182,729,826.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $827,672 of amortization of prepaid fees and expenses.
<F7>Net income allocated $88,753 to the General Partners and $2,869,685 to the
Limited Partners. Average net income per Limited Partner interest is $.19 on
14,956,896 Limited Partner interests outstanding.
</FN>
</TABLE>
