UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
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
BALANCE SHEETS
ASSETS
CAPTION>
September 30, December 31,
1998 1997
Participating Insured Mortgages ("PIMs")
<S> <C> <C>
(Note 2) $108,624,717 $113,051,723
Mortgage-Backed Securities ("MBS") (Note 3) 20,262,998 23,700,858
Total mortgage investments 128,887,715 136,752,581
Cash and cash equivalents 4,240,120 20,480,666
Interest receivable and other assets 868,671 936,883
Prepaid acquisition fees and expenses, net of
accumulated amortization of $7,451,420 and
$6,944,814, respectively 1,606,709 2,393,273
Prepaid participation servicing fees, net of
accumulated amortization of $2,452,359 and
$2,293,034, respectively 542,991 794,887
Total assets $136,146,206 $161,358,290
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 23,533 $ 120,966
Partners' equity (deficit)(Note 4):
Limited Partners 135,513,422 160,722,004
(14,956,896 Limited Partner interests
outstanding)
General Partners (314,818) (274,985)
Unrealized gain on MBS 924,069 790,305
Total Partners' equity 136,122,673 161,237,324
Total liabilities and Partners' equity $ 136,146,206 $161,358,290
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $2,132,668 $2,774,416 $6,480,102 $8,558,600
Participation interest 429,504 943,913 499,260 1,986,597
Interest income - MBS 386,113 320,011 1,234,001 990,704
Other interest income 66,988 62,513 247,670 288,368
Total revenues 3,015,273 4,100,853 8,461,033 11,824,269
Expenses:
Asset management fee
to an affiliate 222,825 291,681 662,314 857,262
Expense reimbursements
to affiliates 24,810 43,236 33,581 121,577
Amortization of prepaid
fees and expenses 406,173 436,883 1,038,460 1,867,930
General and administrative
expenses 37,465 41,165 180,021 220,196
Total expenses 691,273 812,965 1,914,376 3,066,965
Net income $2,324,000 $3,287,888 $6,546,657 $8,757,304
Allocation of net income
(Note 4):
Limited Partners $2,254,280 $3,189,250 $6,350,257 $8,494,584
Average net income per
Limited Partner interest
(14,956,896 Limited
Partner interests
outstanding) $ .15 $ .22 $ .42 $ .57
General Partners $ 69,720 $ 98,638 $ 196,400 $ 262,720
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
<PAGE>
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
Operating activities:
<S> <C> <C>
Net income $ 6,546,657 $ 8,757,304
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 1,038,460 1,867,930
Shared appreciation income (268,638) (1,160,075)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 68,212 241,278
Increase (decrease) in liabilities (97,433) 94,774
Net cash provided by operating activities 7,287,258 9,801,211
Investing activities:
Principal collections on PIMs including shared
appreciation income of $268,638 and $1,160,075
respectively 4,695,644 20,493,487
Principal collections on MBS 3,571,624 1,505,559
Net cash provided by investing activities 8,267,268 21,999,046
Financing activities:
Quarterly distributions (11,005,126) (13,750,688)
Special distributions (20,789,946) (19,144,699)
Net cash used for financing activities (31,795,072) (32,895,387)
Net decrease in cash and cash equivalents (16,240,546) (1,095,130)
Cash and cash equivalents, beginning of period 20,480,666 6,057,077
Cash and cash equivalents, end of period $ 4,240,120 $ 4,961,947
Supplemental disclosure of non-cash investing
activities:
Reclassification of investment in PIM to an MBS $ - $ 8,024,709
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<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
the information presented not misleading. See Notes to Financial Statements
included in the Partnership's Form 10-K for the year ended December 31, 1997
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, 1998, its results of operations for
the three and nine months ended September 30, 1998 and 1997 and its cash
flows for the nine months ended September 30, 1998 and 1997.
The results of operations for the three and nine months ended September 30,
1998 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 July 27, 1998 and August 26, 1998, the Partnership received a partial
prepayment and final prepayment of approximately $654,000, and $2,985,000,
respectively, representing a prepayment of the Deering Place Apartments PIM.
During July of 1998 the Partnership received minimum additional interest and
shared interest income of $90,195 and a prepayment penalty of $268,638 from
the Deering Place Apartment PIM. The partnership distributed the capital
transaction proceeds from this prepayment to investors through a special
distribution on September 18, 1998 in the amount of $.27 per Limited Partner
interest.
During January 1998, the Partnership made a $1.12 per Unit special
distribution with the prepayment proceeds of the Paddock Club and Southland
Station PIMs that were received during the fourth quarter of 1997.
At September 30, 1998, the Partnership's PIM portfolio has a fair value of
$111,152,298 and gross unrealized gains of $2,527,581. The Partnership's
PIMs have maturities ranging from 1999 to 2032. At September 30, 1998 there
are no insured mortgage loans within the Partnership's portfolio that are
delinquent of principal or interest.
3. MBS
As of September 30, 1998, the Partnership's MBS portfolio has an amortized
cost of $19,338,929 and gross unrealized gains of $924,069. The MBS
portfolio has maturity dates ranging from 1999 to 2024.
continued
<PAGE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
3. MBS, continued
In June 1997, Statement of Financial Accounting Standards No. 130,
'Reporting Comprehensive Income' (FASB 130), was issued establishing
standards for reporting and displaying comprehensive income and its
components effective January 1, 1998. FASB 130 requires comprehensive
income and its components, as recognized under accounting standards, to be
displayed in a financial statement with the same prominence as other
financial statements, if material. FASB 130 had no material effect
on the Partnership's financial position or results of operations.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1998 is as follows:
<TABLE>
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $160,722,004 $(274,985) $ 790,305 $161,237,324
Net income 6,350,257 196,400 - 6,546,657
Quarterly distributions (10,768,893) (236,233) - (11,005,126)
Special distributions (20,789,946) - - (20,789,946)
Increase in unrealized gain
on MBS - - 133,764 133,764
Balance at September 30, 1998 $135,513,422 $ (314,818) $ 924,069 $136,122,673
</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.
The General Partners of the Partnership have conducted an assessment of
the Partnership's core internal and external computer information systems
and have taken the further necessary steps to understand the nature and
extent of the work required to make its systems Year 2000 ready in those
situations in which it is required to do so. The Year 2000 readiness
issue concerns the inability of computerized information systems to
accurately calculate, store or use a date after 1999. This could result in a
system failure or miscalculations causing disruptions of operations. The
Year 2000 issue affects virtually all companies and all organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the
testing and conversion of the financial accounting operating systems in
February 1998. As a result, the General Partners have generated operating
efficiencies and believe their financial accounting operating systems are
Year 2000 ready. The Partnership incurred hardware costs as well as
consulting and other expenses related to the infrastructure and facilities
enhancements necessary to complete the upgrade and prepare for the Year 2000.
There are no other systems or software that the Partnership is using at the
present time.
The General Partners of the Partnership are in the process of evaluating the
potential adverse impact that could result from the failure of material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors to be Year 2000 ready.
No estimate can be made at this time as to the impact of the readiness of
such third parties.
Liquidity and Capital Resources
The most significant demand on the Partnership's liquidity are regular
quarterly distributions paid to investors of approximately $3.14 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 portion of the quarterly
distribution funded from principal collections causes 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.
During January 1998, the Partnership made a $1.12 per Unit special
distribution with the prepayment proceeds of the Paddock Club and Southland
Station PIMs that were received during the fourth quarter of 1997. As a
result of the Deering Place PIM prepayment the Partnership made a special
distribution of $.27 per unit from the payoff proceeds. Consequently, the
Partnership's capital resources and its future cash flows will be lower.
However, at this time the General Partners has determined that the
Partnership can maintain its current dividend rate of $.84 per unit per year.
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 cash
available for distribution, the General Partners may adjust the distribution
rate or distribute funds through a special distribution. In the event of
further PIM prepayments the Partnership would be required to distribute
proceeds from such prepayments as a special distribution which may cause an
adjustment to the distribution rate to reflect the anticipated future cash
inflows from the remaining mortgage investments.
The first mortgage loan underlying the PIM on Remington Place Apartments
went into default in November 1997. However, the Partnership will continue
to receive its full principal and interest payments until the default is
worked out because GNMA has guaranteed those payments to the Partnership.
The borrower and the first mortgage lender are working with HUD to structure
a modification to the mortgage that will substantially change the terms of
the mortgage. In connection with modification, the Partnership would
receive a prepayment of the outstanding principal balance due on the PIM.
However, the Partnership would not receive any participation interest.
During the second quarter of 1998 the borrower on the Cross Creek Apartment
PIM informed the Partnership of the possibility that the property could be
sold or refinanced during the fourth quarter of 1998. If such a transaction
takes place, the Partnership would receive any Additional Interest that would
be due as well as a prepayment of the outstanding principal balance due on
each of the PIMs.
The participation features of the PIMs are neither insured nor guaranteed
and if repayment of a PIM results from an insurance claim, its not likely
that he Partnership will 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
General Partners 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
Fannie Mae, 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.
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. 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, 1998 and 1997.
Net income decreased significantly for the three and nine month periods
ending September 30, 1998 as compared to the same periods in 1997. The
decreases were primarily due to lower base interest and participation
interest. The decrease in base interest was a result of the Deering Place
PIM prepayment during the third quarter of 1998, and the prepayments of the
Rock Creek, Silver Springs, Hampton Ridge, Southland Station and Paddock Club
PIM's during 1997 and the Patrician PIM converting to a non-participating
insured mortgage during the fourth quarter of 1997. These decreases were
offset in part by higher interest income on MBS, due to the Patrician PIM
converting to a non-participating insured mortgage during the fourth quarter
of 1997.
The decrease in amortization expense for the three and nine month periods
ending 1998 as compared to the same periods in 1997 was a result of the
Partnership fully amortizing the costs associated with the PIM's that
were prepaid in 1997. The general and administrative expense decrease
was primarily due to lower transfer agent costs for the three and nine months
ended September 30, 1998 as compared to the same periods in 1997 also during
the second quarter of 1998, the Partnership received a rebate for expense
reimbursements related to 1997. The decrease in asset management fees when
comparing 1998 to 1997 is due to the prepayments of Deering Place PIM in 1998
and Rock Creek, Silver Springs, Hampton Place, Paddock Club and Southland
PIMs in 1997
Generally, interest income on PIMs and MBS will decline as principal
collections reduce the outstanding balance of the portfolios. The
Partnership funds a portion of distributions with MBS and PIM principal
collections, which reduces the invested assets generating income for the
Partnership. As the invested assets decline so will interest income on MBS,
base interest income on PIMs and other interest income.
<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
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: October28, 1998
<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> Sep-30-1998
<PERIOD-END> Sep-30-1998
<CASH> 4,240,120
<SECURITIES> 128,887,715<F1>
<RECEIVABLES> 868,671
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,149,700<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 136,146,206
<CURRENT-LIABILITIES> 23,533
<BONDS> 0
0
0
<COMMON> 135,198,604
<OTHER-SE> 924,069
<TOTAL-LIABILITY-AND-EQUITY> 136,122,673
<SALES> 0
<TOTAL-REVENUES> 8,461,033<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,914,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,546,657
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,546,657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,546,657
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $108,624,717 and
Mortgage-Backed Securities ("MBS") of $20,262,998.
<F2>Includes prepaid acquisition fees and expenses of $9,058,129 net of
accumulated amortization of $7,451,420 and prepaid participation servicing fees
of $2,995,350 net of accumulated amortization of $2,452,359.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($3,14,818) and Limited Partners equity of $138,513,422.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $1,038,460 of amortization of prepaid fees and expenses.
<F7>Net income allocated $196,400 to the General Partners and $6,350,257 to the
Limited Partners. Average net income per Limited Partner interest is $.42 on
14,956,896 Limited Partner interests outstanding.
</FN>
</TABLE>
