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 March 31, 1999
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 identification no.)
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>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
BALANCE SHEETS
<CAPTION>
ASSETS
March 31, December 31,
1999 1998
Participating Insured Mortgages ("PIMs")
<S> <C> <C>
(Note 2) $ 83,331,693 $ 98,950,663
Mortgage-Backed Securities ("MBS")(Note 3) 17,778,730 18,806,870
Total mortgage investments 101,110,423 117,757,533
Cash and cash equivalents 22,084,461 15,117,466
Interest receivable and other assets 710,799 786,165
Prepaid acquisition fees and expenses, net of
accumulated amortization of $6,300,222 and
$7,184,808, respectively 840,311 1,167,020
Prepaid participation servicing fees, net of
accumulated amortization of $1,874,694 and
$2,170,982, respectively 280,872 385,110
Total assets $ 125,026,866 $135,213,294
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 512,852 $ 30,794
Partners' equity (deficit):
Limited Partners
(14,956,796 Limited Partner interests
outstanding) 124,277,254 134,849,373
General Partners (321,581) (312,060)
Accumulated comprehensive income 558,341 645,187
Total Partners' equity 124,514,014 135,182,500
Total liabilities and partners' equity $ 125,026,866 $135,213,294
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
Revenues:
Interest income - PIMs:
<S> <C> <C>
Base interest $ 1,783,094 $ 2,174,277
Participation interest 922,438 31,364
Interest income - MBS 340,452 437,913
Other interest income 155,906 62,129
Total revenues 3,201,890 2,705,683
Expenses:
Asset management fee to an affiliate 200,669 215,203
Expense reimbursements to affiliates 4,932 43,236
Amortization of prepaid fees and
expenses 430,947 316,143
General and administrative expenses 49,575 69,971
Total expenses 686,123 644,553
Net income 2,515,767 2,061,130
Other comprehensive income:
Net change in unrealized gain on MBS (86,846) (187,383)
Total comprehensive income $ 2,428,921 $ 1,873,747
Allocation of net income (Note 4):
Limited Partners $ 2,440,294 $ 1,999,296
Average net income per Limited Partner
interest (14,956,796 Limited Partner
interests outstanding) $ .16 $ .13
General Partners $ 75,473 $ 61,834
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
Operating activities:
<S> <C> <C>
Net income $ 2,515,767 $ 2,061,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 430,947 316,143
Shared appreciation income (703,860) -
Changes in assets and liabilities:
Decrease in interest receivable and other assets 75,366 43,119
Increase (decrease) in liabilities 482,058 (95,978)
Net cash provided by operating activities 2,800,278 2,324,414
Investing activities:
Principal collections on PIMs including shared
appreciation and prepayment premium
income of $703,860 in 1999 16,322,830 260,151
Principal collections on MBS 941,294 967,691
Net cash provided by investing activities 17,264,124 1,227,842
Financing activities:
Quarterly distributions (3,225,921) (4,577,623)
Special distributions (9,871,486) (16,751,611)
Net cash used for financing activities (13,097,407) (21,329,234)
Net increase (decrease) in cash and cash equivalents 6,966,995 (17,776,978)
Cash and cash equivalents, beginning of period 15,117,466 20,480,666
Cash and cash equivalents, end of period $ 22,084,461 $ 2,703,688
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<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, 1998 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, 1999, and its results of operations
and cash flows for the three months ended March 31, 1999 and 1998.
The results of operations for the three months ended March 31, 1999 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
During March 1999, the Partnership received a payoff of the Remington PIM in
the amount of $12,199,298. The payoff was the result of a default on the
underlying loan which resulted in the Partnership receiving all of the
outstanding principal balance under the insurance feature of the PIM.
However, due to the default the Partnership did not receive any participation
income from this PIM.
During February 1999, the Partnership received a payoff of the Pope Building
PIM in the amount of $3,176,761. In addition, the Partnership received
$703,860 of Shared Appreciation and prepayment premium income and
$218,578 of Shared Income and Minimum Additional Interest upon the payoff
of the underlying mortgage.
During May 1999 the Partnership will pay a special distribution of $1.08
per Limited Partner interest from the principal proceeds, Shared
Appreciation and prepayment proceeds received from Remington and the
Pope Building.
During January 1999, the Partnership paid a special distribution of $.66 per
Limited Partner interest from the principal proceeds and prepayment proceeds
received from Cross Creek during 1998.
At March 31, 1999, the Partnership=s PIM portfolio has a fair market value
of approximately $85,796,000 and gross unrealized gains of $2,465,000.
The Partnership=s PIMs have maturities ranging from 2000 to 2032.
3. MBS
As of March 31, 1999, the Partnership's MBS portfolio has an amortized
cost of $17,220,389 and gross unrealized gains of $558,341.
The MBS portfolio has maturity dates ranging from 1999 to 2027.
<PAGE>
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
<CAPTION>
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the three months ended March 31, 1999 is as follows:
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 134,849,373 $(312,060) $ 645,187 $ 135,182,500
Net income 2,440,294 75,473 - 2,515,767
Quarterly distributions (3,140,927) (84,994) - (3,225,921)
Special distributions (9,871,486) - - (9,871,486)
Decrease in unrealized gain
on MBS - - (86,846) (86,846)
Balance at March 31, 1999 $ 124,277,254 $(321,581) $ 558,341 $ 124,514,014
</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
General Partners of 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 significant internal 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. The
General Partners of the Partnership are in the process of surveying these third
party providers and assessing their readiness with year 2000. To date, the
Partnership is not aware of any problems that would materially impact its
results of operations, liquidity or capital resources. However, the Partnership
has not yet obtained all written assurances that these providers would be Year
2000 ready.
The Partnership currently does not have a contingency plan in the event of
a particular provider or system not being Year 2000 ready. Such plan will be
developed if it becomes clear that a provider is not going to achieve its
scheduled readiness objectives by June 30, 1999. The inability of one of these
providers to complete its Year 2000 resolution process could impact the
Partnership. In addition, the Partnership is also subject to external forces
that might generally affect industry and commerce, such as utility and
transportation company Year 2000 readiness failures and related service
interruptions. To date, the Partnership has not incurred any cost associated
with being Year 2000 ready. All costs have been incurred by the General
Partners, and it is estimated that any future Year 2000 readiness costs will be
borne by the General Partners. No estimate can be made at this time as to the
impact of the readiness of such third parties.
<PAGE>
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are quarterly
distributions paid to investors. The quarterly distribution is $.21 per unit or
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 Partnership
funds a portion of the quarterly 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.
During March 1999, the Partnership received a payoff of the Remington PIM
in the amount of $12,199,298. The payoff was the result of default on the
underlying loan which resulted in the Partnership receiving all of the
outstanding principal balance under the insurance feature of the PIM. However,
due to the default the Partnership did not receive any participation income from
this PIM.
During February 1999, the Partnership received a payoff of the Pope
Building PIM in the amount of $3,176,761. In addition, the Partnership received
$703,860 of Shared Appreciation and prepayment premium income and $218,578 of
Shared Income and Minimum Additional Interest upon the payoff of the underlying
mortgage.
During May 1999 the Partnership will pay a special distribution of $1.08
per Limited Partner interest from the principal proceeds, Shared Appreciation
and prepayment proceeds received from Remington and the Pope Building.
During January 1999, the Partnership paid a special distribution of $.66
per Limited Partner interest from the principal proceeds and prepayment proceeds
received from Cross Creek during 1998.
The General Partners estimate that the Partnership can maintain the
quarterly distribution rate of $.21 per limited partner interest for the near
future. However, in the event of further PIM prepayments the Partnership would
be required to distribute any proceeds from the 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 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
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.
<PAGE>
The Partnership includes in cash and cash equivalents approximately $21.1
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.
Operations
The following discussion relates to the operations of the Partnership
during the three months ended March 31, 1999 and 1998.
Net income increased by $455,000 during the three months ended March 31,
1999 as compared to the three months ended March 31, 1998. The increase was
primarily due to an $891,000 increase in participation interest on PIMs and a
$94,000 increase in other interest income net of a $391,000 decrease in base
interest on PIMs, a $97,000 decrease in MBS interest income and a $115,000
increase in amortization of prepaid fees and expenses.
The increase in participation interest on PIMs was due to the receipt of
participation interest from the Pope Building payoff during the first quarter of
1999. Other interest income increased as a result of higher average short-term
investments held during the first quarter of 1999 as compared to the same period
in 1998.
The decrease in base interest on PIMs was due to the payoffs of Remington
and the Pope Building in 1999 and the payoffs of Deering Place and Cross Creek
in 1998. MBS interest income decreased due to the on-going prepayment of the
Partnership's single-family MBS. Amortization of prepaid fees and expenses
increased as the Partnership fully amortized the remaining prepaid fees and
expenses related to Remington and the Pope Building.
The Partnership funds a portion of its 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
<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, 1999.
<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-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 22,084,461
<SECURITIES> 101,110,423<F1>
<RECEIVABLES> 710,799
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,121,183<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 125,026,866
<CURRENT-LIABILITIES> 512,852
<BONDS> 0
0
0
<COMMON> 123,955,673<F3>
<OTHER-SE> 558,341<F4>
<TOTAL-LIABILITY-AND-EQUITY> 125,026,866
<SALES> 0
<TOTAL-REVENUES> 3,201,890<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 686,123<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,515,767
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,515,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,515,767
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1> Includes Participating Insured Mortgages ("PIMs") of $83,331,693 and
Mortgage-Backed Securities ("MBS") of $17,778,730.
<F2> Includes prepaid acquisition fees and expenses of $7,140,533 net of
accumulated amortization of $6,300,222 and prepaid participation servicing
fees of $2,155,566 net of accumulated amortization of $1,874,694.
<F3> Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($321,581) and Limited Partners equity of $124,277,254.
<F4> Unrealized gain on MBS.
<F5> Represents interest income on investments in mortgages and cash.
<F6> Includes $430,947 of amortization of prepaid fees and expenses.
<F7> Net income allocated $75,473 to the General Partners and $2,440,294 to the
Limited Partners. Average net income per Limited Partner interest is $.16
on 14,956,796 Limited Partner interests outstanding.
</FN>
</TABLE>
