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 SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
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>
<CAPTION>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
Participating Insured Mortgages ("PIMs")
<S> <C> <C>
(Note 2) $ 46,719,584 $ 51,390,092
Mortgage-Backed Securities ("MBS")(Note 3) 7,202,126 7,460,112
Total mortgage investments 53,921,710 58,850,204
Cash and cash equivalents (Note 2) 2,433,260 39,434,806
Interest receivable and other assets 363,758 187,363
Prepaid acquisition fees and expenses, net of
accumulated amortization of $1,172,472 and
$3,151,323, respectively 128,535 184,416
Prepaid participation servicing fees, net of
accumulated amortization of $379,810 and
$1,033,292, respectively 50,380 69,702
Total assets $ 56,897,643 $ 98,726,491
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 14,221 $ 19,550
Partners' equity (deficit) (Note 4):
Limited Partners
(14,956,796 Limited Partner interests
outstanding) 57,258,733 99,051,048
General Partners (360,862) (347,682)
Accumulated comprehensive income (loss) (14,449) 3,575
Total Partners' equity 56,883,422 98,706,941
Total liabilities and partners' equity $ 56,897,643 $ 98,726,491
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months
Ended March 31,
2000 1999
Revenues:
Interest income - PIMs:
<S> <C> <C>
Basic interest $ 925,070 $ 1,783,094
Participation interest (Note 2) 526,958 922,438
Interest income - MBS 146,545 340,452
Other interest income 133,505 155,906
Total revenues 1,732,078 3,201,890
Expenses:
Asset management fee to an affiliate 111,534 200,669
Expense reimbursements to affiliates 27,196 4,932
Amortization of prepaid fees and expenses 75,203 430,947
General and administrative expenses 41,007 49,575
Total expenses 254,940 686,123
Net income 1,477,138 2,515,767
Other comprehensive income:
Net change in unrealized loss on MBS (18,024) (86,846)
Total comprehensive income $ 1,459,114 $ 2,428,921
Allocation of net income (Note 4):
Limited Partners $ 1,432,824 $ 2,440,294
Average net income per Limited Partner
interest (14,956,796 Limited Partner
interests outstanding) $ .10 $ .16
General Partners $ 44,314 $ 75,473
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
2000 1999
Operating activities:
<S> <C> <C>
Net income $ 1,477,138 $ 2,515,767
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 75,203 430,947
Shared Appreciation Interest and prepayment premium income (320,239) (703,860)
Changes in assets and liabilities:
Decrease (increase) in interest receivable and other assets (176,395) 75,366
Increase (decrease) in liabilities (5,329) 482,058
Net cash provided by operating activities 1,050,378 2,800,278
Investing activities:
Principal collections on PIMs including Shared
Appreciation Interest and prepayment premium
income of $320,239 in 2000 and $703,860 in 1999 4,990,747 16,322,830
Principal collections on MBS 239,962 941,294
Net cash provided by investing activities 5,230,709 17,264,124
Financing activities:
Quarterly distributions (3,198,421) (3,225,921)
Special distributions (40,084,212) (9,871,486)
Net cash used for financing activities (43,282,633) (13,097,407)
Net increase (decrease) in cash and cash equivalents (37,001,546) 6,966,995
Cash and cash equivalents, beginning of period 39,434,806 15,117,466
Cash and cash equivalents, end of period $ 2,433,260 $ 22,084,461
Non cash activities:
Decrease in Fair Value of MBS $ (18,024) $ (86,846)
</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, 1999 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, 2000, and its results of operations and cash
flows for the three months ended March 31, 2000 and 1999.
The results of operations for the three months ended March 31, 2000 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 March 30, 2000, the Partnership paid a special distribution of $.31 per
Limited Partner interest from the principal proceeds in the amount of
$4,531,910, received from the Brookside Apartments PIM payoff in February of
2000. The underlying first mortgage loan matured on February 1, 2000; however,
the Borrower was unable to close on his refinancing of the property in time to
payoff the loan on its maturity date. Consequently, Fannie Mae paid off the MBS
under its guarantee obligation. Subsequent to the payoff of the MBS portion of
the PIM, the Partnership received $130,000 of Shared Appreciation Interest and
$176,513 of Shared Income Interest on March 28, 2000. The Partnership will pay
out the Shared Appreciation Interest proceeds with the next special distribution
(see below).
On March 30, 2000, the Partnership received $190,239 of Shared Appreciation
Interest and $5,973 of Shared Income Interest as a result of the expected payoff
of the Bell Station Apartments PIM during April of 2000. The Partnership
anticipates a second quarter special distribution of $.36 per Limited Partner
interest representing the Shared Appreciation Interest from Brookside and Bell
Station and the principal proceeds from Bell Station PIM in the amount of
$4,901,863.
On January 11, 2000, the Partnership paid a special distribution of $2.37 per
Limited Partner interest from the prepayment proceeds received during December
1999 from the Salishan, Saratoga, and Marina Shores Apartments PIMs, and the
Patrician MBS. In addition to the principal proceeds from the Salishan PIM of
$14,666,235, the Partnership received $146,662 of prepayment premium income and
$311,650 of Shared Income Interest and Minimum Additional Interest. The
Partnership received $6,008,565 of principal proceeds from the Marina Shores PIM
along with $176,679 of Shared Appreciation Interest and prepayment premium
income. The principal proceeds from the Saratoga PIM and the Patrician MBS
prepayments were $6,204,895 and $7,830,263, respectively. The Partnership did
not receive any participation interest on the Saratoga prepayment.
At March 31, 2000, the Partnerships PIM portfolio has a fair market value of
$46,426,542 and gross unrealized gains and losses of $118,461 and $411,503,
respectively. The Partnership?s PIMs have maturities ranging from 2000 to 2031.
3. MBS
As of March 31, 2000, the Partnership?s MBS portfolio has an amortized cost of
$7,216,575 and gross unrealized gains and losses of $118,291 and $132,740,
respectively. The MBS portfolio has maturity dates ranging from 2016 to 2024.
Continued
<PAGE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
4. Changes in Partners' Equity
<TABLE>
<CAPTION>
A summary of changes in Partners' Equity for the three months ended March 31, 2000 is as follows:
Accumulated
Comprehensive Total
Limited General Income Partner's
Partners Partners (Loss) Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 99,051,048 $ (347,682) $ 3,575 $ 98,706,941
Net income 1,432,824 44,314 - 1,477,138
Quarterly distributions (3,140,927) (57,494) - (3,198,421)
Special distributions (40,084,212) - - (40,084,212)
Change in unrealized loss on MBS - - (18,024) (18,024)
Balance at March 31, 2000 $ 57,258,733 $ (360,862) $ (14,449) $ 56,883,422
</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.
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are the regular
quarterly distributions paid to investors of approximately $3.1 million. Funds
used for the 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 the 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 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.
Based on current projections the General Partners have determined that the
Partnership will adjust the current distribution rate of $.21 per Limited
Partner interest per quarter to $.06 per Limited Partner interest per quarter
commencing with the distribution to be paid in May 2000. The change in the rate
is due to the significant number of payoffs and special distributions that have
occurred over the last six months plus two additional payoffs and special
distributions anticipated during the second quarter from The Bell Station and
The Enclave PIMs.
On March 30, 2000, the Partnership received $190,239 of Shared Appreciation
Interest and $5,973 of Shared Income Interest as a result of the expected payoff
of the Bell Station Apartments PIM during April of 2000. The Partnership
anticipates a second quarter special distribution of $.36 per Limited Partner
interest from the Shared Appreciation Interest from Brookside and Bell Station
and the principal proceeds from Bell Station PIM in the amount of $4,901,863.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's PIM investments also may provide additional
income through its participation feature in the underlying properties if they
operate successfully. The Partnership may receive a share in any operating cash
flow that exceeds debt service obligations and capital needs or a share in any
appreciation in value when the properties are sold or refinanced. However, this
participation is neither guaranteed nor insured, and it is dependent upon
whether property operations or its terminal value meet certain criteria.
On March 30, 2000, the Partnership paid a special distribution of $.31 per
Limited Partner interest from the principal proceeds in the amount of
$4,531,910, received from the Brookside Apartments PIM payoff in February of
2000. The underlying first mortgage loan matured on February 1, 2000; however,
the Borrower was unable to close on his refinancing of the property in time to
payoff the loan on its maturity date. Consequently, Fannie Mae paid off the MBS
under its guarantee obligation. Subsequent to the payoff of the MBS portion of
the PIM, the Partnership received $130,000 of Shared Appreciation Interest and
$176,513 of Shared Income Interest on March 28, 2000. The Partnership will pay
out the Shared Appreciation Interest proceeds with the Bell Station proceeds
during the second quarter.
On January 11, 2000, the Partnership paid a special distribution of $2.37 per
Limited Partner interest from the prepayment proceeds received during December
1999 from the Salishan, Saratoga, and Marina Shores Apartments PIMs, and the
Patrician MBS. In addition to the principal proceeds from the Salishan PIM of
$14,666,235, the Partnership received $146,662 of prepayment premium income and
$311,650 of Shared Income Interest and Minimum Additional Interest. The
Partnership received $6,008,565 of principal proceeds from the Marina Shores PIM
along with $176,679 of Shared Appreciation Interest and prepayment premium
income. The principal proceeds from the Saratoga PIM and the Patrician MBS
prepayments were $6,204,895 and $7,830,263, respectively. The Partnership did
not receive any participation interest on the Saratoga prepayment.
Due to poor operating performance, the General Partners are closely monitoring
the Wildflower Apartments PIM property which is located in the Las Vegas market.
Wildflower has suffered a dramatic decline in occupancy to the mid-80% range at
year-end that is not representative of the rest of the market. Wildflower does
not compete successfully with the newer apartment properties, which have
extensive amenity packages to attract new residents.
The Partnership's only other remaining PIM investments are backed by the
underlying first mortgage loans on The Enclave, Creekside and Richmond Park. The
loan on The Enclave matures on May 1, 2000; however, like Brookside, its
borrower may not have his refinancing in place on the maturity date either. The
Partnership has agreed to extend the date by which the Additional Interest, due
as of the maturity date, must be paid. Creekside, located in the Portland,
Oregon area, continues to operate successfully with occupancy in the mid 90%
range. The remaining property, Richmond Park, maintains its position in a
stable, older Cleveland suburb. Occupancy generally hovers in the low 90% range,
but because the neighborhood does not support significant rental rate increases,
the property only generates sufficient cash flow for adequate maintenance and
not enough to provide for major capital improvements. The Partnership does not
expect to receive any participation interest during 2000 from any of the
operating properties.
During the first five years, borrowers are prohibited from prepaying the first
mortgage loans underlying the PIMs. During the second five years, borrowers may
prepay the loans by incurring a prepayment penalty. The Partnership has the
option to call certain PIMs by accelerating their maturity if they 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, the interest rate environment and availability of financing will
affect those decisions.
Results of Operations
The following discussion relates to the operation of the Partnership during the
three months ended March 31, 2000 and 1999.
Net income decreased by approximately $1,039,000 during the three months ended
March 31, 2000 as compared to the same period ending 1999. This decrease was due
primarily to lower basic interest on PIMs, participation interest on PIMs and
interest income on MBS of approximately $858,000, $395,000 and $194,000,
respectively. This was partially offset by decreases in asset management fees
and amortization expense, of approximately $89,000 and $356,000 respectively.
The reduction in basic interest on PIMs is due to the payoff of the Brookside
PIM in February, 2000 and the Salishan, Saratoga, Marina Shores, Remington, Pope
Building and Valley Manor PIMs in 1999. The decrease in MBS interest income was
due to the Patrician MBS prepayment in December, 1999 and the on-going
prepayment of the Partnership's single-family MBS. The decrease in participation
interest on PIMs was due primarily to the receipt of approximately $922,000 of
participation interest from the Pope Building PIM prepayment in February of
1999, as compared to the $196,000 and $307,000 received during the first quarter
of 2000 from the Brookside payoff, and the Bell Station payoff, respectively.
Asset management fees decreased during the first quarter of 2000 as compared to
the same period in 1999 due to the prepayments and principal collections
reducing the Partnership's mortgage investments. Amortization expense was
greater during the first quarter of 1999 as a result of the full amortization of
the remaining prepaid fees and expenses of the Remington and Pope Building PIMs
in 1999.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by the
Government National Mortgage Association ("GNMA"), Fannie Mae, the Federal Home
Loan Mortgage Corporation ("FHLMC") or the United States 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.
The Partnership includes in cash and cash equivalents approximately $1.8 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.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At March
31, 2000, the Partnerships PIMs and MBS comprise the majority of the
Partnership's assets. As such, decreases in interest rates may accelerate the
prepayment of the Partnership's investments. The Partnership does not utilize
any derivatives or other instruments to manage this risk as the Partnership
plans to hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the Partnership forecasts prepayments based on trends in
similar securities as reported by statistical reporting entities such as
Bloomberg. For PIMs, the Partnership incorporates prepayment assumptions into
planning as individual properties notify the Partnership of the intent to prepay
or as they mature.
<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:
Robert A. Barrows
Treasurer and Chief Accounting Officer of
Krupp Plus Corporation, a General Partner
DATE: April 28, 2000.
<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-31-2000
<PERIOD-END> Mar-31-2000
<CASH> 2,433,260
<SECURITIES> 53,921,710<F1>
<RECEIVABLES> 363,758
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 178,915<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,897,643
<CURRENT-LIABILITIES> 14,221
<BONDS> 0
0
0
<COMMON> 56,897,871<F3>
<OTHER-SE> (14,449)<F4>
<TOTAL-LIABILITY-AND-EQUITY> 56,897,643
<SALES> 0
<TOTAL-REVENUES> 1,732,078<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 254,940<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,477,138
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,477,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,477,138
<EPS-BASIC> 0
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $46,719,584 and
Mortgage-Backed Securities ("MBS") of $7,202,126.
<F2>Includes prepaid acquisition fees and expenses of $1,301,007 net of
accumulated amortization of $1,172,472 and prepaid participation servicing fees
of $430,190 net of accumulated amortization of $379,810.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($360,862) and Limited Partners equity of $57,258,733.
<F4>Unrealized loss on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $75,203 of amortization of prepaid fees and expenses.
<F7>Net income allocated $44,314 to the General Partners and $1,432,824 to the
Limited Partners. Average net income per Limited Partner interest is $.10 on
14,956,896 Limited Partner interests outstanding.
</FN>
</TABLE>
