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.
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 PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
June 30, December 31,
2001 2000
----------------- -----------------
Participating Insured Mortgages ("PIMs")
(Note 2) $ 18,828,257 $ 18,875,248
Mortgage-Backed Securities and
insured mortgage ("MBS") (Note 3) 18,647,148 18,864,480
----------------- -----------------
Total mortgage investments 37,475,405 37,739,728
Cash and cash equivalents 1,620,722 1,460,786
Interest receivable and other assets 257,289 260,797
Prepaid acquisition fees and expenses, net of
accumulated amortization of $755,516 and
$725,937 respectively 88,736 118,315
Prepaid participation servicing fees, net of
accumulated amortization of $275,876 and
$259,323, respectively 55,176 71,729
----------------- -----------------
Total assets $ 39,497,328 $ 39,651,355
================= =================
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 22,181 $ 17,650
----------------- -----------------
Partners' equity (deficit)(Note 4):
Limited Partners
(7,500,099 Limited Partner interests
outstanding) 39,313,095 39,544,329
General Partners (251,481) (247,215)
Accumulated Comprehensive Income 413,533 336,591
----------------- -----------------
Total Partners' equity 39,475,147 39,633,705
----------------- -----------------
Total liabilities and Partners' equity $ 39,497,328 $ 39,651,355
================= =================
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ -------------------------------
2001 2000 2001 2000
----------- ----------- ------------ -------------
Revenues:
Interest income - PIMs
Basic interest $ 361,202 $ 369,889 $ 725,155 $ 719,246
Participation interest - 10,000 -
10,000
Interest income - MBS 391,888 457,697 788,568 919,995
Other interest income 17,839 40,819 40,618 105,771
----------- ----------- ------------ -------------
Total revenues 770,929 878,405 1,554,341 1,755,012
----------- ----------- ------------ -------------
Expenses:
Asset management fee to an affiliate 69,435 75,089 138,415 150,518
Expense reimbursements to affiliates 14,163 14,853 25,664 26,310
Amortization of prepaid fees and expenses 23,066 23,484 46,132 48,748
General and administrative 22,796 43,340 36,103 53,058
---------- ----------- ------------ -------------
Total expenses 129,460 156,766 246,314 278,634
---------- ----------- ------------ -------------
Net income 641,469 721,639 1,308,027 1,476,378
Other comprehensive income:
Net change in unrealized gain on MBS 67,005 (44,246) 76,942 (109,658)
----------- ----------- ------------ -------------
Total comprehensive income $ 708,474 $ 677,393 $ 1,384,969 $ 1,366,720
=========== =========== ============ =============
Allocation of net income (Note 4):
Limited Partners $ 622,225 $ 699,990 $ 1,268,786 $ 1,432,087
=========== =========== ============ =============
Average net income per Limited
Partner interest
(7,500,099 Limited Partner
interests outstanding) $ .08 $ .09 $ .17 $ .19
=========== =========== ============ =============
General Partners $ 19,244 $ 21,649 $ 39,241 $ 44,291
=========== =========== ============ =============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
--------------------------------
2001 2000
------------ -------------
Operating activities:
Net income $ 1,308,027 $ 1,476,378
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 46,132 48,748
Shared Appreciation Interest - (10,000)
Premium amortization - 509
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 3,508 111,535
Increase (decrease) in liabilities 4,531 (9,548)
------------ -------------
Net cash provided by operating activities 1,362,198 1,617,622
------------ -------------
Investing activities:
Principal collections on MBS 294,274 357,368
Principal collections on PIMs including Shared Appreciation
Interest of $10,000 in 2000 46,991 122,485
------------ -------------
Net cash provided by investing activities 341,265 479,853
------------ -------------
Financing activities:
Quarterly distributions (1,543,527) (2,900,939)
Special distribution - (9,750,129)
------------ -------------
Net cash used for financing activities (1,543,527) (12,651,068)
------------ -------------
Net increase (decrease) in cash and cash equivalents 159,936 (10,553,593)
Cash and cash equivalents, beginning of period 1,460,786 13,002,087
------------ -------------
Cash and cash equivalents, end of period $ 1,620,722 $ 2,448,494
============ =============
Non cash activities:
Increase (decrease) in Fair Value of MBS $ 76,942 $ (109,658)
============ =============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS 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, The Krupp Corporation and The Krupp Company
Limited Partnership-IV (collectively the "General Partners"), of Krupp Insured
Plus 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, 2000 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 June 30, 2001, its results of operations for the three
and six months ended June 30, 2001 and 2000 and its cash flows for the six
months ended June 30, 2001 and 2000.
The results of operations for the three and six months ended June 30, 2001 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
At June 30, 2001, the Partnership's PIMs had a fair market value of $19,237,822
and gross unrealized gains of $409,565. The PIMs have maturities ranging from
2006 to 2033.
3. MBS
At June 30, 2001, the Partnership's MBS portfolio had an amortized cost of
$9,188,573 and gross unrealized gains of $413,533. The Partnership's insured
mortgage had an amortized cost of $9,045,042. The portfolio has maturities
ranging from 2006 to 2032.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended
June 30, 2001 is as follows:
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
---------------- ----------- ------------- --------------
Balance at December 31, 2000 $ 39,544,329 $ (247,215) $ 336,591 $ 39,633,705
Net income 1,268,786 39,241 - 1,308,027
Quarterly distributions (1,500,020) (43,507) - (1,543,527)
Change in unrealized gain on MBS - - 76,942 76,942
---------------- ----------- ------------- --------------
Balance at June 30, 2001 $ 39,313,095 $ (251,481) $ 413,533 $ 39,475,147
================ =========== ============= ==============
5. Subsequent Event
The Partnership received a payoff of the Boulders Apartments MBS on July 9, 2001
for $9,045,042. The Partnership also received a prepayment premium of $306,000
from this payoff. The Partnership will pay a special distribution in August of
$1.25 per Limited Partner interest from the proceeds received.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this quarterly report on Form 10-Q constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Partnership's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, federal, state or local regulations; adverse changes in general economic or local conditions; pre-payments of mortgages; failure of borrowers to pay participation interests due to poor operating results at properties underlying the mortgages; uninsured losses and potential conflicts of interest between the Partnership and its Affiliates, including the General Partners.
Liquidity and Capital Resources
At June 30, 2001, the Partnership had liquidity consisting of cash and cash equivalents of approximately $1.6 million as well as the cash flow provided by its investments in the PIMs and MBS. The Partnership anticipates that these sources will be adequate to provide the Partnership with sufficient liquidity to meet its obligations as well as to provide distributions to its investors.
The most significant demand on the Partnership's liquidity is quarterly distributions paid to investors, which are approximately $750,000 per quarter. Funds for the quarterly distributions come from the monthly principal and interest payments received on the PIMs and MBS, the principal prepayments of the PIMs and MBS, interest earned on the Partnership's cash and cash equivalents and cash reserves. The portion of distributions attributable to the principal collections and cash reserves reduces the capital resources of the Partnership. As the capital resources of the Partnership decrease, the total cash flows to the Partnership also will decrease and over time 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 believe that the Partnership will need to adjust the current distribution rate beginning with the February 2002 distribution. The General Partners will determine the new rate during the third quarter of 2001.
The Partnership received a payoff of the Boulders Apartments MBS on July 9, 2001 for $9,045,042. The Partnership also received a prepayment premium of $306,000 from this payoff. The Partnership will pay a special distribution in August of $1.25 per Limited Partner interest from the proceeds received.
In addition to providing insured or guaranteed monthly principal and basic interest payments, the Partnership's investments in the PIMs also may provide additional income through a participation interest in the underlying properties. However, this payment is neither guaranteed nor insured and depends on the successful operations of the underlying properties.
The General Partners currently do not expect either of the remaining PIMs still held in the Partnership's portfolio to pay off during 2001. However, if favorable market conditions provide the borrowers an opportunity to sell their properties, there are no contractual obligations remaining that would prevent a prepayment of the underlying first mortgages. Royal Palm Place and Vista Montana operate under long-term restructure programs. As an ongoing result of the Partnership's 1995 agreement to modify the payment terms of the Royal Palm Place PIM, the Partnership will receive basic interest-only payments on the Fannie Mae MBS at the rate of 8.375% per annum during 2001. Thereafter, the interest rate will range from 8.375% to 8.775% per annum through the maturity of the first mortgage loan in 2006. Although occupancy at Royal Palm averaged in the low 90% range through 2000, it faces significant competition from neighboring properties that have changed ownership and benefited from new capital investment in exterior and interior renovations. The Partnership agreed in 1993 to change the original participation terms and to permanently reduce the rate on the Vista Montana first mortgage loan to 7.375% per annum when construction was significantly delayed. The borrower also raised additional equity at the time of the modification by selling investment tax credits. These funds have been held in escrow and are used to fund operating deficits. Although the property, located in a suburb of Phoenix, maintains occupancy in the 90% range, revenues generally do not cover all operating and capital costs and the shortfalls are covered by the escrow.
The Partnership has the option to call these PIMs by accelerating the maturity date of the loans 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, interest rates and available financing will have an impact on these decisions.
Results of Operations
Net income decreased during the three months ended June 30, 2001 as compared to the same period ending June 30, 2000. This decrease was primarily due to lower MBS interest income. The reduction in interest on MBS is primarily due to the payoff of the Chateau Bijou MBS in September of 2000.
Net income decreased during the six months ended June 30, 2001 as compared to the same period ending June 30, 2000. This decrease was primarily due to lower MBS and other interest income. The reduction in interest on MBS is primarily due to the payoff of the Chateau Bijou MBS in September of 2000. Other interest income decreased primarily due to significantly lower average cash balances available for short-term investing during this period versus the same period in 2000.
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 represents interest 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.
At June 30, 2001 the Partnership included in cash and cash equivalents approximately $1.0 million held in a money market fund which invests in securities which are primarily direct obligations of the U.S. Government or securities issued by agencies and instrumentalities of the U.S. Government which may be guaranteed, supported or backed by the credit of the U.S. Government or agencies thereof.
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 June 30, 2001, the Partnership's 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 fund 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.
KRUPP INSURED PLUS 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 Plus Limited Partnership
--------------------------------------
(Registrant)
BY: / s / Robert A. Barrows
---------------------------------
Robert A. Barrows
Vice-President (Chief Accounting Officer) of
The Krupp Corporation, a General Partner of the Registrant.
DATE: August 3, 2001
Unaudited 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 by Section 17 of the Partnership Agreement
(on a GAAP basis), and the source of cash distributions for the quarter ended
June 30, 2001 and the period from inception through June 30, 2001. 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.
Six Months Inception
Ended Through
6/30/01 6/30/01
(Amounts in thousands, except per Unit amounts)
Distributable Cash Flow:
- -----------------------
Net Income on a GAAP Basis $ 1,308 $ 87,938
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid fees and expenses 46 8,443
Shared Appreciation Interest and prepayment premiums - (716)
Amortization of MBS premiums - 453
Acquisition expenses paid from offering proceeds
charged to operations - 1,098
Gain on sale of MBS - (114)
--------- ----------
Total Distributable Cash Flow ("DCF") $ 1,354 $ 97,102
========= ==========
Limited Partners Share of DCF $ 1,313 $ 94,189
========= ==========
Limited Partners Share of DCF per Unit $ .18 $ 12.56(c)
========= ==========
General Partners Share of DCF $ 41 $ 2,913
========= ==========
Net Proceeds from Capital Transactions:
- --------------------------------------
Insurance claim proceeds, prepayment proceeds and PIM
principal collections including Shared Appreciation
Interest and prepayment premiums $ 47 $ 87,404
Principal collections on MBS including prepayment premiums 294 48,561
Insurance claim proceeds and principal collections on
PIMs and MBS reinvested in PIMs and MBS - (40,775)
Gain on sale of MBS - 114
--------- ----------
Total Net Proceeds from Capital Transactions $ 341 $ 95,304
========= ==========
Cash available for distribution
(DCF plus Proceeds from Capital Transactions) $ 1,695 $ 192,406
========= ==========
Distributions:
- -------------
Limited Partners $ 10,875(a) $ 197,714(b)
========= ==========
Limited Partners Average per Unit $ 1.45(a) $ 26.36(b)(c)
========= ==========
General Partners $ 41(a) $ 2,913(b)
========= ==========
Total Distributions $ 10,916 $ 200,627
========= ==========
(a) Represents all distributions paid in 2001 except the February 2001
quarterly distribution and includes an estimate of the quarterly and
special distributions to be paid in August 2001.
(b) Includes an estimate of the quarterly and special distributions to be paid in August 2001.
(c) Limited Partners average per Unit return of capital as of August 2001
is $13.80 [$26.36- $12.56]. 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.
