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
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. When used in this Form 10-Q, the words "believes," "anticipates," "expects," "plans," "intends," "estimates," "continue," "may" or "will" (or the negative of such words) and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties, including but not limited to the following: federal, state or local regulations; adverse changes in general economic or local conditions; prepayments of mortgages; failure of borrowers to pay participation interests due to poor operating results of properties underlying the mortgages; uninsured losses and potential conflicts of interest between the Partnership and its Affiliates, including the General Partners. The Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2001, contain additional information concerning such risk factors. Actual results in the future could differ materially from those described in any forward-looking statements as a result of the risk factors set forth above, and the risk factors described in the Annual Report.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
March 31, December 31,
2002 2001
-------------- ---------------
Participating Insured Mortgages ("PIMs") (Note 2) $ 13,190,863 $ 18,779,477
Mortgage-Backed Securities and
insured mortgage ("MBS") (Note 3) 9,273,492 9,410,920
-------------- ---------------
Total mortgage investments 22,464,355 28,190,397
Cash and cash equivalents 1,367,909 1,422,582
Interest receivable and other assets 148,141 190,282
Prepaid acquisition fees and expenses, net of
accumulated amortization of $799,884 and
$785,095 respectively 44,368 59,157
Prepaid participation servicing fees, net of
accumulated amortization of $302,084 and
$292,428, respectively 28,968 38,624
-------------- ---------------
Total assets $ 24,053,741 $ 29,901,042
============== ===============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 18,590 $ 17,877
-------------- ---------------
Partners' equity (deficit)(Note 4):
Limited Partners
(7,500,099 Limited Partner interests outstanding) 23,750,430 29,633,496
General Partners (236,807) (249,219)
Accumulated comprehensive income 521,528 498,888
-------------- ---------------
Total Partners' equity 24,035,151 29,883,165
-------------- ---------------
Total liabilities and Partners' equity $ 24,053,741 $ 29,901,042
============== ===============
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
Ended March 31,
2002 2001
--------------- --------------
Revenues:
Interest income - PIMs
Basic interest $ 282,191 $ 363,953
Participation interest 504,639 -
Interest income - MBS 184,803 396,680
Other interest income 16,040 22,779
-------------- --------------
Total revenues 987,673 783,412
-------------- --------------
Expenses:
Asset management fee to an affiliate 44,203 68,980
Expense reimbursements to affiliates 10,722 11,501
Amortization of prepaid fees and expenses 24,445 23,066
General and administrative 14,465 13,307
-------------- --------------
Total expenses 93,835 116,854
-------------- --------------
Net income 893,838 666,558
Other comprehensive income:
Net change in unrealized gain on MBS 22,640 9,937
-------------- --------------
Total comprehensive income $ 916,478 $ 676,495
============== ==============
Allocation of net income (Note 4):
Limited Partners $ 867,023 $ 646,561
============== ==============
Average net income per Limited Partner
interest (7,500,099 Limited Partner
interests outstanding) $ .12 $ .09
============== ==============
General Partners $ 26,815 $ 19,997
============== ==============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
------------------------------------------
2002 2001
Operating activities:
Net income $ 893,838 $ 666,558
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of prepaid fees and expenses 24,445 23,066
Shared Appreciation Interest (378,480) -
Changes in assets and liabilities:
Decrease in interest receivable and other assets 42,141 1,937
Increase (decrease) in liabilities 713 (12,337)
---------------- ----------------
Net cash provided by operating activities 582,657 679,224
---------------- ----------------
Investing activities:
Principal collections on MBS 160,068 136,448
Principal collections on PIMs including Shared Appreciation
Interest of $378,480 in 2002 5,967,094 23,276
---------------- -----------------
Net cash provided by investing activities 6,127,162 159,724
---------------- -----------------
Financing activities:
Quarterly distributions (764,413) (772,836)
Special distributions (6,000,079) -
---------------- ----------------
Net cash used for financing activities (6,764,492) (772,836)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (54,673) 66,112
Cash and cash equivalents, beginning of period 1,422,582 1,460,786
---------------- ----------------
Cash and cash equivalents, end of period $ 1,367,909 $ 1,526,898
================ ================
Non cash activities:
Increase in Fair Value of MBS $ 22,640 $ 9,937
================ ================
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 accounting principles
generally accepted in the United States of America 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, 2001 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, 2002 and its results
of operations and cash flows for the three months ended March 31, 2002 and
2001.
The results of operations for the three months ended March 31, 2002 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 March 31, 2002, the Partnership's remaining PIM had a fair market value
of $13,600,967 and gross unrealized gains of $410,104. The PIM matures in
2033.
The Partnership received a prepayment of the Royal Palm Place PIM. On
January 2, 2002, the Partnership received $378,480 of Shared Appreciation
Interest and $126,159 of Minimum Additional Interest. On February 27, 2002
the Partnership received $5,563,531 representing the principal proceeds on
the first mortgage. On March 19, 2002, the Partnership paid a special
distribution of $0.80 per Limited Partner interest from the principal
proceeds and Shared Appreciation Interest received.
3. MBS
At March 31, 2002, the Partnership's MBS portfolio had an amortized cost
of $8,751,964 and gross unrealized gains of $521,528. The portfolio has
maturities ranging from 2006 to 2032.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the three months ended
March 31, 2002 is as follows:
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
---------------- ----------- -------------- --------------
Balance at December 31, 2001 $ 29,633,496 $ (249,219) $ 498,888 $ 29,883,165
Net income 867,023 26,815 - 893,838
Quarterly distributions (750,010) (14,403) - (764,413)
Special distributions (6,000,079) - - (6,000,079)
Change in unrealized gain on MBS - - 22,640 22,640
---------------- ----------- ------------- ---------------
Balance at March 31, 2002 $ 23,750,430 $ (236,807) $ 521,528 $ 24,035,151
================ =========== ============= ===============
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 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 March 31, 2002, the Partnership had liquidity consisting of cash and cash
equivalents of approximately $1.4 million as well as the cash flow provided by
its investments in its remaining PIM 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 the quarterly
distributions paid to investors, which are approximately $750,000 per quarter.
Funds for the quarterly distributions come from the monthly principal and basic
interest payments received on the remaining PIM and MBS, the principal
prepayments of the PIM and MBS and interest earned on the Partnership's cash and
cash equivalents. The portion of distributions attributable to the principal
collections and cash reserves reduces the capital resources of the Partnership.
As the capital resources 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. To the extent
that quarterly distributions do not fully utilize the cash available for
distributions and cash balances increase, the General Partners may adjust the
distribution rate or distribute such funds through a special distribution. Based
on current projections, the General Partners have determined that the
Partnership can maintain its current distribution rate of $0.10 per Limited
Partner interest per quarter through the August distribution.
The Partnership received a prepayment of the Royal Palm Place PIM. On January 2,
2002, the Partnership received $378,480 of Shared Appreciation Interest and
$126,159 of Minimum Additional Interest. On February 27, 2002 the Partnership
received $5,563,531 representing the principal proceeds on the first mortgage.
On March 19, 2002, the Partnership paid a special distribution of $0.80 per
Limited Partner interest from the principal proceeds and Shared Appreciation
Interest received.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's investment in the remaining PIM also may
provide additional income through a participation interest in the underlying
property. 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 property is sold or refinanced. However, this
payment is neither guaranteed nor insured and is dependent upon whether property
operations or its terminal value meet certain criteria.
The Partnership's only remaining PIM investment is backed by the first mortgage
loan on Vista Montana. Presently, the General Partners do not expect Vista
Montana to pay the Partnership any participation interest or to be sold or
refinanced during 2002. However, if favorable market conditions provide the
borrower an opportunity to sell the property, there are no contractual
obligations remaining that would prevent a prepayment of the underlying first
mortgage. Vista Montana operates under a long-term restructure program. The
Partnership agreed in 1993 to change the original participation terms and to
permanently reduce the rate on the 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
occupancy in the Phoenix sub-market is generally in the low 90% range, the
property is currently 80% occupied because of a fire. Repairs to the property
are underway and will be covered by the borrower's property insurance.
The Partnership has the option to call its remaining PIM by accelerating the
maturity date of the loan. The Partnership will determine the merits of
exercising the call option 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.
Critical Accounting Policy
The Partnership's critical accounting policy relates primarily to revenue
recognition related to the participation feature of the Partnership's PIM
investments. The Partnership's policy is as follows:
Basic interest on PIMs is recognized at the stated rate of the Federal Housing
Administration insured mortgage (less the servicer's fee) or the stated coupon
rate of the Fannie Mae MBS. The Partnership recognizes interest related to the
participation features when the amount becomes fixed and the transaction that
gives rise to such amount is consummated.
Results of Operations
Net income increased during the first quarter of 2002 as compared to the same
period in 2001 due primarily to an increase in participation income and a
decrease in asset management fees. This was partially offset by decreases in
basic interest on PIMs and interest income on MBS. Participation interest
increased and basic interest income on PIMs decreased due to the payoff of the
Royal Palm Place PIM during the first quarter of 2002. MBS interest income
decreased due to the payoff of the Boulders Apartments MBS in July of 2001. The
decrease in asset management fees is a result of the Partnership's asset base
declining from the prepayments noted above.
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 March 31, 2002, the Partnership includes in cash and cash equivalents
approximately $1.2 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, 2002, the Partnership's PIM and MBS comprise the majority of the
Partnership's assets. 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
its remaining PIM, the Partnership continues to monitor the borrower for any
indication of a prepayment.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
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: May 1, 2002
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
March 31, 2002 and the period from inception through March 31, 2002. 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.
Quarter Inception
Ended Through
3/31/02 3/31/02
--------- -----------
(Amounts in thousands, except per Unit amounts)
Distributable Cash Flow:
- -----------------------
Net Income on a GAAP Basis $ 894 $ 90,065
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid fees and expenses 24 8,514
Shared Appreciation Interest and prepayment premiums (378) (1,401)
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") $ 540 $ 98,615
========= ==========
Limited Partners Share of DCF $ 524 $ 95,657
========= ==========
Limited Partners Share of DCF per Unit $ 0.07 $ 12.75(c)
======== ==========
General Partners Share of DCF $ 16 $ 2,958
========= ==========
Net Proceeds from Capital Transactions:
- --------------------------------------
Insurance claim proceeds, prepayment proceeds and PIM
principal collections including Shared Appreciation
Interest and prepayment premiums $ 5,967 $ 93,420
Principal collections on MBS including prepayment premiums 160 58,349
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 $ 6,127 $ 111,108
========= ==========
Cash available for distribution
(DCF plus Proceeds from Capital Transactions) $ 6,667 $ 209,723
========= ==========
Distributions:
- -------------
Limited Partners $ 6,750(a) $ 205,964(b)
========= ==========
Limited Partners Average per Unit $ .90(a) $ 27.46 (b)(c)
======== ==========
General Partners $ 16(a) $ 2,958(b)
========= ==========
Total Distributions $ 6,766 $ 208,922
========= ==========
(a) Represents all distributions paid in 2002 except the February 2002
quarterly distribution and includes an estimate of the quarterly
distribution to be paid in May 2002.
(b) Includes an estimate of the quarterly distribution to be paid in May 2002.
(c) Limited Partners average per Unit return of capital as of May 2002 is
$14.71 [$27.46- $12.75]. 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.