UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 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 0-11210 Krupp Realty Fund, Ltd.-III Massachusetts 04-2763323 (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 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS September 30, December 31, 1995 1994 Multi-family apartment complexes, less accumulated depreciation of $16,015,835 and $14,767,489 respectively $12,541,855 $12,958,461 Cash and cash equivalents 699,643 836,785 Required repair and replacement reserves 339,835 609,608 Cash restricted for tenant security deposits 201,407 194,780 Mortgage escrows and other assets 703,014 658,234 Deferred expenses, net of accumulated amortization of $109,719 and $75,302 respectively 409,865 444,282 Total assets $14,895,619 $15,702,150 LIABILITIES AND PARTNERS' DEFICIT Mortgage notes payable $19,905,046 $20,131,682 Accounts payable 222,603 244,082 Accrued expenses and other liabilities 580,558 616,030 Total liabilities 20,708,207 20,991,794 Investor Limited Partners (25,000 Units outstanding) (4,660,065) (4,163,269) Original Limited Partner (880,220) (859,302) General Partners (272,303) (267,073) Total Partners' deficit (5,812,588) (5,289,644) Total liabilities and partners' deficit $14,895,619 $15,702,150 The accompanying notes are an integral part of the financial statements. KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Revenue: Rental $1,555,939 $1,524,759 $4,708,791 $4,555,595 Other income 4,950 22,708 44,704 58,775 Total revenue 1,560,889 1,547,467 4,753,495 4,614,370 Expenses: Operating (including reimbursements to affiliates of $39,153, $57,173, $79,946 and $171,518, respectively) 447,649 469,404 1,269,871 1,437,166 Maintenance 147,596 153,734 400,060 356,833 General and administrative (including reimbursements of $2,532, $14,309, $7,596 and $42,924, respectively) 64,747 43,409 91,699 88,308 Real estate taxes 127,272 124,615 385,744 384,081 Management fees to an affiliate 79,256 76,640 237,497 228,176 Depreciation and amortization 434,880 362,887 1,282,763 1,063,289 Interest 430,220 436,704 1,295,655 1,358,509 Total expenses 1,731,620 1,667,393 4,963,289 4,916,362 Net Loss $ (170,731) $ (119,926) $ (209,794) $(301,992) Allocation of net loss (Note 2): Per Unit of Investor Limited Partner Interest (25,000 Units Outstanding) $ (6.49) $ (4.56) $ (7.97) $ (11.48) Original Limited Partner $ (6,829) $ (4,797) $ (8,392) $(12,080) General Partners $ (1,707) $ (1,199) $ (2,098) $(3,020) The accompanying notes are an integral part of the financial statements. KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1995 1994 Operating activities: Net loss $ (209,794) $ (301,992) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,282,763 1,063,289 Increase in cash restricted for tenant security deposits (6,627) (3,761) Decrease (increase) in mortgage escrows and other assets (44,780) 181,483 Decrease (increase) in accounts payable (21,479) 177,615 Decrease in accrued expenses and other liabilities (35,472) (114,778) Net cash provided by operating activities 964,611 1,001,856 Investing activities: Additions to fixed assets (831,740) (994,658) Funding of replacement reserve (46,422) - Decrease in required repairs and replacement reserves 316,195 295,650 Net cash used in investing activities (561,967) (699,008) Financing activities: Distributions (313,150) (104,349) Principal payments on mortgage notes payable (226,636) (207,257) Deferred expenses - (8,088) Net cash used in financing activities (539,786) (319,694) Net decrease in cash and cash equivalents (137,142) (16,846) Cash and cash equivalents, beginning of the period 836,785 1,044,064 Cash and cash equivalents, end of the period $ 699,643 $1,027,218 The accompanying notes are an integral part of the financial statements. KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY NOTES TO CONSOLIDATED 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. In the opinion of the General Partners of Krupp Realty Fund, Ltd.-III, (the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Consolidated Financial Statements included in the Partnership's annual Report on Form 10-K for the year ended December 31, 1995 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 consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Partnership's financial position as of September 30, 1995, its results of operations for the three and nine months ended September 30, 1995 and 1994 and its cash flows for the nine months ended September 30, 1995 and 1994. Certain prior year balances have been reclassified to conform with the current year consolidated financial statement presentation. The results of operations for the three and nine months ended September 30, 1995 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) Summary of Changes in Partners' Deficit A summary of changes in Partners' Deficit for the nine months ended September 30, 1995 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1994 $(4,163,269) $(859,302) $(267,073) $(5,289,644) Net Loss (199,304) (8,392) (2,098) (209,794) Distributions (297,492) (12,526) (3,132) (313,150) Balance at September 30, 1995 $(4,660,065) $(880,220) $(272,303) $(5,812,588) KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership's ability to generate cash adequate to meet its needs is dependent primarily upon the successful operations of its real estate investments. Such ability is also dependent upon the future availability of bank borrowings and the potential refinancing and sale of the Partnership's remaining real estate investments. These sources of liquidity will be used by the Partnership for payment of expenses related to real estate operations, capital expenditures, debt service and expenses. Cash Flow, if any, as calculated under Section 8.2(a) of the partnership agreement, will then be available for distribution to the Partners. There is sufficient Cash Flow during the current year to distribute at a rate of 1 1/2% of remaining invested capital. The General Partners plan to review the Partnership's distribution policy semi-annually, and will increase the rate if Cash Flow is available after adequate reserves. The Partnership has spent approximately $448,000 on improvements at Brookeville Apartments ("Brookeville") during 1995, of which a significant portion has been funded from the replacement reserve escrow. Ongoing renovations include the replacement of cabinets, countertops, carpeting, and most of the units appliances. Dorsey's/Oakland Apartments and Hannibal Grove Apartments have funded $168,000 and $212,000, respectively, of improvements in 1995. The Partnership expects the occupancy of its properties to remain stable in 1995, with the opportunity for a slight increase. The renovations at Brookeville have been completed and the improved physical condition should increase the occupancy level at Brookeville. Cash Flow Shown below, as required by the Partnership Agreement, is the calculation of Cash Flow for the nine months ended September 30, 1995. Rounded to $1,000 Net income for tax purposes $ 69,000 Items not requiring or providing (requiring) the use of operating funds: Tax basis depreciation and amortization 1,004,000 Principal payments on mortgages (227,000) Expenditures for capital improvements (832,000) Amounts released from working capital reserve 299,000 Cash flow $ 313,000 Continued KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Operations The increase in rental revenue during the three and nine months ended September 30, 1995 as compared to the same period in 1994, was due to increases in rental rates at all the Partnerships properties. The increase in the rental rates is directly related to the capital improvement programs undertaken at the properties. Occupancy at the properties has remained stable. In August, Brookeville completed the process of rebuilding seven units destroyed by fire during the first quarter of 1995. The property was fully covered by insurance. Total expenses were relatively stable during the three and nine months ended September 30, 1995 as compared to the same period in 1994 with the exception of operating and depreciation expenses. The decrease in operating expenses was due to management's efforts to reduce reimbursable costs. Certain of these cost savings are anticipated to continue throughout the fourth quarter of 1995. Depreciation expense increased during the three and nine months ended September 30, 1995 as compared to the same periods in 1994 as a result of the ongoing renovations at the Partnerships properties. KRUPP REALTY FUND, LTD. - III 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 Realty Fund, Ltd. - III (Registrant) BY: /s/Marianne Pritchard Marianne Pritchard Treasurer and Chief Accounting Officer of The Krupp Corporation, a General Partner of the registrant. DATE: November 2, 1995