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 THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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. CONSOLIDATED 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 REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
Multi-family apartment complexes,
less accumulated depreciation of
$17,330,412 and $16,460,550, respectively $11,805,821 $12,329,503
Cash and cash equivalents 444,422 654,696
Other investment (Note 3) 294,435 -
Required repair and replacement reserves 222,588 202,349
Cash restricted for tenant security deposits 172,848 202,950
Prepaid expenses and other assets 519,785 596,254
Deferred expenses, net of accumulated
amortization of $144,137 and $121,192,
respectively 375,447 398,392
Total assets $13,835,346 $14,384,144
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable $19,662,692 $19,826,061
Accounts payable 8,580 54,170
Accrued expenses and other liabilities 615,262 654,603
Total liabilities 20,286,534 20,534,834
Partners' deficit (Note 2):
Investor Limited Partners
(25,000 Units outstanding) (5,266,734) (4,981,262)
Original Limited Partner (883,849) (871,828)
General Partners (300,605) (297,600)
Total Partners' deficit (6,451,188) (6,150,690)
Total liabilities and Partners' deficit $13,835,346 $14,384,144
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Revenue:
Rental $1,628,975 $1,584,318 $3,252,859 $3,152,852
Other income 15,668 17,300 31,744 39,754
Total revenue 1,644,643 1,601,618 3,284,603 3,192,606
Expenses:
Operating (Note 4) 472,326 399,946 951,831 820,205
Maintenance 140,079 173,368 215,202 252,464
Real estate taxes 120,958 124,516 246,883 258,472
General and administrative
(Note 4) 11,966 17,724 38,023 31,200
Management fees (Note 4) 81,210 78,604 160,892 158,241
Depreciation and
amortization 450,027 452,004 892,807 847,883
Interest 434,476 429,683 870,778 863,204
Total expenses 1,711,042 1,675,845 3,376,416 3,231,669
Net loss $ (66,399) $ (74,227) $ (91,813) $ (39,063)
Allocation of net loss
(Note 2):
Investor Limited Partner
(25,000 Units outstanding) $ (63,079) $ (70,516) $ (87,222) $ (37,109)
Per Unit of Investor Limited
Partner Interest $ (2.52) $ (2.82) $ (3.49) $ (1.49)
Original Limited Partner $ (2,656) $ (2,969) $ (3,673) $ (1,563)
General Partners $ (664) $ (742) $ (918) $ (391)
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
1996 1995
Operating activities:
Net loss $ (91,813) $ (39,063)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 892,807 847,883
Decrease (increase) in cash restricted
for tenant security deposits 30,102 (5,073)
Decrease (increase) in prepaid expenses
and other assets 76,469 (115,195)
Decrease in accounts payable (46,420) (131,767)
Decrease in accrued expenses and
other liabilities (39,341) (75,304)
Net cash provided by operating
activities 821,804 481,481
Investing activities:
Additions to fixed assets (346,180) (679,099)
Funding of replacement reserve (20,239) (30,948)
Decrease in required repair and replacement
reserves - 313,275
Increase in other investments (294,435) (292,197)
Increase in accounts payable related to fixed
asset additions 830 -
Net cash used in investing
activities (660,024) (688,969)
Financing activities:
Distributions (208,685) (156,576)
Principal payments on mortgage notes payable (163,369) (149,396)
Net cash used in financing
activities (372,054) (305,972)
Net decrease in cash and cash equivalents (210,274) (513,460)
Cash and cash equivalents, beginning of period 654,696 836,785
Cash and cash equivalents, end of period $ 444,422 $ 323,325
The accompanying notes are an integral
part of the consolidated 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 consolidated financial position as of
June 30, 1996, its results of operations for the three and six months
ended June 30, 1996 and 1995, and its cash flows for six months ended
June 30, 1996 and 1995. Certain prior year balances have been
reclassified to conform with current year consolidated financial
statement presentation.
The results of operations for the three and six months ended June 30,
1996 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 six months ended June
30, 1996 is as follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
Balance at
December 31, 1995 $(4,981,262) $(871,828) $(297,600) $(6,150,690)
Net loss (87,222) (3,673) (918) (91,813)
Distributions (198,250) (8,348) (2,087) (208,685)
Balance at
June 30, 1996 $(5,266,734) $(883,849) $(300,605) $(6,451,188)
(3) Other Investment
At June 30, 1996, the Partnership held an investment in
commercial paper maturing within one year. The cost
approximates the market value.
(4) Related Party Transactions
Commencing with the date of acquisition of the Partnership's
properties, the Partnership entered into agreements under which
property management fees are paid to an affiliate of the
General Partners for services as management agent. Such
agreements provide for management fees payable monthly at a
rate of 5% of the gross receipts from the properties under
management. The Partnership also reimburses affiliates of the
General Partners for certain expenses incurred in connection
with the operation of the Partnership and its properties
including accounting, computer, insurance, travel, legal and
payroll; and with the preparation and mailing of reports and
other communications to the Limited Partners.
Amounts accrued or paid to the General Partners or their
affiliates are as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Property management fees $ 81,210 $ 78,604 $160,892 $158,241
Expense reimbursements 50,366 26,185 97,480 45,857
Charged to operations $131,576 $104,789 $258,372 $204,098
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This 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 Partnership's ability to generate cash adequate to meet its needs is
dependent primarily upon the 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. Due to
improvements in the operations of the properties, the Partnership has
sufficient Cash Flow to increase semi-annual distributions from an annual
rate of $11.90 per Unit in 1995, to an annual rate of $15.86 per Unit in
1996.
The Partnership has spent approximately $346,000 for capital improvements
at its properties to date this year. The Partnership believes that the
improvements are necessary to compete with current market conditions,
produce quality rental units and absorb excess market supply at the
properties' respective locations. Renovations are expected to continue
throughout the year and include the replacement of countertops, carpeting
and appliances.
Cash Flow
Shown below, as required by the Partnership Agreement, is the calculation
of Cash Flow of the Partnership for the six months ended June 30, 1996.
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, Cash Flow should not be considered by the reader as a substitute
to net income (loss), as an indicator of the Partnership's operating
performance or to cash flows as a measure of liquidity.
Rounded to $1,000
Net income for tax purposes $ 105,000
Items not requiring or (requiring) the use
of operating funds:
Tax basis depreciation and amortization 696,000
Principal payments on mortgage notes payable (163,000)
Expenditures for capital improvements (346,000)
Additions to working capital reserves (83,000)
Cash Flow $ 209,000
Operations
Cash Flow, before additions to working capital reserves, increased
during the six months ended June 30, 1996, as compared to the six months
ended June 30, 1995, primarily due to a decrease in capital improvement
expenditures.
Rental revenue during the three and six months ended June 30, 1996
compared to the same time period in 1995, increased as a result of
increased rental rates at the Partnership's properties. Interest income,
during the same time periods, decreased due to lower cash and cash
equivalents available for investment.
During the three and six months ended June 30, 1996, total expenses
increased as compared to the three and six months ended June 30, 1995.
The increase in operating expense is due to an increase in utility
consumption as a result of the unusually harsh winter weather, prior
years' insurance refunds received in 1995, and an increase in
reimbursable expenses relating to the operation of the Partnership and
its properties, including computer, accounting, travel, insurance, legal
and payroll costs. The decrease in maintenance expense is due primarily
to the capital improvement program instituted by management in 1995.
Real estate taxes for the three and six months ended June 30, 1996, as
compared to the three and six months ended June 30, 1995, decreased due
to a 1995 real estate tax refund for Dorsey's Forge received in 1996.
Depreciation expense increased in conjunction with capital improvement
expenditures.
General
In accordance with Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", which is effective for fiscal years beginning after
December 15, 1995, the Partnership has implemented policies and practices
for assessing impairment of its real estate assets.
The investments in properties are carried at cost less accumulated
depreciation unless the General Partners believe there is a significant
impairment in value, in which case a provision to write down investments
in properties to fair value will be charged against income. At this
time, the General Partners do not believe that any assets of the
Partnership are significantly impaired.
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
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/Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting
Officer of The Krupp
Corporation, a General Partner.
DATE: July , 1996