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 June 30,
1998
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
The total number of pages in this document is
10.
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
Unaudited
June 30, December 31,
1998 1997
Multi-family apartment complexes,
less accumulated depreciation of
$21,013,838 and $20,216,642, respectively$10,230,242$ 10,519,769
Cash and cash equivalents 701,265 552,221
Replacement reserve escrow 159,294 177,778
Cash restricted for tenant security deposits 205,437 202,691
Prepaid expenses and other assets 542,819 595,696
Deferred expenses, net of accumulated
amortization of $235,916 and $212,971,
respectively 283,668 306,613
Total assets $12,122,725$ 12,354,768
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $18,930,995$ 19,126,371
Accrued expenses and other
liabilities (Note 3) 592,706 683,413
Total liabilities 19,523,701 19,809,784
Partners' deficit (Note 2):
Investor Limited Partners
(25,000 Units outstanding) (6,169,029)(6,220,367)
Original Limited Partner (903,989) (906,151)
General Partners (327,958) (328,498)
Total Partners' deficit (7,400,976)(7,455,016)
Total liabilities and
Partners' deficit $12,122,725$ 12,354,768
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Revenue:
Rental $1,875,274$1,815,168 $3,746,410$3,583,363
Other income 15,578 17,346 30,413 27,162
Total revenue 1,890,852 1,832,514 3,776,8233,610,525
Expenses:
Operating (Note 3) 495,483 502,931 1,013,600 1,014,049
Maintenance 151,299 170,715 237,251 260,767
Real estate taxes 137,738 126,325 277,185 261,166
General and administrative
(Note 3) 21,471 24,829 36,188 78,596
Management fees (Note 3) 94,124 89,753 186,940 175,151
Depreciation and
amortization 409,113 490,834 820,141 963,037
Interest 415,160 426,671 838,450 855,339
Total expenses 1,724,388 1,832,058 3,409,755 3,608,105
Net income $ 166,464$ 456 $ 367,068 $ 2,420
Allocation of net income
(Note 2):
Investor Limited Partners
(25,000 Units
outstanding) $ 158,141$ 433 $ 348,715$ 2,299
Investor Limited Partners
Per Unit $ 6.33 $ .02 $ 13.95 $ .09
Original Limited
Partner $ 6,659$ 19 $ 14,683 $ 97
General Partners $ 1,664$ 4 $ 3,670 $ 24
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
1998 1997
Operating activities:
Net income $ 367,068 $ 2,420
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 820,141 963,037
Interest earned on replacement reserve
escrow (1,070) (3,774)
Changes in assets and liabilities:
Increase in cash restricted
for tenant security deposits (2,746) (14,370)
Decrease in prepaid expenses and
other assets 52,877 99,082
Decrease in accrued expenses and
other liabilities (91,415) (89,644)
Net cash provided by operating
activities 1,144,855 956,751
Investing activities:
Additions to fixed assets (507,669) (460,928)
Deposits to replacement reserve escrow (30,948) (30,947)
Withdrawals from replacement reserve escrow 50,502 -
Increase in accrued expenses and other
liabilities related to fixed asset additions 708 -
Net cash used in investing
activities (487,407) (491,875)
Financing activities:
Distributions (313,028) (208,685)
principal payments on mortgage notes payable(195,376) (178,654)
Net cash used in financing
activities (508,404) (387,339)
Net increase in cash and cash equivalents 149,044 77,537
Cash and cash equivalents, beginning of period552,221 468,735
Cash and cash equivalents, end of period $ 701,265 $ 546,272
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 and Subsidiary (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, 1997 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 necessary to present fairly the
Partnership's consolidated financial position
as of June 30, 1998, its results of operations
for the three and six months ended June 30,
1998 and 1997, and its cash flows for six
months ended June 30, 1998 and 1997. Certain
prior period balances have been reclassified
to conform with current period consolidated
financial statement presentation.
The results of operations for the three and
six months ended June 30, 1998 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, 1998 is as follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
Balance at
December 31,1997$(6,220,367)$(906,151)$(328,498)$(7,455,016)
Net income 348,715 14,683 3,670 367,068
Distributions (297,377) (12,521) (3,130) (313,028)
Balance at
June 30, 1998 $(6,169,029)$(903,989)$(327,958)$(7,400,976)
Continued
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(3)Related Party Transactions
The Partnership pays property management fees
to an affiliate of the General Partners for
management services. Pursuant to the
management agreements, management fees are
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
administrative expenses.
Amounts accrued or paid to the General Partners' affiliates
were as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Property management fees $94,124 $ 89,753 $186,940 $175,151
Expense reimbursements 41,523 42,745 61,467 93,823
Charged to operations$135,647 $132,498 $248,407 $268,974
Expense reimbursements due to affiliates of $3,258 is included
in accrued
expenses and other liabilities at June 30, 1997.
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.
The Partnership has spent approximately
$508,000 to date and is expected to spend
approximately $1,037,000 for capital
improvements at its properties in 1998 to
remain competitive in their respective
markets. These improvements include the
replacement of countertops, carpeting,
appliances, pavement upgrades and both
interior and exterior building improvements.
The Partnership expects to fund these
improvements from established reserves and
cash generated from property operations.
Financial Accounting Standards Board Statement
No. 130 ("FAS 130") "Reporting Comprehensive
Income" is effective for fiscal years
beginning after December 31, 1997, although
earlier application is permitted. FAS 130
establishes standards for reporting and
display of comprehensive income and its
components in financial statements. Financial
Accounting Standards Board Statement No. 131
("FAS 131") "Disclosures about Segments of an
Enterprise and Related Information"
establishes standards for disclosing measures
for profit or loss and total assets for each
reportable segment. FAS 131 is effective for
fiscal years beginning after December 15,
1997. The Partnership does not believe that
the implementation of FAS 130 or FAS 131 will
have a material impact on the Partnership's
financial statements.
Operations
Net income increased for the three and six
months ended June 30, 1998, as compared to the
three and six months ended June 30, 1997, with
an increase in total revenue and a decrease in
total expenses.
Total revenue increased for the three and six
months ended June 30, 1998, as compared to the
three and six months ended June 30, 1997, due
to increases in average occupancy rates at all
of the Partnership's properties. Occupancy
rates for the six months ended June 30, 1998
and 1997 at Brookeville, Hannibal Grove, and
Dorsey's Forge Apartments averaged 99%, 100%,
and 100%, and 98%, 99%, and 99%, respectively.
In addition, rental rate increases were
implemented at all the Partnership's
properties during the six months ended June
30, 1998.
Continued
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
Operations, Continued
Total expenses decreased for the three and six
months ended June 30, 1998, as compared to the
three and six months ended June 30, 1997, as a
result of lower maintenance, general and
administrative and depreciation expenses.
Maintenance expense decreased due to
landscaping, snow removal expenditures and
interior building repairs completed at the
Partnership's properties during 1997. General
and administrative expense decreased as a
result of 1997 legal costs relating to the
unsolicited tender offers to purchase
Partnership Units. Depreciation expense
decreased as fixed asset additions purchased
in previous years became fully depreciated.
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/Wayne H. Zarozny
Wayne H. Zarozny
Treasurer and Chief
Accounting Officer of
The Krupp Corporation,
a General Partner
DATE: August 11, 1998