UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11987
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Krupp Realty Limited Partnership -IV
Massachusetts 04-2772783
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
One Beacon Street, Boston, Massachusetts 02108
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(Address of principal executive offices) (Zip Code)
(617) 523-7722
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(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 11.
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
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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 LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
2001 2000
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Multi-family apartment communities, net of
accumulated depreciation of $27,159,374 and
$26,362,441, respectively $ 9,536,020 $ 10,139,898
Cash and cash equivalents 1,003,837 740,853
Real estate tax escrows 540,702 723,394
Prepaid expenses and other assets (Note 1) 136,110 277,631
Investment in securities (Note 2) 95,516 95,516
Deferred expense, net of accumulated amortization
of $359,216 and $341,854, respectively (Note 3) 22,938 40,300
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Total assets $ 11,335,123 $ 12,017,592
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note 3) $ 16,048,491 $ 16,224,646
Due to affiliates (Note 5) 38,789 -
Other liabilities 922,000 1,190,128
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Total liabilities 17,009,280 17,414,774
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Partners' deficit (Note 4):
Investor Limited Partners
(30,000 Units outstanding) (3,965,523) (3,702,397)
Original Limited Partner (1,393,340) (1,382,261)
General Partners (315,294) (312,524)
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Total partners' deficit (5,674,157) (5,397,182)
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Total liabilities and partners' deficit $ 11,335,123 $ 12,017,592
============ ============
The accompanying notes are an integral
part of the consolidated financial statements.
2
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Month For the Six Months
Ended June 30, Ended June 30,
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2001 2000 2001 2000
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Revenue:
Rental $1,849,081 $1,806,649 $3,645,187 $3,590,724
Other Income 10,497 18,499 28,719 36,599
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Total revenue 1,859,578 1,825,148 3,673,906 3,627,323
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Expenses:
Operating (Note 5) 481,755 453,400 993,860 877,642
Maintenance 154,819 149,979 273,418 273,594
Real estate taxes 195,279 188,285 379,314 421,768
Management fees (Note 5) 78,265 72,136 153,669 145,375
General and administrative
(Note 5) 72,074 71,708 194,898 106,265
Depreciation and
amortization 407,570 400,312 814,295 798,532
Interest 355,503 387,932 750,192 769,108
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Total expenses 1,745,265 1,723,752 3,559,646 3,392,284
---------- ---------- ---------- ----------
Income before minority
interest 114,313 101,396 114,260 235,039
Minority interest (1,030) (892) (1,451) (1,697)
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Net income $ 113,283 $ 100,504 $ 112,809 $ 233,342
========== ========== ========== ==========
Allocation of net income (Note 4):
Investor Limited Partners
(30,000 Units outstanding):
Net income $ 107,619 $ 95,479 $ 107,169 $ 221,675
========== ========== ========== ==========
Investor Limited Partners
Per Unit:
Net Income $ 3.59 $ 3.18 $ 3.57 $ 7.39
========== ========== ========== ==========
Original Limited Partner
(100 Units outstanding):
Net income $ 4,531 $ 4,020 $ 4,512 $ 9,334
========== ========== ========== ==========
General Partners:
Net income $ 1,133 $ 1,005 $ 1,128 $ 2,333
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The accompanying notes are an integral
part of the consolidated financial statements.
3
KRUPP REALTY LIMITED PARTNERSHIP - IV SUBSIDUARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
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2001 2000
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Cash flows from operating activities:
Net income $ 112,809 $ 233,342
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 814,295 798,532
Changes in assets and liabilities:
Decrease in prepaid expenses and other
assets 324,213 277,513
Decrease in other liabilities (270,492) (264,532)
Increase (decrease) in due to affiliates 38,789 (20,196)
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Net cash provided by operating activities 1,019,614 1,024,659
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Cash flows from investing activities:
Increase (decrease) in other liabilities related
to fixed asset additions 2,364 (6,415)
Fixed asset additions (193,055) (344,994)
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Net cash used in investing activities (190,691) (351,409)
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Cash flows from financing activities:
Principal payments on mortgage notes payable (176,155) (158,088)
Distributions (389,784) (389,784)
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Net cash used in financing activities (565,939) (547,872)
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Net increase in cash and cash equivalents 262,984 125,378
Cash and cash equivalents, beginning of period 740,853 856,738
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Cash and cash equivalents, end of period $ 1,003,837 $ 982,116
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The accompanying notes are an integral
part of the consolidated financial statements
4
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
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 Limited
Partnership - IV and Subsidiaries ( 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,
2000 for additional information relevant to significant accounting policies
followed by the Partnership.
The consolidated financial statements present consolidated assets,
liabilities and operations of Pavillion Partners, Ltd., Westbridge
Partners, Ltd., and Krupp Realty Limited Partnership-IV. Westcop
Corporation has a 1% interest in the operations of Westbridge Partners,
Ltd. and Pavillion Partners, Ltd. At June 30, 2001 and December 31, 2000,
minority interest of $7,138 and $8,589, respectively, is included in other
assets.
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, 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) Investment in Securities
On October 5, 2000, the Partnership, as a member of an alliance of major
multi-family real estate companies, executed a master lease agreement
("MLA") with a provider of high-speed internet, video and voice services to
multi-family communities. Pursuant to the MLA, the Partnership granted the
provider preferred lease, license and access rights to provide data
services, consisting of high-speed broadband internet access and video
services, to the residents at some of its multi-family communities for a
ten year period. In exchange for these rights, the Partnership received
366,691 shares of common stock which were valued at $.2285 per share or
$83,823. In addition, the Partnership will receive 7.5% of the gross
revenues that the provider obtains from providing its services as well as a
fixed amount for each resident that executes a subscriber agreement. In
conjunction with the execution of the MLA, the Partnership made an
investment of $8,406 in exchange for 36,785 additional shares of common
stock also valued at $.2285 per share. The Partnership incurred
approximately $3,287 in closing costs related to the acquisition by the
Partnership and the closing costs incurred were recorded as an investment
in securities in the financial statements as of June 30, 2001 and of
December 31, 2000.
Continued
5
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(3) Mortgage Notes Payable
On November 9, 2000, the General Partners signed an agreement extending the
mortgage note payable on Walden Pond Apartments, until November 1, 2002.
Under the terms of the extension agreement the interest rate on the debt
was reduced from prime + 0.5% to prime - 0.5%. The Partnership paid an
extension fee of $29,555 for this privilege.
As of December 31, 2000, the General Partners had signed agreements
extending the mortgage note payable on Fenland Field Apartments, under the
original terms, until June 1, 2002. The Partnership paid an extension fee
of $5,000 for this privilege.
On April 27, 2001, the General Partners signed an agreement extending the
mortgage note payable on Pavillion Apartments, under the original terms,
until May 1, 2002. The Partnership paid an extension fee of $32,969 for
this privilege.
(4) Changes in Partners' Deficit
A summary of changes in Partners' deficit for the six months ended June 30,
2001 is as follows:
Investor Original Total
Limiteded Limited General Partners'
Partners Partner Partners Deficit
----------- ----------- ----------- -----------
Balance at
December 31, 2000 $(3,702,397) $(1,382,261) $ (312,524) $(5,397,182)
Net income 107,169 4,512 1,128 112,809
Distributions (370,295) (15,591) (3,898) (389,784)
----------- ----------- ----------- -----------
Balance at
June 30, 2000 $(3,965,523) $(1,393,340) $ (315,294) $(5,674,157)
=========== =========== =========== ===========
Continued
6
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(5) 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,
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2001 2000 2001 2000
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Property management fees $78,265 $72,136 $153,669 $145,375
Expense reimbursements 104,627 79,767 269,988 136,947
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Charge to operations $182,892 $151,903 $423,657 $282,322
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Due to (from) affiliates consisted of expense reimbursements of $38,789 and
$(28,007) at June 30, 2001 and December 31, 2000, respectively.
(6) Subsequent Event
On August 1, 2001, the Partnership sold Fenland Field Apartments to an
unrelated third party for $14,500,000. The carrying value of Fenland Field
Apartments was approximately $2,250,000. The sale included the payoff of
the mortgage owed on the property of approximately $3,640,000 and the
assumption of the remaining assets and liabilities.
7
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 risks 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 would also be impacted by the future availability of bank
borrowings, and upon the future refinancing and sale of the Partnership's
remaining real estate investments. These sources of liquidity will be used
by Partnership for payment of expenses related to real estate operations,
capital improvements, debt service and other 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.
Over the past several years, real estate markets in general have improved
and the General Partners feel it is an opportune time to formulate a
liquidation strategy for the Partnership. As previously disclosed, the
General Partners have begun the process of more thoroughly assessing the
real estate sales market in the Partnership's market areas and developing a
disposition strategy which will yield the highest value to investors
through an efficient and orderly liquidation of the Partnership. In keeping
with this strategy, the General Partners have extended the term of the
mortgage loan which would otherwise have matured with financing that leaves
flexibility for the property sales.
Assuming market conditions do not change, the assessment of the real estate
sales market is consistent with the General Partners' expectations, and an
acceptable disposition plan can be implemented, the General Partners expect
to complete the liquidation process over the next 9 months. However, there
can be no assurance that such a liquidation will occur, or what amounts may
be realized by the Partnership.
On April 27, 2001, the General Partners signed an agreement extending the
mortgage notes payable on Pavillion Apartments, under the original terms,
until May 1, 2002. The Partnership paid an extension fee of $24,962 for
this privilege.
On August 1, 2001, the Partnership sold Fenland Field Apartments to an
unrelated third party for $14,500,000. The carrying value of Fenland Field
Apartments was approximately $2,250,000. The sale included the payoff of
the mortgage owed on the property of approximately $3,640,000 and the
assumption of the remaining assets and liabilities.
The General Partners, on an ongoing basis, assess the current and future
liquidity needs to determine the level of working capital reserves the
Partnership should maintain. Adjustments to distributions are made when
appropriate to reflect such assessments. The current annual distribution
rate is $24.69 per Unit, and is paid semiannually in February and August.
8
Operations
The following discussion relates to the operation of the Partnership and
its properties (Fenland Field, Pavillion and Walden Pond Apartments) for
the three and six months ended June 30, 2001 and 2000.
Net income increased during the three months ended June 30, 2001 when
compared to the three months ended June 30, 2000 due to increases in total
revenue more than offsetting increases in total expenses. The increase in
total revenue is primarily a result of rental rate increases implemented at
all of the Partnership's properties at the end of the first quarter of
2001.
Total expenses for the three months ended June 30, 2001 increased when
compared to the three months ended June 30, 2000, due to increases in
operating expenses, and real estate taxes partially offset by a decrease in
interest expense. Operating expenses increased as a result of increases in
utilities and payroll expenses. Real estate tax expense increased as a
result of a reassessment of property values by the local taxing authority
for Pavillion. Interest expense decreased as a result of decreases in the
prime lending rate.
Net income decreased during the six months ended June 30, 2001 when
compared to the six months ended June 30, 2000 due to increases in total
expenses more than offsetting increases in total revenue. The increase in
total revenue is primarily a result of rental rate increases implemented at
all of the Partnership's properties at the end of the first quarter of
2001.
Total expenses for the six months ended June 30, 2001 increased when
compared to the six months ended June 30, 2000, due to increases in
operating and general and administrative expense partially offset by
decreases in real estate taxes and interest expense. Operating expenses
increased as a result of increases in utilities and payroll expenses.
General and administrative expenses increased as a result of increased
investor communication costs, including the annual true-up during the three
months ended March 31, 2001, which totaled approximately $49,000, which
includes printing and mailing of quarterly and annual reports. Real estate
tax expense decreased as a result of an adjustment to the prior year
accrual for Walden Pond to correct historical under accruals. Interest
expense decreased as a result of decreases in the prime lending rate
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market
risk is the risk of loss from adverse changes in market prices and interest
rates. The Partnership manages its market risk by matching projected cash
inflows from operating activities, investing activities and financing
activities with projected cash outflows to fund debt payments,
acquisitions, capital expenditures, distributions and other cash
requirements. The majority of the Partnership's outstanding debt (maturing
at various times through 2002) has a fixed interest rate, which minimizes
the interest rate risk.
A detailed analysis of quantitative and qualitative market risk exposures
was provided in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2000. There have been no material changes in market risk
subsequent to that date.
9
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
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
10
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 Limited Partnership - IV
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(Registrant)
BY: /s/ David C. Quade
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Treasurer (Principal Financial and Accounting
Officer) of The Krupp Corporation,
a General Partner
DATE: August 6, 2001
11