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 September 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
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
One Beacon Street, Boston, Massachusetts 02108
- --------------------------------------------- -----------------------------
(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 13.
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 LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
2001 2000
------------- -------------
Multi-family apartment communities, net
of accumulated depreciation of $0
and $26,362,441, respectively $ - $ 10,139,898
Multi-family apartment communities
held for sale (Notes 7 & 8) 7,067,296 -
Cash and cash equivalents 3,241,820 740,853
Real estate tax escrows 542,696 723,394
Prepaid expenses and other assets
(Notes 1 & 6) 252,886 277,631
Investment in securities (Note 2) 95,516 95,516
Deferred expense, net of accumulated
amortization of $363,204 and
$341,854, respectively (Note 3) 18,950 40,300
------------- -------------
Total assets $ 11,219,164 $ 12,017,592
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note 3) $ 12,367,069 $ 16,224,646
Due to affiliates (Note 6) 88,065 -
Other liabilities 1,036,099 1,190,128
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Total liabilities 13,491,233 17,414,774
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Partners' deficit (Note 5):
Investor Limited Partners
(30,000 Units outstanding) (586,300) (3,702,397)
Original Limited Partner (1,404,495) (1,382,261)
General Partners (281,274) (312,524)
------------- -------------
Total partners' deficit (2,272,069) (5,397,182)
------------- -------------
Total liabilities and partners'
deficit $ 11,219,164 $ 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 Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenue:
Rental $ 1,504,813 $ 1,817,770 $ 5,150,000 $ 5,408,494
Other income 71,365 17,238 100,084 53,837
----------- ----------- ----------- -----------
Total revenue 1,576,178 1,835,008 5,250,084 5,462,331
----------- ----------- ----------- -----------
Expenses:
Operating (Note 6) 405,315 453,183 1,399,175 1,330,825
Maintenance 98,427 149,500 371,845 423,094
Real estate taxes 168,348 196,697 547,662 618,465
Management fees (Note 6) 73,787 68,463 227,456 213,838
General and administrative
(Note 6) 75,879 61,306 270,777 167,571
Depreciation and
amortization 341,632 441,801 1,155,927 1,240,333
Interest 299,962 393,137 1,050,154 1,162,245
----------- ----------- ----------- -----------
Total expenses 1,463,350 1,764,087 5,022,996 5,156,371
----------- ----------- ----------- -----------
Income before minority
interest and gain on sale
of property 112,828 70,921 227,088 305,960
Minority interest (1,918) (626) (3,369) (2,323)
Gain on sale of property
(Note 4) 12,219,145 - 12,219,145 -
----------- ----------- ----------- -----------
Net income $12,330,055 $ 70,295 $12,442,864 $ 303,637
=========== =========== =========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
Continued
3
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, Continued
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Allocation of net income
(Note 5):
Investor Limited Partners
(30,000 Units outstanding):
Income before gain on
sale of property $ 105,365 $ 66,780 $ 212,533 $ 288,455
Gain on sale of property 12,096,954 - 12,096,954 -
----------- ----------- ----------- -----------
Net income $12,202,319 $ 66,780 $12,309,487 $ 288,455
=========== =========== =========== ===========
Investor Limited Partners
Per Unit:
Income before gain on
sale of Property $ 3.51 $ 2.23 $ 7.08 $ 9.62
Gain on sale of property 403.23 - 403.23 -
----------- ----------- ----------- -----------
Net income $ 406.74 $ 2.23 $ 410.31 $ 9.62
=========== =========== =========== ===========
Original Limited Partner
(100 Units outstanding):
Income before gain on
sale of Property $ 4,436 $ 2,812 $ 8,949 $ 12,146
Gain on sale of property - - - -
----------- ----------- ----------- -----------
Net income $ 4,436 $ 2,812 $ 8,949 $ 12,146
=========== =========== =========== ===========
General Partners:
Income before gain on
sale of Property $ 1,109 $ 703 $ 2,237 $ 3,036
Gain on sale of property 122,191 - 122,191 -
----------- ----------- ----------- -----------
Net income $ 123,300 $ 703 $ 124,428 $ 3,036
=========== =========== =========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
4
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
-------------------------------
2001 2000
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Cash flows from operating activities:
Net income $ 12,442,864 $ 303,637
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,155,927 1,240,333
Changes in assets and liabilities:
Gain on sale of property
(Note 4) (12,219,145) -
Decrease in prepaid expenses
and other assets 205,442 104,845
Decrease (increase) in other
liabilities (154,940) 8,039
Increase in due to affiliates 88,065 18,751
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Net cash provided by
operating activities 1,518,213 1,675,605
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Cash flows from investing activities:
Increase (decrease) in other
liabilities related to fixed
asset additions 911 (7,105)
Fixed asset additions (305,447) (620,441)
Proceeds from sale of property
(Note 4) 14,462,618 -
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Net cash provided by
(used in) investing
activities 14,158,082 (627,546)
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Cash flows from financing activities:
Principal payments on mortgage notes
payable (220,190) (238,908)
Distributions (9,317,751) (779,567)
Repayment of mortgage note payable
(Note 4) (3,637,387) -
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Net cash used in
financing activities (13,175,328) (1,018,475)
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Net increase in cash and cash equivalents 2,500,967 29,584
Cash and cash equivalents, beginning of
period 740,853 856,738
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Cash and cash equivalents, end of period $ 3,241,820 $ 886,322
============= =============
The accompanying notes are an integral
part of the consolidated financial statements
5
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 September 30, 2001 and December 31,
2000, minority interest of $5,220 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 September 30, 2001,
its results of operations for the three and nine months ended September 30,
2001 and 2000 and its cash flows for the nine months ended September 30,
2001 and 2000.
The results of operations for the three and nine months ended September 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 September 30, 2001 and of
December 31, 2000.
Continued
6
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(3) Mortgage Notes Payable
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) Sale of Property
On August 1, 2001, the Partnership sold Fenland Field, a 234-unit
multi-family apartment complex, located in Maryland, to an unaffiliated
third party. The Partnership received $14,462,618, net of closing costs of
$37,382 and repaid the mortgage note payable of $3,637,387 and accrued
interest of $28,973. For financial reporting purposes, the Partnership
realized a gain of $12,219,145 on the sale. The gain was calculated as the
difference between the property's selling price less net book value of the
property and closing costs.
(5) Changes in Partners' Deficit
A summary of changes in Partners' deficit for the nine months ended
September 30, 2001 is as follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
------------ ------------ ------------ -----------
Balance at
December 31, 2000 $ (3,702,397) $ (1,382,261) $ (312,524) $(5,397,182)
Income before gain on
sale of property 212,533 8,949 2,237 223,719
Gain on sale of
property 12,096,954 - 122,191 12,219,145
Distributions:
Operations (740,589) (31,183) (7,796) (779,568)
Capital Transactions (8,452,801) - (85,382) (8,538,183)
------------ ------------ ------------ -----------
Balance at
September 30, 2001 $ (586,300) $ (1,404,495) $ (281,274) $(2,272,069)
============ ============ ============ ===========
Continued
7
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(6) 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 Nine Months
Ended September 30, Ended September 30,
--------------------------- --------------------------
2001 2000 2001 2000
------------ ------------ ------------ -----------
Property management
fees $ 73,787 $ 68,463 $ 227,456 $ 213,838
Expense reimbursements 94,090 79,279 364,078 216,226
------------ ------------ ------------ -----------
Charge to operations $ 167,877 $ 147,742 $ 591,534 $ 430,064
============ ============ ============ ===========
Due to (from) affiliates consisted of expense reimbursements of $88,065 and
$(28,007) at September 30, 2001 and December 31, 2000, respectively.
(7) Multi-family Apartment Communities Held for Sale
The Partnership classifies assets as available for sale upon the General
Partners' committing to a formal plan of disposition.
Multi-family apartment communities held for sale are stated at the lower of
their carrying amount or estimated fair value less disposal costs.
Depreciation is not recorded on assets classified as held for sale. In the
normal course of business the Partnership may receive offers for sale of
its properties, either solicited or unsolicited. For those offers that are
accepted, the prospective buyer will usually acquire a due diligence period
before consummation of the transaction. It is not unusual for matters to
arise that result in the withdrawal or rejection of the offer during this
process. As a result, multi-family apartment communities are classified as
`held for sale' once it is likely, in the opinion of management, that a
property will be disposed of in the near term.
On August 28, 2001, the General Partners signed a purchase and sale
agreement on Pavillion Apartments for a price of approximately $15,573,000.
The sale is subject to financing and is expected to close on or about
November 20, 2001. The property has a carrying value of approximately
$3,190,000 on the books of the Partnership at September 30, 2001 and is
classified as held for sale.
On August 8, 2001, the Partnership filed Schedule 13E-3 as amended on
September 21, 2001 as further amended on October 3, 2001 indicating the
intent of Walden Pond Limited Partnership, an entity related to the General
Partners, to purchase Walden Pond Apartments. The purchase is subject to
unit holder approval. The property has a carrying value of approximately
$3,877,000 on the books of the Partnership at September 30, 2001 and is
classified as held for sale.
Continued
8
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(8) Subsequent Event
On October 11, 2001, the Partnership mailed to unitholders of record on
October 10, 2001 a solicitation proxy asking unitholders to approve a
modification to the Partnership Agreement authorizing the Partnership to
enter into a purchase and sale agreement between Walden Pond Limited
Partnership, an entity related to the General Partners, and Westbridge
Partners, Ltd., the owner of Walden Pond Apartments, to sell Walden Pond
Apartments.
On November 12, 2001 a majority of the unitholders voted in favor of the
modification and sale.
9
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
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 the 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.
As previously disclosed, the General Partners have begun an orderly sale of the
Partnership's multi-family apartment communities. The Partnership sold its
interest in Fenland Field Apartments ("Fenland Field") on August 1, 2001, and on
August 28, 2001, signed a purchase-and-sale agreement to sell its interest in
Pavillion Apartments. These transactions are more fully discussed below. The
Partnership has filed a solicitation proxy with the Securities Exchange
Commission requesting that unitholders authorize the Partnership to sell its
interest in Walden Pond Apartments to an affiliate of the General Partner,
Walden Pond Limited 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 $32,969 for this
privilege.
On August 1, 2001, the Partnership sold Fenland Field to an unaffiliated third
party. The Partnership received $14,462,618, net of closing costs of $37,382 and
repaid the mortgage note payable of $3,637,387 and accrued interest of $28,973.
(See Note 4).
August 28, 2001, the Partnership signed a purchase-and-sale agreement with
Alexon Ventures LLC, an unrelated third party, to sell Pavillion Apartments, a
350-unit apartment community located in Garland, Texas, for a price of
approximately $15,573,000. The sale is expected to close on or about November
20, 2001. The property has a carrying value of approximately $3,190,000 on the
books of the Partnership at September 30, 2001.
On September 25, 2001, the General Partners made a special distribution of
approximately $282 per Investor Limited Partner Unit, based on the net proceeds
from the sale of Fenland Field, after providing for Partnership liabilities, and
maintaining reserves for contingent liabilities.
As of the August 14, 2001 distribution and as a result of the sale and impending
sales of the Partnership's real estate holdings, the Partnership does not expect
sufficient funds to make any further distributions from operations. The
Partnership does expect to make future distributions of the net proceeds from
the sale of the Partnership's properties during the next six to twelve months.
Per the Partnership agreement, any distributions from capital transactions will
be distributed 1% to the General Partners and 99% to the Investor Limited
Partners.
Continued
10
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
Operations
The following discussion relates to the operation of the Partnership and its
properties (Pavillion and Walden Pond Apartments) for the three and nine months
ended September 30, 2001 and 2000. The sale of Fenland Field on August 1, 2001,
significantly impacts the comparability of the Partnership's operations between
these periods.
Net income, net of Fenland Field's activity, increased during the three and nine
months ended September 30, 2001 when compared to the three and nine months ended
September 30, 2000, as the increase in total revenue exceeded the increase 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, net of Fenland Field's activity, for the three months ended
September 30, 2001 decreased when compared to the three months ended September
30, 2000, due to decreases in operating expense, maintenance and interest
expense. Operating expenses decreased primarily as a result of decreases in
utilities expense. Maintenance expense decreased with a reduction in painting
and decorating expenditures. Interest expense decreased as a result of decreases
in the prime-lending rate.
Total expenses, net of Fenland Field's activity, for the nine months ended
September 30, 2001 increased when compared to the nine months ended September
30, 2000 due to increases in operating and general and administrative expenses.
These increases were partially offset by decreases in real estate taxes and
interest expense. Operating expenses increased due to increases in payroll,
insurance and utilities. General and administrative expenses increased as a
result of increased investor communication costs, 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 due to reasons discussed
above.
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.
11
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
Exhibits:
None
Reports on Form 8-K:
Form 8-K filed on August 6, 2001 regarding the sale of
Fenland Field Apartments
12
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
---------------------------------------------
(Registrant)
BY: /s/ David C. Quade
---------------------------------------------
Treasurer (Principal Financial and Accounting
Officer) of The Krupp Corporation, a General
Partner
DATE: November 14, 2001