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, 1997 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 0-11987 Krupp Realty Limited Partnership-IV Massachusetts 04-2772783 (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 LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 1997 1996 Multi-family apartment complexes, net of accumulated depreciation of $25,740,286 and $24,742,332, respectively $14,887,654 $15,566,325 Cash and cash equivalents 769,654 956,012 Replacement reserve escrow 14,399 31,951 Prepaid expenses and other assets 540,259 809,579 Deferred expenses, net of accumulated amortization of $183,542 and $156,813, respectively 215,116 241,845 Total assets $16,427,082 $17,605,712 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $19,812,287 $20,192,138 Accounts payable 10,190 16,938 Due to affiliates (Note 3) 32,202 32,392 Other liabilities 918,920 1,206,076 Total liabilities 20,773,599 21,447,544 Partners' deficit (Note 2): Investor Limited Partners (30,000 Units outstanding) (2,725,762) (2,246,313) Original Limited Partner (1,318,741) (1,298,552) General Partners `(302,014) (296,967) Total Partners' deficit (4,346,517) (3,841,832) Total liabilities and Partners' deficit $16,427,082 $17,605,712 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 Revenue: Rental $1,902,205 $1,808,922 $3,791,029$3,611,131 Other income 13,656 36,931 27,489 78,872 Total revenue 1,915,861 1,845,853 3,818,518 3,690,003 Expenses: Operating (Note 3) 531,268 534,235 1,085,536 1,100,856 Maintenance 253,304 186,050 369,491 317,027 Real estate taxes 192,410 164,686 375,364 333,399 Management fees (Note 3)80,562 71,353 154,855 139,989 General and administrative (Note 3) 40,291 19,603 81,493 42,637 Depreciation and amortization 517,274 521,716 1,024,683 1,035,714 Interest 319,549 324,127 640,283 649,334 Total expenses 1,934,658 1,821,770 3,731,705 3,618,956 Income (loss) before minority interest (18,797) 24,083 86,813 71,047 Minority interest (396) (1,084) (2,073) (2,399) Net income (loss)$ (19,193)$ 22,999 $ 84,740$ 68,648 Allocation of net income (loss) (Note 2): Investor Limited Partners (30,000 Units outstanding)$ (18,234)$ 21,849 $ 80,503 $ 65,216 Per Unit of Investor Limited Partner Interest$ (.61)$ .72$ 2.68$ 2.17 Original Limited Partner $ (767)$ 920$ 3,390$ 2,746 General Partners $ (192)$ 230 $ 847$ 686 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS __________ For the Six Months Ended June 30, 1997 1996 Operating activities: Net income $ 84,740 $ 68,648 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,024,683 1,035,714 Changes in assets and liabilities: Decrease in prepaid expenses and other assets 269,320 100,998 Decrease in other liabilities (287,156) (103,323) Decrease in accounts payable (6,802) (49,554) Decrease in due to affiliates (190) (79,695) Net cash provided by operating activities 1,084,595 972,788 Investing activities: Deposits to replacement reserve escrow (31,430) (31,430) Withdrawals from replacement reserve escrow 48,982 33,441 Increase in accounts payable for fixed asset additions 54 5,146 Additions to fixed assets (319,283) (211,385) Net cash used in investing activities (301,677) (204,228) Financing activities: Principal payments on mortgage notes payable(379,851)(370,801) Distributions (589,425) (1,902,456) Net cash used in financing activities (969,276)(2,273,257) Net decrease in cash and cash equivalents (186,358) (1,504,697) Cash and cash equivalents, beginning of period 956,012 1,802,694 Cash and cash equivalents, end of period $ 769,654$1,297,997 The accompanying notes are an integral part of the consolidated financial statements. 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, 1996 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, 1997, a minority interest of $23,899 is included in other assets. In the opinion of the General Partners of the Partnership, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Partnership's consolidated financial position as of June 30, 1997, its results of operations for the three and six months ended June 30, 1997 and 1996 and its cash flows for the six months ended June 30, 1997 and 1996. Certain prior year balances have been reclassified to conform with current year consolidated financial statement presentation. The results of operations for the three and six months ended June 30, 1997 are not necessarily indicative of the results which may be expected for the full year. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. (2)Changes in Partners' Deficit A summary of changes in Partners' deficit for the six months ended June 30, 1997 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1996$(2,246,313)$(1,298,552)$(296,967)$(3,841,832) Net income 80,503 3,390 847 84,740 Distributions (559,952) (23,579) (5,894) (589,425) Balance at June 30, 1997 $(2,725,762)$(1,318,741)$(302,014)$(4,346,517) Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (3)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. These management agreements were sold to BRI OP Limited Partnership, a subsidiary of Berkshire Realty Company Inc., a publicly traded real estate investment trust and an affiliate of the General Partners, on February 28, 1997. 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 were as follows: For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 Property management fees $ 80,562 $ 71,353 $154,855 $139,989 Expense reimbursements 68,177 62,466 130,514 125,702 Charged to operations$148,739 $133,819 $285,369 $265,691 Due to affiliates consisted of expense reimbursements of $32,202 and $32,392 at June 30, 1997 and December 31, 1996, respectively. 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 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 remaining 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 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. The Partnership expects to spend approximately $1,484,000 for capital improvements in 1997. In order to fund the improvements, the Partnership will use its existing cash reserves, reserve for replacement, cash flow from operations as well as any proceeds received from refinancing. These improvements consist of internal and external enhancements which include the replacement of appliances, carpeting and vinyl flooring at various properties as well as extensive painting of the building exteriors at Walden Pond Apartments ("Walden Pond"). The Partnership believes that the improvements are necessary to improve the quality of rental units and to compete in the properties current market conditions The General Partners are in the process of acquiring an additional loan for Walden Pond and expect to close in August 1997. It is expected that the new $900,000 note will bear interest at a rate of 9.5% and will mature in February 1999 in conjunction with the first mortgage note. Increased liquidity will be used to fund capital improvements at the Partnership's properties. Cash Flow Shown below is the calculation of Cash Flow as defined by Section 8.2(a) of the Partnership Agreement for the six months ended June 30, 1997. The General Partners provide the information below to meet requirements of the Partnership Agreement. 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 loss for tax purposes $(114,000) Items not requiring or (requiring) the use of operating funds: Tax basis depreciation and amortization 973,000 Tax basis principal payments on mortgage (129,000) Expenditures for capital improvements (319,000) Amounts released from working capital reserves 178,000 Cash Flow $ 589,000 Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES Operations Cash Flow, before additions to working capital reserves, increased during the six months ended June 30, 1997, as compared to the six months ended June 30, 1996, as the increase in net income, plus depreciation and amortization, more than offset the increase in capital improvements. Total revenue increased for the three and six months ended June 30, 1997, as compared to the three and six months ended June 30, 1996, as a result of rental rate increases implemented at all the Partnership's properties. This increase is partially offset by a decrease in interest income due to lower cash and cash equivalents available for investment. Total expenses increased for the three and six months ended June 30, 1997 as compared to the three and six months ended June 30, 1996, primarily due to increases in maintenance, real estate taxes, management fees and general and administrative expenses. Maintenance expense increased due to paving repairs at Pavillion, Walden Pond and Indian Run Apartments along with additional landscaping work at Pavillion and Fenland Field Apartments. Real estate taxes increased due to greater property value assessments for Indian Run and Pavillion Apartments. Management fees increased in conjunction with the rise in rental revenue. General and administrative expense increased as a result of legal, mailing and printing costs related to the Partnership's response to the unsolicited tender offers to purchase Partnership Units. In addition, increased charges were incurred in connection with the preparation and mailing of Partnership reports and other investor communications. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES 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 Limited Partnership-IV (Registrant) BY:/s/Wayne H. Zarozny Wayne H. Zarozny Treasurer and Chief Accounting Officer of the Krupp Corporation, a General Partner DATE: August 11, 1997