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 September 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 September 30,December 31, 1997 1996 Multi-family apartment complexes, net of accumulated depreciation of $26,269,688 and $24,742,332, respectively$ 14,764,061$ 15,566,325 Cash and cash equivalents 182,632 956,012 Replacement reserve and repair escrows (Note 2) 865,977 31,951 Prepaid expenses and other assets 705,972 809,579 Deferred expenses, net of accumulated amortization of $199,339 and $156,813, respectively (Notes 2 and 4) 222,429 241,845 Total assets $ 16,741,071 $17,605,712 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Note 2) $ 20,520,557 $20,192,138 Accounts payable 12,169 16,938 Due to affiliates (Note 4) 53,573 32,392 Other liabilities 1,033,544 1,206,076 Total liabilities 21,619,843 21,447,544 Partners' deficit (Note 3): Investor Limited Partners (30,000 Units outstanding) (3,231,400) (2,246,313) Original Limited Partner (1,340,034) (1,298,552) General Partners (307,338) (296,967) Total Partners' deficit (4,878,772) (3,841,832) Total liabilities and Partners' deficit $ 16,741,071 $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 Nine Months Ended September 30, Ended September 30, 1997 1996 1997 1996 Revenue: Rental $1,935,670 $1,803,079 $5,726,699 5,414,210 Other income 10,910 18,740 38,399 97,612 Total revenue 1,946,580 1,821,819 5,765,098 5,511,822 Expenses: Operating (Note 4) 547,691 589,301 1,633,227 1,690,157 Maintenance 161,956 202,736 531,447 519,763 Real estate taxes 195,709 224,773 571,073 558,172 General and adminis- trative (Note 4) 31,799 22,670 113,292 65,307 Management fees (Note 4) 73,105 71,196 227,960 211,185 Depreciation and amortization 545,199 534,432 1,569,882 1,570,146 Interest 333,062 323,022 973,345 972,356 Total expenses 1,888,521 1,968,130 5,620,226 5,587,086 Income (loss) before minority interest 58,059 (146,311) 144,872 (75,264) Minority interest (888) 165 (2,961) (2,234) Net income (loss) $ 57,171 $ (146,146)$ 141,911$(77,498) Allocation of net income (loss) (Note 3): Investor Limited Partners (30,000 Units outstanding) $ 54,313$ (138,839)$ 134,816$ (73,623) Investor Limited Partners Per Unit $ 1.81$ (4.62)$ 4.49$ (2.45) Original Limited Partner$ 2,286$ (5,846)$ 5,676$ (3,100) General Partners $ 572 $ (1,461)$ 1,419$ (775) 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 Nine Months Ended September 30, 1997 1996 Operating activities: Net income (loss) $ 141,911 $ (77,498) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,569,882 1,570,146 Changes in assets in liabilities: Decrease in prepaid expenses and other assets 103,607 15,784 Increase (decrease) in other liabilities (172,532) 70,897 Decrease in accounts payable (5,196) (52,083) Increase (decrease) in due to affiliates 21,181 (81,545) Net cash provided by operating activities 1,658,853 1,445,701 Investing activities: Deposits to replacement reserve and repair escrows (947,146) (47,146) Withdrawals from replacement reserve and repair escrows 113,120 49,976 Additions to fixed assets (725,092) (408,685) Increase in accounts payable for fixed asset additions 427 1,987 Net cash used in investing activities (1,558,691) (403,868) Financing activities: Principal payments on mortgage notes payable (571,581) (557,846) Distributions (1,178,851)(2,491,882) Proceeds from note payable 900,000 - Increase in deferred expenses (23,110) - Net cash used in financing activities (873,542) (3,049,728) Net decrease in cash and cash equivalents (773,380) (2,007,895) Cash and cash equivalents, beginning of period956,012 (1,802,694) Cash and cash equivalents, end of period $ 182,632 $ 794,799 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 September 30, 1997, minority interest of $23,011 is included in other assets. 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 September 30, 1997, its results of operations for the three and nine months ended September 30, 1997 and 1996 and its cash flows for the nine months ended September 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 nine months ended September 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)Mortgage Notes Payable On July 31, 1997, the General Partners secured a $900,000 non-recourse note (the "Note") for Walden Pond Apartments from the same lender which holds the first mortgage note. The Note bears interest at a rate of 9.5% per annum and, commencing September 1, 1997, requires monthly, interest-only payments until the maturity date. The Note matures on February 28, 1999, in conjunction with the first mortgage note, at which time all outstanding principal and any accrued interest is due. The Note may be prepaid in its entirety without penalty, upon 90 days written notice, and simultaneous payment of the first mortgage note. Proceeds from the Note were deposited into an escrow account and will be used to fund capital improvements at the property. The Partnership paid closing costs of $23,110 to secure the Note. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued (3) Changes in Partners' Deficit A summary of changes in Partners' deficit for the nine months ended September 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 134,816 5,676 1,419 141,911 Distributions (1,119,903) (47,158) (11,790)(1,178,851) Balance at September 30, 1997 $(3,231,400)$(1,340,034)$(307,338)$(4,878,772) (4)Related Party Transactions The Partnership has agreements under which property management fees are paid to an affiliate of the General Partners for services as management agent. Pursuant to the management agreements, management fees are 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 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, 1997 1996 1997 1996 Property management fees $ 73,105 $ 71,196 $227,960 $ 211,185 Expense reimbursements 68,177 64,030 198,691 189,732 Charged to operations $141,282 $135,226 $426,651$ 400,917 Due to affiliates consisted of expense reimbursements of $53,573 and $32,392 at September 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 has spent approximately $725,000 to date, and 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, replacement reserve and repair escrows, cash flow from operations as well as any proceeds received from refinancing. These improvements consist of interior and exterior 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. On July 31, 1997, the General Partners secured an additional $900,000 note for Walden Pond which bears interest at a rate of 9.5% per annum and matures on February 28, 1999. The proceeds from the note were placed in escrow and will be used to fund capital improvements at the property. (See Note 2 for further information.) Operations Net income increased for the three and nine months ended September 30, 1997 as compared to the three and nine months ended September 30, 1996 due to increases in revenue during the periods. Total revenues increased for the three and nine months ended September 30, 1997 as compared to the three and nine months ended September 30, 1996, as a result of rental rate increases implemented at all the Partnership's properties, as well as improved average occupancy rates at Fenland Field, Walden Pond and Pavillion Apartments. At Fenland Field, average occupancy increased from 97% for the nine months ended September 30, 1996, to 100% for the same period in 1997. At Walden Pond, average occupancy increased from 94% for the nine months ended September 30, 1996, to 98% for the same period in 1997. Pavillion Apartments's occupancy rates rose from an average of 95% for the nine months ended September 30, 1996, to an average of 96% for the nine months ended September 30, 1997. These increases are partially offset by a decrease in other income due to lower cash and cash equivalents generating interest income. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES Operations - Continued Total expenses decreased for the three month period ended September 30, 1997 as compared to the three month period ended September 30, 1996, primarily due to decreases in operating, maintenance and real estate tax expenses. The decrease in operating expense is primarily due to prior years' insurance adjustments recorded in the third quarter of 1997. Maintenance expense decreased as a result of extensive parking lot repairs and building exterior improvements completed during the third quarter of 1996 at Indian Run and Pavillion Apartments. The decrease in real estate tax expense is due to an adjustment of 1996 real estate taxes in the third quarter of 1996. Total expenses increased for the nine month period ended September 30, 1997 as compared to same period ended September 30, 1996, primarily due to general and administrative and management fee expenses. 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, expenses related to the preparation and mailing of Partnership reports and other investor communications increased. Management fees increased in conjunction with the higher revenues, as discussed above. These increases were partially offset by a decrease in operating expense due to prior years' insurance adjustments recorded in the third quarter of 1997. 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: November 12, 1997