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 March 31,
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 0-11987
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
March 31, December 31,
1998 1997
Multi-family apartment complexes, net of
accumulated depreciation of $22,030,721
and $26,859,567, respectively (Note 3)$12,064,839 $14,947,503
Cash and cash equivalents 2,990,717 402,621
Replacement reserve and repair escrows
(Note 3) - 302,985
Prepaid expenses and other assets 372,321 852,446
Deferred expenses, net of accumulated
amortization of $208,372 and $218,977,
respectively (Notes 2 and 3) 138,666 212,763
Total assets $15,566,543 $16,718,318
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Notes 2 and 3)$17,494,807 $20,327,586
Accounts payable 36,123 -
Due to affiliates (Note 5) 101,212 41,571
Other liabilities 636,911 1,212,728
Total liabilities 18,269,053 21,581,885
Partners' deficit (Note 4):
Investor Limited Partners
(30,000 Units outstanding) (1,044,777) (3,216,956)
Original Limited Partner (1,372,158) (1,339,425)
General Partners (285,575) (307,186)
Total Partners' deficit (2,702,510) (4,863,567)
Total liabilities and Partners' deficit $15,566,543 $16,718,318
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
Ended March 31,
1998 1997
Revenue:
Rental $1,950,181 $1,888,824
Other income 23,398 13,833
Total revenue 1,973,579 1,902,657
Expenses:
Operating (Note 5) 565,146 554,268
Maintenance 104,318 116,187
Real estate taxes 206,577 182,954
Management fees (Note 5) 81,661 74,293
General and administrative (Note 5) 30,338 41,202
Depreciation and amortization 486,774 507,409
Interest 336,643 320,734
Total expenses 1,811,457 1,797,047
Income before minority interest, extraordinary
loss from early extinguishment of debt and
gain on sale of property 162,122 105,610
Minority interest (1,447) (1,677)
Extraordinary loss from early
extinguishment of debt (Note 3) (389,523) -
Income (loss) before gain on sale of
property (228,848) 103,933
Gain on sale of property (Note 3) 2,979,330 -
Net income $2,750,482 $ 103,933
Allocation of net income (Note 4):
Investor Limited Partners
(30,000 Units outstanding):
Income (loss) before gain on sale of
property $ (217,406) $ 98,737
Gain on sale of property 2,949,537 -
Net income $2,732,131 $ 98,737
Investor Limited Partners Per Unit:
Income (loss) before gain on sale of
property $ (7.25) $ 3.29
Gain on sale of property 98.32 -
Net income $ 91.07 $ 3.29
Original Limited Partner
(100 Units outstanding):
Income (loss) before gain on sale of
property $ (9,154) $ 4,157
Gain on sale of property - -
Net income (loss) $ (9,154) $ 4,157
General Partners:
Income (loss) before gain on sale of
property $ (2,288) $ 1,039
Gain on sale of property 29,793 -
Net income $ 27,505 $ 1,039
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 Three Months
Ended March 31, 1998 1997
Operating activities:
Net income $2,750,482 $103,933
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 486,774 507,409
Interest earned on repair escrow (12,898) -
Gain on sale of property (2,979,330) -
Extraordinary loss from early extinguishment
of debt 389,523 -
Changes in assets and liabilities:
Decrease in prepaid expenses and other assets 445,521 413,258
Decrease in other liabilities (575,817)(454,512)
Increase in accounts payable 26,088 4,110
Increase in due to affiliates 59,641 8,112
Releases from real estate tax and insurance
escrows due to sale of property 33,722 -
Net cash provided by operating activities 623,706 582,310
Investing activities:
Deposits to replacement reserve escrow (10,769)(15,715)
Withdrawals from replacement reserve and repair
escrows 315,159 27,412
Release from replacement reserve escrow due to
sale of property 11,493 -
Decrease in deferred expenses 3,191 -
Increase (decrease) in accounts payable for fixed
asset additions 10,035 (799)
Additions to fixed assets (330,907)(130,440)
Proceeds from sale of property, net 5,724,255 -
Net cash provided by (used in)
investing activities 5,722,457 (119,542)
Financing activities:
Principal payments on mortgage notes payable(194,737)(189,333)
Distributions (589,425)(589,425)
Repayment of mortgage note payable (2,638,042) -
Payment of prepayment premium (335,863) -
Net cash used in financing activities (3,758,067)(778,758)
Net increase (decrease) in cash and
cash equivalents 2,588,096(315,990)
Cash and cash equivalents, beginning of period402,621 956,012
Cash and cash equivalents, end of period $2,990,717 $ 640,022
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, 1997
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 March 31, 1998, minority
interest of $20,290, 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 March 31, 1998 and
its results of operations and cash flows for
the three months ended March 31, 1998 and
1997.
The results of operations for the three months
ended March 31, 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)Mortgage Notes Payable
On July 31, 1997, the General Partners secured
a $900,000 non-recourse note (the "Note") for
Walden Pond Apartments ("Walden Pond") 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 were 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)Sale of Property
On March 31, 1998, the Partnership sold Indian
Run Apartments ("Indian Run"), a 256-unit
multi-family apartment complex, located in
Abilene, Texas, to an unaffiliated third
party. The Partnership received $5,850,000,
less repayment of the mortgage note payable
and interest of $2,658,664 and closing costs
of $125,745. For financial reporting
purposes, the Partnership realized a gain of
$2,979,330 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.
In conjunction with the sale of the property
on March 31, 1998, the Partnership prepaid the
mortgage note. As a result of the retirement
of debt, the Partnership incurred a prepayment
premium of $335,863. The prepayment premium,
as well as unamortized deferred mortgage costs
of $53,660, are reported in the Statement of
Operations as an extraordinary loss from early
extinguishment of debt.
(4)Changes in Partners' Deficit
A summary of changes in Partners' deficit for
the three months ended March 31, 1998 is as
follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
Balance at
December 31, 1997 $(3,216,956)$(1,339,425)$(307,186)$(4,863,567)
Income (loss) before
gain on sale of
property (217,406) (9,154) (2,288) (228,848)
Gain on sale of
property 2,949,537 - 29,793 2,979,330
Distributions (559,952) (23,579) (5,894) (589,425)
Balance at
March 31, 1998$(1,044,777)$(1,372,158)$(285,575)$(2,702,510)
Continued
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
Ended March 31,
1998 1997
Property management fees $ 81,661 $ 74,293
Expense reimbursements 38,952 62,337
Charged to operations $120,613 $136,630
Due to affiliates consisted of expense reimbursements of
$101,212 and $41,571 at March 31, 1998 and December 31, 1997,
respectively.
(6) Subsequent Event
As a result of the sale of Indian Run
Apartments on March 31, 1998, the
Partnership filed a report on Form 8-K on
April 16, 1998.
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.
In order to remain competitive in their
respective markets, the Partnership's
properties have spent approximately $331,000
to date and are anticipated to spend
approximately $1,207,000 for fixed assets in
1998. These capital improvements consist of
internal and external enhancements which
include the replacement of appliances,
carpeting and vinyl flooring at the properties
as well as extensive building exterior
improvements at Pavillion Apartments. The
Partnership expects to fund these improvements
from established reserves and proceeds from
the Walden Pond additional note (see Note 2).
On March 31, 1998, the Partnership sold Indian
Run to an unaffiliated third party. The
Partnership received $5,850,000, less
repayment of the mortgage note payable and
interest of $2,658,664 and closing costs of
$125,745. Proceeds from the sale will be
retained to fund liabilities of the
Partnership and reserves for contingent
liabilities. The balance of the reserves
remaining after satisfaction of such
contingencies will be distributed in
accordance with the Partnership Agreement.
Operations
Net income, before the gain on sale of
property and loss from early extinguishment of
debt, increased for the three months ended
March 31, 1998 when compared to the same
period in 1997 due to an increase in total
revenue which more than offset the increase in
total expenses. The increase in total revenue
is a result of rental rate increases
implemented at all of the Partnership's
properties. Interest income increased due to
higher cash and cash equivalents balances
available for investment.
Total expenses for the three months ended
March 31, 1998, as compared to the three
months ended March 31, 1997, increased with a
rise in real estate taxes, management fees
and interest expense, partially offset by
decreases in general and administrative and
depreciation and amortization expenses. Real
estate taxes increased as a result of the
reassessments of Indian Run and Pavillion
Apartments' property value by the local taxing
authority. Management fees increased in
conjunction with the increase in revenue, as
discussed above. Interest expense increased
as a result of the Walden Pond additional note
(see Note 2). General and administrative
expense decreased due to lower expenses
incurred in connection with the preparation
and mailing of Partnership reports and other
investor communications. Depreciation expense
decreased as fixed asset additions purchased
in previous years became fully depreciated.
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: May 13, 1998