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 31,1999 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.) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (617) 523-7722 (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) March 31, December 31, 1999 1998 Multi-family apartment complexes, net of accumulated depreciation of $23,627,670 and $23,263,961, respectively (Note 3) $11,417,758 $11,585,489 Cash and cash equivalents 662,052 774,230 Prepaid expenses and other assets 407,205 795,705 Deferred expenses, net of accumulated amortization of $241,094 and $256,510, respectively (Notes 2 and 3) 106,505 90,528 Total assets $12,593,520 $13,245,952 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Notes 2 and 3) $16,782,705 $16,933,049 Due to affiliates (Note 5) 85,151 10,734 Other liabilities 540,557 938,569 Total liabilities 17,408,413 17,882,352 Partners' deficit (Note 4): Investor Limited Partners (30,000 Units outstanding) (3,149,223) (2,979,654) Original Limited Partner (1,358,969) (1,351,830) General Partners (306,701) (304,916) Total Partners' deficit (4,814,893) (4,636,400) Total liabilities and Partners' deficit $12,593,520 $13,245,952 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, 1999 1998 Revenue: Rental $1,718,127 $1,950,181 Other income 12,745 23,398 Total revenue 1,730,872 1,973,579 Expenses: Operating (Note 5) 419,744 565,146 Maintenance 128,997 104,318 Real estate taxes 188,983 206,577 Management fees (Note 5) 65,202 81,661 General and administrative (Note 5) 30,530 30,338 Depreciation and amortization 378,182 486,774 Interest 306,293 336,643 Total expenses 1,517,931 1,811,457 Income before minority interest, gain on sale of property and extraordinary loss 212,941 162,122 Minority interest (1,651) (1,447) Gain on sale of property (Note 3) - 2,979,330 Income before extraordinary loss 211,290 3,140,005 Extraordinary loss from early extinguishment of debt (Note 3) - (389,523) Net income $ 211,290 $2,750,482 Allocation of net income (Note 4): Investor Limited Partners (30,000 Units outstanding): Income before gain on sale of property and extraordinary loss $ 200,725 $ 152,641 Gain on sale of property - 2,949,537 Extraordinary loss - (385,628) Net income $ 200,725 $2,716,550 Investor Limited Partners Per Unit: Income before gain on sale of property and extraordinary loss $ 6.69 $ 5.08 Gain on sale of property - 98.32 Extraordinary loss - (12.85) Net income $ 6.69 $ 90.55 Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS, Continued (Unaudited) For the Three Months Ended March 31, 1999 1998 Original Limited Partner (100 Units outstanding): Income before gain on sale of property and extraordinary loss $ 8,452 $ 6,427 Gain on sale of property - - Extraordinary loss - - Net income $ 8,452 $ 6,427 General Partners: Income before gain on sale of property and extraordinary loss $ 2,113 $ 1,607 Gain on sale of property - 29,793 Extraordinary loss - (3,895) Net income $ 2,113 $ 27,505 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 1999 1998 Cash flows from operating activities: Net income $211,290 $2,750,482 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 378,182 486,774 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 388,500 445,521 Decrease in other liabilities (399,049)(549,729) Increase in due to affiliates 74,417 59,641 Releases from real estate tax and insurance escrows due to sale of property - 33,722 Net cash provided by operating activities 653,340 623,706 Cash flows from investing activities: Deposits to replacement reserve and repair escrows - (10,769) Withdrawals from replacement reserve and repair escrows - 315,159 Release from replacement reserve escrow due to sale of property - 11,493 Decrease in deferred expenses - 3,191 Increase in other liabilities for fixed asset additions 1,037 10,035 Additions to fixed assets (195,978)(330,907) Proceeds from sale of property, net - 5,724,255 Net cash provided by (used in)investing activities (194,941) 5,722,457 Cash flows from financing activities: Principal payments on mortgage notes payable (150,344) (194,737) Distributions (389,783) (589,425) Repayment of mortgage note payable - (2,638,042) Increase in deferred expenses (30,450) - Payment of prepayment premium - (335,863) Net cash used in financing activities (570,577)(3,758,067) Net increase (decrease) in cash and cash equivalents (112,178) 2,588,096 Cash and cash equivalents, beginning of period774,230 402,621 Cash and cash equivalents, end of period $662,052$2,990,717 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, 1998 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, 1999 and December 31, 1998, minority interest of $14,058 and $15,709, 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 March 31, 1999 and its results of operations and cash flows for the three months ended March 31, 1999 and 1998. Certain prior period balances have been reclassified to conform with current period consolidated financial statement presentation. The results of operations for the three months ended March 31, 1999 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 February 28, 1999, the Partnership completed the refinancing of Walden Pond Apartments' mortgage notes payable of $5,500,000 and $900,000 with monthly principal payments of $6,500 and $1,100, respectively, and interest payments at the Contract rate of interest equal to the greater of (a) 0.5% per annum in excess of prime rate, or (b) 8% per annum. The mortgage notes mature on February 28, 2001 and may be prepaid in whole, but not in part, without a prepayment premium with 45 days prior written notice. The Partnership paid closing costs of $30,450 for the refinancing. 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 $138,518. For financial reporting purposes, the Partnership realized a gain of $2,979,330 on the sale as of March 31, 1998. The Partnership realized a final gain of $2,960,743 on the sale as of December 31, 1998. 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 Consolidated 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, 1999 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1998 $(2,979,654)$(1,351,830)$(304,916)$(4,636,400) Net income 200,725 8,452 2,113 211,290 Distributions (370,294) (15,591) (3,898) (389,783) Balance at March 31, 1999 $(3,149,223)$(1,358,969)$(306,701)$(4,814,893) 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, 1999 1998 Property management fees $ 65,202 $ 81,661 Expense reimbursements 27,795 38,952 Charged to operations $ 92,997 $120,613 Due to affiliates consisted of expense reimbursements of $85,151 and $10,734 at March 31, 1999 and December 31, 1998, 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 General Partners, on an ongoing basis, assess the current and future liquidity needs in determining the levels of working capital reserves the Partnership should maintain. Adjustments to distributions are made when appropriate to reflect such assessments. Due to improved operations during the last half of 1998, the General Partners increased the distribution rate from $9.33 per Unit paid in August, 1998 to $24.69 per Unit, beginning with the distribution paid in February, 1999. The Partnership made a special distribution of $2,034,000, $67.12 per Unit, during the second quarter of 1998 based on the remaining proceeds from the sale of Indian Run Apartments. 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 $138,528. Proceeds from the sale were retained to fund liabilities of the Partnership and reserves for contingent liabilities. The balance of the reserves remaining after satisfaction of such contingencies were distributed in accordance with the Partnership Agreement. On February 28, 1999, the Partnership completed the refinancing of Walden Pond Apartments' mortgage notes payable of $5,500,000 and $900,000 which mature on February 28, 2001. The Partnership paid closing costs of $30,450 for the refinancing (see Note 2). The Partnership apartment markets are currently experiencing an increase in competition from recently renovated existing properties and new construction. The General Partners are in the process of evaluating strategies to improve the competitiveness, which may include the possibility of additional capital expenditures to modernize the Partnership's properties. The General Partners of the Partnership have conducted an assessment of the Partnership's core internal and external computer information systems and have taken the further necessary steps to understand the nature and extent of the work required to make its systems Year 2000 ready in those situations in which it is required to do so. The Year 2000 readiness issue concerns the inability of computerized information systems to accurately calculate, store or use a date after 1999. This could result in a system failure or miscalculations causing disruptions of operations. The Year 2000 issue affects virtually all companies and all organizations. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES Liquidity and Capital Resources, Continued In this regard, the General Partners of the Partnership, along with certain affiliates, began a computer systems project in 1997 to significantly upgrade its existing hardware and software. The General Partners completed the testing and conversion of the financial accounting operating systems in February 1998. As a result, the General Partners have generated operating efficiencies and believe their financial accounting operating systems are Year 2000 ready. Costs incurred by the Partnership are not significant to date. There are no other systems or software that the Partnership is using at the present time. The General Partners of the Partnership are currently in the process of identifying, evaluating and remedying the Partnership's Year 2000 compliance issues with respect to its non-financial systems, such as computer controlled elevators, boilers, chillers or other miscellaneous systems. The General Partners are in the process of completing the Partnership's Year 2000 compliance initiatives at its properties. Based on their identification and assessment efforts to date, the General Partners believe that certain of the computer equipment and software the Partnership currently uses will require modification or replacement. However, the General Partners do not believe that the future efforts to achieve the Partnership's Year 2000 compliance initiatives will result in material cost to the Partnership or significantly interrupt services or operations. The General Partners of the Partnership are in the process of evaluating the potential adverse impact that could result from the failure of material third-party service providers (including but not limited to its banks and telecommunications providers) and significant vendors to be Year 2000 ready. No estimate can be made at this time as to the impact of the readiness of such third parties. However, if any of the third party service providers cease to conduct business due to Year 2000 related problems, the General Partners expect to be able to contract with alternate providers without experiencing any material adverse effects on the Partnership's financial condition and results of operations. The Partnership is in the process of coordinating their contingency plan with the property manager in charge of operations. Operations The following discussion relates to the operations of the Partnership and its properties (Fenland Field, Pavillion and Walden Pond Apartments) for the three months ended March 31, 1999 and 1998. The sale of Indian Run on March 31, 1998, significantly impacts the comparability of the Partnership's operations between these periods. Net income, net of Indian Run's activity, increased for the three months ended March 31, 1999 when compared to the same period in 1998 as the increase in total revenue more than offset the increase in total expenses. The increase in total revenue is a result of rental rate increases implemented at Walden Pond and Pavillion Apartments, as well as an increase in occupancy at Pavillion Apartments. Interest income decreased due to higher cash and cash equivalents balances available for investment in 1998, a result of the sale of Indian Run Apartments in 1998. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES Operations, Continued Total expenses for the three months ended March 31, 1999, net of Indian Run's activity, increased as compared to the three months ended March 31, 1998 with increases in maintenance, real estate taxes and interest expenses, partially offset by a decrease in operating expense. Maintenance increased due to landscaping and other exterior beautification upgrades at Pavillion and snow removal expenditures at Fenland Field. Real estate taxes increased as a result of the reassessments of Walden Pond and Pavillion Apartments' property value by the local taxing authority. Interest expense increased with the refinancing of Walden Pond Apartments' mortgage notes payable (see Note 2). Operating expense decreased primarily due to a reduction in insurance liability and workers compensation expense at the Partnership's properties, due to lower claims experience. 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 (a) Exhibits Walden Pond Apartments (10.1) First Renewal, Extension and Modification Agreements dated February 28, 1999 between Westbridge Partners, Ltd. and FirstTrust Savings Bank. (b) 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 14, 1999