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, 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) September 30,December 31, 1999 1998 Multi-family apartment complexes, net of accumulated depreciation of $24,390,940 and $23,263,961, respectively (Note 3) $10,985,781 $ 11,585,489 Cash and cash equivalents 716,489 774,230 Prepaid expenses and other assets 810,855 795,705 Deferred expenses, net of accumulated amortization of $274,966 and $256,510, respectively (Notes 2 and 3) 72,633 90,528 Total assets $12,585,758 $ 13,245,952 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Notes 2 and 3)$16,615,351 $ 16,933,049 Due to affiliates (Note 5) 210,479 10,734 Other liabilities 878,323 938,569 Total liabilities 17,704,153 17,882,352 Partners' deficit (Note 4): Investor Limited Partners (30,000 Units outstanding) (3,437,549) (2,979,654) Original Limited Partner (1,371,110) (1,351,830) General Partners (309,736) (304,916) Total Partners' deficit (5,118,395) (4,636,400) Total liabilities and Partners' deficit $12,585,758 $ 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 For the Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Revenue: Rental $1,755,053 $1,724,372 $5,229,234$5,343,503 Other income 13,934 15,542 40,143 84,641 Total revenue 1,768,987 1,739,914 5,269,377 5,428,144 Expenses: Operating (Note 5)484,092 395,129 1,377,294 1,461,661 Maintenance 150,955 195,375 464,150 443,932 Real estate taxes 174,368 164,766 535,865 532,291 Management fees (Note 5) 79,081 57,808 211,335 214,359 General and administrative (Note 5) 65,111 33,246 162,665 101,065 Depreciation and amortization 403,009 448,532 1,175,324 1,328,182 Interest 362,132 272,609 1,042,128 882,728 Total expenses 1,718,748 1,567,465 4,968,761 4,964,218 Income before minority interest, gain (loss) on sale of property and extraordinary loss 50,239 172,449 300,616 463,926 Minority interest (834) (1,841) (3,040) (4,213) Gain (loss) on sale of property (Note 3) - (2,196) - 2,965,743 Income before extraordinary loss 49,405 168,412 297,576 3,425,456 Extraordinary loss from early extinguishment of debt (Note 3) - - - (389,523) Net income $ 49,405 $ 168,412 $ 297,576$3,035,933 Allocation of net income (Note 4): Investor Limited Partners (30,000 Units outstanding): Income before gain (loss) on sale of property and extraordinary loss $46,935 $162,077 $ 282,697 $ 436,727 Gain (loss) on sale of property - (2,174) - 2,936,086 Extraordinary loss - - - (370,047) Net income $ 46,935 $ 159,903 $ 282,697$3,002,766 Continued 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, 1999 1998 1999 1998 Investor Limited Partners Per Unit: Income before gain (loss) on sale of property and extraordinary loss $1.56 $5.41 $ 9.42 $ 14.56 Gain (loss) on sale of property - (.07) - 97.87 Extraordinary loss - - - (12.33) Net income $ 1.56 $ 5.34 $ 9.42 $ 100.10 Original Limited Partner (100 Units outstanding): Income before gain (loss) on sale of property and extraordinary loss $1,976 $6,825 $11,903 $18,389 Gain (loss) on sale of property - - - - Extraordinary loss - - - (15,581) Net income $ 1,976 $6,825 $ 11,903 $ 2,808 General Partners: Income before gain (loss) on sale of property and extraordinary loss $494 $1,706 $ 2,976 $ 4,597 Gain (loss) on sale of property (22) - 29,657 Extraordinary loss - - - (3,895) Net income$ 494 $ 1,684 $ 2,976$ 30,359 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 Nine Months Ended September 30, 1999 1998 Cash flows from operating activities: Net income $297,576 $3,035,933 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,175,324 1,328,182 Interest earned on repair escrow - (12,898) Gain on sale of property - (2,965,743) Extraordinary loss from early extinguishment of debt - 389,523 Changes in assets and liabilities: Decrease (increase) in prepaid expenses and other assets (15,150) 165,340 Decrease in other liabilities (58,773) (381,854) Increase (decrease)in due to affiliates 199,745 (5,963) Releases from real estate tax and insurance escrows due to sale of property - 33,722 Net cash provided by operating activities 1,598,722 1,586,242 Cash flows from investing activities: Deposits to replacement reserve escrow - (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 (decrease) in other liabilities for fixed asset additions (1,473) 160 Additions to fixed assets (527,271) (873,924) Proceeds from sale of property, net - 5,717,368 Net cash (used in) provided by investing activities (528,744) 5,162,678 Cash flows from financing activities: Principal payments on mortgage notes payable(317,698) (568,120) Distributions (779,571)(2,918,143) 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 (1,127,719)(6,460,168) Net (decrease) increase in cash and cash equivalents (57,741) 288,752 Cash and cash equivalents, beginning of period774,230 402,621 Cash and cash equivalents, end of period $716,489 $ 691,373 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 September 30, 1999 and December 31, 1998, minority interest of $12,669 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 September 30, 1999, its results of operations for the three and nine months ended September 30, 1999 and 1998 and its cash flows for the nine months ended September 30, 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 and nine months ended September 30, 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. Monthly principal payments on the new mortgage notes are $6,500 and $1,100, respectively, with 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 $53,660, are reported in the Consolidated Statement of Operations as an extraordinary loss from early extinguishment of debt. (4)Changes in Partners' Deficit A summary of changes in Partners' deficit for the nine months ended September 30, 1999 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1998$(2,979,654)$(1,351,830)$(304,916)$(4,636,400) Net income 282,697 11,903 2,976 297,576 Distributions (740,592) (31,183) (7,796) (779,571) Balance at September 30, 1999 $(3,437,549)$(1,371,110)$(309,736)$(5,118,395) (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. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES (5) Related Party Transactions, Continued 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, 1999 1998 1999 1998 Property management fees$79,081 $ 57,808 $ 211,335 $214,359 Expense reimbursements 80,418 70,781 188,670 180,423 Charged to operations$159,499 $128,589 $ 400,005$ 394,782 Due to affiliates consisted of expense reimbursements of $210,479 and $10,734 at September 30, 1999 and December 31, 1998, respectively. 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. The current annual distribution rate is $24.69 per Unit, and is paid semiannually in February and August. 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 $138,518. 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 (see Note 3). 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's apartment market in Houston (Walden Pond) is facing increased competition primarily as a result of new construction in the area. The General Partners are in the process of evaluating strategies to improve the competitiveness, which currently includes some rental concessions on select units and may include the possibility of additional capital expenditures to modernize the Partnership's properties. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES Year 2000 The General Partners of the Partnership conducted an assessment of the Partnership's core internal and external computer information systems and have taken the 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 organizations. 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. The General Partners incurred hardware costs as well as consulting and other expenses related to the infrastructure and facilities enhancements necessary to complete the upgrade and prepare for the Year 2000. There are no other significant internal systems or software that the Partnership is using at the present time. The General Partners of the Partnership have evaluated Year 2000 compliance issues with respect to its non-financial systems, such as computer controlled elevators, boilers, chillers and other miscellaneous systems. The General Partners do not anticipate any problems in its non-financial systems. The General Partners of the Partnership surveyed the Partnership's material third- party service providers (including but not limited to its banks and telecommunications providers) and significant vendors and received assurances that such providers and vendors are to be Year 2000 ready. The General Partners do not anticipate any problems with such providers and vendors that would materially impact its results of operations, liquidity or captial resources. In addition, the Partnership is also subject to external forces that might generally affect industry and commerce, such as utility and transportation company Year 2000 readiness failures and related service interruptions. However, the General Partners do not anticipate these would materially impact its results of operations, liquidity or capital resources. To date, the Partnership has not incurred, and does not expect to incur, any significant cost associated with being Year 2000 ready. Operations The following discussion relates to the operations of the Partnership and its properties (Fenland Field, Pavillion and Walden Pond Apartments) for the three and nine months ended September 30, 1999 and 1998. The sale of Indian Run on March 31, 1998, significantly impacts the comparability of the Partnership's operations between these periods. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES Operations, Continued Net income, net of Indian Run's activity, decreased during the three and nine months ended September 30, 1999 when compared to the three and nine months ended September 30, 1998, as the increase in total expenses more than offset the increase in total revenue. The increase in total revenue is a result of rental rate increases implemented at all of the Partnership's properties at the end of the first quarter, as well as an increase in occupancy at Pavillion Apartments during the year. Interest income decreased due to lower cash and cash equivalent balances available for investment when compared to 1998, a result of the sale of Indian Run Apartments in 1998. Total expenses for the three months ended September 30, 1999 increased when compared to the three months ended September 30, 1998 with increases in operating, general and administrative and interest expenses. Operating expense increased in 1999 as a result of an increase in workmen's compensation expense due to an adjustment to the workmen's compensation reserve in 1998. General and administrative expense increased due to higher expenses incurred in connection with preparation and mailing of Partnership reports and other investor communications. Interest expense increased with the refinancing of Walden Pond Apartments' mortgage notes payable (see Note 2). Total expenses for the nine months ended September 30, 1999 increased when compared to the nine months ended September 30, 1998, net of Indian Run's activity, with increases in operating, maintenance, general and administrative real estate taxes and interest expenses. Operating expense increased in 1999 as a result of an increase in workmen's compensation expense due to an adjustment to the workmen's compensation reserve in 1998. Maintenance expense increased due to landscaping and other exterior beautification upgrades at Pavallion and Walden Pond Apartments, including parking lot repairs and re-stripping during the second quarter. General and administrative expenses increased due to higher expenses incurred in connection with preparation and mailing of Partnership reports and other investor communications. Real estate taxes increased at both Walden Pond and Pavillion apartment complexes. Interest expense increased with the refinancing of Walden Pond Apartments' mortgage notes payable (see Note 2). 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 15, 1999