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 0-11985 Krupp Realty Limited Partnership-V Massachusetts 04-2796207 (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 11. 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-V AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS March 31, December 31, 1998 1997 Multi-family apartment complexes, net of accumulated depreciation of $42,479,396 and $41,602,481, respectively $30,063,514$30,790,070 Cash and cash equivalents 987,394 802,726 Cash restricted for tenant security deposits 298,756 294,572 Replacement reserve and repair escrows 479,531 399,771 Prepaid expenses and other assets (Note 5) 2,207,021 2,662,138 Deferred expenses, net of accumulated amortization of $57,014 and $48,332, respectively (Note 2) 508,358 507,755 Total assets $34,544,574$35,457,032 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Note 2) $42,263,337 $42,400,979 Accrued real estate taxes 1,605,845 1,950,000 Accrued expenses and other liabilities 1,307,313 1,249,087 Total liabilities 45,176,495 45,600,066 Commitments and contingencies (Note 3) Partners' deficit (Note 4): Investor Limited Partners (35,200 Units outstanding) (9,821,448) (9,366,783) Original Limited Partner (400,130) (370,797) General Partners (410,343) (405,454) Total Partners' deficit (10,631,921)(10,143,034) Total liabilities and Partners' deficit $34,544,574$35,457,032 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 1998 1997 Revenue: Rental $3,677,852 $3,543,185 Interest income 26,107 33,109 Total revenue 3,703,959 3,576,294 Expenses: Operating (Note 5) 929,416 911,309 Maintenance 129,840 149,001 General and administrative (Note 5) 36,817 76,867 Real estate taxes 576,814 487,913 Management fees (Note 5) 123,311 125,518 Depreciation and amortization 885,597 859,422 Interest 754,062 853,491 Total expenses 3,435,857 3,463,521 Net income $ 268,102 $ 112,773 Allocation of net income (Note 4): Investor Limited Partners (35,200 Units outstanding) $ 249,335 $ 104,879 Investor Limited Partner Per Unit $ 7.08 $ 2.98 Original Limited Partner $ 16,086 $ 6,766 General Partners $ 2,681 $ 1,128 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1998 1997 Operating activities: Net income $ 268,102 $ 112,773 Adjustments to reconcile net income to net cash provided by operating activities: Interest earned on replacement reserve escrow(3,132) (6,150) Depreciation and amortization 885,597 859,422 Changes in assets and liabilities: Increase in cash restricted for tenant security deposits (4,184) (1,674) Decrease in prepaid expenses and other assets 455,117 400,209 Decrease in accrued real estate taxes (344,155)(410,958) Increase (decrease) in accrued expenses and other liabilities 52,772 (30,990) Increase in due to affiliates - 43,246 Net cash provided by operating activities 1,310,117 965,878 Investing activities: Deposits to replacement reserve escrow (76,628) (53,228) Withdrawals from replacement reserve escrow - 64,355 Additions to fixed assets (150,359) (146,221) Increase in accrued expenses and other liabilities related to fixed asset additions 5,454 16,117 Net cash used in investing activities (221,533) (118,977) Financing activities: Principal payments on mortgage notes payable (137,642)(139,226) Increase in deferred expenses (9,285) - Distributions (756,989) (756,989) Net cash used in financing activities (903,916) (896,215) Net increase (decrease) in cash and cash equivalents 184,668 (49,314) Cash and cash equivalents, beginning of period 802,726 1,767,094 Cash and cash equivalents, end of period $ 987,394$1,717,780 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY 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-V and Subsidiary (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. 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 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 Note Payable On December 10, 1997, the Partnership completed the refinancing of the Century II Apartments mortgage note. The property was refinanced with a $11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum with monthly principal and interest payments of $71,346. The mortgage note, which is collateralized by the property, matures on January 1, 2008 at which time the remaining principal (approximately $9,401,537) and accrued interest are due. The note may be prepaid, subject to a prepayment penalty, at any time with 30 days notice. The Partnership used the majority of the proceeds from the refinancing to repay the existing mortgage note on the property of $10,309,332, pay closing costs of $236,763, to pay a prepayment premium of $210,825 and to establish various escrows. The prepayment premium as well as unamortized deferred mortgage costs of $77,331, were reported in the Statement of Operations as an extraordinary loss from early extinguishment of debt for the year ended December 31, 1997. (3)Legal Proceeding The Partnership is a defendant in a class action suit related to the practice of giving discounts for the early or timely payments of rent at Park Place Tower Apartments ("Park Place") and Marine Terrace Apartments, a previously owned property. The central issue of the complaint was whether the operative lease violated a Chicago municipal ordinance relating to late fee charges because it allowed tenants a discount if rent was paid on or before the first of the month. The allegation was that, notwithstanding the stated rental rate and printed discount, the practice represented an unlawful means of exacting late fee charges. In addition to seeking damages for any "forfeited" discounts, plaintiffs seek statutory damages of two months rent per lease violation and reasonable attorneys' fees. To be eligible for such damages, plaintiffs must prove that the defendants deliberately used a provision prohibited by the ordinance. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (3)Legal Proceeding, Continued During 1994, the Court ruled in favor of the defendants and accepted the Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The plaintiffs filed an appeal with the Appellate Court of Illinois, First District. During 1996, the decision was reversed on appeal and the case remanded to trial court for further proceedings. The defendants intend to vigorously defend this case. However, the Partnership has recorded a provision of $282,000, representing its share of the discounts and late fees, plus estimated legal costs, in the consolidated financial statements as of March 31, 1998. The ultimate outcome of the potential punitive damages award related to this litigation, including an estimate of potential loss, cannot presently be determined. (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 $(9,366,783)$(370,797)$(405,454)$(10,143,034) Net income 249,335 16,086 2,681 268,102 Distributions (704,000) (45,419) (7,570) (756,989) Balance at March 31, 1998 $(9,821,448)$(400,130)$(410,343)$(10,631,921) (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-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (5) Related Party Transactions, Continued Amounts accrued or paid to the General Partners' affiliates were as follows: For the Three Months Ended March 31, 1998 1997 Property management fees $123,311 $125,518 Expense reimbursements 42,960 83,727 Charged to operations $166,271 $209,245 Expense reimbursements due from affiliates of $21,078 were included in prepaid expenses and other assets at March 31, 1998. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY 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 operating performance of its real estate investments. Such ability would also be impacted by the future availability of bank borrowing sources as current debt matures. 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. Beginning with the distribution paid in February, 1997, the annual distribution rate was increased from $20.00 per Unit, to $40.00 per Unit, based on sufficient Cash Flow and working capital reserves. On December 10, 1997, the Partnership completed the refinancing of the Century II Apartments ("Century") mortgage note. The property was refinanced with a $11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum with monthly principal and interest payments of $71,346. The Partnership used the majority of the proceeds from the refinancing to repay the existing mortgage note on the property of $10,309,332, pay closing costs of $236,763, to pay a prepayment premium of $210,825 and to establish various escrows. The Partnership's properties, Century and Park Place, have spent approximately $150,000 to date and are anticipated to spend approximately $2,122,000 for capital improvements in 1998 to remain competitive in their respective markets. These improvements include floor covering, pavement upgrades and appliance replacements, as well as interior improvements and refurbishment of the elevator and convenience store at Park Place. The Partnership expects to fund these improvements from established reserves and cash generated from property operations. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY Operations The following discussion relates to the operations of the Partnership and its properties (Park Place and Century) for the three months ended March 31, 1998 and 1997. Net income increased for the three months ended March 31, 1998 as compared to the same period in 1997, as rental revenue increased and expenses stayed relatively stable. The Partnership's properties both enjoyed consistent 99% average residential occupancy rates in the first quarter of 1998 and during the same period in 1997. However, residential rental rate increases at Park Place and Century were implemented and as a result, rental revenue increased between the periods. The strong occupancy and the ability to increase rental rates is a direct result of the Partnership's efforts to enhance the appeal of its properties, including an appliance replacement program at Century and a new fitness center at Park Place. Interest income decreased as average cash and cash equivalent balances between the periods decreased. Total expenses remained relatively stable when comparing the first three months of 1998 to the first three months of 1997, as the increase in real estate tax expense offset the decrease in general and administrative and interest expenses. At the end of 1997, Park Place was assessed at a higher value, resulting in a higher real estate tax expense. General and administrative expense decreased due to legal costs incurred in 1997, associated with the unsolicited tender offer to purchase Partnership Units. Interest expense decreased as a result of the refinancing of Century's mortgage note payable in December, 1997. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY PART II - OTHER INFORMATION Item 1.Legal Proceeding The Partnership is a defendant in a class action suit related to the practice of giving discounts for the early or timely payments of rent at Park Place Tower Apartments ("Park Place") and Marine Terrace Apartments, a previously owned property. The central issue of the complaint was whether the operative lease violated a Chicago municipal ordinance relating to late fee charges because it allowed tenants a discount if rent was paid on or before the first of the month. The allegation was that, notwithstanding the stated rental rate and printed discount, the practice represented an unlawful means of exacting late fee charges. In addition to seeking damages for any "forfeited" discounts, plaintiffs seek statutory damages of two months rent per lease violation and reasonable attorneys' fees. To be eligible for such damages, plaintiffs must prove that the defendants deliberately used a provision prohibited by the ordinance. During 1994, the Court ruled in favor of the defendants and accepted the Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The plaintiffs filed an appeal with the Appellate Court of Illinois, First District. During 1996, the decision was reversed on appeal and the case remanded to trial court for further proceedings. The defendants intend to vigorously defend this case. However, the Partnership has recorded a provision of $282,000, representing its share of the discounts and late fees, in the consolidated financial statements as of March 31, 1998. The ultimate outcome of the potential punitive damages award related to this litigation, including an estimate of potential loss, cannot presently be determined. 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-V (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