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 June 30, 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 Unaudited June 30, December 31, 1998 1997 Multi-family apartment complexes, net of accumulated depreciation of $43,369,414 and $41,602,481, respectively $29,553,243$30,790,070 Cash and cash equivalents (Note 2) 1,632,881 802,726 Cash restricted for tenant security deposits 300,429 294,572 Replacement reserve escrow 547,663 399,771 Prepaid expenses and other assets (Note 6) 2,655,245 2,662,138 Deferred expenses, net of accumulated amortization of $65,623 and $48,332, respectively (Note 3)499,749 507,755 Total assets $35,189,210$35,457,032 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Note 3) $42,123,359$42,400,979 Accrued real estate taxes 2,107,970 1,950,000 Accrued expenses and other liabilities 1,263,382 1,249,087 Total liabilities 45,494,711 45,600,066 Commitments and contingencies (Note 4) Partners' deficit (Note 5): Investor Limited Partners (35,200 Units outstanding) (9,517,878) (9,366,783) Original Limited Partner (380,545) (370,797) General Partners (407,078) (405,454) Total Partners' deficit (10,305,501)(10,143,034) Total liabilities and Partners' deficit$35,189,210$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 (Unaudited) For the Three Months For the SixMonths Ended June 30, Ended June 30, 1998 1997 1998 1997 Revenue: Rental $3,708,555 $3,647,118 $7,386,407$7,190,303 Interest income 29,214 37,826 55,321 70,935 Total revenue 3,737,769 3,684,944 7,441,728 7,261,238 Expenses: Operating (Note 6) 769,244 1,028,834 1,698,660 1,940,143 Maintenance 236,399 258,997 366,239 407,998 General and administrative (Note 6)44,530 56,754 81,347 133,621 Real estate taxes 579,233 485,379 1,156,047 973,292 Management fees (Note 6) 131,774 115,894 255,085 241,412 Depreciation and amortization 898,627 867,704 1,784,224 1,727,126 Interest (Note 3) 751,542 850,589 1,505,604 1,704,080 Total expenses 3,411,349 3,664,151 6,847,206 7,127,672 Net income $ 326,420 $ 20,793 $ 594,522$ 133,566 Allocation of net income (Note 5): Investor Limited Partners (35,200 Units outstanding) $ 303,571 $ 19,337 $ 552,906$ 124,216 Investor Limited Partner, Per Unit$ 8.63 $ .55 $ 15.71 $ 3.53 Original Limited Partner $ 19,585 $ 1,248$ 35,671 $ 8,014 General Partners $ 3,264 $ 208 $ 5,945$ 1,336 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 1998 1997 Operating activities: Net income $ 594,522$133,566 Adjustments to reconcile net income to net cash provided by operating activities: Interest earned on replacement reserve escrow (5,356) (12,300) Depreciation and amortization 1,784,224 1,727,126 Changes in assets and liabilities: Decrease (increase) in cash restricted for tenant security deposits (5,857) 2,611 Decrease (increase) in prepaid expenses and other assets 6,893 (38,343) Increase in accrued real estate taxes 157,970 4,042 Increase in accrued expenses and other liabilities 14,295 126,505 Decrease in due to affiliates - (7,959) Net cash provided by operating activities 2,546,691 1,935,248 Investing activities: Deposits to replacement reserve escrow (153,256) (106,456) Withdrawals from replacement reserve escrow 10,720 139,152 Additions to fixed assets (530,106) (465,146) Increase in accrued expenses and other liabilities related to fixed asset additions - 29,330 Net cash used in investing activities (672,642) (403,120) Financing activities: Principal payments on mortgage notes payable(277,620) (281,182) Increase in deferred expenses (9,285) - Distributions (756,989) (756,989) Net cash used in financing activities (1,043,894)(1,038,171) Net increase in cash and cash equivalents 830,155 493,957 Cash and cash equivalents, beginning of period 802,726 1,767,094 Cash and cash equivalents, end of period $1,632,881$2,261,051 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 June 30, 1998, its results of operations for the three and six months ended June 30, 1998 and 1997 and its cash flows for the six months ended June 30, 1998 and 1997. The results of operations for the three and six months ended June 30, 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) Cash and Cash Equivalents Cash and cash equivalents consisted of the following: June 30, December 31, 1998 1997 Cash and money market accounts $ 561,761 $ 802,726 Treasury bills 1,071,120 - $1,632,881 $ 802,726 (3) 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. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (4)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 $282,000, representing its share of the discounts and late fees, plus estimated legal costs, in the consolidated financial statements as of June 30, 1998. The ultimate outcome of the potential punitive damages award related to this litigation, including an estimate of potential loss, cannot presently be determined. (5) Changes in Partners' Deficit A summary of changes in Partners' deficit for the six months ended June 30, 1998 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1997$(9,366,783)$(370,797)$(405,454)$(10,143,034) Net income 552,905 35,671 5,946 594,522 Distributions (704,000) (45,419) (7,570) (756,989) Balance at June 30, 1998 $(9,517,878)$(380,545)$(407,078)$(10,305,501) Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (6) 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 For the Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 Property management fees $131,774 $115,894 $255,085 $241,412 Expense reimbursements 79,213 79,458 122,173 163,185 Charged to operations $210,987 $195,352 $377,258 $404,597 Expense reimbursements due from affiliates of $25,399 were included in prepaid expenses and other assets at June 30, 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 a 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 prepayment premium of $210,825 and to establish various escrows. The Partnership's properties, Century and Park Place, have spent approximately $530,000 to date and are anticipated to spend approximately $2,134,000 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. Financial Accounting Standards Board Statement No. 130 ("FAS 130") "Reporting Comprehensive Income" is effective for fiscal years beginning after December 31, 1997, although earlier application is permitted. FAS 130 establishes standards for reporting and display of comprehensive income and its components in financial statements. Financial Accounting Standards Board Statement No. 131 ("FAS 131") "Disclosures about Segments of an Enterprise and Related Information" establishes standards for disclosing measures for profit or loss and total assets for each reportable segment. FAS 131 is effective for fiscal years beginning after December 15, 1997. The Partnership does not believe that the implementation of FAS 130 or FAS 131 will have a material impact on the Partnership's financial statements. 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 and six months ended June 30, 1998 and 1997. Net income increased for the three and six months ended June 30, 1998 as compared to the same periods in 1997, as rental revenue increased and expenses decreased. In comparing the three and six months ended June 30, 1998 to the same periods in 1997, the increases in rental revenue are attributable to residential rental rate increases implemented at Park Place and Century. Interest income decreased as average cash and cash equivalent balances decreased between the periods. Total expenses decreased when comparing the three and six months ended June 30, 1998 to the three and six months ended June 30, 1997, primarily due to decreases in operating, general and administrative and interest expenses, partially offset by an increase in real estate tax expense. The decrease in operating expense is mainly the result of a legal provision recorded for Park Place in 1997, as discussed in Note 4. General and administrative expense decreased as a result of legal costs incurred in 1997 which related to the unsolicited tender offers to purchase Partnership Units. Interest expense decreased as a result of the refinancing of Century's mortgage note in December, 1997. Park Place was assessed at a higher value at the end of 1997, resulting in an increase in real estate tax expense. 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 June 30, 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: August 11, 1998