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 0-11985 Krupp Realty Limited Partnership-V Massachusetts 04-2796207 (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 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-V AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) March 31,December 31, 1999 1998 Multi-family apartment complexes, net of accumulated depreciation of $46,134,246 and $45,292,687, respectively $27,919,558$ 28,589,655 Cash and cash equivalents (Note 2) 2,575,960 2,101,415 Cash restricted for tenant security deposits 315,046 311,432 Replacement reserve escrows 734,313 664,186 Prepaid expenses and other assets (Note 5) 3,047,563 2,572,492 Deferred expenses, net of accumulated amortization of $91,451 and $82,843, respectively 473,921 482,529 Total assets $35,066,361$ 34,721,709 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $41,689,011$ 41,836,237 Accrued real estate taxes 2,510,019 2,008,500 Accrued expenses and other liabilities 2,144,109 1,841,074 Total liabilities 46,343,139 45,685,811 Contingency (Note 3) Partners' deficit (Note 4): Investor Limited Partners (35,200 Units outstanding) (10,421,165) (10,130,376) Original Limited Partner (438,821) (420,061) General Partners (416,792) (413,665) Total Partners' deficit (11,276,778) (10,964,102) Total liabilities and Partners' deficit $35,066,361$ 34,721,709 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 Ended March 31, 1999 1998 Revenue: Rental $3,851,817 $3,677,852 Interest income 36,256 26,107 Total revenue 3,888,073 3,703,959 Expenses: Operating (Note 5) 939,665 929,416 Maintenance 165,219 129,840 General and administrative (Note 5) 41,828 36,817 Real estate taxes 572,798 576,814 Management fees (Note 5) 130,160 123,311 Depreciation and amortization 850,167 885,597 Interest 743,923 754,062 Total expenses 3,443,760 3,435,857 Net income $ 444,313 $ 268,102 Allocation of net income (Note 4): Investor Limited Partners (35,200 Units outstanding) $ 413,211 $ 249,335 Investor Limited Partners Per Unit $ 11.74 $ 7.08 Original Limited Partner $ 26,659 $ 16,086 General Partners $ 4,443 $ 2,681 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 Three Months Ended March 31, 1999 1998 Cash flows from operating activities: Net income $ 444,313$268,102 Adjustments to reconcile net income to net cash provided by operating activities: Interest earned on replacement reserve escrow(4,463) (3,132) Depreciation and amortization 850,167 885,597 Changes in assets and liabilities: Increase in cash restricted for tenant security deposits (3,614) (4,184) Decrease (increase) in prepaid expenses and other assets (475,071) 455,117 Increase (decrease) in accrued real estate taxes 501,519 (344,155) Increase in accrued expenses and other liabilities 302,197 52,772 Net cash provided by operating activities 1,615,048 1,310,117 Cash flows from investing activities: Deposits to replacement reserve escrows (76,628) (76,628) Withdrawals from replacement reserve escrows 10,964 - Additions to fixed assets (171,462) (150,359) Increase in accrued expenses and other liabilities related to fixed asset additions 838 5,454 Net cash used in investing activities (236,288) (221,533) Cash flows from financing activities: Principal payments on mortgage notes payable (147,226) (137,642) Increase in deferred expenses - (9,285) Distributions (756,989) (756,989) Net cash used in financing activities (904,215) (903,916) Net increase in cash and cash equivalents 474,545 184,668 Cash and cash equivalents, beginning of period 2,101,415 802,726 Cash and cash equivalents, end of period $2,575,960$ 987,394 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, 1998 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 (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. 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)Cash and Cash Equivalents Cash and cash equivalents consisted of the following: March 31, December 31, 1999 1998 Cash and money market accounts $ 134,916$ 405,431 Treasury bills 2,441,044 1,695,984 $ 2,575,960$ 2,101,415 (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 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 have continued to vigorously defend this case. Continued discussions with Plaintiffs' counsel have resulted in a tentative settlement which was presented to the court in December, 1998. Although the settlement has not been finalized, the Partnership has recorded provisions totaling $1,015,000 in the consolidated financial statements at March 31, 1999 and December 31, 1998. (4) Changes in Partners' Deficit A summary of changes in Partners' deficit for the three months ended March 31, 1999 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31,1998$(10,130,376)$(420,061)$(413,665)$(10,964,102) Net income 413,211 26,659 4,443 444,313 Distributions (704,000) (45,419) (7,570) (756,989) Balance at March 31, 1999 $(10,421,165)$(438,821)$(416,792)$(11,276,778) (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 $130,160 $123,311 Expense reimbursements 73,010 42,960 Charged to operations $203,170 $166,271 Expense reimbursements due from affiliates of $3,380 and $1,456 were included in prepaid expenses and other assets at March 31, 1999 and December 31, 1998, respectively. 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. The Partnership's 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 of 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. 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. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY Liquidity and Capital Resources, Continued 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 (Park Place Tower Apartments ("Park Place") and Century Apartments ("Century") for the three months ended March 31, 1999 and 1998. Net income increased for the three months ended March 31, 1999 as compared to the same period in 1998, as rental revenue increased and expenses stayed relatively stable. In comparing the three months ended March 31, 1999 to the same period in 1998, the increase in rental revenue is attributable to residential rental rate increases implemented at Park Place and Century. Interest income increased as average cash and cash equivalent balances increased between the periods. Total expenses remained relatively stable when comparing the first three months of 1999 to the first three months of 1998, as the increase in maintenance expense offset the decrease in depreciation expense. Landscaping and electrical repairs at Park Place as well as increased cleaning costs at Century have resulted in an increase in the Partnership's maintenance expense. Depreciation expense decreased as fixed asset additions purchased in previous years became fully depreciated. 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 have continued to vigorously defend this case. Continued discussions with Plaintiffs' counsel have resulted in a tentative settlement which was presented to the court in December, 1998. Although the settlement has not been finalized, the Partnership has recorded provisions totaling $1,015,000 in the consolidated financial statements at March 31, 1999 and December 31, 1998. 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 14, 1999