UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-14378
Krupp Institutional Mortgage Fund Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2860302
(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)
(Registrant's telephone number, including area code) (617) 423-2233
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partner Interests
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable, since securities are non-voting.
Documents incorporated by reference: None
The exhibit index is located on pages 8-10.
PART I
ITEM 1. BUSINESS
The primary business of Krupp Institutional Mortgage Fund Limited
Partnership (the "Partnership") is making loans evidenced by non-recourse
participating promissory notes ("Participating Notes"), collateralized by
mortgages on improved, income producing real properties and a Collateral
Pledge Agreement dated February 20, 1985. See Note C to Financial Statements
included in Appendix A of this report. The loans have been made to Krupp
Equity Limited Partnership ("KELP"), which has the same general partners as
the Partnership, under a master loan agreement (the "Master Loan Agreement").
The Partnership considers itself to be engaged in only one industry segment,
namely real estate mortgage lending to KELP.
KELP's properties began experiencing cash flow difficulties, and beginning
with the payment due April 1, 1991, KELP has not been able to pay fully the
required quarterly interest payments. The terms of the Master Loan Agreement,
which is currently in default, require KELP to pay the Partnership basic
interest at a rate of 10% per annum on the Participating Notes. KELP had the
right to extend the Master Loan Agreement from December 31, 1992 until
December 31, 1995 if there were no default, with the interest rate increasing
from 7.6% to 10%. The Participating Notes have technically matured.
The General Partners determined in 1991 not to exercise the
Partnership's foreclosure remedies under the Master Loan Agreement as a result
of KELP's default because the severely depressed state of the real estate
market in much of the U.S. made it unlikely that KELP would be able to dispose
of its properties at other than very unattractive prices at that time. Thus,
the General Partners believed that it was in the Partnership's best interest
to continue to permit KELP to hold the properties and attempt to increase cash
flows.
As a result of KELP's difficulties: 1) KELP has remitted to the
Partnership all cash flow generated by the properties after operating and
administrative expenses and senior mortgage obligations and the Partnership
has not exercised its foreclosure under the Master Loan Agreements with
respect to KELP's defaults; 2) interest and late charges on the Partnership's
Participating Notes have continued to accrue although reserved against; 3)
since 1991, as a consequence of the default, the management agent of KELP's
properties (an affiliate of its general partners) has continued to serve even
though it is not receiving any payment of property management fees.
As a result of management's annual assessment of the carrying value of the
Participating Notes which is based on such factors as tenant turnover, current
and prospective occupancy levels, the current market competition and
assumptions on potential proceeds that might be received upon sale, the
General Partners of KELP determined that the carrying value of its investments
exceeded its net realizable value. This has resulted in an additional
provision for credit losses of $4,500,000 recorded by the Partnership on its
mortgage notes receivable in 1994.
Since 1991, many segments of the U.S. real estate market have begun to
recover. However, in the General Partners' judgment, the properties held by
KELP have not materially increased in value over this period. The General
Partners' current plan is to continue not to exercise the Partnership's
foreclosure rights under the Master Loan Agreement, although they intend to
carefully monitor the operations of each property and the state of the market
in which each property is located. At such time as the Partnership believes
the disposition of a property by KELP would produce an attractive level of
proceeds to the Partnership under the Master Loan Agreement, the General
Partners will take appropriate steps on behalf of the Partnership to require
a sale by KELP or commence foreclosure proceedings with respect to such
property. By proceeding in this fashion the General Partners are seeking to
avoid a disposition of the portfolio at "forced liquidation" prices.
The General Partners estimate that this disposition process could take
several years. Limited Partners should note that the deferral of property
dispositions defers significant tax liabilities of affiliates of the General
Partners. It also defers the due date on certain notes totalling $2,790,388
issued by the partners of KELP, which have been pledged to the Partnership
under a Collateral Pledge Agreement. See Note D to the Financial Statements
included in Appendix A of this report.
As of December 31, 1994, the Partnership did not employ any personnel.
Item 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership
is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
STOCKHOLDER MATTERS
The transfer of Units is subject to certain limitations contained in the
Partnership Agreement. There is no public market for the Units and it is not
anticipated that any such public market will develop.
The number of Limited Partners as of December 31, 1994 was approximately
3,300.
The Partnership made the following distributions to its Partners during
the fiscal year ended December 31, 1994 and 1993:
1994 1993
$ Per Unit $ Per Unit
Limited Partners (30,059 Units) $676,327 22.50 $601,180 $20.00
General Partners 6,832 6,073
$683,159 $607,253
One of the objectives of the Partnership is to generate cash available for
quarterly distribution. However, there is no assurance that future cash flows
from KELP will be available for quarterly distributions.
As a result of the financial condition of the KELP properties and the
reduction in the debt service payments made by KELP to the Partnership, the
Partnership has made distributions at rates that fluctuate from .25% to .625%
per quarter.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Partnership's financial position and operating results. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Financial Statements and
Notes thereto, which are included in Items 7 and 8 of this report,
respectively.
Year Ended December 31,
1994 1993 1992 1991 1990
Total revenues $ 1,060,150 $ 776,804 $ 608,365 $ 683,095 $ 2,312,034
Net income before
provision for
credit losses 899,420 606,894 414,812 513,807 2,174,257
Provision for
credit losses (4,500,000) - (3,274,000) - (8,750,000)
Net income
(loss) $(3,600,580) $ 606,894 $(2,859,188) $ 513,807 $(6,575,743)
Net income
(loss) allocated
to Partners:
Limited
Partners:
30,059 Units
participating $(3,564,574) $ 600,825 $(2,830,596) $ 508,669 $(6,505,860)
Per Unit $ (118.59) $ 19.99 $ (94.17) $ 16.92 $ (216.44)
General
Partners $ (36,006) $ 6,069 $ (28,592) $ 5,138 $ (69,883)
Total assets at
end of year $13,092,186 $17,367,488 $17,378,398 $20,720,516 $21,654,771
Distributions:
Limited
Partners $ 676,327 $ 601,180 $ 488,459 $ 1,427,802 $ 2,104,217
Per Unit $ 22.50 $ 20.00 $ 16.25 $ 47.50 $ 70.00
General
Partners $ 6,832 $ 6,073 $ 4,934 $ 14,422 $ 21,254
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Currently, the Partnership has sufficient liquidity to meet its operating
needs. The most significant capital need is distributions to investors.
However, distributions are currently dependent on cash flow received from
KELP's interest payments on the Participating Notes based upon the cash flow
of the underlying properties.
KELP's properties have not generated cash flow sufficient to meet the
terms of their existing obligations. The retail centers have suffered
historically from an economic downturn in retail sales beginning in the late
1980s. Recently, the properties have maintained a consistent level of
operating cash flow. The partners of KELP have made cumulative capital
contributions of approximately $4,673,000 to cover prior operating deficits
and have arranged for certain short-term borrowings. Additionally, the
affiliated management agent has not received payment of management fees since
1991. The General Partners of the Partnership have declined to proceed toward
foreclosure because they determined that there were advantages to allowing
KELP to continue to own the properties as described in Item 1 above.
On September 30, 1994, KELP sold North Oklahoma City Mall ("NOC Mall") to
an unaffiliated third party for $2,350,000. The net proceeds from the sale
and agreed upon debt forgiveness by the unaffiliated lienholder were used to
satisfy the first mortgage note payable. The sale was the result of a year
and a half of negotiations with the lender to restructure the terms of its
mortgage note payable which were senior to the Partnership's mortgage notes.
The Partnership received $82,650 for the release of the property as collateral
on the Participating Notes despite the fact that the first mortgage deed on
the property significantly exceed its worth.
Operations
1994 Compared to 1993
Total revenues increased as a result of additional income earned from the
Partnership's first mortgage interest investment as first lien holder of
Northeast Plaza, as well as cash flows generated by KELP's properties. Upon
KELP's sale of NOC Mall, the Partnership recorded interest income of $82,650
for the release of the property as collateral for the Participating Notes.
Expenses include a provision for losses recorded in 1994 of $4,500,000 on the
Participating Notes based on the current estimated value of the collateral.
1993 Compared to 1992
As of the first quarter of 1993, the accrual rate on the Participating
Notes increased from 7.6% to 10% in accordance with the provisions of the loan
agreements. The increase in the accrual rate will have no effect on net
income of the Partnership as interest accrued but not paid by cash flow is
fully reserved. Total revenues increased as a result of cash flows generated
by KELP's properties, this was partially offset by decreasing interest earned
on commercial paper. Upon KELP's sale of Shadow Valley, the Partnership
recorded interest income of $75,000 for the release of the property as
collateral for the Participating Notes. Expenses decreased primarily due to
a reserve recorded in 1992 of $3,274,000 on the Participating Notes based on
the then current estimated value of the collateral.
Distributable Cash from Operations
Distributable Cash from Operations of $899,000, $607,000 and $415,000, as
defined by Section 5.01 of the Partnership Agreement, is equivalent to the net
income before the provision for credit losses on the Participating Notes
during the fiscal years ended December 31, 1994, 1993 and 1992, respectively.
KELP's Results of Operations
The average occupancy percentages for KELP's properties for the years
1994, 1993 and 1992 for residential and commercial properties are as follows:
Average
Occupancy for the
Property Description Years ended December 31,
1994 1993 1992
Northeast Plaza Commercial 87% 88% 89%
North Salado Commercial 92% 92% 93%
Village Green Residential 94% 94% 94%
W. Bell Commercial 90% 90% 89%
The following table presents an analysis of KELP'S cash flow for the years
ended December 31,1994, 1993 and 1992:
1994 1993 1992
Cash flow from properties
before mortgage debt
service and capital
improvement expenditures
and reserves $ 2,270,000 $ 2,432,000 $ 2,469,000
Mortgage debt service
exclusive of amounts
due to Partnership (1,317,000) (1,582,000) (1,745,000)
Capital improvement
expenditures (109,000) (262,000) (122,000)
Capital improvement
reserve (contribution) release (4,000) 34,000 16,000
Funding of operating deficits
for 4th quarter of 1991 - - (90,000)
Cash flow from properties
before mortgage debt
service to the Partnership 840,000 622,000 528,000
Mortgage debt service
to the Partnership (840,000) (622,000) (528,000)
KELP general and administrative
expenses (48,000) (51,000) (105,000)
Cash Deficit $ (48,000) $ (51,000) $ (105,000)
In May of 1993, the Financial Statement Accounting Standards Board issued
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114). SFAS 114 addresses the
accounting by creditors for impairment of a loan by specifying how
allowances for credit losses related to certain loans should be
determined.
SFAS 114 will be adopted as of January 1, 1995. The impact is expected to
be immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to
directors and executive officers of The Krupp Corporation, which is a General
Partner of both the Partnership and The Krupp Company Limited Partnership-III,
the other General Partner of the Partnership, is as follows:
Name and Age The Krupp Corporation
Douglas Krupp (48) Co-Chairman of the Board
George Krupp (50) Co-Chairman of the Board
Laurence Gerber (38) President
Marianne Pritchard (45) Treasurer
Ross V. Keeler (46) Executive Vice President
Frank Apeseche (37) Executive Vice President
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility ownership. Today, The Berkshire Group is an integrated
real estate financial services firm which is headquartered in Boston with
regional offices throughout the country. A staff of 3,400 are responsible for
the more than $3 billion under management for institutional and individual
clients. Mr. Krupp is a graduate of Bryant College. In 1989 he received an
honorary Doctor of Science in Business Administration from this institution
and was elected trustee in 1990.
George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility ownership. Today, The Berkshire Group is an integrated
real estate financial services firm which is headquartered in Boston with
regional offices throughout the country. A staff of 3,400 are responsible for
more than $3.0 billion under management for institutional and individual
clients. Mr. Krupp attended the University of Pennsylvania and Harvard
University. Mr. Krupp is Chairman of the Board and Director of Berkshire
Realty Company, Inc. (NYSE-BRI). Mr. Krupp also serves as Chairman of the
Board and Trustee of Krupp Government Income Trust II and Krupp Government
Income Trust.
Laurence Gerber is the President and Chief Executive Officer of The
Berkshire Group. Prior to becoming President and Chief Executive Officer in
1991, Mr. Gerber held various positions with The Berkshire Group which
included overall responsibility at various times for: strategic planning and
product development, real estate acquisitions, corporate finance, mortgage
banking, syndication and marketing. Before joining The Berkshire Group in
1984, he was a management consultant with Bain & Company, a national
consulting firm headquartered in Boston. Prior to that, he was a senior tax
accountant with Arthur Andersen & Co., an international accounting and
consulting firm. Mr. Gerber has a B.S. degree in Economics from the
University of Pennsylvania, Wharton School and an M.B.A. degree with high
distinction from Harvard Business School. He is a Certified Public
Accountant. Mr. Gerber also serves as President and a Director of Berkshire
Realty Company, Inc. (NYSE-BRI), and President and Trustee of Krupp Government
Income Trust and Krupp Government Income Trust II.
Marianne Pritchard, Senior Vice President and Chief Financial and
Accounting Officer of Berkshire Realty Affiliates, rejoined The Berkshire
Group in August, 1991. Prior to rejoining The Berkshire Group, Ms. Pritchard
was Vice President and Controller from July 1989 to August 1991 for Liberty
Real Estate Group, a subsidiary of Liberty Mutual Insurance Company. Prior
to Liberty, she held the position of Controller/Treasurer of Berkshire
Mortgage Finance from April 1987 to July 1989. Prior to that, she was Senior
Audit Manager with Deloitte and Touche, an international public accounting
firm. Ms. Pritchard is a Certified Public Accountant and received her B.B.A.
degree in Accounting from the University of Texas.
Ross V. Keeler is an Executive Vice-President of Berkshire Investment
Advisors for The Berkshire Group. Prior to joining The Berkshire Group in
November 1984, he served as Executive Vice President of Marketing and a member
of the Board of Directors at First Capital Companies, a national syndicator
of real estate investments. Prior to that, Mr. Keeler served as President of
State Financial Corporation, a company which originated specialized leases on
major equipment for municipalities. He received a B.S. degree in finance with
honors from the University of Florida and received an M.B.A. degree with
scholastic honors from the University of Southern California.
Frank Apeseche was appointed Executive Vice President, Chief Financial
Officer of The Berkshire Group in 1993. He oversees strategic planning, tax
planning, corporate finance and product development for The Berkshire Group.
Before joining the firm in 1986, Mr. Apeseche was a manager at Arthur Andersen
& Co., an international accounting and consulting firm. Mr. Apeseche holds
a B.A. degree with High Distinction from Cornell University and an M.B.A.
degree with honors from the University of Michigan.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1994, no person owned of record or was known by the
General Partners to own beneficially more than 5% of the Partnership's 30,059
outstanding Units. On that date the General Partners and their affiliates
owned 10 Units (.03% of the total outstanding) of the Partnership in addition
to their General Partner Interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in Notes C, D and H to
the Partnership's Financial Statements included in Appendix A to this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Financial Statements
included under Item 8, Appendix A on page F-2 of this
report.
2. Financial Statement Schedules - All schedules are omitted as
they are not applicable, not required or the information is
provided in the Financial Statements or the Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601 of
Regulation S-K:
(4) Instruments defining the rights of security holders including
indentures:
(4.1) Amended Limited Partnership Agreement dated as of
February 14, 1985 [Exhibit A to Prospectus included
in Registrant's Registration Statement on Form S-11
dated February 15, 1985 (File No. 2-94392)].*
(4.2) Amended Certificate of Limited Partnership filed
with the Massachusetts Secretary of State on
December 13, 1985. [Exhibit 4.2 to Registrant's
Report on Form 10-K for the year ended October 31,
1985 (File No. 2-94392)].*
(10) Material contracts:
(10.1) The form of Master Loan Agreement (including the
form of Participating Note and Collateral Pledge
Agreement) between the Partnership and Krupp Equity
Limited Partnership ("KELP") [Exhibit C to
Prospectus included in Registrant's Registration
Statement on Form S-11 dated February 15, 1985 (File
No. 2-94392)].*
(10.2) Revised basic form of Mortgage to secure payment of
the Loans under the Master Loan Agreement [Exhibit
10.3(a) included in Registrant's Registration
Statement on Form S-11 dated February 15, 1985 (File
No. 2-94392)].*
(10.3) Revised form of Promissory Note as executed by the
partners of KELP and pledged under the Collateral
Pledge Agreement to secure payment of Loans under
the Master Loan Agreement. [Exhibit 10.4(b) included
in Registrant's Registration Statement on Form S-11
dated February 15, 1985 (File No. 2-94392)].*
North Salado Village Shopping Center II
(10.4) Promissory Note of KELP dated September 12, 1985,
payable to the Partnership. [Exhibit 1 to
Registrant's Report on Form 8-K dated September 12,
1985 (File No. 2-94392)].*
(10.5) Deed of Trust, Security Agreement and Financing
Statement, dated September 12, 1985, from KELP to
the Partnership. [Exhibit 2 to Registrant's Report
on Form 8-K dated September 12, 1985 (File No.
2-94392)].*
North Salado Village Shopping Center I
(10.6) Promissory Note of KELP, dated September 12, 1985,
payable to the Partnership and Related Allonge
dated September 24, 1985. [Exhibit 3 to
Registrant's Report dated September 12, 1985 (File
No. 2-94392)].*
(10.7) Deed of Trust, Security Agreement and Financing
Statement, dated September 12, 1985, from KELP to
the Partnership. [Exhibit 4 to Registrant's Report
on Form 8-K dated September 12, 1985 (File No.
2-94392)].*
Northeast Plaza Shopping Center
(10.8) Promissory Note of KELP, dated September 12, 1985,
payable to the Partnership. [Exhibit 5 to
Registrant's Report on Form 8-K dated September 12,
1985 (File No. 2-94392)].*
(10.9) Collateral Mortgage and Collateral Chattel Mortgage
Note from KELP dated September 12, 1985. [Exhibit
6 to Registrant's Report on Form 8-K dated
September 12, 1985 (File No. 2-94392)].*
(10.10) Act of Collateral Mortgage and Collateral Chattel
Mortgage by KELP in favor of the Partnership dated
September 12, 1985. [Exhibit 7 to Registrant's
Report on Form 8-K dated September 12, 1985 (File
No. 2-94392)].*
(10.11) Act of Pledge and Pawn of Collateral Mortgage and
Collateral Chattel Mortgage Note dated September
12, 1985 between KELP and the Partnership. [Exhibit
8 to Registrant's Report on Form 8-K dated
September 12, 1985 (File No. 2-94392)].*
(10.12) Modification of promissory note dated August 31,
1993 by and between the Partnership and KELP.*
Village Green Apartments
(10.13) Promissory Note of KELP dated December 18, 1985,
payable to the Partnership. [Exhibit 1 to
Registrant's Report on Form 8-K dated December 19,
1985 (File No. 2-94392)].*
(10.14) Mortgage, Security Agreement and Financing
Statement dated December 18, 1985 between KELP and
the Partnership. [Exhibit 2 to Registrant's Report
on Form 8-K dated December 19, 1985 (File No.
2-94392)].*
W. Bell Plaza Shopping Center
(10.15) Promissory Note of KELP, dated June 2, 1987,
payable to the Partnership [Exhibit 1 to
Registrant's Report on Form 8-K dated June 2, 1987
(File No. 0-14378)].*
(10.16) Mortgage dated June 2, 1987, from KELP to the
Partnership. [Exhibit 2 to Registrant's Report on
Form 8-K dated June 2, 1987 (File No. 0-14378)].*
*Incorporated by reference.
(c) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on 29th day of March,
1995.
KRUPP INSTITUTIONAL MORTGAGE
FUND LIMITED PARTNERSHIP
By: The Krupp Corporation, a
General Partner
By: /s/Douglas Krupp
Douglas Krupp, Co-Chairman
(Principal Executive Officer)
and Director of The Krupp
Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 29th day of March, 1995.
Signatures Title(s)
/s/ Douglas Krupp Co-Chairman (Principal Executive
Douglas Krupp Officer) and Director of The Krupp
Corporation, a General Partner.
/s/ George Krupp Co-Chairman (Principal Executive
George Krupp Officer) and Director of The Krupp
Corporation, a General Partner.
/s/ Laurence Gerber President of The Krupp Corporation,
Laurence Gerber a General Partner.
/s/ Marianne Pritchard Treasurer of The Krupp Corporation,
Marianne Pritchard a General Partner.
APPENDIX A
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
ITEM 8 OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1994
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-3
Balance Sheets at December 31, 1994 and 1993 F-4
Statements of Operations for the years ended December 31, 1994,
1993 and 1992 F-5
Statements of Changes in Partners' Equity for the
years ended December 31, 1994, 1993 and 1992 F-6
Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992 F-7
Notes to Financial Statements F-8 - F-15
All schedules are omitted as they are not applicable or not required, or the
information is provided in the financial statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Institutional Mortgage Fund Limited Partnership:
We have audited the financial statements of Krupp Institutional
Mortgage Fund Limited Partnership (the "Partnership") listed in the index on
page F-2 of this Form 10-K. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
As discussed in Note E, the Partnership has recorded a loan loss
reserve of $16,524,000 and a reserve for uncollectible interest of $7,584,144,
based on management's estimate of the value of the properties which serve as
collateral for the mortgage notes receivable. As is the case with all real
estate, the ultimate value of such properties can only be determined in a
negotiation between buyer and seller.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Krupp
Institutional Mortgage Fund Limited Partnership as of December 31, 1994 and
1993, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
Boston, Massachusetts
March 20, 1995
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
Mortgage notes receivable, net of loan loss
reserve of $16,524,000 and $12,024,000,
respectively (Notes C, D and E) $11,822,403 $16,346,355
Cash and cash equivalents (Note F) 1,026,664 992,640
Accrued interest receivable - mortgage notes,
net of reserve for uncollectible interest of
$7,584,144 and $5,549,030, respectively
(Notes C and E) 231,116 25,880
Other assets 12,003 2,613
Total assets $13,092,186 $17,367,488
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 14,324 $ 5,887
Partners' equity (Note G) 13,077,862 17,361,601
Total liabilities and partners' equity $13,092,186 $17,367,488
The accompanying notes are an integral
part of the financial statements.
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Interest income:
Mortgage notes receivable
(Notes C, D and E) $ 1,020,409 $730,568 $ 538,300
Cash equivalents (Note F) 39,741 46,236 70,065
Total revenue 1,060,150 776,804 608,365
Expenses:
Expense reimbursements to affiliates
(Note H) 96,608 106,630 103,069
General and administrative 64,122 63,280 90,484
Provision for credit losses
(Notes C, D and E) 4,500,000 - 3,274,000
Total expenses 4,660,730 169,910 3,467,553
Net income (loss) (Note I) $(3,600,580) $606,894 $(2,859,188)
Allocation of net income(loss)(Note G):
Per Unit of Limited Partner Interest
(30,059 Units Outstanding) $ (118.59) $ 19.99 $ (94.17)
General Partners $ (36,006) $ 6,069 $ (28,592)
The accompanying notes are an integral
part of the financial statements.
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
Total
Limited General Partners'
Partners Partners Equity
Balance at December 31, 1991 $20,806,998 $ (92,457) $20,714,541
Cash distributions (488,459) (4,934) (493,393)
Net loss (2,830,596) (28,592) (2,859,188)
Balance at December 31, 1992 17,487,943 (125,983) 17,361,960
Cash distributions (601,180) (6,073) (607,253)
Net income 600,825 6,069 606,894
Balance at December 31, 1993 17,487,588 (125,987) 17,361,601
Cash distributions (676,327) (6,832) (683,159)
Net loss (3,564,574) (36,006) (3,600,580)
Balance at December 31, 1994 $13,246,687 $(168,825) $13,077,862
The accompanying notes are an integral
part of the financial statements.
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Operating activities:
Net income (loss) $(3,600,580) $ 606,894 $(2,859,188)
Adjustment to reconcile net
income (loss) to net cash provided
by operating activities:
Provision for credit losses 4,500,000 - 3,274,000
Decrease (increase) in accrued
interest receivable - mortgage
notes (205,236) 38,448 (64,328)
Decrease (increase) in other
receivable (9,390) 6,678 33,027
Increase (decrease) in liabilities 8,437 (10,551) 10,463
Net cash provided by
operating activities 693,231 641,469 393,974
Investing activities:
Investment in mortgage
notes receivable - (994,873) -
Principal collection from
mortgage notes receivable 23,952 7,468 -
Net cash provided by
(used for) investing
activities 23,952 (987,405) -
Financing activity:
Distributions (683,159) (607,253) (493,393)
Net increase (decrease) in cash and
cash equivalents 34,024 (953,189) (99,419)
Cash and cash equivalents,
beginning of year 992,640 1,945,829 2,045,248
Cash and cash equivalents,
end of year $1,026,664 $ 992,640 $1,945,829
The accompanying notes are an integral
part of the financial statements.
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Institutional Mortgage Fund Limited Partnership (the
"Partnership") was formed on November 15, 1984 by filing a Certificate
of Limited Partnership in The Commonwealth of Massachusetts. The
Partnership was formed for the purpose of making participating mortgage
loans ("the Participating Notes"), in the amount of up to 95% of the
proceeds of the offering of units of limited partner interest (the
"Units") to Krupp Equity Limited Partnership ("KELP") (see Note D). The
Partnership terminates on December 31, 2013 unless earlier terminated
upon the occurrence of certain events as set forth in the Partnership
Agreement.
The Partnership issued all of the General Partner Interests to The Krupp
Corporation ("Krupp Corp.") and The Krupp Company Limited
Partnership-III ("Krupp Co.-III"), in exchange for capital contributions
aggregating $1,000. The General Partners made additional capital
contributions of $4,207,560 which equals fourteen percent of the capital
contributions of the Investor Limited Partners. The Partnership used
these capital contributions to pay costs incurred in connection with its
organization and the public offering of Units.
On February 21, 1985 the Partnership, commenced the marketing and sale
of the Units for $1,000 per Unit. The public offering was closed on
December 5, 1985, at which time 30,059 Units had been sold.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those used
for federal income tax purposes (see Note I).
Cash Equivalents
The Partnership includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. Cash equivalents are recorded at cost, which approximates
current market value.
Provisions for Credit Losses and Accrued Interest Reserves
Mortgage notes receivable and accrued interest are recorded at the
lower of cost or estimated net realizable value. The estimated net
realizable value of the mortgage loans is based on current market
estimates of the underlying properties held as collateral taking into
factor tenant turnover, current and prospective occupancy levels, the
current market competition and assumptions on potential proceeds that
might be received upon sale. Given the uncertainty of real estate
valuation in the current market, these market estimates could differ
from the ultimate value obtained from a sale of such properties (see
Note E).
Impact of Recently Issued Financial Accounting Standards
In May of 1993, the Financial Statement Accounting Standards Board
issued Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" (SFAS 114). SFAS 114 addresses
the accounting by creditors for impairment of a loan by specifying how
allowances for credit losses related to certain loans should be
determined.
SFAS 114 will be adopted as of January 1, 1995. The impact is expected
to be immaterial.
Continued
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, continued
Income Taxes
The Partnership is not liable for federal or state income taxes as
Partnership income or loss is allocated to the partners for income tax
purposes. In the event that the Partnership's tax returns are examined
by the Internal Revenue Service or state taxing authority and such
examination results in a change in the Partnership's taxable income or
loss, the change will be reported to the partners.
C. Mortgage Notes Receivable
The Partnership made loans to KELP, an affiliate of the Partnership, as
provided under the Master Loan Agreement and Collateral Pledge Agreement
(the "Agreements"). Under the terms of the Master Loan Agreement, Basic
Interest accrued at the rate of 7.6% per annum and was payable quarterly
in arrears on the unpaid principal balance of the Participating Notes
which were due on December 31, 1992.
KELP's properties began experiencing cash flow deficiencies, and
beginning with the payment due April 1, 1991, KELP has not been able to
pay fully the required quarterly interest payments. The terms of the
Master Loan Agreement, which is in default currently, require KELP to
pay the Partnership basic interest at a rate of 10% per annum, which
accrues and is payable quarterly in arrears on the unpaid principal
balance of the Participating Notes. The Participating Notes have
technically matured.
The Partnership has waived for 90 days the right to pursue its
foreclosure remedies. It has received a payment equal to cash flow net
of operating and administrative expenses and first mortgage obligations.
This waiver is effective only with respect to the payment due January 1,
1995, and KIMF reserves its rights to take any action to which it is
entitled in the event any future event of default occurs.
The non-recourse first mortgage of $994,873 collateralized by Northeast
Plaza matured in 1993. KELP had been unable to resolve refinancing
issues with the original lender, and was also unable to find other
financing sources even though its debt service payments were current.
Therefore, the General Partners used a portion of working capital
reserves to purchase the first mortgage note in order to preserve the
Partnership's equity in the underlying property. By its action, the
Partnership became the first lien holder of the property. In addition,
the Partnership earns 10% from its first mortgage interest investment
versus 4% to 6% earned on the working capital reserve balance.
Continued
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
C. Mortgage Notes Receivable, Continued
As of December 31, 1994, Mortgage Notes Receivable consist of the
following:
Principal
Property 1994 1993
Northeast Plaza Shopping Center $ 6,963,453 $ 6,987,405
North Salado Village Shopping Center I 1,513,000 1,513,000
North Salado Village Shopping Center II 6,000,000 6,000,000
Village Green Apartments 1,902,750 1,902,750
W. Bell Plaza Shopping Center 5,300,000 5,300,000
North Oklahoma City Mall - 4,462,000
Mortgage notes receivable
collateralized by properties 21,679,203 26,165,155
Remaining indebtedness from sale of
properties 6,667,200 2,205,200
Mortgage notes receivable before
reserve 28,346,403 28,370,355
Less: Loan loss reserve (16,524,000) (12,024,000)
Total mortgage notes receivable $ 11,822,403 $ 16,346,355
Northeast Plaza Shopping Center ("Northeast Plaza")
Northeast Plaza is an 89,115 square foot shopping plaza located
in Baton Rouge, Louisiana. On September 12, 1985, the Partnership
loaned KELP $6,000,000 collateralized by a second mortgage on the
Northeast Plaza and the Collateral Pledge Agreement.
The non-recourse first mortgage is in the original amount of
$994,873 evidenced by the modification of the promissory note
dated August 31, 1993 extending the maturity date to December 31,
1995. The note requires monthly payments of $10,135 consisting
of principal and interest at the rate of 10% per annum based on
a 25 year amortization schedule.
North Salado Village Shopping Center I ("North Salado I")
North Salado I is an 84,108 square foot shopping center located
in San Antonio, Texas. In 1985, the Partnership loaned KELP
$1,453,000 and in 1990 the Partnership loaned to KELP an
additional $60,000. These loans are collateralized by a second
mortgage evidenced by a deed of trust and security agreement on
North Salado I and the Collateral Pledge Agreement.
North Salado Village Shopping Center II ("North Salado II")
North Salado II is a 74,470 square foot shopping center adjacent
to North Salado I located in San Antonio, Texas. On September 12,
1985, the Partnership loaned KELP $6,000,000 collateralized by a
first mortgage evidenced by a deed of trust and security agreement
on North Salado II and the Collateral Pledge Agreement.
Continued
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
C. Mortgage Notes Receivable - Continued
Village Green Apartments ("Village Green")
Village Green is a 200-unit garden apartments complex located in
Baldwinsville, New York. On December 19, 1985 and July 9, 1986,
the Partnership loaned KELP $1,800,000 and $102,750, respectively,
collateralized by a second mortgage and security agreement on
Village Green and the Collateral Pledge Agreement.
W. Bell Plaza Shopping Center ("W. Bell")
W. Bell is a 43,400 square foot shopping center located in Oak
Lawn, Illinois, a suburb of Chicago. On June 2, 1987, the
Partnership loaned KELP $5,300,000 collateralized by a first
mortgage evidenced by a deed of trust on W. Bell and the
Collateral Pledge Agreement.
D. Krupp Equity Limited Partnership
KELP was formed on January 3, 1985 by filing a Certificate of
Limited Partnership in The Commonwealth of Massachusetts. KELP
terminates on December 31, 2005, unless earlier terminated upon
the occurrence of certain events as set forth in its partnership
agreement. KELP issued all of the General Partner Interests to
two General Partners, Krupp Corp. and Krupp Co.-III, and issued
all of the Limited Partner Interests to Krupp Co.-III. KELP
received capital contributions from the two General Partners,
Krupp Corp. and Krupp Co-III, totalling $480,000 which consisted
of $204,000 in cash and $276,000 in promissory notes. KELP also
received $6,984,086 of Limited Partner capital contributions from
Krupp Co.-III consisting of cash, the assumption of a note payable
to an affiliate in the amount of $1,550,013, and $2,514,388 in
promissory notes. These promissory notes are pledged as
additional collateral for the Participating Notes under the Master
Loan Agreement and the Collateral Pledge Agreement.
Continued
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
D. Krupp Equity Limited Partnership, Continued
The purpose of KELP is to acquire, manage, operate and sell real
estate and personal property; to borrow funds from the Partnership
and other sources to finance the acquisition, management and
operation of real estate and personal property related thereto.
Condensed financial statements of KELP are as follows:
KRUPP EQUITY LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
Property, at cost (1) $ 30,660,597 $ 38,601,268
Property valuation provision (1) (5,400,000) -
Accumulated depreciation (9,380,069) (10,404,344)
15,880,528 28,196,924
Other assets 1,047,545 534,682
Total assets $ 16,928,073 $ 28,731,606
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable to KIMF (1) $ 28,346,403 $ 28,370,355
Mortgage notes payable (1) 7,676,531 10,824,303
Notes payable to an affiliate 300,000 300,000
Note payable - 61,250
Accrued interest payable to an affiliates 8,089,139 5,824,312
Due to affiliates 669,473 669,191
Other liabilities 605,065 615,317
Total liabilities 45,686,611 46,664,728
Partners' deficit (28,758,538) (17,933,122)
Total liabilities and partners' deficit $ 16,928,073 $ 28,731,606
(1) On September 30, 1994, NOC Mall was sold to an unaffiliated
third party for $2,350,000. The net proceeds were used to make
payment on the first mortgage loan. The Partnership sold NOC
Mall after a year and a half of negotiations with the lender.
During this period, the payment to the first mortgage note
holder was reduced to the property's cash flow. The
Partnership recorded a loss on the sale and a gain for
forgiveness of debt on the first mortgage note payable which
was not paid in full.
On December 31, 1994, the General Partners of KELP determined
that the carrying value of its retail properties exceeded the
Partnerships' net realizable value resulting in charges against
earnings totalling $5,400,000 in 1994.
Continued
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
D. Krupp Equity Limited Partnership, Continued
KRUPP EQUITY LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
Revenues $ 4,320,747 $ 4,948,305 $ 5,382,100
Property operating expenses (2,074,159) (2,517,167) (2,706,361)
Operating income 2,246,588 2,431,138 2,675,739
Depreciation and amortization (1,218,383) (1,491,975) (1,665,532)
Interest (4,038,180) (4,329,468) (3,843,215)
Net loss before gain(loss)on
sale of properties, property
valuation provision, and
extraordinary gain (3,009,975) (3,390,305) (2,833,008)
Gain (loss) on sale of
properties (3,592,179) 2,297,192 -
Property valuation provision (5,400,000) - -
Net loss before extraordinary
gain (12,002,154) (1,093,113) (2,833,008)
Extraordinary gain - debt
forgiveness 1,176,738 - -
Net loss $(10,825,416) $(1,093,113) $(2,833,008)
It is expected that KELP will continue to be unable to pay its
stated debt service obligation to KIMF. The general partners of
KELP have attempted to mitigate the cash flow issues in the
following ways: 1) the general partners or the limited partner of
KELP have funded certain prior deficits through capital
contributions; 2) the general partners of KELP have arranged for
borrowings to cover certain prior deficits; 3) KELP has remitted
to the Partnership all available cash flow from the properties;
and 4) the management agent for the properties (an affiliate of
the general partners of KELP) has continued to serve even though
it is not receiving payment of property management fees. KELP
will continue to monitor expenses and implement rent increases as
market conditions permit in order to increase cash flow from the
properties.
E. Provision for Credit Losses and Accrued Interest Reserves
The General Partners of the Partnership recorded a provision for
credit losses of $4,500,000 for 1994. Previously, the Partnership
had recorded a provision of $12,024,000. The Partnership also
recorded provisions for uncollectible interest of $2,035,114 for
1994, $2,252,712 for 1993 and $1,646,859 for 1992. These
cumulative provisions are booked against the carrying value of the
assets in order to reflect management's current estimates of the
underlying property values which, given the inherent uncertainty
of real estate valuation in the current market, could differ from
the ultimate value obtained upon sale of such properties.
Continued
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
F. Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1994 and 1993 consisted
of the following:
1994 1993
Cash and money market accounts $ 130,297 $195,261
Commercial paper and certificates
of deposit 896,367 797,379
$1,026,664 $992,640
Commercial paper and certificates of deposit at December 31, 1994
represents corporate issues complying with Section 3.04 of the
Partnership Agreement maturing in the first quarter of 1995 with
yields of 5.36% to 6.03% per annum.
G. Partners' Equity
Net profits or net losses from Partnership operations, excluding
Additional Interest on the Participating Notes, shall be
determined as of the end of each fiscal year, and allocated
ninety-nine percent (99%) to the class of Limited Partners and one
percent (1%) to the class of General Partners.
Net profits, net losses and Distributable Cash from operations
allocated to the Limited Partners has been apportioned among the
Limited Partners in the ratio to which the number of Units owned
by each of them bears to the total number of Units owned by all
of them. The interest of the class of General Partners in net
profits, net losses and distributions of Distributable Cash from
Operations and Surplus Funds, as defined, has been allocated
proportionately among the General Partners according to their
respective invested capital.
Distributable Cash From Operations has been distributed
ninety-nine percent (99%) to the class of Limited Partners and one
percent (1%) to the class of General Partners. Surplus Funds
received by the Partnership, as defined in the Partnership
Agreement, are to be allocated differently than that described
above.
As of December 31, 1994, the following cumulative Partner
contributions and allocations were made since inception of the
Partnership:
Limited General
Partners Partners Total
Capital contributions $ 30,059,000 $ 4,208,560 $ 34,267,560
Syndication costs - (4,157,560) (4,157,560)
Cash distributions (14,239,897) (143,839) (14,383,736)
Net loss (2,572,416) (75,986) (2,648,402)
$ 13,246,687 $ (168,825) $ 13,077,862
Continued
KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
H. Related Party Transactions
The Partnership reimburses affiliates of the General Partners for
certain expenses incurred in connection with the distributions
made by the Partnership; communications, bookkeeping and clerical
work necessary in maintaining relations with Limited Partners and
accounting and computer services necessary for the maintenance of
the books and records of the Partnership.
I. Federal Income Taxes
The reconciliation of the net loss reported in the accompanying
statement of operations with the net income reported in the
partnership's 1994 federal income tax return is as follows:
Net loss per statement of operations $(3,600,580)
Add: Book to tax difference due to provision
for credit losses 4,500,000
Income recognized for tax not book 3,998
Net income for federal income tax purposes $ 903,418
The allocation of net income for federal income tax purposes for 1994 is as
follows:
Portfolio Portfolio
Income Expense Total
Limited Partners $1,053,507 $159,123 $894,384
General Partners 10,641 1,607 9,034
$1,064,148 $160,730 $903,418