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 THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 0-17691
Krupp Insured Plus-III Limited Partnership
Massachusetts 0 4 - 3007489
(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
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
Participating Insured Mortgages ("PIMs") $151,763,217 $152,438,036
Mortgage-Backed Securities and insured
mortgages ("MBS") (Note 2) 35,957,215 36,259,855
Total mortgage investments 187,720,432 188,697,891
Cash and cash equivalents 3,217,139 3,257,180
Interest receivable and other assets 1,963,833 2,088,083
Prepaid acquisition expenses, net of
accumulated amortization of $5,799,850 and
$4,926,364, respectively 6,531,213 7,404,699
Prepaid participation servicing fees, net of
accumulated amortization of $1,969,753 and
$1,626,410, respectively 2,116,779 2,460,122
Total assets $201,549,396 $203,907,975
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 18,545 $ 24,886
Partners' equity (deficit) (Note 3):
Limited Partners
(12,770,261 Limited Partner interests
outstanding) 201,616,485 203,934,646
General Partners (85,634) (51,557)
Total Partners' equity 201,530,851 203,883,089
Total liabilities and Partners' equity $201,549,396 $203,907,975
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Revenues:
Interest income - PIMs
Base interest $3,007,345 $2,804,421 $ 9,146,674 $ 9,043,827
Participation interest 84,476 32,856 519,553 234,561
Interest income - MBS 754,076 881,154 2,198,378 1,905,039
Interest income - other 49,014 109,412 149,347 374,697
Total revenues 3,894,911 3,827,843 12,013,952 11,558,124
Expenses:
Asset management fee
to an affiliate 355,579 356,866 1,058,696 1,055,796
Expense reimbursements to
affiliates 51,402 106,316 152,318 318,946
Amortization of prepaid expenses
and fees 405,610 385,466 1,216,829 1,165,604
General and administrative 47,542 24,677 127,365 106,123
Total expenses 860,133 873,325 2,555,208 2,646,469
Net income $3,034,778 $2,954,518 $ 9,458,744 $ 8,911,655
Allocation of net income (Note 3):
Limited Partners $2,943,735 $2,865,882 $ 9,174,982 $ 8,644,305
Average net income per Limited
Partner interest
(12,770,261 Limited Partner
interests outstanding) $ .23 $ .23 $ .72 $ .68
General Partners $ 91,043 $ 88,636 $ 283,762 $ 267,350
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
1995 1994
Operating activities:
Net income $ 9,458,744 $ 8,911,655
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 1,216,829 1,165,604
Changes in assets and liabilities:
Decrease (increase) in interest receivable
and other assets 124,250 (129,757)
(Decrease) increase in liabilities (6,341) 9,240
Net cash provided by operating activities 10,793,482 9,956,742
Investing activities:
Principal collections on MBS 1,330,207 4,654,391
Principal collections on PIMs 674,819 578,085
Investment in MBS (1,027,567) (9,831,057)
Net cash provided by (used for)
investing activities 977,459 (4,598,581)
Financing activity:
Distributions (11,810,982) (16,242,415)
Net decrease in cash and cash equivalents (40,041) (10,884,254)
Cash and cash equivalents, beginning of period 3,257,180 16,853,047
Cash and cash equivalents, end of period $ 3,217,139 $ 5,968,793
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO 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. However, in the opinion of the general Partners,
Krupp Plus Corporation and Mortgage Services Partners Limited
Partnership, (collectively the "General Partners") of Krupp Insured
Plus-III Limited Partnership (the "Partnership"), the disclosures
contained in this report are adequate to make the information
presented not misleading. See Notes to Financial Statements included
in the Partnership's Form 10-K for the year ended December 31, 1994
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 financial statements reflect all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the Partnership's financial position as of September 30, 1995,
its results of operations for the three and nine months ended
September 30, 1995 and 1994 and its cash flows for the nine months
ended September 30, 1995 and 1994.
The results of operations for the three and nine months ended
September 30, 1995 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. MBS
At September 30, 1995, the Partnership's MBS portfolio has a market
value of approximately $35,930,000 and unrealized gains and losses of
$677,000 and $704,000, respectively, and maturity dates ranging from
2010 to 2033.
On August 14, 1995, the Partnership's remaining construction phase MBS
which had an interest rate of 8.125% per annum, reached final
endorsement and was converted to a permanent MBS providing for monthly
payments of principal and interest at the rate of 7.375% per annum.
3. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1995 is as follows:
Limited General Partners'
Partners Partners Equity
Balance at December 31, 1994 $203,934,646 $(51,557) $203,883,089
Net income 9,174,982 283,762 9,458,744
Distributions (11,493,143) (317,839) (11,810,982)
Balance at September 30, 1995 $201,616,485 $(85,634) $201,530,851
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The most significant demand on the Partnership's liquidity are
quarterly distributions paid to investors of approximately $3.8 million.
Funds used for investor distributions come from interest income received on
the PIMs, MBS, cash and cash equivalents net of operating expenses, and the
principal collections received on the PIMs and MBS. The Partnership funds
a portion of the distribution from principal collections, as a result, the
capital resources of the Partnership will continually decrease. As a
result of this, the total cash inflows to the Partnership will also
decrease which will result in periodic adjustments to the quarterly
distributions paid to investors. Based on current projections, the General
Partners believe the Partnership can maintain the current distribution rate
both on a short and long term basis unless there is a PIM prepayment or
repayment.
The Federal National Mortgage Association ("FNMA") is currently
negotiating a loan workout with the underlying borrower of the Royal Palm
Place Apartments PIM, which has a current face value of $15.6 million.
Should the negotiations be unsuccessful FNMA would foreclose on the
property and repay the Partnership the outstanding balance of the PIM. The
Partnership would then distribute the proceeds to the Limited Partners as a
special distribution.
If the Partnership receives a repayment of the Royal Palm PIM it
would reduce the asset base of the Partnership and future cash inflows from
operating activities, so the Partnership would need to adjust the current
distribution rate to reflect these lower cash inflows. Also, a repayment
of the Royal Palm PIM as a result of a foreclosure would eliminate any
future collection of additional interest related to the participation
features by the Partnership. At this time, the General Partners cannot
determine if the PIM will be restructured or paid off.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or
insured by FNMA, Government National Mortgage Association ("GNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC") and the Department of Housing and
Urban Development ("HUD") and therefore the certainty of their cash flows
and the risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
FNMA is a federally-chartered private corporation that
guarantees obligations originated under its programs. FHLMC is a
federally-chartered corporation that guarantees obligations originated
under its programs and is wholly-owned by the twelve Federal Home Loan
Banks. These obligations are not guaranteed by the U.S. Government or the
Federal Home Loan Bank Board. GNMA guarantees the full and timely payment
of principal and basic interest on the securities it issues, which
represents interest in pooled mortgages insured by HUD. Obligations
insured by HUD, an agency of the U.S. Government, are backed by the full
faith and credit of the U.S. Government.
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions
Shown below is the calculation of Distributable Cash Flow and
Net Cash Proceeds from Capital Transactions as defined in Section 17 of the
Partnership Agreement and the source of cash distributions for the nine
months ended September 30, 1995 and the period from inception to September
30, 1995. The General Partners provide certain of the information below to
meet requirements of the Partnership Agreement and because they believe
that it is an appropriate supplemental measure of operating performance.
However, Distributable Cash Flow and Net Cash Proceeds from Capital
Transactions should not be considered by the reader as a substitute to net
income as an indicator of the Partnership's operating performance or to
cash flows as a measure of liquidity.
(amounts in thousands, except
per unit amounts).
Nine Months Ended Inception to
September 30, 1995 September 30, 1995
Distributable Cash Flow:
Income for tax purposes $ 9,966 $ 93,991
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid expenses, fees
and organization costs 710 5,891
Acquisition expenses paid from
offering proceeds charged to operations - 184
Shared appreciation income - (800)
Gain on sale of MBS - (253)
Total Distributable Cash Flow ("DCF") $10,676 $ 99,013
Limited Partners Share of DCF $10,356 $ 96,043
Limited Partners Share of DCF per Unit $ .81 $ 7.52 (b)
General Partners Share of DCF $ 320 $ 2,970
Net Proceeds from Capital Transactions:
Principal collection and prepayments
(including Shared Appreciation Income)
on PIMs $ 675 $ 17,541
Principal collections and sales proceeds
on MBS (including gain on sale) 1,330 60,008
Reinvestment of MBS and PIM principal
collections (1,028) (41,960)
MBS and PIM principal collections or
prepayment (reserved for reinvestment)
released from reserve 1,030 -
Total Net Proceeds from Capital Transactions $ 2,007 $ 35,589
Cash available for distribution $12,683 $134,602
(DCF plus proceeds from Capital transactions)
Distributions:
Limited Partners $11,494 (a) $130,930 (a)
Limited Partners Average per Unit $ .90 (a) $ 10.25 (a)(b)
General Partners $ 321 (a) $ 2,971 (a)
Total Distributions $11,815 $133,901
(a) Includes an estimate of the distribution to be paid in November 1995.
(b) Limited Partners average per Unit return of capital as of November 1995
is $2.73 [$10.25 - $7.52]. Return of capital represents that portion
of distributions which is not funded from DCF such as proceeds from the
sale of assets and substantially all of the principal collections
received from MBS and PIMs.
Operations
Net income consisted of the following during the three and nine months
ended September 30, 1995 and 1994 (amounts in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
Interest income on PIMs:
Base interest $3,008 $2,805 $ 9,147 $ 9,044
Participation interest 85 33 520 235
Interest income on MBS 754 881 2,198 1,905
Interest income - other 49 110 149 375
Partnership expenses (455) (488) (1,338) (1,481)
Distributable Cash Flow 3,441 3,341 10,676 10,078
Amortization of prepaid fees
and expenses (406) (386) (1,217) (1,166)
Net income $3,035 $2,955 $ 9,459 $ 8,912
Net income increased for the nine months ended September 30, 1995 as
compared to the nine months ended September 30, 1994 due primarily to
increases in participation interest income and interest income on MBS.
Participation income from PIMs increased because more properties were able
to generate sufficient cash flow to pay participation interest due to
improvements in operating performance. Future receipts of participation
interest will depend on whether the underlying properties continue to
experience improvements in operating performance. Interest income on MBS
increased due to the fundings of the construction phase MBS which achieved
final endorsement in August 1995.
Net income did not change materially during the third quarter of 1995 as
compared to the third quarter of 1994.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote 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 Insured Plus-III Limited Partnership
(Registrant)
BY: /s/Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer
of Krupp Plus Corporation, a General
Partner.
DATE: October 24, 1995