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 September 30, 2000
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 0-17690
Krupp Insured Mortgage Limited Partnership
Massachusetts 04-3021395
(State or other jurisdiction (IRS employer identification no.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(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
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 INSURED MORTGAGE LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
September 30, December 31,
2000 1999
Participating Insured Mortgages ("PIMs")
(Note 2) $ 33,104,805 $ 51,390,092
Mortgage-Backed Securities ("MBS") (Note 3) 6,709,320 7,460,112
Total mortgage investments 39,814,125 58,850,204
Cash and cash equivalents 2,736,664 39,434,806
Interest receivable and other assets 218,293 187,363
Prepaid acquisition fees and expenses, net of
accumulated amortization of $531,296 and
$3,151,323, respectively 96,346 184,416
Prepaid participation servicing fees, net of
accumulated amortization of $169,488 and
$1,033,292, respectively 38,048 69,702
Total assets $ 42,903,476 $ 98,726,491
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 14,661 $ 19,550
Partners' equity (deficit):
Limited Partners 43,231,920 99,051,048
(14,956,796 Limited Partner interests
outstanding)
General Partners (373,864) (347,682)
Accumulated comprehensive income 30,759 3,575
Total Partners' equity 42,888,815 98,706,941
Total liabilities and Partners' equity $ 42,903,476 $ 98,726,491
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Revenues:
Interest income - PIMs:
Basic interest $ 647,524 $ 1,600,872 $ 2,275,197 $ 4,989,116
Participation interest - 51,227 941,003 996,529
Interest income - MBS 135,296 300,315 419,295 961,565
Other interest income 44,214 62,712 252,333 378,488
Total revenues 827,034 2,015,126 3,887,828 7,325,698
Expenses:
Asset management fee to
an affiliate 58,813 157,041 254,628 528,046
Expense reimbursements to
affiliates 32,685 29,238 92,566 63,408
Amortization of prepaid
fees and expenses 18,327 242,892 119,724 916,731
General and administrative
expenses 71,194 70,656 214,059 173,729
Total expenses 181,019 499,827 680,977 1,681,914
Net income 646,015 1,515,299 3,206,851 5,643,784
Other comprehensive income:
Net change in unrealized gain
on MBS 60,673 (155,590) 27,184 (570,576)
Total comprehensive income $ 706,688 $ 1,359,709 $ 3,234,035 $ 5,073,208
Allocation of net income
(Note 4):
Limited Partners $ 626,634 $ 1,469,840 $ 3,110,645 $ 5,474,470
Average net income per
Limited Partner interest
(14,956,796 Limited
Partner interests
outstanding) $ .04 $ .10 $ 0.21 $ .37
General Partners $ 19,381 $ 45,459 $ 96,206 $ 169,314
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
2000 1999
Operating activities:
Net income $ 3,206,851 $ 5,643,784
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 119,724 916,731
Shared Appreciation Interest and prepayment premium income (499,093) (703,860)
Changes in assets and liabilities:
Decrease (increase) in interest receivable and
other assets (30,930) 122,241
Decrease in liabilities (4,889) (17,294)
Net cash provided by operating activities 2,791,663 5,961,602
Investing activities:
Principal collections on PIMs including Shared
Appreciation Interest and prepayment premium income of $499,093 in
2000 and $703,860 in 1999. 18,784,380 16,767,034
Principal collections on MBS 777,976 2,435,756
Net cash provided by investing activities 19,562,356 19,202,790
Financing activities:
Quarterly distributions (5,058,129) (9,630,729)
Special distributions (53,994,032) (26,024,824)
Net cash used for financing activities (59,052,161) (35,655,553)
Net decrease in cash and cash equivalents (36,698,142) (10,491,161)
Cash and cash equivalents, beginning of period 39,434,806 15,117,466
Cash and cash equivalents, end of period $ 2,736,664 $ 4,626,305
Non cash activities:
Increase in Fair Value of MBS $ 27,184 $ (570,576)
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE 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 Mortgage 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, 1999 for additional information relevant to
significant accounting policies followed by the Partnership.
In the opinion of the General Partners, the accompanying unaudited financial
statements reflect all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the Partnership's financial position as of
September 30, 2000, its results of operations for the three and nine months
ended September 30, 2000 and 1999 and its cash flows for the nine months ended
September 30, 2000 and 1999.
The results of operations for the three and nine months ended September 30, 2000
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. PIMs
On June 2, 2000, the Partnership paid a special distribution of $.93 per Limited
Partner interest from the Bell Station and Enclave PIM payoffs along with the
Shared Appreciation Interest proceeds from the Brookside PIM (see below). On
March 30, 2000, the Partnership received $190,239 of Shared Appreciation
Interest and $5,973 of Shared Income Interest from the Bell Station PIM. During
April, the Partnership received the principal proceeds of $4,901,863 from the
Bell Station PIM. During May, the Partnership received the principal proceeds of
$8,508,892 from the Enclave PIM. The underlying first mortgage loan matured on
May 1, 2000; however, the Borrower was unable to close on his refinancing of the
property in time to payoff the loan on its maturity date. Consequently, Fannie
Mae paid off the MBS under its guarantee obligation. Subsequent to the payoff of
the MBS portion of the PIM, the Partnership received $178,854 of Shared
Appreciation Interest and $200,398 of Shared Income Interest during June.
On March 30, 2000, the Partnership paid a special distribution of $.31 per
Limited Partner interest from the principal proceeds in the amount of
$4,531,910, received from the Brookside Apartments PIM payoff in February of
2000. The underlying first mortgage loan matured on February 1, 2000; however,
the Borrower was unable to close on his refinancing of the property in time to
payoff the loan on its maturity date. Consequently, Fannie Mae paid off the MBS
under its guarantee obligation. Subsequent to the payoff of the MBS portion of
the PIM, the Partnership received $130,000 of Shared Appreciation Interest and
$176,513 of Shared Income Interest on March 28, 2000.
On January 11, 2000, the Partnership paid a special distribution of $2.37 per
Limited Partner interest from the prepayment proceeds received during December
1999 from the Salishan, Saratoga, and Marina Shores Apartments PIMs, and the
Patrician MBS. In addition to the principal proceeds from the Salishan PIM of
$14,666,235, the Partnership received $146,662 of prepayment premium income and
$311,650 of Shared Income Interest and Minimum Additional Interest. The
Partnership received $6,008,565 of principal proceeds from the Marina Shores PIM
along with $176,679 of Shared Appreciation Interest and prepayment premium
income. The principal proceeds from the Saratoga PIM and the Patrician MBS
prepayments were $6,204,895 and $7,830,263, respectively. The Partnership did
not receive any participation interest on the Saratoga prepayment.
In addition to the payoffs mentioned above, the Partnership received Shared
Income Interest of $24,233 from the Enclave PIM during February and $34,793 from
the Creekside PIM during June.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
At September 30, 2000, the Partnership's PIM portfolio has a fair market value
of $32,985,720 and gross unrealized gains and losses of $97,841 and $216,926,
respectively. The Partnership's PIMs have maturities ranging from 2024 to 2031.
3. MBS
As of September 30, 2000, the Partnership's MBS portfolio had an amortized cost
of $6,678,561 and gross unrealized gains and losses of $105,865, and $75,106,
respectively. The MBS portfolio has maturity dates ranging from 2016 to 2024.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1999 is as follows:
Accumulated Total
Limited General Comprehensive Partner's
Partners Partners Income Equity
Balance at December 31, 1999 $ 99,051,048 $ (347,682) $ 3,575 $ 98,706,941
Net income 3,110,645 96,206 - 3,206,851
Quarterly distributions (4,935,741) (122,388) - (5,058,129)
Special distributions (53,994,032) - - (53,994,032)
Change in unrealized gain
on MBS - - 27,184 27,184
Balance at September 30, 2000 $ 43,231,920 $ (373,864) $ 30,759 $ 42,888,815
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 most significant demands on the Partnership's liquidity are the regular
quarterly distributions paid to investors of approximately $900,000. Funds used
for the investor distributions are generated from interest income received on
the PIMs, MBS, cash and short-term investments and the principal collections
received on the PIMs and MBS. The Partnership funds a portion of the quarterly
distribution from principal collections causing the capital resources of the
Partnership to continually decrease. As a result of the decrease, the total cash
inflows to the Partnership will also decrease, which will result in periodic
adjustments to the distributions paid to investors. The General Partners
periodically review the distribution rate to determine whether an adjustment is
necessary based on projected future cash flows. In general, the General Partners
try to set a distribution rate that provides for level quarterly distributions.
Based on current projections the General Partners have determined that the
Partnership will pay a distribution of $.06 per Limited Partner interest per
quarter.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's PIM investments also may provide additional
income through its participation feature in the underlying properties if they
operate successfully. The Partnership may receive a share in any operating cash
flow that exceeds debt service obligations and capital needs or a share in any
appreciation in value when the properties are sold or refinanced. However, this
participation is neither guaranteed nor insured, and it is dependent upon
whether property operations or its terminal value meet certain criteria.
On June 2, 2000, the Partnership paid a special distribution of $.93 per Limited
Partner interest from the Bell Station and Enclave PIM payoffs along with the
Shared Appreciation Interest proceeds from the Brookside PIM (see below). On
March 30, 2000, the Partnership received $190,239 of Shared Appreciation
Interest and $5,973 of Shared Income Interest from the Bell Station PIM. During
April, the Partnership received the principal proceeds of $4,901,863 from the
Bell Station PIM. During May, the Partnership received the principal proceeds of
$8,508,892 from the Enclave PIM. The underlying first mortgage loan matured on
May 1, 2000; however, the Borrower was unable to close on his refinancing of the
property in time to payoff the loan on its maturity date. Consequently, Fannie
Mae paid off the MBS under its guarantee obligation. Subsequent to the payoff of
the MBS portion of the PIM, the Partnership received $178,854 of Shared
Appreciation Interest and $200,398 of Shared Income Interest.
On March 30, 2000, the Partnership paid a special distribution of $.31 per
Limited Partner interest from the principal proceeds in the amount of
$4,531,910, received from the Brookside Apartments PIM payoff in February of
2000. The underlying first mortgage loan matured on February 1, 2000; however,
the Borrower was unable to close on his refinancing of the property in time to
payoff the loan on its maturity date. Consequently, Fannie Mae paid off the MBS
under its guarantee obligation. Subsequent to the payoff of the MBS portion of
the PIM, the Partnership received $130,000 of Shared Appreciation Interest and
$176,513 of Shared Income Interest.
On January 11, 2000, the Partnership paid a special distribution of $2.37 per
Limited Partner interest from the prepayment proceeds received during December
1999 from the Salishan, Saratoga, and Marina Shores Apartments PIMs, and the
Patrician MBS. In addition to the principal proceeds from the Salishan PIM of
$14,666,235, the Partnership received $146,662 of prepayment premium income and
$311,650 of Shared Income Interest and Minimum Additional Interest. The
Partnership received $6,008,565 of principal proceeds from the Marina Shores PIM
along with $176,679 of Shared Appreciation Interest and prepayment premium
income. The principal proceeds from the Saratoga PIM and the Patrician MBS
prepayments were $6,204,895 and $7,830,263, respectively. The Partnership did
not receive any participation interest on the Saratoga prepayment.
In addition to the payoffs mentioned above, the Partnership received Shared
Income Interest of $24,233 from the Enclave PIM during February and $34,793 from
the Creekside PIM during June.
Due to poor operating performance, the General Partners are closely monitoring
the Wildflower Apartments PIM property which is located in the Las Vegas market.
Wildflower has suffered a dramatic decline in occupancy to the mid-80% range at
year-end that is not representative of the rest of the market. Wildflower does
not compete successfully with the newer apartment properties, which have
extensive amenity packages to attract new residents.
The Partnership's only other remaining PIM investments are backed by the
underlying first mortgage loans on Creekside and Richmond Park. Creekside,
located in the Portland, Oregon area, continues to operate successfully with
occupancy in the mid 90% range. The remaining property, Richmond Park, maintains
its position in a stable, older Cleveland suburb. Occupancy generally hovers in
the low 90% range, but because the neighborhood does not support significant
rental rate increases, the property only generates sufficient cash flow for
adequate maintenance and not enough to provide for major capital improvements.
The Partnership does not expect to receive any more participation interest
during 2000 from the remaining operating properties.
During the first five years, borrowers are prohibited from prepaying the first
mortgage loans underlying the PIMs. During the second five years, borrowers may
prepay the loans by incurring a prepayment penalty. The Partnership has the
option to call certain PIMs by accelerating their maturity if they are not
prepaid by the tenth year after permanent funding. The Partnership will
determine the merits of exercising the call option for each PIM as economic
conditions warrant. Such factors as the condition of the asset, local market
conditions, the interest rate environment and availability of financing will
affect those decisions.
Results of Operations
The following discussion relates to the operation of the Partnership during the
three and nine months ended September 30, 2000 and 1999.
Net income decreased by $869,000 during the three months ended September 30,
2000 compared to the same period in 1999. The decrease is primarily due to the
decrease in PIM basic interest which resulted from the payoffs of the Enclave,
Bell Station, Brookside, Salishan, Saratoga, Marina Shores and Valley Manor
PIMs. The decrease in MBS interest income is primarily due to the payoff of the
Patrician MBS.
Net income decreased by $2,437,000 during the nine months ended September 30,
2000 compared to the same period in 1999. The decrease is primarily due to the
decrease in PIM basic interest as a result of the payoff's of the Remington and
Pope Building PIMs in addition to the PIMs mentioned above. The decrease in MBS
interest income is primarily due to the payoff of the Patrician MBS.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by the
Government National Mortgage Association ("GNMA"), Fannie Mae, the Federal Home
Loan Mortgage Corporation ("FHLMC") or the United States 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.
Fannie Mae 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 represent interests 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.
The Partnership includes in cash and cash equivalents approximately $2.4 million
of commercial paper, which is issued by entities with a credit rating equal to
one of the top two rating categories of a nationally recognized statistical
rating organization.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
September 30, 2000, the Partnerships PIMs and MBS comprise the majority of the
Partnership's assets. As such, decreases in interest rates may accelerate the
prepayment of the Partnership's investments. The Partnership does not utilize
any derivatives or other instruments to manage this risk as the Partnership
plans to hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the Partnership forecasts prepayments based on trends in
similar securities as reported by statistical reporting entities such as
Bloomberg. For PIMs, the Partnership incorporates prepayment assumptions into
planning as individual properties notify the Partnership of the intent to prepay
or as they mature.
KRUPP INSURED MORTGAGE 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 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 Insured Mortgage Limited Partnership
(Registrant)
BY: / s / Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer of
Krupp Plus Corporation, a General Partner
DATE: November 3, 2000