UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-17690
Krupp Insured Mortgage Limited Partnership
Massachusetts 04-3021395
(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
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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
March 31, December 31,
1998 1997
Participating Insured Mortgages ("PIMs")
(Note 2) $112,791,572 $113,051,723
Mortgage-Backed Securities ("MBS")(Note 3) 22,545,784 23,700,858
Total mortgage investments 135,337,356 136,752,581
Cash and cash equivalents 2,703,688 20,480,666
Interest receivable and other assets 893,764 936,883
Prepaid acquisition fees and expenses, net of
accumulated amortization of $7,184,449 and
$6,944,814, respectively 2,153,638 2,393,273
Prepaid participation servicing fees, net of
accumulated amortization of $2,369,542 and
$2,293,034, respectively 718,379 794,887
Total assets $141,806,825 $161,358,290
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 24,988 $ 120,966
Partners' equity (deficit):
Limited Partners 141,482,650 160,722,004
(14,956,896 Limited Partner interests
outstanding)
General Partners (303,735) (274,985)
Unrealized gain on MBS 602,922 790,305
Total Partners' equity 141,781,837 161,237,324
Total liabilities and partners' equity $141,806,825 $161,358,290
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The accompanying notes are an integral
part of the financial statements.
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KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Three Months
Ended March 31,
1998 1997
Revenues:
Interest income - PIMs:
Base interest $2,174,277 $3,003,906
Participation interest 31,364 743,634
Interest income - MBS 437,913 340,376
Other interest income 62,129 125,585
Total revenues 2,705,683 4,213,501
Expenses:
Asset management fee to an affiliate 215,203 284,360
Expense reimbursements to affiliates 43,236 35,105
Amortization of prepaid fees and
expenses 316,143 827,672
General and administrative expenses 69,971 107,926
Total expenses 644,553 1,255,063
Net income $2,061,130 $2,958,438
Allocation of net income (Note 4):
Limited Partners $1,999,296 $2,869,685
Average net income per Limited Partner
interest (14,956,896 Limited Partner
interests outstanding) $ .13 $ .19
General Partners $ 61,834 $ 88,753
The accompanying notes are an integral
part of the financial statements.
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KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
1998 1997
Operating activities:
Net income $ 2,061,130 $ 2,958,438
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 316,143 827,672
Shared appreciation income - (652,453)
Changes in assets and liabilities:
Decrease in interest receivable and other assets 43,119 92,888
Decrease in liabilities (95,978) (13,310)
Net cash provided by operating activities 2,324,414 3,213,235
Investing activities:
Principal collections on PIMs including shared
appreciation income of $652,453 in 1997 260,151 12,116,911
Principal collections on MBS 967,691 425,680
Net cash provided by investing activities 1,227,842 12,542,591
Financing activities:
Quarterly distributions (4,577,623) (4,589,169)
Special distributions (16,751,611) (11,217,597)
Net cash used for financing activities (21,329,234) (15,806,766)
Net decrease in cash and cash equivalents (17,776,978) (50,940)
Cash and cash equivalents, beginning of period 20,480,666 6,057,077
Cash and cash equivalents, end of period $ 2,703,688 $ 6,006,137
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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 this information
presented not misleading. See Notes to Financial Statements included in the
Partnership's Form 10-K for the year ended December 31, 1997 for additional
information relevant to significant accounting policies followed by the
Partnership.
In the opinion of the General Partners of the Partnership, the accompanying
unaudited financial statements reflect all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the Partnership's
financial position as of March 31, 1998, and its results of operations and
cash flows for the three months ended March 31, 1998 and 1997.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results which may be expected for the full year.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this report.
2. PIMs
At March 31, 1998, the Partnership=s PIM portfolio has a fair value of
$115,381,511 and gross unrealized gains of $2,589,939. The Partnerships PIMs
have maturities ranging from 1999 to 2032. At March 31,1998 there are no
insured mortgage loans within the Trust s portfolio that are delinquent of
principal or interest.
During January 1998, the Partnership made a $1.12 per unit special
distribution with the prepayment proceeds of the Paddock Club and Southland
Station PIMs that were received during the fourth quarter of 1997.
3. MBS
As of March 31,1998,the Partnerships MBS portfolio has an amortized cost of
$21,942,862 and gross unrealized gains and losses of $610,887 and $7,965
respectively. The MBS portfolio has maturity dates ranging from 1999 to 2024.
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KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the three months ended March 31,
1998 is as follows:
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at December 31, 1997$160,722,004 $(274,985) $ 790,305 $161,237,324
Net income 1,999,296 61,834 - 2,061,130
Quarterly distributions (4,487,039) (90,584) - (4,577,623)
Special distributions (16,751,611) - - (16,751,611)
Decrease in unrealized gain
on MBS - - (187,383) (187,383)
Balance at March 31, 1998 $141,482,650 $(303,735) $ 602,922 $141,781,837
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Managements 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 demand on the Partnership's liquidity are quarterly
distributions paid to investors. Effective with the May 1998 distribution
the quarterly distribution will be $.21 per unit or approximately
$3.14 million per quarter. Funds used for 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 this 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 to the distribution rate 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 of cash available for distribution. To
the extent quarterly distributions differ from the cash available for
distribution, the General Partners may adjust the distribution rate or
distribute funds through a special distribution.
The first mortgage loan underlying the PIM on Remington Place Apartments
went into default in November 1997. However, the Partnership will continue
to receive its full principal and interest payments until the default is
worked out because GNMA has guaranteed those payments to the Partnership.
The borrower and the first mortgage lender are attempting to obtain through
HUD a modification to the mortgage that will change substantially the terms
of the borrower s mortgage obligations. If they are successful,the Partnership
will receive a prepayment of the outstanding principal balance due on the PIM
but will not receive any participation interest.
The borrower on the Deering Place PIM has informed the Partnership that
there is a possibility that the property could be refinanced during 1998.
If such a transaction takes place, the Partnership would receive any
Additional Interest that would be due as well as a prepayment of the
outstanding principal balance due on the PIM.
During January 1998, the Partnership made a $1.12 per unit special
distribution with the prepayment proceeds of the Paddock Club and
Southland Station PIMs that were received during the fourth quarter of 1997.
The General Partners estimate that the Partnership can maintain the quarterly
distribution rate of $.21 per limited partner interest for the near future.
However,in the event of further PIM prepayments the Partnership would be
required to distribute any proceeds from the prepayments as a special
distribution which may cause an adjustment to the distribution rate to reflect
the anticipated future cash inflows from the remaining mortgage investments.
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The participation features of the PIMs are neither insured nor guaranteed
and if repayment of a PIM results from an insurance claim the Partnership
would not receive any participation interest. The Partnership has the
option to call certain PIMs by accelerating their maturity if the loans
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, interest rates and available financing
will have an impact on this decision.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by
the Federal National Mortgage Association ("FNMA"), the Government National
Mortgage Association("GNMA"), the 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 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.
Operations
The following discussion relates to the operations of the Partnership during
the three months ended March 31, 1998 and 1997.
Net income decreased approximately $897,000 for the first three months ended
March 31,1998 as compared to the same period in 1997, due primarily to lower
interest income on PIMs and other interest income, which was somewhat
offset by lower amortization and general and administrative expenses. PIM
interest income was lower primarily due to the prepayments of the Rock Creek
Silver Springs, Hampton Ridge, Southland Station and
Paddock Club PIM s during 1997. The Partnership had recognized approximately
$729,000 of participation income in connection with the Silver Springs and
Hampton Ridge PIM s during the first quarter of 1997. A decrease in
PIM interest income and a corresponding increase in MBS interest income
was caused by the Patrician PIM converting to a non-participating insured
mortgage during the second quarter of 1997.
Other interest income also decreased due to the Partnership having lower
average short-term investment balances during the first quarter of 1998 when
compared to the corresponding period in 1997. Amortization expense decreased
approximately $512,000 as a result of fully amortizing the costs associated
with the PIM s that were prepaid in 1997. The general and administrative
expense decrease was primarily due to lower transfer agent costs of
approximately $29,000 for the three months ended March 31, 1998 as compared
to the same period in 1997.
Interest income on PIMs and MBS will continue to decline as principal
collections reduce the outstanding balance of the portfolios. The
Partnership funds a portion of distributions with MBS and PIM principal
collections, which reduces the invested assets generating income for the
Partnership. As the invested assets decline so will interest income on MBS,
base interest income on PIMs and other interest income
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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
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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: April 23, 1998.
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