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 June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-17690
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
June 30, December 31,
1999 1998
Participating Insured Mortgages ("PIMs")
(Note 2) $ 83,111,839 $ 98,950,663
Mortgage-Backed Securities ("MBS") (Note 3) 16,642,317 18,806,870
Total mortgage investments 99,754,156 117,757,533
Cash and cash equivalents 5,145,574 15,117,466
Interest receivable and other assets 668,020 786,165
Prepaid acquisition fees and expenses, net of
accumulated amortization of $6,485,606 and
$7,184,808, respectively 654,926 1,167,020
Prepaid participation servicing fees, net of
accumulated amortization of $1,932,201 and
$2,170,982, respectively 223,365 385,110
Total assets $ 106,446,041 $ 135,213,294
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 9,000 $ 30,794
Partners' equity (deficit):
Limited Partners 106,547,324 134,849,373
(14,956,856 Limited Partner interests
outstanding)
General Partners (340,484) (312,060)
Accumulated comprehensive income 230,201 645,187
Total Partners' equity 106,437,041 135,182,500
Total liabilities and Partners' equity $ 106,446,041 $ 135,213,294
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 Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenues:
Interest income - PIMs:
Basic interest $ 1,605,150 $ 2,173,157 $ 3,388,244 $ 4,347,434
Participation interest 22,864 38,392 945,302 69,756
Interest income - MBS 320,798 409,975 661,250 847,888
Other interest income 159,870 118,553 315,776 180,682
Total revenues 2,108,682 2,740,077 5,310,572 5,445,760
Expenses:
Asset management fee to
an affiliate 170,336 224,286 371,005 439,489
Expense reimbursements to
affiliates 29,238 (34,465) 34,170 8,771
Amortization of prepaid
fees and expenses 242,892 316,144 673,839 632,287
General and administrative
expenses 53,498 72,585 103,073 142,556
Total expenses 495,964 578,550 1,182,087 1,223,103
Net income 1,612,718 2,161,527 4,128,485 4,222,657
Other comprehensive income:
Net change in unrealized gain
on MBS (328,140) 88,476 (414,986) (98,907)
Total comprehensive income $ 1,284,578 $ 2,250,003 $ 3,713,499 $ 4,123,750
Allocation of net income
(Note 4):
Limited Partners $ 1,564,336 $ 2,096,681 $ 4,004,630 $ 4,095,977
Average net income per
Limited Partner interest
(14,956,856 Limited
Partner interests
outstanding) $ .11 $ .14 $ .27 $ .27
General Partners $ 48,382 $ 64,846 $ 123,855 $ 126,680
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
1999 1998
Operating activities:
Net income $ 4,128,485 $ 4,222,657
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 673,839 632,287
Shared appreciation income and prepayment premium (703,860) -
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 118,145 41,851
Decrease in liabilities (21,794) (104,642)
Net cash provided by operating activities 4,194,815 4,792,153
Investing activities:
Principal collections on PIMs including shared
appreciation and prepayment premium income of
$703,860 in 1999 16,542,684 525,604
Principal collections on MBS 1,749,567 2,299,086
Net cash provided by investing activities 18,292,251 2,824,690
Financing activities:
Special distributions (26,024,825) (16,751,611)
Quarterly distributions (6,434,133) (7,789,869)
Net cash used for financing activities (32,458,958) (24,541,480)
Net decrease in cash and cash equivalents (9,971,892) (16,924,637)
Cash and cash equivalents, beginning of period 15,117,466 20,480,666
Cash and cash equivalents, end of period $ 5,145,574 $ 3,556,029
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, 1998 for additional information relevant to
significant accounting policies followed by the Partnership.
In the opinion of the General Partners of the Partnership, the accompanying
unaudited financial statements reflect all adjustments (consisting primarily of
normal recurring accruals) necessary to present fairly the Partnership's
financial position as of June 30, 1999, its results of operations for the three
and six months ended June 30, 1999 and 1998 and its cash flows for the six
months ended June 30, 1999 and 1998.
The results of operations for the three and six months ended June 30, 1999 are
not necessarily indicative of the results which may be expected for the full
year. See Management's Discussion and Analysis of Financial Condition and
Results of Operations included in this report.
2. PIMs
During March 1999, the Partnership received a payoff of the Remington PIM in the
amount of $12,199,298. The payoff was the result of a default on the underlying
loan which resulted in the Partnership receiving all of the outstanding
principal balance under the insurance feature of the PIM. However, due to the
default the Partnership did not receive any participation income from this PIM.
During February 1999, the Partnership received a payoff of the Pope Building PIM
in the amount of $3,176,761. In addition, the Partnership received $703,860 of
Shared Appreciation and prepayment premium income and $218,578 of Shared Income
and Minimum Additional Interest upon the payoff of the underlying mortgage.
During May 1999, the Partnership paid a special distribution of $1.08 per
Limited Partner interest from the principal proceeds, Shared Appreciation and
prepayment premium received from Remington and the Pope Building.
During January 1999, the Partnership paid a special distribution of $.66 per
Limited Partner interest from the principal proceeds and prepayment premium
received from Cross Creek during 1998.
At June 30, 1999, the Partnership's PIM portfolio has a fair value of
$83,891,610 and gross unrealized gains of $779,771. The Partnership's PIMs have
maturities ranging from 2000 to 2032. At June 30, 1999, the Partnership's
participating insured mortgage loan was not delinquent of principal or interest.
3. MBS
As of June 30, 1999, the Partnership's MBS portfolio has an amortized cost of
$16,412,116 and gross unrealized gains of $230,201. The MBS portfolio has
maturity dates ranging from 1999 to 2024.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended
June 30, 1999 is as follows:
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
Balance at December 31, 1998 $ 134,849,373 $ (312,060) $ 645,187 $ 135,182,500
Net income 4,004,630 123,855 - 4,128,485
Quarterly distributions (6,281,854) (152,279) - (6,434,133)
Special distributions (26,024,825) - - (26,024,825)
Decrease in unrealized gain
on MBS - - (414,986) (414,986)
Balance at June 30, 1999 $ 106,547,324 $ (340,484) $ 230,201 $ 106,437,041
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.
The General Partners of the Partnership have conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the further necessary steps to understand the nature and extent of the
work required to make its systems Year 2000 ready in those situations in which
it is required to do so. The Year 2000 readiness issue concerns the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and all organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the testing
and conversion of the financial accounting operating systems in February 1998.
As a result, the General Partners have generated operating efficiencies and
believe their financial accounting operating systems are Year 2000 ready. The
General Partners of the Partnership incurred hardware costs as well as
consulting and other expenses related to the infrastructure and facilities
enhancements necessary to complete the upgrade and prepare for the Year 2000.
There are no other significant internal systems or software that the Partnership
is using at the present time.
The General Partners of the Partnership surveyed the Partnership's material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors and received assurances
that such service providers and vendors are Year 2000 ready. The Partnership
does not anticipate any problems that would materially impact its results of
operations, liquidity or capital resources. Nevertheless the General Partners
are developing contingency plans for all of their "mission-critical functions"
to insure business continuity.
The Partnership is also subject to external forces that might generally affect
industry and commerce, such as utility and transportation company Year 2000
readiness failures and related service interruptions. However, the General
Partners do not anticipate any material impact on the Partnership's results of
operations, liquidity or capital resources.
To date, the Partnership has not incurred any cost associated with being Year
2000 ready. All costs have been incurred by the General Partners and it is
estimated that any future Year 2000 readiness costs will be borne by the General
Partners.
Liquidity and Capital Resources
The most significant demand on the Partnership's liquidity are regular quarterly
distributions paid to investors of approximately $3.14 million. 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.
During January 1999, the Partnership paid a special distribution of $.66 per
Limited Partner interest from the principal proceeds and prepayment premium
received from Cross Creek during 1998.
During March 1999, the Partnership received a payoff of the Remington PIM in the
amount of $12,199,298. The payoff was the result of default on the underlying
loan which resulted in the Partnership receiving all of the outstanding
principal balance under the insurance feature of the PIM. However, due to the
default the Partnership did not receive any participation income from this PIM.
During February 1999, the Partnership received a payoff of the Pope Building PIM
in the amount of $3,176,761. In addition, the Partnership received $703,860 of
Shared Appreciation and prepayment premium income and $218,578 of Shared Income
and Minimum Additional Interest upon the payoff of the underlying mortgage.
During May 1999 the Partnership paid a special distribution of $1.08 per Limited
Partner interest from the principal proceeds, Shared Appreciation and prepayment
premium received from Remington and the Pope Building.
The General Partners estimate that the Partnership can maintain the quarterly
distribution rate of $.21 per limited partner interest through 1999. However, in
the event of further PIM prepayments the Partnership would be required to
distribute proceeds from such 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.
The participation features of the PIMs are neither insured nor guaranteed and if
repayment of a PIM results from an insurance claim, the Partnership will 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 Fannie
Mae, 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.
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.
Operations
The following discussion relates to the operations of the Partnership during the
three and six months ended June 30, 1999 and 1998.
Net income decreased by approximately $549,000 for the three months ended June
30, 1999 as compared to the corresponding period in 1998 due primarily to
prepayments of mortgage investments. Basic interest on PIMs decreased $568,000
during the second quarter of 1999 as compared to the second quarter of 1998 as a
result of the payoffs of Remington and the Pope Building during the first
quarter of 1999 and Deering Place and Cross Creek in the third quarter of 1998.
MBS interest income decreased by $89,000 in 1999 versus 1998 due to the on-going
prepayment of the Partnership's single-family MBS. Other interest income
increased by $41,000 as a result of higher average short-term investments held
during the second quarter of 1999 as compared to the same period in 1998.
Amortization of prepaid fees and expenses decreased $73,000 as the Partnership
had fully amortized the prepaid fees and expenses related to the Remington and
Pope Building in the first quarter of 1999, and the Deering Place and Cross
Creek in the third quarter of 1998. Asset management fee to an affiliate
decreased $54,000 in 1999 due to prepayments reducing the Partnership's mortgage
investments. Expense reimbursements to affiliates increased $64,000 in the
second quarter of 1999 as compared to the second quarter of 1998, due to a
refund received in 1998 reducing the 1998 expense.
Net income decreased by approximately $94,000 for the six months ended June 30,
1999 as compared to the corresponding period in 1998. Basic interest on PIMs
decreased $959,000 during the first half of 1999 versus the first half of 1998
due to the payoffs of Remington and the Pope Building in 1999 and the payoffs of
Deering Place and Cross Creek in the third quarter of 1998. MBS interest income
decreased $187,000 due to the on-going prepayment of the Partnership's
single-family MBS. The increase in participation interest on PIMs of $876,000
was due primarily to the receipt of $922,000 of participation interest from the
Pope Building payoff during the first quarter of 1999. Other interest income
increased $135,000 as a result of higher average short-term investments held
during the first half of 1999 as compared to the same period in 1998. Asset
management fee to an affiliate decreased $68,000 during 1999 as compared to 1998
due to the prepayments and principal collections reducing the Partnership's
mortgage investments. The increase in amortization expense of $42,000 was caused
by fully amortizing the remaining prepaid fees and expenses of the Pope Building
PIM in the first quarter of 1999.
The Partnership funds a portion of its 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,
basic interest on PIMs and other interest income.
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: August 5, 1999