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 September 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
September 30, December 31,
1999 1998
Participating Insured Mortgages ("PIMs")
(Note 2) $ 82,887,489 $ 98,950,663
Mortgage-Backed Securities ("MBS") (Note 3) 15,800,538 18,806,870
Total mortgage investments 98,688,027 117,757,533
Cash and cash equivalents 4,626,305 15,117,466
Interest receivable and other assets 663,924 786,165
Prepaid acquisition fees and expenses, net of
accumulated amortization of $ 6,670,991 and
$ 7,184,808, respectively 469,542 1,167,020
Prepaid participation servicing fees, net of
accumulated amortization of $ 1,989,708 and
$ 2,170,982, respectively 165,857 385,110
Total assets $ 104,613,655 $ 135,213,294
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 13,500 $ 30,794
Partners' equity (deficit):
Limited Partners 104,876,238 134,849,373
(14,956,856 Limited Partner interests
outstanding)
General Partners (350,694) (312,060)
Accumulated comprehensive income 74,611 645,187
Total Partners' equity 104,600,155 135,182,500
Total liabilities and Partners' equity $ 104,613,655 $ 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 Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Revenues:
Interest income - PIMs:
Basic interest $ 1,600,872 $ 2,132,668 $ 4,989,116 $ 6,480,102
Participation interest 51,227 429,504 996,529 499,260
Interest income - MBS 300,315 386,113 961,565 1,234,001
Other interest income 62,712 66,988 378,488 247,670
Total revenues 2,015,126 3,015,273 7,325,698 8,461,033
Expenses:
Asset management fee to
an affiliate 157,041 222,825 528,046 662,314
Expense reimbursements to
affiliates 29,238 24,810 63,408 33,581
Amortization of prepaid
fees and expenses 242,892 406,173 916,731 1,038,460
General and administrative
expenses 70,656 37,465 173,729 180,021
Total expenses 499,827 691,273 1,681,914 1,914,376
Net income 1,515,299 2,324,000 5,643,784 6,546,657
Other comprehensive income:
Net change in unrealized gain
on MBS (155,590) 232,671 (570,576) 133,764
Total comprehensive income $ 1,359,709 $ 2,556,671 $ 5,073,208 $ 6,680,421
Allocation of net income
(Note 4):
Limited Partners $ 1,469,840 $ 2,254,280 $ 5,474,470 $ 6,350,257
Average net income per
Limited Partner interest
(14,956,856 Limited
Partner interests
outstanding) $ .10 $ .15 $ .37 $ .42
General Partners $ 45,459 $ 69,720 $ 169,314 $ 196,400
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,
1999 1998
Operating activities:
Net income $ 5,643,784 $ 6,546,657
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 916,731 1,038,460
Shared appreciation income and prepayment premium (703,860) (268,638)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 122,241 68,212
Decrease in liabilities (17,294) (97,433)
Net cash provided by operating activities 5,961,602 7,287,258
Investing activities:
Principal collections on PIMs including shared
appreciation and prepayment premium income of $703,860 in 1999
and $268,638 in 1998. 16,767,034 4,695,644
Principal collections on MBS 2,435,756 3,571,624
Net cash provided by investing activities 19,202,790 8,267,268
Financing activities:
Quarterly distributions (9,630,729) (11,005,126)
Special distributions (26,024,824) (20,789,946)
Net cash used for financing activities (35,655,553) (31,795,072)
Net decrease in cash and cash equivalents (10,491,161) (16,240,546)
Cash and cash equivalents, beginning of period 15,117,466 20,480,666
Cash and cash equivalents, end of period $ 4,626,305 $ 4,240,120
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, 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, 1999, its results of operations for the three and
nine months ended September 30, 1999 and 1998 and its cash flows for the nine
months ended September 30, 1999 and 1998.
The results of operations for the three and nine months ended September 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 proceeds received from the Remington and Pope Building PIMs.
During January 1999, the Partnership paid a special distribution of $.66
per Limited Partner interest from the principal proceeds and prepayment premium
received from the Cross Creek PIM during 1998.
At September 30, 1999, the Partnership's PIM portfolio had a fair value of
$83,576,850 and gross unrealized gains of $689,361. The Partnership's PIMs have
maturities ranging from 2000 to 2032. At September 30, 1999 the Partnership's
participating insured mortgage loan was not delinquent of principal or interest.
3. MBS
As of September 30, 1999, the Partnership's MBS portfolio had an amortized
cost of $15,725,927 and gross unrealized gains and losses of $198,304, and
$123,693, respectively. 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 nine months ended
September 30, 1999 is as follows:
Accumulated Total
Limited General Comprehensive Partner's
Partners Partners Income Equity
Balance at December 31, 1998 $ 134,849,373 $ (312,060) $ 645,187 $ 135,182,500
Net income 5,474,470 169,314 - 5,643,784
Quarterly distributions (9,422,781) (207,948) - (9,630,729)
Special distributions (26,024,824) - - (26,024,824)
Decrease in unrealized gain
on MBS - - (570,576) (570,576)
Balance at September 30, 1999 $ 104,876,238 $ (350,694) $ 74,611 $ 104,600,155
5. Subsequent Event
Valley Manor Apartments PIM
The Partnership received a repayment of the Valley Manor PIM in October of
$4,425,993. The Partnership will not receive any additional interest from this
prepayment because the underlying property's appraised value did not exceed the
threshold required to realize additional interest. The Partnership plans on
making a fourth quarter distribution of $.30 per Limited Partner Interest.
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.
Impact of the Year 2000 Issue
The General Partners have conducted an assessment of the Partnership's core
internal and external computer information systems and have taken the necessary
steps to further 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, 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
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 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 incurred $13,778 of costs associated with
being Year 2000 ready. The Partnership does not expect to incur any additional
Year 2000 readiness costs.
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 the Cross Creek PIM 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 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.
In October 1999 the Partnership received a repayment of the Valley Manor
Apartments PIM of $4,425,993. The Partnership will not receive any Additional
Interest as a result of this prepayment because the underlying property's
appraised value did not exceed the threshold required to realize additional
interest. The Partnership plans on making a fourth quarter distribution of $.30
per Limited Partner Interest.
The General Partners estimate that the Partnership can maintain the
quarterly distribution rate of $.21 per Limited Partner Interest through
February 2000. 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.
Results of Operations
The following discussion relates to the operations of the Partnership
during the three and nine months ended September 30, 1999 and 1998.
Net income decreased by approximately $809,000 for the three months ended
September 30, 1999 as compared to the corresponding period in 1998 due primarily
to prepayments of mortgage investments and a decrease in participation interest.
Basic interest on PIMs decreased $532,000 during the third quarter of 1999 as
compared to the third quarter of 1998 as a result of the payoffs of Remington
and Pope Building PIMs during the first quarter of 1999 and the Deering Place
PIM and the Cross Creek PIM in the third and fourth quarters of 1998,
respectively. Participation interest was higher in the third quarter of 1998 as
compared to 1999 due to the receipt of $359,000 in Shared Appeciation income and
Minimum Additional interest from the Deering Place PIM payoff during the third
quarter of 1998. MBS interest income decreased by $86,000 in 1999 versus 1998
due to the on-going prepayment of the Partnership's single-family MBS.
Amortization of prepaid fees and expenses decreased $163,000 as the Partnership
had fully amortized the prepaid fees and expenses related to the Remington and
Pope Building PIMs in the first quarter of 1999, and the Deering Place and Cross
Creek PIMs in the third and fourth quarters of 1998, respectively. Asset
management fees to an affiliate decreased $66,000 in 1999 due to prepayments
reducing the Partnership's mortgage investments.
Net income decreased by approximately $903,000 for the nine months ended
September 30, 1999 as compared to the corresponding period in 1998. Basic
interest on PIMs decreased $1,491,000 for the nine months ended September 1999
versus the same period in 1998 due to the payoffs of the Remington and Pope
Building PIMs in 1999 and the payoffs of the Deering Place and Cross Creek PIMs
in the third quarter of 1998. MBS interest income decreased $272,000 due to the
on-going prepayment of the Partnership's single-family MBS. The increase in
participation interest on PIMs of $497,000 was due primarily to the receipt of
$922,000 of participation interest from the Pope Building payoff during the
first quarter of 1999 as compared to the $359,000 received in 1998 from the
Deering Place PIM payoff. Also, asset management fees decreased $134,000 during
1999 as compared to 1998 due to the prepayments and principal collections
reducing the Partnership's mortgage investments. Amortization expense decreased
by $122,000 as a result of fully amortizing the remaining prepaid fees and
expenses of the Deering Place and Cross Creek PIMs and the Patrician
multi-family MBS in 1998.
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, interest income to the Partnership will decline.
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: October 29, 1999